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Timberland Bancorp's Second Fiscal Quarter Earnings Per Diluted Share Increases 43% to $0.86

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  • Second Fiscal Quarter Net Income Increases 44% to $7.25 Million
  • Quarterly Return on Average Assets of 1.75%
  • Quarterly Return on Average Equity of 14.89%
  • Announces $0.21 Quarterly Cash Dividend

HOQUIAM, Wa., April 27, 2021 (GLOBE NEWSWIRE) -- Timberland Bancorp, Inc. (NASDAQ:TSBK) ("Timberland" or "the Company") today reported that net income increased 44% to $7.25 million for the quarter ended March 31, 2021 from $5.05 million for the comparable quarter one year ago, which quarter was affected by a $2.00 million ($1.58 million after income taxes) provision to the loan loss reserves, and decreased slightly from $7.29 million for the preceding quarter. Earnings per diluted common share ("EPS") increased 43% to $0.86 for the current quarter from $0.60 for the comparable quarter one year ago and decreased 1% from $0.87 for the preceding quarter.

For the first six months of fiscal 2021, Timberland earned a record $14.54 million, or $1.73 per diluted common share, a 24% increase in net income and a 25% increase in EPS from $11.70 million, or $1.38 per diluted common share for the first six months of fiscal 2020, which six month period was affected by a $2.20 million ($1.74 million after income taxes) to the loan loss reserves.

Timberland's Board of Directors declared a quarterly cash dividend to shareholders of $0.21 per common share payable on May 28, 2021, to shareholders of record on May 14, 2021.

"We are pleased to report strong financial metrics for the recently concluded quarter and, for the first six months of fiscal 2021, record Company profitability," stated Michael Sand, President and CEO. "Paycheck Protection Program ("PPP") loan proceeds and federal stimulus payments contributed to strong deposit growth of $106.7 million for the quarter and $356.2 million during the past twelve months. The 32% increase in deposits year-over-year has increased the Bank's liquidity significantly beyond the level we would normally hold. While loan originations have been strong we have chosen to sell most fixed-rate conforming mortgage loans in this extended low-rate interest environment and have been subject to prepayment activity typically expected during a period of lower interest rates. Given Federal Reserve Chairman Powell's recent assertion that tapering would begin well before the Fed raises the overnight rate, we anticipate generally rising interest rates, a slowing of prepayment activity and fixed income investment opportunities more palatable than have been available during the past year. We are encouraged by the level of increased business activity in our markets and the increased activity we are seeing in our loan pipeline."

"Our focus since the onslaught of the pandemic has been to support the businesses and their employees in our communities. To this end, staff has worked diligently throughout these difficult times to originate new PPP loans and to also file applications for PPP loan forgiveness," said Sand. "During the quarter, we originated $58.70 million in PPP loans under the new round of PPP. This new round of funding offers assistance to companies that did not receive PPP funding last calendar year and also makes available additional loans targeted at hard hit businesses that previously obtained a PPP loan and need further assistance. We continue to actively submit forgiveness requests in support of our clients that received PPP loans in 2020, with nearly all forgiveness applicants obtaining full forgiveness from the Small Business Administration ("SBA"). With state mandated phased COVID guidelines allowing businesses in Washington State to move towards more normal operations and a robust vaccine rollout, we are encouraged by the potential for hard hit individuals and businesses to begin recovering financially during the remainder of the year."

"To provide needed support to businesses in our communities, we continue to work with COVID affected borrowers to appropriately defer loans and provide them with the much-needed economic relief," added Sand. "At March 31, 2021, we had eight loans remaining in a deferred payment status representing approximately 1.3% of net loans outstanding." Five of the remaining deferred loans are receiving interest payments monthly."

Second Fiscal Quarter 2021 Earnings and Balance Sheet Highlights (at or for the period ended March 31, 2021, compared to December 31, 2020 or March 31, 2020):
  
    Earnings Highlights:

  • Net income increased 44% to $7.25 million for the current quarter from $5.05 million for the comparable quarter one year ago and decreased 1% from $7.29 million for the preceding quarter; EPS increased 43% to $0.86 for the current quarter from $0.60 for the comparable quarter one year ago and decreased 1% from $0.87 for the preceding quarter;
  • Net income increased 24% to $14.54 million for the first six months of fiscal 2021 from $11.70 million for the first six months of fiscal 2020; EPS increased 25% to $1.73 for the first six months of fiscal 2021 from $1.38 for the first six months of fiscal 2020;
  • Return on average equity ("ROE") and return on average assets ("ROA") for the current quarter were 14.89% and 1.75%, respectively;
  • Net interest margin was 3.21% for the current quarter compared to 3.48% for the preceding quarter and 4.27% for the comparable quarter one year ago; and
  • The efficiency ratio was 48.99% for the current quarter compared to 47.83% for the preceding quarter and 50.04% for the comparable quarter one year ago.

