Timberland Bancorp Fiscal Year Net Income Increases 40% to $14.17 Million

  • Fiscal Year Earnings Per Share Increases 34% to $1.92
  • Fiscal Year Return on Equity Increases to 13.65%
  • Fiscal Year Return on Assets Increases to 1.53%

HOQUIAM, Wash., Nov. 01, 2017 (GLOBE NEWSWIRE) -- Timberland Bancorp, Inc. (NASDAQ:TSBK) (“Timberland” or “the Company”) today reported that net income increased 40% to $14.17 million for the fiscal year ended September 30, 2017 from $10.15 million for the fiscal year ended September 30, 2016. Earnings per diluted common share (“EPS”) increased 34% to $1.92 for fiscal year 2017 from $1.43 for the prior fiscal year.

Timberland also reported net income of $3.62 million, or $0.48 per diluted common share, for its fourth fiscal quarter ended September 30, 2017. This compares to net income of $2.70 million, or $0.38 per diluted common share, for the quarter ended September 30, 2016, and net income of $4.28 million, or $0.58 per diluted common share, for the preceding quarter ended June 30, 2017.

Timberland’s Board of Directors declared a quarterly cash dividend of $0.11 per common share, payable on November 30, 2017 to shareholders of record on November 16, 2017.

“Fiscal year 2017 marked the 7th consecutive year the Company increased earnings per share, return on equity, return on assets and net income,” stated Michael R. Sand, President and CEO. “Each of these metrics increased significantly compared to the prior fiscal year as detailed fully in this earnings release. The continued improvement in the Company’s financial position is a result of exercising pricing discipline while growing revenues and carefully managing expenses. Our positioning of the Company has been predicated on producing above peer results in conjunction with structuring the balance sheet to benefit from rising interest rates. We anticipate maintaining this sensitivity to rising rates. Timberland’s shareholders have been rewarded this year by a significant increase in the Company’s share price which increased the Company’s market cap to a level comfortably sufficient for Timberland to be added to the Russell 2000 and 3000 indexes. This has increased the visibility of the Company and significantly increased its average daily trading volume.”

2017 Fiscal Year Earnings and Balance Sheet Highlights (at or for the period ended September 30, 2017, compared to September 30, 2016, or June 30, 2017):

Earnings Highlights:

  • Fiscal year 2017 EPS increased 34% to $1.92 from $1.43 for fiscal year 2016;
  • Quarterly EPS increased 26% to $0.48 from $0.38 for comparable quarter one year ago;
  • Net income increased 40% to $14.17 million from $10.15 million for the prior fiscal year;
  • Return on average equity and return on average assets increased to 13.65% and 1.53%, respectively, for the 2017 fiscal year; from 11.00% and 1.19%, respectively, for the prior fiscal year;
  • Operating revenue increased 13% compared to fiscal year 2016;
  • Non-interest income increased 14% compared to fiscal year 2016;
  • Efficiency ratio improved to 57.92% for fiscal year 2017 from 63.89% for fiscal year 2016; and
  • Net interest margin for fiscal 2017 increased to 4.07% from 3.88% for fiscal 2016.

Balance Sheet Highlights:

  • Increased total assets 7% year-over-year and 2% from the prior quarter;
  • Increased net loans receivable 4% year-over-year;
  • Increased total deposits 10% year-over-year and 2% from the prior quarter;
  • Decreased non-performing assets 27% year-over-year and 5% from the prior quarter; and
  • Increased book and tangible book (non-GAAP) values per common share to $15.08 and $14.31, respectively, at September 30, 2017 from $13.95 and $13.13, respectively, at September 30, 2016.

Operating Results

Operating revenue (net interest income before provision for loan losses, plus non-interest income excluding gains or losses on the sale of investment securities and other than temporary impairment (“OTTI”) charges on investment securities) increased 13% for the 2017 fiscal year to $47.48 million from $41.86 million for Timberland’s 2016 fiscal year. For the current quarter operating revenue increased 11% to $12.24 million from $11.06 million for the comparable quarter one year ago and decreased 1% from $12.40 for the preceding quarter. During the preceding quarter operating revenue was increased by $466,000 – the net amount resulting from the collection of $748,000 of non-accrual interest and the payment of $282,000 in prepayment penalties incurred to prepay Timberland’s remaining Federal Home Loan Bank (“FHLB”) borrowings.

