First Bancorp's Q1 2025 Results: Growth Amid Rising Costs and Strategic Crossroads

The First Bancorp (NASDAQ: FRST) reported its first-quarter 2025 financial results, revealing a complex picture of progress and challenges. While the bank’s loan portfolio expanded robustly, net income declined sharply year-over-year, underscoring the pressure of rising expenses and shifting credit dynamics. This analysis dives into the numbers to assess whether the regional lender’s long-term growth story remains intact or if it faces headwinds that could crimp returns.

Financial Performance: A Tale of Two Drivers

First Bancorp’s net income fell 24.8% to $9.4 million in Q1 2025 compared to $12.5 million a year earlier, driven by a 14.5% surge in non-interest expenses to $20.4 million. This increase was fueled by:
- A $1.1 million rise in salaries and benefits (larger workforce)
- An $832,000 spike in OREO expenses, including an $815,000 impairment on a single asset
- A $438,000 jump in occupancy costs due to new branches

Meanwhile, net interest income grew to $32.1 million, a 5.9% year-over-year increase, as rising loan volumes outpaced interest expense. The net interest margin held steady at 3.65%, a slight improvement from Q4 2024 but flat versus Q1 2024.

The decline in credit loss benefits also hurt profitability. In Q1 2024, the bank recorded a $698,000 credit loss benefit, whereas this quarter it had a $1.5 million expense tied to loan growth. Management noted this reflects prudent provisioning as the economy softens.

Balance Sheet: Strong Growth, Strategic Leverage

Total assets rose 2.7% quarter-over-quarter to $3.88 billion, with loans surging 11.8% annualized to $3.24 billion. This expansion was funded by:
- A 2.1% deposit increase to $3.12 billion
- $34.9 million in Federal Home Loan Bank borrowings

The bank maintained a “well-capitalized” position, with a Tier 1 leverage ratio of 9.63%, and tangible book value per share rose 8.0% annualized to $14.47.

However, the loans/deposits ratio hit 103.7%, near its 10-year high. This suggests the bank is increasingly relying on deposits to fund aggressive lending, a strategy that could strain liquidity if deposit inflows slow.

Asset Quality: Modest Improvement, Lingering Risks

Nonperforming loans (NPLs) dipped to $11.6 million (0.36% of total loans), while net charge-offs turned positive at $(15,000), benefiting from loan recoveries. However, management’s $815,000 OREO impairment highlights lingering risks in its real estate portfolio.

The allowance for credit losses remains at 1.21% of total loans, slightly elevated from prior quarters, signaling cautious underwriting as economic uncertainty lingers.

Strategic Priorities: Scaling for the Future

Management emphasized two critical growth vectors:
1. C&I Lending: Expanding into middle-market commercial banking to diversify revenue beyond traditional CRE (commercial real estate) lending.
2. Technology Investments: Scaling IT infrastructure to support loan origination and customer retention.

The bank’s 23rd consecutive quarter with an efficiency ratio under 60% (57.7% in Q1 2025) underscores cost discipline. However, the 14.5% expense growth raises questions about whether operational leverage can be maintained as the bank scales.

Shareholder Returns: Prudent but Limited

First Bancorp returned $1.5 million to shareholders via dividends in Q1 and has $10.8 million remaining under its $16 million share repurchase program. At an average price of $15.06, it repurchased 256,454 shares this quarter. While these moves signal confidence in capital strength, the $0.06 quarterly dividend—unchanged since 2022—suggests limited room for growth without improved profitability.

Risks and Outlook

Key risks include:
- Economic Downturn: Rising NPLs or loan losses could pressure margins.
- Interest Rate Volatility: A prolonged pause in Fed rate hikes might compress NIMs if deposit costs outpace loan yields.
- Expense Management: Containing OREO and occupancy costs will be critical to maintaining the efficiency ratio.

Conclusion: A Bank Betting on Growth, but at a Cost

First Bancorp’s Q1 results highlight a paradox: strong loan growth and capital strength contrast with declining net income and rising expenses. The bank’s strategic focus on C&I lending and technology investments positions it well for long-term expansion, but near-term profitability hinges on:
- Containing non-interest expenses: A 14.5% year-over-year increase is unsustainable if revenue growth slows.
- Maintaining asset quality: The 0.36% NPL ratio is healthy, but the $815,000 OREO impairment shows vulnerabilities in real estate exposures.
- Leveraging scale: The 8.1% year-over-year loan growth and 103.7% loan/deposit ratio suggest the bank is taking calculated risks to grow market share.

Investors should monitor whether Q2 results show expense discipline and whether loan growth can sustain margins. At current levels, the stock trades at 1.4x tangible book value—a modest premium to peers—suggesting the market is pricing in execution risk. For now, First Bancorp remains a story of growth potential, but one that requires patience to see through the cost headwinds.