Timberland Bancorp Announces Second Fiscal Quarter
Timberland Bancorp Announces Second Fiscal Quarter
  • Second Fiscal Quarter Net Income of $5.33 Million
  • Quarterly Return on Average Equity of 10.10%
  • Loan Portfolio (Excluding PPP Loans) Increased 6% During Quarter
  • Announces $0.22 Quarterly Cash Dividend

HOQUIAM, Wash., April 26, 2022 (GLOBE NEWSWIRE) — Timberland Bancorp, Inc. (NASDAQ: TSBK) (“Timberland” or “the Company”), the holding company for Timberland Bank (the “Bank”), today reported net income of $5.33 million, or $0.63 per diluted common share, for the quarter ended March 31, 2022. This compares to net income of $5.49 million, or $0.65 per diluted common share, for the preceding quarter and $7.25 million, or $0.86 per diluted common share, for the comparable quarter one year ago.

For the first six months of fiscal 2022, Timberland earned $10.81 million, or $1.28 per diluted common share, compared to $14.54 million or $1.73 per diluted common share for the first six months of fiscal 2021.

Timberland’s Board of Directors declared a quarterly cash dividend to shareholders of $0.22 per share, payable on May 27, 2022, to shareholders of record on May 13, 2022.

“We are pleased to report strong growth during the past quarter,” stated Michael Sand, CEO.  “Net loans receivable, excluding Paycheck Protection Program loans (“PPP”), increased 5.7% (22.8% annualized) primarily due to increases in commercial real estate and commercial business loans originated within our western Washington market footprint.  We continue to see opportunities for loan originations within our local markets and are pleased to observe reduced prepayment activity which has allowed loan originations to be more additive to net loans receivable.”

“In addition to using excess liquidity to fund loan growth, we also deployed funds into short and moderate duration investments to supplement interest income,” said Sand.  “The Bank continues to be positioned to benefit from Federal Reserve actions to increase interest rates and we anticipate continued opportunities to invest excess liquidity during the next several quarters as the Fed begins reducing its balance sheet in conjunction with anticipated rate increases.”

Second Fiscal Quarter 2022 Earnings and Balance Sheet Highlights (at or for the period ended March 31, 2022, compared to March 31, 2021, or December 31, 2021):
  
    Earnings Highlights:

  • Net income was $5.33 million for the current quarter compared to $5.49 million for the preceding quarter and $7.25 million for the comparable quarter one year ago; EPS was $0.63 for the current quarter compared to $0.65 for the preceding quarter and $0.86 for the comparable quarter one year ago;
  • Net income was $10.81 million for the first six months of fiscal 2022 compared to $14.54 million for the first six months of fiscal 2021; EPS was $1.28 for the first six months of fiscal 2022 compared to $1.73 for the first six months of fiscal 2021;
  • Return on average equity (“ROE”) and return on average assets (“ROA”) for the current quarter were 10.10% and 1.16%, respectively;
  • Net interest margin (“NIM”) was 2.95% for the current quarter compared to 2.92% for the preceding quarter and 3.21% for the comparable quarter one year ago; and
  • The efficiency ratio was 58.42% for the current quarter compared to 57.40% for the preceding quarter and 48.99% for the comparable quarter one year ago.

    Balance Sheet Highlights:

  • Total assets increased 10% year-over-year and 3% from the prior quarter;
  • Total deposits increased 12% year-over-year and 3% from the prior quarter;
  • Net loans receivable (excluding SBA PPP loans) increased 15% year-over-year and 6% from the prior quarter;
  • Net loans receivable (including SBA PPP loans) increased 4% from the prior quarter;
  • Non-performing assets to total assets ratio improved to 0.16% from 0.17% at December 31, 2021; and
  • Book and tangible book (non-GAAP) values per common share increased to $25.56 and $23.60, respectively, at March 31, 2022.

Operating Results

Operating revenue (net interest income before the provision for loan losses plus non-interest income) decreased 1% to $15.98 million for the first fiscal quarter from $16.14 million for the preceding quarter and decreased 8% from $17.45 million for the comparable quarter one year ago. The decrease in operating revenue compared to the preceding quarter was primarily due to a $259,000 decrease in PPP loan income and a $247,000 decrease in gain on sales of loans. Operating revenue decreased 8% to $32.11 million for the first six months of fiscal 2022 from $35.04 million for the comparable period one year ago, primarily due to a $2.68 million decrease in gain on sales of loans and a $1.15 million decrease in PPP loan income.

