Timberland Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2023; comparisons are with the corresponding 2022 periods. Balance-sheet comparisons are with September 30, 2022. Timberland Bank is a community bank serving western Washington, with lending concentrated in real estate. Amounts are in U.S. dollars.
Financial performance and condition
| Metric | Quarter ended March 31, 2023 | Six months ended March 31, 2023 |
|---|---|---|
| Net interest income | $17.15 million, up 33.0% | $34.89 million, up 36.4% |
| Provision for loan losses | $475,000; prior period $0 | $1.00 million; prior period $0 |
| Non-interest income | $2.64 million, down 14.5% | $5.34 million, down 18.1% |
| Non-interest expense | $10.94 million, up 17.3% | $21.48 million, up 15.5% |
| Net income | $6.66 million, up 25.1% | $14.17 million, up 31.1% |
| Diluted earnings per share | $0.80, versus $0.63 | $1.70, versus $1.28 |
| Net interest margin | 3.99%, versus 2.95% | 4.02%, versus 2.93% |
| Efficiency ratio | 55.31%, versus 58.42% | 53.58%, versus 57.91% |
For the quarter, net interest income growth reflected higher yields on investments and bank deposits and a larger loan balance, partly offset by higher deposit costs. The six-month effective tax rate was 20.2%, versus 20.01% a year earlier.
- Balance sheet: Total assets were $1.79 billion, down 4.0% from September 30, 2022. Net loans were $1.21 billion, up 6.9%; deposits were $1.55 billion, down 5.1%; and shareholders’ equity was $227.66 million, up 4.2%.
- Funding and liquidity: Cash and cash equivalents fell to $142.48 million from $316.76 million. The bank reported a 16.96% regulatory liquidity ratio and $509.57 million of available FHLB borrowing capacity, plus $82.32 million available under its FRB BIC line, $55.07 million under BTFP, and a $50 million PCBB line. No borrowings were outstanding on these facilities at March 31. Management said liquidity and available lines were adequate for obligations for at least 12 months.
- Cash flow, six months: Operating activities provided $15.36 million; investing activities used $100.77 million, chiefly reflecting loan growth and securities purchases; financing activities used $88.86 million, primarily from deposit outflows, dividends, and share repurchases. Cash and cash equivalents decreased $174.27 million.
- Credit quality and capital: Non-performing assets were $2.06 million, or 0.12% of assets. The allowance for loan losses was $14.70 million, equal to 1.20% of loans. The bank reported regulatory capital ratios of 11.89% leverage, 17.98% CET1 and Tier 1 risk-based, and 19.23% total capital; it exceeded “well-capitalized” thresholds.
Material changes and notable items
- Deposits declined by $83.41 million. Management attributed the outflow primarily to competition for deposits, customers moving funds to higher-yielding alternatives, and lower customer balances. Non-interest-bearing deposits fell $50.78 million, while certificates of deposit increased $63.53 million.
- Loan originations declined 41.8% year over year to $178.81 million for the six months. Loan sales fell to $3.55 million from $39.44 million, amid lower refinance activity and the decision to retain a greater share of single-family loans.
- Quarterly expense growth included higher salaries and benefits, data processing and telecommunications, and professional fees. The company repurchased 34,263 shares during the quarter for $1.10 million and paid $0.23 per share in quarterly dividends.
- Held-to-maturity securities had $13.43 million of gross unrealized losses at March 31, compared with $17.09 million at September 30; available-for-sale securities had $1.01 million of gross unrealized losses. Management considered declines temporary and said it had the intent and ability to hold securities until recovery.
Outlook, risks and contingencies
The filing gives no numerical earnings or margin guidance. Management noted that the Federal Reserve had raised its target rate by 475 basis points since March 2022 and indicated further increases might occur during calendar 2023. The company expects to continue quarterly dividends at the current $0.23 per-share rate, subject to board discretion. It anticipates adopting the current expected credit losses standard (CECL) in fiscal 2023 and expects the allowance for loan losses to increase, but the amount was not yet known.
Key disclosed risks include deposit competition and retention, interest-rate and net-interest-margin changes, economic or real-estate deterioration, loan losses and allowance adequacy, securities valuations, regulatory actions, and technology or third-party service disruptions. Off-balance-sheet commitments totaled $279.18 million, including construction-loan funding, undisbursed lines of credit, and commitments to extend credit. Management stated that ordinary-course legal claims were not expected to materially affect financial position; no material legal proceedings were reported. The company reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether deposit outflows continue and the cost of retaining or replacing deposits rises.
- How loan growth, portfolio mix, and credit performance affect the allowance, provision, and non-performing assets.
- Whether net interest margin holds up as asset yields and deposit costs reprice.
- The timing and eventual allowance impact of CECL adoption.
- Liquidity and funding access under stress, including the availability and collateral requirements of borrowing lines, and the value of securities if sales become necessary.