Timberland Bancorp’s Third Fiscal Quarter Earnings Per Diluted Share Increases 12% to $0.83

July 27, 2021 7:30 PM EDT

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  • Year-to-Date Net Income Increases 20% to $21.57 Million
  • Quarterly Return on Average Assets of 1.63%
  • Quarterly Return on Average Equity of 14.02%
  • Announces $0.21 Quarterly Cash Dividend and a $0.10 Special Dividend

HOQUIAM, Wash., July 27, 2021 (GLOBE NEWSWIRE) -- Timberland Bancorp, Inc. (NASDAQ: TSBK) (“Timberland” or “the Company”), the holding company for Timberland Bank (the “Bank”), today reported that net income increased 13% to $7.02 million for the quarter ended June 30, 2021 from $6.21 million for the comparable quarter one year ago, which quarter was affected by a $1.00 million ($790,000 after income taxes) provision to the loan loss reserves, and decreased $227,000, or 3%, from $7.25 million for the preceding quarter. Earnings per diluted common share (“EPS”) increased 12% to $0.83 for the current quarter from $0.74 for the comparable quarter one year ago and decreased 3% from $0.86 for the preceding quarter.

For the first nine months of fiscal 2021, Timberland earned a record $21.57 million, or $2.55 per diluted common share, a 20% increase in net income and EPS from $17.91 million, or $2.12 per diluted common share for the first nine months of fiscal 2020, which nine month period was affected by a $3.20 million ($2.53 million after income taxes) provision to the loan loss reserves.

Timberland’s Board of Directors declared a quarterly cash dividend to shareholders of $0.21 per common share and a special cash dividend of $0.10 per common share. Both dividends are payable on August 27, 2021, to shareholders of record on August 13, 2021.

“We are pleased to report strong quarterly net income and record profitability for the first nine months of fiscal 2021,” stated Michael Sand, President and CEO. “Paycheck Protection Program (“PPP”) loan proceeds and federal stimulus payments contributed to strong deposit growth of $204.11 million during the past twelve months including $40.79 million during the quarter just ended. The 15% increase in deposits year-over-year has increased the Bank’s liquidity significantly above normal levels. Net loans outstanding, net of PPP loans, increased this quarter at an annualized rate of 6% and we continue to be encouraged by the increased business activity we are seeing in our markets.”     

“Staff continues to be diligently and successfully engaged in the task of filing SBA loan forgiveness applications for businesses in our communities that obtained PPP financing through Timberland Bank. During the quarter ended June 30, 2021, PPP loans were reduced by $42.54 million and $95.63 million of PPP loans remained on the Bank’s balance sheet at quarter end. Timberland participated in the origination of PPP loans during every phase of the program and originated $192.43 million of PPP loans for existing as well as new clients.”  

“Timberland’s Board is also pleased to have announced today the appointment of Parul Bhandari to Timberland’s Board of Directors. During the past few years Timberland has sought to acquire directors with strong technology backgrounds and Ms. Bhandari is the third Director with significant experience and expertise in the technology sector to join Timberland’s Board. She brings to Timberland 20 plus years of experience scaling businesses through data, cloud and AI powered digital transformation. Ms. Bhandari leads the Partner Strategy for the Worldwide Media and Communications Industry group at Microsoft. Additional background information is included in a separate press release published today. With Ms. Bhandari’s appointment, Timberland now has eight independent directors, equally balanced between men and women. We look forward to Ms. Bhandari’s participation and counsel as a member of Timberland’s Board of Directors.”                       

Third Fiscal Quarter 2021 Earnings and Balance Sheet Highlights (at or for the period ended June 30, 2021, compared to March 31, 2021 or June 30, 2020):

Earnings Highlights:

  • Net income increased 13% to $7.02 million for the current quarter from $6.21 million for the comparable quarter one year ago and decreased 3% from $7.25 million for the preceding quarter;
  • EPS increased 12% to $0.83 for the current quarter from $0.74 for the comparable quarter one year ago and decreased 3% from $0.86 for the preceding quarter;
  • Net income increased 20% to $21.57 million for the first nine months of fiscal 2021 from $17.91 million for the first nine months of fiscal 2020;
  • EPS increased 20% to $2.55 for the first nine months of fiscal 2021 from $2.12 for the first nine months of fiscal 2020;
  • Return on average equity (“ROE”) and return on average assets (“ROA”) for the current quarter were 14.02% and 1.63%, respectively;
  • Net interest margin (“NIM”) was 3.22% for the current quarter compared to 3.21% for the preceding quarter and 3.63% for the comparable quarter one year ago; and
  • The efficiency ratio was relatively stable at 49.43% for the current quarter compared to 48.99% for the preceding quarter and 49.96% for the comparable quarter one year ago.

