UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
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 ___
---- ----
Check whether the registrant is an accelerated filer (as defined in Rule 12b-2
of the Exchange Act):
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AT JULY 31, 2003
----- -----------------------------------
common stock, $.01 par value 3,780,577
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) 9-11
Item 2. Management's Discussion and Analysis of Financial 12-22
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. 23
Item 4. Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2003 and September 30, 2002
Dollars in Thousands
(unaudited)
June 30, September 30,
2003 2002
--------------------------
Assets
Cash and due from financial institutions $ 11,009 $ 10,580
Interest bearing deposits in banks 39,617 25,493
Securities held to maturity (fair value $376) 383 - -
Securities available for sale 48,373 41,582
Federal Home Loan Bank stock 5,383 5,139
Loans receivable 313,346 322,997
Loans held for sale 1,389 3,161
Less: Allowance for loan losses (3,938) (3,630)
--------------------------
Total Loans 310,797 322,528
--------------------------
Accrued interest receivable 1,455 1,604
Premises and equipment 13,049 11,664
Real estate owned 1,247 680
Bank owned life insurance ("BOLI") 10,437 10,036
Other assets 2,403 1,748
--------------------------
Total Assets $ 444,153 $ 431,054
--------------------------
Liabilities and Shareholders' Equity
Liabilities
Deposits $ 302,934 $ 292,316
Federal Home Loan Bank advances 61,644 61,759
Other liabilities and accrued expenses 2,249 2,583
--------------------------
Total Liabilities 366,827 356,658
--------------------------
Shareholders' Equity
Common Stock, $.01 par value; 50,000,000
shares authorized; June 30, 2003 - 4,273,917
issued, 3,789,477 outstanding
September 30, 2002 - 4,340,976 issued,
3,856,536 outstanding (unallocated ESOP
shares and unvested MRDP shares are not
considered outstanding) 43 43
Additional paid in capital 34,491 35,857
Unearned shares - Employee Stock Ownership Plan (5,023) (5,419)
Unearned shares Management Recognition &
Development Plan (1,343) (1,826)
Retained earnings 48,859 45,210
Accumulated other comprehensive income 299 531
--------------------------
Total Shareholders' Equity 77,326 74,396
--------------------------
Total Liabilities and Shareholders'
Equity $ 444,153 $ 431,054
--------------------------
See notes to unaudited condensed consolidated financial statements
3
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended June 30, 2003 and 2002
Dollars in Thousands, Except Per Share Amounts
(unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
------------------ ------------------
Interest and Dividend Income
Loans receivable $ 6,203 $ 6,771 $19,165 $21,017
Investments and mortgage-backed
securities 209 317 697 1,132
Dividends from investments 259 258 805 592
Interest bearing deposits in banks 103 60 308 123
Total interest and dividend ------------------ ------------------
income 6,774 7,406 20,975 22,864
Interest Expense
Deposits 1,338 1,793 4,361 5,768
Federal Home Loan Bank advances 840 842 2,521 2,523
------------------ ------------------
Total interest expense 2,178 2,635 6,882 8,291
------------------ ------------------
Net interest income 4,596 4,771 14,093 14,573
Provision for Loan Losses 66 200 347 792
------------------ ------------------
Net interest income after
provision for loan losses 4,530 4,571 13,746 13,781
Non-Interest Income
Service charges on deposits 531 516 1,522 1,299
Gain on sale of loans, net 364 251 1,187 751
Gain (loss) on sale of securities 135 1 135 (15)
BOLI net earnings 131 - - 401 - -
Escrow fees 70 57 205 202
Servicing income on loans sold 50 57 245 307
ATM transaction fees 213 168 588 439
Other 154 139 510 414
------------------ ------------------
Total non-interest income 1,648 1,189 4,793 3,397
Non-interest Expense
Salaries and employee benefits 2,068 1,729 6,110 5,161
Premises and equipment 580 355 1,313 1,043
Advertising 170 169 550 601
Loss from real estate operations
& write-downs 68 45 141 104
ATM expenses 169 130 470 355
Other 888 710 2,384 2,126
------------------ ------------------
Total non-interest expense 3,943 3,138 10,968 9,390
Income before federal income taxes 2,235 2,622 7,571 7,788
Federal Income Taxes 694 825 2,372 2,655
------------------ ------------------
Net Income $ 1,541 $ 1,797 $ 5,199 $ 5,133
Earnings Per Common Share:
Basic $ 0.41 $ 0.46 $ 1.36 $ 1.31
Diluted $ 0.38 $ 0.45 $ 1.30 $ 1.27
Weighted average shares outstanding:
Basic 3,783,219 3,875,211 3,820,142 3,928,653
Diluted 4,012,736 4,037,034 4,008,623 4,052,061
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, 2002 and the nine months ended June 30, 2003
Dollars in Thousands Except Common Stock Shares
(unaudited)
Unearned
Shares Unearned
Issued to Shares Accumulated
Employee Issued to Other
Common Common Additional Stock Management Compre-
Stock Shares Stock Paid-In Ownership Recognition Retained hensive
Outstanding Amount Capital Trust Plan Earnings Income Total
----------- ------ ------- ----- ---------- -------- ------ ------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
Balance, Sept. 30, 2001 4,010,303 $46 $39,574 ($5,948) ($2,471) $40,332 $ 276 $71,809
Net income - - - - - - - - - - 6,891 - - 6,891
