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 December 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 JANUARY 31, 2001
----- --------------------------------------
common stock, $.01 par value 4,276,279
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) 9-10
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 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
December 31, 2000 and September 30, 2000
Dollars in Thousands
(unaudited)
December 31, September 30,
2000 2000
---------------------------
Assets
Cash and due from financial institutions $ 10,531 $ 8,893
Interest bearing deposits in banks 3,251 3,109
Investments and mortgage-backed securities
(Available for Sale) 29,284 29,075
Loans receivable 288,573 287,303
Loans held for sale 26,408 28,343
Less: Allowance for loan losses (2,768) (2,640)
---------------------------
Total Loans 312,213 313,006
---------------------------
Accrued interest receivable 1,829 1,756
Premises and equipment 9,097 8,614
Real estate owned 1,948 1,966
Other assets 1,393 1,661
---------------------------
Total Assets $369,546 $368,080
---------------------------
Liabilities and Shareholders' Equity
Liabilities
Deposits $209,263 $212,611
Federal Home Loan Bank advances 84,699 81,137
Other liabilities and accrued expenses 2,338 2,020
---------------------------
Total Liabilities 296,300 295,768
---------------------------
Shareholders' Equity
Common Stock, $.01 par value; 50,000,000
shares authorized; December 31, 2000 -
4,748,295 issued, 4,316,279 outstanding
September 30, 2000 - 4,793,295 issued,
4,361,279 outstanding
(Unallocated ESOP shares are not considered
outstanding) 47 48
Additional paid in capital 41,676 42,250
Unearned shares - Employee Stock Ownership Plan (6,344) (6,477)
Retained earnings 37,857 36,795
Accumulated other comprehensive income (loss) 10 (304)
---------------------------
Total Shareholders' Equity 73,246 72,312
---------------------------
Total Liabilities and Shareholders' Equity $369,546 $368,080
---------------------------
See notes to unaudited consolidated financial statements
3
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended December 31, 2000 and 1999
Dollars in Thousands, Except Per Share Amounts
(unaudited)
Three Months Ended December 31,
2000 1999
------------------------------
Interest and Dividend Income
Loans receivable $7,451 $6,035
Investments and mortgage-backed securities 276 300
Dividends from investments 179 179
Interest bearing deposits in banks 49 41
------------------------------
Total interest and dividend income 7,955 6,555
Interest Expense
Deposits 2,389 1,900
Federal Home Loan Bank advances 1,427 790
------------------------------
Total interest expense 3,816 2,690
------------------------------
Net interest income 4,139 3,865
Provision for Loan Losses 150 75
------------------------------
Net interest income after provision
for loan losses 3,989 3,790
------------------------------
Non-Interest Income
Service charges on deposits 165 127
Gain on sale of loans, net 68 49
Market value adjustment on loans held
for sale 175 (280)
Escrow fees 39 42
Servicing income on loans sold 19 4
Other 142 113
------------------------------
Total non-interest income 608 55
Non-interest Expense
Salaries and employee benefits 1,277 1,188
Premises and equipment 252 248
Advertising 177 111
Other 586 508
------------------------------
Total non-interest expense 2,292 2,055
------------------------------
Income before federal income taxes 2,305 1,790
Federal Income Taxes 764 592
------------------------------
Net Income $1,541 $1,198
Earnings Per Common Share:
Basic $0.35 $0.26
Diluted $0.35 $0.26
Weighted average shares outstanding:
Basic 4,344,159 4,692,072
Diluted 4,351,147 4,692,072
See notes to unaudited consolidated financial statements
4
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the year ended September 30, 2000 and the
three months ended December 31, 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, 1999 4,750,139 $52 $46,943 ($7,005) $32,646 $(391) $72,245
Net Income - - - - - - - - 5,897 - - 5,897
Repurchase of
Common Stock (424,127) (4) (4,599) - - - - - - (4,603)
Cash Dividends
($.35 per
share) - - - - - - - - (1,748) - - (1,748)
Earned ESOP
Shares (2) 35,267 - - (94) 528 - - - - 434
Change in fair
value of
securities
available for
sale, net of
tax - - - - - - - - - - 87 87
- ------------------------------------------------------------------------------
Balance, Sept.
