First Carolina Financial Services (FCBM) Q3 2026 earnings review
First Carolina widens its lending spread, while fee income drops
First Carolina Financial Services, a regional bank serving the southeastern US and universities, grew its lending profit while cutting operating costs. Net interest income rose 10% from a year ago to $28 million as chief executive Ron Day replaced expensive time deposits with cheaper accounts, and pre-tax profit before credit provisions climbed 42% by our math after job cuts in its acquired payments unit. Total revenue still fell 10% because the bank ended an inherited payments partnership, though underlying revenue grew 5% by our math.
| Revenue, excluding exited partnership and securities gains | +5% from a year ago by our math (reported revenue -10%) |
|---|---|
| Net interest income | $28.1M +10% from a year ago |
| Net interest margin | 3.38% +0.32 percentage points from a year ago |
| Forward financial outlook | None given no numerical targets in the release |
⚖️ Verdict: 🟢 Bullish
The story got better because the bank proved it can replace costly brokered funding and trim payments overhead while expanding its commercial loan book. One caution: the $8 million quarterly profit relied on a $1 million credit reserve release and a seasonal wave of fall-semester university deposits that will not repeat every quarter.
The question now is how much of the third-quarter lending margin holds once seasonal college deposits flow out and credit provisions normalize. Either the September debt payoff and new commercial loans keep the margin near current levels, or funding costs climb back up as tuition cash leaves. Fourth-quarter deposit balances and net interest margin will tell.
🐂 Bull Case
Replacing Expensive Time Deposits Lifted Lending Margins
"Last quarter we strengthened our core funding base, and this quarter we demonstrated what that foundation makes possible," chief executive Ron Day said. First Carolina has spent the past year paying off expensive certificates of deposit, which are fixed-term savings accounts, and replacing them with cheaper checking and money market accounts.
- Certificates of deposit: $571.7 million, down 58.8% from a year ago
- Brokered deposits (funds raised through third-party brokers): 14.3% of total deposits, down from 31.0% a year ago
- Average deposit costs: 2.71%, down 0.33 percentage points from a year ago
- Net interest margin (the spread between what the bank earns on loans and pays on funding): 3.38%, up 0.32 percentage points from a year ago
That cheaper deposit mix lifted net interest income 10.0% from a year ago to $28.1 million, even though the yield the bank earned on its assets ticked down 0.05 percentage points over the same period. In early September, the Raleigh lender also paid off $31.8 million of subordinated debt carrying a 7.01% average rate, so funding expenses have another tailwind heading into the fourth quarter.
What to watch: the cost of interest-bearing liabilities in the fourth quarter. A drop below 3.58% would confirm that paying off the September debt and running off remaining time deposits lowers funding costs even when seasonal school deposits leave.
Job Cuts After the Payments Deal Lowered Costs
First Carolina bought BM Technologies, its higher-education payments business, in January 2025 and spent the past year trimming overlapping staff and outside contractors. Operating expenses fell 19.6% from a year ago to $25.8 million, following the "post-acquisition realignment of BM Technologies’ workforce". Full-time staff stood at 271 at the end of September, down from 297 a year earlier. Because costs fell faster than revenue, pre-tax profit before credit provisions rose 41.7% by our math to $9.0 million.
- Salaries and employee benefits: 35.6% of revenue excluding securities gains, down 3.8 percentage points from a year ago by our math
- Outside professional fees: 9.5% of revenue excluding securities gains, down 6.9 percentage points from a year ago by our math
- Efficiency ratio (operating expenses as a share of revenue excluding securities gains): 74.2%, improved from 87.4% a year ago
What to watch: quarterly operating expenses in the fourth quarter. Holding total noninterest expense near $25.8 million while loans grow would show the cost cuts are permanent.
Commercial Property Lending Drove Fast Loan Growth
First Carolina put its new capital to work in the third quarter, adding $154.1 million of net new loans. Total loans reached $2.90 billion, up 5.6% from last quarter and 7.5% from a year ago. Commercial real estate carried the expansion: non-owner-occupied commercial property loans rose 11.1% from the second quarter by our math, or $164.4 million, while owner-occupied property loans grew $46.9 million. Higher rates on new loans also lifted the average loan yield to 6.24% from 6.20% last quarter.