Repurchase of
common stock (274,272) (3) (4,411) - - - - - - - - (4,414)
Exercise of stock options 44,253 - - 588 - - - - - - - - 588
Cash dividends
($.45 per share) - - - - - - - - - - (2,013) - - (2,013)
Earned ESOP shares 35,267 - - 27 529 - - - - - - 556
Earned MRDP shares 40,985 - - 79 - - 645 - - - - 724
Change in fair value of
securities available
for sale, net of tax - - - - - - - - - - - - 255 255
--------------------------------------------------------------------------------
Balance, Sept. 30, 2002 3,856,536 43 35,857 (5,419) (1,826) 45,210 531 74,396
--------------------------------------------------------------------------------
Net income - - - - - - - - - - 5,199 - - 5,199
Repurchase of
common stock (122,259) (1) (2,326) - - - - - - - - (2,327)
Exercise of stock options 55,200 1 741 - - - - - - - - 742
Cash dividends
($.36 per share) - - - - - - - - - - (1,550) - - (1,550)
Earned ESOP shares - - - - 174 396 - - - - - - 570
Earned MRDP shares - - - - 45 - - 483 - - - - 528
Change in fair value of
securities available
for sale, net of tax - - - - - - - - - - - - (232) (232)
--------------------------------------------------------------------------------
Balance, June 30, 2003 3,789,477 $43 $34,491 ($5,023) ($1,343) $48,859 $299 $77,326
--------------------------------------------------------------------------------
See notes to unaudited condensed consolidated financial statements
5
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 2003 and 2002
Dollars in Thousands
(unaudited)
Nine Months Ended June 30,
Cash Flow from Operating Activities 2003 2002
------------------------
Net income $ 5,199 $ 5,133
------------------------
Noncash revenues, expenses, gains and losses
included in income:
Depreciation 500 464
Federal Home Loan Bank stock dividends (244) (233)
Earned ESOP Shares 570 397
Earned MRDP Shares 528 528
Loss (gain) on sale of securities available for sale (135) 15
Loss (gain) on sale of real estate owned, net 14 (7)
BOLI cash surrender value increase (401) - -
Gain on sale of loans (1,187) (751)
Provision for loan and real estate owned losses 401 864
Loans originated for sale (86,232) (54,536)
Proceeds from sale of loans 89,191 56,190
Net decrease in other assets (386) (315)
Decrease in other liabilities and accrued
expenses, net (334) (1,043)
------------------------
Net Cash Provided by Operating Activities 7,484 6,706
Cash Flow from Investing Activities
Net increase in interest-bearing deposits in banks (14,124) (21,054)
Purchase of securities (16,500) (15,000)
Proceeds from maturities of securities available
for sale 7,099 3,480
Proceeds from sale of securities available for sale 2,010 12,293
Decrease (increase) in loans receivable, net 9,612 (11,345)
Additions to premises and equipment (1,885) (1,173)
Additions to real estate owned (1,032) (673)
Proceeds from sale of real estate owned 397 696
------------------------
Net Cash Used in Investing Activities (14,423) (32,776)
Cash Flow from Financing Activities
Increase in deposits, net 10,618 34,276
Decrease in Federal Home Loan Bank advances, net (115) (7,182)
Proceeds from exercise of stock options 742 346
Repurchase of common stock (2,327) (2,413)
Payment of dividends (1,550) (1,480)
------------------------
Net Cash Provided by Financing Activities 7,368 23,547
Net Change in Cash 429 (2,523)
Cash and Due from Financial Institutions
Beginning of period 10,580 10,017
------------------------
End of period $ 11,009 $ 7,494
------------------------
See notes to unaudited condensed consolidated financial statements
(continued)
6
Nine Months Ended June 30,
2003 2002
------------------------
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 1,990 $ 2,280
Interest paid 6,905 8,466
Supplemental Disclosure of Noncash Investing Activities
Market value adjustment of securities held for
sale, net of tax (232) 184
Investment securities acquired in loan
securitization - - 12,227
Loans transferred to real estate owned 978 601
See notes to unaudited condensed consolidated financial statements
7
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and nine months ended June 30, 2003 and 2002
Dollars in Thousands
(unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
------------------ ------------------
Comprehensive Income:
Net Income $1,541 $1,797 $5,199 $5,133
Change in fair value of
securities available for sale,
net of tax (149) 474 (232) 184
------------------ ------------------
Total Comprehensive Income $1,392 $2,271 $4,967 $5,317
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 accounting principles generally accepted in the United States
of America 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 accounting principles generally accepted in the United States
of America. 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 unaudited consolidated financial statements should be read in
conjunction with the audited financial statements included in the Timberland
Bancorp, Inc. 2002 Annual Report on Form 10-K. The results of operations for
the nine months ended June 30, 2003 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 accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect reported mounts 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 June 30, 2003 and 2002, there
were 361,483 and 396,750 ESOP shares, respectively, that had not been
allocated.
