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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 March 31, 2004
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 APRIL 30, 2004
----- ------------------------------------
common stock, $.01 par value 3,495,151
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Shareholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6-7
Condensed Consolidated Statements of Comprehensive Income 8
Notes to Condensed Consolidated Financial Statements
(unaudited) 9-11
Item 2. Management's Discussion and Analysis of Financial Condition 12-24
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
Item 4. Controls and Procedures 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases
Of Equity Securities 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2004 and September 30, 2003
Dollars in Thousands
(unaudited)
March 31, September 30,
2004 2003
----------------------------
Assets
Cash and due from financial institutions $ 11,715 $ 8,587
Interest bearing deposits in banks 9,311 29,511
Investments and mortgage backed securities
held to maturity 218 279
Investments and mortgage backed securities
available for sale 55,800 54,031
Federal Home Loan Bank stock 5,577 5,454
Loans receivable 337,778 325,126
Loans held for sale 703 1,001
Less: Allowance for loan losses (3,927) (3,891)
----------------------------
Total Loans 334,554 322,236
----------------------------
Accrued interest receivable 1,717 1,687
Premises and equipment 13,763 13,429
Real estate owned and other repossessed items 484 1,258
Bank owned life insurance ("BOLI") 10,793 10,566
Other assets 2,392 2,595
----------------------------
Total Assets $ 446,324 $ 449,633
----------------------------
Liabilities and Shareholders' Equity
Liabilities
Deposits $ 317,020 $ 307,672
Federal Home Loan Bank advances 55,022 61,605
Other liabilities and accrued expenses 2,774 2,745
----------------------------
Total Liabilities 374,816 372,022
----------------------------
Shareholders' Equity
Common Stock, $.01 par value; 50,000,000
shares authorized; March 31, 2004 - 3,903,338
issued, 3,495,151 outstanding September 30,
2003 - 4,251,680 issued, 3,843,493 outstanding
(unallocated ESOP shares and unvested MRDP
shares are not considered outstanding) 39 43
Additional paid in capital 25,459 33,775
Unearned shares - Employee Stock Ownership Plan (4,626) (4,891)
Unearned shares - Management Recognition &
Development Plan (860) (1,182)
Retained earnings 51,313 49,699
Accumulated other comprehensive income 183 167
----------------------------
Total Shareholders' Equity 71,508 77,611
----------------------------
Total Liabilities and Shareholders' Equity $ 446,324 $ 449,633
----------------------------
See notes to unaudited condensed consolidated financial statements
3
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended March 31, 2004 and 2003
Dollars in Thousands, Except Per Share Amounts
(unaudited)
Three Months Six Months
Ended March 31, Ended March 31,
2004 2003 2004 2003
------------------ ------------------
Interest and Dividend Income
Loans receivable $ 6,193 $ 6,379 $12,476 $12,962
Investments and mortgage-backed
securities 239 244 483 487
Dividends from investments 250 287 519 546
Interest bearing deposits in banks 36 83 81 205
------------------ ------------------
Total interest and dividend income 6,718 6,993 13,559 14,200
Interest Expense
Deposits 1,082 1,412 2,210 3,023
Federal Home Loan Bank advances 810 831 1,661 1,681
------------------ ------------------
Total interest expense 1,892 2,243 3,871 4,704
------------------ ------------------
Net interest income 4,826 4,750 9,688 9,496
Provision for Loan Losses 30 107 80 280
------------------ ------------------
Net interest income after
provision for loan losses 4,796 4,643 9,608 9,216
Non-Interest Income
Service charges on deposits 450 461 899 992
Gain on sale of loans, net 256 394 426 823
Loss on sale of securities (6) - - (6) - -
BOLI net earnings 112 134 227 269
Escrow fees 28 61 72 135
Servicing income (expense) on
loans sold 14 83 (4) 195
ATM transaction fees 147 189 296 375
Other 116 177 218 356
------------------ ------------------
Total non-interest income 1,117 1,499 2,128 3,145
Non-interest Expense
Salaries and employee benefits 2,234 2,031 4,406 4,041
Premises and equipment 465 370 927 733
Advertising 201 176 352 380
Loss (gain) from real estate
operations & write-downs (90) 42 (74) 73
ATM expenses 91 152 192 301
Other 942 763 1,866 1,496
------------------ ------------------
Total non-interest expense 3,843 3,534 7,669 7,024
Income before federal income taxes 2,070 2,608 4,067 5,337
