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, 2001
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 2, 2001
----- ---------------------------------
common stock, $.01 par value 4,102,239
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 11-19
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -------------------------------
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2001 and September 30, 2000
Dollars in Thousands
(unaudited)
March 31, September 30,
2001 2000
-------------------------
Assets
Cash and due from financial institutions $ 9,876 $ 8,893
Interest bearing deposits in banks 2,916 3,109
Investments and mortgage-backed securities
(Available for Sale) 25,840 29,075
Loans receivable 292,828 287,303
Loans held for sale 24,630 28,343
Less: Allowance for loan losses (2,833) (2,640)
-------------------------
Total Loans 314,625 313,006
-------------------------
Accrued interest receivable 1,851 1,756
Premises and equipment 9,881 8,614
Real estate owned 1,883 1,966
Other assets 1,732 1,661
-------------------------
Total Assets $ 368,604 $ 368,080
-------------------------
Liabilities and Shareholder's Equity
Liabilities
Deposits $ 225,233 $ 212,611
Federal Home Loan Bank advances 70,060 81,137
Other liabilities and accrued expenses 1,887 2,020
-------------------------
Total Liabilities 297,180 295,768
-------------------------
Shareholder's Equity
Common Stock, $.01 par value; 50,000,000 shares
authorized; March 31, 2001 - 4,534,255 issued,
4,102,239 outstanding September 30, 2000 -
4,793,295 issued, 4,361,279 outstanding
(Unallocated ESOP shares are not considered
outstanding) 45 48
Additional paid in capital 38,739 42,250
Unearned shares issued to employee stock
ownership trust (6,212) (6,477)
Retained earnings 38,872 36,795
Accumulated other comprehensive loss (20) (304)
-------------------------
Total Shareholder's Equity 71,424 72,312
-------------------------
Total Liabilities and Shareholder's Equity $ 368,604 $ 368,080
-------------------------
See notes to unaudited consolidated financial statements
3
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended March 31, 2001 and 2000
Dollars in Thousands, Except Per Share Amounts
(unaudited)
Three Months Six Months
Ended March 31, Ended March 31,
2001 2000 2001 2000
------------------ ------------------
Interest and Dividend Income
Loans receivable $ 7,380 $ 6,263 $14,831 $12,299
Investments and mortgage-backed
securities 232 304 508 604
Dividends from investments 177 183 356 361
Interest bearing deposits in banks 56 46 105 87
------------------ ------------------
Total Interest and Dividend
Income 7,845 6,796 15,800 13,351
------------------ ------------------
Interest Expense
Deposits 2,359 2,021 4,748 3,921
Federal Home Loan Bank advances 1,160 867 2,587 1,657
------------------ ------------------
Total Interest Expense 3,519 2,888 7,335 5,578
------------------ ------------------
Net Interest Income 4,326 3,908 8,465 7,773
Provision for Loan Losses 200 280 350 355
------------------ ------------------
Net Interest Income After
Provision For Loan Losses 4,126 3,628 8,115 7,418
------------------ ------------------
Non-Interest Income
Service charges on deposits 227 121 392 247
Gain on sale of loans, net 83 10 151 59
Market value adjustment on loans
held for sale - - (127) 175 (407)
Gain (Loss) on Sale of Securities 228 (13) 228 (13)
Escrow fees 45 55 84 98
Servicing income (expense) on
loans sold 30 (11) 49 (7)
Other 185 132 327 245
------------------ ------------------
Total Non-Interest Income 798 167 1,406 222
------------------ ------------------
Non-Interest Expense
Salaries and employee benefits 1,323 1,092 2,600 2,280
Premises and equipment 262 238 514 486
Advertising 234 84 411 195
Other 884 425 1,470 933
------------------ ------------------
Total Non-Interest Expense 2,703 1,839 4,995 3,894
------------------ ------------------
Income Before Income Taxes 2,221 1,956 4,526 3,746
Provision for Income Taxes 734 647 1,498 1,239
------------------ ------------------
Net Income $ 1,487 $ 1,309 $ 3,028 $ 2,507
Earnings per common share:
Basic $ 0.35 $ 0.29 $ 0.71 $ 0.54
Diluted $ 0.35 $ 0.29 $ 0.70 $ 0.54
Weighted average shares outstanding:
Basic 4,227,619 4,548,076 4,286,529 4,620,467
Diluted 4,291,671 4,548,076 4,323,091 4,620,467
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 six months ended March 31, 2001
Dollars in Thousands Except Common Stock Shares
(unaudited)
Unearned
Shares Accumulated
Issued to Other
Employee Compre-
Common Common Additional Stock hensive
Stock Shares Stock Paid-In Ownership Retained Income
Outstanding (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 - - - - - - - - 3,028 - - 3,028
Repurchase of
Common Stock (259,040) (3) (3,471) - - - - - - (3,474)
Cash Dividends
($.20 per share) - - - - - - - - (951) - - (951)
Earned ESOP
Shares (2) - - - - (40) 265 - - - - 225
Change in fair
value of
securities
available for
sale, net of tax - - - - - - - - - - 284 284
------------------------------------------------------------------------------------
Balance, Mar.
