First Carolina Financial Services, Inc.

Operating Highlights

Net interest income totaled $25.6 million for the second quarter of 2026, an increase of $2.1 million, or 8.8%, over the second quarter of 2025, reflecting continued balance sheet strength and revenue generation. The Company's net interest margin was 3.23% for the second quarter of 2026, representing an 18-basis point improvement over the prior year period, driven primarily by lower interest-bearing deposit costs. Net interest margin declined modestly by two basis points from the first quarter of 2026, largely attributable to the seasonality in deposits generated by the Company’s Payments business. Noninterest-bearing deposits in the Payments business regularly decline in the second quarter of each fiscal year from the preceding first quarter period, primarily due to the educational calendar. More broadly, the Company continues to benefit from ongoing deposit repricing initiatives and a favorable shift in earning asset yields.

The yield on average interest-earning assets was 5.92% for the second quarter of 2026, compared to 6.02% for the second quarter of 2025, a decrease of 10 basis points primarily reflecting lower yield on the securities port folio and short-term, floating rate investments in a declining rate environment. The yield on average interest-earning assets increased from 5.82% in the first quarter of 2026 to 5.92% for the second quarter of 2026, primarily attributable to an improvement in loan yields, reflecting the strength of the Company's lending franchise and loan portfolio pricing, partially offset by a decline in the yield on securities available for sale. The Company delivered meaningful growth in net interest income and year-over-year expansion in net interest margin.

The Company’s total cost of funds was 2.84% for the second quarter of 2026, a decrease of 30 basis points compared to the second quarter of 2025. Deposit costs were 2.75% for the second quarter of 2026, compared to 3.05% for the second quarter of 2025, a decrease of 30 basis points, and compared to 2.63% for the first quarter of 2026, an increase of 12 basis points. The cost of interest-bearing liabilities was 3.58% for the second quarter of 2026, a decrease of 42 basis points compared to 4.00% for the second quarter of 2025, and a decrease of 1 basis point compared to 3.59% for the first quarter of 2026, reflecting the strategic shift of deposits from time deposits to money market and savings accounts. Management believes the declines in total cost of funds, deposit costs, and cost of interest-bearing liabilities in the second quarter of 2026 versus the second quarter of 2025 are particularly instructive, as it eliminates the impact of the seasonality of the Payments business deposit flows, as compared to the linked-quarter comparisons.

Noninterest income totaled $6.7 million for the second quarter of 2026, a decrease of $6.5 million, or 49.5%, from the second quarter of 2025. The decrease primarily reflects the planned discontinuation in 2025 of a banking-as-a-service partnership inherited through the BM Technologies’ acquisition that was not consistent with the Company's long-term strategic focus. Accordingly, results for the second quarter of 2025 are not directly comparable to those for the second quarter of 2026. Noninterest expense totaled $25.5 million for the second quarter of 2026, a decrease of $5.2 million, or 17.1%, from the second quarter of 2025. The decline was primarily driven by right sizing the BM Technologies’ workforce post acquisition, which resulted in lower salaries and employee benefits expense, as well as by reduced consumer fraud and transaction losses and lower data processing expense, reflecting the Company's continued focus on disciplined expense management and operating efficiency.

The Company's effective tax rate was 21.5% for the second quarter of 2026, compared to 25.4% for the second quarter of 2025 and 19.4% for the first quarter of 2026. The lower effective tax rate compared to the prior-year quarter was primarily attributable to state income tax, non-taxable income resulting from the change in cash surrender value of bank-owned life insurance, a decrease in non-deductible expenses, and a tax credit for research and development.