• Reports 10^th Consecutive Year of Increased Net Income and Earnings per Share
• Loan Deferrals Decreased to Less Than 1% of Loan Portfolio
• Fiscal Year Diluted Earnings per Share Increases to $2.88
• Fiscal Year Return on Average Assets of 1.75%
• Fiscal Year Return on Average Equity of 13.59%
• Announces $0.20 Quarterly Cash Dividend
• Announces Plans to Resume Purchases Under Existing Stock Repurchase Program
  

HOQUIAM, Wash., Oct. 29, 2020 (GLOBE NEWSWIRE) -- Timberland Bancorp, Inc. (NASDAQ: TSBK) (“Timberland” or “the Company”) today reported net income increased 1% to $24.27 million for the fiscal year ended September 30, 2020 from $24.02 million for the fiscal year ended September 30, 2019. Earnings per diluted common share (“EPS”) increased 1% to $2.88 for the 2020 fiscal year from $2.84 for the 2019 fiscal year.

Timberland also reported quarterly net income of $6.36 million, or $0.76 per diluted common share, for the quarter ended September 30, 2020. This compares to net income of $6.21 million, or $0.74 per diluted common share, for the preceding quarter and net income of $6.33 million, or $0.75 per diluted common share, for the quarter ended September 30, 2019.

Timberland’s Board of Directors declared a quarterly cash dividend to shareholders of $0.20 per common share payable on November 27, 2020, to shareholders of record on November 13, 2020.

“We are pleased to report record net income for our fiscal year ended September 30, 2020 and, for the tenth consecutive year, increased net income and earnings per share,” stated Michael Sand, President and CEO. “Net loans outstanding increased 14% for the year primarily as a result of Timberland’s commitment to serving applicants seeking economic relief through the Paycheck Protection Program (“PPP”). Deposit growth, year over year, trended well above average increasing nearly 27% primarily as a result of PPP loan proceeds being placed on deposit, organic growth in customer relationships and depositors opting to build liquidity in the midst of an uncertain economic environment. The result for Timberland was a significant increase in on balance sheet liquidity. Given continuing uncertainties regarding the economy and the interest rate environment we will continue with our measured approach to investing a significant portion of this excess liquidity.”

“We remain committed to our borrowers whom have been affected by COVID related declines in business revenues,” Sand continued. “At June 30^th, we had approved deferrals for 209 loans representing balances aggregating to approximately 13% of the Bank’s net loan portfolio. We are pleased to report at September 30^th that loans remaining in a deferred payment status had decreased to less than 1% of net loans outstanding.”

“In September 2020, we were honored for the second consecutive year to be included in the prestigious Piper Sandler Bank and Thrift Sm-All Stars: Class of 2020, which identified Timberland Bank as one of the 35 top performing, publicly traded small-cap banks and thrifts in the nation based on growth, profitability, credit quality and capital strength. In May 2020, we were awarded, for the third consecutive year, the Raymond James Community Bankers Cup, which recognized the top 10% of community banks in the country based on profitability, operational efficiency and various balance sheet metrics. Being recognized once again for both of these awards is great affirmation of our extraordinary staff and their commitment to supporting our customers and communities,” said Sand. “After temporarily suspending our existing stock repurchase plan in March as a result of the pandemic, we plan to resume purchasing stock in November under the terms of our existing stock repurchase, subject to market conditions. We believe our stock is an attractive investment,” Sand concluded. The Company has 144,852 shares available to be repurchased under its existing stock repurchase plan.

2020 Fiscal Year Earnings and Balance Sheet Highlights (at or for the period ended September 30, 2020, compared to September 30, 2019 or June 30, 2020):

Earnings Highlights:

• Net income increased to $24.27 million for the 2020 fiscal year from $24.02 million for the 2019 fiscal year; EPS increased to $2.88 for the 2020 fiscal year from $2.84 for the 2019 fiscal year;
• Net income increased to $6.36 million for the current quarter from $6.21 million for the preceding quarter and $6.33 million for the comparable quarter one year ago; EPS increased to $0.76 for the current quarter from $0.74 for the preceding quarter and $0.75 for the comparable quarter one year ago;
• Return on average equity (“ROE”) and return on average assets (“ROA”) for the 2020 fiscal year were 13.59% and 1.75%, respectively; ROE and ROA for the current quarter were 13.78% and 1.65%, respectively;
• Net interest margin was 3.90% for the 2020 fiscal year and 3.44% for the current quarter; and
• The efficiency ratio improved to 50.04% for the 2020 fiscal year from 54.32% for the 2019 fiscal year.
  

