First Carolina Financial Services, Inc.: Form 10-Q for the period ended Jun 30, 2026

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as of and for the year ended December 31, 2025, included in our prospectus filed on June 18, 2026, with the Securities and Exchange Commission ("SEC") pursuant to Rule 424(b)(4).

This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed or implied by these statements because of various factors, including those discussed under “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in this Quarterly Report and in our prospectus. We undertake no obligation to update any forward-looking statement, except as required by law.

First Carolina Financial Services, Inc. conducts substantially all of its operations through First Carolina Bank and the Bank’s subsidiaries. Accordingly, references in this discussion to “we,” “us,” “our” or the “Company” generally refer to First Carolina Financial Services, Inc. and its consolidated subsidiaries, unless the context indicates otherwise.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains, and future oral and written statements by us and our management may contain, forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements include discussion of plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “see,” “expect,” “aim,” “intend,” “plan” or words or phases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors that are, in many instances, beyond our control and change over time, and other factors which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include, but are not limited to:

• adverse developments in our borrowers’ industries and, in particular, declines in real estate values;
• our ability to maintain compliance with federal and state laws that regulate our business and capital levels;
• our ability to raise capital as needed by our business;
• our ability to achieve and manage growth, including in loans and deposits;
• the loss of any of our key employees;
• changes in the interest rates affecting our deposits, loans, and securities portfolio;
• our ability to maintain adequate liquidity and control our cost of funds;
• the strength of the economy in our current and future market areas, as well as general economic, market, or business conditions;
• negative developments in the financial industry and credit markets;
• an insufficient allowance for credit losses as a result of inaccurate assumptions or otherwise;
• the ability of our current and any future markets to weather a downturn in the economy;
• our potential growth, including our entrance or expansion into new markets, the opportunities that may be presented to and pursued by us and the need for sufficient capital to support that growth;
• changes in our competitive position, competitive actions by other financial institutions and the competitive nature of the financial services industry and our ability to compete effectively against other financial institutions in our banking markets;
• changes in laws, regulations and the policies of federal or state regulators and agencies or interpretations thereof;
• governmental monetary and fiscal policies, including the policies of the Federal Reserve;
• our ability to maintain internal control over financial reporting and an effective risk management framework;
• our effective use of technology or an interruption or breach in security of our information systems;
• our reliance on secondary sources, such as FHLB advances, sales of securities and loans, federal funds lines of credit from correspondent banks and out-of-market time deposits, to meet our liquidity needs;
• inaccurate or incomplete information about our clients;
• our ability to assess and manage our asset quality;
• natural disasters, pandemics or other public health crises, geopolitical events and conflicts, war, terrorist activities or civil unrest and their effects on the economic and business environments in which we operate;
• risks associated with unauthorized access, cyber-crime and other threats to data security; and
• other risk and factors that are discussed in the section entitled “Risk Factors” in this periodic report, in our prospectus filed on June 18, 2026, with the SEC pursuant to Rule 424(b)(4), or in subsequent filings we make with the SEC.

This list of factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this periodic report, and our future levels of activity and performance, may not occur and actual results could differ materially and adversely from those described or implied in the forward-looking statements. As a result, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by law.

We qualify all of our forward-looking statements by the cautionary statements contained in this section and elsewhere in this Quarterly Report on Form 10-Q.

Company Overview

First Carolina Financial Services, Inc. is a bank holding company that provides banking and financial services through First Carolina Bank and its subsidiaries. Our operations are organized into two reportable segments: Community Banking and BM Tech.

The Community Banking segment provides commercial banking, consumer banking and wealth management services, with an emphasis on personalized, relationship-based service. The BM Tech segment provides digital banking and funds disbursement services, primarily to higher education institutions and their students, through a nationwide technology platform.

As of June 30, 2026, we had more than 640,000 deposit accounts, total assets of approximately $3.4 billion, total loans of approximately $2.7 billion, total deposits of approximately $2.8 billion and total shareholders’ equity of approximately $429.7 million.

Reclassification and Initial Public Offering

On June 17, 2026, the Company effected a two-for-one stock split of its common stock through an amendment to its Articles of Incorporation. In connection with the stock split, the par value of the Company's common stock was reduced from $1.00 per share to $0.50 per share, and the number of issued shares of common stock was proportionately increased. The stock split, which was effective immediately prior to the Company's initial public offering, did not affect any shareholder's proportional ownership interest in the Company.

On June 22, 2026, the Company successfully completed its initial public offering of 5,500,000 shares of common stock at a public offering price of $12.50 per share. First Carolina's common stock began trading on the New York Stock Exchange on June 18, 2026, under the ticker symbol "FCBM." On June 29, 2026, the underwriters exercised their overallotment option in full, resulting in the sale of an additional 825,000 shares of the Company’s common stock at the public offering price. Inclusive of the overallotment option, the Company received net proceeds of approximately $69.6 million, after deducting underwriting discounts and commissions and expenses of the offering.

Factors Affecting Comparability of Financial Results

On January 31, 2025, the Company completed its acquisition of BM Technologies, Inc. See, Note 2-Business Combinations, in our notes to the consolidated financial statements included herein for additional discussion. Prior to acquisition by the Company, BM Tech operated as a financial technology company that, in partnership with its banking partners, offered a digital banking platform and funds disbursement services. First Carolina Bank has served as BM Tech’s banking partner for its BankMobile Platform and higher education disbursement business since December 1, 2023.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are described in Note 1 to those audited consolidated financial statements included in the Company’s prospectus filed on June 18, 2026, with the Securities and Exchange Commission pursuant to Rule 424(b)(4). There were no material changes to the Company’s significant accounting policies during the six months ended June 30, 2026. The Company applies the same accounting policies in preparing its interim financial statements as it applies in preparing its annual financial statements.

