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, 1998
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 12, 1998
----- -----------------------------------
common stock, $.01 par value 6,092,317
INDEX
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Shareholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements (unaudited) 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-15
Item 3. Quantitative and Qualitative Disclosures about Market
Risk. 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------
TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and March 31, 1998
(unaudited)
ASSETS
September 30, March 31,
1997 1998
Cash and due from financial institutions: -----------------------------
Noninterest bearing deposits $ 4,996,116 $ 5,433,753
Interest bearing deposits 6,450,339 32,579,082
-----------------------------
11,446,455 38,012,835
Investments and mortgage-backed securities: -----------------------------
Held to maturity 3,990,229 19,380,060
Available for sale 1,586,400 6,923,500
-----------------------------
5,576,629 26,303,560
-----------------------------
Loans receivable - net 184,887,137 184,252,327
Loans held for sale - at market value 3,856,293 3,261,863
Less: Allowance for loan losses (1,716,110) (1,746,715)
-----------------------------
187,027,320 185,767,475
-----------------------------
Accrued interest receivable 1,137,052 1,467,126
Premises and fixed assets - net 5,431,187 5,372,169
Other real estate owned - net 433,715 3,955,969
Other assets 500,740 566,568
-----------------------------
TOTAL ASSETS $211,553,098 261,445,702
-----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $173,003,403 $164,027,612
Federal Home Loan Bank advances 12,241,304 12,181,876
Other liabilities and accrued expenses 1,663,506 1,236,021
-----------------------------
TOTAL LIABILITIES 186,908,213 177,445,509
-----------------------------
SHAREHOLDERS' EQUITY
Common Stock, March 31, 1998- $.01 par value;
50,000,000 shares authorized; 6,612,500 shares
issued, 6,092,317 shares outstanding --- 66,125
Additional paid in capital --- 64,899,305
Unearned Shares - Employee Stock Ownership Plan --- (7,832,701)
Retained earnings 24,644,885
26,862,757
Net unrealized appreciation on available
for sale securities --- 4,707
-----------------------------
TOTAL SHAREHOLDERS' EQUITY 24,644,885 84,000,193
TOTAL LIABILITIES AND SHAREHOLDERS' -----------------------------
EQUITY $211,553,098 $261,445,702
-----------------------------
See notes to unaudited consolidated financial statements
3
TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the three months and six months ended March 31, 1997 and 1998
(unaudited)
Three Months Ended March 31, Six Months Ended March 31,
1997 1998 1997 1998
-------------------------------------------------------
INTEREST AND DIVIDEND
INCOME
Loans receivable $ 4,331,298 $ 4,345,333 $ 8,629,400 $ 8,677,039
Investments and
mortgage-backed
securities 71,653 222,295 148,470 280,599
F.H.L.B. Dividends 26,811 30,925 56,378 62,914
Financials institutions 31,292 675,482 67,664 908,001
------------------------------------------------------
TOTAL INTEREST INCOME 4,461,054 5,274,035 8,901,912 9,928,553
------------------------------------------------------
INTEREST EXPENSE
Deposits 1,849,425 1,849,042 3,651,051 3,915,550
Federal Home Loan Bank
advances 222,611 169,894 487,795 344,036
TOTAL INTEREST ------------------------------------------------------
EXPENSE 2,072,036 2,018,936 4,138,846 4,259,586
------------------------------------------------------
NET INTEREST INCOME 2,389,018 3,255,099 4,763,066 5,668,967
PROVISION FOR LOAN
LOSSES 131,282 50,000 218,782 110,000