Three Months Nine Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
---------------------- ----------------------
Basic EPS computation
Numerator - Net Income $1,541,000 $1,797,000 $5,199,000 $5,133,000
Denominator - Weighted average
common shares outstanding 3,783,219 3,875,211 3,820,142 3,928,653
Basic EPS $ 0.41 $ 0.46 $ 1.36 $ 1.31
Diluted EPS computation
Numerator - Net Income $1,541,000 $1,797,000 $5,199,000 $5,133,000
Denominator - Weighted average
common shares outstanding 3,783,219 3,875,211 3,820,142 3,928,653
Effect of dilutive stock options 185,785 127,502 157,154 104,271
Effect of dilutive MRDP 43,732 34,321 31,327 19,137
---------------------- ----------------------
Weighted average common shares
and common stock equivalents 4,012,736 4,037,034 4,008,623 4,052,061
Diluted EPS $ 0.38 $ 0.45 $ 1.30 $ 1.27
(3) STOCK BASED COMPENSATION
At June 30, 2003 the Company has an employee and director stock option plan.
The Company accounts for options granted under that plan under the recognition
and measurement principles of APB No. 25, Accounting for Stock Issued to
Employees and related interpretations. Accordingly, no stock-based
compensation cost is reflected in net income as the exercise price for all
options granted under the plan was equal to the market value of the Company's
stock on the date of grant. The following table illustrates the effect on net
income and earnings per share for the three and the nine months ended June 30,
2003 and 2002 if the Company had applied the fair value recognition provisions
of SFAS No. 123, Accounting for Stock-Based Compensation for the effects of
all options granted:
10
Three Months Nine Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
---------------------- ----------------------
Net income as reported $1,541,000 $1,797,000 $5,199,000 $5,133,000
Less total stock-based
compensation expense
determined under fair
value method for all
qualifying awards (58,000) (66,000) (159,000) (191,000)
Pro forma net income 1,483,000 1,731,000 5,040,000 4,942,000
Earnings per share:
Basic:
As reported $ 0.41 $ 0.46 $ 1.36 $ 1.31
Pro forma 0.39 0.45 1.32 1.26
Diluted:
As reported $ 0.38 $ 0.45 $ 1.30 $ 1.27
Pro forma 0.37 0.43 1.27 1.23
(4) DIVIDEND
On July 10, 2003, the Company announced a quarterly cash dividend of $0.14 per
common share. The dividend is to be paid August 18, 2003, to shareholders of
record as of the close of business August 4, 2003.
(5) RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." This Statement provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. It also expands and clarifies the disclosure
requirements to make those disclosures more prominent and to require such
disclosures in interim as well as annual financial statements. While the
Company plans to continue to account for stock-based compensation under APB
Opinion 25, the disclosure requirements of SFAS No. 148 have been implemented
for interim reporting beginning with the quarter ended March 31, 2003. The
Company does not expect adoption of SFAS No. 148 to have a material impact on
its financial statements.
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 and
nine months ended June 30, 2003. 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 June 30, 2003 and September 30, 2002
Total Assets: Total assets increased to $444.2 million at June 30, 2003 from
$431.1 million at September 30, 2002. This change is reflected primarily in a
$21.3 million increase in investment securities and interest bearing deposits
in banks, which is partially offset by an $11.7 million decrease in total
loans.
Cash and Due from Financial Institutions: Cash and due from financial
institutions increased to $11.0 million at June 30, 2003 from $10.6 million at
September 30, 2002.
Interest Bearing Deposits in Banks: Interest bearing deposits in banks
increased $14.1 million to $39.6 million at June 30, 2003 from $25.5 million
at September 30, 2002. This increase is primarily due to investing the
majority of the proceeds from loan sales, loan prepayments, and increased
customer deposits, on a short-term basis, due to the current low-rate interest
environment.
Securities: Securities increased 17.3% to $48.8 million at June 30, 2003 from
$41.6 million at September 30, 2002. This increase is primarily due to
investing a portion of the proceeds from loan sales, loan prepayments, and
increased customer deposits into short-duration mutual funds and
mortgage-backed securities. At June 30, 2003, the Company's securities'
portfolio was comprised of mutual funds of $34.6 million and mortgage-backed
securities of $14.1 million.
Loans Receivable and Loans Held-for-Sale, Net of Allowance for Loan Losses:
Net loans receivable, including loans held-for-sale, decreased to $310.8
million at June 30, 2003 from $322.5 at September 30, 2002, primarily
reflected in a $16.6 million decrease in the Bank's one-to-four family
mortgage loan portfolio. The portfolio decrease was primarily due to loan
prepayments, as a result of the historically low home mortgage rates, and the
sale of a majority of the one-to-four family mortgages generated during the
period. During the nine months ended June 30, 2003, the Bank originated
loans of $184.4 million and sold $88.0 million in fixed rate one-to-four
family mortgage loans. Management elected to sell a majority of the fixed
rate residential real estate loans originated instead of adding them to the
Bank's portfolio due to the low rate environment.