Balance Sheet Highlights:

• Total assets increased 26% year-over-year and 3% from the prior quarter;
• Total deposits increased 27% year-over-year and 3% from the prior quarter;
• Net loans receivable increased 14% year-over-year and increased slightly from the prior quarter; and
• Book and tangible book (non-GAAP) values per common share increased to $22.58 and $20.56, respectively, at September 30, 2020.

Operating Results

Operating revenue (net interest income before the provision for loan losses, plus non-interest income excluding recoveries on investment securities, gains on sale of investment securities, and BOLI death benefit claims) increased 6% to $67.95 million for the 2020 fiscal year from $64.37 million for the 2019 fiscal year. For the current quarter, operating revenue increased 3% to $17.23 million from $16.72 million for the comparable quarter one year ago and decreased 1% from $17.33 million for the preceding quarter.

Net interest income for the 2020 fiscal year decreased 1% to $50.88 million from $51.16 million for the 2019 fiscal year. The year-over-year decrease was primarily due to a 64 basis point decrease in the average yield on interest-earning assets, which was partially offset by a $166.51 million increase in the average balance of interest-earning assets. Timberland’s net interest margin (“NIM”) for the fiscal year ended September 30, 2020 was 3.90% compared to 4.50% for the fiscal year ended September 30, 2019.

Net interest income increased slightly to $12.52 million for the current quarter from $12.48 million for the preceding quarter and decreased 5% from $13.15 million for the comparable quarter one year ago.   Timberland’s NIM for the current quarter was 3.44% compared to 3.63% for the preceding quarter and 4.54% for the comparable quarter one year ago.   The NIM for the current quarter was increased by approximately ten basis points due to the accretion of $173,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $181,000 in pre-payment penalties, non-accrual interest, and late fees. The NIM for the preceding quarter was increased by approximately ten basis points due to the accretion of $170,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $177,000 in pre-payment penalties, non-accrual interest and late fees. The NIM for the comparable quarter one year ago was increased by approximately 12 basis points due to the accretion of $188,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $158,000 in pre-payment penalties, non-accrual interest and late fees.  

The NIM compression during the current quarter and current fiscal year was primarily due to decreased market interest rates, increased levels of liquidity and PPP loans. In March 2020, the Federal Reserve reduced the targeted federal funds interest rate by 150 basis points in response to the COVID-19 pandemic. Timberland’s liquid funds also increased during the current quarter and current fiscal year as deposit balances increased more than did the loan portfolio. As a result, average interest-earning deposits in banks and CDs increased $61.07 million, or 22%, to $339.22 million for the quarter ended September 30, 2020 from $278.16 million for the quarter ended June 30, 2020 and increased $119.66 million, or 54%, from $219.57 million for the quarter ended September 30, 2019. Through September 30, 2020, Timberland originated $126.82 million in PPP loans at the program’s prescribed 1.00% interest rate.   PPP loans are subject to loan origination fees which are accreted into interest income over the life of each loan. During the quarter ended September 30, 2020, Timberland recorded $316,000 in interest income on PPP loans and accreted $599,000 in PPP loan origination fees into income. At September 30, 2020, Timberland had $3.72 million in PPP deferred loan origination fees remaining to be accreted into interest income during the remaining life of the loans.   

Provisions for loan losses of $3.70 million were made during the 2020 fiscal year compared to no provision made for loan losses in the 2019 fiscal year. A $500,000 provision for loan losses was made during the current quarter compared to a $1.00 million provision for loan losses for the preceding quarter and no provision for loan losses for the comparable quarter one year ago. This fiscal year’s provisions for loan losses were primarily due to economic uncertainties associated with the COVID-19 pandemic. As a result of these provisions and net recoveries during the year, Timberland’s allowance for loan losses (“ALL”) increased by 38% to $13.41 million at September 30, 2020 from $9.69 million at September 30, 2019.

