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, 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 FEBRUARY 5, 2002
----- --------------------------------------
common stock, $.01 par value 3,898,856
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 11-18
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
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
December 31, 2001 and September 30, 2001
Dollars in Thousands
(unaudited)
December 31, September 30,
2001 2001
------------------------
Assets
Cash and due from financial institutions $ 8,425 $ 10,017
Interest bearing deposits in banks 1,948 3,422
Investments and mortgage-backed securities
(available for sale) 38,896 29,369
Federal Home Loan Bank stock 4,915 4,830
Loans receivable 307,822 308,796
Loans held for sale 6,081 18,022
Less: Allowance for loan losses (3,352) (3,050)
------------------------
Total Loans 310,551 323,768
------------------------
Accrued interest receivable 1,633 1,880
Premises and equipment 11,275 10,660
Real estate owned 1,030 1,006
Other assets 1,712 1,353
------------------------
Total Assets $380,385 $386,305
------------------------
Liabilities and Shareholders' Equity
Liabilities
Deposits $240,761 $242,372
Federal Home Loan Bank ("FHLB") advances 66,036 68,978
Other liabilities and accrued expenses 2,297 3,146
------------------------
Total Liabilities 309,094 314,496
------------------------
Shareholders' Equity
Common Stock, $.01 par value; 50,000,000 shares
authorized; December 31, 2001 - 4,459,995
issued, 3,899,303 outstanding
September 30, 2000 - 4,570,995 issued,
4,010,303 outstanding (unallocated ESOP shares
and unvested MRDP shares are not considered
outstanding) 45 46
Additional paid in capital 37,873 39,574
Unearned shares - Employee Stock Ownership Plan (5,816) (5,948)
Unearned shares - Management Recognition &
Development Plan (2,310) (2,471)
Retained earnings 41,536 40,332
Accumulated other comprehensive income (loss) (37) 276
------------------------
Total Shareholders' Equity 71,291 71,809
------------------------
Total Liabilities and Shareholders' Equity $380,385 $386,305
------------------------
See notes to unaudited consolidated financial statements
3
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended December 31, 2001 and 2000
Dollars in Thousands, Except Per Share Amounts
(unaudited)
Three Months Ended December 31,
2001 2000
-----------------------
Interest and Dividend Income
Loans receivable $ 7,348 $ 7,451
Investments and mortgage-backed securities 412 276
Dividends from investments 160 179
Interest bearing deposits in banks 21 49
-----------------------
Total interest and dividend income 7,941 7,955
-----------------------
Interest Expense
Deposits 2,102 2,389
Federal Home Loan Bank advances 860 1,427
-----------------------
Total interest expense 2,962 3,816
-----------------------
Net interest income 4,979 4,139
Provision for loan losses 392 150
-----------------------
Net interest income after provision for
loan losses 4,587 3,989
-----------------------
Non-Interest Income
Service charges on deposits 403 165
Gain on sale of loans, net 280 68
Market value adjustment on loans held for sale -- 175
Gain on sale of securities 3 --
Escrow fees 73 39
Servicing income on loans sold 136 19
Other 266 142
-----------------------
Total non-interest income 1,161 608
-----------------------
Non-Interest Expense
Salaries and employee benefits 1,707 1,277
Premises and equipment 320 252
Advertising 241 177
Other 838 586
-----------------------
Total non-interest expense 3,106 2,292
-----------------------
Income before income taxes 2,642 2,305
Provision for income taxes 936 764
-----------------------
Net Income $ 1,706 $ 1,541
Earnings per common share:
Basic $ 0.43 $ 0.35
Diluted $ 0.42 $ 0.35
Weighted average shares outstanding:
Basic 3,985,244 4,344,159
Diluted 4,087,192 4,351,147
Dividends per share: $ 0.11 $ 0.10
See notes to unaudited consolidated financial statements
4
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the year ended September 30, 2001 and the three months ended December 31, 2001
Dollars in Thousands Except Common Stock Shares
(unaudited)
Unearned Unearned
Shares Shares Accumu-
Issued to Issued to lated
Employee Manage- Other
Addi- Stock ment Compre-
Common Stock Common tional Owner- Recog- hensive
Shares Out- Stock Paid-In ship nition Retained Income
standing (1) Amount Capital Trust Plan Earnings (Loss) Total
------------ ------ ------- ----- ---- -------- ------ -----
<s> <c> <c> <c> <c> <c> <c> <c> <c>
