FIRST BANCORP /NC/ (FBNC)

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

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.

Overview and Highlights for the Three Months Ended March 31, 2026

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.

•Net interest income for the first quarter of 2026 was $107.1 million, a 15.4% increase from the $92.8 million recorded in the first quarter of 2025. There was a shift in the mix of interest-earning assets between periods, with average loans growing $674.3 million, while average taxable securities contracted $186.9 million and short-term investments contracted $226.9 million.

•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.

•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.

•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.

•Noninterest income for the quarter ended March 31, 2026 totaled $15.2 million, reflecting an increase from the $13.0 million for the comparable prior year period, primarily from a $0.9 million increase in SBA loan sale gains and a $0.7 million increase in Other income.

•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.

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.

•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.

•AFS securities increased $69.0 million, or 3.4%, during the three months ended March 31, 2026.

•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.

•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.

•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.

•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%.

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Index

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 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.

There have been no material changes to the Company's significant accounting policies as discussed in Note 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2025.

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 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.

Net Interest Income for the Three Months Ended March 31, 2026

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.

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.

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.

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.

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

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

(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.

(3)   Includes tax-equivalent adjustments to reflect the tax benefit that we receive related to tax-exempt securities and loans as reduced by the related nondeductible portion of interest expense.

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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.

•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 ha

[Excerpt truncated for page length; source filing is linked above.]

Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition

This MD&A is intended to assist readers in understanding our results of operations and changes in financial position for the past three years. It should be read in conjunction with the consolidated financial statements and accompanying notes included in Item 8 of this Report. This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in forward-looking statements as a result of various factors.

Overview and 2025 Highlights

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, 2025, the Bank had 113 branches in North Carolina and South Carolina and 1,353 full-time equivalent employees. We have grown organically as well as through strategic acquisitions as discussed previously in "Recent Developments and Acquisitions".

2025 Financial Highlights:

•Return on average assets was 0.89% for the year ended December 31, 2025, as compared to 0.63% for the prior year. Return on average common equity was 7.16% for the year ended December 31, 2025, as compared to 5.38% for the prior year. As discussed below, the returns for 2025 and 2024 were impacted by securities loss transactions as well as Hurricane Helene provisions.

•Total assets at December 31, 2025 were $12.7 billion, a 4.3% increase from a year earlier.

•Total loans outstanding expanded by $0.6 billion, or 7.8%, during the year. Loans totaled $8.7 billion at December 31, 2025.

•Credit quality continued to be strong with the NPA to total assets ratio at 0.30% as of December 31, 2025, consistent with December 31, 2024. Net charge offs as a percentage of average loans were 0.10% for 2025, as compared to 0.07% for the prior year.

•Capital remained strong with a total CET1 ratio of 14.10%, down from 14.35% for the prior year, and total risk-based capital ratio of 16.12% as of December 31, 2025, a decrease from 16.63% for the prior year. The decrease during 2025 in risk-based capital ratios was driven by loan growth, which carries a higher risk weight than short term investments, along with the repayment of $18.0 million of subordinated debt.

•Net income was $111.0 million, or $2.68 diluted EPS, for 2025 compared to net income of $76.2 million, or $1.84 diluted EPS, for 2024. As noted below, 2025 results were impacted by $71.6 million of securities loss from transactions that took place during the third and fourth quarter of 2025 and the $11.1 million reversal of provision related to Hurricane Helene throughout the year. See the following for discussion of changes to net income:

•Net interest income for 2025 increased $66.0 million, or 19.9%, driven by increased interest income and lower interest expense. The NIM was 3.40% for 2025, an increase of 51 basis points from the prior year.

•Total interest income increased $38.0 million in 2025 as compared to 2024, driven by higher interest income on loans of $21.1 million related to a combination of higher volumes of average balances and increased yields. Interest income on securities increased $20.5 million, primarily the result of increased yields driven by the securities loss-earnback transactions in late 2024 and the second half of 2025.

•Interest income on other interest-earning assets, primarily overnight funds, decreased $3.7 million, primarily the result of lower volumes along with the decrease in the federal funds rate.

