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, 2000
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 0-23333
TIMBERLAND BANCORP, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1863696
(State of Incorporation) (IRS Employer Identification No.)
624 Simpson Avenue, Hoquiam, Washington
(Address of principal executive office)
98550
(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AT May 11, 2000
----- ----------------------------------
common stock, $.01 par value 4,860,795
INDEX
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Shareholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Consolidated Statements of Comprehensive Income 8
Notes to Consolidated Financial Statements (unaudited) 9-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-20
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and September 30, 1999
Dollars in Thousands
(unaudited)
March 31, September 30,
1999 1999
----------------------------
Assets
Cash and due from financial institutions $ 7,912 $ 6,810
Interest bearing deposits in banks 1,724 1,316
Investments and mortgage-backed securities
(Available for Sale) 30,010 31,656
Loans receivable 255,173 233,597
Loans held for sale 25,483 22,488
---------------------------
Total Loans 280,656 256,085
---------------------------
Accrued interest receivable 1,617 1,480
Premises and equipment 8,427 7,621
Real estate owned 2,079 867
Other assets 1,320 1,281
---------------------------
Total Assets $ 333,745 $ 307,116
---------------------------
Liabilities and Shareholder's Equity
Liabilities
Deposits $ 200,470 $ 188,148
Federal Home Loan Bank advances 62,113 45,084
Other liabilities and accrued expenses 1,103 1,639
---------------------------
Total Liabilities 263,686 234,871
---------------------------
Shareholder's Equity
Common Stock, $.01 par value; 50,000,000
shares authorized; 6,612,500 shares issued,
4,860,795 and 5,217,422 shares outstanding. 49 52
Additional paid in capital 43,055 46,943
Unearned shares - Employee Stock Ownership Plan (6,741) (7,005)
Retained earnings 34,326 32,646
Accumulated other comprehensive income (loss) (630) (391)
---------------------------
Total Shareholder's Equity 70,059 72,245
---------------------------
Total Liabilities and Shareholder's Equity $ 333,745 $ 307,116
---------------------------
See notes to unaudited consolidated financial statements
3
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 2000 and 1999
Dollars in Thousands, Except Per Share Amounts
(unaudited)
Three Months Six Months
Ended March 31, Ended March 31,
2000 1999 2000 1999
-------------------- ------------------
Interest and Dividend Income
Loans receivable $ 6,263 $ 5,129 $12,299 $ 9,921
Investments and mortgage-backed
securities 304 334 604 729
Dividends 183 233 361 443
Deposit in other financial
institutions 46 46 87 162
-------------------- ------------------
Total Interest and Dividend
Income 6,796 5,742 13,351 11,255
-------------------- ------------------
Interest Expense
Deposits 2,021 1,797 3,921 3,646
Federal Home Loan Bank advances 867 187 1,657 354
-------------------- ------------------
Total Interest Expense 2,888 1,984 5,578 4,000
-------------------- ------------------
Net Interest Income 3,908 3,758 7,773 7,255
Provision for Loan Losses 280 30 355 74
-------------------- ------------------
Net Interest Income After
Provision for Loan Losses 3,628 3,728 7,418 7,181
-------------------- ------------------
Non-Interest Income
Service charges on deposits 121 109 247 194
Gain on sale of loans, net 10 5 59 40
Market value adjustment on loans
held for sale (127) (35) (407) (36)
Gain (Loss) on Sale of Securities (13) 1 (13) 1
Escrow and annuity fees 55 59 98 124
Servicing income on loans sold (11) (28) (7) (28)
Other 132 93 245 164
-------------------- ------------------
Total Non-Interest Income 167 204 222 459
-------------------- ------------------
Non-Interest Expense
Salaries and employee benefits 1.092 1,057 2,280 2,108
Premises and equipment 238 214 486 434
Advertising 84 64 195 120
Other 425 474 933 878
-------------------- ------------------
Total Non-Interest Expense 1,839 1,809 3,894 3,540
-------------------- ------------------
Income Before Income Taxes 1,956 2,123 3,746 4,100
Provision for Income Taxes 647 707 1,239 1,367
-------------------- ------------------
Net Income $ 1,309 $ 1,416 $ 2,507 $ 2,733
Earnings per common share:
Basic $0.29 $0.28 $0.54 $0.51
Diluted $0.29 $0.28 $0.54 $0.51
Weighted average shares
outstanding(1):
Basic 4,548,076 5,143,479 4,620,467 5,312,837
Diluted 4,548,076 5,145,777 4,620,467 5,315,135
(1) Unallocated ESOP shares are not considered outstanding (see Note 3).
