Timberland Bancorp Fiscal Year Net Income Increases 22% To $10.15 Million

  • Fiscal Year Earnings per Share Increases 22% to $1.43
  • Fiscal Year Return on Equity Increases to 11.0%
  • Fiscal Year Return on Assets Increases to 1.19%
  • $15 Million FHLB Borrowing Prepaid to Reduce Future Interest Expense

HOQUIAM, Wash., Nov. 01, 2016 (GLOBE NEWSWIRE) -- Timberland Bancorp, Inc. (NASDAQ:TSBK) ("Timberland" or "the Company") today reported that net income increased 22% to $10.15 million for the fiscal year ended September 30, 2016 from $8.29 million for the fiscal year ended September 30, 2015.  Earnings per diluted common share ("EPS") increased 22% to $1.43 for fiscal year 2016 from $1.17 for the prior fiscal year.

Timberland also reported net income of $2.70 million, or $0.38 per diluted common share, for its fourth fiscal quarter ended September 30, 2016.  This compares to net income of $2.55 million, or $0.36 per diluted common share, for the quarter ended June 30, 2016, and net income of $2.96 million, or $0.42 per diluted common share, for the quarter ended September 30, 2015, which quarter received the benefit of a $1.53 million (pre-tax) loan loss provision recapture.

Timberland's Board of Directors declared a $0.09 per common share quarterly cash dividend payable on November 30, 2016, to shareholders of record on November 16, 2016.

"Fiscal year 2016 marked the 6 th consecutive year the Company increased net income, earnings per share, return on equity and return on assets," stated Michael R. Sand, President and CEO.  "We have continued to prudently grow the balance sheet and, during the current quarter, for the first time exceeded $900 million in total assets.  We elected to prepay a $15 million FHLB borrowing on the last day of the fiscal year which reduced year end assets to $891 million, but more importantly reduced interest expense by $54,000 per month.  We have two additional high-cost $15 million FHLB borrowings maturing within the next 12 months.  The first borrowing matures on August 1 st and the second on September 1, 2017.  We look forward to their impending maturities since the interest on these two borrowings, and the borrowing that was prepaid at fiscal year end, accounted for slightly less than 50% of our 2016 fiscal year total interest expense."

2016 Fiscal Year Earnings and Balance Sheet Highlights (at or for the period ended September 30, 2016, compared to September 30, 2015, or June 30, 2016):

Earnings Highlights:
  • Net income increased 22% to $10.15 million from $8.29 million for fiscal year 2015;
  • EPS increased 22% to $1.43 from $1.17 for the prior fiscal year;
  • Return on equity and return on assets increased to 11.00% and 1.19%, respectively, for the 2016 fiscal year;
  • Return on equity and return on assets for the current quarter were 11.34% and 1.22%, respectively;
  • Fiscal year operating revenue increased 14% from fiscal year 2015; and
  • Non-interest income increased 14% and net interest income increased 13% year-over-year.

Balance Sheet Highlights:
  • Net loans receivable increased 10% year-over-year and 2% from the prior quarter;
  • Total deposits increased 12% year-over-year and 6% from the prior quarter;
  • Other real estate owned ("OREO") and other repossessed assets decreased 48% year-over-year and decreased 14% from the prior quarter;
  • Non-performing assets decreased 48% year-over-year and decreased 9% from the prior quarter to 0.88% of total assets;
  • Prepaid a $15.0 million FHLB borrowing on September 30, 2016 to immediately reduce future interest expense by approximately $54,000 per month; and
  • Book and tangible book values per common share increased to $13.95 and $13.13, respectively, at September 30, 2016.

Net Interest Margin
  • Net interest margin ("NIM") increased to 3.88% for the 2016 fiscal year from 3.80% for the prior fiscal year; and
  • NIM remained strong at 3.77% for the current quarter (NIM would have been 3.82% without the $138,000 pre-payment penalty on our $15.00 million FHLB borrowing, which was partially offset by the collection of $38,000 of non-accrual interest during the quarter.)

