UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberJune 30, 2017

2021

Commission File Number 0-15572

FIRST BANCORP

(Exact Name of Registrant as Specified in its Charter)

North Carolina56-1421916
North Carolina56-1421916
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)(I.R.S. Employer Identification Number)
300 SW Broad St.,Southern Pines,North Carolina28387
(Address of Principal Executive Offices)(Zip Code)
(Registrant's telephone number, including area code)(910)246-2500

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered:
Common Stock, No Par ValueFBNCThe Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.xYESoNO

☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).xYESoNO

☒ Yes ☐ No

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

oLarge Accelerated Filer  xAccelerated Filer  oNon-Accelerated Filer  oSmaller Reporting Company

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

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

☐

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

☐ Yes ☒ No

The number of shares of the registrant's Common Stock outstanding on OctoberJuly 31, 20172021 was 29,643,990.

28,489,474.


INDEX

FIRST BANCORP AND SUBSIDIARIES

Page
Page
Consolidated Balance Sheets - SeptemberJune 30, 20172021 and September 30, 2016  (With Comparative Amounts at December 31, 2016)2020
4
Consolidated Statements of Income - For the PeriodsThree and Six Months Ended SeptemberJune 30, 20172021 and 20162020
5
Consolidated Statements of Comprehensive Income - For the PeriodsThree and Six Months Ended SeptemberJune 30, 20172021 and 20162020
6
Consolidated Statements of Shareholders’ Equity - For the PeriodsThree and Six Months Ended SeptemberJune 30, 20172021 and 20162020
7
Consolidated Statements of Cash Flows - For the PeriodsSix Months Ended SeptemberJune 30, 20172021 and 20162020
8
9
Notes to Consolidated Financial Statements
9
10
40
46
57
64
59
66
59
66
59
67
60
67
60
68
62
69


Page 2

Index

FORWARD-LOOKING STATEMENTS

Part I of this report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Further, forward-looking statements are intended to speak only as of the date made. Such statements are often characterized by the use of qualifying words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” or other statements concerning our opinions or judgment about future events. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of our customers, our level of success in integrating acquisitions, actions of government regulators, the level of market interest rates, and general economic conditions.conditions, including the impact of the current pandemic. For additional information about factors that could affect the matters discussed in this paragraph, see the “Risk Factors” section of our 20162020 Annual Report on Form 10-K.

10-K and Item 1A of Part II of this report.


Page 3

Index

Part I. Financial Information

Item 1 - Financial Statements

First Bancorp and Subsidiaries

Consolidated Balance Sheets

($ in thousands-unaudited) September 30,
2017		  December 31,
2016 (audited)		  September 30,
2016		 
ASSETS            
Cash and due from banks, noninterest-bearing $82,758   71,645   64,145 
Due from banks, interest-bearing  326,089   234,348   217,188 
     Total cash and cash equivalents  408,847   305,993   281,333 
             
Securities available for sale  198,924   199,329   199,156 
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  17,426   2,116   4,094 
             
Loans  3,429,755   2,710,712   2,651,459 
Allowance for loan losses  (24,593)  (23,781)  (24,575)
Net loans  3,405,162   2,686,931   2,626,884 
             
Premises and equipment  95,762   75,351   76,731 
Accrued interest receivable  11,445   9,286   8,785 
Goodwill  144,667   75,042   75,392 
Other intangible assets  15,634   4,433   4,603 
Foreclosed real estate  9,356   9,532   10,103 
Bank-owned life insurance  88,081   74,138   73,613 
Other assets  72,687   42,998   40,978 
        Total assets $4,591,147   3,614,862   3,537,480 
             
LIABILITIES            
Deposits:   Noninterest bearing checking accounts $1,016,947   756,003   749,256 
Interest bearing checking accounts  683,113   635,431   593,065 
Money market accounts  795,572   685,331   659,741 
Savings accounts  396,192   209,074   207,494 
Time deposits of $100,000 or more  517,770   422,687   451,622 
Other time deposits  241,647   238,827   249,662 
     Total deposits  3,651,241   2,947,353   2,910,840 
Borrowings  397,525   271,394   236,394 
Accrued interest payable  1,143   539   523 
Other liabilities  28,737   27,475   24,775 
     Total liabilities  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 
Common stock, no par value per share.  Authorized: 40,000,000 shares            
     Issued & outstanding:  24,723,929, 20,844,505, and 20,119,411 shares  263,493   147,287   139,979 
Retained earnings  251,790   225,921   219,233 
Stock in rabbi trust assumed in acquisition  (3,571)  —   — 
Rabbi trust obligation  3,571   —   — 
Accumulated other comprehensive income (loss)  (2,782)  (5,107)  (1,551)
     Total shareholders’ equity  512,501   368,101   364,948 
          Total liabilities and shareholders’ equity $4,591,147   3,614,862   3,537,480 

($ in thousands)June 30,
2021 (unaudited)		December 31,
2020
ASSETS  
Cash and due from banks, noninterest-bearing$83,851 93,724 
Due from banks, interest-bearing391,375 273,566 
Total cash and cash equivalents475,226 367,290 
Securities available for sale2,115,153 1,453,132 
Securities held to maturity (fair values of $292,774 and $170,734)291,728 167,551 
Presold mortgages in process of settlement at fair value13,762 42,271 
SBA Loans held for sale5,480 6,077 
Loans4,782,064 4,731,315 
Allowance for credit losses on loans(65,022)(52,388)
Net loans4,717,042 4,678,927 
Premises and equipment123,395 120,502 
Operating right-of-use lease assets16,432 17,514 
Accrued interest receivable20,357 20,272 
Goodwill231,906 239,272 
Other intangible assets11,062 15,366 
Foreclosed properties826 2,424 
Bank-owned life insurance108,209 106,974 
Other assets70,004 52,179 
Total assets$8,200,582 7,289,751 
LIABILITIES
Deposits:      Noninterest bearing checking accounts$2,651,143 2,210,012 
Interest bearing checking accounts1,378,865 1,172,022 
Money market accounts1,820,475 1,581,364 
Savings accounts593,629 519,266 
Time deposits of $100,000 or more510,722 564,365 
Other time deposits216,524 226,567 
Total deposits7,171,358 6,273,596 
Borrowings61,252 61,829 
Accrued interest payable710 904 
Operating lease liabilities16,893 17,868 
Other liabilities45,859 42,133 
Total liabilities7,296,072 6,396,330 
Commitments and contingencies00
SHAREHOLDERS’ EQUITY
Preferred stock, no par value per share.  Authorized: 5,000,000 shares
Issued & outstanding: NaN and NaN0 0 
Common stock, no par value per share.  Authorized: 40,000,000 shares
Issued & outstanding:  28,491,633 and 28,579,335 shares397,704 400,582 
Retained earnings507,531 478,489 
Stock in rabbi trust assumed in acquisition(1,928)(2,243)
Rabbi trust obligation1,928 2,243 
Accumulated other comprehensive income (loss)(725)14,350 
Total shareholders’ equity904,510 893,421 
Total liabilities and shareholders’ equity$8,200,582 7,289,751 
See accompanying notes to unaudited consolidated financial statements.

Page 4
Index
First Bancorp and Subsidiaries
Consolidated Statements of Income
($ in thousands, except share data-unaudited)Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
INTEREST INCOME
Interest and fees on loans$52,295 51,964 103,368 107,261 
Interest on investment securities:
Taxable interest income7,789 4,771 13,702 10,245 
Tax-exempt interest income474 117 797 281 
Other, principally overnight investments581 788 1,281 1,886 
Total interest income61,139 57,640 119,148 119,673 
INTEREST EXPENSE
Savings, checking and money market accounts1,136 1,333 2,450 3,692 
Time deposits of $100,000 or more681 2,323 1,539 5,247 
Other time deposits182 418 398 908 
Borrowings381 942 764 2,443 
Total interest expense2,380 5,016 5,151 12,290 
Net interest income58,759 52,624 113,997 107,383 
Provision for loan losses0 19,298 0 24,888 
Provision for unfunded commitments1,939 0 1,939 0 
Total provision for credit losses1,939 19,298 1,939 24,888 
Net interest income after provision for credit losses56,820 33,326 112,058 82,495 
NONINTEREST INCOME
Service charges on deposit accounts2,824 2,289 5,557 5,626 
Other service charges, commissions and fees6,496 4,624 12,018 8,693 
Fees from presold mortgage loans2,274 3,020 6,818 4,861 
Commissions from sales of insurance and financial products2,466 2,090 4,656 4,158 
SBA consulting fees2,187 3,739 4,951 4,766 
SBA loan sale gains2,996 1,965 5,326 2,612 
Bank-owned life insurance income614 629 1,234 1,271 
Securities gains (losses), net0 8,024 0 8,024 
Other gains (losses), net1,517 (187)1,483 (113)
Total noninterest income21,374 26,193 42,043 39,898 
NONINTEREST EXPENSES
Salaries expense21,187 20,606 41,318 40,716 
Employee benefits expense4,084 3,847 8,658 8,394 
Total personnel expense25,271 24,453 49,976 49,110 
Occupancy expense2,668 2,724 5,572 5,682 
Equipment related expenses1,053 1,020 2,098 2,165 
Merger and acquisition expenses411 0 411 0 
Intangibles amortization expense845 978 1,742 2,033 
Foreclosed property (gains) losses, net(173)35 (16)194 
Other operating expenses10,910 9,691 21,267 19,793 
Total noninterest expenses40,985 38,901 81,050 78,977 
Income before income taxes37,209 20,618 73,051 43,416 
Income tax expense7,924 4,266 15,572 8,884 
Net income$29,285 16,352 57,479 34,532 
Earnings per common share:
Basic$1.03 0.56 2.02 1.18 
Diluted1.03 0.56 2.02 1.18 
Dividends declared per common share$0.20 0.18 0.40 0.36 
Weighted average common shares outstanding:
Basic28,331,456 28,799,828 28,344,633 29,015,308 
Diluted28,490,031 28,969,728 28,513,942 29,184,421 
See accompanying notes to unaudited consolidated financial statements.

Page 5
Index
First Bancorp and Subsidiaries
Consolidated Statements of Comprehensive Income
($ in thousands-unaudited)Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
Net income$29,285 16,352 57,479 34,532 
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period, pretax4,326 2,772 (19,909)23,537 
Tax (expense) benefit(994)(637)4,575 (5,409)
      Reclassification to realized (gains) losses0 (8,024)0 (8,024)
Tax expense (benefit)0 1,844 0 1,844 
Postretirement Plans:
Amortization of unrecognized net actuarial loss205 180 376 358 
Tax benefit(77)(42)(117)(83)
Other comprehensive income (loss)3,460 (3,907)(15,075)12,223 
Comprehensive income$32,745 12,445 42,404 46,755 
See accompanying notes to unaudited consolidated financial statements.

Page 6
Index
First Bancorp and Subsidiaries
Consolidated Statements of Shareholders’ Equity
($ in thousands, except share data - unaudited)Common StockRetained
Earnings		Stock in
Rabbi
Trust
Assumed
in
Acquisition		Rabbi
Trust
Obligation		Accumulated
Other
Comprehensive
Income
(Loss)		Total
Shareholders’
Equity
SharesAmount
Three Months Ended June 30, 2020
Balances, April 1, 202029,041 $410,236 430,709 (2,602)2,602 21,253 862,198 
Net income16,352 16,352 
Cash dividends declared ($0.18 per common share)(5,215)(5,215)
Change in Rabbi Trust obligation385 (385)0 
Stock repurchases(104)(2,432)(2,432)
Stock-based compensation40 895 895 
Other comprehensive income (loss)(3,907)(3,907)
Balances, June 30, 202028,977 $408,699 441,846 (2,217)2,217 17,346 867,891 
Three Months Ended June 30, 2021
Balances, April 1, 202128,489 $397,094 483,944 (2,256)2,256 (4,185)876,853 
Net income29,285 29,285 
Cash dividends declared ($0.20 per common share)(5,698)(5,698)
Change in Rabbi Trust obligation328 (328)0 
Stock withheld for payment of taxes(4)(221)(221)
Stock-based compensation7 831 831 
Other comprehensive income (loss)3,460 3,460 
Balances, June 30, 202128,492 $397,704 507,531 (1,928)1,928 (725)904,510 

See accompanying notes to unaudited consolidated financial statements.






Page 7
Index
($ in thousands, except share data - unaudited)Common StockRetained
Earnings		Stock in
Rabbi
Trust
Assumed
in
Acquisition		Rabbi
Trust
Obligation		Accumulated
Other
Comprehensive
Income
(Loss)		Total
Shareholders’
Equity
SharesAmount
Six Months Ended June 30, 2020
Balances, January 1, 202029,601 $429,514 417,764 (2,587)2,587 5,123 852,401 
Net income34,532 34,532 
Cash dividends declared ($0.36 per common share)(10,450)(10,450)
Change in Rabbi Trust Obligation370 (370)0 
Stock repurchases(680)(22,432)(22,432)
Stock-based compensation56 1,617 1,617 
Other comprehensive income (loss)12,223 12,223 
Balances, June 30, 202028,977 $408,699 441,846 (2,217)2,217 17,346 867,891 
Six Months Ended June 30, 2021
Balances, January 1, 202128,579 400,582 478,489 (2,243)2,243 14,350 893,421 
Adoption of new accounting standard(17,051)(17,051)
Net income57,479 57,479 
Cash dividends declared $0.40 per common share)(11,386)(11,386)
Change in Rabbi Trust Obligation315 (315)0 
Stock repurchases(107)(4,036)(4,036)
Stock withheld for payment of taxes(7)(324)(324)
Stock-based compensation27 1,482 1,482 
Other comprehensive income (loss)(15,075)(15,075)
Balances, June 30, 202128,492 $397,704 507,531 (1,928)1,928 (725)904,510 

See accompanying notes to unaudited consolidated financial statements.


Page 8
Index
First Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
($ in thousands-unaudited)Six Months Ended June 30,
20212020
Cash Flows From Operating Activities
Net income$57,479 34,532 
Reconciliation of net income to net cash provided by operating activities:
Provision for credit losses1,939 24,888 
Net security premium amortization6,342 1,605 
Loan discount accretion(4,972)(3,234)
Other purchase accounting accretion and amortization, net61 32 
Foreclosed property (gains) losses and write-downs, net(16)194 
Gains on securities available for sale0 (8,024)
Other (gains) losses(1,483)113 
Increase in net deferred loan fees1,084 8,789 
Bank-owned life insurance income(1,234)(1,271)
Depreciation of premises and equipment2,928 2,963 
Amortization of operating lease right-of-use assets808 1,010 
Repayments of lease obligations(697)(920)
Stock-based compensation expense1,228 1,408 
Amortization of intangible assets1,742 2,033 
Amortization of SBA servicing assets1,014 1,416 
Fees/gains from sale of presold mortgages and SBA loans(12,144)(7,473)
Origination of presold mortgage loans in process of settlement(170,132)(170,961)
Proceeds from sales of presold mortgage loans in process of settlement204,588 165,223 
Origination of SBA loans for sale(60,135)(58,396)
Proceeds from sales of SBA loans55,380 45,306 
Increase in accrued interest receivable(85)(3,295)
Decrease (increase) in other assets2,467 (6,935)
Increase in net deferred income tax asset(44)(7,661)
Decrease in accrued interest payable(194)(629)
(Decrease) increase in other liabilities(4,826)23,784 
Net cash provided by operating activities81,098 44,497 
Cash Flows From Investing Activities
Purchases of securities available for sale(857,070)(252,256)
Purchases of securities held to maturity(133,916)(50,272)
Proceeds from maturities/issuer calls of securities available for sale169,819 91,976 
Proceeds from maturities/issuer calls of securities held to maturity8,718 22,907 
Proceeds from sales of securities available for sale0 219,697 
Redemptions of FRB and FHLB stock, net1,836 7,754 
Net increase in loans(40,288)(311,493)
Proceeds from sales of foreclosed properties2,462 1,354 
Purchases of premises and equipment(6,317)(4,428)
Proceeds from sales of premises and equipment218 192 
Net cash paid from sale of insurance operations(555)0 
Net cash used by investing activities(855,093)(274,569)
Cash Flows From Financing Activities
Net increase in deposits897,789 899,841 
        Net decrease in short-term borrowings0 (98,000)
        Proceeds from long-term borrowings0 150,000 
        Payments on long-term borrowings(665)(240,562)
Cash dividends paid – common stock(10,833)(10,563)
Repurchases of common stock(4,036)(22,432)
Payment of taxes related to stock withheld(324)0 
Net cash provided by financing activities881,931 678,284 
Increase in cash and cash equivalents107,936 448,212 
Cash and cash equivalents, beginning of period367,290 231,302 
Cash and cash equivalents, end of period$475,226 679,514 
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest$5,345 12,919 
Cash paid during the period for income taxes16,326 1,110 
Non-cash: Unrealized (loss) gain on securities available for sale, net of taxes(15,334)18,128 
Non-cash: Foreclosed loans transferred to other real estate848 662 
Non-cash: Initial recognition of operating lease right-of-use assets and operating lease liabilities444 0 
Non-cash: Receivable recorded related to sale of insurance operations12,955 0 
Non-cash: Derecognition of intangible assets related to sale of insurance operations(10,229)0 
See accompanying notes to consolidated financial statements.


Page 4

9
Index

First Bancorp and Subsidiaries

Consolidated Statements of Income

($ in thousands, except share data-unaudited) Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
  2017  2016  2017  2016 
INTEREST INCOME                
Interest and fees on loans $41,549   29,919   114,908   90,301 
Interest on investment securities:                
     Taxable interest income  2,004   1,688   5,830   5,472 
     Tax-exempt interest income  399   435   1,269   1,312 
Other, principally overnight investments  1,059   213   2,299   612 
     Total interest income  45,011   32,255   124,306   97,697 
                 
INTEREST EXPENSE                
Savings, checking and money market accounts  685   401   1,892   1,204 
Time deposits of $100,000 or more  1,053   657   2,641   1,931 
Other time deposits  172   196   511   725 
Borrowings  1,462   647   3,411   1,750 
     Total interest expense  3,372   1,901   8,455   5,610 
                 
Net interest income  41,639   30,354   115,851   92,087 
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  2,945   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 
Foreclosed property gains (losses), net  (216)  (266)  (439)  (189)
FDIC indemnification asset income (expense), net  —   (5,711)  —   (10,255)
Securities gains (losses), net  —   —   (235)  3 
Other gains (losses), net  (238)  1,363   493   1,237 
     Total noninterest income  12,362   5,157   34,046   16,078 
                 
NONINTEREST EXPENSES                
Salaries  16,550   13,430   46,799   37,465 
Employee benefits expense  3,375   2,608   10,709   7,892 
   Total personnel expense  19,925   16,038   57,508   45,357 
Net occupancy expense  2,439   2,005   6,981   5,791 
Equipment related expenses  1,070   904   3,277   2,693 
Merger and acquisition expenses  1,329   600   4,824   1,286 
Intangibles amortization expense  902   387   2,509   834 
Other operating expenses  8,719   7,784   26,441   22,677 
     Total noninterest expenses  34,384   27,718   101,540   78,638 
                 
Income before income taxes  19,617   7,793   47,634   29,550 
Income tax expense  6,531   3,115   15,839   10,396 
                 
Net income  13,086   4,678   31,795   19,154 
                 
Preferred stock dividends  —   (58)  —   (175)
                 
Net income available to common shareholders $13,086   4,620   31,795   18,979 
                 
Earnings per common share:                
     Basic $0.53   0.23   1.34   0.95 
     Diluted  0.53   0.23   1.33   0.93 
                 
Dividends declared per common share $0.08   0.08   0.24   0.24 
                 
Weighted average common shares outstanding:                
     Basic  24,607,516   20,007,518   23,728,262   19,904,226 
     Diluted  24,695,295   20,785,689   23,827,011   20,697,125 

See accompanying notes to consolidated financial statements.

 Page 5

Index

First Bancorp and Subsidiaries

Consolidated Statements of Comprehensive Income

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
($ in thousands-unaudited) 2017  2016  2017  2016 
             
Net income $13,086   4,678   31,795   19,154 
Other comprehensive income (loss):                
   Unrealized gains (losses) on securities available for sale:                
Unrealized holding gains (losses) arising during the period, pretax  186   241   3,288   3,131 
      Tax (expense) benefit  (69)  (94)  (1,213)  (1,223)
Reclassification to realized (gains) losses  —   —   235   (3)
      Tax expense (benefit)  —   —   (87)  1 
Postretirement Plans:                
Amortization of unrecognized net actuarial (gain) loss  53   50   158   152 
       Tax expense (benefit)  (20)  (20)  (56)  (59)
Other comprehensive income (loss)  150   177   2,325   1,999 
                 
Comprehensive income $13,236   4,855   34,120   21,153 
                 

See accompanying notes to consolidated financial statements.

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First Bancorp and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(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 

See accompanying notes to consolidated financial statements.

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First Bancorp and Subsidiaries

Consolidated Statements of Cash Flows

  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)
(unaudited)For the PeriodsPeriod Ended SeptemberJune 30, 2017 and 20162021

Note 1 - Basis of Presentation

In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly in all material respects the consolidated financial position of the Company as of SeptemberJune 30, 2017 and 2016 and2021, the consolidated results of operations for the three and six months ended June 30, 2021 and 2020, and the consolidated cash flows for the periodssix months ended SeptemberJune 30, 20172021 and 2016. All2020. Any such adjustments were of a normal, recurring nature. Reference is made to the 20162020 Annual Report on Form 10-K filed with the SECSecurities and Exchange Commission (“SEC”) for a discussion of accounting policies and other relevant information with respect to the financial statements. The results of operations for the periods ended SeptemberJune 30, 20172021 and 20162020 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.

Recent Developments: COVID-19 - The impact of the COVID-19 pandemic has continued to lessen in 2021 in our market areas. Recently however, there has been an emergence of new, more virulent strains of COVID-19 that are now spreading at higher transmission rates than prior strains. We are uncertain what impact this will have on the Company and its market areas.

On December 27, 2020, the Economic Aid Act was signed into law, which included another round of Paycheck Protection Program (PPP) funding. The Company began originating the new round of PPP loans in January 2021. During the first six months of 2021, the Company funded $112 million in PPP loans, while also processing $198 million in forgiveness payments related to 2020 PPP loan originations.

In response to the pandemic onset in 2020, the Company generally offered impacted borrowers loan payment deferrals of 90 days in duration. Since that time, most of our borrowers have resumed payments and as of June 30, 2021, the Company had remaining pandemic-related loan deferrals of $2.1 million.

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

Note 2 – Accounting Policies

Note 1 to the 20162020 Annual Report on Form 10-K filed with the SEC contains a description of the accounting policies followed by the Company and a discussion of recent accounting pronouncements. The following paragraphs update that information as necessary.

In May 2014, the Financial

Accounting Standards Board (“FASB”) issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customersAdopted 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 does not expect these amendments to have a material effect on its financial statements.

2021

In January 2016,August 2018, the FASB amended the Financial Instruments topicCompensation - Retirement Benefits – Defined Benefit Plans Topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation,improve disclosure requirements for employers that sponsor defined benefit pension 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.postretirement plans. The guidance also provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairmentremoved disclosures that were no longer considered cost-beneficial, clarified the specific requirements of disclosures, and adjusted for certain observable price changes and requires a qualitative impairment assessment of such equity investments and amends certain fair valueadded 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 sheetrequirements identified 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. The Company does not expect 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 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.relevant. 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 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, 20172021 and the adoption of this amendment did not have a material effect on its financial statements.

In June 2016,

On January 1, 2021, the FASB issued guidance to change the accounting for credit losses. The guidance requires an entity to utilize a new impairment model known asCompany adopted the current expected credit loss (CECL) guidance in accordance with Accounting Standards Codification ("CECL"ASC") model326. CECL replaced the prior incurred-loss methodology for recognizing credit losses with a methodology that is based on estimating future expected lifetime credit losses. The measurement of expected credit losses under the CECL methodology is applicable to estimate its lifetime "expectedfinancial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to off-balance sheet credit loss" and recordexposures, such as unfunded commitments to extend credit. In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not they will be required to sell.

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The Company adopted CECL as of January 1, 2021 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2021 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”). The transition adjustment of the adoption of CECL included an increase in the allowance for credit losses on loans of $14.6 million, which is presented as a reduction to loans outstanding, and an increase in the allowance for credit losses on unfunded loan commitments of $7.5 million, which is recorded within Other Liabilities. The adoption of CECL had an insignificant impact on the Company's held to maturity and available for sale securities portfolios. The Company recorded a net decrease to retained earnings of $17.1 million as of January 1, 2021 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Federal banking regulatory agencies provided optional relief to delay the adverse regulatory capital impact of CECL at adoption. The Company did not elect the option.

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

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

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

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

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

Accounting Policy Updates
Securities- Debt securities that the Company has the positive intent and ability to hold to maturity are classified as “held to maturity” and carried at amortized cost. Debt securities not classified as held to maturity are classified as “available for sale” and carried at fair value, with unrealized holding gains and losses being reported as other comprehensive income or loss and reported as a separate component of shareholders’ equity.
Interest income includes amortization or purchase premiums or discounts. Premiums and discounts are generally amortized into income on a level yield basis, with premiums being amortized to the earliest call date and discounts being accreted to the stated maturity date. Gains and losses on sales of securities are recognized at the time of sale based upon the specific identification method.
A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income.

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Allowance for Credit Losses - Securities Held to Maturity - Since its adoption of CECL, the Company measures expected credit losses on held to maturity debt securities on an individual security basis. Accrued interest receivable on held to maturity debt securities totaled $1.94 million at June 30, 2021 and was excluded from the estimate of credit losses.
The estimate of expected credit losses is primarily based on the ratings assigned to the securities by debt rating agencies and the average of the annual historical loss rates associated with those ratings. The Company then multiplies those loss rates, as adjusted for any modifications to reflect current conditions and reasonable and supportable forecasts as considered necessary, by the remaining lives of each individual security to arrive at a lifetime expected loss amount.
Virtually all of the mortgage-backed securities held by the Company are issued by government-sponsored corporations. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The state and local governments securities held by the Company are highly rating by major rating agencies. As a result, the allowance for credit losses on held to maturity securities was immaterial at June 30, 2021.
Allowance for Credit Losses - Securities Available for Sale - For available for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income with the establishment of an allowance under CECL compared to a direct write down of the security under Incurred Loss. For debt securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether any decline in fair value is due to credit loss factors. In making this assessment, management considers any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the financial asset, presentssecurity. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Changes in the allowance for credit losses under CECL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. At June 30, 2021, there was 0 allowance for credit losses related to the available-for-sale portfolio.
Accrued interest receivable on available for sale debt securities totaled $4.11 million at June 30, 2021 and was excluded from the estimate of credit losses.
Loans - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $14.3 million at June 30, 2021 and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.

