Timberland Bancorp, Inc. (NASDAQ:TSBK) is a community-oriented bank serving the Pacific Northwest region of the United States. With a focus on providing personalized banking solutions, the company has established a strong presence in Grays Harbor, Thurston, Pierce, King, Kitsap, and Lewis counties in Washington. As the banking landscape continues to evolve, Timberland Bancorp has demonstrated its ability to adapt and thrive, delivering consistent financial performance and shareholder value.

Financials

For the fiscal year ended September 30, 2023, Timberland Bancorp reported annual net income of $27.12 million and annual revenue of $75.64 million. The company's annual operating cash flow stood at $30.99 million, while its annual free cash flow reached $29.89 million. These robust financial metrics underscore the company's ability to generate sustainable earnings and maintain a healthy liquidity position.

In the most recent quarter ended March 31, 2024, Timberland Bancorp reported net income of $5.71 million, a decrease of 14.3% compared to the same period in the prior year. This decline was primarily due to a $1.52 million decrease in net interest income, a $47,000 increase in non-interest expense, and a $21,000 decrease in non-interest income. These factors were partially offset by a $394,000 decrease in the provision for credit losses and a $235,000 decrease in the provision for income taxes.

Net interest income for the quarter ended March 31, 2024, decreased by 8.8% to $15.64 million, primarily due to an increase in the weighted average cost of interest-bearing liabilities to 2.50% from 0.84% in the prior-year quarter. This was partially offset by an increase in the average yields of interest-earning assets to 5.16% from 4.51% in the same period last year.

The company's net interest margin (NIM) decreased to 3.48% for the quarter ended March 31, 2024, from 3.99% in the prior-year quarter. This decline was driven by the increase in funding costs, which outpaced the rise in asset yields.

Loan Portfolio and Asset Quality

Timberland Bancorp's loan portfolio has experienced steady growth, with net loans receivable increasing by 4.4% to $1.36 billion as of March 31, 2024, from $1.30 billion as of September 30, 2023. The increase was primarily due to growth in multi-family loans, one- to four-family loans, and commercial real estate loans, partially offset by decreases in construction and land development loans.

The company's asset quality remains strong, with non-performing assets to total assets at 0.19% as of March 31, 2024, compared to 0.09% as of September 30, 2023. Non-performing assets increased by $2.09 million, or 130.8%, to $3.68 million, primarily due to a $2.09 million increase in non-accrual loans, with the largest increases in the commercial business and commercial real estate portfolios.

Timberland Bancorp's allowance for credit losses (ACL) on loans totaled $16.82 million as of March 31, 2024, compared to $15.82 million as of September 30, 2023. The company recorded a provision for credit losses of $166,000 for the quarter ended March 31, 2024, primarily due to loan portfolio growth.

Deposit and Funding

Timberland Bancorp's deposit base has continued to grow, with total deposits increasing by 5.0% to $1.64 billion as of March 31, 2024, from $1.56 billion as of September 30, 2023. This increase was primarily driven by a $122.12 million increase in money market account balances and a $53.85 million increase in certificates of deposit balances, partially offset by decreases in NOW checking account, non-interest bearing demand account, and savings account balances.

The company's FHLB borrowings decreased to $20.00 million as of March 31, 2024, from $35.00 million as of September 30, 2023, as the bank repaid a portion of its short-term borrowings.

Shareholder Returns and Capital Position

Timberland Bancorp's shareholders' equity increased by 2.4% to $238.68 million as of March 31, 2024, from $233.07 million as of September 30, 2023. This increase was primarily due to net income of $12.00 million and proceeds from stock option exercises, partially offset by the payment of dividends to common shareholders, repurchases of common stock, and a reduction of retained earnings related to the adoption of the new CECL accounting standard.

The company's capital ratios remain strong, with the Bank's Tier 1 capital ratio at 17.97% and total capital ratio at 19.22% as of March 31, 2024, well above the regulatory requirements for a "well-capitalized" institution.

Timberland Bancorp has a history of returning capital to shareholders through quarterly cash dividends. The current quarterly common stock dividend rate is $0.24 per share, which the company expects to continue, subject to the Board of Directors' discretion.

Outlook

While the banking industry continues to navigate economic headwinds, Timberland Bancorp remains focused on its core strategy of providing personalized banking services to its local communities. The company has not provided any specific financial guidance for the upcoming fiscal year. However, management remains cautiously optimistic about the bank's ability to navigate the current environment and maintain its strong financial position.

Risks and Challenges

As with any financial institution, Timberland Bancorp faces various risks and challenges, including credit risk, interest rate risk, and regulatory compliance. The company's performance may be impacted by changes in the local and national economic conditions, as well as the ongoing effects of inflation and potential recessionary pressures.

Additionally, the company's ability to grow its loan portfolio and maintain asset quality could be influenced by factors such as competition, changes in the real estate market, and the availability of qualified borrowers. Timberland Bancorp also faces the risk of increased funding costs and potential margin compression if interest rates continue to rise.

Conclusion

Timberland Bancorp's performance in the most recent quarter reflects the company's resilience and ability to navigate the evolving banking landscape. Despite the challenges posed by the current economic environment, the bank has maintained a strong financial position, with a healthy loan portfolio, robust deposit base, and well-capitalized balance sheet.

As Timberland Bancorp continues to serve its local communities, investors should closely monitor the company's ability to adapt to changing market conditions, manage its credit risk, and capitalize on growth opportunities. The bank's commitment to shareholder returns and its solid capital position provide a foundation for long-term value creation.