Net interest income for the 2017 fiscal year increased 14% to $35.14 million from $30.80 million for the 2016 fiscal year. Net interest income for the current quarter increased 17% to $9.13 million from $7.81 million for the comparable quarter one year ago and decreased 1% from $9.25 million for the preceding quarter. The increased net interest income for the preceding quarter was primarily due to an increase in the amount of non-accrual interest collected, which was partially offset by prepayment penalties on FHLB borrowings as noted in the prior paragraph.

Timberland’s net interest margin for the fiscal year ended September 30, 2017, increased to 4.07% from 3.88% for the fiscal year ended September 30, 2016. The net interest margin for the current quarter increased to 4.18% from 3.77% for the comparable quarter one year ago and decreased from 4.29% for the preceding quarter. The net interest margin for the prior quarter was increased by approximately 22 basis points due to the net effect ($466,000) of collecting $748,000 of non-accrual interest and paying $282,000 in FHLB borrowing prepayment penalties. The net interest margin for the current quarter was increased by less than one basis point due to the collection of $8,000 of non-accrual interest.

Non-interest income for fiscal year 2017 increased 14% to $12.37 million from $10.89 million for the prior fiscal year. The increase was primarily due to increases in services charges on deposits, gain on sales of loans, servicing income on loans sold and smaller increases in several other categories. Non-interest income for the current quarter increased 1% to $3.15 million from $3.11 million for the comparable quarter one year ago and decreased slightly from $3.16 million for the preceding quarter.

For fiscal year 2017, total (non-interest) operating expense increased 3% to $27.52 million from $26.64 million for the prior fiscal year. Total operating expenses for the current quarter decreased slightly to $6.91 million from $6.94 million for the preceding quarter and from $6.96 million for the comparable quarter one year ago. The efficiency ratio for fiscal 2017 improved to 57.92% from 63.89% for fiscal year 2016. The efficiency ratio for the current quarter improved to 56.31% from 63.77% for the comparable quarter one year ago.

The provision for income taxes for fiscal year 2017 increased $2.18 million to $7.08 million from $4.90 million for fiscal year 2016, primarily due to higher pre-tax income. The effective tax rate was 33.3% for fiscal year 2017 compared to 32.6% for fiscal year 2016. The provision for income taxes for the current quarter decreased to $1.75 million from $2.19 million for the preceding quarter, primarily due to lower pre-tax income. The effective tax rate was 32.6% for the current quarter compared to 33.8% for the quarter ended June 30, 2017. The lower effective tax rate for the current quarter was in part due to the adoption of Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting.

Balance Sheet Management

Total assets increased $60.64 million, or 7%, during the fiscal year to $952.02 million at September 30, 2017 from $891.39 million at September 30, 2016. This increase was primarily due to a $39.25 million increase in cash and cash equivalents and a $27.22 million increase in net loans receivable. These increases, and the repayment of $30.00 million in FHLB borrowings, were primarily funded by a $76.36 million increase in deposits and retained net income during the fiscal year. Total assets increased $21.02 million, or 2%, during the current quarter to $952.02 million at September 30, 2017 from $931.01 million at June 30, 2017. The increase was primarily due to a $15.75 million increase in cash and cash equivalents and a $3.21 million increase in net loans receivable and was funded by increased deposits.

Liquidity, as measured by the sum of cash and cash equivalents, CDs held for investment and available for sale investment securities, was 22.9% of total liabilities at September 30, 2017, compared to 21.3% at June 30, 2017, and 20.6% one year ago.

Net loans receivable increased $27.22 million, or 4%, during the fiscal year to $690.36 million at September 30, 2017, from $663.15 million at September 30, 2016. The increase was primarily due to a $24.59 million increase in custom and owner/builder one- to four-family construction loans, a $16.40 million increase in commercial real estate loans, a $10.27 million increase in commercial construction loans, an $8.74 million increase in multi-family construction loans and smaller increases in several other categories. These increases were partially offset by a $33.78 million increase in the amount of undisbursed construction loans in process, a $3.70 million decrease in multi-family mortgage loans and smaller decreases in several other categories.