Balance Sheet Highlights:

  • Total assets increased 14% year-over-year and 2% from the prior quarter;
  • Total deposits increased 15% year-over-year and 3% from the prior quarter;
  • Net loans receivable (including SBA PPP loans) decreased 1% year-over-year and decreased 3% from the prior quarter;
  • Net loans receivable (excluding SBA PPP loans) increased 2% year-over-year and increased 2% from the prior quarter;
  • Non-performing assets to total assets ratio improved to 0.14%; and
  • Book and tangible book (non-GAAP) values per common share increased to $24.36 and $22.39, respectively, at June 30, 2021.

Operating Results

Operating revenue (net interest income before the provision for loan losses plus non-interest income) increased 1% to $17.42 million for the current quarter from $17.34 million for the comparable quarter one year ago and decreased slightly from $17.45 million for the preceding quarter. Operating revenue increased 3% to $52.46 million for the first nine months of fiscal 2021 from $50.84 million for the comparable period one year ago.

Net interest income increased 5% to $13.16 million for the current quarter from $12.48 million for the comparable quarter one year ago and increased 5% from $12.57 million for the preceding quarter.   Timberland’s NIM for the current quarter was 3.22% compared to 3.21% for the preceding quarter and 3.63% for the comparable quarter one year ago.   NIM compression over the past year has largely been a result of the low interest rate environment and an increase in the level of liquidity held in overnight funds. The NIM for the current quarter was increased by approximately 13 basis points due to the accretion of $84,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $443,000 in pre-payment penalties, non-accrual interest, and late fees. The NIM for the preceding 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 comparable quarter one year ago was increased by approximately ten basis points due to the accretion of $170,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $177,000 in pre-payment penalties, non-accrual interest and late fees.

U.S. Small Business Administration (“SBA”) PPP loans contribute to interest income through the 1.00% interest rate earned on outstanding loan balances and also through the accretion of loan origination fees into interest income over the life of each PPP loan. At June 30, 2021, Timberland had SBA PPP deferred loan origination fees of $3.31 million remaining to be accreted into interest income over the remaining life of the loans. The following table details the interest income recognized from SBA PPP loans:

SBA PPP Loan Income($ in thousands)
 Three Months Ended
 June 30, 2021 March 31, 2021 June 30, 2020
Interest income$293  $306  $240 
Loan origination fee accretion 1,296   1,143   443 
Total SBA PPP loan income$1,589  $1,449  $683 
      

Net interest income increased 1% to $38.75 million for the first nine months of fiscal 2021 from $38.36 million for the first nine months of fiscal 2020. Timberland’s net interest margin for the first nine months of fiscal 2021 was 3.30%, compared to 4.08% for the first nine months of fiscal 2020.

No provision for loan losses was made during the current and preceding quarter, compared to a $1.00 million ($790,000 after income taxes) provision for loan losses for the comparable quarter one year ago. No provision for loan losses was made during the nine months ended June 30, 2021 compared to a $3.20 million ($2.53 million after income taxes) provision for loan losses for the nine months ended June 30, 2020.

Non-interest income decreased 12% to $4.27 million for the current quarter from $4.86 million for the comparable quarter one year ago and decreased 13% from $4.89 million for the preceding quarter. The decrease in non-interest income compared to the preceding quarter was primarily due to a $179,000 valuation allowance on loan servicing rights for the current quarter (compared to a $438,000 valuation recovery on servicing rights for the preceding quarter) and a $151,000 decrease in gain on sales of loans. These decreases were partially offset by a $126,000 increase in ATM and debit card interchange transaction fees. The valuation allowance on loan servicing rights was primarily due to an increase in projected mortgage prepayment speeds due to declines in mortgage interest rates during the quarter. The increase in ATM and debit card interchange transaction fee income was primarily due to increased debit card activity. The decrease in gain on sales of loans compared to the prior quarter was primarily due to a decrease in the average pricing spread on loans sold during the current quarter. Fiscal year-to-date non-interest income increased 10% to $13.71 million from $12.47 million for the first nine months of fiscal 2020.