Net interest income increased 2% to $12.89 million for the current quarter from $12.70 million for the preceding quarter and increased 3% from $12.57 million for the comparable quarter one year ago.   Timberland’s NIM for the current quarter was 2.95% compared to 2.92% for the preceding quarter and 3.21% for the comparable quarter one year ago.   The NIM for the current quarter was increased by approximately six basis points due to the accretion of $34,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $246,000 in pre-payment penalties, non-accrual interest, and late fees. The NIM for the preceding quarter was increased by approximately four basis points due to the accretion of $57,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $114,000 in pre-payment penalties, non-accrual interest and late fees. The NIM for the comparable quarter one year ago was increased by approximately six basis points due to the accretion of $86,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $129,000 in pre-payment penalties, non-accrual interest and late fees. Net interest income was $25.59 million for both the first six months of fiscal 2022 and fiscal 2021. Timberland’s net interest margin for the first six months of fiscal 2022 was 2.93% compared to 3.34% for the first six months of fiscal 2021.

U.S. Small Business Administration (“SBA”) PPP loans contributed to interest income through the 1.00% interest rate earned on outstanding loan balances and also through the accretion of loan origination fees into interest income over the life of each PPP loan. At March 31, 2022, Timberland had SBA PPP deferred loan origination fees of $199,000 remaining to be accreted into interest income over the remaining life of the loans. The following table details the interest income recognized from SBA PPP loans:

SBA PPP Loan Income
($ in thousands)

Three Months Ended

  March 31, 2022   Dec. 31, 2021   March 31, 2021
Interest income $ 31   $       71      $ 306
Loan origination fee accretion   708     927     1,143
Total SBA PPP loan income $ 739   $    998   $                    1,449
           

No provision for loan losses was made during the quarters ended March 31, 2022, December 31, 2021, and March 31, 2021.

Non-interest income decreased 10% to $3.08 million for the current quarter from $3.44 million for the preceding quarter and decreased 37% from $4.89 million for the comparable quarter one year ago. The decrease in non-interest income compared to the preceding quarter was primarily due to a $247,000 decrease in gain on sales of loans, a $119,000 decrease in the valuation recovery on loan servicing rights, and smaller decreases in several other categories. These decreases were partially offset by a $101,000 increase in service charges on deposits. The year-over-year decrease in non-interest income was primarily due to a $1.34 million decrease in gain on sales of loans and a $438,000 decrease in the valuation recovery on loan servicing rights. The decrease in gain on sales of loans was primarily due to a decrease in the dollar amount of fixed-rate one- to four-family loans originated and sold during the current quarter (as refinance demand slowed) and a decrease in the average pricing margin compared to the same period last year. Fiscal year-to-date non-interest income decreased 31% to $6.53 million from $9.45 million for the first six months of fiscal 2021, primarily due to a $2.68 million decrease in gain on sales of loans.

Total operating expenses for the current quarter increased $69,000, or 1%, to $9.33 million from $9.26 million for the preceding quarter and increased $782,000, or 9%, from $8.55 million for the comparable quarter one year ago.   The increase in operating expenses compared to the preceding quarter was primarily due to a $73,000 increase in professional fee expense and smaller increases in several other expense categories. These increases were partially offset by smaller decreases in several expense categories. Fiscal year-to-date operating expenses increased 10% to $18.60 million from $16.96 million for the first six months of fiscal 2021. The year-to-date increase in operating expenses was primarily due to annual salary adjustments (effective October 1st) and the hiring of additional lending personnel. The efficiency ratio for the current quarter was 58.42% compared to 57.40% for the preceding quarter and 48.99% for the comparable quarter one year ago. The efficiency ratio for the first six months of fiscal 2022 was 57.91% compared to 48.41% for the first six months of fiscal 2022.

The provision for income taxes for the current quarter decreased $73,000 to $1.32 million from $1.39 million for the preceding quarter, primarily due to lower taxable income. Timberland’s effective income tax rate was 19.8% for the quarter ended March 31, 2022 compared to 20.2% for the quarter ended December 31, 2021 and 18.6% for the quarter ended quarter ended March 31, 2021. Timberland’s effective income tax rate was 20.0% for the first six months of fiscal 2022 compared to 19.6% for the first six months of fiscal 2021.

