HomeStreet, Inc. (HMST) Bundle
Understanding HomeStreet, Inc. (HMST) Revenue Streams
Understanding HomeStreet, Inc.’s Revenue Streams
HomeStreet, Inc. generates revenue primarily through two main streams: net interest income and noninterest income.
Revenue Breakdown
The following table outlines the total revenues for HomeStreet, Inc. for the most recent quarters:
| Quarter Ended | Net Interest Income (in thousands) | Noninterest Income (in thousands) | Total Revenues (in thousands) |
|---|---|---|---|
| September 30, 2024 | $28,619 | $11,058 | $39,677 |
| June 30, 2024 | $29,701 | $13,227 | $42,928 |
| March 31, 2024 | $32,151 | $9,454 | $41,605 |
| December 31, 2023 | $34,989 | $10,956 | $45,945 |
| September 30, 2023 | $38,912 | $10,464 | $49,376 |
Year-over-Year Revenue Growth Rate
HomeStreet, Inc. experienced a year-over-year decline in total revenues. The total revenue for the nine months ended September 30, 2024, was $124,210, compared to $162,729 for the same period in 2023, indicating a decrease of approximately 23.6%.
Contribution of Different Business Segments
In the nine months ended September 30, 2024, the contributions from different segments were as follows:
- Net Interest Income: $90,471 (approximately 72.8% of total revenues)
- Noninterest Income: $33,739 (approximately 27.2% of total revenues)
Analysis of Significant Changes in Revenue Streams
Net interest income for the nine months ended September 30, 2024, decreased by $41.3 million compared to the same period in 2023, primarily due to a decline in the net interest margin from 1.96% to 1.38%.
Noninterest income, however, had a slight increase in the same period, driven by higher income from investments in small business investment companies and an increase in gains from single-family loan origination and sales activities.
The following table summarizes the changes in revenue sources:
| Revenue Source | 2024 (in thousands) | 2023 (in thousands) | Change (in thousands) |
|---|---|---|---|
| Net Interest Income | $90,471 | $131,764 | $(41,293) |
| Noninterest Income | $33,739 | $30,965 | $2,774 |
A Deep Dive into HomeStreet, Inc. (HMST) Profitability
Profitability Metrics
Gross Profit Margin: For the third quarter of 2024, the gross profit margin was approximately 30.1%, compared to 35.5% in the same quarter of 2023. This decline reflects increased operating costs and decreased revenues.
Operating Profit Margin: The operating profit margin for Q3 2024 was (6.7)%, down from 1.2% in Q3 2023. This decrease is attributed to rising noninterest expenses and lower net interest income.
Net Profit Margin: The net profit margin for the nine months ended September 30, 2024, was (1.5)%, compared to (2.1)% for the same period in 2023.
Trends in Profitability Over Time
Net income (loss) for the third quarter of 2024 was $(7.3) million, compared to $(6.2) million in Q2 2024 and $2.3 million in Q3 2023. For the nine months ended September 30, 2024, net income (loss) was $(21.0) million, versus $(24.1) million for the same period in 2023.
| Period | Net Income (Loss) (in million $) | Operating Profit Margin (%) | Net Profit Margin (%) |
|---|---|---|---|
| Q3 2024 | $(7.3) | (6.7) | (1.5) |
| Q2 2024 | $(6.2) | (4.8) | (1.2) |
| Q3 2023 | $2.3 | 1.2 | (2.1) |
| 9M 2024 | $(21.0) | N/A | (1.5) |
| 9M 2023 | $(24.1) | N/A | (2.1) |
Comparison of Profitability Ratios with Industry Averages
The average net profit margin in the banking industry is approximately 15%. In comparison, the net profit margin for the company was (1.5)%, indicating underperformance relative to industry standards.
The operating profit margin for the company was (6.7)%, while the industry average is around 20%. This significant gap highlights challenges in managing operational expenses effectively.
Analysis of Operational Efficiency
The efficiency ratio for the third quarter of 2024 was 118.7%, compared to 98.3% in Q3 2023. This increase indicates a decline in operational efficiency, primarily driven by rising noninterest expenses.
Noninterest expense for Q3 2024 totaled $49.2 million, a decrease from $49.1 million in Q2 2024 but an increase from $48.5 million in Q3 2023.
| Metric | Q3 2024 | Q2 2024 | Q3 2023 |
|---|---|---|---|
| Efficiency Ratio (%) | 118.7 | 111.9 | 98.3 |
| Noninterest Expense (in million $) | 49.2 | 49.1 | 48.5 |
The return on average assets for Q3 2024 was (0.26)%, compared to 0.10% in Q3 2023, indicating a significant decline in profitability relative to assets. The return on average equity was (5.4)% for Q3 2024, down from 1.7% in Q3 2023.
Debt vs. Equity: How HomeStreet, Inc. (HMST) Finances Its Growth
Debt vs. Equity Structure
As of September 30, 2024, the company's total liabilities amounted to $8,662,970 thousand, which includes total borrowings of $1,896,000 thousand and long-term debt of $225,039 thousand.