Federal Income Taxes 647 818 1,258 1,678
------------------ ------------------
Net Income $ 1,423 $ 1,790 $ 2,809 $ 3,659
Earnings Per Common Share:
Basic $ 0.38 $ 0.47 $ 0.74 $ 0.95
Diluted $ 0.36 $ 0.45 $ 0.71 $ 0.91
Weighted average shares
outstanding:
Basic 3,702,491 3,820,273 3,774,929 3,838,604
Diluted 3,901,469 4,009,862 3,975,302 4,010,795
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 six months ended March 31, 2004
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 - - - - - - - - - - 2,809 - - 2,809
Repurchase of
common stock (411,316) (4) (9,485) - - - - - - - - (9,489)
Exercise of stock options 62,974 - - 996 - - - - - - - - 996
Cash dividends
($.28 per share) - - - - - - - - - - (1,195) - - (1,195)
Earned ESOP shares - - - - 150 265 - - - - - - 415
Earned MRDP shares - - - - 23 - - 322 - - - - 345
Change in fair value of
securities available
for sale, net of tax - - - - - - - - - - - - 16 16
--------------------------------------------------------------------------------
Balance, Mar. 31, 2004 3,495,151 $ 39 $25,459 ($4,626) ($860) $51,313 $183 $71,508
--------------------------------------------------------------------------------
See notes to unaudited condensed consolidated financial statements
5
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 2004
Dollars in Thousands
(unaudited)
Six Months Ended March 31,
Cash Flow from Operating Activities 2004 2003
-------------------------
Net income $ 2,809 $ 3,659
--------------------
Noncash revenues, expenses, gains and losses
included in income:
Depreciation 386 299
Federal Home Loan Bank stock dividends (124) (174)
Earned ESOP Shares 345 384
Earned MRDP Shares 415 352
Loss on sale of securities available for sale 6 - -
Loss (gain) on sale of real estate owned, net (115) 10
BOLI cash surrender value increase (227) (269)
Gain on sale of loans (426) (823)
Provision for loan and real estate owned losses 91 307
Loans originated for sale (22,574) (61,608)
Proceeds from sale of loans 23,298 63,126
Net decrease (increase) in other assets 172 (395)
Increase (decrease) in other liabilities and
accrued expenses, net 29 (823)
--------------------
Net Cash Provided by Operating Activities 4,085 4,045
Cash Flow from Investing Activities
Net decrease (increase) in interest-bearing
deposits in banks 20,200 (4,582)
Purchase of securities available for sale (9,000) (15,500)
Proceeds from maturities of securities available
for sale 5,703 4,278
Proceeds from sales of securities available for sale 1,600 - -
Decrease (increase) in loans receivable, net (12,696) 12,846
Additions to premises and equipment (720) (1,654)
Additions to real estate owned (87) (525)
Proceeds from sale of real estate owned 965 268
--------------------
Net Cash Provided by (Used in) Investing Activities 5,965 (4,869)
Cash Flow from Financing Activities
Increase in deposits, net 9,348 4,263
Decrease in Federal Home Loan Bank advances, net (6,582) (75)
Proceeds from exercise of stock options 996 344
Repurchase of common stock (9,489) (2,204)
Payment of dividends (1,195) (1,045)
--------------------
Net Cash Provided by (Used in) Financing Activities (6,922) 1,283
Net Change in Cash 3,128 459
Cash and Due from Financial Institutions
Beginning of period 8,587 10,580
--------------------
End of period $11,715 $11,039
--------------------
See notes to unaudited condensed consolidated financial statements (continued)
6
Six Months Ended March 31,
2004 2003
-------------------------
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 775 $ 1,675
Interest paid 3,884 4,716
Supplemental Disclosure of Noncash Investing Activities
Market value adjustment of securities held for sale,
net of tax 16 (83)
Loans transferred to real estate owned 76 480
See notes to unaudited condensed consolidated financial statements
7
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended March 31, 2004 and 2003
Dollars in Thousands
(unaudited)
Three Months Six Months
Ended March 31, Ended March 31,
2004 2003 2004 2003
--------------- ----------------
Comprehensive Income:
Net Income $1,423 $1,790 $2,809 $3,659
Change in fair value of securities
available for sale, net of tax 63 (79) 16 (83)
--------------- ----------------
Total Comprehensive Income $1,486 $1,711 $2,825 $3,576
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 consolidated
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 six months ended March 31, 2004 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 March 31, 2004 and 2003, there
were 326,216 and 361,483 ESOP shares, respectively, that had not been
allocated.
