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, 2002
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 3, 2002
----- ---------------------------------
common stock, $.01 par value 3,870,184
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Shareholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6-7
Condensed Consolidated Statements of Comprehensive Income 8
Notes to Condensed Consolidated Financial Statements
(unaudited) 9-10
Item 2. Management's Discussion and Analysis of Financial 11-19
Condition and Results of Operations
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
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2002 and September 30, 2001
Dollars in Thousands
(unaudited)
March 31, September 30,
2002 2001
----------------------------------
Assets
Cash and due from financial institutions $ 10,376 $ 10,017
Interest bearing deposits in banks 26,844 3,422
Investments and mortgage-backed securities
(available for sale) 30,333 29,369
Federal Home Loan Bank stock 4,988 4,830
Loans receivable 309,220 308,796
Loans held for sale 4,773 18,022
Less: Allowance for loan losses (3,450) (3,050)
--------------------------------
Total Loans 310,543 323,768
--------------------------------
Accrued interest receivable 1,680 1,880
Premises and equipment 11,197 10,660
Real estate owned 983 1,006
Other assets 1,806 1,353
--------------------------------
Total Assets $ 398,750 $ 386,305
--------------------------------
Liabilities and Shareholders' Equity
Liabilities
Deposits $ 262,834 $ 242,372
Federal Home Loan Bank ("FHLB") advances 61,832 68,978
Other liabilities and accrued expenses 1,810 3,146
--------------------------------
Total Liabilities 326,476 314,496
--------------------------------
Shareholders' Equity
Common Stock, $.01 par value; 50,000,000
shares authorized; March 31, 2002 -
4,430,876 issued, 3,870,184 outstanding
September 30, 2001 - 4,570,995 issued,
4,010,303 outstanding (unallocated ESOP
shares and unvested MRDP shares are not
considered outstanding) 44 46
Additional paid in capital 37,401 39,574
Unearned shares - Employee Stock Ownership
Plan (5,683) (5,948)
Unearned shares - Management Recognition
& Development Plan (2,149) (2,471)
Retained earnings 42,675 40,332
Accumulated other comprehensive income
(loss) (14) 276
--------------------------------
Total Shareholders' Equity 72,274 71,809
--------------------------------
Total Liabilities and Shareholders'
Equity $ 398,750 $ 386,305
--------------------------------
See notes to unaudited condensed consolidated financial statements
3
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended March 31, 2002 and 2001
Dollars in Thousands, Except Per Share Amounts
(unaudited)
Three Months Ended March 31, Six Months Ended March 31,
2002 2001 2002 2001
------------------ -------------------
Interest and Dividend
Income
Loans receivable $ 6,898 $ 7,380 $14,246 $14,831
Investments and
mortgage-backed
securities 404 232 815 508
Dividends from
investments 173 177 333 356
Interest bearing
deposits in banks 41 56 63 105
--------------------- ----------------------
Total interest and
dividend income 7,516 7,845 15,457 15,800
Interest Expense
Deposits 1,872 2,359 3,974 4,748
Federal Home Loan
Bank advances 821 1,160 1,681 2,587
--------------------- ----------------------
Total interest
expense 2,693 3,519 5,655 7,335
--------------------- ----------------------
Net interest income 4,823 4,326 9,802 8,465
Provision for Loan
Losses 200 200 592 350
--------------------- ----------------------
Net interest
income after
provision 4,623 4,126 9,210 8,115
for loan losses
Non-Interest Income
Service charges on
deposits 380 227 783 392
Gain on sale of loans,
net 220 83 500 151
Market value adjustment
on loans held for sale -- -- -- 175
Gain (loss) on sale
of securities (19) 228 (16) 228
Escrow fees 72 45 145 84
Servicing income on
loans sold 114 30 251 49
Other 279 185 545 327
--------------------- ----------------------
Total non-interest
income 1,046 798 2,208 1,406
Non-interest Expense
Salaries and employee
benefits 1,724 1,323 3,432 2,600
Premises and equipment 368 262 687 514
Advertising 191 234 432 411
Other 863 884 1,701 1,470
--------------------- ----------------------
Total non-interest
expense 3,146 2,703 6,252 4,995
Income before federal
income taxes 2,523 2,221 5,166 4,526
Federal Income Taxes 894 734 1,830 1,498
--------------------- ----------------------
Net Income $ 1,629 $ 1,487 $ 3,336 $ 3,028
Earnings Per Common Share:
Basic $0.42 $0.35 $0.85 $0.71
Diluted $0.41 $0.35 $0.83 $0.70
Weighted average shares
outstanding:
Basic 3,881,782 4,227,619 3,934,081 4,286,529
Diluted 4,007,169 4,291,671 4,035,921 4,323,091
See notes to unaudited condensed consolidated financial statements
4
