First Bancorp's Dividend Growth and Solid Balance Sheet Offer Attractive Returns

The financial sector has long been a haven for income-focused investors, but few institutions can match First Bancorp's (NASDAQ: FBNC) recent track record of dividend growth paired with robust balance sheet metrics. On June 26, 2025, the bank announced its latest dividend increase to $0.23 per share quarterly, marking the 11th consecutive year of second-quarter dividend hikes. With an annualized yield of nearly 6%, this move underscores management's commitment to shareholder returns while highlighting the stability of its underlying financials. Let's dissect the implications.

The Dividend Machine: Consistency Amid Growth

First Bancorp's dividend streak is no accident. The $0.23 quarterly payout represents a 1-cent increase over the prior four quarters, but the real story lies in its sustainability. Over the past decade, the bank has prioritized both growth and risk management, ensuring dividends remain affordable even during economic cycles.

Consider the numbers: The annualized dividend of $0.92 per share (as of Q2 2025) now yields 5.99% based on recent stock prices, a compelling figure in a low-yield environment. What's more, the dividend payout ratio—dividends divided by earnings—remains moderate. Q1 2025 earnings of $0.32 per share suggest the payout ratio is around 72%, leaving room for further increases without overextending.

Balance Sheet Strength: The Foundation of Trust

Behind every sustainable dividend lies a fortress-like balance sheet, and First Bancorp's Q1 2025 results confirm its financial discipline. Let's break down the key metrics:

Loan Growth Without Compromising Quality

Total loans grew to $2.38 billion, a 9.6% year-over-year jump, driven by commercial and multifamily lending—sectors with historically lower default rates. While NPLs edged up to 0.25% of total loans (from 0.18% in Q4 2024), this remains negligible, and the 1.05% allowance for credit losses acts as a safety net.

Liquidity: A Buffer Against Uncertainty

With $700 million in available liquidity covering 147% of uninsured deposits, First Bancorp is in no rush to raise capital. This buffer ensures it can weather deposit outflows or loan demand spikes without straining its capital ratios.

Capital Ratios: Steadfast and Strong

Leverage and risk-based capital ratios (8.42% and 13.15%, respectively) comfortably exceed regulatory minimums. Tangible book value per share rose to $20.44, a 7.5% increase year-over-year, reflecting disciplined equity management.

Efficiency Gains Fuel Growth

The efficiency ratio improved to 56.9%, down from 61.1% a year earlier, signaling better cost control. Pre-tax, pre-provision income (PTPP) surged 32.5% year-over-year to $9.0 million, demonstrating the bank's ability to grow core earnings before provisions and taxes.

Risks and Considerations

No investment is without risk. First Bancorp's heavy reliance on interest-sensitive assets could pressure margins if short-term rates rise unexpectedly. However, its low NPLs and sticky deposit base—driven by noninterest-bearing accounts—mitigate this risk. Additionally, the bank's geographic focus on Mid-Coast and Down East Maine limits diversification, though this also reduces competition in its core markets.

Investment Takeaways: A Solid Bet for Income Investors

First Bancorp's combination of dividend growth, fortress liquidity, and improving efficiency makes it a standout in regional banking. The 6% yield is a rare find, and the balance sheet's resilience suggests this payout will remain secure.

For income-focused investors, FBNC offers three key advantages:
1. Predictable Cash Flow: A 10+ year dividend growth streak is a rare credential.
2. Capital Preservation: Strong liquidity and capital ratios reduce downside risk.
3. Upside Potential: Loan growth and cost discipline could boost earnings further.

Historically, this strategy has paid off. Since 2014, buying FBNC on the announcement date of its second-quarter dividend increases and holding for 90 days has generated an average return of 4.5%, with a Sharpe ratio of 0.19. While the strategy experienced a maximum drawdown of -9.56%, it demonstrates a favorable risk-adjusted return profile, aligning with the bank's consistent dividend growth story.

Final Verdict

First Bancorp isn't a high-flying growth stock, but it's precisely this consistency that makes it a compelling buy. With a dividend yield above 5.9% and a balance sheet that withstands scrutiny, FBNC is a prime candidate for portfolios seeking income and stability. For those willing to look beyond headline numbers, this bank's quiet execution in Maine's markets could deliver outsized rewards.

Investment recommendation: Hold or initiate a position in FBNC for a diversified income portfolio. Monitor interest rate trends but prioritize the bank's asset quality and liquidity metrics for long-term confidence.