See notes to unaudited consolidated financial statements
4
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the year ended September 30, 1999 and the
six months ended March 31, 2000
Dollars in Thousands Except Common Stock Shares
(unaudited)
Unearned Accumu-
Shares lated
Issued to Other
Employee Compre-
Common Common Additional Stock hensive
Stock Stock Paid in Ownership Retained Income
Shares(1) Amount Capital Trust Earnings (Loss) Total
--------- ------ ---------- --------- -------- ------ ------
Balance, Sept. 30,
1998 6,281,875 $ 63 $ 60,183 ($7,534) $ 28,948 $ 120 $ 81,780
Net Income - - - - - - - - 5,218 - - 5,218
Repurchase of
Common Stock (1,064,453) (11) (13,139) - - - - - - (13,150)
Cash Dividends
($.27 per share) - - - - - - - - (1,520) - - (1,520)
Earned ESOP Shares(2) - - - - (101) 529 - - - - 428
Unrealized loss on
securities available
for sale, net of tax - - - - - - - - - - (511) (511)
--------------------------------------------------------------------------------
Balance, Sept. 30,
1999 5,217,422 52 46,943 (7,005) 32,646 (391) 72,245
--------------------------------------------------------------------------------
Net Income - - - - - - - - 2,507 - - 2,507
Repurchase of
Common Stock (356,627) (3) (3,819) - - - - - - (3,822)
Cash Dividends
($.08 per share) - - - - - - - - (827) - - (827)
Earned ESOP Shares(2) - - - - (69) 264 - - - - 195
Unrealized loss on
securities available
for sale, net of tax - - - - - - - - - - (239) (239)
--------------------------------------------------------------------------------
Balance, Mar. 31,
2000 4,860,795 $ 49 $ 43,055 ($6,741) $ 34,326 ($630) $ 70,059
--------------------------------------------------------------------------------
- ------------------
(1) Unearned ESOP Shares are not considered outstanding for the purpose of computing earnings per share
(see Note 3). They are however considered outstanding for legal purposes.
(2) The release of ESOP shares resulted in a market value adjustment to additional paid in capital.
5
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three months ended March 31, 2000 and 1999
Dollars in Thousands
(unaudited)
Six Months Ended March 31,
2000 1999
------------------------------
Cash Flow from Operating Activities
Net income $ 2,507 $ 2,733
Noncash revenues, expenses, gains and losses ------------------------------
included in income:
Depreciation 206 176
Deferred federal income taxes - - 100
Federal Home Loan Bank stock dividends (103) (67)
Market value adjustment - loans held for
sale 407 36
Earned ESOP Shares 195 218
(Gain) Loss on sale of real estate owned,
net 11 (7)
Gain on sale of loans (59) (40)
Provision for loan and real estate owned
losses 405 102
Net increase in loans originated for sale (3,343) (9,991)
Net increase (decrease) in other assets (53) 222
Decrease in other liabilities and accrued
expenses, net (536) (231)
------------------------------
Net Cash Used by Operating Activities (363) (6,749)
Cash Flow from Investing Activities
Net decrease (increase) in interest-bearing
deposits in banks (408) 12,325
Purchase of securities available for sale (1,302) (29,544)
Proceeds from maturities of securities
available for sale 2,689 30,435
Increase in loans receivable, net (21,931) (2,576)
Additions to premises and equipment (1,012) (1,309)
Additions to real estate owned (1,806) (507)
Proceeds from Sale of real estate owned 533 986
------------------------------
Net Cash (Used) Provided by Investing
Activities (23,237) 9,810
Cash Flow from Financing Activities
Increase in deposits, net 12,322 5,548
Increase in Federal Home Loan Bank
advances, net 17,029 1,935
Repurchase of common stock (3,822) (11,045)
Payment of Dividends (827) (712)
------------------------------
Net Cash (Used) Provided by Financing
Activities 24,702 4,274
Net Increase (Decrease) in Cash 1,102 (1,213)
Cash and Due from Financial Institutions
Beginning of period 6,810 7,039
------------------------------
End of period $ 7,912 $ 5,826
------------------------------
See notes to unaudited consolidated financial statements (continued)
6
Six Months Ended March 31,
2000 1999
------------------------------
Supplemental Disclosure of Cash Flow
Information
Income taxes paid $ 1,450 $ 1,150
Interest paid 5,501 3,999
Supplemental Disclosure of Noncash
Investing Activities
Loans transferred to real estate owned 1,682 312
Market value adjustment of securities
held for sale, net of tax (239) (195)
See notes to unaudited consolidated financial statements
7
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months and six months March 31, 2000 and 1999
Dollars in Thousands
(unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
------------------ ----------------
Comprehensive Income:
Net Income $1,309 $1,416 $2,507 $2,733
Change in unrealized gain
(loss) on Securities
available for sale, net of
tax (89) (62) (239) (195)
------------------ ----------------
Total Comprehensive Income $1,220 $1,354 $2,268 $2,538
See notes to unaudited consolidated financial statements
8
Timberland Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation: The accompanying unaudited consolidated financial
statements for Timberland Bancorp, Inc. ("Company") were prepared in
accordance with the instructions for Form 10-Q and therefore, do not include
all disclosures necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. However, all adjustments, which are, in the opinion
of management, necessary for a fair presentation of the interim financial
statements have been included. All such adjustments are of a normal recurring
nature. The results of operations for the three months and six months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the entire fiscal year.