Three Months Six Months
Ended March 31, Ended March 31,
2004 2003 2004 2003
---------------------- ----------------------
Basic EPS computation
Numerator - Net Income $1,423,000 $1,790,000 $2,809,000 $3,659,000
Denominator - Weighted average
common shares outstanding 3,702,491 3,820,273 3,774,929 3,838,604
Basic EPS $ 0.38 $ 0.47 $ 0.74 $ 0.95
Diluted EPS computation
Numerator - Net Income $1,423,000 $1,790,000 $2,809,000 $3,659,000
Denominator - Weighted average
common shares outstanding 3,702,491 3,820,273 3,774,929 3,838,604
Effect of dilutive stock options 167,605 159,133 171,979 148,102
Effect of dilutive MRDP 31,373 30,456 28,394 24,089
---------- ---------- ---------- ----------
Weighted average common shares
and common stock equivalents 3,901,469 4,009,862 3,975,302 4,010,795
Diluted EPS $ 0.36 $ 0.45 $ 0.71 $ 0.91
10
(3) STOCK BASED COMPENSATION
At March 31, 2004 the Company has an employee and director stock option plan.
The Company accounts for options granted under that plan under the recognition
and measurement principles of APB No. 25, Accounting for Stock Issued to
Employees and related interpretations. Accordingly, no stock-based
compensation cost is reflected in net income as the exercise price for all
options granted under the plan was equal to the market value of the Company's
stock on the date of grant. The following table illustrates the effect on net
income and earnings per share for the three and six months ended March 31,
2004 and 2003 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 Six Months
Ended March 31, Ended March 31,
2004 2003 2004 2003
---------------------- ----------------------
Net income as reported $1,423,000 $1,790,000 $2,809,000 $3,659,000
Less total stock-based
compensation expense
determined under fair
value method for all
qualifying awards (43,000) (44,000) (80,000) (86,000)
Pro forma net income 1,380,000 1,746,000 2,729,000 3,573,000
Earnings per share:
Basic:
As reported $ 0.38 $ 0.47 $ 0.74 $ 0.95
Pro forma 0.37 0.46 0.72 0.93
Diluted:
As reported $ 0.36 $ 0.45 $ 0.71 $ 0.91
Pro forma 0.36 0.44 0.69 0.90
(4) DIVIDEND / SUBSEQUENT EVENT
On April 28, 2004, the Company announced a quarterly cash dividend of $0.14
per common share. The dividend is to be paid May 24, 2004, to shareholders of
record as of the close of business May 10, 2004.
