Timberland Bancorp, Inc. — Q2 FY2020 10-Q
Reporting period: Quarter and six months ended March 31, 2020; fiscal year ends September 30. Unaudited consolidated results cover Timberland Bancorp and its banking subsidiary, serving western Washington. Amounts are in U.S. dollars; financial-statement figures are generally in millions unless otherwise noted.
Financial results and position
| Metric | Q2 FY2020 / March 31, 2020 | Comparable period / prior balance |
|---|---|---|
| Interest and dividend income | $14.13 million for the quarter; $28.32 million for six months | $13.84 million and $27.16 million |
| Net interest income | $12.88 million for the quarter; $25.88 million for six months | $12.73 million and $25.07 million |
| Provision for loan losses | $2.00 million for the quarter; $2.20 million for six months | None in either comparable 2019 period |
| Net income | $5.05 million for the quarter; $11.70 million for six months | $6.11 million and $11.73 million |
| Diluted EPS | $0.60 for the quarter; $1.38 for six months | $0.72 and $1.39 |
| Net interest margin | 4.27% for the quarter; 4.35% for six months | 4.51% and 4.49% |
| Efficiency ratio | 50.04% for the quarter; 49.73% for six months | 55.66% and 55.27% |
The filing does not present a single consolidated revenue line. Non-interest income was $3.68 million for the quarter and $7.62 million for six months; non-interest expense was $8.29 million and $16.66 million, respectively. Quarterly income before taxes was $6.27 million.
At March 31, total assets were $1.323 billion, net loans $907.66 million, deposits $1.126 billion, and shareholders’ equity $178.01 million. Cash and cash equivalents were $168.15 million; cash plus investment CDs held for investment totaled $250.62 million. The allowance for loan losses was $11.89 million, or 1.29% of loans receivable. Non-performing assets were $5.08 million, 0.38% of assets.
Six-month cash flows: operating activities provided $15.20 million; investing activities used $52.86 million; financing activities provided $62.80 million. Cash and cash equivalents increased $25.13 million to $168.15 million. FHLB borrowings were $10.00 million, versus none at September 30, 2019; total deposits rose $57.42 million from that date.
The Bank reported regulatory capital ratios of 12.52% leverage, 18.15% common equity Tier 1 and Tier 1 risk-based capital, and 19.41% total risk-based capital, exceeding applicable well-capitalized thresholds. The regulatory liquidity ratio was 24.93%; reported additional FHLB borrowing availability was $364.75 million.
Changes versus comparable periods
- Quarterly net income fell 17.4% year over year, mainly because of the $2.00 million loan-loss provision prompted by COVID-19 uncertainty. Six-month net income was nearly unchanged, down 0.2%.
- Net interest margin declined despite higher net interest income: asset yields fell and funding costs rose. Management noted that the full effect of the Federal Reserve’s March rate cuts had not yet flowed through results.
- Quarterly non-interest income declined 6.6%, chiefly because the prior-year quarter included a BOLI death benefit; higher loan-sale gains partly offset the decline. Non-interest expense fell 10.7%, partly reflecting the prior-year core-system conversion costs and an FDIC assessment credit.
- From September 30, 2019, assets increased 6.1%, net loans 2.4%, deposits 5.4%, and equity 4.1%. Investment securities grew as excess overnight liquidity was deployed into agency mortgage-backed securities.
Outlook, risks and notable items
- COVID-19 and credit: Management expected near-term, potentially longer-lasting pressure on net interest income and margin. It warned that delinquencies, adverse loan classifications, charge-offs, and required reserves could rise; future effects were highly uncertain.
- Borrower relief: By March 31, 125 loans totaling $79.41 million had approved COVID-related modifications. By April 30, approvals reached 178 loans totaling $125.24 million, or 13.6% of March 31 loan balances. The filing says these eligible short-term modifications were not classified as TDRs under CARES Act guidance.
- PPP, subsequent to quarter end: By April 30, the Bank had funded $102.72 million in Paycheck Protection Program loans. The loans carry a 1% rate and SBA guarantees, but the filing identifies possible SBA guarantee disputes and litigation risks.
- Operations and contingencies: Branch lobbies were closed, with service provided through drive-up, appointment, online, ATM, and telephone channels; some employees worked remotely. The filing flags operational, cybersecurity, third-party vendor, and employee-availability risks. Management performed a COVID-related goodwill assessment and reported no impairment as of March 31, while cautioning future impairment remained possible.
- Capital actions: The company repurchased 56,601 shares for $1.24 million during the six months and suspended further repurchases on March 16. It paid $3.76 million in dividends during the period. No formal earnings or margin guidance is provided.
- Other: The company adopted lease accounting on October 1, 2019, recording $2.76 million of operating lease assets and liabilities at March 31. Management stated that disclosure controls were effective and that there were no material legal proceedings.
Key facts for investors to verify
- How loan performance and reserve adequacy evolve as COVID-related deferrals expire, especially in commercial real estate and commercial business lending; commercial mortgage loans were 44.1% of the reported gross loan portfolio.
- Whether approved modifications, including the increase reported after quarter end, lead to renewed payments or additional credit deterioration.
- The subsequent performance, fee recognition, forgiveness processing, and SBA guarantee compliance for the $102.72 million of PPP loans funded by April 30.
- How the sharp rate reductions affect deposit costs, asset yields, net interest margin, and earnings in later quarters.
- Whether capital, liquidity, dividends, or share repurchases change as the economic effects of the pandemic become clearer; reported March 31 capital and liquidity measures are point-in-time figures.