FIRST BANCORP /NC/

Previous wording

Highlights of the results for the third quarter and year-to-date period of 2025 are presented below. Refer also to additional discussion in the "Results of Operations" and "Financial Condition" sections following.

Current wording

Highlights of the results for the first quarter of 2026 are presented below. Refer also to additional discussion in the "Results of Operations" and "Financial Condition" sections following.

Previous wording

We earned net income of $20.4 million, or $0.49 diluted EPS, during the third quarter of 2025 compared to net income of $18.7 million, or $0.45 diluted EPS, for the third quarter of 2024. The $19.4 million increase in net interest income in the third quarter of 2025 from the like quarter was driven primarily by a higher yield on interest earning assets and a lower cost of funds, both of which were driven by the overall interest rate environment throughout the past year. Adjusting for the impact of the $27.9 million loss related to a securities loss-earnback transaction, our adjusted net income, which is a non-GAAP financial measure, was $41.8 million, or $1.01 per diluted share, for the third quarter of 2025. The results for the third quarter of 2025 also include a $4.0 million reduction to the potential impacts to the allowance for credit losses from Hurricane Helene ($3.1 million after-taxes or $0.07 per diluted share).

Current wording

We earned net income of $46.7 million, or $1.13 diluted EPS, during the first quarter of 2026 compared to net income of $36.4 million, or $0.88 diluted EPS, for the first quarter of 2025. Our increased earnings was driven by a $14.3 million increase in net interest income in the first quarter of 2026 from the like quarter, resulting primarily by a combination of higher yield on interest earning assets and a lower cost of funds, both of which were driven by the overall interest rate environment throughout the past year.

Previous wording

•Net interest margin ("NIM") increased 58 basis points to 3.46% in the third quarter of 2025 from 2.88% in the third quarter of 2024 as a result of the higher yields on loans and securities and lower cost of funds.

Current wording

•Net interest margin ("NIM") increased 42 basis points to 3.67% in the first quarter of 2026 from 3.25% in the first quarter of 2025 as a result of the higher average balance of loans, yields on securities and lower cost of funds, notably money market deposits.

Previous wording

•We remained well-capitalized by all regulatory standards. Risk-based capital ratios contracted during the quarter with a total common equity Tier 1 ratio of 14.35%, Tier 1 risk-based capital ratio of 15.14% and total risk-based capital ratio of 16.58% at September 30, 2025, all down slightly from September 30, 2024. The decreases during the quarter were driven by loan growth, which carries a higher risk weight than short term investments.

Current wording

•We remained well-capitalized by all regulatory standards. Risk-based capital ratios contracted slightly during the quarter with a total common equity Tier 1 ratio of 14.13%, Tier 1 risk-based capital ratio of 14.87% and total risk-based capital ratio of 16.12% at March 31, 2026, all down from March 31, 2025.

Previous wording

•The provision for credit losses for the third quarter of 2025 was $3.4 million, driven by loan growth and $3.0 million of net charge-offs, partially offset by a $4.0 million reduction in the incremental allowance for credit losses related to potential exposure from Hurricane Helene.

Current wording

•The provision for credit losses for the first quarter of 2026 was $3.1 million, driven by loan growth and $1.4 million of net charge-offs.

Previous wording

•Noninterest expense of $60.2 million increased $0.4 million, or 0.6%, for the quarter ended September 30, 2025 from the prior year. The increase is attributable to a $0.4 million increase in personnel costs resulting from increased incentives and commissions driven by improved performance.

Current wording

•Noninterest expense of $60.2 million increased $2.3 million, or 4.0%, for the quarter ended March 31, 2026 from the prior year. The increase is attributable to a $1.7 million increase in Total personnel expenses and a $0.8 million increase in Other operating expenses.

Previous wording

Total assets were $12.8 billion at September 30, 2025, a 5.0% increase from December 31, 2024. The increase was driven primarily by deposit growth generating investable funds that were deployed in interest-bearing cash, securities and loan balances. The primary balance sheet changes are presented below.