Net loans receivable increased $3.21 million during the current quarter to $690.36 million at September 30, 2017, from $687.16 million at June 30, 2017. The increase was primarily due to a $10.27 million increase in multi-family construction loans, an $8.06 million increase in custom and owner/builder one- to four-family construction loans and smaller increases in several other categories. These increases were partially offset by a $10.28 million increase in the amount of undisbursed construction loans in process, a $3.80 million decrease in one- to four- family mortgage loans and smaller decreases in several other categories.

LOAN PORTFOLIO

($ in thousands)September 30, 2017 June 30, 2017 September 30, 2016
Amount Percent Amount Percent Amount Percent
Mortgage loans:
One- to four-family (a)$ 118,147 15% $ 121,705 16% $ 118,560 16%
Multi-family 58,607 7 61,051 8 62,303 9
Commercial 328,927 42 331,901 43 312,525 43
Construction - custom and
owner/builder 117,641 15 109,578 14 93,049 13
Construction - speculative
one-to four-family
9,918 1 8,002 1 8,106 1
Construction - commercial 19,630 3 20,067 3 9,365 1
Construction - multi-family 21,327 3 11,057 1 12,590 2
Land 23,910 3 24,333 3 21,627 3
Total mortgage loans 698,107 89 687,694 89 638,125 88
Consumer loans:
Home equity and second
mortgage 38,420 5 36,320 5 39,727 5
Other 3,823 -- 3,789 -- 4,139 1
Total consumer loans 42,243 5 40,109 5 43,866 6
Commercial business loans (b) 44,444 6 43,407 6 41,837 6
Total loans 784,794 100% 771,210 100% 723,828 100%
Less:
Undisbursed portion of
construction loans in
process (82,411) (72,133) (48,627)
Deferred loan origination
fees (2,466) (2,309) (2,229)
Allowance for loan losses (9,553) (9,610) (9,826)
Total loans receivable, net$ 690,364 $ 687,158 $663,146

(a) Does not include one- to four-family loans held for sale totaling $3,515, $3,523 and $3,604 at September 30, 2017, June 30, 2017, and September 30, 2016, respectively.
(b) Does not include commercial business loans held for sale totaling $84 at September 30, 2017.

Timberland originated $85.10 million in loans during the quarter ended September 30, 2017, compared to $69.71 million for the comparable quarter one year ago and $92.93 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 fourth quarter of fiscal 2017, fixed-rate one- to four-family mortgage loans and SBA loans totaling $15.88 million were sold compared to $17.83 million for the comparable quarter one year ago and $19.50 million for the preceding quarter.

Timberland’s investment securities and other investments decreased $124,000, or 1%, to $11.38 million at September 30, 2017, from $11.50 million at June 30, 2017, primarily due to scheduled amortization.

DEPOSIT BREAKDOWN ($ in thousands)
September 30, 2017 June 30, 2017 September 30, 2016
Amount Percent Amount Percent Amount Percent
Non-interest-bearing demand $205,952 25% $197,527 24% $172,283 23%
NOW checking 220,315 26 216,719 26 203,812 27
Savings 140,987 17 136,750 17 123,474 16
Money market 122,877 15 119,025 15 107,083 14
Money market – brokered 8,125 1 8,506 1 6,908 1
Certificates of deposit under $250 120,844 14 121,505 15 128,330 17
Certificates of deposit $250 and over 15,601 2 15,590 2 16,439 2
Certificates of deposit – brokered 3,197 -- 3,196 -- 3,205 --
Total deposits $837,898 100% $818,818 100% $761,534 100%


Total deposits increased $76.36 million, or 10%, during the fiscal year to $837.90 million at September 30, 2017, from $761.53 million at September 30, 2016. This increase was primarily due to a $33.67 million increase in non-interest-bearing demand account balances, a $17.51 million increase in savings account balances, a $17.01 million increase in money market account balances and a $16.50 million increase in negotiable order of withdrawal (“NOW”) checking account balances. These increases were partially offset by an $8.33 million decrease in certificates of deposit account balances.