Net interest income ------------------------------------------------------
after provision for
loan losses 2,257,736 3,205,099 4,544,284 5,558,967
------------------------------------------------------
NONINTEREST INCOME
Service charges on
deposits 74,082 82,818 145,796 170,128
Gain on sale of
loans - net 33,420 103,522 109,334 183,710
Other fees 49,288 79,881 90,019 131,992
Income (loss) on
operations of real
estate - net 8,479 444 11,113 (1,415)
Escrow and annuity fees 28,750 57,742 51,092 98,901
Servicing income on
loans sold 68,268 113,525 68,268 159,969
Other 44,266 19,213 63,866 38,156
TOTAL NONINTEREST ------------------------------------------------------
INCOME 306,553 457,145 539,488 781,441
NONINTEREST EXPENSE
Salaries and employee
benefits 697,981 971,923 1,390,518 1,810,586
Premises and fixed
assets 173,140 197,081 336,103 380,008
Deposit insurance
premiums 24,963 26,710 24,963 52,701
Advertising 66,965 52,255 110,907 124,542
Other 258,547 284,300 546,575 655,299
TOTAL NONINTEREST ------------------------------------------------------
EXPENSE 1,221,596 1,532,269 2,409,066 3,023,136
INCOME BEFORE INCOME ------------------------------------------------------
TAXES 1,342,693 2,129,975 2,674,706 3,317,272
PROVISION FOR INCOME
TAXES 501,931 716,053 986,915 1,099,400
------------------------------------------------------
NET INCOME $ 840,762 $ 1,413,922 $ 1,687,791 $ 2,217,872
Basic earnings per
common share (1) $ 0.23 $ 0.36
Weighted average
shares outstanding (2) 6,083,613 6,083,613
- -------------------
(1) Per share information for prior periods is not applicable as the Company
did not complete its stock offering until January 12, 1998. Diluted earnings
per share is not applicable because the Company has no common stock
equivalents outstanding.
(2) The weighted average shares outstanding for the quarter ended March 31,
1998 were also used as the weighted average shares outstanding for the six
months ended March 31, 1998. Unearned ESOP shares are not considered
outstanding (see Note 3).
See notes to unaudited consolidated financial statements
4
TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the six months ended March 31, 1997 and March 31, 1998
(unaudited)
Net
Unrealized
Appre- Total
Common Common Additional Unearned ciation Share-
Stock Stock Paid in ESOP Retained in Equity holders
Shares(1) Amount($) Capital($) Shares($) Earnings($) Invest($) Equity ($)
--------- --------- ---------- --------- ----------- --------- ----------
Balance, September
30, 1996 21,315,990 13,312 $21,329,302
Net income 1,687,791 1,687,791
Realized gain on
sale of
investments (13,312)
(13,312)
Balance, March 31, --------------------------------------------------------------------------------
1997 23,003,781 0 23,003,781
--------------------------------------------------------------------------------
Balance, September
30, 1997 24,644,885 0 24,644,885
Net income 2,217,872 2,217,872
Issuance of Common
Stock related to
Conversion 6,612,500 66,125 64,883,875 64,950,000
Shares acquired for
ESOP (529,000) (7,930,307) (7,930,307)
Release of ESOP
Shares (2) 8,817 15,430 97,606 113,036
Net Unrealized
Appreciation on
available for sale
investments 4,707 4,707
--------------------------------------------------------------------------------
Balance, March 31,
1998 6,092,317 66,125 64,899,305 (7,832,701) 26,862,757 4,707 $84,000,193
--------------------------------------------------------------------------------
- ------------------
(1) Unearned ESOP Shares are not considered outstanding for the purpose of computing earnings per share.
They are however considered outstanding for legal purposes.
(2) The release of ESOP shares resulted in a market value adjustment to additional paid in capital.
