8-K
TIMBERLAND BANCORP INC (TSBK)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 27, 2020
Timberland Bancorp, Inc.
(Exact name of registrant as specified in its charter)
| Washington | 0-23333 | 91-1863696 |
|---|---|---|
| State or other jurisdiction<br><br> Of incorporation | Commission<br><br> <br>File Number | (I.R.S. Employer<br><br> <br>Identification No.) |
| 624 Simpson Avenue, Hoquiam, Washington | 98550 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number (including area code) (360) 533-4747
| Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions. |
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| [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| [ ] Pre-commencement<br> communications pursuant to Rule 14d-2(b) under the Exchange Act<br><br> <br>(17 CFR 240.14d-2(b)) |
| [ ] Pre-commencement<br> communications pursuant to Rule 13e-4(c) under the Exchange Act<br><br> <br>(17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on<br><br> <br>which registered |
|---|---|---|
| Common Stock, par value $.01 per share | TSBK | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Item 2.02 Results of Operations and Financial Condition
On January 27, 2020, Timberland Bancorp, Inc. issued its earnings release for the quarter ended December 31, 2019. The release also announced the declaration of a quarterly cash dividend of $0.20 per common share. A copy of the earnings release is attached hereto as Exhibit 99.1, which is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
The following exhibit is being furnished herewith and this list shall constitute the exhibit index:
99.1 Press Release of Timberland Bancorp, Inc. dated January 27, 2020
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| TIMBERLAND BANCORP, INC. | |
|---|---|
| DATE: January 27, 2020 | By: /s/ Dean J. Brydon |
| Dean J. Brydon<br><br> <br>Chief Financial Officer |
Exhibit 99.1
| Contact: | Michael R. Sand,<br><br> <br>President & CEO<br><br> <br>Dean J. Brydon, CFO<br><br> <br>(360) 533-4747<br><br> <br>www.timberlandbank.com |
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Timberland Bancorp’s First Fiscal Quarter Earnings Per Share Increases 18%
| • | First Fiscal Quarter Net Income Increases 18% to $6.65 Million |
|---|---|
| • | Return on Average Equity Increases to 15.40% |
| --- | --- |
| • | Return on Average Assets Increases to 2.12% |
| --- | --- |
| • | Announces 33% Increase in the Quarterly Cash Dividend |
| --- | --- |
HOQUIAM, WA - January 27, 2020 - Timberland Bancorp, Inc. (NASDAQ: TSBK) (“Timberland” or “the Company”) today reported net income increased 18% to $6.65 million for the quarter ended December 31, 2019 from $5.62 million for the quarter one year ago and increased 5% from $6.33 million for the preceding quarter. Earnings per diluted common share (“EPS”) increased 18% to $0.78 for the current quarter from $0.66 for the quarter one year ago and increased 4% from $0.75 for the preceding quarter.
“We are pleased to report an exceptionally strong first fiscal quarter,” stated Michael Sand, President and CEO. “Increased operating revenue combined with reduced operating expenses resulted in record net income and earnings per diluted share. Loan originations increased 25% from last year’s comparable quarter and 37% from the linked quarter with growth particularly strong in the commercial real estate and commercial business loan segments. Year-over-year, net loans receivable increased 7% in spite of significant loan payoffs encouraged by a persistently low interest rate environment while deposits increased 5%.”
“Data processing expense was significantly lower for the quarter due to the completion of South Sound Bank’s core operating system conversion to Timberland’s Jack Henry platform during the prior quarter. We are pleased with the positive results brought to Timberland shareholders from the acquisition and full integration of South Sound into Timberland.”
“In consideration of Timberland’s strong and consistent profitability and robust capital position, Timberland’s Board of Directors announced a 33% increase in the quarterly cash dividend to shareholders to $0.20 per common share, payable on February 28, 2020, to shareholders of record on February 14, 2020.”
