TIMBERLAND BANCORP INC [TSBK] Filings

10-Q 1 tsbk-20230630.htm 10-Q tsbk-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _____ to _____.

Commission file number 000-23333

TIMBERLAND BANCORP, INC.

(Exact name of registrant as specified in its charter)


Washington			91-1863696
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)


624 Simpson Avenue, Hoquiam, Washington			98550
(Address of principal executive offices)			(Zip Code)

(360) 533-4747

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $.01 par value	TSBK	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ___

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes _☒_ No __

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ___ No _☒_

As of August 1, 2023, there were 8,095,174 shares of the registrant's common stock, $.01 par value per share outstanding.

INDEX


PART I.	FINANCIAL INFORMATION	Page

Item 1.	Financial Statements (unaudited)

	Consolidated Balance Sheets	3

	Consolidated Statements of Income	5

	Consolidated Statements of Comprehensive Income	7

	Consolidated Statements of Shareholders’ Equity	8

	Consolidated Statements of Cash Flows	9

	Notes to Unaudited Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51

Item 4.	Controls and Procedures	52

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	52

Item 1A.	Risk Factors	52

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 3.	Defaults Upon Senior Securities	53

Item 4.	Mine Safety Disclosures	54

Item 5.	Other Information	54

Item 6.	Exhibits	54

SIGNATURES
Certifications
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32
	Exhibit 101
	Exhibit 104

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

June 30, 2023 and September 30, 2022

(Dollars in thousands, except per share amounts)


	June 30, 2023		September 30, 2022
	(Unaudited)		*
Assets
Cash and cash equivalents:
Cash and due from financial institutions	$	28,308	$	24,808
Interest-bearing deposits in banks	101,645		291,947
Total cash and cash equivalents	129,953		316,755

Certificates of deposit (“CDs”) held for investment (at cost, which approximates fair value)	16,931		22,894
Investment securities held to maturity, at amortized cost (estimated fair value of $260,471 and $249,783)	275,053		266,608
Investment securities available for sale, at fair value	43,842		41,415
Investments in equity securities, at fair value	837		835
Federal Home Loan Bank of Des Moines (“FHLB”) stock, at cost	2,802		2,194
Other investments, at cost	3,000		3,000
Loans held for sale	—		748



Loans receivable, net of allowance for loan losses of $15,307 and $13,703	1,260,647		1,132,426

Premises and equipment, net	21,574		21,898

Accrued interest receivable	5,451		4,483
Bank owned life insurance (“BOLI”)	23,276		22,806
Goodwill	15,131		15,131
Core deposit intangible (“CDI”), net	745		948
Loan servicing rights, net	2,321		3,023


Operating lease right-of-use ("ROU") assets	1,845		1,980
Other assets	4,305		3,364
Total assets	$	1,807,713	$	1,860,508

Liabilities and shareholders’ equity
Liabilities
Deposits:
Non-interest-bearing demand	$	452,729	$	530,058
Interest-bearing	1,100,001		1,102,118
Total deposits	1,552,730		1,632,176

FHLB borrowings	15,000		—
Operating lease liabilities	1,939		2,066
Other liabilities and accrued expenses	8,781		7,697
Total liabilities	$	1,578,450	$	1,641,939

* Derived from audited consolidated financial statements.

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (continued)

June 30, 2023 and September 30, 2022

(Dollars in thousands, except per share amounts)


	June 30, 2023		September 30, 2022
	(Unaudited)		*
Commitments and contingent liabilities (see Note 12)
Shareholders’ equity
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued	$	—	$	—
Common stock, $0.01 par value; 50,000,000 shares authorized; 8,094,174 shares issued and outstanding - June 30, 2023 8,221,952 shares issued and outstanding - September 30, 2022	35,401		38,751

Retained earnings	194,606		180,535
Accumulated other comprehensive loss	(744)		(717)
Total shareholders’ equity	229,263		218,569
Total liabilities and shareholders’ equity	$	1,807,713	$	1,860,508

* Derived from audited consolidated financial statements.

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

For the three and nine months ended June 30, 2023 and 2022

(Dollars in thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Interest and dividend income
Loans receivable and loans held for sale	$	16,215	$	12,628	$	45,622	$	37,870
Investment securities	2,384		1,016		7,058		2,012
Dividends from mutual funds, FHLB stock and other investments	70		25		185		80
Interest-bearing deposits in banks and CDs	1,220		958		5,524		1,528
Total interest and dividend income	19,889		14,627		58,389		41,490

Interest expense
Deposits	3,123		645		6,729		1,902
FHLB borrowings	132		—		132		17
Total interest expense	3,255		645		6,861		1,919