Non-interest income for the 2020 fiscal year increased $2.85 million, or 20%, to $17.19 million from $14.34 million for the 2019 fiscal year. The increase was primarily due to a $4.23 million increase in gain on sales of loans, recoveries of $483,000 of previously charged off receivables acquired in the South Sound Acquisition (which are recorded in the “Other, net” non-interest category), and smaller increases in several other categories. These increases were partially offset by a $1.05 million decrease in BOLI net earnings, a $757,000 decrease in service charges on deposits and smaller decreases in several other categories. The increase in gain on sales of loans was primarily due to an increase in the dollar amount of fixed rate one- to four-family loans originated and sold during the current year and an increase in the average pricing margin. The increased mortgage banking volumes were largely due to increased refinance activity for single family homes due to lower mortgage interest rates. Net BOLI earnings were higher for the comparable period one year ago primarily due to a BOLI death benefit claim. The decrease in service charges on deposits was primarily due to a decrease in overdraft fee income.

Non-interest income increased 31% to $4.71 million for the current quarter from $3.60 million for the comparable quarter one year ago and decreased 3% from $4.86 million for the preceding quarter. The decrease in non-interest income compared to the preceding quarter was primarily due to a $197,000 valuation allowance on servicing rights and a $200,000 decrease in recoveries of previously charged off receivables acquired in the South Sound Acquisition (as discussed above). The valuation allowance on servicing rights was primarily the result of prepayment speeds increasing on mortgages being serviced in this low interest rate environment. Partially offsetting these decreases were increases in service charges on deposits (due to increased overdraft fee income) and debit card interchange transaction fee income (due to higher volumes).

For the 2020 fiscal year, total (non-interest) operating expenses decreased $1.52 million, or 4%, to $34.06 million from $35.58 million for the prior fiscal year. The decrease was primarily due to a $1.42 million decrease in data processing and telecommunications expense and smaller decreases in several other categories. Data processing related expenses were elevated in the 2019 fiscal year due to Timberland’s core operating system and ancillary technology systems conversions. The efficiency ratio for the 2020 fiscal year improved to 50.04% from 54.32% for the 2019 fiscal year.

Total operating expenses for the current quarter decreased $30,000 to $8.74 million from $8.77 million for the comparable quarter one year ago and increased $82,000, or 1%, from $8.66 million for the preceding quarter.   The increase in operating expenses compared to the preceding quarter was primarily due to a $204,000 increase in OREO expense and was partially offset by decreases in salaries and employee benefits expense and smaller decreases in several other categories. The increase in OREO expense was primarily due to a market value write-down on the Company’s largest remaining OREO property in conjunction with the acceptance of a purchase offer. The efficiency ratio for the current quarter was 50.73% compared to 52.39% for the comparable quarter one year ago and 49.96% for the preceding quarter.

The provision for income taxes for the 2020 fiscal year increased $137,000 to $6.04 million from $5.90 million for the 2019 fiscal year, primarily due to higher taxable income. Timberland’s effective income tax rate for the year ended September 30, 2020 was 19.9% compared to 19.7% for the year ended September 30, 2019. The provision for income taxes for the current quarter increased $172,000 to $1.64 million from $1.46 million for the preceding quarter, primarily due to higher taxable income.   Timberland’s effective income tax rate was 20.5% for the quarter ended September 30, 2020, compared to 19.1% for the quarter ended June 30, 2020.

Balance Sheet Management

Total assets increased $318.85 million, or 26%, to $1.57 billion at September 30, 2020 from $1.25 billion one year ago and increased $44.34 million, or 3%, from $1.52 billion at June 30, 2020. The year-over-year increase in asset size was primarily due to increases in total cash and cash equivalents and net loans receivable. The quarterly increase in asset size was primarily due to increases in total cash and cash equivalents and investment securities. The increases in total assets were funded primarily by increases in total deposits.

