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Timberland Bancorp’s Second Fiscal Quarter Earnings Per Share Increases 26% to $0.72

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In this article:
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  • TSBK
  • Completes Core Operating System Conversion

  • Announces $0.15 Regular Quarterly Dividend and $0.10 Special Dividend

HOQUIAM, Wash., April 30, 2019 (GLOBE NEWSWIRE) -- Timberland Bancorp, Inc. (TSBK) (“Timberland” or “the Company”) today reported net income of $6.11 million, or $0.72 per diluted common share for the quarter ended March 31, 2019, boosted by a one-time $1.0 million tax exempt benefit, that was partially offset by $616,000 in pre-tax net costs associated with its system conversion. This compares to net income of $4.27 million, or $0.57 per diluted share for the quarter ended one year ago, and net income of $5.62 million, or $0.66 per diluted common share, for the preceding quarter.

For the first six months of fiscal 2019, Timberland earned $11.73 million, or $1.39 per diluted common share, an increase in net income of 49% and an increase in earnings per diluted common share (“EPS”) of 32% from $7.88 million, or $1.05 per diluted common share reported for the first six months of fiscal 2018.

Timberland’s Board of Directors declared a quarterly cash dividend to shareholders of $0.15 per common share and a special one-time cash dividend of $0.10 per common share payable on May 29, 2019, to shareholders of record on May 15, 2019.

“During the quarter we converted the Bank’s core operating software to the Jack Henry Silverlake operating system and incurred conversion costs as forecast in the Company’s prior earnings release,” commented Michael Sand, President and CEO. “Direct conversion costs of $456,000 were expensed during the quarter comparing favorably to our forecasted $450,000 expense. In addition, indirect employee costs of approximately $160,000 associated with the conversion were incurred bringing quarterly conversion related expenses to $616,000 ($487,000 after tax), or $0.06 per share. With the completion of this conversion we are now focused on the migration of South Sound’s core operating system to the Silverlake platform. This conversion is scheduled for July 12, 2019 and, during the next two quarters, we expect to incur conversion related expenses of approximately $700,000 ($553,000 after tax).”

“During the quarter Timberland recognized a $214,000 increase (compared to the prior quarter) in the accretion of the fair value discount on loans acquired in the South Sound Bank merger,” Sand continued. “In addition, Timberland received a tax exempt payout on a bank owned life insurance (“BOLI”) policy of approximately $1.0 million ($0.12 per share).”

“The year-over-year financial comparisons noted in the text that follows compare periods prior to, and subsequent to, the acquisition of South Sound Bank and serve to highlight the financial benefits of the merger. Adding two large deposit offices within the Olympia market area along Washington State’s economically important I-5 corridor should continue to provide Timberland with opportunities to further increase loans and deposits,” said Sand.

Second Fiscal Quarter 2019 Earnings and Balance Sheet Highlights (at or for the period ended March 31, 2019, compared to December 31, 2018, or March 31, 2018):

Earnings Highlights:

  • Net income increased 43% to $6.11 million from $4.27 million for the comparable quarter one year ago and increased 9% from $5.62 million for the preceding quarter;

  • EPS for current quarter increased 26% to $0.72 from $0.57 for the comparable quarter one year ago and increased 9% from $0.66 from the preceding quarter;

  • EPS for the first six months of fiscal 2019 increased 32% to $1.39 from $1.05 for the first six months of fiscal 2018;

  • Return on average equity and return on average assets for the current quarter remained strong at 15.45% and 2.01%, respectively; and

  • Net interest margin increased to 4.51% from 4.19% for the comparable quarter one year ago and 4.47% for the preceding quarter.

Balance Sheet Highlights:

  • Total assets increased 24% year-over-year and 3% from the prior quarter;

  • Total deposits increased 22% year-over-year and 4% from the prior quarter;

  • Net loans receivable increased 23% year-over-year and 2% from the prior quarter; and

  • Book and tangible book (non-GAAP) values per common share increased to $19.47 and $17.39, respectively, at March 31, 2019.

Operating Results

Operating revenue (net interest income before the provision for loan losses, plus non-interest income excluding recoveries on investment securities and BOLI death benefit claims) increased 23% to $15.65 million from $12.69 million for the comparable quarter one year ago and was consistent with operating revenue of $15.59 million for the preceding quarter. Operating revenue increased 24% to $31.24 million for the first six months of fiscal 2019 from $25.24 million for the comparable period one year ago.