(b) Principles of Consolidation: The interim consolidated financial
statements include the accounts of Timberland Bancorp, Inc. and its
wholly-owned subsidiary, Timberland Savings Bank, S.S.B. ("Bank"), and the
Bank's wholly-owned subsidiary, Timberland Service Corp. All significant
intercompany balances have been eliminated in consolidation.
(2) CONVERSION AND REORGANIZATION
On January 12, 1998, the Bank converted from a Washington-chartered mutual
savings bank to a Washington-chartered capital stock savings bank and became a
wholly-owned subsidiary of the Company. The stock conversion resulted in the
sale and issuance by the Company of 6,612,500 shares of $.01 par value common
stock at a price of $10.00 per share which resulted in gross proceeds of
$66,125,000. After reducing gross proceeds for conversion costs of
$1,175,000, net proceeds totaled $64,950,000. In conjunction with the
conversion, the Company loaned $7,930,307 to the Bank's employee stock
ownership plan for the purchase of 529,000 shares of common stock in the open
market immediately following the completion of the stock conversion. On
January 13, 1998, the Company's common stock began trading on the Nasdaq
National Market under the symbol "TSBK".
9
(3) EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income applicable to
common stock by the weighted average number of common shares outstanding
during the period, without considering any dilutive items. Diluted earnings
per share is computed by dividing net income applicable to common stock by the
weighted average number of common shares and common stock equivalents for
items that are dilutive, net of shares assumed to be repurchased using the
treasury stock method at the average share price for the Company's common
stock during the period. Common stock equivalents arise from assumed
conversion of outstanding stock options. In accordance with Statement of
Position ("SOP") 93-6, Employers' Accounting for Employee Stock Ownership
Plans (ESOP), issued by the American Institute of Certified Public
Accountants, shares owned by the Bank's Employee Stock Ownership Plan that
have not been allocated are not considered to be outstanding for the purpose
of computing earnings per share. At March 31, 2000, there were 467,283 ESOP
shares that had not been allocated.
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
Basic EPS computation ----------------------- -----------------------
Numerator - Net Income $ 1,309,127 $1,415,844 $ 2,506,683 $2,732,518
Denominator - Weighted
average common shares
outstanding 4,548,076 5,143,479 4,620,467 5,312,837
Basic EPS $ 0.29 $0.28 $ 0.54 $0.51
Diluted EPS computation
Numerator - Net Income $ 1,309,127 $1,415,844 $ 2,506,683 $2,732,518
Denominator - Weighted
average common shares
outstanding 4,548,076 5,143,479 4,620,467 5,312,837
Effect of dilutive stock
option -- 2,298 -- 2,298
----------- ---------- ----------- ----------
Weighted average common
shares and common stock
equivalents 4,548,076 5,145,777 4,620,467 5,315,135
Diluted EPS $ 0.29 $0.28 $ 0.54 $0.51
(4) DIVIDEND
On May 1, 2000, the Company announced a quarterly cash dividend of $0.09 per
common share. The dividend is to be paid May 19, 2000, to shareholders of
record as of the close of business May 5, 2000.