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

All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured.

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Purchased Credit Deteriorated (PCD) Loans - Upon adoption of CECL, loans that were designated as purchased credit impaired (PCI) loans under the previous accounting guidance were classified as PCD loans without reassessment. The amount of PCD loans was immaterial at each period end.
In future acquisitions, the Company may purchase loans, some of which have experienced more than insignificant credit deterioration since origination. In those cases, the Company will consider internal loan grades, delinquency status and other relevant factors in assessing whether purchased loans are PCD. PCD loans are recorded at the amount paid. An initial allowance for credit losses is determined using the same methodology as other loans held for investment, but with no impact to earnings. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan's purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent to initial recognition, PCD loans are subject to the same interest income recognition and impairment model as non-PCD loans, with changes to the allowance for loan losses recorded through provision expense.
Allowance for Credit Losses - Loans - The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Estimated recoveries are considered for post-CECL adoption date charge-offs to the extent that they do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses.
The allowance for credit losses is measured on a collective pool basis when similar risk characteristics exist. Loans with similar risk characteristics are grouped into homogenous segments, or pools, for analysis. The Discounted Cash Flow (“DCF”) method is utilized for substantially all pools, with discounted cash flows computed for each loan in a pool based on its individual characteristics (e.g. maturity date, payment amount, interest rate, etc.), and the results are aggregated at the pool level. A probability of default and loss given default, as adjusted for recoveries (as noted above), are applied to the discounted cash flows for each pool, while considering prepayment and principal curtailment effects. The analysis produces a discounted expected cash flow total for each pool, which is then compared to the amortized cost of the pool to arrive at the expected credit loss.
In determining the proper level of default rates and loss given default, management has determined that the loss experience of the Company provides the best basis for its assessment of expected credit losses. It therefore utilized its own historical credit loss experience by each loan segment over an economic cycle, while excluding loss experience from certain acquired institutions (i.e., failed banks).

Management considers forward-looking information in estimating expected credit losses. For substantially all segments of collectively evaluated loans, the Company incorporates two or more macroeconomic drivers using a statistical regression modeling methodology. The Company subscribes to a third-party service which provides a quarterly macroeconomic baseline forecast and alternative scenarios for the United States economy. The baseline forecast, along with the alternative scenarios, are evaluated by management to determine the best estimate within the range of expected credit losses. The baseline forecast incorporates an equal probability of the United States economy performing better or worse than this projection. With the ongoing pandemic, along with periodic starts and stops to reopening the economy and the impact of government stimulus, the baseline and alternative scenarios have reflected a high degree of volatility in economic forecasts from month-to-month. The Company based its adoption date allowance for credit loss adjustment primarily on the baseline forecast, which reflected ongoing threats to the economy, primarily arising from the pandemic. In reviewing forecasts during 2021, management noted high degrees of volatility in the monthly forecasts. Given the uncertainty that the volatility is indicative of and the inherent imprecision of a forecast accurately projecting economic statistics during these unprecedented times, management elected to base both its March 31, 2021 and June 30, 2021 computations of the allowance for credit losses primarily on an alternative, more negative forecast, that management judged to more appropriately reflect the inherent risks to its loan portfolio.

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

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

The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a discounted cash flow methodology at the loan level, with loss rates, prepayment assumptions and curtailment assumptions driven by each loan’s collateral type:
Commercial, financial, asset.  The CECL modeland agricultural - Risks to this loan category include industry concentration and the inability to monitor the condition of the collateral which often consists of inventory, accounts receivable and other non-real estate assets. Equipment and inventory obsolescence can also pose a risk. Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt. Also included in this category for periods subsequent to March 31, 2020 are PPP loans, which are fully guaranteed by the SBA and thus have minimal risk.
Real estate - construction, land development, & other land loans - Risks common to commercial construction loans are cost overruns, changes in market demand for property, inadequate long-term financing arrangements and declines in real estate values. Residential construction loans are susceptible to those same risks as well as those associated with residential mortgage loans (see below). Changes in market demand for property could lead to longer marketing times resulting in higher carrying costs, declining values, and higher interest rates.
Real estate - mortgage - residential (1-4 family) first - Residential mortgage loans are susceptible to weakening general economic conditions and increases in unemployment rates and declining real estate values.
Real estate - mortgage - home equity loans / lines of credit - Risks common to home equity loans and lines of credit are general economic conditions, including an increase in unemployment rates, and declining real estate values which reduce or eliminate the borrower’s home equity.
Real estate - mortgage - commercial and other - Loans in this category are susceptible to declines in occupancy rates, business failure and general economic conditions. Also, declines in real estate values and lack of suitable alternative use for the properties are risks for loans in this category.
Consumer loans - Risks common to these loans include regulatory risks, unemployment and changes in local economic conditions as well as the inability to monitor collateral consisting of personal property.
When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to 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 applybe provided substantially through the amendments through a cumulative-effect adjustment to retained earnings asoperation or sale of the beginningcollateral, expected credit losses are based on the fair value of the year of adoption. While early adoptioncollateral at the reporting date, adjusted for selling costs as appropriate.
When the discounted cash flow method is permitted beginning in first quarter 2019,used to determine the Company does not expect to elect that option. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the impact of this guidance on its consolidated financial statements, however, the Company expects the adoption of this guidance to result in an increase in the recorded allowance for loan losses.

In August 2016,credit losses, management adjusts the FASB amendedeffective interest rate used to discount expected cash flows to incorporate expected prepayments.


Determining the Statement of Cash Flows topicContractual Term - Expected credit losses are estimated over the contractual term of the Accounting Standards Codification to clarify how certain cash receiptsloans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and cash payments are presented and classified inmodifications unless either of the statement of cash flows. The amendmentsfollowing applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be effective forexecuted with an individual borrower or 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 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 assetsextension or businesses. The amendment 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 this amendment to have a material effect on its financial statements.

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

In March 2017, the FASB amended the requirements in the Compensation—Retirement Benefits topic of the Accounting Standards Codification related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. The amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by pertinent employees during the period. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component. The amendments 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 of the Accounting Standards Codification related to the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In 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.

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 September 30, 2016 have been reclassified to conform to the presentation for 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/branchrenewal options are included in the Company’s results beginningoriginal or modified contract at the reporting date and are not unconditionally cancellable by the Company.


Troubled Debt Restructurings (TDRs) - A loan for which the terms have been modified resulting in a more than insignificant concession, and for which the borrower is experiencing financial difficulties, is generally considered to be a TDR. The allowance for credit loss on 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 the Company’s results beginning on the January 1, 2016 acquisition date.

a TDR is measured using the same method as all other loans held for


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Index

Bankingport was

investment, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring.

Allowance for Credit Losses - Unfunded Loan Commitments - Effective with the adoption of CECL, the Company estimates expected credit losses on commitments to extend credit over the contractual period in which the Company is exposed to credit risk on the underlying commitments, unless the obligation is unconditionally cancellable by the Company. The allowance for off-balance sheet credit exposures, which is reflected within "Other Liabilities," is adjusted for as an insurance agency based in Sanford, North Carolina. This acquisition representedincrease or decrease to the provision for credit losses. The estimate includes consideration of the likelihood that funding will occur and an opportunityestimate of expected credit losses on commitments expected to expandbe funded over its estimated life. The allowance is calculated using the insurance agency operations into a contiguous and significant banking marketsame aggregate reserve rates calculated for the Company. Also, this acquisition providedfunded portion of loans at 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 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 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 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 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 was 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.

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

Carolina Bank Holdings, Inc. was the parent company of Carolina Bank, a North Carolina 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 dueportfolio level applied to the reasons just noted, as well as the positive earningsamount 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, subjectcommitments expected 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 Marchfund.

Note 3 2017 of $30.13 per share.

This acquisition was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Carolina Bank were recorded based on estimates of fair values as of March 3, 2017. The Company 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 $65.5 million in goodwill that resulted from this transaction is non-deductible for tax purposes.

 

($ in thousands)

 

 As
Recorded by
Carolina Bank		  Initial Fair
Value
Adjustments		  Measurement
Period
Adjustments		  As
Recorded by
First Bancorp		 
Assets                
Cash and cash equivalents $81,466   (2)(a) —   81,464 
Securities  49,629   (261)(b) —   49,368 
Loans, gross  505,560   (5,469)(c) 146(l) 497,522 
       (2,715)(d) —     
Allowance for loan losses  (5,746)  5,746(e) —   — 
Premises and equipment  17,967   4,251(f) (319)(m) 21,899 
Core deposit intangible  —   8,790(g) —   8,790 
Other  34,976   (4,804)(h) 2,225(n) 32,397 
   Total  683,852   5,536   2,052   691,440 
                 
Liabilities                
Deposits $584,950   431(i) —   585,381 
Borrowings  21,855   (2,855)(j) (262)(o) 18,738 
Other  12,855   225(k) —   13,080 
   Total  619,660   (2,199)  (262)  617,199 
                 
Net identifiable assets acquired              74,241 
                 
Total cost of acquisition                
   Value of stock issued     $114,478         
   Cash paid in the acquisition      25,279         
       Total cost of acquisition              139,757 
                 
Goodwill recorded related to acquisition of Carolina Bank        $65,516 
                 

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.
(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) Pro Forma Combined
Nine Months Ended
September 30, 2017		  Pro Forma Combined
Nine Months Ended
September 30, 2016		 
Net interest income $119,899   109,787 
Noninterest income  35,236   24,818 
Total revenue  155,135   134,605 
         
Net income available to common shareholders  35,176   16,584 
         
Earnings per common share        
     Basic $1.43   0.70 
     Diluted  1.43   0.68 

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

(5)On September 1, 2017, First Bank Insurance completed the acquisition of Bear Insurance Service (“Bear Insurance”). The results of Bear Insurance are included 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 Montgomery counties and annual commission income of approximately $4 million, represented an opportunity to 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 and the transaction was completed on September 1, 2017 with the Company paying $7.9 million in cash and issuing 13,374 shares of its common stock, which had a value of approximately $0.4 million. Per the terms of the agreement, the Company also recorded an earn-out liability valued at $1.2 million, which will be paid as a cash distribution after a four-year period if pre-determined goals are met for the periods.

This acquisition was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Bear Insurance were recorded based on estimates of fair values as of September 1, 2017. In connection with this 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 $204,000$831,000 and $146,000$895,000 for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and $860,000$1,228,000 and $527,000$1,408,000 for the ninesix months ended SeptemberJune 30, 20172021 and 2016, respectively. Of2020, respectively, which includes the $860,000 in expense that was recorded in 2017, approximately $320,000 relatedvalue of the stock grants to the June 1, 2017 director grants, and is classifieddirectors 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.below. The Company recognized $318,000$191,000 and $206,000 of income tax benefits related to stock basedstock-based compensation expense in the income statement for the ninethree months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and $282,000 and $324,000 for the six months ended June 30, 2021 and 2020, respectively.

At SeptemberJune 30, 2017,2021, the sole equity-based compensation plan for the Company had the following equity-based compensation plans:is the First Bancorp 2014 Equity Plan and the First Bancorp 2007 Equity Plan. The Company’s shareholders(the "Equity Plan"), which was approved all equity-based compensation plans. The First Bancorp 2014 Equity Plan became effective upon the approval ofby shareholders on May 8, 2014. As of SeptemberJune 30, 2017,2021, the First Bancorp 2014 Equity Plan was the only plan that had shares available for future grants, and there were 803,946523,295 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’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 and unrestricted stock, restricted performance stock, unrestricted stock, and performance units.

Recent equity grants For the last several years, the only equity-based compensation granted by the Company has been shares of restricted stock, as it relates to employees, have either had performanceand unrestricted stock as it relates to non-employee directors.

Recent restricted stock awards to employees typically include service-related vesting conditions service vesting conditions, or both.only. Compensation expense for these grantsawards is recorded over the variousrequisite 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 andperiods. Upon forfeiture, any previously recognized compensation cost will beis reversed. The Company issues new shares of common stock when optionsUpon a change in control (as defined in the Equity Plan), unless the awards remain outstanding or substitute equivalent awards are exercised.

provided, the awards become immediately vested.

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

vest. The Company typically grantsissues new shares of common stock when restricted stock is granted.

In addition to employee equity awards, the Company's practice is to grant unrestricted common shares, valued at approximately $32,000, to each non-employee director (currently 10 in total) in June of each year. Compensation expense associated with these director awards is recognized on the date of award since there are no vesting conditions. On June 1, 2017,2021, the Company granted 11,1907,050 shares of common stock to non-employee directors (1,119(705 shares per director), at a fair market value of $28.59$45.41 per share, which was the closing price of the Company’sCompany's common stock on that date, whichand resulted in $320,000 in expense. On June 1, 2016,2020, the Company granted 6,58414,146 shares of common stock to non-employee directors (823(1,286 shares per director), at a fair market value of $19.56$24.87 per share, which was the closing price of the Company’sCompany's common stock on that date, whichand resulted in $129,000$352,000 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 thosedirector grants was $758,000 and is being recognized overclassified as "other operating expense" in the respective vesting periods. The Company recorded $66,000 and $55,000 in compensation expense during the three months ended 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 $66,000 in compensation expense during the last remaining quarterConsolidated Statements of 2017.

In the last three years, the Compensation Committee of the Company’s Board of Directors also granted 130,059 shares of stock to various employees of the Company to promote retention. The total value associated with these grants amounted to $2.8 million, and is being recorded as an expense over their three year vesting periods. For the three months ended September 30, 2017 and 2016, total compensation expense related to these grants was $138,000 and $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 $167,000 in compensation expense during 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.

Income.

The following table presents information regarding the activity for the first ninesix months of 20172021 related to the 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


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Long-Term Restricted Stock
Number of UnitsWeighted-Average
Grant-Date Fair Value
Nonvested at January 1, 2021172,105 $33.80 
Granted during the period26,350 35.19 
Vested during the period(19,415)41.03 
Forfeited or expired during the period(8,011)38.00 
Nonvested at June 30, 2021171,029 $33.00 
Total unrecognized compensation expense as of June 30, 2021 amounted to 2009, stock options were the primary form of equity grant utilized by the Company. The stock options had$2,065,000 with a weighted-average remaining term of ten1.8 years. In a changeFor the nonvested awards that are outstanding at June 30, 2021, the Company expects to record $1,255,000 in control (as definedcompensation expense in the plans), unlessnext twelve months, $797,000 of which is expected to be recorded in the awards remain outstanding or substitute equivalent awards are provided, the awards become immediately vested.

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

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

  Options Outstanding 
  Number of
Shares		  Weighted-
Average
Exercise
Price		  Weighted-
Average
Contractual
Term (years)		  Aggregate
Intrinsic
Value		 
             
Balance at January 1, 2017  59,948  $17.18         
                 
   Granted  —   —         
   Exercised  (19,259)  19.44      $193,844 
   Forfeited  —   —         
   Expired  —   —         
                 
Outstanding at September 30, 2017  40,689  $16.11   0.9  $744,619 
                 
Exercisable at September 30, 2017  40,689  $16.11   0.9  $744,619 

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During the three and nine months ended September 30, 2017, the Company received $0 and $287,000, respectively, as a result of stock option exercises. During the three and nine months ended September 30, 2016, the Company received $0 and $375,000, respectively, as a result of stock option exercises.

Note 64 – 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 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 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 $13,086   24,607,516  $0.53  $4,620   20,007,518  $0.23 
                         
Effect of Dilutive Securities  —   87,779       58   778,171     
                         
Diluted EPS per common share $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 

 For the Three Months Ended June 30,
 20212020
($ in thousands except per
share amounts)		Income
(Numerator)		Shares
(Denominator)		Per Share
Amount		Income
(Numerator)		Shares
(Denominator)		Per Share
Amount
Basic EPS:
Net income$29,285 $16,352 
Less: income allocated to participating securities(163)(96)
Basic EPS per common share$29,122 28,331,456 $1.03 $16,256 28,799,828 $0.56 
Diluted EPS:
Net income$29,285 28,331,456 $16,352 28,799,828 
Effect of Dilutive Securities0 158,575 0 169,900 
Diluted EPS per common share$29,285 28,490,031 $1.03 $16,352 28,969,728 $0.56 


For the Six Months Ended June 30,
20212020
($ in thousands except per
share amounts)		Income
(Numerator)		Shares
(Denominator)		Per Share
Amount		Income
(Numerator)		Shares
(Denominator)		Per Share
Amount
Basic EPS:
Net income$57,479 $34,532 
Less: income allocated to participating securities$(341)$(200)
Basic EPS per common share$57,138 28,344,633 $2.02 $34,332 29,015,308 $1.18 
Diluted EPS:
Net income$57,479 28,344,633 $34,532 29,015,308 
Effect of Dilutive Securities0 169,309 0 169,113 
Diluted EPS per common share$57,479 28,513,942 $2.02 $34,532 29,184,421 $1.18 

Page 17

16
Index

For both

There were 0 options outstanding for any of the three and nine months ended September 30, 2017, there were no options that were antidilutive. For both the three and nine months ended September 30, 2016, there were 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.

periods presented.


Note 75 – Securities


The book values and approximate fair values of investment securities at SeptemberJune 30, 20172021 and December 31, 20162020 are summarized as follows:

  September 30, 2017  December 31, 2016 
  Amortized  Fair  Unrealized  Amortized  Fair  Unrealized 
($ in thousands) Cost  Value  Gains  (Losses)  Cost  Value  Gains  (Losses) 
                         
Securities available for sale:                                
  Government-sponsored enterprise securities $9,000   8,992   1   (9)  17,497   17,490   —   (7)
  Mortgage-backed securities  155,684   155,535   713   (862)  151,001   148,065   155   (3,091)
  Corporate bonds  33,802   34,397   660   (65)  33,833   33,600   91   (324)
  Equity securities  —   —   —   —   83   174   96   (5)
Total available for sale $198,486   198,924   1,374   (936)  202,414   199,329   342   (3,427)
                                 
Securities held to maturity:                                
  Mortgage-backed securities $67,708   67,529   15   (194)  80,585   79,283   —   (1,302)
  State and local governments  55,448   57,349   1,908   (7)  49,128   50,912   1,815   (31)
Total held to maturity $123,156   124,878   1,923   (201)  129,713   130,195   1,815   (1,333)

($ in thousands)June 30, 2021December 31, 2020
Amortized
Cost		Fair
Value		UnrealizedAmortized
Cost		Fair
Value		Unrealized
Gains(Losses)Gains(Losses)
Securities available for sale:
Government-sponsored enterprise securities$70,015 67,872 0 (2,143)70,016 70,206 371 (181)
Mortgage-backed securities2,000,949 2,002,319 18,541 (17,171)1,318,998 1,337,706 20,832 (2,124)
Corporate bonds43,650 44,962 1,458 (146)43,670 45,220 1,760 (210)
Total available for sale$2,114,614 2,115,153 19,999 (19,460)1,432,684 1,453,132 22,963 (2,515)
Securities held to maturity:
Mortgage-backed securities$24,267 25,236 969 0 29,959 30,900 941 0 
State and local governments267,461 267,538 2,278 (2,201)137,592 139,834 2,407 (165)
Total held to maturity$291,728 292,774 3,247 (2,201)167,551 170,734 3,348 (165)

All of the Company’s mortgage-backed securities were issued by government-sponsored corporations, except for one private mortgage-backed securitysecurities with a fair value of $490,000 at September$0.9 million and $1.0 million as of June 30, 2017.

2021 and December 31, 2020, respectively.


The following table presents information regarding securities with unrealized losses at SeptemberJune 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 
  Fair Value  Unrealized
Losses		  Fair Value  Unrealized
Losses		  Fair Value  Unrealized
Losses		 
  Government-sponsored enterprise securities $6,491   9   —   —   6,491   9 
  Mortgage-backed securities  110,437   555   24,250   501   134,687   1,056 
  Corporate bonds  —   —   935   65   935   65 
  State and local governments  —   —   813   7   813   7 
      Total temporarily impaired securities $116,928   564   25,998   573   142,926   1,137 

2021:

($ in thousands)Securities in an Unrealized
Loss Position for
Less than 12 Months		Securities in an Unrealized
Loss Position for
More than 12 Months		Total
Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses
Government-sponsored enterprise securities$67,872 2,143 0 0 67,872 2,143 
Mortgage-backed securities1,189,049 16,975 12,596 196 1,201,645 17,171 
Corporate bonds0 0 4,853 146 4,853 146 
State and local governments90,880 2,201 0 0 90,880 2,201 
Total unrealized loss position$1,347,801 21,319 17,449 342 1,365,250 21,661 














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Index
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

2020:
Index
($ in thousands)Securities in an Unrealized
Loss Position for
Less than 12 Months		Securities in an Unrealized
Loss Position for
More than 12 Months		Total
 Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses
Government-sponsored enterprise securities$29,812 181 0 0 29,812 181 
Mortgage-backed securities497,992 1,957 6,168 167 504,160 2,124 
Corporate bonds3,956 45 835 165 4,791 210 
State and local governments23,310 165 0 0 23,310 165 
Total unrealized loss position$555,070 2,348 7,003 332 562,073 2,680 

As of June 30, 2021 and December 31, 2020, the Company's security portfolio held 155 securities and 69 securities that were in an unrealized loss position, respectively. In the above tables, all of the non-equity securities that were in an unrealized loss position at SeptemberJune 30, 20172021 and December 31, 20162020 are bonds that the Company has determined are in a loss position due primarily to interest rate factors and not credit quality concerns. TheIn arriving at this conclusion, the Company has evaluatedreviewed third-party credit ratings and considered the collectabilityseverity of each of these bonds and has concluded that there is no other-than-temporarythe 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

NaN impairment chargecharges were recognized for any securities during the six months ended June 30, 2020. At adoption of these equityCECL on January 1, 2021 and at June 30, 2021, the Company determined that expected credit losses associated with held to maturity debt securities that remains in an unrealized loss positionwere insignificant. See Note 2 for twelve consecutive months unlessadditional details on the amount is insignificant.

adoption of CECL as it relates to the securities portfolio.

The book values and approximate fair values of investment securities at SeptemberJune 30, 2017,2021, by contractual maturity, are summarized in the table below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

  Securities Available for Sale  Securities Held to Maturity 
  Amortized  Fair  Amortized  Fair 
($ in thousands) Cost  Value  Cost  Value 
             
Debt securities                
Due within one year $—   —   1,872   1,883 
Due after one year but within five years  10,008   10,037   23,907   24,681 
Due after five years but within ten years  27,794   28,242   23,979   25,040 
Due after ten years  5,000   5,110   5,690   5,745 
Mortgage-backed securities  155,684   155,535   67,708   67,529 
Total securities $198,486   198,924   123,156   124,878 

 Securities Available for SaleSecurities Held to Maturity
($ in thousands)Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
Securities
Due within one year$0 0 1,262 1,283 
Due after one year but within five years28,650 29,931 537 553 
Due after five years but within ten years74,015 72,409 8,766 8,825 
Due after ten years11,000 10,494 256,896 256,877 
Mortgage-backed securities2,000,949 2,002,319 24,267 25,236 
Total securities$2,114,614 2,115,153 291,728 292,774 
At SeptemberJune 30, 20172021 and December 31, 2016,2020 investment securities with carrying values of $213,825,000$812,763,000 and $147,009,000,$630,303,000, respectively, were pledged as collateral for public deposits.

In the first nine months of 2017, the Company received proceeds from sales of securities of $45,601,000 and recorded losses of $235,000 from the sales. In the first 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 $30,198,000$21,690,000 and $19,826,000$23,526,000 at SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively. These investments do not have readily determinable fair values. The FHLB stock had a cost and fair value of $18,507,000$3,970,000 and $12,588,000$5,855,000 at SeptemberJune 30, 20172021 and December 31, 2016,2020, 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 $11,691,000$17,720,000 and $7,238,000$17,671,000 at SeptemberJune 30, 20172021 and December 31, 2016,2020, 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 18
Index
The Company owns 12,356 Class B shares of Visa, Inc. (“Visa”) stock that were received upon Visa’s initial public offering. These shares are expected to convert into Class A Visa shares subsequent to the settlement of certain litigation against Visa, to which the Company is not a party. The Class B shares have transfer restrictions, and the conversion rate into Class A shares is periodically adjusted as Visa settles litigation. The conversion rate at June 30, 2021 was approximately 1.62, which means the Company would receive approximately 20,051 Class A shares if the stock had converted on that date. This Class B stock does not have a readily determinable fair value and is carried at 0. If a readily determinable fair value becomes available for the Class B shares, or upon the conversion to Class A shares, the Company will adjust the carrying value of the stock to its market value with a credit to earnings.


