Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.xYESoNO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).xYESoNO

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

oLarge Accelerated FilerxAccelerated FileroNon-Accelerated FileroSmaller Reporting Company

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

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

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

The number of shares of the registrant's Common Stock outstanding on ~~April 30,~~October 31, 2017 was ~~24,654,711.~~29,643,990.

Part I of this report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Further, forward-looking statements are intended to speak only as of the date made. Such statements are often characterized by the use of qualifying words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” or other statements concerning our opinions or judgment about future events. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of our customers, our level of success in integrating acquisitions, actions of government regulators, the level of market interest rates, and general economic conditions. For additional information about factors that could affect the matters discussed in this paragraph, see the “Risk Factors” section of our 2016 Annual Report on Form 10-K.

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First Bancorp and Subsidiaries

Consolidated Statements of Cash Flows

Three Months Ended
March 31,
($ in thousands-unaudited) 2017 2016
Cash Flows From Operating Activities
Net income $ 7,555 6,837
Reconciliation of net income to net cash provided by operating activities:
     Provision for loan losses 723 258
     Net security premium amortization 232 680
     Loan discount accretion (1,360 ) (1,055 )
     Purchase accounting accretion and amortization, net (48 ) 2,091
     Foreclosed property (gains) losses and write-downs, net (25 ) (210 )
     Loss (gain) on securities available for sale 235 (3 )
     Other losses (gains) (234 ) 177
     Decrease (increase) in net deferred loan fees 655 (385 )
     Depreciation of premises and equipment 1,300 1,120
     Stock-based compensation expense 178 123
     Amortization of intangible assets 576 186
     Fees/gains from sale of presold mortgages and SBA loans (1,390 ) (371 )
     Origination of presold mortgages and SBA loans (48,840 ) (13,988 )
     Proceeds from sales of presold mortgages and SBA loans 45,454 15,601
     Decrease in accrued interest receivable 279 180
     Decrease in other assets 3,741 11,405
     Decrease in accrued interest payable (112 ) (31 )
     Decrease in other liabilities (8,257 ) (2,762 )
          Net cash provided by operating activities 662 19,853

Cash Flows From Investing Activities
     Purchases of securities available for sale (29,313 ) (99,896 )
     Proceeds from maturities/issuer calls of securities available for sale 6,632 18,852
     Proceeds from maturities/issuer calls of securities held to maturity 7,357 5,772
     Proceeds from sales of securities available for sale 35,333 8
     Proceeds from sales of securities held to maturity 11,285 —
     Purchases of Federal Reserve and Federal Home Loan Bank stock, net (3,766 ) (138 )
     Net increase in loans (81,048 ) (23,170 )
     Payments related to FDIC loss share agreements — (356 )
     Proceeds from sales of foreclosed real estate 1,818 1,858
     Purchases of premises and equipment (873 ) (925 )
     Proceeds from sales of premises and equipment — 21
     Net cash received (paid) in acquisition 56,185 (1,580 )
          Net cash provided (used) by investing activities 3,610 (99,554 )

Cash Flows From Financing Activities
     Net increase in deposits 96,519 15,536
     Cash dividends paid – common stock (1,669 ) (1,578 )
     Cash dividends paid – preferred stock — (58 )
     Proceeds from stock option exercises 45 127
          Net cash provided by financing activities 94,895 14,027

Increase (decrease) in cash and cash equivalents 99,167 (65,674 )
Cash and cash equivalents, beginning of period 305,993 267,268

Cash and cash equivalents, end of period $ 405,160 201,594

Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during the period for:
     Interest $ 2,020 1,899
     Income taxes (1,495 ) (4,305 )
Non-cash transactions:
     Unrealized gain (loss) on securities available for sale, net of taxes 854 496
     Foreclosed loans transferred to other real estate 1,968 1,990

	Nine Months Ended September 30,
($ in thousands-unaudited)	2017			2016
Cash Flows From Operating Activities
Net income	$	31,795			19,154
Reconciliation of net income to net cash provided (used) by operating activities:
Provision (reversal) for loan losses		723			(23	)
Net security premium amortization		2,165			2,418
Loan discount accretion		(5,073	)		(3,553	)
Purchase accounting accretion and amortization, net		(142	)		9,993
Foreclosed property losses and write-downs (gains), net		439			189
Loss (gain) on securities available for sale, net		235			(3	)
Other losses (gains), net		(493	)		126
Decrease (increase) in net deferred loan costs		388			675
Depreciation of premises and equipment		4,023			3,405
Stock-based compensation expense		860			527
Amortization of intangible assets		2,509			834
Fees/gains from sale of presold mortgage and SBA loans		(7,362	)		(2,185	)
Origination of presold mortgages in process of settlement		(169,021	)		(56,260	)
Proceeds from sales of presold mortgages in process of settlement		165,341			58,015
Origination of SBA loans		(54,714	)		(8,471	)
Proceeds from sales of SBA loans		44,259			9,165
Gain on sale of branches		—			(1,356	)
Decrease (increase) in accrued interest receivable		(642	)		381
Increase in other assets		(13,112	)		(1,530	)
Increase (decrease) in accrued interest payable		340			(20	)
Increase (decrease) in other liabilities		(12,377	)		185
Net cash provided (used) by operating activities		(9,859	)		31,666

Cash Flows From Investing Activities
Purchases of securities available for sale		(35,034	)		(99,896	)
Purchases of securities held to maturity		(291	)		—
Proceeds from maturities/issuer calls of securities available for sale		29,156			68,206
Proceeds from maturities/issuer calls of securities held to maturity		18,021			17,652
Proceeds from sales of securities available for sale		45,601			8
Purchases of Federal Reserve and Federal Home Loan Bank stock, net		(10,372	)		(2,263	)
Net increase in loans		(206,948	)		(138,044	)
Payments related to FDIC loss share agreements		—			(1,554	)
Payment to FDIC for termination of loss share agreements		—			(2,012	)
Proceeds from sales of foreclosed real estate		6,468			6,670
Purchases of premises and equipment		(3,040	)		(6,876	)
Proceeds from sales of premises and equipment		114			21
Proceeds from branch sale		—			26,211
Net cash received (paid) in acquisitions		48,636			(53,640	)
Net cash used by investing activities		(107,689	)		(185,517	)

Cash Flows From Financing Activities
Net increase in deposits		118,752			122,476
Net increase in borrowings		106,980			50,000
Cash dividends paid – common stock		(5,617	)		(4,760	)
Cash dividends paid – preferred stock		—			(175	)
Proceeds from stock option exercises		287			375
Net cash provided by financing activities		220,402			167,916

Increase in cash and cash equivalents		102,854			14,065
Cash and cash equivalents, beginning of period		305,993			267,268

Cash and cash equivalents, end of period	$	408,847			281,333

Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	8,115			5,672
Income taxes		15,275			10,511
Non-cash transactions:
Unrealized gain (loss) on securities available for sale, net of taxes		2,223			1,906
Foreclosed loans transferred to other real estate		3,897			6,968

See accompanying notes to consolidated financial statements.

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First Bancorp and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

For the Periods Ended ~~March 31,~~September 30, 2017 and 2016

Note 1 - Basis of Presentation

In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of ~~March 31,~~September 30, 2017 and 2016 and the consolidated results of operations and consolidated cash flows for the periods ended ~~March 31,~~September 30, 2017 and 2016. All such adjustments were of a normal, recurring nature. Reference is made to the 2016 Annual Report on Form 10-K filed with the SEC for a discussion of accounting policies and other relevant information with respect to the financial statements. The results of operations for the periods ended ~~March 31,~~September 30, 2017 and 2016 are not necessarily indicative of the results to be expected for the full year. The Company has evaluated all subsequent events through the date the financial statements were issued.

Note 2 – Accounting Policies

Note 1 to the 2016 Annual Report on Form 10-K filed with the SEC contains a description of the accounting policies followed by the Company and discussion of recent accounting pronouncements. The following paragraphs update that information as necessary.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The Company can apply the guidance using a full retrospective approach or a modified retrospective approach. The Company’s revenue is comprised of net interest income and noninterest income. The scope of the guidance explicitly excludes net interest income as well as many other revenues for financial assets and liabilities including loans, leases, securities, and derivatives. Accordingly, the majority of the Company’s revenues will not be affected. The guidance will be effective for the Company for reporting periods beginning after December 31, 2017. ~~The Company can apply the guidance using a full retrospective approach or a modified retrospective approach.~~ The Company does not expect these amendments to have a material effect on its financial statements.

In January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This update is intended to improve the recognition and measurement of financial instruments and it requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in other comprehensive income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of available for sale debt securities in combination with other deferred tax assets. The guidance also provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes and requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect these amendments to have a material effect on its financial statements.

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

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In March 2016, the FASB amended the Liabilities topic of the Accounting Standards Codification to address the current and potential future diversity in practice related to the derecognition of a prepaid stored-value product liability. The amendments will be effective for financial statements issued for fiscal years beginning after

~~Page 9~~

~~Index~~

December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance using a modified retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is effective to each period presented. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2016, the FASB amended the Investments—Equity Method and Joint Ventures topic of the Accounting Standards Codification to eliminate the requirement to retroactively adopt the equity method of accounting and instead apply the equity method of accounting starting with the date it qualifies for that method. The amendments were effective for the Company on January 1, 2017. The Company will apply the guidance prospectively to any increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. The Company’s adoption of this amendment did not have a material effect on its financial statements.

In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

~~In March 2016, the FASB~~ issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments were effective for the Company on January 1, 2017 and the adoption of this amendment did not have a material effect on its financial statements.

In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2016, the FASB issued guidance to change the accounting for credit losses. The guidance requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in earlier recognition of credit losses. The guidance also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. The Company will apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. While early adoption is permitted beginning in first quarter 2019, the Company does not expect to elect that option. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.2019. The Company is currently evaluating the ~~effect that implementation~~impact of ~~the new standard will have~~this guidance on its consolidated financial ~~position, results~~statements, however, the Company expects the adoption of ~~operations, and cash flows.~~this guidance to result in an increase in the recorded allowance for loan losses.

In August 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company does not expect these amendments to have a material effect on its financial statements.

In October 2016, the FASB amended the Consolidation topic of the Accounting Standards Codification to revise the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with

~~Page 10~~

~~Index~~

the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendments were effective for the Company on January 1, 2017 and the Company’s adoption of this amendment did not have a material effect on its financial statements.

In November 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how restricted cash is presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2017, the FASB issued guidance to clarify the definition of a business in the Business Combinations topic of the Accounting Standards Codification with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment ~~to the Business Combinations Topic~~ is intended to address concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. The guidance will be effective for the Company for reporting periods beginning after December 15, 2017.Early adoption is permitted. The Company does not expect ~~these amendments~~this amendment to have a material effect on its financial statements.

In January 2017, the FASB updated the Accounting Changes and Error Corrections and the Investments—Equity Method and Joint Ventures Topics of the Accounting Standards Codification. The Accounting Standards Update incorporates into the Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards. The ASU was effective upon issuance. The Company is currently evaluating the impact on additional disclosure requirements as each of the standards is adopted, however it does not expect these amendments to have a material effect on its financial position, results of operations or cash flows.

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

In February 2017, the FASB amended the Other Income Topic of the Accounting Standards Codification to clarify the scope of the guidance on nonfinancial asset derecognition as well as the accounting for partial sales of nonfinancial assets. The amendments conform the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendmentsthis amendment to have a material effect on its financial statements.

In March 2017, the FASB amended the requirements in the Compensation—Retirement Benefits ~~Topic~~topic of the Accounting Standards Codification related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. The amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by pertinent employees during the period. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

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

~~Page 11~~In May 2017, the FASB amended the requirements in the Compensation—Stock Compensation topic of the Accounting Standards Codification related to changes to the terms or conditions of a share-based payment award. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments will be effective for the Company for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

~~Index~~

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

Note 3 – Reclassifications

Certain amounts reported in the period ended ~~March 31,~~September 30, 2016 have been reclassified to conform to the presentation for ~~March 31,~~September 30, 2017. These reclassifications had no effect on net income or shareholders’ equity for the periods presented, nor did they materially impact trends in financial information.

Note 4 – Acquisitions

Since January 1, 2016, the Company completed the acquisitions described below. The results of each acquired company/branch are included in the Company’s results beginning on its respective acquisition date.

(1)

On January 1, 2016, First Bank Insurance completed the acquisition of Bankingport, Inc. (“Bankingport”). The results of Bankingport are included in ~~First Bancorp’s~~the Company’s results beginning on the January 1, 2016 acquisition date.

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Bankingport was an insurance agency based in Sanford, North Carolina. This acquisition represented an opportunity to expand the insurance agency operations into a contiguous and significant banking market for the Company. Also, this acquisition provided the Company with a larger platform for leveraging insurance services throughout the Company’s bank branch network. The deal value was $2.2 million and the transaction was completed on January 1, 2016 with the Company paying $0.7 million in cash and issuing 79,012 shares of its common stock, which had a value of approximately $1.5 million. In connection with the acquisition, the Company also paid $1.1 million to purchase the office space previously leased by Bankingport.

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

(2)

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

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

In the second quarter of 2017, the Company recorded a measurement period adjustment to reduce the earn-out liability and goodwill by $1.2 million.

(3)

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

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

~~Page 12~~

~~Index~~

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

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

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(4)

On March 3, 2017, the Company completed ~~its~~the acquisition of Carolina Bank Holdings, Inc. (“Carolina Bank”), headquartered in Greensboro, North Carolina, pursuant to an Agreement and Plan of Merger and Reorganization dated June 21, 2016. The results of Carolina Bank are included in First Bancorp’s results ~~for the period ended March 31, 2017~~ beginning on the March 3, 2017 acquisition date.

Carolina Bank Holdings, Inc. was the parent company of Carolina Bank, a North Carolina ~~state-charted~~state-chartered bank with eight bank branches located in the North Carolina cities of Greensboro, High Point, Burlington, Winston-Salem, and Asheboro, and mortgage offices in Burlington, Hillsborough, and Sanford. The acquisition complements the Company’s recent expansion into several of these high-growth markets and increases its market share in others with facilities, operations and experienced staff already in place. The Company was willing to record goodwill primarily due to the reasons just noted, as well as the positive earnings of Carolina Bank. The total merger consideration consisted of $25.3 million in cash and 3,799,471 million shares of the Company’s common stock, with each share of Carolina Bank common stock being exchanged for either $20.00 in cash or 1.002 shares of the Company’s stock, subject to the total consideration being 75% stock / 25% cash. The issuance of common stock was valued at $114,478,000 and was based on the Company’s closing stock price on March 3, 2017 of $30.13 per share.

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This acquisition ~~has been~~was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Carolina Bank were recorded based on estimates of fair values as of March 3, 2017. The Company may change its valuations of acquired Carolina Bank assets and liabilities for up to one year after the acquisition date. The table below is a condensed balance sheet disclosing the amount assigned to each major asset and liability category of Carolina Bank on March 3, 2017, and the related fair value adjustments recorded by the Company to reflect the acquisition. The ~~$67.8~~$65.5 million in goodwill that resulted from this transaction is non-deductible for tax purposes.

($ in thousands)	As Recorded by Carolina Bank			Fair Value Adjustments				As Recorded by First Bancorp			As Recorded by Carolina Bank			Initial Fair Value Adjustments				Measurement Period Adjustments				As Recorded by First Bancorp
Assets
Cash and cash equivalents	$	81,466			(2	)	(a)		81,464		$	81,466			(2	)	(a)		—				81,464
Securities		49,629			(261	)	(b)		49,368			49,629			(261	)	(b)		—				49,368
Loans, gross		505,560			(5,469	)	(c)		497,376			505,560			(5,469	)	(c)		146		(l)		497,522
					(2,715	)	(d)								(2,715	)	(d)		—
Allowance for loan losses		(5,746	)		5,746		(e)		—			(5,746	)		5,746		(e)		—				—
Premises and equipment		17,967			4,251		(f)		22,218			17,967			4,251		(f)		(319	)	(m)		21,899
Core deposit intangible		—			8,790		(g)		8,790			—			8,790		(g)		—				8,790
Other		34,976			(4,804	)	(h)		30,172			34,976			(4,804	)	(h)		2,225		(n)		32,397
Total		683,852			5,536				689,388			683,852			5,536				2,052				691,440

Liabilities
Deposits	$	584,950			431		(i)		585,381		$	584,950			431		(i)		—				585,381
Borrowings		21,855			(2,855	)	(j)		19,000			21,855			(2,855	)	(j)		(262	)	(o)		18,738
Other		12,855			225		(k)		13,080			12,855			225		(k)		—				13,080
Total		619,660			(2,199	)			617,461			619,660			(2,199	)			(262	)			617,199

Net identifiable assets acquired									71,927														74,241

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

Goodwill recorded related to acquisition of Carolina Bank								$	67,830	Goodwill recorded related to acquisition of Carolina Bank												$	65,516

Explanation of Fair Value Adjustments

(a)

This adjustment was recorded to a short-term investment to its estimated fair value.

(b)

This fair value adjustment was recorded to adjust the securities portfolio to its estimated fair value.

(c)

This fair value adjustment represents the amount necessary to reduce performing loans to their fair value due to interest rate factors and credit factors. Assuming the loans continue to perform, this amount will be amortized to increase interest income over the remaining lives of the related loans.

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(d)

This fair value adjustment was recorded to write-down purchased credit impaired loans assumed in the acquisition to their estimated fair market value.

(e)

This fair value adjustment reduced the allowance for loan losses to zero as required by relevant accounting guidance.

(f)

This adjustment represents the amount necessary to increase premises and equipment from its book value on the date of acquisition to its estimated fair market value.

(g)

This fair value adjustment represents the value of the core deposit base assumed in the acquisition based on a study performed by an independent consulting firm. This amount was recorded by the Company as an identifiable intangible asset and will be amortized as expense on an accelerated basis over seven years.

(h)

This fair value adjustment primarily represents the net deferred tax liability associated with the other fair value adjustments made to record the transaction.

(i)

This fair value adjustment was recorded because the weighted average interest rate of Carolina Bank’s time deposits exceeded the cost of similar wholesale funding at the time of the acquisition. This amount will be amortized to reduce interest expense on an accelerated basis over their remaining five year life.

(j)

This fair value adjustment was primarily recorded because the interest rate of Carolina Bank’s trust preferred security was less than the current interest rate on similar instruments. This amount will be amortized on approximately a straight-line basis to increase interest expense over the remaining life of the related borrowing, which is 18 years.

~~Page 14~~

~~Index~~

(k)

This fair value adjustment represents miscellaneous adjustments needed to record assets and liabilities at their fair value.

(l)

This fair value adjustment was a miscellaneous adjustment to increase the initial fair value of gross loans.

(m)

This fair value adjustment relates to miscellaneous adjustment to decrease the initial fair value of premises and equipment.

(n)

This fair value adjustment relates to changes in the estimate of deferred tax assets/liabilities associated with the acquisition and a miscellaneous adjustment to decrease the initial fair value of foreclosed real estate acquired in the transaction.

(o)

This fair value adjustment relates to miscellaneous adjustments to decrease the initial fair value of borrowings.

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

($ in thousands, except share data)	Carolina Bank Only - March 3, 2017-March 31, 2017		Pro Forma Combined Three Months Ended March 31, 2017		Pro Forma Combined Three Months Ended March 31, 2016		Pro Forma Combined Nine Months Ended September 30, 2017		Pro Forma Combined Nine Months Ended September 30, 2016
Net interest income	$	1,886		38,209		35,966	$	119,899		109,787
Noninterest income		503		10,999		7,291		35,236		24,818
Total revenue		2,389		49,208		43,257		155,135		134,605

Net income available to common shareholders		210		5,377		7,880		35,176		16,584

Earnings per common share
Basic			$	0.22		0.33	$	1.43		0.70
Diluted				0.22		0.32		1.43		0.68

~~The above~~For purposes of the supplemental pro forma ~~results~~information, merger-related expenses of $4.4 million that were recorded in the Company’s consolidated statements of income for the ~~three~~nine months ended ~~March 31,~~September 30, 2017 ~~include~~and $4.6 million of merger-related expenses ~~and charges~~that were recorded by Carolina Bank in 2017 prior to the merger ~~that~~date are ~~nonrecurring~~reflected above in ~~nature~~the pro forma presentation for 2016.