30, 2000 4,361,279 48 42,250 (6,477) 36,795 (304) 72,312
- ------------------------------------------------------------------------------
Net Income - - - - - - - - 1,541 - - 1,541
Repurchase of
Common Stock (45,000) (1) (548) - - - - - - (549)
Cash Dividends
($.10 per
share) - - - - - - - - (479) - - (479)
Earned ESOP
Shares (2) - - - - (26) 133 - - - - 107
Change in
fair value of
securities
available for
sale, net of
tax - - - - - - - - - - 314 314
- ------------------------------------------------------------------------------
Balance, Dec.
31, 2000 4,316,279 $47 $41,676 ($6,344) $37,857 $10 $73,246
- ------------------------------------------------------------------------------
- --------------------
(1) Unallocated ESOP Shares are considered issued but not outstanding.
(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 December 31, 2000 and 1999
Dollars in Thousands
(unaudited)
Three Months Ended December 31,
2000 1999
------------------------------
Cash Flow from Operating Activities
Net income $1,541 $1,198
------------------------------
Noncash revenues, expenses, gains and
losses included in income:
Depreciation 114 93
Federal Home Loan Bank stock dividends (71) (50)
Market value adjustment - loans held
for sale (175) 280
Earned ESOP Shares 107 102
(Gain) loss on sale of real estate
owned, net (13) 15
Gain on sale of loans (68) (49)
Provision for loan and real estate
owned losses 150 95
Net increase (decrease) in loans
originated for sale 2,179 (1,442)
Net decrease in other assets 34 159
Increase in other liabilities and
accrued expenses, net 317 103
------------------------------
Net Cash Provided by Operating Activities 4,115 504
Cash Flow from Investing Activities
Net increase in interest-bearing deposits
in banks (142) (2,517)
Purchase of securities available for sale (369) (1,302)
Proceeds from maturities of securities
available for sale 707 618
Increase in loans receivable, net (1,293) (15,391)
Additions to premises and equipment (597) (596)
Additions to real estate owned (46) (115)
Proceeds from sale of real estate owned 77 133
------------------------------
Net Cash Used by Investing Activities (1,663) (19,170)
Cash Flow from Financing Activities
Increase (decrease) in deposits, net (3,348) 1,890
Increase in Federal Home Loan Bank
advances, net 3,562 19,665
Repurchase of common stock (549) (1,194)
Payment of dividends (479) (418)
------------------------------
Net Cash Provided by (Used in) Financing
Activities (814) 19,943
Net Increase in Cash 1,638 1,277
Cash and Due from Financial Institutions
Beginning of period 8,893 6,810
------------------------------
End of period $ 10,531 $ 8,087
------------------------------
See notes to unaudited consolidated financial statements (continued)
6
Three Months Ended December 31,
2000 1999
------------------------------
Supplemental Disclosure of Cash Flow
Information
Income taxes paid $ - - $ - -
Interest paid 3,733 2,603
Supplemental Disclosure of Noncash
Investing Activities
Loans transferred to real estate owned - - 58
Market value adjustment of securities
held for sale, net of tax 314 (150)
See notes to unaudited consolidated financial statements
7
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended December 31, 2000 and 1999
Dollars in Thousands
(unaudited)
Three Months Ended December 31,
2000 1999
------------------------------
Comprehensive Income:
Net Income $1,541 $1,198
Change in fair value of securities
available for sale, net of tax 314 (150)
------------------------------
Total Comprehensive Income $1,855 $1,048
See notes to unaudited consolidated financial statements
8
Timberland Bancorp, Inc. and Subsidiaries
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 Subsidiaries ("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 ended
December 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 Bank, ("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 December 31, 2000, there were 432,016
ESOP shares that had not been allocated.