Partially offsetting the decrease of one-to-four family mortgage loans in the
Bank's portfolio, was an increase in construction and land development loans,
which grew to $91.9 million at June 30, 2003 from $80.1 million at September
30, 2002. The majority of the construction portfolio continues to be comprised
of residential construction loans. At June 30, 2003, custom home construction
loans, owner / builder construction loans, and
12
speculative one-to-four family home construction loans comprised 77.0% of the
Bank's total construction loan portfolio.
Real Estate Owned ("REO"): Real estate owned increased to $1.2 million at
June 30, 2003 from $680,000 at September 30, 2002. The increase was
primarily due to the addition of five 1-4 family residences, two parcels of
land and one commercial building. At June 30, 2003, the REO amount was
primarily comprised of one-to-four family homes totaling $852,000, land
parcels totaling $214,000 and commercial buildings totaling $169,000.
Premises and Equipment: Premises and equipment increased by $1.4 million to
$13.0 million at June 30, 2003 from $11.7 million at September 30, 2002. This
increase is primarily due to costs associated with the construction of the
Silverdale branch (which opened January 13, 2003), remodeling of a commercial
building in Hoquiam, which has become the current location of the Bank's loan
servicing and escrow departments, remodeling of the Bank's home office in
Hoquiam, and the remodeling of a building in downtown Olympia that will become
the Bank's 15th full-service office. The downtown Olympia branch is scheduled
to open in mid to late August 2003 and will serve as the headquarters for the
Bank's Commercial Lending and Business Banking Divisions.
The Bank announced in May its plans to expand to the city of Gig Harbor
(Pierce County). Plans are to open a branch in the Gig Harbor area within the
next 6 months.
Deposits: Deposits increased by $10.6 million to $302.9 million at June 30,
2003 from $292.3 million at September 30, 2002, primarily due to a $9.0
million increase in the Bank's savings accounts, a $7.7 million increase in
N.O.W. checking accounts and a $4.2 million increase in non-interest bearing
accounts. These increases are partially offset by a $6.2 million decrease in
money market accounts and a $4.1 million decrease in certificate of deposit
accounts.
Federal Home Loan Bank ("FHLB") Advances: FHLB advances decreased to $61.6
million at June 30, 2003 from $61.8 million at September 30, 2002.
Shareholders' Equity: Total shareholders' equity increased by $2.9 million to
$77.3 million at June 30, 2003 from $74.4 million at September 30, 2002. The
components of shareholders' equity were primarily affected by net income of
$5.2 million, the repurchase of 122,259 shares of the Company's stock for $2.3
million and the payment of $1.6 million in dividends to shareholders. Also
affecting shareholders' equity was a $742,000 increase from the exercise of
stock options, and decreases of $483,000 and $396,000 in the equity components
related to unearned shares issued to the Management Recognition and
Development Plan and Employee Stock Ownership Plans, respectively.
On February 14, 2003 the Company announced a plan to repurchase 380,028 shares
of the Company's stock. This marked the Company's eleventh stock repurchase
plan. As of June 30, 2003, the Company had purchased 46,000 of these shares
and cumulatively had repurchased 2,644,563 (40.0%) 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 $3.4 million
at June 30, 2003 from $4.4 million at September 30, 2002. The Company's
non-performing asset ratio to total asset ratio ("NPA") decreased to 0.77% at
June 30, 2003 from 1.03% at September 30, 2002. Nonaccrual loans decreased by
41.6% to $2.2 million at June 30, 2003 from $3.7 million at September 30,
2002, primarily reflected in a $1.1 million decrease in the construction and
land development category, a $158,000 decrease in the one-to-four family
mortgage loan category, and a $151,000 decrease in the commercial mortgage
loan category. The decrease in
13
non-accrual loans was partially offset by a $567,000 increase in real estate
owned and improvements made to real estate owned.
14
Non Performing Asset
- --------------------
The following table sets forth information with respect to the Company's
nonperforming assets at the dates indicated.
June 30, September 30,
2003 2002
--------------------------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One-to-four family $ 980 $ 1,138
Commercial 537 688
Construction and land development 434 1,571
Land 233 251
Consumer loans 2 49
Commercial Business Loans - - 44
-------- --------
Total 2,186 3,741
Accruing loans which are contractually
past due 90 days or more: -- --
Total of nonaccrual and
90 days past due loans 2,186 3,741
Real estate owned and other
repossessed assets 1,247 680
-------- --------
Total nonperforming assets 3,433 4,421
Restructured loans - - - -
Nonaccrual and 90 days or more past
due loans as a percentage of loans
receivable, (including loans held for sale)(1) 0.69% 1.15%
Nonaccrual and 90 days or more past
due loans as a percentage of total assets 0.49% 0.87%
Nonperforming assets as a percentage
of total assets 0.77% 1.03%
Loans receivable, (including loans
held for sale) (1) $314,735 $326,158
======== ========
Total assets $444,153 $431,054
======== ========
- ---------------
(1) Loans receivable is before the allowance for loan losses
15
Loans Receivable
- ----------------
The following table sets forth the composition of the Company's loan portfolio
by type of loan.
