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Timberland Bancorp Earnings Per Share Increased 24% to $0.42 for its Second Fiscal Quarter of 2017

  • Reports Record Company Profitability for the First Half of Fiscal 2017
  • Earnings per Share Increased 25% to $0.86 for the First Six Months of Fiscal 2017

HOQUIAM, Wash., April 25, 2017 (GLOBE NEWSWIRE) -- Timberland Bancorp, Inc. (NASDAQ:TSBK) (“Timberland” or “the Company”) today reported net income of $3.13 million, or $0.42 per diluted common share, for its second fiscal quarter ended March 31, 2017. This compares to net income of $2.38 million, or $0.34 per diluted common share, for the quarter ended March 31, 2016, and net income of $3.15 million, or $0.43 per diluted common share, for the preceding quarter ended December 31, 2016.

For the first six months of fiscal 2017, Timberland earned $6.28 million, or $0.86 per diluted common share, an increase in net income of 28% and an increase in earnings per diluted common share (“EPS”) of 25% from the $4.91 million, or $0.69 per diluted common share, reported for the first six months of fiscal 2016.

Timberland’s Board of Directors also declared a quarterly dividend of $0.11 per common share, payable on May 26, 2017 to shareholders of record on May 12, 2017.

“We continue to see solid growth opportunities in the Western Washington markets we serve,” stated Michael R. Sand, President and CEO. “Growth in assets to a Company record $947 million contributed to higher revenues and increased profitability for the first half of our current fiscal year. Revenue for this period increased 12% while expenses increased 4%, resulting in a 25% increase in our earnings per share compared to the first half of the prior fiscal year. We continue to see strong loan demand in our markets and remain pleased that core deposit growth has been sufficient to fund the Bank’s loan growth.”

Second Fiscal Quarter 2017 Earnings and Balance Sheet Highlights (at or for the period ended March 31, 2017, compared to December 31, 2016, or March 31, 2016):

Earnings Highlights:

  • EPS increased 24% to $0.42 from $0.34 for the comparable quarter one year ago;
  • Net income increased 31% to $3.13 million from $2.38 million for the comparable quarter one year ago;
  • EPS for the first six months of fiscal 2017 increased 25% to $0.86 from $0.69 for the first six months of fiscal 2016;
  • Return on average equity and return on average assets for the current quarter were 12.24% and 1.35%, respectively;
  • Net interest margin remained strong at 3.88% for the current quarter;
  • Operating revenue increased 11% from the comparable quarter one year ago; and
  • Non-interest income increased 13% from the comparable quarter one year ago.

Balance Sheet Highlights:

  • Total assets increased 11% year-over-year and 2% from the prior quarter;
  • Net loans receivable increased 9% year-over-year and 1% from the prior quarter;
  • Total deposits increased 14% year-over-year and 2% from the prior quarter;
  • Other real estate owned (“OREO”) and other repossessed assets decreased 45% year-over-year and 8% from the prior quarter;
  • Non-performing assets decreased 42% year-over-year and 12% from the prior quarter to 0.60% of total assets; and
  • Book and tangible book values per common share were $14.27 and $13.50, respectively, at March 31, 2017.

Operating Results

Operating revenue (net interest income before the recapture of loan losses, plus non-interest income excluding other than temporary impairment (“OTTI”) charges on investment securities) increased 11% to $11.30 million for the current quarter from $10.21 million for the comparable quarter one year ago and decreased 2% from $11.53 million for the preceding quarter. Operating revenue increased 12% to $22.83 million for the first six months of fiscal 2017 from $20.44 million for the comparable period one year ago.

Net interest income for the current quarter increased 10% to $8.45 million from $7.67 million for the comparable quarter one year ago and increased 2% from $8.31 million for the preceding quarter. The increased net interest income for the current quarter compared to the preceding quarter was primarily due to an increase in the amount of non-accrual interest collected. For the first six months of fiscal 2017, net interest income increased 9% to $16.76 million from $15.38 million for the first six months of fiscal 2016.