Current wording

Total assets were $12.9 billion at March 31, 2026, a 2.2% increase from December 31, 2025. The increase was driven primarily by deposit growth generating investable funds that were deployed in interest-bearing cash and loan balances. The primary balance sheet changes are presented below.

Previous wording

•Total cash and cash equivalents amounted to $598.0 million at September 30, 2025, representing a $90.5 million, or 17.8%, increase from December 31, 2024. Noninterest-bearing cash comprised $59.8 million of this increase.

Current wording

•Total cash and cash equivalents amounted to $598.0 million at March 31, 2026, representing a $288.4 million increase from December 31, 2025. Interest-bearing cash increased $300.0 million and was partially offset by an $11.6 million decrease in noninterest-bearing cash.

Previous wording

•Total loans amounted to $8.4 billion at September 30, 2025, reflecting an increase of $324.5 million, or 4.0%, from December 31, 2024.

Current wording

•Total loans amounted to $8.8 billion at March 31, 2026, reflecting an increase of $71.4 million, or 0.8%, from December 31, 2025.

Previous wording

•Total deposits were $10.9 billion at September 30, 2025, an increase of $350.6 million, or 3.33%, from December 31, 2024. Deposit growth during the period was split between noninterest-bearing deposits, which saw an increase of $212.9 million, and interest-bearing deposits, which increased $137.7 million.

Current wording

•Total deposits were $11.0 billion at March 31, 2026, an increase of $264.1 million, or 2.46%, from December 31, 2025. Deposit growth during the period was split between noninterest-bearing deposits, which increased $109.6 million, and interest-bearing deposits, which increased $154.4 million.

Previous wording

•Credit quality continued to be strong at September 30, 2025, with NPAs of 0.31% of total assets as of September 30, 2025, up 1 basis point from 0.30% at December 31, 2024.

Current wording

•Credit quality continued to be strong at March 31, 2026, with NPAs of 0.32% of total assets as of March 31, 2026, up 2 basis points from 0.30% at December 31, 2025.

Previous wording

•Our on-balance sheet liquidity ratio was 18.2% at September 30, 2025. Available off-balance sheet sources totaled $2.5 billion at quarter end, resulting in a total liquidity ratio of 35.3%.

Current wording

•Our on-balance sheet liquidity ratio was 16.7% at March 31, 2026. Available off-balance sheet sources totaled $2.5 billion at quarter end, resulting in a total liquidity ratio of 34.0%.

Previous wording

Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (primarily loans and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (primarily 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.

Current wording

Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (primarily loans and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (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.

Previous wording

Net interest income for the third quarter of 2025 amounted to $102.5 million, an increase of $19.4 million, or 23.4%, from the $83.0 million recorded in the third quarter of 2024. The increase was primarily driven by higher yields on interest-earning assets and lower cost of funds.

Current wording

Net interest income for the first quarter of 2026 amounted to $107.1 million, an increase of $14.3 million, or 15.4%, from the $92.8 million recorded in the first quarter of 2025. The increase was primarily driven by higher yields on interest-earning assets and lower cost of funds.

Previous wording

For the third quarter of 2025, average interest-earning assets increased $304.8 million, or 2.7%, from the comparable period of the prior year, with average loans and taxable securities growing $277.9 million and $143.8 million, respectively while average short term investments contracted by $112.7 million.

Current wording

For the first quarter of 2026, average interest-earning assets increased $256.3 million, or 2.2%, from the comparable period of the prior year, with average loans growing $674.3 million, while average securities and short term investments declined by $191.1 million and $226.9 million respectively.

Previous wording

The cost of interest bearing deposits decreased 41 basis points from the third quarter of 2024 to the third quarter of 2025, with the biggest decrease coming from the cost of Money market deposits, which declined $3.2 million and the cost of Other time deposits, which declined $1.7 million.

Current wording

The cost of interest bearing deposits decreased 25 basis points from the first quarter of 2025, with the biggest decrease coming from the cost of Money market deposits, which decreased 38 basis points and the cost of Time deposits > $250,000, which decreased 29 basis points.

Previous wording

These changes resulted in the 58 basis point improvement in our NIM (see discussion below) from the like quarter to 3.46% for the third quarter of 2025.