Three Months Ended December 31,
2000 1999
-------------------------------
Basic EPS computation
Numerator - Net Income $ 1,541,000 $ 1,198,000
Denominator - Weighted average
common shares outstanding 4,344,159 4,692,072
Basic EPS $ 0.35 $ 0.26
Diluted EPS computation
Numerator - Net Income $ 1,541,000 $ 1,198,000
Denominator - Weighted average
common shares outstanding 4,344,159 4,692,072
Effect of dilutive stock options 6,988 --
----------- -----------
Weighted average common shares
and common stock equivalents 4,351,147 4,692,072
Diluted EPS $ 0.35 $ 0.26
(3) DIVIDEND
On January 25, 2001, the Company announced a quarterly cash dividend of $0.10
per common share. The dividend is to be paid February 16, 2001, to
shareholders of record as of the close of business February 2, 2001.
(4) ACCOUNTING CHANGES
None to be reported.
10
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
ended December 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 December 31, 2000 and September 30, 2000
Total Assets: Total assets increased to $369.5 million at December 31, 2000
from $368.1 million at September 30, 2000, primarily reflected in a $1.8
million increase in cash and due from financial institutions and interest
bearing deposits in banks and a $483,000 increase in premises and equipment.
These increases were partially offset by a $793,000 decrease in total loans,
due primarily to loan sales and loan payoffs.
Cash and Due from Financial Institutions: Cash and due from financial
institutions increased to $10.5 million at December 31, 2000 from $8.9 million
at September 30, 2000.
Interest Bearing Deposits in Banks: Interest bearing deposits in banks
increased to $3.3 million at December 31, 2000 from $3.1 million at September
30, 2000.
Investments and Mortgage-backed Securities: Investments and mortgage-backed
securities increased to $29.3 million at December 31, 2000 from $29.1 million
at September 30, 2000, primarily due to increases in market valuations.
Loans Receivable and Loans Held-for-sale, net of allowance for loan losses:
Net loans receivable, including loans held-for-sale, decreased to $312.2
million at December 31, 2000 from $313.0 million at September 30, 2000. This
decrease is primarily a result of the sale of $6.6 million of fixed rate
one-to-four family loans and the payoff of three large loans totaling $6.1
million, and is partially offset by loan originations. Loan originations for
the quarter ended December 31, 2000 declined to $23.5 million from $41.5
million for the quarter ended September 30, 2000 and from $27.3 million for
the quarter ended December 31, 1999. The Company anticipates that loan
origination activity will begin to increase as declining interest rates
typically facilitate increased mortgage lending.
Real Estate Owned: Real estate owned decreased to $1.9 million at December
31, 2000 from $2.0 million at September 30, 2000.
11
Premises and Equipment: Premises and equipment increased by $483,000 to $9.1
million at December 31, 2000 from $8.6 million at September 30, 2000. This
increase is primarily due to construction costs for the Bank's Tumwater branch
(Thurston County), which is scheduled to open in March.
Deposits: Deposits decreased by 1.6% to $209.3 million at December 31, 2000
from $212.6 million at September 30, 2000, primarily due to decreases in the
Bank's certificate of deposit accounts and passbook savings accounts.
Competition for high-rate long term CDs was such that the Company made a
decision to utilize short-term FHLB advances in the declining rate environment
rather than locking into high cost CD funding for up to 24 months.
Federal Home Loan Bank Advances: FHLB advances increased by 4.4% to $84.7
million at December 31, 2000 from $81.1 million at September 30, 2000. The
advances were increased primarily to replace the $3.3 million decrease in
deposits. Short-term FHLB advances were acquired rather than high-rate long
term CD's to take advantage of an anticipated decline in interest rates for
the purpose of lowering the Company's cost of funds.
Shareholders' Equity: Total shareholders' equity increased to $73.2 million at
December 31, 2000 from $72.3 million at September 30, 2000, primarily as a
result of net income of $1.5 million, and a $315,000 increase in the
accumulated other comprehensive income category. These increases to
shareholders' equity were partially offset by the repurchase of 45,000 shares
of the Company's stock for $549,000 and the payment of $479,000 in dividends
to shareholders.
On June 26, 2000 the Company announced a plan to repurchase 243,040 shares of
the Company's stock. This marked the Company's seventh 5% stock repurchase
plan since the Bank's conversion to a public company in January of 1998. As
of December 31, 2000, the Company had repurchased 112,500 of these 243,040
shares at an average price of $11.82.