Net interest income for the current quarter increased 32% to $12.73 million from $9.62 million for the comparable quarter one year ago and increased 3% from $12.34 million for the preceding quarter. For the first six months of fiscal 2019 net interest income increased 32% to $25.07 million from $19.06 million for the first six months of fiscal 2018.

Timberland’s net interest margin (“NIM”) for the current quarter increased to 4.51% from 4.19% for the comparable quarter one year ago and 4.47% for the preceding quarter. The NIM for the current quarter was increased by approximately 11 basis points due to the accretion of $301,000 of the fair value discount on loans acquired in the South Sound Merger and the collection of $16,000 of non-accrual interest. The NIM for the comparable quarter one year ago was increased by approximately six basis points due to the collection of a $134,000 loan prepayment penalty and the collection of $2,000 of non-accrual interest. The NIM for the preceding quarter was increased by approximately four basis points due to the accretion of $87,000 of the fair value discount on loans acquired in the South Sound Merger. The NIM for the preceding quarter was not impacted by the collection of non-accrual interest. Timberland’s net interest margin for the first six months of fiscal 2018 improved to 4.49% from 4.19% for the first six months of fiscal 2018.

Non-interest income increased 28% to $3.94 million for the current quarter from $3.08 million for the comparable quarter one year ago and increased 21% from $3.27 million for the preceding quarter. The increase in non-interest income compared to the preceding quarter was primarily due to a $1.00 million death benefit claim on BOLI. Partially offsetting this increase, was a $98,000 decrease in gain on sale of loans, a $92,000 decrease in ATM and debit card interchange transaction fees, and smaller decreases in several other categories. The decrease in gain on sale of loans was primarily due to a decrease in the dollar amount of fixed rate one- to four-family loans sold. The decrease in ATM and debit card interchange transaction fees was primarily due to a reduction in the volume of debit card transactions, which was in part due to accommodations associated with the conversion to a new core operating system in February 2019. Fiscal year-to-date non-interest income increased 16% to $7.21 million from $6.22 million for the first six months of fiscal 2018, primarily due to the BOLI death benefit claim.

Total operating expenses for the current quarter increased 8% to $9.28 million from $8.56 million for the preceding quarter and increased 28% from $7.22 million for the comparable quarter one year ago. The increase in expenses for the current quarter compared to the preceding quarter was primarily due to expenses associated with the conversion to a new core operating system during the current quarter. Direct conversion-related expenses of $456,000 are included in the data processing and telecommunication expense line item and indirect conversion-related overtime expenses of approximately $160,000 are included in the salaries and employee benefits line item. Acquisition expenses related to the South Sound Merger totaled $55,000 during the current quarter compared to $64,000 in the preceding quarter. The efficiency ratio was 55.66% for the current quarter compared to 56.83% for the comparable quarter one year ago and 54.85% for the preceding quarter. Fiscal year-to-date operating expenses increased 24% to $17.84 million from $14.40 million for the first six months of fiscal 2018, primarily as a result of the South Sound Merger and expenses associated with the core operating system conversion. The efficiency ratio improved for the first six months of fiscal 2019 to 55.27% from 56.96% for the first six months of fiscal 2018.

The provision for income taxes for the current quarter decreased $156,000 to $1.28 million from $1.43 million for the preceding quarter. The decrease was primarily due to an increase in the percentage of non-taxable income for the current quarter as a result of the BOLI death benefit claim. Timberland’s effective tax rate was 17.3% for the quarter ended March 31, 2019 compared to 20.3% for the quarter ended December 31, 2018 and 22.2% for the quarter ended one year ago. The Tax Cuts and Jobs Acts legislation, which was signed into law on December 22, 2017, decreased the federal corporate income tax rate to 21.0% from 35.0%. As a result of the new legislation, Timberland used a blended federal income tax rate of 24.5% for its 2018 fiscal year. Effective with the beginning of the current fiscal year (October 1, 2018) Timberland began using a 21.0% federal income tax rate.

Balance Sheet Management

Total assets increased $40.25 million, or 3%, to $1.24 billion at March 31, 2019, from $1.20 billion at December 31, 2018. The increase was primarily due to a $16.21 million increase in net loans receivable, a $12.84 million increase in total cash and cash equivalents, and a $9.37 million increase in investment securities. These increases were primarily funded by increased deposits.

