SOURCE: Timberland Bancorp, Inc.

November 07, 2006 16:30 ET

Timberland Bancorp, Inc. Announces Record Earnings for FY06

Diluted Earnings per Share Increases 23% and Net Interest Margin Increases by 31 Basis Points

HOQUIAM, WA -- (MARKET WIRE) -- November 7, 2006 -- Timberland Bancorp, Inc. (NASDAQ: TSBK) ("Company"), the holding company for Timberland Bank ("Bank"), today reported record profits, strong loan growth and excellent asset quality for its fiscal year ended September 30, 2006. Fiscal year 2006, net income increased 23% to $8.16 million, or $2.24 per diluted share, compared to $6.62 million, or $1.82 per diluted share in fiscal year 2005. Fiscal fourth quarter 2006 net income increased 17% to $2.14 million, or $0.59 per diluted share, from $1.84 million, or $0.51 per diluted share, in the fourth quarter of fiscal 2005.

Fiscal 2006 Financial Highlights -

--  Annual diluted earnings per share (EPS) increased 23%.
--  Quarterly diluted EPS increased 16%.
--  Net interest margin increased 31 basis points to 4.91% during the
    year.
--  Non-performing asset to total assets ratio improved to 0.02% at year
    end.
--  Total loans increased 9% to $425 million.
--  Efficiency ratio improved to 61.19% for the year.
    
Two - Year Financial Highlights (Fiscal 2004 to 2006)
--  Diluted EPS increased to $2.24 from $1.46 generating a 24% compounded
    annual growth rate (CAGR).
--  Net income increased to $8.2 million from $5.6 million for a 21% CAGR.
--  Return on equity increased to 10.89% from 7.52% for a 20% CAGR.
--  Net loans increased to $425 million from $345 million for an 11% CAGR.
--  Total deposits increased to $431 million from $320 million for a 16%
    CAGR.
--  Total assets increased to $577 million from $460 million for a 12%
    CAGR.
--  Visit www.timberlandbank.com (investor relations tab) to view graphs
    of recent growth trends.
    
"The Western Washington economy remains strong, with on-going expansion in the aerospace, software and construction industries continuing to provide a solid underpinning for regional economic growth," said Michael Sand, President and CEO. According to Marple's Pacific Northwest Letter, "The economy of the Pacific Northwest in fact is booming -- growing at the fastest rates since before the brief and shallow U.S. recession in 2001." Recently the Port of Grays Harbor and Imperium Renewables, backed by Microsoft's co-founder Paul Allen, announced plans for the country's largest biodiesel fuel plant which will be built in the greater Hoquiam-Aberdeen area. Construction began last month with a scheduled completion date in mid 2007. Approximately 300 jobs will be created to facilitate the construction of the plant which will provide permanent employment for approximately 50 people.

"The initiatives we launched in late 2003 to upgrade our technology platforms, improve our credit administration processes, and strengthen our deposit gathering capabilities have been successful and are reflected in the Company's financial results over the past two years," Sand continued. "This year we began building on those core platform initiatives by adding two highly capable and market-proven business bankers to lead our loan production initiatives and strengthen our presence in the commercial real estate and business banking markets. Their contacts, relationships and management oversight led to record loan originations of $86.5 million for the quarter. We are pleased with the financial trends we are seeing develop in the Company. A visit to our website www.timberlandbank.com (investor relations tab) will allow the viewing of charts that graphically display the progress made during the past two years," Sand also stated.

Operating Results

Fiscal 2006 revenue (net interest income before provision for loan losses plus non-interest income) increased 9% to $30.9 million from $28.4 million in fiscal 2005. Net interest income before the provision for loan losses increased 10% to $24.6 million with interest income increasing 15% and interest expense increasing 26%. Loan growth and a shift in assets to higher-yielding credits contributed to the growth in net interest income, and offset rising funding costs. In addition, the collection of $327,000 in prepayment penalties and $162,000 in non-accrual interest increased interest income and added approximately 10 basis points to the net interest margin. The yield on interest earning assets increased to 7.06% in fiscal 2006 from 6.37% a year ago, while the average rate paid on interest bearing liabilities increased to 2.57% in fiscal 2006 from 2.09% in fiscal 2005.

Net interest margin for the year increased 31 basis points to 4.91% from 4.60% a year ago. Non-interest income increased 3% for the year to $6.24 million from $6.07 million in fiscal 2005, with increased service charges on deposits and ATM fees offsetting a lower gain on sale of loans. Income from loan sales was larger a year ago in part due to the December 2004 sale of the Bank's credit card portfolio, which resulted in a gain of $245,000.

