Company Quick10K Filing
Quick10K
Timberland Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$29.75 8 $248
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-06-25 Amend Bylaw, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-01-22 Shareholder Vote
8-K 2019-01-22 Earnings, Exhibits
8-K 2019-01-22 Shareholder Vote
8-K 2019-01-22 Earnings, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-10-01 M&A, Officers, Amend Bylaw, Exhibits
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-05-22 Other Events, Exhibits
8-K 2018-04-24 Earnings, Exhibits
8-K 2018-01-23 Shareholder Vote
8-K 2018-01-22 Earnings, Exhibits
INTC Intel 208,720
POST Post Holdings 7,950
BILI Bilibili 5,590
BXMT Blackstone Mortgage Trust 4,430
ICPT Intercept Pharmaceuticals 2,500
MMYT MakeMyTrip 1,420
ACOR Acorda Therapeutics 559
HALL Hallmark Financial Services 197
CNCL Cancer Capital 0
STMM Stemcell Holdings 0
TSBK 2019-03-31
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 tsbk-3312019x10qxexhibit311.htm
EX-31.2 tsbk-33119x10qxexhibit312.htm
EX-32 tsbk-33119x10qxexhibit32.htm

Timberland Bancorp Earnings 2019-03-31

TSBK 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tsbk-3312019x10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019

OR

[  ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____ to _____.

Commission file number 000-23333

TIMBERLAND BANCORP, INC.
(Exact name of registrant as specified in its charter) 
Washington 
91-1863696 
(State or other jurisdiction of incorporation or organization) 
(IRS Employer Identification No.) 
 
624 Simpson Avenue, Hoquiam, Washington 
98550
(Address of principal executive offices) 
(Zip Code)
 
(360) 533-4747
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes X     No ___

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes _X_   No __
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☒    Non-accelerated filer ☐ Smaller reporting company ☒   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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ___    No   _X_

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $.01 par value
TSBK
The NASDAQ Stock Market LLC

As of May 1, 2019, there were 8,337,759 shares of the registrant's common stock, $.01 par value per share outstanding.



INDEX

 
 
Page
 
 
 
 
  Item 1.    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Item 2.     
 
 
 
 
 
  Item 3.    
 
 
 
 
 
  Item 4.     
 
 
 
 
 
 
 
 
 
 
 
  Item 1.     
 
  
 
 
 
  Item 1A.     
 
 
 
 
 
  Item 2.     
 
 
 
 
 
  Item 3.     
 
 
 
 
 
  Item 4.
 
 
 
 
 
  Item 5.     
 
54 
 
 
 
 
  Item 6.     
 
 
 
 
 
 
Certifications 
 
 
 
Exhibit 31.1
 
 
 
Exhibit 31.2
 
 
 
Exhibit 32
 
 
 
Exhibit 101
 


2


PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements (unaudited)

TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, 2019 and September 30, 2018
(Dollars in thousands, except per share amounts)
 
March 31,
2019

 
September 30,
2018

 
(Unaudited)
 
*

Assets
 
 
 
Cash and cash equivalents:
 
 
 
Cash and due from financial institutions
$
23,957

 
$
20,238

Interest-bearing deposits in banks
150,629

 
128,626

Total cash and cash equivalents
174,586

 
148,864

 
 
 
 
Certificates of deposit (“CDs”) held for investment (at cost, which
     approximates fair value)
65,737

 
63,290

Investment securities held to maturity, at amortized cost (estimated fair value $42,190 and $13,264)
41,361

 
12,810

Investment securities available for sale, at fair value
2,141

 
1,154

Investments in equity securities, at fair value
937

 

Federal Home Loan Bank of Des Moines (“FHLB”) stock
1,437

 
1,190

Other investments, at cost
3,000

 
3,000

Loans held for sale
3,068

 
1,785

Loans receivable, net of allowance for loan losses of $9,741 and $9,530
873,284

 
725,391

Premises and equipment, net
22,852

 
18,953

Other real estate owned (“OREO”) and other repossessed assets, net
2,006

 
1,913

Accrued interest receivable
3,702

 
2,877

Bank owned life insurance (“BOLI”)
20,707

 
19,813

Goodwill
15,131

 
5,650

Core deposit intangible (“CDI”), net
2,264

 

Mortgage servicing rights (“MSRs”), net
2,322

 
2,028

Escrow deposit for business combination

 
6,900

BOLI death benefit receivable
3,048

 

Other assets
2,986

 
2,672

Total assets
$
1,240,569

 
$
1,018,290

 
 
 
 
Liabilities and shareholders’ equity
 

 
 

Liabilities
 

 
 

Deposits:
 
 
 
     Non-interest-bearing demand
$
287,338

 
$
233,258

     Interest-bearing
784,256

 
656,248

Total deposits
1,071,594

 
889,506

 
 
 
 
Other liabilities and accrued expenses
6,637

 
4,127

Total liabilities
1,078,231

 
893,633

* Derived from audited consolidated financial statements.