(5) RECENT ACCOUNTING PRONOUNCEMENTS
None
11
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operation
--------------------
The following analysis discusses the material changes in the financial
condition and results of operations of the Company at and for the three and
six months ended March 31, 2004. This report contains certain "forward-
looking statements." The Company desires to take advantage of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 and
is including this statement for the express purpose of availing itself of the
protection of such safe harbor with forward looking statements. These forward
looking statements may describe future plans or strategies and include the
Company's expectations of future financial results. The words "believe,"
"expect," "anticipate," "estimate," "project," and similar expressions
identify forward-looking statements. The Company's ability to predict results
or the effect of future plans or strategies is inherently uncertain. Factors
which could affect actual results include competition in the financial
services market for both deposits and loans, interest rate trends, the
economic climate in the Company's market areas and the country as a whole,
loan delinquency rates, and changes in federal and state regulation. These
factors should be considered in evaluating the forward-looking statements, and
undue reliance should not be placed on such statements.
Comparison of Financial Condition at March 31, 2004 and September 30, 2003
Total Assets: Total assets decreased $3.3 million to $446.3 million at March
31, 2004 from $449.6 million at September 30, 2003 primarily due to a decrease
in the Company's interest bearing deposits in banks. The balance in the
Company's interest bearing deposits decreased by $20.2 million primarily due
to the repurchase of 411,316 shares of Timberland Bancorp, Inc. stock for $9.5
million and the repayment of $6.6 million of Federal Home Loan Bank advances.
Partially offsetting the decrease in interest bearing balances was a $12.3
million increase in net loans receivable, a $3.1 million increase in cash and
due from financial institutions, and a $1.7 million increase in investment
securities. A portion of the increased loan portfolio was funded by a $9.3
million increase in deposits.
Cash and Due from Financial Institutions: Cash and due from financial
institutions increased to $11.7 million at March 31, 2004 from $8.6 million at
September 30, 2003.
Interest Bearing Deposits in Banks: Interest bearing deposits in banks
decreased $20.2 million to $9.3 million at March 31, 2004 from $29.5 million
at September 30, 2003, as a portion of the Company's short-term deposits were
used to fund the share repurchase plans, to repay FHLB advances, to fund
loans, and to purchase investment securities.
Securities: Securities increased $1.7 million to $56.0 million at March 31,
2004 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 March 31, 2004, the Company's securities'
portfolio was comprised of mutual funds of $32.8 million, mortgage-backed
securities of $15.2 million, and U.S. agency securities of $8.0 million. 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 $12.3
million to $334.6 million at March 31, 2004 from $322.2 at September 30, 2003.
The increase in the portfolio was primarily a result of a $6.5 million
increase in commercial real estate loans, a $4.6 million increase in
construction loans (net of undisbursed portion), a $1.9 million increase in
consumer loans, and a $1.6 million increase in land loans. These increases
were partially offset by a $2.1 million decrease in the Bank's one-to-four
family mortgage loan portfolio. Loan originations totaled $32.4 million and
$86.7 million for the three and six months ended March
12
31, 2004, compared to $58.5 million and $109.3 million for the same periods a
year earlier. The Bank sold $12.6 million and $22.9 million in fixed rate
one-to-four family mortgage loans for the three and six months ended March 31,
2004, compared to $27.5 million and $62.3 million for the same periods a year
earlier.
President Michael Sand commented on loan demand, "While we have seen a
reduction in the volume of refinanced mortgages we are pleased with the level
of residential construction loans we have originated and we continue to see
strong demand for commercial real estate loans through our Business Banking
Division."
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 decreased to $484,000 at March 31, 2004 from $1.258
million at September 30, 2003 as several properties were sold. At March 31,
2004, the REO amount was primarily comprised of one-to-four family homes
totaling $338,000 and land parcels totaling $136,000. For additional
information, see "Non-performing assets" section included herein.
Premises and Equipment: Premises and equipment increased by $334,000 to $13.8
million at March 31, 2004 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, and costs associated with
preparing the Gig Harbor branch for opening.
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."