(5)

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

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Bear Insurance, an insurance agency based in Albemarle, North Carolina, with four locations in Stanly, Cabarrus, and ~~amounted~~Montgomery counties and annual commission income of approximately $4 million, represented an opportunity to ~~$4.6~~complement the insurance agency operations in these markets and the surrounding areas. Also, this acquisition provided the Company with a larger platform for leveraging insurance services throughout the Company’s bank branch network. The transaction value was $9.8 million ~~pretax, or $3.1~~and the transaction was completed on September 1, 2017 with the Company paying $7.9 million ~~after-tax ($0.12 per basic~~in cash and ~~diluted share).~~issuing 13,374 shares of its common stock, which had a value of approximately $0.4 million. Per the terms of the agreement, the Company also recorded an earn-out liability valued at $1.2 million, which will be paid as a cash distribution after a four-year period if pre-determined goals are met for the periods.

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

Note 5 – Equity-Based Compensation Plans

The Company recorded total stock-based compensation expense of ~~$178,000~~$204,000 and ~~$123,000~~$146,000 for the three months ended ~~March 31,~~September 30, 2017 and 2016, respectively, and $860,000 and $527,000 for the nine months ended September 30, 2017 and 2016, respectively. Of the $860,000 in expense that was recorded in 2017, approximately $320,000 related to the June 1, 2017 director grants, and is classified as “other operating expenses” in the Consolidated Statements of Income. The remaining $540,000 in expense relates to the employee grants discussed below and is recorded as “salaries expense.” Stock based compensation is reflected as an adjustment to cash flows from operating activities on the Company’s Consolidated Statement of Cash Flows. The Company recognized ~~$66,000~~$318,000 and ~~$48,000~~$206,000 of income tax benefits related to stock based compensation expense in the income statement for the ~~three~~nine months ended ~~March 31,~~September 30, 2017 and 2016, respectively.

At ~~March 31,~~September 30, 2017, the Company had the following equity-based compensation plans: the First Bancorp 2014 Equity Plan and the First Bancorp 2007 Equity Plan. The Company’s shareholders approved all equity-based compensation plans. The First Bancorp 2014 Equity Plan became effective upon the approval of shareholders on May 8, 2014. As of ~~March 31,~~September 30, 2017, the First Bancorp 2014 Equity Plan was the only plan that had shares available for future grants, and there were ~~845,596~~803,946 shares remaining available for grant.

The First Bancorp 2014 Equity Plan is intended to serve as a means to attract, retain and motivate key employees and directors and to associate the interests of the plans’ participants with those of the Company and its shareholders. The First Bancorp 2014 Equity Plan allows for both grants of stock options and other types of equity-based compensation, including stock appreciation rights, restricted stock, restricted performance stock, unrestricted stock, and performance units.

Recent equity grants to employees have either had performance vesting conditions, service vesting conditions, or both. Compensation expense for these grants is recorded over the various service periods based on the estimated number of equity grants that are probable to vest. No compensation cost is recognized for grants that do not vest and any previously recognized compensation cost will be reversed. The Company issues new shares of common stock when options are exercised.

Certain of the Company’s stock option grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Company recognizes compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for each incremental award. Compensation expense is based on the estimated number of stock options and awards that will ultimately vest. Over the past five years, there have only been minimal amounts of forfeitures, and therefore the Company assumes that all awards granted without performance conditions will become vested.

~~Page 15~~

~~Index~~

~~As it relates to director equity~~The Company typically grants ~~the Company grants~~shares of common ~~shares, valued at approximately $32,000~~stock to each non-employee director ~~(currently 10 in total)~~ in June of each year. ~~Compensation expense associated with these director grants is recognized~~On June 1, 2017, the Company granted 11,190 shares of common stock to non-employee directors (1,119 shares per director), at a fair market value of $28.59 per share, which was the closing price of the Company’s common stock on that date, which resulted in $320,000 in expense. On June 1, 2016, the Company granted 6,584 shares of common stock to non-employee directors (823 shares per director), at a fair market value of $19.56 per share, which was the closing price of the Company’s common stock on that date, ~~of grant since there are no vesting conditions.~~which resulted in $129,000 in expense.

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The Company’s senior officers receive their annual bonus earned under the Company’s annual incentive plan in a mix of 50% cash and 50% stock, with the stock being subject to a three year vesting term. In the last three years, a total of 55,648 shares of restricted stock have been granted related to performance in the preceding fiscal years. Total compensation expense associated with those grants was ~~$757,000~~$758,000 and is being recognized over the respective vesting periods. The Company recorded ~~$69,000~~$66,000 and $55,000 in compensation expense during the three months ended ~~March 31,~~September 30, 2017 and 2016, respectively, and $216,000 and $165,000 for the nine months ended September 30, 2017 and 2016, respectively, related to these grants and expects to record ~~$69,000~~$66,000 in compensation expense during ~~each~~the last remaining quarter of 2017.

In the last three years, the Compensation Committee of the Company’s Board of Directors also granted ~~105,616~~130,059 shares of stock to various employees of the Company to promote retention. The total value associated with these grants amounted to ~~$1.9~~$2.8 million, ~~which~~and is being recorded as an expense over their three year vesting periods. For the three months ended ~~March 31,~~September 30, 2017 and 2016, total compensation expense related to these grants was ~~$109,000~~$138,000 and ~~$68,000,~~$92,000, respectively, and for the nine months ended September 30, 2017 and 2016, total compensation expense was $324,000 and $234,000, respectively. The Company expects to record ~~$86,500~~$167,000 in compensation expense during ~~each remaining~~the fourth quarter of 2017. All grants were issued based on the closing price of the Company’s common stock on the date of the grant.

~~Under~~The following table presents information regarding the ~~terms~~activity for the first nine months of 2017 related to the ~~predecessor plans and the First Bancorp 2014 Equity Plan,~~Company’s outstanding restricted stock:

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

Nonvested at January 1, 2017		91,790		$	18.65

Granted during the period		48,322			31.05
Vested during the period		(2,282	)		18.27
Forfeited or expired during the period		(8,535	)		18.34

Nonvested at September 30, 2017		129,295		$	23.31

In years prior to 2009, stock options ~~can have~~were the primary form of equity grant utilized by the Company. The stock options had a term of ~~no longer than 10~~ten years. In a change in control (as defined in the plans), unless the awards remain outstanding or substitute equivalent awards are provided, the awards become immediately vested.

At ~~March 31,~~September 30, 2017, there were ~~53,198~~40,689 stock options outstanding related to the two First Bancorp plans, with exercise prices ranging from $14.35 to ~~$20.80.~~$16.81.

The following table presents information regarding the activity for the first ~~three~~nine months of 2017 related to the Company’s stock options outstanding:

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

Balance at January 1, 2017		59,948		$	17.18						59,948		$	17.18

Granted		—			—						—			—
Exercised		(6,750	)		19.61			$	69,548		(19,259	)		19.44			$	193,844
Forfeited		—			—						—			—
Expired		—			—						—			—

Outstanding at March 31, 2017		53,198		$	16.87		1.3	$	664,154
Outstanding at September 30, 2017											40,689		$	16.11		0.9	$	744,619

Exercisable at March 31, 2017		53,198		$	16.87		1.3	$	664,154
Exercisable at September 30, 2017											40,689		$	16.11		0.9	$	744,619

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During the three and nine months ended ~~March 31,~~September 30, 2017, ~~and 2016,~~ the Company received ~~$45,000~~$0 and ~~$127,000,~~$287,000, respectively, as a result of stock option exercises.

~~Page 16~~

~~Index~~

~~The following table presents information regarding~~ During the ~~activity~~three and nine months ended September 30, 2016, the ~~first three months~~Company received $0 and $375,000, respectively, as a result of ~~2017 related to the Company’s outstanding restricted stock:~~stock option exercises.

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

Nonvested at January 1, 2017 91,790 $ 18.65

Granted during the period 15,344 30.03
Vested during the period (2,282 ) 18.27
Forfeited or expired during the period (4,496 ) 19.32

Nonvested at March 31, 2017 100,356 $ 20.37

Note 6 – Earnings Per Common Share

Basic Earnings Per Common Share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding unvested shares of restricted stock. Diluted Earnings Per Common Share is computed by assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. For the periods presented, the Company’s potentially dilutive common stock issuances related to unvested shares of restricted stock and stock option grants under the Company’s equity-based plans and the Company’s Series C Preferred stock, which was exchanged for common stock at a one-for-one ratio on December 22, 2016 - see Note 19 of the Company’s 2016 Annual Report on Form 10-K for additional detail.

In computing Diluted Earnings Per Common Share, adjustments are made to the computation of Basic Earnings Per Common shares, as follows. As it relates to unvested shares of restricted stock, the number of shares added to the denominator is equal to the number of unvested shares less the ~~assumed~~ number of shares assumed to be bought back by the Company in the open market at the average market price with the amount of proceeds being equal to the average deferred compensation for the reporting period. As it relates to stock options, it is assumed that all dilutive stock options are exercised during the reporting period at their respective exercise prices, with the proceeds from the exercises used by the Company to buy back stock in the open market at the average market price in effect during the reporting period. The difference between the number of shares assumed to be exercised and the number of shares bought back is included in the calculation of dilutive securities. As it relates to the preferred stock that was outstanding during the periods in 2016, dividends on the preferred stock were added back to net income and the preferred shares assumed to be converted were included in the number of shares outstanding.

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

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

	For the Three Months Ended March 31,												For the Three Months Ended September 30,
	2017						2016						2017						2016
($ in thousands except per share amounts)	Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount		Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount		Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount		Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount

Basic EPS
Net income available to common shareholders	$	7,555		21,983,963	$	0.34	$	6,779		19,783,747	$	0.34	$	13,086		24,607,516	$	0.53	$	4,620		20,007,518	$	0.23

Effect of Dilutive Securities		—		80,960				58		770,111				—		87,779				58		778,171

Diluted EPS per common share	$	7,555		22,064,923	$	0.34	$	6,837		20,553,858	$	0.33	$	13,086		24,695,295	$	0.53	$	4,678		20,785,689	$	0.23

	For the Nine Months September 30,
	2017						2016
($ in thousands except per share amounts)	Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount		Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount

Basic EPS
Net income available to common shareholders	$	31,795		23,728,262	$	1.34	$	18,979		19,904,226	$	0.95

Effect of Dilutive Securities		—		98,749				175		792,899

Diluted EPS per common share	$	31,795		23,827,011	$	1.33	$	19,154		20,697,125	$	0.93

Page 17

Index

For both the three and nine months ended ~~March 31,~~September 30, 2017, there were no options that were antidilutive. For both the three and nine months ended ~~March 31,~~September 30, 2016, there were ~~50,000~~16,250 options that were antidilutive because the exercise price exceeded the average market price for the period, and thus are not included in the calculation to determine the effect of dilutive securities.

~~Page 17~~

~~Index~~

Note 7 – Securities

The book values and approximate fair values of investment securities at ~~March 31,~~September 30, 2017 and December 31, 2016 are summarized as follows:

	March 31, 2017									December 31, 2016									September 30, 2017									December 31, 2016
	Amortized		Fair		Unrealized					Amortized		Fair		Unrealized					Amortized		Fair		Unrealized					Amortized		Fair		Unrealized
($ in thousands)	Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)

Securities available for sale:
Government-sponsored enterprise securities	$	19,498		19,426		8		(80	)		17,497		17,490		—		(7	)	$	9,000		8,992		1		(9	)		17,497		17,490		—		(7	)
Mortgage-backed securities		162,660		160,786		220		(2,094	)		151,001		148,065		155		(3,091	)		155,684		155,535		713		(862	)		151,001		148,065		155		(3,091	)
Corporate bonds		34,322		34,531		286		(77	)		33,833		33,600		91		(324	)		33,802		34,397		660		(65	)		33,833		33,600		91		(324	)
Equity securities		—		—		—		—			83		174		96		(5	)		—		—		—		—			83		174		96		(5	)
Total available for sale	$	216,480		214,743		514		(2,251	)		202,414		199,329		342		(3,427	)	$	198,486		198,924		1,374		(936	)		202,414		199,329		342		(3,427	)

Securities held to maturity:
Mortgage-backed securities	$	76,201		75,264		—		(937	)		80,585		79,283		—		(1,302	)	$	67,708		67,529		15		(194	)		80,585		79,283		—		(1,302	)
State and local governments		57,053		58,921		1,897		(29	)		49,128		50,912		1,815		(31	)		55,448		57,349		1,908		(7	)		49,128		50,912		1,815		(31	)
Total held to maturity	$	133,254		134,185		1,897		(966	)		129,713		130,195		1,815		(1,333	)	$	123,156		124,878		1,923		(201	)		129,713		130,195		1,815		(1,333	)

All of the Company’s mortgage-backed securities were issued by government-sponsored ~~corporations.~~corporations, except for one private mortgage-backed security with a fair value of $490,000 at September 30, 2017.

The following table presents information regarding securities with unrealized losses at ~~March 31,~~September 30, 2017:

($ in thousands)	Securities in an Unrealized Loss Position for Less than 12 Months				Securities in an Unrealized Loss Position for More than 12 Months				Total				Securities in an Unrealized Loss Position for Less than 12 Months				Securities in an Unrealized Loss Position for More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government-sponsored enterprise securities	$	13,917		80		—		—		13,917		80	$	6,491		9		—		—		6,491		9
Mortgage-backed securities		167,034		2,513		17,862		518		184,896		3,031		110,437		555		24,250		501		134,687		1,056
Corporate bonds		8,021		17		940		60		8,961		77		—		—		935		65		935		65
Equity securities		—		—		—		—		—		—
State and local governments		7,057		29		—		—		7,057		29		—		—		813		7		813		7
Total temporarily impaired securities	$	196,029		2,639		18,802		578		214,831		3,217	$	116,928		564		25,998		573		142,926		1,137

The following table presents information regarding securities with unrealized losses at December 31, 2016:

($ in thousands)	Securities in an Unrealized Loss Position for Less than 12 Months				Securities in an Unrealized Loss Position for More than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government-sponsored enterprise securities	$	7,990		7		—		—		7,990		7
Mortgage-backed securities		196,999		3,841		19,001		552		216,000		4,393
Corporate bonds		27,027		259		935		65		27,962		324
Equity securities		—		—		7		5		7		5
State and local governments		801		31		—		—		801		31
Total temporarily impaired securities	$	232,817		4,138		19,943		622		252,760		4,760

Page 18

Index

In the above tables, all of the non-equity securities that were in an unrealized loss position at ~~March 31,~~September 30, 2017 and December 31, 2016 are bonds that the Company has determined are in a loss position due primarily to interest rate factors and not credit quality concerns. The Company has evaluated the collectability of each of these bonds and has concluded that there is no other-than-temporary impairment. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost.

The Company has also concluded that each of the equity securities in an unrealized loss position at December 31, 2016 was in such a position due to temporary fluctuations in the market prices of the securities. The Company’s policy is to record an impairment charge for any of these equity securities that remains in an unrealized loss position for twelve consecutive months unless the amount is insignificant.

~~Page 18~~

~~Index~~

The book values and approximate fair values of investment securities at ~~March 31,~~September 30, 2017, by contractual maturity, are summarized in the table below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Available for Sale				Securities Held to Maturity				Securities Available for Sale				Securities Held to Maturity
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
($ in thousands)	Cost		Value		Cost		Value		Cost		Value		Cost		Value

Debt securities
Due within one year	$	—		—		2,123		2,144	$	—		—		1,872		1,883
Due after one year but within five years		19,498		19,426		21,815		22,527		10,008		10,037		23,907		24,681
Due after five years but within ten years		29,322		29,411		27,398		28,600		27,794		28,242		23,979		25,040
Due after ten years		5,000		5,120		5,717		5,650		5,000		5,110		5,690		5,745
Mortgage-backed securities		162,660		160,786		76,201		75,264		155,684		155,535		67,708		67,529
Total debt securities		216,480		214,743		133,254		134,185

Equity securities		—		—		—		—
Total securities	$	216,480		214,743		133,254		134,185	$	198,486		198,924		123,156		124,878

At ~~March 31,~~September 30, 2017 and December 31, 2016, investment securities with carrying values of ~~$193,673,000~~$213,825,000 and $147,009,000, respectively, were pledged as collateral for public deposits.

In the first ~~quarter~~nine months of 2017, the Company received proceeds from sales of securities of ~~$46,618,000~~$45,601,000 and recorded losses of $235,000 from the sales. In the first ~~quarter~~nine months of 2016, the Company received proceeds from sales of securities of $8,000 and recorded $3,000 in gains from the sales.

Included in “other assets” in the Consolidated Balance Sheets are cost method investments in Federal Home Loan Bank (“FHLB”) stock and Federal Reserve Bank of Richmond (“FRB”) stock totaling ~~$23,694,000~~$30,198,000 and $19,826,000 at ~~March 31,~~September 30, 2017 and December 31, 2016, respectively. The FHLB stock had a cost and fair value of ~~$14,043,000~~$18,507,000 and $12,588,000 at ~~March 31,~~September 30, 2017 and December 31, 2016, 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 ~~$9,651,000~~$11,691,000 and $7,238,000 at ~~March 31,~~September 30, 2017 and December 31, 2016, ~~respectively.~~respectively, and is a requirement for FRB member bank qualification. Periodically, both the FHLB and FRB recalculate the Company’s required level of holdings, and the Company either buys more stock or redeems a portion of the stock at cost. The Company determined that neither stock was impaired at either period end.

~~Page 19~~

~~Index~~

Note 8 – Loans and Asset Quality Information

Prior to September 22, 2016, the Company’s banking subsidiary, First Bank, had certain loans and foreclosed real estate that were covered by loss share agreements between the FDIC and First Bank which afforded First Bank significant loss protection - see Note 2 to the financial statements included in the Company’s 2011 Annual Report on Form 10-K for detailed information regarding FDIC-assisted purchase transactions. On September 22, 2016, the Company terminated all of the loss share agreements with the FDIC, such that all future losses and recoveries on loans and foreclosed real estate associated with the failed banks acquired through FDIC-assisted transactions will be borne solely by First Bank.

In the information presented below, the term “covered” is used to describe assets that were subject to FDIC loss share agreements, while the term “non-covered” refers to the Company’s legacy assets, which were not included in any type of loss share arrangement. As discussed previously, all loss share agreements were terminated during 2016 and thus the entire loan portfolio is now classified as non-covered. Certain prior period disclosures will continue to present the breakout of the loan portfolio between covered and non-covered.

Page 19

Index

On March 3, 2017, the Company acquired Carolina Bank (see Note 4 for more information). As a result of this acquisition, the Company recorded loans with a fair value of ~~$497.4~~$497.5 million. Of those loans, $19.3 million were considered to be purchased credit impaired (“PCI”) loans, which are loans for which it is probable at acquisition date that all contractually required payments will not be collected. The remaining loans are considered to be purchased non-impaired loans and their related fair value discount or premium is recognized as an adjustment to yield over the remaining life of each loan.

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

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

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

($ in thousands)

Carolina Bank Acquisition
on March 3, 2017
Contractually required payments $ 569,980
Fair value of acquired loans at acquisition date 478,122
Contractual cash flows not expected to be collected 3,650

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

Page 20

Index

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

($ in thousands) March 31, 2017 December 31, 2016 March 31, 2016
Amount Percentage Amount Percentage Amount Percentage
All  loans (non-covered and covered):

Commercial, financial, and agricultural $ 363,219 11% $ 261,813 9% $ 228,867 9%
Real estate – construction, land development & other land loans 424,539 13% 354,667 13% 302,052 12%
Real estate – mortgage – residential (1-4 family) first mortgages 792,791 24% 750,679 28% 757,696 30%
Real estate – mortgage – home equity loans / lines of credit 317,336 10% 239,105 9% 235,380 9%
Real estate – mortgage – commercial and other 1,335,924 40% 1,049,460 39% 966,937 38%
Installment loans to individuals 56,250 2% 55,037 2% 47,163 2%
    Subtotal 3,290,059 100% 2,710,761 100% 2,538,095 100%
Unamortized net deferred loan costs (fees) (704 ) (49 ) 1,258
    Total loans $ 3,289,355 $ 2,710,712 $ 2,539,353

The following is a summary of the major categories of loans outstanding allocated to the non-covered and covered loan portfolios for periods when the FDIC loss share agreements were in effect at March 31, 2016. There were no covered loans at March 31, 2017 or December 31, 2016.