At June 30, At September 30,
2003 2002
Amount Percent Amount Percent
--------------------- --------------------
(Dollars In thousands)
Mortgage Loans:
One-to-four family (1) $ 96,584 27.21% $113,144 31.28%
Multi family 19,624 5.53 24,135 6.67
Commercial 98,406 27.72 97,644 27.00
Construction and
land development 91,920 25.90 80,144 22.16
Land 14,743 4.15 15,453 4.27
-------- ------ -------- ------
Total mortgage loans 321,277 90.51 330,520 91.38
Consumer Loans:
Home equity and second
mortgage 16,577 4.67 13,718 3.79
Other 9,024 2.54 8,097 2.24
-------- ------ -------- ------
25,601 7.21 21,815 6.03
Commercial business loans 8,074 2.28 9,365 2.59
-------- ------ -------- ------
Total loans 354,952 100.00% 361,700 100.00%
====== ======
Less:
Undisbursed portion of
loans in process (37,133) (32,324)
Unearned income (3,084) (3,218)
Allowance for loan losses (3,938) (3,630)
-------- --------
Total loans receivable, net $310,797 $322,528
======== ========
- ----------------
(1) Includes loans held-for-sale.
16
Construction and Land Development Loan Portfolio Composition
- ------------------------------------------------------------
The following table sets forth the composition of the Company's construction
and land development loan portfolio as of the dates indicated.
At June 30, At September 30,
2003 2002
Amount Percent Amount Percent
--------------------- --------------------
(Dollars In thousands)
Custom and owner/builder
const. $ 41,202 44.82% $ 31,004 38.69%
Speculative construction 29,544 32.14 27,257 34.01
Commercial real estate 10,020 10.90 6,276 7.83
Multi-family 3,525 3.84 4,890 6.10
Land development 7,629 8.30 10,717 13.37
-------- ------ -------- ------
Total mortgage loans 91,920 100.00% 80,144 100.00%
Activity in the Allowance for Loan Losses
- -----------------------------------------
Activity in the allowance for loan losses in the nine months ended June 30,
2003 and 2002 is as follows:
2003 2002
---------------------
(Dollars in thousands)
Balance beginning of period $3,630 $3,050
Provision for loan losses 347 792
Loans charged off (107) (486)
Recoveries on loans previously charged off 68 108
Net charge offs (39) (378)
Balance at end of period $3,938 $3,464
17
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.
June 30, 2003 September 30, 2002
------------- ------------------
(in thousands) (in thousands)
Non-interest bearing $ 27,749 $ 23,585
N.O.W. checking 49,937 42,222
Savings 49,283 40,328
Money market accounts 41,722 47,888
Certificates of deposit under $100,000 108,707 102,052
Certificates of deposit $100,000
and over 25,536 36,241
-------- --------
Total Deposits $302,934 $292,316
======== ========
FHLB Advances
- -------------
The Bank's Federal Home Loan Bank borrowings mature at various dates through
January 2011 and bear interest at rates ranging from 3.2% to 6.6%. Principal
reduction amounts due for future years ending September 30 are as follows
(dollars in thousands):
2003 $ 40
2004 6,673
2005 4,583
2006 10,591
2007 64
Thereafter 39,693
- --------------------
Total $61,644
A portion of these advances have a putable feature and may be called by FHLB
earlier than the above schedule indicates.
Comparison of Operating Results for the Three and Nine Months Ended June 30,
2003 and 2002
Net Income: Net income for the quarter ended June 30, 2003 was $1.54 million,
or $0.38 per diluted share ($0.41 per basic share) compared to $1.80 million,
or $0.45 per diluted share ($0.46 per basic share) for the quarter ended June
30, 2002. The lower earnings for the current quarter were primarily a result
of increased non-interest expenses related to technology improvements and
higher employee costs resulting from a larger employee base. The increase in
non-interest expenses was, however, partially offset by increased non-interest
income from loan sales, security sales, and BOLI income.
18
Net income for the nine months ended June 30, 2003 was $5.20 million, or $1.30
per diluted share ($1.36 per basic share) compared to $5.13 million, or $1.27
per diluted share ($1.31 per basic share) for the nine months ended June 30,
2002.
The Company also announced in its July 22, 2003 earnings release that
additional expenses associated with planned technology improvements will
reduce earnings for the September 30, 2003 quarter by approximately $0.05 per
diluted share. Additional details concerning the technology improvements are
discussed below.