First Fiscal Quarter 2020 Earnings and Balance Sheet Highlights (at or for the period ended December 31, 2019, compared to December 31, 2018, or September 30, 2019):
Earnings Highlights:
| • | Net income increased 18% to $6.65 million from $5.62 million for the comparable quarter one year ago and increased 5% from $6.33 million for the preceding quarter; |
|---|---|
| • | Quarterly EPS increased 18% to $0.78 from $0.66 for the comparable quarter one year ago and increased 4% from $0.75 for the preceding quarter; |
| --- | --- |
| • | Return on average equity and return on average assets for the current quarter increased to 15.40% and 2.12%, respectively; |
| --- | --- |
| • | Net interest margin was 4.43% for the current quarter compared to 4.47% for the comparable quarter one year ago and 4.54% for the preceding quarter; and |
| --- | --- |
| • | Efficiency ratio improved to 49.43%. |
| --- | --- |
Balance Sheet Highlights:
| • | Total assets increased 6% year-over-year and 2% from the prior quarter; |
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| • | Total deposits increased 5% year-over-year and 2% from the prior quarter; |
| --- | --- |
| • | Net loans receivable increased 7% year-over-year and 3% from the prior quarter; and |
| --- | --- |
Timberland Fiscal Q1 2020 Earnings
January 27, 2020
Page 2
| • | Book and tangible book (non-GAAP) values per common share increased to $21.05 and $19.00, respectively, at December 31, 2019. |
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Operating Results
Operating revenue (net interest income before the provision for loan losses, plus non-interest income excluding recoveries on investment securities) increased 8% to $16.84 million from $15.60 million for the comparable quarter one year ago and increased 1% from $16.72 million for the preceding quarter.
Net interest income decreased 1% to $13.00 million for the current quarter from $13.15 million for the preceding quarter and increased 5% from $12.34 million for the comparable quarter one year ago. Timberland’s net interest margin (“NIM”) for the current quarter decreased to 4.43% from 4.54% for the preceding quarter and 4.47% for the comparable quarter one year ago. The NIM for the current quarter was increased by approximately 13 basis points due to the accretion of $146,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $233,000 in pre-payment penalties, non-accrual interest, and late fees. The NIM for the preceding quarter was increased by approximately eight 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 $45,000 of non-accrual interest and late fees. The NIM for the comparable quarter one year ago was increased approximately four basis points due to the accretion of $87,000 of the fair value discount on loans acquired in the South Sound Acquisition.
Non-interest income increased 9% to $3.94 million for the current quarter from $3.60 million for the preceding quarter and increased 21% from $3.27 million for the comparable quarter one year ago. The increase in non-interest income compared to the preceding quarter was primarily due to a $394,000 increase in gain on sale of loans, a $78,000 increase in recoveries on investment securities, and smaller increases in several other categories. These increases were partially offset by a $124,000 decrease in service charges on deposits and smaller decreases in several other categories. The increase in gain on sale of loans was primarily due to an increase in the dollar amount of fixed rate one- to four-family loans sold, which was largely driven by an increase in refinance activity. The increase in recoveries on investment securities was primarily due to the payoffs of several investment securities for which other than temporary impairment (“OTTI”) had previously been recorded. The decrease in service charges on deposits was primarily due to a decrease in overdraft fee income and a change in the timing of service charge billings for commercial accounts, which increased fee income recognized during the preceding quarter.
Total operating expenses for the current quarter decreased 5% to $8.37 million from $8.77 million for the preceding quarter and decreased 2% from $8.56 million for the comparable quarter one year ago. The decrease in operating expenses compared to the preceding quarter was primarily due to a $456,000 decrease in data processing and telecommunications expenses, an $89,000 net decrease in premises and equipment expenses (including gains on disposition of premises and equipment), and smaller decreases in several other categories. These decreases were partially offset by a $150,000 increase in salaries and employee benefits and smaller increases in several other categories. The decrease in data processing and telecommunications expenses was primarily due to a $425,000 reduction in IT conversion related expenses. The net decrease in premises and equipment related expenses was primarily due to a $99,000 gain on the sale of land acquired in the South Sound Acquisition that had been held for future expansion. The increase in salaries and employee benefits expense was primarily due to annual salary adjustments in October 2019. The efficiency ratio improved to 49.43% for the current quarter from 52.39% for the preceding quarter and from 54.85% for the comparable quarter one year ago.
The provision for income taxes for the current quarter increased $75,000 to $1.72 million from $1.64 million for the preceding quarter and increased $282,000 from the comparable quarter one year ago, primarily due to higher income before income taxes. Timberland’s effective tax rate was 20.5% for the quarter ended December 31, 2019, compared to 20.6% for the quarter ended September 30, 2019 and 20.3% for the quarter ended December 31, 2018.