See notes to unaudited consolidated financial statements

3


TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (continued)
March 31, 2019 and September 30, 2018
(Dollars in thousands, except per share amounts)
 
 
March 31,
2019

 
September 30,
2018

 
(Unaudited)
 
*

Shareholders’ equity
 
 
 
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued
$

 
$

Common stock, $0.01 par value; 50,000,000 shares authorized;
8,336,419 shares issued and outstanding - March 31, 2019 7,401,177 shares issued and outstanding - September 30, 2018
43,351

 
14,394

Unearned shares issued to Employee Stock Ownership Plan (“ESOP”)

 
(133
)
Retained earnings
119,032

 
110,525

Accumulated other comprehensive loss
(45
)
 
(129
)
Total shareholders’ equity
162,338

 
124,657

Total liabilities and shareholders’ equity
$
1,240,569

 
$
1,018,290

* Derived from audited consolidated financial statements.


See notes to unaudited consolidated financial statements


4


TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended March 31, 2019 and 2018
(Dollars in thousands, except per share amounts)
(Unaudited)

 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
2019

 
2018

 
2019

 
2018

Interest and dividend income
 
 
 
 
 
 
 
Loans receivable and loans held for sale
$
12,216

 
$
9,484

 
$
23,997

 
$
18,812

Investment securities
297

 
39

 
575

 
96

Dividends from mutual funds, FHLB stock and other investments
39

 
26

 
78

 
52

Interest-bearing deposits in banks and CDs
1,289

 
741

 
2,506

 
1,364

Total interest and dividend income
13,841

 
10,290

 
27,156

 
20,324

 
 
 
 
 
 
 
 
Interest expense
 
 
 
 
 
 
 
Deposits
1,113

 
666

 
2,084

 
1,266

Total interest expense
1,113

 
666

 
2,084

 
1,266

 
 
 
 
 
 
 
 
Net interest income
12,728

 
9,624

 
25,072

 
19,058

 
 
 
 
 
 
 
 
Provision for loan losses

 

 

 

 
 
 
 
 
 
 
 
Net interest income after provision for loan losses
12,728

 
9,624

 
25,072

 
19,058

 
 
 
 
 
 
 
 
Non-interest income
 
 
 
 
 
 
 
Recoveries (other than temporary impairment "OTTI") on investment securities
20

 
14

 
32

 
41

Adjustment for portion of OTTI transferred from other comprehensive income (loss) before income taxes
(11
)
 

 
(12
)
 
(5
)
Net recoveries on investment securities
9

 
14

 
20

 
36

Service charges on deposits
1,190

 
1,132

 
2,405

 
2,310

ATM and debit card interchange transaction fees
857

 
883

 
1,806

 
1,727

BOLI net earnings
1,156

 
137

 
1,313

 
273

Gain on sales of loans, net
288

 
470

 
675

 
992

Escrow fees
39

 
52

 
96

 
112

Servicing income on loans sold
117

 
117

 
265

 
233

Fee income from non-deposit investment sales
7

 
26

 
37

 
45

Other, net
277

 
251

 
589

 
491

Total non-interest income, net
3,940

 
3,082

 
7,206

 
6,219



 See notes to unaudited consolidated financial statements

5


TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (continued)
For the three and six months ended March 31, 2019 and 2018
(Dollars in thousands, except per share amounts)
(Unaudited)
 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
2019

 
2018

 
2019

 
2018

Non-interest expense
 
 
 
 
 
 
 
Salaries and employee benefits
$
4,867

 
$
4,001

 
$
9,473

 
$
7,950

Premises and equipment
993

 
799

 
1,947

 
1,567

Loss (gain) on sales/dispositions of premises and equipment, net
8

 
(113
)
 
8

 
(113
)
Advertising
175

 
176

 
366

 
386

OREO and other repossessed assets, net
52

 
91

 
102

 
204

ATM and debit card interchange transaction fees
389

 
318

 
811

 
648

Postage and courier
138

 
131

 
248

 
237

State and local taxes
209

 
168

 
405

 
329

Professional fees
184

 
243

 
419

 
460

Federal Deposit Insurance Corporation ("FDIC") insurance
97

 
75

 
171

 
141

Loan administration and foreclosure
84

 
92

 
171

 
171

Data processing and telecommunications
1,068

 
495

 
1,681

 
962

Deposit operations
364

 
252

 
658

 
530

Amortization of CDI
110

 