    Balance Sheet Highlights:

  • Total assets increased 28% year-over-year and 7% from the prior quarter;
  • Total deposits increased 32% year-over-year and 8% from the prior quarter;
  • Net loans receivable increased 14% year-over-year and 2% from the prior quarter;
  • Non-performing assets to total assets ratio improved to 0.16%; and
  • Book and tangible book (non-GAAP) values per common share increased to $23.75 and $21.76, respectively, at March 31, 2021.

Operating Results

Operating revenue (net interest income before the provision for loan losses plus non-interest income) increased 5% to $17.46 million for the current quarter from $16.56 million for the comparable quarter one year ago and decreased 1% from $17.58 million for the preceding quarter. Operating revenue increased 5% to $35.04 million for the first six months of fiscal 2021 from $33.50 million for the comparable period one year ago.

Net interest income decreased 4% to $12.57 million for the current quarter from $13.02 million for the preceding quarter and decreased 2% from $12.88 million for the comparable quarter one year ago.   Timberland's net interest margin ("NIM") for the current quarter was 3.21% compared to 3.48% for the preceding quarter and 4.27% for the comparable quarter one year ago.   NIM compression has largely been a result of the low interest rate environment and an increase in the level of liquidity being held in overnight funds. The NIM for the current quarter was increased by approximately six basis points due to the accretion of $86,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $129,000 in pre-payment penalties, non-accrual interest, and late fees. The NIM for the preceding quarter was increased by approximately nine basis points due to the accretion of $120,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $196,000 in pre-payment penalties, non-accrual interest and late fees. The NIM for the comparable quarter one year ago was increased by approximately 15 basis points due to the accretion of $107,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $320,000 in pre-payment penalties, non-accrual interest and late fees.   Also affecting the net interest income comparisons are PPP loans, which have a 1.00% interest rate and associated loan origination fees, which are accreted into interest income over the life of each loan. During the quarter ended March 31, 2021, Timberland recorded interest income of $306,000 on PPP loans and accreted PPP loan origination fees of $1.14 million into income.   During the quarter ended December 31, 2020, Timberland recorded interest income of $295,000 on PPP loans and accreted PPP loan origination fees of $1.14 million into income.   At March 31, 2021, Timberland had PPP deferred loan origination fees of $3.86 million remaining to be accreted into interest income during the remaining life of the loans. Net interest income decreased 1% to $25.59 million for the first six months of fiscal 2021 from $25.88 million for the first six months of fiscal 2020. Timberland's net interest margin for the first six months of fiscal 2021 was 3.34% compared to 4.35% for the first six months of fiscal 2020.

No provision for loan losses was made during the current and preceding quarter compared to a $2.00 million provision for loan losses for the comparable quarter one year ago.

Non-interest income increased 33% to $4.89 million for the current quarter from $3.68 million for the comparable quarter one year ago and increased 7% from $4.56 million for the preceding quarter. The increase in non-interest income compared to the preceding quarter was primarily due to a $438,000 valuation recovery on servicing rights for the current quarter (compared to a $236,000 valuation allowance on servicing rights for the preceding quarter) and an $81,000 increase in ATM and debit card interchange transaction fees. Partially offsetting these increases was a $244,000 decrease in gain on sales of loans and a $114,000 decrease in service charges on deposits. The recovery on servicing rights was primarily due to a decrease in mortgage prepayment speeds as mortgage interest rates increased during the quarter. The increase in ATM and debit card interchange transaction fee income was primarily due to increased volumes of debit card transactions. The decrease in gain on sales of loans was primarily due to a decrease in the dollar amount of fixed rate one- to four-family loans sold during the current quarter and a decrease in the average pricing spread. The decrease in service charges on deposits was primarily due to a decrease in overdraft fee income. Fiscal year-to-date non-interest income increased 24% to $9.45 million from $7.62 million for the first six months of fiscal 2020.

Total operating expenses for the current quarter increased 2% to $8.55 million from $8.41 million for the preceding quarter and increased 3% from $8.29 million for the comparable quarter one year ago.   The increase in operating expenses compared to the preceding quarter was primarily due to a $165,000 increase in salaries and employee benefits, a $41,000 increase in premises and equipment and smaller increases in several other categories. These increases were partially offset by a $50,000 decrease in professional fees, a $42,000 decrease in OREO expense and smaller decreases in several other expense categories.   The efficiency ratio for the current quarter was 48.99% compared to 47.83% for the preceding quarter and 50.04% for the comparable quarter one year ago.   Fiscal year-to-date operating expenses increased 2% to $16.96 million from $16.66 million for the first six months of fiscal 2020. The efficiency ratio for the first six months of fiscal 2021 improved to 48.41% from 49.73% for the first six months of fiscal 2020.