($ in thousands)	March 31, 2016						September 30, 2017					December 31, 2016					September 30, 2016
	Non-covered		Covered		Total		Amount			Percentage		Amount			Percentage		Amount		Percentage
All loans:

Commercial, financial, and agricultural	$	228,124		743	$	228,867	$	376,940			11%	$	261,813			9%	$	248,877		9%
Real estate – construction, land development & other land loans		298,410		3,642		302,052		450,746			13%		354,667			13%		327,863		12%
Real estate – mortgage – residential (1-4 family) first mortgages		684,085		73,611		757,696		796,222			23%		750,679			28%		756,880		29%
Real estate – mortgage – home equity loans / lines of credit		225,245		10,135		235,380		315,322			9%		239,105			9%		239,049		9%
Real estate – mortgage – commercial and other		955,550		11,387		966,937		1,431,934			42%		1,049,460			39%		1,026,328		39%
Installment loans to individuals		47,158		5		47,163		59,028			2%		55,037			2%		52,264		2%
Subtotal		2,438,572		99,523		2,538,095		3,430,192			100%		2,710,761			100%		2,651,261		100%
Unamortized net deferred loan costs		1,258		—		1,258
Total	$	2,439,830		99,523	$	2,539,353
Unamortized net deferred loan costs (fees)								(437	)				(49	)				198
Total loans							$	3,429,755				$	2,710,712				$	2,651,459

The following presents the carrying amount of the covered loans at March 31, 2016 detailed by purchased credit impaired and purchased non-impaired loans (as determined on the date of the acquisition). There were no covered loans at March 31, 2017 or December 31, 2016.

($ in thousands)
Purchased
Credit
Impaired
Loans –
Carrying
Value Purchased
Credit
Impaired
Loans –
Unpaid
Principal
Balance Non-impaired
Purchased
Loans –
Carrying
Value Non-impaired
Purchased
Loans -
Unpaid
Principal
Balance Total
Covered
Loans –
Carrying
Value Total
Covered
Loans –
Unpaid
Principal
Balance
Covered loans:
Commercial, financial, and agricultural $ — — 743 748 743 748
Real estate – construction, land development & other land loans 207 332 3,435 3,384 3,642 3,716
Real estate – mortgage – residential (1-4 family) first mortgages 80 564 73,531 85,962 73,611 86,526
Real estate – mortgage – home equity loans / lines of credit 7 14 10,128 11,516 10,135 11,530
Real estate – mortgage – commercial and other 873 1,973 10,514 11,105 11,387 13,078
Installment loans to individuals — — 5 35 5 35
Total $ 1,167 2,883 98,356 112,750 99,523 115,633

~~Page 21~~

~~Index~~

The following table presents information regarding covered purchased non-impaired loans since ~~December 31, 2015.~~January 1, 2016. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond. All balances of covered loans were transferred to non-covered as of the termination of the loss share agreements.

($ in thousands)
Carrying amount of nonimpaired covered loans at December 31, 2015	$	101,252
Carrying amount of nonimpaired covered loans at January 1, 2016				$	101,252
Principal repayments		(7,997	)		(7,997	)
Transfers to foreclosed real estate		(1,036	)		(1,036	)
Net loan recoveries		1,784			1,784
Accretion of loan discount		1,908			1,908
Transfer to non-covered loans due to expiration of loss-share agreement, April 1, 2016		(17,530	)		(17,530	)
Transfer to non-covered loans due to termination of loss-share agreements, September 22, 2016		(78,381	)		(78,381	)
Carrying amount of nonimpaired covered loans at December 31, 2016	$	—
Carrying amount of nonimpaired covered loans at September 30, 2016				$	—

~~During the first quarter of 2017, the Company accreted $1,360,000 into interest income of loan discount on non-covered non-impaired purchased loans.~~

As of March 31, 2017, there was a remaining loan discount of $18,410,000 related to purchased accruing loans, which is expected to be accreted into interest income over the lives of the respective loans. At March 31, 2017, the Company also had $402,000 of loan discount related to purchased nonaccruing loans, which the Company does not expect will be accreted into income.

The following table presents information regarding all PCI loans since ~~December 31, 2015.~~January 1, 2016.

($ in thousands) Purchased Credit Impaired Loans	Accretable Yield			Carrying Amount			Accretable Yield			Carrying Amount
Balance at December 31, 2015	$	—			1,970
Balance at January 1, 2016							$	—			1,970
Change due to payments received		—			(1,386	)		—			(1,386	)
Change due to loan charge-off		—			(70	)		—			(70	)
Balance at December 31, 2016	$	—			514			—			514
Additions due to acquisition of Carolina Bank		3,617			19,254			3,617			19,254
Accretion		(85	)		85			(1,326	)		1,326
Change due to payments received		—			(126	)		—			(5,585	)
Transfer to foreclosed real estate		—			(69	)		—			(69	)
Other		—			7			—			(406	)
Balance at March 31, 2017	$	3,532			19,665
Balance at September 30, 2017							$	2,291			15,034

The remaining accretable yield associated with PCI loans at March 31, 2017 and 2016 was $3.5 million and $0, respectively. Accretable yield recognized during the three months ended March 31, 2017 and 2016 was $85,000 and $0, respectively. Also, duringDuring the first ~~quarter~~nine months of ~~2016,~~2017, the Company received ~~$46,000~~$848,000 in payments that exceeded the carrying amount of the related ~~purchased credit impaired~~PCI loans, of which ~~$39,000~~$775,000 was recognized as loan discount accretion income and ~~$7,000~~$73,000 was recorded as additional loan interest income. During the first nine months of 2016, the Company received $1,108,000 in payments that exceeded the carrying amount of the related PCI loans, of which $780,000 was recognized as loan discount accretion income, $295,000 was recorded as additional loan interest income, and $33,000 was recorded as a recovery.

Page 2221

Index

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

ASSET QUALITY DATA($ in thousands)	March 31, 2017		December 31, 2016		March 31, 2016		September 30, 2017		December 31, 2016		September 30, 2016

Nonperforming assets
Nonaccrual loans	$	25,684		27,468		41,411	$	23,350		27,468		32,796
Restructured loans - accruing		21,559		22,138		30,514		20,330		22,138		27,273
Accruing loans > 90 days past due		—		—		—		—		—		—
Total nonperforming loans		47,243		49,606		71,925		43,680		49,606		60,069
Foreclosed real estate		12,789		9,532		10,336		9,356		9,532		10,103
Total nonperforming assets	$	60,032		59,138		82,261	$	53,036		59,138		70,172

Total covered nonperforming assets included above (1)	$	—		—		10,698
Purchased credit impaired loans not included above (2)	$	19,167		—		—
Purchased credit impaired loans not included above (1)							$	15,034		—		—

(1) ~~All FDIC loss share agreements were terminated effective September 22, 2016 and, accordingly, assets previously covered under those agreements become non-covered on that date.~~

~~(2)~~ In the March 3, 2017 acquisition of Carolina Bank Holdings, Inc., the Company acquired $19.3 million in purchased credit impaired loans in accordance with ASC 310-30 accounting guidance. These loans are excluded from nonperforming loans, including ~~$1.7~~$0.4 million in purchased credit impaired loans at ~~March 31,~~September 30, 2017 that are contractually past due 90 days or more.

At ~~March 31,~~September 30, 2017 and December 31, 2016, the Company had ~~$1.6~~$0.9 million and $1.7 million in residential mortgage loans in process of foreclosure, respectively.

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

($ in thousands)	March 31, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Commercial, financial, and agricultural	$	1,368		1,842	$	996		1,842
Real estate – construction, land development & other land loans		1,607		2,945		1,565		2,945
Real estate – mortgage – residential (1-4 family) first mortgages		15,833		16,017		14,878		16,017
Real estate – mortgage – home equity loans / lines of credit		2,238		2,355		2,250		2,355
Real estate – mortgage – commercial and other		4,577		4,208		3,534		4,208
Installment loans to individuals		61		101		127		101
Total	$	25,684		27,468	$	23,350		27,468

Page 22

Index

The following table presents an analysis of the payment status of the Company’s loans as of ~~March 31,~~September 30, 2017.

($ in thousands)	Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing 90 Days or More Past Due		Nonaccrual Loans		Accruing Current		Total Loans Receivable			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	$	519		416		—		1,368		360,633		362,936		$	325		—		—		996		375,364		376,685
Real estate – construction, land development & other land loans		1,309		166		—		1,607		421,003		424,085			432		—		—		1,565		447,873		449,870
Real estate – mortgage – residential (1-4 family) first mortgages		11,794		591		—		15,833		760,896		789,114			4,911		472		—		14,878		772,651		792,912
Real estate – mortgage – home equity loans / lines of credit		586		243		—		2,238		313,526		316,593			2,455		—		—		2,250		309,906		314,611
Real estate – mortgage – commercial and other		3,123		78		—		4,577		1,313,638		1,321,416			1,094		469		—		3,534		1,417,012		1,422,109
Installment loans to individuals		192		144		—		61		55,853		56,250			145		79		—		127		58,620		58,971
Purchased credit impaired		323		62		1,744		—		17,536		19,665			611		—		449		—		13,974		15,034
Total	$	17,846		1,700		1,744		25,684		3,243,085		3,290,059		$	9,973		1,020		449		23,350		3,395,400		3,430,192
Unamortized net deferred loan fees												(704	)												(437	)
Total loans											$	3,289,355												$	3,429,755

~~Page 23~~

~~Index~~

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2016.

($ 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	$	92		—		—			1,842		259,879		261,813
Real estate – construction, land development & other land loans		473		168		—			2,945		351,081		354,667
Real estate – mortgage – residential (1-4 family) first mortgages		4,487		443		—			16,017		729,732		750,679
Real estate – mortgage – home equity loans / lines of credit		1,751		178		—			2,355		234,821		239,105
Real estate – mortgage – commercial and other		1,482		449		—			4,208		1,042,807		1,048,946
Installment loans to individuals		186		193		—	��		101		54,557		55,037
Purchased credit impaired		—		—		—			—		514		514
Total	$	8,471		1,431		—			27,468		2,673,391		2,710,761
Unamortized net deferred loan fees													(49	)
Total loans												$	2,710,712

Page 23

Index

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

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential (1-4 Family) First Mortgages			Real Estate – Mortgage – Home Equity Lines of Credit			Real Estate – Mortgage – Commercial and Other			Installment Loans to Individuals			Unallo- cated			Total				Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development & Other Land Loans			Real Estate – Residential (1-4 Family) First Mortgages			Real Estate – Mortgage – Home Equity Lines of Credit			Real Estate – Mortgage – Commercial and Other			Installment Loans to Individuals			Unallo -cated		Total

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

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

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

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

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

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

Page 24

Index

The following table presents the activity in the allowance for loan losses for the year ended December 31, 2016. There were no covered loans at December 31, 2016 and all reserves associated with previously covered loans have been transferred to the non-covered allowance.

($ in thousands)		Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential (1-4 Family) First Mortgages			Real Estate – Mortgage – Home Equity Lines of Credit			Real Estate – Mortgage – Commercial and Other			Installment Loans to Individuals			Unallo- cated			Covered			Total				Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development & Other Land Loans			Real Estate – Residential (1-4 Family) First Mortgages			Real Estate – Mortgage – Home Equity Lines of Credit			Real Estate – Mortgage – Commercial and Other			Installment Loans to Individuals			Unallo -cated			Covered			Total

As of and for the year ended December 31, 2016	As of and for the year ended December 31, 2016																												As of and for the year ended December 31, 2016
Beginning balance		$	4,742			3,754			7,832			2,893			5,816			1,051			696			1,799			28,583			$	4,742			3,754			7,832			2,893			5,816			1,051			696			1,799			28,583
Charge-offs			(2,271	)		(1,101	)		(3,815	)		(969	)		(1,005	)		(1,008	)		(1	)		(244	)		(10,414	)			(2,271	)		(1,101	)		(3,815	)		(969	)		(1,005	)		(1,008	)		(1	)		(244	)		(10,414	)
Recoveries			805			1,422			1,060			250			836			354			—			1,958			6,685				805			1,422			1,060			250			836			354			—			1,958			6,685
Transfer from covered status			56			65			839			293			127			—			1			(1,381	)		—				56			65			839			293			127			—			1			(1,381	)		—
Removed due to branch loan sale			(263	)		(39	)		(347	)		(110	)		(228	)		(63	)		—			—			(1,050	)			(263	)		(39	)		(347	)		(110	)		(228	)		(63	)		—			—			(1,050	)
Provisions			760			(1,410	)		2,135			63			(448	)		811			198			(2,132	)		(23	)			760			(1,410	)		2,135			63			(448	)		811			198			(2,132	)		(23	)
Ending balance		$	3,829			2,691			7,704			2,420			5,098			1,145			894			—			23,781			$	3,829			2,691			7,704			2,420			5,098			1,145			894			—			23,781

Ending balances as of December 31, 2016: Allowance for loan losses
Individually evaluated for impairment		$	7			184			1,339			5			105			—			—			—			1,640			$	7			184			1,339			5			105			—			—			—			1,640
Collectively evaluated for impairment		$	3,822			2,507			6,365			2,415			4,993			1,145			894			—			22,141			$	3,822			2,507			6,365			2,415			4,993			1,145			894			—			22,141
Purchased credit impaired		$	—			—			—			—			—			—			—			—			—			$	—			—			—			—			—			—			—			—			—

Loans receivable as of December 31, 2016:
Ending balance – total		$	261,813			354,667			750,679			239,105			1,049,460			55,037			—			—			2,710,761			$	261,813			354,667			750,679			239,105			1,049,460			55,037			—			—			2,710,761
Unamortized net deferred loan fees																											(49	)																											(49	)
Total loans																										$	2,710,712																											$	2,710,712

Ending balances as of December 31, 2016: Loans
Individually evaluated for impairment		$	644			4,001			20,807			280			6,494			—			—			—			32,226			$	644			4,001			20,807			280			6,494			—			—			—			32,226
Collectively evaluated for impairment		$	261,169			350,666			729,872			238,825			1,042,452			55,037			—			—			2,678,021			$	261,169			350,666			729,872			238,825			1,042,452			55,037			—			—			2,678,021
Purchased credit impaired		$	—			—			—			—			514			—			—			—			514			$	—			—			—			—			514			—			—			—			514

Page 25

Index

The following table presents the activity in the allowance for loan losses for ~~all loans for~~ the three and nine months ended ~~March 31,~~September 30, 2016. There were no covered loans at September 30, 2016 and all reserves associated with previously covered loans have been transferred to the non-covered allowance.

($ in thousands)	Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential (1-4 Family) First Mortgages			Real Estate – Mortgage – Home Equity Lines of Credit			Real Estate – Mortgage – Commercial and Other			Installment Loans to Individuals			Unallo- cated			Covered			Total				Commercial, Financial, and Agricultural			Real Estate – Construction, Land Development, & Other Land Loans			Real Estate – Residential (1-4 Family) First Mortgages			Real Estate – Mortgage – Home Equity Lines of Credit			Real Estate – Mortgage – Commercial and Other			Installment Loans to Individuals			Unallo -cated			Covered			Total

As of and for the three month ended March 31, 2016
As of and for the three months ended September 30, 2016																												As of and for the three months ended September 30, 2016
Beginning balance	$	4,742			3,754			7,832			2,893			5,816			1,051			696			1,799			28,583			$	4,282			2,899			7,860			2,285			5,571			1,480			572			1,074			26,023
Charge-offs		(677	)		(340	)		(1,951	)		(449	)		(166	)		(280	)		—			(241	)		(4,104	)			(495	)		(161	)		(692	)		(196	)		(288	)		(223	)		—			—			(2,055	)
Recoveries		86			90			233			55			130			113			—			1,204			1,911				252			588			377			69			317			55			—			—			1,658
Transfer from covered status																														—			3			788			281			1			—			1			(1,074	)		—
Removed due to branch loan sale																														(263	)		(39	)		(347	)		(110	)		(228	)		(63	)		(1	)		—			(1,051	)
Provisions		528			(159	)		1,260			(232	)		160			318			(254	)		(1,363	)		258				755			(612	)		(492	)		54			(165	)		(38	)		498			—			—
Ending balance	$	4,679			3,345			7,374			2,267			5,940			1,202			442			1,399			26,648			$	4,531			2,678			7,494			2,383			5,208			1,211			1,070			—			24,575

Ending balances as of March 31, 2016: Allowance for loan losses
As of and for the nine months ended September 30, 2016																												As of and for the nine months ended September 30, 2016
Beginning balance																													$	4,742			3,754			7,832			2,893			5,816			1,051			696			1,799			28,583
Charge-offs																														(1,229	)		(638	)		(3,383	)		(930	)		(850	)		(741	)		—			(244	)		(8,015	)
Recoveries																														554			799			672			188			602			308			—			1,958			5,081
Transfer from covered status																														56			65			839			293			127			—			1			(1,381	)		—
Removed due to branch loan sale																														(263	)		(39	)		(347	)		(110	)		(228	)		(63	)		(1	)		—			(1,051	)
Provisions																														671			(1,263	)		1,881			49			(259	)		656			374			(2,132	)		(23	)
Ending balance																													$	4,531			2,678			7,494			2,383			5,208			1,211			1,070			—			24,575

Ending balances as of September 30, 2016: Allowance for loan losses																												Ending balances as of September 30, 2016: Allowance for loan losses
Individually evaluated for impairment	$	43			214			1,280			111			559			75			—			438			2,720			$	9			169			1,306			5			444			—			—			—			1,933
Collectively evaluated for impairment	$	4,636			3,131			6,094			2,156			5,381			1,127			442			961			23,928			$	4,522			2,509			6,188			2,372	��		4,764			1,211			1,070			—			22,636
Purchased credit impaired	$	—			—			—			—			—			—			—			—			—
Loans acquired with deteriorated credit quality																													$	—			—			—			6			—			—			—			—			6

Loans receivable as of March 31, 2016:
Loans receivable as of September 30, 2016:																												Loans receivable as of September 30, 2016:
Ending balance – total	$	228,124			298,410			684,085			225,245			955,550			47,158			—			99,523			2,538,095			$	248,877			327,863			756,880			239,049			1,026,328			52,264			—			—			2,651,261
Unamortized net deferred loan costs																										1,258																												198
Total loans																									$	2,539,353																											$	2,651,459

Ending balances as of March 31, 2016: Loans
Ending balances as of September 30, 2016: Loans																												Ending balances as of September 30, 2016: Loans
Individually evaluated for impairment	$	818			4,735			20,925			538			14,334			104			—			5,105			46,559			$	1,732			4,181			21,611			310			11,291			1			—			—			39,126
Collectively evaluated for impairment	$	227,306			293,675			663,160			224,707			940,652			47,054			—			93,250			2,489,804			$	247,145			323,682			735,062			238,733			1,014,506			52,263			—			—			2,611,391
Purchased credit impaired	$	—			—			—			—			564			—			—			1,168			1,732

Loans acquired with deteriorated credit quality																													$	—			—			207			6			531			—			—			—			744

Page 26

Index

The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of ~~March 31,~~September 30, 2017.

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

Commercial, financial, and agricultural	$	230		281		—		412	$	185		425		—		299
Real estate – mortgage – construction, land development & other land loans		2,716		3,903		—		2,969		2,838		4,023		—		2,871
Real estate – mortgage – residential (1-4 family) first mortgages		6,954		7,676		—		8,495		6,461		7,029		—		7,533
Real estate – mortgage –home equity loans / lines of credit		59		83		—		86		52		79		—		70
Real estate – mortgage –commercial and other		3,589		3,845		—		4,093		2,158		2,394		—		3,162
Installment loans to individuals		2		2		—		1		—		—		—		1
Total impaired loans with no allowance	$	13,550		15,790		—		16,056	$	11,694		13,950		—		13,936


Impaired loans with an allowance recorded:

Commercial, financial, and agricultural	$	274		288		205		163	$	305		305		144		169
Real estate – mortgage – construction, land development & other land loans		729		777		180		754		234		243		23		570
Real estate – mortgage – residential (1-4 family) first mortgages		11,093		11,401		1,351		10,933		8,526		8,721		929		10,198
Real estate – mortgage –home equity loans / lines of credit		164		164		8		165		—		—		—		83
Real estate – mortgage –commercial and other		5,485		5,496		310		3,690		7,285		7,392		487		5,354
Installment loans to individuals		—		—		—		—		—		—		—		—
Total impaired loans with allowance	$	17,745		18,126		2,054		15,705	$	16,350		16,661		1,583		16,374

~~The Company recorded interest~~Interest income ~~of $295,000 and discount accretion of $443,000~~ on impaired loans recognized during the ~~three~~nine months ended ~~March 31,~~September 30, 2017 ~~related to an impaired loan relationship that~~ was ~~resolved during the quarter.~~insignificant.

The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31, 2016.