Results of operations—Three and Six months ended June 30, 2026, and June 30, 2025

Overview

For the three months ended June 30, 2026, we reported net income and diluted earnings per share of $5.1 million and $0.20, respectively. This compares to net income and diluted earnings per share of $4.6 million and $0.18, respectively, for the same period in 2025. For the six months ended June 30, 2026, we reported net income and diluted earnings per share of $11.0 million and $0.44, respectively. This compares to net income and diluted earnings per share of $9.3 million and $0.37, respectively, for the same period in 2025.

Net Interest Income

Net interest income represents the primary source of earnings for the Company. Net interest income equals the amount by which interest income on interest-earning assets, predominantly loans and securities, exceeds interest expense on interest-bearing liabilities, including deposits, other borrowings, and subordinated debt. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, are the components that impact the level of net interest income. The net interest margin is calculated by dividing net interest income by average earning assets. The provision for credit losses, noninterest income, and noninterest expense are the other components that determine net income. Noninterest income and expense primarily consist of income from service charges on deposit accounts, revenue from wealth management services, ATM and check card income, income from bank owned life insurance, and general and administrative expenses.

Three Months Ended June 30, 2026

Net interest income increased by $2.1 million, or 8.75%, to $25.6 million for the three months ended June 30, 2026, as compared to the same period in prior year. Total interest income increased by $488 thousand and interest expense decreased by $1.6 million.

The increase in total interest income was primarily attributed to a $418 thousand increase in interest income on loans comprised of a $264 thousand increase due to higher volume and $154 thousand increase due to a 2-basis point increase in loan yield compared to the same period in 2025.

The decrease in total interest expense was attributable to a $1.5 million decrease in interest expense on deposits and a $143 thousand decrease in interest expense on subordinated debt. The lower interest expense on deposits resulted from a

41-basis point decrease in the cost of interest-bearing deposits and a 4.0% increase in average interest-bearing deposit balances, as compared to the same period in 2025. The decrease in cost of deposits was impacted by a decrease in rates paid on deposits and a change in the composition of the deposit portfolio as lower cost demand and savings deposit balances increased, while higher cost time deposit balances decreased. The $143 thousand decrease in subordinated debt expense was due to interest rate decreases in 2025.

The net interest margin was 3.23% for the second quarter of 2026 compared to 3.05% for the same period in the prior year as the cost of funds decreased 42-basis points, which was partially offset by the yield on earning assets decreasing 10-basis points

Six Months Ended June 30, 2026

Net interest income increased $3.8 million, or 8.0%, to $51.1 million for the first six months of 2026 compared to the same period in the prior year. Total interest income increased by $1.8 million and total interest expense decreased by $2.0 million.

The increase in total interest income was attributable to a $3.4 million increase in interest income from securities available for sale, and a $543 thousand increase in interest income and fees on loans held for investment. The increase in interest income from securities available for sale was attributable to an average balance increase of $170.5 million due to several investment purchases aligning with the bank’s investment strategy. The slight increase in interest income on loans was attributable to a 0.68% increase in average balances with the average yield staying consistent.

The decrease in total interest expense was attributable to a $1.9 million decrease in interest expense on deposits and a $106 thousand decrease in interest expense on subordinated debt. The lower interest expense on deposits resulted from a 44-basis point decrease in the cost of interest-bearing deposits. The decrease in the cost of interest-bearing deposits was impacted by a decrease in rates paid on deposits and a change in composition of the deposit portfolio as higher cost time deposit balances decreased, while lower cost demand and savings deposit balances increased. The lower subordinated debt expense was due to interest rate decreases in 2025.

The net interest margin was 3.24% compared to 3.14% for the same period in 2025 as cost of funds decreased 44-basis points partially offset by the yield on interest earning assets decreasing 15-basis points.

The following table sets forth the components of net interest income for the three months ended June 30, 2026 and 2025, respectively:

(Dollars in thousands)

51

The following table sets forth the components of net interest income for the six months ended June 30, 2026 and 2025, respectively:

(Dollars in thousands)

52

Average balance sheet, interest and yield/rate analysis. The following table presents average balance sheet information, interest income, interest expense and the corresponding average yield earned and rates paid for the three and six months ended June 30, 2026 and 2025. The average balances are daily averages and include both performing and nonperforming loans.

(Dollars in thousands)

53

(Dollars in thousands)

(1) Loan balance includes both loans held for investment and loans held for sale (if any). Nonaccrual loans are included in total loan balances. No adjustment has been made for these loans in the yield calculations. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.

(2) US government Agency residential mortgage-backed securities, non-agency residential mortgage-backed securities, US Agency commercial mortgage backed securities, asset backed securities, and corporate securities.

(3) Noninterest-earning assets includes the allowance for credit losses.

(4) Net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities.

(5) Net interest margin is net interest income divided by total interest-earning assets.

Interest rates and operating interest differential. Increases and decreases in interest income and interest expense result from change in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the current period’s average rate. The effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the changes in each.

