First Community Corporation (FCCO) Q3 2026 earnings review
First Community lending margins widen, but a one-off lifts profit
First Community, a commercial bank serving South Carolina and Georgia, expanded its lending spreads while its deposit base stood still. Its net interest margin — the gap between loan yields and funding costs — rose for a tenth straight quarter to 3.59%, and wealth management fees jumped 40% from a year ago. However, third-quarter earnings leaned on a one-time $797 thousand settlement gain from a previously charged-off loan, and by our math underlying pre-tax profit slipped 4% from the second quarter.
| Loans from businesses owned a year ago | +10.6% annualized year-to-date growth |
|---|---|
| Tax-equivalent net interest margin | 3.59% 3.51% last quarter (10th straight gain) |
| Profit per share, excluding merger costs | $0.86 +19% from a year ago (includes $797K gain) |
| 2026 post-merger financial targets | Beaten 1.34% return on assets vs ~1.13% target |
⚖️ Verdict: 🟢 Bullish
The story got better because core lending spreads and wealth fees kept rising while loan payoffs slowed, keeping profitability well ahead of the targets set for the Signature Bank acquisition. One caution: early-stage delinquencies and watched loans ticked up again, and period-end deposits edged down, pushing the loan-to-deposit ratio above 80%.
The question now is whether the bank can sustain roughly 8% to 10% underlying loan growth without paying more for deposits or stretching its commercial real estate concentration limits. If maturing loans keep repricing near 6% while deposit costs hold at 1.76%, lending income will outrun expenses; if deposit competition heats up or real estate regulators cap commercial lending, growth will slow. The upcoming third-quarter Form 10-Q filing will show the commercial real estate ratio and net new wealth inflows.
🐂 Bull Case
Lending Spreads Expanded for a Tenth Straight Quarter
First Community's core lending business keeps getting more profitable. Its tax-equivalent net interest margin — the gap between what the bank earns on loans and bonds and what it pays on deposits — widened for a tenth straight quarter. The company said the gain was "driven by a combination of factors including improved loan portfolio yield, the growth in the loan portfolio which resulted in a better earning asset mix, while cost of deposits and cost of funds remained unchanged".
- Tax-equivalent net interest margin: 3.59%, up 0.08 percentage points from last quarter and 0.32 points from a year ago
- Average loan yield: 6.08%, up from 6.02% in the second quarter
- Cost of deposits: 1.76%, unchanged from last quarter and down from 1.81% a year ago
- Salaries and employee benefits: 36.6% of net revenue, down 2.8 percentage points from a year ago by our math
Older loans are maturing and repricing at higher rates, while depositors are not demanding higher yields. Because revenue grew faster than staff costs, the efficiency ratio — operating expenses as a share of revenue — improved by 3.6 percentage points from a year ago to 60.8%. Return on average assets reached 1.34%, beating the 1.13% target set when the Signature Bank of Georgia acquisition was announced.
What to watch: average loan yield and deposit cost in the fourth quarter. Over $250 million of loans maturing next year carry an average rate of 5.62%, so yields will keep rising if new loan rates hold near 6%.
Wealth Management Fees Reached a New High
First Community has been building non-lending businesses so its income does not rely solely on interest rates. Its financial planning and investment advisory unit — which manages wealth for clients and earns fees as a percentage of those assets — delivered $2.61 million in revenue this quarter. That figure rose 39.9% from a year ago and 14.0% from the second quarter. Assets under management (AUM), the total client money the unit oversees, reached $1.40 billion, up 27.3% from a year ago.
This fee growth offsets softer results in the bank's other fee lines. Mortgage banking income fell 34.3% from a year ago to $614 thousand because higher interest rates reduced fixed-rate loan sales. Meanwhile, the new Government Guaranteed Lending unit — acquired with Signature Bank to originate Small Business Administration (SBA) loans backed by federal guarantees — generated $534 thousand in fees, down 24.1% from last quarter as the bank sold $5.10 million of loans compared to $8.94 million in the second quarter.
