Market Overview

Timberland Bancorp Earnings Per Share Increases to a Record $0.59 for 2018's Third Fiscal Quarter

Share:
  • Net Income Increases 17% for the First Nine Months of Fiscal 2018
  • Earnings Per Share Increases 14% to $1.64 for the First Nine Months of Fiscal 2018
  • Reports Quarterly Return on Average Equity of 14.87%
  • Reports Quarterly Return on Average Assets of 1.78%
  • Announces $0.13 Quarterly Cash Dividend

HOQUIAM, Wash., July 24, 2018 (GLOBE NEWSWIRE) -- Timberland Bancorp, Inc. (NASDAQ:TSBK) ("Timberland" or "the Company") today reported record quarterly net income of $4.42 million, or $0.59 per diluted common share, for the quarter ended June 30, 2018.  This compares to net income of $4.27 million, or $0.57 per diluted common share, for the preceding quarter and net income of $4.28 million, or $0.58 per diluted common share, for the quarter ended June 30, 2017 which quarter's earnings per share was increased by approximately $0.13 due to a significant loan loss reserve recapture and the collection of non-accrual interest partially offset by the cost of prepaying two FHLB borrowings. 

For the first nine months of fiscal 2018, Timberland earned $12.30 million, or $1.64 per diluted common share, an increase in net income of 17% and an increase in earnings per diluted common share ("EPS") of 14% from $10.55 million, or $1.44 per diluted common share, for the first nine months of fiscal 2017.

Timberland's Board of Directors declared a quarterly cash dividend to shareholders of $0.13 per common share payable on August 24, 2018, to shareholders of record on August 10, 2018. 

"We continue to expect the acquisition of South Sound Bank to occur in the fourth calendar quarter of this year subject to regulatory approvals, the approval of South Sound Bank's shareholders and other customary closing conditions," said Michael Sand, President and CEO.  "The first of these approvals was obtained on July 10, 2018 when the State of Washington's Department of Financial Institutions, Division of Banks granted its approval for the merger.  The acquisition will enhance Timberland's presence along Washington State's economically important and rapidly growing I-5 corridor.  During the quarter just ended, Timberland incurred approximately $147,000 in merger related expenses reducing the quarter's EPS by approximately $0.01."

"We also are looking forward to the benefit of a lower federal income tax rate effective upon the conclusion of our next fiscal quarter," Sand also stated.  "Since the enactment of the Tax Cuts and Jobs Act legislation, Timberland has employed a blended federal income tax rate of 24.5%.  This tax rate will decline to 21.0% beginning October 1, 2018 and the benefit will be impactful to net income.  Had the lower tax rate been available to Timberland for the quarter just ended, EPS would have been higher by approximately $0.02."

Third Fiscal Quarter 2018 Earnings and Balance Sheet Highlights (at or for the period ended June 30, 2018, compared to March 31, 2018, or June 30, 2017):

   Earnings Highlights:

  • Net income increased 17% for the first nine months of fiscal 2018;
  • EPS for the first nine months of fiscal 2018 increased 14% to $1.64 from $1.44 for the first nine months of fiscal 2017;
  • EPS increased to $0.59 from $0.57 for the preceding quarter and $0.58 for the comparable quarter one year ago; 
  • Return on average equity and return on average assets for the current quarter remained strong at 14.87% and 1.78%, respectively;
  • Operating revenue increased 4% from the comparable quarter one year ago;
  • Net interest margin remained strong at 4.18% for the current quarter; and
  • Efficiency ratio improved to 55.33% for the current quarter from 56.83% for the preceding quarter.

   Balance Sheet Highlights:

  • Total assets increased 8% year-over-year to $1.01 billion;
  • Total deposits increased 8% year-over-year;
  • Net loans receivable increased 4% year-over-year; and
  • Book and tangible book (non-GAAP) values per common share increased to $16.35 and $15.58, respectively, at June 30, 2018.

Operating Results

Operating revenue (net interest income before the recapture of loan losses, plus non-interest income excluding other than temporary impairment ("OTTI") charges (recoveries) on investment securities) increased 4% to $12.85 million for the current quarter from $12.40 million for the comparable quarter one year ago and increased 1% from $12.69 million for the preceding quarter.  Operating revenue increased 8% to $38.09 million for the first nine months of fiscal 2018 from $35.24 million for the comparable period one year ago.