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Index
Note 86 – Loans, Allowance for Credit Losses, 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 $497.5 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  478,515 
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) September 30, 2017  December 31, 2016  September 30, 2016 
  Amount  Percentage  Amount  Percentage  Amount  Percentage 
All loans:                  
                   
Commercial, financial, and agricultural $376,940   11%  $261,813   9%  $248,877   9% 
Real estate – construction, land development & other land loans  450,746   13%   354,667   13%   327,863   12% 
Real estate – mortgage – residential (1-4 family) first mortgages  796,222   23%   750,679   28%   756,880   29% 
Real estate – mortgage – home equity loans / lines of credit  315,322   9%   239,105   9%   239,049   9% 
Real estate – mortgage – commercial and other  1,431,934   42%   1,049,460   39%   1,026,328   39% 
Installment loans to individuals  59,028   2%   55,037   2%   52,264   2% 
    Subtotal  3,430,192   100%   2,710,761   100%   2,651,261   100% 
Unamortized net deferred loan costs (fees)  (437)      (49)      198     
    Total loans $3,429,755      $2,710,712      $2,651,459     

($ in thousands)June 30, 2021December 31, 2020
 AmountPercentageAmountPercentage
All  loans:
Commercial, financial, and agricultural$704,096 15 %$782,549 17 %
Real estate – construction, land development & other land loans566,417 12 %570,672 12 %
Real estate – mortgage – residential (1-4 family) first mortgages914,318 19 %972,378 21 %
Real estate – mortgage – home equity loans / lines of credit285,595 6 %306,256 6 %
Real estate – mortgage – commercial and other2,262,492 47 %2,049,203 43 %
Consumer loans53,928 1 %53,955 1 %
Subtotal4,786,846 100 %4,735,013 100 %
Unamortized net deferred loan fees(4,782)(3,698)
Total loans$4,782,064 $4,731,315 

Included in the line item "Commercial, financial, and agricultural" in the table above are PPP loans totaling $155.5 million and $240.5 million at June 30, 2021 and December 31, 2020, respectively. PPP loans are fully guaranteed by the SBA. Included in unamortized net deferred loan fees are approximately $6.2 million and $6.0 million at June 30, 2021 and December 31, 2020, respectively, in unamortized net deferred loan fees associated with PPP loans. These fees are being amortized under the effective interest method over the terms of the loans. Accelerated amortization is recorded in the periods in which principal amounts are forgiven in accordance with the terms of the program.

Also included in the table above are various non-PPP SBA loans, with additional information on these loans presented in the table below.
($ in thousands)June 30, 2021December 31, 2020
Guaranteed portions of non-PPP SBA loans included in table above$32,315 33,959 
Unguaranteed portions of non-PPP SBA loans included in table above126,380 135,703 
Total non-PPP SBA loans included in the table above$158,695 169,662 
Sold portions of SBA loans with servicing retained - not included in tables above$426,940 395,398 
At June 30, 2021 and December 31, 2020, there was a remaining unaccreted discount on the retained portion of sold SBA loans amounting to $7.0 million and $7.3 million, respectively.
As of June 30, 2021, unamortized discounts on acquired loans totaled $5.3 million.
At December 31, 2020, there were remaining accretable discounts of $7.9 million, related to purchased non-impaired loans. The discounts are amortized as yield adjustments over the respective lives of the loans, so long as the loans perform. At December 31, 2020, the carrying value of purchased credit impaired (PCI) loans were $8.6 million.
The following table presents information regarding covered purchased non-impaired loans since January 1, 2016. The amounts include principal only and do not reflect accrued interest as ofchanges in 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 January 1, 2016 $101,252 
Principal repayments  (7,997)
Transfers to foreclosed real estate  (1,036)
Net loan recoveries  1,784 
Accretion of loan discount  1,908 
Transfer to non-covered loans due to expiration of loss-share agreement, April 1, 2016  (17,530)
Transfer to non-covered loans due to termination of loss-share agreements, September 22, 2016  (78,381)
Carrying amount of nonimpaired covered loans at September 30, 2016 $— 

The following table presents information regarding allaccretable yield for PCI loans since January 1, 2016.

($ in thousands)

 

Purchased Credit Impaired Loans

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

for the six months ended June 30, 2020.

Accretable Yield for PCI loansFor the Six Months Ended June 30, 2020
Balance at beginning of period$4,149 
Accretion(742)
Reclassification from (to) nonaccretable difference366 
Other, net(510)
Balance at end of period3,263 

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Index
During the first ninesix months of 2017,2020, the Company received $848,000$414,000 in payments that exceeded the carrying amount of the related PCI loans, of which $775,000$341,000 was recognized as loan discount accretion income, and $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$59,000 was recorded as additional loan interest income, and $33,000$14,000 was recorded as a recovery.

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Index

Nonperforming assets are defined as nonaccrual loans, troubled debt restructured loans (TDRs), 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)

 September 30,
2017		  December 31,
2016		  September 30,
2016		 
          
Nonperforming assets            
Nonaccrual loans $23,350   27,468   32,796 
Restructured loans - accruing  20,330   22,138   27,273 
Accruing loans > 90 days past due  —   —   — 
     Total nonperforming loans  43,680   49,606   60,069 
Foreclosed real estate  9,356   9,532   10,103 
Total nonperforming assets $53,036   59,138   70,172 
             
Purchased credit impaired loans not included above (1) $15,034   —   — 

(1) 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 $0.4 million in purchased credit impaired loans at Septemberfollows.

($ in thousands)June 30,
2021		December 31,
2020
Nonperforming assets  
Nonaccrual loans$32,993 35,076 
TDRs - accruing8,026 9,497 
Accruing loans > 90 days past due0 0 
Total nonperforming loans41,019 44,573 
Foreclosed real estate826 2,424 
Total nonperforming assets$41,845 46,997 
At June 30, 2017 that are contractually past due 90 days or more.

At September 30, 20172021 and December 31, 2016,2020, the Company had $0.9$2.6 million and $1.7$1.9 million in residential mortgage loans in process of foreclosure, respectively.


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

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

categories for the periods indicated.

CECLIncurred Loss
($ in thousands)June 30,
2021		December 31,
2020
Nonaccrual Loans with No AllowanceNonaccrual Loans with an AllowanceTotal Nonaccrual LoansNonaccrual Loans
Commercial, financial, and agricultural$0 9,476 9,476 9,681 
Real estate – construction, land development & other land loans221 172 393 643 
Real estate – mortgage – residential (1-4 family) first mortgages1,759 4,006 5,765 6,048 
Real estate – mortgage – home equity loans / lines of credit378 967 1,345 1,333 
Real estate – mortgage – commercial and other11,467 4,419 15,886 17,191 
Consumer loans0 128 128 180 
Total$13,825 19,168 32,993 35,076 


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

The following table represents the accrued interest receivables written off by reversing interest income during the six months ended June 30, 2021.
($ in thousands)For the Six Months Ended June 30, 2021
Commercial, financial, and agricultural$156 
Real estate – construction, land development & other land loans0 
Real estate – mortgage – residential (1-4 family) first mortgages15 
Real estate – mortgage – home equity loans / lines of credit7 
Real estate – mortgage – commercial and other390 
Consumer loans0 
Total$568 






Page 22

21
Index

The following table presents an analysis of the payment status of the Company’s loans as of SeptemberJune 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		 
                   
Commercial, financial, and agricultural $325   —   —   996   375,364   376,685 
Real estate – construction, land development & other land loans  432   —   —   1,565   447,873   449,870 
Real estate – mortgage – residential (1-4 family) first mortgages  4,911   472   —   14,878   772,651   792,912 
Real estate – mortgage – home equity loans / lines of credit  2,455   —   —   2,250   309,906   314,611 
Real estate – mortgage – commercial and other  1,094   469   —   3,534   1,417,012   1,422,109 
Installment loans to individuals  145   79   —   127   58,620   58,971 
Purchased credit impaired  611   —   449   —   13,974   15,034 
  Total $9,973   1,020   449   23,350   3,395,400   3,430,192 
Unamortized net deferred loan fees                      (437)
           Total loans                     $3,429,755 

2021.

($ in thousands)Accruing
30-59
Days Past
Due		Accruing
60-89
Days
Past
Due		Accruing
90 Days
or More
Past
Due		Nonaccrual
Loans		Accruing
Current		Total Loans
Receivable
Commercial, financial, and agricultural$634 33 0 9,476 693,953 704,096 
Real estate – construction, land development & other land loans65 0 0 393 565,959 566,417 
Real estate – mortgage – residential (1-4 family) first mortgages672 610 0 5,765 907,271 914,318 
Real estate – mortgage – home equity loans / lines of credit474 159 0 1,345 283,617 285,595 
Real estate – mortgage – commercial and other1,425 0 0 15,886 2,245,181 2,262,492 
Consumer loans84 57 0 128 53,659 53,928 
Total$3,354 859 0 32,993 4,749,640 4,786,846 
Unamortized net deferred loan fees(4,782)
Total loans$4,782,064 
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 

2020.

($ in thousands)Accruing
30-59
Days
Past
Due		Accruing
60-89
Days
Past
Due		Accruing
90 Days
or More
Past
Due		Nonaccrual
Loans		Accruing
Current		Total Loans
Receivable
Commercial, financial, and agricultural$1,464 1,101 0 9,681 770,166 782,412 
Real estate – construction, land development & other land loans572 0 0 643 569,307 570,522 
Real estate – mortgage – residential (1-4 family) first mortgages10,146 869 0 6,048 951,088 968,151 
Real estate – mortgage – home equity loans / lines of credit1,088 42 0 1,333 303,693 306,156 
Real estate – mortgage – commercial and other2,540 3,111 0 17,191 2,022,422 2,045,264 
Consumer loans180 36 0 180 53,521 53,917 
Purchased credit impaired328 112 719 0 7,432 8,591 
Total$16,318 5,271 719 35,076 4,677,629 4,735,013 
Unamortized net deferred loan fees(3,698)
Total loans$4,731,315 














Page 22
Index
The following table presents an analysis of collateral-dependent loans of the Company as of June 30, 2021.
($ in thousands)Residential PropertyBusiness AssetsLandCommercial PropertyOtherTotal Collateral-Dependent Loans
Commercial, financial, and agricultural$0 5,522 0 0 0 5,522 
Real estate – construction, land development & other land loans0 0 513 0 0 513 
Real estate – mortgage – residential (1-4 family) first mortgages2,475 0 0 0 0 2,475 
Real estate – mortgage – home equity loans / lines of credit378 0 0 0 0 378 
Real estate – mortgage – commercial and other0 0 135 14,187 0 14,322 
Consumer loans0 0 0 0 4 4 
Total$2,853 5,522 648 14,187 4 23,214 
The Company designates individually evaluated loans on nonaccrual with a net book balance of $250,000 or greater as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.
The Company's policy is to obtain third-party appraisals on any significant pieces of collateral. For loans secured by real estate, the Company's policy is to write nonaccrual loans down to 90% of the appraised value, which considers estimated selling costs. For real estate collateral that is in industries that are undergoing heightened stress, the Company often discounts the collateral values by an additional 10-25% due to additional discounts that are estimated to be incurred in a near-term sale. For non real-estate collateral secured loans, the Company generally writes nonaccrual loans down to 75% of the appraised value, which provides for selling costs and liquidity discounts that are usually incurred when disposing of non real-estate collateral. For reviewed loans that are not on nonaccrual basis, the Company assigns a specific allowance based on the parameters noted above.
The Company does not believe that there is significant over-coverage of collateral for any of the loan types noted above.

Page 23

Index

The following table presents the activity in the allowance for loan losses for all loans for the three and ninesix months ended SeptemberJune 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 
                
As of and for the three months ended September 30, 2017
Beginning balance $3,430   2,676   7,085   2,057   6,153   1,074   1,550   24,025 
Charge-offs  (131)  (43)  (499)  (213)  (159)  (162)  —   (1,207)
Recoveries  330   809   170   120   275   71   —   1,775 
Provisions  (314)  (973)  (281)  (49)  (271)  45   1,843   — 
Ending balance $3,315   2,469   6,475   1,915   5,998   1,028   3,393   24,593 
                                 
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
Individually evaluated for impairment $144   23   929   —   487   —   —   1,583 
Collectively evaluated for impairment $3,171   2,446   5,546   1,915   5,511   1,028   3,393   23,010 
Purchased credit impaired $—   —   —   —   —   —   —   — 
                                 
Loans receivable as of September 30, 2017:
Ending balance – total $376,940   450,746   796,222   315,322   1,431,934   59,028   —   3,430,192 
Unamortized net deferred loan fees                              (437)
Total loans                             $3,429,755 
                                 
Ending balances as of September 30, 2017: Loans
Individually evaluated for impairment $490   3,072   14,987   52   9,443   —   —   28,044 
Collectively evaluated for impairment $376,195   446,798   777,925   314,559   1,412,666   58,971   —   3,387,114 
Purchased credit impaired $255   876   3,310   711   9,825   57   —   15,034 

2021 (under the CECL methodology).

($ in thousands)Commercial,
Financial,
and
Agricultural		Real Estate
–
Construction,
Land
Development
& Other Land
Loans		Real Estate
–
Residential
(1-4 Family)
First
Mortgages		Real Estate
– Mortgage
– Home
Equity
Lines of
Credit		Real Estate
– Mortgage
–
Commercial
and Other		Consumer LoansUnallocatedTotal
As of and for the three months ended June 30, 2021
Beginning balance$13,606 10,134 8,996 4,309 26,507 2,297 0 65,849 
Charge-offs(550)0 (76)(8)(1,324)(173)0 (2,131)
Recoveries153 392 236 218 78 227 0 1,304 
Provisions1,600 (422)(505)(782)97 12 0 0 
Ending balance$14,809 10,104 8,651 3,737 25,358 2,363 0 65,022 
As of and for the six months ended June 30, 2021
Beginning balance$11,316 5,355 8,048 2,375 23,603 1,478 213 52,388 
Adjustment for implementation of CECL3,067 6,140 2,584 2,580 (257)674 (213)14,575 
Charge-offs(1,988)(66)(114)(139)(1,834)(307)0 (4,448)
Recoveries667 686 323 229 340 262 0 2,507 
Provisions1,747 (2,011)(2,190)(1,308)3,506 256 0 0 
Ending balance$14,809 10,104 8,651 3,737 25,358 2,363 0 65,022 


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 to2020 (under the non-covered allowance.

 

($ in thousands)

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

Incurred Loss methodology).

($ in thousands)Commercial,
Financial,
and
Agricultural		Real Estate
–
Construction,
Land
Development
& Other Land
Loans		Real Estate
–
Residential
(1-4 Family)
First
Mortgages		Real Estate
– Mortgage
– Home
Equity
Lines of
Credit		Real Estate
– Mortgage
–
Commercial
and Other		Consumer LoansUnallocatedTotal
As of and for the year ended December 31, 2020
Beginning balance$4,553 1,976 3,832 1,127 8,938 972 0 21,398 
Charge-offs(5,608)(51)(478)(524)(968)(873)0 (8,502)
Recoveries745 1,552 754 487 621 294 0 4,453 
Provisions11,626 1,878 3,940 1,285 15,012 1,085 213 35,039 
Ending balance$11,316 5,355 8,048 2,375 23,603 1,478 213 52,388 
Ending balances as of December 31, 2020: Allowance for loan losses
Individually evaluated for impairment$3,546 30 800 0 2,175 0 0 6,551 
Collectively evaluated for impairment$7,742 5,325 7,141 2,375 21,428 1,475 213 45,699 
Purchased credit impaired$28 0 107 0 0 3 0 138 
Loans receivable as of December 31, 2020:
Ending balance – total$782,549 570,672 972,378 306,256 2,049,203 53,955 0 4,735,013 
Unamortized net deferred loan fees(3,698)
Total loans$4,731,315 
Ending balances as of December 31, 2020: Loans
Individually evaluated for impairment$7,700 677 9,303 15 18,582 4 0 36,281 
Collectively evaluated for impairment$774,712 569,845 958,848 306,141 2,026,682 53,913 0 4,690,141 
Purchased credit impaired$137 150 4,227 100 3,939 38 0 8,591 


Page 25

Index

The following table presents the activity in the allowance for loan losses for the three and ninesix months ended SeptemberJune 30, 2016. There were no covered loans at September 30, 2016 and all reserves associated with previously covered loans have been transferred to2020 (under the non-covered allowance.

 

($ in thousands)

 Commercial,
Financial,
and
Agricultural		  Real Estate
–
Construction,
Land
Development,
& Other
Land Loans		  Real Estate
–
Residential
(1-4 Family)
First
Mortgages		  Real Estate
– Mortgage
– Home
Equity
Lines of
Credit		  Real Estate
– Mortgage
–
Commercial
and Other		  Installment
Loans to
Individuals		  Unallo
-cated		  Covered  Total 
                   
As of and for the three months ended September 30, 2016
Beginning balance $4,282   2,899   7,860   2,285   5,571   1,480   572   1,074   26,023 
Charge-offs  (495)  (161)  (692)  (196)  (288)  (223)  —   —   (2,055)
Recoveries  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  755   (612)  (492)  54   (165)  (38)  498   —   — 
Ending balance $4,531   2,678   7,494   2,383   5,208   1,211   1,070   —   24,575 
                                     
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
Individually evaluated for impairment $9   169   1,306   5   444   —   —   —   1,933 
Collectively evaluated for impairment $4,522   2,509   6,188   2,372��  4,764   1,211   1,070   —   22,636 
Loans acquired with deteriorated credit quality $—   —   —   6   —   —   —   —   6 
                                     
Loans receivable as of September 30, 2016:
Ending balance – total $248,877   327,863   756,880   239,049   1,026,328   52,264   —   —   2,651,261 
Unamortized net deferred loan costs                                  198 
Total loans                                 $2,651,459 
                                     
Ending balances as of September 30, 2016: Loans
Individually evaluated for impairment $1,732   4,181   21,611   310   11,291   1   —   —   39,126 
Collectively evaluated for impairment $247,145   323,682   735,062   238,733   1,014,506   52,263   —   —   2,611,391 
Loans acquired with deteriorated credit quality $—   —   207   6   531   —   —   —   744 

Incurred Loss methodology).

($ in thousands)Commercial,
Financial,
and
Agricultural		Real Estate
–
Construction,
Land
Development
& Other Land
Loans		Real Estate
–
Residential
(1-4 Family)
First
Mortgages		Real Estate
– Mortgage
– Home
Equity
Lines of
Credit		Real Estate
– Mortgage
–
Commercial
and Other		Consumer LoansUnallocatedTotal
As of and for the three months ended June 30, 2020
Beginning balance$4,204 2,599 4,373 1,394 10,913 1,015 0 24,498 
Charge-offs(1,471)(5)(279)(313)(282)(110)0 (2,460)
Recoveries260 353 224 83 55 31 0 1,006 
Provisions2,996 2,730 4,021 1,195 8,069 287 0 19,298 
Ending balance$5,989 5,677 8,339 2,359 18,755 1,223 0 42,342 
As of and for the six months ended June 30, 2020
Beginning balance$4,553 1,976 3,832 1,127 8,938 972 0 21,398 
Charge-offs(3,931)(45)(474)(381)(545)(397)0 (5,773)
Recoveries477 643 315 166 102 126 0 1,829 
Provisions4,890 3,103 4,666 1,447 10,260 522 0 24,888 
Ending balance$5,989 5,677 8,339 2,359 18,755 1,223 0 42,342 
Ending balance as of June 30, 2020: Allowance for loan losses
Individually evaluated for impairment$830 67 817 0 1,052 0 0 2,766 
Collectively evaluated for impairment$5,117 5,610 7,412 2,359 17,699 1,215 0 39,412 
Purchased credit impaired$42 0 110 0 4 8 0 164 
Loans receivable as of June 30, 2020
Ending balance – total$723,053 648,590 1,076,411 318,618 1,959,078 51,161 0 4,776,911 
Unamortized net deferred loan fees(6,848)
Total loans$4,770,063 
Ending balances as of June 30, 2020: Loans
Individually evaluated for impairment$6,736 965 9,743 325 17,697 0 0 35,466 
Collectively evaluated for impairment$716,132 644,747 1,061,470 318,198 1,940,059 51,097 0 4,731,703 
Purchased credit impaired$185 2,878 5,198 95 1,322 64 0 9,742 


Page 26

Index

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

 

($ in thousands)

 Recorded
Investment		  Unpaid
Principal
Balance		  Related
Allowance		  Average
Recorded
Investment		 
Impaired loans with no related allowance recorded:                
                 
Commercial, financial, and agricultural $185   425   —   299 
Real estate – mortgage – construction, land development & other land loans  2,838   4,023   —   2,871 
Real estate – mortgage – residential (1-4 family) first mortgages  6,461   7,029   —   7,533 
Real estate – mortgage –home equity loans / lines of credit  52   79   —   70 
Real estate – mortgage –commercial and other  2,158   2,394   —   3,162 
Installment loans to individuals  —   —   —   1 
Total impaired loans with no allowance $11,694   13,950   —   13,936 
                 
                 
Impaired loans with an allowance recorded:                
                 
Commercial, financial, and agricultural $305   305   144   169 
Real estate – mortgage – construction, land development & other land loans  234   243   23   570 
Real estate – mortgage – residential (1-4 family) first mortgages  8,526   8,721   929   10,198 
Real estate – mortgage –home equity loans / lines of credit  —   —   —   83 
Real estate – mortgage –commercial and other  7,285   7,392   487   5,354 
Installment loans to individuals  —   —   —   — 
Total impaired loans with allowance $16,350   16,661   1,583   16,374 

Interest income on impaired loans recognized during the nine months ended September 30, 2017 was 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		 
Impaired loans with no related allowance recorded:         
             
Commercial, financial, and agricultural $593   706   —   816 
Real estate – mortgage – construction, land development & other land loans  3,221   4,558   —   3,641 
Real estate – mortgage – residential (1-4 family) first mortgages  10,035   12,220   —   11,008 
Real estate – mortgage –home equity loans / lines of credit  114   146   —   139 
Real estate – mortgage –commercial and other  4,598   5,112   —   8,165 
Installment loans to individuals  —   2   —   1 
Total impaired loans with no allowance $18,561   22,744   —   23,770 
                 
                 
Impaired loans with an allowance recorded:                
                 
Commercial, financial, and agricultural $51   51   7   202 
Real estate – mortgage – construction, land development & other land loans  780   798   184   844 
Real estate – mortgage – residential (1-4 family) first mortgages  10,772   11,007   1,339   13,314 
Real estate – mortgage –home equity loans / lines of credit  166   166   5   324 
Real estate – mortgage –commercial and other  1,896   1,929   105   4,912 
Installment loans to individuals  —   —   —   49 
Total impaired loans with allowance $13,665   13,951   1,640   19,645 

2020.

($ in thousands)Recorded
Investment		Unpaid
Principal
Balance		Related
Allowance		Average
Recorded
Investment
Impaired loans with no related allowance recorded:
Commercial, financial, and agricultural$3,688 4,325 — 750 
Real estate – mortgage – construction, land development & other land loans554 694 — 308 
Real estate – mortgage – residential (1-4 family) first mortgages4,115 4,456 — 4,447 
Real estate – mortgage –home equity loans / lines of credit15 27 — 264 
Real estate – mortgage –commercial and other11,763 13,107 — 9,026 
Consumer loans4 4 — 1 
Total impaired loans with no allowance$20,139 22,613 — 14,796 
Impaired loans with an allowance recorded:
Commercial, financial, and agricultural$4,012 4,398 3,546 5,139 
Real estate – mortgage – construction, land development & other land loans123 131 30 502 
Real estate – mortgage – residential (1-4 family) first mortgages5,188 5,361 800 5,186 
Real estate – mortgage –home equity loans / lines of credit0 0 0 21 
Real estate – mortgage –commercial and other6,819 7,552 2,175 5,786 
Consumer loans0 0 0 0 
Total impaired loans with allowance$16,142 17,442 6,551 16,634 
Interest income recorded on impaired loans recognized during the year ended December 31, 20162020 was insignificant.

 Page 27

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


Page 27
Index
The following describes the Company’s internal risk grades in ascending order of likelihood of loss:

Risk GradeDescription
Pass:Risk GradeDescription
Pass:1
1Loans with virtually no risk, including cash secured loans.
2Loans with documented significant overall financial strength.  These loans have minimum chance of loss due to the presence of multiple sources of repayment – each clearly sufficient to satisfy the obligation.
3Loans with documented satisfactory overall financial strength.  These loans have a low loss potential due to presence of at least two clearly identified sources of repayment – each of which is sufficient to satisfy the obligation under the present circumstances.
4Loans to borrowers with acceptable financial condition.  These loans could have signs of minor operational weaknesses, lack of adequate financial information, or loans supported by collateral with questionable value or marketability.  
5Loans that represent above average risk due to minor weaknesses and warrant closer scrutiny by management.  Collateral is generally 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:
6Existing loans with defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Bank.
Classified:
7An existing loan inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any.  These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.
8Loans that have a well-defined weakness that make the collection or liquidation in full highly questionable and improbable.  Loss appears imminent, but the exact amount and timing is uncertain.
9Loans that are considered uncollectible and are in the process of being charged-off.  This grade is a temporary grade assigned for administrative purposes until the charge-off is completed.

F


(Fail)

Consumer loans (<$500,000) with a well-defined weakness, such as exceptions of any kind with no mitigating factors, history of paying outside the terms of the note, insufficient income to support the current level of debt, etc.


Page 28

Index

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of SeptemberJune 30, 2017.

($ in thousands)   
  Pass  Special
Mention Loans		  Classified
Accruing Loans		  Classified
Nonaccrual
Loans		  Total 
                
Commercial, financial, and agricultural $365,505   8,974   1,210   996   376,685 
Real estate – construction, land development & other land loans  435,960   6,009   6,336   1,565   449,870 
Real estate – mortgage – residential (1-4 family) first mortgages  729,341   15,298   33,395   14,878   792,912 
Real estate – mortgage – home equity loans / lines of credit  304,114   1,262   6,985   2,250   314,611 
Real estate – mortgage – commercial and other  1,384,255   23,736   10,584   3,534   1,422,109 
Installment loans to individuals  58,444   224   176   127   58,971 
Purchased credit impaired  6,748   5,002   3,284   —   15,034 
  Total $3,284,367   60,505   61,970   23,350   3,430,192 
Unamortized net deferred loan fees                  (437)
            Total loans                  3,429,755 

2021.

