First Carolina Financial Services, Inc.

Operating Highlights

Net interest income totaled $28.1 million for the third quarter of 2026, an increase of $2.6 million, or 10.0%, over the third quarter of 2025, reflecting continued balance sheet strength and revenue generation. The Company's net interest margin was 3.38% for the third quarter of 2026, representing a 32 basis point improvement over the prior year period, driven primarily by lower interest-bearing deposit costs. Net interest margin increased by 15 basis points from the second 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 increase in the third quarter of each fiscal year from the preceding second quarter period, primarily due to the educational calendar. Beyond these areas, deposit repricing initiatives and stronger yields on loans remain meaningful drivers of the Company’s performance.

The yield on average interest-earning assets was 5.97% for the third quarter of 2026, compared to 6.02% for the third quarter of 2025, a decrease of 5 basis points, primarily reflecting lower yield on the securities port folio and short-term, floating rate investments. The yield on average interest-earning assets increased to 5.97% in the third quarter of 2026, from 5.92% in the second quarter of 2026, primarily driven by higher loan yields. The improvement reflects the strength of the Company's lending franchise and its disciplined approach to loan pricing, and it more than offset the decline in the yield on securities available for sale. As a result, 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 2.81% for the third quarter of 2026, a decrease of 31 basis points compared to the third quarter of 2025. Deposit costs were 2.71% for the third quarter of 2026, compared to 3.04% for the third quarter of 2025, a decrease of 33 basis points, and compared to 2.75% for the second quarter of 2026, a decrease of 4 basis points. The cost of interest-bearing liabilities was 3.58% for the third quarter of 2026, a decrease of 39 basis points compared to 3.97% for the third quarter of 2025, and no change compared to 3.58% for the second quarter of 2026, reflecting the strategic shift of deposits from time deposits to money market and savings accounts. Management believes the year-over-year decrease in total cost of funds, deposit costs, and cost of interest-bearing liabilities in the third quarter of 2026 versus the third quarter of 2025 are particularly meaningful, as this comparison eliminates the impact of the seasonal deposit flows in the Payments business that affect linked-quarter comparisons.

Noninterest income totaled $6.7 million for the third quarter of 2026, a decrease of $6.2 million, or 48.0%, from the third quarter of 2025. The decrease primarily reflects the planned discontinuation 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 and accounts for $3.6 million of the decrease from the third quarter of 2025. The decrease also reflects the non-recurring nature of the $1.7 million in net gains on sale of securities in the third quarter of 2025. Accordingly, results for the third quarter of 2026 are not directly comparable to those for the third quarter of 2025. Noninterest expense totaled $25.8 million for the third quarter of 2026, a decrease of $6.3 million, or 19.6%, from the third quarter of 2025. The decrease reflects lower salaries and employee benefits expense following the post-acquisition realignment of BM Technologies’ workforce, along with lower data processing costs and other professional fees. These results demonstrate the Company's ongoing commitment to disciplined cost control and operational efficiency.

The Company's effective tax rate was 20.7% for the third quarter of 2026, compared to 18.6% for the third quarter of 2025 and 21.5% for the second quarter of 2026. The higher effective tax rate compared to the prior-year quarter was primarily attributable to a higher state income effective tax rate due to a change in allocation of income before taxes between the Company, the Bank, and BM Technologies.