Why First Bancorp (FNLC) Is a Dividend Champion in a High-Rate World

The banking sector is under siege as interest rates hover near historic highs, squeezing net interest margins (NIMs) and testing the mettle of even the most seasoned institutions. Yet, one name stands out: First Bancorp (FNLC). While peers like HBT Financial (HBT) and First BanCorp (FBP) grapple with margin compression and credit risks, FNLC has fortified its dividend machine through strategic liability management, superior asset quality, and disciplined growth. Let's dive into why this regional banking stalwart is a buy in this challenging environment.

The NIM Fortress: Resilience in a High-Rate Storm

FNLC's Q2 2025 NIM of 2.48%—up 6 basis points from Q1 and 26 basis points year-over-year—defies the industry's struggles. While HBT Financial's NIM soared to 4.12%, its reliance on taxable-equivalent assets (which inflated its NIM) masks risks tied to volatile loan portfolios. Meanwhile, FNLC's margin stability stems from diversified deposit growth and collateralized uninsured deposits (74% of uninsured balances are secured). This strategy shields FNLC from sudden deposit outflows, a critical advantage as rates remain elevated.

The Payout Ratio: Prudent vs. Precarious

FNLC's dividend payout ratio of 56.34% (down from 63.6% in 2024) contrasts sharply with FBP's 39% payout ratio, which, while sustainable, leaves less shareholder value on the table. FNLC's 5.99% dividend yield—among the highest in its peer group—rewards income investors, while its 11-year dividend growth streak (now at $0.37 per share quarterly) underscores management's commitment to returns. Historical backtests show buying FNLC on dividend hikes and holding until earnings yields 24.67% on average—proof of its income reliability.

Loan Growth and Asset Quality: The Safety Net

FNLC's 7.3% annualized loan growth in Q1 2025—driven by commercial and multifamily mortgages—isn't just about volume. Its 0.25% non-performing loan (NPL) ratio and 1.05% allowance for credit losses reflect surgical risk management. Compare this to FBP's declining non-maturity deposits ($68.6 million drop in Q1) and sector-wide concerns over non-owner-occupied CRE loans. FNLC's focus on stable sectors and robust collateralization ensures its NIM won't collapse under bad debts.

The Competition: Where Peers Falter

• HBT Financial (HBT): While its NIM dazzles, HBT's $31.9 million noninterest expenses (up 3.3% QoQ) and reliance on volatile mortgage servicing rights (MSR) drag on margins. Its dividend yield of 2.77% pales against FNLC's.
• First BanCorp (FBP): Matches FNLC's NIM but lags in tangible book value per share ($18.66 vs. FNLC's $20.44) and dividend yield (3.69% vs. 5.99%). FBP's deposit decline ($13.9 million in Q1) also raises liquidity questions.

The Bottom Line: Buy FNLC for Income and Safety

FNLC's combination of NIM stability, prudent payout ratio, and bulletproof asset quality makes it a rare gem in a sector riddled with margin pressures. Its 10.3x P/E ratio is undemanding, and its day-one liquidity coverage (147% of uninsured deposits) ensures it can weather any rate-driven storm.

Action Items:
- Buy FNLC near $20/share for a high-yield, low-risk income play.
- Set a watch on HBT and FBP: Their higher risks and lower yields don't justify the trade-off.
- Monitor FNLC's Q3 NIM: A sustained 2.5%+ NIM would cement its leadership.

In a high-rate world, FNLC isn't just surviving—it's thriving. This is a dividend champion worth owning.