Balance Sheet Management

Total assets increased $46.20 million, or 3%, to $1.88 billion at March 31, 2022 from $1.83 billion at December 31, 2021. The quarter’s increase was primarily due to a $72.80 million increase in investment securities and CDs held for investment, a $40.07 million increase in net loans receivable, and smaller increases in several other categories. These increases were partially offset by a $66.02 million decrease in total cash and cash equivalents, and smaller decreases in several other categories. The increase in total assets was funded primarily by an increase in total deposits.

Loans

Net loans receivable increased $40.07 million, or 4%, to $1.03 billion at March 31, 2022 from $994.01 million at December 31, 2021. This increase was primarily due to a $26.12 million increase in commercial real estate loans, a $23.64 million increase in commercial business loans (non-PPP), a $5.29 million decrease in the undisbursed portion of construction loans in process, a $4.77 million increase in one- to four-family loans and smaller increases in other loan categories. These increases to net loans receivable were partially offset by a $15.46 million decrease in SBA PPP loans, a $5.45 million decrease in construction loans, and smaller decreases in several other loan categories.

Loan Portfolio
($ in thousands)

  March 31, 2022   December 31, 2021   March 31, 2021
  Amount   Percent   Amount   Percent   Amount   Percent
Mortgage loans:                      
One- to four-family (a) $ 133,925     12 %   $ 129,151     12 %   $ 117,184     10 %
Multi-family   82,526     7       84,180     7       92,435     8  
Commercial   523,479     45       497,361     44       461,966     40  
Construction – custom and                      
owner/builder   114,394     10       116,267       10       105,305     9  
Construction – speculative
     one-to four-family
  15,438     1       18,255     2       17,289     2  
Construction – commercial   35,416     3       42,611     4       42,340     4  
Construction – multi-family   64,141     6       54,710     5       44,266     4  
Construction – land                      
     development   10,687     1       13,680     1       2,238      
Land   22,192     2       18,568     2       19,041     2  
Total mortgage loans   1,002,198     87       974,783     87       902,064     79  
                       
Consumer loans:                      
Home equity and second                      
mortgage   32,980     3       34,375     3       32,026     3  
Other   2,277           2,462           2,756      
Total consumer loans   35,257     3       36,837     3       34,782     3  
                       
Commercial loans:                      
Commercial business loans   108,644     9       85,006     8       66,645     6  
SBA PPP loans   5,934     1       21,397     2       138,175     12  
Total commercial loans   114,578     10       106,403     10       204,820     18  
Total loans   1,152,033     100 %     1,118,023     100 %     1,141,666     100 %
Less:                      
Undisbursed portion of                      
construction loans in                      
process   (100,719 )         (106,009 )         (90,550 )    
Deferred loan origination                      
fees   (3,801 )         (4,539 )         (6,999 )    
Allowance for loan losses   (13,433 )         (13,468 )         (13,434 )    
Total loans receivable, net $ 1,034,080         $ 994,007         $ 1,030,683      

_______________________
(a)   Does not include one- to four-family loans held for sale totaling $2,772, $3,700 and $8,455 at March 31, 2022, December 31, 2021, and March 31, 2021, respectively.  

The following table provides a breakdown of commercial real estate (“CRE”) mortgage loans by collateral type as of March 31, 2022:
                                                  CRE Loan Portfolio Breakdown by Collateral
                                                                         ($ in thousands)

Collateral Type

 

Amount

  Percent
of CRE
Portfolio
  Percent of
Total Loan
Portfolio
       
Industrial warehouse   $                101,045         19 %              9 %        
Office buildings     72,613         14                6          
Medical/dental offices     65,500   12               5          
Other retail buildings     47,518   9     4          
Restaurants     29,532          6                3          
Hotel/motel     26,152           5            2          
Mini-storage     23,226           4           2          
Convenience stores     22,645           4           2          
Nursing homes     18,591           4                2          
Shopping centers     10,655            2     1          
Churches     8,173   2     1          
Additional CRE     97,829         19           8          
      Total CRE   $             523,479      100 %           45 %        

Timberland originated $130.41 million in loans during the quarter ended March 31, 2022, compared to $167.15 million for the comparable quarter one year ago and $178.84 million in loans for the preceding quarter. Timberland continues to sell fixed-rate one- to four-family mortgage loans into the secondary market for asset-liability management purposes and to generate non-interest income. Timberland also periodically sells the guaranteed portion of SBA loans. During the current quarter, fixed-rate one- to four-family mortgage loans totaling $16.88 million were sold compared to $41.29 million for the comparable quarter one year ago and $22.56 million for the preceding quarter. The decrease in loans sold during the current quarter compared to the prior year was primarily due to a decrease in single-family refinance loans originated as mortgage refinance activity diminished.
        