Term Loans by Year of Origination
($ in thousands)20212020201920182017PriorRevolvingTotal
Commercial, financial, and agricultural
Pass$196,025 183,879 96,149 78,898 18,263 24,935 88,325 686,474 
Special Mention17 600 3,199 2,713 202 34 664 7,429 
Classified0 103 1,382 8,019 193 53 443 10,193 
Total commercial, financial, and agricultural196,042 184,582 100,730 89,630 18,658 25,022 89,432 704,096 
Real estate – construction, land development & other land loans
Pass211,053 251,155 50,615 10,583 12,887 10,797 12,915 560,005 
Special Mention220 761 4,283 1 114 28 12 5,419 
Classified86 415 122 186 59 123 2 993 
Total real estate – construction, land development & other land loans211,359 252,331 55,020 10,770 13,060 10,948 12,929 566,417 
Real estate – mortgage – residential (1-4 family) first mortgages
Pass103,275 213,061 124,409 85,317 92,248 264,553 7,931 890,794 
Special Mention1,182 1,310 205 167 373 3,170 96 6,503 
Classified370 164 548 1,398 541 13,122 878 17,021 
Total real estate – mortgage – residential (1-4 family) first mortgages104,827 214,535 125,162 86,882 93,162 280,845 8,905 914,318 
Real estate – mortgage – home equity loans / lines of credit
Pass1,358 424 758 1,379 282 1,334 272,050 277,585 
Special Mention0 0 17 0 0 19 1,151 1,187 
Classified12 111 66 0 0 635 5,999 6,823 
Total real estate – mortgage – home equity loans / lines of credit1,370 535 841 1,379 282 1,988 279,200 285,595 
Real estate – mortgage – commercial and other
Pass624,944 648,750 306,306 182,547 163,321 253,697 43,030 2,222,595 
Special Mention3,889 5,245 2,593 2,780 2,290 1,479 817 19,093 
Classified4,540 3,032 2,520 5,438 4,618 656 0 20,804 
Total real estate – mortgage – commercial and other633,373 657,027 311,419 190,765 170,229 255,832 43,847 2,262,492 
Consumer loans
Pass9,564 25,411 4,660 2,393 987 861 9,703 53,579 
Special Mention0 0 0 0 0 0 3 3 
Classified4 74 26 17 9 60 156 346 
Total consumer loans9,568 25,485 4,686 2,410 996 921 9,862 53,928 
Total$1,156,539 1,334,495 597,858 381,836 296,387 575,556 444,175 4,786,846 
Unamortized net deferred loan fees(4,782)
Total loans4,782,064 

Page 29
Index
At June 30, 2021, as derived from the table above, the Company had $39.6 million in loans graded as Special Mention and $56.2 million in loans graded as Classified, which includes all nonaccrual loans.
In the table above, substantially all of the "Classified Loans" have grades of 7 or Fail, with those categories having similar levels of risk. The amount of revolving lines of credit that converted to term loans during the period was immaterial.
The following table presents 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 

2020.

($ in thousands)PassSpecial
Mention Loans		Classified
Accruing Loans		Classified
Nonaccrual
Loans		Total
Commercial, financial, and agricultural$762,091 9,553 1,087 9,681 782,412 
Real estate – construction, land development & other land loans560,845 7,877 1,157 643 570,522 
Real estate – mortgage – residential (1-4 family) first mortgages943,455 7,609 11,039 6,048 968,151 
Real estate – mortgage – home equity loans / lines of credit297,795 1,468 5,560 1,333 306,156 
Real estate – mortgage – commercial and other1,988,684 34,588 4,801 17,191 2,045,264 
Consumer loans53,488 80 169 180 53,917 
Purchased credit impaired6,901 85 1,605 0 8,591 
Total$4,613,259 61,260 25,418 35,076 4,735,013 
Unamortized net deferred loan fees(3,698)
Total loans4,731,315 
Troubled Debt Restructurings

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

The vast majority of the Company’s troubled debt restructuringsTDR's modified during the periods ended June 30, 2021 and June 30, 2020 related to interest rate reductions combined with restructured amortization schedules.extension of terms. 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 restructuringsTDR's can be classified as either nonaccrual or accruing based on the loan’s payment status. The troubled debt restructuringsTDR's that are nonaccrual are reported within the nonaccrual loan totals presented previously.

As of June 30, 2021, the Company had granted short-term deferrals related to the COVID-19 pandemic for $2.1 million of loans that were otherwise performing prior to modification. Pursuant to the CARES Act and banking regulator guidance, these loans are not considered TDRs.


















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30
Index



The following table presents information related to loans modified in a troubled debt restructuringTDR during the three months ended SeptemberJune 30, 20172021 and 2016.

($ in thousands) 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		 
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  —   —   —   —   —   — 
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  —  $—  $—   1  $1,071  $1,071 
                         
Total covered TDRs arising during period included above  —  $—  $—   —  $—  $— 

2020.
($ in thousands)For the three months ended June 30, 2021For the three months ended June 30, 2020
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 agricultural0 $0 $0 0 $0 $0 
Real estate – construction, land development & other land loans0 0 0 1 67 67 
Real estate – mortgage – residential (1-4 family) first mortgages1 33 33 2 75 78 
Real estate – mortgage – home equity loans / lines of credit0 0 0 0 0 0 
Real estate – mortgage – commercial and other0 0 0 0 0 0 
Consumer loans0 0 0 0 0 0 
TDRs – Nonaccrual
Commercial, financial, and agricultural2 715 715 0 0 0 
Real estate – construction, land development & other land loans1 75 75 0 0 0 
Real estate – mortgage – residential (1-4 family) first mortgages1 263 263 0 0 0 
Real estate – mortgage – home equity loans / lines of credit0 0 0 0 0 0 
Real estate – mortgage – commercial and other3 1,569 1,569 0 0 0 
Consumer loans0 0 0 0 0 0 
Total TDRs arising during period8 $2,655 $2,655 3 $142 $145 



























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31
Index


The following table presents information related to loans modified in a troubled debt restructuringTDR during the ninesix months ended SeptemberJune 30, 20172021 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  —  $—  $—   —  $—  $— 

2020.

($ in thousands)For the six months ended June 30, 2021For the six months ended June 30, 2020
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 agricultural0 $0 $0 2 $143 $143 
Real estate – construction, land development & other land loans0 0 0 1 67 67 
Real estate – mortgage – residential (1-4 family) first mortgages1 33 33 2 75 78 
Real estate – mortgage – home equity loans / lines of credit0 0 0 0 0 0 
Real estate – mortgage – commercial and other1 160 160 0 0 0 
Consumer loans0 0 0 0 0 0 
TDRs – Nonaccrual
Commercial, financial, and agricultural3 826 823 0 0 0 
Real estate – construction, land development & other land loans1 75 75 0 0 0 
Real estate – mortgage – residential (1-4 family) first mortgages1 263 263 0 0 0 
Real estate – mortgage – home equity loans / lines of credit0 0 0 0 0 0 
Real estate – mortgage – commercial and other3 1,569 1,569 0 0 0 
Consumer loans0 0 0 0 0 0 
Total TDRs arising during period10 $2,926 $2,923 5 $285 $288 

Accruing restructured loans that were modified in the previous 12twelve months and that defaulted during the three months ended SeptemberJune 30, 20172021 and 20162020 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

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—$——$—

($ in thousands)For the Three Months Ended June 30, 2021For the Three Months Ended June 30, 2020
Number of
Contracts		Recorded
Investment		Number of
Contracts		Recorded
Investment
Accruing TDRs that subsequently defaulted
Real estate – mortgage – residential (1-4 family first mortgages)0 $0 0 $0 
Real estate – mortgage – commercial and other0 0 1 274 
Total accruing TDRs that subsequently defaulted0 $0 1 $274 



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32
Index

Accruing restructured loans that were modified in the previous 12twelve months and that defaulted during the ninesix months ended SeptemberJune 30, 20172021 and 20162020 are presented in the table below.

($ in thousands) For the nine months ended
September 30, 2017		  For the nine months ended
September 30, 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  2   880   —   — 
Real estate – mortgage – commercial and other  —   —   1   21 
Total accruing TDRs that subsequently defaulted  2  $880   2  $65 
Total covered accruing TDRs that subsequently defaulted included above  —  $—   1  $44 

($ in thousands)For the Six Months Ended June 30, 2021For the Six Months Ended June 30, 2020
Number of
Contracts		Recorded
Investment		Number of
Contracts		Recorded
Investment
Accruing TDRs that subsequently defaulted
Real estate – mortgage – residential (1-4 family first mortgages)0 $0 0 $0 
Real estate – mortgage – commercial and other0 0 1 274 
Total accruing TDRs that subsequently defaulted0 $0 1 $274 


Allowance for Credit Losses - Unfunded Loan Commitments

In addition to the allowance for credit losses on loans, the Company maintains an allowance for lending-related commitments such as unfunded loan commitments and letters of credit. Under CECL, the Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for lending-related commitments on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans, and are discussed in Note 9 – Deferred Loan (Fees) Costs

2. The amountallowance for credit losses for unfunded loan commitments of loans shown$10.0 million and $0.6 million at June 30, 2021 and December 31, 2020, respectively, is separately classified on the Consolidated Balance Sheets includes net deferred loan (fees) costs of approximately ($437,000), ($49,000),balance sheet within the line items "Other Liabilities". The following table presents the balance and $198,000 at September 30, 2017, December 31, 2016, and September 30, 2016, respectively.

Note 10 – FDIC Indemnification Asset

The Company terminated all loss share agreements with the FDIC effective September 22, 2016. As a result, the remaining balanceactivity in the FDIC Indemnification Asset, which representedallowance for credit losses for unfunded loan commitments for the estimated amountsix months ended June 30, 2021.

($ in thousands)Total Allowance for Credit Losses - Unfunded Loan Commitments
Beginning balance at December 31, 2020$582 
Adjustment for implementation of CECL on January 1, 20217,504 
Charge-offs0 
Recoveries0 
Provisions for credit losses on unfunded commitments1,939 
Ending balance at June 30, 2021$10,025 

Allowance for Credit Losses - Securities Held to be received fromMaturity
As previously discussed, the FDIC under the loss share agreements,allowance for credit losses for securities held to maturity was written off as indemnification asset expense as of the termination date.

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

($ in thousands)   
Balance at January 1, 2016 $8,439 
Decrease related to favorable changes in loss estimates  (2,246)
Increase related to reimbursable expenses  205 
Cash paid (received)  1,554 
Related to accretion of loan discount  (2,005)
Other  (236)
Write off of asset balance upon termination of FDIC loss share agreements effective September 22, 2016  (5,711)
Balance at September 30, 2016 $— 
immaterial at June 30, 2021.

Note 117 – Goodwill and Other Intangible Assets

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of SeptemberJune 30, 2017,2021 and December 31, 2016, and September 30, 20162020, and the carrying amount of unamortized intangible assets as of those same dates.

  September 30, 2017  December 31, 2016  September 30, 2016 
($ in thousands) Gross Carrying
Amount		  Accumulated
Amortization		  Gross Carrying
Amount		  Accumulated
Amortization		  Gross Carrying
Amount		  Accumulated
Amortization		 
Amortizable intangible assets:                        
   Customer lists $6,013   953   2,369   746   2,369   668 
   Core deposit premiums  18,520   10,084   9,730   8,143   9,730   7,902 
   Other  1,303   471   1,032   224   1,032   166 
        Total $25,836   11,508   13,131   9,113   13,131   8,736 
                         
SBA servicing asset $1,306       415       208     
                         
Unamortizable intangible assets:                        
   Goodwill $144,667       75,042       75,392     


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Index

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

(1)In connection with the January 1, 2016 acquisition of Bankingport, Inc., the Company recorded $1,693,000 in goodwill, $591,000 in a customer list intangible, and $92,000 in other amortizable intangible assets.
(2)In connection with the May 5, 2016 acquisition of
June 30, 2021December 31, 2020
($ in thousands)Gross Carrying
Amount		Accumulated
Amortization		Gross Carrying
Amount		Accumulated
Amortization
Amortizable intangible assets:
Customer lists$2,700 1,141 7,613 2,814 
Core deposit intangibles28,440 25,115 28,440 23,832 
SBA servicing asset11,291 5,202 9,976 4,188 
Other1,040 951 1,403 1,232 
Total$43,471 32,409 47,432 32,066 
Unamortizable intangible assets:
Goodwill$231,906 239,272 
SBA Complete, Inc., the Company recorded $4,333,000 in goodwill, $1,100,000 in a customer list intangible, and $940,000 in other amortizable intangible assets.
(3)In connection with the branch exchange transaction with First Community Bank on July 15, 2016, the Company recorded a net increase of $1,961,000 in goodwill and $1,170,000 in core deposit premiums.
(4)In connection with the Carolina Bank acquisition on March 3, 2017, the Company recorded a net increase of $65,516,000 in goodwill and $8,790,000 in core deposit premiums.
(5)In connection with the September 1, 2017 acquisition of Bear Insurance Service, the Company recorded $5,330,000 in goodwill, $3,644,000 in a customer list intangible, and $271,000 in other amortizable intangible assets.

In addition to the above acquisition related activity, the Company recorded $415,000 in net servicing assets associated withare recorded for the guaranteed portionportions of SBA loans originated and sold during the third and fourth quarters of 2016. During the first nine months of 2017,that the Company recorded an additional $1,003,000 in servicing assets, as well as $112,000 in amortization expense.has sold but continues to service for a fee. Servicing assets are initially recorded at fair value and amortized over the expected lives of the related loans.

loans and are tested for impairment on a quarterly basis. SBA servicing asset amortization expense is recorded within noninterest income as an offset to SBA servicing fees within the line item "Other service charges, commissions, and fees." As derived from the table above, the Company had a SBA servicing asset at June 30, 2021 with a remaining book value of $6,089,000. The Company recorded $1,315,000 and $704,000 in servicing assets associated with the guaranteed portion of SBA loans sold during the first six months of 2021 and 2020, respectively. During the first six months of 2021 and 2020, the Company recorded $1,014,000 and $1,416,000, respectively, in related amortization expense. Included in the amortization expense for the first six months of 2020 was an impairment charge of approximately $500,000 due to a decrease in the fair value of the asset resulting from deterioration in market conditions at March 31, 2020. At June 30, 2021 and December 31, 2020, the Company serviced for others SBA loans totaling $426.9 million and $395.4 million, respectively.

In the second quarter of 2021, the Company completed the sale of the operations and substantially all of the operating assets of its property and casualty insurance agency subsidiary, First Bank Insurance Services. In the transaction, intangible assets totaling $10.2 million were derecognized from the Company's balance sheet, including goodwill of $7.4 million and customer lists with a carrying value of $2.8 million.
Amortization expense of all other intangible assets, excluding the SBA servicing asset, totaled $902,000$845,000 and $387,000$978,000 for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and $2,509,000$1,742,000 and $834,000$2,033,000 for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.

Goodwill is evaluated for impairment on at least an annual basis, with the annual evaluation occurring on October 31st of each year. Goodwill is also evaluated for impairment any time there is a triggering event indicating that impairment may have occurred. In addition the 2020 annual impairment evaluation, due to the COVID-19 pandemic, the Company evaluated its goodwill for impairment at each of the first three quarter ends of 2020, with each evaluation indicating that there was 0 impairment. Due to improving economic conditions and increases in the Company's stock price and market capitalization at year end 2020 and throughout 2021, no triggering events were identified and therefore, the Company has not performed interim impairment evaluations since the third quarter of 2020.
The following table presents the estimated amortization expense schedule related to acquisition-related amortizable intangible assets, excluding SBA servicing assets, forassets. These amounts will be recorded as "Intangibles amortization expense" within the last quarter of calendar year 2017 and for eachnoninterest expense section of the four calendar years ending December 31, 2021 and the estimated amount amortizable thereafter.Consolidated Statements of Income. These estimates are subject to change in future periods to the extent management determines it is necessary to make adjustments to the carrying value or

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estimated useful lives of amortized intangible assets.

($ in thousands)

 

 Estimated Amortization
Expense		 
October 1 to December 31, 2017 $902 
2018  3,262 
2019  2,654 
2020  2,090 
2021  1,628 
Thereafter  3,792 
         Total $14,328 
     

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income within the line item "Other service charges, commissions and fees" of the Consolidated Statements of Income.
Index
($ in thousands)Estimated Amortization
Expense
July 1, 2021 to December 31, 2021$1,337 
20221,994 
20231,037 
2024392 
2025213 
Thereafter0 
Total$4,973 

Note 128 – Pension Plans

The Company has historically sponsored two2 defined benefit pension plans – a qualified retirement plan (the “Pension Plan”) which was generally available to all employees, and a Supplemental Executive Retirement Plan (the “SERP”), which was for the benefit of certain senior management executives of the Company. Effective December 31, 2012, the Company froze both plans for all participants. Although no previously accrued benefits were lost, employees no longer accrue benefits for service subsequent to 2012.

The Company recorded periodic pension incomecost totaling $202,000$126,000 and $163,000$215,000 for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, which primarily related to investment income fromand $317,000 and $431,000 for the Pension Plan’s assets.six months ended June 30, 2021 and 2020. The following table contains the components of the pension income.

  For the Three 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 $—   —   29   27   29   27 
Interest cost  361   375   57   60   418   435 
Expected return on plan assets  (702)  (675)  —   —   (702)  (675)
Amortization of transition obligation  —   —   —   —   —   — 
Amortization of net (gain)/loss  61   59   (8)  (9)  53   50 
Amortization of prior service cost  —   —   —   —   —   — 
   Net periodic pension (income)/cost $(280)  (241)  78   78   (202)  (163)

cost.

 For the Three Months Ended June 30,
($ in thousands)2021 Pension Plan2020 Pension Plan2021 SERP2020 SERP2021 Total Both Plans2020 Total Both Plans
Service cost$0 0 0 0 0 0 
Interest cost104 305 20 55 124 360 
Expected return on plan assets(203)(325)0 0 (203)(325)
Amortization of net (gain)/loss158 221 47 (41)205 180 
Net periodic pension cost$59 201 67 14 126 215 


 Six Months Ended June 30, 2021
($ in thousands)2021 Pension Plan2020 Pension Plan2021 SERP2020 SERP2021 Total Both Plans2020 Total Both Plans
Service cost$0 0 0 0 0 0 
Interest cost410 613 59 110 469 723 
Expected return on plan assets(528)(650)0 0 (528)(650)
Amortization of net (gain)/loss368 440 8 (82)376 358 
Net periodic pension cost$250 403 67 28 317 431 

The Company recordedservice cost component of net periodic pension income totaling $605,000cost is included in salaries and $488,000 for the nine months ended September 30, 2017benefits expense and 2016, respectively, which primarily related to investment income from the Pension Plan’s assets. The following table contains theall other components of thenet periodic pension income.

  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)

cost are included in other noninterest expense.

The Company’s contributions to the Pension Plan are based on computations by independent actuarial consultants and are intended to be deductible for income tax purposes. The contributions are investedCompany did 0t contribute to provide for benefits under the Pension Plan. The CompanyPlan in the first six months of 2021 and does not0t expect to contribute to the Pension Plan in 2017.

the remainder of 2021.

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


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Note 139 – Accumulated Other Comprehensive Income (Loss)

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

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

($ in thousands)

 

 September 30,
2017		  December 31,
2016		  September 30,
2016		 
Unrealized gain (loss) on securities available for sale $438   (3,085)  1,964 
     Deferred tax asset (liability)  (162)  1,138   (767)
Net unrealized gain (loss) on securities available for sale  276   (1,947)  1,197 
             
Additional pension asset (liability)  (4,854)  (5,012)  (4,505)
     Deferred tax asset (liability)  1,796   1,852   1,757 
Net additional pension asset (liability)  (3,058)  (3,160)  (2,748)
             
Total accumulated other comprehensive income (loss) $(2,782)  (5,107)  (1,551)

($ in thousands)June 30, 2021December 31, 2020
Unrealized gain (loss) on securities available for sale$539 20,448 
Deferred tax asset (liability)(124)(4,699)
Net unrealized gain (loss) on securities available for sale415 15,749 
Postretirement plans asset (liability)(1,441)(1,817)
Deferred tax asset (liability)301 418 
Net postretirement plans asset (liability)(1,140)(1,399)
Total accumulated other comprehensive income (loss)$(725)14,350 
The following table discloses the changes in accumulated other comprehensive income (loss) for the ninesix months ended SeptemberJune 30, 20172021 (all amounts are net of tax).

($ in thousands)

 

 Unrealized Gain
(Loss) on
Securities
Available for Sale		  Additional
Pension Asset
(Liability)		  Total 
Beginning balance at January 1, 2017 $(1,947)  (3,160)  (5,107)
     Other comprehensive income (loss) before reclassifications  2,075   —   2,075 
     Amounts reclassified from accumulated other comprehensive income  148   102   250 
Net current-period other comprehensive income (loss)  2,223   102   2,325 
             
Ending balance at September 30, 2017 $276   (3,058)  (2,782)

($ in thousands)Unrealized Gain
(Loss) on
Securities
Available for Sale		Postretirement Plans Asset
(Liability)		Total
Beginning balance at January 1, 2021$15,749 (1,399)14,350 
Other comprehensive income (loss) before reclassifications(15,334)0 (15,334)
Amounts reclassified from accumulated other comprehensive income0 259 259 
Net current-period other comprehensive income (loss)(15,334)259 (15,075)
Ending balance at June 30, 2021$415 (1,140)(725)
The following table discloses the changes in accumulated other comprehensive income (loss) for the ninesix months ended SeptemberJune 30, 20162020 (all amounts are net of tax).

($ in thousands)

 

 Unrealized Gain
(Loss) on
Securities
Available for Sale		  Additional
Pension Asset
(Liability)		  Total 
Beginning balance at January 1, 2016 $(709)  (2,841)  (3,550)
     Other comprehensive income before reclassifications  1,908   —   1,908 
     Amounts reclassified from accumulated other comprehensive income  (2)  93   91 
Net current-period other comprehensive income  1,906   93   1,999 
             
Ending balance at September 30, 2016 $1,197   (2,748)  (1,551)

($ in thousands)Unrealized Gain
(Loss) on
Securities
Available for Sale		Postretirement Plans Asset
(Liability)		Total
Beginning balance at January 1, 2020$7,504 (2,381)5,123 
Other comprehensive income (loss) before reclassifications18,128 0 18,128 
Amounts reclassified from accumulated other comprehensive income(6,180)275 (5,905)
Net current-period other comprehensive income (loss)11,948 275 12,223 
Ending balance at June 30, 2020$19,452 (2,106)17,346 

Amounts reclassified from accumulated other comprehensive income for Unrealized Gain (Loss) on Securities Available for Sale represent realized securities gains or losses, net of tax effects. Amounts reclassified from accumulated other comprehensive income for Postretirement Plans Asset (Liability) represent amortization of amounts included in Accumulated Other Comprehensive Income, net of taxes, and are recorded in the "Other operating expenses" line item of the Consolidated Statements of Income.
Note 1410 – Fair Value

Relevant accounting guidance establishes

Fair value is the exchange price that would be received for an asset or paid to transfer a fair value hierarchy which requiresliability (exit price) in the principal and most advantageous market for the asset or liability in an entity to maximizeorderly transaction between market participants on the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describesmeasurement date. There are three levels of inputs that may be used to measure fair value:


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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;liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

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

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

($ in thousands)      
Description of Financial Instruments 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 $8,992   —   8,992   — 
        Mortgage-backed securities  155,535   —   155,535   — 
        Corporate bonds  34,397   —   34,397   — 
          Total available for sale securities $198,924   —   198,924   — 
                 
Nonrecurring                
     Impaired loans $14,932   —   —   14,932 
     Foreclosed real estate  9,356   —   —   9,356 

2021.

($ in thousands)
Description of Financial InstrumentsFair Value at June 30, 2021Quoted 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$67,872 0 67,872 0 
Mortgage-backed securities2,002,319 0 2,002,319 0 
Corporate bonds44,962 0 44,962 0 
Total available for sale securities$2,115,153 0 2,115,153 0 
Presold mortgages in process of settlement$13,762 13,762 0 0 
Nonrecurring
Collateral-dependent loans$13,963 0 0 13,963 
Foreclosed real estate378 0 0 378 

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.

($ 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)		 
Recurring            
Securities available for sale:                
Government-sponsored enterprise securities $17,490   —   17,490   — 
Mortgage-backed securities  148,065   —   148,065   — 
Corporate bonds  33,600   —   33,600   — 
Equity securities  174   —   174   — 
Total available for sale securities $199,329   —   199,329   — 
                 
Nonrecurring                
     Impaired loans $12,284   —   —   12,284 
     Foreclosed real estate  9,532   —   —   9,532 

2020.

($ in thousands)
Description of Financial InstrumentsFair Value at December 31, 2020Quoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities$70,206 0 70,206 0 
Mortgage-backed securities1,337,706 0 1,337,706 0 
Corporate bonds45,220 0 45,220 0 
Total available for sale securities$1,453,132 0 1,453,132 0 
Presold mortgages in process of settlement$42,271 42,271 0 0 
Nonrecurring
Impaired loans$22,142 0 0 22,142 
  Foreclosed real estate1,484 0 0 1,484 
The following is a description of the valuation methodologies used for instruments measured at fair value.


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

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

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ImpairedIndividually evaluated loans — Fair values for impairedindividually evaluated 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 generally determined by third-party appraisers using an income or market valuation approach based on an appraisal conducted by an independent, licensed third party appraiser (Level 3). The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable borrower’s financial statements if not considered significant. Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3). Appraisals used in this analysis are generally obtained at least annually based on when the loans first became impaired, and thus the appraisals are not necessarily as of the period ends presented. Any fair value adjustments are recorded in the period incurred as provision for loancredit losses on the Consolidated Statements of Income.