•The 2025 decrease in interest expense of $28.0 million was driven by lower money market rates in late 2025, which resulted in repricing of our deposits and a corresponding $19.6 million decrease in

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deposit interest expense, especially in money market accounts which accounted for $7.4 million of the decrease. Additionally, interest expense on borrowings fell $8.4 million, primarily the result of average balances on outstanding borrowings.

•Provision for credit losses for 2025 of $11.5 million was down from $16.4 million in 2024 due primarily to the $13.0 million provision related to potential exposure from Hurricane Helene in 2024. Offsetting this was higher net charge offs in 2025, provisions for higher loan growth in 2025 and an increase in the level of unfunded commitments. See the "Provision for Loan Losses" section below.

•Noninterest income declined $25.8 million in 2025, which resulted primarily from the $71.6 million securities loss related to securities loss-earnback transactions that took place in the third and fourth quarter of 2025. Noninterest income in 2024 included a securities loss of $38.0 million related to a securities loss-earnback transactions that took place in the fourth quarter of 2024. Refer to "Noninterest Income" section below for further discussion.

•Noninterest expense increased $3.7 million in 2025, primarily related to the $4.2 million increase in Total personnel expense driven by increased incentives expense arising from the Company's performance. In 2024 and 2025, the Company actively managed headcount and continued to apply additional expense controls. Refer to "Noninterest Expense" section below for further discussion.

•Income tax expense increased $6.6 million from the prior year primarily resulting from higher pre-tax income. The 2025 effective tax rate of 20.4% was lower than the prior year as the result of net discrete tax benefits, primarily arising from state taxes, including the continued North Carolina graduated tax rate reductions.

Current Economic Conditions

Economic conditions during 2025 continued to show resilience, supported by generally positive domestic results, relatively low unemployment and sustained demand for goods and services. Inflationary pressures moderated further compared to prior periods, reflecting the impact of monetary policy actions taken by the Federal Reserve in recent years. However, a combination of positive and negative economic indicators persisted throughout 2025 and there continues to be some uncertainty in economic conditions and outlook. As such, we could be exposed to ongoing risks, which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations.

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.

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.

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 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

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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.

Our most significant accounting policies are presented in Note 1 to the accompanying consolidated financial statements. These policies, along with the disclosures presented in the other notes to the consolidated financial statements and in this MD&A, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

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 loan 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 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.

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.

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 provision for loan losses could be required that could adversely affect our earnings or financial position in future periods.

Under the range of macroeconomic forecast scenarios considered as of December 31, 2025, use of a "downside"/ more pessimistic scenario would have resulted in an increase to the modeled allowance results of approximately $32 million. This estimate reflects the sensitivity of the modeled allowance estimate to macroeconomic forecast data but does not consider other qualitative adjustments that could increase or decrease modeled loss estimates calculated using this alternative economic scenario.

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 loan losses on the consolidated statements of income.

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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.

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 unfunded commitments. 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 sections of this Item 7 titled “Nonperforming Assets” and “Allowance for Credit Losses and Loan Loss Experience” below.

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

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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.

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 2025 there were no triggers warranting interim impairment assessments and for the 2025 annual assessment, we concluded that it was more likely than not that the fair value exceeded its carrying value. At December 31, 2025, we had $478.8 million of goodwill.

Recent Accounting Standards and Pronouncements

For information relating to recent accounting standards and pronouncements, see Note 1 to our consolidated financial statements entitled “Summary of Significant Accounting Policies.”

RESULTS OF OPERATIONS

The following discussion reviews the results of operations and key drivers to change in the results of 2025 as compared to 2024. For a description of our results of operations for 2024 as compared to 2023, refer to the "Overview and 2024 Highlights," Results of Operations," and "Analysis of Financial Condition and Changes in Financial Condition" sections of Item 7 in our 2024 Form 10-K.

