Timberland Bancorp, Inc. — Q1 FY2015 Form 10-Q
Reporting period: Unaudited quarter ended December 31, 2014; comparisons are generally with the quarter ended December 31, 2013. Balance-sheet changes are compared with September 30, 2014. Timberland Bank is the company’s community-banking subsidiary, serving western Washington.
Financial performance and condition
| Metric | Quarter ended Dec. 31, 2014 | Comparable period / change |
|---|---|---|
| Interest and dividend income | $7.686 million | Up 2.7% from $7.481 million |
| Net interest income | $6.703 million | Up 3.8% from $6.459 million |
| Net interest margin | 3.88% | Up from 3.78% |
| Non-interest income | $2.123 million | Down 3.3% from $2.195 million |
| Non-interest expense | $6.274 million | Up 0.5% from $6.241 million |
| Net income | $1.727 million | Up 7.2% from $1.611 million |
| Net income to common shareholders | $1.727 million | Up 22.9% from $1.405 million |
| Diluted earnings per share | $0.24 | Up from $0.20 |
| Efficiency ratio | 71.09% | Improved from 72.12% |
| Annualized return on average assets / equity | 0.92% / 8.29% | Up from 0.87% / 7.28% |
The prior-year common-shareholder result included $206,000 of preferred dividends and discount accretion; the remaining preferred shares had been redeemed in December 2013. Common dividends were $0.05 per share, versus $0.03 a year earlier.
Cash flow: Operating activities provided $3.060 million; investing activities used $7.621 million; financing activities provided $2.562 million. Cash and cash equivalents declined $1.999 million during the quarter to $70.355 million.
Balance sheet at Dec. 31, 2014: Total assets were $749.917 million, up 0.6% from September 30. Net loans were $573.595 million, up 1.4%; deposits were $617.986 million, up 0.5%; shareholders’ equity was $84.267 million, up 1.8%. FHLB advances remained $45.000 million. The allowance for loan losses was $10.322 million; no loan-loss provision was recorded for either comparison quarter.
Liquidity and capital: The reported regulatory liquidity ratio was 16.52%. The Bank reported $134.28 million of additional FHLB borrowing availability, $42.76 million available from the Federal Reserve, and an unused $10 million PCBB line. The Bank and holding company exceeded applicable capital requirements. Bank ratios were 10.36% Tier 1 leverage, 13.39% Tier 1 risk-based capital, and 14.65% total risk-based capital; the Bank met the filing’s “well capitalized” thresholds.
Material changes and credit quality
- Loan growth was led by one- to four-family and commercial business lending. Commercial real estate represented 48.0% of the reported loan portfolio; total mortgage loans were 88.1%.
- Non-performing loans (including loans 90 days past due) fell to $10.812 million from $11.721 million at September 30; the ratio to loans declined to 1.85% from 2.03%. Non-performing assets declined to $20.089 million, or 2.68% of assets, from $21.914 million, or 2.94%.
- OREO and other repossessed assets decreased to $8.220 million from $9.092 million, following dispositions of five properties totaling $902,000, $44,000 of write-downs, and additions of $74,000. The balance represented 37 properties.
- Accruing troubled debt restructurings declined to $12.337 million from $16.804 million. Total troubled debt restructurings were $14.371 million, including $2.034 million on non-accrual; there were no new restructurings during the quarter.
- Net charge-offs were $105,000, compared with $391,000 a year earlier. Management considered the allowance adequate; it equaled 1.77% of loans receivable and loans held for sale and 96% of non-performing loans.
Management commentary, outlook, and risks
Management attributed higher net interest income mainly to increased average loan balances and collection of $125,000 of non-accrual interest on two loans. Lower deposit costs, including certificates repricing at lower market rates, also contributed. Non-interest income declined mainly because of lower deposit service charges and loan-sale gains; a $45,000 gain from selling $1.22 million of agency mortgage-backed securities partly offset the decline. Higher ATM/debit processing and data-processing costs reflected technology upgrades and outsourced core processing.
The filing provides no specific earnings or growth guidance. Management cautions that quarterly results are not necessarily indicative of the full fiscal year. Key disclosed risks include credit deterioration, real-estate values and market conditions, interest-rate and margin changes, deposit retention, regulatory actions and capital requirements, liquidity, technology and cybersecurity, operating costs, and valuation judgments for impaired loans, OREO, and goodwill. Management reported no indication of goodwill impairment as of December 31, 2014. Securities losses were assessed as temporary; management said it had the ability and intent to hold affected securities until recovery.
Other notable items: the company recorded no loan-loss provision and no net OTTI in the quarter, and recognized the $45,000 securities-sale gain. The filing reports no material legal proceedings, no material changes in previously disclosed risk factors or market-risk information, and effective disclosure controls as of quarter-end.
Most important facts for investors to verify
- Whether loan growth and the improved net interest margin persist without relying on the $125,000 non-accrual interest collection.
- Whether the allowance remains adequate given real-estate concentration, $10.812 million of non-performing loans, and $14.371 million of troubled debt restructurings.
- Whether OREO dispositions continue and whether property values support reported carrying amounts.
- How deposit retention and upcoming certificate maturities—$98.33 million due within one year—affect funding costs and liquidity.
- Whether technology-related processing costs, loan-sale income, and deposit-fee income change materially in subsequent quarters.
- That reported liquidity, capital, and fair-value estimates remain current; key valuation assumptions and regulatory assessments may change.