FIRST BANCORP NC

Previous wording

The Company is a bank holding company headquartered in Southern Pines, North Carolina. We provide diversified financial services primarily though the Bank, our principal subsidiary, including commercial and consumer banking services, mortgage lending, SBA lending, accounts receivable financing, and investment advisory services. As of December 31, 2023, the Bank had a 118 branch network in North Carolina and South Carolina and 1,421 full-time equivalent employees. We have grown organically as well as through strategic acquisitions as discussed previously in "Recent Developments and Acquisitions".

Current wording

The Company is a bank holding company headquartered in Southern Pines, North Carolina. We provide diversified financial services primarily though the Bank, our principal subsidiary, including commercial and consumer banking services, mortgage lending, SBA lending, accounts receivable financing, and investment advisory services. As of December 31, 2024, the Bank had a 113 branch network in North Carolina and South Carolina and 1,371 full-time equivalent employees. We have grown organically as well as through strategic acquisitions as discussed previously in "Recent Developments and Acquisitions".

Previous wording

•Return on average assets was 0.87% for the year ended December 31, 2023, as compared to 1.39% for the prior year. Return on average common equity of 8.05% was reported for the year ended December 31, 2023 as compared to 13.40% for the prior year.

Current wording

•Return on average assets was 0.63% for the year ended December 31, 2024, as compared to 0.87% for the prior year. Return on average common equity of 5.38% was reported for the year ended December 31, 2024, as compared to 8.05% for the prior year.

Previous wording

•Our total assets at December 31, 2023 were $12.1 billion, a 14.0% increase from a year earlier, with growth driven by the GrandSouth acquisition, combined with organic loan growth during the year.

Current wording

•Our total assets at December 31, 2024 were $12.1 billion, a 0.3% increase from a year earlier.

Previous wording

•Credit quality continues to be strong with the NPA to total assets ratio at 0.37% as of December 31, 2023, as compared to 0.36% at December 31, 2022. Net charge offs as a percentage of average loans were 0.08% for 2023, as compared to 0.01% for the prior year.

Current wording

•Credit quality continued to be strong with the NPA to total assets ratio at 0.39% as of December 31, 2024, as compared to 0.37% at December 31, 2023. Net charge offs as a percentage of average loans were 0.07% for 2024, as compared to 0.08% for the prior year.

Previous wording

•Capital remains strong with a total CET1 ratio of 13.20%, up from 13.02% for the prior year, and total risk-based capital ratio of 15.54% as of December 31, 2023, as compared to 15.09% for the prior year.

Current wording

•Capital remained strong with a total CET1 ratio of 14.35%, up from 13.20% for the prior year, and total risk-based capital ratio of 16.63% as of December 31, 2024, an increase from 15.54% for the prior year.

Previous wording

•We earned net income of $104.1 million, or $2.53 diluted EPS, during 2023 compared to net income of $146.9 million, or $4.12 diluted EPS, in 2022. The main drivers to the decrease in net income were as follows:

Current wording

•We earned net income of $76.2 million, or $1.84 diluted EPS, during 2024 compared to net income of $104.1 million, or $2.53 diluted EPS, in 2023. As noted below, 2024 results were dampened by a $13 million provision related to potential exposures from Hurricane Helene and a $36.8 million securities loss transaction that took place during the fourth quarter of 2024. See the following for discussion of changes to net income:

Previous wording

•Net interest income increased $21.8 million, or 6.7%, driven by higher interest income offset by increased interest expense. The NIM on a tax-equivalent basis was 3.06% for 2023, a decrease of 22 basis points from the prior year. Despite the growth in average earning assets, the market-driven increase in rates on liabilities occurred at a more rapid pace that the increase in yields on assets which resulted in the reduction in NIM for 2023.

Current wording

•Net interest income for 2024 decreased $14.6 million, or 4.2%, driven by increased interest expense offset by higher interest income. The NIM on a tax-equivalent basis was 2.91% for 2024, a decrease of 15 basis points from the prior year. Despite the growth in average earning assets, the market-driven increase in rates on liabilities in the first half of 2024 occurred at a more rapid pace than the increase in yields on assets which resulted in the reduction in NIM for 2024.