Timberland’s investment securities and CDs held for investment increased $72.80 million, or 37%, to $269.55 million at March 31, 2022, from $196.75 million at December 31, 2021. The increase was primarily due to the purchase of additional U.S Treasury securities, mortgage-backed investment securities, and CDs held in other financial institutions.

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 34.3% of total liabilities at March 31, 2022, compared to 39.5% at December 31, 2021, and 36.1% one year ago.  

Deposits

Total deposits increased $49.80 million, or 3%, during the current quarter to $1.66 billion at March 31, 2022, from $1.61 billion at December 31, 2021. The quarter’s increase consisted of a $35.60 million increase in money market account balances, an $18.94 million increase in savings account balances, and a $1.97 million increase in non-interest bearing account balances. These increases were partially offset by a $5.51 million decrease in certificates of deposit account balances and a $1.21 million decrease in NOW checking account balances.

Deposit Breakdown
($ in thousands)
     
    March 31, 2022       December 31, 2021   March 31, 2021        
    Amount   Percent   Amount   Percent   Amount   Percent    
Non-interest-bearing demand   $525,488   32 %   $523,518   33 %   $499,541   34 %    
NOW checking     457,874   28       459,079   28       403,811   27      
Savings     288,361   18       269,423   17       250,736   17      
Money market     251,631   15       211,837   13       171,896   11      
Money market – reciprocal     6,426         10,619   1       13,094   1      
Certificates of deposit under $250     106,208   6       110,168   7       119,388   8      
Certificates of deposit $250 and over     20,438   1       21,987   1       23,393   2      
Total deposits   $1,656,426     100 %   $1,606,631   100 %     $1,481,859     100 %  

Shareholders’ Equity and Capital Ratios

Total shareholders’ equity increased $1.89 million, or 1%, to $212.27 million at March 31, 2022, from $210.37 million at December 31, 2021. The increase in shareholders’ equity was primarily due to net income of $5.33 million for the quarter, which was partially offset by the payment of $1.84 million in dividends to shareholders and the repurchase of 61,565 shares of common stock for $1.72 million (an average price of $27.88 per share).   Timberland had 322,169 shares available to be repurchased on its existing stock repurchase plan at March 31, 2022.

Timberland remains well capitalized with a total risk-based capital ratio of 20.75% and a Tier 1 leverage capital ratio of 10.86% at March 31, 2022.

Asset Quality

Timberland’s non-performing assets to total assets ratio was 0.16% at March 31, 2022, compared to 0.17% at December 31, 2021 and 0.16% one year ago. There were net charge-offs of $35,000 for the current quarter compared to net charge-offs of $1,000 for the preceding quarter and net recoveries of $2,000 for the comparable quarter one year ago.   No provisions for loan losses were made during the quarters ended March 31, 2022, December 31, 2021, and March 31, 2021.

Timberland has consistently worked with borrowers affected by the COVID-19 pandemic by offering loan deferral and forbearance plans during the pandemic.   Deferrals were primarily approved for 90-day periods with interest continuing to accrue or with interest scheduled to be paid monthly. All borrowers that were granted COVID-19 deferrals have resumed making regular payments as of March 31, 2022.

The allowance for loan losses (“ALL”) as a percentage of loans receivable was 1.28% at March 31, 2022, compared to 1.29% one year ago and 1.34% at December 31, 2021. If SBA PPP loans, which are 100% SBA guaranteed, are excluded, the ALL to loans receivable (excluding SBA PPP loans) at March 31, 2022 was 1.29% (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 $358,000 at March 31, 2022. The allowance for loan losses to loans receivable (excluding SBA PPP loan balances and the remaining aggregate balance of the loans acquired in the South Sound Acquisition) was 1.33% (non-GAAP) at March 31, 2022.

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

    March 31,   Dec. 31,   March 31,
    2022    2021    2021 
ALL to loans receivable   1.28 %   1.34 %   1.29 %
ALL to loans receivable (excluding SBA PPP loans) (non-GAAP)   1.29 %   1.37 %   1.48 %
ALL to loans receivable (excluding SBA PPP loans and South Sound
     Acquisition loans) (non-GAAP)
  1.33 %   1.41 %   1.56 %

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased $290,000, or 9%, to $2.95 million at March 31, 2022, from $3.24 million at December 31, 2021, and decreased $982,000, or 25%, from $3.93 million one year ago. Non-accrual loans decreased $202,000, or 7%, to $2.65 million at March 31, 2022, from $2.85 million at December 31, 2021 and increased $346,000, or 15%, from $2.31 million one year ago.

