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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 JANUARY 31, 2004
----- --------------------------------------
common stock, $.01 par value 3,849,993
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) 9-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-23
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 24
Item 4. Controls and Procedures 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities, Use of Proceeds, and Issuer
Purchases of Equity Securities 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
CERTIFICATIONS 27-29
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2003 and September 30, 2003
Dollars in Thousands
(unaudited)
December 31, September 30,
2003 2003
---------------------------
Assets
Cash and due from financial institutions $ 12,223 $ 8,587
Interest bearing deposits in banks 19,123 29,511
Investments and mortgage backed securities
held to maturity 249 279
Investments and mortgage backed securities
available for sale 57,726 54,031
Federal Home Loan Bank stock 5,522 5,454
Loans receivable 336,615 325,126
Loans held for sale 706 1,001
Less: Allowance for loan losses (3,926) (3,891)
------------------------
Total Loans 333,395 322,236
------------------------
Accrued interest receivable 1,630 1,687
Premises and equipment 13,823 13,429
Real estate owned and other repossessed items 1,264 1,258
Bank owned life insurance ("BOLI") 10,681 10,566
Other assets 2,543 2,595
------------------------
Total Assets $ 458,179 $ 449,633
------------------------
Liabilities and Shareholders' Equity
Liabilities
Deposits $ 317,000 $ 307,672
Federal Home Loan Bank advances 60,064 61,605
Other liabilities and accrued expenses 2,275 2,745
------------------------
Total Liabilities 379,339 372,022
------------------------
Shareholders' Equity
Common Stock, $.01 par value; 50,000,000
shares authorized; December 31, 2003 -
4,258,180 issued, 3,849,993 outstanding
September 30, 2003 - 4,251,680 issued,
3,843,493 outstanding (unallocated ESOP
shares and unvested MRDP shares are not
considered outstanding) 43 43
Additional paid in capital 33,974 33,775
Unearned shares - Employee Stock Ownership Plan (4,759) (4,891)
Unearned shares - Management Recognition &
Development Plan (1,021) (1,182)
Retained earnings 50,483 49,699
Accumulated other comprehensive income 120 167
------------------------
Total Shareholders' Equity 78,840 77,611
------------------------
Total Liabilities and Shareholders' Equity $ 458,179 $ 449,633
------------------------
See notes to unaudited condensed consolidated financial statements
3
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended December 31, 2003 and 2002
Dollars in Thousands, Except Per Share Amounts
(unaudited)
Three Months Ended December 31,
2003 2002
----------------------
Interest and Dividend Income
Loans receivable $ 6,283 $ 6,583
Securities available for sale and held to maturity 244 243
Dividends from investments 269 260
Interest bearing deposits in banks 45 121
----------------------
Total interest and dividend income 6,841 7,207
----------------------
Interest Expense
Deposits 1,129 1,611
Federal Home Loan Bank advances 850 850
----------------------
Total interest expense 1,979 2,461
----------------------
Net interest income 4,862 4,746
Provision for loan losses 50 173
----------------------
Net interest income after provision for loan
losses 4,812 4,573
----------------------
Non-Interest Income
Service charges on deposits 449 530
Gain on sale of loans, net 170 430
BOLI net earnings 115 135
Escrow fees 45 73
Servicing income (expense) on loans sold (18) 113
ATM transaction fees 149 186
Other 102 179
----------------------
Total non-interest income 1,012 1,646
----------------------
Non-Interest Expense
Salaries and employee benefits 2,172 2,010
Premises and equipment 462 363
Advertising 151 204
Loss from real estate operations and write-downs 16 32
ATM expenses 101 149
Other 924 733
----------------------
Total non-interest expense 3,826 3,491
----------------------
Income before income taxes 1,998 2,728
Provision for income taxes 611 860
----------------------
Net Income $ 1,387 $ 1,868
Earnings per common share:
Basic $ 0.36 $ 0.48
Diluted $ 0.34 $ 0.46
Weighted average shares outstanding:
Basic 3,846,580 3,856,536
Diluted 4,070,336 4,019,197
Dividends per share: $ 0.14 $ 0.12
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, 2003 and the three months ended December 31, 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
----------- ------ ------- ----- ---------- -------- ------ ------
Balance, Oct. 1, 2002 3,856,536 $43 $35,857 ($5,419) ($1,826) $45,210 $ 531 $74,396
Net income - - - - - - - - - - 6,639 - - 6,639
Repurchase of
common stock (188,367) (1) (3,851) - - - - - - - - (3,852)
Exercise of stock options 99,071 1 1,490 - - - - - - - - 1,491
Cash dividends
($.50 per share) - - - - - - - - - - (2,150) - - (2,150)
Earned ESOP shares 35,267 - - 120 528 - - - - - - 648
Earned MRDP shares 40,986 - - 159 - - 644 - - - - 803
Change in fair value of
securities available
for sale, net of tax - - - - - - - - - - - - (364) (364)