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the year ended September 30, 2001 and the six months ended March 31, 2002
Dollars in Thousands Except Common Stock Shares
(unaudited)
Unearned
Shares Unearned Accumulated
Issued to Shares Other
Employee Issued to Compre-
Common Common Additional Stock Management hensive
Stock Shares Stock Paid-In Ownership Recognition Retained Income
Outstanding Amount Capital Trust Plan Earnings (Loss) Total
----------- ------ ------- ----- ---- -------- ------ -----
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 -- -- -- -- -- 3,336 -- 3,336
Repurchase of
Common Stock (156,872) (2) (2,411) -- -- -- -- (2,413)
Exercise of Stock
Options 16,753 -- 201 -- -- -- -- 201
Cash Dividends
($.22 per share) -- -- -- -- -- (993) -- (993)
Earned ESOP Shares -- -- -- 265 -- -- --
265Earned MRDP Shares -- -- 37 -- 322 -- -- 359
Change in fair value
of securities
available for sale,
net of tax -- -- -- -- -- -- (290) (290)
---------------------------------------------------------------------------------------
Balance, Mar. 31,
2002 3,870,184 $44 $37,401 ($5,683) ($2,149) $42,675 ($14) $72,274
---------------------------------------------------------------------------------------
See notes to unaudited condensed consolidated financial statements
5
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 2002 and 2001
Dollars in Thousands
(unaudited)
Six Months Ended March 31,
Cash Flow from Operating Activities 2002 2001
--------------------------
Net income $ 3,336 $ 3,028
--------------------------
Noncash revenues, expenses, gains and losses
included in income:
Depreciation 313 226
Federal Home Loan Bank stock dividends (158) (145)
Market value adjustment - loans held for sale -- (175)
Earned ESOP Shares 265 225
Earned MRDP Shares 359 --
Loss (Gain) on sale of securities available for sale 16 (228)
Gain on sale of real estate owned, net (13) (11)
Gain on sale of loans (500) (151)
Provision for loan and real estate owned losses 643 650
Loans originated for sale (38,921) (11,124)
Proceeds from sale of loans 40,444 15,164
Net increase in other assets (123) (311)
Decrease in other liabilities and accrued expenses,
net (1,336) (133)
--------------------------
Net Cash Provided by Operating Activities 4,325 7,015
Cash Flow from Investing Activities
Net decrease (increase) in interest-bearing
deposits in banks (23,422) 193
Purchase of securities available for sale -- (4,869)
Proceeds from maturities of securities
available for sale 2,527 8,476
Proceeds from sale of securities available
for sale 8,299 430
Increase in loans receivable, net (616) (5,683)
Additions to premises and equipment (850) (1,493)
Additions to real estate owned (637) (1,380)
Proceeds from sale of real estate owned 622 1,174
--------------------------
Net Used in Investing Activities (14,077) (3,152)
Cash Flow from Financing Activities
Increase in deposits, net 20,462 12,622
Decrease in Federal Home Loan Bank advances, net (7,146) (11,077)
Proceeds from exercise of stock options 201 --
Repurchase of common stock (2,413) (3,474)
Payment of dividends (993) (951)
--------------------------
Net Cash Provided (Used) by Financing Activities 10,111 (2,880)
Net Increase in Cash 359 983
Cash and Due from Financial Institutions
Beginning of period 10,017 8,893
-------------------------
End of period $ 10,376 $ 9,876
-------------------------
See notes to unaudited condensed consolidated financial statements(continued)
6
Six Months Ended March 31,
2002 2001
--------------------------
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 1,670 $ 925
Interest paid 5,827 7,221
Supplemental Disclosure of Noncash Investing
Activities
Market value adjustment of securities held for
sale, net of tax (290) 284
Investment securities acquired in loan
securitization 12,226 --
See notes to unaudited condensed consolidated financial statements
7
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended March 31, 2002 and 2001
Dollars in Thousands
(unaudited)
Three Months Ended March 31, Six Months Ended March 31,
2002 2001 2002 2001
--------------------------- -------------------------
Comprehensive Income:
Net Income $1,629 $1,487 $3,336 $3,028
Change in fair
value of
securities
Available for
sale, net of tax 23 (30) (290) 284
--------------------------- -------------------------
Total Comprehensive
Income $1,652 $1,457 $3,046 $3,312
See notes to unaudited condensed 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 generally accepted accounting principles for interim financial
information and with 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 six months ended March 31, 2002 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 March 31, 2002, there were
396,750 ESOP shares that had not been allocated.