Balance, Sept. 30, 2000 4,361,279 $48 $42,250 ($6,477) $ -- $36,795 $ (304) $72,312
Net Income -- -- -- -- -- 5,462 -- 5,462
Issuance of MRDP Shares -- 2 3,222 -- (3,224) -- -- --
Repurchase of Common Stock (428,827) (4) (5,914) -- -- -- -- (5,918)
Exercise of Stock Options 1,600 -- 19 -- -- -- -- 19
Cash Dividends ($.41 per share) -- -- -- -- -- (1,925) -- (1,925)
Earned ESOP Shares 35,266 -- (26) 529 -- -- -- 503
Earned MRDP Shares 40,985 -- 23 -- 753 -- -- 776
Change in fair value of
securities available
for sale, net of tax -- -- -- -- -- -- 580 580
------------------------------------------------------------------------------
Balance, Sept. 30, 2001 4,010,303 46 39,574 (5,948) (2,471) 40,332 276 71,809
------------------------------------------------------------------------------
Net Income -- -- -- -- -- 1,706 -- 1,706
Repurchase of Common Stock (115,000) (1) (1,763) -- -- -- -- (1,764)
Exercise of Stock Options 4,000 -- 48 -- -- -- -- 48
Cash Dividends ($.11 per share) -- -- -- -- -- (502) - (502)
Earned ESOP Shares -- -- (4) 132 -- -- -- 128
Earned MRDP Shares -- -- 18 -- 161 -- -- 179
Change in fair value of
securities available
for sale, net of tax -- -- -- -- -- -- (313) (313)
------------------------------------------------------------------------------
Balance, Dec. 31, 2001 3,899,303 $45 $37,873 ($5,816) ($2,310) $41,536 ($37) $71,291
------------------------------------------------------------------------------
See notes to unaudited consolidated financial statements
5
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 2001 and 2000
Dollars in Thousands
(unaudited)
Three Months
Ended December 31,
2001 2000
---------------------
Cash Flow from Operating Activities
Net income $1,706 $1,541
---------------------
Noncash revenues, expenses, gains and losses
included in income:
Depreciation 150 114
Federal Home Loan Bank stock dividends (85) (71)
Market value adjustment - loans held for sale -- (175)
Earned ESOP Shares 128 107
Earned MRDP Shares 179 --
Gain on sale of securities available for sale (3) --
Gain on sale of real estate owned, net (3) (13)
Gain on sale of loans (280) (68)
Provision for loan and real estate owned losses 412 150
Net decrease (increase) in loans originated for sale (5) 2,179
Net decrease in other assets 48 34
Decrease (increase) in other liabilities and
accrued expenses, net (849) 317
---------------------
Net Cash Provided by Operating Activities 1,398 4,115
Cash Flow from Investing Activities
Net decrease (increase) in interest-bearing
deposits in banks 1,474 (142)
Purchase of securities available for sale -- (369)
Proceeds from maturities of securities
available for sale 1,151 707
Proceeds from sale of securities available for sale 1,078 --
Decrease (increase) in loans receivable, net 884 (1,293)
Additions to premises and equipment (765) (597)
Additions to real estate owned (360) (46)
Proceeds from sale of real estate owned 319 77
---------------------
Net Cash Provided by (Used in) Investing Activities 3,781 (1,663)
Cash Flow from Financing Activities
Decrease in deposits, net (1,611) (3,348)
Increase (decrease) in Federal Home Loan Bank
advances, net (2,942) 3,562
Proceeds from exercise of stock options 48 --
Repurchase of common stock (1,764) (549)
Payment of dividends (502) (479)
---------------------
Net Cash Used by Financing Activities (6,771) (814)
Net Increase (decrease) in Cash (1,592) 1,638
Cash and Due from Financial Institutions
Beginning of period 10,017 8,893
---------------------
End of period $ 8,425 $10,531
---------------------
See notes to unaudited consolidated financial statements (continued)
6
Three Months
Ended December 31,
2001 2000
---------------------
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 660 $ --
Interest paid 3,123 3,733
Supplemental Disclosure of Noncash Investing Activities
Market value adjustment of securities held for sale,
net of tax (313) 314
Investment securities acquired in loan securitization 12,226 --
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, 2001 and 2000
Dollars in Thousands
(unaudited)
Three Months
Ended December 31,
2001 2000
---------------------
Comprehensive Income:
Net Income $1,706 $1,541
Change in fair value of securities
available for sale, net of tax (313) 314
---------------------
Total Comprehensive Income $1,393 $1,855
---------------------
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. ("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, 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.
