Northpointe Bancshares (NPB): A Hidden Gem in Banking with Strong Growth and Undervalued Potential

Northpointe Bancshares (NYSE: NPB) is emerging as a compelling buy opportunity for investors seeking exposure to a financially resilient bank with strong earnings momentum, a conservative dividend policy, and a stock price that appears undervalued relative to its peers. As the company prepares to report Q2 2025 results on July 22, now is an opportune time to analyze its fundamentals and assess its long-term prospects.

Dividend Stability Amid Conservative Policy

Northpointe's dividend strategy stands out for its extreme caution compared to peers, offering a 0.17% dividend yield based on its $0.025 quarterly dividend and a recent stock price of $14.73. While this yield lags behind the sector average of 2.99%, the 1% payout ratio (dividends as a percentage of earnings) signals a deliberate retention of capital to fuel growth and build reserves. This conservative approach contrasts with peers like ServisFirst Bancshares (SFBS) or WSFS Financial (WSFS), which payout 12-18% of earnings.

The company's one-time special dividend on preferred shares in June 2025 further demonstrates financial flexibility, while the common stock dividend remains steady. This stability, combined with room to grow payouts in the future, positions NPB as a reliable investment for income-focused investors.

Earnings Growth Outpaces Peers, Catalyst Ahead

Northpointe's recent financial performance is nothing short of impressive. In Q1 2025, net income surged to $15.0 million ($0.49 per diluted share), a 70% jump from the prior quarter. Key drivers include:
- Net interest income: Up 70% to $30.4 million, fueled by strong loan growth.
- Non-interest income: Increased by $9.3 million to $22.9 million, reflecting diversification.
- Asset growth: Total assets reached $5.86 billion, up $635 million since December 2024.

The upcoming Q2 earnings release on July 22 is a critical catalyst. Analysts expect continued momentum in mortgage lending, a key growth segment for NPB, where the bank recently appointed Patrick Collins to expand its mortgage warehouse lending platform. With the housing market rebounding in 2025, this division could drive further margin expansion and revenue.

Historically, NPB has shown strong performance around earnings dates. From 2022 to present, shares delivered returns as high as 4.24% following earnings releases, with a 58.33% win rate over 30 days. This historical outperformance suggests that the July 22 report could provide a meaningful catalyst for upward momentum.

Undervalued Stock: A P/E Anomaly Hiding Value

Northpointe's stock trades at a price-to-book (P/B) ratio of 0.9x, below its peers' average of 1.3-1.8x. However, its reported P/E ratio of 0.00 as of July 4 is an anomaly caused by a trailing twelve-month (TTM) EPS of $0.00. This discrepancy stems from outdated calculations that may not fully reflect the strong Q1 2025 results.

Once Q2 earnings are reported, the TTM EPS will reset, likely eliminating the P/E anomaly. At its current price of $14.73, NPB's stock could re-rate significantly if earnings improve. Even at a conservative 10x P/E (vs. peers at 12.5x), the stock could climb to $15.20, with upside potential if margins expand further.

Risks and Considerations

• P/E Anomaly: Investors should verify the Q2 earnings report to confirm the TTM EPS calculation.
• Mortgage Concentration: Over 90% of loans are mortgages, exposing NPB to housing market risks. However, its warehouse lending model and secondary market sales mitigate this risk.
• Regulatory Environment: Rising interest rates could compress net interest margins, though NPB's recent 70% net interest income growth suggests resilience.

Conclusion: A Buy Before Earnings

Northpointe Bancshares offers a rare combination of strong earnings growth, conservative capital management, and a structurally undervalued stock. With its Q2 results likely to resolve the P/E discrepancy and its mortgage business poised for growth, NPB presents a compelling entry point.

Investment Advice:
- Buy: Accumulate shares ahead of the Q2 earnings report. A target price of $16-$18 (assuming P/E reversion to 12-14x) offers 10-25% upside.
- Hold for Dividend Growth: The low payout ratio suggests future increases, making NPB a sleeper candidate for income investors.

As the banking sector stabilizes post-pandemic, NPB's focus on mortgage innovation and efficient asset growth positions it to outperform peers. The July 22 earnings report could be the catalyst to unlock its full value.