(Dollars in thousands)

(1) Loan balance includes both loans held for investment and loans held for sale (if any). Nonaccrual loans are included in total loan balances. No adjustment has been made for these loans in the yield calculations. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.

(2) US government Agency residential mortgage-backed securities, non-agency residential mortgage-backed securities, US Agency commercial mortgage backed securities, asset backed securities, and corporate securities.

Provision (Benefit) for Credit Losses

The provision for credit losses is based on management’s assessment of the adequacy of our allowance for credit losses. Factors impacting the provision include inherent risk characteristics in our loan portfolio, the level of nonperforming loans and net charge-offs, both current and historic, local economic and credit conditions, the direction of the change in collateral values, and the funding probability on unfunded lending commitments. The provision for credit losses is charged against earnings to maintain our allowance for credit losses, which reflects management’s best estimate of probable losses inherent in our loan portfolio at the balance sheet date.

Three Months Ended June 30, 2026

The provision for credit losses totaled $273 thousand for the three months ended June 30, 2026, compared to a benefit of $169 thousand as compared to the same period in 2025. The provision was comprised of $943 thousand in provision for credit losses on loans offset by $670 thousand in benefit for credit losses on unfunded commitments. The increase in provision for credit losses on loans resulted primarily from loan growth that occurred as compared to the same period in 2025.

Six Months Ended June 30, 2026

The benefit for credit losses totaled $125 thousand for the six months ended June 30, 2026, compared to provision for credit losses of $363 thousand as compared to the same period in 2025. The provision for the six months ended June 30, 2026, was comprised of $1.2 million provision for credit losses on loans and $1.3 million benefit for credit losses on unfunded commitments. The decrease in total provision (benefit) for credit losses was driven from favorable modeled economic assumptions that have occurred over the period and lower volume of unfunded commitments as compared to the same period in 2025.

Noninterest Income

Three Months Ended June 30, 2026

Noninterest income decreased $6.5 million, or 49.5%, to $6.7 million for the second quarter of 2026, compared to the same period of 2025. The decrease resulted primarily from a planned discontinuation of a banking-as-a-service partnership in 2025 that was not a strategic fit for the company. Bank-owned life insurance income increased by $288 thousand to $636 thousand. The increase was related to income earned based on the increase in cash surrender value, net of premiums.

Six Months Ended June 30, 2026

Total noninterest income decreased $8.6 million, or 37.5%, to $14.3 million for the six months ended June 30, 2026, compared to the same period in 2025. The primary decrease resulted from a planned discontinuation of a banking-as-a-service partnership in 2025 that was not a strategic fit for the company. Bank-owned life insurance income increased by $498 thousand to $1.2 million. The increase was related to income earned based on the increase in cash surrender value, net of premiums. Gain on sale of securities was $108 thousand for the six months ended June 30, 2026, compared to $0 for the same period ended 2025. The increase was due to the sale of AFS securities as part of a strategic rotation in Q1 2026 that reduced duration and convexity risk within the portfolio.

Noninterest Expense

Three Months Ended June 30, 2026

Noninterest expenses decreased by $5.2 million, or 17.1%, to $25.5 million for the three months ended June 30, 2026, compared to the same period one year ago. The decrease was primarily attributable to a combined $3.6 million decrease in salaries and employee benefits, $564 thousand less in data processing expense, $2.1 million less in consumer fraud and transaction losses, offset by an increase of professional fees of $985 thousand primarily associated with BM Tech. The decline in expenses is reflective of the Company’s continued focus on disciplined expense management and operating efficiency.

Six Months Ended June 30, 2026

Noninterest expenses decreased $6.1 million, or 10.6%, to $51.7 million for the six months ended June 30, 2026, compared to the same period one year ago. The decrease was primarily attributable to a combined $3.5 million decrease in salaries and employee benefits, $456 thousand less in data processing expense, $4.3 million less in consumer fraud and transaction losses, $1.7 million less in servicing fees as the Bank had one month of expense before the consummation of the acquisition of BM Tech, offset by an increase of professional fees of $2.1 million and a $1.4 million increase in occupancy and equipment related to BM Tech.

Income Tax

Income tax expense is influenced by the statutory rate, the amount of taxable income, the amount of tax-exempt income and the amount of nondeductible expenses. For the six months ended June 30, 2026, the Company reported income tax expense of $2.8 million, compared with $2.7 million in the same period of 2025. The Company’s effective tax rate for the six months ended June 30, 2026 and 2025 was 20.37% and 22.42%, respectively. The decrease in the effective tax rate was primarily driven by higher full-year pretax book income expectations reflected in the annual effective tax rate calculation for 2026, along with additional state tax expense.

The Company is subject to routine audits of our tax returns by the Internal Revenue Service (“IRS”) as well as all states in which we conduct business. As of June 30, 2026, the Company does not have any open audits.

Operating Segment Analysis

We have two reporting segments, Community Banking and BM Tech business line. The Company’s Community Banking segment comprises activities of a traditional banking institution, including gathering deposits and originating loans for portfolio in the Bank's primary market areas. The BM Tech segment is comprised of a technology platform through which funds disbursement services are provided to higher education institutions and student consumers can open digital-first deposit accounts at the Bank, in each case, on a nationwide basis. Our reportable segments have been determined based on management’s focus and internal reporting structure.

Our reported segments and the financial information disclosed in the reported segments are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes in management structure or allocation methodologies and procedures may result in future changes to previously reported operating segment financial information. Refer to Note 11 - Segment Reporting, in our notes to the consolidated financial statements included in this report for table presentations of results of operations for our reportable segments.