Operating Results

Operating revenue (net interest income before provision for loan losses, plus non-interest income excluding gains or losses on the sale of investment securities and other than temporary impairment ("OTTI") charges on investment securities) increased 14% for the 2016 fiscal year to $41.86 million from $36.77 million for Timberland's 2015 fiscal year.  For the current quarter operating revenue increased 14% to $11.06 million from $9.70 million for the comparable quarter one year ago and increased 7% from $10.37 million for the preceding quarter.

Net interest income increased 13% to $30.80 million for the 2016 fiscal year from $27.28 million for the prior fiscal year.  Net interest income for the current quarter increased 11% to $7.81 million from $7.03 million for the comparable quarter one year ago and increased 2% from $7.62 million for the preceding quarter.  During the current quarter, net interest income was reduced by a $138,000 pre-payment penalty incurred due to Timberland's prepayment of a $15.00 million FHLB borrowing.  The borrowing was prepaid on September 30, 2016, and eliminated future interest expense of approximately $54,000 per month.  Two additional high-cost $15.00 million borrowings mature during Timberland's 2017 fiscal year.

Timberland's net interest margin for the year ended September 30, 2016, increased to 3.88% from 3.80% for the year ended September 30, 2015.  The net interest margin for the current quarter was 3.77% compared to 3.83% for the preceding quarter and 3.76% for the comparable quarter one year ago.  The net interest margin for the current quarter was reduced by approximately seven basis points due to the pre-payment penalty associated with prepaying an FHLB borrowing.  Also impacting the net interest margin was the collection of $38,000 of non-accrual interest, which increased the net interest margin by approximately two basis points during the current quarter.

Non-interest income for fiscal year 2016 increased 14% to $10.89 million from $9.52 million for the prior fiscal year.  Non-interest income increased 13% to $3.11 million for the quarter ended September 30, 2016, from $2.75 million for the preceding quarter, and increased 17% from $2.66 million for the comparable quarter one year ago.  The increase in non-interest income for the current quarter compared to the preceding quarter was primarily due to increased ATM and debit card interchange transaction fees, increased service charges on deposits and an increase in the gain on sale of loans, which was partially offset by an increase in OTTI charges on investment securities.  The increase in ATM and debit card interchange transaction fees was primarily due to a one-time $262,000 incentive payment received from Timberland's debit card issuer for meeting certain sales and retention targets since the 2014 conversion to the new card issuer.  The increase in gain on sale of loans was primarily due to an increase in the dollar volume of fixed-rate one- to- four family loans and U.S. Small Business Administration ("SBA") loans sold during the current quarter.  Increased fee income from commercial checking accounts was the primary reason for the quarter's increased service charges on deposits.  The increase in OTTI expense was primarily due to the recognition of additional credit loss on three private label residential mortgage-backed securities.

For fiscal year 2016, total (non-interest) operating expense increased 3% to $26.64 million from $25.84 million for the prior fiscal year.  Total operating expenses for the current quarter increased 6% to $6.96 million from $6.57 million for the preceding quarter and increased 4% from $6.69 million for the comparable quarter one year ago.  The increased expenses for the current quarter compared to the preceding quarter were primarily due to a $192,000 increase in salaries and employee benefits expense, a $57,000 increase in premises and equipment expense, a $50,000 increase in ATM and debit card processing expense, and smaller increases in several other categories.  The increase in salaries and employee benefits expense was primarily due to the hiring of additional lending and operations personnel.  Also contributing to the increase in salaries and employee benefits expense was a decrease in loan originations during the current quarter compared to the prior quarter and a corresponding reduction in the amount of loan origination fees collected.  Under generally accepted accounting principles ("GAAP"), the portion of a loan origination fee that is attributable to the estimated employee costs to generate the loan is recorded as a reduction of salaries and employee benefits expense.  The increase in premises and equipment expense was primarily due to an increase in building and equipment related maintenance costs.  The increase in ATM and debit card expenses was primarily related to the recognition of costs associated with the Bank's upcoming conversion to EMV chip cards.  The efficiency ratio for the current quarter was 63.77% compared to 63.37% for the preceding quarter and 69.09% for the comparable quarter one year ago.  The efficiency ratio for fiscal year 2016 improved to 63.89% from 70.22% for fiscal year 2015.