 
219

 

Other
539

 
493

 
1,160

 
925

Total non-interest expense
9,277

 
7,221

 
17,839

 
14,397

 
 
 
 
 
 
 
 
Income before income taxes
7,391

 
5,485

 
14,439

 
10,880

 
 
 
 
 
 
 
 
Provision for income taxes
1,277

 
1,216

 
2,710

 
2,997

 
 
 
 
 
 
 
 
     Net income
$
6,114

 
$
4,269

 
$
11,729

 
$
7,883

 
 
 
 
 
 
 
 
Net income per common share
 
 
 
 
 
 
 
Basic
$
0.74

 
$
0.58

 
$
1.41

 
$
1.08

Diluted
$
0.72

 
$
0.57

 
$
1.39

 
$
1.05

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
8,310,074

 
7,328,127

 
8,301,550

 
7,320,243

Diluted
8,464,650

 
7,512,058

 
8,461,138

 
7,510,092

 
 
 
 
 
 
 
 
Dividends paid per common share
$
0.15

 
$
0.13

 
$
0.38

 
$
0.24


See notes to unaudited consolidated financial statements

6


TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended March 31, 2019 and 2018
(Dollars in thousands)
(Unaudited) 
 
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
 
2019

 
2018

 
2019

 
2018

Comprehensive income
 
 
 
 
 
 
 
Net income
$
6,114

 
$
4,269

 
$
11,729

 
$
7,883

Unrealized holding gain (loss) on investment securities available for sale, net of income taxes of $21, ($2), ($1) and ($4), respectively
84

 
(18
)
 
(2
)
 
(25
)
Change in OTTI on investment securities held to maturity, net of income taxes:
 
 
 
 
 
 
 
Adjustments related to other factors for which OTTI was previously recognized, net of income taxes of $1, $5, $0 and ($2), respectively
3

 
15

 

 
(6
)
Amount reclassified to credit loss for previously recorded market loss, net of income taxes of $2, $0, $3 and $1, respectively
9

 

 
9

 
4

Accretion of OTTI on investment securities held to maturity, net of income taxes of $1, $2, $4 and $6, respectively
4

 
7

 
14

 
19

Total other comprehensive income (loss), net of income taxes
100

 
4

 
21

 
(8
)
 
 
 
 
 
 
 
 
Total comprehensive income
$
6,214

 
$
4,273

 
$
11,750


$
7,875




See notes to unaudited consolidated financial statements

7


TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the three months ended March 31, 2019 and 2018
(Dollars in thousands, except per share amounts)
(Unaudited)


 
Common Stock
 
Unearned
 Shares Issued to
ESOP

 
 
 
Accumulated
Other
Compre-
hensive
Loss

 
 
 
Number of Shares
 
Amount
 
 
Retained
Earnings
 
 
Total
Balance, December 31, 2017
7,367,327

 
$
13,540

 
$
(331
)
 
$
101,039

 
$
(136
)
 
$
114,112

 
 
 
 
 
 
 
 
 
 
 

Net income

 

 

 
4,269

 

 
4,269

Other comprehensive income

 

 

 

 
4

 
4

Exercise of stock options
22,900

 
173

 

 

 

 
173

Common stock dividends ($0.13 per common share)

 

 

 
(959
)
 

 
(959
)
Earned ESOP shares, net of tax

 
135

 
66

 

 

 
201

Stock option compensation expense

 
43

 

 

 

 
43

 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2018
7,390,227

 
13,891

 
(265
)
 
104,349

 
(132
)
 
117,843

 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
8,313,403

 
42,951

 
(67
)
 
114,166

 
(145
)
 
156,905

 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 
6,114

 

 
6,114

Other comprehensive income

 

 

 

 
100

 
100

Exercise of stock options
23,016

 
212

 

 

 

 
212

Common stock dividends ($0.15 per common share)

 

 

 
(1,248
)
 

 
(1,248
)
Earned ESOP shares, net of tax

 
135

 
67

 

 

 
202

Stock option compensation expense

 
53

 

 

 

 
53

 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2019
8,336,419

 
$
43,351

 
$

 
$
119,032

 
$
(45
)
 
$
162,338



See notes to unaudited consolidated financial statements





















8




TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the six months ended March 31, 2019 and 2018
(Dollars in thousands, except per share amounts)
(Unaudited)
 
Common Stock
 
Unearned
 Shares Issued to ESOP

 
 
 
Accumulated
Other
Compre-hensive
Loss

 
 
 
Number of Shares
 
Amount
 
 
Retained
Earnings
 
 
Total
Balance, September 30, 2017
7,361,077

 
$
13,286

 
$
(397
)
 
$
98,235

 
$
(124
)
 