Three Months Ended March 31, Six Month Ended March 31,
2002 2001 2002 2001
-------------------------- -------------------------
Basic EPS computation
Numerator - Net income $ 1,629,000 $ 1,487,000 $ 3,336,000 $ 3,028,000
Denominator - Weighted
average common shares
outstanding 3,881,782 4,227,619 3,934,081 4,286,529
Basic EPS $ 0.42 $ 0.35 $ 0.85 $ 0.71
Diluted EPS computation
Numerator - Net Income $ 1,629,000 $ 1,487,000 $ 3,336,000 $ 3,028,000
Denominator - Weighted
average common shares
outstanding 3,881,782 4,227,619 3,934,081 4,286,529
Effect of dilutive stock
options 106,390 64,052 91,103 36,562
Effect of dilutive MRDP 18,997 -- 10,737 -
----------- ----------- ----------- -----------
Weighted average common
shares and common stock
equivalents 4,007,169 4,291,671 4,035,921 4,323,091
Diluted EPS $ 0.41 $ 0.35 $ 0.83 $ 0.70
(3) DIVIDEND
On April 15, 2002, the Company announced a quarterly cash dividend of $0.11
per common share. The dividend is to be paid May 17, 2002, to shareholders of
record as of the close of business May 3, 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 and
six months ended March 31, 2002. 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 March 31, 2002 and September 30, 2001
Total Assets: Total assets increased by $12.4 million to $398.8 million at
March 31, 2002 from $386.3 million at September 30, 2001 primarily as a result
of a $20.5 million increase in deposits. The change is primarily reflected in
a $23.4 million increase in interest bearing deposits and a $13.2 million
decrease in loans held for sale.
Cash and Due from Financial Institutions: Cash and due from financial
institutions increased to $10.4 million at March 31, 2002 from $10.0 million
at September 30, 2001.
Interest Bearing Deposits in Banks: Interest bearing deposits in banks
increased by $23.4 million to $26.8 million at March 31, 2002 from $3.4
million at September 30, 2001, primarily due to proceeds received from
increased customer deposits and the sale of fixed rate one-to-four family
mortgage loans.
Investments and Mortgage-backed Securities: Investments and mortgage-backed
securities increased to $30.3 million at March 31, 2002 from $29.4 million at
September 30, 2001.
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 $310.5
million at March 31, 2002 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 $39.9 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
$13.2 million.
Real Estate Owned ("REO"): Real estate owned decreased $23,000 to $983,000
for March 31, 2002 from $1.01 million at September 30, 2001.
Premises and Equipment: Premises and equipment increased by $537,000 to $11.2
million at March 31, 2002 from $10.7 million at September 30, 2001. This
increase is primarily due to the purchase of a building in Olympia (Thurston
County) for a future branch and the acquisition of a building in Hoquiam
(Grays Harbor County) for future office space.
11
Deposits: Deposits increased by 8.4% to $262.8 million at March 31, 2002
from $242.4 million at September 30, 2001, primarily due to an $8.8 million
increase in the Bank's money market accounts, a $5.0 million increase in N.O.W
checking accounts, a $5.2 million increase in passbook savings accounts and a
$2.2 million increase in non-interest bearing accounts.
Federal Home Loan Bank ("FHLB") Advances: FHLB advances decreased by 10.4% to
$61.8 million at March 31, 2002 from $69.0 million at September 30, 2001, as
funds from increased deposits and loan sales were used to pay down the level
of advances.
Shareholders' Equity: Total shareholders' equity increased by $465,000 to
$72.3 million at March 31, 2002 from $71.8 million at September 30, 2001. The
components of shareholders' equity were affected by net income of $3.3
million, the repurchase of 156,872 shares of the Company's stock for $2.4
million, the payment of $993,000 in dividends to shareholders, and a $290,000
decrease in accumulated other comprehensive income. Also affecting
shareholders' equity was a $322,000 decrease in the equity component related
to unearned shares issued to the Management Recognition and Development Plan,
a $265,000 decrease in the equity component related to the unearned shares
issued to the Employee Stock Ownership Plan, and a $201,000 increase to
additional paid in capital from the exercise of stock options.
