Timberland Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended March 31, 2018, the company’s fiscal second quarter. Unaudited consolidated results cover Timberland Bancorp and its banking subsidiary, Timberland Bank, a community bank operating 22 branches in western Washington.
Financial performance
| Metric | Three months ended March 31, 2018 | Six months ended March 31, 2018 |
|---|---|---|
| Net interest income | $9.62 million; up 13.9% year over year | $19.06 million; up 13.7% |
| Non-interest income | $3.08 million; up 8.1% | $6.22 million; up 2.5% |
| Non-interest expense | $7.22 million; up 5.3% | $14.40 million; up 5.3% |
| Net income | $4.27 million; up 36.5% | $7.88 million; up 25.6% |
| Diluted earnings per share | $0.57, versus $0.42 | $1.05, versus $0.86 |
| Net interest margin | 4.19%, versus 3.88% | 4.19%, versus 3.90% |
| Efficiency ratio | 56.83%, versus 60.67% | 56.96%, versus 59.86% |
Net interest income improved as earning assets and yields grew and the company had no FHLB borrowing expense after repaying borrowings in 2017. Deposit interest expense rose, partly offsetting those gains. The prior-year quarter and half-year included a $250,000 loan-loss recapture; there was no provision or recapture in the 2018 periods. The company recorded $14,000 of net securities recoveries in the quarter and $36,000 for the half-year.
Lower taxes also supported earnings. The effective tax rate was 22.17% for the quarter and 27.55% for the half-year, compared with 33.39% and 33.35%, respectively, in 2017. The six-month 2018 tax provision includes a $548,000 one-time expense from revaluing deferred tax assets under the Tax Act.
Financial position, cash flow and liquidity
- Total assets were $1.001 billion at March 31, up 5.2% from September 30, 2017. Net loans were $708.6 million, up 2.6%; total deposits were $880.4 million, up 5.1%; and shareholders’ equity was $117.8 million, up 6.2%.
- Cash and cash equivalents plus investment CDs were $222.3 million, up $31.1 million from September 30. The six-month cash flow statement reported $8.4 million provided by operating activities, $28.2 million used in investing, and $41.0 million provided by financing; cash and cash equivalents increased $21.2 million to $169.4 million.
- The Bank reported no outstanding FHLB, Federal Reserve or Pacific Coast Bankers’ Bank borrowings. It cited $278.4 million of available FHLB borrowing capacity, $75.4 million available from the Federal Reserve, and an unused $10 million overnight PCBB line. The regulatory liquidity ratio was 25.76%.
- The Bank was classified as well-capitalized. At March 31, its leverage ratio was 11.37%, common equity Tier 1 and Tier 1 risk-based ratios were each 16.31%, and total risk-based capital was 17.56%.
- Common dividends were $0.13 per share for the quarter and $0.24 for the half-year. No shares were repurchased during the quarter.
Material changes, credit quality and unusual items
- Loan growth was concentrated in commercial real estate and construction lending. Commercial mortgage loans represented 42.8% of gross loans; overall mortgage loans were 89.3% of gross loans. Management attributed net loan growth mainly to commercial real estate and construction categories.
- Non-performing assets declined to $4.62 million, or 0.46% of assets, from $5.75 million, or 0.60%, at September 30, largely because of OREO dispositions. However, delinquent loans of 30 days or more and non-accrual loans rose 36.2% to $3.29 million. Non-accrual loans were $1.93 million; there were no loans 90 days past due and still accruing.
- The allowance for loan losses was $9.54 million, 1.33% of loans and 494.0% of non-performing loans. Management considered it adequate but cautioned that deterioration or regulatory review could require a significant increase. Net charge-offs for the half-year were $9,000.
- OREO and other repossessed assets fell to $2.22 million after dispositions, but quarterly OREO expense included write-downs on three properties. Impaired loans were $5.20 million, and troubled debt restructurings totaled $3.13 million, including $155,000 on non-accrual.
- Interest income benefited from higher short-term rates and a 15-basis-point increase in the average loan yield. Management noted that changing rates can affect asset yields, deposit costs, prepayments and funding flows.
- Management reported no material changes in previously disclosed risk factors or market-risk information. Disclosure controls were deemed effective, and no material legal proceedings were reported. No specific earnings or financial guidance was provided.
Outlook, risks and items to verify
The filing provides no quantified forward guidance. Management said it expected available funds to meet current loan commitments. It also anticipated that adopting the expected-credit-loss standard (CECL) would increase the loan-loss allowance, but the amount was not yet known. Key risks cited include borrower and real-estate credit deterioration, interest-rate and deposit-cost changes, competition, regulatory actions, and operational or cybersecurity disruptions.
- Verify whether loan growth—particularly commercial real estate and construction exposure—continues alongside the increase in delinquencies.
- Monitor allowance adequacy, non-performing assets, OREO valuations and the impact of any CECL estimate when available.
- Assess deposit pricing and funding trends as interest rates change, including retention of CDs maturing within one year.
- Separate recurring earnings trends from the Tax Act’s lower tax rate and the $548,000 deferred-tax write-down, and from securities recoveries and the premises-sale gain.
- Confirm the company’s ability to sustain its net interest margin, expense discipline, dividend and well-capitalized status as conditions evolve.