In the fourth quarter of fiscal 2006, revenue increased 7% to $7.91 million from $7.37 million for the fourth quarter of fiscal 2005 with interest income up 14% and interest expense increasing 24%. Fourth quarter net interest income increased 9% to $6.26 million from $5.72 million a year ago. The collection and recognition of $138,000 in non-accrual interest contributed to higher interest income and increased the quarterly net interest margin by approximately 5 basis points. Net interest margin in the fourth quarter was 4.91% compared to 4.56% in the fourth quarter a year ago. There was no provision for loan losses made during the year ended September 30, 2006 as credit quality remained strong. Non-interest income was consistent at $1.65 million in the fourth quarter of 2006 and 2005.

Total operating (non-interest) expenses increased 2% in fiscal 2006 to $18.90 million from $18.54 million in fiscal 2005. "Our continued emphasis on cost control and efficiencies allowed us to stabilize expenses while we increased revenues," said Sand. Fourth quarter operating expenses increased only 2% compared to a year ago and decreased 1% on a sequential quarterly basis. Non-interest expense in the fourth quarter was $4.75 million compared to $4.79 in the third quarter of fiscal 2006 and $4.64 million in the fourth quarter of 2005.

Return on equity (ROE) was 10.59% for fiscal 2006 and 10.89% for the final quarter, compared to 9.08% and 10.03%, respectively, a year ago. Return on average assets was 1.47% in fiscal 2006 and 1.53% in the fourth quarter of the year, compared to 1.23% in fiscal 2005 and 1.33% in the fourth quarter of 2005.

Balance Sheet Management

Total assets increased 4% during fiscal 2006 to $577.1 million compared to $552.8 million at the end of fiscal 2005. Strong loan originations facilitated the conversion of assets from lower yielding investments and cash into higher yielding loans. At September 30, 2006, total loans increased by 9% to $424.6 million from $388.1 million at the end of the preceding year. Loan growth was primarily due to an 11% increase in loan originations during the year with $256.3 million in total originations in fiscal 2006. Fourth quarter loan originations were exceptionally strong, increasing 40% to $86.5 million from $61.6 million in the fourth quarter a year ago. "We continue to sell fixed rate one-to-four family mortgage loans into the secondary market for asset-liability management purposes," said Dean Brydon, Chief Financial Officer. Fixed rate one-to-four family mortgage loan sales totaled $26.5 million for fiscal 2006 and $8.9 million for the final quarter, compared to $25.4 million and $9.1 million, respectively, a year ago.

"Strong demand for commercial real estate and construction and land development loans offset lower levels of retail mortgage loans in our portfolio," Brydon noted. In fiscal 2006 commercial real estate loans increased 10%, construction and land development loans increased 31%, land loans increased 18%, and consumer loans increased 17%, offsetting moderate declines in residential mortgage loans.



LOAN PORTFOLIO
($ in thousands)

                                   September 30, 2006    September 30, 2005
                                     Amount    Percent   Amount     Percent
                                   ---------   ------   ---------   ------
Mortgage Loans:
  One-to-four family (1)           $  98,709     20.1%  $ 101,763     23.2%
  Multi family                        17,689      3.6%     20,170      4.6%
  Commercial                         137,609     28.1%    124,849     28.5%
  Construction and land
   development                       146,855     29.9%    112,470     25.7%
  Land                                29,598      6.0%     24,981      5.7%
                                   ---------   ------   ---------   ------
    Total mortgage loans             430,460     87.7%    384,233     87.7%

Consumer Loans:
  Home equity and second mortgage     37,435      7.6%     32,298      7.4%
  Other                               11,127      2.3%      9,330      2.1%
                                   ---------   ------   ---------   ------
                                      48,562      9.9%     41,628      9.5%

Commercial business loans             11,803      2.4%     12,013      2.8%
                                   ---------   ------   ---------   ------
Total loans                        $ 490,825    100.0%  $ 437,874    100.0%

Less:
  Undisbursed portion of
   construction
    loans in process                 (59,260)             (42,771)
  Unearned income                     (2,798)              (2,895)
  Allowance for loan losses           (4,122)              (4,099)
                                   ---------            ---------
Total loans receivable, net        $ 424,645            $ 388,109
                                   =========            =========


(1) Includes loans held for sale

Total deposits increased 5% during fiscal 2006 with strong growth in non-interest bearing deposits and certificates of deposit accounts. Deposits increased $19 million to $431 million at September 30, 2006 from $412 million at September 30, 2005.


