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 June 30, 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 JULY 31, 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 11-20
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and September 30, 1999
Dollars in Thousands
(unaudited)
June 30, September 30,
2000 1999
---------------------
Assets
Cash and due from financial institutions $ 7,634 $ 6,810
Interest bearing deposits in banks 1,727 1,316
Investments and mortgage-backed securities
(Available for Sale) 29,792 31,656
Loans receivable 270,858 233,597
Loans held for sale 27,229 22,488
---------------------
Total Loans 298,087 256,085
---------------------
Accrued interest receivable 1,750 1,480
Premises and equipment 8,530 7,621
Real estate owned 2,122 867
Other assets 1,365 1,281
---------------------
Total Assets $351,007 $307,116
---------------------
Liabilities and Shareholders' Equity
Liabilities
Deposits $203,179 $188,148
Federal Home Loan Bank advances 74,925 45,084
Other liabilities and accrued expenses 1,456 1,639
---------------------
Total Liabilities 279,560 234,871
---------------------
Shareholders' 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 43,009 46,943
Unearned shares Employee Stock Ownership Plan (6,609) (7,005)
Retained earnings 35,570 32,646
Accumulated other comprehensive loss (572) (391)
---------------------
Total Shareholders' Equity 71,447 72,245
---------------------
Total Liabilities and Shareholders' Equity $351,007 $307,116
---------------------
See notes to unaudited consolidated financial statements
3
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the three months and nine months ended June 30, 2000 and 1999
Dollars in Thousands, Except Per Share Amounts
(unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
------------------ ------------------
Interest and Dividend Income
Loans receivable $ 6,971 $ 5,078 $19,270 $ 14,999
Investments and mortgage-backed
securities 295 329 899 1,057
Dividends 174 160 535 603
Deposits in other financial
institutions 20 33 107 195
------------------ ------------------
Total Interest and Dividend
Income 7,460 5,600 20,811 16,854
------------------ ------------------
Interest Expense
Deposits 2,126 1,758 6,047 5,404
Federal Home Loan Bank advances 1,087 268 2,744 622
------------------ ------------------
Total Interest Expense 3,213 2,026 8,791 6,026
------------------ ------------------
Net Interest Income 4,247 3,574 12,020 10,828
Provision for Loan Losses 410 70 765 143
------------------ ------------------
Net Interest Income After
Provision For Loan Losses 3,837 3,504 11,255 10,685
------------------ ------------------
Non-Interest Income
Service charges on deposits 129 122 376 316
Gain on sale of loans, net 21 (2) 80 38
Market value adjustment on loans held
for sale 306 (369) (101) (405)
Gain (loss) on Sale of Securities (2) 1 (15) 2
Escrow and annuity fees 50 63 148 187
Servicing income (expense) on loans sold 1 10 (6) (18)
Other 142 115 387 311
------------------ ------------------
Total Non-Interest Income 647 (60) 869 431
------------------ ------------------
Non-Interest Expense
Salaries and employee benefits 1,144 1,063 3,424 3,172
Premises and equipment 237 211 723 646
Advertising 107 107 302 227
Other 477 410 1,410 1,318
------------------ ------------------
Total Non-Interest Expense 1,965 1,791 5,859 5,363
------------------ ------------------
Income Before Income Taxes 2,519 1,653 6,265 5,753
Provision for Income Taxes 838 546 2,077 1,914
------------------ ------------------
Net Income $ 1,681 $ 1,107 $ 4,188 $ 3,839
Earnings per common share:
Basic $ 0.38 $ 0.23 $ 0.92 $ 0.74
Diluted $ 0.38 $ 0.23 $ 0.92 $ 0.74
Weighted average shares
outstanding (1):
Basic 4,393,512 4,883,372 4,545,092 5,169,682
Diluted 4,393,512 4,883,372 4,545,092 5,169,682
Dividends per share: $ 0.09 $ 0.07 $ 0.25 $ 0.19
(1) Unallocated ESOP shares are not considered outstanding (see Note 2).
