Timberland Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2024; balance-sheet comparisons are to September 30, 2023. The company operates Timberland Bank, a community bank serving western Washington. Filing dated May 8, 2024.
Financial performance and condition
- Quarterly results: Net income was $5.71 million, down 14.3% from $6.66 million; diluted EPS was $0.70 versus $0.80. Net interest income declined 8.8% to $15.64 million. Net interest margin fell to 3.48% from 3.99%.
- Six-month results: Net income was $12.00 million, down 15.3%; diluted EPS was $1.47 versus $1.70. Net interest income decreased 9.3% to $31.64 million, and net interest margin declined to 3.53% from 4.02%.
- Revenue and costs: Quarterly interest and dividend income rose 19.4% to $23.16 million, but interest expense increased 236.4% to $7.52 million as funding costs rose. Quarterly non-interest income was $2.62 million and non-interest expense was $10.99 million. The quarterly efficiency ratio increased to 60.22% from 55.31%.
- Assets and lending: Total assets grew 3.7% to $1.91 billion. Net loans rose 4.4% to $1.36 billion; gross loan balances were concentrated in commercial real estate (about 40% of the portfolio). Six-month loan originations fell 28.3% year over year to $128.30 million.
- Deposits, debt and liquidity: Deposits increased 5.0% to $1.64 billion, while FHLB borrowings fell to $20 million from $35 million. Cash and cash equivalents were $180.35 million. Management reported a 13.22% regulatory liquidity ratio, $596 million of available FHLB borrowing capacity, $111.22 million available on the FRB line and an unused $50 million PCBB line. Management believes liquidity is adequate for obligations for at least 12 months.
- Cash flow, six months: Operating cash flow was $8.98 million; investing cash outflow was $13.51 million; financing cash inflow was $56.16 million. Cash and cash equivalents increased $51.63 million to $180.35 million.
- Capital and shareholder returns: Shareholders’ equity was $238.68 million. The Bank was categorized as well-capitalized, with a 17.97% CET1 ratio, 19.22% total risk-based capital ratio and 11.92% leverage ratio. The company paid $0.47 per share in dividends during the six months and repurchased 112,117 shares for $3.03 million.
Material changes and notable items
- Higher deposit and borrowing costs more than offset increased asset yields: quarterly average funding cost rose to 2.50% from 0.84%, while average earning-asset yield increased to 5.16% from 4.51%.
- Non-performing assets rose to $3.68 million from $1.60 million; non-accrual loans increased to $3.61 million from $1.51 million. Non-performing assets were 0.19% of total assets. The filing reports one one- to four-family property in foreclosure.
- The allowance for credit losses on loans was $16.82 million. The company adopted CECL on October 1, 2023, recording a $488,000 after-tax reduction to opening retained earnings; prior-period allowance measures use the former methodology and are not directly comparable.
- Held-to-maturity securities had $11.34 million of gross unrealized losses and estimated fair value of $200.81 million against amortized cost of $211.82 million. Management attributes available-for-sale securities losses primarily to market interest rates and says it has the ability and intent to hold them until recovery.
Outlook, risks and contingencies
The filing provides no specific earnings or margin guidance. Management identifies sensitivity to interest rates, deposit retention and pricing, loan demand, and local economic conditions. Risks highlighted include deterioration in commercial real estate or housing, recession and inflation effects, credit losses exceeding allowance estimates, regulatory actions, competition, cybersecurity and third-party technology disruptions, and changes in funding conditions. The company says ordinary-course legal claims are not expected to have a material effect; it reported no material legal proceedings. The current quarterly dividend is $0.24 per share, subject to Board discretion. The stock repurchase plan had 262,025 shares remaining as of March 31, 2024.
Important facts for investors to verify
- Whether deposit costs continue rising and whether the shift toward money-market accounts and CDs affects margins or deposit stability.
- Whether non-accrual loans and broader delinquencies continue increasing, particularly in commercial real estate and commercial business lending.
- How the fair-value gap in held-to-maturity securities and any future securities sales could affect capital or liquidity.
- Whether loan growth, CECL assumptions and the allowance remain appropriate as economic and borrower conditions change.
- Whether management’s stated liquidity capacity and 12-month outlook remain supported by deposit flows, collateral availability and borrowing facilities.