Timberland Bancorp: Trading At Just 7 Times Earnings And A 4% Dividend Yield

Summary

• Timberland Bancorp is a small bank focusing on Seattle and its surroundings.
• The majority of the loan book consists of mortgages, and should have a relatively attractive risk profile.
• About 20% of its total assets are held in cash and cash equivalents: liquidity is not an issue.
• Trading at TBV, 7X earnings and a 4% dividend yield, TSBK is an attractive regional bank.
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Introduction

This year I have been keeping an eye on regional banks. Although they obviously aren’t as well-diversified as the major banks, one could argue they are able to limit their risks by knowing their core markets due to the local focus. Timberland Bancorp (NASDAQ:TSBK) has just completed its financial year 2020 and despite the COVID-19 pandemic, this local bank in Washington State with just a handful of branches around Seattle reported the 10^th net profit increase in a row.

Timberland’s net income increase in FY 2020 is remarkable

Timberland’s financial year ends in September, so the most recently reported financial results of the small regional bank are the full-year results of FY 2020.

The bank reported a very small decrease in interest income (less than 0.5%) while the interest expenses increased by a same marginal percentage. This caused the net interest income to decrease by around half a percent to $50.9M. Hardly a disaster, but it’s an interesting development to see the interest expenses increase.

Source: Company press release

What really helped Timberland in FY 2020 was the strong decrease in the net non-interest expenses. As you can see below, in FY 2019, Timberland spent $35.6M in non-interest expenses while generating $14.3M in non-interest income for a net non-interest expense of around $21.3M.

In FY 2020, we see the non-interest expenses decreased by around 4% to $34.1M while the non-interest income increased to $17.2M, resulting in a net non-interest expense of just around $17M, a decrease of $4M.

Source: Company press release

That’s what really pushed Timberland over the edge, allowing it to record a slightly higher pre-tax income of $30.3M (compared to $29.2M) despite the $3.7M loan loss provision ($0 in FY 2019). However, investors should realize some of the non-interest income may be non-recurring. We notice a $4.2M increase in the gain on the sale of loans and

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.