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

Commercial, financial, and agricultural	$	593		706		—		816		$	593		706		—		816
Real estate – mortgage – construction, land development & other land loans		3,221		4,558		—		3,641			3,221		4,558		—		3,641
Real estate – mortgage – residential (1-4 family) first mortgages		10,035		12,220		—		11,008			10,035		12,220		—		11,008
Real estate – mortgage –home equity loans / lines of credit		114		146		—		139			114		146		—		139
Real estate – mortgage –commercial and other		5,112		5,722		—		8,713			4,598		5,112		—		8,165
Installment loans to individuals		—		2		—		1			—		2		—		1
Total impaired loans with no allowance	$	19,075		23,354		—		24,318		$	18,561		22,744		—		23,770


Impaired loans with an allowance recorded:

Commercial, financial, and agricultural	$	51		51		7		202		$	51		51		7		202
Real estate – mortgage – construction, land development & other land loans		780		798		184		844			780		798		184		844
Real estate – mortgage – residential (1-4 family) first mortgages		10,772		11,007		1,339		13,314			10,772		11,007		1,339		13,314
Real estate – mortgage –home equity loans / lines of credit		166		166		5		324			166		166		5		324
Real estate – mortgage –commercial and other		1,896		1,929		105		4,912			1,896		1,929		105		4,912
Installment loans to individuals		—		—		—		49			—		—		—		49
Total impaired loans with allowance	$	13,665		13,951		1,640		19,645		$	13,665		13,951		1,640		19,645

~~Page 27~~

~~Index~~

Interest income ~~recorded~~ on impaired loans recognized during the year ended December 31, 2016 was insignificant.

Page 27

Index

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.

Page 28

Index

The following table presents the Company’s recorded investment in loans by credit quality indicators as of ~~March 31,~~September 30, 2017.

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

Commercial, financial, and agricultural	$	350,286		9,366		1,917		1,368		362,937		$	365,505		8,974		1,210		996		376,685
Real estate – construction, land development & other land loans		407,155		7,759		7,564		1,607		424,085			435,960		6,009		6,336		1,565		449,870
Real estate – mortgage – residential (1-4 family) first mortgages		721,622		15,978		35,681		15,833		789,114			729,341		15,298		33,395		14,878		792,912
Real estate – mortgage – home equity loans / lines of credit		304,093		1,413		8,849		2,238		316,593			304,114		1,262		6,985		2,250		314,611
Real estate – mortgage – commercial and other		1,281,368		23,748		11,722		4,577		1,321,415			1,384,255		23,736		10,584		3,534		1,422,109
Installment loans to individuals		55,727		253		209		61		56,250			58,444		224		176		127		58,971
Purchased credit impaired		7,337		8,159		4,169		—		19,665			6,748		5,002		3,284		—		15,034
Total	$	3,127,588		66,676		70,111		25,684		3,290,059		$	3,284,367		60,505		61,970		23,350		3,430,192
Unamortized net deferred loan fees										(704	)										(437	)
Total loans										3,289,355											3,429,755

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2016.

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

Commercial, financial, and agricultural	$	247,451		10,560		1,960		1,842		261,813
Real estate – construction, land development & other land loans		335,068		8,762		7,892		2,945		354,667
Real estate – mortgage – residential (1-4 family) first mortgages		678,878		16,998		38,786		16,017		750,679
Real estate – mortgage – home equity loans / lines of credit		226,159		1,436		9,155		2,355		239,105
Real estate – mortgage – commercial and other		1,005,687		26,032		13,019		4,208		1,048,946
Installment loans to individuals		54,421		256		259		101		55,037
Purchased credit impaired		—		514		—		—		514
Total	$	2,547,664		64,558		71,071		27,468		2,710,761
Unamortized net deferred loan fees										(49	)
Total loans										2,710,712

Troubled Debt Restructurings

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

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

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

Page 29

Index

The following table presents information related to loans modified in a troubled debt restructuring during the three months ended ~~March 31,~~September 30, 2017 and 2016.

($ in thousands)	For three months ended March 31, 2017						For the three months ended March 31, 2016						For three months ended September 30, 2017						For the three months ended September 30, 2016
	Number of Contracts		Pre- Modification Restructured Balances		Post- Modification Restructured Balances		Number of Contracts		Pre- Modification Restructured Balances		Post- Modification Restructured Balances		Number of Contracts		Pre- Modification Restructured Balances		Post- Modification Restructured Balances		Number of Contracts		Pre- Modification Restructured Balances		Post- Modification Restructured Balances
TDRs – Accruing
Commercial, financial, and agricultural		—	$	—	$	—		—	$	—	$	—		—	$	—	$	—		1	$	1,071	$	1,071
Real estate – construction, land development & other land loans		—		—		—		—		—		—		—		—		—		—		—		—
Real estate – mortgage – residential (1-4 family) first mortgages		—		—		—		—		—		—		—		—		—		—		—		—
Real estate – mortgage – home equity loans / lines of credit		—		—		—		—		—		—		—		—		—		—		—		—
Real estate – mortgage – commercial and other		2		2,550		2,525		—		—		—		—		—		—		—		—		—
Installment loans to individuals		—		—		—		—		—		—		—		—		—		—		—		—

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

Total TDRs arising during period		2	$	2,550	$	2,525		—	$	—	$	—		—	$	—	$	—		1	$	1,071	$	1,071

Total covered TDRs arising during period included above		—	$	—	$	—		—	$	—	$	—		—	$	—	$	—		—	$	—	$	—

Page 30

Index

The following table presents information related to loans modified in a troubled debt restructuring during the nine months ended September 30, 2017 and 2016.

($ in thousands)	For nine months ended September 30, 2017						For the nine months ended September 30, 2016
	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	$	1,071	$	1,071
Real estate – construction, land development & other land loans		—		—		—		—		—		—
Real estate – mortgage – residential (1-4 family) first mortgages		—		—		—		—		—		—
Real estate – mortgage – home equity loans / lines of credit		—		—		—		—		—		—
Real estate – mortgage – commercial and other		5		3,550		3,525		—		—		—
Installment loans to individuals		—		—		—		—		—		—

TDRs – Nonaccrual
Commercial, financial, and agricultural		—		—		—		—		—		—
Real estate – construction, land development & other land loans		1		32		32		—		—		—
Real estate – mortgage – residential (1-4 family) first mortgages		1		215		215		—		—		—
Real estate – mortgage – home equity loans / lines of credit		—		—		—		—		—		—
Real estate – mortgage – commercial and other		—		—		—		—		—		—
Installment loans to individuals		—		—		—		—		—		—
Total TDRs arising during period		7	$	3,797	$	3,772		1	$	1,071	$	1,071

Total covered TDRs arising during period included above		—	$	—	$	—		—	$	—	$	—

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the three months ended ~~March 31,~~September 30, 2017 and 2016 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to foreclosed real estate.

($ in thousands) For the three months ended
March 31, 2017 For the three months ended
March 31, 2016
Number of
Contracts Recorded
Investment Number of
Contracts Recorded
Investment

Accruing TDRs that subsequently defaulted
Commercial, financial, and agricultural — $ — 1 $ 44
Real estate – mortgage – residential (1-4 family first mortgages) 1 626 — —
Real estate – mortgage – commercial and other — — 1 21

Total accruing TDRs that subsequently defaulted 1 $ 626 2 $ 65
Total covered accruing TDRs that subsequently defaulted included above — $ — 1 $ 44

($ in thousands)

For the three months ended

September 30, 2017

For the three months ended

September 30, 2016

Number of
Contracts

Recorded
Investment

Number of
Contracts

Recorded Investment

Accruing TDRs that subsequently defaulted

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

—

Total accruing TDRs that subsequently defaulted

—

Total covered accruing TDRs that subsequently defaulted included above

—

Page 3031

Index

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the nine months ended September 30, 2017 and 2016 are presented in the table below.

The amount of loans shown on the Consolidated Balance Sheets includes net deferred loan (fees) costs of approximately ($~~704,000)~~437,000), ($49,000), and ~~$1,258,000~~$198,000 at ~~March 31,~~September 30, 2017, December 31, 2016, and ~~March 31,~~September 30, 2016, respectively.

~~As discussed previously in Note 4 to the Company’s 2016 Annual Report on Form 10-K, the~~The Company terminated all loss share agreements with the FDIC ~~during~~effective September 22, 2016. As a result, the remaining balance in the FDIC Indemnification Asset, which represented the estimated amount to be received from the FDIC under the loss share agreements, was written off as indemnification asset expense as of the termination date.

The ~~FDIC indemnification asset was comprised of the following components as of the dates shown:~~

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

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of ~~March 31,~~September 30, 2017, December 31, 2016, and ~~March 31,~~September 30, 2016 and the carrying amount of unamortized intangible assets as of those same dates.

Activity related to transactions during the periods presented includes the ~~following:~~following (See Note 4 to the Consolidated Financial Statements for more information on each of these transactions):

In addition to the above acquisition related activity, the Company recorded $415,000 in net servicing assets associated with the guaranteed portion of SBA loans originated and sold during the third and fourth quarters of 2016. During the first ~~quarter~~nine months of 2017, the Company recorded an additional ~~$195,000~~$1,003,000 in servicing assets, as well as ~~$31,000~~$112,000 in amortization expense. Servicing assets are recorded at fair value and amortized ~~as a reduction of service fee income~~ over the expected ~~life~~lives of the related loans.

Amortization expense of all intangible assets totaled ~~$576,000~~$902,000 and ~~$186,000~~$387,000 for the three months ended ~~March 31,~~September 30, 2017 and 2016, respectively, and $2,509,000 and $834,000 for the nine months ended September 30, 2017 and 2016, respectively.

The following table presents the estimated amortization expense related to amortizable intangible assets, excluding SBA servicing assets, for the last ~~three quarters~~quarter of calendar year 2017 and for each of the four calendar years ending December 31, 2021 and the estimated amount amortizable thereafter. These estimates are subject to change in future periods to the extent management determines it is necessary to make adjustments to the carrying value or estimated useful lives of amortized intangible assets.

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

The Company recorded pension income totaling ~~$162,000~~$202,000 and $163,000 for ~~each of~~ the three months ended ~~March 31,~~September 30, 2017 and 2016, respectively, which primarily related to investment income from the Pension Plan’s assets. The following table contains the components of the pension income.

The Company recorded pension income totaling $605,000 and $488,000 for the nine months ended September 30, 2017 and 2016, respectively, which primarily related to investment income from the Pension Plan’s assets. The following table contains the components of the pension income.

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 contributions are invested to provide for benefits under the Pension Plan. The Company does not expect to contribute to the Pension Plan in 2017.

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

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

The following table discloses the changes in accumulated other comprehensive income (loss) for the ~~three~~nine months ended ~~March 31,~~September 30, 2017 (all amounts are net of tax).

The following table discloses the changes in accumulated other comprehensive income (loss) for the ~~three~~nine months ended ~~March 31,~~September 30, 2016 (all amounts are net of tax).

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

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

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

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

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at ~~March 31,~~September 30, 2017.

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2016.

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

Securities Available for Sale — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy. Most of the fair values for the Company’s Level 2 securities are determined by our third-party bond accounting provider using matrix pricing. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. For the Company, Level 2 securities include mortgage-backed securities, collateralized mortgage obligations, government-sponsored enterprise securities, and corporate bonds. In cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

The Company reviews the pricing methodologies utilized by the bond accounting provider to ensure the fair value determination is consistent with the applicable accounting guidance and that the investments are properly classified in the fair value hierarchy. Further, the Company validates the fair values for a sample of securities in the portfolio by comparing the fair values provided by the bond accounting provider to prices from other independent sources for the same or similar securities. The Company analyzes unusual or significant variances and conducts additional research with the portfolio manager, if necessary, and takes appropriate action based on its findings.

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

Foreclosed real estate – Foreclosed real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value. Fair value is measured on a non-recurring basis and is based upon independent market prices or current appraisals that are generally prepared using an income or market valuation approach and conducted by an independent, licensed third party appraiser, adjusted for estimated selling costs (Level 3). At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. For any real estate valuations subsequent to foreclosure, any excess of the real estate recorded value over the fair value of the real estate is treated as a foreclosed real estate write-down on the Consolidated Statements of Income.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of ~~March 31,~~September 30, 2017, the significant unobservable inputs used in the fair value measurements were as follows:

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2016, the significant unobservable inputs used in the fair value measurements were as follows:

Transfers of assets or liabilities between levels within the fair value hierarchy are recognized when an event or change in circumstances occurs. There were no transfers between Level 1 and Level 2 for assets or liabilities measured on a recurring basis during the three or nine months ended ~~March 31,~~September 30, 2017 or 2016.

For the ~~three~~nine months ended ~~March 31,~~September 30, 2017 and 2016, the increase in the fair value of securities available for sale was ~~$1,120,000~~$3,523,000 and ~~$817,000,~~$3,128,000, respectively, which is included in other comprehensive income (net of tax expense of ~~$414,000~~$1,300,000 and ~~$319,000,~~$1,222,000, respectively). Fair value measurement methods at ~~March 31,~~September 30, 2017 and 2016 are consistent with those used in prior reporting periods.

The carrying amounts and estimated fair values of financial instruments at ~~March 31,~~September 30, 2017 and December 31, 2016 are as follows:

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

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

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

Loans-For nonimpaired loans, fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, financial and agricultural, real estate construction, real estate mortgages and installment loans to individuals. Each loan category is further segmented into fixed and variable interest rate terms. The fair value for each category is determined by discounting scheduled future cash flows using current interest rates offered on loans with similar risk characteristics. Fair values for impaired loans are primarily based on estimated proceeds expected upon liquidation of the collateral or the present value of expected cash flows.

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

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

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

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

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

On December 21, 2012, the Company issued 2,656,294 shares of its common stock and 728,706 shares of the Company’s Series C Preferred Stock to certain accredited investors, each at the price of $10.00 per share, pursuant to a private placement transaction. Net proceeds from this sale of common and preferred stock were $33.8 million and were used to strengthen ~~and remove risk from~~ the Company’s balance sheet in anticipation of a planned disposition of certain classified loans and write-down of foreclosed real estate.

On December 22, 2016, the Company and the holder of the Series C Preferred Stock entered into an agreement to effectively convert the preferred stock into common stock. The Company exchanged 728,706 shares of preferred stock for the same number of shares of the Company’s common stock. As a result of the exchange, the Company has no shares of preferred stock currently outstanding.

The Series C Preferred Stock qualified as Tier 1 capital and was Convertible Perpetual Preferred Stock, with dividend rights equal to the Company’s Common Stock. The Series C Preferred Stock was non-voting, except in limited circumstances.

The Series C Preferred Stock paid a dividend per share equal to that of the Company’s common stock. During the ~~first quarter of~~three and nine months ended September 30, 2016, the Company accrued approximately $58,000 and $175,000, respectively, in preferred dividend payments for the Series C Preferred Stock.

On ~~May~~October 1, 2017, the Company ~~announced the signing~~completed its acquisition of ~~a definitive merger agreement to acquire~~ ASB Bancorp, Inc. (“ASB Bancorp”), the parent company of Asheville Savings Bank, SSB, headquartered in ~~a cash~~Asheville, North Carolina, pursuant to an Agreement and ~~stock transaction with a total value~~Plan of ~~approximately $175 million, or $43.12 per share based on the Company’s closing share price on April 28,~~Merger and Reorganization dated May 1, 2017. Subject to the terms of the merger agreement, ASB Bancorp shareholders will receive 1.44 shares of First Bancorp's common stock or $41.90 in cash, or a combination thereof, for each share of ASB Bancorp common stock. The total consideration will be prorated as necessary to ensure that 90% of the total outstanding shares of ASB Bancorp common stock will be exchanged for First Bancorp common stock and 10% of the total outstanding shares of ASB Bancorp common stock will be exchanged for cash, provided that the maximum number of shares of First Bancorp common stock to be issued in exchange for ASB Bancorp common stock will not exceed 19.9% of the number of shares of First Bancorp common stock issued and outstanding immediately before the closing of the merger.

Asheville Savings Bank, ~~currently operates~~SSB, operated 13 banking locations in the Asheville, Marion and Brevard markets. ~~Asheville Savings Bank reported assets of $803 million, gross loans of $606 million and deposits of $682 million as of March 31, 2017.~~ The acquisition complements the Company’s existing three branches in the Asheville market.

The total merger ~~agreement~~consideration consisted of $17.9 million in cash and 4.9 million shares of the Company’s common stock. As of the acquisition date, ASB Bancorp had assets of $793 million, gross loans of $617 million and deposits of $679 million. As of the filing of this report, the Company has ~~been unanimously approved by~~not completed the ~~boards~~fair value measurements of ~~directors~~the assets, liabilities, and identifiable intangible assets of ~~each company. The transaction is expected to close in the fourth quarter of 2017 and is subject to customary conditions, including regulatory approvals and approval by~~ ASB ~~Bancorp’s shareholders.~~Bancorp.

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

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

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

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

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

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

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

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

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

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

When we complete an acquisition transaction, the excess of the purchase price over the amount by which the fair market value of assets acquired exceeds the fair market value of liabilities assumed represents an intangible asset. We must then determine the identifiable portions of the intangible asset, with any remaining amount classified as goodwill. Identifiable intangible assets associated with these acquisitions are generally amortized over the estimated life of the related asset, whereas goodwill is tested annually for impairment, but not systematically amortized. Assuming no goodwill impairment, it is beneficial to our future earnings to have a lower amount assigned to identifiable intangible assets and higher amount of goodwill as opposed to having a higher amount considered to be identifiable intangible assets and a lower amount classified as goodwill.

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

Subsequent to the initial recording of the identifiable intangible assets and goodwill, we amortize the identifiable intangible assets over their estimated average lives, as discussed above. In addition, on at least an annual basis, goodwill is evaluated for impairment by comparing the fair value of our reporting units to their related carrying value, including goodwill. If the carrying value of a reporting unit were ever to exceed its fair value, we would determine whether the implied fair value of the goodwill, using a discounted cash flow analysis, exceeded the carrying value of the goodwill. If the carrying value of the goodwill exceeded the implied fair value of the goodwill, an impairment loss would be recorded in an amount equal to that excess. Performing such a discounted cash flow analysis would involve the significant use of estimates and assumptions.

In our 2016 goodwill impairment evaluation, we concluded that our goodwill was not impaired.

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

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

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

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

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

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

Net income available to common shareholders was $13.1 million, or $0.53 per diluted common share, for the ~~first~~three months ended September 30, 2017, an increase of 130% in earnings per share from the $4.6 million, or $0.23 per diluted common share, recorded in the third quarter of 2016. For the nine months ended September 30, 2017, ~~was $7.6~~we recorded net income available to common shareholders of $31.8 million, or ~~$0.34~~$1.33 per diluted common share, an increase of ~~3.0%~~43.0% in earnings per share from the ~~$6.8~~$19.0 million, or ~~$0.33~~$0.93 per diluted common share, ~~recorded~~for the nine months ended September 30, 2016.

The third quarter of 2016 results included two non-recurring items that impacted diluted earnings per share negatively by a net of approximately $0.17 per diluted common share: 1) the termination of our loss share agreements with the FDIC, which resulted in the ~~first quarter~~Company recording additional indemnification asset expense of ~~2016. The quarterly results were~~$5.7 million during the three months ended September 30, 2016, and 2) the exchange of branches with First Community Bank that resulted in a gain of $1.4 million.

Comparisons for the financial periods presented are significantly impacted by ~~strong balance sheet growth and favorable earnings trends.~~

~~Acquisition~~our March 3, 2017 acquisition of Carolina Bank, ~~Holdings, Inc.~~

~~On March 3, 2017, we acquired Carolina Bank Holdings, Inc. (“Carolina Bank”),~~ which operated ~~through~~ eight branches and three mortgage loan offices, primarily in the Triad region of North ~~Carolina.~~Carolina (consists of Greensboro, Winston-Salem, and High Point and the surrounding areas). See Note 4 to the consolidated financial statements for more information on this transaction

As discussed at Note 16 to the consolidated financial statements, on October 1, 2017, the Company acquired ASB Bancorp, Inc., the parent company of Asheville Savings Bank, SSB, headquartered in Asheville, North Carolina (“Asheville Savings Bank”), which operated through 13 branches in the Asheville area. As of the acquisition date, ~~Carolina~~Asheville Savings Bank ~~had~~reported total assets of ~~$682~~approximately $793 million, including ~~$497~~$617 million in loans and ~~$585~~$679 million in deposits. ~~In connection with~~Because this transaction closed in the ~~acquisition, we paid a total of $25.3 million~~fourth quarter, the financial position and earnings for Asheville Savings Bank are not included in ~~cash and issued 3,799,472 shares of First Bancorp common stock to~~ the ~~shareholders of Carolina Bank.~~

~~Also in connection with the acquisition, we recorded $67.8 million in goodwill and an $8.8 million core deposit intangible asset.~~

~~Our operating~~Company’s results for the period ended March 31, 2017 include the results of Carolina Bank subsequent to the acquisition date of March 3, 2017. The conversion of Carolina Bank’s computer systems to First Bank’s systems is scheduled to occur in August 2017.third quarter.