Net Interest Income: Net interest income decreased $175,000 to $4.60 million
for the quarter ended June 30, 2003 from $4.77 million for the quarter ended
June 30, 2002, as the continued downward pressure on interest rates further
compressed the net interest margin from a year ago. Total interest income
decreased $632,000 to $6.77 million for the quarter ended June 30, 2003 from
$7.41 million for the quarter ended June 30, 2002, primarily due to a
reduction in average yields on earning assets. The yield on earning assets
was 6.65% for the quarter ended June 30, 2003 compared to 7.65% for the
quarter ended June 30, 2002. In addition to overall lower market rates, the
yield was also impacted by a shift in the makeup of total earning assets. In
2002, loans, the Company's highest yielding class of assets, comprised 83.6%
of average earning assets. In 2003, loans were 77.3% of average earning
assets. This change was largely influenced by the decision to sell many of
the loans originated in the current periods. That had the effect of
increasing the gain on loans sold, at the expense of interest income. The
impact of lower average yields was, however, partially offset by increased
levels of average earning assets. Total interest expense decreased $457,000
to $2.18 million for the quarter ended June 30, 2003 from $2.64 million for
the quarter ended June 30, 2002. The average cost of funds for each of the
Bank's deposit account types for the current quarter was lower than a year
ago. The overall cost of funds decreased to 2.62% for the quarter ended June
30, 2003 from 3.42% for the quarter ended June 30, 2002. As a result of these
changes, the net interest margin decreased to 4.51% for the quarter ended June
30, 2003 from 4.93% for the quarter ended June 30, 2002.
Net interest income decreased $480,000 to $14.09 million for the nine months
ended June 30, 2003 from $14.57 million for the nine months ended June 30,
2002 due to a similar net interest margin compression. Total interest income
decreased $1.89 million to $20.98 million for the nine months ended June 30,
2003 from $22.86 million for the nine months ended June 30, 2002, primarily
due to a reduction in average yields on earning assets. The yield on earning
assets was 6.92% for the nine months ended June 30, 2003 compared to 8.13% for
the nine months ended June 30, 2002. The impact of lower average yields was,
however, partially offset by increased levels of average earning assets.
Total interest expense decreased $1.41 million to $6.88 million for the nine
months ended June 30, 2003 from $8.29 million for the nine months ended June
30, 2002. The average cost of funds for each of the Bank's deposit account
types for the current period was lower than a year ago. The overall cost of
funds decreased to 2.77% for the nine months ended June 30, 2003 from 3.71%
for the nine months ended June 30, 2002. As a result of these changes, the
net interest margin decreased to 4.65% for the nine months ended June 30, 2003
from 5.18% for the nine months ended June 30, 2002.
Provision for Loan Losses: The provision for loan losses decreased to $66,000
for the three months ended June 30, 2003 from $200,000 for the three months
ended June 30, 2002. The provision for loan losses decreased to $347,000 for
the nine months ended June 30, 2003 from $792,000 for the nine months ended
June 30, 2002. The Bank has established a systematic methodology for the
determination of provisions for loan losses. On a quarterly basis the Bank
performs an analysis taking into consideration historic loss experience for
various loan segments, changes in economic conditions, delinquency rates, and
other factors to determine the level of allowance for loan losses needed.
Based on its analysis, management deemed the allowance for loan losses of
$3.938 million at June 30, 2003 (1.26% of loans receivable and 180.1% of
non-performing loans) adequate to provide for probable losses based
19
on an evaluation of known and inherent risks in the loan portfolio at that
date. The allowance for loan losses was $3.464 million (1.08% of loans
receivable and 77.0% of non-performing loans) at June 30, 2002. The increase
in the level of the allowance for loan losses primarily resulted from a slight
change in the mix of the loan portfolio. The Company had net recoveries of
$3,000 for the current quarter compared to net charge-offs of $186,000 in the
same quarter of 2002. For the nine months ended June 30, 2003 and 2002, net
charge-offs were $39,000 and $378,000 respectively.
Noninterest Income: Total non-interest income increased $459,000 to $1.65
million for the quarter ended June 30, 2003 from $1.19 million for the quarter
ended June 30, 2002, primarily due to a $134,000 increase in gain on sale of
securities, the recognition of $131,000 in BOLI income, and a $113,000
increase in gain on sale of loans. The gain on sale of securities was the
result of the sale of a $1.9 million mortgage-backed security. The increased
loan sale gains are primarily a result of the Bank selling $25.7 million in
fixed-rate one-to-four family loans during the current quarter. During the
same period in 2002, the Bank sold $15.5 million in fixed-rate one-to-four
family loans.
For the nine months ended June 30, 2003 non-interest income increased $1.40
million to $4.79 million from $3.40 million for the nine months ended June 30,
2002. This increase is primarily due to a $436,000 increase in gain on sale
of loans, the recognition of $401,000 in BOLI income, a $223,000 increase in
service charges on deposits, and a $149,000 increase in ATM transaction fees.
The increased deposit-related service charge income is primarily a result of
the Bank's checking account acquisition program. Since the program began in
December 2000, the Bank has increased the number of its consumer checking
accounts by 103% and increased its consumer checking account balances by $30.7
million.
Noninterest Expense: Total non-interest expense increased by $805,000 to
$3.94 million for the three months ended June 30, 2003 from $3.14 million for
the three months ended June 30, 2002. This increase is primarily due to a
$339,000 increase in salaries and employee benefits and $252,000 in expenses
related to the core processing system conversion and technology related
technology improvements. The increase in salaries and employee benefits is
primarily a result of adding employees to staff the Silverdale branch,
increasing staffing levels in several other departments, and salary increases
in October of 2002. The technology conversion related expenses are reflected
in the income statement under premises and equipment ($135,000) and other
non-interest expenses ($117,000).