(5) ACCOUNTING CHANGES
Accounting for Employee Stock Ownership Plans. In November 1993 the American
Institute of Certified Public Accountants issued SOP 93-6, which requires an
employer to record compensation expense in an amount equal to the fair value
of shares committed to be released to employees from an employee stock
ownership plan and to exclude unallocated shares from earnings per share
computations. The effect of SOP 93-6 on net income and book value per share
in future periods cannot be predicted due to the uncertainty of the fair value
of the shares at the time they will be committed to be released. Subsequent
to the Bank's conversion to stock ownership on January 12, 1998, the Company
acquired 529,000 shares for the Bank's employee stock ownership plan.
10
Earnings Per Share. Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," issued in February 1997, establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities
with publicly-held common stock or potential common stock. It replaces the
presentation of primary EPS with a presentation of basic EPS and requires the
dual presentation of basic and diluted EPS on the face of the income
statement. Subsequent to the Bank's conversion to stock ownership on January
12, 1998, the Company adopted SFAS No. 128 for all future periods.
Reporting Comprehensive Income. SFAS No. 130, " Reporting Comprehensive
Income," was issued in June 1997 and requires businesses to disclose
comprehensive income and its components in their financial statements. This
statement does not affect the results of operations or financial condition of
the Company. The Company adopted SFAS No. 130 on October 1, 1998.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998 and establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company adopted SFAS No. 133
as of September 30, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operation
- --------------------
The following analysis discusses the material changes in the financial
condition and results of operations of the Company at and for the three months
and six months ended March 31, 2000. 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. 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. Factors which could affect actual results include interest rate
trends, the economic climate in the Company's market areas and the country as
a whole, loan delinquency rates, and changes in federal and state regulation.
These factors should be considered in evaluating the forward-looking
statements, and undue reliance should not be placed on such statements.
Comparison of Financial Condition at March 31, 2000 and September 30, 1999
Total Assets: Total assets increased 8.7% to $ 333.7 million at March 31, 2000
from $307.1 million at September 31, 1999, primarily as a result of a $24.6
million increase in loans receivable and loans held for sale, net, which was
primarily funded by increased Federal Home Loan Bank ("FHLB") borrowings and
increased deposits. Asset growth was partially offset by the use of $3.8
million to repurchase shares of the Company's stock.
Cash and Due from Financial Institutions: Cash and due from financial
institutions increased to $7.9 million at March 31, 2000 from $6.8 million at
September 30, 1999.
Interest Bearing Deposits in Banks: Interest bearing deposits in banks
increased to $1.7 million at March 31, 2000 from $1.3 million at September 30,
1999.
11
Investments and Mortgage-backed Securities: Investments and mortgage-backed
securities decreased by 5.2% to $30.0 million at March 31, 2000 from $31.7
million at September 30, 1999. This decrease is primarily due to redemption's
to fund share repurchases and scheduled amortization and prepayments.
Loans Receivable, and Loans Held-for-sale, net of allowance for loan losses:
Loans receivable, including loans held-for-sale, net, increased by 9.6% to
$280.7 million at March 31, 2000 from $256.1 million at September 30, 1999.
This increase is primarily a result of an increase in one-to-four family
mortgage loans, multi-family mortgage loans, commercial mortgage loans, land
loans, and construction and land development loans.
Real Estate Owned: Real estate owned increased by 139.8% to $2.1 million at
March 31, 2000 from $867,000 at September 30, 1999. The Bank's REO balance
increased as the Bank foreclosed on a convenience store (with retail space)
and was the successful bidder on the property at a sheriff's sale. The Bank
charged off $260,000 on the loan during the quarter and the property is
classified as an REO with a balance of $1.3 million at March 31, 2000. At
September 30, 1999, this non-performing loan was classified as "substandard"
and had a principal balance of $1.4 million. The Bank is currently marketing
the property. Although no assurances can be given, the Bank expects to
recover the amount charged off through the collection of a deficiency
judgement against the borrowers.
The Bank's March 31, 2000 REO balance of $2.1 million is comprised of the $1.3
million commercial real estate property discussed above, six one-to-four
family residences totaling $524,000 and six parcels of land totaling $346,000.
Premises and Equipment: Premises and equipment increased by 10.6% to $8.4
million at March 31, 2000 from $7.6 million at September 30, 1999, primarily
due to the addition of two new branches (Poulsbo and Spanaway).
Deposits: Deposits increased by 6.5% to $200.5 million at March 31, 2000 from
$188.1 million at September 30, 1999, primarily due to growth in the Bank's
certificate of deposit accounts.