$
111,000

Net income

 

 

 
7,883

 

 
7,883

Other comprehensive loss

 

 

 

 
(8
)
 
(8
)
Exercise of stock options
29,150

 
234

 

 

 

 
234

Common stock dividends ($0.24 per common share)

 

 

 
(1,769
)
 

 
(1,769
)
Earned ESOP shares, net of income taxes

 
284

 
132

 

 

 
416

Stock option compensation expense

 
87

 

 

 

 
87

Balance, March 31, 2018
7,390,227

 
13,891

 
(265
)
 
104,349

 
(132
)
 
117,843

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2018
7,401,177

 
14,394

 
(133
)
 
110,525

 
(129
)
 
124,657

Net income

 

 

 
11,729

 

 
11,729

Other comprehensive income

 

 

 

 
21

 
21

Common stock issued for business combination
904,826

 
28,267

 

 

 

 
28,267

Exercise of stock options
30,416

 
283

 

 

 

 
283

Common stock dividends ($0.38 per common share)

 

 

 
(3,159
)
 

 
(3,159
)
Earned ESOP shares, net of income taxes

 
301

 
133

 

 

 
434

Stock option compensation expense

 
106

 

 

 

 
106

Adoption of Accounting Standards Update ("ASU") 2016-01

 

 

 
(63
)
 
63

 

Balance, March 31, 2019
8,336,419

 
$
43,351

 
$

 
$
119,032

 
$
(45
)
 
$
162,338


See notes to unaudited consolidated financial statements

9


TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 2019 and 2018
(Dollars in thousands)
(Unaudited)
 
Six Months Ended
March 31,
 
2019

 
2018

Cash flows from operating activities
 
 
 
Net income
$
11,729

 
$
7,883

Adjustments to reconcile net income to net cash provided by
   operating activities:
 

 
 

Depreciation
790

 
621

Accretion of discount on purchased loans
(388
)
 

Amortization of CDI
219

 

Earned ESOP shares
434

 
416

Stock option compensation expense
106

 
87

Net recoveries on investment securities
(20
)
 
(36
)
Change in fair value of investments in equity securities
(20
)
 

Gain on sales of OREO and other repossessed assets, net

 
(93
)
Provision for OREO losses
23

 
224

Gain on sales of loans, net
(675
)
 
(992
)
(Gain) loss on sales/disposition of premises and equipment, net
8

 
(113
)
Loans originated for sale
(28,879
)
 
(30,608
)
Proceeds from sales of loans
28,271

 
31,218

Amortization of MSRs
311

 
242

BOLI net earnings
(314
)
 
(273
)
BOLI death benefit in excess of cash surrender value
(999
)
 

Increase in deferred loan origination fees
219

 
49

Net change in accrued interest receivable and other assets, and other liabilities and accrued expenses
(1,114
)
 
(209
)
Net cash provided by operating activities
9,701

 
8,416

 
 
 
 
Cash flows from investing activities
 

 
 

Net decrease (increase) in CDs held for investment
526

 
(9,904
)
Proceeds from sale of investment securities available for sale
2,332

 

Proceeds from maturities and prepayments of investment securities held to maturity
1,242

 
266

Purchase of investment securities held to maturity
(10,048
)
 
(1,111
)
Proceeds from maturities and prepayments of investment securities available for sale
784

 
19

Purchase of FHLB stock
(42
)
 

Increase in loans receivable, net
(26,271
)
 
(18,416
)
Additions to premises and equipment
(1,360
)
 
(606
)
Proceeds from sales of premises and equipment

 
463

Cash acquired, net of cash consideration paid in business combination
14,284

 

Escrow deposit for business combination
6,900

 

Proceeds from sales of OREO and other repossessed assets

 
1,112

Net cash used in investing activities
(11,653
)
 
(28,177
)
 
 
 
 
See notes to unaudited consolidated financial statements

10


TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the six months ended March 31, 2019 and 2018
(Dollars in thousands)
(Unaudited)

 
Six Months Ended
March 31,
 
2019

 
2018

Cash flows from financing activities
 

 
 

Net increase in deposits
$
30,550

 
$
42,513

Proceeds from exercise of stock options
283

 
234

Payment of dividends
(3,159
)
 
(1,769
)
Net cash provided by financing activities
27,674

 
40,978

 
 

 
 

Net increase in cash and cash equivalents
25,722

 
21,217

Cash and cash equivalents
 

 
 

Beginning of period
148,864

 
148,188

End of period
$
174,586

 
$
169,405

 
 
 
 
Supplemental disclosure of cash flow information
 

 
 

Income taxes paid
$
2,741

 
$
2,208

Interest paid
2,053

 
1,243

 
 