DEPOSIT BREAKDOWN
($ in thousands)

                                    September 30, 2006  September 30, 2005
                                     Amount   Percent    Amount   Percent
                                    --------- --------  --------- --------

Non-interest bearing                $  57,905       13% $  51,792       13%
N.O.W. checking                        89,509       21%    93,477       23%
Savings                                60,235       14%    64,274       16%
Money market accounts                  42,378       10%    49,295       12%
Certificates of deposit under
 $100,000                             128,183       30%   117,618       28%
Certificates of deposit $100,000
 and over                              52,851       12%    35,209        8%
                                    --------- --------  --------- --------
Total deposits                      $ 431,061      100% $ 411,665      100%

Total shareholders' equity increased to $79.4 million (tangible book value per share of $19.22) at September 30, 2006 from $74.6 million (tangible book value per share of $17.86) at September 30, 2005. In addition to solid growth in shareholder equity, Timberland shareholders earned $0.66 per share in cash dividends, an 8% increase from the $0.61 per share dividends paid in fiscal 2005. The Company recently announced an increase in the quarterly dividend to $0.18 per share from the prior quarterly dividend of $0.16 per share. The dividend payable on November 27, 2006 represents the 35th consecutive quarter that Timberland has paid a cash dividend. In addition, the Company continued its share repurchase program in which it bought back 108,600 shares at an average price of $34.08 for a total of $3.7 million during fiscal 2006. Cumulatively, Timberland has repurchased 3.5 million shares or 52.6% of the 6.6 million shares that were issued in its initial public offering in January 1998. The average price of the 3.5 million repurchased shares was $15.97 per share.

Asset Quality

Asset quality improved significantly during fiscal 2006 with the resolution of several non-performing loans. At year end, non-performing loans declined to $80,000 from $2.9 million at year-end 2005, and total non-performing assets decreased to $95,000 from $3.4 million a year ago. Although there was no provision for loan losses in fiscal 2006, the allowance for loan losses, increased during this period due to a net recovery of $23,000. The allowance for loan losses totaled $4.1 million at September 30, 2006, or 0.97% of loans receivable and 5,152% of non-performing loans. The allowance for loan losses was $4.0 million, or 1.05% of loans receivable and 140% of non-performing loans at September 30, 2005. Timberland had a net recovery of $1,000 for the three months ended September 30, 2006 compared to a net charge-off of $29,000 for the three months ended September 30, 2005. The Company had a net recovery of $23,000 for the year ended September 30, 2006 compared to a net charge-off of $33,000 for the year ended September 30, 2005.

The Company's non-performing assets to total assets ratio decreased to 0.02% at September 30, 2006 from 0.37% at June 30, 2006 and 0.62% at September 30, 2005. The non-performing loan total of $80,000 at September 30, 2006 consisted of two single family mortgage loans.

About Timberland Bancorp, Inc.

Timberland Bancorp, Inc. stock trades on the NASDAQ global market under the symbol "TSBK." The Bank operates 21 branches in the state of Washington in Hoquiam, Aberdeen, Ocean Shores, Montesano, Elma, Olympia, Lacey, Tumwater, Yelm, Puyallup, Edgewood, Tacoma, Spanaway (Bethel Station), Gig Harbor, Poulsbo, Silverdale, Auburn, Winlock, and Toledo.

TIMBERLAND BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
                                                  Three Months Ended
($ in thousands, except per share)         Sept. 30,  June 30,   Sept. 30,
(unaudited)                                  2006       2006       2005
                                           ---------  ---------  ----------
Interest and dividend income
Loans receivable                           $   8,252  $   8,036  $    7,243
Investments and mortgage-backed securities       510        529         503
Dividends                                        401        370         305
Federal funds sold                                97        121          86
Interest bearing deposits in banks                23         18          29
                                           ---------  ---------  ----------
  Total interest and dividend income           9,283      9,074       8,166

Interest expense
Deposits                                       2,351      2,058       1,603
Federal Home Loan Bank ("FHLB") advances         659        718         831
Other borrowings                                  13         10           9
                                           ---------  ---------  ----------
  Total interest expense                       3,023      2,786       2,443
                                           ---------  ---------  ----------
  Net interest income                          6,260      6,288       5,723
Provision for loan losses                          -          -          25
                                           ---------  ---------  ----------
  Net interest income after provision
   for loan losses                             6,260      6,288       5,698