For the nine months ended June 30, 2003 non-interest expense increased by
$1.58 million to $10.97 million from $9.39 million for the nine months ended
June 30, 2002. This increase is primarily due to a $949,000 increase in
salaries and employee benefits, technology conversion related expenses of
$271,000 and a $115,000 increase in ATM expenses.
Provision for Income Taxes: The provision for income taxes decreased to
$694,000 for the quarter ended June 30, 2003 from $825,000 for the quarter
ended June 30, 2002. The provision for income taxes decreased to $2.37
million for the nine months ended June 30, 2003 from $2.66 million for the
nine months ended June 30, 2002. The Company's effective tax rate was 31.1%
and 31.3% for the three and nine months ended June 30, 2003 compared to 31.5%
and 34.1% for the three and nine months ended June 30, 2002. The lower
effective tax rates resulted primarily from increased tax-exempt income from
the Bank owned life insurance program that was implemented in September 2002.
Technology Improvement Expenses
- -------------------------------
The Company's planned technology improvements announced previously are in
process and on schedule. The conversion to the Kirchman Bankway core
processing system from the current in-house supported system will occur in
August of this year. In addition to the core processing system, Timberland is
also changing its Internet
20
banking provider, its ATM service provider and its loan platform system. The
Company believes that these changes will enhance customer service, streamline
the loan processing system, and allow the Bank to offer more products to its
commercial and retail customers. The Company incurred expenses of $252,000
($166,000 net of income tax) related to the technology upgrades and conversion
process during the June 30, 2003 quarter. These expenses reduced earnings by
approximately $0.04 per diluted share for the June 30, 2003 quarter.
It is estimated that additional expenses related to the technology initiatives
and conversion process will also reduce earnings for the September 30, 2003
quarter by approximately $0.05 per diluted share.
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 analysis of liquidity should also include a review of the changes that
appear in the consolidated statement of cash flows for the nine months ended
June 30, 2003. The statement of cash flows includes operating, investing and
financing categories. Operating activities include net income, which is
adjusted for non-cash items, and increases or decreases in cash due to certain
changes in assets and liabilities. Investing activities consist primarily of
proceeds from maturities and sales of securities, purchases of securities, and
the net change in loans. Financing activities present the cash flows
associated with the Company's deposit accounts and other borrowings.
The Company's consolidated total of cash and due from financial institutions
increased $429,000 to $11.0 million at June 30, 2003 from $10.6 million at
September 30, 2002. The Company's level of interest bearing deposits in banks
increased by $14.1 million to $39.6 million at June 30, 2003 from $25.5
million at September 30, 2002. The net increase in cash and interest bearing
deposits in banks is primarily a result of funds received from loan
prepayments and loan sales, which led to a net decrease of $11.7 million in
total loans, and from funds received from increased customer deposits.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds for loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. The Bank generally maintains sufficient cash and
short-term investments to meet short-term liquidity needs. At June 30, 2003,
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 32.5%.
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 $61.6 million was outstanding at June 30, 2003.
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 investments. 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.
21
The Bank's primary investing activity is the origination of one-to-four family
mortgage loans, commercial mortgage loans, and construction and land
development loans. At June 30, 2003, the Bank had loan commitments totaling
$27.6 million and undisbursed loans in process totaling $37.1 million. The
Bank anticipates that it will have sufficient funds available to meet current
loan commitments. Certificates of deposit that are scheduled to mature in
less than one year from June 30, 2003 totaled $103.7 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 June 30, 2003, the Bank was in compliance with all applicable
capital requirements. For additional details see "Regulatory Capital".
Regulatory Capital
- ------------------
The following table compares the Bank's regulatory capital at June 30, 2003 to
its minimum regulatory capital requirements at that date (dollars in
thousands):
Percent of
Amount Adjusted Total Assets (1)
------ -------------------------
Tier 1 (leverage) capital $65,513 15.1%
Tier 1 (leverage) capital
requirement 17,320 4.0
------- ----
Excess $48,193 11.1%
======= ====
Tier 1 risk adjusted capital $65,513 20.5%
Tier 1 risk adjusted capital
requirement 12,804 4.0
------- ----
Excess $52,709 16.5%
======= ====
Total risk based capital $69,451 21.7%
Total risk based capital
requirement 25,607 8.0
------- ----
Excess $43,844 13.7%
======= ====
- ---------------
(1) For the Tier 1 (leverage) capital, percent of total average assets of
$433.0 million. For the Tier 1 risk-based capital and total risk-based
capital calculations, percent of total risk-weighted assets of $320.1
million.
