Timberland Bancorp, Inc. — Form 10-Q Summary
Business context and reporting period. This unaudited filing covers the fiscal first quarter ended December 31, 2020; operating results are compared with the three months ended December 31, 2019. Timberland is a Washington community bank focused on deposits and real-estate-secured lending, operating 24 offices. Unless noted, financial amounts below are in U.S. dollars.
Key financial metrics
| Metric | Quarter ended Dec. 31, 2020 | Comparison |
|---|---|---|
| Net interest income | $13.02 million | Up 0.2% year over year |
| Net income | $7.29 million | Up 9.6% from $6.65 million |
| Diluted earnings per share | $0.87 | Up from $0.78 |
| Net interest margin | 3.48% | Down from 4.43% |
| Efficiency ratio | 47.83% | Improved from 49.43% |
| Return on average assets / equity | 1.84% / 15.39% | 2.12% / 15.40% in prior-year quarter |
| Net cash provided by operating activities | $0.85 million | Down from $9.38 million |
Interest and dividend income fell 1.6% to $13.96 million, while interest expense declined 21.5% to $0.93 million. Lower asset yields—3.73% versus 4.83%—largely offset higher average interest-earning assets. Mortgage refinancing supported loan-sale gains, which rose to $2.00 million from $0.95 million. Non-interest income increased 15.8% to $4.56 million; non-interest expense was broadly flat at $8.41 million. No loan-loss provision was recorded, versus $0.20 million in the prior-year quarter. The effective tax rate was 20.5% in both periods.
Balance sheet and liquidity. At December 31, 2020, total assets were $1.588 billion, up 1.4% from September 30, 2020; net loans were $1.007 billion, down 0.6%; deposits were $1.375 billion, up 1.2%; and shareholders’ equity was $193.33 million, up 3.0%. Cash and cash equivalents were $350.21 million; cash plus investment CDs totaled $399.84 million. Total deposits funded the asset increase. FHLB borrowings remained $10.00 million. The company reported a 31.48% regulatory liquidity ratio, $358.01 million of additional FHLB borrowing capacity, $66.14 million of available Federal Reserve borrowing capacity, and an unused $50 million PCBB line.
Quarter-end allowance for loan losses was $13.43 million, or 1.32% of loans and 520.4% of non-performing loans. Non-performing assets were $3.05 million, or 0.19% of assets, down from $4.16 million and 0.27% at September 30, 2020. The Bank exceeded regulatory capital requirements and was classified as well-capitalized: its CET1 ratio was 19.90%, total risk-based capital ratio 21.16%, and leverage ratio 11.16%.
Material changes and notable items
- Net income growth reflected higher loan-sale income and no provision for loan losses, despite a substantial year-over-year decline in net interest margin.
- Quarter-end cash and cash equivalents increased to $350.21 million from $314.45 million at September 30, 2020. Operating cash flow was much lower than the prior-year quarter; investing activities provided $19.82 million and financing activities provided $15.09 million.
- PPP loan balances declined to $103.47 million from $126.82 million at September 30, primarily as borrowers sought SBA forgiveness. The company began originating PPP loans again in January 2021 following program renewal.
- Loan originations increased 18.1% year over year to $156.58 million. Fixed-rate one- to four-family loan sales rose 26.9% to $43.84 million, reflecting refinancing activity.
- At December 31, 12 loans totaling $14.39 million remained under COVID-19 payment deferral; most previously modified borrowers had resumed payments. The count and balance were higher than the five loans totaling $5.87 million reported at September 30.
- The company paid $0.20 per common share in dividends during the quarter, compared with $0.25 a year earlier, and repurchased 2,900 shares for $58,000.
Outlook, risks and contingencies
The filing provides no quantified earnings or financial guidance. Management said the low-rate environment and COVID-19 uncertainty were expected to adversely affect net interest income and margin until the pandemic subsided. Management attributed the absence of a current-quarter loan-loss provision primarily to improvement in forecasted probable losses related to COVID-19, but warned that deterioration in economic or real-estate conditions could require materially higher reserves. Management believed the allowance was adequate, while acknowledging uncertainty in borrower and collateral outcomes.
COVID-19, borrower credit quality, interest-rate and funding changes, loan demand and secondary-market conditions, regulatory actions, competition, technology and cybersecurity disruptions, and the ability to control costs are among the disclosed risks. The company anticipated that adoption of the expected-credit-loss standard (CECL) would increase the allowance, but had not determined the amount. No material legal proceedings or material changes to previously disclosed risk factors were reported. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the lower net interest margin persists and how it affects net interest income as pandemic-era rates and excess liquidity evolve.
- Subsequent performance of the 12 deferred loans, PPP forgiveness and repayment, and changes in delinquency, non-accrual loans, and credit grades.
- The adequacy of the $13.43 million allowance under changing economic conditions and the eventual CECL impact.
- The sustainability of mortgage refinancing and loan-sale gains, including the effect of faster prepayments on servicing-rights valuations.
- Liquidity and funding needs, including loan commitments of $128.92 million, undisbursed construction loans of $94.30 million, and $96.90 million of CDs maturing within one year.
- Capital and dividend capacity if credit losses or regulatory requirements change; reported capital ratios are for the Bank and should not be confused with consolidated company figures.