Current wording

These changes resulted in the 42 basis point improvement in our NIM (see discussion below) from the like quarter to 3.67% for the first quarter of 2026.

Previous wording

The following table presents an analysis of net interest income for the third quarter of 2025 and 2024:

Current wording

The following table presents an analysis of net interest income for the first quarter of 2026 and 2025:

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 net deferred loan (cost)/fee amortization in the amounts of $(0.3) million, and $(0.4) million for three months ended September 30, 2025 and 2024, respectively.

Current wording

(1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown.

Previous wording

(2) Includes accretion of discount on acquired loans of $1.6 million and $2.0 million for three months ended September 30, 2025 and 2024, respectively.

Current wording

(2) Includes accretion of discount on acquired loans of $1.1 million and $1.8 million for three months ended March 31, 2026 and 2025, respectively.

Previous wording

Overall, as demonstrated in the table above, the growth in earning assets, the yield on those assets and a decrease in the cost of liabilities drove the expansion in NIM and net interest income.

Current wording

Overall, as demonstrated in the table above, the growth in earning assets, a shift in the mix of those earning assets from lower-yielding assets to higher-yielding assets, increased yield on assets and a decrease in the cost of liabilities drove the expansion in NIM and net interest income.

Previous wording

•Net interest income for the third quarter of 2025 was $102.5 million, an increase of $19.4 million from the like quarter. The increase in net interest income was primarily driven by our focused efforts to increase interest-earning assets and to manage deposit costs after the rate cuts by the Federal Reserve between September and December of 2024, which saw the federal funds rate fall 100 basis points and an additional rate cut of 25 basis points in September 2025. We also focused on increasing loan yields as new originations were at higher rates than older loans. Further, securities yields increased as a result of the loss-earnback transactions in the fourth quarter of 2024 and the third quarter of 2025 along with continued paydowns and payoffs on lower-yielding bonds.

Current wording

•Net interest income for the first quarter of 2026 was $107.1 million, an increase of $14.3 million from the like quarter. The increase in net interest income was primarily driven by our focused efforts to increase interest-earning assets, to improve the mix of earning assets and to manage deposit costs after the rate cuts by the Federal Reserve between September and December of 2024, which saw the federal funds rate fall 50 basis points and additional rate cuts totaling 75 basis points in the second half of 2025. We also focused on increasing loan yields as new originations were at higher rates than older loans. Further, securities yields increased as a result of the loss-earnback transactions in the third and fourth quarters of 2025 along with continued paydowns and payoffs on lower-yielding bonds.

Previous wording

•The Company’s NIM for the third quarter of 2025 was 3.46%, an increase of 58 basis points from the like quarter. Within interest-earning assets, the securities loss-earnback transactions during the fourth quarter of 2024 and the third quarter of 2025 resulted in an increase of 84 basis points on the yield on total securities as compared to the like quarter. In addition, loan yields increased 18 basis points to 5.69%. Following the rate cuts by the Federal Reserve in late 2024 and third quarter of 2025, the rate on interest-bearing deposits fell 41 basis points from the like quarter to the third quarter of 2025.

Current wording

•The Company’s NIM for the first quarter of 2026 was 3.67%, an increase of 42 basis points from the like quarter. Within interest-earning assets, the 2025 securities loss-earnback transactions referenced above resulted in an increase of 46 basis points on the yield on total securities as compared to the like quarter. In addition, loan yields increased 6 basis points to 5.58%. Following the rate cuts by the Federal Reserve in late 2024 and the second half of 2025, the rate on interest-bearing deposits fell 25 basis points from the like quarter.

Previous wording

•Average loan volumes for the three months ended September 30, 2025 were $277.9 million higher than the same period in 2024. In addition, interest rates on loans increased 18 basis points to 5.69% for the third quarter of 2025, resulting in an increase in interest income on loans of $7.7 million.