Foreclosed real estate – Foreclosed real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value. Fair value is measured on a non-recurring basis and is based upon independent market prices or current appraisals that are generally prepared using an income or market valuation approach and conducted by an independent, licensed third party appraiser, adjusted for estimated selling costs (Level 3). Appraisals used in this analysis are generally obtained at least annually based on when the assets were acquired, and thus the appraisals are not necessarily as of the period ends presented. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan 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 SeptemberJune 30, 2017,2021, the significant unobservable inputs used in the fair value measurements were as follows:

($ in thousands)     
Description Fair Value at
September
30, 2017		  Valuation
Technique		 Significant Unobservable
Inputs		 General Range
of Significant
Unobservable
Input Values
Impaired loans $14,932  Appraised value; PV of expected cash flows Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell 0-10%
Foreclosed real estate  9,356  Appraised value; List or contract price Discounts to reflect current market conditions, abbreviated holding period and estimated costs to sell 0-10%
           


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($ in thousands)
DescriptionFair Value at June 30, 2021Valuation
Technique		Significant Unobservable
Inputs		Range (Weighted Average)
Individually evaluated loans - collateral-dependent$9,203 Appraised valueDiscounts applied for estimated costs to sell10%
Individually evaluated loans - cash flow dependent4,760 PV of expected cash flowsDiscount rates used in the calculation of the present value ("PV") of expected cash flows4%-11% (6.12%)
Foreclosed real estate378 Appraised valueDiscounts for estimated costs to sell10%
For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2016,2020, the significant unobservable inputs used in the fair value measurements were as follows:

($ in thousands)     
Description Fair Value at
December 31,
2016		  Valuation
Technique		 Significant Unobservable
Inputs		 General Range
of Significant
Unobservable
Input Values
Impaired loans $12,284  Appraised value; PV of expected cash flows Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell 0-10%
Foreclosed real estate  9,532  Appraised value; List or contract price Discounts to reflect current market conditions, abbreviated holding period and estimated costs to sell 0-10%
           

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

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($ in thousands)
DescriptionFair Value at December 31, 2020Valuation
Technique		Significant Unobservable
Inputs		Range (Weighted Average)
Impaired loans - valued at collateral value$16,000 Appraised valueDiscounts applied for estimated costs to sell10%
Impaired loans - valued at PV of expected cash flows6,142 PV of expected cash flowsDiscount rates used in the calculation of PV of expected cash flows4%-11% (6.21%)
Foreclosed real estate1,484 Appraised valueDiscounts for estimated costs to sell10%

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


The carrying amounts and estimated fair values of financial instruments not carried at Septemberfair value at June 30, 20172021 and December 31, 20162020 are as follows:

    September 30, 2017  December 31, 2016 

 

($ in thousands)

 Level in Fair
Value Hierarchy		 Carrying
Amount		  Estimated
Fair Value		  Carrying
Amount		  Estimated
Fair Value		 
               
Cash and due from banks, noninterest-bearing Level 1 $82,758   82,758   71,645   71,645 
Due from banks, interest-bearing Level 1  326,089   326,089   234,348   234,348 
Securities available for sale Level 2  198,924   198,924   199,329   199,329 
Securities held to maturity Level 2  123,156   124,878   129,713   130,195 
Presold mortgages in process of settlement Level 1  17,426   17,426   2,116   2,116 
Total loans, net of allowance Level 3  3,405,162   3,396,635   2,686,931   2,650,820 
Accrued interest receivable Level 1  11,445   11,445   9,286   9,286 
Bank-owned life insurance Level 1  88,081   88,081   74,138   74,138 
                   
Deposits Level 2  3,651,241   3,647,532   2,947,353   2,944,968 
Borrowings Level 2  397,525   388,477   271,394   263,255 
Accrued interest payable Level 2  1,143   1,143   539   539 

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.

  June 30, 2021December 31, 2020
($ in thousands)Level in Fair
Value
Hierarchy		Carrying
Amount		Estimated
Fair Value		Carrying
Amount		Estimated
Fair Value
Cash and due from banks, noninterest-bearingLevel 1$83,851 83,851 93,724 93,724 
Due from banks, interest-bearingLevel 1391,375 391,375 273,566 273,566 
Securities held to maturityLevel 2291,728 292,774 167,551 170,734 
SBA loans held for saleLevel 25,480 6,297 6,077 7,465 
Total loans, net of allowanceLevel 34,717,042 4,704,356 4,678,927 4,661,197 
Accrued interest receivableLevel 120,357 20,357 20,272 20,272 
Bank-owned life insuranceLevel 1108,209 108,209 106,974 106,974 
SBA Servicing AssetLevel 36,089 7,066 5,788 6,569 
DepositsLevel 27,171,358 7,172,244 6,273,596 6,275,329 
BorrowingsLevel 261,252 53,962 61,829 53,321 
Accrued interest payableLevel 2710 710 904 904 
Commitments to extend creditLevel 30 10,025 0 461 
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.


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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.



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Note 1511 – Series C Preferred Stock

On December 21, 2012, the Company issued 2,656,294 shares of its common stock and 728,706 sharesRevenue from Contracts with Customers


All of the Company’s Series C Preferred Stock to certain accredited investors, eachrevenues that are in the scope of the “Revenue from Contracts with Customers” accounting standard (“ASC 606”) are recognized within noninterest income. The following table presents the Company’s sources of noninterest income for the three and six months ended June 30, 2021 and 2020. Items outside the scope of ASC 606 are noted as such.
For the Three Months EndedFor the Six Months Ended
$ in thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Noninterest Income
In-scope of ASC 606:
Service charges on deposit accounts:$2,824 2,289 5,557 5,626 
Other service charges, commissions, and fees:
Interchange income4,409 3,086 7,933 5,972 
Other service charges and fees2,087 1,538 4,085 2,721 
Commissions from sales of insurance and financial products:
Insurance income1,393 1,363 2,719 2,561 
Wealth management income1,073 727 1,937 1,597 
SBA consulting fees2,187 3,739 4,951 4,766 
Noninterest income (in-scope of ASC 606)13,973 12,742 27,182 23,243 
Noninterest income (out-of-scope of ASC 606)7,401 13,451 14,861 16,655 
Total noninterest income$21,374 26,193 42,043 39,898 
A description of the Company’s revenue streams accounted for under ASC 606 is detailed below.
Service charges on deposit accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Overdraft fees are recognized at the pricepoint in time that the overdraft occurs. Maintenance and activity fees include account maintenance fees and transaction-based fees. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of $10.00 per share, pursuantthe month, representing the period over which the Company satisfies the performance obligation. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Service charges on deposits are withdrawn from the customer’s account balance.
Other service charges, commissions, and fees: The Company earns interchange income on its customers’ debit and credit card usage and earns fees from other services utilized by its customers. Interchange income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as MasterCard. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Interchange fees are offset with interchange expenses and are presented on a private placement transaction. Net proceedsnet basis. Other service charges include revenue from thisprocessing wire transfers, bill pay service, cashier’s checks, ATM surcharge fees, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.
Commissions from the sale of commoninsurance and preferred stock were $33.8 millionfinancial products: The Company earns commissions from the sale of insurance policies and were usedwealth management products.
Insurance income generally consists of commissions from the sale of insurance policies and performance-based commissions from insurance companies. The Company recognizes commission income from the sale of insurance policies when it acts as an agent between the insurance company and the policyholder. The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy. Shortly after the policy is issued, the carrier remits the commission payment to strengthen 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 holderCompany recognizes the revenue. Performance-based commissions from insurance companies are recognized at a point in time as policies are sold. See Note 15 regarding the Company's sale of its insurance agency operations.


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Wealth Management Income primarily consists of commissions received on financial product sales, such as annuities. The Company’s performance obligation is generally satisfied upon the issuance of the Series C Preferred Stock entered into an agreementfinancial product. Shortly after the policy is issued, the carrier remits the commission payment to effectively convert the preferred stock into common stock.Company, and the Company recognizes the revenue. The Company exchanged 728,706 sharesalso earns some fees from asset management, which is billed quarterly for services rendered in the most recent period, for which the performance obligation has been satisfied.
SBA consulting fees: The Company earns fees for its consulting services related to the origination of preferred stockSBA loans. Fees are based on a percentage of the dollar amount of the originated loans and are recorded when the performance obligation has been satisfied. During 2020, the Company's SBA subsidiary assisted its third-party clients in the origination of PPP loans and charged and received fees for doing so. For several clients, the forgiveness piece of the PPP process, which will occur at a future time, was included in the up-front fees charged. Accordingly, the Company recorded deferred revenue in these cases, with a deferred revenue liability of $1.4 million at December 31, 2020. During the first six months of 2021, the Company realized approximately $1.0 million of this deferred revenue related to fulfilling a portion of the forgiveness services. At June 30, 2021, the remaining amount of deferred revenue was $0.4 million. These fees will be recorded as income in the period in which the services associated with the forgiveness process are rendered.
The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the determination of the amount and timing of revenue from the above-described contracts with customers.
Note 12 – Leases
The Company enters into leases in the normal course of business. As of June 30, 2021, the Company leased 7 branch offices for which the land and buildings are leased and 8 branch offices for which the land is leased but the building is owned. The Company also leases office space for several operational departments. All of the Company’s leases are operating leases under applicable accounting standards and the lease agreements have maturity dates ranging from May 2021 through May 2076, some of which include options for multiple five- and ten-year extensions. The weighted average remaining life of the lease term for these leases was 19.1 years as of June 30, 2021. The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. As permitted by applicable accounting standards, the Company has elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company's Consolidated Balance Sheets.
Leases are classified as either operating or finance leases at the lease commencement date, and as previously noted, all of the Company's leases have been determined to be operating leases. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent the Company's right to use an underlying asset for the same numberlease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
The Company uses its incremental borrowing rate, on a collateralized basis, at lease commencement to calculate the present value of lease payments when the rate implicit in the lease is not known. The weighted average discount rate for leases was 3.33% as of June 30, 2021.
Total operating lease expense was $1.3 million and $1.4 million for the six months ended June 30, 2021 and 2020, respectively. The right-of-use assets and lease liabilities were $16.4 million and $16.9 million as of June 30, 2021, respectively, and were $17.5 million and $17.9 million as of December 31, 2020, respectively.
Future undiscounted lease payments for operating leases with initial terms of one year or more as of June 30, 2021 are as follows.

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($ in thousands)
July 1, 2021 to December 31, 2021$1,028 
20221,659 
20231,592 
20241,499 
20251,318 
Thereafter18,380 
Total undiscounted lease payments25,476 
Less effect of discounting(8,583)
Present value of estimated lease payments (lease liability)$16,893 

Note 13 - Shareholders' Equity

Stock Repurchases

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

During the first six months of 2020, the Company repurchased approximately 680,695 shares of the Company's common stock at an average stock price of $32.96 per share, which totaled $22 million.
Note 14 - Borrowings
The following tables present information regarding the Company’s common stock. Asoutstanding borrowings at June 30, 2021 and December 31, 2020 - dollars are in thousands:
DescriptionDue dateCall FeatureJune 30, 2021Interest Rate
FHLB Principal Reducing Credit7/24/2023None$102 1.00% fixed
FHLB Principal Reducing Credit12/22/2023None972 1.25% fixed
FHLB Principal Reducing Credit1/15/2026None5,000 1.98% fixed
FHLB Principal Reducing Credit6/26/2028None230 0.25% fixed
FHLB Principal Reducing Credit7/17/2028None47 0.00% fixed
FHLB Principal Reducing Credit8/18/2028None170 1.00% fixed
FHLB Principal Reducing Credit8/22/2028None170 1.00% fixed
FHLB Principal Reducing Credit12/20/2028None348 0.50% fixed
Trust Preferred Securities1/23/2034Quarterly by Company
beginning 1/23/2009		20,620 
2.89% at 6/30/21
adjustable rate
3 month LIBOR + 2.70%
Trust Preferred Securities6/15/2036Quarterly by Company
beginning 6/15/2011		25,774 
1.51% at 6/30/21
adjustable rate
3 month LIBOR + 1.39%
Trust Preferred Securities1/7/2035Quarterly by Company
beginning 1/7/2010		10,310 
2.18% at 6/30/21
adjustable rate
3 month LIBOR + 2.00%
Total borrowings/ weighted average rate as ofJune 30, 2021$63,743 2.17%
Unamortized discount on acquired borrowings(2,491)
Total borrowings$61,252 


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DescriptionDue dateCall FeatureDecember 31, 2020Interest Rate
FHLB Principal Reducing Credit7/24/2023None124 1.00% fixed
FHLB Principal Reducing Credit12/22/2023None991 1.25% fixed
FHLB Principal Reducing Credit1/15/2026None5,500 1.98% fixed
FHLB Principal Reducing Credit6/26/2028None235 0.25% fixed
FHLB Principal Reducing Credit7/17/2028None49 0.00% fixed
FHLB Principal Reducing Credit8/18/2028None174 1.00% fixed
FHLB Principal Reducing Credit8/22/2028None174 1.00% fixed
FHLB Principal Reducing Credit12/20/2028None355 0.50% fixed
Other Borrowing4/7/2022None103 1.00% fixed
Trust Preferred Securities1/23/2034Quarterly by Company
beginning 1/23/2009		20,620 
2.91% at 12/31/2020
adjustable rate
3 month LIBOR + 2.70%
Trust Preferred Securities6/15/2036Quarterly by Company
beginning 6/15/2011		25,774 
1.61% at 12/31/2020
adjustable rate
3 month LIBOR + 1.39%
Trust Preferred Securities1/7/2035Quarterly by Company
beginning 1/7/2010		10,310 
2.24% at 12/31/2020
adjustable rate
3 month LIBOR + 2.00%
Total borrowings / weighted average rate as of December 31, 2020$64,409 2.22%
Unamortized discount on acquired borrowings(2,580)
Total borrowings$61,829 

Note 15 - Disposition

On June 30, 2021, the Company completed the sale of the operations and substantially all of the operating assets of its property and casualty insurance agency subsidiary, First Bank Insurance Services, to Bankers Insurance, LLC for an initial purchase price valued at $13.0 million and a future earn-out payment of up to $1.0 million. The Company recorded a gain of $1.7 million related to the sale. Approximately $10.2 million of intangible assets were derecognized from the Company's balance sheet as a result of this transaction, including $7.4 million in goodwill and $2.8 million in other intangibles. At June 30, 2021 the exchange,$13.0 million purchase price was recorded as a receivable within "Other assets" on the consolidated balance sheet. Of that receivable amount, on July 1, 2021 the Company has no sharesreceived $11.9 million in cash and 1 share of preferred stock currently outstanding.

Bankers Insurance, LLC with a value of $0.6 million. The Series C Preferred Stock qualifiedremaining $0.5 million in cash is due to be received in the fourth quarter of 2021. Effective with the close of the sale on June 30, 2021, Bankers Insurance, LLC assumed $555,000 in cash that was held at First Bank Insurance Services, which is reflected as Tier 1 capital and was Convertible Perpetual Preferred Stock, with dividend rights equalcash paid related to the Company’s Common Stock. The Series C Preferred Stock was non-voting, exceptsale in limited circumstances.

The Series C Preferred Stock paid a dividend per share equal to thatthe Consolidated Statement of Cash Flows for the Company’s common stock. During the three and nine monthssix month period ended SeptemberJune 30, 2016,2021.


Note 16 - Pending Acquisition

On June 1, 2021, the Company accrued approximately $58,000 and $175,000, respectively, in preferred dividend payments forannounced the Series C Preferred Stock.

Note 16 – Subsequent Event

On October 1, 2017, the Company completed its acquisitionsigning of ASBa definitive merger agreement to acquire Select Bancorp, Inc. (“ASB Bancorp”Select”), the parent company of Asheville SavingsSelect Bank SSB, headquarteredand Trust Company ("Select Bank"), in Asheville, North Carolina, pursuantan all-stock transaction with a total value of approximately $314.3 million, or $18.10 per share, based on the Company’s closing stock price on May 28, 2021. Subject to an Agreement and Planthe terms of Merger and Reorganization dated May 1, 2017. Asheville Savingsthe merger agreement, Select shareholders will receive 0.408 shares of First Bancorp's common stock for each share of Select common stock.


Select Bank SSB, operated 13currently operates 22 banking locations in the Asheville, MarionNorth Carolina, South Carolina, and Brevard markets. The acquisition complements the Company’s existing three branches in the Asheville market.

The total merger 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 hadVirginia. Select reported assets of $793 million,$1.8 billion, gross loans of $617 million$1.3 billion and deposits of $679 million. As$1.6 billion as of March 31, 2021. The acquisition would increase the filingCompany's market share in several existing markets, including the Triad, Triangle and Charlotte markets of this report, the Company has not completed the fair value measurements of the assets, liabilities,North Carolina, as well as provide entry into several new markets, including Dunn, Goldsboro and identifiable intangible assets of ASB Bancorp.

Elizabeth City, North Carolina.



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The merger agreement was unanimously approved by the boards of directors of each company. The transaction is expected to close in the fourth quarter of 2021 and is subject to customary conditions, including regulatory approvals and approval by both the Company's and Select’s shareholders.


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

Critical Accounting Policies

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

Allowance for LoanCredit Losses

Due to the estimation process on Loans and the potential materialityUnfunded Commitments

The allowance for credit losses on loans, which is presented as a reduction of the amounts involved, we have identified the accounting forloans outstanding, and 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 operationsunfunded commitments, which 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 determinationrecorded within Other Liabilities require high degrees of the adequacyjudgement. Each 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 anthese allowances reflects management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. Management uses a systematic methodology to determine its allowance for allcredit losses on loans not considered to be impaired loans (“general reserve loans”). General reserve loans are segregated into pools by loan type and risk gradeoff-balance-sheet credit exposures. Management considers the effects of past events, current conditions, and estimated loss percentages are assigned to each loan pool basedreasonable and supportable forecasts on historical losses.  The historical loss percentages are then adjusted for any environmental factors used to reflect changes in the collectability of the portfolio not captured by historical data.

loan portfolio. The reserves estimatedCompany’s estimate of these items involves a high degree of judgment; therefore, management’s process 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 loandetermining expected credit 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 collectedmay result in a provisionrange of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s allowances for loancredit losses with a corresponding increaseon loans and unfunded commitments reflect management’s best estimates within the range of expected credit losses. The Company recognizes in the allowance for loan losses. Subsequent increases innet income the amount needed to adjust either of these items for management’s current estimate of expected to be collected are accreted into income over the lifecredit losses. See Note 2 - Summary of the loanSignificant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process 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 additionsmethodology related to the allowance basedACL. See also Note 6 — Loans, Allowance for Credit Losses and Asset Quality Information - in this Quarterly Report on the examiners’ judgment about information available to them at the time of their examinations.

For further discussion, see “Nonperforming Assets”Form 10-Q, and “Summary of Loan Loss Experience”“Allowance for Credit Losses and Provision for Credit Losses” below.

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Index

Intangible Assets

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

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

The primary identifiable intangible asset we typically record in connection with a whole bank or bank branch acquisition is the value of the core deposit intangible, whereas when we acquire an insurance agency or a consulting firm, as we did in 2016 and 2017, the primary identifiable intangible asset is the value of the acquired customer list. Determining the amount of identifiable intangible assets and their average lives involves multiple assumptions and estimates and is typically determined by performing a discounted cash flow analysis, which involves a combination of any or all of the following assumptions: customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. We typically engage a third party consultant to assist in each analysis. For the whole bank and bank branch transactions recorded to date, the core deposit intangibles have generally been estimated to have a life ranging from seven to ten years, with an accelerated rate of amortization. For insurance agency acquisitions, the identifiable intangible assets related to the customer lists were determined to have a life of ten to fifteen years, with amortization occurring on a straight-line basis.basis (as discussed in Notes 7 and 15 to the consolidated financial statements, we sold the operations of our insurance agency on June 30, 2021 and derecognized the carrying amounts of the related intangible assets). For SBA Complete, 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,


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At June 30, 2021, 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 ourhad two reporting units to their related carrying value,– 1) First Bank with $227.6 million in goodwill, and 2) SBA activities, including SBA Complete and our SBA Lending Division, with $4.3 million in goodwill. If the carrying value of a reporting unit were ever to exceed its fair value, we would determine whether the implied fair value of the goodwill, using a discounted cash flow analysis, exceeded the carrying value of the goodwill. If the carrying value of the goodwill exceeded the implied fair value of the goodwill, an impairment loss would be recorded in an amount equal to that excess. Performing such a discounted cash flow analysis would involve the significant use of estimates and assumptions.

Subsequent to the initial recording of the identifiable intangible assets and goodwill, we amortize the identifiable intangible assets over their estimated average lives, as discussed above. In addition, we test goodwill for impairment annually on October 31 or on an interim basis if an event triggering impairment may have occurred, by comparing the fair value of our 2016 goodwill impairment evaluation, we concludedreporting units to their related carrying value, including goodwill. The conclusion of our last review was that none of 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.

Fair Value and Discount Accretion of Acquired Loans

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

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

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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.

Current Accounting Matters

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

RESULTS OF OPERATIONS

Overview


Recent Developments: COVID-19
The impact of the COVID-19 pandemic has lessened in 2021, as vaccinations have significantly reduced COVID-19 cases in our market area and the economy has made steady progress in its recovery. Most of our employees that had worked remotely during the pandemic returned to work in the office in June 2021. After experiencing lower loan demand during the pandemic period from March 2020 to March 2021 (excluding PPP loans), we experienced high growth in the second quarter of 2021, with non-PPP loans increasing by a total $244 million, which represents annualized loan growth of 22.3%. The high deposit growth that we experienced beginning at the onset of the pandemic continued during the first two quarters of 2021, with total deposits increasing $460 million in the first quarter of 2021 and another $438 million in the second quarter of 2021, with both increases representing annualized growth in excess of 25%. The high deposit growth was likely due to a combination of stimulus funds, changes in customer behaviors during the pandemic, and a flight to quality to FDIC-insured banks, as well as our ongoing deposit growth initiatives. Low interest rates have also resulted in high levels of mortgage loan refinancings, which increased our mortgage loan sales income, but reduced our level of mortgage loans outstanding. Thus far our asset quality ratios have remained favorable, with continued low levels of nonperforming assets and low loan charge-offs. Recently, there has been an emergence of new, more virulent strains of COVID-19 that are now spreading at higher transmission rates than prior strains. We are uncertain what impact this will have on the Company and its market areas.

Also see Note 1 to the Consolidated Financial Statements for additional information.

FINANCIAL OVERVIEW

Net income availableamounted to common shareholders was $13.1$29.3 million, or $0.53$1.03 per diluted common share, for the three months ended SeptemberJune 30, 2017,2021, an increase of 130% in earnings83.9% on a per share from the $4.6basis, compared to $16.4 million, or $0.23$0.56 per diluted common share, recorded in the thirdsecond quarter of 2016.2020. For the ninesix months ended SeptemberJune 30, 2017, we recorded2021, net income availableamounted to common shareholders of $31.8$57.5 million, or $1.33$2.02 per diluted common share, an increase of 43.0% in earnings per share from the $19.0compared to $34.5 million, or $0.93$1.18 per diluted common share, for the ninesix months ended SeptemberJune 30, 2016.

2020, an increase of 71.2%. 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 Company recording additional indemnification asset expense of $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 our March 3, 2017 acquisition of Carolina Bank, which operated eight branches and three mortgage loan offices, primarily in the Triad region of North 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, Asheville Savings Bank reported total assets of approximately $793 million, including $617 million in loans and $679 million in deposits. Because this transaction closed in the fourth quarter, the financial position andhigher earnings for Asheville Savings Bank are not includedboth periods in the Company’s results for the third quarter.

2021 were primarily driven by lower credit costs compared to 2020.


Net Interest Income and Net Interest Margin


Net interest income for the thirdsecond quarter of 20172021 was $41.6$58.8 million, a 37.2%an 11.7% increase from the $30.4$52.6 million recorded in the thirdsecond quarter of 2016.2020. Net interest income for the first ninesix months of 2017 amounted to $115.92021 was $114.0 million, a 25.8%

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6.2% increase from the $92.1$107.4 million recorded in the comparable period of 2016.2020. The increaseincreases in net interest income waswere primarily due to higher amountslevels of loans outstanding as a resultinterest-earning assets, the recognition of internal growth, as well asPPP loan fees, and higher discount accretion, the acquisitioneffects of Carolina Bank.

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Index

Also contributing to the increase inwhich were partially offset by lower net interest income was a higher net interest margin for the period. margins. See additional discussion below.


Our net interest margin (tax-equivalent(a non-GAAP measure calculated by dividing tax-equivalent net interest income divided by average earning assets) increased for the fourth consecutive quarter and amounted to 4.16% for the thirdsecond quarter of 2017 compared to 3.93% for2021 was 3.22%, which was 27 basis points lower than the third3.49% realized in the second quarter of 2016.2020. For the nine month periodsix months ended SeptemberJune 30, 2017,2021, our net interest margin was 4.11%3.24% compared to 4.07%3.71% for the same period of 2020. The declines 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 periods2021 were also impacted by higher amounts of loan discount accretion associated with acquired loan portfolios. The Company 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 first nine months of 2017 and 2016, loan discount accretion amounted to $5.1 million and $3.6 million, respectively. The increase in loan discount accretion is primarily due to the loan discounts recorded inimpact of lower interest rates and the acquisition of Carolina Bank.

Provisionlower incremental reinvestment rates realized from funds provided by high deposit growth.


Allowance for Credit Losses, Provisions for Loan Losses and Unfunded Commitments, and Asset Quality


On January 1, 2021, the Company adopted CECL, which resulted in an adoption-date increase of $14.6 million in our allowance for loan losses and an increase of $7.5 million in our allowance for unfunded commitments. The tax-effected impact of those two items amounted to $17.1 million and was recorded as an adjustment to our retained earnings as of January 1, 2021.

We recorded no provision for loan losses for the three or six months ended June 30, 2021 compared to $19.3 million and $24.9 million in the third quarterscomparable periods of 2017 or 2016. For2020. The high provisions in 2020 were primarily related to estimated incurred losses associated with the nine months ended September 30, 2017, we recorded total provisionpandemic that was emerging at the time. Under the CECL methodology for providing for loan losses, of $0.7 million compared to a total negative provisionwe determined that no provisions for loan losses were required during the first six months of $23,0002021. See additional discussion below in the section "Allowance for Credit Losses and Provision for Credit Losses."

During the second quarter of 2021, using the CECL methodology, we recorded a $1.9 million in provision for unfunded commitments. The provision was recorded primarily due to an increase in construction and land development loan commitments during the second quarter of 2021 that had not been funded as of quarter end. Our allowance for unfunded commitments at June 30, 2021 amounted to $10.0 million and is recorded within the line item "Other liabilities".

Annualized net loan charge-offs to average loans amounted to 0.07% and 0.08% for the three and six months ended June 30, 2021 compared to 0.12% and 0.17% for the same periodperiods of 2016. We have experienced low levels2020, respectively.