5
TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 1997 and 1998
(unaudited)
Six Months Ended
March 31,
--------
1997 1998
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,687,791 $ 2,217,872
Noncash revenues, expenses, gains and losses -------------------------
included in income:
Depreciation 136,822 177,082
Federal Home Loan Bank stock dividends (56,300) (62,800)
Market value adjustment - loans held for sale 38,242 (17,646)
Market value adjustment: ESOP shares released --- 15,430
Gain on sale of other real estate owned, net (11,895) ---
Provision for loan and other real estate owned
losses 218,782 119,526
Net decrease in loans originated for sale 584,455 612,076
Increase in other assets, net (131,597) (395,902)
Decrease in other liabilities and accrued expenses,
net (815,833) (427,485)
------------------------
(37,324) 20,281
------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,650,467 2,238,153
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of held to maturity investments --- (16,194,112)
Principal repayments on mortgage-backed securities 562,367 804,281
Purchase of available for sale investments --- (5,269,593)
Sale of available for sale investments 101,376 ---
Decrease (increase) in loans receivable, net (9,929,705) 555,415
Additions to premises and fixed assets, net (609,984) (118,064)
Additions to other real estate owned (202,765 (3,833,270)
Dispositions of other real estate owned 104,915 301,490
------------------------
NET CASH USED BY INVESTING ACTIVITIES (9,973,796) (23,753,853)
------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock --- 64,950,000
Funding to ESOP for purchase of common stock --- (7,930,307)
Release of ESOP shares --- 97,606
Increase (decrease) in certificates of deposit, net 6,312,688 (8,997,405)
Increase in other deposits, net 3,177,568 21,614
Decrease in Federal Home Loan Bank advances, net (554,526) (59,428)
-------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,935,730 48,082,080
-------------------------
NET INCREASE IN CASH 612,401 26,566,380
Cash and due from financial institutions, Beginning 5,055,325 11,446,455
-------------------------
Cash and due from financial institutions, Ending $ 5,667,726 $38,012,835
-------------------------
See notes to unaudited consolidated financial statements
(continued)
6
Six Months Ended
March 31,
--------
1997 1998
-------------------------
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 875,000 $ 1,437,289
Interest paid 4,097,800 4,311,276
Supplemental Disclosure of Noncash Investing
Activities
Loans transferred to other real estate owned 161,598 3,526,209
Market Value adjustment of investments held for sale --- 7,132
Deferred federal income taxes on market value
adjustment of investments held for sale --- (2,425)
See notes to unaudited consolidated financial statements
7
Timberland Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation: The accompanying unaudited consolidated financial
statements for Timberland Bancorp, Inc. ("Company") were prepared in
accordance with the instructions for Form 10-Q and therefore, do not include
all disclosures necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. However, all adjustments which are, in the opinion of
management, necessary for a fair presentation of the interim financial
statements have been included. All such adjustments are of a normal recurring
nature. The results of operations for the three and six months ended March 31,
1998 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 Savings Bank, S.S.B. ("Bank"), and the Bank's
wholly-owned subsidiary, Timberland Service Corp. All significant
intercompany balances have been eliminated in consolidation.
(2) CONVERSION AND REORGANIZATION
On January 12, 1998, the Bank converted from a Washington-chartered mutual
savings bank to a Washington-chartered capital stock savings bank and became a
wholly-owned subsidiary of the Company. The stock conversion resulted in the
sale and issuance by the Company of 6,612,500 shares of $.01 par value common
stock at a price of $10.00 per share which resulted in gross proceeds of
$66,125,000. After reducing gross proceeds for conversion costs of
$1,175,000, net proceeds totaled $64,950,000. In conjunction with the
conversion, the Company loaned $7,930,307 to the Bank's employee stock
ownership plan for the purchase of 529,000 shares of common stock in the open
market immediately following the completion of the stock conversion.
(3) EARNINGS PER SHARE
The basic earnings per share amounts were computed using the weighted average
number of shares outstanding during the periods presented. In accordance with
Statement of Position No. 93-6, Employers' Accounting for Employee Stock
Ownership Plans, issued by the American Institute of Certified Public
Accountants, shares owned by the Bank's Employee Stock Ownership Plan that
have not been committed to be released are not considered to be outstanding
for the purpose of computing earnings per share. At March 31, 1998, there
were 520,183 shares that had not been committed to be released. Diluted
earnings per share is not applicable because the Company had no common stock
equivalents outstanding.
(4) DIVIDEND
On April 27, 1998, the Company declared a quarterly cash dividend of $.06 per
common share. The dividend is to be paid May 21, 1998, to all shareholders of
record as of the close of business May 7, 1998.
(5) ACCOUNTING CHANGES
Accounting for Employee Stock Ownership Plans. In November 1993 the American
Institute of Certified Public Accountants issued SOP 93-6, which requires an
employer to record compensation expense in an amount equal to the fair value
of shares committed to be released to employees from an employee stock
ownership plan and to exclude unearned shares from earnings per share
computations. The effect of SOP 93-6 on net income and book value per share
in future periods cannot be predicted due to the uncertainty of the fair value
of the shares at the time they will be committed to be released. Subsequent
to the Bank's conversion to stock
8
ownership on January 12, 1998, the Company acquired 529,000 shares for the
Bank's employee stock ownership plan.