Current wording

•Average interest-bearing assets increased $256.3 million for the three months ended March 31, 2026, including a shift in interest-bearing assets from lower-yielding assets to higher-yielding assets. Average loans for the three months ended March 31, 2026 were $674.3 million higher than the same period in 2025. In addition, interest rates on loans increased 6 basis points to 5.58% for the first quarter of 2026, collectively resulting in an increase of $10.3 million in interest income on loans.

Previous wording

•Due to the impact of the aforementioned Federal Reserve rate cuts in 2024 and 2025 and the resulting decreased market rates partially offset by higher average balances, deposit interest expense for the three months ended September 30, 2025 decreased $6.4 million compared to the same period in 2024. Average interest-bearing deposit balances increased $159.0 million while rates on those deposits decreased 41 basis points as compared to the like quarter. Average money market deposits increased $336.8 million while the rate on those deposits fell 53 basis points, accounting for $3.2 million of the decrease in interest expense. Average Other time deposits contracted $108.6 million while the rate on those deposits fell 68 basis points, resulting in a $1.7 million decrease in interest expense on these deposits.

Current wording

•Due to the impact of the aforementioned Federal Reserve rate cuts in 2024 and 2025 and the resulting decreased market rates partially offset by higher average balances, deposit interest expense for the three months ended March 31, 2026 decreased $4.1 million compared to the same period in 2025. Average interest-bearing deposit balances increased $87.3 million while rates on those deposits decreased 25 basis points as compared to the like quarter. The deposit changes were driven primarily by money market deposits as the average balance increased $228.8 million while the rate on those deposits fell 38 basis points, together accounting for $2.7 million of the decrease in interest expense.

Previous wording

For internal purposes, we also evaluate our NIM on a tax equivalent basis ("NIM-T/E"), which is a non-GAAP financial measure, 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-T/E 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 to NIM-T/E.

Current wording

For internal purposes, we also evaluate our NIM on a tax equivalent basis ("NIM-T/E"), which is a non-GAAP financial measure, calculated 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-T/E 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 to NIM-T/E.

Previous wording

At September 30, 2025 and 2024, unaccreted loan discounts on purchased loans amounted to $10.1 million and $17.3 million, respectively. The portfolio acquired with the GrandSouth Bancorporation acquisition on January 1, 2023 comprised the majority of the remaining unaccreted loan discount.

Current wording

At March 31, 2026 and 2025, unaccreted loan discounts on purchased loans amounted to $7.7 million and $13.3 million, respectively. The portfolio acquired with the GrandSouth Bancorporation acquisition on January 1, 2023 comprised the majority of the remaining unaccreted loan discount.

Previous wording

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 for which the guaranteed portion was sold in the secondary market. The level of SBA loan discount accretion will fluctuate relative to the SBA loan portfolio balances. At September 30, 2025 and 2024, the unaccreted loan discounts on SBA loans amounted to $2.3 million and $3.3 million, respectively.

Current wording

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 for which the guaranteed portion was sold in the secondary market. The level of SBA loan discount accretion will fluctuate relative to the SBA loan portfolio balances. At March 31, 2026 and 2025, the unaccreted loan discounts on SBA loans amounted to $2.1 million and $2.5 million, respectively.

Previous wording

Total noninterest income for the three months ended September 30, 2025 was negative $12.9 million, reflecting the inclusion of the $27.9 million loss on securities. Excluding the loss on securities, noninterest income totaled $15.0 million during the third quarter of 2025, a 10.7% increase from the $13.6 million recorded for the three months ended September 2024. As compared to the third quarter of 2024, Other service charges - other increased $0.9 million and Other Income increased $0.8 million.

Current wording

Total noninterest income for the three months ended March 31, 2026 was $15.2 million, a 17.2% increase from the $13.0 million recorded for the three months ended March 31, 2025. As compared to the first quarter of 2025, SBA loan sale gains increased $0.9 million and Other Income, net increased $0.7 million.

Previous wording

We recorded income tax expense of $5.6 million and $3.9 million for the three months ended September 30, 2025 and 2024, respectively. Our effective tax rate was 21.6% and 17.2% for the three months ended September 30, 2025 and 2024, respectively. For the nine months ended September 30, 2025 and 2024, we recorded tax expense of $27.2 million and $18.6 million, resulting in effective tax rates of 22.2% and 20.4%, respectively.