Net interest income	16,634		13,982		51,528		39,571

Provision for loan losses	610		—		1,610		—

Net interest income after provision for loan losses	16,024		13,982		49,918		39,571

Non-interest income


Net recoveries on investment securities	2		5		7		16
Gain on sale of investment securities available for sale, net	95		—		95		—
Service charges on deposits	970		1,052		2,810		2,979
ATM and debit card interchange transaction fees	1,335		1,345		3,861		3,868
BOLI net earnings	157		151		470		457
Gain on sales of loans, net	80		258		147		1,337
Escrow fees	27		41		85		164
Valuation recovery on MSRs	—		—		—		119



Other, net	209		250		741		687
Total non-interest income, net	2,875		3,102		8,216		9,627

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (continued)

For the three and nine months ended June 30, 2023 and 2022

(Dollars in thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Non-interest expense
Salaries and employee benefits	$	5,860	$	5,243	$	17,806	$	15,606
Premises and equipment	1,010		904		2,935		2,814
Gain on sales/dispositions of premises and equipment, net	(32)		(6)		(32)		—
Advertising	179		187		551		513
OREO and other repossessed assets, net	—		(2)		1		(18)
ATM and debit card interchange transaction fees	491		515		1,463		1,429
Postage and courier	128		140		397		440
State and local taxes	297		265		894		754
Professional fees	577		580		1,479		1,173
Federal Deposit Insurance Corporation ("FDIC") insurance	191		123		517		377
Loan administration and foreclosure	126		180		385		380
Data processing and telecommunications	944		698		2,612		1,980

Deposit operations	430		316		1,022		878
Amortization of CDI	68		79		203		237
Other	658		652		2,173		1,909
Total non-interest expense, net	10,927		9,874		32,406		28,472

Income before income taxes	7,972		7,210		25,728		20,726

Provision for income taxes	1,666		1,472		5,252		4,176

Net income	$	6,306	$	5,738	$	20,476	$	16,550

Net income per common share
Basic	$	0.77	$	0.69	$	2.50	$	1.99
Diluted	$	0.77	$	0.69	$	2.47	$	1.97

Weighted average common shares outstanding
Basic	8,156,831		8,279,436		8,203,255		8,324,371
Diluted	8,213,975		8,349,859		8,279,079		8,406,977

Dividends paid per common share	$	0.23	$	0.22	$	0.78	$	0.65

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three and nine months ended June 30, 2023 and 2022

(Dollars in thousands)

(Unaudited)


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Comprehensive income
Net income	$	6,306	$	5,738	$	20,476	$	16,550
Other comprehensive loss
Unrealized holding loss on investment securities available for sale, net of income taxes of $(66), $(122), $(8) and $(167), respectively	(249)		(459)		(29)		(629)

Change in other than temporary impairment ("OTTI") on investment securities held to maturity, net of income taxes:


Accretion of OTTI on investment securities held to maturity, net of income taxes of $0, $0, $1 and $1, respectively	—		1		2		5
Total other comprehensive loss, net of income taxes	(249)		(458)		(27)		(624)

Total comprehensive income	$	6,057	$	5,280	$	20,449	$	15,926

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the three and nine months ended June 30, 2023 and 2022

(Dollars in thousands, except per share amounts)

(Unaudited)


	Number of Shares	Amount					Accumulated Other Compre-hensive Income (Loss)
	Common Stock	Common Stock		Retained Earnings					Total
Balance, March 31, 2022	8,305,826	$	40,988		$	171,388	$	(107)		212,269

Net income	—	—			5,738		—			5,738
Other comprehensive loss	—	—			—		(458)			(458)
Repurchase of common stock	(58,678)	(1,502)			—		—			(1,502)




Exercise of stock options	2,300	27			—		—			27


Common stock dividends ($0.22 per common share)	—	—			(1,827)		—			(1,827)


Stock option compensation expense	—	72			—		—			72


Balance, June 30, 2022	8,249,448	$	39,585		$	175,299	$	(565)		$	214,319

Balance, March 31, 2023	8,203,174	$	37,979		$	190,177	$	(495)		$	227,661


Net income	—	—			6,306		—			6,306
Other comprehensive loss	—	—			—		(249)			(249)
Repurchase of common stock	(110,000)	(2,674)			—		—			(2,674)




Exercise of stock options	1,000	17			—		—			17


Common stock dividends ($0.23 per common share)	—	—			(1,877)		—			(1,877)


Stock option compensation expense	—	79			—		—			79


Balance, June 30, 2023	8,094,174	$	35,401		$	194,606	$	(744)		$	229,263


	Common Stock				Accumulated Other Compre-hensive Income (Loss)
	Number of Shares	Amount		Retained Earnings					Total
Balance, September 30, 2021	8,355,469	$	42,673		$	164,167	$	59		$	206,899
Net income	—	—			16,550		—			16,550
Other comprehensive loss	—	—			—		(624)			(624)
Repurchase of common stock	(135,791)	(3,651)			—		—			(3,651)