The provision for income taxes for the current quarter decreased $231,000 to $1.65 million from $1.88 million for the preceding quarter, primarily due to a $166,000 tax benefit from the disposition of stock options and lower income before income taxes.   Timberland's effective income tax rate was 18.6% for the quarter ended March 31, 2021 compared to 20.5% for the quarter ended December 31, 2020.  

Balance Sheet Management

Total assets increased $110.84 million, or 7%, to $1.70 billion at March 31, 2021 from $1.59 billion at December 31, 2020.   The increase was primarily due to an $84.13 million increase in total cash and cash equivalents and a $23.37 million increase in net loans receivable, and smaller increases in several other categories. The increase in total assets was funded primarily by an increase in total deposits and by retained net income.

Loans

Net loans receivable increased $23.37 million, or 2%, to $1.031 billion at March 31, 2021 from $1.007 billion at December 31, 2020. The increase during the current quarter was primarily due to a $34.71 million increase in PPP loan balances, and smaller increases in several other categories. These increases were partially offset by smaller decreases in several other categories.

Loan Portfolio
($ in thousands)

  March 31, 2021   December 31, 2020   March 31, 2020
  Amount   Percent   Amount   Percent   Amount   Percent
Mortgage loans:                      
One- to four-family (a) $ 117,184     10 %   $ 115,613     10 %   $ 125,285     13 %
Multi-family   92,435     8       89,413     8             81,298     8  
Commercial   461,966     40       463,670     41       444,276     44  
Construction - custom and owner/builder   105,305     9       117,872   10           119,175     12  
Construction - speculative one-to four-family   17,289     2       20,291     2       14,679              1  
Construction - commercial   42,340     4       41,491     4       37,446     4  
Construction - multi-family   44,266     4       29,410     3       34,026     3  
Construction - land development   2,238     --       6,943     1       5,774     1  
Land   19,041     2       22,635     2       29,333              3  
Total mortgage loans   902,064     79           907,338     81          891,292     89  
                       
Consumer loans:                      
Home equity and second Mortgage   32,026     3       35,446     3       38,972     4  
Other   2,756     --               2,979     --              3,829               --  
Total consumer loans   34,782     3       38,425     3            42,801               4  
                       
Commercial loans:                      
      Commercial business loans   66,645     6       71,257     7            73,622     7  
SBA PPP loans   138,175     12       103,468     9       --     --  
            Total commercial loans   204,820     18       174,725     16       73,622     7  
Total loans   1,141,666     100 %     1,120,488     100 %     1,007,715     100 %
Less:                      
Undisbursed portion of construction loans in process   (90,550 )         (94,298 )             (85,474 )    
Deferred loan origination fees   (6,999 )         (5,449 )         (2,694 )    
Allowance for loan losses   (13,434 )         (13,432 )         (11,890 )    
Total loans receivable, net $ 1,030,683         $ 1,007,309         $ 907,657      

_______________________
(a)   Does not include one- to four-family loans held for sale totaling $8,455, $10,871 and $5,798 at March 31, 2021, December 31, 2020 and March 31, 2020, respectively.  

The following table highlights eight commercial real estate ("CRE") segments generally presumed to have the potential to be more adversely affected by work at home and COVID related social distancing practices than other segments of the loan portfolio.

CRE Portfolio Breakdown by Collateral
($ in thousands)

Collateral Type   Amount   Percent of CRE Portfolio   Percent of Total Loan Portfolio        
Office buildings   $           74,067         16 %              6 %        
Medical/dental offices     64,081         14                6          
Other retail buildings     40,775          9                4          
Hotels/motels     26,481           6            2          
Restaurants     25,120           5           2          
Nursing homes     18,990           4           2          
Shopping centers     14,341           3           1          
Churches     12,214            3     1          
Additional CRE     185,897         40           16          
      Total CRE   $             461,966      100 %           40 %        

Within Timberland's commercial business loan portfolio (non-CRE) resides a segment of restaurant loans totaling $10.96 million in outstanding balances at March 31, 2021. As additional security for these loans, Timberland holds cash collateral of 25% of the segment's associated outstanding loan balances. Unless prior arrangements are made, and Timberland consents, loans falling more than four weeks delinquent are eligible for purchase from Timberland's portfolio in accordance with a Marketing and Servicing Agreement in existence since March 6, 2014.     