Deposits: Deposits increased by $9.3 million to $317.0 million at March 31,
2004 from $307.7 million at September 30, 2003, primarily due to a $14.7
million increase in the Bank's N.O.W. checking accounts and a $992,000
increase in non-interest bearing accounts. These increases were partially
offset by a $3.5 million decrease in money market accounts, $1.6 million
decrease in certificate of deposit accounts, and a $1.2 million decrease in
savings 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 $55.0
million at March 31, 2004 from $61.6 million at September 30, 2003 as the Bank
was able to repay a maturing advance. For additional information, see "FHLB
Advance Maturity Schedule" included herein.
Shareholders' Equity: Total shareholders' equity decreased by $6.1 million to
$71.5 million at March 31, 2004 from $77.6 million at September 30, 2003,
primarily due to the repurchase of 411,316 shares of the Company's stock for
$9.5 million and the payment of $1.2 million in dividends to shareholders.
Partially offsetting these decreases to equity, were net income of $2.8
million and a $1.0 million increase to additional paid in capital from the
exercise of stock options. Also affecting shareholders' equity were decreases
of $322,000 and $265,000 in the equity components related to unearned shares
issued to the Management Recognition and Development Plan and the Employee
Stock Ownership Plans.
On February 23, 2004, the Company announced the completion of its 11th stock
repurchase plan. The Company repurchased 380,038 shares at an average price
of $22.64 per share. The Company repurchased 267,930 of these shares during
the quarter ended March 31, 2004.
13
On February 27, 2004, the Company announced a plan to repurchase 360,670
shares of the Company's stock. This marked the Company's 12th stock
repurchase plan. As of March 31, 2004, the Company has repurchased 143,386 of
these shares at an average price of $23.01 per share. Cumulatively the
Company has repurchased 3,121,987 (47.2%) of the 6,612,500 shares that were
issued when the Company went public in January 1998 at an average price of
$14.79 per share. For additional information, see Item 2 of Part II of this
Form 10-Q.
Non-performing Assets: The Company's non-performing asset ratio to total
asset ratio ("NPA") decreased to 1.00% at March 31, 2004 from 1.15% at
September 30, 2003, as total non-performing assets decreased to $4.44 million
from $5.15 million. The ratio decreased primarily due to a $774,000 decrease
in real estate owned balances.
The non-performing loan total of $4.0 million at March 31, 2004 consisted of
$1.1 million in one-to-four family loans, $872,000 in land development loans,
$850,000 in one-to-four family construction loans, $707,000 in commercial real
estate loans, $392,000 in land loans, $30,000 in commercial business loans,
and $22,000 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 .01% for the quarter ended March 31,
2004 and during the last five fiscal years has averaged less than .10% per
year.
14
Non Performing Assets
- ---------------------
The following table sets forth information with respect to the Company's
nonperforming assets at the dates indicated.
March 31, September 30,
2004 2003
------------------------------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One-to-four family $ 1,086 $ 1,409
Commercial 556 538
Construction and land development 1,722 1,185
Land 392 521
Consumer loans 22 212
Commercial business loans 30 30
--------- ---------
Total 3,808 3,895
Accruing loans which are contractually
past due 90 days or more:
Commercial mortgage loans 151 --
--------- ---------
Total 151 -
Total of nonaccrual and
90 days past due loans 3,959 3,895
Real estate owned and other
repossessed assets 484 1,258
--------- ---------
Total nonperforming assets $ 4,443 $ 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) 1.17% 1.19%
Nonaccrual and 90 days or more past
due loans as a percentage of total assets 0.89% 0.87%
Nonperforming assets as a percentage
of total assets 1.00% 1.15%
Loans receivable, (including loans
held for sale) (1) $ 338,481 $ 326,127
========= =========
Total assets $ 446,324 $ 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 March 31, At September 30,
2004 2003
