Timberland Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2022. The filing was submitted May 9, 2022. Timberland Bancorp is a community banking holding company operating Timberland Bank in western Washington; financial statements are unaudited.
Financial performance and position
- Quarterly earnings: Net income was $5.33 million, down 26.5% year over year; diluted EPS was $0.63 versus $0.86. Six-month net income was $10.81 million, down 25.6%, and diluted EPS was $1.28 versus $1.73.
- Interest income and margin: Quarterly net interest income rose 2.6% to $12.89 million, but net interest margin declined to 2.95% from 3.21%. For six months, net interest income was approximately $25.59 million and NIM was 2.93%, down from 3.34%.
- Other income and expenses: Quarterly non-interest income fell 36.9% to $3.08 million, principally because loan-sale gains and loan-servicing-rights valuation recoveries declined. Non-interest expense increased 9.1% to $9.33 million. The quarterly efficiency ratio rose to 58.42% from 48.99%.
- Balance sheet at March 31: Total assets were $1.88 billion, up 4.8% from September 30, 2021. Net loans were $1.03 billion, up 6.8%; deposits were $1.66 billion, up 5.5%; shareholders’ equity was $212.27 million.
- Funding and liquidity: Cash and cash equivalents were $492.30 million. The company had no FHLB borrowings at quarter-end after repaying $5 million in January. Management reported a 42.05% regulatory liquidity ratio and $429.99 million of available FHLB borrowing capacity, plus $87.26 million available from the FRB and a $50 million PCBB line. Management believes liquidity and available facilities are adequate for obligations for at least 12 months.
- Cash flows, six months: Operating activities provided $9.41 million; investing activities used $172.77 million, largely reflecting securities purchases and loan growth; financing activities provided $75.46 million. Cash and cash equivalents declined $87.89 million to $492.30 million.
- Debt and capital: No FHLB borrowings were outstanding. The Bank exceeded regulatory capital requirements and was classified as well-capitalized: leverage ratio 10.71%, CET1 19.31%, and total capital 20.56%.
Changes and operating developments
- Loan growth was led by commercial real estate, commercial business, one-to-four-family, and construction lending. Commercial real estate represented 45.5% of total loans at quarter-end.
- Deposits grew, mainly in money market, NOW checking, and savings accounts; non-interest-bearing balances and certificates of deposit declined.
- Investment securities increased substantially as the Bank redeployed excess cash into higher-earning securities. Held-to-maturity securities had $5.21 million of gross unrealized losses at March 31, primarily attributed by management to market interest rates and mortgage-related spreads; available-for-sale securities had $226,000 of gross unrealized losses. Management characterized the declines as temporary and said it had the ability and intent to hold securities until recovery.
- Net non-performing assets were $2.94 million, or 0.16% of assets, down from $3.17 million and 0.18% at September 30. The allowance for loan losses was $13.43 million, 1.28% of loans; no provision was recorded in the quarter or six-month period.
- Loan-sale gains fell as mortgage refinance activity weakened with rising market rates. Loans sold in the first six months declined to $39.44 million from $85.13 million a year earlier.
- Expenses increased partly because of annual compensation adjustments, additional lending staff, higher professional fees, and customer refunds for deposit fees charged in error following the 2019 core-system conversion.
Outlook, risks, and other items
- The filing provides no formal earnings or revenue guidance. Management expected to continue quarterly dividends at $0.22 per share, subject to Board discretion, and reported no material premises-and-equipment capital projects planned for the remaining fiscal year.
- Key risks identified include economic and COVID-19 effects, credit deterioration in real estate and commercial lending, interest-rate and net-interest-margin changes, deposit competition and retention, loan demand and secondary-market conditions, regulatory actions, operating-cost control, and technology or third-party disruptions.
- The company anticipated that adoption of the expected-credit-loss standard (CECL) would increase its loan-loss allowance, but the amount was not yet known. Management reported no goodwill impairment indicators at March 31, 2022.
- The Bank had $155.88 million of loan commitments and $100.72 million of undisbursed construction loans in process. All COVID-related deferred loans had resumed payments; none remained on deferral at quarter-end.
- The company repurchased 61,565 shares during the quarter for approximately $1.72 million. It reported no material legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Whether continued rate increases pressure asset yields, deposit costs, and NIM, particularly given the quarter’s margin decline.
- Loan quality, commercial real estate exposure, non-accrual trends, and whether the $13.43 million allowance remains adequate under changing economic conditions.
- The effect of unrealized securities losses and the Bank’s ability to hold securities without needing to sell them for liquidity.
- Deposit growth and funding stability, including the cost and mix of deposits as loan demand and commitments develop.
- Whether lower mortgage originations and loan-sale gains, higher operating expenses, and deposit-fee refunds persist, and the impact of CECL adoption on reserves.