Three Months Ended June 30, 2026

Community Banking

For the three months ended June 30, 2026, the Community Banking segment reported net income of $6.8 million, compared with $5.5 million for the same period of 2025. The increase in net income was primarily attributable to an increase in loan interest income of $418 thousand, a $1.6 million reduction in interest expense as the Company continued to realign the balance sheet with its strategic budget initiatives, and $869 thousand less in employee salary and benefits expense as compared to the same period in 2025. In addition, income from BOLI increased by $288 thousand following the additional purchase of BOLI policies. These changes were partially offset by $442 thousand more in provision for credit losses, $561 thousand less in other noninterest income, $192 thousand more in occupancy and equipment expense, and $227 thousand more in consumer fraud and transaction losses, as compared to the same period in 2025.

BM Tech

For the three months ended June 30, 2026, the BM Tech segment reported a loss of $1.7 million compared to the $925 thousand loss for the same period in 2025. The change in net loss was driven by a decline of $6.1 million in servicing fees and charges related to the planned discontinuation of a banking-as-a- service partnership which did not align with the Company’s long term strategic focus and an increase in professional fees of $811 thousand. The decline in servicing fees in the BM Tech segment was partially offset by a $2.3 million reduction in consumer fraud and transaction losses, a $2.7 million decrease in employee salary and benefits expense, and a $521 thousand decrease in data processing fees as management continued to focus on disciplined expense management, enhancement of fraud controls, and operating efficiencies.

Six Months Ended June 30, 2026

Community Banking

For the six months ended June 30, 2026, the Community Banking segment reported net income of $13.7 million, compared with $10.1 million for the same period in 2025. The increase in net income was attributable to: an increase in interest income of $1.8 million, comprised of a $543 thousand increase of loan interest and a $1.3 million increase in investment interest income; a $488 thousand decrease in the provision for credit losses; a $2.0 million reduction in interest expense; a $1.4 million decrease in employee salary and benefits expense; and a $1.5 million decrease in other noninterest expense. These improvements were partially offset by a $1.5 million decrease in servicing fees and a $707 thousand decrease in interchange and card revenue compared with the same period in 2025.

BM Tech

For the six months ended June 30, 2026, the BM Tech segment reported a net loss of $2.7 million, compared with a net loss of $771 thousand for the same period in 2025. Because the acquisition was consummated on January 31, 2025, the six months ended June 30, 2025 included only five months of BM Tech’s income and expenses. The change in the net loss was primarily attributable to an $8.3 million decline in servicing fees and charges resulting from the planned discontinuation of a banking-as-a-service partnership which did not align with the Company's long-term strategic focus, a $1.1 million increase in occupancy and equipment expense, and a $2.0 million increase in professional fees. These changes were partially offset by a $1.0 million increase in university fees (subscriptions and transaction activity), a $4.3 million decrease in consumer fraud and transaction losses, and a $2.2 million reduction in employee salary and benefits expense as management continued to focus on disciplined expense management, enhancement of fraud controls, and operating efficiencies.

Financial Condition

The following table summarizes selected components of our balance sheet as of June 30, 2026 and December 31, 2025.

(Dollars in thousands)

Total Assets

Total assets as of June 30, 2026, were $3.4 billion compared to $3.3 billion at December 31, 2025, an increase of $88.4 million, or 2.7%. The increase was primarily driven by strong loan growth of $94.4 million, net investment growth of $13.3 million, and BOLI growth of $10.2 million, which items were offset by declines in cash and cash equivalents of $15.3 million, $1.1 million in deferred tax assets, and $1.4 million related to intangible assets, as well as a decrease in prepaid expenses and other assets of $6.9 million.

Our loan portfolio is our largest class of earning assets and typically provides higher yields than other types of earning assets. Associated with the higher yields is an inherent amount of credit risk that we attempt to mitigate with strong underwriting and stringent portfolio monitoring and management. As of June 30, 2026, credit quality remained consistent from year end. As of June 30, 2026, and December 31, 2025, our total loans held for investment amounted to $2.7 billion and $2.6 billion, respectively. The following table presents the balance and associated percentage of each major product type within our portfolio as of the dates indicated.

(Dollars in thousands)

(1) Includes deferred (fees) costs and unamortized (discounts) premiums, net of $(7.4) and $(6.9) million at June 30, 2026 and December 31, 2025 respectively.

Construction, land, and land development loans are primarily comprised of loans for the purpose of constructing or rehabilitating commercial developments, such as multi-family, industrial, and self-storage properties. This category also includes loans to consumers to construct custom homes for owner occupancy, as well as loans to developers to build subdivisions to be held as rental properties. These loans may be highly dependent on the supply and demand for commercial real estate in the markets served by the Company. Deterioration in demand could result in a significant decrease in the underlying collateral values and make repayment of the outstanding loans more difficult. Land and land development loans are not considered a significant portion of this category.

Other commercial real estate loans include loans to finance income-producing commercial and multi-family properties. Loans in this category include neighborhood retail centers, self-storage properties, medical and professional offices, industrial warehouses and distribution centers, multi-family, and student housing facilities. The underwriting of these loans takes into consideration the occupancy, rental rates, and local market demand, as well as the financial health of the borrower and experience of the sponsor. The primary risk associated with loans secured by income-producing property is the inability of that property to produce adequate cash flow to service the debt, which cash flow is the primary source of repayment for these types of loans. Loans secured by commercial real estate generally involve a greater degree of risk compared to loans secured by single-family residences due to more volatile collateral values and performance due to changes in economic and market conditions. While also in this category, loans secured by farmland represent an insignificant portion.