Total deposits increased $19.08 million, or 2%, during the current quarter to $837.90 million at September 30, 2017, from $818.82 million at June 30, 2017. This increase was primarily due to an $8.45 million increase in non-interest-bearing demand account balances, a $4.24 million increase in savings account balances, a $3.60 million increase NOW checking account balances and a $3.47 million increase in money market account balances. These increases were partially offset by a $649,000 decrease in certificates of deposit account balances.

Shareholders’ Equity

Total shareholders’ equity increased $2.38 million to $111.00 million at September 30, 2017, from $108.62 million at June 30, 2017. The increase in shareholders’ equity was primarily due to net income of $3.61 million for the quarter, which was partially offset by dividend payments of $1.40 million to shareholders.

Capital Ratios and Asset Quality

Timberland remains well capitalized with a total risk-based capital ratio of 17.56% and a Tier 1 leverage capital ratio of 11.52% at September 30, 2017.

No provision for loan losses was made for the quarters ended September 30, 2017 and 2016. Timberland recorded a $1.00 million loan loss reserve recapture (which added approximately $0.09 to diluted earnings per share) during the quarter ended June 30, 2017, mainly due to the Bank’s recovery on a previously charged-off commercial mortgage loan. Timberland had net charge-offs of $57,000 for the current quarter compared to a net recovery of $1.02 million for the preceding quarter and net charge-offs of $15,000 for the comparable quarter one year ago. The allowance for loan losses was 1.36% of loans receivable at September 30, 2017, compared to 1.38% at June 30, 2017.

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased 31% to $2.41 million at September 30, 2017, from $3.47 million one year ago, and decreased 1% from $2.44 million at June 30, 2017. Non-accrual loans decreased 33% to $1.91 million at September 30, 2017, from $2.87 million one year ago, and decreased 7% from $2.06 million at June 30, 2017.

NON-ACCRUAL LOANSSeptember 30, 2017 June 30, 2017 September 30, 2016
($ in thousands)Amount Quantity Amount Quantity Amount Quantity
Mortgage loans:
One- to four-family$ 874 7 $ 896 7 $ 914 7
Commercial 213 2 403 1 612 1
Construction -- -- -- -- 367 1
Land 566 4 496 2 548 5
Total mortgage loans 1,653 13 1,795 10 2,441 14
Consumer loans:
Home equity and second
mortgage 258 3 260 3 402 6
Other -- -- -- -- 30 1
Total consumer loans 258 3 260 3 432 7
Total loans$ 1,911 16 $ 2,055 13 $ 2,873 21


OREO and other repossessed assets decreased 20% to $3.30 million at September 30, 2017, from $4.12 million at September 30, 2016, and decreased 3% from $3.42 million at June 30, 2017. At September 30, 2017, the OREO and other repossessed asset portfolio consisted of 15 individual real estate properties and one recreational vehicle. During the quarter ended September 30, 2017, two OREO properties were sold.

OREO and OTHER REPOSSESSED ASSETSSeptember 30, 2017 June 30, 2017 September 30, 2016
($ in thousands)Amount Quantity Amount Quantity Amount Quantity
One- to four-family$ 875 2 $ 927 3 $ 1,071 5
Commercial 533 2 587 2 648 3
Land 1,865 11 1,903 12 2,331 14
Consumer 28 1 -- -- 67 1
Total$ 3,301 16 $ 3,417 17 $ 4,117 23

The non-performing assets to total assets ratio improved to 0.60% at September 30, 2017, compared to 0.65% at June 30, 2017 and 0.88% one year ago.

Non-GAAP Financial Measures
In addition to results presented in accordance with generally accepted accounting principles (“GAAP”), this press release contains certain non-GAAP financial measures. Timberland believes that certain non-GAAP financial measures provide investors with information useful in understanding the Company’s financial performance; however, readers of this report are urged to review these non-GAAP financial measures in conjunction with GAAP results as reported.

Financial measures that exclude intangible assets are non-GAAP measures. To provide investors with a broader understanding of capital adequacy, Timberland provides non-GAAP financial measures for tangible common equity, along with the GAAP measure. Tangible common equity is calculated as shareholders’ equity less goodwill. In addition, tangible assets equal total assets less goodwill.