The net interest margin for the current quarter was 3.88% compared to 3.91% for the preceding quarter and 3.92% for the comparable quarter one year ago. The net interest margin for the current quarter was increased by approximately nine basis points due to the collection of $204,000 of non-accrual interest. The net interest margin for the preceding quarter was increased by approximately one basis point due to the collection of $21,000 of non-accrual interest. The net interest margin for the comparable quarter one year ago was increased by approximately 12 basis points due to the collection of $189,000 in pre-payment penalties and the collection of $46,000 of non-accrual interest. Timberland’s net interest margin for the first six months of fiscal 2017 was 3.90% compared to 3.96% for the first six months of fiscal 2016.

Non-interest income increased 13% to $2.85 million from $2.51 million for the comparable quarter one year ago and decreased 11% from $3.22 million for the preceding quarter. The decrease in non-interest income for the current quarter compared to the preceding quarter was primarily due to a $283,000 decrease in gain on sale of loans and smaller decreases in several other categories. The decrease in gain on sale of loans was primarily due to a decrease in the dollar volume of fixed-rate one- to four-family loans sold during the current quarter. Fiscal year-to-date non-interest income increased 21% to $6.07 million from $5.03 million for the first six months of fiscal 2016.

Total operating (non-interest) expenses for the current quarter increased 1% to $6.86 million from $6.81 million for the preceding quarter and increased 3% from $6.63 million for the comparable quarter one year ago. The increased expenses for the current quarter compared to the preceding quarter were primarily due to a $75,000 increase in salaries and employee benefits and smaller increases in several other categories. These increases were partially offset by a $95,000 decrease in loan administration and foreclosure expense and smaller decreases in several other categories. The increase in salaries and employee benefits expense was primarily due to a decrease in loan originations during the current quarter compared to the prior quarter and a corresponding reduction in the amount of loan origination fees collected. Under generally accepted accounting principles (“GAAP”), the portion of a loan origination fee that is attributable to the estimated employee costs to generate the loan is recorded as a reduction of salaries and employee benefits expense. The decrease in loan administration and foreclosure expense was primarily due to the recovery of $75,000 in legal and foreclosure related expenses on a troubled debt restructured loan (“TDR”) that paid off during the quarter. The efficiency ratio for the current quarter was 60.67% compared to 65.09% for the comparable quarter one year ago and 59.07% for the preceding quarter. Fiscal year-to-date operating expenses increased 4% to $13.67 million from $13.11 million for the first six months of fiscal 2016. The efficiency ratio for the first six months of fiscal 2017 improved to 59.86% from 64.21% for the first six months of fiscal 2016.

The provision for income taxes remained level at $1.57 million for the current quarter and the preceding quarter. The effective tax rate was 33.4% for the current quarter compared to 33.3% for the quarter ended December 31, 2016.

Balance Sheet Management

Total assets increased 2% to $946.68 million at March 31, 2017 from $923.75 million at December 31, 2016. The increase was primarily due to a $12.57 million increase in cash and cash equivalents and a $6.94 million increase in net loans receivable. These increases were primarily funded by an $18.88 million increase in deposits during the quarter.

Liquidity, as measured by cash and cash equivalents, CDs held for investment and available for sale investments securities, was 24.0% of total liabilities at March 31, 2017, compared to 23.1% at December 31, 2016, and 21.6% one year ago.

Net loans receivable increased $6.94 million, or 1%, to $676.08 million at March 31, 2017, from $669.14 million at December 31, 2016. The increase was primarily due to an $11.12 million increase in multi-family mortgage loans, a $3.51 million increase in land loans, a $3.40 million increase in one- to four-family mortgage loans, a $3.01 million increase in custom and owner/builder one- to four-family construction loans, a $2.14 million increase in commercial construction loans, and a $1.62 million increase in commercial real estate loans. These increases were partially offset by an $11.03 million decrease in multi-family construction loans, a $5.56 million increase in the amount of undisbursed construction loans in process and smaller decreases in several other categories. The increase in multi-family mortgage loans and the decrease in multi-family construction loans was primarily due to several multi-family construction projects being completed and converting to permanent financing.