Total operating expenses for the current quarter increased 1% to $8.61 million from $8.55 million for the preceding quarter and decreased 1% from $8.66 million for the comparable quarter one year ago.   The increase in operating expenses compared to the preceding quarter was primarily due to an $81,000 increase in professional fees, a $73,000 increase in OREO expense, a $58,000 increase in loan administration expenses, a $44,000 increase in deposit operations expense and smaller increases in several other expense categories. These increases were partially offset by a $224,000 decrease in salaries and employee benefit expense and smaller decreases in several other expense categories.   The efficiency ratio for the current quarter was 49.43% compared to 48.99% for the preceding quarter and 49.96% for the comparable quarter one year ago.   Fiscal year-to-date operating expenses increased 1% to $25.57 million from $25.32 million for the first nine months of fiscal 2020. The efficiency ratio for the first nine months of fiscal 2021 improved to 48.75% from 49.81% for the first nine months of fiscal 2020.

The provision for income taxes for the current quarter increased $135,000 to $1.79 million from $1.65 million for the preceding quarter, primarily due to a $143,000 decrease in the tax benefit from stock option dispositions.   Timberland’s effective income tax rate was 20.3% for the quarter ended June 30, 2021 compared to 18.6% for the quarter ended March 31, 2021. The fiscal year-to-date provision for income taxes increased $916,000 to $5.32 million for the first nine months of fiscal 2021 from $4.40 million for the first nine months of fiscal 2020, primarily due to higher income before income taxes. Timberland’s effective income tax rate for the nine month periods ended June 30, 2021 and 2020 was 19.8%.  

Balance Sheet Management

Total assets increased $41.22 million, or 2%, to $1.74 billion at June 30, 2021 from $1.70 billion at March 31, 2021.   The increase was primarily due to a $70.38 million increase in total cash and cash equivalents and a $5.70 million net increase in investment securities and CDs held for investment, and smaller increases in several other categories. This increase was partially offset by a $29.12 million decrease in net loans receivable (due to SBA PPP loan payoffs). Excluding SBA PPP loans, net loans receivable increased during the current quarter at an annualized rate of 6%. The increase in total assets was funded primarily by an increase in total deposits and by retained net income.

Loans

Primarily as a result of the successful processing of SBA PPP loan forgiveness applications totaling $42.54 million, net loans receivable decreased $29.12 million, or 3%, to $1.002 billion at June 30, 2021 from $1.031 billion at March 31, 2021. The decrease in SBA PPP loans was partially offset by a $6.25 million increase in commercial business loans, a $6.02 million increase in construction and land development loans and smaller increases in several other categories.

 
Loan Portfolio($ in thousands)
      
 June 30, 2021 March 31, 2021 June 30, 2020
 Amount Percent Amount Percent Amount Percent
Mortgage loans:           
One- to four-family (a)$119,173  11% $117,184  10% $120,514  11%
Multi-family 94,756  9   92,435  8   79,468  7 
Commercial 458,889  41   461,966  40   455,454  40 
Construction - custom and owner/builder 105,484  9   105,305  9   134,709  12 
Construction - speculative one-to four-family 18,038  2   17,289  2   12,136  1 
Construction - commercial 43,879  4   42,340  4   33,166  3 
Construction - multi-family 45,624  4   44,266  4   27,449  2 
Construction - land           
Development 4,434  --   2,238  --   6,132  1 
Land 18,289  2   19,041  2   27,009  3 
Total mortgage loans 908,566  82   902,064  79   896,037  80 
            
Consumer loans:           
Home equity and second mortgage 31,891  3   32,026  3   34,405  3 
Other 2,725  --   2,756  --   3,552  -- 
Total consumer loans 34,616  3   34,782  3   37,957  3 
            
Commercial loans:           
Commercial business loans 72,890  6   66,645  6   71,586  6 
SBA PPP loans 95,633  9   138,175  12   122,581  11 
Total commercial loans 168,523  15   204,820  18   194,167  17 
Total loans 1,111,705  100%  1,141,666  100%  1,128,161  100%
Less:           
Undisbursed portion of construction loans in process (90,332)    (90,550)    (95,785)  
Deferred loan origination fees (6,339)    (6,999)    (6,723)  
Allowance for loan losses (13,469)    (13,434)    (12,894)  
Total loans receivable, net$1,001,565    $1,030,683    $1,012,759   

_______________________(a)   Does not include one- to four-family loans held for sale totaling $3,359, $8,455 and $9,837 at June 30, 2021, March 31, 2021 and June 30, 2020, respectively.  

