Timberland Bancorp, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023. The filing is an annual report, not a standalone fourth-quarter filing; selected Q4 results are noted below. Timberland is a Washington community bank operating 23 branches across six western Washington counties, with lending concentrated in real estate.
Key financial results and condition
| Metric | FY2023 / September 30, 2023 | Comparison |
|---|---|---|
| Net income | $27.12 million; diluted EPS $3.29 | Net income +14.9% and diluted EPS +16.7% versus FY2022 |
| Net interest income | $68.36 million | +22.4%; net interest margin rose to 3.95% from 3.16% |
| Provision for loan losses | $2.13 million | Up from $270,000, primarily reflecting loan growth |
| Non-interest income / expense | $11.14 million / $43.37 million | Income down 11.8%; expense up 12.3%. Efficiency ratio improved to 54.56% from 56.42% |
| Assets / net loans | $1.84 billion / $1.30 billion | Assets down 1.1%; net loans up 15.0% |
| Deposits / borrowings | $1.56 billion / $35.0 million FHLB | Deposits down 4.4%; no FHLB borrowings at prior year-end |
| Equity | $233.07 million; 12.67% equity-to-assets | Equity up 6.6%; Bank was well-capitalized, with 18.0% CET1 and 19.3% total risk-based capital |
| Asset quality | $1.51 million non-accrual loans; $1.60 million non-performing assets | Non-accrual loans down from $2.06 million; allowance was $15.82 million, or 1.20% of loans |
| Cash flow | $31.00 million operating cash flow; cash and equivalents ended at $128.72 million | Cash decreased $188.03 million, principally as liquidity funded loan growth, securities purchases and deposit outflows |
Interest and dividend income increased 36.6% to $79.95 million, while interest expense rose 333.5% to $11.59 million as market rates and deposit costs increased. Net interest income benefited from higher asset yields and loan growth. Net charge-offs were $18,000. Loans were 90.3% real-estate-secured; commercial real estate was 39.8% of total loans and construction was 19.2%.
Fourth-quarter snapshot
For the quarter ended September 30, 2023, net income was $6.64 million (diluted EPS $0.81), versus $7.05 million (diluted EPS $0.85) in the September 2022 quarter. Net interest income was $16.83 million versus $16.26 million; interest expense increased to $4.73 million from $756,000.
Material changes and capital/liquidity
- Deposits declined $71.24 million, as non-interest-bearing, checking, savings and money-market balances fell; certificates of deposit increased $177.52 million. The filing attributes deposit pressure to competition and customers moving funds to higher-yielding alternatives.
- Cash, cash equivalents and investment CDs declined $194.74 million. Liquid assets defined by management as cash, investment CDs and available-for-sale securities were $185.68 million, down from $381.06 million.
- At year-end, $407.61 million of deposits were estimated uninsured; $112.10 million of uninsured deposits were public funds fully secured by qualified securities. The bank also had $38.16 million of brokered CDs.
- Available borrowing capacity included approximately $533.99 million at the FHLB, $146.26 million on the FRB BIC line, $57.00 million on the BTFP line and a $50.00 million PCBB line, subject to collateral and other conditions. The bank reported a 15.3% regulatory liquidity ratio and stated liquidity was adequate for obligations over at least the next 12 months.
- Held-to-maturity securities had $16.75 million of gross unrealized losses at fair value, primarily attributed to interest-rate changes; management stated it intended and was able to hold them until recovery. Available-for-sale securities had $1.36 million of gross unrealized losses.
Outlook, risks and unusual items
- Management expects variable-rate assets to continue repricing upward, but anticipates net interest margin pressure as deposit rates rise. No numerical earnings or margin guidance was provided.
- Major risks include concentrated Washington real-estate and commercial real-estate exposure, construction lending, borrower and collateral deterioration, competition for deposits, interest-rate sensitivity, and reliance on third-party technology providers. Commercial real estate loans were 289.24% of regulatory capital under the filing’s measure; construction, land-development and land loans were 84.08% of regulatory capital.
- Uninsured deposits, deposit outflows and reliance on secured borrowing facilities merit monitoring. A 100-basis-point rate decrease was modeled to reduce net interest income by 3.03% and economic value of equity by 2.67%; a 100-basis-point increase was modeled to reduce net interest income by 0.06% and increase economic value of equity by 0.25%. These are model estimates, not forecasts.
- CECL was adopted October 1, 2023; management said the initial adjustment to credit allowances and equity was not significant. Future expected-credit-loss changes will affect the provision for credit losses.
- The company paid $1.01 per share in FY2023 and reported a current quarterly dividend rate of $0.23, subject to board discretion and regulatory limits. It repurchased 185,399 shares for approximately $5.00 million during FY2023; 374,142 shares remained authorized for repurchase at year-end.
- The auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor was not engaged to opine on internal control. Management reported no pending legal matter expected to have a material adverse effect.
Investor verification points
- Track subsequent deposit trends, deposit pricing, uninsured and brokered deposit levels, and use of borrowing lines.
- Review loan growth and performance by segment—especially commercial real estate, construction and multifamily—and monitor delinquencies, criticized loans and allowance adequacy under CECL.
- Compare realized net interest margin and funding costs with management’s expectation of continued deposit-rate pressure.
- Assess the liquidity and potential capital implications of securities unrealized losses, including the held-to-maturity portfolio and available borrowing collateral.
- Confirm whether the $0.23 quarterly dividend and authorized repurchases remain consistent with earnings, liquidity, capital needs and regulatory constraints.