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 amounted to $398.2 million in 2025, an increase of $66.0 million, or 19.9%, from $332.3 million in 2024. The increase was primarily due to the increase in yields on securities, partially a result of the securities loss-earnback transactions in 2025 and 2024, and the higher volume and yields of average loans outstanding. Additionally, interest expense decreased, primarily due the lower rates on interest-bearing deposits, specifically money market accounts, partially offset by the higher volume of average money market account balances. The average rate on borrowings decreased due to the payoff of borrowings with higher interest rates as well as borrowings with variable interest rates decreasing after the FOMC actions in 2024 and 2025.

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As a result of the higher net interest income related to the increase in the yield on interest-bearing assets and the decrease in the cost of interest-bearing liabilities, NIM expanded 51 basis points to 3.40% in 2025 from 2.89% in 2024. For internal purposes, we evaluate our NIM on a tax-equivalent basis, 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 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.

Our total cost of deposits has been more impacted by the FOMC's changes in short term rates than the yield on our interest-earning assets. The target federal funds rate began 2024 at 5.50% and remained there until September 2024, when it was reduced a total of 100 basis points by the end of 2024, helping to increase our NIM to 3.05% in the fourth quarter of 2024. In the second half of 2025, after a pause in rate changes, the FOMC made further rate changes, resulting in an additional 75 basis point decrease.

As shown in the chart below, our NIM has grown consistently since the first quarter of 2024. This NIM expansion is the result of our yield on interest-earning assets continuing to earn at higher rates, increasing 41 basis points during the same period, while our total cost of deposits peaked in the third quarter of 2024, then declined 44 basis points to 1.32% for the fourth quarter of 2025.

First Bancorp Comparison of Net Interest Margin,

Yield on Earning Assets and Total Cost of Deposits

Eight Quarters Ended December 31, 2025

Our NIM for all periods presented below benefited from the net accretion income arising from purchase accounting

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premiums/discounts associated with acquisitions. Presented in the table below is the amount of accretion which increased net interest income in each year presented.

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 future acquisitions and related additions to loan discounts on acquired portfolios which are accreted to income as experienced since 2023 with the GrandSouth acquisition.

At December 31, 2025 and 2024, unaccreted loan discount on purchased loans amounted to $8.8 million and $15.1 million, respectively. The GrandSouth acquired portfolio comprised the majority of the remaining unaccreted loan discount at December 31, 2025.

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The following table presents the major components of net interest income and NIM.

(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 $(0.8) million, $(1.1) million, and $0.5 million for 2025, 2024, and 2023, respectively.

(2)Includes accretion of discount on acquired loans of $6.1 million, $8.9 million, and $11.5 million in 2025, 2024, and 2023, respectively.

(3)Includes tax-equivalent adjustments to reflect the tax benefit that we receive related to tax-exempt securities and loans as reduced by the related nondeductible portion of interest expense.

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The following table presents additional detail regarding the estimated impact that changes in interest-earning asset and interest-bearing liability volumes and changes in the interest rates we earned/paid had on our net interest income in 2025 and 2024.

Note - Changes attributable to both volume and rate are allocated equally between rate and volume variances.

As demonstrated in the above table, net interest income expanded $66.0 million in 2025. Higher rates and volumes on interest-bearing assets and lower rates on interest-bearing liabilities were partially offset by higher money market volume.

•For 2025, higher loan volume resulted in a $13.2 million increase in interest income while increased market rates contributed to an additional $7.9 million of loan interest income. Variable rate loans comprised approximately 29% of the loan portfolio at December 31, 2025, and, accordingly, the magnitude of the immediate yield impact we experience from each federal funds rate change is limited.

•Increases in the overall yield on average investment securities, along with somewhat higher volumes, resulted in increased interest income of $20.5 million in 2025. During 2025, $585.1 million of AFS securities were purchased with a weighted average yield of 4.13%.

•Lower volumes of other interest-earning assets (primarily interest-bearing cash balances) along with lower yields resulted in a decrease in interest income of $3.7 million for the year.

•The decrease of $19.6 million in interest expense on deposits was driven by lower rates on accounts as we repriced deposits in response to the market decreases, partially offset with higher volumes, primarily in money market deposit accounts.

