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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
Commission File Number 0-15572
FIRST BANCORP
(Exact Name of Registrant as Specified in its Charter)

North Carolina |  | 56-1421916
(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)
300 SW Broad St., | Southern Pines | , | North Carolina |  | 28387
(Address of Principal Executive Offices) |  | (Zip Code)
(Registrant's telephone number, including area code) |  | (910) | 246-2500

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

| Large Accelerated Filer | ☒ | Accelerated Filer | ☐
| Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐
|  |  | Emerging Growth Company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The number of shares of the registrant's Common Stock outstanding on April 30, 2024 was 41,170,211.

INDEX
FIRST BANCORP AND SUBSIDIARIES

| Page
Part I. Financial Information |
Item 1 - Financial Statements (unaudited) |
Consolidated Balance Sheets - March 31, 202 4 and December 31, 202 3 | 4
Consolidated Statements of Income - For the Three Months Ended March 3 1, 202 4 and 202 3 | 5
Consolidated Statements of Comprehensive Income - For the Three Months Ended March 31, 202 4 and 202 3 | 6
Consolidated Statements of Shareholders’ Equity - For the Three Months Ended March 31, 202 4 and 202 3 | 7
Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 202 4 and 202 3 | 8
Notes to Consolidated Financial Statements | 10
Item 2 – Management’s Discussion and Analysis of Consolidated Results of Operations and Financial Condition | 37
Item 3 – Quantitative and Qualitative Disclosures About Market Risk | 52
Item 4 – Controls and Procedures | 54
Part II. Other Information |
Item 1 – Legal Proceedings | 56
Item 1A – Risk Factors | 56
Item 5 - Other Information | 56
Item 6 – Exhibits | 57
Signatures | 58

Page 2

Index
FORWARD-LOOKING STATEMENTS
Part I of this report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Further, forward-looking statements are intended to speak only as of the date made. Such statements are often characterized by the use of qualifying words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” or other statements concerning our opinions or judgment about future events. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of our customers, our level of success in integrating acquisitions, actions of government regulators, the level of market interest rates, geopolitical influences and general economic conditions. For additional information about factors that could affect the matters discussed in this paragraph, see the “Risk Factors” section of our 2023 Annual Report on Form 10-K ("2023 Annual Report") 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) |  | March 31, 2024 |  | December 31, 2023
Assets |  |  |  |
Cash and due from banks, noninterest-bearing |  | $ | 87,181 |  |  | 100,891 |
Due from banks, interest-bearing |  | 266,661 |  |  | 136,964 |
Total cash and cash equivalents |  | 353,842 |  |  | 237,855 |
Securities available for sale |  | 2,088,483 |  |  | 2,189,379 |
Securities held to maturity (fair values of $436,655 at March 31, 2024 and $449,623 at December 31, 2023) |  | 525,627 |  |  | 533,678 |
Presold mortgages in process of settlement |  | 6,703 |  |  | 2,667 |
Loans |  | 8,076,506 |  |  | 8,150,102 |
Allowance for credit losses on loans |  | (110,067) |  |  | (109,853) |
Net loans |  | 7,966,439 |  |  | 8,040,249 |
Premises and equipment, net |  | 150,546 |  |  | 150,957 |
Operating right-of-use lease assets |  | 16,551 |  |  | 17,063 |
Accrued interest receivable |  | 35,147 |  |  | 37,351 |
Goodwill |  | 478,750 |  |  | 478,750 |
Other intangible assets, net |  | 30,886 |  |  | 32,858 |
Bank-owned life insurance |  | 185,061 |  |  | 183,897 |
Other assets |  | 253,562 |  |  | 210,238 |
Total assets |  | $ | 12,091,597 |  |  | 12,114,942 |
Liabilities |  |  |  |
Deposits: Noninterest-bearing deposits |  | $ | 3,362,265 |  |  | 3,379,876 |
Interest-bearing deposits |  | 6,941,046 |  |  | 6,651,723 |
Total deposits |  | 10,303,311 |  |  | 10,031,599 |
Borrowings |  | 332,335 |  |  | 630,158 |
Accrued interest payable |  | 9,847 |  |  | 5,699 |
Operating lease liabilities |  | 17,343 |  |  | 17,833 |
Other liabilities |  | 52,662 |  |  | 57,273 |
Total liabilities |  | 10,715,498 |  |  | 10,742,562 |
Commitments and contingencies |  |  |  |
Shareholders' Equity |  |  |  |
Preferred stock, no par value per share. Authorized: 5,000,000 shares |  |  |  |
Issued & outstanding: none as of March 31, 2024 and December 31, 2023 |  | — |  |  | — |
Common stock, no par value per share. Authorized: 60,000,000 shares |  |  |  |
Issued & outstanding: 41,156,286 shares and 41,109,987 shares as of March 31, 2024 and December 31, 2023, respectively |  | 965,429 |  |  | 963,990 |
Retained earnings |  | 732,643 |  |  | 716,420 |
Stock in rabbi trust assumed in acquisition |  | (1,396) |  |  | (1,385) |
Rabbi trust obligation |  | 1,396 |  |  | 1,385 |
Accumulated other comprehensive loss |  | (321,973) |  |  | (308,030) |
Total shareholders’ equity |  | 1,376,099 |  |  | 1,372,380 |
Total liabilities and shareholders’ equity |  | $ | 12,091,597 |  |  | 12,114,942 |

See accompanying notes to unaudited consolidated financial statements.
Page 4

Index
First Bancorp and Subsidiaries
Consolidated Statements of Income

|  | Three Months Ended March 31, |  |
($ in thousands, except share data - unaudited) |  | 2024 |  | 2023 |  |  |  |
Interest Income |  |  |  |  |  |  |  |
Interest and fees on loans |  | $ | 109,756 |  |  | 99,380 |  |  |  |  |
Interest on investment securities: |  |  |  |  |  |  |  |
Taxable interest income |  | 12,728 |  |  | 13,416 |  |  |  |  |
Tax-exempt interest income |  | 1,117 |  |  | 1,130 |  |  |  |  |
Other, principally overnight investments |  | 2,971 |  |  | 3,248 |  |  |  |  |
Total interest income |  | 126,572 |  |  | 117,174 |  |  |  |  |
Interest Expense |  |  |  |  |  |  |  |
Interest on deposits |  | 39,135 |  |  | 18,918 |  |  |  |  |
Interest on borrowings |  | 8,205 |  |  | 5,770 |  |  |  |  |
Total interest expense |  | 47,340 |  |  | 24,688 |  |  |  |  |
Net interest income |  | 79,232 |  |  | 92,486 |  |  |  |  |
Provision for credit losses |  | 1,200 |  |  | 12,502 |  |  |  |  |
Net interest income after provision for credit losses |  | 78,032 |  |  | 79,984 |  |  |  |  |
Noninterest Income |  |  |  |  |  |  |  |
Service charges on deposit accounts |  | 3,868 |  |  | 3,894 |  |  |  |  |
Other service charges, commissions and fees |  | 5,612 |  |  | 5,920 |  |  |  |  |
Presold mortgage loan fees and gains on sale |  | 338 |  |  | 406 |  |  |  |  |
Commissions from sales of financial products |  | 1,320 |  |  | 1,306 |  |  |  |  |
SBA consulting fees |  | 257 |  |  | 521 |  |  |  |  |
SBA loan sale gains |  | 895 |  |  | 255 |  |  |  |  |
Bank-owned life insurance income |  | 1,164 |  |  | 1,046 |  |  |  |  |
Securities losses, net |  | (975) |  |  | — |  |  |  |  |
Other gains, net |  | 459 |  |  | 188 |  |  |  |  |
Total noninterest income |  | 12,938 |  |  | 13,536 |  |  |  |  |
Noninterest Expense |  |  |  |  |  |  |  |
Salaries |  | 27,642 |  |  | 29,321 |  |  |  |  |
Employee benefits |  | 6,269 |  |  | 6,393 |  |  |  |  |
Total personnel expense |  | 33,911 |  |  | 35,714 |  |  |  |  |
Occupancy expense |  | 3,663 |  |  | 3,688 |  |  |  |  |
Equipment related expenses |  | 1,925 |  |  | 1,379 |  |  |  |  |
Merger and acquisition expenses |  | — |  |  | 12,182 |  |  |  |  |
Intangibles amortization |  | 1,759 |  |  | 2,145 |  |  |  |  |
Other operating expenses |  | 17,929 |  |  | 19,067 |  |  |  |  |
Total noninterest expenses |  | 59,187 |  |  | 74,175 |  |  |  |  |
Income before income taxes |  | 31,783 |  |  | 19,345 |  |  |  |  |
Income tax expense |  | 6,511 |  |  | 4,184 |  |  |  |  |
Net income |  | $ | 25,272 |  |  | 15,161 |  |  |  |  |
Earnings per common share: |  |  |  |  |  |  |  |
Basic |  | $ | 0.61 |  |  | 0.37 |  |  |  |  |
Diluted |  | 0.61 |  |  | 0.37 |  |  |  |  |
Weighted average common shares outstanding: |  |  |  |  |  |  |  |
Basic |  | 40,843,865 |  |  | 40,583,417 |  |  |  |  |
Diluted |  | 41,249,636 |  |  | 41,112,692 |  |  |  |  |

See accompanying notes to unaudited consolidated financial statements.
Page 5

Index
First Bancorp and Subsidiaries
Consolidated Statements of Comprehensive Income

|  | Three Months Ended March 31, |  |
($ in thousands - unaudited) |  | 2024 |  | 2023 |  |  |  |
Net income |  | $ | 25,272 |  |  | 15,161 |  |  |  |  |
Other comprehensive (loss) income: |  |  |  |  |  |  |  |
Unrealized (losses) gains on securities available for sale: |  |  |  |  |  |  |  |
Unrealized holding (losses) gains arising during the period, pretax |  | (19,143) |  |  | 35,333 |  |  |  |  |
Tax benefit (expense) |  | 4,432 |  |  | (7,425) |  |  |  |  |
Reclassification to realized losses |  | 975 |  |  | — |  |  |  |  |
Tax expense |  | (226) |  |  | — |  |  |  |  |
Postretirement Plans: |  |  |  |  |  |  |  |
Amortization of unrecognized net actuarial losses |  | 25 |  |  | 44 |  |  |  |  |
Tax benefit |  | (6) |  |  | (11) |  |  |  |  |
Other comprehensive (loss) income |  | (13,943) |  |  | 27,941 |  |  |  |  |
Comprehensive income |  | $ | 11,329 |  |  | 43,102 |  |  |  |  |

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 Stock |  | Retained Earnings |  | Stock in Rabbi Trust Assumed in Acquisition |  | Rabbi Trust Obligation |  | Accumulated Other Comprehensive Loss |  | Total Shareholders’ Equity
| Shares |  | Amount |  |  |  |  |
Three Months Ended March 31, 2023 |  |  |  |  |  |  |  |  |  |
Balances, January 1, 2023 |  | 35,704 |  |  | $ | 725,153 |  |  | 648,418 |  |  | (1,585) |  |  | 1,585 |  |  | (341,975) |  |  | 1,031,596 |
Net income |  |  |  |  |  | 15,161 |  |  |  |  |  |  |  |  | 15,161 |
Cash dividends declared ($0.22 per common share) |  |  |  |  |  | (9,006) |  |  |  |  |  |  |  |  | (9,006) |
Change in Rabbi Trust Obligation |  |  |  |  |  |  |  | (23) |  |  | 23 |  |  |  |  | — |
Equity issued related to acquisition |  | 5,033 |  |  | 229,489 |  |  |  |  |  |  |  |  |  |  | 229,489 |
Stock option exercises |  | 170 |  |  | 3,215 |  |  |  |  |  |  |  |  |  |  | 3,215 |
Stock-based compensation |  | 80 |  |  | 1,565 |  |  |  |  |  |  |  |  |  |  | 1,565 |
Other comprehensive income (loss) |  |  |  |  |  |  |  |  |  |  |  | 27,941 |  |  | 27,941 |
Balances, March 31, 2023 |  | 40,987 |  |  | $ | 959,422 |  |  | 654,573 |  |  | (1,608) |  |  | 1,608 |  |  | (314,034) |  |  | 1,299,961 |
Three Months Ended March 31, 2024 |  |  |  |  |  |  |  |  |  |
Balances, January 1, 2024 |  | 41,110 |  |  | $ | 963,990 |  |  | 716,420 |  |  | (1,385) |  |  | 1,385 |  |  | (308,030) |  |  | 1,372,380 |
Net income |  |  |  |  |  | 25,272 |  |  |  |  |  |  |  |  | 25,272 |
Cash dividends declared ($0.22 per common share) |  |  |  |  |  | (9,049) |  |  |  |  |  |  |  |  | (9,049) |
Change in Rabbi Trust Obligation |  |  |  |  |  |  |  | (11) |  |  | 11 |  |  |  |  | — |
Stock options exercised |  | 36 |  |  | 726 |  |  |  |  |  |  |  |  |  |  | 726 |
Stock withheld for payment of taxes |  | (4) |  |  | (126) |  |  |  |  |  |  |  |  |  |  | (126) |
Stock-based compensation |  | 14 |  |  | 839 |  |  |  |  |  |  |  |  |  |  | 839 |
Other comprehensive loss |  |  |  |  |  |  |  |  |  |  |  | (13,943) |  |  | (13,943) |
Balances, March 31, 2024 |  | 41,156 |  |  | $ | 965,429 |  |  | 732,643 |  |  | (1,396) |  |  | 1,396 |  |  | (321,973) |  |  | 1,376,099 |

See accompanying notes to unaudited consolidated financial statements.
Page 7

Index
First Bancorp and Subsidiaries
Consolidated Statements of Cash Flows

|  | Three Months Ended March 31,
($ in thousands-unaudited) |  | 2024 |  | 2023
Cash Flows From Operating Activities |  |  |  |
Net income |  | $ | 25,272 |  |  | 15,161 |
Reconciliation of net income to net cash (used) provided by operating activities: |  |  |  |
Provision for credit losses |  | 1,200 |  |  | 12,502 |
Net security premium amortization |  | 2,164 |  |  | 2,351 |
Deferred tax benefit |  | (379) |  |  | (1,713) |
Loan discount accretion |  | (2,881) |  |  | (3,566) |
Deposit and debt discount accretion, net |  | 472 |  |  | 1,227 |
Foreclosed property gains, net |  | — |  |  | (35) |
Losses on calls of securities, net |  | 975 |  |  | — |
Other gains, net |  | (459) |  |  | (244) |
Bank-owned life insurance income |  | (1,164) |  |  | (1,046) |
Net amortization of deferred loan fees |  | (418) |  |  | (127) |
Depreciation of premises and equipment |  | 2,019 |  |  | 1,923 |
Amortization of operating lease right-of-use assets |  | 512 |  |  | 567 |
Repayments of lease obligations |  | (490) |  |  | (485) |
Stock-based compensation expense |  | 662 |  |  | 1,118 |
Amortization of intangible assets |  | 1,759 |  |  | 2,145 |
Amortization and impairment of SBA servicing assets |  | 437 |  |  | 184 |
Fees/gains from sale of presold mortgages and SBA loans |  | (1,233) |  |  | (661) |
Origination of presold mortgage loans in process of settlement |  | (16,241) |  |  | (12,528) |
Proceeds from sales of presold mortgage loans in process of settlement |  | 19,411 |  |  | 11,296 |
Origination of SBA loans for sale |  | (15,011) |  |  | (8,933) |
Proceeds from sales of SBA loans |  | 11,940 |  |  | 4,679 |
Increase in accrued interest receivable |  | 2,204 |  |  | 3,707 |
(Increase) decrease in other assets |  | (51,175) |  |  | 8,719 |
Increase in accrued interest payable |  | 4,148 |  |  | 3,872 |
Decrease in other liabilities |  | (3,816) |  |  | (3,498) |
Net cash (used) provided by operating activities |  | (20,092) |  |  | 36,615 |
Cash Flows From Investing Activities |  |  |  |
Proceeds from maturities, calls and principal repayments of securities available for sale |  | 81,700 |  |  | 58,856 |
Proceeds from maturities, calls and principal repayments of securities held to maturity |  | 5,940 |  |  | 759 |
Proceeds from sales of securities available for sale |  | — |  |  | 111,863 |
Purchases of Federal Reserve and FHLB stock |  | (15,778) |  |  | (42,869) |
Redemptions of Federal Reserve and FHLB stock |  | 28,880 |  |  | 15,010 |
Purchases of other investments |  | (251) |  |  | — |
Net decrease (increase) in loans |  | 72,244 |  |  | (133,712) |
Proceeds from sales of foreclosed properties |  | — |  |  | 192 |
Purchases of premises and equipment |  | (1,641) |  |  | (346) |
Proceeds from sales of premises and equipment |  | 10 |  |  | 15 |
Net cash received in acquisition activities |  | — |  |  | 22,610 |
Net cash provided by investing activities |  | 171,104 |  |  | 32,378 |
Cash Flows From Financing Activities |  |  |  |
Net increase in deposits |  | 271,429 |  |  | 98,742 |
Advances from other borrowings |  | 481,000 |  |  | 929,000 |
Repayment of other borrowings |  | (779,012) |  |  | (649,034) |
Cash dividends paid – common stock |  | (9,042) |  |  | (7,852) |
Proceeds from stock option exercises |  | 726 |  |  | 3,215 |
Payment of taxes related to stock withheld |  | (126) |  |  | — |
Net cash (used) provided by financing activities |  | (35,025) |  |  | 374,071 |
Increase in cash and cash equivalents |  | 115,987 |  |  | 443,064 |
Cash and cash equivalents, beginning of period |  | 237,855 |  |  | 270,318 |
Cash and cash equivalents, end of period |  | $ | 353,842 |  |  | 713,382 |

(Continued)
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Index
First Bancorp and Subsidiaries
Consolidated Statements of Cash Flows

|  | Three Months Ended March 31,
($ in thousands-unaudited) |  | 2024 |  | 2023
Supplemental Disclosures of Cash Flow Information: |  |  |  |
Cash paid during the period for interest |  | $ | 42,825 |  |  | 19,333 |
Cash paid during the period for income taxes |  | 22 |  |  | 46 |
Non-cash: Unrealized (loss) gain on securities available for sale, net of taxes |  | (13,962) |  |  | 27,908 |
Non-cash: Foreclosed loans transferred to other real estate |  | — |  |  | 288 |
Non-cash: Accrued dividends at end of period |  | 9,052 |  |  | 9,010 |
Acquisition of GrandSouth Bancorporation |  | — |  |  | See Note 2