LOAN PORTFOLIO
($ in thousands)March 31, 2017 December 31, 2016 March 31, 2016
Amount Percent Amount Percent Amount Percent
Mortgage loans:
One- to four-family (a)$ 122,889 16% $ 119,485 16% $ 117,465 17%
Multi-family 63,181 8 52,062 7 42,666 6
Commercial 325,120 44 323,496 44 290,817 43
Construction - custom and owner/builder 99,304 13 96,292 13 69,817 10
Construction - speculative one-to four-family 5,311 1 6,133 1 6,384 1
Construction - commercial 10,762 2 8,627 1 22,487 3
Construction - multi-family 11,057 2 22,092 3 20,570 3
Land 25,866 3 22,359 3 24,322 4
Total mortgage loans 663,490 89 650,546 88 594,528 87
Consumer loans:
Home equity and second mortgage 38,024 5 37,602 5 37,144 5
Other 3,527 -- 4,523 1 4,380 1
Total consumer loans 41,551 5 42,125 6 41,524 6
Commercial business loans (b) 42,603 6 42,657 6 43,355 7
Total loans 747,644 100% 735,328 100% 679,407 100%
Less:
Undisbursed portion of construction loans in process (59,724) (54,161) (44,465)
Deferred loan origination fees (2,251) (2,184) (2,048)
Allowance for loan losses (9,590) (9,843) (10,043)
Total loans receivable, net$ 676,079 $ 669,140 $622,851
__________________
a. Does not include one- to four-family loans held for sale totaling $5,542, $2,008 and $1,584 at March 31, 2017, December 31, 2016, and March 31, 2016, respectively.
b. Does not include commercial business loans held for sale totaling $256 at March 31, 2017.

Timberland originated $79.50 million in loans during the quarter ended March 31, 2017, compared to $59.58 million for the comparable quarter one year ago and $90.15 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 (on a much smaller volume) sells the guaranteed portion of U.S. Small Business Administration (“SBA”) loans. During the second quarter of fiscal 2017, fixed-rate one- to four-family mortgage loans and SBA loans totaling $15.01 million were sold compared to $13.94 million for the comparable quarter one year ago and $24.20 million for the preceding quarter.

Timberland’s investment securities decreased $108,000, or 1%, during the quarter to $8.60 million at March 31, 2017, from $8.71 million at December 31, 2016, primarily due to scheduled amortization.

DEPOSIT BREAKDOWN
($ in thousands)
March 31, 2017 December 31, 2016 March 31, 2016
Amount Percent Amount Percent Amount Percent
Non-interest bearing demand $186,239 23% $176,382 22% $148,980 21%
NOW checking 214,488 27 207,415 26 188,108 27
Savings 138,518 17 131,124 17 115,461 16
Money market 118,791 15 122,026 15 100,903 14
Money market – brokered 8,665 1 6,912 1 7,591 1
Certificates of deposit under $100 74,281 9 76,951 10 81,350 11
Certificates of deposit $100 and over 64,658 8 65,956 9 66,448 9
Certificates of deposit – brokered 3,212 -- 3,209 -- 3,197 1
Total deposits $808,852 100% $789,975 100% $712,038 100%

Total deposits increased $18.88 million, or 2%, during the current quarter to $808.85 million at March 31, 2017, from $789.98 million at December 31, 2016. The current quarter’s increase was primarily due to a $9.86 million increase in non-interest bearing demand account balances, a $7.39 million increase in savings account balances and a $7.07 million increase in negotiable order of withdrawal (“NOW”) checking account balances. These increases were partially offset by a $3.97 million decrease in certificates of deposit account balances and a $1.48 million decrease in money market account balances.

Shareholders’ Equity

Total shareholders’ equity increased $5.20 million to $104.83 million at March 31, 2017, from $99.63 million at December 31, 2016. The increase in shareholders’ equity was primarily due to net income of $3.13 million for the quarter and $2.50 million in proceeds received from the exercise of a stock warrant. These increases to shareholders’ equity were partially offset by dividend payments of $808,000 to shareholders.

The stock warrant (which allowed the holder to purchase 370,899 shares of the Company’s common stock at an exercise price of $6.73 at any time through December 23, 2018) was granted in December 2008 to the U.S. Treasury Department (“Treasury”) as part of the Company’s participation in the Treasury’s Troubled Asset Relief Program (“TARP”). In June 2013, the Treasury sold the stock warrant to private investors. On January 31, 2017, the stock warrant was exercised and 370,899 shares of the Company’s common stock were issued in exchange for $2.50 million.