Owner-occupied commercial real estate includes loans secured by commercial real estate for which the primary source of repayment is the cash flow from the ongoing operations of the party, or an affiliate of the party, who owns the property. Loans in this category may be secured by industrial, office, and retail buildings, as well as senior housing facilities and institutions of higher learning. These include both lines of credit and term loans which are amortized over the useful life of the assets financed. Personal guarantees from the business owners are generally required for these loans. Risks in this category may include economic cycles, competition, supply chain disruption, and the loss of key personnel.

Commercial & Industrial loans include loans and lines of credit to finance business operations, agricultural purposes, equipment and other non-real estate purchases for operating companies. Personal guarantees from the business owners are generally required for these loans. These loans generally share the same risk characteristics as owner-occupied real estate, though collateral valuations may be more volatile. As such, these loans are often subject to more frequent monitoring requirements.

Residential real estate loans, including home equity lines of credit, are comprised of loans secured by senior or junior liens on single-family residences. These loans are typically considered to involve a lesser degree of risk than other loan classes due to relative stability of collateral values compared to other collateral types, as well as expected priority of debt payments on a borrower’s primary residence.

Consumer loans are comprised of loans and lines of credit to individuals for personal, family or household use. At June 30, 2026 and December 31, 2025, this loan class is not considered a significant concentration within the Company’s portfolio and consists of many smaller dollar loans.

Over the past few years, we have experienced significant growth in our loan portfolio, although the relative composition of the portfolio has not changed significantly. We continue to work to further diversify the composition of our loan portfolio.

We recognize that our CRE concentration is significant within our balance sheet. CRE loan balances (excluding loans secured by owner-occupied properties) as a percentage of risk-based capital were 448.0% and 487.2% as of June 30, 2026 and December 31, 2025, respectively. Our loans are geographically concentrated with borrowers and collateral properties predominately in North Carolina, Virginia, South Carolina and Georgia. As of June 30, 2026, 90.9% of our commercial real estate loans were collateralized by properties in this region.

The following table presents the balance, associated percentage of real estate loan concentrations and total count of real estate loans collateralized by properties as of the dates indicated.

(Dollars in thousands)

59

(Dollars in thousands)

At June 30, 2026, 9.0% of our real estate loans were collateralized by properties outside North Carolina, Virginia, South Carolina and Georgia. The collateral located outside of North Carolina, Virginia, South Carolina and Georgia is primarily located in Tennessee, Florida, and New York. The percentage of real estate loans with collateral in these states is 4.8%, 1.3%, and 1.0%, respectively.

We believe that our past success is attributable to focusing on products and markets where we have significant expertise. Given our concentrations, we have established strong risk management practices including risk-based lending standards, annual evaluations of income property loans and quarterly top-down stress testing. We expect to continue growing our loan portfolio.

Asset Quality

Nonperforming assets. Our nonperforming assets consist of nonperforming loans and foreclosed real estate, if any. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full and timely collection of interest or principal or generally when a loan becomes contractually past due by 90 days or more with respect to interest or principal. When a loan is placed on nonaccrual status, all interest previously accrued, but not collected, is reversed against current period interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest. At June 30, 2026, and December 31, 2025, the Company had no loans 90 days or more past due that are still accruing interest.

There were three loans totaling $21.6 million on a nonaccrual basis as of December 31, 2025, and four loans totaling $22.3 million on a nonaccrual basis as of June 30, 2026.

The ratio of nonperforming loans to period end loans increased from 0.81% as of December 31, 2025 to 0.83% as of June 30, 2026. The increase was related to additional advances to protect the underlying collateral.

The ratio of the allowance for credit losses to nonperforming loans decreased from 96.8% as of December 31, 2025, to 94.5% as of June 30, 2026. The decrease was primarily due to additional advances to protect the underlying collateral.

The Company uses several credit quality indicators to manage credit risk on an ongoing basis. The Company’s primary credit quality indicator is an internal credit risk rating system. The Company grades loans as either “pass,” “special mention,” “substandard,” “doubtful,” or “loss” loans. Loans are reviewed on a regular basis internally, and at least annually by an external loan review group, to ensure loans are graded appropriately. See, Note 4-Loans Receivable and Allowance for Credit Losses, of the notes to the consolidated financial statements included in this report.

The banking industry defines loans graded substandard or doubtful as “classified” loans. The following table shows our levels of classified loans as of the dates indicated:

(Dollars in thousands)

(Dollars in thousands)

Allowance for credit losses: The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. In estimating the component of the allowance for credit losses for loans that share common risk characteristics, loans are pooled based on loan type and areas of risk concentration. For loans evaluated collectively, the allowance for credit losses is calculated using life of loan historical losses adjusted for economic forecasts and current conditions. Loans that management believes do not share risk characteristics with other loans in the portfolio that are individually evaluated for impairment are not included in the collective evaluation.

Management considers several factors involved in determining whether a loan should be individually evaluated include, but are not limited to, the financial condition of the borrower and the value of the underlying collateral. Expected credit losses for loans evaluated individually are measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate, or when management determines that a loan is collateral dependent the expected credit loss is measured based on the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. As a practical expedient, management measures the expected credit loss for a loan using the fair value of the collateral, if repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on management's assessment as of the reporting date.