See accompanying notes to consolidated financial statements.
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Index
First Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization and Basis of Presentation
The consolidated financial statements include the accounts of First Bancorp (the “Company”) and its wholly owned subsidiary First Bank (the “Bank”). The Bank has three wholly owned subsidiaries that are fully consolidated, SBA Complete, Inc. (“SBA Complete”), Magnolia Financial, Inc. ("Magnolia Financial"), and First Troy SPE, LLC. All significant intercompany accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes necessary for complete financial statements in accordance with GAAP. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of March 31, 2024, the consolidated results of operations for the three months ended March 31, 2024 and 2023, and the consolidated cash flows for the three months ended March 31, 2024 and 2023. Any such adjustments were of a normal, recurring nature. These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes in the 2023 Annual Report for the year ended December 31, 2023. Operating results for interim period are not necessarily indicative of the results that may be expected for the full year.
Reference is made to Note 1 of the 2023 Annual Report filed with the Securities and Exchange Commission (“SEC”) for a discussion of accounting policies and other relevant information with respect to the financial statements.
The Company has evaluated all subsequent events through the date the financial statements were issued.
Accounting Standards Adopted in 2024
Accounting Standards Update ("ASU") 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method” permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. This update is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The adoption of ASU 2023-02 did not have a significant impact on the Company's consolidated financial statements.
Accounting Standards Pending Adoption
ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" amended existing guidance to improve disclosures about a public entity’s reportable segments and provide more detailed information about a reportable segment’s expenses. ASU 2023-07 clarifies that an entity which has a single reportable segment is to provide all the disclosures required by Topic 280 and ASU 2023-07. The amendment is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The adoption of ASU 2023-07 is not expected to have a significant impact on the Company's consolidated financial statements.
ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” amends existing guidance to improve the transparency of income tax disclosures, including disclosure of specific categories in the rate reconciliation, providing additional information for certain reconciling items, and providing details on income taxes paid. The amendments are effective for annual periods beginning after December 15, 2024. The adoption of ASU 2023-09 is not expected to have a significant impact on the Company's consolidated financial statements.
Other accounting standards that have been issued or proposed by the Financial Accounting Standards Board ("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.
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Index
Note 2. Acquisitions
On January 1, 2023, the Company completed its acquisition of GrandSouth Bancorporation ("GrandSouth"), in an all-stock transaction pursuant to the Agreement and Plan of Merger and Reorganization (the "Merger Agreement"), dated June 21, 2022, between the Company and GrandSouth. At the closing of the transaction, GrandSouth merged into the Company. Following the merger of the Company and GrandSouth, GrandSouth Bank, a wholly-owned subsidiary of GrandSouth, merged into the Bank with the Bank being the surviving entity. The results of GrandSouth are included beginning on the January 1, 2023 acquisition date.
Pursuant to the Merger Agreement, each share of common and preferred stock of GrandSouth issued and outstanding immediately prior to the effective time of the acquisition was converted into 0.91 shares of the Company's common stock. As a result, the Company issued 5,032,834 shares of the Company common stock effective January 1, 2023. In addition, GrandSouth common stock options outstanding at the merger effective time were converted to options to acquire 0.91 shares of the Company's common stock resulting in 542,345 options with an average exercise price of approximately $20.14. The total consideration transferred at the close of the transaction was $229.5 million which was determined based on the number of shares issued and the closing market price of the Company's stock immediately prior to the merger effective time of $42.84. In addition to the stock issued, the fair value of the converted stock options calculated in accordance with FASB Accounting Standards Codification ("ASC") 805-30-55 was included in the total consideration of the transaction.
As a result of the merger, eight branches in South Carolina were added to the Company's branch network. The acquisition accomplished the Company's strategic initiative to expand its presence in South Carolina, specifically in the high-growth markets of the state including Greenville, Charleston and Columbia. Significant synergies were anticipated to be gained from the acquisition, with asset growth and revenue enhancement opportunities from the new markets and expanded customer base. Accordingly, the Company recognized goodwill in the transaction related primarily to the reasons noted, as well as the positive earnings of GrandSouth.
This transaction was accounted for using the acquisition method of accounting for business combinations, and accordingly, the assets acquired, intangible assets identified, and liabilities assumed of GrandSouth were recorded based on estimates of fair values as of January 1, 2023. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. Estimated fair values were based on management’s best estimates, using the information available at the date of acquisition, including the use of third-party valuation specialists. Management has finalized the valuations of all acquired assets and liabilities assumed in the GrandSouth acquisition.
The following table summarizes the estimated fair value of acquired assets, identified intangible assets, and liabilities assumed as of January 1, 2023. Following the table is a discussion of valuation approaches utilized in estimating the fair values in accordance with ASC 805-10, "Business Combinations." The $114.5 million in goodwill that resulted from this transaction is non-deductible for tax purposes.
Page 11

Index

($ in thousands) |  | Fair Value Estimate
Assets acquired: |  |
Cash and cash equivalents |  | $ | 22,610 |
Securities available for sale |  | 112,363 |
Loans, gross |  | 996,833 |
Allowance for loan losses |  | (5,610) |
Premises and equipment |  | 20,268 |
Core deposit intangible |  | 28,840 |
Operating right-of-use lease assets |  | 732 |
Other assets |  | 27,163 |
Total |  | 1,203,199 |
Liabilities assumed: |  |
Deposits |  | 1,045,308 |
Borrowings |  | 38,800 |
Other liabilities |  | 4,089 |
Total |  | 1,088,197 |
Net identifiable assets acquired |  | 115,002 |
Less: Total consideration |  | 229,489 |
Goodwill recorded related to acquisition of GrandSouth |  | $ | 114,487 |

The following is a description of the methods used to determine the fair values of significant assets acquired and liabilities assumed included in the table above.
Cash and cash equivalents: This consists primarily of cash and due from banks, and interest-bearing deposits with banks. The carrying amount of these assets was a reasonable estimate of fair value based on the short-term nature of these assets.
Securities available for sale: Fair value of securities was measured based on quoted market prices, where available. If a quoted market price was not available, fair value was estimated using quoted market prices for similar securities and adjusted for differences between the quoted instrument and the instrument being valued. Substantially all of the securities acquired from GrandSouth were liquidated at their recorded fair value upon close of the transaction or shortly thereafter. There was no gain or loss recorded on the sale of acquired securities.
Loans: Fair value of loans acquired was based on a discounted cash flow methodology that considered factors including loan type and related collateral, classification status, remaining term of the loan, fixed or variable interest rate, amortization status, and current discount rates. Expected cash flows were derived using inputs consistent with management's assessment of credit risk for allowance measurement, including estimated future credit losses and estimated prepayments. A total fair value adjustment of $29.5 million was recorded. Purchased loans with financial deterioration ("PCD loans") were determined based primarily on internal grades, delinquency status, and other evidence of credit deterioration. The Company calculated the initial allowance of $5.6 million on PCD loans in accordance with its current expected credit loss model ("CECL") and reclassified that amount from the fair value adjustment to establish the initial allowance for credit losses ("ACL") on PCD loans. The following table presents additional information related to the acquired loan portfolio at the acquisition date:

($ in thousands) |  | January 1, 2023
PCD Loans: |  |
Par value |  | $ | 152,487 |
Allowance for credit losses |  | (5,610) |
Non-credit discount |  | (1,370) |
Purchase price |  | 145,507 |
Non-PCD Loans: |  |
Fair Value |  | 845,716 |
Gross contractual amounts receivable |  | 865,132 |
Estimate of contractual cash flows not expected to be collected |  | 22,542 |

Page 12

Index
Premises: Land and buildings held for use were valued at appraised values, which reflected considerations of recent disposition values for similar property types with adjustments for characteristics of individual properties.
Intangible assets: Core deposit intangible ("CDI") asset represents the value of the relationships with deposit customers. The fair value for the core deposit intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of deposit base, net maintenance cost attributable to customer deposits and an estimate of the cost associated with alternative funding sources. The discount rates used for CDI assets were based on market rates. The CDI is being amortized over 10 years utilizing the sum of the months digits accelerated method, which results in a weighted-average amortization period of approximately 41 months.
Lease Assets and Lease Liabilities: Lease assets and lease liabilities were measured using a methodology that involved estimating the future lease payments over the remaining lease term with discounting using a discount rate. The lease term was determined for individual leases based on management's assessment of the probability of exercising existing renewal options.
Deposits: The fair values used for the demand and savings deposits by definition equal the amount payable on demand at the acquisition date. Fair values for time deposits were estimated using a discounted cash flow analysis applying interest rates currently offered to the contractual interest rates on such time deposits.
Borrowings: The fair values of long-term debt instruments were estimated based on quoted market prices for instrument if available, or for similar instruments if not available.
Note 3. Securities
The book values and approximate fair values of investment securities at March 31, 2024 and December 31, 2023 are summarized as follows:

($ in thousands) |  | March 31, 2024 |  | December 31, 2023
| Amortized Cost |  | Fair Value |  | Unrealized |  | Amortized Cost |  | Fair Value |  | Unrealized
|  |  | Gains |  | (Losses) |  |  |  | Gains |  | (Losses)
Securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasuries |  | $ | 124,876 |  |  | 123,770 |  |  | — |  |  | (1,106) |  |  | 174,785 |  |  | 172,570 |  |  | — |  |  | (2,215) |
Government-sponsored enterprise securities |  | 71,965 |  |  | 59,959 |  |  | — |  |  | (12,006) |  |  | 71,964 |  |  | 60,266 |  |  | — |  |  | (11,698) |
Mortgage-backed securities |  | 2,291,854 |  |  | 1,886,949 |  |  | 22 |  |  | (404,927) |  |  | 2,323,674 |  |  | 1,937,784 |  |  | 30 |  |  | (385,920) |
Corporate bonds |  | 18,676 |  |  | 17,805 |  |  | — |  |  | (871) |  |  | 19,676 |  |  | 18,759 |  |  | — |  |  | (917) |
Total available for sale |  | $ | 2,507,371 |  |  | 2,088,483 |  |  | 22 |  |  | (418,910) |  |  | 2,590,099 |  |  | 2,189,379 |  |  | 30 |  |  | (400,750) |
Securities held to maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 11,369 |  |  | 10,682 |  |  | — |  |  | (687) |  |  | 12,085 |  |  | 11,447 |  |  | — |  |  | (638) |
State and local governments |  | 514,258 |  |  | 425,973 |  |  | 5 |  |  | (88,290) |  |  | 521,593 |  |  | 438,176 |  |  | 39 |  |  | (83,456) |
Total held to maturity |  | $ | 525,627 |  |  | 436,655 |  |  | 5 |  |  | (88,977) |  |  | 533,678 |  |  | 449,623 |  |  | 39 |  |  | (84,094) |

All of the Company’s mortgage-backed securities were issued by government-sponsored enterprises ("GSEs"), except for private mortgage-backed securities with a fair value of $0.7 million as of March 31, 2024 and December 31, 2023.
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Index
The following table presents information regarding all securities with unrealized losses at March 31, 2024:

|  | Securities in an Unrealized Loss Position for Less than 12 Months |  | Securities in an Unrealized Loss Position for More than 12 Months |  | Total
($ in thousands) |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
U.S. Treasuries |  | $ | — |  |  | — |  |  | 123,770 |  |  | 1,106 |  |  | 123,770 |  |  | 1,106 |
Government-sponsored enterprise securities |  | — |  |  | — |  |  | 59,959 |  |  | 12,006 |  |  | 59,959 |  |  | 12,006 |
Mortgage-backed securities |  | 448 |  |  | 1 |  |  | 1,895,026 |  |  | 405,613 |  |  | 1,895,474 |  |  | 405,614 |
Corporate bonds |  | — |  |  | — |  |  | 16,055 |  |  | 871 |  |  | 16,055 |  |  | 871 |
State and local governments |  | 5,356 |  |  | 26 |  |  | 420,149 |  |  | 88,264 |  |  | 425,505 |  |  | 88,290 |
Total unrealized loss position |  | $ | 5,804 |  |  | 27 |  |  | 2,514,959 |  |  | 507,860 |  |  | 2,520,763 |  |  | 507,887 |

The following table presents information regarding all securities with unrealized losses at December 31, 2023:

|  | Securities in an Unrealized Loss Position for Less than 12 Months |  | Securities in an Unrealized Loss Position for More than 12 Months |  | Total
($ in thousands) |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
US Treasury securities |  | $ | — |  |  | — |  |  | 172,570 |  |  | 2,215 |  |  | 172,570 |  |  | 2,215 |
Government-sponsored enterprise securities |  | — |  |  | — |  |  | 60,266 |  |  | 11,698 |  |  | 60,266 |  |  | 11,698 |
Mortgage-backed securities |  | 1,117 |  |  | 5 |  |  | 1,945,830 |  |  | 386,553 |  |  | 1,946,947 |  |  | 386,558 |
Corporate bonds |  | — |  |  | — |  |  | 17,008 |  |  | 917 |  |  | 17,008 |  |  | 917 |
State and local governments |  | — |  |  | — |  |  | 432,476 |  |  | 83,456 |  |  | 432,476 |  |  | 83,456 |
Total unrealized loss position |  | $ | 1,117 |  |  | 5 |  |  | 2,628,150 |  |  | 484,839 |  |  | 2,629,267 |  |  | 484,844 |

As of March 31, 2024, the Company's securities portfolio held 651 securities of which 631 securities were in an unrealized loss position. As of December 31, 2023, the Company's securities portfolio held 657 securities of which 632 securities were in an unrealized loss position.
In the above tables, all of the securities that were in an unrealized loss position at March 31, 2024 and December 31, 2023 are bonds that the Company has determined are in a loss position due primarily to interest rate factors and not credit quality concerns. In arriving at this conclusion, the Company reviewed third-party credit ratings and considered the severity of the impairment. The state and local government investments are comprised almost entirely of highly-rated municipal bonds issued by state and local governments throughout the nation. The Company has no significant concentrations of bond holdings from one state or local government entity. Nearly all of our mortgage-backed securities were issued by Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA"), Government National Mortgage Association ("GNMA"), or the Small Business Administration ("SBA"), each of which is a government agency or GSE and guarantees the repayment of the securities.
At March 31, 2024 and December 31, 2023, the Company determined that expected credit losses associated with held to maturity securities and available for sale debt securities were insignificant.
Page 14

Index
The book values and approximate fair values of investment securities at March 31, 2024, 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
($ in thousands) |  | Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value
Due within one year |  | $ | 127,379 |  |  | 126,214 |  |  | — |  |  | — |
Due after one year but within five years |  | 10,000 |  |  | 8,595 |  |  | 1,997 |  |  | 1,805 |
Due after five years but within ten years |  | 78,138 |  |  | 66,725 |  |  | 148,754 |  |  | 126,626 |
Due after ten years |  | — |  |  | — |  |  | 363,507 |  |  | 297,542 |
Mortgage-backed securities |  | 2,291,854 |  |  | 1,886,949 |  |  | 11,369 |  |  | 10,682 |
Total securities |  | $ | 2,507,371 |  |  | 2,088,483 |  |  | 525,627 |  |  | 436,655 |

At March 31, 2024 and December 31, 2023, investment securities with carrying values of $910.8 million and $971.3 million, respectively, were pledged as collateral for public deposits. In addition, at March 31, 2024 and December 31, 2023, investment securities with carrying values of $668.9 million and $679.0 million, respectively, were pledged as collateral for Federal Reserve Bank ("Federal Reserve") borrowings.
At March 31, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than U.S. Government and its agencies or GSEs, in an amount greater than 10% of shareholders' equity.
There were no sales of investment securities during the three months ended March 31, 2024. During that same period, the Company received proceeds from the call of a security of $5.2 million and recorded a $975.2 thousand loss related to the unamortized premium balance at the time of the call. During the three months ended March 31, 2023, the Company sold substantially all of the securities acquired from GrandSouth at their initially recorded fair value. Accordingly, there was no gain or loss recorded on the sale of acquired securities.
Included in “Other assets” in the consolidated balance sheets are investments in Federal Home Loan Bank (“FHLB”) and Federal Reserve stock totaling $41.4 million and $54.5 million at March 31, 2024 and December 31, 2023, respectively. These investments do not have readily determinable fair values. The FHLB stock had a cost of $8.5 million and $21.7 million at March 31, 2024 and December 31, 2023, 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 Federal Reserve stock had a cost and fair value of $32.9 million and $32.8 million at March 31, 2024 and December 31, 2023, respectively, and is a requirement for Federal Reserve member bank qualification. Periodically, both the FHLB and Federal Reserve recalculate the Company’s required level of holdings, and the Company either buys more stock or redeems a portion of the stock at cost. The Company determined that neither stock was impaired at either period end.
On March 31, 2024, the Company owned 12,356 Class B shares of Visa, Inc. (“Visa”) stock that were received upon Visa’s initial public offering. These shares were 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 was periodically adjusted as Visa settles litigation. The conversion rate at March 31, 2024 was 1.5875, which means the Company would have received approximately 19,615 Class A shares if the stock had converted on that date. As the Class B stock did not have a readily determinable fair value, it was carried at zero. In April 2024, the Class B shares were sold at a conversion rate of 1.5875 and a gain of $4.5 million was recognized.
Page 15

Index
Note 4. Loans, Allowance for Credit Losses, and Asset Quality Information
The following is a summary of the major categories of total loans outstanding:

($ in thousands) |  | March 31, 2024 |  | December 31, 2023
|  | Amount |  | Percentage |  | Amount |  | Percentage
Commercial and industrial |  | $ | 872,623 |  |  | 11 | % |  | $ | 905,862 |  |  | 11 | %
Construction, development & other land loans |  | 904,216 |  |  | 11 | % |  | 992,980 |  |  | 12 | %
Commercial real estate - owner occupied |  | 1,238,759 |  |  | 15 | % |  | 1,259,022 |  |  | 16 | %
Commercial real estate - non owner occupied |  | 2,524,221 |  |  | 31 | % |  | 2,528,060 |  |  | 31 | %
Multi-family real estate |  | 457,142 |  |  | 6 | % |  | 421,376 |  |  | 5 | %
Residential 1-4 family real estate |  | 1,684,173 |  |  | 21 | % |  | 1,639,469 |  |  | 20 | %
Home equity loans/lines of credit |  | 328,466 |  |  | 4 | % |  | 335,068 |  |  | 4 | %
Consumer loans |  | 66,666 |  |  | 1 | % |  | 68,443 |  |  | 1 | %
Subtotal |  | 8,076,266 |  |  | 100 | % |  | 8,150,280 |  |  | 100 | %
Unamortized net deferred loan fees |  | 240 |  |  |  |  | (178) |  |  |
Total loans |  | $ | 8,076,506 |  |  |  |  | $ | 8,150,102 |  |  |

Also included in the table above are various SBA loans, generally originated under the SBA 7A program, with additional information on these loans presented in the table below.

($ in thousands) |  | March 31, 2024 |  | December 31, 2023
Guaranteed portions of SBA loans included in table above |  | $ | 35,984 |  |  | 35,462 |
Unguaranteed portions of SBA loans included in table above |  | 106,375 |  |  | 107,784 |
Total SBA loans included in the table above |  | $ | 142,359 |  |  | 143,246 |
Sold portions of SBA loans with servicing retained - not included in tables above |  | $ | 344,115 |  |  | 349,275 |

At March 31, 2024 and December 31, 2023, there were remaining unaccreted discounts on the retained portion of sold SBA loans amounting to $3.4 million and $3.5 milion, respectively.
At March 31, 2024 and December 31, 2023, l oans in the amount of $6.5 billion were pledged as collateral for certain borrowings.
At March 31, 2024 and December 31, 2023, total loans included loans to executive officers and directors of the Company, and their associates, totaling approximately $64.6 million and $63.7 million, respectively. There were no new loans, advances on existing loans totaled approximately $1.4 million for the three months ended March 31, 2024, and repayments amounted to $0.5 million for that period. Available credit on related party loans totaled $1.2 million and $2.7 million at March 31, 2024 and December 31, 2023, respectively.
As of March 31, 2024 and December 31, 2023, unamortized discounts on all acquired loans totaled $21.6 million and $24.0 million, respectively. Loan discounts are generally amortized as yield adjustments over the respective lives of the loans, so long as the loans perform.
Nonperforming assets ("NPAs") are defined as nonaccrual loans, modifications to borrowers in financial distress, loans past due 90 or more days and still accruing interest, and foreclosed real estate.
The following table summarizes the NPAs for each period presented.