Non-interest income
Service charges on deposits                      755        769         760
Gain on sale of loans, net                       122         60         115
BOLI net earnings                                116        112         110
Escrow fees                                       33         32          44
Servicing income on loans sold                   160         80         180
ATM transaction fees                             284        266         239
Other                                            183        209         199
                                           ---------  ---------  ----------
  Total non-interest income                    1,653      1,528       1,647
Non-interest expense
Salaries and employee benefits                 2,650      2,727       2,470
Premises and equipment                           598        589         554
Advertising                                      187        185         232
Loss (gain) from real estate operations          (85)        (1)         15
ATM expenses                                     129        105         115
Postage and courier                              116        123         148
Amortization of core deposit intangible           82         82          94
State and local taxes                            138        138         114
Professional fees                                265        222         160
Other                                            670        621         738
                                           ---------  ---------  ----------
  Total non-interest expense                   4,750      4,791       4,640

Income before federal income taxes             3,163      3,025       2,705
Federal income taxes                           1,019        964         867
                                           ---------  ---------  ----------
  Net income                               $   2,144  $   2,061  $    1,838
                                           =========  =========  ==========
Earnings per common share:
  Basic                                    $    0.61  $    0.58  $     0.53
  Diluted                                  $    0.59  $    0.56  $     0.51
Weighted average shares outstanding:
  Basic                                    3,517,377  3,531,610   3,442,198
  Diluted                                  3,645,477  3,652,198   3,575,560



TIMBERLAND BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
                                                          Year Ended
($ in thousands, except per share)                       September 30,
(unaudited)                                          2006           2005
                                                   ---------     ----------
Interest and dividend income
Loans receivable                                   $  31,397     $   27,514
Investments and mortgage-backed securities             2,152          1,962
Dividends                                              1,436          1,093
Federal funds sold                                       389            282
Interest bearing deposits in banks                        78             85
                                                   ---------     ----------
    Total interest and dividend income                35,452         30,936

Interest expense
Deposits                                               7,905          5,422
Federal Home Loan Bank ("FHLB") advances               2,860          3,156
Other borrowings                                          49             31
                                                   ---------     ----------
    Total interest expense                            10,814          8,609
                                                   ---------     ----------
    Net interest income                               24,638         22,327
Provision for loan losses                                  -            141
                                                   ---------     ----------
    Net interest income after provision
     for loan losses                                  24,638         22,186

Non-interest income
Service charges on deposits                            2,981          2,822
Gain on sale of loans, net                               386            728
BOLI net earnings                                        449            430
Escrow fees                                              120            141
Servicing income on loans sold                           425            379
ATM transaction fees                                   1,026            871
Other                                                    857            702
                                                   ---------     ----------
    Total non-interest income                          6,244          6,073
Non-interest expense
Salaries and employee benefits                        10,744         10,196
Premises and equipment                                 2,425          2,229
Advertising                                              688            797
Loss (gain) from real estate operations                 (178)             4
ATM expenses                                             428            465
Postage and courier                                      486            529
Amortization of core deposit intangible                  328            367
State and local taxes                                    564            436
Professional fees                                        876            656
Other                                                  2,535          2,857
                                                   ---------     ----------
    Total non-interest expense                        18,896         18,536

Income before federal income taxes                    11,986          9,723
Federal income taxes                                   3,829          3,105
                                                   ---------     ----------
    Net income                                     $   8,157     $    6,618
                                                   =========     ==========
Earnings per common share:
    Basic                                          $    2.32     $     1.90
    Diluted                                        $    2.24     $     1.82
Weighted average shares outstanding:
    Basic                                          3,516,331      3,475,400
    Diluted                                        3,640,948      3,627,989



TIMBERLAND BANCORP, INC.
CONSOLIDATED BALANCE SHEET
($ in thousands)  (unaudited)

                                           Sept. 30    June 30   Sept. 30
Assets                                       2006       2006       2005
                                           ---------  ---------  ---------
Cash and due from financial institutions
   Non-interest bearing                    $  14,870  $  13,720  $  20,015
   Interest-bearing deposits in banks          2,619      2,565      3,068
   Federal funds sold                          5,400     10,450      5,635
                                           ---------  ---------  ---------
                                              22,889     26,735     28,718
Investments and mortgage-backed
 securities:
   Held to maturity                               75         86        104
   Available for sale                         81,408     84,822     89,595
 FHLB stock                                    5,705      5,705      5,705
                                           ---------  ---------  ---------
                                              87,188     90,613     95,404

Loans receivable                             426,318    401,014    389,853
Loans held for sale                            2,449      1,024      2,355
Less:  Allowance for loan losses              (4,122)    (4,120)    (4,099)
                                           ---------  ---------  ---------
Net loans receivable                         424,645    397,918    388,109