12
Non Performing Assets
- ---------------------
The following table sets forth information with respect to the Company's
nonperforming assets at December 31, 2000 and September 30, 2000.
At December 31, At September 30,
2000 2000
-----------------------------------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One-to-four family $ 1,341 $ 1,203
Commercial 283 551
Construction and land development 859 1,267
Land 305 233
Consumer loans 196 273
Commercial Business Loans 164 85
--------- --------
Total 3,148 3,612
Accruing loans which are contractually
past due 90 days or more:
Mortgage loans:
Construction and land development - - - -
--------- --------
Total - - - -
--------- --------
Total of nonaccrual and
90 days past due loans 3,148 3,612
Real estate owned and other
repossessed assets 1,948 1,966
--------- --------
Total nonperforming assets 5,096 5,578
Restructured loans - - - -
Nonaccrual and 90 days or more past
due loans as a percentage of loans
receivable, (including loans held
for sale)(1) 1.00% 1.14%
Nonaccrual and 90 days or more past
due loans as a percentage of total assets 0.85% 0.98%
Nonperforming assets as a percentage
of total assets 1.38% 1.52%
Loans receivable, (including loans
held for sale) (1) $314,981 $315,646
======== ========
Total assets $369,546 $368,080
======== ========
- --------------
(1) Loans receivable is before the allowance for loan losses
13
The following is a discussion of the Company's non-performing assets at
December 31, 2000:
Total non-performing assets decreased to $5.1 million at December 31, 2000
from $5.6 million at September 30, 2000. This decrease was primarily a result
of the payoff of $601,000 in loans (that were non-performing at September 30,
2000) and a $577,000 land development loan being removed from non-performing
status. These decreases were partially offset by certain other loans being
classified as non-performing during the quarter. The Company's non-performing
assets to total asset ratio (NPA) decreased to 1.38% at December 31, 2000 from
1.52% at September 30, 2000.
The Company's REO balance decreased slightly to $1.95 million at December 31,
2000 from $1.97 million at September 30, 2000. The largest individual REO
property is a $1.3 million convenience store with retail / office space. For
resale marketing purposes the Company has divided the properties into three
distinct properties (two retail / office sections and the convenience store).
The Company expects the sale of one of the retail / office sections to close
by the end of February. It is anticipated that this sale will reduce the REO
balance on the property by approximately $320,000.
14
Loans Receivable
- ----------------
The following table sets forth the composition of the Company's loan
portfolio by type of loan.
At December 31, At September 30,
2000 2000
Amount Percent Amount Percent
------------------ ------------------
(Dollars In thousands)
Mortgage Loans:
One-to-four family (1)(2) $140,331 40.52% $136,825 38.85%
Multi family 28,790 8.31 33,604 9.54
Commercial 61,523 17.77 58,632 16.65
Construction and
land development 80,497 23.25 89,903 25.52
Land 13,327 3.85 12,561 3.56
-------- ------ -------- ------
Total mortgage loans 324,468 93.70 331,525 94.12
Consumer Loans:
Home equity and second
mortgage 10,196 2.94 9,816 2.79
Other 6,349 1.84 6,081 1.72
-------- ------ -------- ------
16,545 4.78 15,897 4.51
Commercial business loans 5,276 1.52 4,808 1.37
-------- ------ -------- ------
Total loans 346,289 100.00% 352,230 100.00%
Less:
Undisbursed portion of loans
in process (27,834) (32,831)
Unearned income (3,474) (3,578)
Allowance for loan losses (2,768) (2,640)
Market value adjustment of
loans held-for-sale - - (175)
-------- --------
Total loans receivable, net $312,213 $313,006
======== ========
- ----------------
(1) Includes loans held-for-sale.
(2) Includes real estate contracts totaling $1.3 million at December 31, 2000.
15
Deposit Breakdown
- -----------------
The following table sets forth the balances of savings deposits in the various
types of savings accounts offered by the Bank at the dates indicated.