What to watch: net new client assets in the third-quarter Form 10-Q filing. In the first half of the year, market gains drove most of the asset increase rather than new client money, so a small inflow number would mean fee revenue remains vulnerable to a stock market drop.
Underlying Loan Growth Accelerated as Payoffs Slowed
Headline loan growth looks much larger this year because First Community bought Signature Bank of Georgia on January 8, adding $195.7 million of loans on day one. Stripping out that initial acquired balance, loans from businesses owned a year ago still grew 10.6% from a year ago by our math, and rose at a 10.6% annualized pace over the first nine months of 2026. During the third quarter alone, the loan book expanded by $32.1 million, or 8.1% annualized, up from 7.5% in the second quarter.
The bank originated $53.3 million in new commercial loans and funded $17.9 million of existing commercial construction commitments during the quarter. Just as important, borrowers paid off fewer loans early: loan payoffs and paydowns dropped 16.9% from the second quarter. Because the bank funded this loan growth by drawing down low-yielding cash at the Federal Reserve by $23.0 million, loans rose to 71.9% of earning assets from 70.7% last quarter, lifting interest income.
What to watch: commercial loan production and construction advances in the fourth quarter. A drop below $50 million in quarterly commercial originations would slow the shift from cash into higher-yielding loans.
🐻 Bear Case
A One-Time Gain Masked Flatter Underlying Profit
First Community highlighted that net income excluding merger costs rose 1.8% from the second quarter to $8.12 million, and diluted profit per share excluding merger costs rose 2.4% to $0.86. However, that non-GAAP adjustment only removes $104 thousand of pre-tax merger expenses (down from $503 thousand last quarter) and leaves a much larger one-time windfall inside the earnings figure.
Third-quarter non-interest income included $797 thousand "related to an SBA loan settlement gain on an SBA loan that was previously charged off by Signature Bank of Georgia prior to its acquisition by First Community". Meanwhile, operating costs moved up as marketing expenses rose $245 thousand for media buys and other expenses rose $341 thousand because a $270 thousand merger accrual reversal from the second quarter did not repeat. The bank also took an $86 thousand write-down on foreclosed real estate.
By our math, stripping out both merger costs and the non-recurring income line ($758 thousand in Q3 vs $80 thousand in Q2) leaves underlying pre-tax profit down 4.1% from the second quarter, at $9.75 million vs $10.16 million. What to watch: fourth-quarter non-interest expense and non-interest income without settlement gains. If quarterly operating expenses stay above $15.5 million without one-off gains, sequential profit will dip.
Past-Due Loans Kept Creeping Up After the Merger
First Community stated that credit quality remains healthy, noting net charge-offs of just $9 thousand and non-performing assets — loans not paying interest plus foreclosed property — holding at 0.04% of total assets. While overall losses remain near zero, early-stage delinquencies and watched loans have risen steadily since the Signature Bank acquisition closed in January.
- Total past-due loans: 0.27% of loans, up from 0.26% in Q2, 0.17% in Q1, and 0.07% at year-end 2025
- Loans 90+ days past due and still accruing interest: $616 thousand, up from $419 thousand in Q2 and $2 thousand at year-end 2025
- Special mention loans (early-warning risk rating): $5.83 million, up from $5.21 million in Q2 and $2.95 million a year ago
- Substandard loans (loans with defined credit weaknesses): $5.89 million, compared to $5.87 million in Q2 and $1.31 million at year-end 2025
These figures are still small against $243.5 million of regulatory capital, and the loan loss allowance stands at 1.16% of loans. Still, the upward drift shows the acquired construction and commercial portfolio carries more credit friction than First Community's legacy book. What to watch: accruing loans 90+ days past due in the fourth quarter. If those balances move into non-accrual status, credit provisions will have to rise from this quarter's $193 thousand.
Risks this quarter didn't answer
Several standing risks from the second quarter rely on footnote tables that appear in the quarterly Form 10-Q filing rather than the earnings release, or depend on events scheduled for next year.
- Commercial real estate concentration: non-owner-occupied commercial real estate stood at 314.1% of risk-based capital in Q2, above the 300% regulatory screen; the Q3 loan category breakdown will appear in the 10-Q.