•Lower balances on short-term borrowings, historically comprised of short-term FHLB and Federal Reserve advances to fund loan demand in excess of deposit growth, contributed $7.1 million to the decrease in borrowings interest expense, which, in total, decreased $8.4 million in 2025.

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

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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.

The provision for loan losses was $9.6 million in 2025 and $18.8 million in 2024. 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 reduction in provision expense was the $13.0 million related to potential credit exposure from Hurricane Helene recognized in 2024.

We subscribe to a third-party service which provides quarterly macroeconomic scenarios for the United States economy. For 2025, 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, healthy GDP levels, and mixed results for real estate price indices for commercial and residential properties.

During 2025 we recorded a provision for unfunded commitments of $1.9 million compared to a reduction of $2.3 million for 2024. Changes in the level of provision each year are generally related to fluctuations in the level of available credit lines and updated loss drivers.

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. During 2025, the Company evaluated the commercial loan portfolio and adjusted risk ratings and nonaccrual status as applicable. Therefore, for those relationships, the normal reserving process was applied for December 31, 2025. For the potentially impacted consumer loans, the Company applied increased reserve rates based upon severe economic factors to the approximately $268 million of loans (primarily Residential 1-4 family real estate) in the most impacted path of Hurricane Helene. Due to the potential exposure from Hurricane Helene, the ACL on these impacted consumer loans was $1.9 million as of December 31, 2025, adding 2 basis points to the overall ACL as a percent of total loans, which was 1.42% as of December 31, 2025.

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 and Loan Loss Experience" sections following.

Noninterest Income

Our noninterest income amounted to $7.9 million in 2025, $17.9 million in 2024, and $57.3 million in 2023.

The decreased noninterest income for the year ended December 31, 2025 as compared to the same period in 2024 is a result of increased "Securities losses, net," partially offset by increased "Other gains, net." Details of the more significant components of noninterest income are presented in the table below.

Service charges on deposit accounts decreased $0.4 million, or 2.3%, in 2025 as compared to 2024.

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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 $9.5 million in 2025, a 1.7% increase from the $9.3 million in 2024.

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 category in 2025 was $2.1 million, or 15.9%.

Securities losses, net was $71.6 million in 2025. $27.9 million of this loss relates to a securities loss-earnback transaction from the third quarter in which the Company sold $194.3 million of AFS securities bearing 1.63% at a loss. Additionally, $43.7 million of this loss relates to a securities loss-earnback transaction from the fourth quarter in which the Company sold $342.0 million of AFS securities bearing 1.67% at a loss.

Other gains, net amounted to a net gain of $8.7 million for 2025. The majority of the increase from the prior year related to a pretax gain of $4.6 million realized upon the sale of an office building during the fourth quarter.

Noninterest Expenses

Total noninterest expenses totaled $239.3 million, $235.6 million, and $254.4 million, for 2025, 2024, and 2023, respectively.

The primary contributors to the $3.7 million, or 1.6%, increase for the year ended December 31, 2025 as compared to 2024 was the $4.2 million increase in Total personnel expense arising from increased incentives due to the Company's financial performance, partially offset by the $0.9 million decrease in Amortization of intangible assets. For the year ended December 31, 2025, there was a continued overall effort by management to actively control headcount and expenses.

The following table presents the primary components of noninterest expense.

Income Taxes

We recorded income tax expense of $28.5 million in 2025, $21.9 million in 2024, and $27.8 million in 2023. Our effective tax rates were 20.4% for 2025, 22.3% for 2024, and 21.1% for 2023. The effective tax rate for 2025 included approximately $2.1 million of net discrete tax benefits, primarily arising from state taxes, including the continued North Carolina graduated tax rate reductions. The effective tax rate for 2024 included incremental state tax-related expense related to prior years, changes in state tax income apportionment, and the negative impact of

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decreasing deferred tax assets related to the North Carolina corporate income tax reduction effective January 1, 2025 and for future years.