Non-Accrual Loans
($ in thousands)

  March 31, 2022   December 31, 2021   March 31, 2021
  Amount   Quantity   Amount   Quantity   Amount   Quantity
Mortgage loans:                      
One- to four-family $578   3   $582   3   $415   2
Commercial   671   3     675   2     643   2
Land   723   4     676   3     173   2
Total mortgage loans   1,972   10     1,933   8     1,231   6
                       
Consumer loans                      
Home equity and second                      
mortgage   269   2     456   4     539   6
Other   5   1     5   1     8   1
Total consumer loans   274   3     461   5     547   7
                       
Commercial business loans   405   6     459   7     527   7
Total loans $2,651   19   $2,853   20   $2,305   20

        

OREO and other repossessed assets were $157,000 at March 31, 2022, December 31, 2021 and March 31, 2021. At March 31, 2022, the OREO and other repossessed asset portfolio consisted of three individual land parcels. No OREO properties were sold during the quarter ended March 31, 2022.

OREO and Other Repossessed Assets
($ in thousands)

  March 31, 2022   December 31, 2021   March 31, 2021
  Amount   Quantity   Amount   Quantity   Amount   Quantity
Land $     157   3   $ 157   3   $ 157   3
Total $        157   3   $       157   3   $      157   3

        
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. 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 economic performance. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results anticipated or implied by our forward-looking statements, including, but not limited to: the effect of the novel coronavirus of 2019 (“COVID-19”) pandemic, including the Company’s credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets which may lead to increased losses and non-performing assets in our loan portfolio, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our loan loss reserves; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; uncertainty regarding the future of the London Interbank Offered Rate (“LIBOR”), and the potential transition away from LIBOR toward new interest rate benchmarks; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to sell loans in the secondary market; results of examinations of us by the Federal Reserve and our bank subsidiary by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, institute a formal or informal enforcement action against us or our bank subsidiary which could require us to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules including as a result of Basel III; the impact of the Dodd Frank Wall Street Reform and Consumer Protection Act and implementing regulations; our ability to attract and retain deposits; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our consolidated balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement our business strategies; our ability to manage loan delinquency rates; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common and stock; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board (“FASB”), including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations; pricing, products and services including the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”), the Consolidated Appropriations Act, 2021 (“CAA”), and the American Rescue Plan Act of 2021; and other risks detailed in our reports filed with the Securities and Exchange Commission.

Any of the forward-looking statements that we make in this press release and in the other public statements we make are based upon management’s beliefs and assumptions at the time they are made. We do not undertake and specifically disclaim any obligation to publicly update or revise any forward-looking statements included in this report to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this document might not occur and we caution readers not to place undue reliance on any forward-looking statements. These risks could cause our actual results for fiscal 2022 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of us, and could negatively affect the Company’s consolidated financial condition and results of operations as well as its stock price performance.

TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
  Three Months Ended
($ in thousands, except per share amounts) (unaudited)   March 31,   Dec. 31,   March 31,
    2022   2021   2021
  Interest and dividend income            
  Loans receivable   $ 12,620   $ 12,622     $ 12,790  
  Investment securities     590     405       284  
  Dividends from mutual funds, FHLB stock and other investments     27     27       27  
  Interest bearing deposits in banks     283     288       259  
  Total interest and dividend income     13,520     13,342       13,360  
               
  Interest expense            
  Deposits     625     631       764  
  Borrowings     2     15       29  
  Total interest expense     627     646       793  
  Net interest income     12,893     12,696       12,567  
  Provision for loan losses                
  Net interest income after provision for loan losses     12,893     12,696       12,567  
               
  Non-interest income            
  Service charges on deposits     1,014     913       941  
  ATM and debit card interchange transaction fees     1,247     1,277       1,237  
  Gain on sales of loans, net     416     663       1,758  
  Bank owned life insurance (“BOLI”) net earnings     152     154       146  
  Valuation recovery on loan servicing rights, net         119       438  
  Recoveries on investment securities, net     3     8       3  
  Other     251     308       363  
  Total non-interest income, net     3,083     3,442       4,886  
               