--------------------------------------------------------------------------------
Balance, Sept. 30, 2003 3,843,493 43 33,775 (4,891) (1,182) 49,699 167 77,611
--------------------------------------------------------------------------------
Net income - - - - - - - - - - 1,387 - - 1,387
Exercise of stock options 6,500 - - 108 - - - - - - - - 108
Cash dividends
($.14 per share) - - - - - - - - - - (603) - - (603)
Earned ESOP shares - - - - 80 132 - - - - - - 212
Earned MRDP shares - - - - 11 - - 161 - - - - 172
Change in fair value of
securities available
for sale, net of tax - - - - - - - - - - - - (47) (47)
--------------------------------------------------------------------------------
Balance, Dec. 31, 2003 3,849,993 $43 $33,974 ($4,759) ($1,021) $50,483 $120 $78,840
--------------------------------------------------------------------------------
See notes to unaudited condensed consolidated financial statements
5
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 2003
Dollars in Thousands
(unaudited)
Three Months Ended December 31,
Cash Flow from Operating Activities 2003 2002
--------------------
Net income $ 1,387 $1,868
--------------------
Noncash revenues, expenses, gains and losses
included in income:
Depreciation 197 148
Federal Home Loan Bank stock dividends (68) (87)
Earned ESOP Shares 212 154
Earned MRDP Shares 172 161
Loss on sale of real estate owned, net 3 5
BOLI cash surrender value increase (115) (135)
Gain on sale of loans (170) (430)
Provision for loan and real estate owned losses 52 186
Loans originated for sale (9,954) (34,216)
Proceeds from sale of loans 10,419 35,227
Net decrease (increase) in other assets 134 (103)
Decrease in other liabilities and accrued expenses, net (471) (129)
--------------------
Net Cash Provided by Operating Activities 1,798 2,649
Cash Flow from Investing Activities
Net decrease (increase) in interest-bearing deposits
in banks 10,388 (7,085)
Purchase of securities (7,000) (10,500)
Proceeds from maturities of securities available
for sale 3,263 2,162
Decrease (increase) in loans receivable, net (11,503) 11,314
Additions to premises and equipment (591) (748)
Additions to real estate owned (74) (72)
Proceeds from sale of real estate owned 63 42
--------------------
Net Cash Used in Investing Activities (5,454) (4,887)
Cash Flow from Financing Activities
Increase in deposits, net 9,328 1,349
Decrease in Federal Home Loan Bank advances, net (1,541) (37)
Proceeds from exercise of stock options 108 --
Payment of dividends (603) (506)
--------------------
Net Cash Provided by Financing Activities 7,292 806
Net Change in Cash 3,636 (1,432)
Cash and Due from Financial Institutions
Beginning of period 8,587 10,580
--------------------
End of period $12,223 $9,148
====================
See notes to unaudited condensed consolidated financial statements (continued)
6
Three Months Ended December 31,
2003 2002
--------------------
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ - - $ 459
Interest paid 1,980 2,455
Supplemental Disclosure of Noncash Investing Activities
Market value adjustment of securities held for sale,
net of tax (47) (4)
Loans transferred to real estate owned 72 56
See notes to unaudited condensed consolidated financial statements
7
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended December 31, 2003 and 2002
Dollars in Thousands
(unaudited)
Three Months Ended December 31,
2003 2002
---------------------
Comprehensive Income:
Net Income $1,387 $1,868
Change in fair value of securities
available for sale, net of tax (47) (4)
---------------------
Total Comprehensive Income $1,340 $1,864
=====================
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. 2003 Annual Report on Form 10-K. The results of operations for
the three months ended December 31, 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 amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
9
(2) EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income applicable to
common stock by the weighted average number of common shares outstanding
during the period, without considering any dilutive items. Diluted earnings
per share is computed by dividing net income applicable to common stock by the
weighted average number of common shares and common stock equivalents for
items that are dilutive, net of shares assumed to be repurchased using the
treasury stock method at the average share price for the Company's common
stock during the period. Common stock equivalents arise from assumed
conversion of outstanding stock options and awarded but not released
Management Recognition and Development Plan ("MRDP") shares. In accordance
with Statement of Position ("SOP") 93-6, Employers' Accounting for Employee
Stock Ownership Plans (ESOP), issued by the American Institute of Certified
Public Accountants, shares owned by the Bank's Employee Stock Ownership Plan
that have not been allocated are not considered to be outstanding for the
purpose of computing earnings per share. At December 31, 2003 and 2002, there
were 326,216 and 361,483 ESOP shares, respectively, that had not been
allocated.