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 and awarded but not released
Management Recognition and Development Plan ("MRDP") shares. 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, 2001, there were
396,750 ESOP shares that had not been allocated.
Three Months Ended December 31,
2001 2000
--------------------------------
Basic EPS computation
Numerator - Net Income $ 1,706,000 $ 1,541,000
Denominator - Weighted average
common shares outstanding 3,985,244 4,344,159
Basic EPS $ 0.43 $ 0.35
Diluted EPS computation
Numerator - Net Income $ 1,706,000 $ 1,541,000
Denominator - Weighted average
common shares outstanding 3,985,244 4,344,159
Effect of dilutive stock options 99,824 6,988
Effect of dilutive MRDP 2,124 --
----------- -----------
Weighted average common shares
and common stock equivalents 4,087,192 4,351,147
Diluted EPS $ 0.42 $ 0.35
(3) DIVIDEND
On January 10, 2002, the Company announced a quarterly cash dividend of $0.11
per common share. The dividend is to be paid February 15, 2002, to
shareholders of record as of the close of business February 1, 2002.
10
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
ended December 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 competition in the financial
services market for both deposits and loans, 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, 2001 and September 30, 2001
Total Assets: Total assets decreased by $5.9 million to $380.4 million at
December 31, 2001 from $386.3 million at September 30, 2001. The change is
primarily reflected in an $11.9 million decrease in loans held for sale and a
$3.1 million decrease in cash and interest bearing deposits in banks. These
decreases are partially offset by a $9.5 million increase in investments and
mortgage-backed securities.
Cash and Due from Financial Institutions: Cash and due from financial
institutions decreased to $8.4 million at December 31, 2001 from $10.0 million
at September 30, 2001.
Interest Bearing Deposits in Banks: Interest bearing deposits in banks
decreased to $1.9 million at December 31, 2001 from $3.4 million at September
30, 2001.
Investments and Mortgage-backed Securities: Investments and mortgage-backed
securities increased to $38.9 million at December 31, 2001 from $29.4 million
at September 30, 2001. The increase is primarily a result of the Bank
converting $12.2 million in fixed rate loans held for sale to mortgage-backed
securities, and is partially offset by scheduled amortization and prepayments.
The securitization of fixed rate mortgage loans held for sale continues the
Company's practice first begun in fiscal year 2001, which changes the
character of such loans to investments from loans.
Loans Receivable, and Loans Held-for-sale, net of allowance for loan losses:
Net loans receivable, including loans held-for-sale, decreased 4.1% to $310.6
million at December 31, 2001 from $323.8 at September 30, 2001, primarily due
to the conversion of $12.2 million of the Bank's loans held for sale to
mortgage-backed securities and the sale of $17.2 million in fixed rate
one-to-four family mortgage loans. As a result of these transactions,
one-to-four family mortgage loans in the Company's portfolio decreased by
$12.6 million.
Real Estate Owned ("REO"): Real estate owned remained constant at $1.0
million for December 31, 2001 as compared to September 30, 2001.
11
Premises and Equipment: Premises and equipment increased by $615,000 to
$11.3 million at December 31, 2001 from $10.7 million at September 30, 2001.
This increase is primarily due to the purchase of a building in Olympia
(Pierce County) for a future branch and the acquisition of a building in
Hoquiam (Grays Harbor County) for future office space.
Deposits: Deposits decreased by 0.7% to $240.8 million at December 31, 2001
from $242.4 million at September 30, 2001, primarily due to a $6.4 million
decrease in the Bank's certificate of deposit accounts. The total of
certificates of deposit over $100,000 decreased $13.6 million, while
certificates under $100,000 increased $7.2 million. With the proceeds from
loan sales and the increase in smaller denomination certificates of deposit,
the Bank was able to reduce its reliance on the higher rate, larger
denomination deposits. This decrease is partially offset by a $3.0 million
increase in money market accounts and a $1.7 million increase in N.O.W
checking accounts.
Federal Home Loan Bank ("FHLB") Advances: FHLB advances decreased by 4.3% to
$66.0 million at December 31, 2001 from $69.0 million at September 30, 2001,
as funds from loan sales and loan payoffs were used to pay down the level of
advances.