The following table highlights nine 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 $74,439  16% 7%
Medical/dental offices  55,775  12  5 
Other retail buildings  40,475  9  4 
Hotels/motels  26,271  6  2 
Restaurants  25,427  6  2 
Nursing homes  18,902  4  2 
Shopping centers  14,252  3  1 
Churches  13,131  3  1 
Mini-Storage  12,662  3  1 
Additional CRE  177,555  38  16 
Total CRE $458,889  100% 41%
           

Within Timberland’s commercial business loan portfolio (non-CRE) resides a segment of restaurant loans totaling $7.40 million in outstanding balances at June 30, 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 $146.60 million in loans (including $6.16 million of SBA PPP loans) during the quarter ended June 30, 2021, compared to $250.01 million (including $122.58 million of SBA PPP loans) for the comparable quarter one year ago and $167.15 million (including $58.70 million of SBA PPP loans) 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 $41.06 million were sold compared to $52.08 million for the comparable quarter one year ago and $41.29 million for the preceding quarter.

Timberland’s investment securities and CDs held for investment increased $5.70 million, or 4%, to $151.98 million at June 30, 2021, from $146.28 million at March 31, 2021. The increase was primarily due to the purchase of additional mortgage-backed investment securities and U.S. Treasury 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 39.2% of total liabilities at June 30, 2021, compared to 36.1% at March 31, 2021, and 28.8% one year ago.  

Deposits

Total deposits increased $40.79 million, or 3%, during the current quarter to $1.52 billion at June 30, 2021, from $1.48 billion at March 31, 2021. The quarter’s increase consisted of a $26.14 million increase in NOW checking account balances, a $16.71 million increase in money market account balances, and a $4.37 million increase in savings account balances. These increases were partially offset by a $3.60 million decrease in non-interest-bearing demand account balances and a $2.82 million decrease in certificates of deposit account balances.

Deposit Breakdown($ in thousands)
  June 30, 2021 March 31, 2021 June 30, 2020
  Amount Percent Amount Percent Amount Percent
Non-interest-bearing demand $495,938  33% $499,541  34% $427,102  32%
NOW checking  429,950  28   403,811  27   352,999  27 
Savings  255,103  17   250,736  17   212,645  16 
Money market  189,443  12   171,896  11   150,611  12 
Money market – reciprocal  12,253  1   13,094  1   11,257  1 
Certificates of deposit under $250  115,782  7   119,388  8   131,980  10 
Certificates of deposit $250 and over  24,183  2   23,393  2   31,946  2 
Total deposits $1,522,652  100% $1,481,859  100% $1,318,540  100%
                      

Shareholders’ Equity and Capital Ratios

Total shareholders’ equity increased $4.95 million, or 2%, to $203.49 million at June 30, 2021, from $198.54 million at March 31, 2021. The increase in shareholders’ equity was primarily due to net income of $7.02 million for the quarter, which was partially offset by the payment of $1.76 million in dividends to shareholders and the repurchase of 16,688 shares of the Company’s common stock for $469,000 (an average price of $28.08 per share). Timberland had 399,282 shares available to be repurchased on its existing stock repurchase plan at June 30, 2021.

Timberland remains well capitalized with a total risk-based capital ratio of 22.60% and a Tier 1 leverage capital ratio of 11.03% at June 30, 2021.

Asset Quality and Loan Deferrals

Timberland’s non-performing assets to total assets ratio improved to 0.14% at June 30, 2021, from 0.31% one year ago and 0.16% at March 31, 2021. There were net recoveries of $35,000 for the current quarter compared to net recoveries of $2,000 for the preceding quarter and net recoveries of $4,000 for the comparable quarter one year ago.   No provisions for loan losses were made during the current and preceding quarter compared to a $1.00 million provision for loan losses for the comparable quarter one year ago.

Timberland consistently worked with borrowers affected by the COVID-19 pandemic by offering loan deferral and forbearance plans during the pandemic.   One year ago, at June 30, 2020, Timberland had granted deferrals on 209 loans with balances aggregating to $135.83 million (13.4% of net loans receivable). Deferrals were primarily approved for 90-day periods with interest continuing to accrue or with interest scheduled to be paid monthly. However, nearly all borrowers that were granted deferrals have resumed making regular payments and as of June 30, 2021, only one loan remained on deferral status. The following table notes the single COVID-19 related loan still on deferral status as of June 30, 2021. Interest is being paid monthly on this loan.