While the entire allowance for credit losses is available to absorb losses from any and all loans, the following table represents management’s allocation of our allowance for credit losses by loan category, and the percentage of allowance for credit losses in each category, for periods indicated.

(Dollars in thousands)

Investment Portfolio

Our total securities investment portfolio amounted to $325.3 million at June 30, 2026 and $312.1 million at December 31, 2025. As of June 30, 2026, our securities investment portfolio had an accounting yield of 4.64% and a modelled yield to the forward curve of 4.98%. The portfolio is composed of 36% fixed-rate securities and 64% floating-rate securities, with a modelled effective duration and weighted average life of 1.5 and 5.7 years, respectively. At June 30, 2026, the securities portfolio had an unrealized loss position of $0.4 million. We manage our investment portfolio according to written investment policies approved by our board of directors. Our investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit risk and interest rate risk that is reflective in the yields obtained on those securities.

The following tables present the carrying value of our investment portfolio as of the dates indicated:

(Dollars in thousands)

(Dollars in thousands)

The following table presents the weighted average yields for each maturity range at and as of the periods presented:

(Dollars in thousands)

Weighted average yield for securities available for sale is the projected yield to maturity given current cash flow projections for mortgage backed securities and collateralized mortgage obligations and is a yield to worst for callable securities. Weighted average yield for securities held to maturity is the stated coupon of the bond.

The following table presents the fair value of our securities as of the dates indicated:

(Dollars in thousands)

63

(Dollars in thousands)

The unrealized losses on securities are attributed to interest rate changes rather than the marketability of the securities or the issuer’s ability to honor redemption of the obligations, as the securities with losses are all obligations of or guaranteed by agencies sponsored by the U.S. government. We have adequate liquidity with the ability and intent to hold these securities to maturity resulting in full recovery of the indicated impairment. Accordingly, none of the unrealized losses on these securities have been determined to be other than temporary.

Liabilities

Total liabilities as of June 30, 2026 and December 31, 2025 were $3.0 billion, respectively.

Deposits

Representing 95.2% of our total liabilities as of June 30, 2026, deposits are our primary source of funding for our business operations.

Total deposits increased by $35.0 million, or 1.3%, to $2.8 billion at June 30, 2026. Deposits attributable to the BankMobile Platform and our Payments business grew from December 2025, through June 2026, by $28 million, in accordance with normal seasonality trends, to end the period at $362 million. Deposits as of June 30, 2026 remained level compared to December 31, 2025 as increases in non-interest bearing deposits were offset by runoff in the Bank’s brokered CD portfolio. Our loan to deposit ratio was 96.9% at June 30, 2026, compared to 94.7% at December 31, 2025. We intend to continue to operate our business with a loan to deposit ratio similar to these levels.

The following table summarizes our deposit composition by average deposits and average rates paid for the periods indicated:

(Dollars in thousands)

(1) Our total estimated uninsured deposits were $508 million as of June 30, 2026.

(Dollars in thousands)

(1) Our total estimated uninsured deposits were $500 million as of December 31, 2025.

The following table summarizes the scheduled maturities of time deposits at June 30, 2026:

(Dollars in thousands)

The aggregate amount of jumbo certificates of deposit with a minimum denomination of $250,000 at June 30, 2026 and December 31, 2025, was approximately $122 million and $140 million, respectively.

The following tables summarize the maturity of time deposits for the periods indicated:

FHLB Advances and Other Borrowings

From time to time, the Company will utilize short-term collateralized FHLB borrowings to maintain adequate liquidity. The advances from the FHLB are secured by eligible securities and eligible loans. The FHLB borrowing capacity at June 30, 2026 and December 31, 2025, was $490 million and $491 million, respectively.

Advances from the FHLB of Atlanta consisted of the following at December 31, 2025:

Advances from the FHLB of Atlanta consisted of the following at June 30, 2026

65

Interest expense on FHLB advances was approximately $293 thousand for the three months ended June 30, 2026 compared to $233 thousand for the same period in 2025. Interest expense on FHLB advances was approximately $412 thousand and $419 thousand for the six months ended June 30, 2026, and 2025, respectively.

Subordinated Notes Due December 2029. On December 6, 2019, the Company issued $32 million of fixed-to-floating rate subordinated notes (the “2019 Notes”) due December 6, 2029, in a private placement. The Company received $31.6 million in net proceeds after deducting issuance costs. The 2019 Notes accrued interest at a fixed rate of 5.5%, payable semi-annually beginning June 6, 2020, for the first five years until December 6, 2024; thereafter, the 2019 Notes accrue interest at an annual floating rate equal to the three-month Chicago Mercantile Exchange Term Secured Overnight Financing Rate (“CME SOFR”) plus 0.262% plus a spread of 3.94% until maturity or early redemption. The Company may redeem the 2019 Notes in whole or in part, subject to obtaining Federal Reserve approval, on or after December 6, 2024, at a redemption price equal to 100% of the principal amount of the 2019 Notes being redeemed plus accrued and unpaid interest to but excluding the date of redemption. At June 30, 2026 and December 31, 2025, the carrying value of the 2019 Notes totaled approximately $31.8 million and $31.9 million respectively. As of June 30, 2026, $19.2 million of the original principal amount of the 2019 Notes was included in the Company’s Tier 2 capital compared to $25.6 million at December 31, 2025.