Balance Sheet Management
Total assets increased $23.41 million, or 2%, during the first quarter of fiscal 2020 to $1.27 billion at December 31, 2019, from $1.25 billion at September 30, 2019. The increase was primarily due to increases in net loans receivable and investment securities, which were partially offset by a decrease in total cash and cash equivalents. The increase in total assets was funded primarily by an increase in total deposits and by retained net income.
Net loans receivable increased $26.49 million, or 3%, during the current quarter to $913.15 million at December 31, 2019, from $888.66 million at September 30, 2019. The increase was primarily due to a $19.91 million increase in commercial real
Timberland Fiscal Q1 2020 Earnings
January 27, 2020
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estate loans, a $9.03 million increase in commercial business loans, a $2.29 million increase in multi-family mortgage loans, and a $10.05 million decrease in the undisbursed portion of construction loans in process. These increases to net loans receivable were partially offset by an $8.62 million decrease in construction loans, a $3.29 million decrease in one- to four-family mortgage loans, and smaller decreases in several other loan categories.
Loan Portfolio
($ in thousands)
| December 31, 2019 | September 30, 2019 | December 31, 2018 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||
| Mortgage loans: | ||||||||||||||||||
| One- to four-family (a) | $ | 129,373 | 13 | % | $ | 132,661 | 13 | % | $ | 130,219 | 14 | % | ||||||
| Multi-family | 78,326 | 8 | 76,036 | 8 | 72,076 | 8 | ||||||||||||
| Commercial | 439,024 | 44 | 419,117 | 42 | 426,144 | 44 | ||||||||||||
| Construction - custom and | ||||||||||||||||||
| owner/builder | 124,530 | 12 | 128,848 | 13 | 119,214 | 12 | ||||||||||||
| Construction - speculative<br><br> <br>one-to four-family | 18,764 | 2 | 16,445 | 2 | 17,934 | 2 | ||||||||||||
| Construction - commercial | 36,670 | 4 | 39,566 | 4 | 42,416 | 4 | ||||||||||||
| Construction - multi-family | 33,290 | 3 | 36,263 | 4 | 25,645 | 3 | ||||||||||||
| Construction - land | ||||||||||||||||||
| development | 1,656 | -- | 2,404 | -- | 10,578 | 1 | ||||||||||||
| Land | 29,419 | 3 | 30,770 | 3 | 22,734 | 2 | ||||||||||||
| Total mortgage loans | 891,052 | 89 | 882,110 | 89 | 866,960 | 90 | ||||||||||||
| Consumer loans: | ||||||||||||||||||
| Home equity and second | ||||||||||||||||||
| mortgage | 39,103 | 4 | 40,190 | 4 | 40,468 | 4 | ||||||||||||
| Other | 4,093 | -- | 4,312 | 1 | 4,443 | -- | ||||||||||||
| Total consumer loans | 43,196 | 4 | 44,502 | 5 | 44,911 | 4 | ||||||||||||
| Commercial business loans | 73,790 | 7 | 64,764 | 6 | 58,202 | 6 | ||||||||||||
| Total loans | 1,008,038 | 100 | % | 991,376 | 100 | % | 970,073 | 100 | % | |||||||||
| Less: | ||||||||||||||||||
| Undisbursed portion of | ||||||||||||||||||
| construction loans in | ||||||||||||||||||
| process | (82,172 | ) | (92,226 | ) | (100,595 | ) | ||||||||||||
| Deferred loan origination | ||||||||||||||||||
| fees | (2,834 | ) | (2,798 | ) | (2,875 | ) | ||||||||||||
| Allowance for loan losses | (9,882 | ) | (9,690 | ) | (9,533 | ) | ||||||||||||
| Total loans receivable, net | $ | 913,150 | $ | 886,662 | $ | 857,070 |
_______________________
| (a) | Does not include one- to four-family loans held for sale totaling $5,420, $6,071, and $2,988 at December 31, 2019, September 30, 2019 and December 31, 2018, respectively. |
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Timberland originated $132.55 million in loans during the quarter ended December 31, 2019, compared to $106.39 million for the comparable quarter one year ago and $96.41 million for the preceding quarter. Timberland continues to sell fixed-rate one- to four-family mortgage loans into the secondary market for asset-liability management purposes and to generate non-interest income. Timberland also periodically sells the guaranteed portion of U.S. Small Business Administration (“SBA”) loans. During the first quarter of fiscal 2020, fixed-rate one- to four-family mortgage loans and SBA loans totaling $34.56 million were sold compared to $16.12 million for the comparable quarter one year ago and $19.77 million for the preceding quarter.