Accrued interest receivable                    2,806      2,416      2,294
Premises and equipment                        16,730     16,416     15,862
Other Real estate owned ("OREO") and other
 repossessed items                                15        112        509
Bank owned life insurance ("BOLI")            11,951     11,835     11,502
Goodwill                                       5,650      5,650      5,650
Core deposit intangible                        1,506      1,588      1,834
Mortgage servicing rights                        932        888        928
Other assets                                   2,775      2,373      1,955
                                           ---------  ---------  ---------
Total Assets                               $ 577,087  $ 556,544  $ 552,765
                                           =========  =========  =========

Liabilities and Shareholders' Equity
Non-interest-bearing deposits              $  57,905     54,372  $  51,791
Interest-bearing deposits                    373,156    365,012    359,874
                                           ---------  ---------  ---------
     Total deposits                          431,061    419,384    411,665

FHLB advances                                 62,761     53,776     62,353
Other borrowings: repurchase agreements          947      1,152        781
Other liabilities and accrued expenses         2,953      3,409      3,324
                                           ---------  ---------  ---------
Total Liabilities                            497,722    477,721    478,123
                                           ---------  ---------  ---------

Shareholders' Equity
Common stock - $.01 par value; 50,000,000
 shares authorized; September 30, 2006
 - 3,757,676 shares issued and outstanding
 June 30, 2006 - 3,785,576 shares issued
 and outstanding September 30, 2005
 - 3,759,937 shares
 issued and outstanding                           38         38         38
Additional paid in capital                    20,888     22,111     22,040
Unearned shares - Employee Stock Ownership
 Plan                                         (3,305)    (3,437)    (3,833)
Unearned shares - Management Recognition
 and Development Plan                           (188)         -          -
Retained earnings                             62,933     61,471     57,268
Accumulated other comprehensive loss          (1,001)    (1,360)      (871)
                                           ---------  ---------  ---------
Total Shareholders' Equity                    79,365     78,823     74,642
                                           ---------  ---------  ---------
Total Liabilities and Shareholders' Equity $ 577,087  $ 556,544  $ 552,765
                                           =========  =========  =========



KEY FINANCIAL RATIOS AND DATA    Three Months Ended        Year Ended
($ in thousands, except per         September 30,         September 30,
share) (unaudited)                  2006       2005       2006       2005
                                ---------  ---------  ---------  ---------
PERFORMANCE RATIOS:
Return on average assets (a)         1.53%      1.33%      1.47%      1.23%
Return on average equity (a)        10.89%     10.03%     10.59%      9.08%
Net interest margin (a)              4.91%      4.56%      4.91%      4.60%
Efficiency ratio                    60.03%     62.96%     61.19%     65.27%

                                    September 30,
                                   2006       2005
                                ---------  ---------
ASSET QUALITY RATIOS:
Non-performing loans            $      80  $   2,926
REO & other repossessed assets         15        509
                                ---------  ---------
Total non-performing assets     $      95  $   3,435
Non-performing assets to total
 assets                              0.02%      0.62%
Restructured loans              $   1,355  $       -
Allowance for loan losses to
 non-performing loans             5,152.5%    140.09%

Book value per share (b)        $   21.12  $   19.85
Book value per share (c)        $   22.44  $   21.30
Tangible book value per share
 (b) (d)                        $   19.22  $   17.86
Tangible book value per share
 (c) (d)                        $   20.41  $   19.16

(a) Annualized
(b) Calculation includes ESOP shares not committed to be released
(c) Calculation excludes ESOP shares not committed to be released
(d) Calculation subtracts goodwill and core deposit intangible
    from the equity component

AVERAGE BALANCE SHEET:           Three Months Ended        Year Ended
                                    September 30,         September 30,
                                   2006       2005       2006       2005
                                ---------  ---------  ---------  ---------
Average total loans             $ 411,012  $ 392,596  $ 399,811  $ 378,113
Average total interest earning
 assets                           510,180    502,453    502,194    485,616
Average total assets              560,941    554,750    554,231    538,402
Average total interest bearing
 deposits                         372,371    363,150    365,544    356,089
Average FHLB advances & other
 borrowings                        48,518     63,745     55,773     60,537
Average shareholders’ equity       78,724     73,310     77,044     72,860


Disclaimer

This report contains certain "forward-looking statements." The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and is including this statement for the express purpose of availing itself of the protection of such safe harbor with forward-looking statements. These forward-looking statements may describe future plans or strategies and include the Company's expectations of future financial results. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results to differ materially from stated objectives. These risk factors include but are not limited to the effect of interest rate changes, competition in the financial services market for both deposits and loans as well as regional and general economic conditions. The words "believe," "expect," "anticipate," "estimate," "project," and similar expressions identify forward-looking statements. The Company's ability to predict results or the effect of future plans or strategies is inherently uncertain and undue reliance should not be placed on such statements.

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