Total nonperforming assets amounted to $42 million at June 30, 2021, or 0.51% of charge-offs and asset quality indicators have steadily improved.

total assets, compared to $50 million, or 0.65% of total assets, at December 31, 2020. During the second quarter of 2021, we sold a nonaccrual relationship totaling $5.6 million that was primarily responsible for the decline in nonaccrual loans during the period.


Noninterest Income


Total noninterest income for the second quarter of 2021 was $12.4$21.4 million, an 18.4% decrease from the $26.2 million recorded for the second quarter of 2020, with the 2021 decrease being primarily due to the absence of securities gains compared to $8.0 million recorded in the second quarter of 2020. The 2021 decrease was partially offset by higher bankcard fees and other gains (losses) of $1.5 million, which is primarily due to the gain recognized on the sale of the operating assets of First Bank Insurance Services in June 2021. For the six months ended June 30, 2021 and 2020, total noninterest income was $42.0 million and $5.2$39.9 million, respectively. The increase in noninterest income in 2021 was primarily due to higher bankcard fees, the gain from the First Bank Insurance Sale, higher presold mortgage fees as a result of high mortgage loan activity, and increased SBA loan sale gains. See additional discussion below.

Noninterest Expenses

Noninterest expenses amounted to $41.0 million and $38.9 million in the second quarters of 2021 and 2020, respectively, and $81.1 million and $79.0 million for the first six months of 2021 and 2020, respectively. The 2021 periods include noninterest expenses related to the Company's business financing subsidiary, which was acquired on September 1, 2020 and has a current annual expense base of approximately $1.4 million. See additional discussion below.



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Income Taxes

Our effective tax rate was 21.3% and 20.7% for the three months ended SeptemberJune 30, 20172021 and September 30, 2016, respectively. For2020, respectively, and 21.3% and 20.5% for the ninesix months ended SeptemberJune 30, 2017, noninterest income2021 and 2020, respectively. The 2021 increases were due to higher proportions of fully-taxable income.

Balance Sheet and Capital

Total assets at June 30, 2021 amounted to $34.0 million compared to $16.1 million$8.2 billion, a 12.5% increase from December 31, 2020. The growth was driven by an increase in deposits.

Loan growth for the same periodfirst six months of 2016.

Core noninterest income for the third quarter2021, exclusive of 2017 was $12.8$86 million of net PPP loan decreases related to forgiveness, amounted to $136 million, an annualized growth rate of 6.1%. Total loans amounted to $4.8 billion at June 30, 2021, an increase of 31.2%$51 million, or 1.1% from December 31, 2020. Excluding PPP loans, our level of outstanding loans has been impacted by high mortgage loan refinancing activity, commercial loan payoffs, and until the second quarter of 2021, lower demand resulting from the $9.8 million reported for the third quarter of 2016. Forpandemic.


Deposit growth during the first ninesix months of 2017, core noninterest income2021 totaled $898 million, an annualized growth rate of 28.9%. Total deposits amounted to $34.2 million,$7.2 billion at June 30, 2021, compared to of $6.3 billion at December 31, 2020. We believe the high deposit growth was likely due to a 35.4% increase fromcombination of stimulus funds, changes in customer behaviors during 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,pandemic, 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 acquisition of Carolina Bank,a flight to quality to FDIC-insured banks, as well as income derived from the Company’s SBA consulting fees and SBA loan sale gains, which began in the second and third quarters of 2016.

Noninterest Expenses

Noninterest expenses amounted to $34.4 million in the third quarter of 2017 compared to $27.7 million recorded in the 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 the Company’s acquisition of Carolina Bank.

Balance Sheet and Capital

Total assets at September 30, 2017 amounted to $4.6 billion, a 29.8% increase from a year earlier. Total loans at September 30, 2017 amounted to $3.4 billion, a 29.4% increase from a year earlier, and total deposits amounted to $3.7 billion at September 30, 2017, a 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 andour ongoing deposit growth during 2017. For the first nine months of 2017, organic loan growth (i.e. excluding loan balances assumed from Carolina Bank) amounted to $221.5 million, or 10.9% annualized. For the first nine months of 2017, organic deposit growth amounted to $118.5 million, or 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, including Charlotte, Raleigh, and the Triad.

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initiatives.
Index

We remain well-capitalized by all regulatory standards, with an estimateda Total Risk-Based Capital Ratio at SeptemberJune 30, 20172021 of 12.44%15.05%, a declinedecrease from 13.49%the 15.37% reported at SeptemberDecember 31, 2020.

Other Business Matters

On June 1, 2021, we announced that we have reached an agreement to acquire Select Bancorp, Inc., headquartered in Dunn, North Carolina, which currently operates 22 branches and has $1.8 billion in assets. This transaction is subject to regulatory and shareholder approval by both companies, and is expected to be completed during the fourth quarter of 2021. The acquisition would increase the Company's market share in several existing markets, including the Triad, Triangle and Charlotte markets of North Carolina, as well as provide entry into several new markets, including Dunn, Goldsboro and Elizabeth City, North Carolina.

On June 30, 2016, but significantly in excess2021, we completed the sale of the 10.00% minimum to be considered well-capitalized. Our tangible common equity to tangible assets ratio was 7.95% at September 30, 2017, a decrease of eight basis points from a year earlier. The decreases in the capital ratios are primarily due to the acquisition of Carolina Bank.

Note Regarding Components of Earnings

For the 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 in 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,substantially 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 coveredoperating assets of our property and non-covered. See the Company’s 2016 Annual Report on Form 10-K filed with the Securitiescasualty insurance agency subsidiary, First Bank Insurance Services, to Bankers Insurance, LLC for an initial purchase price valued at $13.0 million and Exchange Commission for additional discussion regarding the accounting and presentationa future earn-out payment of up to $1.0 million. We recorded a gain of $1.7 million related to the Company’s two FDIC-assisted failed bank acquisitions.

sale. Approximately $10.2 million of intangible assets were derecognized from our balance sheet as a result of this transaction, including $7.4 million in goodwill and $2.8 million in other intangibles.

Components of Earnings

Net interest income is the largest component of earnings, representing the difference between interest and fees generated from earning assets and the interest costs of deposits and other funds needed to support those assets. Net interest income for the three month period ended September 30, 2017 amounted to $41.6 million, an increase of $11.3 million, or 37.2%, from the $30.4 million recorded in the third quarter of 2016. Net interest income on a tax-equivalent basis for the three month period ended September 30, 2017 amounted to $42.3 million, an increase of $11.5 million, or 37.1%, from the $30.9 million recorded in the 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 loans and investments that may have existed during those periods.

  Three Months Ended September 30, 
($ in thousands) 2017  2016 
Net interest income, as reported $41,639   30,354 
Tax-equivalent adjustment  702   534 
Net interest income, tax-equivalent $42,341   30,888 

Net interest income for the nine month period ended September 30, 2017 amounted to $115.9second quarter of 2021 was $58.8 million, an increase of $23.8$6.2 million, or 25.7%11.7%, from the $92.1$52.6 million recorded in the first nine monthssecond quarter of 2016.2020. Net interest income on a tax-equivalent basis for the ninethree month period ended SeptemberJune 30, 20172021 amounted to $117.8$59.3 million, an increase of $24.2$6.3 million, or 25.9%11.9%, from the $93.6$53.0 million recorded in the second quarter of 2020.
Net interest income for the first six months of 2021 was $114.0 million, an increase of $6.6 million, or 6.2%, from the $107.4 million recorded in the comparable period of 2016.

  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 

2020. Net interest income on a tax-equivalent basis for the six


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month period ended June 30, 2021 amounted to $115.0 million, an increase of $7.0 million, or 6.4%, from the $108.0 million recorded in the first six months of 2020.
($ in thousands)Three Months Ended June 30Six Months Ended June 30,
2021202020212020
Net interest income, as reported$58,759 52,624 $113,997 107,383 
Tax-equivalent adjustment517 330 959 664 
Net interest income, tax-equivalent$59,276 52,954 $114,956 108,047 
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 ninesix months ended SeptemberJune 30, 2017,2021, the higher net interest income comparedwere primarily due to higher levels of interest-earning assets, the same periodrecognition of 2016 was due primarily to growth in loans outstanding.

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PPP loan fees, and higher discount accretion, the effects of which were partially offset by lower net interest margins
Index

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


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 For the Three Months Ended June 30,
 20212020
($ in thousands)Average
Volume		Average
Rate		Interest
Earned
or Paid		Average
Volume		Average
Rate		Interest
Earned
or Paid
Assets      
Loans (1) (2)$4,679,119 4.48 %$52,295 $4,738,702 4.41 %$51,964 
Taxable securities2,157,475 1.45 %7,789 770,441 2.49 %4,771 
Non-taxable securities131,692 1.45 %474 17,795 2.64 %117 
Short-term investments, primarily interest-bearing cash418,321 0.56 %581 575,074 0.55 %788 
Total interest-earning assets7,386,607 3.32 %61,139 6,102,012 3.80 %57,640 
Cash and due from banks85,742 88,727 
Premises and equipment123,172 114,911 
Other assets370,260 422,112 
Total assets$7,965,781 $6,727,762 
Liabilities
Interest bearing checking$1,278,969 0.07 %$225 $972,580 0.11 %$267 
Money market deposits1,776,344 0.18 %799 1,294,462 0.29 %920 
Savings deposits582,081 0.08 %112 454,791 0.13 %147 
Time deposits >$100,000526,706 0.52 %681 632,319 1.48 %2,324 
Other time deposits218,463 0.33 %182 242,754 0.69 %416 
Total interest-bearing deposits4,382,563 0.18 %1,999 3,596,906 0.46 %4,074 
Borrowings61,312 2.49 %381 288,997 1.31 %942 
Total interest-bearing liabilities4,443,875 0.21 %2,380 3,885,903 0.52 %5,016 
Noninterest bearing checking2,568,960 1,905,449 
Other liabilities58,968 64,915 
Shareholders’ equity893,978 871,495 
Total liabilities and
shareholders’ equity		$7,965,781 $6,727,762 
Net yield on interest-earning assets and net interest income3.19 %$58,759 3.47 %$52,624 
Net yield on interest-earning assets and net interest income – tax-equivalent (3)3.22 %$59,276 3.49 %$52,954 
Interest rate spread3.11 %3.28 %
Average prime rate3.25 %3.25 %
(1)   Average loans include nonaccruing loans, the effect of which is to lower the average rate shown. Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan fee amortization (including deferred PPP fees), in the amounts of $2,180, and $1,233 for the three months ended June 30, 2021 and 2020, respectively.
(2) Includes accretion of discount on acquired and SBA loans of $3,631 and $1,393 for the three months ended June 30, 2021 and 2020, respectively.
(3)   Includes tax-equivalent adjustments of $517 and $330 in 2021 and 2020, respectively, to reflect the tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status. This amount has been computed assuming a tax-equivalent basis.

  For the Three Months Ended September 30, 
  2017  2016 
($ in thousands) Average
Volume		  Average
Rate		  Interest
Earned
or Paid		  Average
Volume		  Average
Rate		  Interest
Earned
or Paid		 
Assets                  
Loans (1) $3,404,862   4.84%  $41,549  $2,635,707   4.52%  $29,919 
Taxable securities  275,544   2.89%   2,004   296,873   2.26%   1,688 
Non-taxable securities (2)  54,606   8.00%   1,101   49,371   7.81%   969 
Short-term investments  305,245   1.38%   1,059   145,268   0.58%   213 
Total interest-earning assets  4,040,257   4.49%   45,713   3,127,219   4.17%   32,789 
                         
Cash and due from banks  80,191           60,951         
Premises and equipment  96,596           77,117         
Other assets  297,365           178,450         
   Total assets $4,514,409          $3,443,737         
                         
Liabilities                        
Interest bearing checking $688,739   0.06%  $105  $584,232   0.06%  $92 
Money market deposits  794,788   0.19%   372   642,201   0.18%   283 
Savings deposits  402,330   0.21%   208   205,044   0.05%   26 
Time deposits >$100,000  494,680   0.84%   1,053   400,043   0.65%   657 
Other time deposits  246,475   0.28%   172   259,215   0.30%   196 
     Total interest-bearing deposits  2,627,012   0.29%   1,910   2,090,735   0.24%   1,254 
Borrowings  331,122   1.75%   1,462   228,273   1.13%   647 
Total interest-bearing liabilities  2,958,134   0.45%   3,372   2,319,008   0.33%   1,901 
                         
Noninterest bearing checking  1,005,307           732,520         
Other liabilities  30,536           26,456         
Shareholders’ equity  520,432           365,753         
Total liabilities and
shareholders’ equity		 $4,514,409          $3,443,737         
                         
Net yield on interest-earning
assets and net interest income		      4.16%  $42,341       3.93%  $30,888 
Interest rate spread      4.04%           3.84%     
                         
Average prime rate      4.25%           3.50%     
(1)Average loans include nonaccruing loans, the effect of which is to lower the average rate shown.
(2)Includes tax-equivalent adjustments of $702,000 and $534,000 in 2017 and 2016, respectively, to reflect the tax benefit that we receive related to tax-exempt securities, which carry interest rates lower than similar taxable investments due to their tax exempt status. This amount has been computed assuming a 37% tax rate and is reduced by the related nondeductible portion of interest expense.

23% tax rate and is reduced by the related nondeductible portion of interest expense.












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51

  For the Nine Months Ended September 30, 
  2017  2016 
($ in thousands) Average
Volume		  Average
Rate		  Interest
Earned
or Paid		  Average
Volume		  Average
Rate		  Interest
Earned
or Paid		 
Assets                  
Loans (1) $3,211,844   4.78%  $114,908  $2,576,605   4.68%  $90,301 
Taxable securities  284,588   2.74%   5,830   304,669   2.40%   5,472 
Non-taxable securities (2)  56,092   7.74%   3,249   50,221   7.51%   2,822 
Short-term investments, principally federal funds  283,601   1.08%   2,299   142,156   0.58%   612 
Total interest-earning assets  3,836,125   4.40%   126,286   3,073,651   4.31%   99,207 
                         
Cash and due from banks  74,135           57,943         
Premises and equipment  92,042           76,339         
Other assets  267,231           175,302         
   Total assets $4,269,533          $3,383,235         
                         
Liabilities                        
Interest bearing checking $676,939   0.06%  $320  $585,052   0.06%  $284 
Money market deposits  771,826   0.18%   1,067   652,017   0.17%   846 
Savings deposits  362,164   0.19%   505   197,204   0.05%   74 
Time deposits >$100,000  473,200   0.75%   2,641   394,403   0.65%   1,931 
Other time deposits  248,985   0.27%   511   277,123   0.35%   725 
     Total interest-bearing deposits  2,533,114   0.27%   5,044   2,105,799   0.24%   3,860 
Borrowings  294,650   1.55%   3,411   200,427   1.17%   1,750 
Total interest-bearing liabilities  2,827,764   0.40%   8,455   2,306,226   0.32%   5,610 
                         
Noninterest bearing checking  932,233           695,718         
Other liabilities  31,782           23,350         
Shareholders’ equity  477,754           357,941         
Total liabilities and
shareholders’ equity		 $4,269,533          $3,383,235         
                         
Net yield on interest-earning
assets and net interest income		      4.11%  $117,831       4.07%  $93,597 
Interest rate spread      4.00%           3.99%     
                         
Average prime rate      4.03%           3.50%     
(1)Average loans include nonaccruing loans, the effect of which is to lower the average rate shown.
(2)Includes tax-equivalent adjustments of $1,979,000 and 1,510,000 in 2017 and 2016, respectively, to reflect the tax benefit that we receive related to tax-exempt securities, which carry interest rates lower than similar taxable investments due to their tax exempt status. This amount was computed assuming a 37% tax rate and is reduced by the related nondeductible portion of interest expense.

 For the Six Months Ended June 30,
 20212020
($ in thousands)Average
Volume		Average
Rate		Interest
Earned
or Paid		Average
Volume		Average
Rate		Interest
Earned
or Paid
Assets
Loans (1)$4,681,604 4.45 %$103,368 $4,625,798 4.66 %$107,261 
Taxable securities1,906,549 1.45 %13,702 802,485 2.57 %10,245 
Non-taxable securities99,622 1.62 %797 19,757 2.86 %281 
Short-term investments, primarily interest-bearing cash456,066 0.57 %1,281 400,934 0.95 %1,886 
Total interest-earning assets7,143,841 3.36 %$119,148 5,848,974 4.11 %119,673 
Cash and due from banks83,486 75,984 
Premises and equipment122,485 114,624 
Other assets373,472 416,009 
Total assets$7,723,284 $6,455,591 
Liabilities
Interest bearing checking$1,241,662 0.08 %$491 $935,792 0.14 %$674 
Money market deposits1,713,714 0.20 %1,717 1,248,796 0.42 %2,602 
Savings deposits560,550 0.09 %242 440,508 0.19 %416 
Time deposits >$100,000540,865 0.57 %1,539 638,216 1.65 %5,247 
Other time deposits221,239 0.36 %398 246,807 0.74 %908 
Total interest-bearing deposits4,278,030 0.21 %4,387 3,510,119 0.56 %9,847 
Borrowings61,356 2.51 %764 302,566 1.62 %2,443 
Total interest-bearing liabilities4,339,386 0.24 %5,151 3,812,685 0.65 %12,290 
Noninterest bearing checking2,436,138 1,716,212 
Other liabilities57,895 61,570 
Shareholders’ equity889,865 865,124 
Total liabilities and
shareholders’ equity		$7,723,284 $6,455,591 
Net yield on interest-earning assets and net interest income3.22 %$113,997 3.69 %$107,383 
Net yield on interest-earning assets and net interest income – tax-equivalent (2)3.24 %$114,956 3.71 %$108,047 
Interest rate spread3.12 %3.46 %
Average prime rate3.25 %3.84 %
(1)    Average loans include nonaccruing loans, the effect of which is to lower the average rate shown. Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan fee amortization (including deferred PPP fees), in the amounts of $5,575 and $1,578 for the six months ended June 30, 2021 and 2020, respectively.
(2) Includes accretion of discount on acquired and SBA loans of $4,972 and $3,234 for the six months ended June 30, 2021 and 2020, respectively.
(3)   Includes tax-equivalent adjustments of $959 and $664 in 2021 and 2020, respectively, to reflect the tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status. This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense.
Average loans outstanding for the thirdsecond quarter of 20172021 were $3.405$4.679 billion, which was $769$60 million, or 29.2%1.3%, lower than the average loans outstanding for the second quarter of 2020 ($4.739 billion). Excluding PPP loan balances, our level of outstanding loans trended downward from the onset of the pandemic in March 2020 through March 2021, due to the negative impact of high mortgage loan refinancing activity, commercial loan payoffs, and soft demand arising from the pandemic. As discussed below, we experienced strong loan growth in the second quarter of 2021.

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Average loans outstanding for the six months ended June 30, 2021 were $4.682 billion, which was $56 million, or 1.2%, higher than the average loans outstanding for the third quartercomparable period of 20162020 ($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 ($2.5774.626 billion). The higher amount of average loans outstanding in 20172021 was primarily due to a combinationthe origination of acquired growthPPP loans since March 31, 2020. The average balance of PPP loans outstanding for the six months ended June 30, 2021 and organic growth. The acquisition2020 were $219 million and $89 million, respectively.
As derived from the tables above, our average balance of Carolina Bank on March 3, 2017 added $497 million in loans astotal securities grew by $1.501 billion, or 190.4%, when comparing the second quarter of 2021 to the acquisition date. Also,second quarter of 2020, and $1.184 billion, or 144.0% when comparing the first six months of 2021 to the first six months of 2020. These increases were due to our loanhigher levels of investment purchases arising from the cash provided by the high deposit growth initiatives, including expansion into higher growth markets, and improved loan demandexperienced in our market areas, we have grown loan balances organically by $281 million overrecent periods, as discussed in the past year.

The mix of our loan portfolio remained substantially the same at September 30, 2017 compared to December 31, 2016, with approximately 87% of our loans being real estate loans, 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.

following paragraph.

Average total deposits outstanding for the thirdsecond quarter of 20172021 were $3.632$6.952 billion, which was $809 million,$1.450 billion, or 28.7%26.4%, higher than the average deposits outstanding for the thirdsecond quarter of 20162020 ($2.8235.502 billion). Average total deposits outstanding for the ninefirst six months ended September 30, 2017of 2021 were $3.465$6.714 billion, which was 23.7%$1.488 billion, or 28.5%, higher than the average deposits outstanding for the ninefirst six months ended September 30, 2016of 2020 ($2.8025.226 billion). As discussed previously, we acquired Carolina Bank duringThe majority of the first quarter of 2017, which had $585 milliongrowth has occurred in deposits on the acquisition date. Including the acquisition, averageour transaction deposit accounts (noninterest bearing checking, interest bearing checking, money market and savings accounts) increased from $2.130 billion for. We believe the nine months ended September 30, 2016high deposit growth was likely due to $2.743 billion fora combination of stimulus funds, changes in customer behaviors during the nine months ended September 30, 2017, representingpandemic, and a flight to quality to FDIC-insured banks, as well as our ongoing deposit growth initiatives.
We also utilized funds provided by our high deposit growth to pay down a substantial portion of $613our borrowings since the prior year. Average borrowings decreased $228 million, or 28.8%. Average time deposits also increased for78.8%, when comparing the second quarter of 2021 to the second quarter of 2020, and $241 million, or 79.7%, when comparing the first ninesix months of 2017 in comparison2021 to the first ninesix months of 2016, from $672 million to $722 million, an increase2020.
The net result of $50 million, or 7.5%.

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Index

Average borrowings increasedthe balance sheet growth discussed above was that our average interest-earning assets for the ninethree and six months ended SeptemberJune 30, 20172021 were 21.1% and 22.1% higher than for the comparable periods in 2020, respectively. As it relates to $294.7 millionthe net interest income we recorded, the impact from the $200.4 million forhigher average interest-earning assets more than offset the same periodimpact of 2016. Carolina Bank had approximately $19 millionthe decline in borrowings on the date of acquisition. Our cost of funds,our net interest margin, which includes noninterest bearing checking accounts at a zero percent cost, was 0.30% in the first nine months of 2017 compared to 0.25% in the first nine months of 2016, with the increase being due to the increased costs associated with our higher levels of borrowings.

is discussed below.

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


Our net interest margin (tax-equivalent(a non-GAAP measure calculated by dividing tax-equivalent net interest income divided by average earning assets) for the thirdsecond quarter of 20172021 was 4.16% compared to 3.93% for3.22%, which was 27 basis points lower than the third3.49% realized in the second quarter of 2016.2020. For the nine month periodsix months ended SeptemberJune 30, 2017,2021, our net interest margin was 4.11%3.24% compared to 4.07%3.71% for the same period of 2020. The declines in 2016. The increases in 20172021 were primarily due to both increasedthe impact of lower interest rates and the lower incremental reinvestment rates realized from funds provided by high deposit growth.

From August 2019 to March 2020, the Federal Reserve cut interest rates by 225 basis points, which played a significant role in our asset yields and higher amountsdeclining by more than our cost of discount accretion. Asset yields have increased primarily as a result of three Federal Reservefunds since those interest rate increases duringcuts. In comparing the past year. Funding costs have also increased, butfirst six months of 2021 to the first six months of 2020, our yield on interest-earning assets declined by 75 basis points compared to a lesser degree.

Our41 basis point decline in the cost of our interest-bearing liabilities. See additional discussion in Item 3 - Quantitative and Qualitative Disclosures About Market Risk.


Another factor negatively impacting our net interest margin benefits fromhas been our high deposit growth, which, due to lower loan growth, has resulted in a higher percentage of our earning assets being comprised of short-term investments and securities, each of which generally yield less than loans. Average short-term investments and securities comprised 35% of average interest-earning assets for the net accretionfirst six months of purchase accounting premiums/discounts associated2021 compared to 21% in the first six months of 2020.

In the first six months of 2021, we processed $198 million in PPP loan forgiveness payments related to 2020 originations and also originated approximately $112 million in new PPP loans, which resulted in a remaining balance of total PPP loans of $156 million at June 30, 2021. Including accelerated amortization of deferred PPP loan fees, we recorded a total of $2.7 million and $5.7 million in PPP fee-related interest income during the three and six months ended June 30, 2021, respectively, compared to $1.3 million in fees recorded in the second quarter of 2020, with acquiredno such fees recorded in the first quarter of 2020. When these fees are combined with the note rate of 1.00%, the total yield on PPP loans was 6.35% for the second quarter of 2021 and deposits. 6.25% for the first half of 2021

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compared to 3.97% for each of the three and six month periods ended June 30, 2020. At June 30, 2021, we have $6.2 million in remaining deferred PPP loan fees, of which $0.9 million relates to 2020 originations and $5.3 million relates to 2021 originations.

We recorded loan discount accretion amounting to $1.7of $3.6 million in the thirdsecond quarter of 2017,2021, compared to $0.8$1.4 million in the thirdsecond quarter of 2016.2020. For the first ninesix months of 2017ended June 30, 2021 and 2016,2020, loan discount accretion amounted to $5.1$5.0 million and $3.6$3.2 million, respectively. The increaseIn the second quarter of 2021, we accreted approximately $2.3 million of remaining discount accretion on five former failed-bank loans that paid off during the quarter. Loan discount accretion had a 20 basis point impact on the net interest margin in the second quarter of 2021 compared to a 9 basis point impact in the second quarter of 2020. For the first six months of 2021 and 2020, loan discount accretion is primarily due tohad a 14 basis point impact and a 11 basis point impact, respectively, on the loan discounts recorded in the acquisition of Carolina Bank. Unaccreted loan discount has increased from $13.2 million at September 30, 2016 to $16.9 million at September 30, 2017 primarily as a result of the Carolina Bank acquisition.

net interest margin.

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


We recorded no provision for loan losses for the three or six months ended June 30, 2021 compared to $19.3 million and $24.9 million in the third quarterscomparable periods of 2017 or 2016. For2020. The higher provisions in 2020 were primarily related to estimated incurred losses associated with the nine months ended September 30, 2017, we recorded total provisionpandemic that was emerging at the time. Under the CECL methodology for providing for loan losses, of $0.7 million compared to a total negative provisionwe determined that no provisions for loan losses were required during the first six months of $23,0002021. See additional discussion below in the same periodsection "Allowance for Credit Losses and Provision for Credit Losses."