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 nine months ended June 30, 2000
Dollars in Thousands Except Common Stock Shares
(unaudited)
Unearned
Shares Accumulated
Issued to Other
Addi- Employee Compre-
Common Common tional 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 -- -- -- -- 4,188 -- 4,188
Repurchase of
Common Stock (356,627) (3) (3,819) -- -- -- (3,822)
Cash Dividends
($.25 per share) -- -- -- -- (1,264) -- (1,264)
Earned ESOP
Shares(2) -- -- (115) 396 -- -- 281
Unrealized loss
on securities
available for
sale, net of tax -- -- -- -- -- (181) (181)
------------------------------------------------------------
Balance, Jun.
30, 2000 4,860,795 $49 $43,009 ($6,609) $35,570 ($572) $71,447
------------------------------------------------------------
- -----------------------
(1) Unallocated ESOP Shares are not considered outstanding for the purpose of
computing earnings per share (see Note 2). 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 nine months ended June 30, 2000 and 1999
Dollars in Thousands
(unaudited)
Nine Months
Ended June 30,
2000 1999
--------------------
Cash Flow from Operating Activities
Net income $4,188 $3,839
--------------------
Noncash revenues, expenses, gains and losses
included in income:
Depreciation 315 264
Deferred federal income taxes -- 273
Federal Home Loan Bank stock dividends (161) (99)
Market value adjustment - loans held for sale 101 405
Earned ESOP Shares 281 319
(Gain) loss on sale of real estate owned, net 14 (7)
Gain on sale of loans (80) (38)
Provision for loan and real estate owned losses 815 211
Net increase in loans originated for sale (4,762) (13,326)
Net increase (decrease) in other assets (260) 190
Decrease in other liabilities and accrued expenses, net (183) (644)
--------------------
Net Cash Provided (Used) by Operating Activities 268 (8,613)
Cash Flow from Investing Activities
Net decrease (increase) in interest-bearing deposits
in banks (411) 11,449
Purchase of securities available for sale (1,731) (29,690)
Proceeds from maturities of securities available
for sale 1,735 31,985
Proceeds from sales of securities available for sale 1,746 --
Increase in loans receivable, net (38,026) (20,066)
Additions to premises and equipment (1,224) (1,802)
Additions to real estate owned (1,590) (737)
Proceeds from sale of real estate owned 271 1,346
--------------------
Net Cash Used by Investing Activities (39,230) (7,515)
Cash Flow from Financing Activities
Increase in deposits, net 15,031 9,176
Increase in Federal Home Loan Bank advances, net 29,841 17,801
Repurchase of common stock (3,822) (11,044)
Payment of dividends (1,264) (1,089)
--------------------
Net Cash Provided by Financing Activities 39,786 14,844
Net Increase (Decrease) in Cash 824 (1,284)
Cash and Due from Financial Institutions
Beginning of period 6,810 7,039
--------------------
End of period $ 7,634 $ 5,755
--------------------
See notes to unaudited consolidated financial statements (continued)
6
Nine Months
Ended June 30,
2000 1999
--------------------
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 2,275 $ 2,125
Interest paid 8,560 5,987
Supplemental Disclosure of Noncash Investing Activities
Loans transferred to real estate owned 1,863 517
Market value adjustment of securities held for sale,
net of tax (181) (530)
See notes to unaudited consolidated financial statements
7
<PAGE.
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months and nine months June 30, 2000 and 1999
Dollars in Thousands
(unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
------------------ ------------------
Comprehensive Income:
Net Income $1,681 $1,107 $4,188 $3,839
Change in unrealized gain (loss) on
securities available for sale, net
of tax 58 (335) (181) (530)
------------------ ------------------
Total Comprehensive Income $1,739 $ 772 $4,007 $3,309
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. and Subsidiary ("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 nine
months ended June 30, 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.
(c) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
9
(2) 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 June 30, 2000, there were 467,283 ESOP
shares that had not been allocated.
