Is First Bank (NASDAQ:FRBA) a Compelling Dividend Stock for Income Investors in 2025?

In a market where high-yield assets remain elusive, income investors are increasingly scrutinizing banks for stability and sustainability. First Bank (NASDAQ:FRBA) has long been a quiet contender in the dividend space, offering a blend of conservative payouts and steady growth. But with interest rates lingering near multi-year highs and economic uncertainty persisting, is FRBA a compelling choice for 2025? Let's dissect its sustainable payout ratio, loan growth trajectory, and valuation to determine its appeal for income-focused portfolios.

Sustainable Payout Ratio: A Buffer Against Volatility

First Bank's dividend policy is a masterclass in prudence. For 2025, the company has maintained a quarterly payout of $0.06 per share, translating to an annual dividend of $0.24. This results in a sustainable payout ratio of 16%, calculated using its 2025 annual earnings per share (EPS) of $1.54 (derived from quarterly reports). A payout ratio below 20% is typically a strong indicator of a dividend's durability, as it leaves ample room for earnings fluctuations or economic shocks.

This low ratio is particularly valuable in a high-rate environment, where banks face pressure on net interest margins. FRBA's ability to grow dividends at a 13% annualized rate since 2016—despite macroeconomic headwinds—demonstrates its commitment to rewarding shareholders without overextending its balance sheet. Analysts project EPS growth of 12.4% in 2025, further reinforcing the likelihood of dividend resilience.

Loan Growth: A Catalyst for Earnings Stability

Banks thrive when they can grow their loan portfolios, and First Bank has shown signs of momentum. Its loans held for investment (HFI) have seen annualized growth over the past five years, a critical driver of interest income. In 2025, the company also announced a strategic merger with Southern States Bancshares, Inc., which could expand its footprint in high-growth markets and diversify its loan book.

While the second quarter of 2025 saw a slight dip in EPS to $0.41 (down from $0.44 in Q2 2024), this was largely due to higher operating expenses and a declining profit margin. The broader picture, however, remains positive: First Bank's tangible book value per share increased to $14.87 by June 30, 2025, up 11.1% from March 2025. This reflects strong capital management and the ability to absorb rate-related pressures.

Attractive Valuation: A Hidden Gem in a Challenging Sector

FRBA's valuation metrics suggest it's undervalued relative to peers. With a dividend yield of 1.6% and a P/B ratio of ~1.1x (based on its stock price and tangible book value of $14.87), the stock trades at a discount to its intrinsic value. This is especially appealing in a sector where many banks trade at higher multiples due to interest rate uncertainty.

The company's share repurchase program, which has already bought back 256,454 shares in Q1 2025 at an average price of $15.06, further enhances returns for shareholders. Buybacks reduce the share count and boost EPS, creating a flywheel effect that benefits dividend sustainability.

Navigating a High-Rate Environment

The Federal Reserve's aggressive rate hikes in 2024–2025 have created a challenging backdrop for banks. However, First Bank's strong capital ratios and strategic focus on loan growth position it to outperform. Its tangible common equity to tangible assets ratio remains robust, ensuring it can withstand potential credit losses or rate volatility.

Moreover, the merger with Southern States Bancshares is expected to unlock synergies in deposit growth and cost efficiency, mitigating the impact of higher funding costs. This strategic move underscores FRBA's proactive approach to navigating a complex macroeconomic landscape.

Final Verdict: A Buy for Income Investors?

For income investors, First Bank presents a compelling case. Its sustainable 16% payout ratio, projected EPS growth, and attractive valuation make it a defensive play in a high-rate environment. While the dividend yield may not dazzle, the company's track record of consistent growth and prudent capital management offers a reliable income stream.

Investment Advice:
- Buy for long-term income portfolios seeking stability.
- Monitor the merger's integration progress and loan growth in Q3–Q4 2025 as key catalysts.
- Use dips below $15 per share to accumulate, given the stock's strong fundamentals.

In a world where many dividend stocks face headwinds, First Bank stands out as a rare combination of caution and growth. For those prioritizing sustainability over yield, FRBA is a stock worth considering in 2025.