Earnings Per Share. SFAS No. 128, "Earnings Per Share," issued in February
1997, establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly-held common stock or potential
common stock. It replaces the presentation of primary EPS with a presentation
of basic EPS and requires the dual presentation of basic and diluted EPS on
the face of the income statement. SFAS No. 128 is effective for the financial
statements for the periods ending after December 15, 1997. SFAS No. 128
requires restatement of all prior period EPS data presented. Subsequent to
its conversion to stock ownership on January 12, 1998, the Company adopted
SFAS No. 128 for all future periods.
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operation
- --------------------
The following analysis discusses the material changes in the financial
condition and results of operations of the Company at and for the three months
and six months ended March 31, 1998.
Comparison of Financial Condition at September 30, 1997 and March 31, 1998
Total Assets: Total assets increased 23.6% from $211.6 million at September
30, 1997 to $261.4 million at March 31, 1998, primarily as a result of the
January 1998 stock offering which resulted net proceeds of $65.0 million. A
portion of this increase was offset by $7.8 million in unearned ESOP shares
and approximately $8.0 million in funds withdrawn from deposit accounts to
purchase stock.
Cash and Due from Financial Institutions: Cash and due from financial
institutions increased by 232.1% from $11.4 million at September 30, 1997 to
$38.0 million at March 31, 1998. This increase was primarily due to a portion
of the stock offering proceeds that were invested with financial institutions.
Investments and Mortgage-backed Securities: Investments and mortgage-backed
securities increased by 371.7% from $5.6 million at September 30, 1997 to
$26.3 million at March 31, 1998. This increase was primarily due to a portion
of the stock offering proceeds that were invested into these assests.
Loans Receivable, including Loans Held-for-sale, net: Loans receivable,
including loans held-for-sale, net, decreased by 0.7% from $187.0 million at
September 30, 1997 to $185.8 million at March 31, 1998. This decrease was
primarily attributable to several large loans paying off and an increase in
secondary market sales. During the quarter ended March 31, 1998 loans
totaling $9.5 million were sold to Freddie Mac as compared to $4.1 million
sold during the same period last year.
Other Real Estate Owned, net: Other real estate owned, net, increased from
$434,000 at September 30, 1997 to $4.0 million at March 31, 1998. This
increase is primarily attributable to the Bank accepting a deed in lieu of
foreclosure on two related condominium loans (with balances totaling $3.0
million at March 31, 1998) in Southern King County, Washington. These two
loans were classified as "substandard assets" at September 30, 1997. The Bank
expects no material loss on the disposition of these assets.
Deposits: Deposits decreased by 5.2% from $173.0 million at September 30, 1997
to $164.0 million at March 31, 1998. This decrease was primarily attributable
to depositors withdrawing approximately $8.0 million from their deposit
accounts to purchase stock in the Company's stock offering.
Shareholders' Equity: Total shareholders' equity increased from $24.6 million
at September 30, 1997 to $84.0 million at March 31, 1998, primarily as a
result of the $65.0 million in net proceeds raised from the January 1998
9
stock offering and retained net income of $2.2 million. The net proceeds are
offset by $7.8 million in unearned shares purchased for the ESOP trust.
Non Performing Assets
- ---------------------
The following table sets forth information with respect to the Bank's non
performing assets at September 30, 1997 and March 31, 1998.