Timberland did not repurchase shares of its common stock during the quarter and, at March 31, 2017, had 221,893 shares authorized to be purchased in accordance with the terms of its existing stock repurchase plan.

Capital Ratios and Asset Quality

Timberland remains well capitalized with a total risk-based capital ratio of 17.02% and a Tier 1 leverage capital ratio of 10.89%.

Timberland recorded a $250,000 loan loss reserve recapture (which added approximately $0.02 to diluted earnings per share) during the quarter ended March 31, 2017 as asset quality metrics continued to improve. The non-performing assets to total assets ratio improved to 0.60% at March 31, 2017 from 0.70% at December 31, 2016 and 1.16% one year ago.

Timberland had net charge-offs of $3,000 for the current quarter compared to a net recovery of $17,000 for the preceding quarter and a net recovery of $154,000 for the comparable quarter one year ago. The allowance for loan losses was 1.40% of loans receivable at March 31, 2017.

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased 34% to $2.66 million at March 31, 2017, from $4.06 million at December 31, 2016, and decreased 27% from $3.67 million one year ago. Non-accrual loans decreased 20% to $1.89 million at March 31, 2017, from $2.36 million at December 31, 2016, and decreased 44% from $3.39 million one year ago.

NON-ACCRUAL LOANSMarch 31, 2017 December 31, 2016 March 31, 2016
($ in thousands)Amount Quantity Amount Quantity Amount Quantity
Mortgage loans:
One- to four-family$ 820 6 $ 846 7 $ 1,365 11
Commercial 314 1 -- -- 1,129 3
Construction -- -- 367 1 -- --
Land 296 2 735 5 451 3
Total mortgage loans 1,430 9 1,948 13 2,945 17
Consumer loans:
Home equity and second mortgage 383 5 387 5 413 7
Other 27 1 29 1 33 1
Total consumer loans 410 6 416 6 446 8
Commercial business loans 54 2 -- -- -- --
Total loans$ 1,894 17 $ 2,364 19 $ 3,391 25

OREO and other repossessed assets decreased 45% to $3.01 million at March 31, 2017, from $5.46 million at March 31, 2016, and decreased 8% from $3.25 million at December 31, 2016. At March 31, 2017, the OREO and other repossessed asset portfolio consisted of 17 individual real estate properties. During the quarter ended March 31, 2017, four OREO properties and one other repossessed asset totaling $381,000 were sold for a net gain of $49,000.

OREO and OTHER REPOSSESSED ASSETSMarch 31, 2017 December 31, 2016 March 31, 2016
($ in thousands)Amount Quantity Amount Quantity Amount Quantity
One- to four-family$ 411 2 $ 456 3 $ 1,645 7
Commercial 637 3 636 3 446 2
Land 1,957 12 2,095 13 3,300 18
Mobile home -- -- 67 1 67 1
Total$ 3,005 17 $ 3,254 20 $ 5,458 28

Non-GAAP Financial Measures
In addition to results presented in accordance with 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 are total assets less goodwill.

The following table provides a reconciliation of ending shareholders’ equity (GAAP) to ending tangible shareholders’ equity (non-GAAP), and ending total assets (GAAP) to ending tangible assets (non-GAAP).

($ in thousands) March 31, 2017 December 31, 2016 March 31, 2016
Shareholders’ equity $ 104,829 $ 99,634 $ 92,262
Less goodwill (5,650) (5,650) (5,650)
Tangible common equity $ 99,179 $ 93,984 $ 86,612
Total assets $ 946,682 $ 923,751 $ 851,962
Less goodwill (5,650) (5,650) (5,650)
Tangible assets $ 941,032 $ 918,101 $ 846,312

Subsequent Event
In April 2017, the Company received a payoff on a $2.24 million TDR. As part of the TDR repayment, the Company also recovered, to the allowance for loan losses, $1.06 million in previously charged off amounts and $718,000 in non-accrual interest. This subsequent event had no financial impact on the quarter ended March 31, 2017.