Exercise of stock options	29,770	359			—		—			359


Common stock dividends ($0.65 per common share)	—	—			(5,418)		—			(5,418)


Stock option compensation expense	—	204			—		—			204

Balance, June 30, 2022	8,249,448	$	39,585		$	175,299	$	(565)		$	214,319


Balance, September 30, 2022	8,221,952	$	38,751		$	180,535	$	(717)		$	218,569

Net income	—	—			20,476		—			20,476
Other comprehensive loss	—	—			—		(27)			(27)
Repurchase of common stock	(154,833)	(4,119)			—		—			(4,119)




Exercise of stock options	27,055	534			—		—			534


Common stock dividends ($0.78 per common share)	—	—			(6,405)		—			(6,405)


Stock option compensation expense	—	235			—		—			235

Balance, June 30, 2023	8,094,174	$	35,401		$	194,606	$	(744)		$	229,263

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended June 30, 2023 and 2022

(Dollars in thousands)

(Unaudited)


	Nine Months Ended June 30,
	2023		2022
Cash flows from operating activities
Net income	$	20,476	$	16,550
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,610		—
Depreciation	1,022		1,035
Deferred income taxes/(benefits)	(77)		223
Accretion of discount on purchased loans	(64)		(154)
Amortization of CDI	203		237


Stock option compensation expense	235		204
Gain on sale of investment securities available for sale, net	(95)		—
Net recoveries on investment securities	(7)		(16)
Change in fair value of investments in equity securities	(2)		83

Amortization (accretion) of discounts and premiums on securities	(922)		123
Gain on sales of OREO and other repossessed assets, net	—		(1)

Gain on sales of loans, net	(147)		(1,337)
Gain on sales/disposition of premises and equipment, net	(32)		—
Loans originated for sale	(6,062)		(47,199)
Proceeds from sales of loans	6,957		51,053
Amortization of loan servicing rights	769		879
Valuation recovery on loan servicing rights, net	—		(119)
BOLI net earnings	(470)		(457)

Increase (decrease) in deferred loan origination fees	636		(1,192)
Net change in accrued interest receivable and other assets, and other liabilities and accrued expenses	(800)		(1,521)
Net cash provided by operating activities	23,230		18,391

Cash flows from investing activities
Net decrease in CDs held for investment	5,963		4,594
Proceeds from sale of investment securities available for sale	8,929		—

Purchase of investment securities held to maturity	(15,601)		(167,671)
Purchase of investment securities available for sale	(16,994)		—
Proceeds from maturities and prepayments of investment securities held to maturity	8,000		8,737
Proceeds from maturities and prepayments of investment securities available for sale	5,784		16,977
Purchase of FHLB stock	(608)		(91)


Increase in loans receivable, net	(130,403)		(118,167)
Purchases of premises and equipment	(711)		(822)
Proceeds from sales of premises and equipment	45		—




Proceeds from sales of OREO and other repossessed assets	—		158
Net cash used in investing activities	(135,596)		(256,285)

See notes to unaudited consolidated financial statements

TIMBERLAND BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

For the nine months ended June 30, 2023 and 2022

(Dollars in thousands)

(Unaudited)


	Nine Months Ended June 30,
	2023		2022
Cash flows from financing activities
Net increase (decrease) in deposits	$	(79,446)	$	93,559

Proceeds from (repayments of) FHLB borrowings	15,000		(5,000)
Proceeds from exercise of stock options	534		359


Repurchase of common stock	(4,119)		(3,651)
Payment of dividends	(6,405)		(5,418)
Net cash provided by (used in) financing activities	(74,436)		79,849

Net decrease in cash and cash equivalents	(186,802)		(158,045)
Cash and cash equivalents
Beginning of period	316,755		580,196
End of period	$	129,953	$	422,151

Supplemental disclosure of cash flow information
Income taxes paid	$	6,268	$	3,642
Interest paid	$	6,088	$	1,955

Supplemental disclosure of non-cash investing activities

Other comprehensive loss related to investment securities	$	(27)	$	(624)

Operating lease liabilities arising from recording of ROU assets	$	71	$	—

See notes to unaudited consolidated financial statements

Timberland Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation: The accompanying unaudited consolidated financial statements of Timberland Bancorp, Inc. and its wholly-owned subsidiary, Timberland Bank (the "Bank") (collectively, "the Company") were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with GAAP. However, all adjustments which are, in the opinion of management, necessary for a fair presentation of the interim consolidated financial statements have been included. All such adjustments are of a normal recurring nature. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2022 (“2022 Form 10-K”). The unaudited consolidated results of operations for the nine months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the entire fiscal year ending September 30, 2023.