At September 30, At March 31,
1997 1998
---------------- ------------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One-to-four family $ 776 $ 1,751
Commercial 2,886 2,927
Construction and land development 3,891 120
Land -- 353
Consumer loans 2 63
Commercial Business Loans -- 81
-------- ---------
Total 7,555 5,295
Accruing loans which are contractually
past due 90 days or more:
Mortgage loans:
Construction and land development 109 356
Total 109 356
-------- ---------
Total of nonaccrual and
90 days past due loans $ 7,664 $ 5,651
Real estate owned and other
repossessed assets 434 3,956
-------- ---------
Total nonperforming assets $ 8,098 $ 9,607
Restructured loans 70 --
Nonaccrual and 90 days or more past
due loans as a percentage of loans
receivable, (including loans held for
sale)(1) 4.06% 3.01%
Nonaccrual and 90 days or more past
due loans as a percentage of total assets 3.62% 2.16%
Nonperforming assets as a percentage
of total assets 3.83% 3.67%
Loans receivable, (including loans
held for sale) (1) $188,743 187,514
-------- ---------
Total assets $211,553 $ 261,446
- -------------- -------- --------
(1) Loans receivable is not net of allowance for loan loss reserves
10
The following is a discussion of the Bank's major problem assets at March 31,
1998:
Convenience store/retail space and mini-storage, Kitsap County, Washington.
The Bank has two loans that were originated in 1996 on two separate
properties: a convenience store combined with retail space and a 436 unit mini
storage facility. These two loans had a combined balance of $2.9 million at
March 31, 1998. These loans became delinquent primarily because of a dispute
between the two borrowers. These loans were classified as "substandard" at
March 31, 1998. The Bank initiated foreclosure proceedings which were stayed
due to a bankruptcy filing by the borrowers in January of 1998. Although no
assurances can be given, the Bank does not expect to incur any material loss
on these two loans.
Real Estate Owned: Condominiums, Southern King County, Washington. The Bank
accepted a deed in lieu of foreclosure on two delinquent loans for the
construction and sale of a 61-unit condominium complex. These loans were
classified as "substandard" at September 30, 1997 and had a balance of $2.9
million. They were classified by the Bank as "Other Real Estate Owned" of
$3.0 million at March 31, 1998. The Bank has been actively marketing the
project and as of May 11, 1998 had accepted earnest money agreements for 21 of
the 30 units with aggregate sale prices of $2.6 million. As of May 11, 1998,
nine of these sales had closed and the remaining REO balance was $2.3 million.
The Bank does not expect to incur any material losses on the disposition of
these assets based on the prices at which the units are selling.
11
Loans Receivable
- ----------------
The following table sets forth the composition of the Company's loan portfolio
by type of loan.
At September 30, At March 31,
1997 1998
Amount Percent Amount Percent
------------------- ---------------------
(Dollars In thousands)
Mortgage Loans:
One-to-four family (1) $ 100,127 48.76% $ 101,281 49.27%
Multi family 12,178 5.93 13,061 6.35
Commercial 29,410 14.32 30,792 14.98
Construction and
land development 45,031 21.93 41,082 19.98
Land 6,937 3.38 7,150 3.48
Total mortgage loans 193,683 94.32 193,366 94.06
Consumer Loans:
Home equity and second
mortgage 8,142 3.97 8,103 3.94
Other 2,824 1.37 3,446 1.68
--------- ------ -------- ------
10,966 5.34 11,549 5.62
Commercial business loans 694 .34 670 .32
Total loans 205,343 100.00% 205,585 100.00%
------ ------
Less:
Undisbursed portion of loans
in process (14,280) (16,284)
Unearned income (1,761) (1,786)
Allowance for loan losses (1,716) (1,747)
Market value adjustment of
loans held-for-sale (19) (1)
-------- --------
Total loans receivable, net $187,027 $185,767
-------- --------
- ----------------
(1) Includes loans held-for-sale.
12
Comparison of Operating Results for the Three Months Ended March 31, 1997 and
1998
Net Income: Net income increased 68.2% from $841,000 for the three months
ended March 31, 1997 to $1.4 million for the three months ended March 31,
1998. Basic earnings per share for the current quarter was $.23. Earnings
per share for the prior comparative period is not applicable because the
Company had no stock issued and outstanding at that time.
Net Interest Income: Net interest income increased 36.3% from $2.4 million for
the three months ended March 31, 1997 to $3.3 million for the three months
ended March 31, 1998.
Total interest income increased 18.2% from $4.5 million for the three months
ended March 31, 1997 to $5.3 million for the three months ended March 31,
1998. The increases were primarily the result of a $644,000 increase in
interest from financial institutions and a $151,000 increase in interest from
investments and mortgage-backed securities. The Company had higher balances
in interest bearing deposits at financial institutions and investment
securities due to net proceeds from the stock conversion that were invested in
those assests.