Amount Percent Amount Percent
-------------------- -------------------
(Dollars In thousands)
Mortgage Loans:
One-to-four family (1) $ 93,314 25.26% $ 95,371 26.21%
Multi family 17,427 4.72 18,241 5.01
Commercial 109,517 29.64 102,972 28.30
Construction and
land development 92,012 24.91 94,117 25.87
Land 17,273 4.67 15,628 4.30
--------- ------ -------- ------
Total mortgage loans 329,543 89.20 326,329 89.69
Consumer Loans:
Home equity and second mortgage 20,759 5.62 19,233 5.29
Other 9,126 2.47 8,799 2.42
--------- ------ -------- ------
29,885 8.09 28,032 7.71
Commercial business loans 10,017 2.71 9,475 2.60
--------- ------ -------- ------
Total loans 369,445 100.00% 363,836 100.00%
====== ======
Less:
Undisbursed portion of loans
in process (28,113) (34,785)
Unearned income (2,851) (2,924)
Allowance for loan losses (3,927) (3,891)
--------- ---------
Total loans, net $ 334,554 $ 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 March 31, At September 30,
2004 2003
Amount Percent Amount Percent
-------------------- -------------------
(Dollars In thousands)
Custom and owner/builder const. $ 46,471 50.50% $ 49,876 52.99%
Speculative construction 28,343 30.80 26,350 28.00
Commercial real estate 11,758 12.78 6,825 7.25
Multi-family 419 0.46 3,940 4.19
Land development 5,021 5.46 7,126 7.57
--------- ------ -------- ------
Total construction loans $ 92,012 100.00% $ 94,117 100.00%
========= ====== ======== ======
16
Activity in the Allowance for Loan Losses
- -----------------------------------------
Activity in the allowance for loan losses in the six months ended March 31,
2004 and 2003 is as follows:
2004 2003
---------------------
(Dollars in thousands)
Balance beginning of period $3,891 $3,630
Provision for loan losses 80 280
Loans charged off (59) (103)
Recoveries on loans previously charged off 15 61
Net charge offs (44) (42)
------ ------
Balance at end of period $3,927 $3,868
====== ======
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.
March 31, 2004 September 30, 2003
-------------- ------------------
(in thousands) (in thousands)
Non-interest bearing $ 30,125 $ 29,133
N.O.W. checking 72,294 57,614
Savings 48,356 49,572
Money market accounts 35,945 39,444
Certificates of deposit under $100,000 104,461 109,720
Certificates of deposit $100,000 and over 25,839 22,189
--------- ---------
Total Deposits $ 317,020 $ 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 $ 86
2005 4,583
2006 10,591
2007 64
2008 15,070
Thereafter 24,628
-------
Total $55,022
=======
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 and Six Months Ended March 31,
2004 and 2003
Net Income: Net income for the quarter ended March 31, 2004 was $1.42 million,
or $0.36 per diluted share ($0.38 per basic share) compared to $1.79 million,
or $0.45 per diluted share ($0.47 per basic share) for the quarter ended March
31, 2003. The lower earnings for the current quarter were primarily a result
of decreased income from loan sales and increased employee costs (resulting
from a larger employee base) and increased premises and equipment expenses.
The $0.09 per share decrease in earnings for the quarter was primarily a
result of the $382,000 ($252,000 net of income tax - $0.065 per diluted share)
decrease in non-interest income and the $309,000 ($204,000 net of income tax -
$0.052 per diluted share) increase in non-interest expense. These items were
partially offset by a $153,000 ($101,000 net of income tax - $0.026 per
diluted share) increase in net interest income after provision for loan
losses.
Net income for the six months ended March 31, 2004 was $2.81 million, or $0.71
per diluted share ($0.74 per basic share) compared to $3.66 million, or $0.91
per diluted share ($0.95 per basic share) for the six months ended March 31,
2003. The $0.20 per share decrease in earnings for the six months ended March
31, 2004 was primarily a result of the $1.02 million ($671,000 net of income
tax - $0.169 per diluted share) decrease in non-interest income and the
$645,000 ($426,000 net of income tax - $0.107 per diluted share) increase in
non-interest expense. These items were partially offset by a $392,000
($259,000 net of income tax - $0.065 per diluted share) increase in net
interest income after provision for loan losses.