($ in thousands) |  | March 31, 2024 |  | December 31, 2023
Nonaccrual loans |  | $ | 35,622 |  |  | 32,208 |
Modifications to borrowers in financial distress |  | 10,999 |  |  | 11,719 |
Total nonperforming loans |  | 46,621 |  |  | 43,927 |
Foreclosed real estate |  | 926 |  |  | 862 |
Total nonperforming assets |  | $ | 47,547 |  |  | 44,789 |

Page 16

Index
At March 31, 2024 and December 31, 2023, the Company had $1.6 million and $1.0 million, respectively, in residential mortgage loans in the process of foreclosure.
At March 31, 2024 and December 31, 2023, there was one loan with a commitment to lend an immaterial amount of additional funds to a borrower whose loan was nonperforming.
The following table is a summary of the Company’s nonaccrual loans by major categories as of March 31, 2024:

($ in thousands) |  | Nonaccrual Loans with No Allowance |  | Nonaccrual Loans with an Allowance |  | Total Nonaccrual Loans
Commercial and industrial |  | $ | 544 |  |  | 12,157 |  |  | 12,701 |
Construction, development & other land loans |  | — |  |  | 61 |  |  | 61 |
Commercial real estate - owner occupied |  | 879 |  |  | 8,089 |  |  | 8,968 |
Commercial real estate - non owner occupied |  | 1,890 |  |  | 5,042 |  |  | 6,932 |
Residential 1-4 family real estate |  | 1,035 |  |  | 3,462 |  |  | 4,497 |
Home equity loans/lines of credit |  | 525 |  |  | 1,787 |  |  | 2,312 |
Consumer loans |  | — |  |  | 151 |  |  | 151 |
Total |  | $ | 4,873 |  |  | 30,749 |  |  | 35,622 |

The following table is a summary of the Company’s nonaccrual loans by major categories as of December 31, 2023:

($ in thousands) |  | Nonaccrual Loans with No Allowance |  | Nonaccrual Loans with an Allowance |  | Total Nonaccrual Loans
Commercial and industrial |  | $ | 944 |  |  | 8,932 |  |  | 9,876 |
Construction, development & other land loans |  | — |  |  | 399 |  |  | 399 |
Commercial real estate - owner occupied |  | 960 |  |  | 6,082 |  |  | 7,042 |
Commercial real estate - non owner occupied |  | 6,121 |  |  | 1,082 |  |  | 7,203 |
Residential 1-4 family real estate |  | — |  |  | 4,843 |  |  | 4,843 |
Home equity loans/lines of credit |  | 534 |  |  | 2,169 |  |  | 2,703 |
Consumer loans |  | — |  |  | 142 |  |  | 142 |
Total |  | $ | 8,559 |  |  | 23,649 |  |  | 32,208 |

There was no interest income recognized during the periods presented on nonaccrual loans. The Company follows its nonaccrual policy of reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status.
The following table represents the accrued interest receivables written off by reversing interest income during each period indicated:

($ in thousands) |  | Three Months Ended March 31, 2024 |  | For the Year Ended December 31, 2023 |  | Three Months Ended March 31, 2023
Commercial and industrial |  | $ | 216 |  |  | 225 |  |  | 123 |
Construction, development & other land loans |  | — |  |  | 10 |  |  | — |
Commercial real estate - owner occupied |  | 148 |  |  | 124 |  |  | 11 |
Commercial real estate - non owner occupied |  | — |  |  | 186 |  |  | 5 |
Residential 1-4 family real estate |  | 29 |  |  | 38 |  |  | 8 |
Home equity loans/lines of credit |  | 7 |  |  | 57 |  |  | 9 |
Consumer loans |  | — |  |  | 2 |  |  | — |
Total |  | $ | 400 |  |  | 642 |  |  | 156 |

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Index
The following table presents an analysis of the payment status of the Company’s loans as of March 31, 2024:

($ in thousands) |  | Accruing 30-59 Days Past Due |  | Accruing 60-89 Days Past Due |  |  |  | Nonaccrual Loans |  | Accruing Current |  | Total Loans Receivable
Commercial and industrial |  | $ | 1,850 |  |  | 257 |  |  |  |  | 12,701 |  |  | 857,815 |  |  | 872,623 |
Construction, development & other land loans |  | 388 |  |  | — |  |  |  |  | 61 |  |  | 903,767 |  |  | 904,216 |
Commercial real estate - owner occupied |  | 1,055 |  |  | — |  |  |  |  | 8,968 |  |  | 1,228,736 |  |  | 1,238,759 |
Commercial real estate - non owner occupied |  | 6,944 |  |  | 95 |  |  |  |  | 6,932 |  |  | 2,510,250 |  |  | 2,524,221 |
Multi-family real estate |  | — |  |  | — |  |  |  |  | — |  |  | 457,142 |  |  | 457,142 |
Residential 1-4 family real estate |  | 15,682 |  |  | — |  |  |  |  | 4,497 |  |  | 1,663,994 |  |  | 1,684,173 |
Home equity loans/lines of credit |  | 696 |  |  | 222 |  |  |  |  | 2,312 |  |  | 325,236 |  |  | 328,466 |
Consumer loans |  | 182 |  |  | 66 |  |  |  |  | 151 |  |  | 66,267 |  |  | 66,666 |
Total |  | $ | 26,797 |  |  | 640 |  |  |  |  | 35,622 |  |  | 8,013,207 |  |  | 8,076,266 |
Unamortized net deferred loan fees |  |  |  |  |  |  |  |  |  | 240 |
Total loans |  |  |  |  |  |  |  |  |  |  |  | 8,076,506 |

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2023:

($ in thousands) |  | Accruing 30-59 Days Past Due |  | Accruing 60-89 Days Past Due |  |  |  | Nonaccrual Loans |  | Accruing Current |  | Total Loans Receivable
Commercial and industrial |  | $ | 3,726 |  |  | 257 |  |  |  |  | 9,876 |  |  | 892,003 |  |  | 905,862 |
Construction, development & other land loans |  | 241 |  |  | 256 |  |  |  |  | 399 |  |  | 992,084 |  |  | 992,980 |
Commercial real estate - owner occupied |  | 906 |  |  | 404 |  |  |  |  | 7,042 |  |  | 1,250,670 |  |  | 1,259,022 |
Commercial real estate - non owner occupied |  | 361 |  |  | — |  |  |  |  | 7,203 |  |  | 2,520,496 |  |  | 2,528,060 |
Multi-family real estate |  | — |  |  | — |  |  |  |  | — |  |  | 421,376 |  |  | 421,376 |
Residential 1-4 family real estate |  | 18,868 |  |  | 3,401 |  |  |  |  | 4,843 |  |  | 1,612,357 |  |  | 1,639,469 |
Home equity loans/lines of credit |  | 603 |  |  | 349 |  |  |  |  | 2,703 |  |  | 331,413 |  |  | 335,068 |
Consumer loans |  | 270 |  |  | 131 |  |  |  |  | 142 |  |  | 67,900 |  |  | 68,443 |
Total |  | $ | 24,975 |  |  | 4,798 |  |  |  |  | 32,208 |  |  | 8,088,299 |  |  | 8,150,280 |
Unamortized net deferred loan fees |  |  |  |  |  |  |  |  |  | (178) |
Total loans |  |  |  |  |  |  |  |  |  |  |  | 8,150,102 |

Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans on nonaccrual with a net book balance of $500,000 or greater for designation as collateral dependent loans, as well as certain other loans that may still be accruing interest and/or are less than $500,000 in size that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the ACL.
The following table presents an analysis of collateral dependent loans of the Company as of March 31, 2024:

($ in thousands) |  | Residential Property |  | Business Assets |  |  |  | Commercial Property |  |  |  | Total Collateral-Dependent Loans
Commercial and industrial |  | $ | — |  |  | 878 |  |  |  |  | — |  |  |  |  | 878 |
Construction, development & other land loans |  | — |  |  | 263 |  |  |  |  | 3,452 |  |  |  |  | 3,715 |
Commercial real estate - owner occupied |  | — |  |  | — |  |  |  |  | 8,645 |  |  |  |  | 8,645 |
Commercial real estate - non owner occupied |  | — |  |  | — |  |  |  |  | 15,444 |  |  |  |  | 15,444 |
Residential 1-4 family real estate |  | 1,035 |  |  | — |  |  |  |  | — |  |  |  |  | 1,035 |
Home equity loans/lines of credit |  | 525 |  |  | — |  |  |  |  | — |  |  |  |  | 525 |
Total |  | $ | 1,560 |  |  | 1,141 |  |  |  |  | 27,541 |  |  |  |  | 30,242 |

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Index
The following table presents an analysis of collateral dependent loans of the Company as of December 31, 2023:

($ in thousands) |  | Residential Property |  | Business Assets |  |  |  | Commercial Property |  |  |  | Total Collateral-Dependent Loans
Commercial and industrial |  | $ | — |  |  | 2,385 |  |  |  |  | — |  |  |  |  | 2,385 |
Commercial real estate - owner occupied |  | — |  |  | — |  |  |  |  | 1,142 |  |  |  |  | 1,142 |
Commercial real estate - non owner occupied |  | — |  |  | — |  |  |  |  | 6,121 |  |  |  |  | 6,121 |
Home equity loans/lines of credit |  | 534 |  |  | — |  |  |  |  | — |  |  |  |  | 534 |
Total |  | $ | 534 |  |  | 2,385 |  |  |  |  | 7,263 |  |  |  |  | 10,182 |

Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the ACL based on the fair value of collateral. The ACL 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 that are usually incurred when disposing of real estate collateral. For real estate collateral that is in industries which may be undergoing heightened stress due to economic or other external factors, the Company may reduce the collateral values by an additional 10-25% of appraised value to recognize additional discounts that are estimated to be incurred in a near-term sale. For non-real estate collateral secured loans, the Company generally writes nonaccrual loans down to 75% of the appraised value, which provides for selling costs and liquidity discounts that are usually incurred when disposing of non real estate collateral. For reviewed loans that are not on nonaccrual basis, the Company assigns a specific allowance based on the parameters noted above.
The following tables presents the activity in the ACL on loans for each of the periods indicated. Fluctuations in the ACL each period are based on loan mix and growth, changes in the levels of nonperforming loans, economic forecasts impacting loss drivers, other assumptions and inputs to the CECL model, and as occurred in 2023, adjustments for acquired loan portfolios. The change to the level of ACL during the three months ended March 31, 2024 was determined based primarily on updated economic forecasts, which are a key assumption in the CECL model and which indicated a continued deterioration of the commercial real estate index, thus projecting a higher allowance for credit losses balance, partially offset by reductions in loan balances during the period.

($ in thousands) |  | Beginning balance |  | Charge-offs |  | Recoveries |  | Provisions / (Reversals) |  | Ending balance
As of and for the three months ended March 31, 2024 |  |  |  |  |  |  |
Commercial and industrial |  | $ | 21,227 |  |  | (1,585) |  |  | 243 |  |  | 409 |  |  | 20,294 |
Construction, development & other land loans |  | 13,940 |  |  | (79) |  |  | 97 |  |  | (2,175) |  |  | 11,783 |
Commercial real estate - owner occupied |  | 18,218 |  |  | (58) |  |  | 4 |  |  | (1) |  |  | 18,163 |
Commercial real estate - non owner occupied |  | 24,916 |  |  | (158) |  |  | 2 |  |  | 1,492 |  |  | 26,252 |
Multi-family real estate |  | 3,825 |  |  | — |  |  | — |  |  | 597 |  |  | 4,422 |
Residential 1-4 family real estate |  | 21,396 |  |  | — |  |  | 121 |  |  | 1,187 |  |  | 22,704 |
Home equity loans/lines of credit |  | 3,339 |  |  | — |  |  | 5 |  |  | (8) |  |  | 3,336 |
Consumer loans |  | 2,992 |  |  | (235) |  |  | 57 |  |  | 299 |  |  | 3,113 |
Total |  | $ | 109,853 |  |  | (2,115) |  |  | 529 |  |  | 1,800 |  |  | 110,067 |

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Index

($ in thousands) |  | Beginning balance |  | Initial ACL for acquired PCD loans |  | Charge-offs |  | Recoveries |  | Provisions / (Reversals) |  | Ending balance
As of and for the year ended December 31, 2023 |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 17,718 |  |  | 5,197 |  |  | (8,358) |  |  | 1,393 |  |  | 5,277 |  |  | 21,227 |
Construction, development & other land loans |  | 15,128 |  |  | 49 |  |  | (120) |  |  | 370 |  |  | (1,487) |  |  | 13,940 |
Commercial real estate - owner occupied |  | 14,972 |  |  | 191 |  |  | (144) |  |  | 465 |  |  | 2,734 |  |  | 18,218 |
Commercial real estate - non owner occupied |  | 22,780 |  |  | 51 |  |  | (235) |  |  | 737 |  |  | 1,583 |  |  | 24,916 |
Multi-family real estate |  | 2,957 |  |  | — |  |  | — |  |  | 13 |  |  | 855 |  |  | 3,825 |
Residential 1-4 family real estate |  | 11,354 |  |  | 113 |  |  | (4) |  |  | 377 |  |  | 9,556 |  |  | 21,396 |
Home equity loans/lines of credit |  | 3,158 |  |  | 8 |  |  | (309) |  |  | 98 |  |  | 384 |  |  | 3,339 |
Consumer loans |  | 2,900 |  |  | 1 |  |  | (1,005) |  |  | 248 |  |  | 848 |  |  | 2,992 |
Total |  | $ | 90,967 |  |  | 5,610 |  |  | (10,175) |  |  | 3,701 |  |  | 19,750 |  |  | 109,853 |

($ in thousands) |  | Beginning balance |  | Initial ACL for acquired PCD loans |  | Charge-offs |  | Recoveries |  | Provisions / (Reversals) |  | Ending balance
As of and for the three months ended March 31, 2023 |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 17,718 |  |  | 5,197 |  |  | (2,177) |  |  | 274 |  |  | 2,061 |  |  | 23,073 |
Construction, development & other land loans |  | 15,128 |  |  | 49 |  |  | — |  |  | 65 |  |  | 3,744 |  |  | 18,986 |
Commercial real estate - owner occupied |  | 14,972 |  |  | 191 |  |  | — |  |  | 36 |  |  | 883 |  |  | 16,082 |
Commercial real estate - non owner occupied |  | 22,780 |  |  | 51 |  |  | (235) |  |  | 394 |  |  | 3,000 |  |  | 25,990 |
Multi-family real estate |  | 2,957 |  |  | — |  |  | — |  |  | 4 |  |  | 243 |  |  | 3,204 |
Residential 1-4 family real estate |  | 11,354 |  |  | 113 |  |  | — |  |  | 146 |  |  | 672 |  |  | 12,285 |
Home equity loans/lines of credit |  | 3,158 |  |  | 8 |  |  | (2) |  |  | 34 |  |  | 283 |  |  | 3,481 |
Consumer loans |  | 2,900 |  |  | 1 |  |  | (207) |  |  | 36 |  |  | 565 |  |  | 3,295 |
Total |  | $ | 90,967 |  |  | 5,610 |  |  | (2,621) |  |  | 989 |  |  | 11,451 |  |  | 106,396 |

Page 20

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

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

In the tables that follow, substantially all of the "Classified" loans have grades of 7 or Fail, with those categories having similar levels of risk.
The tables below present the Company’s recorded investment in loans by credit quality indicators by year of origination or renewal as of the periods indicated. Acquired loans are presented in the year originated, not in the year of acquisition.
Page 21

Index

| Term Loans by Year of Origination |  |  |  |
($ in thousands) | 2024 |  | 2023 |  | 2022 |  | 2021 |  | 2020 |  | Prior |  | Revolving |  | Total
As of March 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  |  |  |  |  |  |  |  |
Pass | $ | 25,321 |  |  | 106,744 |  |  | 143,282 |  |  | 99,028 |  |  | 79,075 |  |  | 110,534 |  |  | 287,258 |  |  | 851,242 |
Special Mention | — |  |  | 86 |  |  | 50 |  |  | 1,877 |  |  | 156 |  |  | 1,932 |  |  | 3,114 |  |  | 7,215 |
Classified | 50 |  |  | 84 |  |  | 2,655 |  |  | 617 |  |  | 767 |  |  | 8,967 |  |  | 1,026 |  |  | 14,166 |
Total commercial and industrial | 25,371 |  |  | 106,914 |  |  | 145,987 |  |  | 101,522 |  |  | 79,998 |  |  | 121,433 |  |  | 291,398 |  |  | 872,623 |
Gross charge-offs, YTD | — |  |  | — |  |  | 255 |  |  | — |  |  | 121 |  |  | 215 |  |  | 994 |  |  | 1,585 |
Construction, development & other land loans |  |  |  |  |  |  |  |  |  |
Pass | 32,667 |  |  | 317,237 |  |  | 292,169 |  |  | 91,160 |  |  | 29,049 |  |  | 58,583 |  |  | 77,377 |  |  | 898,242 |
Special Mention | — |  |  | 377 |  |  | 891 |  |  | — |  |  | 158 |  |  | 3,931 |  |  | 16 |  |  | 5,373 |
Classified | 1 |  |  | — |  |  | 390 |  |  | — |  |  | 67 |  |  | 143 |  |  | — |  |  | 601 |
Total construction, development & other land loans | 32,668 |  |  | 317,614 |  |  | 293,450 |  |  | 91,160 |  |  | 29,274 |  |  | 62,657 |  |  | 77,393 |  |  | 904,216 |
Gross charge-offs, YTD | — |  |  | 79 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 79 |
Commercial real estate - owner occupied |  |  |  |  |  |  |  |  |  |
Pass | 14,382 |  |  | 136,686 |  |  | 234,302 |  |  | 247,327 |  |  | 186,254 |  |  | 367,230 |  |  | 15,762 |  |  | 1,201,943 |
Special Mention | — |  |  | 740 |  |  | 3,939 |  |  | 4,454 |  |  | 296 |  |  | 12,373 |  |  | — |  |  | 21,802 |
Classified | — |  |  | 73 |  |  | 1,477 |  |  | 1,549 |  |  | 1,206 |  |  | 10,652 |  |  | 57 |  |  | 15,014 |
Total commercial real estate - owner occupied | 14,382 |  |  | 137,499 |  |  | 239,718 |  |  | 253,330 |  |  | 187,756 |  |  | 390,255 |  |  | 15,819 |  |  | 1,238,759 |
Gross charge-offs, YTD | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 58 |  |  | — |  |  | 58 |
Commercial real estate - non owner occupied |  |  |  |  |  |  |  |  |  |
Pass | 18,100 |  |  | 223,154 |  |  | 615,013 |  |  | 703,015 |  |  | 304,502 |  |  | 605,654 |  |  | 28,277 |  |  | 2,497,715 |
Special Mention | — |  |  | — |  |  | 161 |  |  | — |  |  | — |  |  | 17,805 |  |  | 1,450 |  |  | 19,416 |
Classified | — |  |  | — |  |  | — |  |  | 658 |  |  | 4,233 |  |  | 2,199 |  |  | — |  |  | 7,090 |
Total commercial real estate - non owner occupied | 18,100 |  |  | 223,154 |  |  | 615,174 |  |  | 703,673 |  |  | 308,735 |  |  | 625,658 |  |  | 29,727 |  |  | 2,524,221 |
Gross charge-offs, YTD | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 158 |  |  | — |  |  | 158 |
Multi-family real estate |  |  |  |  |  |  |  |  |  |
Pass | 8,262 |  |  | 25,784 |  |  | 118,826 |  |  | 168,105 |  |  | 65,299 |  |  | 46,319 |  |  | 23,876 |  |  | 456,471 |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 671 |  |  | — |  |  | 671 |
Classified | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total multi-family real estate | 8,262 |  |  | 25,784 |  |  | 118,826 |  |  | 168,105 |  |  | 65,299 |  |  | 46,990 |  |  | 23,876 |  |  | 457,142 |
Gross charge-offs, YTD | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential 1-4 family real estate |  |  |  |  |  |  |  |  |  |
Pass | 91,863 |  |  | 275,322 |  |  | 417,272 |  |  | 302,005 |  |  | 179,607 |  |  | 404,016 |  |  | 3,171 |  |  | 1,673,256 |
Special Mention | — |  |  | — |  |  | — |  |  | 31 |  |  | 63 |  |  | 1,471 |  |  | — |  |  | 1,565 |
Classified | 262 |  |  | — |  |  | — |  |  | 462 |  |  | 1,194 |  |  | 7,434 |  |  | — |  |  | 9,352 |
Total residential 1-4 family real estate | 92,125 |  |  | 275,322 |  |  | 417,272 |  |  | 302,498 |  |  | 180,864 |  |  | 412,921 |  |  | 3,171 |  |  | 1,684,173 |
Gross charge-offs, YTD | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Home equity loans/lines of credit |  |  |  |  |  |  |  |  |  |
Pass | 233 |  |  | 2,481 |  |  | 833 |  |  | 533 |  |  | 290 |  |  | 2,614 |  |  | 313,602 |  |  | 320,586 |
Special Mention | — |  |  | — |  |  | — |  |  | 122 |  |  | — |  |  | 165 |  |  | 17 |  |  | 304 |
Classified | — |  |  | — |  |  | — |  |  | 93 |  |  | 91 |  |  | 285 |  |  | 7,107 |  |  | 7,576 |
Total home equity loans/lines of credit | 233 |  |  | 2,481 |  |  | 833 |  |  | 748 |  |  | 381 |  |  | 3,064 |  |  | 320,726 |  |  | 328,466 |
Gross charge-offs, YTD | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Consumer loans |  |  |  |  |  |  |  |  |  |
Pass | 4,366 |  |  | 14,673 |  |  | 11,269 |  |  | 4,156 |  |  | 1,833 |  |  | 753 |  |  | 29,307 |  |  | 66,357 |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Classified | 134 |  |  | 23 |  |  | 38 |  |  | 43 |  |  | — |  |  | 35 |  |  | 36 |  |  | 309 |
Total consumer loans | 4,500 |  |  | 14,696 |  |  | 11,307 |  |  | 4,199 |  |  | 1,833 |  |  | 788 |  |  | 29,343 |  |  | 66,666 |
Gross charge-offs, YTD | — |  |  | 4 |  |  | 16 |  |  | 2 |  |  | — |  |  | — |  |  | 213 |  |  | 235 |
Total loans | $ | 195,641 |  |  | 1,103,464 |  |  | 1,842,567 |  |  | 1,625,235 |  |  | 854,140 |  |  | 1,663,766 |  |  | 791,453 |  |  | 8,076,266 |
Unamortized net deferred loan fees |  |  |  |  |  |  |  |  |  |  |  |  |  | 240 |
Total loans, net of deferred loan fees |  |  |  |  |  |  |  |  |  |  |  |  |  | 8,076,506 |
Total gross charge-offs, year to date | $ | — |  |  | 83 |  |  | 271 |  |  | 2 |  |  | 121 |  |  | 431 |  |  | 1,207 |  |  | 2,115 |