Federal Home Loan Bank Advances: Federal Home Loan Bank ("FHLB") advances
increased 37.8% to $62.1 million at March 31, 2000 from $45.1 million at
September 30, 1999, primarily to fund loan portfolio growth.
Shareholders' Equity: Total shareholders' equity decreased 3.0 % to $70.1
million at March 31, 2000 from $72.2 million at September 30, 1999, primarily
as a result of the repurchase of 356,627 shares of the Company's stock for
$3.8 million and the payment of $827,000 in dividends to shareholders. This
decrease in shareholders' equity was partially offset by net income of $2.5
million.
12
Non Performing Assets
- ---------------------
The following table sets forth information with respect to the Company's
nonperforming assets at March 31, 2000 and September 30, 1999.
At March 31, At September 30,
2000 1999
--------------------------------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One-to-four family $ 1,623 $ 941
Commercial 490 1,675
Construction and land development 932 390
Land 232 253
Consumer loans 277 330
Commercial Business Loans 310 - -
--------- ---------
Total 3,864 3,589
Accruing loans which are contractually
past due 90 days or more:
Mortgage loans:
Construction and land development 474 449
--------- ---------
Total 474 449
--------- ---------
Total of nonaccrual and
90 days past due loans 4,338 4,038
Real estate owned and other
repossessed assets 2,079 867
--------- ---------
Total nonperforming assets 6,417 4,905
Restructured loans - - 509
Nonaccrual and 90 days or more past
due loans as a percentage of loans
receivable, (including loans held for
sale)(1) 1.53% 1.56%
Nonaccrual and 90 days or more past
due loans as a percentage of total assets 1.30% 1.31%
Nonperforming assets as a percentage
of total assets 1.92% 1.60%
Loans receivable, (including loans
held for sale) (1) $ 282,756 $ 258,141
========= =========
Total assets $ 333,745 $ 307,116
========= =========
- --------------
(1) Loans receivable is before the allowance for loan losses
13
The following is a discussion of the Company's major problem asset at March
31, 2000:
Convenience store/retail space and mini-storage, Kitsap County, Washington.
The Bank had two loans that were originated in 1996 on two separate
properties: a convenience store combined with retail space and a 436 unit mini
storage facility. These two loans had a combined balance of $2.9 million at
September 30, 1998. These loans became delinquent primarily because of a
dispute between the two borrowers. The Bank initiated foreclosure proceedings
which were stayed due to a bankruptcy filing by the borrowers in January of
1998. The bankruptcy was subsequently dismissed and the mini storage facility
was sold at a trustees sale on March 12, 1999 for the full balance, accrued
interest, late charges and fees owed. The foreclosure of the convenience
store progressed to a sheriff's sale on December 10, 1999. The Bank was the
successful bidder and the sale was confirmed on January 28, 2000. The
property is currently being marketed by Timberland. The Bank charged off
$260,000 on the loan during the quarter and the property is classified as an
REO with a balance of $1.3 million at March 31, 2000. Although no assurances
can be given, the Bank expects to recover the amount charged off through the
collection of a deficiency judgement against the borrowers.
14
Loans Receivable
- ----------------
The following table sets forth the composition of the Company's loan portfolio
by type of loan.
At March 31, At September 30,
2000 1999
Amount Percent Amount Percent
------------------- --------------------
(Dollars In thousands)
Mortgage Loans:
One-to-four family (1)(2) $ 124,096 39.04% $ 115,133 38.42%
Multi family 18,161 5.71 15,945 5.32
Commercial 54,498 17.15 52,049 17.37
Construction and
land development 91,713 28.86 90,621 30.24
Land 11,391 3.58 9,059 3.02
--------- ------ --------- ------
Total mortgage loans 299,859 94.34 282,807 94.37
Consumer Loans:
Home equity and second
mortgage 8,594 2.70 7,978 2.66
Other 4,771 1.50 4,279 1.43
--------- ------ --------- ------
13,365 4.20 12,257 4.09
Commercial business loans 4,632 1.46 4,611 1.54
--------- ------ --------- ------
Total loans 317,856 100.00% 299,675 100.00%
Less:
Undisbursed portion of
loans in process (30,889) (37,781)
Unearned income (3,220) (3,170)
Allowance for loan losses (2,100) (2,056)
Market value adjustment
of loans held-for-sale (991) (583)
--------- ---------
Total loans receivable, net $ 280,656 $ 256,085
========= =========
- ----------------
(1) Includes loans held-for-sale.