What to watch: net new loan additions and average loan yields in the fourth quarter. Continued loan growth above 6.24% yield would show the bank can expand its loan book without cutting prices.
🐻 Bear Case
Exiting an Inherited Partnership Cut Fee Income in Half
While lending income grew, fee income went the other way. Noninterest income fell 48.0% from a year ago, dropping $6.2 million to $6.7 million. That decline dragged total revenue down 9.5% from a year ago to $34.8 million by our math.
Most of the drop came from the "planned discontinuation of a banking-as-a-service partnership inherited through the BM Technologies’ acquisition", which removed $3.6 million of quarterly revenue. Last year's third quarter also included a $1.7 million one-off gain from selling investment securities. Even after stripping out both items by our math, underlying fee income still shrank 11.7% from a year ago, though total underlying revenue rose 5.0%.
What to watch: service charges on deposit accounts in the first quarter of 2027, once the discontinued partnership is fully out of the year-ago comparison. A flat or rising reading would show the remaining payments business has stopped shrinking.
One-Off Credit Release and School Calendar Helped Profit
Day highlighted that net income rose 55% from last quarter to $7.9 million and said the results reflect the "durable earnings power of our franchise". Two temporary items did much of the work this quarter.
First, the bank boosted pre-tax profit by releasing $1.0 million from its credit loss reserves, versus setting aside $0.3 million last quarter and $9.4 million a year ago. It cited the "migration of construction loans to permanent financing, which carry lower expected loss rates" as construction loans fell 23.3% from last quarter by our math. That release lowered the allowance for credit losses to 0.73% of total loans, down from 0.80% in June and 0.87% a year ago, leaving a thinner cushion just as commercial property loans expand.
Second, the 0.15 percentage point jump in net interest margin from the second quarter came largely from $242.2 million of interest-free deposits flowing into the payments unit "primarily due to the educational calendar" for the fall semester.
What to watch: noninterest-bearing deposits and credit provision expense in the fourth quarter. A return to normal credit provisioning as tuition funds are spent would pull quarterly net income down from $7.9 million.
👓 Other Themes
University Prepaid Card Pilot Began at Quarter End
First Carolina wants its higher-education payments unit to bring in new commercial banking and student customers. At the end of September, the bank "began offering prepaid cards as a payment modality for universities participating in our pilot program", giving colleges another way to send money to students. Because the pilot started at the end of the quarter, it had no material effect on third-quarter fee income.
💲 Other KPIs
Borrowings fell 72.1% from last quarter by our math, down from $113.5 million in June and $138.4 million at the end of 2025. The North Carolina lender paid off all $50.0 million of Federal Home Loan Bank advances during the quarter and redeemed $31.8 million of its 2019 subordinated debt in early September.
Diluted share count rose 25.7% from a year ago and 22.2% from last quarter by our math. The increase reflects the full-quarter impact of First Carolina's June 2026 initial public offering, which added 6.33 million split-adjusted shares and raised about $69.3 million in net proceeds, spreading net income across a larger share base.
Problem assets — loans no longer paying interest and foreclosed property — edged down to $21.9 million, or 0.60% of assets, from 0.65% in June and 0.63% a year ago. Annualized net loan write-offs stayed near zero at 0.01% of average loans, compared with 0.00% last quarter and 0.07% a year earlier.
❓ Key Questions
Why is First Carolina not providing a quantitative financial outlook?
For a second quarter since its June 2026 public listing, the bank gave no numerical targets for net interest income, expenses or loan growth. Without an outlook, investors cannot see how much of the third-quarter margin gain management expects to keep.
How much of the $242 million deposit inflow stays?
Interest-free deposits jumped 43.0% from June to $805.2 million because colleges and students loaded funds for the fall term. Management did not disclose how much of that cash typically leaves in the fourth quarter or how it will fund loans when it does.
What is the current balance of university loans and deposits?
Last quarter, the bank reported $37 million in loan facilities and $37 million in deposits won from higher-education clients since buying BM Technologies. It did not update those figures in the third-quarter release, leaving progress in its main growth vertical unclear.
How much lower can the credit loss reserve ratio go?
Releasing $1.0 million from credit reserves reduced the allowance to 0.73% of total loans and 97.2% of nonperforming loans, down from 105.3% a year ago. Meanwhile, the bank added $154.1 million in new loans during the quarter.