Timberland Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2014; balance-sheet comparisons are to September 30, 2013. The unaudited consolidated statements cover Timberland Bancorp and its banking subsidiary. Dollar amounts below are in millions unless noted.
Financial performance and condition
| Metric | Three months ended March 31, 2014 | Six months ended March 31, 2014 |
|---|---|---|
| Interest and dividend income | $7.412 | $14.893 |
| Net interest income | $6.437 | $12.896 |
| Non-interest income | $2.013 | $4.208 |
| Non-interest expense | $6.754 | $12.995 |
| Provision for loan losses | None | None |
| Net income | $1.159 | $2.770 |
| Diluted earnings per common share | $0.16 | $0.37 |
| Net interest margin | 3.85% | 3.81% |
- Quarterly net income declined 9.3% from $1.278 million; six-month net income declined 7.2% from $2.986 million. Diluted EPS was $0.17 and $0.39, respectively, in the prior-year periods.
- Quarterly net interest income was essentially flat year over year; six-month net interest income increased 0.5%. The six-month net interest margin edged up from 3.80%.
- At March 31, total assets were $732.417 million, down 1.8% from September 30. Net loans were $554.692 million, up 1.2%; deposits were $604.374 million, down 0.6%.
- Cash and cash equivalents were $70.241 million, down $24.255 million over six months. Six-month operating cash flow was $4.618 million; investing cash use was $12.413 million and financing cash use was $16.460 million.
- FHLB advances remained $45.0 million; the filing describes long-term advances bearing 3.69%–4.34%, with scheduled maturities in fiscal 2017 and some subject to earlier call. Total shareholders’ equity was $80.024 million, down 10.8%, primarily following redemption of preferred shares.
Changes versus comparable periods
- Quarterly non-interest income fell 27.5% to $2.013 million, mainly because loan-sale gains declined by $661,000 and there was no MSR valuation recovery, versus $221,000 a year earlier. Six-month non-interest income fell 23.4%, including lower loan-sale gains and no MSR recovery versus $475,000 in the prior period.
- Non-interest expense rose 9.2% for the quarter and 3.5% for the six months. Salary and benefits and ATM/debit-card processing costs were notable increases; the latter included EFT-platform conversion costs.
- No loan-loss provision was recorded in either 2014 comparison period, versus $1.175 million for the prior-year quarter and $1.375 million for the prior-year six months. Management cited lower net charge-offs and improved credit metrics. Six-month 2014 net charge-offs were $387,000, versus $1.89 million a year earlier.
- Loan originations declined 22.8% to $84.88 million for six months, principally reflecting reduced refinance demand. Sales of fixed-rate one- to four-family loans fell 70.9% to $15.47 million.
- Non-performing assets were $27.061 million, or 3.69% of assets, versus $27.953 million, or 3.75%, at September 30. Non-accrual and 90-days-past-due loans were $12.649 million, down from $14.046 million. OREO and repossessed assets rose 12.7% to $13.208 million.
Liquidity, capital, outlook and risks
- The Bank reported a 14.77% regulatory liquidity ratio. At March 31, it had $136.92 million of additional FHLB borrowing capacity, $44.26 million available from the FRB, and a $10 million PCBB overnight line; the FRB and PCBB lines had no outstanding balances. These facilities are subject to collateral and availability conditions.
- Loan commitments were $31.37 million, with a further $20.47 million of undisbursed construction loans. Certificates of deposit maturing within one year totaled $98.66 million. Management said it anticipated sufficient funds to meet current loan commitments.
- Timberland Bancorp and Timberland Bank each exceeded applicable regulatory capital requirements. The Bank’s Tier 1 leverage ratio was 10.02%, Tier 1 risk-based ratio 12.89%, and total risk-based capital ratio 14.15%; the filing’s “well capitalized” thresholds were 5%, 6%, and 10%, respectively.
- The filing provides no specific earnings or operating guidance. Management cautioned that interim results are not necessarily indicative of full-year results. Risks discussed include credit deterioration and reserve adequacy, economic and real-estate conditions, interest-rate and funding changes, deposit retention, loan demand and secondary-market conditions, regulatory actions, competition, operational and technology risks, and fair-value estimation uncertainty.
- The Company redeemed its remaining 12,065 Series A preferred shares for $12.065 million in December 2013, completing the preferred-stock redemption and contributing to lower equity and cash. No new troubled debt restructurings were reported during the six months. Management reported no indicator of potential goodwill impairment at March 31, but noted that future impairment remains possible and depends on judgmental valuation assumptions.
- No material legal proceedings or material changes to previously disclosed risk factors were reported. Management concluded disclosure controls were effective; no material change in internal control over financial reporting was reported.
Most important facts for investors to verify
- Whether the zero loan-loss provision and current allowance of $10.749 million remain appropriate as credit performance and collateral values evolve; the allowance equaled 85.0% of non-performing loans.
- The composition and trajectory of problem assets, including $12.649 million of non-accrual loans, $13.208 million of OREO, and $17.284 million of accruing troubled debt restructurings.
- Whether loan growth and net interest income can offset lower refinancing-related loan-sale income, while monitoring expense growth and the 79.93% quarterly efficiency ratio.
- Liquidity and funding resilience, including runoff or renewal of the $98.66 million of CDs due within a year, available borrowing capacity and the use of cash after the preferred-stock redemption.
- The effect of the preferred redemption on capital and common-shareholder returns, alongside the Bank’s reported capital ratios and dividend payments.