Net loans receivable increased $16.21 million, or 2%, during the current quarter to $873.28 million at March 31 2019, from $857.07 million at December 31, 2018. The increase was primarily due to a $9.87 million increase in commercial business loans, a $5.35 million increase in construction loans, a $2.74 million increase in multi-family loans, a $6.12 million decrease in the undisbursed portion of construction loans in process and smaller increases in several other categories. These increases to net loans receivable were partially offset by an $8.92 million decrease in commercial real estate loans and smaller decreases in several other categories.

LOAN PORTFOLIO

($ in thousands)

March 31, 2019

December 31, 2018

March 31, 2018

Amount

Percent

Amount

Percent

Amount

Percent

Mortgage loans:

One- to four-family (a)

$

130,413

13

%

$

130,219

14

%

$

112,862

14

%

Multi-family

74,816

8

72,076

8

55,157

7

Commercial

417,223

43

426,144

44

341,845

43

Construction - custom and owner/builder

120,789

12

119,214

12

119,230

15

Construction - speculative one-to four-family

20,014

2

17,934

2

10,876

1

Construction - commercial

42,157

4

42,416

4

25,166

3

Construction - multi-family

29,399

3

25,645

3

24,812

3

Construction - land development

8,782

1

10,578

1

2,950

--

Land

22,471

2

22,734

2

20,602

3

Total mortgage loans

866,064

88

866,960

90

713,500

89

Consumer loans:

Home equity and second mortgage

41,609

4

40,468

4

38,124

5

Other

4,606

1

4,443

--

3,646

1

Total consumer loans

46,215

5

44,911

4

41,770

6

Commercial business loans

68,073

7

58,202

6

43,465

5

Total loans

980,352

100

%

970,073

100

%

798,735

100

%

Less:

Undisbursed portion of construction loans in process

(94,471

)

(100,595

)

(78,108

)

Deferred loan origination fees

(2,856

)

(2,875

)

(2,515

)

Allowance for loan losses

(9,741

)

(9,533

)

(9,544

)

Total loans receivable, net

$

873,284

$

857,070

$

708,568

(a) Does not include one- to four-family loans held for sale totaling $3,068, $2,988 and $3,981 at March 31, 2019, December 31, 2018 and March 31, 2018, respectively.

Timberland originated $64.47 million in loans during the quarter ended March 31, 2019, compared to $78.99 million for the comparable quarter one year ago and $106.39 million for the preceding quarter. Timberland continues to sell fixed-rate one- to four-family mortgage loans into the secondary market for asset-liability management purposes and to generate non-interest income. Timberland also periodically sells the guaranteed portion of U.S. Small Business Administration (“SBA”) loans. During the second quarter of fiscal 2019 fixed-rate one- to four-family mortgage loans and SBA loans totaling $12.16 million were sold compared to $15.31 million for the comparable quarter one year ago and $16.12 million for the preceding quarter.

Timberland’s investment securities and CDs held for investment increased $9.27 million, or 9%, to $110.18 million at March 31, 2019, from $100.90 million at December 31, 2018. The increase was primarily due to the purchase of additional agency mortgage-backed securities.

Timberland’s liquidity continues to remain strong. Liquidity, as measured by the sum of cash and cash equivalents, CDs held for investment and available for sale investment securities, was 22.6% of total liabilities at March 31, 2019, compared to 22.1% at December 31, 2018, and 25.3% one year ago.

DEPOSIT BREAKDOWN

($ in thousands)

March 31, 2019

December 31, 2018

March 31, 2018

Amount

Percent

Amount

Percent

Amount

Percent

Non-interest-bearing demand

$

287,338

27

%

$

271,251

26

%

$

222,302

25

%

NOW checking

302,540

29

286,052

28

227,075

26

Savings

165,309

15

160,673

15

147,750

17

Money market

149,150

14

153,208

15

130,844

15

Money market – reciprocal

8,636

1

9,220

1

10,363

1

Certificates of deposit under $250

132,678

12

129,822

13

121,157

14

Certificates of deposit $250 and over

22,736

2

21,747

2

17,720

2

Certificates of deposit – brokered

3,207

--

3,204

--

3,200

--

Total deposits

$

1,071,594

100

%

$

1,035,177

100

%

$

880,411

100

%

Total deposits increased $36.42 million, or 4%, during the current quarter to $1.072 billion at March 31, 2019, from $1.035 billion at December 31, 2018. The quarterly increase consisted of a $16.49 million increase in NOW checking account balances, a $16.09 million increase in non-interest bearing demand account balances, a $4.64 million increase in savings account balances, and a $3.85 million increase in certificate of deposit account balances. These increases were partially offset by a $4.64 million decrease in money market account balances.