 
 
Supplemental disclosure of non-cash investing activities
 

 
 

Loans transferred to OREO and other repossessed assets
$
91

 
$
163

Other comprehensive income (loss) related to investment securities
21

 
(8
)
 
 
 
 
Business Combination (see Note 2)
 
 
 
 Fair value of assets acquired
$
180,518

 
$

 Fair value of liabilities assumed
$
154,829

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See notes to unaudited consolidated financial statements

11


Timberland Bancorp, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)  Basis of Presentation:  The accompanying unaudited consolidated financial statements for Timberland Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, Timberland Bank (the "Bank") were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with GAAP. However, all adjustments which are, in the opinion of management, necessary for a fair presentation of the interim consolidated financial statements have been included.  All such adjustments are of a normal recurring nature. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2018 (“2018 Form 10-K”).  The unaudited consolidated results of operations for the six months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the entire fiscal year ending September 30, 2019.

On October 1, 2018, the Company completed the acquisition of South Sound Bank, a Washington-state chartered bank, headquartered in Olympia, Washington ("South Sound Merger"). The Company acquired 100% of the outstanding common stock of South Sound Bank, and South Sound Bank was merged into the Bank. See Note 2 for additional information on the South Sound Merger.

(b)  Principles of Consolidation:  The unaudited consolidated financial statements include the accounts of the Company and the Bank, and the Bank’s wholly-owned subsidiary, Timberland Service Corporation.   All significant inter-company transactions and balances have been eliminated in consolidation.

(c)  Operating Segment:  The Company has one reportable operating segment which is defined as community banking in western Washington.

(d)  The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, as of the date of the consolidated balance sheets, and the reported amounts of income and expenses during the reporting period.  Actual results could differ from those estimates.

(e)  Certain prior period amounts have been reclassified to conform to the March 31, 2019 presentation with no change to previously reported net income or total shareholders’ equity.


12


(2) BUSINESS COMBINATION

On October 1, 2018, the Company completed the South Sound Merger and South Sound Bank was merged into the Bank. The primary reason for the acquisition was to expand the Company's presence along Washington State's economically important I-5 corridor.

Pursuant to the terms of the merger agreement, South Sound Bank shareholders received 0.746 of a share 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 $28.27 million based on the Company's closing stock price on September 30, 2018 of $31.24 per share) and paid $6.90 million in cash in the transaction for total consideration paid of $35.17 million.

The South Sound Merger constitutes a business combination as defined by GAAP, which establishes principles and requirements for how the acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired and liabilities assumed. The Company was considered the acquirer in this transaction. Accordingly, the preliminary estimates of fair values of the acquired assets, including the identifiable intangible assets, and the assumed liabilities in the South Sound Merger were measured and recorded as of October 1, 2018. The excess of the total consideration paid over the fair value of the net assets acquired was allocated to goodwill. The South Sound Merger resulted in $9.48 million of goodwill. The goodwill arising from the transaction consists largely of the synergies and expected economies of scale from combining the operations of the Company and South Sound Bank. This goodwill is not deductible for tax purposes.

In most instances, determining the estimated fair values of the acquired assets and assumed liabilities requires the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at the appropriate rate of interest. Differences may arise between contractually required payments and the expected cash flows at the acquisition date due to items such as estimated credit losses, prepayments or early withdrawal, and other factors. One of the most significant of those determinations relates to the valuation of acquired loans. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. In accordance with GAAP, there was no carry-over of South Sound Bank's previously established allowance for loan losses.

The following table summarizes the fair value of consideration paid, the estimated fair values of assets acquired and liabilities assumed as of the acquisition date, and the resulting goodwill relating to the transaction:


13


 
At October 1, 2018
 
Book Value
 
Fair Value Adjustment
 
Estimated Fair Value
 
(Dollars in thousands)
Total merger consideration
 
 
 
 
$
35,170

 
 
 
 
 
 
Recognized amounts of identifiable assets acquired and liabilities assumed
 
 
 
 
 
     Identifiable assets acquired:
 
 
 
 
 
          Cash and cash equivalents
$
21,187

 
$

 
21,187

          CDs held for investment
2,973

 

 
2,973

          FHLB stock
205

 

 
205

          Investment securities
24,913

 
(189
)
 
24,724

          Loans receivable
123,627

 
(2,083
)
 
121,544

          Premises and equipment
3,225

 
112

 
3,337

          OREO
25

 

 
25

          Accrued interest receivable
554

 

 
554

          BOLI
2,629

 

 
2,629

          CDI

 
2,483

 
2,483

          MSRs
285

 
(4
)
 
281

          Other assets
1,087

 
(511
)
 
576

               Total assets
180,710

 
(192
)
 
180,518

 
 
 
 
 
 
     Liabilities assumed:
 
 
 
 
 
          Deposits
151,378

 
160

 
151,538

          Other liabilities and accrued expenses
3,291

 

 
3,291

               Total liabilities assumed
154,669

 
160

 
154,829

               Total identifiable net assets acquired
$
26,041

 
$
(352
)
 
25,689

               Goodwill recognized
 
 
 
 
$
9,481



Fair values on the acquisition date represent management's best estimates based on available information and facts and circumstances in existence as of the filing date of this report. Fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available.