Timberland’s investment securities and CDs held for investment increased $21.22 million, or 16%, to $154.16 million at December 31, 2019, from $132.94 million at September 30, 2019. The increase was primarily due to the purchase of
Timberland Fiscal Q1 2020 Earnings
January 27, 2020
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additional agency mortgage-backed investment securities as the Company put a portion of its excess overnight liquidity into higher-earning investment securities 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 21.4% of total liabilities at December 31, 2019, compared to 22.8% at September 30, 2019, and 22.1% one year ago.
| DEPOSIT BREAKDOWN<br> ( in thousands) | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, 2019 | December 31, 2018 | |||||||||||||
| Percent | Amount | Percent | Amount | Percent | ||||||||||
| Non-interest-bearing demand | 297,676 | 27 | % | $ | 296,472 | 28 | % | $ | 271,251 | 26 | % | |||
| NOW checking | 303,493 | 28 | 297,055 | 28 | 286,052 | 28 | ||||||||
| Savings | 175,610 | 16 | 164,506 | 15 | 160,673 | 15 | ||||||||
| Money market | 134,131 | 13 | 136,151 | 13 | 153,208 | 15 | ||||||||
| Money market – reciprocal | 8,159 | 1 | 8,388 | 1 | 9,220 | 1 | ||||||||
| Certificates of deposit under 250 | 133,271 | 12 | 133,241 | 12 | 129,822 | 13 | ||||||||
| Certificates of deposit 250 and over | 28,933 | 3 | 29,211 | 3 | 21,747 | 2 | ||||||||
| Certificates of deposit – brokered | 3,204 | -- | 3,203 | -- | 3,204 | -- | ||||||||
| Total deposits | 1,084,477 | 100 | % | $ | 1,068,227 | 100 | % | $ | 1,035,177 | 100 | % |
All values are in US Dollars.
Total deposits increased $16.25 million, or 2%, during the current quarter to $1.084 billion at December 31, 2019, from $1.068 billion at September 30, 2019. The quarterly increase consisted of an $11.10 million increase in savings account balances, a $6.43 million increase in NOW checking account balances, and a $1.20 million increase in non-interest-bearing demand account balances. These increases were partially offset by a $2.25 million decrease in money market account balances and a $247,000 decrease in certificates of deposit account balances.
Shareholders’ Equity
Total shareholders’ equity increased $4.59 million to $175.65 million at December 31, 2019, from $171.07 million at September 30, 2019. The increase in shareholders’ equity was primarily due to net income of $6.65 million for the quarter, which was partially offset by dividend payments to shareholders of $2.09 million.
Timberland did not repurchase any shares of its common stock during the quarter and had 201,453 shares available to be repurchased on its existing stock repurchase plan at December 31, 2019.
Capital Ratios and Asset Quality
Timberland remains well capitalized with a total risk-based capital ratio of 19.47% and a Tier 1 leverage capital ratio of 12.91% at December 31, 2019.
Asset quality remains strong with a non-performing assets to total assets ratio of 0.39% at December 31, 2019, compared to 0.40% at September 30, 2019 and 0.33% one year ago.
A $200,000 provision for loan losses was made during the quarter ended December 31, 2019, primarily due to loan portfolio growth as net loans receivable increased by $26.49 million during the quarter. There were net charge-offs of $8,000 for the current quarter compared to net recoveries of $59,000 for the preceding quarter and net recoveries of $3,000 for the comparable quarter one year ago. The allowance for loan losses to loans receivable decreased to 1.07% at December 31, 2019, from 1.08% at September 30, 2019 and 1.10% at December 31, 2018. The allowance for loan losses as a percentage of loans receivable is 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 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 $1.24 million at December 31, 2019. The
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allowance for loan losses to loans receivable (excluding the remaining balance of the loans acquired in the South Sound Acquisition) was 1.18% (non-GAAP) at December 31, 2019.