Three Months Ended December 31,
2003 2002
-------------------------------
Basic EPS computation
Numerator - Net Income $1,387,000 $1,868,000
Denominator - Weighted average
common shares outstanding 3,846,580 3,856,536
Basic EPS $ 0.36 $ 0.48
Diluted EPS computation
Numerator - Net Income $1,387,000 $1,868,000
Denominator - Weighted average
common shares outstanding 3,846,580 3,856,536
Effect of dilutive stock options 198,346 145,272
Effect of dilutive MRDP 25,410 17,389
----------- ----------
Weighted average common shares
and common stock equivalents 4,070,336 4,019,197
Diluted EPS $ 0.34 $ 0.46
10
(3) STOCK BASED COMPENSATION
At December 31, 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 months ended December 31, 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:
Three Months Ended December 31,
2003 2002
-------------------------------
Net income as reported $1,387,000 $1,868,000
Less total stock-based
compensation expense
determined under fair
value method for all
qualifying awards, net of tax (37,000) (42,000)
Pro forma net income 1,350,000 1,826,000
Earnings per share:
Basic:
As reported $ 0.36 $ 0.48
Pro forma 0.35 0.47
Diluted:
As reported $ 0.34 $ 0.46
Pro forma 0.33 0.46
(4) DIVIDEND
On January 28, 2004, the Company announced a quarterly cash dividend of $0.14
per common share. The dividend is to be paid February 24, 2004, to
shareholders of record as of the close of business February 10, 2004.
(5) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement 149, Amendment
of Statement 133 on Derivative Instruments and Hedging. This Statement amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under Statement 133. The Statement was effective for
contracts entered into or modified after
11
June 30, 2003 and for hedging relationships designated after June 30, 2003.
Implementation of the Statement did not have a material impact on the
consolidated financial statements.
The Financial Accounting Standards Board has issued Statement 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity. This statement establishes standards for how an issuer classifies and
measures certain financial instruments be reported as liabilities on the
balance sheet. For the Company, the Statement is effective for interim
periods beginning July 1, 2003 and implementation is not expected to have an
effect on its financial position.
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operation
--------------------
The following analysis discusses the material changes in the financial
condition and results of operations of the Company at and for the three months
ended December 31, 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 December 31, 2003 and September 30, 2003
Total Assets: Total assets increased $8.5 million to $458.2 million at
December 31, 2003 from $449.6 million at September 30, 2003. This change is
due primarily to an increase in loans of $11.2 million, which was funded by an
increase in deposits of $9.3 million and a decrease in the Company's
investment in interest bearing deposits in banks.
Cash and Due from Financial Institutions: Cash and due from financial
institutions increased to $12.2 million at December 31, 2003 from $8.6 million
at September 30, 2003.
Interest Bearing Deposits in Banks: Interest bearing deposits in banks
decreased $10.4 million to $19.1 million at December 31, 2003 from $29.5
million at September 30, 2003, as a portion of the Company's short-term
deposits were used to fund loan growth and to purchase investment securities.
Securities: Securities increased 3.7 million to $58.0 million at December 31,
2003 from $54.3 million at September 30, 2003. This increase is primarily due
to investing a portion of the Company's interest bearing deposits in Banks
into U.S. agency securities. At December 31, 2003, the Company's securities'
portfolio was comprised of mutual funds of $34.4 million, mortgage-backed
securities of $16.1 million, U.S. agency securities of $7.5 million and
municipal bonds of $2,000. The mutual funds invest primarily in
mortgage-backed products and U.S. agency securities.
Loans: Net loans receivable, including loans held-for-sale, increased by $11.2
million to $333.4 million at December 31, 2003 from $322.2 at September 30,
2003. The increase in the portfolio was primarily a result of a $7.3 million
increase in commercial real estate loans, a $3.7 million increase in net
construction loans, a $2.0 million increase in consumer loans, and a $1.0
million increase in land loans. These increases were partially
12
offset by a $2.1 million decrease in the Bank's one-to-four family mortgage
loan portfolio. Loan originations totaled $54.3 million for the current
quarter compared to $50.9 million for the quarter ended December 31, 2002 and
$65.2 million for the quarter ended September 30, 2003. The Bank sold $10.2
million in fixed rate one-to-four family mortgage loans during the current
quarter compared to loan sales of $34.8 million for the quarter ended December
31, 2002 and $20.8 million for the quarter ended September 30, 2003.