The acquired loan portfolio was valued using Level 3 inputs (see Note 9) and included the use of present value techniques, including cash flow estimates and incorporated assumptions that the Company believes marketplace participants would use in estimating fair values. Credit discounts were included in the determination of the fair value of the loans acquired; therefore, an allowance for loan losses was not recorded at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased credit-impaired ("PCI") or purchased non-credit-impaired. PCI loans reflect credit deterioration since origination such that it is probable at acquisition that the Company will be unable to collect all contractually required payments. The Company determined that PCI loans acquired in the South Sound Merger were insignificant.

For purchased non-credit-impaired loans, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the life of the loans. Any subsequent deterioration in credit quality is recognized by recording an allowance for loan losses.

CDI represents the future economic benefit of the potential cost savings from acquiring core deposits as part of a business combination compared to the cost of alternative funding sources. CDI is amortized to non-interest expense using an accelerated method based on an estimated runoff of related deposits over a period of ten years. CDI is evaluated for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life.

14



The operating results of the Company for the three and six months ended March 31, 2019 include the operating results produced by the net assets acquired in the South Sound Merger since the October 1, 2018 merger date. The table below presents the significant operating results of the acquired business since the October 1, 2018 merger date:

 
 
Three Months Ended March 31, 2019
 
Six Months Ended March 31, 2019
 
 
(Dollars in thousands)
Interest income: Interest and fees on loans (1)
 
$
1,867

 
$
3,605

Interest income: Interest and dividends on investment securities and FHLB stock
 
185

 
386

Interest income: Other interest earning assets
 
169

 
269

Interest expense
 
(155
)
 
(283
)
Provision for loan losses
 

 

Non-interest income
 
131

 
270

Non-interest expense (2)
 
(684
)
 
(1,544
)
       Net effect, pre-tax
 
$
1,513

 
$
2,703

_________________________
(1) Includes the accretion of the fair value discount on the purchased loans of $301,000 and $388,000, respectively, for the three and six months ended March 31, 2019.
(2) Excludes certain compensation and employee benefits for management, and excludes certain other non-interest expenses that are impracticable to determine due to the integration of the operations for this merger. Also includes certain acquisition-related costs of $55,000 and $119,000, respectively, incurred by the Company for the three and six months ended March 31, 2019.

For illustrative purposes only, the following table presents certain unaudited pro forma information for the six months ended March 31, 2019 and 2018. This unaudited estimated pro forma information was calculated as if South Sound Bank had been acquired as of the beginning of the fiscal year ended September 30, 2018. This unaudited pro forma information combines the historical results of South Sound Bank with the Company's consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the transaction occurred at the beginning of the fiscal year ended September 30, 2018. The unaudited pro forma information does not consider any changes to the provision for loan losses resulting from recording loans at fair value. Additionally, the Company expects to achieve further operating cost savings and other business synergies, including revenue growth as a result of the acquisition, which are not reflected in the pro forma amounts that follow. As a result, actual amounts would have differed from the unaudited pro forma information presented.
 
Unaudited Pro Forma Six Months Ended March 31,
 
2019
 
2018
 
(Dollars in thousands except per share data)
Total revenues (net interest income plus non-interest income)
$
32,278

 
$
28,883

Net income
11,823

 
8,513

Basic net income per common share
1.42

 
1.06

Diluted net income per common share
1.40

 
1.03


During the six months ended March 31, 2019 and 2018, the Company incurred acquisition-related expenses of $119,000 and $89,000, respectively, related to the South Sound Merger, which are included in professional fees in the accompanying consolidated statement of income. South Sound Bank incurred acquisition-related expenses of $30,000 for the six months ended March 31, 2018 related to the South Sound Merger. These acquisition-related expenses incurred by the Company and South Sound Bank are not included in the unaudited pro forma information presented for the six months ended March 31, 2019 and 2018.


15


The Company expects to incur additional acquisition-related expenses of approximately $700,000 over the next two quarters. These expenses are related to the conversion of South Sound Bank's current core processing and ancillary information technology systems to the Company's new core processing system.