Total delinquent loans (past due 30 days or more) and non-accrual loans decreased $53,000, or 1%, to $3.87 million at December 31, 2019, from $3.93 million at September 30, 2019, and increased $516,000, or 15%, from $3.36 million one year ago. Non-accrual loans increased $37,000, or 1%, to $3.07 million at December 31, 2019, from $3.03 million at September 30, 2019, and increased $1.48 million, or 93%, from $1.59 million one year ago.
Non-Accrual Loans
($ in thousands)
| December 31, 2019 | September 30, 2019 | December 31, 2018 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amount | Quantity | Amount | Quantity | Amount | Quantity | |||||||
| Mortgage loans: | ||||||||||||
| One- to four-family | $ | 942 | 4 | $ | 699 | 3 | $ | 509 | 4 | |||
| Commercial | 736 | 3 | 779 | 2 | -- | -- | ||||||
| Land | 198 | 2 | 204 | 2 | 396 | 2 | ||||||
| Total mortgage loans | 1,876 | 9 | 1,682 | 7 | 905 | 6 | ||||||
| Consumer loans | ||||||||||||
| Home equity and second | ||||||||||||
| mortgage | 581 | 6 | 603 | 6 | 386 | 6 | ||||||
| Consumer | 12 | 1 | 23 | 2 | -- | -- | ||||||
| Total consumer loans | 593 | 7 | 626 | 8 | 386 | 6 | ||||||
| Commercial business loans | 601 | 9 | 725 | 10 | 299 | 6 | ||||||
| Total loans | $ | 3,070 | 25 | $ | 3,033 | 25 | $ | 1,590 | 18 |
OREO and other repossessed assets decreased 18% to $1.66 million at December 31, 2019, from $2.03 million at December 31, 2018, and decreased 1% from $1.68 million at September 30, 2019. At December 31, 2019, the OREO and other repossessed asset portfolio consisted of 11 individual land parcels. During the quarter ended December 31, 2019, there was one OREO property sold for a net gain of $38,000.
OREO and Other Repossessed Assets
($ in thousands)
| December 31, 2019 | September 30, 2019 | December 31, 2018 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amount | Quantity | Amount | Quantity | Amount | Quantity | |||||||
| Commercial | $ | -- | -- | $ | 25 | 1 | $ | 473 | 3 | |||
| Land | 1,659 | 11 | 1,658 | 11 | 1,553 | 11 | ||||||
| Total | $ | 1,659 | 11 | $ | 1,683 | 12 | $ | 2,026 | 14 |
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).
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| ($ in thousands) | December 31, 2019 | September 30, 2019 | December 31, 2018 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Shareholders’ equity | $ | 175,653 | $ | 171,067 | $ | 156,905 | |||
| Less goodwill and CDI | (17,061 | ) | (17,162 | ) | (16,994 | ) | |||
| Tangible common equity | $ | 158,592 | $ | 153,905 | $ | 139,911 | |||
| Total assets | $ | 1,270,542 | $ | 1,247,132 | $ | 1,200,315 | |||
| Less goodwill and CDI | (17,061 | ) | (17,162 | ) | (16,994 | ) | |||
| Tangible assets | $ | 1,253,481 | $ | 1,229,970 | $ | 1,183,321 |
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
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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; 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 2020 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 Fiscal Q1 2020 Earnings
January 27, 2020
Page 8
| TIMBERLAND BANCORP INC. AND SUBSIDIARY<br><br> <br>CONSOLIDATED STATEMENTS OF INCOME | Three Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
| ($ in thousands, except per share amounts) | Dec. 31, | Sept. 30, | Dec. 31, | |||||
| (unaudited) | 2019 | 2019 | 2018 | |||||
| Interest and dividend income | ||||||||
| Loans receivable | $ | 12,764 | $ | 12,670 | $ | 11,782 | ||
| Investment securities | 439 | 350 | 278 | |||||
| Dividends from mutual funds, FHLB stock and other investments | 37 | 40 | 39 | |||||
| Interest bearing deposits in banks | 951 | 1,323 | 1,216 | |||||
| Total interest and dividend income | 14,191 | 14,383 | 13,315 | |||||