Previous wording

•Total interest income increased $147.8 million in 2023 as compared to 2022, driven by higher interest income on loans of $140.6 million related to a combination of higher volumes of average balances and increased yields.

Current wording

•Total interest income increased $30.3 million in 2024 as compared to 2023, driven by higher interest income on loans of $22.3 million related to a combination of higher volumes of average balances and increased yields. Interest income on other interest-earning assets, primarily overnight funds, increased $12.8 million, primarily the result of higher volumes.

Previous wording

•Provision for credit losses for 2023 of $17.8 million was up from $12.4 million in 2022 due primarily to the initial provision established for acquired non-PCD loans of $12.2 million, combined with organic loan growth experienced during the year. Offsetting these increases were updated loss rates and improved economic forecasts used in our CECL model as discussed further in the "Provision for Loan Losses" section below.

Current wording

•Provision for credit losses for 2024 of $16.4 million was down from $17.8 million in 2023 due primarily to the initial provision established for acquired non-PCD loans of $12.2 million in 2023, lower organic loan growth in 2024 and generally positive updated economic forecasts, which are a key driver in the Company's CECL model as discussed further in the "Provision for Loan Losses" section below, and a reduction in the level of unfunded commitments. This was partially offset by the $13 million provision related to potential exposure from Hurricane Helene in 2024.

Previous wording

•Income tax expense was down $10.5 million from the prior year relative to the lower pre-tax income. The effective tax rate of 21.1% was up slightly from the prior year related to nondeductible merger expenses.

Current wording

•Income tax expense was down $5.9 million from the prior year relative to lower pre-tax income. The 2024 effective tax rate of 22.3% was up from the prior year as the result of incremental state tax-related expenses recorded in 2024 relating to prior years.

Previous wording

Since 2022, economic activity has shown continued growth with improving gross domestic product results, low unemployment and increased demand for goods and services. Inflationary pressures continue to a certain degree, however, monetary policy actions taken by the Federal Reserve over the last eighteen months have resulted in a significantly lower inflation rate in 2023 as compared to the prior year. While positive indicators are present, there continues to be some uncertainty in economic conditions, and as such, we could be subject to ongoing risks which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations.

Current wording

Recent economic activity has shown resilience with generally positive domestic results, low unemployment and increased demand for goods and services. While inflationary pressures continue, monetary policy actions taken by the Federal Reserve over the last three years have resulted in a lower inflation rate in 2024. A mix of positive and negative economic indicators remained present at the end of 2024 and there continues to be some uncertainty in economic conditions, and as such, we could be subject to ongoing risks, which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations.

Previous wording

Our financial position and results of operations are susceptible, among other factors, to the ability of our loan customers to meet loan obligations, the availability of our workforce, the availability of our vendors, and the decline in the value of assets held by us or securing our loans. We have not realized significant negative impact on our loan portfolio or asset quality to date as a result of the current economic conditions. However, the economic pressures and uncertainties arising from the recent expansion in economic activity, increased consumer demand and rising interest rates to combat inflation have resulted in, and may continue to result in, specific changes in consumer and business spending and borrowing habits, given the higher interest rate environment, which could make it difficult to grow assets and income.

Current wording

Our financial position and results of operations are susceptible, among other factors, to the ability of our loan customers to meet their loan obligations to us, the availability of our workforce, the availability of our vendors, and the volatility in the value of assets held by us or securing our loans. We have not realized significant negative impact on our loan portfolio or asset quality to date as a result of the current economic conditions. However, the economic pressures and uncertainties, increased consumer demand and recent volatility in both short-term and long-term interest rates have resulted in, and may continue to result in, specific changes in consumer and business spending and borrowing habits, given the current and expected interest rate environment, which could make it difficult to grow assets and income.

Previous wording

The extent to which the current economic conditions have a further impact on our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including actions taken by governmental authorities response to inflationary trends and recessionary risks.

Current wording

The extent to which the current economic conditions have a further impact on our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including actions taken by governmental authorities in response to inflationary trends and recessionary risks.