(b) Principles of Consolidation: The unaudited consolidated financial statements include the accounts of the Company and the Bank’s wholly-owned subsidiary, Timberland Service Corporation. All significant inter-company transactions and balances have been eliminated in consolidation.

(c) Operating Segment: The Company has one reportable operating segment which is defined as community banking in western Washington under the operating name, "Timberland Bank."

(d) The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, as of the date of the consolidated balance sheets, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

(e) Certain prior period amounts have been reclassified to conform to the June 30, 2023 presentation with no change to previously reported net income or total shareholders’ equity.

(2) INVESTMENT SECURITIES

Held to maturity and available for sale investment securities have been classified according to management’s intent and were as follows as of June 30, 2023 and September 30, 2022 (dollars in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2023
Held to maturity
U.S. Treasury and U.S. government agency securities	$	171,385	$	—	$	(9,927)	$	161,458
Mortgage-backed securities ("MBS"):
U.S. government agencies	53,347		10		(2,529)		50,828
Private label residential	48,025		258		(2,295)		45,988
Taxable municipal securities	1,796		—		(47)		1,749
Bank issued trust preferred securities	500		—		(52)		448
Total	$	275,053	$	268	$	(14,850)	$	260,471

Available for sale

MBS: U.S. government agencies	$	44,772	$	—	$	(930)	$	43,842
Total	$	44,772	$	—	$	(930)	$	43,842

September 30, 2022
Held to maturity
U.S. Treasury and U.S. government agency securities	$	170,676	$	11	$	(12,109)	$	158,578
MBS:
U.S. government agencies	43,995		4		(2,486)		41,513
Private label residential	49,335		245		(2,392)		47,188
Taxable municipal securities	2,102		—		(67)		2,035
Bank issued trust preferred securities	500		—		(31)		469
Total	$	266,608	$	260	$	(17,085)	$	249,783

Available for sale
MBS: U.S. government agencies	$	42,309	$	—	$	(894)	$	41,415

Total	$	42,309	$	—	$	(894)	$	41,415

Held to maturity and available for sale investment securities with unrealized losses were as follows as of June 30, 2023 (dollars in thousands):


	Less Than 12 Months					12 Months or Longer					Total
	Estimated Fair Value		Gross Unrealized Losses		Quantity	Estimated Fair Value		Gross Unrealized Losses		Quantity	Estimated Fair Value		Gross Unrealized Losses
Held to maturity
U.S. Treasury and U.S. government agency securities	$	19,045	$	(207)	2	$	142,413	$	(9,720)	25	$	161,458	$	(9,927)
MBS:
U.S. government agencies	26,124		(474)		18	19,498		(2,055)		42	45,622		(2,529)
Private label residential	10,461		(265)		7	32,351		(2,030)		27	42,812		(2,295)
Taxable municipal securities	—		—		—	1,749		(47)		1	1,749		(47)
Bank issued trust preferred securities	—		—		—	448		(52)		1	448		(52)
Total	$	55,630	$	(946)	27	$	196,459	$	(13,904)	96	$	252,089	$	(14,850)

Available for sale
MBS: U.S. government agencies	$	22,328	$	(188)	10	$	21,213	$	(742)	21	$	43,541	$	(930)
Total	$	22,328	$	(188)	10	$	21,213	$	(742)	21	$	43,541	$	(930)

Held to maturity and available for sale investment securities with unrealized losses were as follows as of September 30, 2022 (dollars in thousands):


	Less Than 12 Months					12 Months or Longer					Total
	Estimated Fair Value		Gross Unrealized Losses		Quantity	Estimated Fair Value		Gross Unrealized Losses		Quantity	Estimated Fair Value		Gross Unrealized Losses
Held to maturity
U.S. Treasury and U.S. government agency securities	$	115,504	$	(7,224)	17	$	33,638	$	(4,885)	9	$	149,142	$	(12,109)
MBS:
U.S. government agencies	35,896		(1,449)		54	5,306		(1,037)		5	41,202		(2,486)
Private label residential	35,447		(2,166)		27	8,708		(226)		6	44,155		(2,392)
Taxable municipal securities	2,035		(67)		1	—		—		—	2,035		(67)
Bank issued trust preferred securities	469		(31)		1	—		—		—	469		(31)
Total	$	189,351	$	(10,937)	100	$	47,652	$	(6,148)	20	$	237,003	$	(17,085)

Available for sale
MBS: U.S. government agencies	$	25,170	$	(292)	16	$	15,705	$	(602)	13	$	40,875	$	(894)

Total	$	25,170	$	(292)	16	$	15,705