Shareholders' Equity: Total shareholders' equity decreased by $518,000 to
$71.3 million at December 31, 2001 from $71.8 million at September 30, 2001.
The components of shareholders' equity were affected by the repurchase of
115,000 shares of the Company's stock for $1.8 million, net income of $1.7
million, the payment of $502,000 in dividends to shareholders, and a $313,000
decrease in the Accumulated Other Comprehensive Income category. Also
affecting shareholders' equity was a $132,000 increase in the equity component
related to the unearned shares issued to the Employee Stock Ownership Plan and
a $161,000 increase in the equity component related to unearned shares issued
to the Management Recognition and Development Plan.
On September 24, 2001 the Company announced a plan to repurchase 200,872
shares of the Company's stock. This marked the Company's ninth 5% stock
repurchase plan. As of December 31, 2001, the Company had repurchased 159,000
of these shares. The Company has repurchased a total of 2,363,032 (35.7%) 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 $4.3 million
at December 31, 2001 from $5.1 million at September 30, 2001, primarily due to
a $774,000 decrease in non-performing loans. The Company's non-performing
asset ratio to total asset ratio ("NPA") decreased to 1.14% at December 31,
2001 from 1.32% at September 30, 2001.
12
Non Performing Assets
- ---------------------
The following table sets forth information with respect to the Company's
nonperforming assets at December 31, 2001 and September 30, 2001.
At December 31, At September 30,
2001 2001
--------------------------------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One-to-four family $ 1,013 $ 863
Commercial 891 2,091
Construction and land development 724 491
Land 563 610
Consumer loans 69 26
Commercial Business Loans 57 10
-------- --------
Total 3,317 4,091
Accruing loans which are contractually
past due 90 days or more:
Mortgage loans: -- --
Total of nonaccrual and
90 days past due loans 3,317 4,091
Real estate owned and other
repossessed assets 1,030 1,006
-------- --------
Total nonperforming assets 4,347 5,097
Restructured loans -- --
Nonaccrual and 90 days or more past
due loans as a percentage of loans
receivable, (including loans held for sale)(1) 1.06% 1.25%
Nonaccrual and 90 days or more past
due loans as a percentage of total assets 0.87% 1.06%
Nonperforming assets as a percentage
of total assets 1.14% 1.32%
Loans receivable, (including loans
held for sale) (1) $313,903 $326,818
======== ========
Total assets $380,385 $386,305
======== ========
- ------------
(1) Loans receivable is before the allowance for loan losses
13
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,
2001 2001
Amount Percent Amount Percent
------------------ -------------------
(Dollars In thousands)
Mortgage Loans:
One-to-four family (1)(2) $117,513 33.29% $130,082 35.14%
Multi family 25,445 7.21 29,412 7.95
Commercial 67,297 19.06 65,731 17.76
Construction and
land development 102,343 28.99 106,244 28.71
Land 14,730 4.17 13,632 3.68
-------- ------ -------- ------
Total mortgage loans 327,328 92.72 345,101 93.24
Consumer Loans:
Home equity and second mortgage 9,704 2.75 11,039 2.98
Other 7,131 2.01 6,825 1.85
-------- ------ -------- ------
16,835 4.76 17,864 4.83
Commercial business loans 8,894 2.52 7,150 1.93
-------- ------ -------- ------
Total loans 353,057 100.00% 370,115 100.00%
====== ======
Less:
Undisbursed portion of loans
in process (35,875) (39,803)
Unearned income (3,279) (3,494)
Allowance for loan losses (3,352) (3,050)
Market value adjustment of loans
held-for-sale -- --
-------- --------
Total loans receivable, ne $310,551 $323,768
======== ========
- -------------
(1) Includes loans held-for-sale.
(2) Includes real estate contracts totaling $1.2 million at December 31,
2001.