| Interest expense | ||||||||
| Deposits | 1,189 | 1,233 | 971 | |||||
| Total interest expense | 1,189 | 1,233 | 971 | |||||
| Net interest income | 13,002 | 13,150 | 12,344 | |||||
| Provision for loan losses | 200 | -- | -- | |||||
| Net interest income after provision for loan losses | 12,802 | 13,150 | 12,344 | |||||
| Non-interest income | ||||||||
| Service charges on deposits | 1,200 | 1,324 | 1,216 | |||||
| ATM and debit card interchange transaction fees | 1,094 | 1,140 | 949 | |||||
| Gain on sale of loans, net | 953 | 559 | 386 | |||||
| Bank owned life insurance (“BOLI”) net earnings | 147 | 139 | 157 | |||||
| Servicing income on loans sold | 51 | 87 | 148 | |||||
| Recoveries on investment securities, net | 103 | 25 | 11 | |||||
| Other | 390 | 323 | 399 | |||||
| Total non-interest income | 3,938 | 3,597 | 3,266 | |||||
| Non-interest expense | ||||||||
| Salaries and employee benefits | 4,722 | 4,572 | 4,606 | |||||
| Premises and equipment | 894 | 885 | 954 | |||||
| Gain on disposition of premises and equipment, net | (99 | ) | (1 | ) | -- | |||
| Advertising | 183 | 153 | 191 | |||||
| OREO and other repossessed assets, net | (1 | ) | (26 | ) | 50 | |||
| ATM and debit card processing | 440 | 408 | 422 | |||||
| Postage and courier | 135 | 135 | 110 | |||||
| State and local taxes | 216 | 232 | 196 | |||||
| Professional fees | 269 | 332 | 265 | |||||
| FDIC insurance (credit) | (27 | ) | (55 | ) | 74 | |||
| Loan administration and foreclosure | 89 | 137 | 87 | |||||
| Data processing and telecommunications | 584 | 1,040 | 673 | |||||
| Deposit operations | 317 | 309 | 294 | |||||
| Amortization of CDI | 101 | 113 | 109 | |||||
| Other, net | 550 | 539 | 531 | |||||
| Total non-interest expense, net | 8,373 | 8,773 | 8,562 | |||||
| Income before income taxes | 8,367 | 7,974 | 7,048 | |||||
| Provision for income taxes | 1,715 | 1,640 | 1,433 | |||||
| Net income | $ | 6,652 | $ | 6,334 | $ | 5,615 | ||
| Net income per common share: | ||||||||
| Basic | $ | 0.80 | $ | 0.76 | $ | 0.68 | ||
| Diluted | 0.78 | 0.75 | 0.66 | |||||
| Weighted average common shares outstanding: | ||||||||
| Basic | 8,341,470 | 8,333,812 | 8,293,212 | |||||
| Diluted | 8,475,029 | 8,468,266 | 8,457,703 |
Timberland Fiscal Q1 2020 Earnings
January 27, 2020
Page 9
| TIMBERLAND BANCORP INC. AND SUBSIDIARY<br> CONSOLIDATED BALANCE SHEETS | ||||||||
|---|---|---|---|---|---|---|---|---|
| ( in thousands, except per share amounts) (unaudited) | Sept. 30, | Dec. 31, | ||||||
| 2019 | 2018 | |||||||
| Assets | ||||||||
| Cash and due from financial institutions | 24,322 | $ | 25,179 | $ | 18,938 | |||
| Interest-bearing deposits in banks | 94,529 | 117,836 | 142,805 | |||||
| Total cash and cash equivalents | 118,851 | 143,015 | 161,743 | |||||
| Certificates of deposit (“CDs”) held for investment, at cost | 76,249 | 78,346 | 65,830 | |||||
| Investment securities: | ||||||||
| Held to maturity, at amortized cost | 39,080 | 31,102 | 31,950 | |||||
| Available for sale, at fair value | 38,826 | 23,490 | 3,122 | |||||
| FHLB stock | 1,437 | 1,437 | 1,395 | |||||
| Other investments, at cost | 3,000 | 3,000 | 3,000 | |||||
| Loans held for sale | 5,420 | 6,071 | 2,988 | |||||
| Loans receivable | 923,032 | 896,352 | 866,603 | |||||
| Less: Allowance for loan losses | (9,882 | ) | (9,690 | ) | (9,533 | ) | ||
| Net loans receivable | 913,150 | 886,662 | 857,070 | |||||
| Premises and equipment, net | 22,588 | 22,830 | 22,884 | |||||
| OREO and other repossessed assets, net | 1,659 | 1,683 | 2,026 | |||||
| BOLI | 21,152 | 21,005 | 22,599 | |||||
| Accrued interest receivable | 3,665 | 3,598 | 3,497 | |||||
| Goodwill | 15,131 | 15,131 | 14,620 | |||||
| CDI | 1,930 | 2,031 | 2,374 | |||||
