Business Overview and History
Timberland Bancorp Inc. (TSBK) is a bank holding company that has steadfastly served the communities of western Washington for over a century. With its roots dating back to 1915, the company has weathered numerous economic cycles, navigating turbulent times with a focus on prudent risk management and delivering consistent financial performance.
Timberland Bancorp, the parent company of Timberland Bank, was incorporated in 1997 and is headquartered in Hoquiam, Washington. The Bank, which opened its doors in 1915, has grown to operate 23 branches across Grays Harbor, Thurston, Pierce, King, Kitsap and Lewis counties, providing a full range of lending and deposit services to both consumers and businesses.
The company's history is marked by a commitment to community banking, conservative lending practices, and a disciplined approach to growth. Timberland Bancorp was established to serve the needs of the local community and businesses in the Grays Harbor region. Over the decades, the bank grew steadily, expanding its branch network and product offerings to meet the evolving needs of its customers.
In the 1980s and 1990s, Timberland Bancorp successfully navigated challenges facing the banking industry, including the savings and loan crisis. The company's prudent risk management and focus on its core community banking model allowed it to emerge as a stronger institution, well-positioned for future growth.
During the 2000s, Timberland Bancorp continued its expansion, opening new branches and diversifying its loan portfolio. The company also made strategic acquisitions to extend its geographic reach and enhance its product capabilities. These initiatives helped Timberland Bancorp achieve steady increases in assets, deposits, and profitability during this period.
Throughout its history, Timberland Bancorp has maintained a strong commitment to its local communities. The company and its employees have been actively involved in charitable initiatives, economic development programs, and community service projects across its markets. This dedication to being a good corporate citizen has earned Timberland Bancorp a reputation as a trusted financial partner and respected community leader.
As of December 31, 2024, Timberland Bancorp reported total assets of $1.91 billion, net loans receivable of $1.41 billion, total deposits of $1.63 billion, and total shareholders' equity of $249.20 million. The company's net income for the fiscal year ended September 30, 2024 was $24.28 million, with a return on average assets of 1.32% and a return on average equity of 10.43%.
Financials
Timberland Bancorp's financial performance has remained strong, as evidenced by its consistent profitability and solid balance sheet. For the fiscal year ended September 30, 2024, the company reported annual revenue of $70.89 million and net income of $24.28 million. The company's annual operating cash flow was $23.02 million, with free cash flow of $21.71 million.
For the quarter ended December 31, 2024, Timberland Bancorp reported revenue of $655,000, a decrease of 3.6% compared to the same quarter a year ago. However, net income for the quarter increased by 9.0% to $6.86 million. This increase was primarily due to a $966,000 increase in net interest income and a $309,000 decrease in the provision for credit losses, partially offset by a $443,000 increase in non-interest expense and a $167,000 increase in the provision for income taxes.
The bank's total assets of $1.91 billion as of December 31, 2024, reflect its continued growth and strong market position. Net loans receivable of $1.41 billion indicate a robust lending portfolio, while total deposits of $1.63 billion showcase the trust and confidence that customers place in Timberland Bancorp.
With total shareholders' equity of $249.20 million, the bank maintains a strong capital position, providing a solid foundation for future growth and the ability to weather potential economic downturns.
Liquidity
Timberland Bancorp maintains a strong liquidity position, ensuring its ability to meet customer withdrawal demands and fund new loan opportunities. The bank's liquidity is supported by its diverse funding sources, including a stable core deposit base, access to wholesale funding markets, and its investment portfolio.
As of December 31, 2024, the company had $164.07 million in cash and cash equivalents. Additionally, Timberland Bancorp had $599.34 million available for borrowing from the Federal Home Loan Bank (FHLB), of which $20.00 million was outstanding. The company also maintains a $50.00 million overnight borrowing line with Pacific Coast Bankers Bank, which was undrawn at December 31, 2024.
The bank's strong liquidity position is further evidenced by its current ratio and quick ratio, both standing at 1065.66 as of December 31, 2024. This robust liquidity allows Timberland Bancorp to navigate potential market volatility and capitalize on growth opportunities as they arise.
The company's debt-to-equity ratio was a low 0.006 as of December 31, 2024, indicating a conservative approach to leverage and financial stability.
Financial Ratios and Performance
Timberland Bancorp's financial ratios demonstrate the company's stability and prudent risk management. As of December 31, 2024, the bank's leverage capital ratio stood at 12.23%, well above the regulatory minimum of 5.00% required for a "well-capitalized" institution. The bank's common equity Tier 1 capital ratio was 18.00%, and its total risk-based capital ratio was 19.25%, both significantly exceeding the regulatory minimums.
The company's net interest margin, a key measure of profitability, improved to 3.64% for the quarter ended December 31, 2024, up from 3.60% in the same period a year earlier. This increase was driven by a 35-basis-point improvement in the weighted average yield of interest-earning assets, which offset a 40-basis-point rise in the average cost of interest-bearing liabilities.
Timberland's asset quality remains strong, with non-performing assets to total assets at a low 0.16% as of December 31, 2024, down from 0.20% a year earlier. The bank's allowance for credit losses on loans totaled $17.29 million, or 1.21% of total loans, as of the end of the first quarter of fiscal 2025.