Total interest expense decreased 2.6% from $2.1 million for the three months
ended March 31, 1997 to $2.0 million for the three months ended March 31,
1998, primarily due a decrease in interest expense associated with Federal
Home Loan Bank advances.
Provision for Loan Losses: The provision for loan losses decreased from
$131,000 for the three months ended March 31,1997 to $50,000 for the three
months ended March 31, 1998. Management decreased the provision for loan
losses because it deemed the general loan loss reserves of $1.7 million at
March 31, 1998 (.93% of loans receivable, net and 30.9% of non-performing
loans) were adequate to provide for estimated losses based on an evaluation of
known and inherent risks in the loan portfolio at that date.
Noninterest Income: Total noninterest income increased 49.1% from $307,000
for the three months ended March 31, 1997 to $457,000 for the three months
ended March 31, 1998. The largest portion of this increase was attributable
to a $70,000 increase in gain on sale of loans and a $45,000 increase in
servicing income on loans sold. These increases were due to a larger volume
of fixed rate loans being sold in the secondary market. Increases in escrow
fees and miscellaneous fees accounted for the remaining portion of the
increase.
Noninterest Expense: Total noninterest expense increased 25.4% from $1.2
million for the three months ended March 31, 1997 to $1.5 million for the
three months ended March 31, 1998. The largest portion of this increase is a
result of increased salary and employee benefit expense which increased from
$698,000 for the three months ended March 31, 1997 to $972,000 for the three
months ended March 31, 1998. The first release of ESOP shares accounted for
$113,000 of the increased compensation expense. The remaining portion of the
increased compensation expense was a result of adding additional employees and
normal cost of living increases for current employees. The number of
full-time equivalent employees increased from 82 at March 31, 1997 to 91 at
March 31, 1998 as a result of opening the Lacey branch, restaffing the Port
Orchard loan center, hiring a marketing director and several other
individuals to handle the requirements associated with being a public company.
Provision for Income Taxes: The provision for income taxes increased from
$502,000 for the three months ended March 31, 1997 to $716,000 for the three
months ended March 31, 1998 primarily as a result of higher income before
income taxes.
13
Comparison of Operating Results for Six Months Ended March 31, 1997 and 1998:
Net Income: Net income increased 31.4% from $1.7 million for the six months
ended March 31, 1997 to $2.2 million for the six months ended March 31, 1998.
Basic earnings per share for the six months was $.36. Earnings per share for
the prior comparative period is not applicable because the Company had no
stock issued and outstanding at that time.
Net Interest Income: Net interest income increased 19.0% from $4.8 million for
six months ended March 31, 1997 to $5.7 million for the six months ended March
31, 1998.
Total interest income increased 11.5% from $8.9 million for the six months
ended March 31, 1997 to $9.9 million for the six months ended March 31, 1998.
The increases were primarily a result of an $840,000 increase in interest from
financial instutions and a $132,000 increase in interest from investments and
mortgage-backed securities. The Company had higher balances in interest
bearing deposits at financial instutions and investment securities due to net
proceeds from the stock conversion that were invested in those assets.
Total interest expense increased 2.9% from $4.1 million for the six months
ended March 31, 1997 to $4.3 million for the six months ended March 31, 1998
due to increased deposit balances in December 1997 and January 1998 due to
funds received for stock orders. The interest expense associated with these
temporary increases in deposit accounts was partially offset by a decrease in
interest expense associated with the repayment of Federal Home Loan Bank
advances.
Provision for Loan Losses: The provision for loan losses decreased 49.7% from
$219,000 for the six months ended March 31, 1997 to $110,000 for the six
months ended March 31, 1998. Management decreased the provision for loan
losses because it deemed the general loan loss reserves of $1.7 million at
March 31,1998 (.93% of loans receivable, net and 30.9% of non-performing
loans) were adequate to provide for estimated losses based on an evaluation of
known and inherent risks in the portfolio at that date.