Three Months Nine Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
------------------------ ------------------------
Basic EPS computation
Numerator-Net Income $ 1,681,000 $ 1,107,000 $ 4,188,000 $ 3,839,000
Denominator-Weighted
average common shares
outstanding 4,393,512 4,883,372 4,545,092 5,169,682
Basic EPS $ 0.38 $ 0.23 $ 0.92 $ 0.74
Diluted EPS computation
Numerator- Net Income $ 1,681,000 $ 1,107,000 $ 4,188,000 $ 3,839,000
Denominator-Weighted
average common shares
outstanding 4,393,512 4,883,372 4,545,092 5,169,682
Effect of dilutive stock
options -- -- -- --
----------- ----------- ----------- -----------
Weighted average common
shares and common stock
equivalents 4,393,512 4,883,372 4,545,092 5,169,682
Diluted EPS $ 0.38 $ 0.23 $ 0.92 $ 0.74
(3) DIVIDEND
On July 28, 2000, the Company announced a quarterly cash dividend of $0.10 per
common share. The dividend is to be paid August 18, 2000, to shareholders of
record as of the close of business August 4, 2000.
(4) 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 Operations
- -------------------------------------------------------------------------
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 nine months ended June 30, 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 June 30, 2000 and September 30, 1999
Total Assets: Total assets increased 14.3% to $ 351.0 million at June 30, 2000
from $307.1 million at September 31, 1999, primarily as a result of a $42.0
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 $7.6 million at June 30, 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 June 30, 2000 from $1.3 million at September 30,
1999.
11
Investments and Mortgage-backed Securities: Investments and mortgage-backed
securities decreased by 5.9% to $29.8 million at June 30, 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 16.4% to
$298.1 million at June 30, 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 144.8% to $2.1 million at
June 30, 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 in January
2000. The Bank charged off $260,000 on the loan during the quarter ended
March 31, 2000 but in June recovered the amount charged off along with
$290,000 in delinquent interest and other fees through the collection of a
deficiency judgement against the borrower.
The property is classified as an REO with a balance of $1.3 million at June
30, 2000. The Banks is actively marketing the project.
Premises and Equipment: Premises and equipment increased by 11.9% to $8.5
million at June 30, 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 8.0% to $203.2 million at June 30, 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 66.2% to $74.9 million at June 30, 2000 from $45.1 million at
September 30, 1999, primarily to fund loan portfolio growth.
Shareholders' Equity: Total shareholders' equity decreased 1.1 % to $71.4
million at June 30, 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 $1.3 million in dividends to shareholders.
This decrease in shareholders' equity was partially offset by net income of
$4.2 million.
12
Non Performing Assets
- ---------------------
The following table sets forth information with respect to the Company's
nonperforming assets at June 30, 2000 and September 30, 1999.
At June 30, At September 30,
2000 1999
--------------------------------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One-to-four family $ 1,105 $ 941
Commercial 550 1,675
Construction and land development 506 390
Land 192 253
Consumer loans 164 330
Commercial Business Loans 174 --
--------- --------
Total 2,691 3,589
Accruing loans which are contractually
past due 90 days or more:
Mortgage loans:
Construction and land development -- 449
--------- --------
Total -- 449
--------- --------
Total of nonaccrual and
90 days past due loans 2,691 4,038
Real estate owned and other
repossessed assets 2,122 867
--------- --------
Total nonperforming assets 4,813 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) 0.90% 1.56%
Nonaccrual and 90 days or more past
due loans as a percentage of total assets 0.77% 1.31%
Nonperforming assets as a percentage
of total assets 1.37% 1.60%
Loans receivable, (including loans
held for sale) (1) $ 300,627 $258,141
--------- --------
Total assets $ 351,007 $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 June 30,
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 Bank
charged off $260,000 on the loan during the quarter ended March 31, 2000, but
in June recovered the amount charged off along with $290,000 in delinquent
interest and other fees through the collection of a deficiency judgement
against the borrower. The property is classified as REO with a balance of
$1.3 million at June 30, 2000. The Bank is actively marketing the project.
