Contact:   Michael R. Sand,

          President & CEO

          Dean J. Brydon, CFO
                          (360) 533-4747

                          www.timberlandbank.com

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

·	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, WA – July 24, 2018 - 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

 

 

Timberland Fiscal Q3 2018 Earnings

July 24, 2018

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·	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 30^th 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

 

 

 

 

_______________________

(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.

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.

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.

            

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).

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 Fiscal Q3 2018 Earnings

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(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).

Timberland Fiscal Q3 2018 Earnings

July 24, 2018

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AVERAGE BALANCES, YIELDS, AND RATES - QUARTERLY

($ in thousands)

(unaudited)

          _____________________________________

(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)

          _____________________________________

(1) Includes other investments

(2) Net interest margin = annualized net interest income /

     average interest-earning assets