31, 2001 4,102,239 $45 $38,739 ($6,212) $38,872 ($20) $71,424
------------------------------------------------------------------------------------
- -------------------
(1) Unearned 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.
See notes to unaudited consolidated financial statements
5
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six months ended March 31, 2001 and 2000
Dollars in Thousands
(unaudited)
Six Months Ended March 31,
2001 2000
------------------------
Cash Flow from Operating Activities
Net income $3,028 $2,507
------------------------
Noncash revenues, expenses, gains and losses
included in income:
Depreciation 226 206
Federal Home Loan Bank stock dividends (145) (103)
Market value adjustment - loans held for sale (175) 407
Earned ESOP Shares 225 195
Gain on sale of securities available for sale (228) - -
(Gain) Loss on sale of real estate owned, net (11) 11
Gain on sale of loans (151) (59)
Provision for loan and real estate owned losses 650 405
Net (increase) decrease in loans originated for sale 4,040 (3,343)
Net decrease in other assets (311) (53)
Decrease in other liabilities and accrued
expenses, net (133) (536)
------------------------
Net Cash (Used) Provided by Operating Activities 7,015 (363)
Cash Flow from Investing Activities
Net decrease (increase) in interest-bearing
deposits in banks 193 (408)
Purchase of securities available for sale (4,869) (1,302)
Proceeds from maturities of securities available
for sale 8,476 2,689
Proceeds from sale of securities available for sale 430 - -
Increase in loans receivable, net (5,683) (21,931)
Additions to premises and equipment (1,493) (1,012)
Additions to real estate owned (1,380) (1,806)
Proceeds from Sale of real estate owned 1,174 533
------------------------
Net Cash Used by Investing Activities (3,152) (23,237)
Cash Flow from Financing Activities
Increase in deposits, net 12,622 12,322
Increase (decrease) in Federal Home Loan Bank
advances, net (11,077) 17,029
Repurchase of common stock (3,474) (3,822)
Payment of Dividends (951) (827)
------------------------
Net Cash (Used) Provided by Financing Activities (2,880) 24,702
Net Increase in Cash 983 1,102
Cash and Due from Financial Institutions
Beginning of period 8,893 6,810
------------------------
End of period $9,876 $ 7,912
========================
See notes to unaudited consolidated financial statements (continued)
7
Six Months Ended March 31,
2001 2000
------------------------
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 925 $ 1,450
Interest paid 7,221 5,501
Supplemental Disclosure of Noncash Investing Activities
Loans transferred to real estate owned 938 1,682
Market value adjustment of securities held for sale,
net of tax 284 (239)
See notes to unaudited consolidated financial statements
8
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months March 31, 2001 and 2000
Dollars in Thousands
(unaudited)
Three Months Six Months
Ended March 31, Ended March 31,
2001 2000 2001 2000
--------------- ----------------
Comprehensive Income:
Net Income $1,487 $1,309 $3,028 $2,507
Change in fair value of securities
Available for sale, net of tax (30) (89) 284 (239)
--------------- ----------------
Total Comprehensive Income $1,457 $1,220 $3,312 $2,268
See notes to unaudited consolidated financial statements
9
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, 2001 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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
10
(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 March 31, 2001, there were 432,016 ESOP
shares that had not been allocated.