Net interest income for the ~~first~~third quarter of 2017 was ~~$34.3~~$41.6 million, a ~~13.6%~~37.2% increase from the ~~$30.2~~$30.4 million recorded in the third quarter of 2016. Net interest income for the first ~~quarter~~nine months of 2017 amounted to $115.9 million, a 25.8% increase from the $92.1 million recorded in the comparable period of 2016. The increase in net interest income was primarily due to higher amounts of loans outstanding as a result of internal growth, ~~in our loans outstanding.~~as well as the acquisition of Carolina Bank.

Also contributing to the increase in net interest income was a higher net interest margin for the period. Our net interest margin (tax-equivalent net interest income divided by average earning assets) ~~was 4.07%~~increased for ~~both~~ the ~~first quarters~~fourth consecutive quarter and amounted to 4.16% for the third quarter of 2017 ~~and 2016. The first~~compared to 3.93% for the third quarter of 2016. For the nine month period ended September 30, 2017, our net interest margin was ~~positively~~4.11% compared to 4.07% for the same period in 2016. Asset yields have increased primarily as a result of three Federal Reserve interest rate increases during the past year. Funding costs have also increased, but to a lesser degree.

The net interest margins for both periods were also impacted by ~~approximately $295,000, or four basis points, in previously foregone interest that was recognized related to a nonaccrual~~higher amounts of loan ~~relationship that was acquired in a 2011 failed bank acquisition and was resolved during the quarter, as well as $443,000 in~~ discount accretion ~~interest income related~~associated with acquired loan portfolios. The Company recorded loan discount accretion amounting to ~~that same relationship, which impacted~~$1.7 million in the ~~margin by an additional five basis points.~~

~~We recorded $1.4~~third quarter of 2017, compared to $0.8 million in the third quarter of 2016. For the first nine months of 2017 and 2016, loan discount accretion amounted to $5.1 million and ~~$1.1~~$3.6 million, respectively. The increase in loan discount accretion ~~during~~is primarily due to the ~~quarters ended March 31, 2017 and 2016, respectively, which positively affected our net interest income. As noted above,~~loan discounts recorded in the ~~2017 amount was impacted by the resolution~~acquisition of ~~a loan relationship.~~Carolina Bank.

We recorded ano provision for loan losses in the third quarters of 2017 or 2016. For the nine months ended September 30, 2017, we recorded total provision for loan losses of $0.7 million ~~in the first quarter of 2017~~ compared to ~~$0.3 million in the first quarter of 2016.~~

~~For periods prior to the third quarter of 2016, our~~a total negative provision for loan losses ~~was disclosed~~of $23,000 in ~~separate line items between covered loans and non-covered loans. Generally, we recorded provisions for loan losses on non-covered loans as a result~~the same period of ~~net~~2016. We have experienced low levels of charge-offs and loan growth, while significant recoveries in our covered loan portfolios resulted in negative provisions for loan losses. Upon the termination of the FDIC loss share agreements, effective September 22, 2016, all loans are classified as non-covered.

~~Our provision for loan loss levels~~asset quality indicators have been impacted by continued improvement in asset quality. Nonperforming assets amounted to $60.0 million at March 31, 2017, a decrease of 27.0% from the $82.3 million one year earlier. Nonperforming assets increased by $0.9 million since December 31, 2016, which reflects the addition of $3.1 million in foreclosed real estate assumed in the Carolina Bank acquisition. Our nonperforming assets to total assets ratio was 1.35% at March 31, 2017 compared to 2.43% at March 31, 2016. Annualized net charge-offs as a percentage of average loans for the three months ended March 31, 2017 was 0.13%, compared to 0.35% for the comparable period of 2016.steadily improved.

Total noninterest income was ~~$9.8~~$12.4 million and ~~$5.0~~$5.2 million for the three months ended ~~March 31,~~September 30, 2017 and ~~March 31,~~September 30, 2016, respectively. For the nine months ended September 30, 2017, noninterest income amounted to $34.0 million compared to $16.1 million for the same period of 2016.

Core noninterest income for the ~~first~~third quarter of 2017 was ~~$9.8~~$12.8 million, an increase of ~~33.5%~~31.2% from the ~~$7.3~~$9.8 million reported for the third quarter of 2016. For the first ~~quarter~~nine months of 2017, core noninterest income amounted to $34.2 million, a 35.4% increase from the $25.3 million recorded in the comparable period of 2016. Core noninterest income includes i) service charges on deposit accounts, ii) other service charges, commissions, and fees, iii) fees from presold mortgage loans, iv) commissions from sales of insurance and financial products, v) SBA consulting fees, vi) SBA loan sale gains, and vii) bank-owned life insurance income.

The primary reason for the increase in core noninterest income in 2017 was the ~~addition~~acquisition of Carolina Bank, as well as income derived from the Company’s SBA consulting fees and SBA loan sale gains. On May 5, 2016, the Company completed the acquisition of a firm that specializes in consulting with financial institutions across the country related to SBA loan origination and servicing. We recorded $1.3 million in SBA consulting feesgains, which began in the ~~first quarter of 2017 compared to none in 2016. In the~~second and third quarter of 2016, we launched a national SBA lending division, which offers SBA loans to small business owners throughout the United States. This division earned $0.6 million from gains on the sales of the guaranteed portions of these loans during the first quarter of 2017 compared to none in 2016.

~~In the first quarter of 2017, we recorded no indemnification asset expense compared to $2.4 million in indemnification asset expense in the first quarter~~quarters of 2016.

Noninterest expenses amounted to ~~$32.1~~$34.4 million in the ~~first~~third quarter of 2017 compared to ~~$24.8~~$27.7 million recorded in the ~~first~~third quarter of 2016. Noninterest expenses for the nine months ended September 30, 2017 amounted to $101.5 million compared to $78.6 million in 2016. The majority of the increase in noninterest ~~expense~~expenses in 2017 ~~related to increases in salaries expense and merger and acquisition expense, as discussed below.~~

Salaries expense increased to $14.0 million in the first quarter of 2017 from the $11.5 million recorded in the first quarter of 2016. The primary reason for the increase in salaries expense in 2017 is duerelates to the ~~addition~~Company’s acquisition of ~~the SBA consulting firm and the hiring of personnel related to our SBA division. Also impacting salaries expense was the addition of personnel acquired from~~ Carolina Bank.

~~Merger and acquisition expenses amounted to $2.4 million for the three months ended March 31, 2017, compared to $0.2 million in the comparable period of 2016.~~

Total assets at ~~March 31,~~September 30, 2017 amounted to ~~$4.4~~$4.6 billion, a ~~31.3%~~29.8% increase from a year earlier. Total loans at ~~March 31,~~September 30, 2017 amounted to ~~$3.3~~$3.4 billion, a ~~29.5%~~29.4% increase from a year earlier, and total deposits amounted to ~~$3.6~~$3.7 billion at ~~March 31,~~September 30, 2017, a ~~28.4%~~25.4% increase from a year earlier.

In addition to the growth realized from the acquisition of Carolina Bank in March 2017, we have experienced strong organic loan and deposit growth ~~for the three and twelve months ended March 31,~~during 2017. For the first ~~quarter~~nine months of 2017, organic loan growth (i.e. excluding loan balances assumed from Carolina Bank) amounted to ~~$81.3~~$221.5 million, or ~~12.0% annualized, and for the twelve months ended March 31, 2017, organic loan growth amounted to $251.1 million, or 9.9%.~~10.9% annualized. For the first ~~quarter~~nine months of 2017, organic deposit growth amounted to ~~$96.4~~$118.5 million, or ~~13.1% annualized, and for the twelve months ended March 31, 2017, organic deposit growth amounted to $239.9 million, or 8.5%.~~5.4% annualized. The strong growth was a result of ongoing internal initiatives to drive loan and deposit growth, including our recent expansion into higher growth ~~markets.~~markets, including Charlotte, Raleigh, and the Triad.

We remain well-capitalized by all regulatory standards, with aan estimated Total Risk-Based Capital Ratio at ~~March 31,~~September 30, 2017 of ~~12.56%~~12.44%, a decline from ~~14.47%~~13.49% at ~~March 31,~~September 30, 2016, but ~~still~~significantly in excess of the 10.00% minimum to be considered well-capitalized. Our tangible common equity to tangible assets ratio was ~~7.79%~~7.95% at ~~March 31,~~September 30, 2017, a decrease of 45eight basis points from a year earlier. The decreases in the capital ratios are primarily due to the acquisition of Carolina Bank.

For the ~~period~~periods in 2016 presented, our results of operations were significantly affected by the accounting for two FDIC-assisted failed bank acquisitions. In the discussion above and ~~elsewhere~~ in ~~this report,~~the accompanying tables, the term “covered” is used to describe assets that were included in FDIC loss share agreements, while the term “non-covered” refers to our legacy assets, which are not included in any type of loss share arrangement. As previously discussed, all loss share agreements were terminated in the third quarter of 2016 and thus the entire loan portfolio is now classified as non-covered. Certain prior period disclosures will continue to present the breakout of the loan portfolio between covered and non-covered.

~~Certain covered, as well as newly acquired loans, have an unaccreted discount associated with them. Such loans that experience favorable changes in credit quality compared to what was expected at~~ See the acquisition date, including loans that pay off, will continue to result in positive adjustments to interest income being recorded over the life of the respective loan – also referred to as loan discount accretion.

~~For periods prior to September 22,~~Company’s 2016 because favorable changes in covered assets resulted in lower expected FDIC claims, and unfavorable changes in covered assets resulted in higher expected FDIC claims, the FDIC indemnification asset was adjusted to reflect those expectations. The net increase or decrease in the indemnification asset was reflected within noninterest income,Annual Report on Form 10-K filed with the ~~net impact being that pretax income was generally only impacted by 20% of~~Securities and Exchange Commission for additional discussion regarding the ~~income or expense associated with provisions for loan losses on covered loans, discount accretion,~~accounting and ~~losses from covered foreclosed properties.~~presentation related to the Company’s two FDIC-assisted failed bank acquisitions.

Net interest income is the largest component of earnings, representing the difference between interest and fees generated from earning assets and the interest costs of deposits and other funds needed to support those assets. Net interest income for the three month period ended ~~March 31,~~September 30, 2017 amounted to ~~$34.3~~$41.6 million, an increase of ~~$4.1~~$11.3 million, or ~~13.6%~~37.2%, from the ~~$30.2~~$30.4 million recorded in the ~~first~~third quarter of 2016. Net interest income on a tax-equivalent basis for the three month period ended ~~March 31,~~September 30, 2017 amounted to ~~$34.9~~$42.3 million, an increase of ~~$4.2~~$11.5 million, or ~~13.8%~~37.1%, from the ~~$30.7~~$30.9 million recorded in the ~~first~~third quarter of 2016. We believe that analysis of net interest income on a tax-equivalent basis is useful and appropriate because it allows a comparison of net interest income amounts in different periods without taking into account the different mix of taxable versus non-taxable investments that may have existed during those periods.

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

For the three and nine months ended ~~March 31,~~September 30, 2017, the higher net interest income compared to the same period of 2016 was due primarily to growth in loans outstanding.

The following table presents net interest income analysis on a tax-equivalent basis.

Average loans outstanding for the ~~first~~third quarter of 2017 were ~~$2.903~~$3.405 billion, which was ~~$375~~$769 million, or ~~14.8%~~29.2%, higher than the average loans outstanding for the ~~first~~third quarter of 2016 ($~~2.528~~2.636 billion). Average loans for the nine months ended September 30, 2017 were $3.212 billion, which was 24.7% higher than the average loans outstanding for the nine months ended September 30, 2016 ($2.577 billion). The higher amount of average loans outstanding in 2017 ~~is partially~~was due to ~~the~~a combination of acquired growth and organic growth. The acquisition of Carolina Bank on March 3, 2017 ~~which had~~added $497 million in loans atas of the acquisition date. Also, due to our loan growth initiatives, including expansion into higher growth markets, and improved loan demand in our market areas, we have grown loan balances organically by ~~$251~~$281 million over the past year.

The mix of our loan portfolio remained substantially the same at ~~March 31,~~September 30, 2017 compared to December 31, 2016, with approximately ~~88%~~87% of our loans being real estate loans, ~~10%~~11% being commercial, financial, and agricultural loans, and the remaining 2% being consumer installment loans. The majority of our real estate loans are personal and commercial loans where real estate provides additional security for the loan.

Average total deposits outstanding for the ~~first~~third quarter of 2017 were ~~$3.153~~$3.632 billion, which was ~~$378~~$809 million, or ~~13.6%~~28.7%, higher than the average deposits outstanding for the ~~first~~third quarter of 2016 ($~~2.775~~2.823 billion). Average deposits outstanding for the nine months ended September 30, 2017 were $3.465 billion, which was 23.7% higher than the average deposits outstanding for the nine months ended September 30, 2016 ($2.802 billion). As discussed previously, we acquired Carolina Bank during the first quarter of 2017, which ~~added~~had $585 million in deposits ~~beginning~~ on ~~March 3, 2017.~~the acquisition date. Including the acquisition, average transaction deposit accounts (noninterest bearing checking, interest bearing checking, money market and savings accounts) increased from ~~$2.086~~$2.130 billion ~~at March 31,~~for the nine months ended September 30, 2016 to ~~$2.471~~$2.743 billion ~~at March 31,~~for the nine months ended September 30, 2017, representing growth of ~~$385~~$613 million, or ~~18.5%~~28.8%. Average time deposits ~~declined slightly~~also increased for the first nine months of 2017 in comparison to the first nine months of 2016, from ~~$689~~$672 million ~~at March 31, 2016~~ to ~~$682~~$722 million, ~~at March 31, 2017, a decrease~~an increase of $7$50 million, or ~~1.1%~~7.5%.

Average borrowings increased for the nine months ended September 30, 2017 to $294.7 million from ~~$186~~the $200.4 million ~~at March 31, 2016 to $245 million at March 31, 2017, which helped support loan growth.~~for the same period of 2016. Carolina Bank had approximately $19 million in borrowings on the date of acquisition. Although the favorable change in our deposit funding mix benefitted our cost of all deposits by approximately one basis point, the benefit was offset by the increased costs associated with our higher levels of borrowings. Our cost of funds, which includes noninterest bearing checking accounts at a zero percent cost, was ~~0.26%~~0.30% in the first ~~quarter~~nine months of 2017 compared to 0.25% in the first ~~quarter~~nine months of ~~2016.~~2016, with the increase being due to the increased costs associated with our higher levels of borrowings.

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

Our net interest margin (tax-equivalent net interest income divided by average earning assets) for the ~~first~~third quarter of 2017 ~~and 2016~~ was ~~4.07%. The first~~4.16% compared to 3.93% for the third quarter of 2016. For the nine month period ended September 30, 2017, our net interest margin was ~~positively impacted by approximately $295,000, or four basis points,~~4.11% compared to 4.07% for the same period in ~~previously foregone~~2016. The increases in 2017 were due to both increased asset yields and higher amounts of discount accretion. Asset yields have increased primarily as a result of three Federal Reserve interest ~~that was recognized related~~rate increases during the past year. Funding costs have also increased, but to a nonaccrual loan relationship that was acquired in a 2011 failed bank acquisition and was resolved during the quarter, as well as $443,000 in discount accretion interest income related to that same relationship, which impacted the margin by an additional five basis points.lesser degree.

Our net interest margin benefits from the net accretion of purchase accounting premiums/discounts associated with acquired loans and deposits. We recorded loan discount accretion amounting to $1.7 million in the third quarter of 2017, compared to $0.8 million in the third quarter of 2016. For the ~~three~~first nine months ~~ended March 31,~~of 2017 and 2016, ~~we recorded $1.4~~loan discount accretion amounted to $5.1 million and ~~$1.1~~$3.6 million, ~~respectively, in net accretion of purchase accounting premiums/discounts that increased net interest income.~~respectively. The increase in loan discount accretion ~~in 2017~~ is primarily due to the ~~aforementioned~~ loan ~~resolution that resulted~~discounts recorded in the ~~recognition~~acquisition of ~~$443,000 in loan discount accretion.~~Carolina Bank. Unaccreted loan discount has increased from ~~$14.0~~$13.2 million at ~~March 31,~~September 30, 2016 to ~~$19.6~~$16.9 million at ~~March 31,~~September 30, 2017 primarily as a result of the Carolina Bank acquisition.

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

We recorded no provision for loan losses in the third quarters of 2017 or 2016. For the nine months ended September 30, 2017, we recorded total ~~provisions~~provision for loan losses of $0.7 million compared to a total negative provision for loan losses of $23,000 in the ~~first quarter of 2017 compared $0.3 million for the first quarter~~same period of 2016.

For periods prior to the third quarter of 2016, our provision for loan losses was disclosed in separate line items between covered loans and non-covered loans, as shown in the attached tables. Generally, we recorded provisions for loan losses on non-covered loans as a result of net charge-offs and loan growth, while significant recoveries in our covered loan portfolios resulted in negative provisions for loan losses. Upon the termination of the FDIC loss share agreements, effective September 22, 2016, all loans are classified as non-covered.

~~The Company’s~~Our provision for loan loss levels have been impacted by continued improvement in asset quality. Nonperforming assets amounted to ~~$60.0~~$53.0 million at ~~March 31,~~September 30, 2017, a decrease of ~~27.0%~~24.4% from the ~~$82.3~~$70.2 million one year earlier. ~~Nonperforming assets increased by $0.9 million since December 31, 2016, which reflects the addition of $3.1 million in foreclosed real estate assumed in the Carolina Bank acquisition.~~ Our nonperforming assets to total assets ratio was ~~1.35%~~1.16% at ~~March 31,~~September 30, 2017 compared to ~~2.43%~~1.98% at ~~March 31,~~September 30, 2016. ~~Annualized~~Also, our provision for loan loss levels were impacted by lower net loan charge-offs in 2017. We experienced net loan recoveries of $0.1 million for the first nine months of 2017, compared to net loan charge-offs of $2.9 million for the first nine months of 2016. The ratio of annualized net charge-offs ~~as a percentage of~~to average loans for the ~~three~~nine months ended ~~March 31,~~September 30, 2017 was ~~0.13%~~0.00%, compared to ~~0.35%~~0.15% for the ~~comparable~~same period of 2016.

Total noninterest income was ~~$9.8~~$12.4 million ~~in the first quarter of 2017 compared to $5.0~~and $5.2 million for the ~~first quarter~~three months ended September 30, 2017 and September 30, 2016, respectively. For the nine months ended September 30, 2017, noninterest income amounted to $34.0 million compared to $16.1 million for the same period of 2016.

As ~~presented~~shown in the table below, core noninterest income for the ~~first~~third quarter of 2017 was ~~$9.8~~$12.8 million, an increase of ~~33.5%~~31.2% from the ~~$7.3~~$9.8 million reported for the ~~first~~third quarter of 2016. ~~As noted above,~~For the first nine months of 2017, core noninterest income amounted to $34.2 million, a 35.4% increase from the $25.3 million recorded in the comparable period of 2016. Core noninterest income includes i) service charges on deposit accounts, ii) other service charges, commissions, and fees, iii) fees from presold mortgage loans, iv) commissions from sales of insurance and financial products, ~~and~~ v) SBA consulting fees, vi) SBA loan sale gains, and vii) bank-owned life insurance income.

The following table presents our core noninterest income for the three and nine month periods ending ~~March 31,~~September 30, 2017 and 2016, respectively.

As shown in the table above, service charges on deposit accounts ~~decreased~~increased from $2.7 million in the ~~first~~third quarter of 2016 to ~~$2.6~~$2.9 million in the ~~first~~third quarter of 2017. ~~Fewer instances~~For the nine months ended September 30, 2017, service charges on deposit accounts amounted to $8.5 million, which is a $0.5 million increase from the $8.0 million recorded in the comparable period of ~~fees earned~~2016. The increases for both periods are primarily due to the service charges from ~~customers overdrawing their~~ accounts ~~have impacted this line item, as well as more customers meeting~~assumed in the ~~requirements to have the monthly services charges waived on their checking accounts.~~Carolina Bank acquisition.

Other service charges, commissions, and fees increased from $3.0 million in the third quarter of 2016 to $3.5 million in the third quarter of 2017. For the nine months ended September 30, 2017, ~~compared~~this revenue amounted to ~~2016, primarily~~$10.2 million, which was a $1.3 million increase from the $8.9 million recorded in the comparable period of 2016. The increase in this line item was due to a combination of the Carolina Bank acquisition, as ~~a result of higher~~well as growth in interchange fees from debit ~~card~~ and credit ~~card interchange fees.~~cards. We earn a small fee each time a customer uses a debit or credit card to make a purchase. Due to the growth in checking accounts and increased customer usage of debit cards, we have experienced increases in this line item. Interchange income from credit cards has also increased due to growth in the number and usage of credit cards, which we believe is a result of increased promotion of this product.