  Non-interest expense            
  Salaries and employee benefits     5,192     5,171       4,778  
  Premises and equipment     988     928       998  
  Advertising     161     166       155  
  OREO and other repossessed assets, net     2     (18 )     (68 )
  ATM and debit card processing     450     464       445  
  Postage and courier     164     136       149  
  State and local taxes     235     255       255  
  Professional fees     322     271       181  
  FDIC insurance expense     126     128       105  
  Loan administration and foreclosure     96     104       90  
  Data processing and telecommunications     669     613       634  
  Deposit operations     262     299       245  
  Amortization of core deposit intangible (“CDI”)     79     79       91  
  Other, net     587     668       493  
  Total non-interest expense, net     9,333     9,264       8,551  
               
  Income before income taxes     6,643     6,874       8,902  
  Provision for income taxes     1,316     1,389       1,651  
  Net income   $ 5,327   $ 5,485     $ 7,251  
               
  Net income per common share:            
  Basic   $ 0.64   $ 0.66     $ 0.87  
  Diluted     0.63     0.65       0.86  
               
  Weighted average common shares outstanding:            
  Basic     8,337,407     8,356,066       8,331,121  
  Diluted     8,421,875     8,448,900       8,444,798  
TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
  Six Months Ended
($ in thousands, except per share amounts) (unaudited)   March 31,       March 31,
    2022       2021
  Interest and dividend income            
  Loans receivable   $ 25,242         $ 26,108  
  Investment securities     996           585  
  Dividends from mutual funds, FHLB stock and other investments     54           55  
  Interest bearing deposits in banks     571           569  
  Total interest and dividend income     26,863           27,317  
               
  Interest expense            
  Deposits     1,257           1,668  
  Borrowings     17           58  
  Total interest expense     1,274           1,726  
  Net interest income     25,589           25,591  
  Provision for loan losses                
  Net interest income after provision for loan losses     25,589           25,591  
               
  Non-interest income            
  Service charges on deposits     1,927           1,996  
  ATM and debit card interchange transaction fees     2,523           2,393  
  Gain on sales of loans, net     1,079           3,760  
  Bank owned life insurance (“BOLI”) net earnings     305           295  
  Valuation recovery on loan servicing rights, net     119           202  
  Recoveries on investment securities, net     11           8  
  Other     561           791  
  Total non-interest income, net     6,525           9,445  
               
  Non-interest expense            
  Salaries and employee benefits     10,363           9,391  
  Premises and equipment     1,916           1,955  
  Advertising     327           311  
  OREO and other repossessed assets, net     (16 )         (94 )
  ATM and debit card processing     914           876  
  Postage and courier     300           287  
  State and local taxes     489           538  
  Professional fees     593           412  
  FDIC insurance expense     254           201  
  Loan administration and foreclosure     200           171  
  Data processing and telecommunications     1,282           1,240  
  Deposit operations     561           529  
  Amortization of CDI     158           181  
  Other, net     1,256           963  
  Total non-interest expense, net     18,597           16,961  
               
  Income before income taxes     13,517           18,075  
  Provision for income taxes     2,705           3,534  
  Net income   $ 10,812         $ 14,541  
               
  Net income per common share:            
  Basic   $ 1.30         $ 1.75  
  Diluted     1.28           1.73  
               
  Weighted average common shares outstanding:            
  Basic     8,346,839           8,322,210  
  Diluted     8,435,536           8,428,595  
TIMBERLAND BANCORP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
 
($ in thousands, except per share amounts) (unaudited)   March 31,   Dec. 31,   March 31,
     2022     2021     2021 
Assets            
Cash and due from financial institutions   $ 26,500     $ 20,539     $ 21,707  
Interest-bearing deposits in banks     465,802       537,789       411,635  
  Total cash and cash equivalents     492,302       558,328       433,342  
               
Certificates of deposit (“CDs”) held for investment, at cost     28,619       24,648       39,674  
Investment securities:            
  Held to maturity, at amortized cost     189,405       114,600       36,465  
  Available for sale, at fair value     50,624       56,552       69,184  
Investments in equity securities, at fair value     902       946       957  
FHLB stock     2,194       2,103       2,303  
Other investments, at cost     3,000       3,000       3,000  
Loans held for sale     2,772       3,700       8,455  
             
Loans receivable     1,047,513       1,007,475       1,044,117  
Less: Allowance for loan losses     (13,433 )     (13,468 )     (13,434 )
  Net loans receivable     1,034,080       994,007       1,030,683  
               