| Servicing rights, net | 2,599 | 2,408 | 2,338 | |||||
| Operating lease right-of-use assets | 2,823 | -- | -- | |||||
| Other assets | 2,982 | 5,323 | 2,879 | |||||
| Total assets | 1,270,542 | $ | 1,247,132 | $ | 1,200,315 | |||
| Liabilities and shareholders’ equity | ||||||||
| Deposits: Non-interest-bearing demand | 297,676 | $ | 296,472 | $ | 271,251 | |||
| Deposits: Interest-bearing | 786,801 | 771,755 | 763,926 | |||||
| Total deposits | 1,084,477 | 1,068,227 | 1,035,177 | |||||
| Operating lease liabilities | 2,823 | -- | -- | |||||
| Other liabilities and accrued expenses | 7,589 | 7,838 | 8,233 | |||||
| Total liabilities | 1,094,889 | 1,076,065 | 1,043,410 | |||||
| Shareholders’ equity | ||||||||
| Common stock, .01 par value; 50,000,000 shares authorized;<br> 8,346,394 shares issued and outstanding – December 31, 2019<br> 8,329,419 shares issued and outstanding – September 30, 2019<br> 8,313,403 shares issued and outstanding – December 31, 2018 | 43,246 | 43,030 | 42,951 | |||||
| Unearned shares issued to Employee Stock Ownership Plan (“ESOP”) | -- | -- | (67 | ) | ||||
| Retained earnings | 132,553 | 127,987 | 114,166 | |||||
| Accumulated other comprehensive gain (loss) | (146 | ) | 50 | (145 | ) | |||
| Total shareholders’ equity | 175,653 | 171,067 | 156,905 | |||||
| Total liabilities and shareholders’ equity | 1,270,542 | $ | 1,247,132 | $ | 1,200,315 |
All values are in US Dollars.
Timberland Fiscal Q1 2020 Earnings
January 27, 2020
Page 10
| KEY FINANCIAL RATIOS AND DATA | Three Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| ($ in thousands, except per share amounts) (unaudited) | Dec. 31, | Sept. 30, | Dec. 31, | ||||||
| 2019 | 2019 | 2018 | |||||||
| PERFORMANCE RATIOS: | |||||||||
| Return on average assets (a) | 2.12 | % | 2.04 | % | 1.88 | % | |||
| Return on average equity (a) | 15.40 | % | 15.07 | % | 14.56 | % | |||
| Net interest margin (a) | 4.43 | % | 4.54 | % | 4.47 | % | |||
| Efficiency ratio | 49.43 | % | 52.39 | % | 54.85 | % | |||
| Dec. 31, | Sept. 30, | Dec. 31, | |||||||
| 2019 | 2019 | 2018 | |||||||
| ASSET QUALITY RATIOS AND DATA: | |||||||||
| Non-accrual loans | $ | 3,070 | $ | 3,033 | $ | 1,590 | |||
| Loans past due 90 days and still accruing | -- | -- | -- | ||||||
| Non-performing investment securities | 254 | 294 | 372 | ||||||
| OREO and other repossessed assets | 1,659 | 1,683 | 2,026 | ||||||
| Total non-performing assets (b) | $ | 4,983 | $ | 5,010 | $ | 3,988 | |||
| Non-performing assets to total assets (b) | 0.39 | % | 0.40 | % | 0.33 | % | |||
| Net charge-offs (recoveries) during quarter | $ | 8 | $ | (59 | ) | $ | (3 | ) | |
| Allowance for loan losses to non-accrual loans | 322 | % | 319 | % | 600 | % | |||
| Allowance for loan losses to loans receivable (c) | 1.07 | % | 1.08 | % | 1.10 | % | |||
| Troubled debt restructured loans on accrual status (d) | $ | 2,894 | $ | 2,903 | $ | 2,941 | |||
| CAPITAL RATIOS: | |||||||||
| Tier 1 leverage capital | 12.91 | % | 12.65 | % | 11.96 | % | |||
| Tier 1 risk-based capital | 18.31 | % | 18.40 | % | 17.26 | % | |||
| Common equity Tier 1 risk-based capital | 18.31 | % | 18.40 | % | 17.26 | % | |||
| Total risk-based capital | 19.47 | % | 19.57 | % | 18.43 | % | |||
| Tangible common equity to tangible assets (non-GAAP) | 12.65 | % | 12.51 | % | 11.82 | % | |||
| BOOK VALUES: | |||||||||
| Book value per common share | $ | 21.05 | $ | 20.54 | $ | 18.87 | |||
| Tangible book value per common share (e) | 19.00 | 18.48 | 16.83 |
________________________________________________
(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 $354, $366 and $308 reported as non-accrual loans at December 31, 2019, September 30, 2019 and December 31, 2018, respectively.