Fees from presold ~~mortgages~~mortgage loans increased to $1.8 million for the third quarter of 2017 from ~~$0.4~~$0.7 million in the ~~first~~third quarter of ~~2016~~2016. For the first nine months of 2017, fees from presold mortgage loans increased to ~~$0.8~~$4.1 million from the $1.5 million recorded in the ~~first quarter~~comparable period of ~~2017. Fees increased in the first quarter of 2017~~2016. The increases were primarily due to the acquisition of Carolina Bank in March 2017, which had a significant mortgage loan operation.

Commissions from sales of insurance and financial products amounted to approximately ~~$0.8~~$1.4 million and ~~$0.9~~$1.0 million for the ~~first three months~~third quarters of 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, commissions from sales of insurance and financial products amounted to $3.3 million and $2.8 million, respectively. The increase was primarily due to the acquisition of an insurance agency during the third quarter of 2017 – see additional discussion at Note 4 to the Consolidated Financial Statements.

~~The~~One of the primary ~~reason~~reasons for the increases in core noninterest income for the three and nine months ended ~~March 31,~~September 30, 2017 was the addition of SBA consulting fees and SBA loan sale gains ~~during the third quarter of~~beginning in 2016. On May 5, 2016, we completed the acquisition of a firm that specializes in consulting with financial institutions across the country related to SBA loan origination and servicing. We recorded ~~$1.3~~$0.9 million and $3.2 million in SBA consulting fees related to this business during the ~~first quarter of 2017.~~three and nine months ended September 30, 2017, respectively, in comparison to $1.2 million and $1.9 million for the three and nine months ended September 30, 2016, respectively. In the third quarter of 2016, we launched a national SBA lending division offering SBA loans to small business owners throughout the United States. The SBA division earned ~~$0.6~~$1.7 million and $3.2 million from gains on the sales of the guaranteed portions of these loans during the ~~quarter.~~three and nine months ended September 30, 2017, respectively, in comparison to $0.7 million for both the three and nine months ended September 30, 2016.

Bank-owned life insurance income was relatively unchanged for the periods presented, amounting to $0.6 million in the third quarter of 2017 compared to $0.5 million in ~~each~~the third quarter of 2016, and $1.7 million to $1.5 million for the first ~~quarters~~nine months of 2017 and ~~2016.~~2016, respectively.

Within the noncore components of noninterest income, the largest variance for the periods presented related to indemnification asset expense. As discussed previously, in the third quarter of 2016, we terminated our FDIC loss share agreements, ~~so we recorded~~and thus there was no indemnification asset income or expense in ~~the first quarter of~~ 2017. ~~For the first quarter of~~In 2016, we recorded indemnification asset expense ~~amounted to $2.4~~of $5.7 million ~~which decreased noninterest income during~~and $10.3 million for the ~~period.~~three and nine months ended September 30, 2016, respectively.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2017, we recorded $0.2 million in losses from sales of securities. For the comparable period of 2016, we recorded an insignificant amount of ~~gains.~~gain.

Other gains and losses for the 2017 periods presented represent the net effects of miscellaneous gains and losses that are non-routine in nature. In the third quarter of 2016, the Company recorded a net gain of $1.4 million as a result of a branch exchange transaction.

Noninterest expenses amounted to ~~$32.1~~$34.4 million in the ~~first~~third quarter of 2017 ~~a 29.5% increase over the $24.8~~compared to $27.7 million recorded in the ~~same period~~third quarter of 2016. Noninterest expenses for the nine months ended September 30, 2017 amounted to $101.5 million compared to $78.6 million in 2016. The majority of the increase in noninterest expenses in 2017 relates to our acquisition of Carolina Bank.

Salaries expense increased to ~~$14.0~~$16.6 million in the ~~first~~third quarter of 2017 from the ~~$11.5~~$13.4 million recorded in the ~~first~~third quarter of 2016. Salaries expense for the first nine months of 2017 amounted to $46.8 million compared to $37.5 million in 2016. The primary reason for the increase in salaries expense in 2017 ~~is due to the addition of the SBA consulting firm and the hiring of personnel related to our SBA division. Also impacting salaries expense~~ was the addition of personnel ~~acquired from~~assumed in the Carolina Bank ~~for~~acquisition. Also impacting salaries expense is the ~~period following~~2016 acquisition and continued growth of the ~~acquisition.~~Company’s SBA consulting firm which was acquired in May 2016 and the SBA national lending division, which began operations in the third quarter of 2016.

Employee benefits expense was ~~$3.7~~$3.4 million in the ~~first~~third quarter of 2017 compared to ~~$2.7~~$2.6 million in the ~~first~~third quarter of 2016. For the first nine months of 2017, employee benefits expense amounted to $10.7 million compared to $7.9 million in 2016. This increase in 2017 was primarily due to the acquisition and growth initiatives discussed above. ~~Also, we experienced a $0.3 million increase~~

Occupancy and equipment expense increased in ~~employee health insurance expense in the first quarter of~~ 2017 ~~compared~~primarily due to the ~~first quarter of 2016. We are self-insured for health care expense and experienced unfavorable claim levels in 2017.~~

~~The combined amount of~~acquisitions discussed above. For the three months ended September 30, 2017, occupancy and equipment expense ~~increased by $0.4~~totaled $3.5 million ~~when comparing~~compared to $2.9 million in the third quarter of 2016. For the nine months ended September 30, 2017, occupancy and equipment expense totaled $10.3 million compared to $8.5 million in the first ~~quarter~~nine months of 2017 to the first quarter of 2016, amounting to approximately $3.2 million and $2.8 million during the periods, respectively. The majority of the increase relates to the growth initiatives discussed above.2016.

Merger and acquisition expenses amounted to ~~$2.4~~$1.3 million and $0.6 million for the three months ended ~~March 31,~~September 30, 2017 ~~compared~~and 2016, respectively. For the nine months ended September 30, 2017 and 2016, merger and acquisition expenses amounted to ~~$0.2~~$4.8 million inand $1.3 million, respectively. Merger and acquisition expenses represent transaction related costs associated primarily with the ~~comparable period~~acquisitions of ~~2016.~~Carolina Bank and Asheville Savings Bank.

Intangibles amortization expense increased from ~~$0.2~~$0.4 million in the third quarter of 2016 to $0.9 million in the third quarter of 2017 and from $0.8 million in the first ~~quarter~~nine months of 2016 to ~~$0.6~~$2.5 million in the first ~~quarter~~nine months of 2017, primarily as a result of the amortization of intangible assets that were recorded in connection with our acquisitions.

Other operating expenses amounted to ~~$8.2~~$8.7 million and $7.8 million for the third quarters of 2017 and 2016, respectively, and $26.4 million in the first ~~quarter~~nine months of 2017 compared to ~~$7.4~~$22.7 million in the first ~~quarter~~nine months of ~~2016, with the increase~~2016. The increases were primarily due to the ~~addition~~Company’s growth, including the acquisitions of the SBA consulting firm and Carolina Bank.

For the ~~first~~third quarter of 2017, the provision for income taxes was ~~$3.8~~$6.5 million, an effective tax rate of ~~33.2%~~33.3%, compared to $3.1 million for the same period of 2016, which is an effective tax rate of 40.0%. For the first ~~quarter~~nine months of ~~2016,~~2017, the provision for income taxes was ~~$3.3~~$15.8 million, an effective tax rate of ~~32.7%~~33.3%, compared to $10.4 million for the same period of 2016, which was an effective tax rate of 35.2%. Tax matters associated with the branch exchange with First Community Bank during the third quarter of 2016 contributed to the increase in effective tax rate for the periods in 2016.

The Consolidated Statements of Comprehensive Income reflect other comprehensive income of ~~$0.9~~$0.2 million during each of the ~~first quarter~~third quarters of 2017 ~~compared to~~and 2016. During the nine months ended September 30, 2017 and 2016, we recorded other comprehensive income of ~~$0.5~~$2.3 million ~~during the first quarter of 2016.~~and $2.0 million, respectively. The primary component of other comprehensive income for the periods presented was changes in unrealized holding gains (losses) of our available for sale securities. Our available for sale securities portfolio is predominantly comprised of fixed rate bonds that generally increase in value when market yields for fixed rate bonds decrease and decline in value when market yields for fixed rate bonds increase. Management has evaluated any unrealized losses on individual securities at each period end and determined that there is no other-than-temporary impairment.

Total assets at ~~March 31,~~September 30, 2017 amounted to ~~$4.4~~$4.59 billion, a ~~31.3%~~29.8% increase from a year earlier. Total loans at ~~March 31,~~September 30, 2017 amounted to ~~$3.3~~$3.43 billion, a ~~29.5%~~29.4% increase from a year earlier, and total deposits amounted to ~~$3.6~~$3.65 billion, a ~~28.4%~~25.4% increase from a year earlier.

The following table presents information regarding the nature of changes in our levels of loans and deposits for the twelve months ended ~~March 31,~~September 30, 2017 and for the first ~~quarter~~nine months of 2017.

As derived from the table above, for the twelve months preceding ~~March 31,~~September 30, 2017, our total loans increased ~~$750.0~~$778 million, or ~~29.5%~~29.4%. The ~~majority of~~ loan growth from acquisitions is due to our ~~recent~~ acquisition of Carolina Bank in March 2017, which had ~~$497.4~~$497.5 million in loans on the date of acquisition. Carolina Bank operated through eight branches predominately in the Triad region on North Carolina, and we expect these branches to enhance our recent expansion into this high-growth market. Internal loan growth was ~~$251.1~~$280.8 million, or ~~9.9%~~10.6%, for the twelve months ended ~~March 31,~~September 30, 2017 and was ~~$81.3~~$221.5 million, or ~~3.0%~~8.2% (10.9% annualized), for the first ~~three~~nine months of 2017. Internal loan growth has been primarily driven by our recent expansion into high-growth markets and the hiring of experienced bankers in these areas. We expect continued growth in our loan portfolio infor the remainder of 2017.

As previously discussed, during the third quarter of 2016, we terminated our loss share agreements with the FDIC and as a result, we transferred $99.5 million in loans from “covered” to “non-covered” during the period.Page 50

The mix of our loan portfolio remains substantially the same at ~~March 31,~~September 30, 2017 compared to December 31, 2016. The majority of our real estate loans are personal and commercial loans where real estate provides additional security for the loan. ~~Note 8 to the consolidated financial statements presents additional detailed information regarding our mix of loans.~~

For both the ~~three~~nine and twelve month periods ended ~~March 31~~September 30, 2017, we experienced net internal growth in total deposits. For these periods, increases in transaction deposit account balances (checking, money market, and savings) offset ~~the~~ declines in time deposits. Due to the low interest rate environment, some of our customers are shifting their funds from time deposits into transaction accounts, which do not pay a materially lower interest rate, while being more liquid. We also experienced ~~net~~ growth from acquisitions ~~primarily~~ due to the Carolina Bank acquisition. We acquired $585.4 million in deposits from the Carolina Bank acquisition, and of that, $497.0 million were in the transaction deposit categories.

While retail deposits (non-brokered) have experienced growth over recent periods, the loan growth we have experienced has exceeded the retail deposit growth. This is largely associated with our recent growth and expansion into the larger markets of North Carolina – Charlotte, ~~Greensboro~~Raleigh, and ~~Raleigh.~~the Triad. When initially entering markets such as these, our experience has been that we are able to capture loan market share faster than deposit market share. This imbalance has resulted in higher use of brokered deposits and borrowings to fund the loan growth. Total brokered deposits amounted to ~~$157.2~~$215.6 million at ~~March 31,~~September 30, 2017, which is a ~~121%~~46% increase from the ~~$71.1~~$147.4 million outstanding a year earlier. Borrowings have increased from ~~$186.4~~$236.4 million to ~~$290.4~~$397.5 million over that same period.

Nonperforming assets include nonaccrual loans, troubled debt restructurings, loans past due 90 or more days and still accruing interest ~~nonperforming loans held for sale,~~ and foreclosed real estate. Nonperforming assets are summarized as follows:

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

Consistent with the weak economy experienced in much of our market associated with the onset of the recession in 2008, we experienced higher levels of loan losses, delinquencies and nonperforming assets compared to our historical averages. ~~While~~As the economic conditions have improved ~~recently and~~in our ~~asset quality has steadily improved,~~market area over the past several years, we ~~continue to~~ have ~~elevated~~experienced steady declines in our levels of nonperforming ~~assets~~assets.

As noted in the table above, at ~~March 31,~~September 30, 2017, total nonaccrual loans amounted to ~~$25.7~~$23.4 million, compared to $27.5 million at December 31, 2016 and ~~$41.4~~$32.8 million at ~~March 31,~~September 30, 2016. ~~Nonaccrual loans have generally declined in recent years as our local economies have improved, and we continue to focus on resolving our problem assets.~~

~~“Restructured~~“Restructured loans – accruing”, or troubled debt restructurings (“TDRs”), are accruing loans for which we have granted concessions to the borrower as a result of the borrower’s financial difficulties.A~~t March 31,~~ At September 30, 2017, total accruing TDRs amounted to ~~$21.6~~$20.3 million, compared to $22.1 million at December 31, 2016 and ~~$30.5~~$27.3 million at ~~March 31,~~September 30, 2016.

Foreclosed real estate includes primarily foreclosed properties. Total foreclosed real estate amounted to ~~$12.8~~$9.4 million at ~~March 31,~~September 30, 2017, $9.5 million at December 31, 2016, and ~~$10.3~~$10.1 million at ~~March 31,~~September 30, 2016. Our foreclosed property balances have generally been decreasing as a result of sales activity during the periods and the improvement in our overall asset quality. In the first quarter of 2017, we acquired Carolina Bank and assumed $3.1 million of foreclosed real estate in this transaction.

The following is the composition, by loan type, of all of our nonaccrual loans at each period end, as classified for regulatory purposes:

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

We believe that the fair values of the items of foreclosed real estate, less estimated costs to sell, equal or exceed their respective carrying values at the dates presented. The following table presents the detail of all of our foreclosed real estate at each period end:

The following table presents geographical information regarding our nonperforming assets at ~~March 31,~~September 30, 2017.

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

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

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

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

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

The weak economic environment that began in 2008 resulted in elevated levels of classified and nonperforming assets, which ~~has~~ generally led to higher provisions for loan losses compared to historical averages. ~~While~~Over the past several years, we ~~are seeing the~~have seen ongoing signs of a recovering economy in most of our market ~~areas, it has been a gradual improvement.~~areas. Although we continue to have an elevated level of past due and adversely classified assets compared to historic averages, we believe the severity of the loss rate inherent in our current inventory of classified loans is less than in ~~recent~~the recession years.

We recorded ano provision for loan losses in the third quarters of 2017 or 2016. For the nine months ended September 30, 2017, we recorded total provision for loan losses of $0.7 million ~~and $0.3 million for the first quarters of 2017 and 2016, respectively.~~

~~For periods prior~~compared to ~~the third quarter of 2016, the Company’s~~a total negative provision for loan losses of $23,000 in the same period of 2016. The negative provision in 2016 was disclosed in separate line items between covered loans and non-covered loans. Generally, we had recorded provisions for loan losses on non-covered loans as a result of net charge-offs and loan growth, whileprimarily due to significant recoveries ~~in our previously~~on covered ~~loan portfolios resulted in negative provisions for loan losses. Upon the termination of the FDIC loss share agreements effective September 22, 2016, all loans are classified as non-covered.~~loans.

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

~~Organic~~The provision for loan losses that we record is driven by an allowance for loan loss mathematical model. The primary factors impacting this model are loan growth, ~~for~~net charge-off history, and asset quality trends. In 2017, the ~~first three months~~impact of ~~2017 was $81.3 million compared to only $23.5 million~~strong organic loan growth, which would normally result in ~~growth~~higher provisions for ~~the three months ended March 31, 2016, which resulted in an incremental provision for the~~ loan losses, ~~attributable to~~was substantially offset by net loan ~~growth. As it relates to~~recoveries in 2017 and improving asset quality trends, as shown in a table within Note 8 to the consolidated financial statements, our total classified and nonaccrual loans decreased from $99 million at December 31, 2016 to $96 million at March 31, 2017. Also, for the first three months of 2017, we recorded $1.0 million in net charge-offs, compared to $2.2 million for the same period of 2016.trends.

The allowance for loan losses amounted to ~~$23.5~~$24.6 million at ~~March 31,~~September 30, 2017, compared to $23.8 million at December 31, 2016 and ~~$26.6~~$24.6 million at ~~March 31,~~September 30, 2016. The ratio of our allowance to total loans has declined from ~~1.05%~~0.93% at ~~March 31,~~September 30, 2016 to 0.72% at ~~March 31,~~September 30, 2017 as a result of the factors discussed above that impacted our relatively low levels of provision for loan losses, as well as applicable accounting guidance that does not allow us to record an allowance for loan losses upon the acquisition of loans. Thus, no allowance for loan losses was recorded for the approximately $497 million in loans acquired in the Carolina Bank acquisition – instead the acquired loans were recorded at their fair value, which ~~would include~~included the consideration of any expected losses. See Critical Accounting Policies above for further discussion. Unaccreted discount, which is available to absorb loan losses on a loan-by-loan basis, amounted to $16.9 million, $12.7 million, and $13.2 million at September 30, 2017, December 31, 2016, and September 30, 2016, respectively. The ratios of allowance for loan losses plus unaccreted discount were 1.21%, 1.34%, and 1.43% at September 30, 2017, December 31, 2016, and September 30, 2016, respectively.

We believe our reserve levels are adequate to cover probable loan losses on the loans outstanding as of each reporting date. It must be emphasized, however, that the determination of the reserve using our procedures and methods rests upon various judgments and assumptions about economic conditions and other factors affecting loans. No assurance can be given that we will not in any particular period sustain loan losses that are sizable in relation to the amounts reserved or that subsequent evaluations of the loan portfolio, in light of conditions and factors then prevailing, will not require significant changes in the allowance for loan losses or future charges to earnings. See “Critical Accounting Policies – Allowance for Loan Losses” above.

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

Based on the results of our loan analysis and grading program and our evaluation of the allowance for loan losses at ~~March 31,~~September 30, 2017, there have been no material changes to the allocation of the allowance for loan losses among the various categories of loans since December 31, 2016.

Our liquidity is determined by our ability to convert assets to cash or acquire alternative sources of funds to meet the needs of our customers who are withdrawing or borrowing funds, and to maintain required reserve levels, pay expenses and operate the Company on an ongoing basis. Our primary liquidity sources are net income from operations, cash and due from banks, federal funds sold and other short-term investments. Our securities portfolio is comprised almost entirely of readily marketable securities, which could also be sold to provide cash.

In addition to internally generated liquidity sources, we have the ability to obtain borrowings from the following three sources - 1) an approximately ~~$767~~$813 million line of credit with the Federal Home Loan Bank (of which ~~$237~~$344 million was outstanding at ~~March 31,~~September 30, 2017 and $225 million was outstanding at December 31, 2016), 2) a $35 million federal funds line with a correspondent bank (of which none was outstanding at ~~March 31,~~September 30, 2017 or December 31, 2016), and 3) an approximately ~~$101~~$113 million line of credit through the Federal Reserve Bank of Richmond’s discount window (of which none was outstanding at ~~March 31,~~September 30, 2017 or December 31, 2016). In addition to the outstanding borrowings from the FHLB that reduce the available borrowing capacity of that line of credit, our borrowing capacity was reduced by $190 million at ~~March 31,~~September 30, 2017 and $193 million at December 31, 2016, as a result of our pledging letters of credit for public deposits at each of those dates. Unused and available lines of credit amounted to ~~$476~~$427 million at ~~March 31,~~September 30, 2017 compared to $425 million at December 31, 2016.

Our overall liquidity has decreased slightly since ~~March 31,~~September 30, 2016 but remains sufficient. Our liquid assets (cash and securities) as a percentage of our total deposits and borrowings decreased from ~~19.8%~~19.6% at ~~March 31,~~September 30, 2016 to ~~19.2%~~18.1% at ~~March 31,~~September 30, 2017.

We believe our liquidity sources, including unused lines of credit, are at an acceptable level and remain adequate to meet our operating needs in the foreseeable future. We will continue to monitor our liquidity position carefully and will explore and implement strategies to increase liquidity if deemed appropriate.

The amount and timing of our contractual obligations and commercial commitments has not changed materially since December 31, ~~2015,~~2016, detail of which is presented in Table 18 on page 90 of our 2016 Annual Report on Form 10-K.

