Timberland Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2012. Financial statements are unaudited. Timberland Bancorp is the holding company for Timberland Bank, a community bank operating 22 branches in western Washington.
Key financial metrics
| Metric | Three months ended March 31, 2012 | Six months ended March 31, 2012 |
|---|---|---|
| Interest and dividend income | $7.80 million | $15.84 million |
| Net interest income | $6.27 million | $12.57 million |
| Net interest margin | 3.72% | 3.73% |
| Provision for loan losses | $1.05 million | $1.70 million |
| Non-interest income | $2.49 million | $4.94 million |
| Non-interest expense | $6.57 million | $12.79 million |
| Net income | $808,000 | $2.09 million |
| Net income to common shareholders | $541,000 | $1.56 million |
| Diluted earnings per common share | $0.08 | $0.23 |
At March 31, 2012, total assets were $742.71 million, deposits $604.60 million, net loans $534.99 million, shareholders’ equity $87.98 million and cash and cash equivalents $111.62 million. FHLB advances were $45.00 million and repurchase agreements were $948,000. The allowance for loan losses was $12.26 million, or 2.24% of loans receivable and loans held for sale.
Six-month cash flows were $7.18 million provided by operating activities, $9.72 million used in investing activities and $2.10 million provided by financing activities. Cash and cash equivalents decreased $444,000. The Bank reported a 21.85% regulatory liquidity ratio and available borrowing capacity of $142.70 million at the FHLB and $56.21 million at the Federal Reserve; the latter line had no outstanding balance.
Changes versus comparable periods
- Quarterly net income fell 25.4% from $1.08 million; six-month net income fell 14.4% from $2.44 million. Diluted EPS declined from $0.12 to $0.08 for the quarter and from $0.28 to $0.23 for six months.
- Net interest income declined 1.2% for the quarter and 0.9% for six months. Lower asset yields outweighed reduced funding costs: the six-month yield on interest-earning assets decreased to 4.69% from 5.18%, while the average cost of interest-bearing liabilities fell to 1.13% from 1.59%.
- Loan-loss provision rose 50.0% for the quarter and 6.3% for six months. Six-month net charge-offs were $1.38 million, compared with $1.07 million a year earlier.
- Quarterly non-interest income increased 18.3%, mainly on higher gains from loan sales and ATM fees. Six-month non-interest income decreased 2.4%, principally because MSR valuation recoveries were lower than in 2011.
- Non-interest expense increased 6.4% for the quarter and 1.9% for six months, including higher OREO and foreclosure-related costs. OREO and repossessed assets declined to $8.02 million from $10.81 million at September 30, 2011.
- Deposits increased 2.0% and net loans increased 1.3% from September 30, 2011. FHLB advances decreased $10.00 million.
Credit quality, capital, outlook and risks
- Non-performing assets rose 8.6% to $40.13 million, or 5.40% of total assets. Non-accrual and loans at least 90 days past due totaled $29.59 million, or 5.41% of loans receivable. The allowance covered 41.4% of non-performing loans.
- Troubled debt restructurings totaled $22.99 million, including $7.10 million on non-accrual status. Management said there were no additional lending commitments on these restructured loans.
- A $2.93 million group of loans reported past due 90 days or more related to delayed final plat approval for a pre-sold King County residential development; the sale closed May 1, 2012 and the loans were paid off.
- The Bank reported compliance with applicable capital requirements, while operating under a supervisory MOU requiring at least a 10.0% Tier 1 leverage ratio and “well capitalized” risk-based ratios. At March 31, the Bank’s Tier 1 leverage ratio was 10.65%, Tier 1 risk-based capital ratio 14.21% and total risk-based capital ratio 15.47%.
- Federal Reserve restrictions remained in force under the Company MOU. The FRB had denied eight consecutive quarterly payments on the Treasury’s Series A preferred stock; $1.66 million of preferred dividends were in arrears. Dividends and certain capital actions require regulatory approval, and unpaid preferred dividends restrict common dividends. Treasury also had the right to appoint two directors after at least six quarters of unpaid preferred dividends.
- No specific earnings or financial guidance was provided. Management cautioned that interim results are not necessarily indicative of full-year results. Key risks include commercial real estate and other lending losses, collateral-value declines, allowance adequacy, interest-rate and deposit competition, regulatory requirements, and the Company’s ability to comply with its MOUs.
- Management considered the allowance adequate but noted estimates depend on collateral values and other assumptions and may be revised; regulators may require additional reserves. Ongoing credit-related items included $153,000 of six-month net OTTI charges on mortgage-backed securities and $294,000 of net losses on OREO sales.
Most important facts for investors to verify
- Whether credit quality stabilizes: non-performing assets increased while allowance coverage declined versus September 2011.
- Whether reported loan delinquencies and non-accrual totals reconcile: the filing’s non-performing-asset table reports $26.623 million of non-accrual loans, while its key-ratios schedule lists $23.623 million.
- Compliance with the Bank and Company MOUs, particularly the 10.0% leverage-capital requirement and restrictions on dividends and capital actions.
- The status and cumulative cost of unpaid Treasury preferred dividends, including the potential impact of the 9% preferred dividend rate after the initial five-year period if shares remain outstanding.
- Deposit retention and liquidity as $142.45 million of CDs were scheduled to mature within one year, alongside loan commitments of $40.13 million and undisbursed construction loans of $11.25 million.