Page 22

Index

| Term Loans by Year of Origination |  |  |  |
($ in thousands) | 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019 |  | Prior |  | Revolving |  | Total
As of December 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  |  |  |  |  |  |  |  |
Pass | $ | 136,735 |  |  | 161,131 |  |  | 111,069 |  |  | 75,312 |  |  | 38,495 |  |  | 60,626 |  |  | 302,684 |  |  | 886,052 |
Special Mention | 2,832 |  |  | 2,547 |  |  | 167 |  |  | 185 |  |  | 448 |  |  | 672 |  |  | 1,135 |  |  | 7,986 |
Classified | 1,626 |  |  | 1,152 |  |  | 720 |  |  | 1,389 |  |  | 1,647 |  |  | 4,487 |  |  | 803 |  |  | 11,824 |
Total commercial and industrial | 141,193 |  |  | 164,830 |  |  | 111,956 |  |  | 76,886 |  |  | 40,590 |  |  | 65,785 |  |  | 304,622 |  |  | 905,862 |
Gross charge-offs, YTD | 171 |  |  | 1,036 |  |  | 713 |  |  | 537 |  |  | 821 |  |  | 1,547 |  |  | 3,533 |  |  | 8,358 |
Construction, development & other land loans |  |  |  |  |  |  |  |  |  |
Pass | 563,998 |  |  | 231,450 |  |  | 90,374 |  |  | 16,662 |  |  | 11,598 |  |  | 5,816 |  |  | 70,852 |  |  | 990,750 |
Special Mention | 489 |  |  | 273 |  |  | 59 |  |  | — |  |  | 2 |  |  | 4 |  |  | 19 |  |  | 846 |
Classified | 657 |  |  | 708 |  |  | — |  |  | — |  |  | 8 |  |  | 11 |  |  | — |  |  | 1,384 |
Total construction, development & other land loans | 565,144 |  |  | 232,431 |  |  | 90,433 |  |  | 16,662 |  |  | 11,608 |  |  | 5,831 |  |  | 70,871 |  |  | 992,980 |
Gross charge-offs, YTD | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 120 |  |  | — |  |  | 120 |
Commercial real estate - owner occupied |  |  |  |  |  |  |  |  |  |
Pass | 210,449 |  |  | 323,852 |  |  | 299,135 |  |  | 196,343 |  |  | 92,452 |  |  | 86,784 |  |  | 23,198 |  |  | 1,232,213 |
Special Mention | 338 |  |  | 2,533 |  |  | 271 |  |  | 817 |  |  | 5,755 |  |  | 2,253 |  |  | — |  |  | 11,967 |
Classified | 4,456 |  |  | 1,505 |  |  | 1,721 |  |  | 895 |  |  | 2,288 |  |  | 3,904 |  |  | 73 |  |  | 14,842 |
Total commercial real estate - owner occupied | 215,243 |  |  | 327,890 |  |  | 301,127 |  |  | 198,055 |  |  | 100,495 |  |  | 92,941 |  |  | 23,271 |  |  | 1,259,022 |
Gross charge-offs, YTD | — |  |  | — |  |  | 49 |  |  | — |  |  | — |  |  | 92 |  |  | 3 |  |  | 144 |
Commercial real estate - non owner occupied |  |  |  |  |  |  |  |  |  |
Pass | 509,596 |  |  | 748,854 |  |  | 722,472 |  |  | 287,235 |  |  | 119,515 |  |  | 84,690 |  |  | 29,001 |  |  | 2,501,363 |
Special Mention | 11,353 |  |  | 199 |  |  | 36 |  |  | 393 |  |  | 1,183 |  |  | 5,942 |  |  | 342 |  |  | 19,448 |
Classified | 871 |  |  | 32 |  |  | 14 |  |  | 4,214 |  |  | 634 |  |  | 1,484 |  |  | — |  |  | 7,249 |
Total commercial real estate - non owner occupied | 521,820 |  |  | 749,085 |  |  | 722,522 |  |  | 291,842 |  |  | 121,332 |  |  | 92,116 |  |  | 29,343 |  |  | 2,528,060 |
Gross charge-offs, YTD | — |  |  | — |  |  | 235 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 235 |
Multi-family real estate |  |  |  |  |  |  |  |  |  |
Pass | 57,378 |  |  | 137,533 |  |  | 139,879 |  |  | 43,881 |  |  | 12,231 |  |  | 10,323 |  |  | 20,151 |  |  | 421,376 |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Classified | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total multi-family real estate | 57,378 |  |  | 137,533 |  |  | 139,879 |  |  | 43,881 |  |  | 12,231 |  |  | 10,323 |  |  | 20,151 |  |  | 421,376 |
Gross charge-offs, YTD | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Residential 1-4 family real estate |  |  |  |  |  |  |  |  |  |
Pass | 363,410 |  |  | 400,483 |  |  | 317,515 |  |  | 186,459 |  |  | 94,567 |  |  | 260,102 |  |  | 3,247 |  |  | 1,625,783 |
Special Mention | 681 |  |  | 41 |  |  | 202 |  |  | 64 |  |  | 587 |  |  | 1,987 |  |  | — |  |  | 3,562 |
Classified | 1,848 |  |  | 50 |  |  | 474 |  |  | 741 |  |  | 472 |  |  | 6,539 |  |  | — |  |  | 10,124 |
Total residential 1-4 family real estate | 365,939 |  |  | 400,574 |  |  | 318,191 |  |  | 187,264 |  |  | 95,626 |  |  | 268,628 |  |  | 3,247 |  |  | 1,639,469 |
Gross charge-offs, YTD | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4 |  |  | — |  |  | 4 |
Home equity loans/lines of credit |  |  |  |  |  |  |  |  |  |
Pass | 2,830 |  |  | 1,136 |  |  | 1,141 |  |  | 223 |  |  | 499 |  |  | 1,233 |  |  | 319,199 |  |  | 326,261 |
Special Mention | 163 |  |  | — |  |  | 122 |  |  | — |  |  | — |  |  | — |  |  | 18 |  |  | 303 |
Classified | 255 |  |  | — |  |  | 146 |  |  | 91 |  |  | 112 |  |  | 10 |  |  | 7,890 |  |  | 8,504 |
Total home equity loans/lines of credit | 3,248 |  |  | 1,136 |  |  | 1,409 |  |  | 314 |  |  | 611 |  |  | 1,243 |  |  | 327,107 |  |  | 335,068 |
Gross charge-offs, YTD | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 309 |  |  | 309 |
Consumer loans |  |  |  |  |  |  |  |  |  |
Pass | 16,497 |  |  | 12,906 |  |  | 4,999 |  |  | 2,173 |  |  | 432 |  |  | 429 |  |  | 30,757 |  |  | 68,193 |
Special Mention | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Classified | 130 |  |  | 7 |  |  | 45 |  |  | — |  |  | 3 |  |  | 34 |  |  | 31 |  |  | 250 |
Total consumer loans | 16,627 |  |  | 12,913 |  |  | 5,044 |  |  | 2,173 |  |  | 435 |  |  | 463 |  |  | 30,788 |  |  | 68,443 |
Gross charge-offs, YTD | 34 |  |  | 79 |  |  | 73 |  |  | 23 |  |  | — |  |  | 1 |  |  | 795 |  |  | 1,005 |
Total loans | $ | 1,886,592 |  |  | 2,026,392 |  |  | 1,690,561 |  |  | 817,077 |  |  | 382,928 |  |  | 537,330 |  |  | 809,400 |  |  | 8,150,280 |
Unamortized net deferred loan fees |  |  |  |  |  |  |  |  |  |  |  |  |  | (178) |
Total loans, net of deferred loan fees |  |  |  |  |  |  |  |  |  |  |  |  |  | 8,150,102 |
Total gross charge-offs, year to date | $ | 205 |  |  | 1,115 |  |  | 1,070 |  |  | 560 |  |  | 821 |  |  | 1,764 |  |  | 4,640 |  |  | 10,175 |

Page 23

Index
Loan Modifications to Borrowers Experiencing Financial Difficulty
Occasionally, the Company modifies loans to borrowers in financial distress as a part of our loss mitigation activities. Various types of modification may be offered including principal forgiveness, term extension, payment delays, or interest rate reductions. In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession may be granted. For loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period.
The followings tables present the amortized cost basis at March 31, 2024 and March 31, 2023 of the loans modified during the three months then ended for borrowers experiencing financial difficulty, by loan category and type of concession granted.

($ in thousands) |  |  |  |  |  | Payment Delay |  | Term Extension |  |  |  | Combination - Term Extension and Payment Delay |  | Combination - Interest Rate Reduction and Term Extension |  | Total |  | Percent of Total Class of Loans
As of and for the three months ended March 31, 2024 |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  |  |  |  | $ | 114 |  |  | — |  |  |  |  | 878 |  |  | — |  |  | 992 |  |  | 0.11 | %
Commercial real estate - non owner occupied |  |  |  |  |  | — |  |  | 115 |  |  |  |  | — |  |  | — |  |  | 115 |  |  | — | %
Home equity loans/lines of credit |  |  |  |  |  | — |  |  | 47 |  |  |  |  | — |  |  | 179 |  |  | 226 |  |  | 0.07 | %
Total |  |  |  |  |  | $ | 114 |  |  | 162 |  |  |  |  | 878 |  |  | 179 |  |  | 1,333 |  |  | 0.02 | %

($ in thousands) |  |  |  |  |  | Payment Delay |  | Term Extension |  |  |  |  |  | Combination - Interest Rate Reduction and Term Extension |  | Total |  | Percent of Total Class of Loans
As of and for the three months ended March 31, 2023 |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  |  |  |  | $ | 156 |  |  | 1,442 |  |  |  |  |  |  | — |  |  | 1,598 |  |  | 0.18 | %
Construction, development & other land loans |  |  |  |  |  | — |  |  | 130 |  |  |  |  |  |  | 14 |  |  | 144 |  |  | 0.01 | %
Commercial real estate - non owner occupied |  |  |  |  |  | — |  |  | 104 |  |  |  |  |  |  | — |  |  | 104 |  |  | — | %
Residential 1-4 family real estate |  |  |  |  |  | — |  |  | 48 |  |  |  |  |  |  | — |  |  | 48 |  |  | — | %
Home equity loans/lines of credit |  |  |  |  |  | — |  |  | 103 |  |  |  |  |  |  | — |  |  | 103 |  |  | 0.03 | %
Consumer loans |  |  |  |  |  | — |  |  | 228 |  |  |  |  |  |  | — |  |  | 228 |  |  | 0.34 | %
Total |  |  |  |  |  | $ | 156 |  |  | 2,055 |  |  |  |  |  |  | 14 |  |  | 2,225 |  |  | 0.03 | %

For the three months ended March 31, 2024 and March 31, 2023, there were no modifications for borrowers experiencing financial difficulty with principal forgiveness concessions.
The following table describes the financial effect for the three months ended March 31, 2024 of the modifications made for borrowers experiencing financial difficulty:

|  | Financial Effect of Modification to Borrowers Experiencing Financial Difficulty
|  | Weighted Average Interest Rate Reduction |  |  |  | Weighted Average Payment Delay (in months) |  | Weighted Average Term Extension (in months)
For the three months ended March 31, 2024 |  |  |  |  |  |  |  |
Commercial and industrial |  | —% |  |  |  | 36 |  | 12
Commercial real estate - non owner occupied |  | —% |  |  |  | 0 |  | 13
Home equity loans/lines of credit |  | 2.09% |  |  |  | 0 |  | 32

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Index
The following table describes the financial effect for the three months ended March 31, 2023 of the modifications made for borrowers experiencing financial difficulty:

|  | Financial Effect of Modification to Borrowers Experiencing Financial Difficulty
|  | Weighted Average Interest Rate Reduction |  |  |  | Weighted Average Payment Delay (in months) |  | Weighted Average Term Extension (in months)
For the three months ended March 31, 2023 |  |  |  |  |  |  |  |
Commercial and industrial |  | —% |  |  |  | 4 |  | 6
Construction, development & other land loans |  | 1.50% |  |  |  | 0 |  | 11
Commercial real estate - non owner occupied |  | —% |  |  |  | 0 |  | 12
Residential 1-4 family real estate |  | —% |  |  |  | 0 |  | 14
Home equity loans/lines of credit |  | —% |  |  |  | 0 |  | 46
Consumer loans |  | —% |  |  |  | 0 |  | 3

The Company closely monitors the performance of the loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months as of March 31, 2024:

|  | Payment Status (Amortized Cost Basis)
($ in thousands) |  | Current |  | 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90+ Days Past Due
Commercial and industrial |  | $ | 2,186 |  |  | 69 |  |  | — |  |  | — |
Construction, development & other land loans |  | 131 |  |  | — |  |  | — |  |  | — |
Commercial real estate - owner occupied |  | 4,378 |  |  | — |  |  | — |  |  | — |
Commercial real estate - non owner occupied |  | 115 |  |  | — |  |  | — |  |  | — |
Residential 1-4 family real estate |  | 595 |  |  | 76 |  |  | — |  |  | — |
Home equity loans/lines of credit |  | 3,111 |  |  | — |  |  | — |  |  | — |
Consumer loans |  | 3 |  |  | — |  |  | — |  |  | — |
|  | $ | 10,519 |  |  | 145 |  |  | — |  |  | — |

The following table depicts the performance of loans that have been modified in the last 12 months as of December 31, 2023:

|  | Payment Status (Amortized Cost Basis)
($ in thousands) |  | Current |  | 30-59 Days Past Due |  | 60-89 Days Past Due |  | 90+ Days Past Due
Commercial and industrial |  | $ | 2,841 |  |  | — |  |  | — |  |  | — |
Construction, development & other land loans |  | 362 |  |  | — |  |  | — |  |  | — |
Commercial real estate - owner occupied |  | 4,455 |  |  | — |  |  | — |  |  | — |
Commercial real estate - non owner occupied |  | 206 |  |  | — |  |  | — |  |  | — |
Residential 1-4 family real estate |  | 656 |  |  | 79 |  |  | — |  |  | — |
Home equity loans/lines of credit |  | 3,114 |  |  | — |  |  | — |  |  | — |
Consumer loans |  | 6 |  |  | — |  |  | — |  |  | — |
|  | $ | 11,640 |  |  | 79 |  |  | — |  |  | — |

None of the modifications made for borrowers experiencing financial difficulty during the three months ended March 31, 2024 and March 31, 2023 are considered to have had a payment default.
Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount.
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Concentration of Credit Risk
Most of the Company's business activity is with customers located within the markets where it has banking operations. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy within its markets. Approximately 88% of the Company's loan portfolio is secured by real estate and is therefore susceptible to changes in real estate valuations. There have been no material changes to the primary loan markets (as identified by counties) from year end.
Allowance for Unfunded Loan Commitments
In addition to the ACL on loans, the Company maintains an allowance for lending-related commitments such as unfunded loan commitments and letters of credit. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for lending-related commitments on off-balance sheet credit exposures is adjusted as a provision for unfunded commitments expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the ACL on loans. The allowance for unfunded loan commitments of $10.8 million and $11.4 million at March 31, 2024 and December 31, 2023, respectively, were separately classified on the consolidated balance sheets within "Other liabilities."
The following table presents the balance and activity in the allowance for unfunded loan commitments for the three months ended March 31, 2024 and 2023 and for the twelve months ended December 31, 2023:

($ in thousands) |  | March 31, 2024 |  | December 31, 2023 |  | March 31, 2023
Beginning balance |  | $ | 11,369 |  |  | 13,306 |  |  | 13,306 |
Initial provision for credit losses on unfunded commitments acquired from GrandSouth |  | — |  |  | 1,921 |  |  | 1,921 |
Charge-offs |  | — |  |  | — |  |  | — |
Recoveries |  | — |  |  | — |  |  | — |
Reversal of provision for unfunded commitments |  | (601) |  |  | (3,858) |  |  | (870) |
Ending balance |  | $ | 10,768 |  |  | 11,369 |  |  | 14,357 |

Allowance for Credit Losses - Securities Held to Maturity
The ACL for securities held to maturity was insignificant at March 31, 2024 and December 31, 2023.
Note 5. Goodwill and Other Intangible Assets
The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets and the carrying amount of unamortized intangible assets as of the periods presented.

|  | March 31, 2024 |  | December 31, 2023
($ in thousands) |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Amount |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Amount
Amortizable intangible assets: |  |  |  |  |  |  |  |  |  |  |  |
Customer lists |  | $ | 2,700 |  |  | 2,247 |  |  | 453 |  |  | 2,700 |  |  | 2,167 |  |  | 533 |
Core deposit intangibles |  | 57,890 |  |  | 30,605 |  |  | 27,285 |  |  | 57,890 |  |  | 28,932 |  |  | 28,958 |
Other intangibles |  | 100 |  |  | 89 |  |  | 11 |  |  | 100 |  |  | 83 |  |  | 17 |
Intangibles before servicing assets |  | 60,690 |  |  | 32,941 |  |  | 27,749 |  |  | 60,690 |  |  | 31,182 |  |  | 29,508 |
SBA servicing assets |  | 14,190 |  |  | 11,053 |  |  | 3,137 |  |  | 13,966 |  |  | 10,616 |  |  | 3,350 |
Total amortizable intangible assets |  | $ | 74,880 |  |  | 43,994 |  |  | 30,886 |  |  | 74,656 |  |  | 41,798 |  |  | 32,858 |
Unamortizable intangible assets: |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  | $ | 478,750 |  |  |  |  |  |  | 478,750 |  |  |  |  |

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Customer lists are generally amortized over five years and core deposit intangibles are generally amortized over 10 years, both at an accelerated rate.
Amortization expense of all other intangible assets, excluding the SBA servicing assets, totaled $1.8 million and $2.1 million for the three months ended March 31, 2024 and 2023, respectively.
During the three months ended March 31, 2024 and 2023, the Company recorded $0.7 million and $1.0 million, respectively in SBA guaranteed servicing fee income. There was no impairment of SBA servicing assets at March 31, 2024 and December 31, 2023 and no significant changes in fair value assumptions from year end.
The following table presents the changes in the SBA servicing assets and SBA servicing income for the three months ended March 31, 2024 and 2023.

|  | Three months ended March 31,
|  | 2024 |  | 2023
Beginning balance, net |  | $ | 3,350 |  |  | 4,004 |
Add: New servicing assets |  | 224 |  |  | 77 |
Less: Amortization expense and impairment charges |  | 437 |  |  | 184 |
Ending balance, net |  | $ | 3,137 |  |  | 3,897 |

Goodwill is evaluated for impairment on at least an annual basis, with the annual evaluation occurring as of October 31 of each year. Goodwill is also evaluated for impairment any time there is a triggering event indicating that impairment may have occurred. No triggering events were identified during 2024 to date and, therefore, the Company did not perform interim impairment evaluations. The Company's most recent evaluation of goodwill, which occurred in the fourth quarter of 2023, indicated that there was no goodwill impairment. There was no change to carrying amounts of goodwill during the first quarter of 2024.
The following table presents the estimated amortization expense schedule related to acquisition-related amortizable intangible assets, excluding the SBA servicing assets. These amounts will be recorded as "Intangibles amortization expense" within the noninterest expense section of the consolidated statements of income. These estimates are subject to change in future periods to the extent management determines it is necessary to make adjustments to the carrying value or estimated useful lives of amortized intangible assets.