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). Timberland ranked 8th in the recent release of the S&P Global Market Intelligence ranking of the top performing 50 largest public thrifts as of December 31, 2016. The ranking was based on six metrics which included: return on average assets, return on average common tangible equity, efficiency ratio, median three-year growth rate in tangible common equity per share, non-performing loans to total loans and net charge-offs to average loans.

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 2017 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of us, and could negatively affect the Company’s operations and stock price performance.

TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
($ in thousands, except per share amounts) March 31, Dec 31, March 31,
(unaudited) 2017 2016 2016
Interest and dividend income
Loans receivable $8,840 $8,788 $8,306
Investment securities 68 70 74
Dividends from mutual funds and FHLB stock 12 24 39
Interest bearing deposits in banks 379 281 231
Total interest and dividend income 9,299 9,163 8,650
Interest expense
Deposits 545 543 507
FHLB borrowings 302 307 472
Total interest expense 847 850 979
Net interest income 8,452 8,313 7,671
Recapture of loan losses (250) -- --
Net interest income after recapture of loan losses 8,702 8,313 7,671
Non-interest income
OTTI on investment securities, net -- -- (23)
Service charges on deposits 1,090 1,105 937
ATM and debit card interchange transaction fees 793 800 710
Gain on sale of loans, net 406 689 393
Bank owned life insurance (“BOLI”) net earnings 136 137 137
Servicing income on loans sold 99 97 55
Other 327 388 304
Total non-interest income, net 2,851 3,216 2,513
Non-interest expense
Salaries and employee benefits 3,755 3,680 3,466
Premises and equipment 776 755 771
Advertising 167 162 193
OREO and other repossessed assets, net (12) 30 195
ATM and debit card processing 350 311 331
Postage and courier 120 95 110
State and local taxes 152 155 138
Professional fees 199 201 117
FDIC insurance 107 113 127
Other insurance 33 33 33
Loan administration and foreclosure (1) 94 95
Data processing and telecommunications 464 450 474
Deposit operations 240 309 234
Other 507 422 345
Total non-interest expense 6,857 6,810 6,629
Three Months Ended
March 31, Dec. 31, March 31,
2017 2016 2016
Income before income taxes $ 4,696 $ 4,719 $ 3,555
Provision for income taxes 1,568 1,572 1,175
Net income $ 3,128 $ 3,147 $ 2,380
Net income per common share:
Basic $0.44 $0.46 $0.35
Diluted 0.42 0.43 0.34
Weighted average common shares outstanding:
Basic 7,135,083 6,862,749 6,846,527
Diluted 7,379,353 7,235,515 7,080,005


TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended
($ in thousands, except per share amounts) March 31, March 31,
(unaudited) 2017 2016
Interest and dividend income
Loans receivable $17,628 $16,735
Investment securities 138 143
Dividends from mutual funds and FHLB stock 37 61
Interest bearing deposits in banks 660 402
Total interest and dividend income 18,463 17,341
Interest expense
Deposits 1,088 1,012
FHLB borrowings 610 948
Total interest expense 1,698 1,960
Net interest income 16,765 15,381
Recapture of loan losses (250) --
Net interest income after recapture of loan losses 17,015 15,381
Non-interest income
OTTI on investment securities, net -- (23)
Service charges on deposits 2,195 1,909
ATM and debit card interchange transaction fees 1,593 1,409
Gain on sale of loans, net 1,095 787
BOLI net earnings 274 273
Servicing income on loans sold 196 120
Other 715 556
Total non-interest income, net 6,068 5,031
Non-interest expense
Salaries and employee benefits 7,435 6,936
Premises and equipment 1,531 1,531
Advertising 329 398
OREO and other repossessed assets, net 18 438
ATM and debit card processing 662 653
Postage and courier 214 211
State and local taxes 308 270
Professional fees 399 247
FDIC insurance 221 234
Other insurance 66 65
Loan administration and foreclosure 93 124
Data processing and telecommunications 914 924
Deposit operations 549 406
Other 929 670
Total non-interest expense 13,668 13,107
Six Months Ended
March 31, March 31,
2017 2016
Income before income taxes $9,415 $7,305
Provision for income taxes 3,140 2,397
Net income $6,275 $4,908
Net income per common share:
Basic $0.90 $0.72
Diluted 0.86 0.69
Weighted average common shares outstanding:
Basic 6,997,420 6,858,190
Diluted 7,306,644 7,081,945


TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share amounts) (unaudited) March 31, Dec. 31, March 31,
2017 2016 2016
Assets
Cash and due from financial institutions $ 17,060 $ 16,598 $ 17,121
Interest-bearing deposits in banks 130,980 118,872 92,908
Total cash and cash equivalents 148,040 135,470 110,029
Certificates of deposit (“CDs”) held for investment, at cost 52,934 53,432 52,524
Investment securities:
Held to maturity, at amortized cost 7,326 7,418 7,743
Available for sale, at fair value 1,272 1,288 1,365
FHLB stock 2,307 2,204 2,804
Loans held for sale 5,798 2,008 1,584
Loans receivable 685,669 678,983 632,894
Less: Allowance for loan losses (9,590) (9,843) (10,043)
Net loans receivable 676,079 669,140 622,851
Premises and equipment, net 18,013 17,816 16,355
OREO and other repossessed assets, net 3,005 3,254 5,458
BOLI 18,994 18,858 18,443
Accrued interest receivable 2,443 2,443 2,232
Goodwill 5,650 5,650 5,650
Mortgage servicing rights, net 1,710 1,706 1,488
Other assets 3,111 3,064 3,436
Total assets $946,682 $923,751 $851,962
Liabilities and shareholders’ equity
Deposits: Non-interest-bearing demand $ 186,239 $ 176,382 $ 148,980
Deposits: Interest-bearing 622,613 613,593 563,058
Total deposits 808,852 789,975 712,038
FHLB borrowings 30,000 30,000 45,000
Other liabilities and accrued expenses 3,001 4,142 2,662
Total liabilities 841,853 824,117 759,700
Shareholders’ equity
Common stock, $.01 par value; 50,000,000 shares authorized;
7,345,477 shares issued and outstanding – March 31, 2017
6,956,568 shares issued and outstanding – December 31, 2016
6,933,068 shares issued and outstanding – March 31, 2016 12,986 10,188 9,698
Unearned shares issued to Employee Stock Ownership Plan (“ESOP”) (529) (595) (793)
Retained earnings 92,550 90,230 83,643
Accumulated other comprehensive loss (178) (189) (286)
Total shareholders’ equity 104,829 99,634 92,262
Total liabilities and shareholders’ equity $946,682 $923,751 $851,962


KEY FINANCIAL RATIOS AND DATA Three Months Ended
($ in thousands, except per share amounts) (unaudited) March 31, Dec. 31, March 31,
2017 2016 2016
PERFORMANCE RATIOS:
Return on average assets (a) 1.35% 1.39% 1.13%
Return on average equity (a) 12.24% 12.87% 10.42%
Net interest margin (a) 3.88% 3.91% 3.92%
Efficiency ratio 60.67% 59.07% 65.09%
Six Months Ended
March 31, March 31,
2017 2016
PERFORMANCE RATIOS:
Return on average assets
1.37% 1.18%
Return on average equity 12.55% 10.84%
Net interest margin 3.90% 3.96%
Efficiency ratio 59.86% 64.21%
March 31, Dec. 31, March 31,
2017 2016 2016
ASSET QUALITY RATIOS AND DATA:
Non-accrual loans $1,894 $2,364 $3,391
Loans past due 90 days and still accruing 135 135 135
Non-performing investment securities 638 681 868
OREO and other repossessed assets 3,005 3,254 5,458
Total non-performing assets (b) $5,672 $6,434 $9,852
Non-performing assets to total assets (b) 0.60% 0.70% 1.16%
Net charge-offs (recoveries) during quarter $ 3 $ (17) $ (154)
Allowance for loan losses to non-accrual loans 506% 416% 296%
Allowance for loan losses to loans receivable (c) 1.40% 1.45% 1.59%
Troubled debt restructured loans on accrual status (d) $6,428 $7,579 $7,923
CAPITAL RATIOS:
Tier 1 leverage capital 10.89% 10.60% 10.56%
Tier 1 risk-based capital 15.77% 15.13% 14.21%
Common equity Tier 1 risk-based capital 15.77% 15.13% 14.21%
Total risk-based capital 17.02% 16.39% 15.46%
Tangible common equity to tangible assets (non-GAAP) 10.54% 10.24% 10.23%
BOOK VALUES:
Book value per common share $ 14.27 $ 14.32 $13.31
Tangible book value per common share (e) 13.50 13.51 12.49
__________________________________________________
(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 $404, $404 and $531 reported as non-accrual loans at March 31, 2017, December 31, 2016 and March 31, 2016, respectively.
(e) Tangible common equity divided by common shares outstanding (non-GAAP).