Three Months Six Months
Ended March 31, Ended March 31,
2001 2000 2001 2000
------------------------ ------------------------
Basic EPS computation
Numerator - Net Income $ 1,487,000 $ 1,309,000 $ 3,028,000 $ 2,507,000
Denominator - Weighted
average common shares
outstanding 4,227,619 4,548,076 4,286,529 4,620,467
Basic EPS $ 0.35 $ 0.29 $ 0.71 $ 0.54
Diluted EPS computation
Numerator - Net Income $ 1,487,000 $ 1,309,000 $ 3,028,000 $ 2,507,000
Denominator - Weighted
average common shares
outstanding 4,227,619 4,548,076 4,286,529 4,620,467
Effect of dilutive stock
options 64,052 - - 36,562 - -
----------- ----------- ----------- -----------
Weighted average common
shares and common stock
equivalents 4,291,671 4,548,076 4,323,091 4,620,467
Diluted EPS $ 0.35 $ 0.29 $ 0.70 $ 0.54
(3) DIVIDEND
On April 30, 2001, the Company announced a quarterly cash dividend of $0.10
per common share. The dividend is to be paid May 18, 2001, to shareholders of
record as of the close of business May 4, 2001.
(4) ACCOUNTING CHANGES
None to be reported.
11
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, 2001. 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, 2001 and September 30, 2000
Total Assets: Total assets increased to $368.6 million at March 31, 2001 from
$368.1 million at September 30, 2000, primarily reflected in a $1.6 million
increase in total loans, a $1.3 million increase in premises and fixed assets,
and an $800,000 increase in cash and due from financial institutions and
interest bearing deposits in banks. These increases were partially offset by
a $3.2 million decrease in investments and mortgage backed securities
available for sale. Due to the current interest rate environment, the sale of
lower interest rate fixed-rate mortgages has been increased. This affected
the Bank's asset growth, however it represents a positive step in preparing
the Bank for future interest rate increases.
Cash and Due from Financial Institutions: Cash and due from financial
institutions increased to $9.9 million at March 31, 2001 from $8.9 million at
September 30, 2000.
Interest Bearing Deposits in Banks: Interest bearing deposits in banks
decreased to $2.9 million at March 31, 2001 from $3.1 million at September 30,
2000.
Investments and Mortgage-backed Securities: Investments and mortgage-backed
securities decreased to $25.8 million at March 31, 2001 from $29.1 million at
September 30, 2000. This decrease is primarily due to redemptions to fund
share repurchases and scheduled amortization and prepayments.
Loans Receivable, and Loans Held-for-sale, net of allowance for loan losses:
Net loans receivable, including loans held-for-sale, increased to $314.6
million at March 31, 2001 from $313.0 million at September 30, 2000. This
increase is primarily a result of an increase in commercial real estate loans,
land loans, commercial business loans, and home equity and second mortgage
loans. Loan originations for the quarter ended March 31, 2001 increased to
$30.9 million from $23.5 million for the quarter ended December 31, 2000. The
Company sold $8.1 million in fixed rate mortgages during the current quarter
and loans classified as held for sale decreased to $24.6 million at March 31,
2001 from $28.3 million at September 30, 2000.
12
Real Estate Owned: Real estate owned decreased slightly to $1.9 million at
March 31, 2001 from $2.0 million at September 30, 2000. The company wrote off
$300,000 in REO market value losses during the quarter. Of this amount
$235,000 was written down on the Company's largest remaining REO, a
convenience store with a gas station. Due to competitive pressures facing the
petroleum industry, which have adversely affected the value of convenience
store properties, Timberland elected to sell the property at current market
value to avoid the possibility of future losses on the property. Timberland
has accepted offers on this property as well as the one remaining affiliated
retail space. We anticipate the sale of these two properties, which currently
comprise $711,000 of the March 31, 2001 REO balance, should close during the
June 30, 2001 quarter.