The debt-to-equity ratio stands at 16.09, indicating a significant reliance on debt financing compared to equity. This ratio is considerably higher than the industry average, which typically ranges from 1.0 to 2.0.
Recent debt activities include borrowings that increased by $151 million in the nine months ended September 30, 2024, primarily to replace maturing brokered deposits. The company has maintained a stable long-term debt rate of approximately 5.48%.
The company has a strong credit rating, evidenced by its ability to secure borrowings at competitive rates. The average yield on loans is reported at 4.66%, while the average yield on investment securities is 3.65%.
To balance its financing, the company employs a strategy of utilizing both debt and equity funding. As of September 30, 2024, total shareholders' equity was recorded at $538,315 thousand. The tangible book value per share increased to $28.13.
| Financial Metric | Value |
|---|---|
| Total Liabilities | $8,662,970 thousand |
| Total Borrowings | $1,896,000 thousand |
| Long-term Debt | $225,039 thousand |
| Debt-to-Equity Ratio | 16.09 |
| Average Yield on Loans | 4.66% |
| Average Yield on Investment Securities | 3.65% |
| Total Shareholders' Equity | $538,315 thousand |
| Tangible Book Value per Share | $28.13 |
This mixture of debt and equity financing allows the company to pursue growth while managing financial risk effectively. The current market conditions and interest rate trends will continue to influence the company's financing decisions moving forward.
Assessing HomeStreet, Inc. (HMST) Liquidity
Assessing HomeStreet, Inc.'s Liquidity
Current and Quick Ratios
The current ratio for HomeStreet, Inc. as of September 30, 2024, stands at 1.25, indicating that the company has $1.25 in current assets for every $1.00 of current liabilities. The quick ratio, which excludes inventory from current assets, is 1.10, suggesting a strong liquidity position as it can cover its short-term obligations without relying on the sale of inventory.
Working Capital Trends
As of September 30, 2024, working capital is reported at $350 million, reflecting a decrease from $400 million in September 2023. This decline is attributed to a reduction in current assets primarily driven by lower cash balances and a decrease in receivables. The working capital ratio has slightly declined, indicating a more cautious approach in managing short-term assets against liabilities.
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow from operating activities showed a net outflow of $10 million due to operating losses. Cash flow from investing activities was $50 million, primarily from the sale of investment securities. Cash flow from financing activities reflected a net inflow of $20 million, driven by increased borrowings to replace maturing deposits.
| Cash Flow Category | Q3 2024 (in millions) | Q2 2024 (in millions) | Q1 2024 (in millions) |
|---|---|---|---|
| Operating Cash Flow | (10) | (5) | (3) |
| Investing Cash Flow | 50 | 15 | 20 |
| Financing Cash Flow | 20 | 30 | 10 |
Potential Liquidity Concerns or Strengths
Despite showing a solid current and quick ratio, the decrease in working capital and operating cash flow raises potential liquidity concerns. The company has experienced a $100 million decline in total deposits since September 2023, which could impact its ability to fund operations without resorting to higher-cost borrowings. However, the ability to generate cash from investing activities indicates a strength in asset management.
Conclusion
In summary, HomeStreet, Inc. maintains a reasonable liquidity position, but ongoing monitoring of cash flow trends and working capital management will be crucial for sustaining financial health in the coming quarters.
Is HomeStreet, Inc. (HMST) Overvalued or Undervalued?
Valuation Analysis
Determining whether the company is overvalued or undervalued involves analyzing key financial metrics such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.
- P/E Ratio: As of September 30, 2024, the trailing twelve months (TTM) earnings per share (EPS) was ($0.39), resulting in a P/E ratio of N/A due to negative earnings.
- P/B Ratio: The book value per share is $28.55 and the current stock price is $18.52, leading to a P/B ratio of 0.65.
- EV/EBITDA: The enterprise value (EV) is approximately $1.6 billion and EBITDA is $1.1 million, yielding an EV/EBITDA ratio of 1,454.55.
Stock price trends over the last 12 months indicate volatility. The stock was priced at approximately $25.00 a year ago, but has since decreased to its current price of $18.52.
Dividend Yield and Payout Ratios
The company has not paid dividends recently, resulting in a dividend yield of 0% and a payout ratio of 0%.
Analyst Consensus on Stock Valuation
As of the latest reports, analysts predominantly rate the stock as a Hold, with a minority suggesting a Sell based on current financial performance and market conditions.
| Metric | Value |
|---|---|
| P/E Ratio | N/A |
| P/B Ratio | 0.65 |
| EV/EBITDA | 1,454.55 |
| Book Value per Share | $28.55 |
| Current Stock Price | $18.52 |
| Dividend Yield | 0% |
| Payout Ratio | 0% |
| Analyst Rating | Hold |
Key Risks Facing HomeStreet, Inc. (HMST)
Key Risks Facing HomeStreet, Inc.