Activity in the Allowance for Loan Losses
- -----------------------------------------
Activity in the allowance for loan losses in the three months ended December
31, 2001 and 2000 is as follows:
2001 2000
------ ------
Balance beginning of period $3,050 $2,640
Provision for loan losses 392 150
Loans charged off (93) (22)
Recoveries on loans previously charged off 3 --
Net charge offs (90) (22)
Balance at end of period $3,352 $2,768
14
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 December 31, 2001 At September 30, 2001
-------------------- ---------------------
(in thousands) (in thousands)
Non-interest bearing $ 16,737 $ 16,976
N.O.W. checking 32,358 30,626
Passbook savings 34,507 34,228
Money market accounts 30,259 27,251
Certificates of deposit under
$100,000 95,675 88,449
Certificates of deposit $100,000
and over 31,225 44,842
--------- ---------
Total Deposits $ 240,761 $ 242,372
========= =========
Comparison of Operating Results for the Three Months Ended December 31, 2001
and 2000
Net Income: Net income for the quarter ended December 31, 2001 was $1.7
million, or $0.42 per diluted share ($0.43 per basic share) compared to $1.5
million, or $0.35 per diluted share ($0.35 per basic share) for the quarter
ended December 31, 2000. Primary factors affecting the improved performance
in 2001 were increased net interest income, increased fee income, and
increased income related to mortgage loans sold. These increases were
partially offset by higher non-interest expenses.
Net Interest Income: Net interest income increased 20.3% to $5.0 million for
the quarter ended December 31, 2001 from $4.1 million for the quarter ended
December 31, 2000, primarily due to decreased funding costs.
Total interest income decreased slightly to $7.94 million for the quarter
ended December 31, 2001 from $7.96 million for the quarter ended December 31,
2000, as the earnings on increased levels of average earning assets helped
offset the impact of lower average yields on all categories of earning assets.
The yield on earning assets was 8.63% for the quarter ended December 31, 2001
compared to 8.98% for the quarter ended December 31, 2000.
Total interest expense decreased $854,000 to $3.0 million for the quarter
ended December 31, 2001 from $3.8 million for the quarter ended December 31,
2000. The average cost of funds for each type of the Bank's deposit accounts
and FHLB borrowings for the current quarter were lower than a year ago. The
overall cost of funds was 4.06% for the quarter ended December 31, 2001
compared to 5.47% for the quarter ended December 31, 2000. In addition,
average borrowings from the FHLB were lower than a year ago, also reducing
interest expense.
Provision for Loan Losses: The provision for loan losses for the three months
ended December 31, 2001 was $392,000 compared to $150,000 for the three months
ended December 31, 2000. Management conducts regular analyses of the Bank's
loan portfolio, which it uses to review the adequacy of its allowance for loan
losses. The analyses present data on loans by type of loan, internal loan
classifications, historical loss percentages, and economic factors considered
by management in reviewing the allowance for loan losses. Based on its
internal analysis at December 31, 2001 and trends in the loan portfolio -
management deemed the allowance for loan
15
losses of $3.4 million (1.07% of loans receivable and loans held for sale and
101.1% 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 $90,000 compared to
$22,000 in the same quarter of 2000.
Noninterest Income: Total non-interest income increased to $1.2 million for
the quarter ended December 31, 2001 from $608,000 for the quarter ended
December 31, 2000, primarily due to a $238,000 increase in service charges on
deposits, a $212,000 increase in the gain on sale of loans, and a $117,000
increase in servicing income on loans sold. The increased deposit-related
service charge income is primarily a result of the Bank's checking account
acquisition program. The change in rate environment from 2000 to 2001
significantly increased the Company's loan origination activity, both from new
loans made and from refinancing of existing loans at lower interest rates.
With the lower rates, the Bank originated more fixed-rate loans in 2001 than
in 2000, resulting in increased loan sales, as the Bank sells most fixed-rate
one-to-four family mortgage loans. The increased loan sale gains and
servicing income are a result of the Company selling $17.2 million in fixed-
rate one-to-four family loans and converting $12.2 million in one-to-four
family mortgage loans to mortgage-backed securities during the quarter.
Noninterest Expense: Total non-interest expense increased to $3.1 million for
the three months ended December 31, 2001 from $2.3 million for the three
months ended December 31, 2000. This increase is primarily due to a $430,000
increase in salary and employee benefit expense, a $68,000 increase in
premises and equipment expenses, a $64,000 increase in advertising expense,
and a $52,000 increase in ATM operating expenses.
The increase in salary and employee benefit expense is primarily a result of
adding employees to staff the Bank's new branches (Tumwater and Tacoma),
hiring additional commercial loan staff to manage the Bank's business banking
activities, and expenses associated with the Management Recognition and
Development Plan.