14
Loans Receivable
- ----------------
The following table sets forth the composition of the Company's loan
portfolio by type of loan.
At June 30, At September 30,
2000 1999
Amount Percent Amount Percent
------------------ ------------------
(Dollars In thousands)
Mortgage Loans:
One-to-four family (1)(2) $130,880 38.70% $115,133 38.42%
Multi family 22,115 6.54 15,945 5.32
Commercial 55,337 16.36 52,049 17.37
Construction and
land development 98,582 29.15 90,621 30.24
Land 11,929 3.53 9,059 3.02
-------- ------ -------- ------
Total mortgage loans 318,843 94.28 282,807 94.37
Consumer Loans:
Home equity and second mortgage 9,005 2.66 7,978 2.66
Other 5,347 1.58 4,279 1.43
-------- ------ -------- ------
14,352 4.24 12,257 4.09
Commercial business loans 5,010 1.48 4,611 1.54
-------- ------ -------- ------
Total loans 338,205 100.00% 299,675 100.00%
Less:
Undisbursed portion of loans
in process (33,502) (37,781)
Unearned income (3,392) (3,170)
Allowance for loan losses (2,540) (2,056)
Market value adjustment of loans
held-for-sale (684) (583)
-------- --------
Total loans receivable, net $298,087 $256,085
======== ========
- -----------------
(1) Includes loans held-for-sale.
(2) Includes real estate contracts totaling $1.3 million at June 30, 2000.
15
Comparison of Operating Results for the Three Months Ended June 30, 2000 and
1999
Net Income: Net income for the quarter ended June 30, 2000 was $1.7 million or
$0.38 per basic share ($0.38 per diluted share) compared to net income of $1.1
million or $0.23 per basic share ($0.23 per diluted share) for the quarter
ended June 30, 1999. Net income for the current quarter was increased by a
$306,000 ($202,000 after income tax) market value recovery on loans held for
sale and the receipt of $290,000 ($191,000 after income tax) of delinquent
interest and fee income on a large non-performing asset. Also affecting net
income for the current quarter was an increase in the provision for loan
losses, primarily due to loan portfolio growth. The provision for loan losses
increased to $410,000 for the current quarter from $70,000 for the same period
last year. Net income for the quarter ended June 30, 1999 was reduced by a
$369,000 ($244,000 after income tax) market value writedown on loans held for
sale.
Net Interest Income: Net interest income increased 18.8% to $4.2 million for
the three months ended June 30, 2000 from $3.6 million for the three months
ended June 30, 1999. Net interest margin for the three months ended June 30,
2000 was 5.21% (or 4.87% without the $281,000 in delinquent interest
received).
Total interest and dividend income increased 33.2% to $7.5 million for the
three months ended June 30, 2000 from $5.6 million for the three months ended
June 30, 1999. The increase is primarily a result of a $1.9 million increase
in interest from loans receivable and is partially offset by a $33,000 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 and the receipt of $281,000 for back interest
and fee income on a large non-performing asset. Average loan balances
increased to $295.6 million for the quarter ended June 30, 2000 from $225.1
million for the quarter ended June 30, 1999. The average rate on loans
receivable increased to 9.05% (excluding the $281,000 in delinquent interest
received) for the quarter ended June 30, 2000 from 9.03% for the quarter ended
June 30, 1999. 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 fund loan
growth and to repurchase shares of the Company's stock.
Total interest expense increased 58.6% to $3.2 million for the three months
ended June 30, 2000 from $2.0 million for the three months ended June 30,
1999. This increase is primarily a result of a $819,000 increase in interest
paid on FHLB advances and a $368,000 increase in interest expense on interest
bearing deposit accounts. Average FHLB advances increased to $69.2 million
for the quarter ended June 30, 2000 from $20.6 million for the quarter ended
June 30, 1999 and the average rate on FHLB borrowings increased to 6.28% from
5.21%. Average interest bearing deposit accounts increased to $187.3 million
for the quarter ended June 30, 2000 from $165.1 million for the same period in
1999 and the average rate on interest bearing deposit accounts increased to
4.54% from 4.26%.
