Timberland Bancorp EPS Increases 16% Year-Over-Year to $0.36 for Third Fiscal Quarter of 2016

• Year-to-Date EPS Increases 38% to $1.05
• Quarterly Dividend Increases 13%

HOQUIAM, Wash., July 26, 2016 (GLOBE NEWSWIRE) -- Timberland Bancorp, Inc. (NASDAQ:TSBK) (“Timberland” or “the Company”) today reported net income of $2.55 million, or $0.36 per diluted common share, for its third fiscal quarter ended June 30, 2016.  This compares to net income of $2.16 million, or $0.31 per diluted common share, for the quarter ended June 30, 2015 and net income of $2.38 million, or $0.34 per diluted common share, for the quarter ended March 31, 2016.  

For the first nine months of fiscal 2016, Timberland’s net income increased 40% to $7.46 million from the $5.34 million reported for the first nine months of fiscal 2015 and earnings per diluted common share increased 38% to $1.05 for the first nine months of fiscal 2016 from the $0.76 reported for the first nine months of fiscal 2015.

Timberland’s Board of Directors also approved a 13% increase in the quarterly cash dividend to $0.09 per common share, payable on August 26, 2016 to shareholders of record on August 12, 2016.

“For the fifth consecutive quarter Timberland has recorded a return on equity (“ROE”) exceeding 10% and a return on assets (“ROA”) exceeding 1%,” reported Michael R. Sand, President and CEO.  “Continued strong loan growth combined with above peer non-interest income and effective expense controls have resulted in an increase in the Company’s ROE and ROA to 10.96% and 1.20%, respectively, for the quarter ended June 30, 2016.  Based on the Company’s strong and consistent profitability, Timberland’s Board declared a 13% increase in its dividend to $0.09 per share.  We continue to look forward to the December 2016 maturity of the first of three $15 million FHLB advances that will mature during our next fiscal year.  We plan to pay off the December advance which will reduce our monthly interest expense by, on average, $54,000 per month.  Paying off this advance will positively and materially contribute to the Company’s already strong net interest margin.  In the aggregate the three advances maturing in our next fiscal year require interest payments of $1.85 million annually.  Their maturities in December of 2016, August of 2017 and September of 2017 will significantly reduce the Company’s interest expense.”     

Third Fiscal Quarter 2016 Highlights (at or for the period ended June 30, 2016, compared to June 30, 2015, or March 31, 2016):

• EPS for the current quarter increased 16% to $0.36 from $0.31 for the comparable quarter one year ago;
• EPS for the first nine months of fiscal 2016 increased 38% to $1.05 from $0.76 for the first nine months of fiscal 2015;
• Net income for the first nine months of fiscal 2016 increased 40% to $7.46 million from $5.34 million for the first nine months of fiscal 2015;
• Return on average equity increased to 10.96% for the current quarter;
• Return on average assets increased to 1.20% for the current quarter;
• Operating revenue increased 9% to $10.37 million from $9.51 million for the comparable quarter one year ago;
• Net interest margin remained strong at 3.83% for the current quarter;
• Non-interest income increased 9% from the prior quarter;
• Net loans receivable increased 4% from the prior quarter and 9% year-over-year;
• Non-performing assets decreased 54% year-over-year and decreased 12% from the prior quarter and are now at 1.01% of total assets;
• OREO and other repossessed assets decreased 41% year-over-year and decreased 13% from the prior quarter; and
• Book and tangible book values per common share increased to $13.61 and $12.80, respectively, at June 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 9% to $10.37 million for the current quarter from $9.51 million for the comparable quarter one year ago and increased 2% from $10.21 million for the preceding quarter.  Operating revenue increased 14% to $30.81 million for the first nine months of fiscal 2016 from $27.07 million for the comparable period one year ago.

Net interest income increased 9% to $7.62 million from $6.98 million for the comparable quarter one year ago and decreased by less than 1% from the $7.67 million recorded for the preceding quarter.   The net interest margin for the current quarter was 3.83% compared to 3.92% for the preceding quarter and 3.88% for the comparable quarter one year ago.  The net interest margin was increased by approximately two basis points during the current quarter due to the collection of $34,000 of non-accrual interest.  The net interest margin was increased during the preceding quarter by approximately 12 basis points due to the collection of $189,000 in pre-payment penalties and $46,000 of non-accrual interest.  For the first nine months of fiscal 2016, net interest income increased 14% to $23.00 million from $20.25 million for the first nine months of fiscal 2015. Timberland’s net interest margin for the first nine months of fiscal 2016 increased to 3.91% from 3.81% for the first nine months of fiscal 2015.