Timberland originated $167.15 million in loans (including $58.70 million of SBA PPP loans) during the quarter ended March 31, 2021, compared to $100.47 million for the comparable quarter one year ago and $156.57 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 SBA loans. During the current quarter, fixed-rate one- to four-family mortgage loans totaling $41.29 million were sold compared to $27.49 million for the comparable quarter one year ago and $43.84 million for the preceding quarter.
        
Timberland's investment securities and CDs held for investment increased $5.41 million, or 4%, to $146.28 million at March 31, 2021, from $140.87 million at December 31, 2020. The increase was primarily due to the purchase of additional mortgage-backed investment securities and was partially offset by CDs maturing during the quarter.

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 36.1% of total liabilities at March 31, 2021, compared to 33.4% at December 31, 2020, and 25.5% one year ago.  

Deposits

Total deposits increased $106.74 million, or 8%, during the current quarter to $1.48 billion at March 31, 2021, from $1.38 billion at December 31, 2020. The quarter's increase consisted of a $61.59 million increase in non-interest-bearing account balances, a $23.78 million increase in savings account balances, a $16.65 million increase in NOW checking account balances and a $13.67 million in money market account balances. These increases were partially offset by an $8.95 million decrease in certificates of deposit account balances.

Deposit Breakdown
($ in thousands)

     
    March 31, 2021              December 31, 2020   March 31, 2020            
    Amount        Percent     Amount   Percent   Amount     Percent        
Non-interest-bearing demand   $ 499,541   34 %   $ 437,953   32 %   $ 316,328   28 %    
NOW checking     403,811   27       387,158   28       308,165   27      
Savings     250,736   17       226,955   16       182,321   16      
Money market     171,896   11       158,928   12       133,839   12      
Money market – reciprocal     13,094   1       12,389   1       11,794   1      
Certificates of deposit under $250     119,388   8       124,789   9       138,906   13      
Certificates of deposit $250 and over     23,393   2       26,944   2       31,088   3      
Certificates of deposit – brokered     --   --       --   --       3,207   --      
Total deposits   $ 1,481,859       100 %           $ 1,375,116     100 %       $ 1,125,648       100 %  

Shareholders' Equity and Capital Ratios

Total shareholders' equity increased $5.22 million, or 3%, to $198.54 million at March 31, 2021, from $193.33 million at December 31, 2020. The increase in shareholders' equity was primarily due to net income of $7.25 million for the quarter, which was partially offset by the payment of $2.58 million in dividends to shareholders.   On February 24, 2021, the Company announced a new stock repurchase program. Under the new repurchase program, the Company may repurchase up to 5% of the Company's outstanding shares, or 415,970 shares. The new stock repurchase program replaced the existing stock repurchase program, which had 141,952 shares available to be repurchased. There were no shares repurchased during the quarter ended March 31, 2021.

Timberland remains well capitalized with a total risk-based capital ratio of 20.72% and a Tier 1 leverage capital ratio of 11.19% at March 31, 2021.

Asset Quality and Loan Deferrals

Timberland's non-performing assets to total assets ratio improved to 0.16% at March 31, 2021 from 0.38% one year ago and 0.19% at December 31, 2020. There were net recoveries of $2,000 for the current quarter compared to net recoveries of $18,000 for the preceding quarter and net recoveries of $8,000 for the comparable quarter one year ago.   No provisions for loan losses were made during the current and preceding quarters compared to a $2.0 million provision for loan losses for the comparable quarter one year ago.

Timberland continues to work with borrowers affected by the COVID-19 pandemic with loan deferral and forbearance plans.   As of June 30, 2020, Timberland had granted deferrals (primarily 90-day payment deferrals with interest continuing to accrue or be paid monthly) for loans with balances aggregating to $135.83 million (13.4% of net loans receivable). However, the vast majority of borrowers that were granted deferrals have resumed making regular payments and as of March 31, 2021, only eight loans with balances totaling $12.88 million (1.3% of net loans receivable) remained on deferral status. The following table details the COVID-19 loan modifications still on deferral status as of March 31, 2021:

     COVID-19 Loan Modifications
($ in thousands)


Industry / Collateral Type
  Amount   Percent of
Net Loans Receivable
Hotel   $ 8,789       0.85 %
Industrial warehouse     2,385   0.23  
Construction – commercial (hotel)     1,517   0.15  
Restaurant     142   0.02  
Entertainment facility     33   --  
Other consumer     18   --  
Total loan modifications   $        12,884   1.25 %

The allowance for loan losses ("ALL") as a percentage of loans receivable was 1.29% at March 31, 2021 compared to 1.29% one year ago and 1.32% at December 31, 2020. If PPP loans, which are 100% SBA guaranteed, are excluded, the ALL to loans receivable (excluding PPP loans) at March 31, 2021 was 1.48% (non-GAAP).  