Provision for Loan Losses: The provision for loan losses increased to
$410,000 for the three months ended June 30, 2000 from $70,000 for the three
months ended June 30, 1999. Management increased the provision for loan
losses due to growth in the Bank's loan portfolio. Management deemed the
general loan loss reserves of $2.5 million at June 30, 2000 (0.84% of loans
receivable and loans held for sale and 94.4% 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 increased to $647,000 for the
three months ended June 30, 2000 from ($60,000) for the three months ended
June 30, 1999. The increase is primarily due to a combined
16
change of $675,000 in the market value adjustments on loans held for sale as
the Company had a $306,000 market value recovery for the quarter ended June
30, 2000 compared to a $369,000 market value writedown for the quarter ended
June 30, 1999. Smaller increases in gain on sale of loans and other fees made
up the remainder of the noninterest income increase.
Noninterest Expense: Total noninterest expense increased 9.7% to $1.97
million for the three months ended June 30, 2000 from $1.79 million for the
three months ended June 30, 1999, primarily due to a $81,000 increase in
salary and employee benefit expense, a $26,000 increase in premises and fixed
asset expenses, and a $26,000 increase in the cost of operations of REO's.
Provision for Income Taxes: The provision for income taxes increased to
$838,000 for the three months ended June 30, 2000 from $546,000 for the three
months ended June 30, 1999 primarily as a result of higher income before
income taxes. The effective tax rate in both periods was 33%.
Comparison of Operating Results for the Nine Months Ended June 30, 2000 and
1999
Net Income: Net income for the nine months ended June 30, 2000 was $4.2
million or $0.92 per basic share ($0.92 per diluted share) compared to net
income of $3.8 million or $0.74 per basic share ($0.74 per diluted share) for
the nine months ended June 30, 1999. Net income for the current nine months
was reduced by a $101,000 ($67,000 after income tax) market value adjustment
on loans held for sale and was increased by the receipt of $290,000 ($191,000
after income tax) of delinquent interest and fee income on a large
non-performing asset. Also affecting net income for the current nine months
was a $622,000 ($411,000 after income tax) increase in the provision for loan
losses (compared to the same period in 1999) primarily due to loan portfolio
growth. Net income for the nine months ended June 30, 1999 was reduced by a
$405,000 ($267,000 after income tax) market value writedown on loans held for
sale and was increased by the receipt of $313,000 ($207,000 after income tax)
of delinquent interest and fee income on a large non-performing asset.
Net Interest Income: Net interest income increased 11.0% to $12.0 million for
the nine months ended June 30, 2000 from $10.8 million for the nine months
ended June 30, 1999.
Total interest and dividend income increased 23.5% to $20.8 million for the
nine months ended June 30, 2000 from $16.9 million for the nine months ended
June 30, 1999. Interest income for the nine months ended June 30, 2000 and
June 30, 1999 included the recognition of $281,000 and $313,000 of back
interest and fee income on large non-performing loans. The increase is
primarily a result of a $4.3 million increase in interest from loans
receivable and is partially offset by a $314,000 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.
Average loan balances increased to $281.8 million for the nine months ended
June 30, 2000 from $214.7 million for the nine months ended June 30, 1999.
The average rate on loans receivable decreased to 8.98% (excluding the
$281,000 in delinquent interest received) for the nine months ended June 30,
2000 from 9.12% (excluding the $313,000 in delinquent interest received) for
the nine months ended June 30, 1999. The net decrease in interest and
dividends from investments securities and financial institutions is primarily
a result of lower average balances 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 45.9% to $8.8 million for the nine months
ended June 30, 2000 from $6.0 million for the nine months ended June 30, 1999.