Premises and Equipment: Premises and equipment increased by $1.3 million to
$9.9 million at March 31, 2001 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 opened in March, construction costs for the Bank's
Tacoma branch (Pierce County) which is scheduled to open in May, and the
installation of a new check imaging system.
Deposits: Deposits increased by 5.9% to $225.2 million at March 31, 2001 from
$212.6 million at September 30, 2000, primarily due to increases in the Bank's
certificate of deposit accounts, money market accounts, and checking accounts.
Federal Home Loan Bank Advances: Federal Home Loan Bank ("FHLB") advances
decreased 13.7% to $70.1 million at March 31, 2001 from $81.1 million at
September 30, 2000, as funds from increased deposits, loan sales, and the
maturity of investment securities were used to pay down the level of advances.
Shareholders' Equity: Total shareholders' equity decreased to $71.4 million
at March 31, 2001 from $72.3 million at September 30, 2000, primarily as a
result of the repurchase of 259,040 shares of the Company's stock for $3.5
million and the payment of $951,000 in dividends to shareholders. These
decreases to shareholders' equity were partially offset by net income of $3.0
million, a $284,000 recovery in the Accumulated Other Comprehensive Loss
category, and a $265,000 reduction in the equity component related to the
unearned shares issued to the Employee Stock Ownership Trust
The Company continued to be active in stock repurchases during the quarter.
On February 12, 2001, the Company completed its seventh stock repurchase plan
at an average price of $12.91. On February 23, 2001 the Company announced its
eighth 5% stock repurchase plan. As of March 31, 2001, the Company had
repurchased 83,500 of the 209,287 shares that were authorized to be
repurchased at an average price of $13.375. The Company has now repurchased
2,078,245 (31.4%) of the 6,612,500 shares that were issued when the Company
went public in January 1998.
Non-performing Assets: Total non-performing assets decreased to $4.9 million
at March 31, 2001 from $5.6 million at September 30, 2000. The Company's
non-performing assets to total asset ratio (NPA) decreased to 1.33% at March
31, 2001 from 1.52% at September 30, 2000. Non-accrual loans decreased to
$3.0 million at March 31, 2001 from $3.6 million at September 30, 2000.
13
Non Performing Assets
- ---------------------
The following table sets forth information with respect to the Company's
nonperforming assets at March 31, 2001 and September 30, 2000.
At March 31, At September 30,
2001 2000
-----------------------------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One-to-four family $ 1,046 $ 1,203
Commercial 310 551
Construction and land development 930 1,267
Land 353 233
Consumer loans 167 273
Commercial Business Loans 204 85
--------- ---------
Total 3,010 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 3,010 3,612
Real estate owned and other
repossessed assets 1,883 1,966
--------- ---------
Total nonperforming assets 4,893 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) 0.95% 1.14%
Nonaccrual and 90 days or more past
due loans as a percentage of total assets 0.82% 0.98%
Nonperforming assets as a percentage
of total assets 1.33% 1.52%
Loans receivable, (including loans
held for sale) (1) $317,458 $315,646
======== ========
Total assets $368,604 $368,080
======== ========
- ---------------
(1) Loans receivable is before the allowance for loan losses
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,
2001 2000
Amount Percent Amount Percent
------------------- -------------------
(Dollars In thousands)
Mortgage Loans:
One-to-four family (1)(2) $135,190 39.02% $136,825 38.85%
Multi family 29,442 8.50 33,604 9.54
Commercial 62,242 17.97 58,632 16.65
Construction and
land development 83,370 24.07 89,903 25.52
Land 13,723 3.96 12,561 3.56
-------- ------ -------- ------
Total mortgage loans 323,967 93.52 331,525 94.12
Consumer Loans:
Home equity and second
mortgage 10,391 3.00 9,816 2.79
Other 6,480 1.87 6,081 1.72
-------- ------ -------- ------
16,871 4.87 15,897 4.51
Commercial business loans 5,594 1.61 4,808 1.37
-------- ------ -------- ------
Total loans 346,432 100.00% 352,230 100.00%
Less:
Undisbursed portion of
loans in process (25,556) (32,831)
Unearned income (3,418) (3,578)
Allowance for loan losses (2,833) (2,640)
Market value adjustment
of loans held-for-sale - - (175)
-------- --------
Total loans receivable, net $314,625 $313,006
======== ========
- ----------------
(1) Includes loans held-for-sale.