(2) Includes real estate contracts totaling $1.4 million at March 31, 2000.
15
Comparison of Operating Results for the Three Months Ended March 31, 2000 and
1999
Net Income: Net income for the quarter ended March 31, 2000 was $1.3 million
or $0.29 per basic share ($0.29 per diluted share) compared to net income of
$1.4 million or $0.28 per basic share ($0.28 per diluted share) for the
quarter ended March 31, 1999. Net income for the current quarter was reduced
by a $127,000 ($84,000 after income tax) market value adjustment on loans held
for sale. Earnings per basic share and earnings per diluted share would have
been $0.31 without this market value adjustment.
Net Interest Income: Net interest income increased 4.0% to $3.9 million for
the three months ended March 31, 2000 from $3.8 million for the three months
ended March 31, 1999.
Total interest and dividend income increased 18.4% to $6.8 million for the
three months ended March 31, 2000 from $5.7 million for the three months ended
March 31, 1999. Interest income for the three months ended March 31, 1999
included the recognition of $313,000 for back interest and fee income on a
large non-performing loan that paid off. The increase is primarily a result
of a $1.1 million increase in interest from loans receivable and is partially
offset by a $80,000 net decrease in interest and dividends from investment
securities and financial institutions. The increase in interest income from
loans receivable is primarily a result of higher average balances for the
quarter in loans receivable due to loan growth. The net decrease in interest
and dividends from investments securities and financial institutions is
primarily a result of lower average balances for the quarter in investment
securities and in funds held with financial institutions due to a portion of
these funds being used to repurchase shares of the Company's stock and to fund
loan growth.
Total interest expense increased 45.6% to $2.9 million for the three months
ended March 31, 2000 from $2.0 million for the three months ended March 31,
1999. This increase is primarily a result of a $680,000 increase in interest
paid on FHLB advances as average FHLB advances increased to $58.2 million for
the quarter ended March 31, 2000 from $13.9 million for the quarter ended
March 31, 1999.
Provision for Loan Losses: The provision for loan losses increased to
$280,000 for the three months ended March 31, 2000 from $30,000 for the three
months ended March 31, 1999. Management increased the provision for loan
losses due to growth in the Bank's loan portfolio and to offset the current
quarter charge-offs of non-performing loans. Management deemed the general
loan loss reserves of $2.1 million at March 31, 2000 (0.74% of loans
receivable and loans held for sale and 48.4% of non-performing loans) adequate
to provide for estimated losses based on an evaluation of known and inherent
risks in the loan portfolio at that date.
During the quarter Timberland foreclosed on the property securing the Bank's
largest non-performing loan. This $1.4 million loan secured by a convenience
store was removed from non-performing loans and is classified as an REO with a
balance of $1.3 million at March 31, 2000. The Bank, however, also had
several other smaller loans become classified as non-performing during the
quarter.
Noninterest Income: Total noninterest income decreased to $167,000 for the
three months ended March 31, 2000 from $204,000 for the three months ended
March 31, 1999. The decrease is primarily due to a $92,000 increase in market
value writedowns on loans held for sale and is partially offset by a $30,000
increase in other fees, a $17,000 increase in servicing income on loans sold,
and a $12,000 increase in service charges on deposits.
Noninterest Expense: Total noninterest expense increased 1.7% to $1.84
million for the three months ended March 31, 2000 from $1.81 million for the
three months ended March 31, 1999, primarily due to a $35,000 increase in
salary and employee benefit expense.
16
Provision for Income Taxes: The provision for income taxes decreased to
$647,000 for the three months ended March 31, 2000 from $707,000 for the three
months ended March 31, 1999 primarily as a result of lower income before
income taxes.
Comparison of Operating Results for the Six Months Ended March 31, 2000 and
1999
Net Income: Net income for the six months ended March 31, 2000 was $2.5
million or $0.54 per basic share ($0.54 per diluted share) compared to net
income of $2.7 million or $0.51 per basic share ($0.51 per diluted share) for
the six months ended March 31, 1999. Net income for the current six months
was reduced by a $407,000 ($269,000 after income tax) market value adjustment
on loans held for sale. Earnings per basic share and earnings per diluted
share would have been $0.60 without this market value adjustment.