Non-interest income increased 9% to $2.75 million for the quarter ended June 30, 2016, from $2.51 million for the preceding quarter and $2.52 million for the quarter one year ago.  The increase in non-interest income for the current quarter compared to the preceding quarter was primarily due to increased debit card interchange transaction fees, increased service charges on deposits and an increase in the gain on sale of loans.  During the current quarter, service charges on deposits totaled $989,000, ATM and debit card interchange transaction fees increased to $778,000 and gain on sale of loans totaled $443,000.  Fiscal year-to-date non-interest income increased 13% to $7.78 million from $6.86 million for the first nine months of fiscal 2015.

Total operating (non-interest) expenses decreased 1% to $6.57 million for the third fiscal quarter, from $6.63 million for the preceding quarter and increased 6% from $6.22 million for the comparable quarter one year ago.  The decreased expenses for the current quarter compared to the preceding quarter were primarily due to a decrease in OREO and other repossessed asset expense and a decrease in salaries and employee benefits expense, which were partially offset by an increase in professional fee expense.  The efficiency ratio for the current quarter improved to 63.37% from 65.09% for the preceding quarter and from 65.43% for the comparable quarter one year ago.  Fiscal year-to-date operating expenses increased 3% to $19.68 million from $19.15 million for the first nine months of fiscal 2015.  The efficiency ratio for the first nine months of fiscal 2016 improved to 63.93% from 70.62% for the first nine months of fiscal 2015.

The provision for income taxes increased $75,000 to $1.25 million for the quarter ended June 30, 2016, from $1.18 million for the preceding quarter, primarily due to higher income before income taxes.  The effective tax rate was 32.9% for the current quarter compared to 33.1% for the quarter ended March 31, 2016. 

Balance Sheet Management

Total assets increased $6.18 million, or 1%, to $858.14 million at June 30, 2016, from $851.96 million at March 31, 2016.  The increase was primarily due to a $24.52 million increase in net loans receivable and a $3.30 million increase in loans held for sale. These increases were partially offset by a $20.86 million decrease in total cash and cash equivalents as excess liquidity was used to fund loan growth.

Liquidity, as measured by cash and cash equivalents, CDs held for investment and available for sale investments securities, was 18.7% of total liabilities at June 30, 2016, compared to 21.6% at March 31, 2016 and 17.7% one year ago. 

Net loans receivable increased $24.52 million, or 4%, to $647.37 million at June 30, 2016, from $622.85 million at March 31, 2016. The increase was primarily due to an $18.78 million increase in custom and owner/builder construction loans, a $9.01 million increase in multi-family loans, a $4.07 million increase in commercial real estate loans, a $1.88 million increase in speculative one-to-four family construction loans and a $1.34 million increase in home equity and second mortgage loans. These increases were partially offset by a $6.70 million increase in the undisbursed portion of construction loans in process, a $2.48 million decrease in multi-family construction loans and a $1.06 million decrease in commercial construction loans.

LOAN PORTFOLIO

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(a)  Does not include one- to four family loans held for sale totaling $4,885, $1,584 and $3,835 at June 30, 2016, March 31, 2016 and June 30, 2015, respectively.

Timberland originated $88.81 million in loans during the quarter ended June 30, 2016, compared to $59.58 million for the preceding quarter and $101.27 million for the comparable quarter one year ago.  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.  During the quarter ended June 30, 2016, fixed-rate one- to four-family mortgage loans totaling $14.19 million were sold compared to $13.94 million for the preceding quarter and $16.53 million for the comparable quarter one year ago.

Timberland’s investment securities decreased slightly during the quarter to $8.98 million at June 30, 2016, from $9.11 million at March 31, 2016, primarily due to scheduled amortization.

Total deposits increased $3.34 million to $715.38 million at June 30, 2016, from $712.04 million at March 31, 2016.  The increase was primarily due to a $4.12 million increase in savings account balances, a $1.37 million increase in N.O.W. checking account balances and a $595,000 increase in non-interest bearing checking account balances.  These increases were partially offset by a $2.19 million decrease in certificates of deposit account balances and a $548,000 decrease in money market account balances.  

