Timberland Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter of 2022, the three months ended December 31, 2021. The filing is unaudited. Comparisons of results are with the three months ended December 31, 2020; balance-sheet comparisons are with September 30, 2021.
Business and financial performance
The company operates Timberland Bank, a community bank serving western Washington through 24 offices. Lending is concentrated in real-estate-secured loans, alongside commercial business and consumer lending.
| Metric | Quarter / period-end result | Comparison |
|---|---|---|
| Net interest income | $12.70 million | Down 2.5% year over year |
| Net interest margin | 2.92% | 3.48% a year earlier |
| Non-interest income | $3.44 million | Down 24.5% year over year |
| Non-interest expense | $9.26 million | Up 10.2% year over year |
| Net income | $5.49 million | Down 24.8%; diluted EPS $0.65 versus $0.87 |
| Cash flows | $4.26 million operating; $(60.15) million investing; $34.02 million financing | Cash and equivalents declined $21.87 million to $558.33 million |
| Total assets | $1.831 billion | Up 2.2% from September 30, 2021 |
| Net loans / deposits | $994.01 million / $1.607 billion | Up 2.6% / 2.3% from September 30, 2021 |
| Debt | $5.00 million FHLB borrowing | Unchanged at quarter-end; repaid in January 2022 |
| Shareholders’ equity | $210.38 million | Up 1.7% from September 30, 2021 |
Material changes and credit quality
- Quarterly earnings fell mainly due to lower gains on loan sales, weaker net interest income, and higher operating expenses. Lower income-tax expense partly offset these factors.
- Net gains on loan sales declined to $0.66 million from $2.00 million, as mortgage originations and sales were lower amid reduced refinance activity. Loan originations overall rose 12.8% to $176.60 million.
- Average yield on interest-earning assets fell to 3.07% from 3.73%; the average cost of interest-bearing liabilities declined to 0.24% from 0.40%. The resulting net interest margin compression reduced net interest income despite growth in average earning assets.
- Non-interest expense included higher salaries and benefits, primarily from annual salary adjustments and added lending staff. “Other” expense rose partly because the Bank discovered fees charged in error after its 2019 core-system conversion and refunded affected customers.
- The allowance for loan losses was $13.47 million, or 1.34% of loans receivable; no loan-loss provision was recorded in either comparison quarter. Non-performing assets were $3.15 million, or 0.17% of assets. Non-accrual loans were $2.85 million.
- Real-estate loans represented 87.2% of gross loans. PPP balances declined to $21.40 million from $40.92 million at September 30, 2021, principally due to SBA forgiveness and repayment.
Liquidity, capital, outlook, and risks
- The Bank reported a 42.69% regulatory liquidity ratio and $401.04 million of additional FHLB borrowing capacity, plus $75.36 million available from the Federal Reserve and an unused $50 million overnight line with Pacific Coast Bankers’ Bank. Management said liquidity and available lines were adequate for obligations over at least the next 12 months.
- The Bank exceeded regulatory capital requirements and was classified as well capitalized. Its reported leverage ratio was 10.64%, CET1 ratio 19.93%, and total risk-based capital ratio 21.18%.
- The company stated it expected to continue quarterly cash dividends, subject to Board discretion. The approved quarterly rate was $0.22 per share; the quarter’s dividend paid was $0.21 per share.
- No specific earnings or margin guidance was provided. Management noted that interest rates, local economic conditions, loan demand, deposit retention, credit performance, and the effects of COVID-19 could affect results. It also warned that future credit deterioration or regulatory review could require higher loan-loss reserves.
- Management anticipated that adoption of the current expected credit loss standard (CECL) would increase the allowance for loan losses, but said the magnitude was not yet known. The filing reported no material changes to previously disclosed risk factors or market-risk information.
- Management reported effective disclosure controls as of December 31, 2021 and no material change in internal control over financial reporting during the quarter. No material legal proceedings were reported.
Important facts for investors to verify
- Track net interest margin and asset yields as rates and asset mix change, including the effect of low-yield PPP loans and remaining PPP fee accretion.
- Review the customer fee refunds related to the 2019 system conversion, including their full cost, affected accounts, and any control or remediation implications.
- Monitor loan delinquencies, non-accrual balances, commercial real-estate exposure, and whether the allowance remains adequate as conditions evolve.
- Assess liquidity and funding after the January 2022 repayment of the $5 million FHLB borrowing, alongside loan commitments and construction-loan disbursements.
- Confirm CECL adoption timing and the eventual allowance impact. The filing’s text contains an apparent unit inconsistency in its PPP fee-accretion discussion; verify the underlying reported amount if material to analysis.