This increase is primarily a result of a $2.1 million increase in interest
paid on FHLB advances and a $643,000 increase in interest expense on interest
bearing deposits.
17
Average FHLB advances increased to $60.7 million for the nine months ended
June 30, 2000 from $15.4 million for the nine months ended June 30, 1999 and
the average rate on FHLB advances increased to 6.03% from 5.36%. Average
interest bearing deposits increased to $183.1 million for the nine months
ended June 30, 2000 from $164.7 million for the nine months ended June 30,
1999 and the average rate on interest bearing deposits increased to 4.40% from
4.38%.
Provision for Loan Losses: The provision for loan losses increased to
$765,000 for the nine months ended June 30, 2000 from $143,000 for the nine
months ended June 30, 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 $2.5 million at June 30, 2000 (.84% of loans receivable
and loans held for sale, and 94.4% 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 (including market value
adjustments on loans held for sale) increased 101.6% to $869,000 for the nine
months ended June 30, 2000 from $431,000 for the nine months ended June 30,
1999. This increase is primarily due to a combined change of $304,000 market
value adjustments on loans held for sale as the Company had a $101,000 market
value writedown for the nine months ended June 30, 2000 compared to a $405,000
market value writedown for the nine months ended June 30, 1999. Also
affecting noninterest income was an $80,000 increase in other fees and a
$60,000 increase in service charges on deposits.
Noninterest Expense: Total noninterest expense increased 9.3% to $5.9 million
for the nine months ended June 30, 2000 from $5.4 million for the nine months
ended June 30, 1999, primarily due to a $252,000 increase in salary and
benefit expense, a $77,000 increase in premises and fixed asset expenses, a
$75,000 increase in advertising expense, and smaller increases in ATM expenses
and the cost of operation of REO's. The increase in salary and benefit
expense was primarily due 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 increased to $2.1
million for the nine months ended June 30, 2000 from $1.9 million for the nine
months ended June 30, 1999 primarily as a result of higher income before
income taxes. The effective tax rate in both periods was 33%.
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 June 30, 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 20.2%.
The Bank also maintained an uncommitted credit facility with the FHLB-Seattle
that provided for immediately available advances up to an aggregate amount of
$98.1 million, under which $74.9 million was outstanding at June 30, 2000.
18
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 June 30, 2000,
the Bank had loan commitments totaling $13.6 million and undisbursed loans in
process totaling $33.5 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 June 30, 2000
totaled $95.6 million. Historically, the Bank has been able to retain a
significant amount of its deposits as they mature.
19
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 June 30, 2000, the Bank was in compliance with all applicable
capital requirements. For additional details see "Regulatory Capital".
Regulatory Capital
- ------------------
The following table compares the Bank's regulatory capital at June 30, 2000 to
its minimum regulatory capital requirements at that date (dollars in
thousands):
Percent of
Amount Adjusted Total Assets (1)
------ -------------------------
Tier 1 (leverage) capital $57,518 17.2%
Tier 1 (leverage) capital requirement 13,374 4.0
------- ----
Excess $44,144 13.2%
Tier 1 risk adjusted capital $57,518 22.3%
Tier 1 risk adjusted capital requirement 10,300 4.0
------- ----
Excess $47,218 18.3%
Total risk based capital $60,058 23.3%
Total risk based capital requirement 20,600 8.0
------- ----
Excess $39,458 15.3%
- -------------------
(1) For the Tier 1 (leverage) capital, percent of total average assets of
$334.3 million. For the Tier 1 risk-based capital and total risk-based
capital calculations, percent of total risk-weighted assets of $257.5 million.