Net interest income for the current quarter increased 5% to $9.73 million from $9.25 million for the comparable quarter one year ago and increased 1% from $9.62 million for the preceding quarter.  The increase in net interest income compared to the preceding quarter was primarily due to an increase in average total interest-earning assets and an increase in the yield earned on average total interest-earning assets and was partially offset by an increase in the cost of interest-bearing deposits.  The increase in net interest income relative to the comparable quarter one year ago was partially due to paying off FHLB borrowings and eliminating the associated interest expense.  For the first nine months of fiscal 2018 net interest income increased 11% to $28.79 million from $26.01 million for the first nine months of fiscal 2017.

The net interest margin ("NIM") for the current quarter was 4.18% compared to 4.19% for the preceding quarter and 4.29% for the comparable quarter one year ago.  The NIM for the preceding quarter 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 comparable quarter one year ago was increased by approximately 22 basis points due to the net effect of collecting $748,000 of non-accrual interest and paying $282,000 in FHLB borrowing prepayment penalties.  Timberland's net interest margin for the first nine months of fiscal 2018 improved to 4.19% from to 4.03% for the first nine months of fiscal 2017. 

Non-interest income increased 2% to $3.15 million for the current quarter from $3.08 million for the preceding quarter and decreased slightly from $3.16 million for the comparable quarter one year ago.  The increased non-interest income for the current quarter compared to the preceding quarter was primarily due to an increase in ATM and debit card interchange transaction fees and smaller increases in several other categories.  These increases were partially offset by a decrease in gain on sale of loans.  Fiscal year-to-date non-interest income increased 2% to $9.36 million from $9.22 million for the first nine months of fiscal 2017.

Total operating expenses for the current quarter decreased 1% to $7.12 million from $7.22 million for the preceding quarter and increased 3% from $6.94 million for the comparable quarter one year ago.  The decreased expenses for the current quarter compared to the preceding quarter were primarily due to a decrease of $183,000 in net OREO related expenses and smaller decreases in several other categories.  These decreases were partially offset by a $125,000 increase in professional fees and smaller increases in several other categories.  The decrease in net OREO related expenses was primarily due to a $124,000 gain on the sale of an OREO property during the current quarter.  The increase in professional fees was primarily due to $147,000 in merger related expenses associated with Timberland's announced acquisition of South Sound Bank.  The efficiency ratio for the current quarter improved to 55.33% from 56.83% for the preceding quarter and 55.94% for the comparable quarter one year ago.  Fiscal year-to-date operating expenses increased 4% to $21.52 million from $20.61 million for the first nine months of fiscal 2017.  The efficiency ratio improved for the first nine months of fiscal 2018 to 56.41% from 58.48% for the first nine months of fiscal 2017.

The provision for income taxes for the current quarter increased by $118,000 to $1.33 million from $1.22 million for the preceding quarter, primarily due to higher pre-tax income.  The fiscal year-to-date provision for income taxes decreased $997,000 to $4.33 million from $5.33 million for the first nine months of fiscal 2017, primarily due to the Tax Cuts and Jobs Act legislation which was signed into law on December 22, 2017.  As a result of the new legislation (which decreased the federal corporate income tax rate to 21.0% from 35.0%), Timberland recorded a one-time income tax expense of $548,000 in conjunction with writing down its net deferred tax asset ("DTA") during the quarter ended December 31, 2017 and began using a lower tax rate for the current fiscal year.  Since Timberland is a September 30th fiscal year-end corporation, it will use a blended tax rate of 24.5% for the fiscal year ending September 30, 2018, and a 21.0% rate thereafter.  Timberland's effective tax rate for the quarter ended June 30, 2018, was 23.2%.

Balance Sheet Management

Total assets increased $5.18 million, or 1%, to $1.01 billion at June 30, 2018, from $1.00 billion at March 31, 2018.  The increase was primarily due to a $7.10 million net increase in net loans receivable and loans held for sale, which was partially offset by a $2.39 million net decrease in total cash and cash equivalents and CDs held for investment. 

Liquidity, as measured by the sum of cash and cash equivalents, CDs held for investment and available for sale investment securities, was 25.0% of total liabilities at June 30, 2018, compared to 25.3% at March 31, 2018, and 21.3% one year ago. 

