Shares of HomeStreet, Inc. (HMST) of Seattle closed at $25.25, Friday, returning 110% (adjusted for stock splits) since the company went public on Feb. 14. The shares underwent a two-for-one split on Nov. 8, following a previous two-for-one split in March.
HomeStreet trades for 1.5 times tangible book value, and for five times the consensus 2013 EPS estimate of $5.02.
The company had $2.5 billion in total assets as of Sept. 30. Earnings have been very strong since the company went public, with returns on average assets ranging from 3.04% to 3.50% over the past three quarters, according to Thomson Reuters Bank Insight, while the return on average tangible common equity has ranged between 35.61% to 39.95%, for what is, by far, the strongest earnings performance among the 10 banks being discussed here.
HomeStreet focuses on originating mortgage loans, including single family loans and multifamily loans through its HomeStreet Capital Corp. subsidiary. The company reported total third-quarter originations of single-family mortgage loans designated for sale of $1.4 billion, increasing from $1.1 billion the previous quarter, and $480 million a year earlier.Third-quarter earnings totaled $21.3 million, or $2.90 a share, increasing from $18.0 million, or $2.42 million, in the second quarter, and $15.3 million a year earlier (before the company went public). HomeStreet CEO Mark Mason explained that the company was continuing "to realize the benefits in origination volume and market share from our continued focus on recruiting top production and support personnel in our markets." The company has also been able to buck the industry trend, with its third-quarter net interest margin expanding to 3.08% from 2.83% the previous quarter and 2.38% a year earlier, "reflecting improvement in asset yields in part as a result of new lending and expected decreases in our cost of deposits," according to Mason. FIG Partners analyst Timothy Coffey rates HomeStreet "Outperform," with a price target of $40, saying in October after the split was announced that "the stock benefits from significant growth in tangible book value from an underappreciated mortgage banking business. HMST originated more than $1 billion in mortgage loans (residential and multifamily) for the second consecutive quarter in 3Q-12 and sold them at an estimated net margin of 3.28%, which is an exceptionally strong number compared to the estimated net margin of 1.72% in 3Q-11." The analyst said that "HMST is a stock that should approach a normalized P/E ratio of 10x forward EPS, but until then is likely to trade at increasing multiples to tangible book value," and that the stock has been "hindered by relative obscurity having IPO'd earlier this year, optically troubled credit quality (although