At December 31, 2000 At September 30, 2000
-------------------- ---------------------
Non-interest bearing $ 11,303 $ 11,861
N.O.W. checking 24,534 24,467
Passbook savings 27,723 28,647
Money market accounts 20,831 20,863
Certificates of deposit 121,415 123,137
Other 3,457 3,636
Total Deposits $209,263 $212,611
======== ========
Comparison of Operating Results for the Three Months Ended December 31, 2000
and 1999
Net Income: Net income for the three months ended December 31, 2000 was $1.5
million or $0.35 per basic share ($0.35 per diluted share) compared to net
income of $1.2 million or $0.26 per basic share ($0.26 per diluted share) for
the three months ended December 31, 1999. Net income for the current quarter
was increased by a $175,000 ($116,000 after income tax) market value recovery
on loans held for sale. Net income for the current quarter was reduced by
$115,000 ($76,000 after income tax) in net start-up expenses associated with
the Bank's new checking account acquisition program. Net income for the
quarter ending December 31, 1999 was reduced by a $280,000 ($185,000 after
income tax) market value writedown on loans held for sale.
Net Interest Income: Net interest income increased 7.1% to $4.1 million for
the three months ended December 31, 2000 from $3.9 million for the three
months ended December 31, 1999. Net interest margin for the three months
ended December 31, 2000 was 4.67% compared with a net interest margin of 5.07%
for the three months ended December 31, 1999.
Total interest and dividend income increased 21.4% to $8.0 million for the
three months ended December 31, 2000 from $6.6 million for the three months
ended December 31, 1999. The increase is primarily a result of a $1.4 million
increase in interest from loans receivable. 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 $322.7 million for the quarter ended December 31, 2000 from
$270.0 million for the quarter ended December 31, 1999. The average rate on
loans receivable increased to 9.24% for the quarter ended December 31, 2000
from 8.94% for the quarter ended December 31, 1999.
Total interest expense increased 41.9% to $3.8 million for the three months
ended December 31, 2000 from $2.7 million for the three months ended December
31, 1999. This increase is primarily a result of a $637,000 increase in
interest paid on FHLB advances and a $489,000 increase in interest expense on
interest bearing deposit accounts. Average FHLB advances increased to $85.7
million for the quarter ended December 31, 2000 from
16
$54.7 million for the quarter ended December 31, 1999 and the average rate on
FHLB borrowings increased to 6.66% from 5.78%. Average interest bearing
deposit accounts increased to $193.5 million for the quarter ended December
31, 2000 from $176.8 million for the same period in 1999 and the average rate
on interest bearing deposit accounts increased to 4.94% from 4.30%.
Provision for Loan Losses: The provision for loan losses for the three months
ended December 31, 2000 was $150,000 compared with $75,000 for the three
months ended December 31, 1999. Management increased the provision for loan
losses primarily due to changes in the composition of the loan portfolio.
Management deemed the general loan loss reserves of $2.8 million at December
31, 2000 (0.88% of loans receivable and loans held for sale and 87.9% 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.
Net charge-offs for the current quarter were $22,000 compared to $9,000 in the
same quarter in 1999.
Noninterest Income: Total noninterest income increased to $608,000 for the
three months ended December 31, 2000 from $55,000 for the three months ended
December 31, 1999. This increase is primarily due to a combined change of
$455,000 in the market value adjustments on loans held for sale as the Company
had a $175,000 market value recovery for the quarter ended December 31, 2000
compared to a $280,000 market value writedown for the quarter ended December
31, 1999. (The Company's loans held for sale portfolio had no net market
value writedown remaining at December 31, 2000.) Service charges on deposits
also increased by $38,000 for the quarter ended December 31, 2000 to $165,000
from $127,000 for the quarter ended December 31, 1999, primarily as a result
of the fees associated with the Bank's new checking account programs.
Smaller increases in gain on sale of loans, servicing income on loans sold and
other fees made up the remainder of the noninterest income increase.
Noninterest Expense: Total noninterest expense increased to $2.3 million for
the three months ended December 31, 2000 from $2.1 million for the three
months ended December 31, 1999. This is primarily due to $147,000 in start-up
expenses associated with the new checking account acquisition program and an
$89,000 increase in salary and employee benefit expense. The Company's
efficiency ratio for the quarter ended December 31, 2000 was 48.3% compared to
52.4% for the quarter ended December 31, 1999.