(2) Includes real estate contracts totaling $1.2 million at March 31, 2001.
15
Deposit Breakdown
- -----------------
The following table sets forth the balances of deposits in the various types
of accounts offered by the Bank at the dates indicated.
At March 31, 2001 At September 30, 2000
----------------- ---------------------
Non-interest bearing $ 16,207 $ 15,497
N.O.W. checking 26,694 24,467
Passbook savings 28,286 28,647
Money market accounts 23,351 20,863
Certificates of deposit
under $100,000 87,262 80,717
Certificates of deposit
$100,000 and over 43,433 42,420
Total Deposits $225,233 $212,611
======== ========
Comparison of Operating Results for the Three Months Ended March 31, 2001 and
2000
Net Income: Net income for the quarter ended March 31, 2001 was $1.5 million
or $0.35 per basic share ($0.35 per diluted share) compared to net income of
$1.3 million or $0.29 per basic share ($0.29 per diluted share) for the
quarter ended March 31, 2000. Income for the current quarter was reduced by
$300,000 ($198,000 after income tax) in REO market value writedowns and
$68,000 ($45,000 after income tax) in net start-up and marketing expenses
associated with the Bank's new checking account acquisition program. These
decreases were partially offset by a $228,000 ($150,000 after income tax) gain
on sale of securities. Income for the quarter ended March 31, 2000 was
reduced by a $127,000 ($84,000 after income tax) market value writedown on
loans held for sale.
Net Interest Income: Net interest income increased 10.7% to $4.3 million for
the three months ended March 31, 2001 from $3.9 million for the three months
ended March 31, 2000.
Total interest and dividend income increased $1.0 million to $7.8 million for
the three months ended March 31, 2001 from $6.8 million for the three months
ended March 31, 2000. This increase is primarily a result of a $1.1 million
increase in interest from loans receivable as average loans increased to
$319.8 million for the quarter ended March 31, 2001 from $279.8 million for
the quarter ended March 31, 2000, and is partially offset by a $68,000 net
decrease in interest and dividends from investment securities and financial
institutions. The net decrease in interest and dividends from investment
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 redemptions to fund share repurchases and
scheduled amortization and prepayments.
Total interest expense increased 21.8% to $3.5 million for the three months
ended March 31, 2001 from $2.9 million for the three months ended March 31,
2000. This increase is primarily a result of a $338,000 increase in interest
paid on customer deposits and a $293,000 increase in interest paid on FHLB
advances. Net interest margin decreased slightly to 4.93% for the three
months ended March 31, 2001 from 4.97% for the three months ended March 31,
2000. However, net interest margin for the current quarter increased by 26
basis points from the 4.67% for the quarter ended December 31, 2000, primarily
as a result of the Company's short-term FHLB advances re-pricing downward at
maturity and the reduction in average FHLB borrowings for the quarter.
16
Provision for Loan Losses: The provision for loan losses for the three months
ended March 31, 2001 was $200,000 compared with $280,000 for the three months
ended March 31, 2000. Management deemed the general loan loss reserves of
$2.8 million at March 31, 2001 (0.89% of loans receivable and loans held for
sale and 94.1% 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 $135,000
compared to $302,000 in the same quarter of 2000.