We are not involved in any ~~other~~ legal proceedings that, in our opinion, could have a material effect on our consolidated financial position. See Part II – Item 1 for additional information regarding legal proceedings.

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

Derivative financial instruments include futures, forwards, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We have not engaged in significant derivative activities through ~~March 31,~~September 30, 2017, and have no current plans to do so.

The Company is regulated by the Board of Governors of the Federal Reserve Board (“Federal Reserve”) and ~~are~~is subject to the securities registration and public reporting regulations of the Securities and Exchange Commission. Our banking subsidiary, First Bank, is also regulated by the North Carolina Office of the Commissioner of Banks. We are not aware of any recommendations of regulatory authorities or otherwise which, if they were to be implemented, would have a material effect on our liquidity, capital resources, or operations.

We must comply with regulatory capital requirements established by the Federal Reserve. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

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

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

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

At ~~March 31,~~September 30, 2017, our capital ratios exceeded the regulatory minimum ratios discussed above. The following table presents our capital ratios and the regulatory minimums discussed above for the periods indicated.

~~Our bank subsidiary~~First Bank is also subject to capital requirements similar to those discussed above. ~~The bank subsidiary’s~~First Bank’s capital ratios do not vary materially from ~~our~~the Company’s capital ratios presented above. At ~~March 31,~~September 30, 2017, ~~our bank subsidiary~~First Bank significantly exceeded the minimum ratios established by the regulatory authorities.

Our capital ratios are generally lower at ~~March 31,~~September 30, 2017 compared to prior periods due to the acquisition of Carolina Bank in March 2017 (see Note 4 to the Consolidated Financial Statements for more information on this transaction).

In addition to regulatory capital ratios, we also closely monitor our ratio of tangible common equity to tangible assets (“TCE Ratio”). Our TCE ratio was ~~7.79%~~7.95% at ~~March 31,~~September 30, 2017 compared to 8.16% at December 31, 2016 and ~~8.24%~~8.03% at ~~March 31,~~September 30, 2016.

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

We did not repurchase any shares of our common stock during the first ~~three~~nine months of 2017. At ~~March 31,~~September 30, 2017, we had approximately 214,000 shares available for repurchase under existing authority from our ~~board~~Board of ~~directors.~~Directors. We may repurchase these shares in open market and privately negotiated transactions, as market conditions and our liquidity warrants, subject to compliance with applicable regulations. See also Part II, Item 2 “Unregistered Sales of Equity Securities and Use of Proceeds.”

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

Net interest income is our most significant component of earnings. Notwithstanding changes in volumes of loans and deposits, our level of net interest income is continually at risk due to the effect that changes in general market interest rate trends have on interest yields earned and paid with respect to our various categories of earning assets and interest-bearing liabilities. It is our policy to maintain portfolios of earning assets and interest-bearing liabilities with maturities and repricing opportunities that will afford protection, to the extent practical, against wide interest rate fluctuations. Our exposure to interest rate risk is analyzed on a regular basis by management using standard GAP reports, maturity reports, and an asset/liability software model that simulates future levels of interest income and expense based on current interest rates, expected future interest rates, and various intervals of “shock” interest rates. Over the years, we have been able to maintain a ~~fairly~~relatively consistent yield on average earning assets (net interest margin). Over the past five calendar years, our net interest margin has ranged from a low of 4.03% (realized in 2016) to a high of 4.92% (realized in 2013). ~~Up until~~Until the end of 2015, the prime rate of interest had remained at 3.25% since 2008. In response to Federal Reserve actions, the prime rate increased to 3.50% onin December ~~17,~~ 2015 and has since risen to ~~3.75% on December 15, 2016, and to 4.00% on March 16,~~4.25% as of September 30, 2017. The consistency of ~~the~~our net interest margin is aided by the relatively low level of long-term interest rate exposure that we maintain. At ~~March 31,~~September 30, 2017, approximately ~~75%~~77% of our interest-earning assets were subject to repricing within five years (because they are either adjustable rate assets or they are fixed rate assets that mature) and substantially all of our interest-bearing liabilities reprice within five years.

Using stated maturities for all fixed rate instruments except mortgage-backed securities (which are allocated in the periods of their expected payback) and securities and borrowings with call features that are expected to be called (which are shown in the period of their expected call). At ~~March 31,~~September 30, 2017, we had ~~$856 million~~$1.0 billion more in interest-bearing liabilities that are subject to interest rate changes within one year than earning assets. This generally would indicate that net interest income would experience downward pressure in a rising interest rate environment and would benefit from a declining interest rate environment. However, this method of analyzing interest sensitivity only measures the magnitude of the timing differences and does not address earnings, market value, or management actions. Also, interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. In addition to the effects of “when” various rate-sensitive products reprice, market rate changes may not result in uniform changes in rates among all products. For example, included in interest-bearing liabilities subject to interest rate changes within one year at ~~March 31,~~September 30, 2017 are deposits totaling ~~$1.92~~$1.87 billion comprised of checking, savings, and certain types of money market deposits with interest rates set by management. These types of deposits historically have not repriced with, or in the same proportion, as general market indicators.

Overall, we believe that in the near term (twelve months), net interest income will not likely experience significant downward pressure from rising interest rates. Similarly, we would not expect a significant increase in near term net interest income from falling interest rates. Generally, when rates change, our interest-sensitive assets that are subject to adjustment reprice immediately at the full amount of the change, while our interest-sensitive liabilities that are subject to adjustment reprice at a lag to the rate change and typically not to the full extent of the rate change. In the short-term (less than six months), this results in us being asset-sensitive, meaning that our net interest income benefits from an increase in interest rates and is negatively impacted by a decrease in interest rates. However, in the twelve-month horizon, the impact of having a higher level of interest-sensitive liabilities lessens the short-term effects of changes in interest rates.

The general discussion in the foregoing paragraph applies most directly in a “normal” interest rate environment in which longer-term maturity instruments carry higher interest rates than short-term maturity instruments, and is less applicable in periods in which there is a “flat” interest rate curve. A “flat yield curve” means that short-term interest rates are substantially the same as long-term interest rates. As a result of the prolonged negative/fragile economic environment, the Federal Reserve took steps to suppress long-term interest rates in an effort to boost the housing market, increase employment, and stimulate the economy, which resulted in a flat interest rate curve. A flat interest rate curve is an unfavorable interest rate environment for many banks, including the Company, as short-term interest rates generally drive our deposit pricing and longer-term interest rates generally drive loan pricing. When these rates converge, the profit spread we realize between deposit rates and loan yields ~~and deposit rates~~ narrows, which pressures our net interest margin.

While there have been periods in the last few years that the yield curve has steepened somewhat, ~~and has shown recent signs of steepening,~~ it currently remains relatively flat. This flat yield curve and the intense competition for high-quality loans in our market areas have limited our ability to charge higher rates on loans, and thus we continue to experience challenges in increasing our loan yields and net interest margin.

As ~~it relates to deposits,~~noted earlier, the Federal Reserve made no changes to the short term interest rates it sets directly from 2008 until December 2015, and during that time we were able to reprice many of our maturing time deposits at lower interest rates. We were also able to generally decrease the rates we paid on other categories of deposits as a result of declining short-term interest rates in the marketplace and an increase in liquidity that lessened our need to offer premium interest rates. However, as our average funding rate approached zero several years ago, meaningful further declines were not possible. Thus far, the ~~three~~four interest rate increases initiated by the Federal Reserve over the past 1518 months have not resulted in significant competitive pressure to increase deposit ~~rates.~~rates, but we expect the competitive pressures to increase.

As previously discussed in the section “Net Interest Income,” our net interest income has been impacted by certain purchase accounting adjustments related to acquired banks. The purchase accounting adjustments related to the premium amortization on loans, deposits and borrowings are based on amortization schedules and are thus systematic and predictable. The accretion of the loan discount on acquired loans, which amounted to ~~$1.4~~$5.1 million and ~~$1.1~~$3.6 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2017 and 2016, respectively, is less predictable and could be materially different among periods. This is because of the magnitude of the discounts that were initially recorded and the fact that the accretion being recorded is dependent on both the credit quality of the acquired loans and the impact of any accelerated loan repayments, including payoffs. If the credit quality of the loans declines, some, or all, of the remaining discount will cease to be accreted into income. If the underlying loans experience accelerated paydowns or improved performance expectations, the remaining discount will be accreted into income on an accelerated basis. In the event of total payoff, the remaining discount will be entirely accreted into income in the period of the payoff. Each of these factors is difficult to predict and susceptible to volatility. The remaining loan discount on acquired ~~accruing~~ loans amounted to ~~$18.4~~$16.9 million at ~~March 31,~~September 30, 2017.

Based on our most recent interest rate modeling, which assumes one interest rate increase for the remainder of 2017 (federal funds rate = ~~1.25%~~1.50%, prime = ~~4.25%~~4.50%), we project that our net interest margin will likely remain fairly stable ~~for~~over the ~~remainder of the year.~~next twelve months. We expect the yields we earn on excess cash and investment security yields to increase as a result of the recent and expected rate increases, while we expect loan yields to be stable, and deposit rates to gradually rise.

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

See additional discussion regarding net interest income, as well as discussion of the changes in the annual net interest margin in the section entitled “Net Interest Income” above.

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

~~Various~~From time to time, the Company is a party to routine legal proceedings ~~may arise~~within its normal course of business. Management believes that such routine legal proceedings taken together are immaterial to the Company’s financial condition or results of operations. Any non-routine legal proceedings are described in Item 3 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

In our Quarterly Report on Form 10-Q for the period ended June 30, 2017, we reported that a purported shareholder of ASB Bancorp, Inc. filed a lawsuit in the ~~ordinary course~~United States District Court, Western District of ~~business and may be pending or threatened against~~North Carolina, naming the Company, ASB Bancorp, and ~~its subsidiaries. Neither~~members of ASB Bancorp’s board of directors as defendants. The lawsuit alleged inadequate disclosures in ASB Bancorp’s proxy statement/prospectus, violations of the ~~Company nor any~~Securities Exchange Act of ~~its subsidiaries is involved~~1934 and other state law claims. The lawsuit sought, among other remedies, to enjoin the merger or, in ~~any pending legal proceedings that management believes are material~~the event the merger was completed, rescission of the merger or rescissory damages; to direct defendants to account for unspecified damages; and costs of the lawsuit, including attorneys’ and experts’ fees. This lawsuit was dismissed prior to the ~~Company or its consolidated financial position. If an exposure were~~October 1, 2017 completion of the Company’s acquisition of ASB Bancorp, Inc. and is not expected 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.~~refiled.

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, 2016, as well as cautionary statements contained in this Form 10-Q, including those under the caption “Forward-Looking Statements” set forth in the forepart of this Form 10-Q, risks and matters described elsewhere in this Form 10-Q and in our other filings with the SEC.

During the three months ended ~~March 31,~~September 30, 2017, ~~there~~the Company issued 13,374 shares of unregistered common stock in completing the acquisition of Bear Insurance Service — see Note 4 to the consolidated financial statements for additional information. The Company relied upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933 for transactions not involving any public offering due to the small number of shareholders of Bear Insurance Service, their level of financial sophistication and the absence of any general solicitation. There were no other unregistered sales of the Company’s ~~securities.~~

~~Effective March 3, 2017,~~securities during the Company’s Board of Directors amended and restated the bylaws for the second time (as so amended and restated, the “Second Amended and Restated Bylaws”). The Second Amended and Restated Bylaws replace and supersede in their entirety the then existing Amended and Restated Bylaws of the Company (the “Prior Bylaws”) Substantive amendments to the Prior Bylaws include:three months ended September 30, 2017.

The Second Amended and Restated Bylaws also contain various technical, conforming and clarifying changes that more accurately reflect the currently applicable provisions of the North Carolina Business Corporation Act and the Company’s governance practices.

The foregoing description is a summary and does not purport to be a complete description of the Second Amended and Restated Bylaws and is qualified in its entirety by reference to the text of the Company’s Second Amended and Restated Bylaws, which were filed as Exhibit 4.1 to the Company’s Current Report Form 8-K filed on March 9, 2017 and are incorporated herein by reference.

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

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

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


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

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

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


	Page

Part I. Financial Information

Item 1 - Financial Statements

Consolidated Balance Sheets - ~~March 31,~~September 30, 2017 and ~~March 31,~~September 30, 2016 (With Comparative Amounts at December 31, 2016)	4

Consolidated Statements of Income - For the Periods Ended ~~March 31,~~September 30, 2017 and 2016	5

Consolidated Statements of Comprehensive Income - For the Periods Ended ~~March 31,~~September 30, 2017 and 2016	6

Consolidated Statements of Shareholders’ Equity - For the Periods Ended ~~March 31,~~September 30, 2017 and 2016	7

Consolidated Statements of Cash Flows - For the Periods Ended ~~March 31,~~September 30, 2017 and 2016	8

Notes to Consolidated Financial Statements	9

Item 2 – Management’s Discussion and Analysis of Consolidated Results of Operations and Financial Condition	3940

Item 3 – Quantitative and Qualitative Disclosures About Market Risk	5557

Item 4 – Controls and Procedures	5759

Part II. Other Information

Item 1 – Legal Proceedings	5759

Item 1A – Risk Factors	5759

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	57

~~Item 5 – Other Information~~	5860

Item 6 – Exhibits	5860

Signatures	6062

($ in thousands-unaudited)	March 31, 2017			December 31, 2016 (audited)			March 31, 2016			September 30, 2017			December 31, 2016 (audited)			September 30, 2016
ASSETS
Cash and due from banks, noninterest-bearing	$	81,514			71,645			52,393		$	82,758			71,645			64,145
Due from banks, interest-bearing		323,646			234,348			148,734			326,089			234,348			217,188
Federal funds sold		—			—			467
Total cash and cash equivalents		405,160			305,993			201,594			408,847			305,993			281,333

Securities available for sale		214,743			199,329			247,140			198,924			199,329			199,156
Securities held to maturity (fair values of $134,185, $130,195, and $151,684)		133,254			129,713			148,485
Securities held to maturity (fair values of $124,878, $130,195, and $139,514)											123,156			129,713			135,808

Presold mortgages in process of settlement		11,661			2,116			3,102			17,426			2,116			4,094

Loans – non-covered		3,289,355			2,710,712			2,439,830
Loans – covered by FDIC loss share agreement		—			—			99,523
Total loans		3,289,355			2,710,712			2,539,353
Total allowance for loan losses		(23,546	)		(23,781	)		(26,648	)
Loans											3,429,755			2,710,712			2,651,459
Allowance for loan losses											(24,593	)		(23,781	)		(24,575	)
Net loans		3,265,809			2,686,931			2,512,705			3,405,162			2,686,931			2,626,884

Premises and equipment		97,142			75,351			75,268			95,762			75,351			76,731
Accrued interest receivable		10,524			9,286			8,986			11,445			9,286			8,785
FDIC indemnification asset		—			—			6,704
Goodwill		142,872			75,042			67,528			144,667			75,042			75,392
Other intangible assets		12,811			4,433			1,833			15,634			4,433			4,603
Foreclosed real estate		12,789			9,532			10,336			9,356			9,532			10,103
Bank-owned life insurance		86,923			74,138			72,594			88,081			74,138			73,613
Other assets		48,158			42,998			26,691			72,687			42,998			40,978
Total assets	$	4,441,846			3,614,862			3,382,966		$	4,591,147			3,614,862			3,537,480

LIABILITIES
Deposits: Noninterest bearing checking accounts	$	958,175			756,003			679,228		$	1,016,947			756,003			749,256
Interest bearing checking accounts		694,898			635,431			607,617			683,113			635,431			593,065
Money market accounts		814,079			685,331			667,504			795,572			685,331			659,741
Savings accounts		415,600			209,074			194,573			396,192			209,074			207,494
Time deposits of $100,000 or more		486,556			422,687			391,317			517,770			422,687			451,622
Other time deposits		259,862			238,827			286,582			241,647			238,827			249,662
Total deposits		3,629,170			2,947,353			2,826,821			3,651,241			2,947,353			2,910,840
Borrowings		290,403			271,394			186,394			397,525			271,394			236,394
Accrued interest payable		691			539			554			1,143			539			523
Other liabilities		32,121			27,475			19,365			28,737			27,475			24,775
Total liabilities		3,952,385			3,246,761			3,033,134			4,078,646			3,246,761			3,172,532

Commitments and contingencies

SHAREHOLDERS’ EQUITY
Preferred stock, no par value per share. Authorized: 5,000,000 shares
Series C, convertible, issued & outstanding: none, none, and 728,706 shares		—			—			7,287			—			—			7,287
Common stock, no par value per share. Authorized: 40,000,000 shares
Issued & outstanding: 24,663,241, 20,844,505, and 19,865,779 shares		262,180			147,287			135,318
Issued & outstanding: 24,723,929, 20,844,505, and 20,119,411 shares											263,493			147,287			139,979
Retained earnings		231,503			225,921			210,250			251,790			225,921			219,233
Stock in rabbi trust assumed in acquisition		(7,688	)		—			—			(3,571	)		—			—
Rabbi trust obligation		7,688			—			—			3,571			—			—
Accumulated other comprehensive income (loss)		(4,222	)		(5,107	)		(3,023	)		(2,782	)		(5,107	)		(1,551	)
Total shareholders’ equity		489,461			368,101			349,832			512,501			368,101			364,948
Total liabilities and shareholders’ equity	$	4,441,846			3,614,862			3,382,966		$	4,591,147			3,614,862			3,537,480

($ in thousands, except share data-unaudited)	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2017			2016
INTEREST INCOME
Interest and fees on loans	$	33,703			29,573		$	41,549			29,919			114,908			90,301
Interest on investment securities:
Taxable interest income		1,824			1,823			2,004			1,688			5,830			5,472
Tax-exempt interest income		443			445			399			435			1,269			1,312
Other, principally overnight investments		498			222			1,059			213			2,299			612
Total interest income		36,468			32,063			45,011			32,255			124,306			97,697

INTEREST EXPENSE
Savings, checking and money market accounts		522			394			685			401			1,892			1,204
Time deposits of $100,000 or more		714			652			1,053			657			2,641			1,931
Other time deposits		166			274			172			196			511			725
Borrowings		770			548			1,462			647			3,411			1,750
Total interest expense		2,172			1,868			3,372			1,901			8,455			5,610

Net interest income		34,296			30,195			41,639			30,354			115,851			92,087
Provision for loan losses – non-covered		723			1,621
Provision (reversal) for loan losses – covered		—			(1,363	)
Total provision (reversal) for loan losses		723			258
Net interest income after provision for loan losses		33,573			29,937
Provision (reversal) for loan losses								—			—			723			(23	)
Net interest income after provision (reversal) for loan losses								41,639			30,354			115,128			92,110

NONINTEREST INCOME
Service charges on deposit accounts		2,614			2,685			2,945			2,710			8,525			7,960
Other service charges, commissions and fees		3,173			2,830			3,468			2,996			10,195			8,869
Fees from presold mortgage loans		768			371			1,842			710			4,121			1,491
Commissions from sales of insurance and financial products		840			938			1,426			969			3,304			2,844
SBA consulting fees		1,260			—			864			1,178			3,174			1,898
SBA loan sale gains		622			—			1,692			694			3,241			694
Bank-owned life insurance income		508			508			579			514			1,667			1,526
Foreclosed property gains (losses), net		25			210			(216	)		(266	)		(439	)		(189	)
FDIC indemnification asset income (expense), net		—			(2,366	)		—			(5,711	)		—			(10,255	)
Securities gains (losses), net		(235	)		3			—			—			(235	)		3
Other gains (losses), net		234			(177	)		(238	)		1,363			493			1,237
Total noninterest income		9,809			5,002			12,362			5,157			34,046			16,078

NONINTEREST EXPENSES
Salaries expense		13,950			11,475
Salaries								16,550			13,430			46,799			37,465
Employee benefits expense		3,721			2,706			3,375			2,608			10,709			7,892
Total personnel expense		17,671			14,181			19,925			16,038			57,508			45,357
Net occupancy expense		2,184			1,943			2,439			2,005			6,981			5,791
Equipment related expenses		1,058			870			1,070			904			3,277			2,693
Merger and acquisition expenses		2,373			201			1,329			600			4,824			1,286
Intangibles amortization expense		576			186			902			387			2,509			834
Other operating expenses		8,210			7,392			8,719			7,784			26,441			22,677
Total noninterest expenses		32,072			24,773			34,384			27,718			101,540			78,638

Income before income taxes		11,310			10,166			19,617			7,793			47,634			29,550
Income tax expense		3,755			3,329			6,531			3,115			15,839			10,396