Shareholders’ Equity

Total shareholders’ equity increased $2.19 million to $94.45 million at June 30, 2016, from $92.26 million at March 31, 2016.  The increase in shareholders’ equity was primarily due to net income of $2.55 million for the quarter, which was partially offset by dividend payments of $555,000 to shareholders.  Book value per share increased $0.30 to $13.61 and tangible book value per share increased $0.31 to $12.80 at June 30, 2016.  Timberland did not repurchase shares of its common stock during the quarter and had 221,893 shares authorized to be purchased on its existing stock repurchase plan at June 30, 2016.

Capital Ratios and Asset Quality

Timberland remains well capitalized with a total risk-based capital ratio of 15.45%, a Tier 1 leverage capital ratio of 10.68% and a tangible capital to tangible assets ratio of 10.42% at June 30, 2016.

There was no provision for loan losses made for the quarters ended June 30, 2016, March 31, 2016 and June 30, 2015.  Net charge-offs totaled $201,000 for the current quarter compared to a net recovery of $154,000 for the quarter ended March 31, 2016 and a net recovery of $85,000 for the quarter ended June 30, 2015.  The non-performing assets to total assets ratio improved to 1.01% at June 30, 2016 from 1.16% three months earlier and 2.36% one year ago.  The allowance for loan losses was 1.50% of loans receivable at June 30, 2016.

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased 63% to $4.01 million at June 30, 2016, from $10.83 million one year ago and increased 9% from $3.67 million at March 31, 2016.  Non-accrual loans decreased 13% to $2.96 million at June 30, 2016, from $3.39 million at March 31, 2016 and decreased 68% from $9.13 million at June 30, 2015.

           
OREO and other repossessed assets decreased 41% to $4.76 million at June 30, 2016, from $8.06 million at June 30, 2015 and decreased 13% from $5.46 million at March 31, 2016.  At June 30, 2016, the OREO and other repossessed asset portfolio consisted of 26 individual real estate properties and one mobile home.  During the quarter ended June 30, 2016, five OREO properties totaling $849,000 were sold for a net gain of $34,000.
               

About Timberland Bancorp, Inc.  
Timberland Bancorp, Inc., a Washington corporation, is the holding company for Timberland Bank (“Bank”).  The Bank opened for business in 1915 and serves consumers and businesses across Grays Harbor, Thurston, Pierce, King, Kitsap and Lewis counties, Washington with a full range of lending and deposit services through its 22 branches (including its main office in Hoquiam).  

Disclaimer 
Certain matters discussed in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact and often include the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.”  Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future performance.  These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results anticipated, including, but not limited to: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets and may lead to increased losses and non-performing assets in our loan portfolio, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our loan loss reserves; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to sell loans in the secondary market; results of examinations of us by the Board of Governors of the Federal Reserve System and our bank subsidiary by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, institute a formal or informal enforcement action or require us to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits or impose additional requirements or restrictions, which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules including as a result of Basel III; the impact of the Dodd Frank Wall Street Reform and Consumer Protection Act and the implementation of related rules and regulations; our ability to attract and retain deposits;  increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our consolidated balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; computer systems on which we depend could fail or experience a security breach; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates;  increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common and stock; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations; pricing, products and services; and other risks detailed in our reports filed with the Securities and Exchange Commission.

Any of the forward-looking statements that we make in this press release and in the other public statements we make are based upon management’s beliefs and assumptions at the time they are made.  We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise.  We caution readers not to place undue reliance on any forward-looking statements.  We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.  These risks could cause our actual results for fiscal 2016 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.

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(a)  Annualized
(b)  Non-performing assets include non-accrual loans, loans past due 90 days and still accruing, non-performing investment securities and OREO and other repossessed assets.  Troubled debt restructured loans on accrual status are not included.
(c)  Does not include loans held for sale and is before the allowance for loan losses.
(d)  Does not include troubled debt restructured loans totaling $530, $531 and $1,356 reported as non-accrual loans at June 30, 2016, March 31, 2016 and June 30, 2015, respectively.
(e)  Calculation subtracts goodwill from the equity component and from assets.

AVERAGE BALANCES, YIELDS AND RATES - QUARTERLY  
($ in thousands)  
(unaudited)

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(1)Net interest margin = annualized net interest income /average interest-bearing assets

AVERAGE BALANCES, YIELDS AND RATES – YEAR TO DATE
($ in thousands)
(unaudited)

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(1)Net interest margin = annualized net interest income /average interest-bearing assets