The provision for income taxes for fiscal year 2016 increased $709,000 to $4.90 million from $4.19 million for fiscal year 2015, primarily due to higher pre-tax income. The effective tax rate was 32.6% for fiscal year 2016 compared to 33.6% for fiscal year 2015.  The provision for income taxes for the quarter ended September 30, 2016 increased to $1.26 million from $1.25 million for the preceding quarter, primarily due to higher pre-tax income.  Also affecting the comparison between the current and immediately preceding quarter was a deferred tax adjustment, which reduced income tax expense by $58,000 for the current quarter.  The effective tax rate was 31.7% for the current quarter compared to 32.9% for the quarter ended June 30, 2016.

Balance Sheet Management

Total assets increased 9% to $891.39 million at September 30, 2016 from $815.82 million at September 30, 2015.  The increase was primarily due to a $58.87 million increase in net loans receivable and a $16.65 million increase in cash and cash equivalents.  These increases, as well as the prepayment of a $15.00 million FHLB borrowing on September 30, 2016, were primarily funded by an $82.62 million increase in deposits during the fiscal year.  For the current quarter, total assets increased 4%, or $33.25 million, from $858.14 million at June 30, 2016.  The increase in assets for the current quarter was primarily due to a $19.77 million increase in cash and cash equivalents and a $15.78 million increase in net loans receivable.  These increases, as well as the prepayment of the $15.00 million FHLB advance, were primarily funded by a $46.15 million increase in deposits. 

Liquidity, as measured by cash and cash equivalents, CDs held for investment and available for sale investments securities, was 20.6% of total liabilities at September 30, 2016, compared to 18.7% at June 30, 2016, and 19.6% one year ago. 

Net loans receivable increased $15.78 million, or 2%, to $663.15 million at September 30, 2016, from $647.37 million at June 30, 2016. The increase was primarily due to a $17.64 million increase in commercial real estate loans, a $10.63 million increase in multi-family loans, a $4.46 million increase in custom and owner/builder one- to four-family construction loans, a $2.54 million decrease in the undisbursed portion of construction loans in progress, and a $1.51 million increase in one- to four-family mortgage loans.  These increases were partially offset by a $12.06 million decrease in commercial construction loans, a $5.50 million decrease in multi-family construction loans, a $2.45 million decrease in land loans, and a $1.73 million decrease in commercial business loans.

LOAN PORTFOLIO

($ in thousands)   September 30, 2016   June 30, 2016   September 30, 2015
    Amount   Percent   Amount   Percent   Amount   Percent
                         
Mortgage loans:                        
One- to four-family (a)   $ 118,560       16 %   $ 117,055       17 %   $ 116,664       18 %
Multi-family     62,303       9       51,672       7       52,322       8  
Commercial     312,525       43       294,887       42       291,216       43  
Construction - custom and                        
owner/builder     93,049       13       88,593       12       62,954       9  
Construction - speculative                                                
one-to four-family     8,106       1       8,261       1       6,668       1  
Construction - commercial     9,365       1       21,427       3       20,728       3  
Construction - multi-family     12,590       2       18,090       3       20,570       3  
Land     21,627       3       24,076       3       26,140       4  
Total mortgage loans     638,125       88       624,061       88       597,262       89  
                         
Consumer loans:                        
Home equity and second                        
mortgage     39,727       5       38,482       5       34,157       5  
Other     4,139       1       4,490       1       4,669       1  
Total consumer loans     43,866       6       42,972       6       38,826       6  
                         
Commercial business loans     41,837       6       43,571       6       33,763       5  
Total loans     723,828       100 %     710,604       100 %     669,851       100 %
Less:                        
Undisbursed portion of                        
construction loans in                        
process     (48,627 )         (51,163 )         (53,457 )    
Deferred loan origination                        
fees     (2,229 )         (2,233 )         (2,193 )    
Allowance for loan losses     (9,826 )         (9,842 )         (9,924 )    
Total loans receivable, net   $ 663,146         $ 647,366         $ 604,277      

_______________________

(a) Does not include one- to four family loans held for sale totaling $3,604, $4,885 and $3,051 at September 30, 2016, June 30, 2016, and September 30, 2015, respectively.