During the quarter ended March 31, 2002, the Company completed its ninth stock
buyback program. The Company has now repurchased 2,404,904 (36.4%) of the
6,612,500 shares that were issued when the Company went public in January
1998.
Non-performing Assets: Total non-performing assets remained constant at $4.1
million for March 31, 2002 as compared to September 30, 2001. The Company's
non-performing asset ratio to total asset ratio ("NPA") decreased to 1.27% at
March 31, 2002 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 March 31, 2002 and September 30, 2001.
At March 31, At September 30,
2002 2001
--------------------------------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One-to-four family $ 1,792 $ 863
Commercial 889 2,091
Construction and land development 536 491
Land 537 610
Consumer loans 58 26
Commercial Business Loans 253 10
--------- ---------
Total 4,065 4,091
Accruing loans which are contractually
past due 90 days or more:
Mortgage loans: -- --
Total of nonaccrual and
90 days past due loans 4,065 4,091
Real estate owned and other
repossessed assets 983 1,006
--------- ---------
Total nonperforming assets 5,048 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) 1.29% 1.25%
Nonaccrual and 90 days or more past
due loans as a percentage of total assets 1.02% 1.06%
Nonperforming assets as a percentage
of total assets 1.27% 1.32%
Loans receivable, (including loans
held for sale) (1) $ 313,993 $ 326,818
========= =========
Total assets $ 398,750 $ 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 March 31, At September 30,
2002 2001
Amount Percent Amount Percent
---------------------- --------------------
(Dollars In thousands)
Mortgage Loans:
One-to-four family (1)(2) $112,871 32.38% $130,082 35.14%
Multi family 27,514 7.89 29,412 7.95
Commercial 78,022 22.39 65,731 17.76
Construction and
land development 88,636 25.43 106,244 28.71
Land 15,053 4.32 13,632 3.68
-------- ------ -------- ------
Total mortgage loans 322,096 92.41 345,101 93.24
Consumer Loans:
Home equity and second
mortgage 10,669 3.06 11,039 2.98
Other 7,439 2.14 6,825 1.85
-------- ------ -------- ------
18,108 5.20 17,864 4.83
Commercial business loans 8,332 2.39 7,150 1.93
-------- ------ -------- ------
Total loans 348,536 100.00% 370,115 100.00%
====== ======
Less:
Undisbursed portion of loans
in process (31,329) (39,803)
Unearned income (3,214) (3,494)
Allowance for loan losses (3,450) (3,050)
Market value adjustment of
loans held-for-sale -- --
-------- --------
Total loans receivable, net $310,543 $323,768
======== ========
- -----------------
(1) Includes loans held-for-sale.
(2) Includes real estate contracts totaling $1.2 million at March 31, 2002.
Activity in the Allowance for Loan Losses
- -----------------------------------------
Activity in the allowance for loan losses in the six months ended March 31,
2002 and 2001 is as follows:
2002 2001
------ ------
Balance beginning of period $3,050 $2,640
Provision for loan losses 592 350
Loans charged off (200) (157)
Recoveries on loans previously charged off 8 --
Net charge offs (192) (157)
Balance at end of period $3,450 $2,833
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 March 31, 2002 At September 30, 2001
----------------- ---------------------
(in thousands) (in thousands)
Non-interest bearing $ 19,196 $ 16,976
N.O.W. checking 35,597 30,626
Passbook savings 39,420 34,228
Money market accounts 36,045 27,251
Certificates of deposit under
$100,000 93,684 88,449
Certificates of deposit $100,000
and over 38,892 44,842
--------- ---------
Total Deposits $ 262,834 $ 242,372
========= =========
Comparison of Operating Results for the Three and Six Months Ended March 31,
2002 and 2001
Net Income: Net income for the quarter ended March 31, 2002 was $1.63
million, or $0.41 per diluted share ($0.42 per basic share) compared to $1.49
million, or $0.35 per diluted share ($0.35 per basic share) for the quarter
ended March 31, 2001. Primary factors affecting the improved performance in
2002 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 income for the six months ended March 31, 2002 was $3.34 million or $0.83
per diluted share ($0.85 per basic share) compared to net income of $3.03
million or $0.70 per diluted share ($0.71 per basic share) for the six months
ended March 31, 2001.