Net Interest Income: Net interest income increased 7.1% to $7.8 million for
the six months ended March 31, 2000 from $7.3 million for the six months ended
March 31, 1999.
Total interest and dividend income increased 18.6% to $13.4 million for the
six months ended March 31, 2000 from $11.3 million for the six months ended
March 31, 1999. Interest income for the six months ended March 31, 1999
included the recognition of $313,000 for back interest and fee income on a
large non-performing loan that paid off. The increase is primarily a result
of a $2.4 million increase in interest from loans receivable and is partially
offset by a $281,000 net decrease in interest and dividends from investment
securities and financial institutions. The increase in interest income from
loans receivable is primarily a result of higher average balances for the
quarter in loans receivable due to loan growth. The net decrease in interest
and dividends from investments securities and financial institutions is
primarily a result of lower average balances for the six months in investment
securities and in funds held with financial institutions due to a portion of
these funds being used to repurchase shares of the Company's stock and to fund
loan growth.
Total interest expense increased 39.5% to $5.6 million for the six months
ended March 31, 2000 from $4.0 million for the six months ended March 31,
1999. This increase is primarily a result of a $1.3 million increase in
interest paid on FHLB advances as average FHLB advances increased to $56.4
million for the six months ended March 31, 2000 from $12.9 million for the six
months ended March 31, 1999.
Provision for Loan Losses: The provision for loan losses increased to
$355,000 for the six months ended March 31, 2000 from $74,000 for the six
months ended March 31, 1999. Management increased the provision for loan
losses due to growth in the Bank's loan portfolio and to offset charge-offs of
non-performing loans during the current period. Management deemed the general
loan loss reserves of $2.1 million at March 31, 2000 (.74% of loans receivable
and loans held for sale, and 48.4% of non-performing loans) adequate to
provide for estimated losses based on an evaluation of known and inherent
risks in the loan portfolio at that date.
Noninterest Income: Total noninterest income decreased 51.6% to $222,000 for
the six months ended March 31, 2000 from $459,000 for the six months ended
March 31, 1999, primarily due to a $407,000 market value writedown on loans
held for sale. This decrease is partially offset by a $53,000 increase in
service charges on deposits, a $53,000 increase in other fees, and a $19,000
increase in gain on sale of loans.
Noninterest Expense: Total noninterest expense increased 10.0% to $3.9
million for the six months ended March 31, 2000 from $3.5 million for the six
months ended March 31, 1999, primarily due to a $172,000 increase in salary
and benefit expense, a $75,000 increase in advertising expense, and smaller
increases in ATM expenses and premises and equipment expenses. The increase
in salary and benefit expense was primarily due
17
to adding personnel to staff two new branches ( Poulsbo, and Spanaway) that
were opened toward the end of 1999 and salary increases for current employees.
Provision for Income Taxes: The provision for income taxes decreased to $1.2
million for the six months ended March 31, 2000 from $1.4 million for the six
months ended March 31, 1999 primarily as a result of lower income before
income taxes.
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of funds are customer deposits, proceeds from
principal and interest payments on loans and mortgage backed securities, and
proceeds from the sale of loans, maturing securities and FHLB advances. The
Company also raised $65.0 million in net proceeds from the January 1998 stock
offering. While maturities and the scheduled amortization of loans are a
predictable source of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions and
competition.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. The Bank generally maintains sufficient cash and
short-term investments to meet short-term liquidity needs. At March 31, 2000,
the Bank's regulatory liquidity ratio (net cash, and short-term and marketable
assets, as a percentage of net deposits and short-term liabilities) was 22.1%.
The Bank also maintained an uncommitted credit facility with the FHLB-Seattle
that provided for immediately available advances up to an aggregate amount of
$95.8 million, under which $62.1 million was outstanding at March 31, 2000.
Liquidity management is both a short and long-term responsibility of the
Bank's management. The Bank adjusts its investments in liquid assets based
upon management's assessment of (i) expected loan demand, (ii) projected loan
sales, (iii) expected deposit flows, and (iv) yields available on
interest-bearing deposits. Excess liquidity is invested generally in
interest-bearing overnight deposits and other short-term government and agency
obligations. If the Bank requires funds beyond its ability to generate them
internally, it has additional borrowing capacity with the FHLB and collateral
for repurchase agreements.