- Uninsured deposits: accounts above federal insurance limits excluding collateralized public funds rose to 27.7% of deposits in Q2; the Q3 reading awaits the 10-Q deposit footnote.
- Interest-rate shock policy limit: the present value of equity in a 400-basis-point rate drop sat outside the bank's -25% policy limit in Q2; the updated sensitivity table will arrive in the 10-Q.
- Acquisition accounting details: goodwill held steady at $29.40 million in Q3 after an unexplained drop in Q2, and the treatment of day-one credit allowances awaits the 10-Q footnote rollforward.
- Bank leadership transition: bank chief executive Ted Nissen retires on December 31, 2026, splitting his role between incoming CEO Vaughan Dozier and President Drew Painter; retention and execution will be tested in early 2027.
👓 Other Themes
Higher Market Rates Expanded Unrealized Bond Losses
First Community holds $516.0 million in investment securities with an average duration of 3.5 years and a 3.36% yield. Because bond prices fall when market yields climb, accumulated other comprehensive loss (AOCL) — unrealized losses on bonds deducted from book equity — expanded by 25.8% from last quarter to $22.93 million, which the bank said was "attributable to an increase in market interest rates".
💲 Other KPIs
Period-end deposits dipped 1.0% from last quarter, or $20.3 million, to $2.00 billion. Stripping out the $229.8 million acquired from Signature Bank on day one, underlying deposits grew just 0.2% from a year ago by our math. Because loans kept growing while deposits edged down, the loan-to-deposit ratio (excluding loans held for sale) rose to 80.34% from 77.95% last quarter.
Tangible book value per share — shareholder equity minus goodwill and intangibles, divided by common shares — rose 1.2% from last quarter and 10.7% from a year ago. Quarterly earnings easily outweighed the $4.7 million increase in unrealized bond losses. Tangible common equity to tangible assets reached 8.50%, up from 8.37% in the second quarter and 7.15% a year ago.
Average diluted shares rose 22.2% from a year ago because First Community issued stock to buy Signature Bank in January. That share issuance explains why GAAP net income jumped 54.9% from a year ago while diluted profit per share rose at half that pace, up 26.9%. The South Carolina lender did not buy back any shares during the third quarter.
🔮 Guidance
Unchanged. The board approved a $0.17 quarterly dividend payable November 17, 2026, matching the second-quarter payout after a one-cent raise earlier this year. Chief executive Mike Crapps said, "The entire board is pleased that our performance enables the company to continue its cash dividend for the 99 th consecutive quarter."
Unchanged. The plan allows the bank to buy back up to $7.5 million of stock, or about 3.3% of shareholders' equity, through May 7, 2027. First Community bought zero shares in the second and third quarters after using just $41 thousand of its prior $7.5 million plan, noting the authorization stays in place to "provide capital management opportunities for the company in the future".
❓ Key Questions
How much of the wealth asset gain came from inflows?
Assets under management rose $26 million this quarter to $1.40 billion, driving advisory fees up 14%. In the first half, market gains explained nearly all the increase. Knowing the net new client inflow will show whether fee growth can survive a market pullback.
Did commercial real estate concentration cross higher above 314%?
Non-owner-occupied commercial real estate stood at 314.1% of risk-based capital last quarter, above the 300% regulatory threshold. With $53.3 million of commercial loan production and $17.9 million of construction advances in Q3, investors need the updated ratio from the 10-Q.
What drove the jump in 90-day past-due accruing loans?
Loans 90 or more days past due and still accruing interest rose from $419 thousand in Q2 to $616 thousand in Q3, and special mention loans rose by $620 thousand. Management has not said whether these stem from the acquired Signature Bank book.
How will the bank fund 8% loan growth with flat deposits?
Period-end deposits fell $20.3 million in Q3 while loans grew $32.1 million, pushing the loan-to-deposit ratio up to 80.3% and drawing Federal Reserve cash down to $107.5 million. Continued loan growth will eventually require competing harder for deposits.