TIMBERLAND BANCORP, INC. — Form 10-Q Summary
Business context and period: Timberland Bancorp is the holding company for Timberland Bank, a community bank operating in western Washington. This report covers the three months ended December 31, 2011, the first quarter of fiscal 2012, and compares results with the three months ended December 31, 2010 unless otherwise noted. Balance-sheet comparisons are with September 30, 2011.
Key financial results
| Metric | Quarter ended Dec. 31, 2011 | Comparable period / change |
|---|---|---|
| Total assets | $735.85 million | Down 0.3% from Sept. 30, 2011 |
| Net interest income | $6.30 million | Down 0.5% year over year |
| Net interest margin | 3.73% | 3.82% a year earlier |
| Provision for loan losses | $650,000 | $900,000 a year earlier |
| Net income | $1.28 million | $1.36 million a year earlier |
| Net income to common shareholders | $1.02 million; $0.15 per diluted share | $1.10 million; $0.16 per diluted share a year earlier |
| Net cash from operating activities | $3.76 million | $4.01 million a year earlier |
| Cash and cash equivalents | $111.55 million | Down $518,000 from Sept. 30, 2011 |
| Deposits | $589.18 million | Down 0.6% from Sept. 30, 2011 |
| FHLB advances | $55.00 million | Unchanged from Sept. 30, 2011 |
- Interest and dividend income fell 8.8% to $8.03 million, while interest expense declined 30.2% to $1.73 million. The average yield on interest-earning assets decreased to 4.76% from 5.31%; the average cost of interest-bearing liabilities fell to 1.18% from 1.70%.
- Non-interest income fell 17.2% to $2.44 million, principally because the MSR valuation recovery was $84,000 versus $634,000 and loan-sale gains declined. Non-interest expense declined 2.4% to $6.22 million.
- Cash flows were $3.76 million provided by operations, $561,000 used in investing and $3.71 million used in financing. Cash and cash equivalents decreased by $518,000 during the quarter.
- Total shareholders’ equity was $87.33 million. The Bank reported Tier 1 leverage capital of 10.45%, Tier 1 risk-based capital of 14.25% and total risk-based capital of 15.51%.
Material changes and credit quality
- Net loans receivable increased 0.2% to $529.04 million from September 30, 2011. Growth in commercial business and construction lending was partly offset by declines in one-to-four-family and land loans.
- Non-performing assets rose 10.5% to $40.84 million, or 5.55% of total assets, from $36.95 million, or 5.01%, at September 30. Non-accrual loans and loans at least 90 days past due and still accruing totaled $30.48 million, up from $23.34 million.
- OREO and other repossessed assets declined 28.6% to $7.71 million. The Bank sold 12 properties/assets for $3.70 million during the quarter and recorded a net loss of $271,000 on those sales.
- The allowance for loan losses was $11.97 million, or 2.21% of loans receivable and loans held for sale, compared with $11.75 million and 2.19% at December 31, 2010. Net charge-offs were $624,000; provision expense was lower partly because of $524,000 in allowance recoveries.
- Accruing troubled debt restructurings were $18.30 million. Total troubled debt restructurings included in impaired loans were $25.63 million; $7.33 million of that amount was on non-accrual status. No new troubled debt restructurings were recorded in the quarter.
Outlook, constraints and risks
- The filing provides no earnings or other quantitative financial guidance. Management cautions that quarterly results are not necessarily indicative of full-year results.
- A King County residential building-plat approval delay contributed to $2.32 million of loans past due 90 days or more and still accruing. Management expected the sale to close by February 28, 2012, which it said would reduce that category by $2.32 million; this was an expectation, not a completed transaction in the reported period.
- The Bank remains subject to a 2009 regulatory Memorandum of Understanding (MOU), including a requirement to maintain at least a 10% Tier 1 leverage ratio and obtain regulatory non-objection for certain balance-sheet changes. The Bank reported compliance at quarter-end. The Federal Reserve also maintains an MOU with the holding company.
- The Federal Reserve had denied requests to pay seven quarterly dividends on Treasury-held Series A preferred stock. Preferred dividends in arrears totaled $1.46 million at December 31, 2011 and continue to accrue and compound. The restrictions also constrain common dividends and certain share repurchases; the Treasury has the right to appoint two directors after six or more missed quarters.
- Liquidity included a 22.24% regulatory liquidity ratio, $117.79 million of additional FHLB borrowing capacity and $50.58 million available under an FRB line, with no FRB borrowing outstanding. The Bank had $33.13 million in loan commitments, $17.07 million in undisbursed construction loans and $149.46 million of CDs scheduled to mature within one year.
- Management identifies credit deterioration, real-estate values, interest-rate and funding conditions, regulatory actions, and the adequacy of loan-loss reserves as significant risks. It noted no material changes to previously disclosed risk factors or market-risk information. No material legal proceedings were reported.
Most important facts for investors to verify
- Whether the expected King County sale closed and reduced past-due accruing loans as management anticipated.
- Subsequent trends in non-accrual loans, non-performing assets, impaired loans, OREO sales and the adequacy of the allowance for loan losses.
- Continued compliance with the Bank MOU’s capital and operating restrictions and any change in regulatory status.
- Accumulation and potential payment of preferred dividends in arrears, and the effect of those obligations on common shareholders.
- Deposit retention and liquidity as substantial CDs mature, together with the bank’s ability to sustain margins and earnings amid changing rates and credit costs.