Timberland Bancorp, Inc. — FY2021 Form 10-K
Business context and period. Community bank holding company operating Timberland Bank, with 24 branches in western Washington. Reporting period: fiscal year ended September 30, 2021; comparisons are primarily with FY2020. The 2018 South Sound Bank acquisition is included in reported results.
Financial performance and position
| Metric | FY2021 / September 30, 2021 | Prior comparable period |
|---|---|---|
| Net income | $27.58 million | $24.27 million; up 13.7% |
| Diluted earnings per share | $3.27 | $2.88 |
| Net interest income | $51.86 million | $50.88 million; up 1.9% |
| Net interest margin | 3.25% | 3.90% |
| Non-interest income / expense | $17.16 million / $34.59 million | $17.19 million / $34.06 million |
| Cash flow | $29.64 million operating cash flow; cash and cash equivalents rose $265.74 million | $33.86 million operating cash flow |
| Total assets / deposits | $1.79 billion / $1.57 billion | $1.57 billion / $1.36 billion |
| Net loans / shareholders’ equity | $968.45 million / $206.90 million | $1.01 billion / $187.63 million |
| Borrowings | $5.00 million FHLB advances | $10.00 million |
| Asset quality | $3.17 million non-performing assets (0.18% of assets); $13.47 million allowance | $4.16 million non-performing assets; $13.41 million allowance |
Net income benefited from no loan-loss provision, versus a $3.70 million provision in FY2020, and higher net interest income. Return on average assets was 1.64% versus 1.75%; return on average equity was 13.98% versus 13.59%. The efficiency ratio was 50.12% versus 50.04%.
Material changes and liquidity
- Deposits increased 15.6%, led by non-interest-bearing and transaction accounts. Management attributed growth partly to PPP proceeds, government stimulus payments, organic customer growth, and lower withdrawals.
- Cash and cash equivalents rose to $580.20 million. Net loans declined 4.5%, mainly as PPP balances ran off through forgiveness and repayment; commercial real estate and construction lending increased.
- Investment securities increased to $132.28 million from $85.80 million. The Bank reported a 43.3% regulatory liquidity ratio, $391.21 million available FHLB borrowing capacity, and $73.81 million available FRB capacity; $5.00 million of FHLB advances was outstanding.
- The Bank was well capitalized. Its regulatory capital ratios were 10.7% leverage, 20.6% CET1 and Tier 1 risk-based, and 21.8% total risk-based capital.
Outlook, risks, and unusual items
- No formal earnings or numerical full-year guidance is provided. Management expected pandemic-related uncertainty to continue affecting credit, loan demand, rates, and margins.
- Management anticipated PPP-related interest income would decline significantly in FY2022, mortgage refinancing activity and loan-sale gains would decrease, and expenses would rise from inflation and additional lending hires.
- Credit risk is concentrated in real estate lending: commercial real estate was 43.5% of loans, construction 21.5%, and real-estate-secured loans 89.1% of gross loans including undisbursed construction amounts. Management identifies construction, land, and commercial real estate lending as higher-risk exposures.
- Only one COVID-related loan remained on deferral at year-end. The filing reports its balance as $233,000 in MD&A and $323,000 in the notes; investors should reconcile this discrepancy.
- COVID uncertainty, local economic and property-market conditions, interest-rate changes, deposit competition, cybersecurity/vendor reliance, regulatory changes, and the transition from LIBOR are identified risks. CECL adoption is expected to increase the allowance, but the amount is not yet clear.
- The independent auditor issued an unqualified opinion on the financial statements and identified the allowance for loan losses as a critical audit matter. Management reported effective internal control over financial reporting; the auditor did not express an opinion on that control.
Most important facts to verify
- Reconcile the reported $233,000 versus $323,000 balance for the remaining COVID-modified loan.
- Track PPP forgiveness, remaining deferred fees, and the expected decline in PPP income in FY2022.
- Assess whether the allowance remains adequate as real estate and construction exposures, borrower performance, and economic forecasts evolve.
- Monitor net interest margin, deposit pricing and retention, and realized sensitivity against management’s modeled rate scenarios.
- Confirm liquidity and capital remain sufficient as loan commitments are funded and distributions, dividends, or repurchases continue.