Noninterest Income: Total noninterest income increased to $798,000 for the
three months ended March 31, 2001 from $167,000 for the three months ended
March 31, 2000. The increase is primarily due to a combined increase of
$241,000 in gain on sale of securities, a $127,000 change in market value
adjustments on loans held for sale, a $106,000 increase in service charge on
deposits, and a $73,000 increase in gain on sale of loans.
Noninterest Expense: Total noninterest expense increased to $2.7 million for
the three months ended March 31, 2001 from $1.8 million for the three months
ended March 31, 2000. This increase is primarily due to $300,000 in REO
market value writedowns, a $231,000 increase in salary and employee benefit
expense, and a $150,000 increase in advertising expense. The increase in
salary and employee benefit expense is primarily a result of adding employees
to staff the Bank's new branches in Tumwater and Tacoma and hiring additional
commercial loan officers to increase the Bank's business banking activities.
The increase in advertising expense is primarily due to $134,000 in
advertising expense related to the new checking account acquisition program.
Provision for Income Taxes: The provision for income taxes increased to
$734,000 for the three months ended March 31, 2001 from $647,000 for the three
months ended March 31, 2000 primarily as a result of higher income before
income taxes.
Comparison of Operating Results for the Six Months Ended March 31, 2001 and
2000
Net Income: Net income for the six months ended March 31, 2001 was $3.0
million or $0.71 per basic share ($0.70 per diluted share) compared to net
income of $2.5 million or $0.54 per basic share ($0.54 per diluted share) for
the six months ended March 31, 2000. Income for the current six months was
increased by a $228,000 ($150,000 after income tax) gain on sale of securities
and a $175,000 ($116,000 after income tax) market value recovery on loans held
for sale. Also affecting income for the current six months was $300,000
($198,000 after income tax) in REO market value writedowns and $183,000
($121,000 after income tax) in net start-up and marketing expenses associated
with the Bank's new checking account acquisition program. Income for the six
months ended March 31, 2000 was reduced by a $407,000 ($269,000 after income
tax) market value writedown on loans held for sale.
Net Interest Income: Net interest income increased 8.9% to $8.5 million for
the six months ended March 31, 2001 from $7.8 million for the six months ended
March 31, 2000.
Total interest and dividend income increased 18.3% to $15.8 million for the
six months ended March 31, 2001 from $13.4 million for the six months ended
March 31, 2000. The increase is primarily a result of a $2.5 million increase
in interest from loans receivable and is partially offset by a $83,000 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 period due to loan
growth, as average loan balances increased to $321.2 million for the six
months ended March 31, 2001 from $274.9 million for the six months ended March
31, 2000. 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
17
in funds held with financial institutions due to redemptions to fund share
repurchases and scheduled amortization and prepayments.
Total interest expense increased 31.5% to $7.3 million for the six months
ended March 31, 2001 from $5.6 million for the six months ended March 31,
2000. This increase is primarily a result of a $930,000 increase in interest
paid on FHLB advances and an $827,000 increase in interest paid on customer
deposits arising from increases in both average rates paid and outstanding
balances. The net interest margin was 4.80% for the six months ended March
31, 2001 compared to a net interest margin of 5.02% for the six months ended
March 31, 2000.
Provision for Loan Losses: The provision for loan losses for the six months
ended March 31, 2001 was $350,000 compared with $355,000 for the six months
ended March 31, 2000. Management deemed the general loan loss reserves of
$2.8 million at March 31, 2001 (.89% of loans receivable and loans held for
sale, and 94.1% 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 six months ended March 31,
2001 and 2000 were $157,000 and $311,000 respectively.
Noninterest Income: Total noninterest income increased $1.2 million to $1.4
million for the six months ended March 31, 2001 from $222,000 for the six
months ended March 31, 2000, primarily due to a $582,000 change in the market
value adjustment on loans held for sale, a net increase of $241,000 in gain on
sale of securities, a $145,000 increase in service charges on deposits, and a
$92,000 increase in gain on sale of loans.
