Timberland Bancorp, Inc. — Fiscal 2024 First Quarter 10-Q
Reporting period: Three months ended December 31, 2023; balance-sheet comparisons are with September 30, 2023. The unaudited filing covers Timberland Bancorp and its banking subsidiary, Timberland Bank, a community bank serving western Washington.
Financial performance and position
| Metric | Quarter / December 31, 2023 | Comparable / change |
|---|---|---|
| Net income | $6.30 million | Down 16.1% from $7.51 million |
| Diluted earnings per share | $0.77 | Down from $0.90 |
| Net interest income | $16.00 million | Down 9.8% from $17.74 million |
| Net interest margin | 3.60% | Down from 4.03% |
| Net interest income after credit-loss provision | $15.67 million | Down from $17.22 million |
| Non-interest income / expense | $2.80 million / $10.62 million | Income up 3.4%; expense up 0.8% |
| Efficiency ratio | 56.50% | Up from 51.52% |
| Operating cash flow | $4.87 million | Down from $9.42 million |
- Assets and lending: Total assets were $1.90 billion, up 3.0% from September 30. Net loans were $1.34 billion, up 2.6%; gross loan growth was concentrated in multifamily, commercial real estate and one- to four-family lending. Commercial real estate represented about 40% of the loan portfolio.
- Funding and liquidity: Deposits were $1.63 billion, up 4.2%; non-interest-bearing deposits were 26.6% of deposits, versus 29.2% at September 30. Cash and cash equivalents totaled $158.02 million. FHLB borrowings were $20.00 million, down from $35.00 million. Management reported a 13.07% regulatory liquidity ratio and $576.42 million of available FHLB borrowing capacity, subject to collateral; additional FRB and PCBB facilities were also available.
- Credit and capital: The loan allowance for credit losses was $16.66 million; the quarter’s net credit-loss provision was $336,000. Shareholders’ equity was $237.37 million. The Bank reported a 12.06% leverage ratio and 19.35% total risk-based capital ratio and was considered well-capitalized.
- Cash flows: Investing activities used $24.83 million, primarily reflecting a $34.87 million increase in net loans. Financing activities provided $49.26 million, including $66.13 million of deposit growth and $15.00 million of FHLB repayments. Cash and cash equivalents increased $29.30 million during the quarter.
Material changes and notable items
- Net income fell primarily because interest expense increased faster than interest income: interest income rose 17.7% to $22.50 million, while interest expense rose to $6.49 million from $1.37 million. The average cost of interest-bearing liabilities increased to 2.22% from 0.50%, reflecting higher deposit costs and borrowings; the average yield on interest-earning assets increased to 5.07% from 4.34%.
- Non-accrual loans increased to $3.37 million from $1.51 million at September 30. Non-performing assets were $3.45 million, or 0.18% of assets, compared with $1.60 million, or 0.09%. Delinquent loans of 30 days or more plus non-accrual loans totaled $3.60 million. Net charge-offs were $2,000.
- On October 1, 2023, the Company adopted CECL. Adoption increased the loan allowance by $461,000, the securities allowance by $92,000 and the unfunded-commitments allowance by $65,000, and reduced opening retained earnings by $488,000 after tax. Prior-period credit-loss figures use the previous incurred-loss method and are not directly comparable.
- Held-to-maturity securities had estimated fair value of $254.36 million versus $266.09 million amortized cost, including $12.08 million of gross unrealized losses. Management attributed securities’ unrealized losses to market conditions, primarily interest rates, and stated it had the ability and intent to hold investments until recovery.
- The Company repurchased 12,330 shares for $362,000 during the quarter and paid $0.23 per share in dividends. Management reported a current quarterly dividend rate of $0.24 per share, subject to Board discretion.
Outlook, risks and contingencies
- The filing gives no specific earnings or revenue guidance. Management stated that available liquid assets and borrowing lines are expected to meet financial obligations for at least the next 12 months. It did not expect remaining fiscal 2024 premises-and-equipment capital projects to materially affect liquidity.
- Management identified sensitivity to interest rates, deposit pricing and retention, loan demand, local and national economic conditions, and credit quality—particularly real estate markets—as important risks. Inflation, a potential recession or slower growth could increase credit losses and the allowance. Other disclosed risks include regulatory actions, competition, technology and cybersecurity incidents, and reliance on third-party providers.
- At December 31, 2023, commitments totaled $251.74 million, including $104.68 million of undisbursed construction loans, $135.25 million of undisbursed lines of credit and $11.81 million of commitments to extend credit. The Company maintains an allowance for unfunded commitments.
- Management said ordinary-course legal claims were not expected to materially affect financial position; the filing reported no material legal proceedings. The Company reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the rise in deposit costs continues to pressure net interest margin, and how deposit mix, certificates of deposit maturities and funding needs evolve.
- Whether non-accrual loans and delinquencies continue to increase, with particular attention to commercial real estate and commercial business exposures, and whether the CECL allowance remains adequate.
- How the $12.08 million of gross unrealized losses on held-to-maturity securities and the securities portfolio’s interest-rate sensitivity affect flexibility and liquidity.
- Whether deposit growth and reported borrowing capacity remain available under changing market conditions, including any collateral limitations.
- How adoption of CECL affects future credit-loss provisions and comparability with prior periods; the filing states first-quarter results are not necessarily indicative of the full fiscal year.