Shareholders’ Equity

Total shareholders’ equity increased $5.43 million to $162.34 million at March 31, 2019, from $156.91 million at December 31, 2018. The increase in shareholders’ equity was primarily due to net income of $6.11 million for the quarter, which was partially offset by dividend payments to shareholders of $1.25 million.

Capital Ratios and Asset Quality

Timberland remains well capitalized with a total risk-based capital ratio of 18.72% and a Tier 1 leverage capital ratio of 12.17% at March 31, 2019.

Asset quality remains strong with a non-performing assets to total assets ratio of 0.41% at March 31, 2019, compared to 0.46% one year ago and 0.33% at December 31, 2018.

No provision for loan losses was made for the quarters ended March 31, 2019, December 31, 2018, and March 31, 2018. There was a net recovery of $208,000 for the current quarter compared to a net recovery of $3,000 for the preceding quarter and net charge-offs of $21,000 for the comparable quarter one year ago. The allowance for loan losses to loans receivable was 1.10% at March 31, 2019 compared to 1.10% at December 31, 2018 and 1.33% at March 31, 2018. The decrease in the allowance for loan losses as a percentage of loans receivable over the past year was primarily a result of an increase in loans from the South Sound Merger. Included in the recorded value of loans acquired in mergers are net discounts which may reduce the need for an allowance for loan losses on such loans because they are carried at an amount below their outstanding principal balance. The recorded value of loans acquired in the South Sound Merger was $123.62 million and the related fair value discount was $2.08 million, or 1.68% of the loans acquired. The remaining fair value discount on loans acquired in the South Sound Merger was $1.64 million at March 31, 2019. The allowance for loan losses to loans receivable (excluding the remaining balance of the loans acquired in the South Sound Merger) was 1.25% (non-GAAP) at March 31, 2019.

Total delinquent loans (past due 30 days or more) and non-accrual loans increased $288,000, or 9%, to $3.57 million at March 31, 2019, from $3.29 million one year ago and increased $219,000, or 7%, from $3.36 million at December 31, 2018. Non-accrual loans increased $813,000, or 42%, to $2.75 million at March 31, 2019, from $1.93 million one year ago and increased $1.16 million, or 73%, from $1.59 million at December 31 2018.

NON-ACCRUAL LOANS

($ in thousands)

March 31, 2019

December 31, 2018

March 31, 2018

Amount

Quantity

Amount

Quantity

Amount

Quantity

Mortgage loans:

One- to four-family

$

568

4

$

509

4

$

801

6

Commercial

844

2

--

--

370

3

Land

461

3

396

2

395

4

Total mortgage loans

1,873

9

905

6

1,566

13

Consumer loans:

Home equity and second mortgage

342

4

386

6

185

4

Consumer (Other)

15

1

--

--

--

--

Total consumer loans

357

5

386

6

185

4

Commercial business loans

515

9

299

6

181

2

Total loans

$

2,745

23

$

1,590

18

$

1,932

19

OREO and other repossessed assets decreased 10% to $2.01 million at March 31, 2019, from $2.22 million at March 31, 2018, and decreased 1% from $2.03 million at December 31, 2018. At March 31, 2019, the OREO and other repossessed asset portfolio consisted of 11 individual land parcels and three commercial real estate properties. During the quarter ended March 31, 2019, there were no OREO property sales.

OREO and OTHER REPOSSESSED ASSETS

($ in thousands)

March 31, 2019

December 31, 2018

March 31, 2018

Amount

Quantity

Amount

Quantity

Amount

Quantity

Commercial

$

473

3

$

473

3

$

287

1

Land

1,533

11

1,553

11

1,934

12

Total

$

2,006

14

$

2,026

14

$

2,221

13

Non-GAAP Financial Measures
In addition to results presented in accordance with generally accepted accounting principles (“GAAP”), this press release contains certain non-GAAP financial measures. Timberland believes that certain non-GAAP financial measures provide investors with information useful in understanding the Company’s financial performance; however, readers of this report are urged to review these non-GAAP financial measures in conjunction with GAAP results as reported.

Financial measures that exclude intangible assets are non-GAAP measures. To provide investors with a broader understanding of capital adequacy, Timberland provides non-GAAP financial measures for tangible common equity, along with the GAAP measure. Tangible common equity is calculated as shareholders’ equity less goodwill and CDI. In addition, tangible assets equal total assets less goodwill and CDI.