Timberland originated $69.71 million in loans during the quarter ended September 30, 2016, compared to $65.97 million for the comparable quarter one year ago and $88.81 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 began selling SBA loans during the current quarter.  During the fourth quarter of fiscal 2016, fixed-rate one- to four-family mortgage loans and SBA loans totaling $17.83 million were sold compared to $16.49 million for the comparable quarter one year ago and $14.19 million for the preceding quarter.

Timberland's investment securities decreased slightly during the quarter to $8.85 million at September 30, 2016, from $8.98 million at June 30, 2016, primarily due to scheduled amortization.
DEPOSIT BREAKDOWN  
($ in thousands)
 
    September 30, 2016   June 30, 2016   September 30, 2015
    Amount   Percent   Amount   Percent   Amount   Percent
Non-interest bearing   $ 172,283       23 %   $ 149,575       21 %   $ 141,388       21 %
N.O.W. checking     203,812        27       189,475        26       180,628         27  
Savings     123,474        16       119,576        17       110,315         16  
Money market     107,083        14       100,914        14       84,026         12  
Money market - brokered     6,908         1       7,032         1       8,450         1  
Certificates of deposit under $100     78,284       10       79,283       11       84,824         12  
Certificates of deposit $100 and over     66,485        9       66,354        9       66,085         10  
Certificates of deposit - brokered     3,205     --     3,172        1       3,196         1  
Total deposits   $ 761,534       100 %   $ 715,381       100 %   $ 678,912       100 %
                                                 

Total deposits increased $82.62 million, or 12%, to $761.53 million at September 30, 2016, from $678.91 million at September 30, 2015.  The increase was primarily due to a $30.90 million increase in non-interest bearing checking account balances, a $23.18 million increase in N.O.W. checking account balances, a $21.52 million increase in money market account balances and a $13.16 million increase in savings account balances.  These increases were partially offset by a $6.13 million decrease in certificates of deposit account balances.

Total deposits increased $46.15 million, or 6%, during the current quarter to $761.53 million at September 30, 2016, from $715.38 million at June 30, 2016.  The current quarter's increase was primarily due to a $22.71 million increase in non-interest bearing checking account balances, a $14.34 million increase in N.O.W. checking account balances, a $6.05 million increase in money market account balances and a $3.90 million increase in savings account balances.  These increases were partially offset by an $835,000 decrease in certificates of deposit account balances.  

Shareholders' Equity

Total shareholders' equity increased $2.38 million to $96.83 million at September 30, 2016, from $94.45 million at June 30, 2016.  The increase in shareholders' equity was primarily due to net income of $2.70 million for the quarter, which was partially offset by dividend payments of $625,000 to shareholders.  For the quarter ended September 30, 2016, book value per share increased $0.34 to $13.95 and tangible book value per share increased $0.33 to $13.13.  Timberland did not repurchase shares of its common stock during the quarter and, at September 30, 2016, had 221,893 shares authorized to be purchased in accordance with the terms of its existing stock repurchase plan.

Capital Ratios and Asset Quality

Timberland remains well capitalized with a total risk-based capital ratio of 16.01% and a Tier 1 leverage capital ratio of 10.55%.

There was no provision for loan losses made for the quarters ended September 30, 2016, and June 30, 2016.  For the quarter ended September 30, 2015, Timberland recorded a $1.53 million loan loss reserve recapture.  Net charge-offs totaled $15,000 for the current quarter compared to net charge-offs of $201,000 for the preceding quarter and a net recovery of $982,000 for the comparable quarter one year ago.  The non-performing assets to total assets ratio improved to 0.88% at September 30, 2016, from 1.01% three months earlier and 1.84% one year ago.  The allowance for loan losses was 1.46% of loans receivable at September 30, 2016.

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased 52% to $3.47 million at September 30, 2016, from $7.20 million one year ago and decreased 13% from $4.01 million at June 30, 2016.  Non-accrual loans decreased 52% to $2.87 million at September 30, 2016, from $6.04 million one year ago and decreased 3% from $2.96 million at June 30, 2016.

