Timberland Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2015; comparisons are to the periods ended March 31, 2014 unless otherwise noted. Balance-sheet comparisons are to September 30, 2014. Timberland Bank is the company’s community-banking subsidiary, operating in western Washington. Amounts are in millions except per-share data and ratios.
Financial performance
| Metric | Quarter | Six months |
|---|---|---|
| Net interest income | $6.57; up 2.0% | $13.27; up 2.9% |
| Net interest margin | 3.69%, down from 3.85% | 3.78%, down from 3.81% |
| Non-interest income | $2.21; up 10.0% | $4.34; up 3.1% |
| Non-interest expense | $6.65; down 1.5% | $12.93; down 0.5% |
| Net income | $1.45; up 25.2% | $3.18; up 14.7% |
| Diluted earnings per share | $0.21, versus $0.16 | $0.45, versus $0.37 |
| Efficiency ratio | 75.78%, versus 79.93% | 73.43%, versus 75.98% |
For the quarter, higher loan-sale gains and debit-card interchange income contributed to non-interest income growth. Net interest income rose as average earning assets grew and funding costs declined, but lower asset yields compressed the margin. Six-month common earnings also benefited from no preferred-stock dividends or discount accretion, which reduced 2014 common earnings by $206,000.
Financial position, cash flow and credit
- Total assets were $776.27, up 4.1% from September 30, 2014. Net loans were $584.27, up 3.3%; total deposits were $643.27, up 4.6%; and shareholders’ equity was $85.42, up 3.2%.
- Cash and cash equivalents were $82.09; cash plus investment CDs totaled $123.96. FHLB advances remained $45.00, with maturities scheduled in fiscal 2017 and some advances callable earlier.
- Six-month operating cash flow was $3.36, investing cash use was $21.07, and financing cash flow was $27.44. Cash increased $9.74 to $82.09, principally alongside deposit growth.
- Non-performing assets fell to $19.80 from $21.91; non-performing assets were 2.55% of assets, versus 2.94%. Non-accrual and 90-days-past-due loans were 1.84% of loans, versus 2.03%. Accruing troubled debt restructurings declined to $12.67 from $16.80.
- The allowance for loan losses was $10.38, or 1.75% of loans receivable and loans held for sale, and equaled 95% of non-performing loans. No loan-loss provision was recorded in either six-month period; six-month net charge-offs were $45,000, versus $387,000.
- The Bank reported a regulatory liquidity ratio of 18.81%. Additional borrowing availability was reported at $133.14 from the FHLB, $43.75 from the Federal Reserve, and a $10.00 PCBB line; none was drawn from the latter two lines. Loan commitments were $60.70, with $35.99 of undisbursed construction loans. CDs maturing within one year totaled $99.5.
- The Bank was categorized as well capitalized. Its CET1, Tier 1 and total risk-based capital ratios were 13.51%, 13.51% and 14.77%, respectively; its leverage ratio was 10.29%.
Changes, outlook and risks
- Loan growth included increases in one-to-four-family, construction and land-development, and commercial business lending. Construction and land-development loans rose to $77.43; multifamily construction exposure increased notably from September 2014.
- OREO and repossessed assets declined 13.5% to $7.87, following property sales and $405,000 of write-downs, partly offset by new additions. The company reported 35 OREO properties and one other repossessed asset.
- Management provided no specific earnings or other forward guidance and cautioned that interim results are not necessarily indicative of full-year results. It considered the allowance adequate, while noting estimates may prove incorrect and regulators may require additional reserves. Goodwill of $5.65 was unchanged; management reported no impairment indicator since its 2014 test.
- Key stated risks include borrower and real-estate credit deterioration, interest-rate and margin changes, deposit retention and competition, loan demand and property values, regulatory or capital changes, technology and cybersecurity failures, and the ability to control expenses. The company said risk factors were not materially changed from its 2014 Form 10-K.
- No material legal proceedings were reported. Management said disclosure controls were effective and there were no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether margin pressure persists as asset yields and funding costs change, and whether loan and deposit growth continues.
- Credit trends behind the $10.92 of non-accrual loans, the $18.41 of substandard loans, the allowance coverage ratio, and the larger multifamily construction balance.
- Realization of OREO carrying values, further write-downs, and the pace of property dispositions.
- Deposit retention and liquidity needs as $99.5 of CDs mature within one year and commitments remain outstanding.
- Capital ratios under evolving regulatory requirements and any effect on dividends or other capital distributions; common dividends paid were $0.06 per share for the quarter.