Premises and equipment, net     21,878       22,108       22,763  
OREO and other repossessed assets, net     157       157       157  
BOLI     22,498       22,347       21,891  
Accrued interest receivable     3,927       3,938       4,471  
Goodwill     15,131       15,131       15,131  
CDI     1,106       1,185       1,444  
Loan servicing rights, net     3,390       3,524       3,604  
Operating lease right-of-use assets     2,129       2,206       2,436  
Other assets     3,356       2,795       3,284  
  Total assets   $ 1,877,470     $ 1,831,275     $ 1,699,244  
               
Liabilities and shareholders’ equity            
Deposits: Non-interest-bearing demand   $ 525,488     $ 523,518     $ 499,541  
Deposits: Interest-bearing     1,130,938       1,083,113       982,318  
  Total deposits     1,656,426       1,606,631       1,481,859  
               
Operating lease liabilities     2,210       2,285       2,499  
FHLB borrowings           5,000       10,000  
Other liabilities and accrued expenses     6,565       6,984       6,343  
  Total liabilities     1,665,201       1,620,900       1,500,701  
             
Shareholders’ equity            
Common stock, $.01 par value; 50,000,000 shares authorized;
         8,305,826 shares issued and outstanding – March 31, 2022
         8,348,821 shares issued and outstanding – December 31, 2021
         8,361,457 shares issued and outstanding – March 31, 2021
   

40,988

     

42,436

     

42,949

 
Retained earnings     171,388       167,897       155,473  
Accumulated other comprehensive income (loss)     (107 )     42       121  
  Total shareholders’ equity     212,269       210,375       198,543  
  Total liabilities and shareholders’ equity   $ 1,877,470     $ 1,831,275     $ 1,699,244  
KEY FINANCIAL RATIOS AND DATA Three Months Ended
($ in thousands, except per share amounts) (unaudited)   March 31,   Dec. 31,   March 31,
    2022   2021   2021
PERFORMANCE RATIOS:            
Return on average assets (a)     1.16 %     1.20 %     1.75 %
Return on average equity (a)     10.10 %     10.55 %     14.89 %
Net interest margin (a)     2.95 %     2.92 %     3.21 %
Efficiency ratio     58.42 %     57.40 %     48.99 %
             
  Six Months Ended
    March 31,       March 31,
    2022       2021
PERFORMANCE RATIOS:     1.18 %         1.80 %
Return on average assets (a)     10.33 %         15.14 %
Return on average equity (a)     2.93 %         3.34 %
Net interest margin (a)     57.91 %         48.41 %
Efficiency ratio            
    March 31,   Dec. 31,   March 31,
    2022   2021   2021
ASSET QUALITY RATIOS AND DATA:            
Non-accrual loans   $ 2,651     $ 2,853     $ 2,305  
Loans past due 90 days and still accruing                  
Non-performing investment securities     127       140       188  
OREO and other repossessed assets     157       157       157  
Total non-performing assets (b)   $ 2,935     $ 3,150     $ 2,650  
             
Non-performing assets to total assets (b)     0.16 %     0.17 %     0.16 %
Net charge-offs (recoveries) during quarter   $ 35     $ 1     $ (2 )
ALL to non-accrual loans,     507 %     472 %     583 %
ALL to loans receivable (c)     1.28 %     1.34 %     1.29 %
ALL to loans receivable (excluding SBA PPP loans) (d) (non-GAAP)     1.29 %     1.37 %     1.48 %
ALL to loans receivable (excluding SBA PPP loans and South Sound Acquisition loans) (d) (e) (non-GAAP)    

1.33

%

   

1.41

%

   

1.56

%

Troubled debt restructured loans on accrual status (f)   $ 2,496     $ 2,361     $ 2,864  
             
CAPITAL RATIOS:            
Tier 1 leverage capital     10.86 %     10.81 %     11.19 %
Tier 1 risk-based capital     19.50 %     20.24 %     19.47 %
Common equity Tier 1 risk-based capital     19.50 %     20.24 %     19.47 %
Total risk-based capital     20.75 %     21.49 %     20.72 %
Tangible common equity to tangible assets (non-GAAP)     10.53 %     10.69 %     10.81 %
             
BOOK VALUES:            
Book value per common share   $ 25.56     $ 25.20     $ 23.75  
Tangible book value per common share (g)     23.60       23.24       21.76  

________________________________________________

(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 $5,934, $21,397 and $138,175 at March 31, 2022, December 31, 2021 and March 31, 2021, respectively.
(e) Does not include loans acquired in the South Sound Acquisition totaling $28,459, $31,907 and $46,626 at March 31, 2022, December 31, 2021 and March 31, 2021, respectively.
(f) Does not include troubled debt restructured loans totaling $172, $177 and $192 reported as non-accrual loans at March 31, 2022, December 31, 2021 and March 31, 2021, respectively.
(g) Tangible common equity divided by common shares outstanding (non-GAAP).                                