NON-ACCRUAL LOANS   September 30, 2016   June 30, 2016   September 30, 2015
($ in thousands)   Amount   Quantity   Amount   Quantity   Amount   Quantity
                         
Mortgage loans:                        
One- to four-family   $ 914   7   $ 1,236   9   $ 2,368   16
Multi-family     --   --     --   --     760   1
Commercial     612   1     808   2     1,016   2
Construction     367   1     --   --     --   --
Land     548   5     444   3     1,558   5
Total mortgage loans     2,441   14     2,488   14     5,702   24
                         
Consumer loans:                        
Home equity and second                        
mortgage     402   6     436   7     303   4
Other     30   1     31   1     35   1
Total consumer loans     432   7     467   8     338   5
Total loans   $ 2,873   21   $ 2,955   22   $ 6,040   29
                               

OREO and other repossessed assets decreased 48% to $4.12 million at September 30, 2016, from $7.85 million at September 30, 2015, and decreased 14% from $4.76 million at June 30, 2016.  At September 30, 2016, the OREO and other repossessed asset portfolio consisted of 22 individual real estate properties and one mobile home.  During the quarter ended September 30, 2016, four OREO properties totaling $605,000 were sold.
OREO and OTHER REPOSSESSED ASSETS   September 30, 2016   June 30, 2016   September 30, 2015
($ in thousands)   Amount   Quantity   Amount   Quantity   Amount   Quantity
                         
One- to four-family   $   1,071   5   $   1,382   7   $   2,868   11
Commercial     648   3     648   3       1,568   3
Land     2,331   14     2,665   16       3,351   20
Mobile home     67   1     67   1       67   1
Total   $   4,117   23   $   4,762   27   $    7,854   35
                               

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

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

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

($ in thousands)   Sept. 30, 2016   June 30, 2016   Sept. 30, 2015
             
Shareholders' equity   $ 96,834     $ 94,452     $ 89,187  
Less goodwill     (5,650 )     (5,650 )     (5,650 )
Tangible common equity   $ 91,184     $ 88,802     $ 83,537  
             
Total assets   $ 891,388     $ 858,139     $ 815,815  
Less goodwill     (5,650 )     (5,650 )     (5,650 )
Tangible assets   $ 885,738     $ 852,489     $ 810,165  
             

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

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

Any of the forward-looking statements that we make in this press release and in the other public statements we make are based upon management's beliefs and assumptions at the time they are made.  We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise.  We caution readers not to place undue reliance on any forward-looking statements.  We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.  These risks could cause our actual results for fiscal 2017 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of us, and could negatively affect the Company's operations and stock price performance.
TIMBERLAND BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME   Three Months Ended
($ in thousands, except per share amounts)   Sept. 30,   June 30,   Sept. 30,
(unaudited)   2016   2016   2015
Interest and dividend income            
Loans receivable   $ 8,588     $ 8,257     $ 7,780  
Investment securities     74       70       70  
Dividends from mutual funds and Federal Home Loan Bank                        
("FHLB") stock     23       22       10  
Interest bearing deposits in banks     253       247       148  
Total interest and dividend income     8,938       8,596       8,008  
             
Interest expense            
Deposits     521       508       508  
FHLB borrowings     611       472       475  
Total interest expense     1,132       980       983  
Net interest income     7,806       7,616       7,025  
             
Recapture of loan losses     --       --       (1,525 )
Net interest income after recapture of loan losses     7,806       7,616       8,550  
             
Non-interest income            
OTTI on investment securities, net     (140 )     (4 )     (8 )
Service charges on deposits     1,071       989       980  
ATM and debit card interchange transaction fees     1,073       778       699  
Gain on sale of loans, net     551       443       512  
Bank owned life insurance ("BOLI") net earnings     141       137       137  
Servicing income on loans sold     86       60       36  
Other     327       346       306  
Total non-interest income, net     3,109       2,749       2,662  
             
Non-interest expense            
Salaries and employee benefits     3,589       3,397       3,324  
Premises and equipment     831       774       817  
Advertising     163       192       249  
OREO and other repossessed assets, net     101       123       301  
ATM and debit card processing     387       337       292  
Postage and courier     104       98       107  
State and local taxes     161       141       135  
Professional fees     208       202       223  
FDIC insurance     114       100       144  
Other insurance     33       33       33  
Loan administration and foreclosure     106       92       62  
Data processing and telecommunications     502       470       468  
Deposit operations     274       232       197  
Other     388       377       341  
Total non-interest expense     6,961       6,568       6,693  
                         