ANALYSIS OF FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION

Loans

The loan portfolio is the largest category of our earning assets and is comprised of commercial loans, real estate mortgage loans, real estate construction loans, and consumer loans. The majority of our loan portfolio is within our North Carolina and South Carolina market areas. We also have a portfolio of SBA loans that have been made on a more dispersed geographic basis. The diversity of the economic bases of our market areas has historically provided a stable lending environment.

Total loans amounted to $8.7 billion at December 31, 2025, an increase of $627.7 million, or 7.8%, from December 31, 2024. The following table provides a summary of the loan portfolio composition at each of the past five year ends.

The majority of our loan portfolio over the years has been real estate mortgage loans, including commercial and residential mortgages. Except for construction, land development, and other land loans, the majority of our real estate loans are primarily supported by cash flows from the borrower’s occupation or business, with the real estate pledged providing a secondary repayment source.

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.

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A summary of scheduled loan maturities, based on contractual maturity dates, over certain time periods is presented below, with fixed rate loans and adjustable rate loans shown separately.

Note: The above table is based on contractual scheduled maturities. Early repayment of loans or renewals at maturity are not considered in this table.

Approximately 12% of our accruing loans outstanding at December 31, 2025 mature within one year and 61% of total loans mature within five years. During 2025, the Company continued to focus on shifting more loans to variable rates. As of December 31, 2025, the percentages of variable rate loans and fixed rate loans as compared to total performing loans were 29% and 71%, respectively, compared to 23% variable and 77% fixed at December 31, 2024. While fixed rate loans present market interest rate risk, we monitor our interest rate risk closely. Refer to additional discussion in the section “Interest Rate Risk” below.

The Company’s loan portfolio is not concentrated in loans to any single borrower or to a relatively small number of borrowers. Additionally, management is not aware of any concentrations of loans to classes of borrowers or industries that would be similarly affected by economic conditions.

In addition to monitoring potential concentrations of loans to particular borrowers or groups of borrowers, industries, and geographic regions, the Company monitors exposure to credit risk that could arise from potential concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases (e.g. principal deferral periods, loans with initial interest-only periods, etc.), and loans with high loan-to-value ratios. Additionally, there are industry practices that could subject the Company to increased credit risk should economic conditions change over the course of a loan’s life. For example, the Bank makes variable rate loans and fixed rate principal-amortizing loans with maturities prior to the loan being fully paid (i.e. balloon payment loans). These loans are underwritten and monitored to manage the associated risks. The Company has determined that there is no concentration of credit risk associated with its lending policies or practices.

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Most of our business activity is with customers located within the markets where we have banking operations. Therefore, our exposure to credit risk is significantly affected by changes in the economy within our markets. Approximately 87% of our loan portfolio is secured by real estate and is therefore susceptible to changes in real estate valuations.

The following tables provides a summary of the outstanding balances of the commercial real estate-owner occupied, commercial real estate-non owner occupied and multi-family real estate loan portfolio compositions at December 31, 2025 by geographic region.

As noted above and described in the Item 1. Business section, we do not have concentrations geographically or by CRE category.

Nonperforming Assets

NPAs include nonaccrual loans, loans past due 90 days or more and still accruing interest, foreclosed real estate and, prior to the adoption of ASU 2022-02, accruing TDRs.

Nonaccrual loans are loans on which interest income is no longer being recognized or accrued because management has determined that the collection of interest is doubtful. Placing loans on nonaccrual status negatively impacts earnings because (1) interest accrued but unpaid as of the date a loan is placed on nonaccrual status is reversed and deducted from interest income; (2) future accruals of interest income are not recognized until it becomes probable that both principal and interest will be paid; and (3) principal charged-off, if appropriate, may necessitate additional provisions for loan losses that are charged against earnings. As a matter of policy, we generally place all loans that are past due 90 or more days on nonaccrual basis. There were no accruing loans that were past due 90 days or more at December 31, 2025 and December 31, 2024.

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The following table summarizes our NPAs at the dates indicated.

Our asset quality continues to be strong as demonstrated by stable or improving trends in all ratios as presented in the table above. Our total nonperforming loans to total loans was 0.42% at December 31, 2025, while our total NPA ratio was 0.30% at that date. Additional discussion of the credit quality classification status of our loans is contained in Note 4 to our consolidated financial statements.