($ in thousands) |  | Estimated Amortization Expense
April 1, 2024 to December 31, 2024 |  | $ | 4,844 |
2025 |  | 5,672 |
2026 |  | 4,705 |
2027 |  | 3,951 |
2028 |  | 3,197 |
Thereafter |  | 5,380 |
Total |  | $ | 27,749 |

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Note 6. Borrowings
The following tables present information regarding the Company’s outstanding borrowings at March 31, 2024 and December 31, 2023 (dollars in thousands):

Description |  | Due date |  | Call Feature |  | Balance at March 31, 2024 |  | Interest Rate
FHLB Principal Reducing Credit |  | 6/26/2028 |  | None |  | $ | 200 |  |  | 0.25% fixed
FHLB Principal Reducing Credit |  | 7/17/2028 |  | None |  | 29 |  |  | 0.00% fixed
FHLB Principal Reducing Credit |  | 8/18/2028 |  | None |  | 148 |  |  | 1.00% fixed
FHLB Principal Reducing Credit |  | 8/22/2028 |  | None |  | 149 |  |  | 1.00% fixed
FHLB Principal Reducing Credit |  | 12/20/2028 |  | None |  | 312 |  |  | 0.50% fixed
FRB Bank Term Funding Program |  | 12/20/2024 |  | None |  | 174,000 |  |  | 4.85% fixed
FRB Bank Term Funding Program |  | 12/27/2024 |  | None |  | 25,000 |  |  | 4.83% fixed
FRB Bank Term Funding Program |  | 1/10/2025 |  | None |  | 32,000 |  |  | 4.81% fixed
Trust Preferred Securities |  | 1/23/2034 |  | Quarterly by Company beginning 1/23/2009 |  | 10,310 |  |  | 8.23% at 3/31/24 adjustable rate 3 month CME Term SOFR+ 2.91%
Trust Preferred Securities |  | 1/23/2034 |  | Quarterly by Company beginning 1/23/2009 |  | 10,310 |  |  | 8.33% at 3/31/24 adjustable rate 3 month CME Term SOFR + 3.01%
Trust Preferred Securities |  | 9/20/2034 |  | Quarterly by Company beginning 9/20/2009 |  | 12,372 |  |  | 7.74% at 3/31/24 adjustable rate 3 month CME Term SOFR + 2.41%
Trust Preferred Securities |  | 1/7/2035 |  | Quarterly by Company beginning 1/7/2010 |  | 10,310 |  |  | 7.58% at 3/31/24 adjustable rate 3 month CME Term SOFR + 2.00%
Trust Preferred Securities |  | 6/15/2036 |  | Quarterly by Company beginning 6/15/2011 |  | 25,774 |  |  | 6.98% at 3/31/24 adjustable rate 3 month CME Term SOFR + 1.65%
Trust Preferred Securities |  | 6/23/2036 |  | Quarterly by the Company beginning 6/23/2011 |  | 8,248 |  |  | 7.43% at 3/31/24 adjustable rate 3 month CME Term SOFR + 2.11%
Subordinated Debentures |  | 11/30/2028 |  | Continuous by Company beginning 11/30/2023 |  | 10,000 |  |  | 8.99% at 3/31/24 adjustable rate 3 month CME Term SOFR + 3.69%
Subordinated Debentures |  | 11/15/2030 |  | Continuous by Company beginning 11/15/2025 |  | 18,000 |  |  | 4.38% fixed
Total borrowings / weighted average rate as of March 31, 2024 |  | 337,162 |  |  | 5.56%
Unamortized discount on acquired borrowings |  |  |  | (4,827) |  |  |
Total borrowings |  |  |  |  |  | $ | 332,335 |  |  |

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Index

Description |  | Due date |  | Call Feature |  | Balance at December 31, 2023 |  | Interest Rate
FHLB Principal Reducing Credit |  | 6/26/2028 |  | None |  | $ | 203 |  |  | 0.25% fixed
FHLB Principal Reducing Credit |  | 7/17/2028 |  | None |  | 31 |  |  | 0.00% fixed
FHLB Principal Reducing Credit |  | 8/18/2028 |  | None |  | 151 |  |  | 1.00% fixed
FHLB Principal Reducing Credit |  | 8/22/2028 |  | None |  | 151 |  |  | 1.00% fixed
FHLB Principal Reducing Credit |  | 12/20/2028 |  | None |  | 315 |  |  | 0.50% fixed
FHLB Fixed Rate Credit |  | 1/16/2024 |  | None |  | 80,000 |  |  | 5.59% fixed
FHLB Fixed Rate Credit |  | 2/27/2024 |  | None |  | 100,000 |  |  | 5.61% fixed
FHLB Fixed Rate Credit |  | 3/20/2024 |  | None |  | 100,000 |  |  | 5.61% fixed
FRB Bank Term Funding Program |  | 12/20/2024 |  | None |  | 224,000 |  |  | 4.85% fixed
FRB Bank Term Funding Program |  | 12/27/2024 |  | None |  | 25,000 |  |  | 4.83% fixed
Trust Preferred Securities |  | 1/23/2034 |  | Quarterly by Company beginning 1/23/2009 |  | 10,310 |  |  | 8.30% at 12/31/23 adjustable rate 3 month CME Term SOFR + 2.91%
Trust Preferred Securities |  | 1/23/2034 |  | Quarterly by Company beginning 1/23/2009 |  | 10,310 |  |  | 8.40% at 12/31/23 adjustable rate 3 month CME Term SOFR + 3.01%
Trust Preferred Securities |  | 9/20/2034 |  | Quarterly by Company beginning 9/20/2009 |  | 12,372 |  |  | 7.78% at 12/31/23 adjustable rate 3 month CME Term SOFR + 2.41%
Trust Preferred Securities |  | 1/7/2035 |  | Quarterly by Company beginning 1/7/2010 |  | 10,310 |  |  | 7.66% at 12/31/23 adjustable rate 3 month CME Term SOFR + 2.00%
Trust Preferred Securities |  | 6/15/2036 |  | Quarterly by Company beginning 6/15/2011 |  | 25,774 |  |  | 7.04% at 12/31/23 adjustable rate 3 month CME Term SOFR + 1.65%
Trust Preferred Securities |  | 6/23/2036 |  | Quarterly by Company beginning 6/23/2011 |  | 8,248 |  |  | 7.47% at 12/31/23 adjustable rate 3 month CME Term SOFR + 2.11%
Subordinated Debentures |  | 11/30/2028 |  | Continuous by Company beginning 11/30/2023 |  | 10,000 |  |  | 9.09% at 12/31/23 adjustable rate 3 month CME Term SOFR + 3.69%
Subordinated Debentures |  | 11/15/2030 |  | Continuous by Company beginning 11/15/2025 |  | 18,000 |  |  | 4.38% fixed
Total borrowings / weighted average rate as of December 31, 2023 |  | 635,175 |  |  | 5.57%
Unamortized discount on acquired borrowings |  |  |  | (5,017) |  |  |
Total borrowings |  |  |  |  |  | $ | 630,158 |  |  |

Note 7. Leases
The Company enters into leases in the normal course of business. As of March 31, 2024, the Company leased 16 bank branch offices for which the land and buildings are leased and ten branch offices for which the land is leased but the buildings are owned. The Company also leases office space for several operational departments. The lease agreements have maturity dates ranging from July 2024 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 19.9 years as of March 31, 2024. Certain of the Company's lease agreements include variable lease payments based on changes in inflation, with the impact of that factor being insignificant to the Company's total lease expense. As permitted by applicable accounting standards, the Company has elected not to recognize leases with original lease terms of twelve months or less (short-term leases) on the Company's consolidated balance sheets. The short-term lease cost for each period presented was insignificant.
Leases are classified as either operating or finance leases at the lease commencement date and 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 applicable lease term. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
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Index
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 3.22% and 3.19% as of March 31, 2024 and December 31, 2023, respectively.
The right-of-use assets and lease liabilities were $16.6 million and $17.3 million as of March 31, 2024, respectively, and were $17.1 million and $17.8 million as of December 31, 2023, respectively.
Total operating lease expenses were $0.7 million and $0.8 million for the three months ended March 31, 2024 and 2023, respectively.
Future undiscounted lease payments for operating leases with initial terms of greater than one year as of March 31, 2024 are as follows:

($ in thousands) |  |
April 1, 2024 to December 31, 2024 |  | $ | 1,813 |
2025 |  | 1,914 |
2026 |  | 1,633 |
2027 |  | 1,359 |
2028 |  | 1,267 |
Thereafter |  | 17,222 |
Total undiscounted lease payments |  | 25,208 |
Less effect of discounting |  | (7,865) |
Present value of estimated lease payments (lease liability) |  | $ | 17,343 |

Note 8. Pension Plans
The Company sponsors a Supplemental Executive Retirement Plan (the “SERP”) which was historically for the benefit of certain senior management executives of the Company. Effective December 31, 2012, the Company froze the SERP for all participants. Although no previously accrued benefits were lost, no additional accruals of benefits under this plan for service subsequent to 2012 have been made.
During 2023, the Company terminated its qualified retirement plan (the "Pension Plan") which had previously been available to all employees, although the Pension Plan had been frozen with accrual of benefits discontinued in 2012. In the fourth quarter of 2023, the Pension Plan settled benefits through lump-sum payments of approximately $9.2 million to eligible participants electing that option and purchased annuity contracts from One America (the "Insurer") which irrevocably transferred to the Insurer approximately $19.5 million of the Pension Plan's obligations and related assets, thereby reducing the Pension Plan's obligations at December 31, 2023 to zero. The Insurer will administer all future payments to remaining participants of the Pension Plan.
The Company recorded periodic pension cost totaling $63,000 and $51,000 for the three months ended March 31, 2024 and 2023, respectively. The following table contains the components of the pension cost:

|  | Three Months Ended March 31, 2024
($ in thousands) |  | SERP
Service cost |  | $ | — |
Interest cost |  | 38 |
Expected return on plan assets |  | — |
Amortization of net loss |  | 25 |
Net periodic pension cost |  | $ | 63 |

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Index

|  | Three Months Ended March 31, 2023
($ in thousands) |  | Pension Plan |  | SERP |  | Total Both Plans
Service cost |  | $ | — |  |  | — |  |  | — |
Interest cost |  | 267 |  |  | 28 |  |  | 295 |
Expected return on plan assets |  | (288) |  |  | — |  |  | (288) |
Amortization of net loss (gain) |  | 180 |  |  | (136) |  |  | 44 |
Net periodic pension cost |  | $ | 159 |  |  | (108) |  |  | 51 |

The service cost component of net periodic pension cost is included in salaries and benefits expense and all other components of net periodic pension cost are included in other noninterest expense.
The Company’s funding policy with respect to the SERP is to fund the related benefits from the operating cash flow of the Company.
Note 9. Fair Value of Financial Instruments
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal and most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at March 31, 2024:

($ in thousands) Description of Financial Instruments |  | Fair Value at March 31, 2024 |  | 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: |  |  |  |  |  |  |  |
U.S. Treasury |  | $ | 123,770 |  |  | — |  |  | 123,770 |  |  | — |
Government-sponsored enterprise securities |  | 59,959 |  |  | — |  |  | 59,959 |  |  | — |
Mortgage-backed securities |  | 1,886,949 |  |  | — |  |  | 1,886,949 |  |  | — |
Corporate bonds |  | 17,805 |  |  | — |  |  | 17,805 |  |  | — |
Total available for sale securities |  | $ | 2,088,483 |  |  | — |  |  | 2,088,483 |  |  | — |
Derivative financial assets |  | $ | — |  |  | — |  |  | — |  |  | — |
Presold mortgages in process of settlement |  | $ | 6,703 |  |  | — |  |  | 6,703 |  |  | — |
Derivative financial liabilities |  | $ | 30 |  |  | — |  |  | 30 |  |  | — |
Nonrecurring |  |  |  |  |  |  |  |
Individually evaluated loans |  | $ | 4,638 |  |  | — |  |  | — |  |  | 4,638 |

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Index
The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2023:

($ in thousands) Description of Financial Instruments |  | Fair Value at December 31, 2023 |  | 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: |  |  |  |  |  |  |  |
US Treasury securities |  | $ | 172,570 |  |  | — |  |  | 172,570 |  |  | — |
Government-sponsored enterprise securities |  | 60,266 |  |  | — |  |  | 60,266 |  |  | — |
Mortgage-backed securities |  | 1,937,784 |  |  | — |  |  | 1,937,784 |  |  | — |
Corporate bonds |  | 18,759 |  |  | — |  |  | 18,759 |  |  | — |
Total available for sale securities |  | $ | 2,189,379 |  |  | — |  |  | 2,189,379 |  |  | — |
Derivative financial assets |  | $ | 295 |  |  | — |  |  | 295 |  |  | — |
Presold mortgages in process of settlement |  | $ | 2,667 |  |  | — |  |  | 2,667 |  |  | — |
Derivative financial liabilities |  | $ | 349 |  |  | — |  |  | 349 |  |  | — |
Nonrecurring |  |  |  |  |  |  |  |
Individually evaluated loans |  | $ | 1,953 |  |  | — |  |  | — |  |  | 1,953 |

The following is a description of the valuation methodologies used for financial instruments measured at fair value.
Securities Available for Sale — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy. Most of the fair values for the Company’s Level 2 securities are determined by the Company's third-party bond accounting provider using matrix pricing. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. For the Company, Level 2 securities include mortgage-backed securities, commercial mortgage-backed obligations, government-sponsored enterprise securities, and corporate bonds. In cases where Level 1 or Level 2 inputs are not available, securities may be 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.
Presold Mortgages in Process of Settlemen t - The fair value is based on the committed price that an investor has agreed to pay for the loan which is considered a Level 2 input.
Derivative financial assets and liabilities - The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. These are considered a Level 2 input.
Individually evaluated loans — Fair values for individually evaluated loans 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
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first became impaired, and thus the appraisals are not necessarily as of the period ends presented. Any fair value adjustments are recorded in the period incurred as provision for credit losses on the consolidated statements of income.
For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2024, the significant unobservable inputs used in the fair value measurements were as presented in the tables below:

($ in thousands) |  | Fair Value at March 31, 2024 |  | Valuation Technique |  | Significant Unobservable Inputs |  | Range (Weighted Average)
Individually evaluated loans - collateral-dependent |  | $ | 4,638 |  |  | Appraised value |  | Discounts applied for estimated costs to sell |  | 10%

For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

($ in thousands) |  | Fair Value at December 31, 2023 |  | Valuation Technique |  | Significant Unobservable Inputs |  | Range (Weighted Average)
Individually evaluated loans - collateral-dependent |  | $ | 1,953 |  |  | Appraised value |  | Discounts applied for estimated costs to sell |  | 10%

In the above tables, weighted average discounts were calculated on relative fair value for underlying loans based on the range of discount rates applied. The discount applied for estimated costs to sell collateral on individually evaluated loans was 10%.
The carrying amounts and estimated fair values of financial instruments not carried at fair value at March 31, 2024 and December 31, 2023 were as follows:

|  |  |  | March 31, 2024 |  | December 31, 2023
($ 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 |  | $ | 87,181 |  |  | 87,181 |  |  | 100,891 |  |  | 100,891 |
Due from banks, interest-bearing |  | Level 1 |  | 266,661 |  |  | 266,661 |  |  | 136,964 |  |  | 136,964 |
Securities held to maturity |  | Level 2 |  | 525,627 |  |  | 436,655 |  |  | 533,678 |  |  | 449,623 |
Total loans, net of allowance |  | Level 3 |  | 7,966,439 |  |  | 7,198,019 |  |  | 8,040,249 |  |  | 7,379,079 |
Accrued interest receivable |  | Level 1 |  | 35,147 |  |  | 35,147 |  |  | 37,351 |  |  | 37,351 |
Bank-owned life insurance |  | Level 1 |  | 185,061 |  |  | 185,061 |  |  | 183,897 |  |  | 183,897 |
SBA Servicing Asset |  | Level 3 |  | 3,137 |  |  | 3,984 |  |  | 3,351 |  |  | 4,049 |
Demand deposits, money market and savings |  | Level 2 |  | 9,136,213 |  |  | 9,136,213 |  |  | 9,052,905 |  |  | 9,052,905 |
Time deposits |  | Level 2 |  | 1,167,098 |  |  | 1,160,751 |  |  | 978,694 |  |  | 972,513 |
Borrowings |  | Level 2 |  | 332,335 |  |  | 318,292 |  |  | 630,158 |  |  | 615,614 |
Accrued interest payable |  | Level 1 |  | 9,847 |  |  | 9,847 |  |  | 5,699 |  |  | 5,699 |

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as deferred income taxes, prepaid expense
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accounts, income taxes currently payable, and other various accrued expenses. In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
Note 10. Stock-Based Compensation
The Company recorded total stock-based compensation expense of $0.7 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively, which is included in "Total personnel expense" on the accompanying consolidated statements of income. The Company recog nized $153,000 an d $259,000 of income tax benefits related to stock-based compensation expense in its income statement for the three months ended March 31, 2024 and 2023, respectively.
At March 31, 2024, the sole equity-based compensation plan of the Company was the First Bancorp 2014 Equity Plan (the "Equity Plan"), which was approved by shareholders on May 8, 2014. As of March 31, 2024, the Equity Plan had 191,593 shares remaining available for grant.
The Equity Plan is intended to serve as a means to attract, retain, and motivate key employees and directors and to associate the interests of the Plan's participants with those of the Company and its shareholders. The Equity Plan allows for both grants of stock options and other types of equity-based compensation, including stock appreciation rights, restricted and unrestricted stock, restricted performance stock, and performance units. 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, and unrestricted stock as it relates to non-employee directors.
Recent restricted stock awards to employees typically include service-related vesting conditions only. Compensation expense for these grants is recorded over the requisite service periods. Upon forfeiture, any previously recognized compensation cost is reversed. Upon a change in control (as defined in the Equity Plan), unless the awards remain outstanding or substitute equivalent awards are provided, the awards become immediately vested.
Certain of the Company’s equity grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Company recognizes compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for each incremental award. Compensation expense is based on the estimated number of stock awards that will ultimately vest. Over the past five years, there have been insignificant amounts of forfeitures, and therefore the Company assumes that all awards granted with service conditions will vest. The Company recognizes forfeitures as they occur.
In addition to employee equity awards, the Company's practice is to grant unrestricted common shares to each non-employee director (currently 14 in total) in June of each year. The grants was valued at approximately $37,500 in 2023 and is expected to be the same in 2024. Compensation expense associated with these director awards is recognized on the date of the award since there are no vesting conditions.
The following table presents information regarding the activity for the first three months of 2024 related to the Company’s outstanding restricted stock awards:

|  | Long-Term Restricted Stock Awards
| Number of Units |  | Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2024 |  | 291,291 |  |  | $ | 38.01 |
Granted during the period |  | 13,905 |  |  | 35.26 |
Vested during the period |  | (10,614) |  |  | 41.62 |
Forfeited or expired during the period |  | — |  |  | — |
Nonvested at March 31, 2024 |  | 294,582 |  |  | $ | 37.31 |

Total unrecognized compensation expense as of March 31, 2024 amounted to $4.6 million with a weighted average remaining term of 1.7 years. For the nonvested awards that were outstanding at March 31, 2024, the Company
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expects to record $3.0 million in compensation expense in the next twelve months, $2.6 million of which is expected to be recorded in the remaining quarters of 2024.
Note 11. Earnings Per Share
The following is a reconciliation of the numerators and denominators used in computing Basic and Diluted Earnings Per Common Share ("EPS"):

|  | For the Three Months Ended March 31,
|  | 2024 |  | 2023
($ in thousands except per share amounts) |  | Income (Numerator) |  | Shares (Denominator) |  | Per Share Amount |  | Income (Numerator) |  | Shares (Denominator) |  | Per Share Amount
Basic EPS: |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 25,272 |  |  |  |  |  |  | $ | 15,161 |  |  |  |  |
Less: income allocated to restricted stock |  | (178) |  |  |  |  |  |  | (109) |  |  |  |  |
Basic EPS per common share |  | $ | 25,094 |  |  | 40,843,865 |  |  | $ | 0.61 |  |  | $ | 15,052 |  |  | 40,583,417 |  |  | $ | 0.37 |
Diluted EPS: |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 25,272 |  |  | 40,843,865 |  |  |  |  | $ | 15,161 |  |  | 40,583,417 |  |  |
Effect of dilutive securities |  | — |  |  | 405,771 |  |  |  |  | — |  |  | 529,275 |  |  |
Diluted EPS per common share |  | $ | 25,272 |  |  | 41,249,636 |  |  | $ | 0.61 |  |  | $ | 15,161 |  |  | 41,112,692 |  |  | $ | 0.37 |

Note 12. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) ("AOCI") for the Company are as follows:

($ in thousands) |  | March 31, 2024 |  | December 31, 2023
Unrealized loss on securities available for sale |  | $ | (418,888) |  |  | (400,720) |
Deferred tax asset |  | 96,973 |  |  | 92,767 |
Net unrealized loss on securities available for sale |  | (321,915) |  |  | (307,953) |
Postretirement plans liability |  | (75) |  |  | (100) |
Deferred tax asset |  | 17 |  |  | 23 |
Net postretirement plans liability |  | (58) |  |  | (77) |
Total accumulated other comprehensive loss |  | $ | (321,973) |  |  | (308,030) |

The following tables disclose the changes in AOCI for the three months ended March 31, 2024 and 2023 (all amounts are net of tax):

|  | For the Three Months Ended March 31, 2024
($ in thousands) |  | Unrealized Loss on Securities Available for Sale |  | Postretirement Plans Asset (Liability) |  | Total
Beginning balance |  | $ | (307,953) |  |  | (77) |  |  | (308,030) |
Other comprehensive loss before reclassifications |  | (14,711) |  |  | — |  |  | (14,711) |
Amounts reclassified from accumulated other comprehensive income |  | 749 |  |  | 19 |  |  | 768 |
Net current period other comprehensive (loss) income |  | (13,962) |  |  | 19 |  |  | (13,943) |
Ending balance |  | $ | (321,915) |  |  | (58) |  |  | (321,973) |