The following table provides a reconciliation of ending shareholders’ equity (GAAP) to ending tangible shareholders’ equity (non-GAAP), and ending total assets (GAAP) to ending tangible assets (non-GAAP).

($ in thousands)

March 31, 2019

December 31, 2018

March 31, 2018

Shareholders’ equity

$

162,338

$

156,905

$

117,843

Less goodwill and CDI

(17,395

)

(16,994

)

(5,650

)

Tangible common equity

$

144,943

$

139,911

$

112,193

Total assets

$

1,240,569

$

1,200,315

$

1,001,201

Less goodwill and CDI

(17,395

)

(16,994

)

(5,650

)

Tangible assets

$

1,223,174

$

1,183,321

$

995,551

Acquisition of South Sound Bank

On October 1, 2018, the Company completed the acquisition of South Sound Bank, a Washington-state chartered bank, headquartered in Olympia, Washington (“South Sound Merger”). The Company acquired 100% of the outstanding common stock of South Sound Bank, and South Sound Bank was merged into Timberland Bank and the Company. Pursuant to the terms of the merger agreement, South Sound Bank shareholders received 0.746 of a share of the Company’s common stock and $5.68825 in cash per share of South Sound Bank common stock. The Company issued 904,826 shares of its common stock (valued at $28,267,000 based on the Company’s closing stock price on September 30, 2018 of $31.24 per share) and paid $6,903,000 in cash in the transaction for total consideration paid of $35,170,000.

The South Sound Merger was accounted for as a business combination. Accordingly, Timberland’s cost to acquire South Sound Bank was allocated to the assets acquired (including identifiable intangible assets) and liabilities assumed of South Sound Bank at their respective estimated fair values as of the acquisition date. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill.

The following table summarizes the fair value of consideration transferred, the estimated fair value of the assets acquired and liabilities assumed at October 1, 2018, and the resulting goodwill from the transaction ($ in thousands):

Total merger consideration

$

35,170

Assets

Cash and cash equivalents

$

21,187

Certificates of deposits (“CDs”) held for investment

2,973

FHLB stock

205

Investment securities

24,724

Loans receivable

121,544

Premises and equipment

3,337

Other real estate owned (“OREO”)

25

Bank owned life insurance (“BOLI”)

2,629

Accrued interest receivable

554

Mortgage servicing rights

281

Other assets

576

Core deposit intangible (“CDI”)

2,483

Total assets

$

180,518

Liabilities

Deposits

$

151,538

Other liabilities and accrued expenses

3,291

Total liabilities

$

154,829

Fair value of net assets acquired

$

25,689

Goodwill

$

9,481

The estimated fair values in the above table are preliminary and represent management’s best estimates based on available information on the facts and circumstances in existence on April 30, 2019. The preliminary goodwill increased to $9.48 million at March 31, 2019 from $8.97 million at December 31, 2018 as additional information related to the fair value of deferred tax related items became available. Fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available.

About Timberland Bancorp, Inc.
Timberland Bancorp, Inc., a Washington corporation, is the holding company for Timberland Bank (“Bank”). The Bank opened for business in 1915 and serves consumers and businesses across Grays Harbor, Thurston, Pierce, King, Kitsap and Lewis counties, Washington with a full range of lending and deposit services through its 24 branches (including its main office in Hoquiam).

Disclaimer
Certain matters discussed in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plan, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and often include the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future performance. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results anticipated or implied by our forward-looking statements, including, but not limited to: the expected cost savings, synergies and other financial benefits from our acquisition of South Sound Bank might not be realized within the expected time frames or at all; the integration of the combined company, including personnel changes/retention, might not proceed as planned; and the combined company might not perform as well as expected; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets which may lead to increased losses and non-performing assets in our loan portfolio, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our loan loss reserves; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to sell loans in the secondary market; results of examinations of us by the Board of Governors of the Federal Reserve System and our bank subsidiary by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, institute a formal or informal enforcement action or require us to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules including as a result of Basel III; the impact of the Dodd Frank Wall Street Reform and Consumer Protection Act and the implementation of related rules and regulations; our ability to attract and retain deposits; increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our consolidated balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common and stock; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations; pricing, products and services; and other risks detailed in our reports filed with the Securities and Exchange Commission.