"Commercial real estate - owner occupied" is the largest category of nonaccrual loans, at $13.5 million, or 37.1% of total nonaccrual loans, followed by "Commercial and industrial" at $9.1 million, or 25.1% of total nonaccrual loans, and "Residential 1-4 family real estate" at $5.9 million, or 16.3% of total nonaccrual loans.

As of December 31, 2025, SBA loans accounted for approximately $14.8 million of our nonaccrual loans, or 9.1%, of the total SBA portfolio, and carried guarantees from the SBA totaling $7.3 million. This is compared to $15.5 million, or 11.4%, of the SBA portfolio at December 31, 2024. We continue to closely monitor the SBA loan portfolio and give it appropriate consideration when evaluating the adequacy of the ACL as those loans are generally considered inherently more risky than other loans in our portfolio. Refer to additional discussion of the ACL below.

As shown in Note 4 to the consolidated financial statements, our accruing past due loans (30 or more days) totaled $18.5 million at December 31, 2025, with the majority (55.4%) being in the Residential 1-4 family real estate category.

We classify loans as “special mention” when there is a defined weakness or weaknesses that jeopardize the repayment by the borrower and there is a distinct possibility that we could sustain some loss if the deficiency is not corrected. Performing special mention loans, which are still accruing interest, totaled $29.3 million and $37.1 million as of December 31, 2025 and 2024, respectively. In addition, loans that are in the risk category of "classified" which are still accruing interest totaled $22.2 million at December 31, 2025 and $34.0 million at December 31, 2024. These loans have a risk of further deterioration and potential loss to the Bank.

Total foreclosed real estate amounted to $1.4 million at December 31, 2025, compared to $5.0 million in 2024. Six properties were added to foreclosed real estate during 2025 and we completed the sale of nine properties during the year.

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Allowance for Credit Losses, Allowance for Unfunded Commitments, and Loan Loss Experience

The total ACL amounted to $123.6 million at December 31, 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, other assumptions and inputs to the CECL model, and as occurred in 2023, adjustments for acquired loan portfolios.

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. During 2025, the Company evaluated the commercial loan portfolio and adjusted risk ratings and nonaccrual status as applicable. Therefore, for those relationships, for December 31, 2025, 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 $268 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 $744 million at December 31, 2024. Due to the potential exposure from Hurricane Helene, the ACL on these impacted consumer loans was $1.9 million as of December 31, 2025, adding 2 basis points to the overall ACL as a percent of total loans, which was 1.42% as of December 31, 2025. As of December 31, 2024, the ACL on these loans was $13.0 million, adding 16 basis points to the overall ACL as a percent of total loans, which was 1.51%.

The ACL reflects the best estimate of life of loan expected credit losses that will result from the inability of borrowers to make required loan payments. Systematic methodologies are used to determine the ACL for loans and the allowance for certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loan portfolio.

We consider the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. Our estimate of the ACL involves a high degree of judgment. Therefore, the process for determining expected credit losses may result in a range of expected credit losses. The ACL is calculated using collectively evaluated pools for loans with similar risk characteristics applying the 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. Refer also to the discussion of the critical estimates utilized in the ACL in the prior section, Critical Accounting Estimates, and refer to Note 1 of the consolidated financial statements for a discussion of our CECL methodology used to determine the ACL.

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 used to model our expected credit losses. The allocation of the ACL as presented in the following table is based on reasonable and supportable forecasts, historical data, subjective judgment, and estimates and therefore, may not be predictive of the specific amounts or loan categories in which charge-offs may ultimately occur. In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require adjustments to the provision for loan losses in future periods if, in their opinion, the results of their review warrant such additions.

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The following table sets forth the allocation of the ACL by loan category at the dates indicated. However, the ACL is available to absorb losses in any and all categories.

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For the years indicated, the following table summarized the net loss experience by loan category and key ratios demonstrating the asset quality trends over the most recent five years.

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Securities

Our securities portfolio and the breakout of AFS and HTM securities is presented in the following table.