 
COVID-19 Loan Modifications($ in thousands)
     
Industry / Collateral Type Amount Percent ofNet LoansReceivable
Hotel $1,703  0.17%
        

The allowance for loan losses (“ALL”) as a percentage of loans receivable was 1.33% at June 30, 2021, compared to 1.26% one year ago and 1.29% at March 31, 2021. If SBA PPP loans, which are 100% SBA guaranteed, are excluded, the ALL to loans receivable (excluding SBA PPP loans) at June 30, 2021 was 1.46% (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 $499,000 at June 30, 2021. The allowance for loan losses to loans receivable (excluding SBA PPP loan balances and the remaining aggregate balance of the loans acquired in the South Sound Acquisition) was 1.53% (non-GAAP) at June 30, 2021.

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

  June 30, March 31, June 30,
  2021 2021 2020
ALL to loans receivable 1.33% 1.29% 1.26%
ALL to loans receivable (excluding SBA PPP loans) (non-GAAP) 1.46% 1.48% 1.43%
ALL to loans receivable (excluding SBA PPP loans and South Sound Acquisition loans) (non-GAAP) 1.53% 1.56% 1.55%

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased $611,000, or 17%, to $2.94 million at June 30, 2021, from $3.55 million one year ago, and decreased $985,000, or 25%, from $3.93 million at March 31, 2021.   Non-accrual loans decreased $986,000, or 33%, to $2.03 million at June 30, 2021, from $3.02 million one year ago and decreased $276,000, or 12%, from $2.31 million at March 31, 2021

 
Non-Accrual Loans($ in thousands)
      
 June 30, 2021 March 31, 2021 June 30, 2020
 Amount Quantity Amount Quantity Amount Quantity
Mortgage loans:           
One- to four-family$411  2 $415  2 $927  5
Commercial 373  1  643  2  875  3
Land 169  2  173  2  185  2
Total mortgage loans 953  5  1,231  6  1,987  10
            
Consumer loans           
Home equity and second           
Mortgage 545  6  539  6  586  7
Other 18  2  8  1  10  1
Total consumer loans 563  8  547  7  596  8
            
Commercial business loans 513  7  527  7  432  6
Total loans$2,029  20 $2,305  20 $3,015  24
                  

OREO and other repossessed assets decreased 89% to $157,000 at June 30, 2021, from $1.47 million at June 30, 2020, and remained unchanged from $157,000 at March 31, 2021. At June 30, 2021, the OREO and other repossessed asset portfolio consisted of three individual land parcels. No OREO properties were sold during the quarter ended June 30, 2021.

 
OREO and Other Repossessed Assets($ in thousands)
      
 June 30, 2021 March 31, 2021 June 30, 2020
 Amount Quantity Amount Quantity Amount Quantity
Land$157  3 $157  3 $1,466  8
Total$157  3 $157  3 $1,466  8
                  

Acquisition of South Sound BankOn 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. 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).    

DisclaimerCertain 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 SUBSIDIARYCONSOLIDATED STATEMENTS OF INCOME Three Months Ended
($ in thousands, except per share amounts) June 30, March 31, June 30,
(unaudited) 2021 2021 2020
 Interest and dividend income      
 Loans receivable $13,298  $12,790  $12,871 
 Investment securities  292   284   345 
 Dividends from mutual funds, FHLB stock and other investments  28   27   23 
 Interest bearing deposits in banks  247   259   429 
  Total interest and dividend income  13,865   13,360   13,668 
        
 Interest expense      
 Deposits  690   764   1,159 
 Borrowings  18   29   29 
  Total interest expense  708   793   1,188 
  Net interest income  13,157   12,567   12,480 
 Provision for loan losses  --   --   1,000 
  Net interest income after provision for loan losses  13,157   12,567   11,480 
        
 Non-interest income      
 Service charges on deposits  948   941   858 
 ATM and debit card interchange transaction fees  1,363   1,237   1,069 
 Gain on sales of loans, net  1,607   1,758   2,141 
 Bank owned life insurance (“BOLI”) net earnings  150   146   148 
 Servicing income (expense) on loans sold, net  (9)  (10)  35 
 Valuation recovery (allowance) on loan servicing rights, net  (179)  438   -- 
 Recoveries on investment securities, net  6   3   6 
 Other  380   373   598 
  Total non-interest income, net  4,266   4,886   4,855 
        