The ALL as a percentage of loans receivable is also impacted by the loans acquired in the South Sound Acquisition. Included in the recorded value of loans acquired in acquisitions 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 initial recorded value of loans acquired in the South Sound Acquisition 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 Acquisition was $583,000 at March 31, 2021. The allowance for loan losses to loans receivable (excluding PPP loan balances and the remaining aggregate balance of the loans acquired in the South Sound Acquisition) was 1.56% (non-GAAP) at March 31, 2021.

The following table details the ALL as a percentage of loans receivable:

    March 31,   Dec. 31,   March 31,
    2021     2020     2020  
ALL to loans receivable    1.29 %   1.32 %   1.29 %
ALL to loans receivable (excluding PPP loans) (non-GAAP)   1.48 %   1.46 %   1.29 %
ALL to loans receivable (excluding PPP loans and South Sound
Acquisition loans) (non-GAAP)
 
1.56

%
 
1.56

%
 
1.42

%

Total delinquent loans (past due 30 days or more) and non-accrual loans increased $495,000, or 14%, to $3.93 million at March 31, 2021, from $3.43 million one year ago, and increased $1.11 million, or 39%, from $2.82 million at December 31, 2020.   Non-accrual loans decreased $911,000, or 28%, to $2.31 million at March 31, 2021 from $3.22 million one year ago and decreased $276,000, or 11%, from $2.58 million at December 31, 2020.

Non-Accrual Loans
($ in thousands)

  March 31, 2021   December 31, 2020   March 31, 2020
  Amount   Quantity   Amount   Quantity   Amount   Quantity
Mortgage loans:                      
One- to four-family $ 415   2   $ 419   2   $ 941   5
Commercial   643   2     643   3     947   3
Land   173   2     405   4     193   2
Total mortgage loans   1,231   6     1,467   9     2,081   10
                       
Consumer loans                      
Home equity and second                      
mortgage   539   6     607   7     581   6
Other   8   1     9   1     11   1
Total consumer loans   547   7     616   8     592   7
                       
Commercial business loans   527   7     498   8     543   8
Total loans $ 2,305   20   $ 2,581   25   $ 3,216   25

OREO and other repossessed assets decreased 90% to $157,000 at March 31, 2021, from $1.62 million at March 31, 2020, and decreased 41% from $268,000 at December 31, 2020. At March 31, 2021, the OREO and other repossessed asset portfolio consisted of three individual land parcels. During the quarter ended March 31, 2021, one OREO property was sold, resulting in a $71,000 gain.

OREO and Other Repossessed Assets
($ in thousands)

  March 31, 2021   December 31, 2020   March 31, 2020
  Amount   Quantity   Amount   Quantity   Amount   Quantity
Land $     157   3   $ 268   4   $ 1,623   10
Total $        157   3   $       268   4   $      1,623   10

        
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 Acquisition"). 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.

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 economic 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 effect of the novel coronavirus of 2019 ("COVID-19") pandemic, including the Company's credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; 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; uncertainty regarding the future of the London Interbank Offered Rate ("LIBOR"), and the potential transition away from LIBOR toward new interest rate benchmarks; 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 Federal Reserve 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 against us or our bank subsidiary which could 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 implementing regulations; our ability to attract and retain deposits; 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 work force 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 implement our business strategies; 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 ("FASB"), 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 including the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act"), the Consolidated Appropriations Act, 2021 ("CAA"), and the American Rescue Plan Act of 2021; 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 2021 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)     2021       2020       2020  
  Interest and dividend income            
  Loans receivable   $ 12,791     $ 13,318     $ 12,823  
  Investment securities     284       301       489  
  Dividends from mutual funds, FHLB stock and other investments     28       28       35  
    Interest bearing deposits in banks     258       310       784  
  Total interest and dividend income     13,361       13,957       14,131  
               
  Interest expense            
  Deposits     764       904       1,243  
  Borrowings     29       29       8  
  Total interest expense     793       933       1,251  
  Net interest income     12,568       13,024       12,880  
  Provision for loan losses     --       --       2,000  
  Net interest income after provision for loan losses     12,568       13,024       10,880  
               
  Non-interest income            
  Service charges on deposits     941       1,055       1,078  
  ATM and debit card interchange transaction fees     1,237       1,156       1,015  
  Gain on sales of loans, net     1,758       2,002       736  
  Bank owned life insurance ("BOLI") net earnings     146       149       147  
  Servicing income (expense) on loans sold, net     (10 )     15       62  
  Valuation recovery (allowance) on servicing rights, net     438       (236 )     --  
  Recoveries on investment securities, net         3       5           3  
  Other     373       413       639  
  Total non-interest income, net     4,886       4,559       3,680  
               