President Michael Sand commented, "One-to-four family mortgage loan
originations have declined as compared to prior periods, however, prepayments
have also decreased which has resulted in growth in the loan portfolio.
Timberland's Business Banking Division was successful in originating
commercial real estate and business loans during the quarter. The Division
was responsible for a significant portion of the quarter's net loan growth."
For additional information, see "Loan Portfolio Composition" section and
"Construction and Land Development Loan Portfolio Composition" section
included herein.
Real Estate Owned and Other Repossessed Items: Real estate owned ("REO") and
other repossessed items increased slightly to $1.264 million at December 31,
2003 from $1.258 million at September 30, 2003. At December 31, 2003, the REO
amount was primarily comprised of one-to-four family homes totaling $958,000,
land parcels totaling $141,000 and a commercial building totaling $157,000.
For additional information, see "Non-performing assets" section included
herein.
Premises and Equipment: Premises and equipment increased by $394,000 to $13.8
million at December 31, 2003 from $13.4 million at September 30, 2003. This
increase is primarily due to costs associated with the remodeling and
expansion of the Bank's home office in Hoquiam.
President Michael Sand provided an update on the Bank's branch expansion
plans. " The Bank anticipates opening its 16th full-service office in June
2004. The office will be established in the expanding Gig Harbor Washington
market. Richard Pifer of Gig Harbor has been named Vice President and Branch
Manager. Mr. Pifer is a 12-year resident of Gig Harbor and has over 23 years
of banking experience, most recently with Key Bank."
Deposits: Deposits increased by $9.3 million to $317.0 million at December 31,
2003 from $307.7 million at September 30, 2003, primarily due to a $7.7
million increase in the Bank's N.O.W. checking accounts, a $2.2 million
increase in non-interest-bearing accounts, and a $1.3 million increase in
certificate of deposit accounts. These increases were partially offset by a
$1.1 million decrease in savings accounts and a $793,000 decrease in money
market accounts. The Bank continues to focus on attracting transaction
accounts rather than higher-rate time deposits. Transaction accounts
represent a stronger core deposit relationship than other types of deposit
accounts. For additional information, see "Deposit Breakdown" section
included herein.
Federal Home Loan Bank ("FHLB") Advances: FHLB advances decreased to $60.1
million at December 31, 2003 from $61.6 million at September 30, 2003. For
additional information, see "FHLB Advance Maturity Schedule" included herein.
Shareholders' Equity: Total shareholders' equity increased by $1.2 million to
$78.8 million at December 31, 2003 from $77.6 million at September 30, 2003.
The components of shareholders' equity were primarily affected by net income
of $1.39 million and the payment of $603,000 in dividends to shareholders.
Also affecting shareholders' equity was a $108,000 increase to additional paid
in capital from the exercise of stock options, a $47,000 decrease in
accumulated other comprehensive income, and decreases of $161,000 and $132,000
in the equity components related to unearned shares issued to the Management
Recognition and Development Plan and Employee Stock Ownership Plans.
13
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 December 31, 2003, the Company had purchased 112,108 of these
shares and cumulatively had repurchased 2,710,671 (41.0%) of the 6,612,500
shares that were issued when the Company went public in January 1998. There
were no shares repurchased during the quarter ended December 31, 2003.
Non-performing Assets: The Company's non-performing asset ratio to total
asset ratio ("NPA") increased to 1.53% at December 31, 2003 from 1.15% at
September 30, 2003, as total non-performing assets increased to $7.02 million
from $5.15 million. The ratio increased primarily due to an increase in
non-performing loans. Non-performing loans increased by $1.9 million to $5.8
million at December 31, 2003 from $3.9 million at September 30, 2003 as
several loans became 90 past days due, and were put on non-accrual status.
The non-performing loan total of $5.8 million at December 31, 2003 consisted
of $2.2 million in one-to-four family loans, $1.2 million in one-to-four
family construction loans, $1.0 million in land development loans, $774,000 in
commercial real estate loans, $415,000 in land loans, $117,000 in commercial
business loans, and $90,000 in consumer loans. Despite historically having a
higher percentage of non-performing loans than relevant peer group averages,
the Company's actual charge-offs have remained low. The Company's net
charge-offs to outstanding loans ratio was a minimal .004% for the quarter
ended December 31, 2003 and during the last five fiscal years has averaged
less than .10% per year. Management's goal is to reduce the non-performing
asset to total asset ratio to less than 1.0%.