Net Interest Income: Net interest income increased 11.5% to $4.8 million for
the quarter ended March 31, 2002 from $4.3 million for the quarter ended March
31, 2001, primarily due to decreased funding costs. Total interest expense
decreased $826,000 to $2.7 million for the quarter ended March 31, 2002 from
$3.5 million for the quarter ended March 31, 2001. 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
decreased to 3.67% for the quarter ended March 31, 2002 from 5.09% for the
quarter ended March 31, 2001. Total interest income decreased to $7.52
million for the quarter ended March 31, 2002 from $7.85 million for the
quarter ended March 31, 2001, primarily due to a decrease in average yields on
all categories of earning assets. The yield on earning assets was 8.12% for
the quarter ended March 31, 2002 compared to 8.94% for the quarter ended March
31, 2001. The impact of lower average yields was, however, partially offset by
increased levels of average earning assets. As a result of these changes, net
interest margin increased to 5.21% the quarter ended March 31, 2002 from 4.93%
for the quarter ended March 31, 2001.
Net interest income increased 15.8 % to $9.8 million for the six months ended
March 31, 2002 from $8.5 million for the six months ended March 31, 2001,
primarily due to decreased funding costs. Interest expense decreased by $1.7
million as the Company's overall cost of funds decreased to 3.87% for the six
months ended March 31, 2002 from 5.28% for the six months ended March 31,
2001. Total interest income decreased $343,000 to $15.5 million for the six
months ended March 31, 2002 from $15.8 million for the six months
15
ended March 31, 2001 primarily due to lower average yields on interest
earnings assets. Net interest margin was 5.31% for the six months ended March
31, 2002 compared to a net interest margin of 4.80% for the six months ended
March 31, 2001.
Total interest expense decreased $826,000 to $2.7 million for the quarter
ended March 31, 2002 from $3.5 million for the quarter ended March 31, 2001.
For the six months ended March 31, 2002 total interest expense decreased by
$1.7 million to $5.7 million as compared to $7.3 million for the six months
ended March 31, 2001. The average cost of funds for each type of the Bank's
deposit accounts and FHLB borrowings for the current six months were lower
than a year ago. 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 March 31, 2002 and 2001 was $200,000 in each period. The provision for
loan losses for the six months ended March 31, 2002 was $592,000 compared to
$350,000 for the six months ended March 31, 2001. 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 March 31, 2002 and trends in the loan
portfolio - management deemed the allowance for loan losses of $3.5 million at
March 31, 2002 (1.10% of loans receivable and loans held for sale and 84.9% 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.
The allowance for loan losses was $3.1 million (.93% of loans receivable and
loans held for sale) at September 30, 2001 and $2.8 million (.89% of loans
receivable and loans held for sale) at March 31, 2001. Net charge-offs for the
current quarter were $102,000 compared to $135,000 in the same quarter of
2001. For the six months ended March 31, 2002 and 2001, net charge-offs were
$192,000 and $157,000, respectively.
Noninterest Income: Total non-interest income increased to $1.05 million for
the quarter ended March 31, 2002 from $798,000 for the quarter ended March 31,
2001, primarily due to a $153,000 increase in service charges on deposits, a
$137,000 increase in the gain on sale of loans, and an $84,000 increase in
servicing income on loans sold. These increases were partially offset by a
$247,000 decrease in gain on sale of securities. The increased deposit-related
service charge income is primarily a result of the Bank's checking account
acquisition program. The change in rate environment during the previous year
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 the quarter
ended March 31, 2002 than in the same quarter a year ago. This resulted 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 $23.9 million in fixed-rate one-to-four family
loans during the quarter.
For the six months ended March 31, 2002 non-interest income increased $802,000
to $2.2 million from $1.4 million for the six months ended March 31, 2001.
This increase is primarily due to a $391,000 increase in service charges on
deposits, a $349,000 increase in gain on sale of loans, a $202,000 increase in
servicing income on loans sold and was partially offset by a $244,000 decrease
in gain on sale of securities.