Noninterest Expense: Total noninterest expense increased $1.1 million to $5.0
million for the six months ended March 31, 2001 from $3.9 million for the six
months ended March 31, 2000, primarily due to a $320,000 increase in salary
and benefit expense, $300,000 in REO market value writedowns, a $216,000
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 to adding personnel to staff two new branches (Tumwater and
Tacoma) and hiring additional commercial loan officers to increase the Bank's
business banking activities. The increase in advertising expense is primarily
a result of expenses related to the new checking account acquisition program.
Provision for Income Taxes: The provision for income taxes increased to $1.5
million for the six months ended March 31, 2001 from $1.2 million for the six
months ended March 31, 2000 primarily as a result of higher 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, 2001,
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 23.3%.
The Bank also
18
maintained an uncommitted credit facility with the FHLB-Seattle that provided
for immediately available advances up to an aggregate amount of $127.1
million, under which $70.1 million was outstanding at March 31, 2001.
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,
2001, the Bank had loan commitments totaling $23.2 million and undisbursed
loans in process totaling $25.6 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, 2001 totaled $108.3 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, 2001, 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 March 31, 2001
to its minimum regulatory capital requirements at that date (dollars in
thousands):
Percent of
Amount Adjusted Total Assets (1)
------ -------------------------
Tier 1 (leverage) capital $59,982 16.7%
Tier 1 (leverage) capital requirement 14,405 4.0
------- ----
Excess $45,577 12.7%
Tier 1 risk adjusted capital $59,982 22.0%
Tier 1 risk adjusted capital requirement 10,924 4.0
------- ----
Excess $49,058 18.0%
Total risk based capital $62,815 23.0%
Total risk based capital requirement 21,848 8.0
------- ----
Excess $40,967 15.0%
- -------------------
(1) For the Tier 1 (leverage) capital, percent of total average assets of
$360.1 million. For the Tier 1 risk-based capital and total risk-based
capital calculations, percent of total risk-weighted assets of $273.1
million.
19
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
KEY FINANCIAL RATIOS
(Dollars in thousands, except per share data)
Three Months Six Months
Ended March 31, Ended March 31,
2001 2000 2001 2000
--------------- --------------
PERFORMANCE RATIOS:
Return on average assets (1) 1.63% 1.59% 1.65% 1.55%
Return on average equity (1) 8.20% 7.37% 8.34% 7.01%
Net interest margin (1) 4.93% 4.97% 4.80% 5.02%
Efficiency ratio 52.75% 45.13% 50.60% 48.71%
March 31, September 30,
2001 2000
------------------------
ASSET QUALITY RATIOS:
Non-performing loans $ 3,010 $ 3,612
REO's & other repossessed assets 1,883 1,966
Total non-performing assets 4,893 5,578
Non-performing assets to total assets 1.33% 1.52%
Allowance for loan losses to
non-performing loans 94.12% 73.09%
Book Value Per Share (2) $ 15.75 $ 15.09
Book Value Per Share (3) $ 17.34 $ 16.58
- -------------------
(1) Annualized
(2) Calculation includes ESOP shares not committed to be released
(3) Calculation excludes ESOP shares not committed to be released
Three Months Six Months
Ended March 31, Ended March 31,
2001 2000 2001 2000
--------------- --------------
AVERAGE BALANCE SHEET:
Average Total Loans $319,763 $279,844 $321,221 $274,910
Average Total Interest
Earning Assets 350,913 314,637 352,609 309,482
Average Total Assets 365,761 328,715 367,204 323,257
Average Total Interest Bearing
Deposits 198,126 185,161 195,833 180,964
Average FHLB Advances 78,334 58,227 82,017 56,438
Average Shareholders' Equity 72,537 71,087 72,622 71,476
20
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.
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 ***
-----------------
* 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, 2001.
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 10, 2001 By: /s/Clarence E. Hamre
----------------------------------
Clarence E. Hamre
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 10, 2001 By: /s/Dean J. Brydon
----------------------------------
Dean J. Brydon
Chief Financial Officer
(Principal Financial Officer)
22