(3) INVESTMENT SECURITIES

Held to maturity and available for sale investment securities have been classified according to management’s intent and were as follows as of March 31, 2019 and September 30, 2018 (dollars in thousands):
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
March 31, 2019
 
 
 
 
 
 
 
Held to maturity
 
 
 
 
 
 
 
Mortgage-backed securities ("MBS"):
 
 
 
 
 
 
 
U.S. government agencies
$
30,001

 
$
386

 
$
(16
)
 
$
30,371

Private label residential
375

 
500

 
(1
)
 
874

U.S. Treasury and U.S government agency securities
10,985

 

 
(40
)
 
10,945

Total
$
41,361

 
$
886

 
$
(57
)
 
$
42,190

 
 
 
 
 
 
 
 
Available for sale
 

 
 

 
 

 
 

MBS: U.S. government agencies
$
2,138

 
$
13

 
$
(10
)
 
$
2,141

Total
$
2,138

 
$
13

 
$
(10
)
 
$
2,141

 
 
 
 
 
 
 
 
September 30, 2018
 
 
 
 
 
 
 
Held to maturity
 

 
 

 
 

 
 

MBS:
 

 
 

 
 

 
 

U.S. government agencies
$
1,385

 
$
8

 
$
(21
)
 
$
1,372

Private label residential
460

 
552

 
(2
)
 
1,010

U.S. Treasury and U.S. government agency securities
10,965

 

 
(83
)
 
10,882

Total
$
12,810

 
$
560

 
$
(106
)
 
$
13,264

 
 
 
 
 
 
 
 
Available for sale
 

 
 

 
 

 
 

MBS: U.S. government agencies
$
231

 
$
7

 
$
(1
)
 
$
237

Mutual funds
1,000

 

 
(83
)
 
917

Total
$
1,231

 
$
7

 
$
(84
)
 
$
1,154



16


Held to maturity and available for sale investment securities with unrealized losses were as follows as of March 31, 2019 (dollars in thousands):
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Estimated
 Fair
 Value
 
Gross
Unrealized
Losses
 
Quantity
 
Estimated
 Fair
 Value
 
Gross
Unrealized
Losses
 
Quantity
 
Estimated
 Fair
 Value
 
Gross
Unrealized
Losses
Held to maturity
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

MBS:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. government agencies
$
1,725

 
$
(5
)
 
6

 
$
904

 
$
(11
)
 
6

 
$
2,629

 
$
(16
)
Private label residential

 

 

 
40

 
(1
)
 
7

 
40

 
(1
)
U.S. Treasury and U.S. government agency securities
4,985

 
(2
)
 
1

 
5,960

 
(38
)
 
2

 
10,945

 
(40
)
     Total
$
6,710

 
$
(7
)
 
7

 
$
6,904

 
$
(50
)
 
15

 
$
13,614

 
$
(57
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

MBS: U.S. government agencies
$
1,101

 
$
(10
)
 
3

 
$

 
$

 

 
$
1,101

 
$
(10
)
     Total
$
1,101

 
$
(10
)
 
3

 
$

 
$

 

 
$
1,101

 
$
(10
)

Held to maturity and available for sale investment securities with unrealized losses were as follows as of September 30, 2018 (dollars in thousands):
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Estimated
 Fair
 Value
 
Gross
Unrealized Losses
 
Quantity
 
Estimated
 Fair
 Value
 
Gross
Unrealized Losses
 
Quantity
 
Estimated
 Fair
 Value
 
Gross
Unrealized Losses
Held to maturity
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

MBS:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. government agencies
$
954

 
$
(20
)
 
2

 
$
64

 
$
(1
)
 
5

 
$
1,018

 
$
(21
)
Private label residential

 

 

 
50

 
(2
)
 
8

 
50

 
(2
)
U.S. Treasury and U.S. government agency securities
7,946

 
(22
)
 
2

 
2,935

 
(61
)
 
1

 
10,881

 
(83
)
     Total
$
8,900

 
$
(42
)
 
4

 
$
3,049

 
$
(64
)
 
14

 
$
11,949

 
$
(106
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available for sale
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

MBS:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

U.S. government agencies
$
34

 
$
(1
)
 
1

 
$

 
$

 

 
$
34

 
$
(1
)
Mutual funds

 

 

 
917

 
(83
)
 
1

 
917

 
(83
)
     Total
$
34

 
$
(1
)
 
1

 
$
917

 
$
(83
)
 
1

 
$
951

 
$
(84
)

The Company has evaluated the investment securities in the above tables and has determined that the decline in their value is temporary.  The unrealized losses are primarily due to changes in market interest rates and spreads in the market for mortgage-related products. The fair value of these securities is expected to recover as the securities approach their maturity dates and/or as the pricing spreads narrow on mortgage-related securities.  The Company has the ability and the intent to hold the investments until the market value recovers.  Furthermore, as of March 31, 2019, management does not have the intent to sell any of the securities classified as available for sale where the estimated fair value is below the recorded value and believes that it is more

17


likely than not that the Company will not have to sell such securities before a recovery of cost (or recorded value if previously written down).