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|  | For the Three Months Ended March 31, 2023
($ in thousands) |  | Unrealized Loss on Securities Available for Sale |  | Postretirement Plans Asset (Liability) |  | Total
Beginning balance |  | $ | (342,017) |  |  | 42 |  |  | (341,975) |
Other comprehensive income before reclassifications |  | 27,908 |  |  | — |  |  | 27,908 |
Amounts reclassified from accumulated other comprehensive income |  | — |  |  | 33 |  |  | 33 |
Net current period other comprehensive income |  | 27,908 |  |  | 33 |  |  | 27,941 |
Ending balance |  | $ | (314,109) |  |  | 75 |  |  | (314,034) |

Amounts reclassified from AOCI for unrealized gain (loss) on securities available for sale represent realized securities gains or losses, net of tax effects. There were no security sales resulting in gains or losses in any period presented. Amounts reclassified from AOCI for postretirement plans asset (liability) represent amortization of amounts included in AOCI, net of taxes, and are recorded in the "Other operating expenses" line item of the consolidated statements of income.
Note 13. Revenue from Contracts with Customers
All of the Company’s revenues that are in the scope of the “Revenue from Contracts with Customers” accounting standard (“ASC 606”) are recognized within noninterest income. The following table presents the Company’s sources of noninterest income for the three months ended March 31, 2024 and 2023. Items outside the scope of ASC 606 are noted as such.

|  | For the Three Months Ended |  |
($ in thousands) |  | March 31, 2024 |  | March 31, 2023 |  |  |  |
Noninterest Income in-scope of ASC 606: |  |  |  |  |  |  |  |
Service charges on deposit accounts |  | $ | 3,868 |  |  | 3,894 |  |  |  |  |
Other service charges, commissions and fees: |  |  |  |  |  |  |  |
Bankcard interchange income, net |  | 2,314 |  |  | 2,582 |  |  |  |  |
Other service charges and fees |  | 1,848 |  |  | 3,318 |  |  |  |  |
Commissions from the sales of financial products |  | 1,320 |  |  | 1,306 |  |  |  |  |
SBA consulting fees |  | 257 |  |  | 521 |  |  |  |  |
Noninterest income (in-scope of ASC 606) |  | 9,607 |  |  | 11,621 |  |  |  |  |
Noninterest income (out-of-scope of ASC 606) |  | 3,331 |  |  | 1,915 |  |  |  |  |
Total noninterest income |  | $ | 12,938 |  |  | 13,536 |  |  |  |  |

A description of the Company’s revenue streams accounted for under ASC 606 is detailed below.
Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Overdraft fees are recognized at the point in time that the overdraft occurs. Maintenance and activity fees include account maintenance fees and transaction-based fees. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the month, representing the period over which the Company satisfies the performance obligation. Transaction-based fees, which include services such as ATM usage 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. "Bankcard interchange income" is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as MasterCard. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Interchange fees are offset with interchange expenses and are presented on a net basis. "Other service charges and fees" includes revenue from processing wire transfers, bill pay
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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 sales of financial products: The Company earns commissions from the sale of wealth management products which primarily consist of commissions received on financial product sales, such as annuities. The Company’s performance obligation is generally satisfied upon the issuance of the financial product. Shortly after the policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue. The Company also earns some fees from asset management, which is billed quarterly and due upon billing for services rendered in the most recent period, for which the performance obligation has been satisfied.
SBA Consulting fees: The Company earns fees for its consulting services related to the origination of SBA loans. Fees are based on a percentage of the dollar amount of the originated loans and are recorded when the performance obligation has been satisfied and are due upon billing.
The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the determination of the amount and timing of revenue from the above-described contracts with customers.
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Item 2 - Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition
Highlights of the results for the quarter and year-to-date period are presented below (refer also to additional discussion in the "Results of Operations" and "Financial Condition" sections following). Comparisons for the financial periods presented are impacted by the GrandSouth acquisition which was completed on January 1, 2023 with the related core system conversion occurring in March 2023.
Overview and Highlights at and for Three Months Ended March 31, 2024
We earned net income of $25.3 million, or $0.61 diluted EPS, during the three months ended March 31, 2024 compared to net income of $15.2 million, or $0.37 diluted EPS, for the three months ended March 31, 2023. The increase in net income in the the current year period as compared to the prior year period was related to higher merger and acquisition expense and the initial provision for credit losses related to the GrandSouth acquisition in the prior year, the elimination of such which more that offset the increase in interest expense during the three months ended March 31, 2024.
•Net interest income for the first quarter of 2024 was $79.2 million, a 14.3% decrease from the $92.5 million recorded in the first quarter of 2023. The decrease in net interest income from the prior year period was driven by higher cost of funds, partially offset by higher yield on earning assets.
•Net interest margin ("NIM") on a tax-equivalent basis decreased in the first quarter of 2024 to 2.80% from 3.31% for the first quarter of 2023 as a result of the higher cost of funds and decreased loan accretion, partially offset by increases in market interest rates driving higher yields on loans and other earning assets.
•The decline in the provision for credit losses from the first quarter of 2023 was directly related to the GrandSouth acquisition for which an initial provision was recorded totaling $12.2 million.
•Noninterest income for the three months ended March 31, 2024 totaled $12.9 million which was a decrease of $0.6 million, or 4.4%, from the comparable period of 2023 and was primarily related to securities losses.
•Noninterest expense of $59.2 million for the quarter ended March 31, 2024 decreased $15.0 million, or 20.2%, from the three months ended March 31, 2023 which included $12.2 million of merger and acquisition expense resulting from the GrandSouth acquisition.
Total assets at March 31, 2024 amounted to $12.1 billion, a 0.2% decrease from December 31, 2023, and was driven primarily by intentional reductions in investment securities and loan balances, partially offset by higher interest-bearing cash balances. The primary balance sheet changes are presented below.
•Total loans amounted to $8.1 billion at March 31, 2024, reflecting a $73.6 million contraction from December 31, 2023.
•Total deposits were $10.3 billion at March 31, 2024, an increase of $271.7 million, or 2.71%, from December 31, 2023.
•Credit quality continued to be strong at March 31, 2024, with a NPA to total assets ratio of 0.39% as of March 31, 2024.
•Our on-balance sheet liquidity ratio was 15.5% at March 31, 2024. Available off-balance sheet sources totaled $2.3 billion at quarter end, resulting in a total liquidity ratio of 31.4%.
•We remained well-capitalized by all regulatory standards with a total common equity Tier 1 ratio of 13.50% and total risk-based capital ratio of 15.85% at March 31, 2024.
Critical Accounting Estimates
The accounting principles we follow and our methods of applying these principles conform with GAAP and with general practices followed by the banking industry. Certain policies inherently have a greater reliance on the use of estimates, assumptions, or judgments and as such, have a greater possibility of producing results that could be materially different than originally reported. We have identified the determination of our ACL and related Allowance for Unfunded Commitments, as well as business combinations, related fair value measurements and goodwill
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determination to be the accounting areas that require the most subjective or complex judgments, estimates, and assumptions, and where changes in those judgments, estimates, and assumptions (based on new or additional information, changes in the economic climate and/or market interest rates, etc.) could have a significant effect on our financial statements.
The following should be read in conjunction with our significant accounting policies as presented in Note 1 of the 2023 Annual Report on Form 10-K filed with the SEC.
Allowance for Credit Losses on Loans and Allowance for Unfunded Commitments
While management uses the best information available to establish the ACL, future adjustments to the ACL and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in making the estimates. We perform periodic and systematic detailed reviews of the loan portfolio to identify trends and to assess the overall collectability of the portfolio. We believe the accounting estimate related to the ACL is a “critical accounting estimate” as: (1) changes in it can materially affect the provision for credit losses and net income; (2) it requires management to predict borrowers’ likelihood or capacity to repay, including evaluation of inherently uncertain future economic conditions; (3) the value of underlying collateral must be estimated on collateral-dependent loans; (4) prepayment activity must be projected to estimate the life of loans that often are shorter than contractual terms; and (5) it requires estimation of a reasonable and supportable forecast period for credit losses. Accordingly, this is a highly subjective process and requires significant judgment since it is difficult to evaluate current and future economic conditions in relation to an overall credit cycle and estimate the timing and extent of loss events that are expected to occur prior to end of a loan’s estimated life.
Our ACL is assessed at each balance sheet date and adjustments are recorded in the provision for credit losses on the consolidated statements of income. There are many factors affecting the ACL, some of which are quantitative, while others require qualitative judgment. There are both internal factors (i.e., loan balances, historical loss rates, credit quality, the contractual lives of loans), external factors (i.e., economic conditions such as trends in housing prices, interest rates, national gross domestic product ("GDP"), inflation, and unemployment), and assumptions of probability of default and loss given default by loan category, that can impact the ACL estimate. One of the most significant assumptions is the macroeconomic scenario forecasts that determine the economic variables utilized in the ACL model. Due to the inherent uncertainty in the macroeconomic forecasts, we evaluate a baseline scenario quarterly, as well as upside or downside macroeconomic scenarios to assess the most reasonable scenario based on review of the variable forecasts for each scenario, comparison to expectations, and sensitivity of variations in each scenario.
The most significant variable in the economic forecasts is the national unemployment rate and changes in unemployment forecasts can have significant impact to the estimated ACL. Other economic variables include GDP, the national commercial real estate pricing index and the national home price index. We use the national unemployment rate in all of our models regardless of the loan portfolio type, and we use a second economic variable in each cohort model depending on the loan portfolio type. The ACL quantitative estimate is sensitive to changes in the economic variable forecasts during the twelve-month reasonable and supportable forecast period with a straight-line reversion over the next three years to long-term average loss factors. There have been no changes to the reasonable and supportable period or reversion period since year end.
Although management believes its process for determining the ACL adequately considers all the factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for credit losses could be required that could adversely affect our earnings or financial position in future periods.
PCD loans represent assets that are acquired with evidence of more than insignificant credit quality deterioration since origination at the acquisition date. At acquisition, the allowance on PCD assets is booked directly to the ACL. Any subsequent changes in the ACL on PCD assets is recorded through the provision for credit losses on the consolidated statements of income.
We believe that the ACL is adequate to absorb the expected life of loan credit losses on the portfolio of loans as of the balance sheet date. Actual losses incurred may differ materially from our estimates. For example, inflationary pressures and recessionary concerns leading to macroeconomic economic deterioration, higher unemployment and declines in real estate and other asset valuations could affect our loss experience and assumptions utilized in our model.
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We estimate expected credit losses on unfunded commitments to extend credit over the contractual period in which we are exposed to credit risk on the underlying commitments, unless the obligation is unconditionally cancellable. The allowance for off-balance sheet credit exposures, which is included in "Other liabilities" on the consolidated balance sheets, is adjusted for as an increase or decrease to the provision for credit losses on the consolidated statements of income. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The methodology is based on a loss rate approach that starts with the probability of funding based on historical experience. Similar to the methodology discussed above related to the loans receivable portfolio, adjustments are made to the historical losses for current conditions and reasonable and supportable forecasts.
Additional information on the loan portfolio and ACL can be found in the “Nonperforming Assets” and “Allowance for Credit Losses and Loan Loss Experience” sections following.
Business Combinations and Goodwill
We believe that the accounting for business combinations, goodwill, and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. Pursuant to applicable accounting guidance, we recognize assets acquired, including identified intangible assets, and the liabilities assumed in acquisitions at their fair values as of the acquisition date, with the related transaction costs expensed in the period incurred. Specified items such as acquired operating lease assets and liabilities as lessee, employee benefit plans, and income-tax related balances are recognized in accordance with accounting guidance that results in measurements that may differ from fair value. Determining the fair value of assets acquired and liabilities assumed often involves estimates based on internal or third-party valuations which include appraisals, discounted cash flow analysis, or other valuation techniques that may include estimates of attrition, inflation, asset growth rates, discount rates, credit risk, multiples of earnings, or other relevant factors. The determination of fair value may require us to make point-in-time estimates about discount rates, future expected cash flows, market conditions, and other future events that can be volatile in nature and challenging to assess. While we use the best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement.
The primary identifiable intangible asset we typically record in connection with a whole bank or bank branch acquisition is the value of the core deposit intangibles which represents the estimated value of the long-term deposit relationships acquired in the transaction. Determining the amount of identifiable intangible assets and their average lives involves multiple assumptions and estimates and is typically determined by performing a discounted cash flow analysis, which involves a combination of any or all of the following assumptions: customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. The core deposit intangibles are amortized over the estimated useful lives of the deposit accounts based on a method that we believe reasonably approximates the anticipated benefit stream from this intangible. The estimated useful lives are periodically reviewed for reasonableness and have generally been estimated to have a life ranging from seven to ten years, with an accelerated rate of amortization. We review identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our policy is that an impairment loss is recognized, equal to the difference between the asset’s carrying amount and its fair value, if the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Estimating future cash flows involves the use of multiple estimates and assumptions, such as those listed above.
The ACL for PCD assets is recognized within business combination accounting with no initial impact to net income. Changes in estimates of expected credit losses on PCD loans after acquisition are recognized as provision expense (or reversal of provision expense) in subsequent periods as they arise. The ACL for non-PCD assets is recognized as provision expense in the same reporting period as the business combination. Estimated loan losses for acquired loans are determined using methodologies and applying estimates and assumptions that were described previously in the Allowance for Credit Losses on Loans and Allowance for Unfunded Commitments section above.
Non-PCD loans acquired are generally estimated at fair value using a discounted cash flow approach with assumptions of discount rate, remaining life, prepayments, probability of default, and loss given default. The actual cash flows on these loans could differ materially from the fair value estimates. The amount 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. Discounts on acquired non-PCD loans are accreted to interest income over their estimated remaining lives, which may include prepayment estimates in certain circumstances.
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Similarly, premiums or discounts on acquired debt are accreted or amortized to interest expense over their remaining lives. Actual accretion or amortization of premiums and discounts from a business acquisition may differ materially from our estimates impacting our operating results.
We believe that the accounting for goodwill also involves a higher degree of judgment than most other significant accounting policies. Goodwill arising from business combinations represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.
ASC 350-10 establishes standards for an impairment assessment of goodwill. At each reporting date between annual goodwill impairment tests, we consider potential indicators of impairment. Generally, absent potential impairment indicators, we perform an annual assessment of whether the events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value. Impairment indicators considered include the condition of the economy and banking industry; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting unit; performance of the Company's stock, and other relevant events. During 2024, there were no triggers warranting interim impairment assessments and, for the most recent annual assessment which occurred in the fourth quarter of 2023, we concluded that it was more likely than not that the fair value exceeded its carrying value.
Current Accounting Matters
See Note 1 to the Consolidated Financial Statements for information about recently announced or adopted accounting standards.
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RESULTS OF OPERATIONS
Net Interest Income
Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits and borrowed funds). Changes in the net interest income are the result of changes in volume and the net interest spread which affects NIM. Volume refers to the average dollar levels of interest-earning assets and interest-bearing liabilities. Net interest spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. NIM refers to net interest income divided by average interest-earning assets and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities. Net interest income is also influenced by external factors such as local economic conditions, competition for loans and deposits, and market interest rates.
Net interest income for the three months ended March 31, 2024 amounted to $79.2 million, a decrease of $13.3 million, or 14.3%, from the $92.5 million recorded in the first quarter of 2023. The decrease was primarily driven by higher cost of funds, partially offset by higher yields on earning assets. While average interest-earning assets for the first quarter of 2024 increased 0.5% from the comparable period of the prior year, the mix of assets shifted to higher earning assets, with average loans growing $375.0 million, or 4.85%, while taxable securities decreased $207.1 million, or 6.85%, and short term investments decreased $101.2 million, or 26.69%.The increase in the cost of interest bearing deposits of 114 basis points between the first quarter of 2023 and the first quarter of 2024 more than offset improvements from earning asset mix changes and higher yields. This resulted in the reduction in our NIM which, on a tax-equivalent basis (see discussion below), decreased from 3.31% for the first quarter of 2023 to 2.80% for the three months ended March 31, 2024.
For internal purposes, we evaluate our NIM on a tax-equivalent basis by adding the tax benefit realized from tax-exempt loans and securities to reported interest income then dividing by total average earning assets. We believe that analysis of NIM on a tax-equivalent basis is useful and appropriate because it allows a comparison of net interest income in different periods without taking into account the different mix of taxable versus non-taxable loans and investments that may have existed during those periods.The following is a reconciliation of reported net interest income to tax-equivalent net interest income and the resulting NIM as reported and on a tax-equivalent basis.

|  | For the Three Months Ended March 31,
($ in thousands) |  | 2024 |  | 2023
Net interest income, as reported |  | $ | 79,232 |  |  | 92,486 |
Tax-equivalent adjustment |  | 731 |  |  | 700 |
Net interest income, tax-equivalent |  | $ | 79,963 |  |  | 93,186 |
Net interest margin, as reported |  | 2.77 | % |  | 3.28 | %
Net interest margin, tax-equivalent |  | 2.80 | % |  | 3.31 | %

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The following table presents an analysis of net interest income for the three months ended March 31, 2024 and 2023:

Average Balances and Net Interest Income Analysis
| Three Months Ended March 31,
| 2024 |  | 2023
($ in thousands) | Average Volume |  | Average Rate |  | Interest Earned or Paid |  | Average Volume |  | Average Rate |  | Interest Earned or Paid
Assets |  |  |  |  |  |  |  |  |  |  |
Loans (1) (2) | $ | 8,103,387 |  |  | 5.45 | % |  | $ | 109,756 |  |  | $ | 7,728,425 |  |  | 5.22 | % |  | $ | 99,380 |
Taxable securities | 2,815,266 |  |  | 1.82 | % |  | 12,728 |  |  | 3,022,398 |  |  | 1.80 | % |  | 13,416 |
Non-taxable securities | 293,198 |  |  | 1.53 | % |  | 1,117 |  |  | 298,842 |  |  | 1.53 | % |  | 1,130 |
Short-term investments, primarily interest-bearing cash | 277,945 |  |  | 4.30 | % |  | 2,971 |  |  | 379,124 |  |  | 3.47 | % |  | 3,248 |
Total interest-earning assets | 11,489,796 |  |  | 4.43 | % |  | 126,572 |  |  | 11,428,789 |  |  | 4.16 | % |  | 117,174 |
Cash and due from banks | 90,833 |  |  |  |  |  |  | 95,041 |  |  |  |  |
Premises and equipment | 151,159 |  |  |  |  |  |  | 151,211 |  |  |  |  |
Other assets | 379,413 |  |  |  |  |  |  | 367,257 |  |  |  |  |
Total assets | $ | 12,111,201 |  |  |  |  |  |  | $ | 12,042,298 |  |  |  |  |
Liabilities |  |  |  |  |  |  |  |  |  |  |
Interest-bearing checking | $ | 1,403,484 |  |  | 0.68 | % |  | $ | 2,359 |  |  | $ | 1,526,650 |  |  | 0.23 | % |  | $ | 866 |
Money market deposits | 3,704,731 |  |  | 3.02 | % |  | 27,813 |  |  | 2,974,478 |  |  | 1.47 | % |  | 10,814 |
Savings deposits | 592,395 |  |  | 0.21 | % |  | 308 |  |  | 728,918 |  |  | 0.07 | % |  | 129 |
Other time deposits | 709,517 |  |  | 3.09 | % |  | 5,456 |  |  | 884,668 |  |  | 2.55 | % |  | 5,553 |
Time deposits >$250,000 | 355,809 |  |  | 3.62 | % |  | 3,199 |  |  | 313,377 |  |  | 2.01 | % |  | 1,556 |
Total interest-bearing deposits | 6,765,936 |  |  | 2.33 | % |  | 39,135 |  |  | 6,428,091 |  |  | 1.19 | % |  | 18,918 |
Borrowings | 577,998 |  |  | 5.71 | % |  | 8,205 |  |  | 438,556 |  |  | 5.34 | % |  | 5,770 |
Total interest-bearing liabilities | 7,343,934 |  |  | 2.59 | % |  | 47,340 |  |  | 6,866,647 |  |  | 1.46 | % |  | 24,688 |
Noninterest-bearing checking | 3,312,899 |  |  |  |  |  |  | 3,788,817 |  |  |  |  |
Other liabilities | 78,877 |  |  |  |  |  |  | 113,399 |  |  |  |  |
Shareholders’ equity | 1,375,491 |  |  |  |  |  |  | 1,273,435 |  |  |  |  |
Total liabilities and shareholders’ equity | $ | 12,111,201 |  |  |  |  |  |  | $ | 12,042,298 |  |  |  |  |
Net yield on interest-earning assets and net interest income |  |  | 2.77 | % |  | $ | 79,232 |  |  |  |  | 3.28 | % |  | $ | 92,486 |
Net yield on interest-earning assets and net interest income – tax-equivalent (3) |  |  | 2.80 | % |  | $ | 79,963 |  |  |  |  | 3.31 | % |  | $ | 93,186 |
Interest rate spread |  |  | 1.84 | % |  |  |  |  |  | 2.70 | % |  |
Average prime rate |  |  | 8.50 | % |  |  |  |  |  | 7.69 | % |  |