Current wording

We recorded income tax expense of $12.3 million and $10.4 million for the three months ended March 31, 2026 and 2025, respectively, resulting in effective tax rates of 20.9% and 22.2%.

Previous wording

Total assets at September 30, 2025 amounted to $12.8 billion, a $602.6 million, or 5.0%, increase from December 31, 2024 and was primarily related to higher loans, AFS securities and interest-bearing cash.

Current wording

Total assets at March 31, 2026 amounted to $12.9 billion, a $279.4 million, or 2.2%, increase from December 31, 2025 and was primarily related to higher interest-bearing cash and loans, partially offset by a contraction in the balance of AFS securities.

Previous wording

Total loans at September 30, 2025 were $8.4 billion, an increase of $324.5 million, or 4.0%, from December 31, 2024. The mix of our loan portfolio remained substantially the same at September 30, 2025 as compared to December 31, 2024. Note 3 to the consolidated financial statements presents additional detail regarding our mix of loans. At September 30, 2025, 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 6.2% of the total portfolio at September 30, 2025, with the largest loan being $33.0 million and the average outstanding loan balance being $1.4 million. Non-owner occupied office loans were generally in non-metro markets and the 10 largest loans in this category represented less than 2% of the total loan portfolio at September 30, 2025.

Current wording

exposure to non-owner occupied commercial office loans represented approximately 6.5% of the total portfolio at March 31, 2026, with the largest loan being $33.0 million and the average outstanding loan balance being $1.4 million. Non-owner occupied office loans were 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, 2026.

Previous wording

The unrealized loss on AFS securities totaled $251.8 million at September 30, 2025. Refer to Note 2 to the consolidated financial statements for additional detailed information regarding our mix of investments and the unrealized losses for each category. We evaluated the unrealized losses on individual securities at September 30, 2025 and determined them to be of a temporary nature due primarily to interest rate factors and not credit quality

Current wording

The unrealized loss on AFS securities totaled $197.7 million at March 31, 2026. Refer to Note 2 to the consolidated financial statements for additional detailed information regarding our mix of investments and the unrealized losses for each category. We evaluated the unrealized losses on individual securities at March 31, 2026 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.

Previous wording

As of September 30, 2025, the estimated insured deposits totaled $6.5 billion, or 59.7% of total deposits, while approximately $4.4 billion of the Company's total deposits were uninsured. In addition to insured deposits, there were deposits with a balance totaling $682.7 million at September 30, 2025 which were collateralized by investment securities such that approximately 66.0% of our total deposits were insured or collateralized at that date.

Current wording

As of March 31, 2026, the estimated insured deposits totaled $6.5 billion, or 59.0% of total deposits, while approximately $4.5 billion of the Company's total deposits were uninsured. In addition, deposits totaling $723.8 million at March 31, 2026 were collateralized by investment securities such that approximately 65.6% of our total deposits were insured or collateralized at that date.

Previous wording

As shown in the table above, total NPAs at September 30, 2025 increased to $39.0 million from year end and related primarily to the $5.5 million increase in Nonaccrual loans, partially offset by the $3.2 million decrease in Foreclosed real estate.

Current wording

As shown in the table above, total NPAs at March 31, 2026 were $41.8 million, with the increase from year end primarily arising from the $4.7 million increase in Nonaccrual loans, partially offset by the $0.7 million decrease in Foreclosed real estate.

Previous wording

Commercial real estate - owner occupied is the largest category of nonaccrual loans, at $12.7 million, or 34.0%, followed by Commercial and industrial at $10.0 million, or 26.9%. Included in various loan categories are nonaccrual SBA loans totaling $16.0 million at September 30, 2025, or 42.8% of total nonaccrual loans, and which have $7.3 million in guarantees from the SBA.