Provision for Income Taxes: The provision for income taxes increased to
$936,000 for the three months ended December 31, 2001 from $764,000 for the
three months ended December 31, 2000 primarily as a result of higher income
before income taxes. The Company's effective tax rate was 35.4% in 2001
compared to 33.2% in 2000.
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. 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,
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 21.3%. The Bank also maintained an uncommitted credit facility with the
FHLB-Seattle that provided for immediately available
16
advances up to an aggregate amount of $134.0 million, under which $66.0
million was outstanding at December 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 December 31,
2001, the Bank had loan commitments totaling $26.5 million and undisbursed
loans in process totaling $35.9 million. The Bank anticipates that it will
have sufficient funds available to meet current loan commitments.
Certificates of deposit that are scheduled to mature in less than one year
from December 31, 2001 totaled $104.3 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 December 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 December 31,
2001 to its minimum regulatory capital requirements at that date (dollars in
thousands):
Percent of
Adjusted
Amount Total Assets (1)
------- ----------------
Tier 1 (leverage) capital $61,020 16.0%
Tier 1 (leverage) capital requirement 15,236 4.0
------- ----
Excess $45,784 12.0%
======= ====
Tier 1 risk adjusted capital $61,020 22.7%
Tier 1 risk adjusted capital requirement 10,756 4.0
------- ----
Excess $50,264 18.7%
======= ====
Total risk based capital $64,372 23.9%
Total risk based capital requirement 21,511 8.0
------- ----
Excess $42,861 15.9%
======= ====
- ---------------
(1) For the Tier 1 (leverage) capital, percent of total average assets of
$380.9 million. For the Tier 1 risk-based capital and total risk-based
capital calculations, percent of total risk-weighted assets of $268.9 million.
17
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
KEY FINANCIAL RATIOS
(Dollars in thousands, except per share data)
Three Months Ended
December 31, September 30, December 31,
2001 2001 2000
-----------------------------------------
PERFORMANCE RATIOS:
Return on average assets (1) 1.77% 1.08% 1.67%
Return on average equity (1) 9.45% 5.63% 8.48%
Net interest margin (1) 5.41% 5.14% 4.67%
Efficiency ratio 50.59% 66.33% 48.28%
December 31, September 30, December 31,
2001 2001 2000
-----------------------------------------
ASSET QUALITY RATIOS:
Non-performing loans $ 3,317 $ 4,091 $ 3,148
REO & other repossessed assets 1,030 1,006 1,948
Total non-performing assets 4,347 5,097 5,096
Non-performing assets to total assets 1.14% 1.32% 1.38%
Allowance for loan losses to
non-performing loans 101.06% 74.55% 87.93%
Book Value Per Share (2) $ 15.98 $ 15.71 $ 15.43
Book Value Per Share (3) $ 17.51 $ 17.20 $ 16.93
- ----------------
(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,
2001 2001 2000
-----------------------------------------
AVERAGE BALANCE SHEET:
- ---------------------
Average Total Loans $ 323,052 $ 327,016 $ 322,679
Average Total Interest
Earning Assets 368,219 364,203 354,305
Average Total Assets 385,003 380,496 368,647
Average Total Interest Bearing
Deposits 226,005 216,607 193,540
Average FHLB Advances 66,020 72,297 85,699
Average Shareholders' Equity 72,249 72,988 72,707
18
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, 2001.
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 24, 2002.
The results of the vote on the matters presented at the meeting are as follow:
The following individuals were elected as directors:
For Against
No. No.
of Votes Percentage of Votes Percentages
--------------------- ----------------------
Richard R. Morris Jr. 3,940,223 98.28% 68,947 1.72%
(three-year term)
Jon C. Parker 3,952,623 98.59% 56,547 1.41%
(three-year term)
James C. Mason 3,669,848 91.54% 339,322 8.46%
(three-year term)
McGladrey & Pullen, LLP was appointed as the Company's independent
auditors for the fiscal year ending September 30, 2002. Voting results are as
follows:
No.
of Votes Percentages
---------------------------
FOR 3,941,927 98.32%
AGAINST 34,845 0.87%
ABSTAIN 32,398 0.81%
19
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 Registrant's 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, 2001.
20
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, 2002 By: /s/Clarence E. Hamre
------------------------------
Clarence E. Hamre
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 8, 2002 By: /s/Dean J. Brydon
------------------------------
Dean J. Brydon
Chief Financial Officer
(Principal Financial Officer)
21