Timberland Bancorp, Inc. 2024 Annual Report Review

Introduction

Timberland Bancorp, Inc., a Washington corporation, is the holding company for Timberland Bank. The bank, established in 1915, serves consumers and businesses across several counties in Washington State. As of September 30, 2024, Timberland Bancorp had total assets of $1.92 billion, net loans receivable of $1.42 billion, total deposits of $1.65 billion, and total shareholders’ equity of $245.41 million. This review will delve into the company's financial performance, risk factors, and overall investment potential based on its 2024 10-K filing.

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Business Overview

Timberland Bank operates 23 branches in Washington State, offering a range of lending and deposit services. The bank's primary focus is on real estate mortgage loans, including residential and commercial/multi-family construction loans, one- to four-family residential loans, multi-family loans, commercial real estate loans, and land loans. The bank also originates commercial business loans and other consumer loans.

Market Area

The bank's primary market areas include Grays Harbor, Pierce, Thurston, King, Kitsap, and Lewis counties in Washington. Each of these markets presents unique operating risks, and the bank's strategy includes expanding and diversifying its market area to become less reliant on the economy of Grays Harbor County.

Financial Performance

Income Statement

For the fiscal year ended September 30, 2024, Timberland Bancorp reported a net income of $24.28 million, a decrease from $27.12 million in 2023. The decrease in net income was primarily due to a $4.19 million decrease in net interest income and a $373,000 increase in non-interest expense, partially offset by a $981,000 decrease in the provision for credit losses and a $753,000 decrease in the provision for income taxes.

Balance Sheet

Total assets increased by $83.57 million, or 4.5%, to $1.92 billion at September 30, 2024. This increase was primarily due to increases in total cash and cash equivalents and loans receivable net, partially offset by a decrease in investment securities. Net loans receivable increased by $119.22 million, or 9.2%, to $1.42 billion.

Cash Flow

Net cash provided by operating activities was $23.02 million for the year ended September 30, 2024. The company used $45.80 million in investing activities, primarily due to an increase in loans receivable, net, and provided $58.78 million in financing activities, primarily due to an increase in deposits.

Risk Factors

Credit Risk

The bank's allowance for credit losses (ACL) is a critical accounting policy due to the significant judgment involved in its determination. The ACL is maintained to absorb expected losses inherent in the loan portfolio. As of September 30, 2024, the ACL was $17.48 million, representing 1.21% of total loans receivable.

Interest Rate Risk

The bank's net interest margin decreased to 3.54% for the year ended September 30, 2024, from 3.95% in 2023. This decrease was due to higher interest expense resulting from increases in both the average yields and balances of interest-bearing liabilities.

Regulatory and Compliance Risk

The bank operates in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations. The bank's deposits are insured up to $250,000 per separately insured deposit ownership right or category by the Deposit Insurance Fund of the FDIC.

Investment Potential

Timberland Bancorp's financial performance in 2024 reflects a stable but challenging environment. The decrease in net income and net interest margin indicates pressure from rising interest rates and increased competition for deposits. However, the bank's strong asset growth and strategic market expansion efforts are positive indicators of its potential for future growth.

Conclusion

Timberland Bancorp, Inc. presents a moderate investment opportunity with a score of 7.5 out of 10. The bank's strong market presence in Washington State, coupled with its strategic focus on expanding its market area and diversifying its loan portfolio, positions it well for future growth. However, potential investors should be mindful of the risks associated with interest rate fluctuations and regulatory changes.