During the second quarter of 2016.

Our2021, using the CECL methodology, we recorded a $1.9 million in provision for unfunded commitments. The provision was recorded primarily due to an increase in construction and land development loan loss levels havecommitments during the second quarter of 2021 that had not been impacted by continued improvement in asset quality. Nonperforming assetsfunded as of quarter end. Our allowance for unfunded commitments at June 30, 2021 amounted to $53.0 million at September 30, 2017, a decrease of 24.4% from the $70.2 million one year earlier. Our nonperforming assets to total assets ratio was 1.16% at September 30, 2017 compared to 1.98% at September 30, 2016. 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 to average loans for the nine months ended September 30, 2017 was 0.00%, compared to 0.15% for the same period of 2016.

Total noninterest income was $12.4$10.0 million and $5.2 million foris recorded within the 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 shown in the table below, coreline item "Other liabilities".


Total noninterest income for the thirdsecond quarter of 20172021 was $12.8$21.4 million, an increase of 31.2%18.4% decrease from the $9.8$26.2 million reportedrecorded for the thirdsecond quarter of 2016. For2020, with the first nine months2021 decrease being due to the absence of 2017, core noninterest income amountedsecurities gains compared to $34.2 million, a 35.4% increase from the $25.3$8.0 million recorded in the comparable periodsecond quarter of 2016. Core2020. For the six months ended June 30, 2021 and 2020, total noninterest income includes i) servicewas $42.0 million and $39.9 million, respectively. The increases in noninterest income in 2021 were primarily due to bankcard fees, fees earned as a result of high mortgage loan activity, SBA consulting fees related to client assistance with PPP originations, and increased SBA loan sale gains.

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.

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Index

The following table presents our core noninterest incomeamounted to $2.8 million for the three and nine month periods ending September 30, 2017 and 2016, respectively.

  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 
                 

As shown in the table above, service charges on deposit accounts increased from $2.7 million in the thirdsecond quarter of 2016 to $2.92021, a 23.4% increase over the $2.3 million infor the thirdsecond quarter of 2017.2020, with the second quarter of 2020 having declined significantly from historical levels at the onset of the pandemic. For each of the ninesix months ended SeptemberJune 30, 2017,2021 and 2020, 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 2016. The increases for both periods are primarily due to the service charges from accounts assumed in the Carolina Bank acquisition.

$5.6 million.


Other service charges, commissions and fees increasedamounted to $6.5 million for the second quarter of 2021, an increase of 40.5% from the $4.6 million for the second quarter of 2020. For the six months ended June 30, 2021 and 2020, other service charges, commissions and fees amounted to $12.0 million and $8.7 million, respectively. The increase was primarily due to increases of $1.5 million and $2.3 million in bankcard revenue for the three and six months ended June 30, 2021 compared to the same periods in 2020, respectively. Also affecting comparability is that a $0.5 million charge related to impairment of the Company's SBA servicing asset was recorded in the first quarter of 2020 due to market conditions that existed at the time.

Fees from presold mortgages amounted to $2.3 million for the second quarter of 2021, a decrease of 24.7%, compared to $3.0 million in the thirdsecond quarter of 2016 to $3.5 million in the third quarter of 2017. For the nine months ended September 30, 2017, this revenue amounted to $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 well as growth in interchange fees from debit and credit 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 mortgage loans increased to $1.8 million for the third quarter of 2017 from $0.7 million in the third quarter of 2016.2020. For the first ninesix months of 2017,2021 and 2020, fees from presold mortgage loansmortgages amounted to $6.8 million and $4.9 million, respectively. Mortgage loan volumes increased to $4.1 million from the $1.5 million recordedsignificantly beginning in the comparable periodsecond quarter of 2016. The increases were2020 at the onset of the pandemic primarily due to declines in interest rates. In the acquisitionsecond quarter of Carolina Bank in March 2017, which had a significant2021, mortgage loan operation.

volumes declined due to increases in mortgage interest rates.

Commissions from sales of insurance and financial products amounted to approximately $2.5 million and $2.1 million for the second quarters of 2021 and 2020, respectively, and $4.7 million and $4.2 million for the first six months of 2021 and 2020, respectively. This line item includes commissions earned from our wealth management division and commissions earned from the sales of property and casualty insurance by First Bank Insurance Services. The increases in 2021 were primarily due to higher commissions from our wealth management division

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due to increases in investment assets under management. In the second quarter of 2021, we completed the sale of the operations and substantially all of the operating assets of First Bank Insurance Services to Bankers Insurance, LLC. Commissions earned by First Bank Insurance Services amounted to $1.4 million and $1.0 million for the 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.

One of the primary reasons for the increases in core noninterest income for the three and nine months ended September 30, 2017 was the addition of SBA consulting fees and SBA loan sale gains 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 $0.9 million and $3.2 million in SBA consulting fees related to this business during the three and nine months ended September 30, 2017, respectively, in comparison to $1.2 million and $1.9$2.7 million for the three and ninesix months ended SeptemberJune 30, 2016, respectively.2021 and $5.4 million for calendar year 2020. In the thirdfuture, we are eligible to receive referral fees from Bankers Insurance, but expect the portion of this line item related to First Bank Insurance Services to be minimal for the near future. Our wealth management division was not included in, and is not impacted, by the sale.


SBA consulting fees amounted to $2.2 million for the second quarter of 2016,2021, a decrease of 41.5%, compared to $3.7 million for the second quarter of 2020. In the second quarter of 2020, the Company's SBA subsidiary, SBA Complete, earned significant fees related to assisting client banks with PPP loan originations, with a lower level of such assistance provided in the second quarter of 2021. For the six months ended June 30, 2021 and 2020, SBA consulting fees amounted to $5.0 million and $4.8 million, respectively. Including origination fees, on-going servicing fees and fees associated with forgiveness services, SBA Complete's PPP fees amounted to $0.8 million in the second quarter of 2021 compared to $3.0 million for the second quarter of 2020, and $2.4 million for the first half of 2021 compared to $3.0 million for the first half of 2020. At June 30, 2021, SBA Complete had $0.4 million in remaining deferred PPP revenue that will be recorded as income upon completing the forgiveness process for its client banks.

SBA loan sale gains amounted to $3.0 million for the second quarter of 2021 compared to $2.0 million in the second quarter of 2020. For the first six months of 2021 and 2020, SBA loan sale gains amounted to $5.3 million and $2.6 million, respectively. The first quarter of 2020 was significantly impacted by temporary pandemic-related market conditions. The periods in 2021 were favorably impacted by the SBA increasing the marketable, guaranteed percentage on most loans from 75% to 90% as part of the economic relief package.

During the second quarter of 2020, we launchedsold approximately $220 million in securities at a national SBA lending division offering SBA loansgain of $8.0 million, whereas there were no securities sales in 2021.

Other gains (losses) amounted to small business owners throughouta gain of $1.5 million in the United States. The SBA division earnedsecond quarter of 2021, primarily due to a $1.7 million and $3.2 million from gains ongain related to the salesaforementioned sale of the guaranteed portionsoperations and substantially all of these loansthe assets of First Bank Insurance Services.

Noninterest expenses amounted to $41.0 million and $38.9 million in the second quarters of 2021 and 2020, respectively, and $81.1 million and $79.0 million for the first six months of 2021 and 2020, respectively. The 2021 periods include noninterest expenses related to the Company's business financing subsidiary, which was acquired on September 1, 2020 and has a current annual expense base of approximately $1.4 million. As previously discussed, we sold the operations of First Bank Insurance Services during the threesecond quarter of 2021, which had annual noninterest expenses of approximately $4.7 million.
Personnel expense, which includes salaries expense and nineemployee benefit expense, increased 3.4% to $25.3 million in the second quarter of 2021 from $24.5 million in the second quarter of 2020. For the six months ended SeptemberJune 30, 2017,2021 and 2020, personnel expense amounted to $50.0 million and $49.1 million, respectively, in comparison to $0.7 million for both the threean increase of 1.8%.
The combined amount of occupancy and nine months ended September 30, 2016.

Bank-owned life insurance income was relatively unchanged forequipment expense did not vary significantly among the periods presented, amounting to $0.6$3.7 million infor each of the third quarter of 2017 compared to $0.5three month periods ending June 30, 2021 and 2020, and $7.7 million in the third quarter of 2016, and $1.7 million to $1.5$7.8 million for the first nine months of 2017six month periods ending June 30, 2021 and 2016,2020, respectively.

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Index

Within the noncore components of noninterest income, the largest variance for the periods presented relatedMerger expenses amounted to indemnification asset expense. As discussed previously, in the third quarter of 2016, we terminated our FDIC loss share agreements, and thus there was no indemnification asset income or expense in 2017. In 2016, we recorded indemnification asset expense of $5.7 million and $10.3$0.4 million for the three and ninesix months ended SeptemberJune 30, 2016, respectively.

During2021, compared to none in 2020. As discussed previously at Note 16 to the nine months ended 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 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,Consolidated Financial Statements, on June 1, 2021, the Company recorded a net gain of $1.4 million as a result of a branch exchange transaction.

Noninterest expenses amounted to $34.4announced an acquisition agreement with Select Bancorp, Inc.

Intangibles amortization expense decreased from $1.0 million in the thirdsecond quarter of 2017 compared2020 to $27.7 million recorded in the 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 $16.6$0.8 million in the thirdsecond quarter of 20172021, and decreased from the $13.4 million recorded in the 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 was the addition of personnel assumed in the Carolina Bank acquisition. Also impacting salaries expense is the 2016 acquisition and continued growth of the 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 $3.4 million in the third quarter of 2017 compared to $2.6 million in the 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.

Occupancy and equipment expense increased in 2017 primarily due to the acquisitions discussed above. For the three months ended September 30, 2017, occupancy and equipment expense totaled $3.5 million 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$2.0 million in the first ninesix months of 2016.

Merger and acquisition expenses amounted2020 to $1.3 million and $0.6 million for the three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, merger and acquisition expenses amounted to $4.8 million and $1.3 million, respectively. Merger and acquisition expenses represent transaction related costs associated primarily with the acquisitions of Carolina Bank and Asheville Savings Bank.

Intangibles amortization expense increased from $0.4 million in the third quarter of 2016 to $0.9 million in the third quarter of 2017 and from $0.8$1.7 million in the first ninesix months of 2016 to $2.5 million in the first nine months of 2017,2021. The declines were primarily as a result of the amortization of intangible assets associated with acquisitions that were recorded in connection with our acquisitions.

typically have amortization schedules that decline over time.

Other operating expenses amounted to $8.7 million and $7.8$10.9 million for the third quarterssecond quarter of 20172021 compared to $9.7 million in the second quarter of 2020, an increase of 12.6%, and 2016, respectively, and $26.4$21.3 million in the first ninesix months of 20172021 compared to $22.7 $20.0

Page 55
million in the first ninesix months of 2016.2020, an increase of 7.5%. The increases in 2021 were primarily due to the Company’s growth, including the acquisitionsa result of the SBA consulting firmhigher bankcard and Carolina Bank.

technology expenses.

For the third quarter of 2017,three months ended June 30, 2021 and 2020, the provision for income taxes was $6.5$7.9 million, an effective tax rate of 33.3%21.3%, compared to $3.1and $4.3 million, for the same period of 2016, which is an effective tax rate of 40.0%.20.7%, respectively. For the first ninesix months of 2017,ended June 30, 2021 and 2020, the provision for income taxes was $15.8$15.6 million, an effective tax rate of 33.3%21.3%, compared to $10.4and $8.9 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 the20.5%, respectively. The increase in the effective tax rate for the periods in 2016.

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2021 was primarily due to a higher proportion of fully-taxable income.
Index

The Consolidated Statementsconsolidated statements of Comprehensive Incomecomprehensive income reflect other comprehensive income of $0.2$3.5 million during eachthe second quarter of 2021 compared to other comprehensive loss of $3.9 million during the third quarterssecond quarter of 2017 and 2016. During2020. For the ninefirst six months ended September 30, 2017 and 2016, we recordedof 2021, the consolidated statements of comprehensive income reflect other comprehensive loss of $15.1 million compared to other comprehensive income of $2.3$12.2 million and $2.0 million, respectively.for the comparable period of 2020. The primary component of other comprehensive income for the periods presented was changes in unrealized holding gains (losses) of our available for sale securities. Our available for sale securities portfolio is predominantly comprised of fixed rate bonds that generally increase in value when market yields for fixed rate bonds decrease and decline in value when market yields for fixed rate bonds increase. The variances in unrealized gains/losses for the periods presented were consistent with the changes in market interest rates. Management has evaluated any unrealized losses on individual securities at each period end and determined that there is no other-than-temporary impairment.

FINANCIAL CONDITION

Total assets at SeptemberJune 30, 20172021 amounted to $4.59$8.2 billion, a 29.8%12.5% increase from a year earlier.December 31, 2020. Total loans at SeptemberJune 30, 20172021 amounted to $3.43$4.8 billion, a 29.4%1.1% increase from a year earlier,December 31, 2020, and total deposits amounted to $3.65$7.2 billion, a 25.4%14.3% increase from a year earlier.

December 31, 2020.

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

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 outstanding $2,651,459   280,774   497,522   3,429,755   29.4%   10.6% 
                         
Deposits – Noninterest bearing checking  749,256   120,782   146,909   1,016,947   35.7%   16.1% 
Deposits – Interest bearing checking  593,065   28,277   61,771   683,113   15.2%   4.8% 
Deposits – Money market  658,166   35,562   100,191   793,919   20.6%   5.4% 
Deposits – Savings  207,494   521   188,177   396,192   90.9%   0.3% 
Deposits – Brokered  147,406   56,732   11,477   215,615   46.3%   38.5% 
Deposits – Internet time  —   (3,253)  11,248   7,995   —   — 
Deposits – Time>$100,000  306,041   (46,818)  36,783   296,006   -3.3%   -15.3% 
Deposits – Time<$100,000  249,412   (36,783)  28,825   241,454   -3.2%   -14.7% 
     Total deposits $2,910,840   155,020   585,381   3,651,241   25.4%   5.3% 
                         

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% 

(1)Includes the acquisition of Carolina Bank on March 3, 2017, which had $497.5 million in loans and $585.4 million in deposits.

2021.

$ in thousands
January 1, 2021 to June 30, 2021Balance at
beginning
of period		Internal
Growth,
net		Growth from AcquisitionsBalance at
end of
period		Total
percentage
growth
Total loans$4,731,315 50,749 — 4,782,064 1.1 %
Deposits – Noninterest bearing checking2,210,012 441,131 — 2,651,143 20.0 %
Deposits – Interest bearing checking1,172,022 206,843 — 1,378,865 17.6 %
Deposits – Money market1,581,364 239,111 — 1,820,475 15.1 %
Deposits – Savings519,266 74,363 — 593,629 14.3 %
Deposits – Brokered20,222 (10,752)— 9,470 (53.2)%
Deposits – Internet time249 (249)— — (100.0)%
Deposits – Time>$100,000543,894 (42,642)— 501,252 (7.8)%
Deposits – Time<$100,000226,567 (10,043)— 216,524 (4.4)%
Total deposits$6,273,596 897,762 — 7,171,358 14.3 %
As derived from the table above, for the twelvefirst six months preceding September 30, 2017, our totalof 2021, loans increased $778$50.7 million, or 29.4%1.1%. TheLoan growth for the period, excluding PPP loans, was $136 million, or 6.1% annualized. Our level of outstanding loans has been negatively impacted by high mortgage loan refinancing activity, commercial loan payoffs, and the generally soft demand during the pandemic through March 2021. However, in the second quarter of 2021, we experienced strong, non-PPP, loan growth of $244 million, an annualized growth rate of 22.3%. We believe the growth was as a result of our local economies recovering from acquisitions is duethe pandemic, as well as our increased willingness to our acquisition of Carolina Bank in March 2017, which had $497.5meet competitor loan terms, including interest rate and loan structure.
PPP loans amounted to $156 million and $241 million at June 30, 2021 and December 31, 2020, respectively, with $112 million in new PPP loans on the date of acquisition. Carolina Bank operated through eight branches predominatelyoriginated in the Triad region on North Carolina, and we expect these branches to enhance our recent expansion into this high-growth market. Internal loan growth2021, that was $280.8offset by $198 million or 10.6%, for the twelve months ended September 30, 2017 and was $221.5 million, or 8.2% (10.9% annualized), for the first 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 growthPPP forgiveness payments received in our loan portfolio for the remainder of 2017.

2021.


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The mix of our loan portfolio remains substantially the same at SeptemberJune 30, 20172021 compared to December 31, 2016. The2020. Also, the majority of our real estate loans are personal and commercial loans where real estate provides additional security for the loan.

Note 6 to the consolidated financial statements presents additional detailed information regarding our mix of loans.

After experiencing 27.2% deposit growth for calendar year 2020, we have continued to experience high growth during 2021. For both the nine and twelvesix month periodsperiod ended SeptemberJune 30, 2017, we experienced net internal2021, total deposits increased by $898 million, or 14.3% (28.9% annualized). Deposit growth in total deposits. For these periods, increases inour transaction deposit account balancesaccounts (checking, money market and savings) offset declines, was especially strong, ranging from 14-20% growth for the six month period. We believe this high deposit growth has likely been due to a combination of stimulus funds, changes in time deposits. customer behaviors during the pandemic, and a flight to quality to FDIC-insured banks, as well as our ongoing deposit growth initiatives. We routinely engage in activities designed to grow and retain deposits, such as (1) emphasizing relationship banking to new and existing customers, where borrowers are encouraged and normally expected to maintain deposit accounts with us, (2) pricing deposits at rate levels that will attract and/or retain deposits, and (3) continually working to identify and introduce new products that will attract customers or enhance our appeal as a primary provider of financial services.
Due primarily to the low interest rate environment, someour deposit growth exceeding our loan growth, our liquidity levels have increased. Our liquid assets (cash and securities) as a percentage 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 growth from acquisitions 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, Raleigh, and 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 brokeredtotal deposits and borrowings to fund the loan growth. Total brokered deposits amounted to $215.6 million at September 30, 2017, which is a 46% increase from the $147.4 million outstanding a year earlier. Borrowings have increased from $236.4 million31.4% at December 31, 2020 to $397.5 million over that same period.

39.9% at June 30, 2021. 

Nonperforming Assets

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

 

 

ASSET QUALITY DATA($ in thousands)

 As of/for the
quarter ended
September 30,
2017		  As of/for the
quarter ended
December 31,
2016		  As of/for the
quarter ended
September 30,
2016		 
          
Nonperforming assets            
   Nonaccrual loans $23,350   27,468   32,796 
   Restructured loans – accruing  20,330   22,138   27,273 
   Accruing loans >90 days past due  —   —   — 
      Total nonperforming loans  43,680   49,606   60,069 
   Foreclosed real estate  9,356   9,532   10,103 
          Total nonperforming assets $53,036   59,138   70,172 
             
Purchased credit impaired loans not included above (1) $15,034   —   — 
             
Asset Quality Ratios – All Assets            
Net charge-offs to average loans - annualized  -0.07%   0.12%   0.06% 
Nonperforming loans to total loans  1.27%   1.83%   2.27% 
Nonperforming assets to total assets  1.16%   1.64%   1.98% 
Allowance for loan losses to total loans  0.72%   0.88%   0.93% 
Allowance for loan losses to nonperforming loans  56.30%   47.94%   40.91% 

 
 
ASSET QUALITY DATA ($ in thousands)
As of/for the quarter ended June 30, 2021As of/for the quarter ended December 31, 2020
Nonperforming assets
Nonaccrual loans$32,993 35,076 
TDRs – accruing8,026 9,497 
Accruing loans >90 days past due— — 
Total nonperforming loans41,019 44,573 
Foreclosed real estate826 2,424 
Total nonperforming assets$41,845 46,997 
Asset Quality Ratios – All Assets
Net charge-offs to average loans - annualized0.07 %0.07 %
Nonperforming loans to total loans0.86 %0.94 %
Nonperforming assets to total assets0.51 %0.64 %
Allowance for loan losses to total loans1.36 %1.11 %
Allowance for loan losses to nonperforming loans158.52 %117.53 %
(1)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 the nonperforming loan amounts.

As shown in the table above, nonperforming assets decreased from December 31, 2020 to June 30, 2021, which was primarily driven by the sale of one nonaccrual relationship amounting to $5.6 million. Due primarily to the continued impact of government stimulus and relief programs, the nonperforming asset level at June 30, 2021 may not reflect the full impact of COVID-19.
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. As the economic conditions have improved in our market area over the past several years, we have experienced steady declines in our levels of nonperforming assets.

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As noted in the table above, at SeptemberAt June 30, 2017,2021, total nonaccrual loans amounted to $23.4$33.0 million, compared to $27.5$35.1 million at December 31, 20162021. As noted above, the decrease was primarily driven by the sale of one borrower relationship.


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The following is the composition, by loan type, of all of our nonaccrual loans at each period end.
($ in thousands)At June 30, 2021At December 31, 2020
Commercial, financial, and agricultural$9,476 9,681 
Real estate – construction, land development, and other land loans393 643 
Real estate – mortgage – residential (1-4 family) first mortgages5,765 6,048 
Real estate – mortgage – home equity loans/lines of credit1,345 1,333 
Real estate – mortgage – commercial and other15,886 17,191 
Consumer loans128 180 
Total nonaccrual loans$32,993 35,076 
In the table above, nonaccrual loans arising from our SBA division totaled $17.3 million and $32.8$18.4 million at SeptemberJune 30, 2016. “Restructured2021 and December 31, 2020, respectively. The unguaranteed portions of those SBA loans – accruing”, or troubled debt restructurings (“TDRs”),totaled $11.8 million and $12.1 million as of the same periods, respectively. As of June 30, 2021, SBA loans accounted for approximately $9.1 million of our nonaccrual loans in the "Commercial, financial and agricultural” category and $8.2 million of our nonaccrual loans in the "Real estate - mortgage - commercial and other" category. As of December 31, 2020, SBA loans accounted for approximately $9.3 million of our nonaccrual loans in the "Commercial, financial and agricultural” category and $9.1 million of our nonaccrual loans in the "Real estate - mortgage - commercial and other" category. Our SBA loans have been the category of loans most impacted by the effects of the pandemic.
TDRs are accruing loans for which we have granted concessions to the borrower as a result of the borrower’s financial difficulties. At SeptemberJune 30, 2017,2021, total accruing TDRs amounted to $20.3$8.0 million, compared to $22.1$9.5 million at December 31, 2016 and $27.32020, with the decrease being attributed to several TDRs paying off during the period. COVID-19 related deferrals, which amounted to $2.1 million at SeptemberJune 30, 2016.

2021, are excluded from TDR consideration at June 30, 2021.

The following table presents geographic information regarding our nonperforming loans (nonaccrual loans and TDRs) at June 30, 2021.
As of June 30, 2021
($ in thousands)Total
Nonperforming
Loans		Total LoansNonperforming
Loans to Total
Loans		Total
Foreclosed
Real Estate
Region (1)    
Eastern Region (NC)$5,932 1,128,429 0.53 %$120 
Central Region (NC)6,016 863,229 0.70 %305 
Triad Region (NC)4,790 614,504 0.78 %— 
Western Region (NC)2,847 612,668 0.46 %124 
Triangle Region (NC)266 424,370 0.06 %— 
Charlotte Region (NC)962 385,990 0.25 %— 
Southern Piedmont Region (NC)2,012 159,518 1.26 %65 
South Carolina Region742 204,208 0.36 %40 
SBA loans17,307 158,695 10.91 %135 
SBA - PPP loans— 155,514 — %— 
Other145 74,939 0.19 %37 
Total$41,019 4,782,064 0.86 %$826 
(1)The counties comprising each region are as follows:
Eastern North Carolina Region - New Hanover, Brunswick, Duplin, Dare, Beaufort, Pitt, Onslow, Carteret
Central North Carolina Region - Randolph, Chatham, Montgomery, Stanley, Moore, Richmond, Lee, Harnett, Cumberland
Triad North Carolina Region - Davidson, Rockingham, Guilford,, Forsyth, Alamance
Western North Carolina Region – Buncombe, Henderson, McDowell, Madison, Transylvania
Triangle North Carolina Region - Wake
Charlotte North Carolina Region - Iredell, Cabarrus, Rowan, Mecklenburg
Southern Piedmont North Carolina Region - Scotland, Robeson, Bladen

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South Carolina Region - Chesterfield, Dillon, Florence
SBA loans - loans originated on a national basis through the Company's SBA Lending Division
SBA - PPP loans - loans originated through the SBA's Paycheck Protection Program
Other includes loans originated through the Company's Credit Card Division and our former Virginia region

As reflected in Note 6 to the financial statements, total classified loans were $56.2 million at June 30, 2021 compared to $60.5 million at December 31, 2020. Loans graded special mention were $39.6 million at June 30, 2021 compared to $61.3 million at December 31, 2020. Thus far, except for SBA loans, which is a relatively small portion of total loans, our loan portfolio has not shown significant signs of stress related to the pandemic.
Foreclosed real estate includes primarily foreclosed properties. Total foreclosed real estate amounted to $9.4$0.8 million at SeptemberJune 30, 2017, $9.52021 and $2.4 million at December 31, 2016, and $10.1 million at September 30, 2016.2020. Our foreclosed property balances have generally been decreasing as a result of sales activity during the periods and the improvement in ourfavorable 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:

($ in thousands) At September 30,
2017		  At December 31,
2016		  At September 30,
2016		 
Commercial, financial, and agricultural $996   1,842   2,253 
Real estate – construction, land development, and other land loans  1,565   2,945   3,858 
Real estate – mortgage – residential (1-4 family) first mortgages  14,878   16,017   17,989 
Real estate – mortgage – home equity loans/lines of credit  2,250   2,355   2,441 
Real estate – mortgage – commercial and other  3,534   4,208   6,151 
Installment loans to individuals  127   101   104 
   Total nonaccrual loans $23,350   27,468   32,796 
             

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


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

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

($ in thousands)At June 30, 2021At December 31, 2020
Vacant land and farmland$517 753 
1-4 family residential properties113 517 
Commercial real estate196 1,154 
Total foreclosed real estate$826 2,424 




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Allowance for Credit Losses and Provision for Credit Losses
On January 1, 2021, we adopted CECL for estimating credit losses, which resulted in an increase of $14.6 million in our allowance for loan losses and an increase of $7.5 million in our allowance for unfunded commitments, which is recorded within Other Liabilities. The following table presents geographical information regardingtax-effected impact of those two items amounted to $17.1 million and was recorded as an adjustment to our nonperforming assets at September 30, 2017.

