Timberland Bancorp, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020; this is an annual filing, not a standalone fourth-quarter report. The company is a Washington bank holding company operating Timberland Bank, with 24 branches in western Washington. Financial statements are audited and presented on a consolidated basis.
Financial performance and condition
| Metric | FY2020 / September 30, 2020 | Prior comparable period |
|---|---|---|
| Net income | $24.27 million; diluted EPS $2.88 | FY2019: $24.02 million; diluted EPS $2.84 |
| Net interest income | $50.88 million | FY2019: $51.16 million |
| Net interest margin | 3.90% | FY2019: 4.50% |
| Provision for loan losses | $3.70 million | FY2019: none |
| Non-interest income / expense | $17.19 million / $34.06 million | FY2019: $14.34 million / $35.58 million |
| Total assets | $1.566 billion | September 30, 2019: $1.247 billion |
| Net loans / deposits | $1.014 billion / $1.358 billion | September 30, 2019: $886.66 million / $1.068 billion |
| Cash and cash equivalents | $314.45 million | September 30, 2019: $143.02 million |
| FHLB borrowings | $10.00 million | September 30, 2019: none |
| Shareholders’ equity | $187.63 million | September 30, 2019: $171.07 million |
Cash flow: Operating activities provided $33.86 million; investing activities used $154.67 million; financing activities provided $292.25 million. Cash and cash equivalents increased $171.44 million to $314.45 million.
Asset quality and capital: Non-performing assets were $4.16 million, or 0.27% of assets, versus $5.01 million, or 0.40%, a year earlier. Non-accrual loans were $2.91 million. The allowance for loan losses was $13.41 million, equal to 1.31% of loans and 461.76% of non-performing loans; $126.82 million of SBA Paycheck Protection Program (PPP) loans was excluded from the allowance calculation because it is fully SBA-guaranteed. The Bank was classified as well capitalized: total risk-based capital ratio 21.0%, CET1 ratio 19.7%, and leverage ratio 11.1%.
Material changes versus FY2019
- Net income rose 1.0%, despite lower net interest income and a new $3.70 million loan-loss provision related primarily to pandemic uncertainty.
- Net interest margin fell 60 basis points to 3.90%, mainly reflecting lower asset yields after market-rate cuts. Average yield on interest-earning assets declined to 4.26% from 4.90%.
- Non-interest income increased 19.9%, principally because gains on loan sales rose to $5.98 million from $1.75 million amid mortgage refinancing activity. Non-interest expense fell 4.3%, and the efficiency ratio improved to 50.04% from 54.32%.
- Assets increased 25.6%, loans 14.3%, and deposits 27.2%. Deposit growth reflected PPP proceeds, government stimulus deposits, organic growth, and reduced customer withdrawals. Cash rose substantially as deposit inflows exceeded lending and investment deployment.
- PPP lending added $126.82 million of loans, while COVID-related payment modifications covered 212 loans totaling $136.36 million during the year. At year-end, five loans totaling $5.87 million remained on deferral.
- Shareholders’ equity increased 9.7%. Dividends were $0.85 per share, compared with $0.78; the company repurchased 56,601 shares for $1.24 million. Repurchases had been temporarily suspended in March 2020 and were announced to resume in October.
Outlook, risks and unusual items
- Management provided no quantified earnings or balance-sheet guidance. It expected the pandemic and related low rates to adversely affect net interest income and margin through FY2021 and potentially longer.
- Credit risk is concentrated in real estate lending: commercial real estate represented 40.0% of total loans, and construction loans were $219.50 million, including undisbursed commitments. Management identified a commercial real estate concentration above 300% of total capital under regulatory guidance.
- Special-mention loans increased to $5.86 million from $2.55 million. Two participation loans secured by the same Oregon hotel were among the largest; both had COVID-related modifications at year-end. Potential problem loans not already classified as non-performing totaled $6.61 million.
- Management said the allowance reflected pandemic-related economic factors but warned it could need to rise if conditions worsen or government relief proves insufficient. The filing also describes substantial estimation uncertainty in collateral values and credit-loss assumptions.
- The $126.82 million PPP balance earns 1% before fee accretion and is subject to evolving SBA forgiveness and compliance procedures. The filing warns that SBA guarantee coverage could be challenged if origination, funding, or servicing requirements were not met.
- Liquidity was supported by $314.45 million in cash, a 29.1% regulatory liquidity ratio, and stated additional FHLB and Federal Reserve borrowing capacity. The Bank had $141.61 million in loan commitments and $100.56 million in undisbursed construction loans in process. Deposit retention, available collateral, and funding access remain risks.
- Other notable items: loan-sale gains rose materially; servicing rights included a $229,000 valuation allowance; management reported no goodwill impairment. The company recorded a $3.70 million loan-loss provision and $173,000 in OREO write-downs. It recognized $120,000 in net recoveries on investment securities.
Most important facts for investors to verify
- Whether PPP borrowers receive forgiveness and whether SBA guarantees remain intact; monitor related fee income and loan runoff.
- Whether deferred borrowers resume regular payments and whether hotel-related and other special-mention credits migrate to non-performing status.
- Whether the allowance is adequate as pandemic effects, unemployment, collateral values, and borrower cash flows evolve; assess the expected impact of CECL adoption, then scheduled for FY2024.
- Whether deposit growth and elevated cash balances can be deployed at acceptable yields without further margin pressure, and how the bank’s reported interest-rate sensitivity performs in practice.
- Whether commercial real estate and construction concentrations remain manageable, including the sizable undisbursed construction balances and commitments.
- Whether dividends and resumed share repurchases remain supportable given bank-level capital, earnings, and regulatory limits. The filing reports the Bank exceeded applicable capital requirements at year-end.