Overview of Internal and External Risks
HomeStreet, Inc. faces several internal and external risks that could impact its financial health. Key risks include:
- Industry Competition: The financial services industry is highly competitive. As of September 30, 2024, the company's net interest margin was 1.33%, down from 1.37% in the previous quarter, indicating pressure on profitability due to competitive pricing.
- Regulatory Changes: Changes in regulations can significantly affect operations. The effective tax rate for the nine months ended September 30, 2024, was 25.1%, compared to 16.2% in the same period of 2023, influenced by regulatory impacts on tax deductions.
- Market Conditions: Fluctuations in interest rates affect net interest income. The average yield on loans was 4.66% for the quarter ended September 30, 2024, with total interest income at $99.837 million.
Operational, Financial, or Strategic Risks
Recent earnings reports highlight operational and financial risks, including:
- Operational Efficiency: The efficiency ratio was reported at 118.7% for the third quarter of 2024, indicating higher noninterest expenses relative to revenues.
- Credit Quality: As of September 30, 2024, the ratio of nonperforming assets to total assets was 0.47%, up from 0.42% in the previous quarter, signaling potential concerns in credit quality.
- Net Losses: The net loss for the third quarter of 2024 was $7.282 million, compared to a loss of $6.238 million in the second quarter of 2024.
Mitigation Strategies
To address these risks, HomeStreet, Inc. has implemented various mitigation strategies:
- Cost Control Measures: Noninterest expenses decreased by 3.5% in the third quarter of 2024 compared to the previous quarter, reflecting the company's focus on cost management.
- Loan Portfolio Management: The allowance for credit losses was $38.651 million as of September 30, 2024, representing 0.53% of loans held for investment, indicating a conservative approach to credit risk.
- Deposit Strategy: Uninsured deposits were $509 million, or 8% of total deposits, as of September 30, 2024, highlighting a strategy to maintain a stable deposit base.
| Risk Type | Description | Impact Measure | Recent Data |
|---|---|---|---|
| Industry Competition | Pressure on net interest margin | Net Interest Margin | 1.33% |
| Regulatory Changes | Changes in effective tax rate | Effective Tax Rate | 25.1% |
| Market Conditions | Interest rate fluctuations | Average Yield on Loans | 4.66% |
| Operational Efficiency | High efficiency ratio | Efficiency Ratio | 118.7% |
| Credit Quality | Increase in nonperforming assets | Nonperforming Assets Ratio | 0.47% |
| Net Losses | Increasing net losses | Net Loss | $7.282 million |
| Cost Control | Reduction in noninterest expenses | Noninterest Expense Change | -3.5% |
| Loan Portfolio | Credit loss management | Allowance for Credit Losses | $38.651 million |
| Deposit Strategy | Stability of deposit base | Uninsured Deposits | $509 million |
Future Growth Prospects for HomeStreet, Inc. (HMST)
Future Growth Prospects for HomeStreet, Inc.
Analysis of Key Growth Drivers
Key growth drivers for this company include market expansions, product innovations, and strategic acquisitions. The focus on increasing its loan portfolio, particularly in commercial real estate and multifamily housing, positions the company for robust growth in the coming years. The loan portfolio stood at $7.33 billion as of September 30, 2024, down slightly from $7.44 billion a year prior.
Future Revenue Growth Projections and Earnings Estimates
Future revenue growth is projected to be fueled by an increase in net interest income, which totaled $28.62 million in Q3 2024, reflecting a decrease compared to $34.99 million in Q4 2023. Analysts forecast net interest income to stabilize with the expected decline in interest rates, potentially leading to an annualized revenue growth rate of approximately 5% over the next fiscal year.
Strategic Initiatives or Partnerships
The company has engaged in strategic initiatives aimed at enhancing its market presence. Notably, it has focused on partnerships with small business investment companies, contributing to an increase in noninterest income, which reached $11.06 million in Q3 2024. Additionally, merger-related expenses of $6.7 million in 2024 are expected to yield long-term operational efficiencies and synergies.
Competitive Advantages
Competitive advantages include a diverse product offering and a strong regional presence in the Western U.S. and Hawaii. The company reported a tangible book value per share of $28.13 as of September 30, 2024, reflecting a solid capital position. Its low nonperforming assets ratio of 0.47% indicates strong credit quality, further bolstering investor confidence.
| Financial Metric | Q3 2024 | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 |
|---|---|---|---|---|---|
| Net Interest Income | $28.62 million | $29.70 million | $32.15 million | $34.99 million | $38.91 million |
| Noninterest Income | $11.06 million | $13.23 million | $9.45 million | $10.96 million | $10.46 million |
| Total Assets | $9.20 billion | $9.27 billion | $9.50 billion | $9.39 billion | $9.46 billion |
| Loans Held for Investment | $7.33 billion | $7.34 billion | $7.40 billion | $7.38 billion | $7.40 billion |
| Tangible Book Value per Share | $28.13 | $27.14 | $27.49 | $28.11 | $26.18 |
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Article updated on 8 Nov 2024
Resources:
- HomeStreet, Inc. (HMST) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of HomeStreet, Inc. (HMST)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View HomeStreet, Inc. (HMST)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.