The Company bifurcates OTTI into (1) amounts related to credit losses which are recognized through earnings and (2) amounts related to all other factors which are recognized as a component of other comprehensive income (loss). To determine the component of the gross OTTI related to credit losses, the Company compared the amortized cost basis of the OTTI security to the present value of its revised expected cash flows, discounted using its pre-impairment yield.  The revised expected cash flow estimates for individual securities are based primarily on an analysis of default rates, prepayment speeds and third-party analytic reports.  Significant judgment by management is required in this analysis that includes, but is not limited to, assumptions regarding the collectability of principal and interest, net of related expenses, on the underlying loans.  

The following table presents a summary of the significant inputs utilized to measure management’s estimates of the credit loss component on OTTI securities as of March 31, 2019 and 2018:
 
Range
 
Weighted
 
Minimum 
 
Maximum 
 
Average 
March 31, 2019
 
 
 
 
 
Constant prepayment rate
6.00
%
 
15.00
%
 
10.24
%
Collateral default rate
%
 
16.06
%
 
5.20
%
Loss severity rate
%
 
78.00
%
 
40.02
%
 
 
 
 
 
 
March 31, 2018
 
 
 
 
 
Constant prepayment rate
6.00
%
 
15.00
%
 
11.01
%
Collateral default rate
%
 
11.85
%
 
5.04
%
Loss severity rate
%
 
72.00
%
 
38.32
%

The following table presents the OTTI recoveries (losses) for the three and six months ended March 31, 2019 and 2018 (dollars in thousands):

 
 
Three Months Ended
March 31, 2019
 
Three Months Ended
March 31, 2018
 
Held To
Maturity
 
Available
For Sale
 
Held To
Maturity
 
Available
For Sale
Total recoveries
$
20

 
$

 
$
14

 
$

Adjustment for portion of OTTI transferred from
       other comprehensive income (loss) before income taxes (1)
(11
)
 

 

 

Net recoveries recognized in earnings (2)
$
9

 
$

 
$
14

 
$

 
Six Months Ended
March 31, 2019
 
Six Months Ended
March 31, 2018
 
Held To
Maturity
 
Available
For Sale
 
Held To
Maturity
 
Available
For Sale
Total recoveries
$
32

 
$

 
$
41

 
$

Adjustment for portion of OTTI transferred from
       other comprehensive income (loss) before income taxes (1)
(12
)
 

 
(5
)
 

Net recoveries recognized in earnings (2)
$
20

 
$

 
$
36

 
$

 
 
 
 
 
 
 
 
_________________
(1) Represents OTTI related to all other factors.
(2) Represents OTTI related to credit losses.

18


The following table presents a roll forward of the credit loss component of held to maturity and available for sale debt securities that have been written down for OTTI with the credit loss component recognized in earnings for the six months ended March 31, 2019 and 2018 (dollars in thousands):
 
Six Months Ended March 31,
 
2019

 
2018

Beginning balance of credit loss
$
1,153

 
$
1,301

Additions:
 

 
 

Additional increases to the amount
related to credit loss for which OTTI
was previously recognized
12

 
13

Subtractions:
 
 
 

Realized losses previously recorded
as credit losses
(13
)
 
(41
)
Recovery of prior credit loss
(32
)
 
(35
)
Ending balance of credit loss
$
1,120

 
$
1,238


During the six months ended March 31, 2019, the Company recorded a $13,000 net realized loss (as a result of investment securities being deemed worthless) on 17 held to maturity investment securities, all of which had been recognized previously as a credit loss. During the six months ended March 31, 2018, the Company recorded a $41,000 net realized loss (as a result of investment securities being deemed worthless) on 15 held to maturity investment securities, all of which had been recognized previously as a credit loss.

The recorded amount of investment securities pledged as collateral for public fund deposits, federal treasury tax and loan deposits, FHLB collateral and other non-profit organization deposits totaled $14.80 million and $12.10 million at March 31, 2019 and September 30, 2018, respectively.

The contractual maturities of debt securities at March 31, 2019 were as follows (dollars in thousands).  Expected maturities may differ from scheduled maturities due to the prepayment of principal or call provisions.
 
Held to Maturity
 
Available for Sale
 
Amortized
Cost
 
Estimated
Fair
Value
 
Amortized
Cost
 
Estimated
Fair
Value
Due within one year