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

  For the Three Months Ended  
  March 31, 2022   December 31, 2021   March 31, 2021  
  Amount   Rate   Amount   Rate   Amount   Rate
                       
Assets                      
Loans receivable and loans held for sale $ 1,029,582     4.90 %   $ 997,358     5.06 %   $ 1,044,476     4.90 %
Investment securities and FHLB stock (1)   209,868     1.18       162,077     1.07       101,675     1.23  
Interest-earning deposits in banks and CDs   510,211     0.22       580,337     0.20       422,286     0.24  
Total interest-earning assets   1,749,661     3.09       1,739,772     3.07       1,568,437     3.41  
Other assets   84,252           83,563           85,203      
Total assets $ 1,833,913         $ 1,823,335         $ 1,653,640      
                       
Liabilities and Shareholders’ Equity                      
NOW checking accounts $ 441,259     0.13 %   $ 440,744     0.13 %   $ 394,612     0.16 %
Money market accounts   244,250     0.29       222,945     0.29       178,768     0.30  
Savings accounts   277,888     0.08       264,651     0.08       236,504     0.08  
Certificates of deposit accounts   128,588     0.80       132,590     0.83       146,065     1.19  
Total interest-bearing deposits   1,091,985     0.23       1,060,930     0.24       955,949     0.32  
Borrowings   677     1.18       5,000     1.20       10,003     1.17  
Total interest-bearing liabilities   1,092,662     0.23       1,065,930     0.24       965,952     0.33  
                       
Non-interest-bearing demand deposits   521,284           538,865           482,528      
Other liabilities   9,072           10,567           10,365      
Shareholders’ equity   210,895           207,973           194,795      
Total liabilities and shareholders’ equity $ 1,833,913         $ 1,823,335         $ 1,653,640      
                       
Interest rate spread     2.86 %       2.83 %       3.08 %
Net interest margin (2)     2.95 %       2.92 %       3.21 %
Average interest-earning assets to                      
average interest-bearing liabilities   160.13 %         163.22 %         162.37 %    

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

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

  For the Six Months Ended  
  March 31, 2022       March 31, 2021  
  Amount   Rate           Amount   Rate
                       
Assets                      
Loans receivable and loans held for sale $ 1,013,293     4.98 %           $ 1,037,304     5.03 %
Investment securities and FHLB stock (1)   185,710     1.13               97,812     1.31  
Interest-earning deposits in banks and CDs   545,651     0.21               398,067     0.29  
Total interest-earning assets   1,744,654     3.08               1,533,183     3.56  
Other assets   83,908                   84,635      
Total assets $ 1,828,562                 $ 1,617,818      
                       
Liabilities and Shareholders’ Equity                      
NOW checking accounts $ 440,999     0.13 %           $ 386,093     0.17 %
Money market accounts   233,480     0.29               173,579     0.31  
Savings accounts   271,197     0.08               229,610     0.08  
Certificates of deposit accounts   130,611     0.81               150,645     1.29  
Total interest-bearing deposits   1,076,287     0.23               939,927     0.36  
Borrowings   2,862     1.19               10,002     1.16  
Total interest-bearing liabilities   1,079,149     0.24               949,929     0.36  
                       
Non-interest-bearing demand deposits   530,171                   465,251      
Other liabilities   9,824                   10,528      
Shareholders’ equity   209,418                   192,110      
Total liabilities and shareholders’ equity $ 1,828,562                 $ 1,617,818      
                       
Interest rate spread     2.84 %               3.20 %
Net interest margin (2)     2.93 %               3.34 %
Average interest-earning assets to                      
average interest-bearing liabilities   161.67 %                 161.40 %    

_____________________________________
(1) Includes other investments
(2) Net interest margin = annualized 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).

($ in thousands)   March 31, 2022   December 31, 2021   March 31, 2021
             
Shareholders’ equity   $ 212,269     $ 210,375     $ 198,543  
Less goodwill and CDI     (16,237 )     (16,316 )     (16,575 )
Tangible common equity   $ 196,032     $ 194,059     $ 181,968  
             
Total assets   $ 1,877,470     $ 1,831,275     $ 1,699,244  
Less goodwill and CDI     (16,237 )     (16,316 )     (16,575 )
Tangible assets   $ 1,861,233     $ 1,814,959     $ 1,682,669  

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