First Bancorp (FBNC) Q3 2026 earnings review
First Bancorp loan income rises, but deposit costs creep up
First Bancorp, the parent of First Bank in the Carolinas, grew lending profit even as deposit costs crept up. Net interest income rose 12% from a year ago to $115 million because total loans expanded 8% and earned higher rates. Reported profit more than doubled after lapping last year's bond-sale losses, while profit per share excluding one-offs rose 23% to $1.24. Chief executive Richard H. Moore kept the 2027 post-merger targets unchanged.
| Revenue, excluding prior-year bond losses | $129.9M +11% from a year ago by our math |
|---|---|
| Profit per share, excluding one-offs | $1.24 +23% from a year ago |
| Net interest margin | 3.75% +0.04 percentage points from last quarter |
| 2027 post-merger outlook | Unchanged 47% efficiency ratio and 1.6% return on assets |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because steady loan growth and cost control offset a slower margin tailwind and a one-time credit boost. On the negative side, the bank paid higher rates on money market accounts after a Federal Reserve rate hike, and it used its final $2 million Hurricane Helene reserve release to offset a doubling in loan write-offs. Wider paper losses on its bond portfolio also trimmed tangible book value per share slightly.
The question now is whether loan volume growth can carry profit once net interest margin stops expanding and credit provisions normalize. Optimists point to 8% loan growth and the upcoming Carolina Bank acquisition, while skeptics point to rising deposit costs and thinner loan-loss reserves. Next quarter's deposit rates and credit provision — the first without storm reserve releases — will show which side is right.
🐂 Bull Case
Loan Growth and Asset Mix Lifted Margin
First Bancorp, the parent of First Bank in North and South Carolina, makes most of its money from net interest income, the gap between what it earns on loans and bonds and what it pays on deposits. Chief executive Richard H. Moore said: "We continue to benefit from the repositioning of lower-yielding assets into higher-yielding opportunities, resulting in a 4 basis-point expansion of our NIM and strong operating performance."
The lender grew its loan book by $116.2 million this quarter to $9.10 billion, up 8.1% from a year ago, and bought $150.0 million of US Treasury bonds. That shifted average loans to 74.3% of interest-earning assets, up from 70.4% a year ago, while lower-paying bonds and cash shrank. Because new loans came on at higher rates, the average loan yield rose 0.08 percentage points from last quarter to 5.75%.
That mix shift pushed net interest income up 12.0% from a year ago to $114.8 million. Last year's third quarter included a $27.9 million pre-tax loss from selling old low-rate bonds. Excluding that loss and $0.5 million of merger costs this quarter, revenue grew 10.6% from a year ago by our math, and profit per share rose 22.8% to $1.24.
What to watch: sequential loan growth in the fourth quarter. If new lending stays near $115 million a quarter before the Carolina Bank acquisition closes, volume growth will keep lifting net interest income even as margin gains slow.
Carolina Bank Deal Adds Low-Cost South Carolina Deposits
In July, First Bancorp agreed to buy Carolina Bank & Trust for $166 million in stock and cash to expand in South Carolina. This quarter the company recorded its first $0.5 million of merger expenses and narrowed the expected closing window to "early in the first quarter of 2027", compared with its prior target of late fourth quarter 2026 or early first quarter 2027.
The deal doubles First Bank's branch count in South Carolina by adding 14 branches and lifts its deposit base in the state by more than 50%. Carolina Bank brings a 1.60% return on assets and a 1.42% cost of funds with no borrowings, so it adds profitable scale without weakening the balance sheet. Management reiterated that the combined bank should lower its efficiency ratio to 47% in 2027.
What to watch: regulatory and shareholder approvals in the fourth quarter. A timely approval will allow the deal to close in early 2027 and start delivering the planned cost savings.
Efficiency Ratio Held Below 50% Despite Higher Pay
Banks measure cost control with the efficiency ratio, which is noninterest operating expenses divided by revenue; a lower number means better profitability. First Bancorp kept its efficiency ratio at 49.09% in the third quarter, essentially unchanged from 49.12% last quarter. Excluding one-offs in both periods — $0.5 million of merger costs this quarter and the $27.9 million bond loss a year ago — the adjusted efficiency ratio improved by 2.33 percentage points from a year ago to 48.74%.
Operating expenses rose 6.3% from a year ago to $64.0 million, driven by a $2.6 million increase in employee salaries and benefits as the bank grew. Because net interest income grew faster than headcount costs, personnel expenses fell by 1.0 percentage point of clean tax-equivalent revenue from a year ago, to 30.3% by our math.
What to watch: quarterly personnel expense in the fourth quarter. Keeping pay growth below revenue growth is necessary to hold the efficiency ratio under 50% before merger cost savings arrive.
🐻 Bear Case
Higher Deposit Rates Are Slowing Margin Gains
First Bancorp's biggest earnings tailwind over the past two years has been net interest margin expansion as old loans repriced and deposit costs fell. That tailwind is losing steam because funding costs have turned back up for two straight quarters.
- Total cost of funds: 1.39%, up 0.05 percentage points from last quarter after rising 0.03 points in the second quarter
- Cost of interest-bearing deposits: 2.01%, up 0.07 percentage points from last quarter
- Money market accounts: average balances rose $135.2 million while their average rate rose 0.07 percentage points to 2.50%
- Purchase accounting loan discount accretion: added 0.02 percentage points to margin ($0.8 million), down from 0.04 points ($1.6 million) a year ago
The company said the higher deposit cost was "partially a result of the rate increase during the quarter by the Federal Reserve", with benchmark prime rates averaging 6.79% vs 6.75% last quarter. Because customers are putting new cash into higher-paying money market accounts, net interest margin expanded by just 0.04 percentage points for a second straight quarter, down from 0.09 to 0.14 points per quarter earlier in the year.