Net loans receivable increased $8.76 million, or 1%, to $717.32 million at June 30, 2018, from $708.57 million at March 31, 2018.  The increase was primarily due to a $3.70 million increase in commercial real estate loans, a $3.06 million increase in land loans, a $3.01 million increase in multi-family loans, a $1.29 million increase in one- to four-family loans, a $1.18 million increase in commercial construction loans, a $12.43 million decrease in the undisbursed portion of construction loans in process and smaller increases in several other categories.  These increases were partially offset by a $9.59 million decrease in multi-family construction loans, a $5.76 million decrease in one- to four-family construction loans and smaller decreases in several other categories. 


LOAN PORTFOLIO

($ in thousands) June 30, 2018   March 31, 2018   June 30, 2017
  Amount   Percent   Amount   Percent   Amount   Percent
                       
Mortgage loans:                      
One- to four-family (a) $   114,148       14 %   $   112,862     14 %   $  121,705     16 %
Multi-family     58,169       7         55,157       7         61,051       8  
Commercial     345,543       44         341,845       43         331,901       43  
Construction - custom and
     owner/builder
    113,468       14         119,230       15         109,578       14  
Construction - speculative
     one-to four-family
    10,146       1         10,876       1         8,002       1  
Construction - commercial     26,347       3         25,166       3         20,067       3  
Construction - multi-family     15,225       2         24,812       3         11,057       1  
Construction - land
     development
    3,190       1         2,950       --         --       --  
Land     23,662       3         20,602       3         24,333       3  
Total mortgage loans     709,898       89         713,500       89         687,694       89  
                       
Consumer loans:                      
Home equity and second
     Mortgage
    38,143       5         38,124       5         36,320       5  
Other     3,674       1         3,646       1         3,789       --  
Total consumer loans     41,817       6         41,770       6         40,109       5  
                       
Commercial business loans     43,284       5         43,465       5         43,407       6  
Total loans     794,999     100 %       798,735     100 %       771,210     100 %
Less:                      
Undisbursed portion of
     construction loans in
     process
  (65,674 )         (78,108 )         (72,133 )    
Deferred loan origination
     fees
  (2,469 )         (2,515 )         (2,309 )    
Allowance for loan losses   (9,532 )         (9,544 )         (9,610 )    
Total loans receivable, net $   717,324         $   708,568         $ 687,158      

_______________________

(a) Does not include one- to four-family loans held for sale totaling $2,321, $3,981 and $3,523 at June 30, 2018, March 31, 2018, and June 30, 2017, respectively. 


Timberland originated $70.46 million in loans during the quarter ended June 30, 2018, compared to $92.93 million for the comparable quarter one year ago and $78.99 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 third quarter of fiscal 2018 fixed-rate one- to four-family mortgage loans and SBA loans totaling $17.74 million were sold compared to $19.34 million for the comparable quarter one year ago and $15.31 million for the preceding quarter.
                                            
Timberland's investment securities and other investments decreased $136,000, or 1%, to $12.13 million at June 30, 2018, from $12.26 million at March 31, 2018, primarily due to scheduled amortization.   Timberland's CDs held for investment increased $10.19 million, or 19%, to $63.13 million at June 30, 2018, from $52.94 million at March 31, 2018.

DEPOSIT BREAKDOWN
($ in thousands)

    June 30, 2018    March 31, 2018    June 30, 2017 
    Amount     Percent   Amount     Percent   Amount     Percent
Non-interest-bearing demand   $229,201     26 %   $222,302     25 %   $197,527       24 %
NOW checking   222,203      25     227,075      26     216,719       26  
Savings   148,690      17     147,750      17     136,750       17  
Money market   129,559      15     130,844      15     119,025       15  
Money market – brokered   10,084       1     10,363       1     8,506       1  
Certificates of deposit under $250   120,156      14     121,157      14     121,505       15  
Certificates of deposit $250 and over   17,637      2     17,720      2     15,590       2  
Certificates of deposit – brokered   3,197     --     3,200     --     3,196       --  
    Total deposits   $880,727     100 %   $880,411     100 %   $818,818     100 %


Total deposits increased $61.91 million, or 8%, to $880.73 million at June 30, 2018, from $818.82 million one year ago, and increased slightly from $880.41 million at March 31, 2018.