 Non-interest expense      
 Salaries and employee benefits  4,554   4,778   4,570 
 Premises and equipment  995   998   1,077 
 Loss on disposition of premises and equipment, net  --   --   4 
 Advertising  162   155   150 
 OREO and other repossessed assets, net  5   (68)  11 
 ATM and debit card processing  464   445   405 
 Postage and courier  141   149   137 
 State and local taxes  284   255   255 
 Professional fees  262   181   286 
 FDIC insurance expense  100   105   143 
 Loan administration and foreclosure  148   90   191 
 Data processing and telecommunications  627   634   603 
 Deposit operations  289   245   245 
 Amortization of core deposit intangible (“CDI”)  90   91   101 
 Other, net  492   493   483 
  Total non-interest expense, net  8,613   8,551   8,661 
        
 Income before income taxes  8,810   8,902   7,674 
 Provision for income taxes  1,786   1,651   1,463 
  Net income $7,024  $7,251  $6,211 
        
 Net income per common share:      
 Basic $0.84  $0.87  $0.75 
 Diluted  0.83   0.86   0.74 
        
 Weighted average common shares outstanding:      
 Basic  8,365,350   8,331,121   8,309,947 
 Diluted  8,465,393   8,444,798   8,378,983 
              
TIMBERLAND BANCORP INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF INCOME Nine Months Ended
($ in thousands, except per share amounts) June 30,   June 30,
(unaudited) 2021   2020
 Interest and dividend income      
 Loans receivable $39,406    $38,457 
 Investment securities  877     1,274 
 Dividends from mutual funds, FHLB stock and other investments  83     95 
 Interest bearing deposits in banks  816     2,164 
  Total interest and dividend income  41,182     41,990 
        
 Interest expense      
 Deposits  2,358     3,591 
 Borrowings  76     37 
  Total interest expense  2,434     3,628 
  Net interest income  38,748     38,362 
 Provision for loan losses  --     3,200 
  Net interest income after provision for loan losses  38,748     35,162 
        
 Non-interest income      
 Service charges on deposits  2,943     3,136 
 ATM and debit card interchange transaction fees  3,755     3,178 
 Gain on sales of loans, net  5,367     3,829 
 BOLI net earnings  445     442 
 Servicing income (expense) on loans sold, net  (4)    171 
 Valuation recovery (allowance) on loan servicing rights, net  23     (23)
 Recoveries on investment securities, net  14     113 
 Other  1,168     1,627 
  Total non-interest income, net  13,711     12,473 
        
 Non-interest expense      
 Salaries and employee benefits  13,944     13,913 
 Premises and equipment  2,949     2,914 
 Gain on disposition of premises and equipment, net  --     (98)
 Advertising  472     493 
 OREO and other repossessed assets, net  (89)    60 
 ATM and debit card processing  1,341     1,203 
 Postage and courier  428     416 
 State and local taxes  822     705 
 Professional fees  675     766 
 FDIC insurance expense (credit)  301     116 
 Loan administration and foreclosure  319     358 
 Data processing and telecommunications  1,868     1,702 
 Deposit operations  818     836 
 Amortization of CDI  271     304 
 Other, net  1,455     1,631 
  Total non-interest expense, net  25,574     25,319 
        
 Income before income taxes  26,885     22,316 
 Provision for income taxes  5,320     4,404 
  Net income $21,565    $17,912 
        
 Net income per common share:      
 Basic $2.59    $2.15 
 Diluted  2.55     2.12 
        
 Weighted average common shares outstanding:      
 Basic  8,336,590     8,331,908 
 Diluted  8,440,861     8,437,030 
            

  
TIMBERLAND BANCORP INC. AND SUBSIDIARYCONSOLIDATED BALANCE SHEETS 
($ in thousands, except per share amounts) (unaudited) June 30, March 31, June 30,
  2021 2021 2020
Assets      
Cash and due from financial institutions $25,387  $21,707  $24,691 
Interest-bearing deposits in banks  478,339   411,635   246,953 
 Total cash and cash equivalents  503,726   433,342   271,644 
        
Certificates of deposit (“CDs”) held for investment, at cost  31,218   39,674   72,014 
Investment securities:      
 Held to maturity, at amortized cost  52,314   36,465   30,660 
 Available for sale, at fair value  67,491   69,184   41,914 
Investments in equity securities, at fair value  960   957   977 
FHLB stock  2,103   2,303   1,922 
Other investments, at cost  3,000   3,000   3,000 
Loans held for sale  3,359   8,455   9,837 
       