Subordinated Notes Due April 2032. On April 18, 2022, the Company issued $32 million of fixed-to-floating rate subordinated notes (the “2022 Note” and, together with the 2019 Notes, the “Subordinated Notes”) due April 30, 2032, in a private placement to a single institutional purchaser. The Company received $31.4 million in net proceeds after deducting issuance costs. The 2022 Note accrues interest at a fixed rate of 4.50%, payable semi-annually beginning October 30, 2022, for the first five years until April 30, 2027; thereafter, the 2022 Note will accrue interest at an annual floating rate equal to three-month SOFR plus a spread of 1.93% until maturity or early redemption. The Company may redeem the 2022 Note in whole or in part, subject to obtaining Federal Reserve approval, beginning with the interest payment date of April 30, 2027, at a redemption price equal to 100% of the principal amount of the 2022 Note being redeemed plus accrued and unpaid interest to but excluding the date of redemption. At June 30, 2026 and December 31, 2025 the carrying value of the 2022 Note totaled approximately $31.6 million and $31.6 million, respectively. At June 30, 2026, $32.0 million of the original principal amount of the 2022 Note was included in the Company’s Tier 2 capital.

The aggregate principal amount of the Subordinated Notes is intended to meet the qualifications for inclusion as Tier 2 capital of the Company under the regulatory guidelines of the Federal Reserve, subject to the capital rule’s requirement that one-fifth of the outstanding amount of the Subordinated Notes will be excluded from Tier 2 capital treatment each year during the instrument’s last five years before maturity, such that no amount will be counted as Tier 2 capital during the last year prior to maturity.

Interest expense on the Subordinated Notes was $2.0 million and $2.1 million for the six months ended June 30, 2026 and 2025, respectively. Interest payable on the Subordinated Notes amounted to $405 thousand and $407 thousand as of June 30, 2026and December 31, 2025, respectively.

Shareholders’ Equity

Shareholders’ equity totaled $429.7 million at June 30, 2026 compared to $346.9 million at December 31, 2025. The increase in shareholders’ equity was attributable to earnings and the Company's initial public offering completed in June 2026.

Off-Balance Sheet Arrangements

In the normal course of business, we enter into various transactions that are not included in our consolidated balance sheets in accordance with GAAP. These transactions include commitments to extend credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer if there is no violation of conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if we deem necessary, upon extension of credit is based on management’s credit evaluation of the borrower. Collateral obtained varies but may include real estate, stocks, bonds, and certificates of deposit. Standby letters of credit are conditional commitments issued to guarantee a customer’s performance to a third party and have essentially the same credit risk as other lending facilities. Collateral held for commitments to extend credit and letters of credit varies but may include cash, accounts receivable, inventory, property, plant, equipment and income-producing commercial properties.

The following is a summary of our off-balance sheet commitments outstanding as of the dates presented.

(Dollars in thousands)

With the exception of the items detailed above, we have no other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, that is material to investors.

Liquidity Management and Capital Adequacy

Liquidity Management

Liquidity refers to our capacity to meet our cash obligations at a reasonable cost. Our cash obligations require us to have cash flow that is adequate to fund loan growth and maintain on-balance sheet liquidity while meeting present and future obligations of deposit withdrawals, borrowing maturities and other contractual cash obligations. In managing our cash flows, management regularly confronts situations that can give rise to increased liquidity risk. These include funding mismatches, market constraints in accessing sources of funds and the ability to convert assets into cash. Changes in economic conditions or exposure to credit, market, operational, legal and reputational risks also could affect the Bank’s liquidity risk profile and are considered in the assessment of liquidity management.

The Company is a corporation separate and apart from our Bank and, therefore, must provide for its own liquidity, including liquidity required to meet its debt service requirements on its Subordinated Notes. The Company’s main source of cash flow is dividends declared and paid to it by the Bank. There are statutory and regulatory limitations that affect the ability of the Bank to pay dividends to the Company. We believe that these limitations will not impact our ability to meet our ongoing short-term cash obligations. Our audit committee continually monitors our liquidity position to ensure that our assets and liabilities are managed in a manner to meet all reasonably foreseeable short-term, long-term and strategic liquidity demands. Our audit committee has established a comprehensive management process for identifying, measuring, monitoring and controlling liquidity risk. Because of its critical importance to the viability of the Bank, liquidity risk management is fully integrated into our risk management processes. Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the board of directors and active involvement by management; appropriate strategies, policies, procedures and limits used to manage and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems including stress tests that are commensurate with the complexity of our business activities; active management of intraday liquidity and collateral; an appropriately diverse mix of existing and potential future funding sources; adequate levels of highly liquid marketable securities free of legal, regulatory, or operational impediments, that can be used to meet liquidity needs in stressful situations; comprehensive contingency funding plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes sufficient to determine the adequacy of the Bank’s liquidity risk management process.

Our liquidity position is supported by management of our liquid assets and liabilities and access to alternative sources of funds. Our liquidity requirements are met primarily through our deposits, FHLB advances and the principal and interest payments we receive on loans and investment securities. Cash on hand, cash at third-party banks, investments available for sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets. Other sources of liquidity that are routinely available to us include funds from retail and wholesale deposits, advances from the FHLB and proceeds from the sale of loans. Less commonly used sources of funding include borrowings from the FRB discount window, draws on established federal funds lines from unaffiliated commercial banks and the issuance of debt or equity securities. We believe that our liquid assets and these alternative sources of funds provide adequate liquidity to meet our current and projected financial obligations for at least the next 12 months.