Previous wording

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 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.

Current wording

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 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. See the "Allowance for Credit Losses, Allowance for Unfunded Commitments, and Loan Loss Experience" discussion in the Financial Condition section of Management's Discussion and Analysis.

Previous wording

Our ACL is assessed at each balance sheet date and adjustments are recorded in the provision for loan 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, 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.

Current wording

Our ACL is assessed at each quarterly balance sheet date and adjustments are recorded in the provision for loan 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, 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.

Previous wording

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 national 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 in any year presented.

Current wording

The most significant variable in the economic forecasts is the national unemployment rate (which has remained relatively stable), and changes in unemployment forecasts can have significant impact to the estimated ACL. Other economic variables include national 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 in any year presented.

Previous wording

Offsetting the higher net interest income related to the increase in average earning assets was the compression of our NIM which, on a tax-equivalent basis, declined to 3.06% in 2023 from 3.28% in 2022. For internal purposes, we evaluate our NIM on a tax-equivalent basis by adding the tax benefit realized from tax-exempt loans and securities to reported interest income, then dividing by total average earning assets. We believe that analysis of NIM on a tax-equivalent basis is useful and appropriate because it allows a comparison of net interest in different periods without taking into account the different mix of taxable versus non-taxable loans and investments that may have existed during those periods. The following 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.

Current wording

In line with the lower net interest income related to the increase in the cost of interest-bearing liabilities was the compression of our NIM which, on a tax-equivalent basis, declined to 2.91% in 2024 from 3.06% in 2023. For internal purposes, we evaluate our NIM on a tax-equivalent basis by adding the tax benefit realized from tax-exempt loans and securities to reported interest income, then dividing by total average earning assets. We believe that analysis of NIM on a tax-equivalent basis is useful and appropriate because it allows a comparison of net interest in different periods without taking into account the different mix of taxable versus non-taxable loans and investments that may have existed during those periods. The following 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.

Previous wording

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

Current wording

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

Previous wording

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. Alternately, levels of accretion will increase as a result of acquisitions and related additions to loan discounts on acquired portfolios which are accreted to income as experienced in 2023 with the GrandSouth acquisition.

Current wording

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 after an acquisition due to the natural reduction in the outstanding balance of acquired loans. Alternately, levels of accretion will increase as a result of acquisitions and related additions to loan discounts on acquired portfolios which are accreted to income as experienced in 2023 with the GrandSouth acquisition.

Previous wording

At December 31, 2023 and 2022, unaccreted loan discount on purchased loans amounted to $24.0 million and $11.6 million, respectively. The GrandSouth acquired portfolio comprises the majority of the remaining unaccreted loan discount at December 31, 2023.

Current wording

At December 31, 2024 and 2023, unaccreted loan discount on purchased loans amounted to $15.1 million and $24.0 million, respectively. The GrandSouth acquired portfolio comprises the majority of the remaining unaccreted loan discount at December 31, 2024.

Previous wording

(1)Average loans include nonaccruing loans, the effect of which is to lower the average rate shown. Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan fee amortization, in the amounts of $0.5 million, $3.1 million, and $9.7 million for 2023, 2022, and 2021, respectively.

Current wording

(1)Average loans include nonaccruing loans, the effect of which is to lower the average rate shown. Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan (cost)/fee amortization, in the amounts of $(1.1) million, $0.5 million, and $3.1 million for 2024, 2023, and 2022, respectively.

Previous wording

(2)Includes accretion of discount on acquired and SBA loans of $13.3 million, $8.5 million, and $8.8 million in 2023, 2022, and 2021, respectively.

Current wording

(2)Includes accretion of discount on acquired loans of $8.9 million, $11.5 million, and $5.6 million in 2024, 2023, and 2022, respectively.

Previous wording

(3)Includes tax-equivalent adjustments of $2.9 million, $2.8 million and $2.2 million in 2023, 2022, and 2021, respectively, to reflect the federal and state tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status. This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense.

Current wording

(3)Includes tax-equivalent adjustments of $3.0 million, $2.7 million and $2.8 million in 2024, 2023, and 2022, respectively, to reflect the federal and state tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status. This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense.