Loans receivable  1,015,034   1,044,117   1,025,653 
Less: Allowance for loan losses  (13,469)  (13,434)  (12,894)
 Net loans receivable  1,001,565   1,030,683   1,012,759 
        
Premises and equipment, net  22,519   22,763   23,119 
OREO and other repossessed assets, net  157   157   1,466 
BOLI  22,041   21,891   21,447 
Accrued interest receivable  4,260   4,471   4,614 
Goodwill  15,131   15,131   15,131 
CDI  1,354   1,444   1,727 
Loan servicing rights, net  3,548   3,604   3,073 
Operating lease right-of-use assets  2,360   2,436   2,662 
Other assets  3,354   3,284   3,676 
 Total assets $1,740,460  $1,699,244  $1,521,642 
        
Liabilities and shareholders’ equity      
Deposits: Non-interest-bearing demand $495,938  $499,541  $427,102 
Deposits: Interest-bearing  1,026,714   982,318   891,438 
 Total deposits  1,522,652   1,481,859   1,318,540 
        
Operating lease liabilities  2,432   2,499   2,695 
FHLB borrowings  5,000   10,000   10,000 
Other liabilities and accrued expenses  6,884   6,343   7,601 
 Total liabilities  1,536,968   1,500,701   1,338,836 
       
Shareholders’ equity      
Common stock, $.01 par value; 50,000,000 shares authorized;         8,353,969 shares issued and outstanding – June 30, 2021         8,361,457 shares issued and outstanding – March 31, 2021          8,310,793 shares issued and outstanding – June 30, 2020  42,624   42,949   42,352 
Retained earnings  160,739   155,473   140,478 
Accumulated other comprehensive income (loss)  129   121   (24)
 Total shareholders’ equity  203,492   198,543   182,806 
 Total liabilities and shareholders’ equity $1,740,460  $1,699,244  $1,521,642 
              

  
KEY FINANCIAL RATIOS AND DATA Three Months Ended
($ in thousands, except per share amounts) (unaudited) June 30, March 31, June 30,
  2021 2021 2020
PERFORMANCE RATIOS:      
Return on average assets (a)  1.63%  1.75%  1.70%
Return on average equity (a)  14.02%  14.89%  13.83%
Net interest margin (a)  3.22%  3.21%  3.63%
Efficiency ratio  49.43%  48.99%  49.96%
       
  Nine Months Ended
  June 30,   June 30,
  2021   2020
PERFORMANCE RATIOS:      
Return on average assets (a)  1.74%    1.79%
Return on average equity (a)  14.76%    13.53%
Net interest margin (a)  3.30%    4.08%
Efficiency ratio  48.75%    49.81%
       
  June 30, March 31, June 30,
  2021 2021 2020
ASSET QUALITY RATIOS AND DATA:      
Non-accrual loans $2,029  $2,305  $3,015 
Loans past due 90 days and still accruing  --   --   -- 
Non-performing investment securities  179   188   228 
OREO and other repossessed assets  157   157   1,466 
Total non-performing assets (b) $2,365  $2,650  $4,709 
       
Non-performing assets to total assets (b)  0.14%  0.16%  0.31%
Net charge-offs (recoveries) during quarter $(35) $(2) $(4)
ALL to non-accrual loans  664%  583%  428%
ALL to loans receivable (c)  1.33%  1.29%  1.26%
ALL to loans receivable (excluding SBA PPP loans) (d) (non-GAAP)  1.46%  1.48%  1.43%
ALL to loans receivable (excluding SBA PPP loans and South Sound Acquisition loans) (d) (e) (non-GAAP)  1.53%  1.56%  1.55%
Troubled debt restructured loans on accrual status (f) $2,380  $2,864  $2,876 
       
CAPITAL RATIOS:      
Tier 1 leverage capital  11.03%  11.19%  11.55%
Tier 1 risk-based capital  21.34%  19.47%  19.39%
Common equity Tier 1 risk-based capital  21.34%  19.47%  19.39%
Total risk-based capital  22.60%  20.72%  20.65%
Tangible common equity to tangible assets (non-GAAP)  10.85%  10.81%  11.03%
       
BOOK VALUES:      
Book value per common share $24.36  $23.75  $22.00 
Tangible book value per common share (g)  22.39   21.76   19.97 