  Non-interest expense            
  Salaries and employee benefits     4,778       4,613       4,621  
  Premises and equipment     998       957       943  
  Gain on disposition of premises and equipment, net     --       --       (3 )
  Advertising     155       156       159  
  OREO and other repossessed assets, net     (68 )     (26 )     51  
  ATM and debit card processing     445       431       359  
  Postage and courier     150       138       145  
  State and local taxes     255       283       233  
  Professional fees     181       231       210  
  FDIC insurance expense     105       96       --  
  Loan administration and foreclosure     90       80       78  
  Data processing and telecommunications     635       606       515  
  Deposit operations     245       284       274  
  Amortization of core deposit intangible ("CDI")     90       90       102  
  Other, net     492       471       599  
  Total non-interest expense, net     8,551       8,410       8,286  
               
  Income before income taxes     8,903       9,173       6,274  
  Provision for income taxes     1,652       1,883       1,225  
  Net income   $ 7,251     $ 7,290     $ 5,049  
               
  Net income per common share:            
     Basic   $ 0.87     $ 0.88     $ 0.61  
  Diluted     0.86       0.87       0.60  
               
  Weighted average common shares outstanding:            
  Basic     8,331,121       8,313,493       8,344,201  
  Diluted     8,444,798       8,412,744       8,456,659  
     
TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
  Six Months Ended
($ in thousands, except per share amounts)   March 31,       March 31,
(unaudited)     2021           2020  
  Interest and dividend income            
  Loans receivable   $ 26,108         $ 25,587  
  Investment securities     585           928  
  Dividends from mutual funds, FHLB stock and other investments     55           72  
    Interest bearing deposits in banks     569           1,735  
  Total interest and dividend income     27,317           28,322  
               
  Interest expense            
  Deposits     1,668           2,432  
  Borrowings     58           8  
  Total interest expense     1,726           2,440  
  Net interest income     25,591           25,882  
  Provision for loan losses     --           2,200  
  Net interest income after provision for loan losses     25,591           23,682  
               
  Non-interest income            
  Service charges on deposits     1,996           2,278  
  ATM and debit card interchange transaction fees     2,393           2,109  
  Gain on sales of loans, net     3,760           1,688  
  Bank owned life insurance ("BOLI") net earnings     295           294  
  Servicing income on loans sold, net     5           136  
  Valuation recovery (allowance) on servicing rights, net     202           (23 )
  Recoveries on investment securities, net         8               106  
  Other     786           1,030  
  Total non-interest income, net     9,445           7,618  
               
  Non-interest expense            
  Salaries and employee benefits     9,391           9,343  
  Premises and equipment     1,955           1,837  
  Gain on disposition of premises and equipment, net     --           (102 )
  Advertising     311           342  
  OREO and other repossessed assets, net     (94 )         50  
  ATM and debit card processing     876           799  
  Postage and courier     287           279  
  State and local taxes     538           449  
  Professional fees     412           480  
  FDIC insurance expense (credit)     201           (27 )
  Loan administration and foreclosure     171           167  
  Data processing and telecommunications     1,240           1,099  
  Deposit operations     529           591  
  Amortization of core deposit intangible ("CDI")     180           203  
  Other, net     964           1,149  
  Total non-interest expense, net     16,961           16,659  
               
  Income before income taxes     18,075           14,641  
  Provision for income taxes     3,534           2,940  
  Net income   $ 14,541         $ 11,701  
               
  Net income per common share:            
     Basic   $ 1.75         $ 1.40  
  Diluted     1.73           1.38  
               
  Weighted average common shares outstanding:            
  Basic     8,322,210           8,342,828  
  Diluted     8,428,595           8,465,894  


TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
 
($ in thousands, except per share amounts) (unaudited)   March 31,   Dec. 31,   March 31,
      2021       2020       2020  
Assets            
Cash and due from financial institutions   $ 21,707     $ 24,226     $ 22,862  
Interest-bearing deposits in banks     411,635       325,987       145,286  
  Total cash and cash equivalents     433,342       350,213       168,148  
               
Certificates of deposit ("CDs") held for investment, at cost     39,674       49,629       82,472  
Investment securities:            
  Held to maturity, at amortized cost     36,465       24,509       36,667  
  Available for sale, at fair value     69,184       65,762       41,470  
Investments in equity securities, at fair value     957       974       969  
FHLB stock     2,303       1,922       1,922  
Other investments, at cost     3,000       3,000       3,000  
Loans held for sale     8,455       10,871       5,798  
             