(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 net deferred loan fee amortization in the amounts of $(103,000), and $357,000 for three months ended March 31, 2024 and 2023, respectively.
(2) Includes accretion of discount on acquired and SBA loans of $2.9 million and $3.6 million for three months ended March 31, 2024 and 2023, respectively.
(3) Includes tax-equivalent adjustments of $731,000 and $700,000 for three months ended March 31, 2024 and 2023, respectively, to reflect the tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax-exempt status. This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense.
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Overall, as demonstrated in the table above, despite the change in the mix of earning assets to higher yielding assets, the compression in NIM drove the decrease in net interest income.
•Market interest rates increased 50 basis points between March 2023 and March 2024 to result in an average prime rate of 8.50% for three months ended March 31, 2024 compared to 7.69% for the prior year period.
•Average loan volumes for the three months ended March 31, 2024 were $375.0 million higher than the same period in 2023. In addition, interest rates on loans increased 23 basis points to 5.45% for the first quarter of 2024, resulting in an increase in interest income on loans of $10.4 million.
•Due to higher market rates and increased average balances, deposit interest expense for the three months ended March 31, 2024 increased $20.2 million compared to the same period in 2023. Average interest-bearing deposit balances increased $337.8 million while rates on those deposits increased 114 basis points as compared to the same period in the prior year.
•The combination of higher rates on borrowings, up 37 basis points in the first quarter of 2024 from the first quarter of 2023 due to increasing market rates, and the increase in volume of borrowings between periods drove the $2.4 million increase in interest expense on borrowings. Average borrowings were $139.4 million higher in the first quarter of 2024 as compared to the first quarter of 2023 due in large part to the higher levels of short-term borrowings utilized to fund loan growth and manage fluctuations in deposit balances.
•The decrease in NIM was directly related to higher rates on liabilities driven by current market rates with repricing on our deposits occurring at a more rapid pace that the increase in yields on assets.
Our NIM for all periods presented benefited from the net accretion income, primarily associated with purchase accounting premiums/discounts associated with acquisitions. Presented in the table below is the amount of accretion which increased net interest income in each time period presented.

|  | For the Three Months Ended March 31, |  |
($ in thousands) |  | 2024 |  | 2023 |  |  |  |
Interest income – increased by accretion of loan discount on acquired loans |  | $ | 2,437 |  |  | 3,118 |  |  |  |  |
Interest income - increased by accretion of loan discount on retained SBA loans |  | 444 |  |  | 448 |  |  |  |  |
Total interest income impact |  | 2,881 |  |  | 3,566 |  |  |  |  |
Interest expense – increased by discount accretion of deposits |  | (283) |  |  | (1,019) |  |  |  |  |
Interest expense – increased by discount accretion of borrowings |  | (189) |  |  | (82) |  |  |  |  |
Total net interest expense impact |  | (472) |  |  | (1,101) |  |  |  |  |
Total impact on net interest income |  | $ | 2,409 |  |  | 2,465 |  |  |  |  |

The most significant component of the purchase accounting adjustments in each year was loan discount accretion on purchased loans. Generally, the level of loan discount accretion will decline each year due to the natural paydowns in acquired loan portfolios.
At March 31, 2024 and 2023, unaccreted loan discounts on purchased loans amounted to $21.6 million and $32.4 million, respectively. The GrandSouth acquired portfolio comprised the majority of the remaining unaccreted loan discount at March 31, 2024.
In addition to the loan discount accretion recorded on acquired loans, we recorded accretion on the discounts associated with the retained unguaranteed portions of SBA loans sold in the secondary market. The level of SBA loan discount accretion will fluctuate relative to the SBA loan portfolio balances. At March 31, 2024 and 2023, the unaccreted loan discounts on SBA loans amounted to $3.4 million and $4.0 million, respectively.
Provision for Credit Losses and Provision for Unfunded Commitments
The provision for credit losses is comprised of the provision for loan losses and the provision for unfunded commitments. The provision recorded in each period represents the amount required such that the total ACL reflects the current estimate of life of loan credit losses in the loan portfolio and the allowance for unfunded
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commitments reflects the current expected losses on unfunded loan commitments that are expected to result in outstanding loan balances. Our estimate of credit losses is determined using a complex model that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the ACL and allowance for unfunded commitments. Refer to the additional discussion previously under the "Critical Accounting Estimates" section.
The provision for credit losses was $1.2 million for the three months ended March 31, 2024 and $12.5 million in the comparable period in 2023. The primary contributor to the higher provision for 2023 was the initial provision required for the loan portfolio acquired from GrandSouth.
The provision for credit losses recorded and related increase in the ACL for the first quarter of 2024 related in part to updated prepayment speed estimates which are a key assumption in the CECL model. The higher interest rate environment has resulted in slower prepayment speed estimates, thus increasing the projected ACL required. In addition, updated economic forecasts and loss driver inputs to the CECL mode have projected continued uncertainty in the economy demonstrated in higher projected unemployment rates, lower GDP, and increasing price indices for both commercial real estate and residential mortgages. These economic projections translated to higher forecasted losses in our loan portfolio and, thus a higher estimated ACL. The calculated increases in the allowances were partially offset by the lower balances in the loan portfolio and the levels of unfunded commitments.
Additional discussion of the CECL method and our asset quality and credit metrics, which impact our provision for credit losses, is provided in the "Nonperforming Assets" and "Allowance for Credit Losses, Allowance for Unfunded Commitments, and Loan Loss Experience" sections following.
Noninterest Income
Our noninterest income amounted to $12.9 million and $13.5 million for the three months ended March 31, 2024 and 2023, respectively. The lower noninterest income in the current quarter was primarily a result of the $1.0 million loss on the call of a bond which had an unamortized premium balance. Details of the more significant components of noninterest income is presented in the table below.

|  | For the Three Months Ended March 31, |  |
($ in thousands) |  | 2024 |  | 2023 |  |  |  |
Service charges on deposit accounts |  | $ | 3,868 |  |  | 3,894 |  |  |  |  |
Other service charges and fees - bankcard interchange income, net |  | 2,314 |  |  | 2,582 |  |  |  |  |
Other service charges and fees - other |  | 3,298 |  |  | 3,338 |  |  |  |  |
Presold mortgage loan fees and gains on sale |  | 338 |  |  | 406 |  |  |  |  |
Commissions from sales of financial products |  | 1,320 |  |  | 1,306 |  |  |  |  |
SBA consulting fees |  | 257 |  |  | 521 |  |  |  |  |
SBA loan sale gains |  | 895 |  |  | 255 |  |  |  |  |
Bank-owned life insurance ("BOLI") income |  | 1,164 |  |  | 1,046 |  |  |  |  |
Securities losses, net |  | (975) |  |  | — |  |  |  |  |
Other gains, net |  | 459 |  |  | 188 |  |  |  |  |
Total noninterest income |  | $ | 12,938 |  |  | 13,536 |  |  |  |  |

Noninterest Expenses
Total noninterest expenses totaled $59.2 million and $74.2 million for the three months ended March 31, 2024 and 2023, respectively. The primary contributor to the 20.2% decrease in noninterest expense for the first quarter of 2024 as compared to the same period of 2023 was the merger and acquisition costs of $12.2 million related to the GrandSouth acquisition. Also contributing to lower noninterest expense in the three months ended March 31, 2024 were decreases in personnel expense of $1.8 million related in large part to overlapping personnel costs incurred until the conversion of GrandSouth's core system in mid-March 2023. Other operating expenses declined $1.6 million primarily related to a $2.4 million charge for the estimated termination costs associated with the Company's pension plan.
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The following table presents the primary components of noninterest expense

|  | For the Three Months Ended March 31, |  |
($ in thousands) |  | 2024 |  | 2023 |  |  |  |
Salaries |  | $ | 27,642 |  |  | 29,321 |  |  |  |  |
Employee benefits |  | 6,269 |  |  | 6,393 |  |  |  |  |
Total personnel expense |  | 33,911 |  |  | 35,714 |  |  |  |  |
Occupancy expense |  | 3,663 |  |  | 3,688 |  |  |  |  |
Equipment related expenses |  | 1,925 |  |  | 1,379 |  |  |  |  |
Credit card rewards and other bankcard expenses |  | 1,421 |  |  | 1,119 |  |  |  |  |
Telephone and data lines |  | 1,091 |  |  | 995 |  |  |  |  |
Software licenses and other software costs |  | 2,102 |  |  | 2,170 |  |  |  |  |
Data processing expense |  | 2,164 |  |  | 2,412 |  |  |  |  |
Professional fees |  | 1,685 |  |  | 1,450 |  |  |  |  |
Advertising and marketing |  | 890 |  |  | 1,120 |  |  |  |  |
Non-credit losses |  | 576 |  |  | 865 |  |  |  |  |
FDIC and corporate insurance costs |  | 2,529 |  |  | 1,877 |  |  |  |  |
Other operating expenses |  | 5,473 |  |  | 7,094 |  |  |  |  |
Merger and acquisition expenses |  | — |  |  | 12,182 |  |  |  |  |
Amortization of intangible assets |  | 1,759 |  |  | 2,145 |  |  |  |  |
Foreclosed property gains, net |  | (2) |  |  | (35) |  |  |  |  |
Total noninterest expense |  | $ | 59,187 |  |  | 74,175 |  |  |  |

Income Taxes
We recorded income tax expense of $6.5 million and $4.2 million for the three months ended March 31, 2024 and 2023, respectively. Our effective tax rate was 20.5% and 21.6% for the three months ended March 31, 2024 and 2023, respectively. The higher effective tax rate for 2023 was attributable primarily to merger and acquisition expenses recorded in that period related to the GrandSouth acquisition resulting in non-deductible adjustments for income tax purposes.
FINANCIAL CONDITION
Total assets at March 31, 2024 amounted to $12.1 billion, a $23.3 million, or 0.2%, decrease from December 31, 2023 and was primarily related to intentional reductions in investment securities and loan balances, partially offset by higher interest-bearing cash balances.
Total loans at March 31, 2024 amounted to $8.1 billion, a $73.6 million, or 0.9%, decrease from December 31, 2023. The mix of our loan portfolio remained substantially the same at March 31, 2024 as compared to December 31, 2023. The majority of our real estate loans were personal mortgages and commercial loans where real estate provides additional security for the loan. Note 4 to the consolidated financial statements presents additional detailed information regarding our mix of loans. At March 31, 2024, we had no notable concentrations in geographies or industries, including in office or hospitality categories. The Company's exposure to non-owner occupied commercial office loans represented approximately 5.7% of the total portfolio at March 31, 2024, with the largest loan being $27.0 million and the average loan outstanding balance of $1.3 million. Non-owner occupied office loans are generally in non-metro markets and the 10 largest loans in this category represented less than 2% of the total loan portfolio at March 31, 2024.
The composition of our investment portfolio remained substantially the same at March 31, 2024 as at December 31, 2023, and continued to reflect our investment strategy of maintaining an appropriate level of liquidity while providing a stable source of income. The investment portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits. Total investment securities decreased $108.9 million from December 31, 2023 to total $2.6 billion at March 31, 2024 as there have been no purchases to date in 2024 and cash flows from maturities, calls and amortizing securities continue to be utilized to fund loan growth and deposit fluctuations, or were invested in other short-term interest bearing assets. There were
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no sales of investment securities during the the three months ended March 31, 2024, while the call of a security during the period resulted in a loss of $1.0 million related to the unamortized premium balance.
The unrealized loss on available for sale securities totaled $418.9 million at March 31, 2024. Refer to Note 3 to the consolidated financial statements for additional detailed information regarding our mix of investments and the unrealized losses for each category. We invest primarily in securities issued by GSEs including FHLMC, FNMA, GNMA, and SBA, each of which guarantees the repayment of the securities. Nearly all of our mortgage-backed securities are issued by GSEs and are traded in liquid secondary markets. The state and local government investments are comprised almost entirely of highly-rated municipal bonds issued by state and local governments throughout the nation. We have no significant concentration of bond holdings from one state or local government entity. We evaluated the unrealized losses on individual securities at March 31, 2024 and determined them to be of a temporary nature due primarily to interest rate factors and not credit quality concerns. In arriving at this conclusion, we reviewed third-party credit ratings and considered the severity of the impairment.
Total deposits amounted to $10.3 billion at March 31, 2024, an increase of $271.7 million, or 2.7%, from December 31, 2023. Brokered deposits increased $183.5 million from year end, while organic growth from market deposits totaled $88.3 million.
We continue to have a diversified and granular deposit base which has remained stable with continued growth in core deposits, primarily money market accounts. Our deposit mix has remained consistent historically and has not changed significantly and there has been no notable shift in deposits from noninterest-bearing to interest-bearing.

|  | March 31, 2024 |  | December 31, 2023
($ in thousands) |  | Amount |  | Percentage |  | Amount |  | Percentage
Noninterest-bearing checking accounts |  | $ | 3,362,265 |  |  | 33 | % |  | 3,379,876 |  |  | 34 | %
Interest-bearing checking accounts |  | 1,401,724 |  |  | 13 | % |  | 1,411,142 |  |  | 14 | %
Money market accounts |  | 3,787,323 |  |  | 37 | % |  | 3,653,506 |  |  | 36 | %
Savings accounts |  | 584,901 |  |  | 6 | % |  | 608,380 |  |  | 6 | %
Other time deposits |  | 607,359 |  |  | 6 | % |  | 610,887 |  |  | 6 | %
Time deposits >$250,000 |  | 363,687 |  |  | 3 | % |  | 355,209 |  |  | 4 | %
Total market deposits |  | 10,107,259 |  |  | 98 | % |  | 10,019,000 |  |  | 100 | %
Brokered deposits |  | 196,052 |  |  | 2 | % |  | 12,599 |  |  | — | %
Total deposits |  | $ | 10,303,311 |  |  | 100 | % |  | 10,031,599 |  |  | 100 | %

As of March 31, 2024, the estimated insured deposits totaled $6.4 billion or 61.8% of total deposits. In addition, we had collateralized deposits at that date of $757.0 million such that approximately 69.2% of our total deposits were insured or collateralized at March 31, 2024.
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Nonperforming Assets
NPAs are defined as nonaccrual loans, modifications to borrowers in financial distress, loans past due 90 or more days and still accruing interest, and foreclosed real estate. NPAs are summarized as follows:

($ in thousands) |  | March 31, 2024 |  | December 31, 2023
Nonperforming assets |  |  |  |
Nonaccrual loans |  | $ | 35,622 |  |  | 32,208 |
Modifications to borrowers in financial distress |  | 10,999 |  |  | 11,719 |
Total nonperforming loans |  | 46,621 |  |  | 43,927 |
Foreclosed real estate |  | 926 |  |  | 862 |
Total nonperforming assets |  | $ | 47,547 |  |  | 44,789 |
Asset Quality Ratios |  |  |  |
Nonaccrual loans to total loans |  | 0.44 | % |  | 0.40 | %
Nonperforming loans to total loans |  | 0.58 | % |  | 0.54 | %
Nonperforming assets to total loans and foreclosed properties |  | 0.59 | % |  | 0.55 | %
Nonperforming assets to total assets |  | 0.39 | % |  | 0.37 | %
Allowance for credit losses to total loans |  | 1.36 | % |  | 1.35 | %
Allowance for credit losses to nonaccrual loans |  | 308.99 | % |  | 341.07 | %
Allowance for credit losses to nonperforming loans |  | 236.09 | % |  | 250.08 | %

As shown in the table above, total NPAs at March 31, 2024 increased slightly to $47.5 million from year end level and related primarily to the $3.4 million increase in nonaccrual loans driven by a SBA loan relationship that was placed on nonaccrual and which is substantially covered by a guarantee from the SBA.
"Commercial and industrial" is the largest category of nonaccrual loans, at $12.7 million, or 35.7% of total nonaccrual loans, followed by "Commercial real estate - owner occupied" at $9.0 million, or 25.2% of total nonaccrual loans. Included in those categories are nonaccrual SBA loans totaling $22.7 million at March 31, 2024, or 63.8%, of total nonaccrual loans which have $12.5 million in guarantees from the SBA.
As reflected in Note 4 to the accompanying consolidated financial statements, total classified loans decreased 0.1% to $54.1 million at March 31, 2024 compared to $54.2 million at December 31, 2023. The majority of the decrease was attributable to "Home equity loans/lines of credit", "Construction, development & other land loans", and "Residential 1-4 family real estate" loan categories, partially offset by an increase in commercial and industrial loans. Special mention loans increased 27.7% from $44.1 million at December 31, 2023 to $56.3 million at March 31, 2024. The majority of the increase was attributable to commercial real estate - owner occupied and construction, development & other land loans.
Allowance for Credit Losses, Allowance for Unfunded Commitments, and Loan Loss Experience
The total allowance for credit losses amounted to $110.1 million at March 31, 2024 compared to $109.9 million at December 31, 2023. Fluctuations in the ACL are based on loan mix and growth, changes in the levels of
nonperforming loans, economic forecasts impacting loss drivers, other assumptions and inputs to the CECL model,
and as occurred in 2023, adjustments for acquired loan portfolios. As discussed previously in the "Provision for Credit Losses and Provision for Unfunded Commitments" section, much of the change to the level of ACL during the period ended March 31, 2024 is attributed primarily to slower prepayment assumptions, updated economic forecasts which are a key assumption in the CECL model and which indicated a continued deterioration of the commercial real estate index, thus projecting a higher allowance for credit losses balance, partially offset by reductions in loan balances during the period.
The ACL reflects our estimate of life of loan expected credit losses that will result from the inability of our borrowers to make required loan payments. We use systematic methodologies to determine the ACL for loans and the allowance for certain off-balance-sheet credit exposures. We consider the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The ACL is calculated using collectively evaluated pools for loans with similar risk characteristics applying the discounted cash flow ("DCF") method. When a loan no longer shares similar risk characteristics with its segment, the loan is evaluated on an individual basis applying a DCF or asset approach for collateral-dependent loans.
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For the periods indicated, the following table summarizes our balances of loans outstanding, average loans outstanding, ACL, charge-offs and recoveries, and key ratios:

($ in thousands) |  | Three Months Ended March 31, 2024 |  | Twelve Months Ended December 31, 2023 |  | Three Months Ended March 31, 2023
Loans outstanding at end of period |  | $ | 8,076,506 |  |  | 8,150,102 |  |  | 7,798,963 |
Average amount of loans outstanding |  | 8,103,387 |  |  | 7,902,628 |  |  | 7,728,425 |
Allowance for credit losses, at period end |  | 110,067 |  |  | 109,853 |  |  | 106,396 |
Total charge-offs |  | (2,115) |  |  | (10,175) |  |  | (2,621) |
Total recoveries |  | 529 |  |  | 3,701 |  |  | 989 |
Net charge-offs |  | $ | (1,586) |  |  | (6,474) |  |  | (1,632) |
Ratios: |  |  |  |  |  |
Net charge-offs as a percent of average loans (annualized) |  | 0.08 | % |  | 0.08 | % |  | 0.09 | %
Allowance for credit losses as a percent of loans at end of period |  | 1.36 | % |  | 1.35 | % |  | 1.36 | %
Recoveries of loans previously charged-off as a percent of loans charged-off |  | 25.01 | % |  | 36.37 | % |  | 37.73 | %