Provision for Income Taxes: The provision for income taxes increased to
$764,000 for the three months ended December 31, 2000 from $592,000 for the
three months ended December 31, 1999 primarily as a result of higher income
before income taxes. The effective tax rate in both periods was 33%.
17
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 December 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 22.6%. The Bank also maintained an uncommitted credit facility with the
FHLB-Seattle that provided for immediately available advances up to an
aggregate amount of $109.0 million, under which $84.7 million was outstanding
at December 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 December 31,
2000, the Bank had loan commitments totaling $15.5 million and undisbursed
loans in process totaling $27.8 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 December 31, 2000 totaled $102.0 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 December 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 December 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 $60,060 16.6%
Tier 1 (leverage) capital
requirement 14,483 4.0
------- ----
Excess $45,577 12.6%
Tier 1 risk adjusted capital $60,060 22.5%
Tier 1 risk adjusted capital
requirement 10,697 4.0
------- ----
Excess $49,363 18.5%
Total risk based capital $62,828 23.5%
Total risk based capital
requirement 21,394 8.0
------- ----
Excess $41,434 15.5%
- -------------------
(1) For the Tier 1 (leverage) capital, percent of total average assets of
$362.1 million. For the Tier 1 risk-based capital and total risk-based
capital calculations, percent of total risk-weighted assets of $267.4 million.
19
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
KEY FINANCIAL RATIOS
(Dollars in thousands, except per share data)
For the Three Months Ended
December 31, September 30, December 31,
2000 2000 1999
-----------------------------------------------
PERFORMANCE RATIOS:
Return on average assets (1) 1.67% 1.91% 1.51%
Return on average equity (1) 8.48% 9.54% 6.67%
Net interest margin (1) 4.67% 4.56% 5.07%
Efficiency ratio 48.28% 44.04% 52.42%
December 31, September 30,
2000 2000
------------------------------
ASSET QUALITY RATIOS:
Non-performing loans $ 3,148 $ 3,612
REO's & other repossessed
assets 1,948 1,966
Total non-performing assets 5,096 5,578
Non-performing assets to
total assets 1.38% 1.52%
Allowance for loan losses to
non-performing loans 87.93% 73.09%
Book Value Per Share (2) $ 15.43 $ 15.09
Book Value Per Share (3) $ 16.93 $ 16.58
- ----------------------
(1) Annualized
(2) Calculation includes ESOP shares not committed to be released
(3) Calculation excludes ESOP shares not committed to be released
For the Three Months Ended
December 31, September 30, December 31,
2000 2000 1999
-----------------------------------------------
AVERAGE BALANCE SHEET:
Average Total Loans $ 322,679 $ 312,134 $ 269,975
Average Total Interest
Earning Assets 354,305 343,259 304,689
Average Total Assets 368,647 358,379 317,799
Average Total Interest
Bearing Deposits 193,540 194,789 189,093
Average FHLB Advances 85,699 75,981 54,649
Average Shareholders' Equity 72,707 71,651 71,865
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, 2000.
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
- --------------------------------------------------------------
An annual Meeting of Shareholders of the Company was held on January 25, 2001.
The results of the vote on the matters presented at the meeting are as
follows:
The following individuals were elected as directors:
For Withheld
--- --------
No. Of Voles Percentage No. of Votes Percentage
------------------------ ------------------------
Michael R. Sand 4,045,269 97.91% 86,425 2.09%
(three-year term)
Peter J. Majar 4,045,719 97.92% 85,975 2.08%
(three-year term)
David A. Smith 4,044,694 97.89% 87,000 2.11%
(three-year term)
Knight Vale & Gregory PLLC was appointed as the Company's independent
auditors for the fiscal year ending September 30, 2001. Voting results are as
follows:
No. of Votes Percentage
----------------------------------------
FOR 4,092,834 99.06%
AGAINST 28,630 0.69%
ABSTAIN 10,230 0.25%
21
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 December
31, 2000.
22
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: February 8, 2001 By: /s/ Clarence E. Hamre
-----------------------------------
Clarence E. Hamre
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 8, 2001 By: /s/ Dean J. Brydon
-----------------------------------
Dean J. Brydon
Chief Financial Officer
(Principal Financial Officer)
23