Timberland Bancorp, Inc. — Form 10-Q Summary
Business context and reporting period. Timberland Bancorp is the holding company for Timberland Bank, a community bank operating in western Washington. This fiscal third-quarter 2021 report covers the three and nine months ended June 30, 2021; balance-sheet comparisons are with September 30, 2020. The financial statements are unaudited.
Financial results and condition
| Metric | Three months ended June 30, 2021 | Nine months ended June 30, 2021 |
|---|---|---|
| Net interest income | $13.16 million | $38.75 million |
| Provision for loan losses | $0 | $0 |
| Non-interest income | $4.27 million | $13.71 million |
| Non-interest expense | $8.61 million | $25.57 million |
| Net income | $7.02 million | $21.57 million |
| Diluted earnings per share | $0.83 | $2.55 |
| Net interest margin | 3.22% | 3.30% |
| Efficiency ratio | 49.43% | 48.75% |
- Quarterly net income rose 13.1% and nine-month net income rose 20.4% year over year. Quarterly diluted EPS increased from $0.74 to $0.83; nine-month diluted EPS increased from $2.12 to $2.55.
- At June 30, total assets were $1.740 billion, deposits $1.523 billion, net loans $1.002 billion, and shareholders’ equity $203.49 million. Assets increased 11.1% and deposits 12.1% from September 30, 2020; net loans declined 1.2%.
- Cash and cash equivalents were $503.73 million, up from $314.45 million at September 30, 2020. Including investment CDs, cash and CDs totaled $534.94 million. Nine-month operating cash flow was $22.73 million; cash increased $189.27 million overall.
- FHLB borrowings were $5.00 million, down from $10.00 million. The Bank reported $402.02 million of additional FHLB borrowing capacity and $65.41 million available through its Federal Reserve line. Its regulatory liquidity ratio was 38.48%.
- The Bank exceeded regulatory capital requirements and was classified as well-capitalized. Its June 30 leverage ratio was 10.87%; total risk-based capital ratio was 22.15%.
Material changes versus comparable periods
- Quarterly net interest income increased 5.4% year over year, while net interest margin fell from 3.63% to 3.22%. For the nine months, net interest income increased 1.0%, but margin declined from 4.08% to 3.30%.
- Lower deposit and other funding costs supported net interest income, but lower yields on interest-earning assets weighed on margins. Average interest-earning asset yield declined to 3.39% from 3.97% for the quarter and to 3.50% from 4.47% for the nine-month period.
- No loan-loss provision was recorded in either 2021 comparison period, versus $1.00 million for the prior-year quarter and $3.20 million for the prior-year nine months. Management attributed the change to improving economic conditions and lower forecast credit losses.
- Quarterly non-interest income fell 12.1%, mainly because loan-sale gains were lower and a prior-year one-time recovery did not recur. Nine-month non-interest income rose 9.9%, principally on higher loan-sale gains and debit-card interchange fees.
- Nonperforming assets declined to $2.37 million from $4.16 million; nonperforming assets were 0.14% of total assets. Non-accrual loans were $2.03 million. The allowance for loan losses was $13.47 million, or 1.33% of loans receivable.
- PPP loan balances declined to $95.63 million from $126.82 million at September 30, primarily as borrowers obtained forgiveness and the SBA repaid loans, partly offset by new originations.
Outlook, commentary, and risks
- No specific earnings or financial guidance is provided. Management said net interest income and margin could remain adversely affected while the pandemic’s effects persist, including the low-rate environment.
- Management considers the loan-loss allowance adequate, but cautioned that economic deterioration, borrower or collateral weakness, or regulatory review could require higher reserves. PPP loans are fully SBA-guaranteed and excluded from the normal allowance calculation.
- Only one COVID-related loan modification remained on deferral at June 30, a commercial mortgage loan with a $1.70 million balance. Nearly all previously modified borrowers had resumed payments.
- The company expects adoption of the current expected credit losses standard to increase its allowance for loan losses; the amount was not yet known. Goodwill of $15.13 million was not impaired in the fiscal 2021 assessment, though management noted future economic or share-price deterioration could prompt impairment testing or charges.
- Other disclosed risks include interest-rate and funding changes, credit and real-estate conditions, competition, regulatory actions, cybersecurity and third-party service disruptions, and the ongoing effects of COVID-19. The filing reported no material legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Whether deposit growth can be deployed profitably and whether pressure on net interest margin continues.
- Trends in nonperforming loans, criticized loan grades, the allowance, and the performance of commercial real-estate exposures.
- The pace of PPP forgiveness and recognition of the $3.31 million of remaining deferred PPP origination fees.
- The impact and timing of expected credit-loss accounting adoption, including the eventual allowance increase.
- Capital return plans: the company paid $0.21 per share in quarterly dividends and had authorization to repurchase 399,282 shares at June 30, 2021.