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

($ in thousands) Sept. 30, 2017 June 30, 2017 Sept. 30, 2016
Shareholders’ equity $ 111,000 $ 108,616 $ 96,834
Less goodwill (5,650) (5,650) (5,650)
Tangible common equity $ 105,350 $ 102,966 $ 91,184
Total assets $ 952,024 $ 931,009 $ 891,388
Less goodwill (5,650) (5,650) (5,650)
Tangible assets $ 946,374 $ 925,359 $ 885,738


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 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 2018 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of us, and could negatively affect the Company’s operations and stock price performance.

TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
($ in thousands, except per share amounts) Sept. 30, June 30, Sept. 30,
(unaudited) 2017 2017 2016
Interest and dividend income
Loans receivable and loans held for sale $9,104 $9,652 $8,588
Investment securities 73 69 74
Dividends from mutual funds, other investments and FHLB stock 28 23 23
Interest bearing deposits in banks and CDs 505 421 253
Total interest and dividend income 9,710 10,165 8,938
Interest expense
Deposits 581 549 521
FHLB borrowings -- 369 611
Total interest expense 581 918 1,132
Net interest income 9,129 9,247 7,806
Recapture of loan losses -- (1,000) --
Net interest income after recapture of loan losses 9,129 10,247 7,806
Non-interest income
Service charges on deposits 1,170 1,153 1,071
ATM and debit card interchange transaction fees 895 855 1,073
Gain on sales of loans, net 502 561 551
Bank owned life insurance (“BOLI”) net earnings 139 133 141
Servicing income on loans sold 114 106 86
Recoveries (OTTI) on investment securities, net 33 -- (140)
Other 292 348 327
Total non-interest income, net 3,145 3,156 3,109
Non-interest expense
Salaries and employee benefits 3,732 3,741 3,589
Premises and equipment 789 767 831
Advertising 199 170 163
OREO and other repossessed assets, net -- 4 101
ATM and debit card processing 369 375 387
Postage and courier 111 109 104
State and local taxes 125 176 161
Professional fees 258 230 208
FDIC insurance 42 99 114
Loan administration and foreclosure 93 20 106
Data processing and telecommunications 476 480 502
Deposit operations 225 301 274
Other 492 466 421
Total non-interest expense 6,911 6,938 6,961
Income before income taxes 5,363 6,465 3,954
Provision for income taxes 1,748 2,188 1,255
Net income $ 3,615 $ 4,277 $ 2,699
Net income per common share:
Basic $0.50 $0.59 $0.40
Diluted 0.48 0.58 0.38
Weighted average common shares outstanding:
Basic 7,280,773 7,269,564 6,831,419
Diluted
7,473,724 7,432,171 7,146,115
TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended
($ in thousands, except per share amounts) Sept. 30, Sept. 30,
(unaudited) 2017 2016
Interest and dividend income
Loans receivable and loans held for sale $36,385 $33,580
Investment securities 279 287
Dividends from mutual funds, other investments and FHLB stock 88 106
Interest bearing deposits in banks and CDs 1,586 902
Total interest and dividend income 38,338 34,875
Interest expense
Deposits 2,218 2,041
FHLB borrowings 979 2,031
Total interest expense 3,197 4,072
Net interest income
35,141 30,803
Recapture of loan losses (1,250) --
Net interest income after recapture of loan losses 36,391 30,803
Non-interest income
Service charges on deposits 4,518 3,969
ATM and debit card interchange transaction fees 3,343 3,261
Gain on sales of loans, net 2,157 1,781
BOLI net earnings 546 551
Servicing income on loans sold 417 266
Recoveries (OTTI) on investment securities, net 33 (168)
Other 1,354 1,229
Total non-interest income, net 12,368 10,889
Non-interest expense
Salaries and employee benefits 14,908 13,921
Premises and equipment 3,087 3,137
Advertising 698 753
OREO and other repossessed assets, net 22 662
ATM and debit card processing 1,405 1,377
Postage and courier 435 413
State and local taxes 609 572
Professional fees 887 657
FDIC insurance 362 448
Loan administration and foreclosure 205 321
Data processing and telecommunications 1,870 1,896
Deposit operations 1,074 912
Other 1,954 1,568
Total non-interest expense 27,516 26,637
Income before income taxes $21,243 $15,055
Provision for income taxes 7,076 4,901
Net income $14,167 $10,154
Net income per common share:
Basic $1.99 $1.48
Diluted 1.92 1.43
Weighted average common shares outstanding:
Basic 7,136,690 6,842,614
Diluted
7,380,053
7,105,349


TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share amounts) (unaudited) Sept. 30, June 30, Sept. 30,
2017 2017 2016
Assets
Cash and due from financial institutions $ 17,447 $ 17,476 $ 16,686
Interest-bearing deposits in banks 130,741 114,964 92,255
Total cash and cash equivalents 148,188 132,440 108,941
Certificates of deposit (“CDs”) held for investment, at cost 43,034 41,187 53,000
Investment securities:
Held to maturity, at amortized cost 7,139 7,244 7,511
Available for sale, at fair value 1,241 1,260 1,342
FHLB stock
Other investments, at cost
1,107
3,000
1,107
3,000
2,204
--
Loans held for sale 3,599 3,523 3,604
Loans receivable 699,917 696,768 672,972
Less: Allowance for loan losses (9,553) (9,610) (9,826)
Net loans receivable 690,364 687,158 663,146
Premises and equipment, net 18,418 18,465 16,159
OREO and other repossessed assets, net 3,301 3,417 4,117
BOLI 19,266 19,127 18,721
Accrued interest receivable 2,520 2,437 2,348
Goodwill 5,650 5,650 5,650
Mortgage servicing rights, net 1,825 1,781 1,573
Other assets 3,372 3,213 3,072
Total assets $952,024 $931,009 $891,388
Liabilities and shareholders’ equity
Deposits: Non-interest-bearing demand $ 205,952 $ 197,527 $ 172,283
Deposits: Interest-bearing 631,946 621,291 589,251
Total deposits 837,898 818,818 761,534
FHLB borrowings -- -- 30,000
Other liabilities and accrued expenses 3,126 3,575 3,020
Total liabilities 841,024 822,393 794,554
Shareholders’ equity
Common stock, $.01 par value; 50,000,000 shares authorized;
7,361,077 shares issued and outstanding – September 30, 2017
7,354,577 shares issued and outstanding – June 30, 2017
6,943,868 shares issued and outstanding – September 30, 2016
13,286
13,223

9,961
Unearned shares issued to Employee Stock Ownership Plan (“ESOP”) (397) (463) (661)
Retained earnings 98,235 96,018 87,709
Accumulated other comprehensive loss (124) (162) (175)
Total shareholders’ equity 111,000 108,616 96,834
Total liabilities and shareholders’ equity $952,024 $931,009 $891,388



KEY FINANCIAL RATIOS AND DATA Three Months Ended
($ in thousands, except per share amounts) (unaudited) Sept. 30, June 30, Sept. 30,
2017 2017 2016
PERFORMANCE RATIOS:
Return on average assets (a) 1.55% 1.86% 1.22%
Return on average equity (a) 13.23% 16.14% 11.34%
Net interest margin (a) 4.18% 4.29% 3.77%
Efficiency ratio 56.31% 55.94% 63.77%
Year Ended
Sept. 30, Sept. 30,
2017
2016
PERFORMANCE RATIOS:
Return on average assets
1.53% 1.19%
Return on average equity
13.65% 11.00%
Net interest margin
4.07% 3.88%
Efficiency ratio 57.92% 63.89%
Sept. 30, June 30, Sept. 30,
2017 2017 2016
ASSET QUALITY RATIOS AND DATA:
Non-accrual loans $1,911 $2,055 $2,873
Loans past due 90 days and still accruing -- -- 135
Non-performing investment securities 533 590 734
OREO and other repossessed assets 3,301 3,417 4,117
Total non-performing assets (b) $5,745 $6,062 $7,859
Non-performing assets to total assets (b) 0.60% 0.65% 0.88%
Net charge-offs (recoveries) during quarter $ 57 $ (1,020) $ 15
Allowance for loan losses to non-accrual loans 500% 468% 342%
Allowance for loan losses to loans receivable (c) 1.36% 1.38% 1.46%
Troubled debt restructured loans on accrual status (d) $3,342 $3,360 $7,629
CAPITAL RATIOS:
Tier 1 leverage capital 11.52% 11.42% 10.54%
Tier 1 risk-based capital 16.31% 16.05% 14.75%
Common equity Tier 1 risk-based capital 16.31% 16.05% 14.75%
Total risk-based capital 17.56% 17.30% 16.00%
Tangible common equity to tangible assets (non-GAAP) 11.13% 11.13% 10.29%
BOOK VALUES:
Book value per common share $ 15.08 $ 14.77 $13.95
Tangible book value per common share (e) 14.31 14.00 13.13