Shareholders' Equity

Total shareholders' equity increased $3.05 million to $120.89 million at June 30, 2018, from $117.84 million at March 31, 2018.  The increase in shareholders' equity was primarily due to net income of $4.42 million for the quarter, which was partially offset by dividend payments to shareholders of $1.70 million. 

Capital Ratios and Asset Quality

Timberland remains well capitalized with a total risk-based capital ratio of 18.24% and a Tier 1 leverage capital ratio of 11.80% at June 30, 2018.

Asset quality remains strong with the non-performing assets to total assets ratio at 0.56% at June 30, 2018, compared to 0.65% one year ago and 0.46% at March 31, 2018.

No provision for loan losses was made for the quarters ended June 30, 2018 and March 31, 2018.  Timberland recorded a $1.0 million loan loss reserve recapture during the comparable quarter one year ago.  Net charge-offs totaled $12,000 for the current quarter compared to net charge-offs of $21,000 for the preceding quarter and a net recovery of $1.02 million for the comparable quarter one year ago.  The allowance for loan losses was 1.31% of loans receivable at June 30, 2018, compared to 1.33% at March 31, 2018, and 1.38% at June 30, 2017.

Total delinquent loans (past due 30 days or more) and non-accrual loans increased $139,000, or 4%, to $3.43 million at June 30, 2018, from $3.29 million at March 31, 2018, and increased $985,000, or 40%, from $2.44 million one year ago.  The increase in delinquencies is primarily a result of two one- to four-family loans becoming delinquent.  Non-accrual loans increased $774,000, or 40%, to $2.71 million at June 30, 2018, from $1.93 million at March 31, 2018, and increased $651,000, or 32%, from $2.06 million one year ago.


NON-ACCRUAL LOANS June 30, 2018   March 31, 2018   June 30, 2017  
($ in thousands) Amount   Quantity   Amount   Quantity     Amount   Quantity
                         
Mortgage loans:                        
    One- to four-family $   1,361   7   $   801   6     $   896   7
    Commercial   598   3     370   3         403   1
    Land     295   3       395   4         496   2
Total mortgage loans     2,254   13       1,566   13       1,795   10
                         
Consumer loans:                        
    Home equity and second mortgage   278   6     185   4         260   3
Total consumer loans   278   6     185   4         260   3
Commercial business   174   2     181   2       --   --
Total loans $   2,706   21   $   1,932   19     $    2,055   13


OREO and other repossessed assets decreased 38% to $2.11 million at June 30, 2018, from $3.42 million at June 30, 2017, and decreased 5% from $2.22 million at March 31, 2018.  At June 30, 2018, the OREO and other repossessed asset portfolio consisted of 13 individual real estate properties.  During the quarter ended June 30, 2018, one OREO property was sold for a net gain of $124,000.


OREO and OTHER REPOSSESSED ASSETS June 30, 2018   March 31, 2018   June 30, 2017
($ in thousands) Amount   Quantity   Amount   Quantity   Amount   Quantity
                       
One- to four-family $ --   --   $ --   --   $   927   3
Commercial 448   2   287   1     587   2
Land 1,664   11   1,934   12     1,903   12
Consumer --   --   --   --     --   --
Total $   2,112   13   $   2,221   13   $     3,417   17


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.  In addition, tangible assets equal total assets less goodwill.

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)   June 30, 2018   March 31, 2018   June 30, 2017
             
Shareholders' equity   $   120,894     $   117,843     $   108,616  
Less goodwill     (5,650 )     (5,650 )     (5,650 )
Tangible common equity   $   115,244     $   112,193     $  102,966  
             
Total assets   $    1,006,383     $   1,001,201     $   931,009  
Less goodwill     (5,650 )     (5,650 )     (5,650 )
Tangible assets   $    1,000,733     $   995,551     $   925,359  


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 22 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. Forward-looking statements are not statements of historical fact 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, including, but not limited to: 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 and 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, 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; computer systems on which we depend could fail or experience a security breach; 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 undertake no obligation to publicly update or revise any forward-looking statements included in this report 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.  We caution readers not to place undue reliance on any forward-looking statements.  We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.  These risks could cause our actual results for fiscal 2018 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 operations and stock price performance.