Current wording

Commercial real estate - owner occupied is the largest category of nonaccrual loans, at $13.6 million, or 33.1%, followed by Residential 1-4 family real estate at $9.7 million, or 23.6%, and Commercial and industrial at $8.9 million, or 21.7%. Included in various loan categories are nonaccrual SBA loans totaling $15.4 million at March 31, 2026, or 37.6% of total nonaccrual loans, and which include $8.1 million in guarantees from the SBA.

Previous wording

resulted primarily from improvements in Commercial real estate - non owner occupied loans of $8.8 million, partially offset by increases in Commercial real estate - owner occupied loans of $1.6 million and Residential 1-4 family real estate of $1.1 million. Special mention loans decreased 31.10% to $25.6 million at September 30, 2025 compared to $37.1 million at December 31, 2024. The majority of the decrease was attributable to Commercial real estate - non owner occupied loans, which decreased $5.6 million, Commercial real estate - owner occupied loans, which decreased $3.4 million and Commercial and Industrial loans, which decreased $1.4 million.

Current wording

As reflected in Note 3 to the accompanying consolidated financial statements, total classified loans increased 12.7% to $66.0 million at March 31, 2026 compared to $58.5 million at December 31, 2025. The increase resulted primarily from increases in Commercial real estate - non owner occupied loans of $3.6 million, Residential 1-4 family real estate of $1.7 million and Commercial real estate - owner occupied loans of $1.2 million. Special mention loans decreased 3.64% to $28.3 million at March 31, 2026 compared to $29.3 million at December 31, 2025. The majority of the decrease was attributable to a decrease in Construction, development & other land loans of $4.2 million, partially offset by an increase in Commercial real estate - owner occupied loans of $3.3 million.

Previous wording

The total allowance for credit losses amounted to $120.9 million at September 30, 2025 compared to $122.6 million at December 31, 2024. Fluctuations in the ACL are based on loan mix and growth, changes in the levels of nonperforming loans, economic forecasts impacting loss drivers, and other assumptions and inputs to the CECL model. 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 September 30, 2025 was primarily related to the releases of $4.0 million and $9.5 million of the credit reserves arising from Hurricane Helene during the three and nine months ended September 30, 2025, respectively. The ACL as a percent of loans at September 30, 2025 was 1.44%, 5 basis points of which was attributable to the potential impact from Hurricane Helene.

Current wording

The total allowance for credit losses amounted to $124.7 million at March 31, 2026 compared to $123.6 million at December 31, 2025. The overall ACL as a percent of total loans was 1.42% at both period ends. Fluctuations in the ACL are based on loan mix and growth, changes in the levels of nonperforming loans, economic forecasts impacting loss drivers, and other assumptions and inputs to the CECL model.

Previous wording

Given that the recovery from the storm is ongoing in many impacted communities, the Company continues to evaluate possible impacts from the storm on borrowers and has reserved accordingly based upon the information available as of September 30, 2025. The Company applied increased reserve rates based upon severe economic factors to the approximately $674 million of loans in the most impacted path of Hurricane Helene. Additionally, the Company evaluated the largest commercial loans in that area and applied incremental reserves to those loans that were suspected of having higher potential property damage or economic impact from the storm. Due to the potential exposure from Hurricane Helene, the ACL on these impacted loans was $3.5 million as of September 30, 2025, adding 5 basis points to the overall ACL as a percent of total loans.

Current wording

In the portions of Western North and South Carolina that were significantly impacted by Hurricane Helene in third quarter of 2024, the Company identified borrowers who were potentially impacted. The Company continues to evaluate the commercial loan portfolio and adjusted risk ratings and nonaccrual status as applicable. Therefore, for those relationships, for March 31, 2026, the normal reserving process was applied. For the potentially impacted consumer loans, the Company applied increased reserve rates based upon severe economic factors to the approximately $258 million of loans (primarily Residential 1-4 family real estate) in the most impacted path of Hurricane Helene. This compares to consumer and commercial loans totaling $268 million at December 31, 2025. Due to the potential exposure from Hurricane Helene, the ACL on these impacted consumer loans was $1.9 million as of March 31, 2026 and December 31, 2025, adding 2 basis points to the overall ACL as a percent of total loans at both period ends.

Previous wording

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.

Current wording

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.