AVERAGE BALANCES, YIELDS, AND RATES - QUARTERLY
($ in thousands)
(unaudited)
For the Three Months Ended
March 31, 2017 December 31, 2016 March 31, 2016
Amount Rate Amount Rate Amount Rate
Assets
Loans and loans held for sale$ 688,506 5.14% $ 684,911 5.13% $ 631,708 5.26%
Investment securities and FHLB Stock 10,866 2.94 10,989 3.42 11,844 3.82
Interest bearing deposits and CD’s 171,203 0.90 153,831 0.72 139,732 0.66
Total interest-bearing assets 870,575 4.27 849,731 4.31 783,284 4.42
Other assets 59,561 57,105 57,072
Total assets 930,136 906,836 840,356
Liabilities and Shareholders’ Equity
NOW checking accounts$ 208,736 0.22% $ 202,385 0.23% $ 184,414 0.24%
Money market accounts 127,935 0.34 120,311 0.32 105,670 0.30
Savings accounts 134,073 0.06 127,656 0.06 112,064 0.05
Certificate of deposit accounts 144,021 0.86 147,433 0.83 151,837 0.80
Total interest-bearing deposits 614,765 0.35 597,785 0.36 553,985 0.37
FHLB borrowings 30,000 4.08 30,000 4.07 45,000 4.22
Total interest-bearing liabilities 644,765 0.52 627,785 0.54 598,985 0.66
Non-interest bearing demand deposits 178,977 176,768 146,581
Other liabilities 4,208 4,495 3,455
Shareholders’ equity 102,186 97,788 91,335
Total liabilities and shareholders’ equity 930,136 906,836 840,356
Interest rate spread 3.75% 3.77% 3.76%
Net interest margin (1) 3.88% 3.91% 3.92%
Average interest-bearing assets to average interest bearing liabilities 135.02% 135.35% 130.77%
_____________________________________
(1) Net interest margin = annualized net interest income / average interest-bearing assets


AVERAGE BALANCES, YIELDS, AND RATES –YEAR-TO-DATE
($ in thousands)
(unaudited)
For the Six Months Ended
March 31, 2017 March 31, 2016
Amount Rate Amount Rate
Assets
Loans and loans held for sale$ 686,689 5.13% $ 628,616 5.32%
Investment securities and FHLB Stock 10,929 3.18 11,900 3.43
Interest bearing deposits and CD’s 162,433 0.81 136,666 0.59
Total interest-bearing assets 860,051 4.29 777,182 4.46
Other assets 58,317 57,645
Total assets 918,368 834,827
Liabilities and Shareholders’ Equity
NOW checking accounts$ 205,526 0.23% $ 181,999 0.25%
Money market accounts 124,081 0.33 105,020 0.30
Savings accounts 130,829 0.06 111,205 0.05
Certificate of deposit accounts 145,746 0.84 152,858 0.78
Total interest-bearing deposits 606,182 0.36 551,082 0.37
FHLB borrowings 30,000 4.08 45,000 4.21
Total interest-bearing liabilities 636,182 0.54 596,082 0.66
Non-interest bearing demand deposits 177,860 144,544
Other liabilities 4,363 3,616
Shareholders’ equity 99,963 90,585
Total liabilities and shareholders’ equity 918,368 834,827
Interest rate spread 3.76% 3.80%
Net interest margin (1) 3.90% 3.96%
Average interest-bearing assets to average interest bearing liabilities 135.19% 130.38%
_____________________________________
(1) Net interest margin = annualized net interest income / average interest-bearing assets


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

Source:Timberland Bancorp, Inc