Income before income taxes   $ 3,954     $ 3,797     $ 4,519  
Provision for income taxes     1,255       1,250       1,564  
Net income   $ 2,699     $ 2,547     $ 2,955  
             
Net income per common share:            
Basic   $ 0.40     $ 0.37     $ 0.43  
Diluted     0.38       0.36       0.42  
             
Weighted average common shares outstanding:            
Basic     6,831,419       6,822,608       6,896,941  
Diluted     7,146,115       7,111,199       7,069,880  
                         

TIMBERLAND BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME   Year Ended
($ in thousands, except per share amounts)   Sept. 30,   Sept. 30,
(unaudited)   2016   2015
Interest and dividend income        
Loans receivable   $ 33,580     $ 30,397  
Investment securities     287       249  
Dividends from mutual funds and FHLB stock     106       31  
Interest bearing deposits in banks     902       491  
Total interest and dividend income     34,875       31,168  
         
Interest expense        
Deposits     2,041       2,004  
FHLB borrowings     2,031       1,886  
Total interest expense     4,072       3,890  
Net interest income     30,803       27,278  
             
Recapture of loan losses     --       (1,525 )
Net interest income after recapture of loan losses     30,803       28,803  
         
Non-interest income        
OTTI on investment securities, net     (168 )     (13 )
Gain on sale of investment securities, net     --       45  
Service charges on deposits     3,969       3,615  
ATM and debit card interchange transaction fees     3,261       2,664  
Gain on sale of loans, net     1,781       1,610  
BOLI net earnings     550       538  
Servicing income (loss) on loans sold     266       (4 )
Other     1,230       1,067  
Total non-interest income, net     10,889       9,522  
         
Non-interest expense        
Salaries and employee benefits     13,921       13,200  
Premises and equipment     3,137       3,053  
Gain on disposition of premises and equipment, net     --       (296 )
Advertising     753       779  
OREO and other repossessed asset, net     662       918  
ATM and debit card processing     1,377       1,221  
Postage and courier     413       429  
State and local taxes     572       561  
Professional fees     657       829  
FDIC insurance     448       593  
Other insurance     131       136  
Loan administration and foreclosure     321       269  
Data processing and telecommunications     1,896       1,767  
Deposit operations     912       812  
Other     1,437       1,570  
Total non-interest expense     26,637       25,841  
         
Income before income taxes   $ 15,055     $ 12,484  
Provision for income taxes     4,901       4,192  
Net income   $ 10,154     $ 8,292  
         
Net income per common share:        
Basic   $ 1.48     $ 1.20  
Diluted     1.43       1.17  
         
Weighted average common shares outstanding:        
Basic     6,842,614       6,897,270  
Diluted     7,105,349       7,069,088  
                 

TIMBERLAND BANCORP INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS  
($ in thousands, except per share amounts) (unaudited)   Sept. 30,   June 30,   Sept. 30,
    2016   2016   2015
Assets            
Cash and due from financial institutions   $ 16,686     $ 16,394     $ 14,014  
Interest-bearing deposits in banks     92,255       72,779       78,275  
Total cash and cash equivalents     108,941       89,173       92,289  
             
Certificates of deposit ("CDs") held for investment, at cost     53,000       52,435       48,611  
Investment securities:            
Held to maturity, at amortized cost     7,511       7,618       7,913  
Available for sale, at fair value     1,342       1,363       1,392  
FHLB stock     2,204       2,804       2,699  
Loans held for sale     3,604       4,885       3,051  
             
Loans receivable     672,972       657,208       614,201  
Less: Allowance for loan losses     (9,826 )     (9,842 )     (9,924 )
Net loans receivable     663,146       647,366       604,277  
             
Premises and equipment, net     16,159       16,224       16,854  
OREO and other repossessed assets, net     4,117       4,762       7,854  
BOLI     18,721       18,580       18,170  
Accrued interest receivable     2,348       2,270       2,170  
Goodwill     5,650       5,650       5,650  
Mortgage servicing rights, net     1,573       1,516       1,478  
Other assets     3,072       3,493       3,407  
Total assets   $ 891,388     $ 858,139     $ 815,815  
             