The Bank's primary investing activity is the origination of one-to-four family
mortgage loans and construction and land development loans. At March 31,
2000, the Bank had loan commitments totaling $14.9 million and undisbursed
loans in process totaling $30.9 million. The Bank anticipates that it will
have sufficient funds available to meet current loan commitments.
Certificates of deposit that are scheduled to mature in less than one year
from March 31, 2000 totaled $92.4 million. Historically, the Bank has been
able to retain a significant amount of its deposits as they mature.
Federally-insured state-chartered banks are required to maintained minimum
levels of regulatory capital. Under current FDIC regulations, insured
state-chartered banks generally must maintain (i) a ratio of Tier 1 leverage
capital to total assets of at least 3.0% (4.0% to 5.0% for all but the most
highly rated banks), (ii) a ratio of Tier 1 capital to risk weighted assets of
at least 4.0% and (iii) a ratio of total capital to risk weighted assets of at
least 8.0%. At March 31, 2000, the Bank was in compliance with all applicable
capital requirements. For additional details see "Regulatory Capital".
18
Regulatory Capital
- ------------------
The following table compares the Bank's regulatory capital at March 31, 2000
to its minimum regulatory capital requirements at that date (dollars in
thousands):
Percent of
Amount Adjusted Total Assets (1)
------ -------------------------
Tier 1 (leverage) capital $56,234 17.6%
Tier 1 (leverage) capital
requirement 12,806 4.0
------- ----
Excess $43,428 13.6%
Tier 1 risk adjusted capital $56,234 23.2%
Tier 1 risk adjusted capital
requirement 9,709 4.0
------- ----
Excess $46,525 19.2%
Total risk based capital $58,284 24.0%
Total risk based capital
requirement 19,419 8.0
------- ----
Excess $38,865 16.0%
- -------------------
(1) For the Tier 1 (leverage) capital, percent of total average assets of
$320.1 million. For the Tier 1 risk-based capital and total risk-based
capital calculations, percent of total risk-weighted assets of $242.7 million.
19
TIMBERLAND BANCORP, INC. AND SUBSIDIARY
KEY FINANCIAL RATIOS
(Dollars in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
------------------ -----------------
PERFORMANCE RATIOS:
Return on average assets (1) 1.59% 2.11% 1.55% 2.04%
Return on average equity (1) 7.37% 7.53% 7.01% 7.10%
Net interest margin (1) 4.97% 5.84% 5.02% 5.65%
Efficiency ratio 48.46% 46.00% 50.97% 46.34%
March 31, September 30,
2000 1999
-------------------------------
ASSET QUALITY RATIOS:
Non-performing loans $ 4,338 $ 4,038
Total non-performing assets 6,417 4,905
Non-performing assets to
total assets 1.92% 1.60%
Allowance for loan losses to
non-performing loans 48.41% 50.92%
BOOK VALUE PER SHARE (2) $ 14.41 $ 13.85
- ------------------
(1) Annualized
(2) Calculation includes ESOP shares not committed to be released
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
There were no material changes in information concerning market risk from the
information provided in the Company's Form 10-K for the Fiscal Year Ended
September 30, 1999.
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Neither the Company nor the Bank is a party to any material legal proceedings
at this time. Further, neither the Company nor the Bank is aware of the
threat of any such proceedings. From time to time, the Bank is involved in
various claims and legal actions arising in the ordinary course of business.
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
Change in Securities -- None to be reported.
Use of proceeds -- None to be reported.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
None to be reported.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None to be reported.
Item 5. Other Information
- --------------------------
None to be reported.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
3(a) Articles of Incorporation of the Registrant *
3(b) Bylaws of the Registrant *
10(a) Employee Severance Compensation Plan **
10(b) Timberland Savings Bank, S.S.B. Employee Stock Ownership
Plan **
10(c) Timberland Bancorp, Inc. 1999 Stock Option Plan ***
10(d) Timberland Bancorp, Inc. Management Recognition and
Development Plan ***
27 Financial Data Schedule
-----------------
* Incorporated by reference to the Registrant's Registration
Statement of Form S-1 (333-35817).
** Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1997.
*** Incorporated by reference to the Registrants Annual Meeting Proxy
Statement dated December 15, 1998.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
2000.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Timberland Bancorp, Inc.
Date: May 11, 2000 By: /s/ Clarence E. Hamre
-------------------------------------
Clarence E. Hamre
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 11, 2000 By: /s/ Dean J. Brydon
-------------------------------------
Dean J. Brydon
Chief Financial Officer
(Principal Financial Officer)
22