________________________________________________

(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 $95,633, $138,175 and $122,581 at June 30, 2021, March 31, 2021 and June 30, 2020, respectively.(e) Does not include loans acquired in the South Sound Acquisition totaling $40,622, $46,626 and $73,084 at June 30, 2021, March 31, 2021 and June 30, 2020, respectively.(f) Does not include troubled debt restructured loans totaling $187, $192 and $207 reported as non-accrual loans at June 30, 2021, March 31, 2021 and June 30, 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
 June 30, 2021 March 31, 2021 June 30, 2020
 Amount Rate Amount Rate Amount Rate
            
Assets           
Loans receivable and loans held for sale$1,032,591  5.15% $1,044,476  4.90% $1,015,966  5.07%
Investment securities and FHLB stock (1) 115,839  1.10   101,675  1.23   81,086  1.82 
Interest-earning deposits in banks and CDs 487,508  0.20   422,286  0.24   278,158  0.62 
Total interest-earning assets 1,635,938  3.39   1,568,437  3.41   1,375,210  3.97 
Other assets 87,638     85,203     87,905   
Total assets$1,723,576    $1,653,640    $1,463,115   
            
Liabilities and Shareholders’ Equity           
NOW checking accounts$416,234  0.13% $394,612  0.16% $332,502  0.26%
Money market accounts 196,187  0.29   178,768  0.30   156,537  0.47 
Savings accounts 253,147  0.08   236,504  0.08   199,054  0.11 
Certificates of deposit accounts 141,301  1.02   146,065  1.19   168,368  1.68 
Total interest-bearing deposits 1,006,869  0.27   955,949  0.32   856,461  0.54 
Borrowings 5,769  1.25   10,003  1.17   10,000  1.17 
Total interest-bearing liabilities 1,012,638  0.28   965,952  0.33   866,461  0.55 
            
Non-interest-bearing demand deposits 499,383     482,528     406,396   
Other liabilities 11,217     10,365     10,684   
Shareholders’ equity 200,338     194,795     179,574   
Total liabilities and shareholders’ equity$1,723,576    $1,653,640    $1,463,115   
            
Interest rate spread  3.11%   3.08%   3.42%
Net interest margin (2)  3.22%   3.21%   3.63%
Average interest-earning assets to           
average interest-bearing liabilities 161.55%    162.37%    158.72%  

 _____________________________________(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, 2021 June 30, 2020
 Amount Rate Amount Rate
        
Assets       
Loans receivable and loans held for sale$1,035,733  5.07% $949,822  5.40%
Investment securities and FHLB stock (1) 103,821  1.23   76,282  2.40 
Interest-earning deposits in banks and CDs 427,881  0.25   226,129  1.28 
Total interest-earning assets 1,567,435  3.50   1,252,233  4.47 
Other assets 85,636     85,405   
Total assets$1,653,071    $1,337,638   
        
Liabilities and Shareholders’ Equity       
NOW checking accounts$396,140  0.16% $310,717  0.29%
Money market accounts 181,115  0.30   144,663  0.54 
Savings accounts 237,456  0.08   184,076  0.10 
Certificates of deposit accounts 147,530  1.20   168,148  1.75 
Total interest-bearing deposits 962,241  0.33   807,604  0.59 
Borrowings 8,592  1.17   4,234  1.17 
Total interest-bearing liabilities 970,833  0.34   811,838  0.60 
        
Non-interest-bearing demand deposits 476,628     339,460   
Other liabilities 10,757     9,823   
Shareholders’ equity 194,853     176,517   
Total liabilities and shareholders’ equity$1,653,071    $1,337,638   
        
Interest rate spread  3.16%   3.87%
Net interest margin (2)  3.30%   4.08%
Average interest-earning assets to       
average interest-bearing liabilities 161.45%    154.25%  

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

Non-GAAP Financial MeasuresIn 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) June 30, 2021 March 31, 2021 June 30, 2020
       
Shareholders’ equity $203,492  $198,543  $182,806 
Less goodwill and CDI  (16,485)  (16,575)  (16,858)
Tangible common equity $187,007  $181,968  $165,948 
       
Total assets $1,740,460  $1,699,244  $1,521,642 
Less goodwill and CDI  (16,485)  (16,575)  (16,858)
Tangible assets $1,723,975  $1,682,669  $1,504,784 
             

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

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Source: Timberland Bancorp, Inc.


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