First Bancorp's Dividend Resurgence: A Balancing Act Between Past Reliability and Future Growth

First Bancorp (NASDAQ:FBNC) has long been a dividend stalwart in the regional banking sector, but its recent trajectory raises critical questions: Can its 11% compound annual growth rate (CAGR) in dividends over the past decade sustain momentum? And does its projected 29% EPS growth in 2025 justify its current 2.2% dividend yield?

The answer lies in dissecting the company's historical performance, payout discipline, and the macroeconomic forces shaping its future. While the dividend increase to $0.23 per share signals resilience, investors must weigh this against lingering concerns over past earnings volatility and the broader financial sector's yield landscape.

A Decade of Dividend Discipline, With Hiccups

First Bancorp's dividend track record is enviable: a 11% CAGR since 2013, driven by consistent quarterly payments and strategic raises. The most notable leap came in 2020, when the dividend jumped 50% to $0.18 per share—a bold move during the pandemic. However, this growth wasn't without turbulence. In 2021, the dividend dipped to $0.20 before rebounding to $0.22 in 2022 and settling at $0.23 in 2025.

The key metric here is the payout ratio, which dropped to 37% in 2025 from 42% historically. This reduction suggests management is prioritizing earnings retention over immediate shareholder returns—a prudent move given its projected 29% EPS growth next year. Yet, skeptics might argue that past earnings declines (a 6.7% annual drop over five years) could undermine this optimism.

The 29% EPS Growth Catalyst: Real or Illusory?

The projected 29% EPS rise hinges on margin expansion, asset mix improvements, and operational leverage, as noted in recent earnings calls. If realized, this would mark a dramatic reversal from years of stagnation. But investors should scrutinize the sustainability of this growth.

Critically, the 29% figure is a forward-looking estimate. To justify it, the bank must demonstrate consistent revenue streams from its core lending businesses and effective cost management. A payout ratio of 37% leaves room for growth, but any earnings shortfall could force a reset in dividend expectations.

2.2% Yield: Competitive in a Sector of Contrasts

First Bancorp's current dividend yield of 2.2% sits below the financial sector's average of 3.77%, but above some regional peers. For context:

• Synovus Financial (SNV) and Webster Financial (WBS) offer yields of 3.15% and 3.03%, respectively.
• Western Alliance Bancorp (WAL), meanwhile, yields 1.91%, underscoring sector variability.

The yield gap isn't cause for alarm. First Bancorp's focus on prudent risk management—its non-performing loans remain low at 0.7%—supports its stability. However, investors seeking higher income may find better options elsewhere. The 2.2% yield is reasonable for a bank with a proven dividend track record, but it's not a standout in a sector offering higher payouts.

Red Flags: Earnings Volatility and External Risks

While the dividend increase is a positive signal, two factors warrant caution:

1. Historical Earnings Decline: First Bancorp's EPS fell 6.7% annually over five years before 2025. A single year of growth won't erase this trend. Investors should demand at least two consecutive quarters of robust EPS expansion to confirm durability.

2. Interest Rate and Economic Risks: Regional banks are sensitive to rate cycles. A prolonged downturn in commercial lending or rising credit defaults could squeeze margins. First Bancorp's exposure to real estate and small-business loans amplifies this risk.

Investment Takeaway: A Hold for Now, but Watch Closely

First Bancorp's dividend raise to $0.23 per share is a positive step, reflecting management's confidence in its business model. The 11% dividend CAGR and 37% payout ratio suggest a sustainable path forward—if earnings recover as projected.

However, the jury is still out on whether the 29% EPS growth can materialize and persist. Until we see at least two quarters of strong performance, caution is warranted.

Action Items for Investors:
- Monitor Q2 and Q3 2025 EPS results closely.
- Track the bank's net interest margin and loan growth metrics.
- Compare its yield and growth profile to peers like SNV and WBS, which offer higher payouts with similar risk profiles.

Backtest the performance of First Bancorp (FBNC) when 'buy condition' is triggered by positive quarterly earnings announcements, and 'hold for 60 trading days', from 2020 to 2025.

Historical backtests of this strategy reveal significant risks: such a trading approach would have generated a maximum drawdown of -43.52% and an excess return of -49.07% between 2020 and 2025, underscoring the difficulty of timing earnings-driven trades.

In conclusion, First Bancorp's dividend is a testament to its past reliability, but its future hinges on delivering on aggressive EPS growth. For now, it's a hold—worth watching but not yet a must-buy.