Loans receivable     1,044,117       1,020,741       919,547  
Less: Allowance for loan losses     (13,434 )     (13,432 )     (11,890 )
  Net loans receivable     1,030,683       1,007,309       907,657  
               
Premises and equipment, net     22,763       22,753       23,072  
OREO and other repossessed assets, net     157       268       1,623  
BOLI     21,891       21,745       21,299  
Accrued interest receivable     4,471       4,490       3,595  
Goodwill     15,131       15,131       15,131  
CDI     1,444       1,535       1,828  
Servicing rights, net     3,604       3,036       2,724  
Operating lease right-of-use assets     2,436       2,512       2,759  
Other assets     3,284       2,746       2,967  
  Total assets   $ 1,699,244     $ 1,588,405     $ 1,323,101  
               
Liabilities and shareholders' equity            
Deposits: Non-interest-bearing demand   $ 499,541     $ 437,953     $ 316,328  
Deposits: Interest-bearing     982,318       937,163       809,320  
  Total deposits     1,481,859       1,375,116       1,125,648  
               
Operating lease liabilities     2,499       2,565       2,759  
FHLB borrowings     10,000       10,000       10,000  
Other liabilities and accrued expenses     6,343       7,399       6,686  
  Total liabilities     1,500,701       1,395,080       1,145,093  
             
Shareholders' equity            
Common stock, $.01 par value; 50,000,000 shares authorized;
         8,361,457 shares issued and outstanding – March 31, 2021
         8,317,793 shares issued and outstanding – December 31, 2020
         8,309,193 shares issued and outstanding – March 31, 2020                    
   


42,949
     


42,480
     


42,258
 
Retained earnings     155,473       150,801       135,929  
Accumulated other comprehensive income (loss)     121       44       (179 )
  Total shareholders' equity     198,543       193,325       178,008  
  Total liabilities and shareholders' equity   $ 1,699,244     $ 1,588,405     $ 1,323,101  



KEY FINANCIAL RATIOS AND DATA        
Three Months Ended
($ in thousands, except per share amounts) (unaudited)   March 31,   Dec 31,   March 31,
      2021       2020       2020  
PERFORMANCE RATIOS:            
Return on average assets (a)     1.75 %     1.84 %     1.56 %
Return on average equity (a)     14.89 %     15.39 %     11.39 %
Net interest margin (a)     3.21 %     3.48 %     4.27 %
Efficiency ratio     48.99 %     47.83 %     50.04 %
             
  Six Months Ended
    March 31,       March 31,
      2021           2020  
PERFORMANCE RATIOS:            
Return on average assets (a)     1.80 %         1.84 %
Return on average equity (a)     15.14 %         13.37 %
Net interest margin (a)     3.34 %         4.35 %
Efficiency ratio     48.41 %         49.73 %
             
    March 31,   Dec 31,   March 31,
      2021       2020       2020  
ASSET QUALITY RATIOS AND DATA:            
Non-accrual loans   $ 2,305     $ 2,581     $ 3,216  
Loans past due 90 days and still accruing     --       --       --  
Non-performing investment securities     188       205       238  
OREO and other repossessed assets     157       268       1,623  
Total non-performing assets (b)   $ 2,650     $ 3,054     $ 5,077  
             
Non-performing assets to total assets (b)     0.16 %     0.19 %     0.38 %
Net charge-offs (recoveries) during quarter   $ (2 )   $ (18 )   $ (8 )
ALL to non-accrual loans     583 %     520 %     370 %
ALL to loans receivable (c)     1.29 %     1.32 %     1.29 %
ALL to loans receivable (excluding PPP loans) (d) (non-GAAP)     1.48 %     1.46 %     1.29 %
ALL to loans receivable (excluding PPP loans and South Sound Acquisition loans) (d) (e) (non-GAAP)    

1.56


%
   

1.56


%
   

1.42


%
Troubled debt restructured loans on accrual status (f)   $ 2,864     $ 2,868     $ 2,877  
             
CAPITAL RATIOS:            
Tier 1 leverage capital     11.19 %     11.36 %     12.75 %
Tier 1 risk-based capital     19.47 %     20.23 %     18.53 %
Common equity Tier 1 risk-based capital             19.47 %     20.23 %     18.53 %
Total risk-based capital     20.72 %     21.48 %     19.78 %
Tangible common equity to tangible assets (non-GAAP)     10.81 %     11.24 %     12.33 %
             
BOOK VALUES:            
Book value per common share   $ 23.75       $ 23.24       $ 21.42  
Tangible book value per common share (g)     21.76       21.24       19.38  