 
TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
($ in thousands, except per share amounts) June 30,   March 31,   June 30,
(unaudited)   2018       2018       2017  
  Interest and dividend income          
  Loans receivable $ 9,530     $ 9,484     $ 9,652  
  Investment securities   51       39       69  
  Dividends from mutual funds and FHLB stock   31       26       23  
  Interest bearing deposits in banks   845       741       421  
      Total interest and dividend income   10,457       10,290       10,165  
             
  Interest expense          
  Deposits   730       666       549  
  FHLB borrowings   --       --       369  
      Total interest expense   730       666       918  
      Net interest income   9,727       9,624       9,247  
             
  Recapture of loan losses   --       --       (1,000 )
      Net interest income after recapture of loan losses   9,727       9,624       10,247  
             
  Non-interest income          
  Service charges on deposits   1,137       1,132       1,153  
  ATM and debit card interchange transaction fees   921       883       855  
  Gain on sale of loans, net   435       470       561  
  Bank owned life insurance ("BOLI") net earnings   134       137       133  
  Servicing income on loans sold   121       117       106  
  Recoveries on investment securities, net     19         13         --  
  Other   378       330       348  
      Total non-interest income   3,145       3,082       3,156  
             
  Non-interest expense          
  Salaries and employee benefits   3,912       4,001       3,741  
  Premises and equipment   795       799       764  
  Gain on disposition of premises and equipment, net     --       (113 )     3  
  Advertising   205       176       170  
  OREO and other repossessed assets, net   (92 )     91       4  
  ATM and debit card processing   334       318       375  
  Postage and courier   104       131       109  
  State and local taxes   169       168       176  
  Professional fees   368       243       230  
  FDIC insurance   101       75       99  
  Loan administration and foreclosure   76       92       20  
  Data processing and telecommunications   465       495       480  
  Deposit operations   285       252       301  
  Other, net   400       493       466  
      Total non-interest expense, net   7,122       7,221       6,938  
             
  Income before income taxes   5,750       5,485       6,465  
  Provision for income taxes   1,334       1,216       2,188  
      Net income $   4,416     $   4,269     $   4,277  
             
  Net income per common share:          
      Basic $ 0.60     $ 0.58     $ 0.59  
      Diluted   0.59       0.57       0.58  
             
  Weighted average common shares outstanding:          
      Basic   7,345,618       7,328,127       7,269,564  
      Diluted   7,535,157       7,512,058       7,432,171  
                         
                         
TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended  
($ in thousands, except per share amounts) June 30,      June 30,   
(unaudited) 2018      2017   
  Interest and dividend income        
  Loans receivable $ 28,342     $ 27,280    
  Investment securities 147     207    
  Dividends from mutual funds and FHLB stock 83     60    
  Interest bearing deposits in banks 2,209     1,081    
      Total interest and dividend income 30,781     28,628    
           
  Interest expense        
  Deposits 1,996     1,637    
  FHLB borrowings --     979    
      Total interest expense 1,996     2,616    
      Net interest income 28,785     26,012    
               
  Recapture of loan losses --     (1,250 )  
    Net interest income after recapture of loan losses 28,785     27,262    
           
  Non-interest income        
  Service charges on deposits   3,447     3,348    
  ATM and debit card interchange transaction fees   2,648     2,448    
  Gain on sale of loans, net   1,427     1,656    
  BOLI net earnings   407     407    
  Servicing income on loans sold   354     302    
  Recoveries on investment securities, net   55     --    
  Other   1,026     1,063    
      Total non-interest income   9,364     9,224    
           
  Non-interest expense        
  Salaries and employee benefits   11,862     11,176    
  Premises and equipment   2,361     2,295    
  Gain on disposition of premises and equipment, net   (113 )   3    
  Advertising   591     499    
  OREO and other repossessed assets, net   114     22    
  ATM and debit card processing   982     1,036    
  Postage and courier   340     324    
  State and local taxes   498     484    
  Professional fees   829     629    
  FDIC insurance   242     319    
  Loan administration and foreclosure   247     113    
  Data processing and telecommunications   1,427     1,394    
  Deposit operations   815     850    
  Other, net   1,324     1,462    
      Total non-interest expense, net   21,519     20,606    
           
  Income before income taxes $ 16,630     $ 15,880    
  Provision for income taxes   4,331     5,328    
      Net income $ 12,299     $ 10,552    
           
  Net income per common share:        
     Basic $ 1.68     $ 1.49    
     Diluted   1.64     1.44    
           