Capital Adequacy

The maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. The Company’s principal goals related to the maintenance of capital are the following: to provide adequate capital to support the Company’s risk profile consistent with the risk appetite approved by the Board of Directors; to provide financial flexibility to support future growth and client needs; to comply with relevant laws, regulations, and supervisory guidance; to achieve optimal ratings for the Company and its subsidiaries; and to provide a competitive return to shareholders.

The Company and the Bank are subject to various regulatory capital requirements administered by the federal and state banking regulators.

Failure to meet minimum regulatory capital requirements may result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. To satisfy minimum capital requirements under the applicable federal capital adequacy framework, each of the Company and the Bank must maintain minimum Tier 1 leverage, Tier 1 risk-based, common equity Tier 1, and total risk-based ratios as set forth in the table below.

(Dollars in thousands)

RWA means risk-weighted assets.

Impact of Inflation and Changing Prices

Our consolidated financial statements and related notes have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars, without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations. Unlike most industrial companies, nearly all of our assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods or services.

Market Risk

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates, and equity prices. The Company’s market risk is composed primarily of interest rate risk inherent in the normal course of lending and deposit-taking activities. We are also exposed to market risk in our investing activities.

Interest Rate Risk Management

Net interest income is our most significant component of earnings, and we consider interest rate risk to be our most significant market risk. Our net interest income results from the difference between the yields we earn on our interest-earning assets, primarily loans and investments, and the rates that we pay on our interest-bearing liabilities, primarily deposits and borrowings. When interest rates change, the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities do not necessarily move in tandem with each other because of the difference between their maturities and repricing characteristics and which can negatively impact net interest income.

Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve. Changes in monetary policy, including changes in interest rates, influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect the average duration of our loan portfolio, investment securities and other interest-earning assets.

Our goal is to structure our asset/liability composition to maximize net interest income while managing interest rate risk so as to minimize the adverse impact of changes in interest rates on net interest income and capital in either a rising or declining interest rate environment. Profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may impact our earnings adversely because the interest rates of the underlying assets and liabilities do not change at the same speed, to the same extent or on the same basis.

One of the tools management uses to estimate and manage the sensitivity of net interest revenue to changes in interest rates is an asset/liability simulation model. Resulting estimates are based upon multiple assumptions for each scenario, including loan and deposit re-pricing characteristics and the rate of prepayments. Our asset liability committee, or ALCO, periodically reviews the assumptions for reasonableness based on historical data and future expectations; however, actual net interest revenue may differ from model results. The primary objective of the simulation model is to measure the potential change in net interest revenue over time using multiple interest rate scenarios. The base scenario assumes rates remain flat and is the scenario to which all others are compared, in order to measure the change in net interest revenue. Policy limits are based on immediate rate shock scenarios which are compared to the base scenario. Other scenarios analyzed may include ramped rate shocks, delayed rate shocks, yield curve steepening or flattening, or other variations in rate movements. While the primary policy scenarios focus on a 12- to 24- month time frame, longer time horizons are also modeled.

Our shock scenario assumes rates immediately change the full amount at the scenario onset. The following tables presents our interest sensitivity position as of June 30, 2026 and December 31, 2025.

69

There has been no significant change in the Company's estimated net interest income sensitivity position from December 31, 2025. From a net interest income perspective, the Company is slightly asset sensitive at this time. With the current inverted interest rate yield curve, modeling of net interest income in changing rate environments presents particular challenges. A flat or inverted interest rate yield curve is an unfavorable interest rate environment for many financial institutions, including the Bank, as short-term interest rates generally drive our deposit pricing and longer-term interest rates generally drive loan pricing. When these rates converge or invert, the profit spread we realize between loan yields and deposit rates narrows, which pressures our NIM.

Economic Value of Equity

We also compute amounts by which the net present value of our assets and liabilities (economic value of equity, or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the yield curve increases or decreases instantaneously, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

The following table sets forth the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the yield curve as of June 30, 2026 and December 31, 2025.

As previously noted, these assumptions are inherently uncertain, and actual results may differ from simulated results. The current interest rate path is less certain for 2026 and further rate decreases are contingent upon improving inflationary conditions. Further changes to interest rates and monetary policy are dependent upon the Federal Reserve’s assessment of economic data as it becomes available. We would expect net interest income to decline somewhat in a decreasing interest rate environment and to increase in an increasing interest rate environment, as our model reflects that interest-earning assets reprice faster than interest-bearing deposits which is attributable to assumed deposit betas and repricing lags as there is continued strong market competition for core deposits.

Evaluation of Disclosure Controls and Procedures

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2026. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2026.

Changes in Internal Control over Financial Reporting

During the quarter ended June 30, 2026, there was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

In addition to the other information set forth in this report, you should carefully consider the factors discussed under the section entitled “Risk Factors” in the Company’s registration statement on Form S-1, as amended (File No. 333-296151) filed with the SEC on June 12, 2026, and declared effective on June 17, 2026 (the "Registration Statement"). These factors could materially and adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Please be aware that these risks may change over time and other risks may prove to be important in the future.

There are no material changes during the period covered by this report to the risk factors previously disclosed in the Company's Registration Statement.