(e) Tangible common equity divided by common shares outstanding (non-GAAP).
Timberland Fiscal Q1 2020 Earnings
January 27, 2020
Page 11
AVERAGE BALANCES, YIELDS, AND RATES - QUARTERLY
($ in thousands)
(unaudited)
| For the Three Months Ended | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2019 | September 30, 2019 | December 31, 2018 | ||||||||||||||||
| Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||
| Assets | ||||||||||||||||||
| Loans receivable and loans held for sale | $ | 911,905 | 5.60 | % | $ | 891,109 | 5.69 | % | $ | 860,639 | 5.48 | % | ||||||
| Investment securities and FHLB stock (1) | 65,949 | 2.89 | 47,660 | 3.27 | 34,419 | 3.68 | ||||||||||||
| Interest-bearing deposits in banks and CDs | 196,322 | 1.93 | 219,567 | 2.39 | 210,757 | 2.29 | ||||||||||||
| Total interest-earning assets | 1,174,176 | 4.83 | 1,158,336 | 4.97 | 1,105,815 | 4.82 | ||||||||||||
| Other assets | 83,405 | 83,308 | 91,142 | |||||||||||||||
| Total assets | $ | 1,257,581 | $ | 1,241,644 | $ | 1,196,957 | ||||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||
| NOW checking accounts | $ | 296,402 | 0.30 | % | $ | 295,612 | 0.30 | % | $ | 281,123 | 0.26 | % | ||||||
| Money market accounts | 133,755 | 0.56 | 147,885 | 0.70 | 156,638 | 0.59 | ||||||||||||
| Savings accounts | 174,590 | 0.08 | 162,654 | 0.06 | 160,584 | 0.07 | ||||||||||||
| Certificates of deposit accounts | 166,799 | 1.78 | 164,530 | 1.75 | 155,595 | 1.33 | ||||||||||||
| Total interest-bearing deposits | 771,546 | 0.61 | 770,681 | 0.63 | 753,940 | 0.51 | ||||||||||||
| Total interest-bearing liabilities | 771,546 | 0.61 | 770,681 | 0.63 | 753,940 | 0.51 | ||||||||||||
| Non-interest-bearing demand deposits | 305,452 | 296,741 | 281,620 | |||||||||||||||
| Other liabilities | 7,825 | 6,050 | 7,133 | |||||||||||||||
| Shareholders’ equity | 172,758 | 168,172 | 154,264 | |||||||||||||||
| Total liabilities and shareholders’ equity | $ | 1,257,581 | $ | 1,241,644 | $ | 1,196,957 | ||||||||||||
| Interest rate spread | 4.22 | % | 4.34 | % | 4.31 | % | ||||||||||||
| Net interest margin (2) | 4.43 | % | 4.54 | % | 4.47 | % | ||||||||||||
| Average interest-earning assets to | ||||||||||||||||||
| average interest-bearing liabilities | 152.18 | % | 150.30 | % | 146.67 | % |
_____________________________________
(1) Includes other investments
(2) Net interest margin = annualized net interest income /
average interest-earning assets