Previous wording

Overall, as demonstrated in the above table, net interest income grew $21.8 million in 2023. Higher earning asset volumes were the primary driver of the increase in net interest income which was offset by increases in rates on interest-bearing liabilities.

Current wording

Overall, as demonstrated in the above table, net interest income contracted $14.6 million in 2024. Higher rates on interest-bearing liabilities were partially offset by higher rates on interest-earning assets and higher earning asset volumes.

Previous wording

•For 2023, higher loan volume was the primary contributor to increased interest income, driving $78.2 million of the increase. Higher market rates contributed to an additional $62.5 million of loan interest income. Variable rate loans comprise approximately 19% of the loan portfolio and, accordingly, the magnitude of the impact we experience from each rate increase is limited.

Current wording

•For 2024, higher market rates contributed to an additional $14.6 million of loan interest income while higher loan volume resulted in a $7.8 million increase in interest income. Variable rate loans comprised approximately 23% of the loan portfolio at December 31, 2024, and, accordingly, the magnitude of the immediate yield impact we experience from each rate change is limited.

Previous wording

•Decreases in the overall volume of average investment securities, somewhat offset by higher yields on the portfolio, resulted in decreased interest income of $1.2 million in 2023.

Current wording

•Decreases in the overall volume of average investment securities, partially offset by higher yields on the portfolio, resulted in decreased interest income of $4.8 million in 2024.

Previous wording

•Although partially offset by lower average balances, higher yields on other interest-earning assets (primarily interest-bearing cash balance) in 2023 resulted in a $8.3 million higher interest income for the year.

Current wording

•Higher volumes on other interest-earning assets (primarily interest-bearing cash balances) along with higher yields resulted in an increase in interest income of $12.8 million for the year.

Previous wording

•The increase of $103.5 million in interest expense on deposits was driven by higher rates on accounts as we repriced deposits during the year in response to the market increases and to retain deposits to meet our funding needs, combined with higher volumes, primarily in money market deposit accounts and other time deposits.

Current wording

•The increase of $57.2 million in interest expense on deposits was driven by higher rates on accounts as we repriced deposits during late 2023 and the start of 2024 in response to the market increases and to retain and grow deposits to meet our funding needs, combined with higher volumes, primarily in money market deposit accounts.

Previous wording

Provision for Loan Losses and Provision for Unfunded Commitments

Current wording

Provision for Credit Losses and Provision for Unfunded Commitments

Previous wording

The provision for loan losses has been determined under ASC 326 since our implementation of CECL. The provision for loan losses represents our current estimate of life of loan credit losses in the loan portfolio and the provision for unfunded commitments represents expected losses on unfunded loan commitments that are expected to result in outstanding loan balances. Our estimate of credit losses under CECL 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, as well as the resulting provision for loan losses and provision for unfunded commitments. The allowance for unfunded commitments is included in "Other liabilities" in the consolidated balance sheets.

Current wording

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 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. The allowance for unfunded commitments is included in "Other liabilities" in the consolidated balance sheets.

Previous wording

The provision for loan losses was $19.8 million in 2023 and $12.6 million in 2022. The amount of provision recorded in each period was the amount required such that the total ACL reflected the appropriate balance as determined under the CECL model. The primary contributor to the higher provision for 2023 was the one-time loan loss provision of $12.2 million recorded to establish an initial ACL for non-PCD loans acquired from GrandSouth in accordance with our CECL model. The increase related to acquired and organic growth during the year was partially offset by updated economic forecasts and loss driver inputs to the CECL model. We subscribe to a third-party service which provides quarterly macroeconomic scenarios for the United States economy. For 2023, we utilized the baseline forecast, which incorporates an equal probability of the United States economy performing better or worse than the projection. The economic forecasts throughout the year have projected general improvement of the economy demonstrated in lower projected unemployment rates, improved GDP, and increasing price indices for both commercial real estate and residential mortgages. These improving economic projections translated to lower forecasted losses in our loan portfolio and, thus a lower estimated ACL, exclusive of portfolio growth.