Several of these non-performing assets were in the process of resolution. Two
REO properties with book values totaling $152,000 sold and closed in January,
and an offer has been accepted on an additional REO property with a book
balance of $466,000. The non-performing land development loan of $872,000
that had previously been reported as under contract of sale for $1,390,000
failed to close and the borrower is seeking outside financing to pay off the
debt to Timberland. The Bank cannot assure that properties under contract that
have not yet closed will in fact close in accordance with the terms of the
applicable earnest money agreements, if at all.
14
Non Performing Assets
- ---------------------
The following table sets forth information with respect to the Company's
nonperforming assets at the dates indicated.
December 31, September 30,
2003 2003
----------------------------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One-to-four family $ 2,170 $ 1,409
Commercial 774 538
Construction and land development 2,188 1,185
Land 415 521
Consumer loans 90 212
Commercial business loans 30 30
-------- --------
Total 5,667 3,895
Accruing loans which are contractually
past due 90 days or more:
Commercial business loans 87 --
-------- --------
Total 87 --
Total of nonaccrual and
90 days past due loans 5,754 3,895
Real estate owned and other
repossessed assets 1,264 1,258
-------- --------
Total nonperforming assets 7,018 5,153
Restructured loans - - - -
Nonaccrual and 90 days or more past
due loans as a percentage of loans
receivable, (including loans held for sale)(1) 1.71% 1.19%
Nonaccrual and 90 days or more past
due loans as a percentage of total assets 1.26% 0.87%
Nonperforming assets as a percentage
of total assets 1.53% 1.15%
Loans receivable, (including loans
held for sale) (1) $337,321 $326,127
======== ========
Total assets $458,179 $449,633
======== ========
- ----------------
(1) Loans receivable is before the allowance for loan losses
15
Loans Portfolio Composition
- ---------------------------
The following table sets forth the composition of the Company's loan portfolio
by type of loan.
At December 31, At September 30,
2003 2003
Amount Percent Amount Percent
--------------------- -------------------
(Dollars In thousands)
Mortgage Loans:
One-to-four family (1) $ 93,246 24.69% $ 95,371 26.21%
Multi family 17,597 4.66 18,241 5.01
Commercial 110,233 29.19 102,972 28.30
Construction and
land development 100,386 26.58 94,117 25.87
Land 16,637 4.40 15,628 4.30
--------- ------ -------- ------
Total mortgage loans 338,099 89.52 326,329 89.69
Consumer Loans:
Home equity and second
mortgage 21,098 5.59 19,233 5.29
Other 8,968 2.37 8,799 2.42
--------- ------ -------- ------
30,066 7.96 28,032 7.71
Commercial business loans 9,532 2.52 9,475 2.60
--------- ------ -------- ------
Total loans 377,697 100.00% 363,836 100.00%
====== ======
Less:
Undisbursed portion of loans
in process (37,370) (34,785)
Unearned income (3,006) (2,924)
Allowance for loan losses (3,926) (3,891)
-------- --------
Total loans receivable, net $333,395 $322,236
======== ========
- --------------
(1) Includes loans held-for-sale.
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 December 31, At September 30,
2003 2003
Amount Percent Amount Percent
--------------------- -------------------
(Dollars In thousands)
Custom and owner/builder
const. $ 53,203 53.00% $49,876 52.99%
Speculative construction 28,383 28.27 26,350 28.00
Commercial real estate 10,735 10.69 6,825 7.25
Multi-family 3,097 3.09 3,940 4.19
Land development 4,968 4.95 7,126 7.57
-------- ------ ------- ------
Total construction loans $100,386 100.00% $94,117 100.00%
======== ====== ======= ======
16
Activity in the Allowance for Loan Losses
- -----------------------------------------
Activity in the allowance for loan losses in the three months ended December
31, 2003 and 2002 is as follows:
2003 2002
---------------------
(Dollars in thousands)
Balance beginning of period $3,891 $3,630
Provision for loan losses 50 173
Loans charged off (25) (38)
Recoveries on loans previously charged off 10 12
Net charge offs (15) (26)
------ ------
Balance at end of period $3,926 $3,777
====== ======
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.
December 31, 2003 September 30, 2003
----------------- ------------------
(in thousands) (in thousands)
Non-interest bearing $ 31,350 $ 29,133
N.O.W. checking 65,339 57,614
Savings 48,433 49,572
Money market accounts 38,651 39,444
Certificates of deposit under $100,000 110,051 109,720
Certificates of deposit $100,000 and over 23,176 22,189
-------- --------
Total Deposits $317,000 $307,672
======== ========
FHLB Advance Maturity Schedule
- ------------------------------
The Bank's Federal Home Loan Bank borrowings mature at various dates through
January 2011 and bear interest at rates ranging from 3.8% to 6.6%. Principal
reduction amounts due for future years ending September 30 are as follows
(dollars in thousands):
2004 $ 5,128
2005 4,583
2006 10,591
2007 64
2008 15,070
Thereafter 24,628
-------
Total $60,064
=======
A portion of these advances have a putable feature and may be called by the
FHLB earlier than the above schedule indicates.