What to watch: the cost of interest-bearing deposits next quarter. Another rise of 0.05 percentage points or more would likely stall net interest margin near 3.75%.
Storm Reserve Release Masked Higher Loan Charge-Offs
Moore highlighted "strong credit quality" as a driver of the quarter's earnings, and the headline provision for credit losses — the money set aside for bad loans — stayed low at $1.3 million. However, that low charge relied on "the reversal of the remaining incremental reserve for potential exposure from Hurricane Helene", which released $1.9 million pre-tax, or $0.04 per share after tax, into profit.
- Provision excluding the Hurricane Helene release: $3.2 million by our math, vs $1.2 million last quarter
- Net loan charge-offs: $2.1 million, or 0.09% of average loans annualized, up from 0.04% last quarter
- Allowance for credit losses: fell $0.7 million to 1.36% of total loans, down from 1.44% a year ago
- Nonaccrual loans (loans no longer paying interest): $44.2 million, steady from $44.3 million last quarter but up 18.4% from a year ago
- Construction and land loans: grew 35.5% from a year ago to $932.5 million (10% of the book), while non-owner-occupied office loans sat at 6.3%
With the storm reserve now at zero, future provisions must cover charge-offs and fast growth in higher-risk construction lending without a one-off cushion. By our math, profit per share excluding both merger costs and the storm release was $1.20, down $0.02 from last quarter.
What to watch: the provision for credit losses in the fourth quarter. Without storm releases, a provision above $2.5 million will show that normal credit costs are trimming earnings growth.
Wider Bond Paper Losses Trimmed Tangible Book Value
First Bancorp holds $2.49 billion of investment securities, mostly in its available-for-sale portfolio where changes in market value flow directly into shareholders' equity. During the third quarter, unrealized paper losses on available-for-sale bonds widened by $59.3 million to $263.8 million, up from $204.5 million at the end of June.
Those bond price drops increased accumulated other comprehensive loss by $45.6 million after tax, which more than offset the $41.3 million of profit First Bancorp kept after paying its $0.24 per share dividend. As a result, tangible book value per share — net worth excluding goodwill and intangibles — slipped by $0.07 from last quarter to $29.77, and the tangible common equity ratio dipped 0.10 percentage points to 9.73%.
What to watch: unrealized losses on available-for-sale securities in the fourth-quarter report. A further widening would keep capping tangible book value growth just as the Carolina Bank acquisition adds about 1% dilution.
💲 Other KPIs
First Bancorp's core regulatory capital ratio rose 0.17 percentage points from last quarter, reversing two quarters of slight declines, and sits well above regulatory minimums. Because the bank elects to exclude bond paper losses from regulatory capital, retained profit lifted this buffer even while tangible book value dipped.
Period-end deposits rose by $41.4 million from last quarter, or 1.5% annualized, and 2.3% from a year ago. Because loan growth of $116.2 million outpaced deposit inflows, the loan-to-deposit ratio rose from 81.1% to 81.8%. The bank paid off its last $5.0 million of brokered deposits, and noninterest-bearing checking accounts held steady at 33% of total deposits.
Fee and service income fell $0.9 million, or 5.7%, from last quarter due to a $0.9 million drop in miscellaneous other income and lower mortgage sale fees, partly offset by higher deposit service charges and Small Business Administration loan gains. Compared with last year's clean $15.0 million (excluding bond sale losses), fee income grew 1.1% by our math.
🔮 Guidance
Unchanged. First Bancorp reiterated its 2027 target for return on average assets — annual profit as a percentage of total assets — after combining with Carolina Bank. The 1.6% plan sits 0.04 percentage points above third-quarter return on average assets excluding one-offs of 1.56%, supported by Carolina Bank's standalone 1.60% return and planned merger cost savings.
Unchanged. The 2027 target for return on tangible common equity — annual profit divided by net worth excluding goodwill — remains at 15%. That sits 1.59 percentage points below third-quarter adjusted return on tangible common equity of 16.59% by our math, because retained profits are growing the equity base faster than assets.
Unchanged. The lender still expects operating expenses to fall to 47% of revenue in 2027 after integrating Carolina Bank. That requires a 2.09 percentage point improvement from this quarter's 49.09% efficiency ratio (or 1.74 points from the 48.74% figure excluding merger costs), driven by spreading overhead across a larger South Carolina branch network.
❓ Key Questions
What drove the $59 million jump in bond paper losses?
Unrealized losses on available-for-sale bonds rose from $204.5 million to $263.8 million in Q3 and pushed tangible book value per share down $0.07. Did the new $150 million Treasury purchase lose value, or did longer-term mortgage bonds drop?
Which loan categories caused net charge-offs to double?
Annualized net charge-offs rose from 0.04% to 0.09% ($2.1 million), and the quarterly release does not break them down by loan type. Investors need the quarterly filing's segment table to see if commercial real estate or consumer loans drove the losses.
Where will the provision land now that storm reserves are gone?
Releasing the final $1.9 million Hurricane Helene reserve kept the Q3 credit provision at $1.3 million and added $0.04 to EPS. Without that benefit, the provision would have been $3.2 million by our math.
How did individual loan categories perform on nonaccruals?
Total nonaccrual loans held steady at $44.2 million, but in the first half of 2026 residential and owner-occupied commercial real estate nonaccruals rose while their reserves were cut. The quarterly filing will show whether those specific problem balances kept climbing.