Any of the forward-looking statements that we make in this press release and in the other public statements we make are based upon management’s beliefs and assumptions at the time they are made. We do not undertake and specifically disclaim any obligation to publicly update or revise any forward-looking statements included in this report to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this document might not occur and we caution readers not to place undue reliance on any forward-looking statements. These risks could cause our actual results for fiscal 2019 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of us, and could negatively affect the Company’s consolidated financial condition and results of operations as well as its stock price performance.

TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended

($ in thousands, except per share amounts)

March 31,

Dec. 31,

March 31,

(unaudited)

2019

2018

2018

Interest and dividend income

Loans receivable

$

12,216

$

11,782

$

9,484

Investment securities

297

278

39

Dividends from mutual funds, FHLB stock and other investments

39

39

26

Interest bearing deposits in banks

1,289

1,216

741

Total interest and dividend income

13,841

13,315

10,290

Interest expense

Deposits

1,113

971

666

Total interest expense

1,113

971

666

Net interest income

12,728

12,344

9,624

Provision for loan losses

--

--

--

Net interest income after provision for loan losses

12,728

12,344

9,624

Non-interest income

Service charges on deposits

1,190

1,216

1,132

ATM and debit card interchange transaction fees

857

949

883

Gain on sale of loans, net

288

386

470

Bank owned life insurance (“BOLI”) net earnings

1,156

157

137

Servicing income on loans sold

117

148

117

Recoveries on investment securities, net

9

20

13

Other

323

390

330

Total non-interest income

3,940

3,266

3,082

Non-interest expense

Salaries and employee benefits

4,867

4,606

4,001

Premises and equipment

993

954

799

Loss (gain) on disposition of premises and equipment, net

8

--

(113

)

Advertising

175

191

176

OREO and other repossessed assets, net

52

50

91

ATM and debit card processing

389

422

318

Postage and courier

138

110

131

State and local taxes

209

196

168

Professional fees

184

235

243

FDIC insurance

97

74

75

Loan administration and foreclosure

84

87

92

Data processing and telecommunications

1,068

613

495

Deposit operations

364

294

252

Amortization of CDI

110

109

--

Other, net

539

621

493

Total non-interest expense, net

9,277

8,562

7,221

Income before income taxes

7,391

7,048

5,485

Provision for income taxes

1,277

1,433

1,216

Net income

$

6,114

$

5,615

$

4,269

Net income per common share:

Basic

$

0.74

$

0.68

$

0.58

Diluted

0.72

0.66

0.57

Weighted average common shares outstanding:

Basic

8,310,074

8,293,212

7,328,127

Diluted

8,464,650

8,457,703

7,512,058


TIMBERLAND BANCORP INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

Six Months Ended

($ in thousands, except per share amounts)

March 31,

March 31,

(unaudited)

2019

2018

Interest and dividend income

Loans receivable

$

23,997

$

18,812

Investment securities

575

96

Dividends from mutual funds, FHLB stock and other investments

78

52

Interest bearing deposits in banks

2,506

1,364

Total interest and dividend income

27,156

20,324

Interest expense

Deposits

2,084

1,266

Total interest expense

2,084

1,266

Net interest income

25,072

19,058

Provision for loan losses

--

--

Net interest income after provision for loan losses

25,072

19,058

Non-interest income

Service charges on deposits

2,405

2,310

ATM and debit card interchange transaction fees

1,806

1,727

Gain on sale of loans, net

675

992

BOLI net earnings

1,313

273

Servicing income on loans sold

265

233

Recoveries on investment securities, net

20

36

Other

722

648

Total non-interest income

7,206

6,219

Non-interest expense

Salaries and employee benefits

9,473

7,950

Premises and equipment

1,947

1,567

Loss (gain) on disposition of premises and equipment, net

8

(113

)

Advertising

366

386

OREO and other repossessed assets, net

102

204

ATM and debit card processing

811

648

Postage and courier

248

237

State and local taxes

405

329

Professional fees

419

460

FDIC insurance

171

141

Loan administration and foreclosure

171

171

Data processing and telecommunications

1,681

962

Deposit operations

658

530

Amortization of CDI

219

--

Other, net

1,160

925

Total non-interest expense, net

17,839

14,397

Income before income taxes

$

14,439

$

10,880

Provision for income taxes

2,710

2,997

Net income

$

11,729

$

7,883

Net income per common share:

Basic

$

1.42

$

1.08

Diluted

1.39

1.05

Weighted average common shares outstanding:

Basic

8,301,550

7,320,243

Diluted

8,461,138

7,510,092


TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

($ in thousands, except per share amounts) (unaudited)