Current wording

The provision for loan losses was $18.8 million in 2024 and $19.8 million in 2023. The amount of provision recorded in each period was the amount required such that the total ACL reflected the appropriate balance as determined under the CECL model. The primary contributor to the lower provision in 2024 was the initial provision established for acquired non-PCD loans of $12.2 million recorded in 2023 as a result of the acquisition of GrandSouth. The provision for loan losses for 2024 included $13 million related to potential credit exposure from Hurricane Helene. We subscribe to a third-party service which provides quarterly macroeconomic scenarios for the United States economy. For 2024, we continue to utilize the baseline forecast, which incorporates an equal probability of the United States economy performing better or worse than the projection. The economic forecasts throughout the year have exhibited general stability of the economy demonstrated in relatively low unemployment rates, solid GDP, relatively stable consumer and producer price indices, and mixed results for real estate price indices for commercial and residential properties. These improving economic projections translated to lower forecasted losses in our loan portfolio and, thus a lower estimated ACL, exclusive of portfolio growth and the reserves related to Hurricane Helene.

Previous wording

Also under the CECL method, in 2023 we recorded a reduction in the provision for unfunded commitments of $1.9 million compared to $0.2 million for 2022. Changes in the level of provision each year are generally related to fluctuations in the level of available credit lines and updated loss drivers.

Current wording

Also under the CECL method, in 2024 we recorded a reduction in the provision for unfunded commitments of $2.3 million compared to a reduction of $1.9 million for 2023. Changes in the level of provision each year are generally related to fluctuations in the level of available credit lines and updated loss drivers.

Previous wording

Other service charges and fees - bankcard interchange income,net represents interchange income from debit and credit card transactions, net of associated interchange expense and amounted to $9.3 million in 2023, a 37.9% decrease from the $15.0 million in 2022. The decrease of $5.7 million was a direct result of the Durbin Amendment limitation on debit card interchange fees becoming applicable to the Company beginning in July 2022. The reduction in interchange rates was partially offset by higher volumes of accounts and transactions.

Current wording

Other service charges and fees - bankcard interchange income, net represents interchange income from debit and credit card transactions, net of associated interchange expense and amounted to $9.3 million in 2024, a 0.1% decrease from the $9.3 million in 2023.

Previous wording

Other service charges and fees - other includes items such as ATM charges, wire transfer fees, safety deposit box rentals, fees from sales of personalized checks, and check cashing fees. Also included in this category are SBA guarantee servicing fees and related servicing rights amortization which fluctuate based on the volume of and prepayment speeds on SBA loans serviced which have slowed down in the current year. The increase in this item in 2023 of $1.7 million, or 14.6%, was due in part to the higher number of accounts and volume of transactions, combined with lower servicing right amortization expense given the current high interest rate environment.

Current wording

Other service charges - other includes items such as ATM charges, wire transfer fees, safety deposit box rentals, fees from sales of personalized checks, and check cashing fees. Also included in this category are SBA guarantee servicing fees and related servicing rights amortization which fluctuate based on the volume of and prepayment speeds on SBA loans serviced for others. The increase in this item in 2024 was of $0.2 million, or 1.5%.

Previous wording

Other gains, net amounted to a net gain of $2.7 million for 2023. For 2022, the balance consisted primarily of death benefits realized on BOLI policies which were nominal in 2023.

Current wording

Other gains, net amounted to a net gain of $1.0 million for 2024. For 2022, the balance consisted primarily of death benefits realized on BOLI policies which were nominal in 2023 and 2024. The decline from 2023 to 2024 was primarily driven by SBA consulting fees, which declined from $2.6 million in 2022 to $0.3 million in 2024 as the Company ceased offering these services in early 2024.

Previous wording

Total noninterest expenses totaled $254.4 million, $195.2 million, and $184.7 million, for 2023, 2022, and 2021, respectively. Management evaluates noninterest expense on a non-GAAP basis that excludes items such as merger and acquisition expense, amortization of intangible assets, and foreclosed property (gain) losses, because we believe excluding those items results in a more meaningful reflection of noninterest expense from regular operations. We refer to this as "adjusted noninterest expense." The following table presents the primary components of noninterest expense and a reconciliation of reported noninterest expense to adjusted noninterest expense.