Navigating Economic Challenges
Timberland Bancorp has a proven track record of navigating economic challenges, including the COVID-19 pandemic, which tested the resilience of the banking industry. During the pandemic, the company worked closely with its customers to provide support, including participating in the Paycheck Protection Program (PPP) and offering loan modifications and deferrals.
The company's conservative underwriting standards and diversified loan portfolio have helped it weather economic storms. As of December 31, 2024, the bank's loan portfolio was well-diversified, with 39% in commercial real estate, 20% in one- to four-family residential mortgages, 12% in multi-family loans, 9% in commercial business loans, and the remaining 20% in construction, land, and consumer loans.
Timberland's management team has demonstrated a strong ability to adapt to changing market conditions. During periods of economic uncertainty, the company has maintained a disciplined approach to credit risk management, while also seeking opportunities to grow its customer base and expand its product offerings.
Growth Initiatives and Outlook
Timberland Bancorp continues to focus on organic growth, leveraging its community banking model and strong presence in its core markets. The company has made investments in technology and digital banking capabilities to enhance the customer experience and improve operational efficiency.
In its most recent fiscal year, the company reported loan originations of $349.79 million, a decrease of 9.1% compared to the prior year. This decline was primarily due to a decrease in multi-family, commercial business, one- to four-family, and consumer loan originations, partially offset by an increase in construction loan originations.
The bank's loan pipeline remains strong, with $131.54 million in undisbursed lines of credit and commitments to extend credit as of December 31, 2024. Management remains cautiously optimistic about the company's growth prospects, though they continue to monitor economic conditions and their potential impact on the bank's operations.
Timberland Bancorp's focus on prudent risk management, community engagement, and operational efficiency has positioned the company well to navigate the current economic landscape. As the bank continues to evolve and adapt to the changing needs of its customers, investors can take comfort in its long-standing history of financial stability and its commitment to delivering consistent performance.
Recent Developments and Challenges
In September 2024, Timberland Bancorp was recognized as one of the top performing small-cap banks and thrifts in the nation, being named to the prestigious Piper Sandler Bank and Thrift Sm-All Stars: Class of 2024 list. This achievement is a testament to the company's strong financial performance, prudent risk management, and commitment to serving its local communities.
However, the banking industry as a whole has faced heightened regulatory scrutiny and increased competition from fintech companies in recent years. Timberland Bancorp has had to navigate these challenges, investing in technology and digital banking solutions to remain competitive while also maintaining its focus on traditional community banking services.
Furthermore, the COVID-19 pandemic presented significant challenges for the company, as it did for the broader banking sector. Timberland Bancorp responded by working closely with its customers, offering loan modifications and deferrals, and participating in government relief programs such as the Paycheck Protection Program. The company's proactive approach and conservative risk management practices helped it weather the economic downturn and emerge in a strong financial position.
Loan Portfolio and Lending Activities
Timberland Bancorp's lending activities are primarily focused on real estate-secured loans, which form the backbone of its loan portfolio. As of December 31, 2024, mortgage loans, including one- to four-family residential, multi-family, and commercial real estate loans, comprised 87.7% of total loans receivable.
The one- to four-family residential mortgage loan portfolio was the largest component, representing 20.2% of total loans. These loans are originated for the purchase or refinance of single-family homes. The multi-family loan portfolio, which includes loans secured by apartment buildings and other multi-unit residential properties, made up 11.7% of the total loan portfolio.
Commercial real estate loans emerged as the largest category within the mortgage loan portfolio, accounting for 39.3% of total loans. This segment includes loans secured by office buildings, retail centers, industrial properties, and other commercial properties.
Construction loans, which include loans for the development of single-family homes, multi-family properties, commercial real estate, and land, represented 14.5% of the total loan portfolio. The construction-custom and owner-builder segment was the largest within this category, making up 8.2% of total loans, followed by construction-multi-family at 3.2%, construction-commercial at 1.5%, construction-land development at 1.0%, and construction-speculative one- to four-family at 0.6%.
In addition to real estate-secured loans, Timberland Bancorp also originates commercial business loans, which comprised 8.9% of the total loan portfolio, and consumer loans, including home equity and second mortgage loans, which made up 3.4% of total loans.
The loan portfolio experienced modest growth during the three months ended December 31, 2024, increasing 0.7% to $1.43 billion. This growth was primarily driven by a $7.32 million increase in one- to four-family residential loans, partially offset by declines in commercial real estate, commercial business, and construction loans.
Conclusion
Timberland Bancorp's century-long history and track record of financial stability make it a compelling investment opportunity in the community banking space. The company's prudent risk management, diversified loan portfolio, and focus on organic growth have allowed it to navigate various economic cycles and remain a trusted partner for its customers.
As Timberland Bancorp continues to adapt to the evolving banking landscape, investors can take comfort in the company's commitment to maintaining a strong capital position, improving operational efficiency, and delivering consistent financial performance. With a well-established presence in its core markets and a management team dedicated to innovation and community engagement, Timberland Bancorp appears poised to build on its legacy of success in the years to come.
The company's strong liquidity position, conservative leverage, and solid capital ratios provide a stable foundation for future growth. While facing challenges such as increased competition and regulatory scrutiny, Timberland Bancorp's focus on its core western Washington market and its ability to adapt to changing customer needs position it well for continued success in the community banking sector.