20
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
KEY FINANCIAL RATIOS
(Dollars in thousands, except per share data)
Three Months Nine Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
------------------ ------------------
PERFORMANCE RATIOS:
Return on average assets (1) 1.97% 1.63% 1.70% 1.90%
Return on average equity (1) 9.52% 6.05% 7.84% 6.76%
Net interest margin (1) 5.21% 5.47% 5.08% 5.59%
Efficiency ratio 43.82% 52.01% 48.33% 48.25%
June 30, September 30,
2000 1999
-------------------------
ASSET QUALITY RATIOS:
Non-performing loans $ 2,691 $ 4,038
Total non-performing assets 4,813 4,905
Non-performing assets to total assets 1.37% 1.60%
Allowance for loan losses to
non-performing loans 94.39% 50.92%
BOOK VALUE PER SHARE (2) $ 14.70 $ 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.
21
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 June 30,
2000.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this reportto be signed on its behalf by the
undersigned thereunto duly authorized.
Timberland Bancorp, Inc.
Date: August 10, 2000 By: /s/Clarence E. Hamre
--------------------------------------
Clarence E. Hamre
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 10, 2000 By: /s/Dean J. Brydon
--------------------------------------
Dean J. Brydon
Chief Financial Officer
(Principal Financial Officer)
23
Exhibit 27
Financial Data Schedule (in thousands, except per share amounts)
This schedule contains financial information extracted from the consolidated
financial statements of Timberland Bancorp, Inc. for the six months ended June
30, 2000 and is qualified in its entirely by reference to such financial
statements.
Financial Data
as of or for
the nine months
Item Number ended June 30, 2000 Item Description
- ----------- ------------------- ----------------
9-03 (1) 7,634 Cash and Due from Banks
9-03 (2) 1,727 Interest - bearing deposits
9-03 (3) N/A Federal funds sold - purchased securities
for resale
9-03 (4) N/A Trading account assets
9-03 (6) 29,792 Investment and mortgage backed securities
available for sale
9-03 (6) -- Investment and mortgage backed securities
held to maturity - carrying value
9-03 (6) -- Investment and mortgage backed securities
held to maturity - market value
9-03 (7) 300,627 Loans
9-03 (7)(2) 2,540 Allowance for loan losses
9-03 (11) 351,007 Total assets
9-03 (12) 203,179 Deposits
9-03 (13) 73,550 Short - term borrowings
9-03 (15) 1,456 Other liabilities
9-03 (16) 1,375 Long - term debt
9-03 (19) -- Preferred stock - mandatory redemption
9-03 (20) -- Preferred stock - no mandatory redemption
9-03 (21) 49 Common stocks
9-03 (22) 71,398 Other stockholders' equity
9-03 (23) 351,007 Total liabilities and stockholders' equity
9-04 (1) 19,270 Interest and fees on loans
9-04 (2) 1,434 Interest and dividends on investments
9-04 (4) 107 Other interest income
9-04 (5) 20,811 Total interest income
9-04 (6) 6,047 Interest on deposits
9-04 (9) 8,791 Total interest expense
9-04 (10) 12,020 Net interest income
9-04 (11) 765 Provision for loan losses
9-04 (13)(h) (15) Investment securities gains/(losses)
9-04 (14) 5,859 Other expenses
9-04 (15) 6,265 Income/loss before income tax
9-04 (17) 6,265 Income/loss before extraordinary items
9-04 (18) -- Extraordinary items, less tax
9-04 (19) -- Cumulative change in accounting principles
9-04 (20) 4,188 Net income or loss
9-04 (21) 0.92 Earnings per share - primary
9-04 (21) 0.92 Earnings per share - fully diluted
I.B. 5 9.15% Net yield - interest earnings - actual
III.C.1. (a) 2,691 Loans on non-accrual
III.C.1. (b) -- Accruing loans past due 90 days or more
III.C.2. (c) -- Troubled debt restructuring
III.C.2 -- Potential problem loans
IV.A.1 2,056 Allowance for loan loss - beginning of
period
IV.A.2 542 Total chargeoffs and transfers
IV.A.3 261 Total recoveries
IV.A.4 2,540 Allowance for loan loss - end of period
IV.B.1 2,540 Loan loss allowance allocated to domestic
loans
IV.B.2 -- Loan loss allowance allocated to foreign
loans
IV.B.3 -- Loan loss allowance - unallocated
24