Liabilities and shareholders' equity            
Deposits: Non-interest-bearing demand   $ 172,283     $ 149,575     $ 141,388  
Deposits: Interest-bearing     589,251       565,806       537,524  
Total deposits     761,534       715,381       678,912  
             
FHLB borrowings     30,000       45,000       45,000  
Other liabilities and accrued expenses     3,020       3,306       2,716  
Total liabilities     794,554       763,687       726,628  
             
Shareholders' equity            
Common stock, $.01 par value; 50,000,000 shares authorized;                        
6,988,848 shares issued and outstanding - September 30, 2015                        
6,939,068 shares issued and outstanding - June 30, 2016                        
6,943,868 shares issued and outstanding - September 30, 2016     9,961       9,818       10,293  
Unearned shares issued to Employee Stock Ownership Plan ("ESOP")     (661 )     (728 )     (926 )
Retained earnings     87,709       85,635       80,133  
Accumulated other comprehensive loss     (175 )     (273 )     (313 )
Total shareholders' equity     96,834       94,452       89,187  
Total liabilities and shareholders' equity   $ 891,388     $ 858,139     $ 815,815  
                         

KEY FINANCIAL RATIOS AND DATA    Three Months Ended
($ in thousands, except per share amounts) (unaudited)   Sept. 30,   June 30,   Sept. 30,
    2016   2016   2015
PERFORMANCE RATIOS:            
Return on average assets (a)     1.22 %     1.20 %     1.47 %
Return on average equity (a)     11.34 %     10.96 %     13.47 %
Net interest margin (a)     3.77 %     3.83 %     3.76 %
Efficiency ratio     63.77 %     63.37 %     69.09 %
             
    Year Ended
    Sept. 30,       Sept. 30,
    2016       2015
PERFORMANCE RATIOS:            
Return on average assets     1.19 %         1.07 %
Return on average equity     11.00 %         9.70 %
Net interest margin     3.88 %         3.80 %
Efficiency ratio     63.89 %         70.22 %
             
    Sept. 30,   June 30,   Sept. 30,
    2016   2016   2015
ASSET QUALITY RATIOS AND DATA:            
Non-accrual loans   $ 2,873     $ 2,955     $ 6,040  
Loans past due 90 days and still accruing     135       135       151  
Non-performing investment securities     734       789       932  
OREO and other repossessed assets     4,117       4,762       7,854  
Total non-performing assets (b)   $ 7,859     $ 8,641     $ 14,977  
             
             
Non-performing assets to total assets (b)     0.88 %     1.01 %     1.84 %
Net charge-offs (recoveries) during quarter   $ 15     $ 201     $ (982 )
Allowance for loan losses to non-accrual loans     342 %     333 %     164 %
Allowance for loan losses to loans receivable (c)     1.46 %     1.50 %     1.62 %
Troubled debt restructured loans on accrual status (d)   $ 7,629     $ 7,677     $ 12,484  
             
             
CAPITAL RATIOS:            
Tier 1 leverage capital     10.55 %     10.68 %     10.64 %
Tier 1 risk-based capital     14.75 %     14.20 %     13.91 %
Common equity Tier 1 risk-based capital     14.75 %     14.20 %     13.91 %
Total risk-based capital     16.01 %     15.45 %     15.16 %
Tangible common equity to tangible assets (non-GAAP)     10.29 %     10.42 %     10.31 %
             
             
BOOK VALUES:            
Book value per common share   $ 13.95     $ 13.61     $ 12.76  
Tangible book value per common share (e)     13.13       12.80       11.95  
             

________________________________(a)  Annualized(b)  Non-performing assets include non-accrual loans, loans past due 90 days and still accruing, non-performing investment securities and OREO and other repossessed assets.  Troubled debt restructured loans on accrual status are not included. (c)  Does not include loans held for sale and is before the allowance for loan losses.(d)  Does not include troubled debt restructured loans totaling $530, $530 and $1,233 reported as non-accrual loans at September 30, 2016, June 30, 2016 and September 30, 2015, respectively. (e)  Tangible common equity divided by common shares outstanding (non-GAAP).                                                                            
AVERAGE BALANCES, YIELDS AND RATES - QUARTERLY
($ in thousands)
(unaudited)
     