Noninterest Expense: Total non-interest expense increased to $3.1 million for
the three months ended March 31, 2002 from $2.7 million for the three months
ended March 31, 2001. This increase is primarily due to a $401,000 increase
in salary and employee benefit expense, a $106,000 increase in premises and
equipment expenses, a $62,000 increase in ATM operating expenses, and is
partially offset by a $294,000 decrease in REO operation 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
16
manage the Bank's business banking activities, and expenses associated with
the Management Recognition and Development Plan.
Total non-interest expense increased $1.3 million for the six months ended
March 31, 2002 compared to 2001, essentially related to the same factors that
affected non-interest expenses for the quarter ended March 31, 2002 compared
to the quarter ended March 31, 2001. At March 31, 2002, the number of
full-time equivalent employees was 149 compared to 134 at March 31, 2001.
Provision for Income Taxes: The provision for income taxes increased to $1.8
million for the six months ended March 31, 2002 from $1.5 million for the six
months ended March 31, 2001 primarily as a result of higher income before
income taxes. The Company's effective tax rate was 35.4% in 2002 compared to
33.1% in 2001.
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 March 31, 2002,
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 26.7%.
The Bank also maintained an uncommitted credit facility with the FHLB-Seattle
that provided for immediately available advances up to an aggregate amount of
$134.0 million, under which $61.8 million was outstanding at March 31, 2002.
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,
2002, the Bank had loan commitments totaling $24.7 million and undisbursed
loans in process totaling $31.3 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, 2002 totaled $107.8 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
17
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, 2002, 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, 2002
to its minimum regulatory capital requirements at that date (dollars in
thousands):
Percent of
Amount Adjusted Total Assets (1)
------- -------------------------
Tier 1 (leverage) capital $61,506 16.1%
Tier 1 (leverage) capital
requirement 15,268 4.0
------- ----
Excess $46,238 12.1%
======= ====
Tier 1 risk adjusted capital $61,506 22.3%
Tier 1 risk adjusted capital
requirement 11,037 4.0
------- ----
Excess $50,469 18.3%
======= ====
Total risk based capital $64,956 23.5%
Total risk based capital
requirement 22,074 8.0
------- ----
Excess $42,882 15.5%
======= ====
- -------------------
(1) For the Tier 1 (leverage) capital, percent of total average assets of
$381.7 million. For the Tier 1 risk-based capital and total risk-based
capital calculations, percent of total risk-weighted assets of $275.9 million.
18
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
KEY FINANCIAL RATIOS
(Dollars in thousands, except per share data)
Three Months Ended March 31, Six Months Ended March 31,
2002 2001 2002 2001
--------------------------- -------------------------
PERFORMANCE RATIOS:
Return on average
assets (1) 1.69% 1.63% 1.73% 1.65%
Return on average
equity (1) 9.08% 8.20% 9.27% 8.34%
Net interest
margin (1) 5.21% 4.93% 5.31% 4.80%
Efficiency ratio 53.60% 52.75% 52.06% 50.60%
March 31, September 30,
2002 2001
-----------------------------------
ASSET QUALITY RATIOS:
Non-performing loans $ 4,065 $ 4,091
REO & other repossessed assets 983 1,006
Total non-performing assets 5,048 5,097
Non-performing assets to total assets 1.27% 1.32%
Allowance for loan losses to
non-performing loans 84.87% 74.55%
Book Value Per Share (2) $ 16.31 $ 15.71
Book Value Per Share (3) $ 17.84 $ 17.20
- ----------------------
(1) Annualized
(2) Calculation includes ESOP shares not committed to be released
(3) Calculation excludes ESOP shares not committed to be released
Three Months Ended March 31, Six Months Ended March 31,
2002 2001 2002 2001
------------------------ ------------------------
AVERAGE BALANCE SHEET:
- ---------------------
Average Total Loans $ 319,621 $ 319,763 $ 321,337 $ 321,221
Average Total Interest
Earning Assets 370,156 350,913 369,188 352,609
Average Total Assets 385,964 365,761 385,484 367,204
Average Total Interest
Bearing Deposits 229,566 198,126 227,786 195,833
Average FHLB Advances 63,589 78,334 64,805 82,017
Average Shareholders'
Equity 71,755 72,537 72,002 72,622
19
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
- --------------------------------------------------------------
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 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 March 31,
2002.
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: May 9, 2002 By: /s/ Clarence E. Hamre
-------------------------------------
Clarence E. Hamre
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 2002 By: /s/ Dean J. Brydon
-------------------------------------
Dean J. Brydon
Chief Financial Officer
(Principal Financial Officer)
21