18
Comparison of Operating Results for the Three Months Ended December 31, 2003
and 2002
Net Income: Net income for the quarter ended December 31, 2003 was $1.39
million, or $0.34 per diluted share ($0.36 per basic share) compared to $1.87
million, or $0.46 per diluted share ($0.48 per basic share) for the quarter
ended December 31, 2002. The lower earnings for the current quarter were
primarily a result of decreased income from loan sales and increased
non-interest expenses related to technology improvements, higher employee
costs resulting from a larger employee base, and higher premises and equipment
expenses due to additional branches and remodeling costs.
The $0.12 per share decrease in earnings was primarily a result of the
$634,000 ($418,000 net of income tax - $0.10 per diluted share) decrease in
non-interest income and the $335,000 ($221,000 net of income tax - $0.05 per
diluted share) increase in non-interest expense. These items were partially
offset by a $239,000 ($158,000 net of income tax - $0.04 per diluted share)
increase in net interest income after provision for loan losses.
Net Interest Income: Net interest income increased $116,000 to $4.86 million
for the quarter ended December 31, 2003 from $4.75 million for the quarter
ended December 31, 2002, primarily due to a larger interest earning asset base
and a decrease in the Company's funding costs. Average total interest earning
assets increased by $12.8 million to $418.3 million for the current quarter
from $405.5 million for the quarter ended December 31, 2002. Total interest
expense decreased by $482,000 to $1.98 million for the quarter ended December
31, 2003 from $2.46 million for the quarter ended December 31, 2002 as the
Bank's total cost of funds decreased to 2.30% from 2.95%. Total interest
income decreased $366,000 to $6.84 million for the quarter ended December 31,
2003 from $7.21 million for the quarter ended December 31, 2002, primarily due
to a reduction in average yields on earning assets. The yield on earning
assets was 6.54% for the quarter ended December 31, 2003 compared to 7.11% for
the quarter ended December 31, 2002. As a result of these changes, the net
interest margin decreased slightly to 4.65% for the quarter ended December 31,
2003 from 4.68% for the quarter ended December 31, 2002.
Provision for Loan Losses: The provision for loan losses for the quarter
ended December 31, 2003 decreased $123,000 to $50,000 from $173,000 for the
quarter ended December 31, 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
$3.93 million at December 31, 2003 (1.17% of loans receivable and 68.2% of
non-performing loans) adequate to provide for probable losses based on an
evaluation of known and inherent risks in the loan portfolio at that date.
The allowance for loan losses was $3.78 million (1.21% of loans receivable and
90.6% of non-performing loans) at December 31, 2002. The balance of the
allowance for loan losses was increased because the size of the loan portfolio
and the level of non-performing loans increased. The Company had a net
charge-off of $15,000 for the current quarter compared to a net charge-off of
$26,000 in the same quarter of 2002. For additional information, see the
"Activity in the Allowance for Loan Losses" section included herein.
Non-interest Income: Total non-interest income decreased $634,000 to $1.01
million for the quarter ended December 31, 2003 from $1.65 million for the
quarter ended December 31, 2002, primarily due to a $391,000 decrease in
income from loan sales (gain on sale of loans and servicing income on loans
sold), an $81,000 decrease in service charges on deposits, a $37,000 decrease
in ATM transaction fees, and a $33,000 decrease in loan application fees.
Income from loan sales decreased as mortgage banking activity slowed. The
Bank sold $10.2 million in fixed rate one-to-four mortgages during the quarter
ended December 31, 2003 compared to $34.8 million for the same period a year
ago. The decrease in deposit service charges is primarily a result of
19
fewer overdrafts by transaction account customers and a higher than normal
amount of fees waived during the first three months after the Bank's
technology conversion date.
Non-interest Expense: Total non-interest expense increased by $335,000 to
$3.83 million for the quarter ended December 30, 2003 from $3.49 million for
the quarter ended December 31, 2002. The increase is primarily a result of
expenses related to the Bank's technology-related enhancements, increased
employee expenses, and increased premises and equipment expenses.
The technology-related conversion expenses totaled $118,000 for the current
quarter and are reflected in the income statement under salaries and employee
benefits ($62,000) and other non-interest expenses ($56,000). For additional
information on the technology conversion, see the "Technology Improvement
Update" section included herein.
