Overview of Financial Performance

The First Bancorp, Inc. reported solid financial results for the year ended December 31, 2024, though earnings were down from the prior year. Net income was $27.0 million, a decrease of 8.4% from 2023. Earnings per share on a fully diluted basis were $2.43, down 8.9% from the prior year.

The decline in earnings was largely due to the continued impact of higher funding costs on the company’s net interest income, particularly in the first half of 2024. While the Federal Reserve had stopped raising interest rates and adopted a hold posture in the third quarter of 2023, short-term rates remained elevated and the yield curve inverted well into 2024. This put pressure on the company’s net interest margin, which reached a low point in the second quarter before beginning to expand in the second half of the year as funding costs eased.

Despite the challenging operating environment, the company saw robust loan growth of 9.9% in 2024, ending the year with a $2.341 billion loan portfolio. Deposit growth was also strong, with total deposits increasing 4.8% to $2.725 billion. Asset quality remained excellent, with non-performing loans at just 0.18% of total loans.

Revenue and Profit Trends

Net interest income, which is the company’s primary source of revenue, decreased 1.7% to $66.7 million in 2024. Total interest income increased 15.9% to $151.6 million, driven by growth in earning assets and higher interest rates. However, this was more than offset by a 34.9% increase in total interest expense to $84.9 million, as the company’s funding costs rose in line with market rates.

The company’s net interest margin contracted from 2.49% in 2023 to 2.29% in 2024, reaching a low of 2.21% in the second quarter before rebounding to 2.42% by the fourth quarter as the Federal Reserve began cutting rates.

Non-interest income increased 5.9% to $16.4 million, primarily due to growth in wealth management revenue and other operating income. Mortgage banking revenue declined 2.3% as higher rates impacted origination activity.

On the expense side, non-interest expense increased 7.8% to $47.2 million, driven by a 10.4% rise in employee salary and benefit costs as well as a $429,000 increase in deposit insurance premiums. The company’s efficiency ratio, a measure of the amount spent to generate a dollar of income, rose from 52.43% in 2023 to 56.66% in 2024.

The provision for credit losses on loans was $1.3 million in both 2024 and 2023, as the company maintained a strong allowance for credit losses at 1.06% of total loans. Net charge-offs increased from $233,000 in 2023 to $463,000 in 2024.

Strengths and Weaknesses

The First Bancorp’s key strengths include:

• Robust loan and deposit growth, demonstrating the company’s ability to generate business in its markets
• Excellent asset quality, with low levels of non-performing loans and net charge-offs
• A strong capital position, with a total risk-based capital ratio of 13.22% at the end of 2024
• Diversified revenue streams, with non-interest income accounting for nearly 20% of total revenue

Weaknesses include:

• Pressure on net interest margin and net interest income due to the rising interest rate environment
• Higher non-interest expenses, particularly in employee-related costs, which outpaced revenue growth
• A decline in earnings and profitability metrics compared to the prior year

Outlook and Future Prospects

Looking ahead, the company faces a mixed outlook. On the positive side, the Federal Reserve’s pivot to rate cuts in the second half of 2024 should provide relief for the company’s funding costs and help stabilize the net interest margin. Loan and deposit growth are also expected to remain robust, supported by the company’s strong market presence and customer relationships.

However, the company may continue to face headwinds from higher non-interest expenses, particularly if inflationary pressures persist. Additionally, the uncertain economic environment could lead to increased credit costs if loan quality deteriorates.

To navigate these challenges, the company will need to focus on controlling expenses, optimizing its funding mix, and maintaining disciplined underwriting standards. Continued investment in technology and digital capabilities may also be necessary to stay competitive and meet evolving customer preferences.

Overall, The First Bancorp remains a well-capitalized and well-managed community bank with a solid foundation. While the near-term earnings outlook is somewhat muted, the company’s long-term prospects appear favorable, provided it can successfully navigate the current interest rate and economic environment.