Timberland Bancorp, Inc. — Form 10-Q Summary
Business context and reporting period. Timberland Bancorp is a Washington bank holding company operating Timberland Bank, a community bank serving western Washington. This unaudited filing covers the three months ended December 31, 2015, the first quarter of fiscal 2016; comparisons are with the three months ended December 31, 2014 unless otherwise stated. Balance-sheet comparisons are with September 30, 2015.
Financial performance and condition
| Metric | Period-end or current quarter | Comparison |
|---|---|---|
| Net income | $2.53 million | Up 46.4% from $1.73 million |
| Diluted earnings per share | $0.36 | Up from $0.24 |
| Net interest income | $7.71 million | Up 15.0% from $6.70 million |
| Net interest margin | 4.00% | Up from 3.88% |
| Non-interest income | $2.52 million | Up 18.6% from $2.12 million |
| Non-interest expense | $6.48 million | Up 3.3% from $6.27 million |
| Provision for loan losses | $0 | $0 in the prior-year quarter |
| Total assets | $837.38 million | Up 2.6% from $815.82 million at September 30 |
| Net loans receivable | $625.85 million | Up 3.0% from $607.33 million at September 30 |
| Total deposits | $697.77 million | Up 2.8% from $678.91 million at September 30 |
| Shareholders’ equity | $91.05 million | Up 2.1% from $89.19 million at September 30 |
| Cash and cash equivalents | $93.60 million | Up from $92.29 million at September 30 |
| FHLB advances | $45.00 million | Unchanged from September 30 |
Reported annualized returns on average assets and equity were 1.22% and 11.26%, respectively, versus 0.92% and 8.29%. The efficiency ratio improved to 63.35% from 71.09%. The company paid $0.12 per common share in dividends, compared with $0.05 in the prior-year quarter.
Net cash provided by operating activities was $5.65 million, investing activities used $22.42 million, and financing activities provided $18.09 million. Cash and cash equivalents increased by $1.31 million to $93.60 million during the quarter. The filing reports a regulatory liquidity ratio of 20.57%. At quarter-end, the Bank reported $205.56 million of additional FHLB borrowing availability, $42.81 million available from the Federal Reserve, and an unused $10 million overnight line with Pacific Coast Bankers’ Bank. Loan commitments were $60.76 million, with $47.60 million of undisbursed construction loans in process.
Material changes and management commentary
- Loan growth was concentrated in commercial business, commercial real estate, construction and land development lending. Commercial real estate loans were 43.1% of the loan portfolio; total loans receivable before the allowance and certain deductions were $685.51 million.
- Deposit growth was led by money-market and NOW accounts, partly offset by lower certificates of deposit. Deposits funded most of the increase in assets.
- Management attributed higher net interest income primarily to growth in average interest-earning assets and increased collections of interest on previously non-accrual loans. Such collections added approximately 25 basis points to the current-quarter net interest margin; $475,000 was collected on the payoff of three non-accrual loans.
- Loan-sale gains increased as the Bank sold more longer-term fixed-rate residential mortgage loans. OREO expense rose by $168,000, primarily due to fair-value write-downs on several properties; salaries and benefits also increased.
- Non-performing assets were $13.67 million, or 1.63% of assets, down from $14.98 million, or 1.84%, at September 30, 2015. Non-accrual loans were $4.83 million; total non-accrual and 90-days-past-due loans were $5.12 million. Accruing troubled debt restructurings declined to $7.97 million from $12.49 million.
- The allowance for loan losses was $9.89 million, or 1.56% of loans receivable and loans held for sale, and 193% of non-performing loans. Management considered it adequate, but reported no loan-loss provision for the quarter. Net charge-offs were $35,000.
- The Bank exceeded regulatory capital requirements and was categorized as well capitalized. Its CET1, Tier 1 risk-based, total risk-based and leverage ratios were 13.45%, 13.45%, 14.71% and 10.22%, respectively.
Outlook, risks and other items
The filing provides no specific earnings or financial guidance. Management states that interim results are not necessarily indicative of full-year results. Forward-looking risks include loan credit quality and adequacy of reserves, economic and real-estate conditions in the Bank’s markets, interest-rate and funding changes, deposit retention, loan demand and secondary-market loan sales, competition, regulatory requirements, operational and cybersecurity risks, and litigation. Management reported no material change in previously disclosed risk factors, no material legal proceedings, and no material change in market-risk disclosures. Disclosure controls were assessed as effective; no material changes to internal control over financial reporting were reported.
Unrealized securities losses were considered temporary by management, which said it had the ability and intent to hold affected securities until recovery. The filing also notes that goodwill of $5.65 million was not considered impaired based on the latest annual test and that no subsequent impairment indicators had been identified. These assessments rely on management estimates and may change.
Most important facts for investors to verify
- Whether loan growth, especially in commercial real estate and construction lending, remains within the Bank’s risk appetite and is supported by borrower and collateral performance.
- Whether zero quarterly loan-loss provision remains appropriate as the portfolio grows, and whether the $9.89 million allowance adequately covers future losses.
- Trends in non-accrual loans, past-due loans, troubled debt restructurings and OREO, including the effect of property valuations and dispositions.
- How much of the quarter’s margin and earnings improvement depends on non-accrual interest recoveries, and whether deposit costs or market rates pressure future margins.
- Deposit retention and liquidity needs, including the $91.93 million of CDs scheduled to mature within one year and outstanding loan commitments.
- Capital levels and dividend capacity as the capital conservation buffer phases in; the filing states the Bank exceeded requirements at December 31, 2015.