In addition to the conversion related expenses for employee overtime, salaries
and employee benefit expenses also increased by $100,000 due to a larger
employee base, annual salary adjustments, and increased medical insurance
costs. The number of full-time equivalent employees increased to 184 at
December 31, 2003 from 166 at December 31, 2002. The Bank's employee base grew
during this period as two branches were opened and staffing levels in several
other departments were increased. Premises and equipment expenses increased
by $99,000 to $462,000 for the current quarter from $363,000 for the quarter
ended December 31, 2002, primarily due to the additional branches opened and
the remodeling and expansion of the Bank's main office.
President Michael Sand commented on the impact of the new branches. "We have
continued our branching initiatives by branching into markets we consider
beneficial for our franchise. Branching has placed us near larger population
groups and has enabled us to operate in several diverse economies."
Provision for Income Taxes: The provision for income taxes decreased to
$611,000 for the quarter ended December 31, 2003 from $860,000 for the quarter
ended December 31, 2002. The Company's effective tax rate was 30.6% for the
three months ended December 31, 2003 compared to 31.5% for the three months
ended December 31, 2002. The lower effective tax rates resulted primarily
from a higher percentage of tax-exempt income during the current quarter.
Technology Improvement Update
- -----------------------------
The Company incurred additional expenses associated with the technology
improvements that were implemented in the previous quarter. In August 2003,
Timberland converted to the Kirchman Bankway core processing system from its
in-house supported system. The Bank also upgraded its Internet banking
system, its loan platform system and changed its ATM service provider. These
technology enhancements were undertaken to provide additional opportunities to
serve and expand the Bank's customer base. The Company incurred expenses of
$118,000 ($78,000 net of income tax - $0.02 per diluted share) related to the
technology enhancements and associated conversion costs during the current
quarter. The Company estimates that the remaining expenses from this
technology improvement project will be incurred during the March 31, 2004
quarter and will amount to less than $0.01 per diluted share. While the
technology upgrades have reduced profitability in the short term, we believe
the investment will be beneficial for our customers and ultimately to our
long-term investors.
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
20
flows and mortgage prepayments are greatly influenced by general interest
rates, economic conditions and competition.
An analysis of liquidity should also include a review of the changes that
appear in the consolidated statement of cash flows for the three months ended
December 31, 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
and interest bearing deposits in bank's decreased by $6.8 million to $31.3
million at December 31, 2003 from $38.1 million at September 30, 2003. The
Company's liquid assets decreased primarily a result of funding loan growth
and purchasing additional investment securities. Also partially funding the
$11.2 million increase in the loan portfolio was an increase of $9.3 million
in 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 December 31,
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 28.8%. The Bank also maintained an uncommitted credit facility with the
FHLB-Seattle that provided for immediately available advances up to an
aggregate amount of $155.5 million, under which $60.1 million was outstanding
at December 31, 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.
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 December 31, 2003, the Bank had loan commitments
totaling $34.9 million and undisbursed loans in process totaling $37.4
million. The Bank anticipates that it will have sufficient funds available to
meet current loan commitments. Certificates of deposit that are scheduled to
mature in less than one year from December 31, 2003 totaled $100.9 million.
Historically, the Bank has been able to retain a significant amount of its
certificates of deposit as they mature.
Federally-insured state-chartered banks are required to maintain minimum
levels of regulatory capital. Under current FDIC regulations, insured
state-chartered banks generally must maintain (i) a ratio of Tier 1 leverage
capital to total assets of at least 3.0% (4.0% to 5.0% for all but the most
highly rated banks), (ii) a ratio of Tier 1 capital to risk weighted assets of
at least 4.0% and (iii) a ratio of total capital to risk weighted assets of at
least 8.0%. At December 31, 2003, the Bank was in compliance with all
applicable capital requirements. For additional details see "Regulatory
Capital".
21
Regulatory Capital
- ------------------
The following table compares the Bank's regulatory capital at December 31,
2003 to its minimum regulatory capital requirements at that date (dollars in
thousands):
Percent of
Amount Adjusted Total Assets (1)
------- ------------------------
Tier 1 (leverage) capital $67,429 15.0%
Tier 1 (leverage) capital
requirement 17,929 4.0
------- ----
Excess $49,500 11.0%
======= ====
Tier 1 risk adjusted capital $67,429 20.0%
Tier 1 risk adjusted capital
requirement 13,480 4.0
------- ----
Excess $53,949 16.0%
======= ====
Total risk based capital $71,335 21.2%
Total risk based capital
requirement 26,960 8.0
------- ----
Excess $44,375 13.2%
======= ====
- ---------------
(1) For the Tier 1 (leverage) capital, percent of total average assets of
$448.2 million. For the Tier 1 risk-based capital and total risk-based
capital calculations, percent of total risk-weighted assets of $337.0
million.