March 31,

Dec. 31,

March 31,

2019

2018

2018

Assets

Cash and due from financial institutions

$

23,957

$

18,938

$

15,508

Interest-bearing deposits in banks

150,629

142,805

153,897

Total cash and cash equivalents

174,586

161,743

169,405

Certificates of deposit (“CDs”) held for investment, at cost

65,737

65,830

52,938

Investment securities:

Held to maturity, at amortized cost

41,361

31,950

8,070

Available for sale, at fair value

3,078

3,122

1,193

FHLB stock

1,437

1,395

1,107

Other investments, at cost

3,000

3,000

3,000

Loans held for sale

3,068

2,988

3,981

Loans receivable

883,025

866,603

718.112

Less: Allowance for loan losses

(9,741

)

(9,533

)

(9,544

)

Net loans receivable

873,284

857,070

708,568

Premises and equipment, net

22,852

22,884

18,053

OREO and other repossessed assets, net

2,006

2,026

2,221

BOLI

20,707

22,599

19,539

Accrued interest receivable

3,702

3,497

2,655

Goodwill

15,131

14,620

5,650

CDI

2,264

2,374

--

Mortgage servicing rights, net

2,322

2,338

1,910

Other assets

6,034

2,879

2,911

Total assets

$

1,240,569

$

1,200,315

$

1,001,201

Liabilities and shareholders’ equity

Deposits: Non-interest-bearing demand

$

287,338

$

271,251

$

222,302

Deposits: Interest-bearing

784,256

763,926

658,109

Total deposits

1,071,594

1,035,177

880,411

Other liabilities and accrued expenses

6,637

8,233

2,947

Total liabilities

1,078,231

1,043,410

883,358

Shareholders’ equity

Common stock, $.01 par value; 50,000,000 shares authorized;
8,336,419 shares issued and outstanding – March 31, 2019
8,313,403 shares issued and outstanding – December 31, 2018
7,390,227 shares issued and outstanding – March 31, 2018

43,351

42,951

13,891

Unearned shares issued to Employee Stock Ownership Plan (“ESOP”)

--

(67

)

(265

)

Retained earnings

119,032

114,166

104,349

Accumulated other comprehensive loss

(45

)

(145

)

(132

)

Total shareholders’ equity

162,338

156,905

117,843

Total liabilities and shareholders’ equity

$

1,240,569

$

1,200,315

$

1,001,201


KEY FINANCIAL RATIOS AND DATA

Three Months Ended

($ in thousands, except per share amounts) (unaudited)

March 31,

Dec. 31,

March 31,

2019

2018

2018

PERFORMANCE RATIOS:

Return on average assets (a)

2.01

%

1.88

%

1.75

%

Return on average equity (a)

15.45

%

14.56

%

14.79

%

Net interest margin (a)

4.51

%

4.47

%

4.19

%

Efficiency ratio

55.66

%

54.85

%

56.83

%

Six Months Ended

March 31,

March 31,

2019

2018

PERFORMANCE RATIOS:

Return on average assets (a)

1.94

%

1.63

%

Return on average equity (a)

14.99

%

13.86

%

Net interest margin (a)

4.49

%

4.19

%

Efficiency ratio

55.27

%

56.96

%

March 31,

Dec. 31,

March 31,

2019

2018

2018

ASSET QUALITY RATIOS AND DATA:

Non-accrual loans

$

2,745

$

1,590

$

1,932

Loans past due 90 days and still accruing

--

--

--

Non-performing investment securities

343

372

470

OREO and other repossessed assets

2,006

2,026

2,221

Total non-performing assets (b)

$

5,094

$

3,988

$

4,623

Non-performing assets to total assets (b)

0.41

%

0.33

%

0.46

%

Net charge-offs (recoveries) during quarter

$

(208

)

$

(3

)

$

21

Allowance for loan losses to non-accrual loans

355

%

600

%

494

%

Allowance for loan losses to loans receivable (c)

1.10

%

1.10

%

1.33

%

Troubled debt restructured loans on accrual status (d)

$

2,928

$

2,941

$

2,970

CAPITAL RATIOS:

Tier 1 leverage capital

12.17

%

11.96

%

11.66

%

Tier 1 risk-based capital

17.52

%

17.26

%

16.76

%

Common equity Tier 1 risk-based capital

17.52

%

17.26

%

16.76

%

Total risk-based capital

18.72

%

18.43

%

18.01

%

Tangible common equity to tangible assets (non-GAAP)

11.85

%

11.82

%

11.27

%

BOOK VALUES:

Book value per common share

$

19.47

$

18.87

$

15.95

Tangible book value per common share (e)

17.39

16.83

15.18

(a) Annualized

(b) Non-performing assets include non-accrual loans, loans past due 90 days and still accruing, non-performing investment securities and OREO and other repossessed assets. Troubled debt restructured loans on accrual status are not included.