22
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
KEY FINANCIAL RATIOS
(Dollars in thousands, except per share data)
Three Months Ended June 30, Nine Months Ended June 30,
2003 2002 2003 2002
-------------------------- -------------------------
PERFORMANCE RATIOS:
Return on average assets (1) 1.41% 1.78% 1.60% 1.75%
Return on average equity (1) 7.91% 9.78% 9.08% 9.44%
Net interest margin (1) 4.51% 4.93% 4.65% 5.18%
Efficiency ratio 63.15% 52.65% 58.07% 52.25%
June 30, September 30,
2003 2002
-------- -------------
ASSET QUALITY RATIOS:
Non-performing loans $ 2,186 $ 3,741
REO & other repossessed assets 1,247 680
Total non-performing assets 3,433 4,421
Non-performing assets to total assets 0.77% 1.03%
Allowance for loan losses to
non-performing loans 180.15% 97.03%
Book Value Per Share (2) $ 18.09 $ 17.14
Book Value Per Share (3) $ 19.63 $ 18.69
- -----------------
(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 June 30, Nine Months Ended June 30,
2003 2002 2003 2002
-------------------------- -------------------------
AVERAGE BALANCE SHEET:
- ---------------------
Average Total Loans $314,764 $323,438 $318,478 $322,037
Average Total Interest
Earning Assets 407,287 387,003 404,313 375,126
Average Total Assets 437,819 404,018 434,164 391,662
Average Total Interest
Bearing Deposits 270,562 246,258 269,704 233,944
Average FHLB Advances 61,695 61,839 61,736 63,816
Average Shareholders'
Equity 77,949 73,526 76,337 72,510
23
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, 2002.
Item 4. Controls and Procedures
- --------------------------------
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of the
Company's disclosure controls and procedures (as defined in Section
13(a)-15(e) and 15d-15(e)) of the Securities Exchange Act of 1934
(the "Act")) was carried out under the supervision and with the
participation of the Company's Chief Executive Officer, Chief
Financial Officer and several other members of the Company's senior
management within the 90-day period preceding the filing date of this
quarterly report. The Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls
and procedures as currently in effect are effective in ensuring that
the information required to be disclosed by the Company in the reports
it files or submits under the Act is (i) accumulated and communicated
to the Company's management (including the Chief Executive Officer and
Chief Financial Officer) in a timely manner, and (ii) recorded,
processed, summarized and reported within the time periods specified
in the SEC's rules and forms.
(b) Changes in Internal Controls: In the quarter ended June 30, 2003, the
Company did not make any significant changes in, nor take any
corrective actions regarding, its internal controls or other factors
that could significantly affect these controls. The Company, did,
however, continue to implement suggestions from its internal auditor
on ways to strengthen existing controls.
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.
24
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
3.1 Articles of Incorporation of the Registrant *
3.2 Bylaws of the Registrant *
3.3 Amendment to Bylaws****
10.1 Employee Severance Compensation Plan **
10.2 Timberland Savings Bank, S.S.B. Employee Stock Ownership
Plan **
10.3 Timberland Bancorp, Inc. 1999 Stock Option Plan ***
10.4 Timberland Bancorp, Inc. Management Recognition and
Development Plan ***
31 Certifications Pursuant to Section 302 of the Sarbanes Oxley
Act
32 Certifications Pursuant to Section 906 of the Sarbanes Oxley
Act
--------------
* 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.
**** Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2002.
(b) Reports on Form 8-K. Timberland Bancorp, Inc. filed a Form 8-K on
April 25, 2003 that contained the Company's earnings release report
for the quarter ended March 31, 2003.
25
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: August 5, 2003 By: /s/ Clarence C. Hamre
-----------------------------
Clarence E. Hamre
Chief Executive Officer
(Principal Executive Officer)
Date: August 5, 2003 By: /s/ Dean J. Brydon
-----------------------------
Dean J. Brydon
Chief Financial Officer
(Principal Financial Officer)
26
Exhibit 31
Certification Pursuant to Section 302 of the Sarbanes Oxley Act
I, Clarence E. Hamre, certify that:
1. I have reviewed this Form 10-Q of Timberland Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 5, 2003
/s/ Clarence E. Hamre
--------------------------
Clarence E. Hamre
Chief Executive Officer
27
Exhibit 31 (continued)
Certification Pursuant to Section 302 of the Sarbanes Oxley Act
I, Dean J. Brydon, certify that:
1. I have reviewed this Form 10-Q of Timberland Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 5, 2003
/s/ Dean J. Brydon
--------------------------
Dean J. Brydon
Chief Financial Officer
28
EXHIBIT 32
Certification Pursuant to Section 906 of the Sarbanes Oxley Act
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
OF TIMBERLAND BANCORP, INC.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report on
Form 10-Q, that:
* the report fully complies with the requirements of Sections 13(a)
and 15(d) of the Securities Exchange Act of 1934, as amended, and
* the information contained in the report fairly presents, in all
material respects, the company's financial condition and results of
operations.
/s/ Clarence E. Hamre /s/ Dean J. Brydon
- ------------------------------ ----------------------------
Chief Executive Officer Chief Financial Officer
Date: August 5, 2003
A signed original of this written statement required by Section 906 has been
provided to Timberland Bancorp, Inc. and will be retained by Timberland
Bancorp, Inc. and furnished to the staff of the Securities and Exchange
commission or its staff upon request.
29