  Weighted average common shares outstanding:        
     Basic   7,328,702     7,088,134    
     Diluted   7,518,447     7,348,486    
                 


   
TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
 
($ in thousands, except per share amounts) (unaudited)   June 30,   March 31,   June 30,
      2018       2018       2017  
Assets            
Cash and due from financial institutions   $ 19,552     $   15,508     $   17,476  
Interest-bearing deposits in banks     137,274       153,897       114,964  
  Total cash and cash equivalents     156,826       169,405       132,440  
               
Certificates of deposit ("CDs") held for investment, at cost     63,132       52,938       41,187  
Investment securities:            
  Held to maturity, at amortized cost     7,951       8,070       7,244  
  Available for sale, at fair value     1,176       1,193       1,260  
FHLB stock     1,190       1,107       1,107  
Other investments, at cost     3,000       3,000       3,000  
Loans held for sale     2,321       3,981       3,523  
             
Loans receivable     726,856       718,112       696,768  
Less: Allowance for loan losses     (9,532 )     (9,544 )     (9,610 )
  Net loans receivable     717,324       708,568       687,158  
               
Premises and equipment, net     18,515       18,053       18,465  
OREO and other repossessed assets, net     2,112       2,221       3,417  
BOLI     19,673       19,539       19,127  
Accrued interest receivable     2,797       2,655       2,437  
Goodwill     5,650       5,650       5,650  
Mortgage servicing rights, net     1,980       1,910       1,781  
Other assets     2,736       2,911       3,213  
  Total assets   $ 1,006,383     $ 1,001,201     $ 931,009  
               
Liabilities and shareholders' equity            
Deposits: Non-interest-bearing demand   $   229,201     $   222,302     $   197,527  
Deposits: Interest-bearing     651,526       658,109       621,291  
  Total deposits     880,727       880,411       818,818  
               
FHLB borrowings     --       --       --  
Other liabilities and accrued expenses     4,762       2,947       3,575  
  Total liabilities     885,489       883,358       822,393  
             
Shareholders' equity            
Common stock, $.01 par value; 50,000,000 shares authorized;
   7,395,927 shares issued and outstanding – June 30, 2018
   7,390,227 shares issued and outstanding – March 31, 2018
   7,354,577 shares issued and outstanding – June 30, 2017   
    14,162       13,891       13,223  
Unearned shares issued to Employee Stock Ownership Plan ("ESOP")     (199 )     (265 )     (463 )
Retained earnings     107,065       104,349       96,018  
Accumulated other comprehensive loss     (134 )     (132 )     (162 )
  Total shareholders' equity     120,894       117,843       108,616  
  Total liabilities and shareholders' equity   $ 1,006,383     $ 1,001,201     $ 931,009  
   


   
KEY FINANCIAL RATIOS AND DATA  Three Months Ended
($ in thousands, except per share amounts) (unaudited)   June 30,   March 31,   June 30,
      2018       2018       2017  
PERFORMANCE RATIOS:            
Return on average assets (a)     1.78 %     1.75 %     1.86 %
Return on average equity (a)     14.87 %     14.79 %     16.14 %
Net interest margin (a)     4.18 %     4.19 %     4.29 %
Efficiency ratio     55.33 %     56.83 %     55.94 %
             
    Nine Months Ended
      June 30,       June 30,
        2018           2017  
PERFORMANCE RATIOS:            
Return on average assets (a)
      1.68 %         1.53 %
Return on average equity (a)
      14.21 %         13.80 %
Net interest margin (a)       4.19 %         4.03 %
Efficiency ratio       56.41 %         58.48 %
             
    June 30,   March 31,   June 30,
      2018       2018       2017  
ASSET QUALITY RATIOS AND DATA:            
Non-accrual loans   $ 2,706     $ 1,932     $ 2,055  
Loans past due 90 days and still accruing     428       --       --  
Non-performing investment securities     433       470       590  
OREO and other repossessed assets     2,112       2,221       3,417  
Total non-performing assets (b)   $ 5,679     $ 4,623     $ 6,062  
             
Non-performing assets to total assets (b)     0.56 %     0.46 %     0.65 %
Net charge-offs (recoveries) during quarter   $ 12     $   21     $   (1,020 )
Allowance for loan losses to non-accrual loans     352 %     494 %     468 %
Allowance for loan losses to loans receivable (c)     1.31 %     1.33 %     1.38 %
Troubled debt restructured loans on accrual status (d)   $ 2,960     $ 2,970     $ 3,360  
             