Current wording

The following table presents the primary components of noninterest expense.

Previous wording

We recorded income tax expense of $27.8 million in 2023, $38.3 million in 2022, and $24.7 million in 2021. Our effective tax rates were at 21.1% for 2023, 20.7% for 2022, and 20.5% for 2021. The slight increase in effective tax rate for 2023 was attributable primarily to merger and acquisition expenses recorded resulting in non-deductible adjustments for tax purposes.

Current wording

We recorded income tax expense of $21.9 million in 2024, $27.8 million in 2023, and $38.3 million in 2022. Our effective tax rates were at 22.3% for 2024, 21.1% for 2023, and 20.7% for 2022. The slight increase in effective tax rate for 2023 was attributable primarily to merger and acquisition expenses recorded resulting in non-deductible adjustments for tax purposes. The higher effective tax rate for 2024 was attributable primarily to incremental state tax-related expense related to prior years, changes in state tax income apportionment, and the negative impact of decreasing deferred tax assets related to the North Carolina corporate income tax reduction effective January 1, 2025 and for future years.

Previous wording

The following table provides a summary of the loan portfolio composition at each of the past five year ends.

Current wording

Total loans amounted to $8.1 billion at December 31, 2024, a decrease of $55.4 million, or 0.7%, from December 31, 2023. The following table provides a summary of the loan portfolio composition at each of the past five year ends.

Previous wording

The largest component of our portfolio is non-owner occupied commercial real estate loans, followed by residential 1-4 family real estate and owner occupied commercial real estate loans. As demonstrated in the table above, while there has been some variations in the relative percentage of each loan category to the total portfolio over the years, the nature of our portfolio has not changed drastically from the prior year or the historical averages. The higher percentage for commercial and industrial loan category in 2020 was an anomaly related to Paycheck Protection Program ("PPP") loans made under the provisions of the CARES Act, which were forgiven in accordance with the PPP loan provisions starting in late 2020 and through early 2022. The percentage of residential real estate loans has declined somewhat over the last several years as consumers refinanced their home loans during the lower interest rate environment from 2020 through early 2022 and the Bank was able to sell more of these loans in the secondary market. With the increase in interest rates starting in 2022, the refinance activity slowed and the Bank retained more loans in this category on the balance sheet.

Current wording

The largest component of our portfolio is non-owner occupied commercial real estate loans, followed by residential 1-4 family real estate and owner occupied commercial real estate loans. As demonstrated in the table above, while there have been some variations in the relative percentage of each loan category to the total portfolio over the years, the nature of our portfolio has not changed drastically from the prior year or the historical averages. The higher percentage for commercial and industrial loan category in 2020 was an anomaly related to PPP loans made under the provisions of the CARES Act, which were forgiven in accordance with the PPP loan provisions starting in late 2020 and through early 2022.

Previous wording

Approximately 11% of our accruing loans outstanding at December 31, 2023 mature within one year and 53% of total loans mature within five years. As of December 31, 2023, the percentages of variable rate loans and fixed rate loans as compared to total performing loans were 19% and 81%, respectively. In recent years, the mix of variable rate loans to fixed rate loans has been shifting to more fixed rate loans given the low interest rate environment prior to mid-2022 and borrowers' preference to lock in low rates. While fixed rate loans present risk to our Company, in particular in rising interest rate environment as we have experienced starting in 2022 and into 2023, we measure our interest rate risk closely. Refer to additional discussion in the section “Interest Rate Risk” below.

Current wording

Approximately 12% of our accruing loans outstanding at December 31, 2024 mature within one year and 59% of total loans mature within five years. As of December 31, 2024, the percentages of variable rate loans and fixed rate loans as compared to total performing loans were 23% and 77%, respectively. During 2024, the Company continued to focus on shifting more loans to variable rates as the mix was 19% variable and 81% fixed at December 31, 2023. While fixed rate loans present market interest rate risk, we measure our interest rate risk closely. Refer to additional discussion in the section “Interest Rate Risk” below.