(c) Does not include loans held for sale and is before the allowance for loan losses.

(d) Does not include troubled debt restructured loans totaling $299, $308 and $155 reported as non-accrual loans at March 31, 2019, December 31, 2018 and March 31, 2018, respectively.

(e) Tangible common equity divided by common shares outstanding (non-GAAP).


AVERAGE BALANCES, YIELDS, AND RATES - QUARTERLY

($ in thousands)

(unaudited)

For the Three Months Ended

March 31, 2019

December 31, 2018

March 31, 2018

Amount

Rate

Amount

Rate

Amount

Rate

Assets

Loans receivable and loans held for sale

$

876,688

5.57

%

$

860,639

5.48

%

$

717,502

5.29

%

Investment securities and FHLB stock (1)

43,923

3.06

34,419

3.68

13,190

1.97

Interest-bearing deposits in banks and CDs

208,760

2.47

210,757

2.31

187,181

1.61

Total interest-earning assets

1,129,371

4.90

1,105,815

4.82

917,873

4.48

Other assets

87,299

91,142

58,590

Total assets

$

1,216,670

$

1,196,957

$

976,463

Liabilities and Shareholders’ Equity

NOW checking accounts

$

288,429

0.29

%

$

281,123

0.26

%

$

217,734

0.21

%

Money market accounts

158,762

0.79

156,638

0.59

141,594

0.53

Savings accounts

162,702

0.06

160,584

0.07

143,449

0.06

Certificates of deposit accounts

155,227

1.50

155,595

1.33

139,620

1.01

Total interest-bearing deposits

765,120

0.59

753,940

0.51

642,397

0.42

Total interest-bearing liabilities

765,120

0.59

753,940

0.51

642,397

0.42

Non-interest-bearing demand deposits

281,240

281,620

214,722

Other liabilities

11,994

7,133

3,868

Shareholders’ equity

158,316

154,264

115,476

Total liabilities and shareholders’ equity

$

1,216,670

$

1,196,957

$

976,463

Interest rate spread

4.31

%

4.31

%

4.06

%

Net interest margin (2)

4.51

%

4.47

%

4.19

%

Average interest-earning assets to

average interest-bearing liabilities

147.61

%

146.67

%

142.88

%

(1) Includes other investments

(2) Net interest margin = annualized net interest income / average interest-earning assets


AVERAGE BALANCES, YIELDS, AND RATES – YEAR-TO-DATE

($ in thousands)

(unaudited)

For the Six Months Ended

March 31, 2019

March 31, 2018

Amount

Rate

Amount

Rate

Assets

Loans receivable and loans held for sale

$

869,184

5.52

%

$

713,245

5.28

%

Investment securities and FHLB Stock (1)

39,120

3.34

12,816

2.31

Interest-bearing deposits in banks and CD’s

209,641

2.39

183,572

1.49

Total interest-earning assets

1,117,945

4.86

909,633

4.47

Other assets

88,868

59,366

Total assets

$

1,206,813

$

968,999

Liabilities and Shareholders’ Equity

NOW checking accounts

$

284,724

0.28

%

$

215,113

0.21

%

Money market accounts

157,688

0.69

139,002

0.46

Savings accounts

161,643

0.06

142,346

0.06

Certificate of deposit accounts

155,413

1.42

139,148

0.98

Total interest-bearing deposits

759,468

0.55

635,609

0.40

Total interest-bearing liabilities

759,468

0.55

635,609

0.40

Non-interest-bearing demand deposits

282,019

215,826

Other liabilities

8,806

3,800

Shareholders’ equity

156,520

113,764

Total liabilities and shareholders’ equity

$

1,206,813

$

968,999

Interest rate spread

4.31

%

4.07

%

Net interest margin (2)

4.49

%

4.19

%

Average interest-earning assets to

average interest-bearing liabilities

147.20

%

143.11

%

(1) Includes other investments

(2) Net interest margin = annualized net interest income / average interest-earning assets


Contact:

Michael R. Sand,

President & CEO

Dean J. Brydon, CFO

(360) 533-4747

www.timberlandbank.com