Net income		7,555			6,837			13,086			4,678			31,795			19,154

Preferred stock dividends		—			(58	)		—			(58	)		—			(175	)

Net income available to common shareholders	$	7,555			6,779		$	13,086			4,620			31,795			18,979

Earnings per common share:
Basic	$	0.34			0.34		$	0.53			0.23			1.34			0.95
Diluted		0.34			0.33			0.53			0.23			1.33			0.93

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

Weighted average common shares outstanding:
Basic		21,983,963			19,783,747			24,607,516			20,007,518			23,728,262			19,904,226
Diluted		22,064,923			20,553,858			24,695,295			20,785,689			23,827,011			20,697,125

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


Balances, January 1, 2016	$	7,287		19,748	$	133,393		205,060			—			—		(3,550	)		342,190

Net income								6,837											6,837
Cash dividends declared ($0.08 per common share)								(1,589	)										(1,589	)
Preferred dividends								(58	)										(58	)
Equity issued pursuant to acquisition				79		1,500													1,500
Stock option exercises				8		127													127
Stock-based compensation				31		298													298
Other comprehensive income (loss)																527			527

Balances, March 31, 2016	$	7,287		19,866	$	135,318		210,250			—			—		(3,023	)		349,832


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

Net income								7,555											7,555
Cash dividends declared ($0.08 per common share)								(1,973	)										(1,973	)
Equity issued pursuant to acquisition				3,799		114,478					(7,688	)		7,688					114,478
Stock option exercises				4		45													45
Stock-based compensation				15		370													370
Other comprehensive income (loss)																885			885

Balances, March 31, 2017	$	—		24,663	$	262,180		231,503			(7,688	)		7,688		(4,222	)		489,461

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


Balances, January 1, 2016	$	7,287		19,748	$	133,393		205,060			—			—			(3,550	)		342,190

Net income								19,154												19,154
Cash dividends declared ($0.24 per common share)								(4,806	)											(4,806	)
Preferred stock dividends								(175	)											(175	)
Equity issued pursuant to acquisitions				279		5,509														5,509
Stock option exercises				23		375														375
Stock-based compensation				69		702														702
Other comprehensive income (loss)																	1,999			1,999

Balances, September 30, 2016	$	7,287		20,119	$	139,979		219,233			—			—			(1,551	)		364,948


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

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

Balances, September 30, 2017	$	—		24,724	$	263,493		251,790			(3,571	)		3,571			(2,782	)		512,501

($ in thousands)	Purchased Credit Impaired Loans – Carrying Value		Purchased Credit Impaired Loans – Unpaid Principal Balance		Non-impaired Purchased Loans – Carrying Value		Non-impaired Purchased Loans - Unpaid Principal Balance		Total Covered Loans – Carrying Value		Total Covered Loans – Unpaid Principal Balance
Covered loans:
Commercial, financial, and agricultural	$	—		—		743		748		743		748
Real estate – construction, land development & other land loans		207		332		3,435		3,384		3,642		3,716
Real estate – mortgage – residential (1-4 family) first mortgages		80		564		73,531		85,962		73,611		86,526
Real estate – mortgage – home equity loans / lines of credit		7		14		10,128		11,516		10,135		11,530
Real estate – mortgage – commercial and other		873		1,973		10,514		11,105		11,387		13,078
Installment loans to individuals		—		—		5		35		5		35
Total	$	1,167		2,883		98,356		112,750		99,523		115,633

($ in thousands)
Balance at January 1, 2016	$	8,439
Decrease related to favorable changes in loss estimates		(1,230	)
Increase related to reimbursable expenses		99
Cash paid (received)		356
Related to accretion of loan discount		(965	)
Other		5
Balance at March 31, 2016	$	6,704

($ in thousands)	Estimated Amortization Expense		Estimated Amortization Expense
April 1 to December 31, 2017	$	2,579
October 1 to December 31, 2017			$	902
2018		2,862		3,262
2019		2,314		2,654
2020		1,750		2,090
2021		1,288		1,628
Thereafter		1,439		3,792
Total	$	12,232	$	14,328

	For the Nine Months Ended September 30,
	2017			2016			2017			2016			2017 Total			2016 Total
($ in thousands)	Pension Plan			Pension Plan			SERP			SERP			Both Plans			Both Plans
Service cost – benefits earned during the period	$	—			—			88			80			88			80
Interest cost		1,086			1,127			170			178			1,256			1,305
Expected return on plan assets		(2,107	)		(2,025	)		—			—			(2,107	)		(2,025	)
Amortization of transition obligation		—			—			—			—			—			—
Amortization of net (gain)/loss		183			179			(25	)		(27	)		158			152
Amortization of prior service cost		—			—			—			—			—			—
Net periodic pension (income)/cost	$	(838	)		(719	)		233			231			(605	)		(488	)

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

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

($ in thousands)
Description of Financial Instruments	Fair Value at March 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at September 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities	$	19,426		—		19,426		—	$	8,992		—		8,992		—
Mortgage-backed securities		160,786		—		160,786		—		155,535		—		155,535		—
Corporate bonds		34,531		—		34,531		—		34,397		—		34,397		—
Total available for sale securities	$	214,743		—		214,743		—	$	198,924		—		198,924		—

Nonrecurring
Impaired loans		15,797		—		—		15,797	$	14,932		—		—		14,932
Foreclosed real estate		12,789		—		—		12,789		9,356		—		—		9,356

($ in thousands)
Description of Financial Instruments	Fair Value at December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at December 31, 2016		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	$	17,490		—		17,490		—	$	17,490		—		17,490		—
Mortgage-backed securities		148,065		—		148,065		—		148,065		—		148,065		—
Corporate bonds		33,600		—		33,600		—		33,600		—		33,600		—
Equity securities		174		—		174		—		174		—		174		—
Total available for sale securities	$	199,329		—		199,329		—	$	199,329		—		199,329		—

Nonrecurring
Impaired loans		12,284		—		—		12,284	$	12,284		—		—		12,284
Foreclosed real estate		9,532		—		—		9,532		9,532		—		—		9,532

	Three Months Ended March 31,				Three Months Ended September 30,
($ in thousands)	2017		2016		2017		2016
Net interest income, as reported	$	34,296		30,195	$	41,639		30,354
Tax-equivalent adjustment		585		459		702		534
Net interest income, tax-equivalent	$	34,881		30,654	$	42,341		30,888

	Nine Months Ended September 30,
($ in thousands)	2017		2016
Net interest income, as reported	$	115,851		92,087
Tax-equivalent adjustment		1,979		1,510
Net interest income, tax-equivalent	$	117,830		93,597

	For the Three Months Ended
$ in thousands	March 31, 2017		March 31, 2016

Service charges on deposit accounts	$	2,614		2,685
Other service charges, commissions, and fees		3,173		2,830
Fees from presold mortgage loans		768		371
Commissions from sales of insurance and financial products		840		938
SBA consulting fees		1,260		—
SBA loan sale gains		622		—
Bank-owned life insurance income		508		508
Core noninterest income	$	9,785		7,332

	For the Three Months Ended				For the Nine Months Ended
$ in thousands	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016

Service charges on deposit accounts	$	2,945		2,710		8,525		7,960
Other service charges, commissions, and fees		3,468		2,996		10,195		8,869
Fees from presold mortgage loans		1,842		710		4,121		1,491
Commissions from sales of insurance and financial products		1,426		969		3,304		2,844
SBA consulting fees		864		1,178		3,174		1,898
SBA loan sale gains		1,692		694		3,241		694
Bank-owned life insurance income		579		514		1,667		1,526
Core noninterest income	$	12,816		9,771		34,227		25,282

April 1, 2016 to March 31, 2017	Balance at beginning of period		Internal Growth, net			Growth from Acquisitions (1)		Transfer of Loans			Balance at end of period		Total percentage growth		Internal percentage growth
October 1, 2016 to September 30, 2017																	Balance at beginning of period		Internal Growth, net			Growth from Acquisitions (1)		Balance at end of period		Total percentage growth		Internal percentage growth


Loans – Non-covered	$	2,439,830		251,112			498,890		99,523			3,289,355		34.8%		10.3%
Loans – Covered		99,523		—			—		(99,523	)		—		-100.0%		0.0%
Total loans		2,539,353		251,112			498,890		—			3,289,355		29.5%		9.9%
Loans outstanding																	$	2,651,459		280,774			497,522		3,429,755		29.4%		10.6%

Deposits – Noninterest bearing checking		679,228		125,880			153,067		—			958,175		41.1%		18.5%		749,256		120,782			146,909		1,016,947		35.7%		16.1%
Deposits – Interest bearing checking		607,617		29,750			57,531		—			694,898		14.4%		4.9%		593,065		28,277			61,771		683,113		15.2%		4.8%
Deposits – Money market		665,291		55,944			91,192		—			812,427		22.1%		8.4%		658,166		35,562			100,191		793,919		20.6%		5.4%
Deposits – Savings		194,573		24,655			196,372		—			415,600		113.6%		12.7%		207,494		521			188,177		396,192		90.9%		0.3%
Deposits – Brokered		71,128		74,593			11,477		—			157,198		121.0%		104.9%		147,406		56,732			11,477		215,615		46.3%		38.5%
Deposits – Internet time		—		(1,226	)		11,248		—			10,022		—		—		—		(3,253	)		11,248		7,995		—		—
Deposits – Time>$100,000		322,607		(29,267	)		28,067		—			321,407		-0.4%		-9.1%		306,041		(46,818	)		36,783		296,006		-3.3%		-15.3%
Deposits – Time<$100,000		286,377		(40,440	)		13,506		—			259,443		-9.4%		-14.1%		249,412		(36,783	)		28,825		241,454		-3.2%		-14.7%
Total deposits	$	2,826,821		239,889			562,460		—			3,629,170		28.4%		8.5%	$	2,910,840		155,020			585,381		3,651,241		25.4%		5.3%

January 1, 2017 to March 31, 2017
Total loans		2,710,712		81,267			497,376		—			3,289,355		21.3%		3.0%

Deposits – Noninterest bearing checking		756,003		55,263			146,909		—			958,175		26.7%		7.3%
Deposits – Interest bearing checking		635,431		(2,304	)		61,771		—			694,898		9.4%		-0.4%
Deposits – Money market		683,680		28,556			100,191		—			812,427		18.8%		4.2%
Deposits – Savings		209,074		18,349			188,177		—			415,600		98.8%		8.8%
Deposits – Brokered		136,466		9,255			11,477		—			157,198		15.2%		6.8%
Deposits – Internet time		—		(1,226	)		11,248		—			10,022		—		—
Deposits – Time>$100,000		287,939		(3,315	)		36,783		—			321,407		11.6%		-1.2%
Deposits – Time<$100,000		238,760		(8,142	)		28,825		—			259,443		8.7%		-3.4%
Total deposits		2,947,353		96,436			585,381		—			3,629,170		23.1%		3.3%

January 1, 2017 to September 30, 2017
Loans outstanding	$	2,710,712	221,521		497,522	3,429,755	26.5%	8.2%

Deposits – Noninterest bearing checking		756,003	114,035		146,909	1,016,947	34.5%	15.1%
Deposits – Interest bearing checking		635,431	(14,089	)	61,771	683,113	7.5%	-2.2%
Deposits – Money market		683,680	10,048		100,191	793,919	16.1%	1.5%
Deposits – Savings		209,074	(1,059	)	188,177	396,192	89.5%	-0.5%
Deposits – Brokered		136,466	67,672		11,477	215,615	58.0%	49.6%
Deposits – Internet time		—	(3,253	)	11,248	7,995	—	—
Deposits – Time>$100,000		287,939	(28,716	)	36,783	296,006	2.8%	-10.0%
Deposits – Time<$100,000		238,760	(26,131	)	28,825	241,454	1.1%	-10.9%
Total deposits	$	2,947,353	118,507		585,381	3,651,241	23.9%	4.0%

ASSET QUALITY DATA($ in thousands)	As of/for the quarter ended March 31, 2017		As of/for the quarter ended December 31, 2016		As of/for the quarter ended March 31, 2016		As of/for the quarter ended September 30, 2017		As of/for the quarter ended December 31, 2016		As of/for the quarter ended September 30, 2016

Non-covered nonperforming assets
Nonperforming assets
Nonaccrual loans	$	25,684		27,468		41,411	$	23,350		27,468		32,796
Restructured loans – accruing		21,559		22,138		30,514		20,330		22,138		27,273
Accruing loans >90 days past due		—		—		—		—		—		—
Total non-covered nonperforming loans		47,243		49,606		71,925
Total nonperforming loans								43,680		49,606		60,069
Foreclosed real estate		12,789		9,532		10,336		9,356		9,532		10,103
Total non-covered nonperforming assets	$	60,032		59,138		82,261
Total nonperforming assets							$	53,036		59,138		70,172

Total covered nonperforming assets included above (1)	$	—		—		10,698
Purchased credit impaired loans not included above (2)	$	19,167		—		—
Purchased credit impaired loans not included above (1)							$	15,034		—		—

Asset Quality Ratios – All Assets
Net charge-offs to average loans - annualized		0.13%		0.12%		0.35%		-0.07%		0.12%		0.06%
Nonperforming loans to total loans		1.44%		1.83%		2.83%		1.27%		1.83%		2.27%
Nonperforming assets to total assets		1.35%		1.64%		2.43%		1.16%		1.64%		1.98%
Allowance for loan losses to total loans		0.72%		0.88%		1.05%		0.72%		0.88%		0.93%
Allowance for loan losses to nonperforming loans		49.84%		47.94%		37.05%		56.30%		47.94%		40.91%

($ in thousands)	At March 31, 2017		At December 31, 2016		At March 31, 2016		At September 30, 2017		At December 31, 2016		At September 30, 2016
Commercial, financial, and agricultural	$	1,368		1,842		2,514	$	996		1,842		2,253
Real estate – construction, land development, and other land loans		1,607		2,945		4,363		1,565		2,945		3,858
Real estate – mortgage – residential (1-4 family) first mortgages		15,833		16,017		20,689		14,878		16,017		17,989
Real estate – mortgage – home equity loans/lines of credit		2,238		2,355		3,129		2,250		2,355		2,441
Real estate – mortgage – commercial and other		4,577		4,208		10,483		3,534		4,208		6,151
Installment loans to individuals		61		101		233		127		101		104
Total nonaccrual loans	$	25,684		27,468		41,411	$	23,350		27,468		32,796

Total covered nonaccrual loans included above	$	—		—		5,670

($ in thousands)	At March 31, 2017		At December 31, 2016		At March 31, 2016		At September 30, 2017		At December 31, 2016		At September 30, 2016
Vacant land	$	4,977		3,221		4,061	$	3,617		3,221		3,324
1-4 family residential properties		4,864		4,345		3,872		3,257		4,345		4,538
Commercial real estate		2,948		1,966		2,403		2,482		1,966		2,241
Total foreclosed real estate	$	12,789		9,532		10,336	$	9,356		9,532		10,103

Total covered foreclosed real estate included above	$	—		—		1,569

	As of March 31, 2017								As of September 30, 2017
($ in thousands)	Total Nonperforming Loans		Total Loans		Nonperforming Loans to Total Loans		Total Foreclosed Real Estate		Total Nonperforming Loans		Total Loans		Nonperforming Loans to Total Loans		Total Foreclosed Real Estate

Region (1)
Eastern Region (NC)	$	12,656	$	753,000		1.7%	$	1,133	$	10,505		819,000		1.3%	$	1,024
Triangle Region (NC)		11,102		840,000		1.3%		2,356		11,489		873,000		1.3%		1,650
Triad Region (NC)		9,840		941,000		1.0%		3,929		8,954		906,000		1.0%		2,289
Charlotte Region (NC)		740		218,000		0.3%		371		1,276		273,000		0.5%		334
Southern Piedmont Region (NC)		7,860		285,000		2.8%		1,483		6,882		286,000		2.4%		773
Western Region (NC)		132		91,000		0.1%		1,028		125		91,000		0.1%		912
South Carolina Region		2,111		131,000		1.6%		459		2,413		153,000		1.6%		528
Virginia Region (2)		2,802		11,000		25.5%		2,030		1,969		9,000		21.9%		1,846
Other		—		19,000		0.0%		—		67		20,000		0.3%		—
Total	$	47,243	$	3,289,000		1.4%	$	12,789	$	43,680		3,430,000		1.3%	$	9,356

($ in thousands)	Three Months Ended March 31,			Twelve Months Ended December 31,			Three Months Ended March 31,
	2017			2016			2016
Loans outstanding at end of period	$	3,289,355			2,710,712			2,539,353
Average amount of loans outstanding	$	2,903,279			2,603,327			2,528,317

Allowance for loan losses, at beginning of year	$	23,781			28,583			28,583
Provision (reversal) for loan losses		723			(23	)		258
		24,504			28,560			28,841
Loans charged off:
Commercial, financial, and agricultural		(267	)		(2,033	)		(721	)
Real estate – construction, land development & other land loans		(176	)		(1,101	)		(340	)
Real estate – mortgage – residential (1-4 family) first mortgages		(894	)		(3,894	)		(2,030	)
Real estate – mortgage – home equity loans / lines of credit		(231	)		(1,010	)		(485	)
Real estate – mortgage – commercial and other		(326	)		(1,088	)		(248	)
Installment loans to individuals		(311	)		(1,288	)		(280	)
Total charge-offs		(2,205	)		(10,414	)		(4,104	)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural		274			817			116
Real estate – construction, land development & other land loans		491			2,690			1,142
Real estate – mortgage – residential (1-4 family) first mortgages		196			1,207			305
Real estate – mortgage – home equity loans / lines of credit		64			279			58
Real estate – mortgage – commercial and other		142			1,286			175
Installment loans to individuals		80			406			115
Total recoveries		1,247			6,685			1,911
Net charge-offs		(958	)		(3,729	)		(2,193	)
Allowance removed related to sold loans		—			(1,050	)		—
Allowance for loan losses, at end of period	$	23,546			23,781			26,648

Ratios:
Net charge-offs as a percent of average loans (annualized)		0.13%			0.14%			0.35%
Allowance for loan losses as a percent of loans at end of period		0.72%			0.88%			1.05%

($ in thousands)	Nine Months Ended September 30,			Twelve Months Ended December 31,			Nine Months Ended September 30,
	2017			2016			2016
Loans outstanding at end of period	$	3,429,755			2,710,712			2,651,459
Average amount of loans outstanding	$	3,211,844			2,603,327			2,576,605

Allowance for loan losses, at beginning of year	$	23,781			28,583			28,583
Provision (reversal) for loan losses		723			(23	)		(23	)
		24,504			28,560			28,560
Loans charged off:
Commercial, financial, and agricultural		(1,335	)		(2,033	)		(1,273	)
Real estate – construction, land development & other land loans		(312	)		(1,101	)		(638	)
Real estate – mortgage – residential (1-4 family) first mortgages		(1,746	)		(3,894	)		(3,461	)
Real estate – mortgage – home equity loans / lines of credit		(791	)		(1,010	)		(970	)
Real estate – mortgage – commercial and other		(573	)		(1,088	)		(933	)
Installment loans to individuals		(521	)		(1,288	)		(741	)
Total charge-offs		(5,278	)		(10,414	)		(8,016	)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural		848			817			614
Real estate – construction, land development & other land loans		2,280			2,690			2,066
Real estate – mortgage – residential (1-4 family) first mortgages		806			1,207			820
Real estate – mortgage – home equity loans / lines of credit		250			279			217
Real estate – mortgage – commercial and other		973			1,286			1,052
Installment loans to individuals		210			406			312
Total recoveries		5,367			6,685			5,081
Net (charge-offs)/recoveries		89			(3,729	)		(2,935	)
Allowance removed related to sold loans		—			(1,050	)		(1,050	)
Allowance for loan losses, at end of period	$	24,593			23,781			24,575

Ratios:
Net charge-offs as a percent of average loans (annualized)		0.00%			0.14%			0.15%
Allowance for loan losses as a percent of loans at end of period		0.72%			0.88%			0.93%

Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased (2)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
~~January~~July 1, 2017 to ~~January~~July 31, 2017		—		—		—		214,241
~~February~~August 1, 2017 to ~~February 28,~~August 31, 2017		—		—		—		214,241
~~March~~September 1, 2017 to ~~March 31,~~September 30, 2017		—		—		—		214,241
Total		—		—		—		214,241

		FIRST BANCORP


	~~May 10,~~November 9, 2017	BY:/s/ Richard H. Moore
		Richard H. Moore
		Chief Executive Officer
		(Principal Executive Officer),
		~~Treasurer~~ and Director



	~~May 10,~~November 9, 2017	BY:/s/ Eric P. Credle
		Eric P. Credle
		Executive Vice President
		and Chief Financial Officer