    For the Three Months Ended
    September 30, 2016   June 30, 2016   September 30, 2015
    Average Balance   Average Yield/Rate   Average Balance   Average Yield/Rate   Average Balance   Average Yield/Rate
Assets                        
Loans and loans held for sale   $ 669,661       5.13 %   $ 647,781       5.10 %   $ 612,383       5.08 %
Investment securities and FHLB Stock     11,726       3.31 %     11,860       3.10 %     12,062       2.63 %
Interest-bearing deposits and CD's     146,609       0.68 %     136,724       0.73 %     123,129       0.48 %
Total interest-bearing assets     827,996       4.32 %     796,365       4.32 %     747,574       4.28 %
Other assets     56,653           55,926           57,808      
Total assets   $ 884,649         $ 852,291         $ 805,382      
                         
Liabilities and Shareholders' Equity                        
N.O.W. checking accounts   $ 193,225       0.24 %   $ 187,836       0.24 %   $ 171,764       0.27 %
Money market accounts     107,410       0.31 %     105,884       0.32 %     101,204       0.31 %
Savings accounts     122,088       0.05 %     116,818       0.05 %     107,250       0.05 %
Certificates of deposit accounts     148,866       0.81 %     149,713       0.79 %     154,856       0.76 %
Total interest-bearing deposits     571,589       0.36 %     560,251       0.36 %     535,074       0.38 %
FHLB borrowings     44,837       5.42 %     45,000       4.22 %     45,000       4.19 %
Total interest-bearing liabilities     616,426       0.73 %     605,251       0.65 %     580,074       0.67 %
                         
Non-interest-bearing demand deposits     168,744           150,331           133,657      
Other liabilities     4,296           3,750           3,883      
Shareholders' equity     95,183           92,959           87,768      
Total liabilities and shareholders' equity   $ 884,649         $ 852,291         $ 805,382      
                         
Net interest income and spread         3.59 %         3.67 %         3.61 %
Net interest margin (1)         3.77 %         3.83 %         3.76 %
Average interest-bearing assets to                        
average interest-bearing liabilities     134.32 %         131.58 %         128.88 %    
                         

_____________________________________

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

AVERAGE BALANCES, YIELDS AND RATES - YEAR TO DATE
($ in thousands)
(unaudited)
     
    For the Year Ended
    September 30, 2016     September 30, 2015
Assets   Average Balance   Average Yield/Rate     Average Balance   Average Yield/Rate
                   
Loans and loans held for sale   $ 643,698       5.22 %     $ 596,750       4.98 %
Investment securities and FHLB Stock     11,846       3.31 %       12,360       2.27 %
Interest-bearing deposits and CD's     139,180       0.65 %       108,773       0.45 %
Total interest-bearing assets     794,724       4.39 %       717,883       4.34 %
Other assets     56,969             58,270      
Total assets   $ 851,693           $ 776,153      
                   
Liabilities and Shareholders' Equity                  
N.O.W. checking accounts   $ 186,272       0.24 %     $ 165,895       0.27 %
Money market accounts     105,836       0.31 %       94,881       0.29 %
Savings accounts     115,336       0.05 %       102,303       0.05 %
Certificates of deposit accounts     151,072       0.79 %       159,815       0.77 %
Total interest-bearing deposits     558,516       0.37 %       522,894       0.39 %
FHLB borrowings     44,959       4.52 %       45,000       4.19 %
Total interest-bearing liabilities     603,475       0.67 %       567,894       0.68 %
                   
Non-interest-bearing demand deposits     152,085             119,599      
Other liabilities     3,809             3,208      
Shareholders' equity     92,324             85,452      
Total liabilities and shareholders' equity   $ 851,693           $ 776,153      
                   
Net interest income and spread         3.72 %           3.66 %
Net interest margin (1)         3.88 %           3.80 %
Average interest-bearing assets to                  
average interest-bearing liabilities     131.69 %           126.41 %    
                   

______________________________________

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

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

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