22
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
KEY FINANCIAL RATIOS
(Dollars in thousands, except per share data)
For the Three Months Ended
December 31, September 30, December 31,
2003 2003 2002
-------------------------------------------
PERFORMANCE RATIOS:
Return on average assets (1) 1.22% 1.28% 1.72%
Return on average equity (1) 7.11% 7.46% 9.96%
Net interest margin (1) 4.65% 4.49% 4.68%
Efficiency ratio 65.13% 65.50% 54.62%
December 31, September 30, December 31,
2003 2003 2002
-------------------------------------------
ASSET QUALITY RATIOS:
Non-performing loans $ 5,754 $ 3,895 $ 4,169
REO & other repossessed assets 1,264 1,258 692
Total non-performing assets 7,018 5,153 4,861
Non-performing assets to total
assets 1.53% 1.15% 1.12%
Allowance for loan losses to
non-performing loans 68.23% 99.90% 90.60%
Book Value Per Share (2) $ 18.51 $ 18.25 $ 17.52
Book Value Per Share (3) $ 20.05 $ 19.77 $ 19.07
- --------------
(1) Annualized
(2) Calculation includes ESOP shares not committed to be released
(3) Calculation excludes ESOP shares not committed to be released
For the Three Months Ended
December 31, September 30, December 31,
2003 2003 2002
-------------------------------------------
AVERAGE BALANCE SHEET:
Average Total Loans $ 336,601 $ 322,900 $325,200
Average Total Interest Earning
Assets 418,266 416,886 405,514
Average Total Assets 453,276 448,746 434,880
Average Total Interest Bearing
Deposits 283,660 271,947 272,037
Average FHLB Advances 60,036 61,653 61,735
Average Shareholders' Equity 77,987 77,218 75,000
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, 2003.
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 December 31, 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. A number of internal
control procedures were, however, modified during the quarter in
conjunction with the Bank's conversion to a new core processing system
in August 2003. The Company also continued to implement suggestions
from its internal auditor and independent 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, Use of Proceeds, and Issuer Purchases of
- ------------------------------------------------------------------------
Equity Securities
-----------------
Change in Securities -- None to be reported.
Use of proceeds -- None to be reported.
Issuer Purchases of Equity Securities -- 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 (1)
3.2 Bylaws of the Registrant (1)
3.3 Amendment to Bylaws (2)
10.1 Employee Severance Compensation Plan (3)
10.2 Employee Stock Ownership Plan (3)
10.3 1999 Stock Option Plan (4)
10.4 Management Recognition and Development Plan (4)
10.5 2003 Stock Option Plan (5)
31.1 Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes Oxley Act
31.2 Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes Oxley Act
32 Certifications of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes Oxley Act
-----------------
(1) Incorporated by reference to the Registrant's Registration
Statement of Form S-1 (333- 35817).
(2) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended September 30, 2002.
(3) Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1997.
(4) Incorporated by reference to the Registrant's 1999 Annual Meeting
Proxy Statement dated December 15, 1998.
(5) Incorporated by reference to the Registrant's 2004 Annual Meeting
Proxy Statement dated December 24, 2003.
(b) Reports on Form 8-K. Timberland Bancorp, Inc. filed a Form 8-K on
November 18, 2003 that contained the Company's earnings release report for the
quarter ended September 30, 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: February 12, 2003 By:/s/ Michael R. Sand
--------------------------------
Michael R. Sand
Chief Executive Officer
(Principal Executive Officer)
Date: February 12, 2003 By:/s/ Dean J. Brydon
-------------------------------
Dean J. Brydon
Chief Financial Officer
(Principal Financial Officer)
26
Exhibit 31.1
Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes Oxley Act
I, Michael R. Sand, 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
on 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: February 12, 2004
/s/ Michael R. Sand
------------------------------
Michael R. Sand
Chief Executive Officer
27
Exhibit 31.2
Certification of Chief Financial Officer 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
on 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: February 12, 2004
/s/ Dean J. Brydon
------------------------------
Dean J. Brydon
Chief Financial Officer
28
EXHIBIT 32
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/ Michael R. Sand /s/ Dean J. Brydon
- -------------------------------- ---------------------------------
Michael R. Sand Dean J. Brydon
Chief Executive Officer Chief Financial Officer
Date: February 12, 2004
29