  As of September 30, 2017 
($ in thousands) Total
Nonperforming
Loans		  Total Loans  Nonperforming
Loans to Total
Loans		  Total
Foreclosed
Real Estate		 
             
Region (1)                
Eastern Region (NC) $10,505   819,000   1.3%  $1,024 
Triangle Region (NC)  11,489   873,000   1.3%   1,650 
Triad Region (NC)  8,954   906,000   1.0%   2,289 
Charlotte Region (NC)  1,276   273,000   0.5%   334 
Southern Piedmont Region (NC)  6,882   286,000   2.4%   773 
Western Region (NC)  125   91,000   0.1%   912 
South Carolina Region  2,413   153,000   1.6%   528 
Virginia Region (2)  1,969   9,000   21.9%   1,846 
Other  67   20,000   0.3%   — 
      Total $43,680   3,430,000   1.3%  $9,356 
                 

(1)The counties comprising each region areretained earnings as follows:

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

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

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

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

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

Western North Carolina Region – Buncombe

South Carolina Region - Chesterfield, Dillon, Florence

Virginia Region - Wythe, Washington, Montgomery, Roanoke

(2)As part of the terms of a July 2016 branch transaction with First Community Bank in which we divested all of our Virginia branches, loans classified as substandard or below were not exchanged between the banks.

Summary of Loan Loss Experience

January 1, 2021.

The allowance for loan loss accounting in effect at December 31, 2020 and all prior periods was based on our estimate of probable incurred loan losses as of the reporting date ("Incurred Loss" methodology). Under the CECL methodology, our allowance for credit losses on loans is created by direct chargesbased on the total amount of loan losses that are expected over the remaining life of the loan portfolio. Our estimate of credit losses on loans under CECL is determined using a complex model, based primarily on the utilization of discounted cash flows, that relies on reasonable and supportable forecasts and historical loss information to operations (known as a “provisiondetermine the balance of the allowance for loan losses”losses and resulting provision for credit losses. We recorded no provision for credit losses on loans in the first and second quarters of 2021 compared to $5.6 million and $19.3 million in the first and second quarters of 2020, respectively. The higher provisions in 2020 was primarily related to our estimate of probable incurred losses associated with the pandemic that was emerging at the time. Under the CECL methodology for providing for loan losses, we determined that no provisions for loan losses were required during the first six months of 2021, as discussed in the following paragraph.
We based our adoption date allowance for credit loss adjustment primarily on a baseline forecast of economic scenarios, which reflected ongoing threats to the economy, primarily arising from the pandemic. In reviewing forecasts during 2021, management noted high degrees of volatility in the monthly forecasts. Given the uncertainty that the volatility is indicative of and the inherent imprecision of a forecast accurately projecting economic statistics during these unprecedented times, management elected to base both its March 31, 2021 and June 30, 2021 computations of the allowance for credit losses primarily on an alternative, more negative forecast, that management judged to more appropriately reflect the inherent risks to its loan portfolio. These more negative forecast's projections at March 31, 2021 were materially consistent with the adoption-date forecast's projections under the baseline scenario, and resulted in no provision for loan losses. In the second quarter of 2021, the same forecast improved from March 31, 2021, which would tend to decrease the amount of required allowance for loan losses necessary. The impact of the improved forecast was substantially offset by the high non-PPP loan growth we experienced during the quarter, as discussed previously. We also increased certain qualitative factors in our model to recognize the higher risk associated with our second quarter 2021 decision to match less conservative loan structures being offered in the marketplace in order to grow loan balances. The result of the above factors resulted in management concluding that no adjustment to the allowance for loan losses was required 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.

second quarter of 2021.

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 generally led to higher provisions for loan losses compared to historical averages. Over the past several years, we have seen ongoing signs of a recovering economy in most of our market 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 the recession years.

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 provision for loan losses of $0.7 million compared to a total negative provision for loan losses of $23,000 in the same period of 2016. The negative provision in 2016 was primarily due to significant recoveries on covered loans.


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

($ 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% 
             

The provision for

($ in thousands)Six Months
Ended
June 30, 2021		Twelve Months
Ended December 31,
2020		Six Months
Ended
June 30, 2020
Loans outstanding at end of period$4,782,064 4,731,315 4,770,063 
Average amount of loans outstanding$4,681,604 4,702,743 4,625,798 
Allowance for loan losses, at beginning of year$52,388 21,398 21,398 
Adoption of CECL14,575 — — 
Provision (reversal) for loan losses— 35,039 24,888 
 66,963 56,437 46,286 
Loans charged off:
Commercial, financial, and agricultural(1,988)(5,608)(3,931)
Real estate – construction, land development & other land loans(66)(51)(45)
Real estate – mortgage – residential (1-4 family) first mortgages(114)(478)(474)
Real estate – mortgage – home equity loans / lines of credit(139)(524)(381)
Real estate – mortgage – commercial and other(1,834)(968)(545)
Consumer loans(307)(873)(397)
Total charge-offs(4,448)(8,502)(5,773)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural667 745 477 
Real estate – construction, land development & other land loans686 1,552 643 
Real estate – mortgage – residential (1-4 family) first mortgages323 754 315 
Real estate – mortgage – home equity loans / lines of credit229 487 166 
Real estate – mortgage – commercial and other340 621 102 
Consumer loans262 294 126 
Total recoveries2,507 4,453 1,829 
Net (charge-offs) recoveries(1,941)(4,049)(3,944)
Allowance for credit losses on loans, at end of period$65,022 52,388 42,342 
Ratios:
Net charge-offs (recoveries) as a percent of average loans (annualized)0.08 %0.09 %0.17 %
Allowance for loan losses as a percent of loans at end of period1.36 %1.11 %0.89 %

As previously discussed, as of June 30, 2021, we have granted approximately $2.1 million in loan losses that we recorddeferrals under the CARES act provisions, which is driven by an allowance forreduction from the highest level of $774 million in loan loss mathematical model. The primary factors impacting this model are loan growth, net charge-off history, and asset quality trends. In 2017, the impact of strong organic loan growth, which would normally result in higher provisions for loan losses, was substantially offset by net loan recoveries in 2017 and improving asset quality trends.

The allowance for loan losses amounted to $24.6 milliondeferrals at SeptemberJune 30, 2017, compared to $23.8 million at December 31, 2016 and $24.6 million at September 30, 2016. 2020.


The ratio of our allowance to total loans has declined from 0.93%was 1.36% and 1.11% at SeptemberJune 30, 2016 to 0.72% at September 30, 2017 as2021 and December 31, 2020, respectively. The increase in this ratio was a result of the factorsadoption of CECL on January 1, 2021.

In addition to the allowance for credit losses on loans, we maintain an allowance for unfunded commitments such as unfunded loan commitments and letters of credit. Under CECL, we estimate expected credit losses associated with these commitments over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for unfunded commitments on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. This methodology is based on a loss rate approach that starts with the probability of funding based on historical experience. Similar to the allowance for credit losses on

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loans methodology discussed above, that impactedadjustments are made to the historical losses for current conditions and reasonable and supportable forecast. The allowance for unfunded commitments amounted to $0.6 million at December 31, 2020 under pre-CECL methodology. At our relatively low levelsJanuary 1, 2021 adoption of CECL, an upward adjustment of $7.5 million was recorded. In the second quarter of 2021, we recorded $1.9 million of provision for credit losses on unfunded commitments primarily due to an increase in construction and land development loan losses, as well as applicable accounting guidance that does not allow us to record ancommitments during the second quarter of 2021. The resulting allowance for loan losses upon the acquisition of loans. Thus, no allowance for loan losses was recorded for the approximately $497unfunded commitments at June 30, 2021 amounted to $10.0 million in loans acquiredand is reflected in the Carolina Bank acquisition – instead the acquired loans were recorded at their fair value, which 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.

line item "Other Liabilities."

We believe our reserveallowance levels are adequate to cover probable loan lossesat each period end, based on the loans outstandingrespective methodologies utilized, as of each reporting date.described above. It must be emphasized, however, that the determination of the reserveallowances 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”Credit Losses on Loans and Unfunded Commitments” above.

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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 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.

Liquidity, Commitments, and Contingencies

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

Thus far in the COVID-19 pandemic, we have seen our liquidity levels increase, with increases in deposits account balances leading to higher cash levels.

In addition to internally generated liquidity sources, we have the ability to obtain borrowings from the following three sources - 1) an approximately $813$927 million line of credit with the Federal Home Loan BankFHLB (of which $344$7 million wasand $8 million were outstanding at SeptemberJune 30, 20172021 and $225 million was outstanding at December 31, 2016)2020, respectively), 2) a $35$100 million federal funds line with a correspondent bank (of which none was outstanding at SeptemberJune 30, 20172021 or December 31, 2016)2020), and 3) an approximately $113$135 million line of credit through the Federal Reserve Bank of Richmond’sReserve's discount window (of which none was outstanding at SeptemberJune 30, 20172021 or December 31, 2016)2020). 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 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 $427 million$1.2 billion at SeptemberJune 30, 2017 compared to $425 million at December 31, 2016.

2021.

Our overall liquidity has decreased slightlyincreased since September 30, 2016 but remains sufficient.December 31, 2020 due primarily to the strong deposit growth which has exceeded loan growth. Our liquid assets (cash and securities) as a percentage of our total deposits and borrowings decreasedincreased from 19.6%31.4% at SeptemberDecember 31, 2020 to 39.9% at June 30, 2016 to 18.1% at September 30, 2017.

2021.

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, 2016,2020, detail of which is presented in Table 18 on page 9074 of our 20162020 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 and Derivative Financial Instruments

Off-balance sheet arrangements include transactions, agreements, or other contractual arrangements pursuant to which we have obligations or provide guarantees on behalf of an unconsolidated entity. We have no off-balance

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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 SeptemberJune 30, 2017,2021, and have no current plans to do so.

Capital Resources

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Index

The Company is regulated by the Board of Governors of the Federal Reserve Board (“Federal Reserve”FRB”) and is subject to the securities registration and public reporting regulations of the Securities and Exchange Commission. Our banking subsidiary, First Bank, is also regulated by the FRB and the North Carolina Office of the Commissioner of Banks. We must comply with regulatory capital requirements established by the FRB. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial statements. We are not aware of any recommendations of regulatory authorities or otherwise which, if they were to be implemented, would have a material effect on our liquidity, capital resources, or operations.

We must comply with regulatory capital requirements established by the Federal Reserve. Failure to meet minimum capital requirements can initiate certain mandatory,

Under Basel III standards 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 ReserveFRB and FDIC regulations.

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


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At SeptemberJune 30, 2017,2021, 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.

  September 30,
2017		  December 31,
2016		  September 30,
2016		 
          
Risk-based capital ratios:            
Common equity Tier 1 to Tier 1 risk weighted assets  10.30%   10.92%   10.67% 
Minimum required Common equity Tier 1 capital  4.50%   4.50%   4.50% 
             
Tier I capital to Tier 1 risk weighted assets  11.74%   12.49%   12.57% 
Minimum required Tier 1 capital  6.00%   6.00%   6.00% 
             
Total risk-based capital to Tier II risk weighted assets  12.44%   13.36%   13.49% 
Minimum required total risk-based capital  8.00%   8.00%   8.00% 
             
Leverage capital ratios:            
Tier 1 capital to quarterly average total assets  9.72%   10.17%   10.22% 
Minimum required Tier 1 leverage capital  4.00%   4.00%   4.00% 

 June 30, 2021December 31, 2020
Risk-based capital ratios:  
Common equity Tier 1 to Tier 1 risk weighted assets12.81 %13.19 %
Minimum required Common Equity Tier 1 capital7.00 %7.00 %
Tier I capital to Tier 1 risk weighted assets13.80 %14.28 %
Minimum required Tier 1 capital8.50 %8.50 %
Total risk-based capital to Tier II risk weighted assets15.05 %15.37 %
Minimum required total risk-based capital10.50 %10.50 %
Leverage capital ratios:  
Tier 1 capital to quarterly average total assets9.43 %9.88 %
Minimum required Tier 1 leverage capital4.00 %4.00 %
First Bank is also subject to capital requirements similar to those discussed above. First Bank’s capital ratiosthat do not vary materially from the Company’s capital ratios presented above. At SeptemberJune 30, 2017,2021, First Bank significantly exceeded the minimum ratios established by the regulatory authorities.

Our capital ratios are generally lower at September 30, 2017 compared to prior periods The reduction in our leverage ratio reflected in the table above was due to the acquisitionsignificant balance sheet growth experienced in the first six months of Carolina Bank2021, resulting primarily from a strong increase in March 2017 (see Note 4 todeposits. The decline in the Consolidated Financial Statements for more information on this transaction).

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Index

In addition to regulatoryrisk based capital ratios we also closely monitor our ratio of tangible common equity to tangible assets (“TCE Ratio”). Our TCE ratio was 7.95% at September 30, 2017 compared to 8.16% atfrom December 31, 20162020 to June 30, 2021 was due to increases in securities and 8.03% at September 30, 2016.

loans balances.

BUSINESS DEVELOPMENT AND OTHER SHAREHOLDER MATTERS

The following is a list of business development and other miscellaneous matters affecting the Company and First Bank.

·On August 4, 2017, the Company converted the data processing systems of Carolina Bank to First Bank, and the former Carolina Bank branches now fully operate under the name “First Bank.” As part of this conversion, the Company consolidated four branches into two branches in Winston-Salem and consolidated two branches into one branch in Asheboro.

·On September 1, 2017, the Company completed the acquisition of Bear Insurance Service, with four locations in Stanly, Cabarrus, and Montgomery counties. This acquisition provided the Company the opportunity to enhance its insurance product offerings, as well as complementing its insurance agency operations in these markets and the surrounding areas. In 2016, Bear Insurance Service recorded approximately $4 million in annual insurance commissions.

·On September 15, 2017, the Company announced a quarterly cash dividend of $0.08 cents per share payable on October 25, 2017 to shareholders of record on September 30, 2017. This is the same dividend rate as the Company declared in the third quarter of 2016.

·On October 1, 2017, the Company acquired ASB Bancorp, Inc., the parent company of Asheville Savings Bank, headquartered in Asheville, North Carolina, which operated through 13 branches in the Asheville area. As of the acquisition date, Asheville Savings Bank had total assets of $798 million, including $617 million in loans and $679 million in deposits. In connection with the acquisition, the Company paid a total of $17.9 million in cash and issued 4.9 million shares of First Bancorp common stock to the shareholders of ASB Bancorp, Inc. The conversion of Asheville Savings Bank’s computer systems to First Bank’s systems is scheduled to occur in March 2018. Until that time, the acquired branches will continue to operate under the name “Asheville Savings Bank.”

Bank, our bank subsidiary.

•On June 15, 2021, the Company announced a quarterly cash dividend of $0.20 per share payable on July 25, 2021 to shareholders of record on June 30, 2021. This dividend rate represents an 11.1% increase over the dividend rate declared in the second quarter of 2020.
SHARE REPURCHASES

We did not repurchase any

There were no share repurchases in the three months ended June 30, 2021. For the six months ended June 30, 2021, we repurchased 106,744 shares of our common stock during the first nine monthsat an average price of 2017.$37.81 per share, which totaled $4.0 million. At SeptemberJune 30, 2017,2021, we had approximately 214,000 shares available for repurchase under existing authority from our Board of Directors.Directors to repurchase up to an additional $16.0 million in shares of the Company’s common stock. We may repurchase these shares of our stock in open market and privately negotiated transactions, as market conditions and our liquidity warrants, subject to compliance with applicable regulations. See also Part II, Item 2 “Unregistered Sales of Equity Securities and Use of Proceeds.”

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

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

Net interest income is our most significant component of earnings. Notwithstanding 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 relativelyfairly consistent yield on average earning assets (net interest margin)., even during periods of changing interest rates. Over the past five calendar years, our net interest margin has ranged from a low of 4.03%3.56% (realized in 2016)2020) to a high of 4.92%4.09% (realized in 2013)2018). 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% in December 2015 and has since risen to 4.25% as of September 30, 2017. The consistency of our

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the net interest margin is aided by the relatively low level of long-term interest rate exposure that we maintain. At SeptemberJune 30, 2017, approximately 77%2021 a majority of our interest-earning assets wereare 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.

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Index

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 September, at June 30, 2017,2021, we had $1.0over $2 billion more in interest-bearing liabilities that are subject to interest rate changes within one year than earning assets. This generally would indicate that net interest income would experience downward pressure in a rising interest rate environment and would benefit from a declining interest rate environment. However, this method of analyzing interest sensitivity only measures the magnitude of the timing differences and does not address earnings, market value, or management actions. Also, interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. In addition to the effects of “when” various rate-sensitive products reprice, market rate changes may not result in uniform changes in rates among all products. For example, included in interest-bearing liabilities subject to interest rate changes within one year at SeptemberJune 30, 2017 are2021 were deposits totaling $1.87 billion$3.8 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 sixtwelve months), this generally results in us being asset-sensitive, meaning that our net interest income benefits from an increase in interest rates and is negatively impacted by a decrease in interest rates.rates, which is what we experienced following the March 2020 interest rate cuts. However, in the twelve-month and longer horizon, the impact of having a higher level of interest-sensitive liabilities generally lessens the short-term effects of changes in interest rates.

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

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


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

As noted earlier,global economy the Federal Reserve made no changescut interest rates by 75 basis points in the second half of 2019. And in March 2020, the Federal Reserve cut interest rates by an additional 150 basis points in response to the short termCOVID-19 pandemic. Our interest-bearing cash balances and most of our variable rate loans, generally reset to lower rates soon after these interest rate cuts. We reduced our offering rates on most deposit products and our borrowing costs were also reduced by lower rates and repaying a significant portion of our outstanding borrowings. Overall however, the impact of the interest rate cuts negatively impacted our net interest margin in 2020 and 2021.


Assuming no significant changes in interest rates it sets directly from 2008 until December 2015, and during that timein the next twelve months, we were able to reprice manyexpect continued pressure on our net interest margin (excluding the impact of our maturing time deposits at lower interest rates. We were also able to generally decrease the rates we paid on other categories of depositsPPP - see below) as a result of declining short-termthe flat yield curve and the expectation of lower interest rates on the redeployment of cash received on maturing loans and investments that will likely not be fully offset by lower funding costs.

Since the announcement of the SBA's PPP program, we have originated at total of approximately $358 million in PPP loans, of which $156 million and $241 million were outstanding at June 30, 2021 and December 31, 2020,

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respectively. These loans all have an interest rate of 1.00%. In addition to the interest rate, the SBA compensated us with an origination fee for each loan of between 1% to 5% of the loan amount, depending on the size of each loan. We received a total of approximately $16.9 million in these fees, which were netted against the direct cost to originate each loan that totaled approximately $0.7 million, with the net deferral amount initially being amortized as interest income over their contractual lives of either two years or five years using the effective interest method of recognition. Early repayments, including the loan forgiveness provisions contained in the marketplacePPP, result in accelerated amortization. In 2020, we amortized $4.1 million of the PPP loan fees as interest income. For the first six months of 2021, we amortized $5.7 million of the PPP loan fees as interest income. The Company has $6.2 million in remaining deferred PPP loan fees, of which $0.9 million relates to 2020 originations and an increase in liquidity that lessened our need$5.3 million relates to offer premium interest rates. However, as our average funding rate approached zero several years ago, meaningful further declines were not possible. Thus far,2021 originations. While the four interest rate increases initiated byexact timing of the Federal Reserve overforgiveness approvals from PPP loans is uncertain, we currently expect the past 18 months have not resulted in significant competitive pressuremajority of the remaining fees associated with the 2020 originations to increase deposit rates, butbe realized during the third quarter of 2021. As it relates to the 2021 PPP originations, we expect approximately one-third of the competitive pressuresremaining fees at June 30, 2021 to increase.

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be recognized in the third quarter of 2021, half to be recognized in the fourth quarter of 2021, with substantially all of the remainder recognized in the first quarter of 2022.
Index

As previously discussed in the section “Net Interest Income,” our net interest income has been impacted by certain purchase accounting adjustments related to the acquired banks. The purchase accounting adjustments related to the premium amortization on loans, deposits and borrowings are based on amortization schedules and are thus systematic and predictable. The accretion of the loan discount on acquired loans which amounted to $5.1$3.7 million and $3.6$2.0 million for the ninefirst six months ended September 30, 2017of 2021 and 2016,2020, respectively, is less predictable and could be materially different among periods. This is because of the magnitude of the discounts that wereare 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. For example, in the second quarter of 2021, we experienced pay-offs on five former failed-bank loans that resulted in the elevated level of discount accretion recorded for the quarter. Each of these factors is difficult to predict and susceptible to volatility. The remaining loan discount on acquired loans amounted to $16.9$5.3 million at SeptemberJune 30, 2017.

Based on our most recent interest rate modeling, which assumes one interest rate increase for the remainder of 2017 (federal funds rate = 1.50%, prime = 4.50%), we project that our net interest margin will likely remain fairly stable over the next twelve months. We expect the yields we earn on excess cash and investment security yields2021 compared 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.

$8.9 million at December 31, 2020.

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

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

Item 4 – Controls and Procedures

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

Part II. Other Information

Item 1 – Legal Proceedings

From time to time,

Various legal proceedings may arise in the ordinary course of business and may be pending or threatened against the Company and its subsidiaries. Neither the Company nor any of its subsidiaries is a party to routineinvolved in any pending legal proceedings within its normal course of business. Managementthat management believes that such routine legal proceedings taken together are immaterialmaterial to the Company’sCompany or its consolidated financial condition or results of operations. Any non-routine legal proceedings are described in Item 3 ofposition.  If an exposure were to be identified, it is the Company’s Annual Report on Form 10-K forpolicy to establish and accrue appropriate reserves during the year ended December 31, 2016.

In our Quarterly Report on Form 10-Q for theaccounting period ended June 30, 2017, we reported thatin which a purported shareholder of ASB Bancorp, Inc. filed a lawsuit in the United States District Court, Western District of North Carolina, naming the Company, ASB Bancorp, and 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 Securities Exchange Act of 1934 and other state law claims. The lawsuit sought, among other remedies, to enjoin the merger or, in 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 October 1, 2017 completion of the Company’s acquisition of ASB Bancorp, Inc. andloss is not expecteddeemed to be refiled.

probable and the amount is determinable.


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66

Item 1A – Risk Factors

Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2020, as well as cautionary statements contained in this Form 10-Q, including those under the caption “Forward-Looking Statements” set forth in the forepart of this Form 10-Q, risks and matters described elsewhere in this Form 10-Q and in our other filings with the SEC.

There are no material changes from the risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.


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

Issuer Purchases of Equity Securities
PeriodTotal Number of

Shares

Purchased (2)		Average Price

Paid per Share		Total Number of Shares

Purchased as Part of

Publicly Announced

Plans or Programs (1)		Maximum Number of

Shares (or Approximate Dollar Value) that May Yet Be

Purchased Under the

Plans or Programs (1)
JulyApril 1, 20172021 to July 31, 2017April 30, 2021— —$— —— —$15,964,472 214,241
AugustMay 1, 20172021 to AugustMay 31, 20172021— —— —— —$15,964,472 214,241
SeptemberJune 1, 20172021 to SeptemberJune 30, 20172021— —— —— —$15,964,472 214,241
Total— —— —— —$15,964,472 214,241

Footnotes to the Above Table

(1)All shares available for repurchase are pursuant to publicly announced share repurchase authorizations. On July 30, 2004, the Company announced that its Board of Directors had approved the repurchase of 375,000 shares of the Company’s common stock. The repurchase authorization does not have an expiration date. There are no plans or programs the Company has determined to terminate prior to expiration, or under which we do not intend to make further purchases.

(2)The table above does not include shares that were used by option holders to satisfy the exercise price of the options issued by the Company to its employees and directors pursuant to the Company’s stock option plans. There were no such exercises during the three months ended September 30, 2017.

During the three months ended September 30, 2017,

(1)All shares available for repurchase are pursuant to publicly announced share repurchase authorizations. On January 27, 2021, the Company issued 13,374 sharesreported the authorization of unregistered common stock in completinga new $20 million repurchase program with an expiration date of December 31, 2021. As of June 30, 2021, the acquisition of Bear Insurance Service — see Note 4Company had the remaining authorization to the consolidated financial statements for additional information. The Company relied upon the exemption from registration provided by Section 4(2)repurchase up to $16.0 million 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 during the three months ended September 30, 2017.

Company's stock.


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Index

Item 6 - Exhibits

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

2.a
2.a

2.b

2.c

2.d

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Index

3.a
2.e
3.a
Articles of Incorporation of the Company and amendments thereto were filed asExhibits 3.a.i through 3.a.v to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2002, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed asExhibits 3.1and3.2tothe Company’s Current Report on Form 8-K filed on January 13, 2009, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed asExhibit 3.1.b to the Company’s Registration Statement on Form S-3D filed on June 29, 2010(Commission (Commission File No. 333-167856), and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed asExhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 6, 2011, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed asExhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 26, 2012, and are incorporated herein by reference.reference.

3.b
Second Amended and Restated Bylaws of the Company were filed as Exhibit 4.13.1 to the Company's Current Report on Form 8-K filed on MarchFebruary 9, 2017,2018, and are incorporated herein by reference.

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

31.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

31.2
32.1Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

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

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

101The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2017,2021, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.

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


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68

SIGNATURES

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

FIRST BANCORP
FIRST BANCORP
August 9, 2021November 9, 2017BY:/s/  Richard H. Moore
Richard H. Moore

Chief Executive Officer

(Principal Executive Officer),
and Director
and Director
August 9, 2021
November 9, 2017BY:/s/  Eric P. Credle
Eric P. Credle

Executive Vice President

and Chief Financial Officer


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