Loans

Net loans receivable increased $127.21 million, or 14%, to $1.014 billion at September 30, 2020 from $886.66 million one year ago. The increase was primarily due to a $126.82 million increase in PPP loans, a $34.58 million increase in commercial real estate loans, and smaller increases in several other categories. These increases were partially offset by a $14.08 million decrease in one- to four-family loans and smaller decreases in several other categories.

Net loans receivable increased slightly to $1.014 billion at September 30, 2020 from $1.013 billion at June 30, 2020. The increase during the current quarter was primarily due to a $5.56 million increase in multi-family loans, a $4.24 million in PPP loans, and smaller increases in several other categories.   These increases were partially offset by a $4.77 million increase in the undisbursed portion of construction loans in process and smaller changes in several other categories.

Loan Portfolio
($ in thousands)

_______________________
(a)   Does not include one- to four-family loans held for sale totaling $4,509, $9,837 and $6,071 at September 30, 2020, June 30, 2020 and September 30, 2019, respectively.

The following table highlights eight commercial real estate (“CRE”) segments generally presumed to have the potential to be more adversely affected by work at home and COVID related social distancing practices than other segments of the loan portfolio.

CRE Portfolio Breakdown by Collateral
($ in thousands)

Within Timberland’s commercial business loan portfolio (non-CRE) resides a segment of restaurant loans totaling $16.82 million in outstanding balances at September 30, 2020. As additional security for these loans, Timberland holds cash collateral of 25% of the segment’s associated outstanding loan balances. Unless prior arrangements are made, and Timberland consents, loans falling more than four weeks delinquent are eligible for purchase from Timberland’s portfolio in accordance with a Marketing and Servicing Agreement in existence since March 6, 2014. As an accommodation, Timberland has agreed to temporarily extend the purchase requirement to 12 weeks before a purchase is required from the portfolio.  

Timberland originated $114.15 million in loans during the quarter ended September 30, 2020, compared to $96.41 million for the comparable quarter one year ago and $250.01 million for the preceding quarter. Loan originations for the preceding quarter were elevated due to the origination of $122.58 million in PPP loans. Timberland continues to sell fixed-rate one- to four-family mortgage loans into the secondary market for asset-liability management purposes and to generate non-interest income. Timberland also periodically sells the guaranteed portion of SBA loans. During the current quarter, fixed-rate one- to four-family mortgage loans totaling $46.85 million were sold compared to $19.77 million for the comparable quarter one year ago and $52.08 million for the preceding quarter. The increase in loan sales during the current fiscal year was primarily a result of increased refinance activity for one- to four-family mortgage loans due to the decrease in mortgage interest rates.

Timberland’s investment securities and CDs held for investment increased $6.3 million, or 4%, to $151.82 million at September 30, 2020, from $145.57 million at June 30, 2020. The increase was primarily due to the purchase of additional mortgage-backed investment securities which was partially offset by CDs that matured during the quarter.

Timberland’s liquidity continues to remain strong. Liquidity, as measured by the sum of cash and cash equivalents, CDs held for investment, and available for sale investment securities, was 31.8% of total liabilities at September 30, 2020, compared to 28.9% at June 30, 2020, and 22.8% one year ago.  

Deposits

Total deposits increased $290.18 million, or 27%, during the fiscal year to $1.36 billion at September 30, 2020 from $1.07 billion at September 30, 2019. This increase consisted of a $145.42 million increase in non-interest bearing demand account balances, a $79.84 million increase in NOW checking account balances, a $55.36 million increase in savings account balances, and a $16.69 million increase in money market account balances. These increases were partially offset by a $7.13 million decrease in certificates of deposit account balances. The increase in deposits during the year was primarily driven by proceeds from PPP loans and government stimulus checks deposited directly into customer accounts, organic growth in customer relationships and reduced withdrawals from deposit accounts due to a change in spending habits as a result of COVID-19. Total deposits increased $39.87 million, or 3%, during the current quarter to $1.36 billion at September 30, 2020, from $1.32 billion at June 30, 2020. The quarterly increase consisted of a $23.90 million increase in NOW checking account balances, a $14.79 million increase in non-interest bearing demand account balances, and a $7.22 million increase in savings account balances. These increases were partially offset by a $5.40 million decrease in certificates of deposit account balances and a small decrease in money market account balances.