Noninterest Income: Total noninterest income increased 44.8% from $539,000
for the six months March 31, 1997 to $781,000 for the six months ended March
31, 1998. The largest portion of this increase was attributable to a $92,000
increase in servicing income on loans sold and to a $74,000 increase in gain
of sale of loans. These increases were primarily due to a larger volume of
fixed rate loans being sold in the secondary market. Increases in escrow
fees and miscellaneous fees accounted for the remaining portion of the
increase.
Noninterest Expense: Total noninterest expense increased 25.5% from $2.4
million for the six months ended March 31, 1997 to $3.0 million for the six
months ended March 31, 1998. The largest portion of this increase is a result
of increased salary and employee benefit expense which increased from $1.4
million for the six months ended March 31, 1997 to $1.8 million for the six
months ended March 31, 1998. The first release of ESOP shares accounted for
$113,000 of the increased compensation expense. The remaining portion of the
increased compensation expense was a result of adding additional employees
and normal cost of living increases for current employees. The number of
full-time equivalent employees increased from 82 at March 31, 1997 to 91 at
March 31, 1998 as a result of opening the Lacey branch, restaffing the Port
Orchard loan center, hiring a marketing director and several other individuals
to handle the requirements associated with being a public company.
Provision for Income Taxes: The provision for income taxes increased for
$986,000 for the six months ended March 31, 1997 to $1.1 million for the six
months ended March 31, 1998 primarily as a result of higher income before
income taxes.
14
Year 2000 Issues
- ----------------
The Bank has an in-house data processing department which maintains the Bank's
main system, an IBM AS400. The Bank also uses software purchased from third
party vendors for applications such as accounts payable and fixed assets. As
with other organizations, many of the data processing programs were originally
designed to recognize calendar years by their last two digits. Calculations
performed using these truncated fields will not work properly with dates
beyond 1999. The Bank has established a committee to address "Year 2000"
issues. The data processing department also submits monthly progress reports
on Year 2000 issues to the Board of Directors. As of March 31, 1998, the
Bank's data processing department had completed approximately 75% of the total
Year 2000 compliance issues. The Company believes that the Year 2000 problem
will not pose significant operational problems and is not anticipated to be
material to its financial position or results of operations in any given year.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
There were no material changes in information about market risk that was
provided in the Company's Form 10-K for the Fiscal Year Ended September 30,
1997.
15
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 report.
Use of Proceeds -- As discussed in Note 2 to Notes to Consolidated Financial
Statements under Item 1 of this Quarterly Report, the Conversion was completed
on January 12, 1998. In connection therewith:
1. The effective date of the Registration Statement on Form S-1, as
amended (File No. 333-35817)("Registration Statement"), was November
13, 1997.
2. The offering terminated on January 12, 1998 with the sale of all
securities registered pursuant to the Registration Statement.
3. Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc.
acted as marketing agent for the Company.
4. The class of securities registered pursuant to the Registration
Statement was common stock, par value $0.01 per share. The
aggregate amount of such securities registered and sold was
6,612,500 shares for an aggregate dollar amount of $66,125,000.
5. The total conversion offering expenses incurred by the Company were
$1,175,000, none of which were paid directly or indirectly to
directors or officers of the Company or their associates.
6. The net proceeds of the conversion offering were $64,950,000, which
were used as follows: $7,930,307 to fund a loan to the Bank's
employee stock ownership plan ("ESOP") to permit the ESOP to
purchase 529,000 shares in the open market following the completion
of the Conversion; $32,475,000 to acquire all of the issued and
outstanding common stock of the Bank; and the remaining $24,544,693
as of March 31, 1998 was invested by the Company as follows:
$19,270,393 at other institutions and $5,274,300 in investment
securities.
Such use of proceeds did not represent a material change in the use of
proceeds described in the Company's Prospectus dated November 13, 1997.
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.
16
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 **
27 Financial Data Schedule
-----------------
* Incorporated by reference to the Registrant's Registration
Statement of Form S-1 (333-35817).
** Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1997.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended March
31, 1998.
17
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 12, 1998 By: /s/ Clarence E. Hamre
-------------------------------------
Clarence E. Hamre
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 1998 By: /s/ Michael R. Sand
--------------------------------------
Michael R. Sand
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
18