While our estimate of the ACL involves a high degree of judgment, we believe the ACL is adequate at each period end presented. Our assessment of the ACL involves uncertainty and judgment and is subject to change in future periods. The amount of any changes could be significant if the assessment of loan quality or collateral values changes substantially with respect to one or more loan relationships or portfolios or if there is a significant change in the reasonable and supportable forecast or assumptions used to model our expected credit losses. 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 ACL or future charges to earnings. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our ACL and the value of our collateral-dependent loans. Such agencies may require us to recognize adjustments to the ACL based on their judgments about information available at the time of their examinations. Refer also to “Critical Accounting Policies – Allowance for Credit Losses on Loans and Allowance for Unfunded Commitments” in Note 1 to the 2023 Annual Report on Form 10-K filed with the SEC for more information.
In addition to the ACL on loans, we maintain an allowance for lending-related commitments such as unfunded loan commitments. We estimate expected credit losses associated with these commitments over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable. The allowance for lending-related commitments on off-balance sheet credit exposures is adjusted as a component of the provision for credit losses expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The allowance for unfunded commitments of $10.8 million and $14.4 million at March 31, 2024 and December 31, 2023, respectively, are classified on the consolidated balance sheets within "Other liabilities." The decline in the level of the allowance between periods was driven by the reduction in available lines of credit during three months ended March 31, 2024.
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 has a high percentage of amortizing mortgage-backed securities generating monthly cash flows. In addition, the portfolio is comprised almost entirely of readily marketable securities, which could also be sold to provide cash. We also maintain available lines of credit from the FHLB and the Federal Reserve, as well as federal funds lines from several correspondent banks which are summarized below.
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At March 31, 2024, the Company had three sources of readily available borrowing capacity:
•A line of credit with the FHLB of approximately $1.4 billion which can be structured as either short-term or long-term borrowings, depending on the particular funding or liquidity need, and is secured by a blanket lien on most of our real estate loan portfolio, select securities from our investment portfolio, and our FHLB stock (of which $0.8 million and $280.9 million were outstanding at March 31, 2024 and December 31, 2023, respectively);
•Federal funds lines with several correspondent banks totaling $265.0 million, which provide for overnight unsecured federal funds purchased (of which none were outstanding at March 31, 2024 or December 31, 2023).
•A $292.6 million line of credit through the Federal Reserve's Bank Term Funding Program ("BTFP") secured by select investment securities (of which $231.0 million and $249.0 million was outstanding at March 31, 2024 and December 31, 2023, respectively). Effective March 11, 2024, the Federal Reserve terminated the BTFP and no additional advances were available; and,
•A line of credit with the Federal Reserve through its discount window borrowing program of approximately $548.1 million which is secured by a blanket lien on a portion of our commercial and consumer loan portfolio (excluding real estate loans) and specific investment securities. All of this line was available at March 31, 2024 and December 31, 2023.
Our overall on-balance sheet liquidity ratio was 15.5% at March 31, 2024. compared to 14.6% at December 31, 2023. We define our liquidity ratio as net liquid assets (cash, unpledged securities and other marketable assets) as a percentage of our net liabilities (unpledged deposits and borrowings). Our total liquidity ratio, including the $2.3 billion in available lines of credit at quarter end, was 31.4% as of March 31, 2024.
The amount and timing of our contractual obligations and commercial commitments have not changed materially since December 31, 2023, the detail of w hich is presented in the "Contractual Obligations and Other Commercial Commitments" table of our 2023 Annual Report on Form 10-K. In addition, we are not involved in any legal proceedings that, in our opinion, could have a material effect on our consolidated financial position.
Off-Balance Sheet Arrangements and Derivative Financial Instruments
Off-balance sheet arrangements include transactions, agreements, or other contractual arrangements pursuant to which we have obligations or provide guarantees on behalf of an unconsolidated entity. We have no off-balance sheet arrangements of this kind other than letters of credit and repayment guarantees associated with our trust preferred securities and subordinated debentures.
In the normal course of business, we are exposed to certain risk arising from both its business operations and economic conditions. As an element of our risk management strategies, we may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Derivative financial instruments include futures, forwards, interest rate swaps, options contracts, and other financial instruments with similar characteristics.
We do not engage in significant derivatives activities, however, in 2023 to accommodate customers, we implemented a program whereby we enter into interest rate swaps with certain commercial loan customers, with offsetting positions to dealers under a back-to-back swap program. At March 31, 2024, the Company's derivative financial instruments consisted entirely of customer back-to-back interest rate swaps which are not designated as hedges. Under this program, the Company executes interest rate swaps with commercial banking customers to facilitate their risk management strategies. Those interest rate swaps are simultaneously economically hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program are not designated as hedging instruments, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. There have been no material changes from the derivative positions discussed in Note 13 of the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
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Capital Resources
The Company is regulated by the Federal Reserve and is subject to the securities registration and public reporting regulations of the SEC. Our Bank is also regulated by the Federal Reserve and the North Carolina Office of the Commissioner of Banks ("NCCOB"). We must comply with regulatory capital requirements established by the Federal Reserve and the NCCOB. 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.
Under Basel III standards and capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
The Federal Reserve's capital standards require us to maintain minimum ratios of “common equity tier 1” capital to total risk-weighted assets, “tier 1” capital to total risk-weighted assets, and total capital to risk-weighted assets of 4.50%, 6.00% and 8.00%, respectively. Common equity tier 1 capital is comprised of common stock and related surplus, plus retained earnings, and is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. Tier 1 capital is comprised of common equity tier 1 capital plus "additional tier 1 capital", which includes non-cumulative perpetual preferred stock and trust preferred securities. Total risk-based capital is comprised of tier 1 capital plus qualifying subordinated debentures, and certain adjustments, the largest of which is our ACL and allowance for unfunded commitments. The Company has elected to exclude AOCI related primarily to available for sale securities from common equity tier 1 capital. Risk-weighted assets refer to our on- and off-balance sheet exposures, adjusted for their related risk levels using formulas set forth in Federal Reserve regulations.
In addition to the risk-based capital requirements described above, we are subject to a leverage capital requirement, which calls for a minimum ratio of Tier 1 capital (as defined above) to quarterly average total assets of 3.00% to 5.00%, depending upon the institution’s composite ratings as determined by its regulators. The Federal Reserve has not advised us of any requirement specifically applicable to us.
At March 31, 2024, our capital ratios exceeded the regulatory minimum ratios discussed above. The capital ratios at March 31, 2024 increased as compared to year end related primarily to retention of earnings increasing capital, combined with loan reductions and shifts in asset mix to lower risk-weighted assets. The following table presents the capital ratios for the Company and the regulatory minimums discussed above for the periods indicated:

|  | March 31, 2024 |  | December 31, 2023
Risk-based capital ratios: |  |  |  |
Common equity Tier 1 to Tier 1 risk weighted assets |  | 13.50 | % |  | 13.20 | %
Minimum required Common Equity Tier 1 capital |  | 7.00 | % |  | 7.00 | %
Tier I capital to Tier 1 risk weighted assets |  | 14.29 | % |  | 13.99 | %
Minimum required Tier 1 capital |  | 8.50 | % |  | 8.50 | %
Total risk-based capital to Tier II risk weighted assets |  | 15.85 | % |  | 15.54 | %
Minimum required total risk-based capital |  | 10.50 | % |  | 10.50 | %
Leverage capital ratio: |  |  |  |
Tier 1 capital to quarterly average total assets |  | 10.99 | % |  | 10.91 | %
Minimum required Tier 1 leverage capital |  | 4.00 | % |  | 4.00 | %

The Bank is also subject to capital requirements that do not vary materially from the Company’s capital ratios presented above. At March 31, 2024, the Bank exceeded the minimum ratios established by the regulatory authorities.
In addition to regulatory capital ratios, we also closely monitor our ratio of tangible common equity ("TCE") to tangible assets, which is a non-GAAP financial measure. The TCE ratio was 7.48% at March 31, 2024 compared to 7.42% at December 31, 2023.
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The following table reconciles common equity to TCE and provides the calculation of the TCE ratio:

($ in thousands) |  | March 31, 2024 |  | December 31, 2023
Reconciliation of Common Equity to TCE |  |  |  |
Total shareholders' common equity |  | $ | 1,376,099 |  |  | 1,372,380 |
Less: Goodwill and other intangibles |  | (509,636) |  |  | (511,608) |
Tangible common equity |  | $ | 866,463 |  |  | 860,772 |
Reconciliation of Total Assets to Tangible Assets |  |  |  |
Total assets |  | $ | 12,091,597 |  |  | 12,114,942 |
Less: Goodwill and other intangibles |  | (509,636) |  |  | (511,608) |
Tangible assets |  | $ | 11,581,961 |  |  | 11,603,334 |
TCE divided by Tangible Assets |  | 7.48 | % |  | 7.42 | %

Stock Repurchase Plans
During the quarter ended March 31, 2024, the Company did not maintain, adopt, modify or terminate a stock repurchase plan operated under the provisions of Rules 10b-18 or Rule 10b5-1(c) of the SEC or otherwise.
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
Market Risk
Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. The Company’s market risk is composed primarily of interest rate risk inherent in the normal course of lending and deposit-taking activities. We are also exposed to market risk in our investing activities. We do not have any trading assets or activities.
Interest Rate Risk
Net interest income is our most significant component of earnings and we consider interest rate risk to be our most significant market risk. Our net interest income results from the difference between the yields we earn on our interest-earning assets, primarily loans and investments, and the rates that we pay on our interest-bearing liabilities, primarily deposits and borrowings. When interest rates change, the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities do not necessarily move in tandem with each other because of the difference between their maturities and repricing characteristics and which can negatively impact net interest income.
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve. Changes in monetary policy, including changes in interest rates, influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect the average duration of our mortgage portfolio, investment securities and other interest-earning assets.
Our goal is to structure our asset/liability composition to maximize net interest income while managing interest rate risk so as to minimize the adverse impact of changes in interest rates on net interest income and capital in either a rising or declining interest rate environment. Profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates will generally impact our earnings adversely because the interest rates of the underlying assets and liabilities do not change at the same speed, to the same extent or on the same basis.
Interest rate risk is monitored through the use of several complementary modeling tools, primarily earnings simulation modeling, and economic value simulation (net present value estimation). These models measure changes in a variety of interest rate scenarios. While interest rate risk models have limitations, taken together they represent a reasonably comprehensive view of the magnitude of our interest rate risk, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships. Earnings simulation and economic value models are utilized by management on a regular basis as they more effectively measure the cash flow and optionality impacts than does a static gap analysis. From the various model results and our expectations regarding future interest rate movements, the national, regional and local economies, and other financial and business risk factors, we quantify the overall magnitude of interest sensitivity risk and then determine appropriate strategies and practices governing asset growth and pricing, funding sources and pricing, and off-balance sheet commitments.
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Earnings Simulation Analysis
We use net interest income simulations which measure the short-term earnings exposure from changes in market rates of interest. The model calculates an earnings estimate based on current and projected balances and rates, incorporating our current financial position with assumptions regarding future business to calculate net interest income under varying hypothetical rate scenarios. This method is subject to the accuracy of the assumptions that underlie the process, but it provides a better analysis of the sensitivity of earnings to changes in interest rates than other analyses, such as the static gap analysis.
Assumptions used in the model are derived from historical trends and management’s outlook. The model assumes a static balance sheet with cash flows reinvested in similar instruments to maintain the balance sheet levels and current composition. Actual cash flows and repricing characteristics for our balance sheet instruments are input to the model. The model incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities. Because these assumptions are inherently uncertain, actual results may differ from simulated results.
Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates in both a "shocked" instantaneous move and a "ramped" move of rates. Interest rates on different asset and liability accounts move differently when the prime rate changes and such assumptions are reflected in the different rate scenarios. The model does not take into account any future actions that management may take to mitigate the impact of interest rate changes, and it is our strategy to proactively change the volume and mix of our balance sheet in order to mitigate our interest rate risk.
There has been no significant change in the Company's estimated net interest income sensitivity position from December 31, 2023. From a net interest income perspective, the Company has been fairly neutral historically with no significant change in the short-term (within a twelve-month period) and within the lower ranges (+ - 100-200 basis points) of interest rate changes. Starting in 2022 and continuing through 2023, the Company's sensitivity position shifted somewhat such that, in the short-term it is projected that net interest income will likely fall in both a rising and falling rate environment. This position is due in part to the changing market characteristics of certain loan and deposit products as well as to the current shape of the yield curve. The Company's current position is now more liability-sensitive which generally implies that net interest income would be expected to rise in a falling rate environment and fall in a rising rate environment. However, the rapid rate increases in 2022 and into 2023 resulted in a steepening of the yield curve on the short end (within one year), while the longer end of the curve has inverted between one and ten years, meaning that the yield on short-term instruments (less than one year) are higher than longer-term instruments (ten years). A flat or inverted interest rate curve is an unfavorable interest rate environment for many financial institutions, including the Bank, as short-term interest rates generally drive our deposit pricing and longer-term interest rates generally drive loan pricing. When these rates converge or invert, the profit spread we realize between loan yields and deposit rates narrows, which pressures our NIM.
With regard to rising rates, with an immediate increase or shock in market rates over the short-term (twelve month horizon), we would expect to realize a decline in net interest income. This is due in part to the composition of our loan portfolio which is comprised of approximately 20% variable rate loans which could immediately reprice, thus limiting the magnitude of the impact of rate increases given that the majority of our portfolio is at fixed rates. In addition, the model includes an assumption of a quick repricing up of the funding base in a rising rate environment, and our recent shift to higher-cost wholesale funding and short-term borrowings in our funding mix has lead to a narrowing of the interest rate spread in the projection. As previously noted, these assumptions are inherently uncertain, and actual results may differ from simulated results. The current indication is that the market rates may begin to stabilize. However, the consensus is that the Federal Reserve will not start to reduce rates until late 2024 or into 2025. We would expect net interest income to decline somewhat in a decreasing interest rate environment, as interest-earning assets reprice to lower rates and interest-bearing deposits repricing may lag given continued market competition for deposits.
Economic Value Simulation
Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Economic values are calculated based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities assuming a liquidation of the current balance sheet. The change in net economic value over different rate environments is an indication of the longer-term earnings capability of the balance sheet. The same assumptions are generally used in the
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economic value simulation as in the earnings simulation, including immediate and parallel rate shocks and static assumptions for deposit average decay rate and average lives.
As of December 31, 2023, the Company’s economic value of equity ("EVE") was generally liability sensitive in both a rising and falling interest rate environment, which continues to be the case. The decline in EVE under a rising rate environment is driven by the composition of the loans and investment portfolios, primarily related to CRE fixed rate loans and fixed rate mortgage-back securities. In a rising rate environment, these portfolios tend to extend due to slower prepayments, thus lowering their relative valuation in the EVE calculation. With regard to the falling rate scenario, the non-maturity deposits, generally with lower betas, continue to be at or near floor rates assumed in the model, thus within the -200 shocked interest rate scenario, essentially all of the non-maturity deposits are at or near their floor thus negatively impacting their value in the EVE calculation while variable rate assets continue to price downward in all falling rate scenarios.
Additional discussion concerning our exposure to interest rate risk is presented in Item 7A of the 2023 Annual Report on Form 10-K filed with the SEC.
Inflation
Our financial statements have been prepared in accordance with GAAP, which requires the financial position and operating results to be measured principally in terms of historic dollars without considering the change in the relative purchasing power of money over time due to inflation.
Nearly all of the Company’s assets and liabilities are monetary in nature, and as such, changes in interest rates (as discussed above) generally affect the financial condition of the Company to a greater degree than changes in the rate of inflation. Although interest rates are influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Inflation affects the Company’s results of operations mainly through increased operating costs, and the impact of inflation on banks in general is normally not as significant as its influence on those businesses that have large investments in plant and inventories. We review pricing of our products and services, as well as our controllable operating and labor costs in light of current and expected costs due to inflation, to mitigate the inflationary impact on financial performance to the extent possible.
Item 4 – Controls and Procedures
As of March 31, 2024, our chief executive officer and chief financial officer have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a–15(e) of the Securities Exchange Act of 1934 ("the Exchange Act"), which are our controls and other procedures that are designed to ensure that information required to be disclosed in our periodic reports with the SEC is recorded, processed, summarized and reported within the required time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is communicated to our management to allow timely decisions regarding required disclosure.
Based on the evaluation, our chief executive officer and chief financial officer concluded that, as of the evaluation date, our disclosure controls and procedures were not effective in allowing timely decisions regarding disclosure to be made about material information required to be included in our periodic reports with the SEC. The conclusion that our disclosure controls and procedures were not effective was due to the presence of material weaknesses in our internal control over financial reporting, as that term is defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act, as previously disclosed in Part II, Item 9A of our 2023 Annual Report ("Item 9A"). In light of the material weakness identified by management, we have performed additional analyses and procedures in order to conclude that our condensed financial statements as of and for the three months ended March 31, 2024 are fairly presented, in all material respects, in accordance with GAAP, as further described below.
Description of Material Weaknesses and Management's Remediation Initiatives
As previously reported in Item 9A, management identified a material weakness in internal control over financial reporting with respect to information technology general controls in the area of user access management within an application supporting the Company’s accounting and reporting processes, which resulted in certain segregation of duties conflicts. As such, certain of the Company’s manual business process controls dependent upon the information derived from this application were also ineffective.
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The Company and its Board of Directors are committed to maintaining a strong internal control environment. As such, the following measures were implemented and in place prior to December 31, 2023:
•Privileged administrative access to the application was removed for finance department personnel.
•Additional control design enhancements were implemented for user access provisioning, modification, and removals from the application to ensure all access changes to the application are subject to formal documentation and approval.
In addition to the actions taken during the fourth quarter of 2023, management continued implementation of the remediation plan to enhance the design of information technology general controls during the quarter ended March 31, 2024. Specifically, management implemented the following additional measures to further ensure its controls and procedures are operating effectively:
•Ongoing monitoring of enhanced user provisioning controls.
•Evaluation of resources of finance department, including the hiring of additional personnel to enhance resources to ensure proper segregation of duties within applications that support financial reporting processes.
While management continues to take steps towards implementing the remediation plan, the material weakness will not be considered fully remediated until the controls have operated effectively, as evidenced through testing, for a sufficient amount of time.
However, after giving full consideration to the material weakness described above, and based on a number of other factors, including the measures implemented prior to March 31, 2024 to remediate the material weakness in internal control over financial reporting, and the performance of procedures by management designed to ensure that information required to be disclosed is communicated to our management to allow timely decisions regarding required disclosure, management has concluded that the consolidated financial statements included in this report on Form 10-Q present fairly, in all material respects, the Company’s financial position, the results of its operations and its cash flows for each of the periods presented in conformity with GAAP and that disclosures to be made about material information required to be included in our periodic reports with the SEC were made timely and properly included in this report on Form 10-Q.
Other than the implementation of additional measures outlined in the remediation plan for the material weakness noted above, there has been no change in our internal control over financial reporting which has occurred during, or subsequent to, the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II. Other Information
Item 1 – Legal Proceedings
Various legal proceedings may arise in the ordinary course of business and may be pending or threatened against the Company and its subsidiaries. Neither the Company nor any of its subsidiaries are involved in any pending legal proceedings that management believes are material to the Company or its consolidated financial position. If an exposure were to be identified, it is the Company’s policy to establish and accrue appropriate reserves during the accounting period in which a loss is deemed to be probable and the amount is determinable.
Item 1A – Risk Factors
Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, 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, 2023.
Item 5 – Other Information
5(c) Trading Arrangements of Section 16 Reporting Persons.
During the quarter ended March 31, 2024, no person who is required to file reports pursuant to Section 16(a) of the Securities and Exchange Act of 1934, as amended, with respect to holdings of, and transactions in, the Company’s common shares (i.e. directors and certain officers of the Company) maintained, adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1(c) arrangement”, as those terms are defined in Section 229.408 of the regulations of the SEC.
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Item 6 - Exhibits
The following exhibits are filed with this report or, as noted, are incorporated by reference. Except as noted below the exhibits identified have Securities and Exchange Commission File No. 000-15572. Management contracts, compensatory plans and arrangements are marked with an asterisk (*).

3.a | Articles of Incorporation of the Company and amendments thereto were filed as Exhibits 3.a.i through 3.a.v to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2002, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as E xhibits 3.1 and 3.2 to the Company’s Current Report on Form 8-K filed on January 13, 2009, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 3.1.b to the Company’s Registration Statement on Form S-3D filed on June 29, 2010 (Commission File No. 333-167856), and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 6, 2011, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 26, 2012, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed June 14, 2022, and are incorporated herein by reference.
3.b | Amended and Restated Bylaws of the Company were filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed on February 9, 2018, and are incorporated herein by reference.
4.a | Form of Common Stock Certificate was filed as Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and is incorporated herein by reference.
31.1 | Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2 | Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1 | Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 | Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 | The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.

Copies of exhibits are available upon written request to: First Bancorp, Elizabeth B. Bostian, Chief Financial Officer, 300 SW Broad Street, Southern Pines, North Carolina, 28387
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| FIRST BANCORP
May 8, 2024 | BY:/s/ Richard H. Moore
| Richard H. Moore Chief Executive Officer (Principal Executive Officer), and Director
May 8, 2024 | BY:/s/ Elizabeth B. Bostian
| Elizabeth B. Bostian Executive Vice President and Chief Financial Officer
May 8, 2024 | BY:/s/ Blaise B. Buczkowski
| Blaise B, Buczkowski Executive Vice President and Chief Accounting Officer

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