FHLB Borrowings

Timberland borrowed $10.00 million from the Federal Home Loan Bank of Des Moines (“FHLB”) for asset-liability purposes in March 2020 as long-term borrowing rates dropped to historic lows. The borrowings are comprised of a $5.00 million five-year borrowing and a $5.00 million seven-year borrowing. The weighted average interest rate on these borrowings is 1.15%

Shareholders’ Equity and Capital Ratios

Total shareholders’ equity increased $4.82 million to $187.63 million at September 30, 2020, from $182.81 million at June 30, 2020. The increase in shareholders’ equity was primarily due to net income of $6.36 million for the quarter, which was partially offset by the payment of $1.66 million in dividends to shareholders.

Timberland temporarily suspended purchasing shares under its existing stock repurchase plan on March 16, 2020 as a result of the COVID-19 pandemic, but plans to resume purchasing shares under the existing stock repurchase plan in November 2020, subject to market conditions. There are 144,852 shares available to be repurchased under the existing stock repurchase plan.

Timberland remains well capitalized with a total risk-based capital ratio of 21.34% and a Tier 1 leverage capital ratio of 11.26% at September 30, 2020.

Asset Quality and Loan Deferrals

Timberland’s non-performing assets to total assets ratio improved to 0.27% at September 30, 2020 from 0.40% one year ago and 0.31% at June 30, 2020. There were net recoveries of $20,000 for the current quarter compared to net recoveries of $4,000 for the preceding quarter and net recoveries of $59,000 for the comparable quarter one year ago.  

A $500,000 provision for loan losses was made during the current quarter due to continued economic uncertainties associated with the COVID-19 pandemic.   On March 24, 2020, Washington State Governor Jay Inslee signed a statewide order requiring residents to stay at home unless involved in an essential activity. All businesses, except those considered essential were also ordered to close. As a result of the mandated shutdown, Timberland began working with loan customers on loan deferral and forbearance plans. As of June 30, 2020, Timberland had granted deferrals (primarily 90-day payment deferrals with interest continuing to accrue or be paid monthly) for 209 loans with balances aggregating to $135.83 million (approximately 13% of net loans receivable). However, the vast majority of borrowers on deferral status resumed making payments during the current quarter and as of September 30, 2020 only five loans with balances totaling $5.87 million (less than 1% of net loans receivable) remained on deferral status. The following table details the COVID-19 loan modifications, still on deferral status, as of September 30, 2020:

COVID-19 Loan Modifications
($ in thousands)

The ALL as a percentage of loans receivable increased to 1.31% at September 30, 2020 from 1.08% one year ago and 1.26% at June 30, 2020. If PPP loans, which are 100% SBA guaranteed, are excluded, the ALL to loans receivable (excluding PPP loans) at September 30, 2020 was 1.49% (non-GAAP).  

The ALL as a percentage of loans receivable is also impacted by the loans acquired in the South Sound Acquisition. Included in the recorded value of loans acquired in acquisitions are net discounts which may reduce the need for an allowance for loan losses on such loans because they are carried at an amount below their outstanding principal balance. The initial recorded value of loans acquired in the South Sound Acquisition was $123.62 million and the related fair value discount was $2.08 million, or 1.68% of the loans acquired. The remaining fair value discount on loans acquired in the South Sound Acquisition was $790,000 at September 30, 2020. The allowance for loan losses to loans receivable (excluding PPP loan balances and the remaining aggregate balance of the loans acquired in the South Sound Acquisition) was 1.60% (non-GAAP) at September 30, 2020.

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

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased $177,000, or 5%, to $3.75 million at September 30, 2020, from $3.93 million one year ago, and increased $195,000, or 5%, from $3.55 million at June 30, 2020.   Non-accrual loans decreased $128,000, or 4%, to $2.91 million at September 30, 2020 from $3.03 million one year ago and decreased $110,000, or 4%, from $3.02 million at June 30, 2020.