CAPITAL RATIOS:            
Tier 1 leverage capital     11.80 %     11.66 %     11.42 %
Tier 1 risk-based capital     16.98 %     16.76 %     16.05 %
Common equity Tier 1 risk-based capital     16.98 %     16.76 %     16.05 %
Total risk-based capital     18.24 %     18.01 %     17.30 %
Tangible common equity to tangible assets (non-GAAP)     11.52 %     11.27 %     11.13 %
             
BOOK VALUES:            
Book value per common share   $   16.35     $   15.95     $ 14.77  
Tangible book value per common share (e)     15.58       15.18       14.00  

_____________________________________

(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 $155, $155 and $252 reported as non-accrual loans at June 30, 2018, March 31, 2018 and June 30, 2017, 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
  June 30, 2018   March 31, 2018   June 30, 2017
  Amount   Rate   Amount   Rate   Amount     Rate
                       
Assets                      
Loans receivable and loans held for sale $   727,807     5.24 %   $    717,502     5.29 %   $    693,931     5.56 %
Investment securities and FHLB stock (1)     13,378      2.45         13,190      1.97         12,482      2.98  
Interest-bearing deposits in banks and CDs     189,120      1.79         187,181      1.61         156,507      1.08  
    Total interest-earning assets     930,305      4.50         917,873      4.48         862,920      4.71  
Other assets     60,395             58,590             57,841      
    Total assets $   990,700         $  976,463         $  920,761      
                       
Liabilities and Shareholders' Equity                      
NOW checking accounts $     214,256      0.21 %   $     217,734      0.21 %   $   207,060      0.22 %
Money market accounts     142,557      0.57         141,594      0.53         125,787      0.35  
Savings accounts   147,881      0.06       143,449      0.06       137,108      0.06  
Certificates of deposit accounts   142,285      1.12       139,620      1.01       141,254      0.87  
    Total interest-bearing deposits     646,979      0.45         642,397      0.42         611,209      0.36  
FHLB borrowings     --       --         --       --         8,571     17.57  
Total interest-bearing liabilities   646,979      0.45       642,397      0.42       619,780      0.59  
                       
Non-interest-bearing demand deposits   220,511           214,722           190,631      
Other liabilities   4,456           3,868           4,379      
Shareholders' equity   118,754           115,476           105,971      
    Total liabilities and shareholders' equity $   990,700         $   976,463         $   920,761      
                       
    Interest rate spread     4.05 %       4.06 %       4.12 %
    Net interest margin (2)     4.18 %       4.19 %       4.29 %
    Average interest-earning assets to
    average interest-bearing liabilities
  143.79 %         142.88 %         139.23 %    

_____________________________________
(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 Nine Months Ended 
  June 30, 2018     June 30, 2017 
  Amount   Rate   Amount     Rate
               
Assets              
Loans receivable and loans held for sale $   718,099      5.26 %   $   688,936     5.29 %
Investment securities and FHLB Stock (1)     13,003       2.36         11,447       3.11  
Interest-bearing deposits in banks and CDs     185,405       1.59         160,458       0.90  
    Total interest-earning assets     916,507       4.48         860,841       4.43  
Other assets     59,704             58,324      
    Total assets $   976,211         $   919,165      
               
Liabilities and Shareholders' Equity              
NOW checking accounts $   214,828     0.21 %   $   206,037     0.22 %
Money market accounts     140,186       0.50         124,650       0.34  
Savings accounts   144,191       0.06       132,922       0.06  
Certificate of deposit accounts   140,194       1.03       144,249       0.85  
    Total interest-bearing deposits     639,399       0.42         607,858       0.36  
FHLB borrowings     --       --         22,857       5.73  
Total interest-bearing liabilities   639,399       0.42       630,715       0.55  
               
Non-interest-bearing demand deposits   217,388           182,117      
Other liabilities   3,997           4,368      
Shareholders' equity   115,427           101,965      
    Total liabilities and shareholders' equity $   976,211         $   919,165      
               
    Interest rate spread     4.06 %       3.88 %
    Net interest margin (2)     4.19 %       4.03 %
    Average interest-earning assets to
    average interest-bearing liabilities
  143.34 %         136.49 %    

_____________________________________
(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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