(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 $252, $252 and $530 reported as non-accrual loans at September 30, 2017, June 30, 2017 and September 30, 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
September 30, 2017 June 30, 2017 September 30, 2016
Amount Rate Amount Rate Amount Rate
Assets
Loans receivable and loans held for sale$ 702,171 5.19% $ 693,931 5.58% $ 669,661 5.13%
Investment securities and FHLB stock (1) 12,522 3.23 12,482 2.98 11,726 3.31
Interest-bearing deposits in banks and CD’s 159,297 1.26 156,507 1.08 146,609 0.68
Total interest-earning assets 873,990 4.44 862,920 4.71 827,996 4.32
Other assets 60,365 57,841 56,653
Total assets 934,355 920,761 884,649
Liabilities and Shareholders’ Equity
NOW checking accounts 211,046 0.21% $ 207,060 0.22% $ 193,225 0.24%
Money market accounts 127,214 0.37 125,787 0.35 107,410 0.31
Savings accounts 139,162 0.06 137,108 0.06 122,088 0.05
Certificates of deposit accounts 139,975 0.93 141,254 0.87 148,866 0.81
Total interest-bearing deposits 617,397 0.37 611,209 0.36 571,589 0.36
FHLB borrowings (2) -- -- 8,571 17.57 44,837 5.42
Total interest-bearing liabilities 617,397 0.37 619,780 0.59 616,426 0.73
Non-interest-bearing demand deposits 202,948 190,631 168,744
Other liabilities 4,693 4,379 4,296
Shareholders’ equity 109,317 105,971 95,183
Total liabilities and shareholders’ equity$ 934,355 920,761 884,649
Interest rate spread 4.07% 4.12% 3.59%
Net interest margin (3) 4.18% 4.29% 3.77%
Average interest-earning assets to
average interest-bearing liabilities 141.56% 139.23% 134.32%

(1) Includes other investments
(2) Rate calculation includes prepayment penalties incurred
(3) Net interest margin = annualized net interest income /
average interest-bearing assets

AVERAGE BALANCES, YIELDS, AND RATES –ANNUAL
($ in thousands)
(unaudited)

For the Year Ended
September 30, 2017 September 30, 2016
Amount Rate Amount Rate
Assets
Loans receivable and loans held for sale$ 692,278 5.26% $ 643,698 5.22%
Investment securities and FHLB stock (1) 11,717 3.13 11,846 3.31
Interest-bearing deposits in banks and CD’s 160,165 0.99 139,180 0.65
Total interest-earning assets 864,160 4.44 794,724 4.39
Other assets 58,834 56,969
Total assets 922,994 851,693
Liabilities and Shareholders’ Equity
NOW checking accounts 207,300 0.22% 186,272 0.24%
Money market accounts 125,296 0.35 105,836 0.31
Savings accounts 134,495 0.06 115,336 0.05
Certificates of deposit accounts 143,171 0.87 151,072 0.79
Total interest-bearing deposits 610,262 0.36 558,516 0.37
FHLB borrowings (2) 17,096 5.73 44,959 4.52
Total interest-bearing liabilities 627,358 0.51 603,475 0.67
Non-interest-bearing demand deposits 187,368 152,085
Other liabilities 4,450 3,809
Shareholders’ equity 103,818 92,324
Total liabilities and shareholders’ equity$ 922,994 $ 851,693
Interest rate spread 3.93% 3.72%
Net interest margin 4.07% 3.88%
Average interest-earning assets to
average interest-bearing liabilities 137.75% 131.69%

(1) Includes other investments
(2) Rate calculation includes prepayment penalties incurred

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

Source:Timberland Bancorp, Inc.