OP Bancorp beats EPS estimates, shares fall on credit quality concerns
Regional bank posts $0.47 EPS, reduces loan loss provision 61% as economy improves
OP Bancorp (OPBK) reported better-than-expected third-quarter earnings on Wednesday, yet shares slipped 1% as investors focused on deteriorating credit quality despite the regional bank's improved profitability.
The Los Angeles-based lender posted earnings per share of $0.47, beating analyst estimates by $0.03, driven by a 61% decline in provision for credit losses to $463,000. The company recorded net income of $7.1 million for the quarter, a 5% increase from the prior quarter, while revenue came in at $24.3 million, in line with analyst expectations.
The sharp reduction in loan loss provisions reflects management's improved outlook on the economic environment. However, the optimism was tempered by a rise in nonperforming loans to 0.64% of total loans, up from 0.57% in the previous quarter, signaling potential stress in the loan portfolio despite lower provisions.
OP Bancorp maintained its quarterly dividend at $0.12 per share, demonstrating management's confidence in the bank's capital position and ongoing ability to generate shareholder returns. The stock traded at $14.80 following the announcement, giving the company a market capitalization of approximately $213 million and trading at 9.06 times trailing earnings.
The mixed performance highlights the broader challenges facing regional banks in the current interest rate environment. While declining loan loss provisions suggest management believes the worst of the credit cycle may have passed, the uptick in nonperforming loans warrants close monitoring, particularly as higher interest rates continue to pressure borrowers across various sectors.
Analysts currently rate OP Bancorp with a target price of $16.50, representing roughly 11% upside from current levels. The stock has traded in a 52-week range between $10.14 and $15.50, and remains above its 50-day moving average of $13.91, suggesting underlying strength despite the post-earnings pullback.
The bank's performance comes amid a period of consolidation in the regional banking sector, where institutions with strong capital positions and conservative lending practices have been better positioned to weather economic uncertainty. OP Bancorp's focus on community banking and diverse service offerings across California and select other states provides geographic and business-line diversification that may help stabilize performance.
Looking ahead, investors will be watching the fourth quarter for signs that the rise in nonperforming loans stabilizes or reverses, and whether management can sustain earnings growth while maintaining credit discipline. The bank's relatively low price-to-book ratio of 1.00 suggests the market may be pricing in additional challenges, creating potential value opportunities if credit quality metrics improve.
With 65% of shares held by institutional investors and another 22% by insiders, OP Bancorp's ownership structure suggests relatively stable shareholder base, which could support the stock through short-term volatility as the bank navigates the evolving economic landscape.