Non-Accrual Loans
($ in thousands)

OREO and other repossessed assets decreased 38% to $1.05 million at September 30, 2020, from $1.68 million at September 30, 2019, and decreased 28% from $1.47 million at June 30, 2020. At September 30, 2020, the OREO and other repossessed asset portfolio consisted of six individual land parcels. During the quarter ended September 30, 2020, two OREO properties were sold, resulting in a $2,000 gain. Timberland also recorded a $149,000 market value write-down expense on its largest remaining OREO property during the quarter in conjunction with accepting a purchase offer on the property. While there can be no assurances that this sale will close, the sale of this property (with a current book value of $702,000) is expected to close during the quarter ending December 31, 2020.

OREO and Other Repossessed Assets
($ in thousands)

Acquisition of South Sound Bank
On October 1, 2018, the Company completed the acquisition of South Sound Bank, a Washington-state chartered bank, headquartered in Olympia, Washington (“South Sound Acquisition”). The Company acquired 100% of the outstanding common stock of South Sound Bank, and South Sound Bank was merged into Timberland Bank and the Company. Pursuant to the terms of the merger agreement, South Sound Bank shareholders received 0.746 of a share of the Company’s common stock and $5.68825 in cash per share of South Sound Bank common stock. The Company issued 904,826 shares of its common stock (valued at $28,267,000 based on the Company’s closing stock price on September 30, 2018 of $31.24 per share) and paid $6,903,000 in cash in the transaction for total consideration paid of $35,170,000.

About Timberland Bancorp, Inc.
Timberland Bancorp, Inc., a Washington corporation, is the holding company for Timberland Bank (“Bank”). The Bank opened for business in 1915 and serves consumers and businesses across Grays Harbor, Thurston, Pierce, King, Kitsap and Lewis counties, Washington with a full range of lending and deposit services through its 24 branches (including its main office in Hoquiam).

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. These statements relate to our financial condition, results of operations, plan, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions and often include the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future performance. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results anticipated or implied by our forward-looking statements, including, but not limited to: the expected cost savings, synergies and other financial benefits from our acquisition of South Sound Bank might not be realized within the expected time frames or at all; the integration of the combined company, including personnel changes/retention, might not proceed as planned; and the combined company might not perform as well as expected; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets which may lead to increased losses and non-performing assets in our loan portfolio, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our loan loss reserves; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; 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 against us or our bank subsidiary which could require us to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules including as a result of Basel III; the impact of the Dodd Frank Wall Street Reform and Consumer Protection Act and implementing regulations; our ability to attract and retain deposits; 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; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to 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; natural disasters; pandemics such as COVID-19; 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 do not undertake and specifically disclaim any obligation to publicly update or revise any forward-looking statements included in this report to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this document might not occur and we caution readers not to place undue reliance on any forward-looking statements. These risks could cause our actual results for fiscal 2021 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of us, and could negatively affect the Company’s consolidated financial condition and results of operations as well as its stock price performance.

________________________________________________
(a) Annualized
(b) Non-performing assets include non-accrual loans, loans past due 90 days and still accruing, non-performing investment securities and OREO and other repossessed assets. Troubled debt restructured loans on accrual status are not included.
(c) Does not include loans held for sale and is before the allowance for loan losses.
(d) Does not include PPP loans totaling $126,820, $122,581 and $0 at September 30, 2020, June 30, 2020 and September 30, 2019, respectively.
(e) Does not include loans acquired in the South Sound Acquisition totaling $63,721, $73,084 and $88,099 at September 30, 2020, June 30, 2020 and September 30, 2019, respectively.
(f) Does not include troubled debt restructured loans totaling $203, $207 and $366 reported as non-accrual loans at September 30, 2020, June 30, 2020 and September 30, 2019 respectively.
(g) Tangible common equity divided by common shares outstanding (non-GAAP).

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

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

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

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

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 and CDI. In addition, tangible assets equal total assets less goodwill and CDI.

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