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CST: 17/08/2019 07:44:44   

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

108 Days ago

  • 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. (NASDAQ: 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

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