________________________________________________

(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 PPP loans totaling $138,175, $103,468 and $0 at March 31, 2021, December 31, 2020 and March 31, 2020, respectively.
(e) Does not include loans acquired in the South Sound Acquisition totaling $46,626, $56,874 and $80,619 at March 31, 2021, December 31, 2020 and March 31, 2020, respectively.
(f) Does not include troubled debt restructured loans totaling $192, $197 and $343 reported as non-accrual loans at March 31, 2021, December 31, 2020 and March 31, 2020, respectively.
(g) 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, 2021  December 31, 2020  March 31, 2020 
  Amount   Rate   Amount   Rate   Amount        Rate
                       
Assets                      
Loans receivable and loans held for sale $ 1,044,476     4.90 %   $ 1,030,289     5.17 %   $ 922,011     5.56 %
Investment securities and FHLB stock (1)   101,675     1.23       94,033     1.40             81,925     2.56  
Interest-earning deposits in banks and CDs   422,286     0.24       374,376     0.33       203,936     1.54  
Total interest-earning assets   1,568,437     3.41       1,498,698     3.73            1,207,872     4.68  
Other assets   85,203           84,077           85,226      
Total assets $ 1,653,640         $ 1,582,775         $ 1,293,098      
                       
Liabilities and Shareholders' Equity                      
NOW checking accounts $ 394,612     0.16 %   $ 377,760     0.19 %   $ 303,403     0.31 %
Money market accounts   178,768     0.30       168,503     0.33       143,817     0.58  
Savings accounts   236,504     0.08       222,866     0.08       178,688     0.12  
Certificates of deposit accounts   146,065     1.19       155,125     1.38       169,293     1.78  
Total interest-bearing deposits   955,949     0.32       924,254     0.39       795,201     0.63  
Borrowings   10,003     1.17       10,000     1.15       2,747     1.17  
Total interest-bearing liabilities   965,952     0.33       934,254     0.40       797,948     0.63  
                       
Non-interest-bearing demand deposits   482,528           448,350           306,907      
Other liabilities   10,365           10,687           10,982      
Shareholders' equity   194,795           189,484           177,261      
Total liabilities and shareholders' equity $ 1,653,640         $ 1,582,775         $ 1,293,098      
                       
Interest rate spread     3.08 %       3.33 %       4.05 %
Net interest margin (2)     3.21 %       3.48 %       4.27 %
Average interest-earning assets to                      
average interest-bearing liabilities   162.37 %         160.42 %         151.37 %    

           _____________________________________
(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, 2021        March 31, 2020 
  Amount   Rate           Amount   Rate
                       
Assets                      
Loans receivable and loans held for sale $ 1,037,304     5.03 %           $ 916,931     5.58 %
Investment securities and FHLB stock (1)   97,812     1.31                     73,893     2.71  
Interest-earning deposits in banks and CDs   398,067     0.29               200,107     1.73  
Total interest-earning assets   1,533,183     3.56                    1,190,931     4.76  
Other assets   84,635                   84,311      
Total assets $ 1,617,818                 $ 1,275,242      
                       
Liabilities and Shareholders' Equity                      
NOW checking accounts $ 386,093     0.17 %           $ 299,884     0.30 %
Money market accounts   173,579     0.31               138,758     0.57  
Savings accounts   229,610     0.08               176,628     0.10  
Certificates of deposit accounts   150,645     1.29               168,039     1.78  
Total interest-bearing deposits   939,927     0.36               783,309     0.62  
Borrowings   10,002     1.16               1,367     1.17  
Total interest-bearing liabilities   949,929     0.36               784,676     0.62  
                       
Non-interest-bearing demand deposits   465,251                   306,175      
Other liabilities   10,528                   9,394      
Shareholders' equity   192,110                   174,997      
Total liabilities and shareholders' equity $ 1,617,818                 $ 1,275,242      
                       
Interest rate spread     3.20 %               4.14 %
Net interest margin (2)     3.34 %               4.35 %
Average interest-earning assets to                      
average interest-bearing liabilities   161.40 %                 151.77 %    

_____________________________________
(1) Includes other investments
(2) Net interest margin = annualized net interest income /
average interest-earning assets

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, 2021   December 31, 2020   March 31, 2020
             
Shareholders' equity   $ 198,543     $ 193,325     $ 178,008  
Less goodwill and CDI     (16,575 )     (16,666 )     (16,959 )
Tangible common equity   $ 181,968     $ 176,659     $      161,049  
             
Total assets   $ 1,699,244     $ 1,588,405     $ 1,323,101  
Less goodwill and CDI     (16,575 )     (16,666 )     (16,959 )
Tangible assets   $ 1,682,669     $ 1,571,739     $ 1,306,142  

Contact:
Michael R. Sand,
President & CEO
Dean J. Brydon, CFO                      
(360) 533-4747
www.timberlandbank.com

 


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