Net Interest Income: Net interest income increased $76,000 to $4.83 million
for the quarter ended March 31, 2004 from $4.75 million for the quarter ended
March 31, 2003, 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 $17.9 million to $418.0 million for the current quarter
from $400.1 million for the quarter ended March 31, 2003. Total interest
expense decreased by $351,000 to $1.89 million for the quarter ended March 31,
2004 from $2.24 million for the quarter ended March 31, 2003 as the Company's
total cost of funds decreased to 2.20% from 2.73%. Total interest income
decreased $275,000 to $6.72 million for the quarter ended March 31, 2004 from
$6.99 million for the quarter ended March 31, 2003, primarily due to a
reduction in average yields on earning assets. The yield on earning assets
was 6.43% for the quarter ended March 31, 2004 compared to 6.99% for the
quarter ended March 31, 2003. As a result of these changes, the net interest
margin decreased to 4.62% for the quarter ended March 31, 2004 from 4.75% for
the quarter ended March 31, 2003.
Net interest income increased $192,000 to $9.69 million for the six months
ended March 31, 2004 from $9.50 million for the six months ended March 31,
2003, 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 $15.4 million to $418.2 million for the six months ended March 31, 2004
from $402.8 million for the six months ended March 31, 2003. Total interest
expense decreased by $833,000 to $3.87 million for the six months ended March
31, 2004 from $4.70 million for the six months ended March 31, 2003 as the
Company's total cost of funds decreased to 2.25% from 2.84%. Total interest
income decreased $641,000 to $13.56 million for the six months ended March 31,
2004 from $14.20 million for the six months ended March 31, 2003, primarily
due to a reduction in average yields on earning assets. The yield on earning
assets was 6.48% for the six months ended March 31, 2004 compared to 7.05% for
the six months ended March 31, 2003. As a result of these changes, the net
interest margin decreased to 4.63% for the six months ended March 31, 2004
from 4.71% for the six months ended March 31, 2003.
Provision for Loan Losses: The provision for loan losses for the quarter
ended March 31, 2004 decreased $77,000 to $30,000 from $107,000 for the
quarter ended March 31, 2003. The provision for loan losses for the six
months ended March 31, 2004 decreased $200,000 to $80,000 from $280,000 for
the period ended March
19
31, 2003. The Bank has established a systematic and comprehensive 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, collateral securing individual loans on non-accrual
status, 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 March 31, 2004 (1.16% of loans receivable and 99.2% 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 $3.87 million (1.25% of loans receivable and
113.8% of non-performing loans) at March 31, 2003. The balance of the
allowance for loan losses was increased during the past year primarily because
of the increased size of the loan portfolio. The Company had a net charge-off
of $29,000 for the current quarter compared to a net charge-off of $16,000 in
the same quarter of 2003. For the six months ended March 31, 2004 and 2003,
net charge-offs were $44,000 and $42,000, respectively. For additional
information, see the "Activity in the Allowance for Loan Losses" section
included herein.
Non-interest Income: Total non-interest income decreased $382,000 to $1.11
million for the quarter ended March 31, 2004 from $1.50 million for the
quarter ended March 31, 2003, primarily due to a $207,000 decrease in income
from loan sales (gain on sale of loans and servicing income on loans sold), a
$42,000 decrease in ATM transaction fees, a $33,000 decrease in escrow fees,
and a $33,000 decrease in loan application fees. Income from loans sales
decreased as mortgage banking activity slowed. Mortgage loan originations
have declined nationally which has resulted in a decrease in the fee income
generated from mortgage banking activities. The Bank sold $12.6 million in
fixed rate one-to-four mortgages during the quarter ended March 31, 2004
compared to $27.5 million for the same period a year ago.
Total non-interest income decreased $1.02 million to $2.13 million for the six
months ended March 31, 2004 from $3.15 million for the six months ended March
31, 2003, primarily due to a $596,000 decrease in income from loan sales (gain
on sale of loans and servicing income on loans sold), a $93,000 decrease in
service charges on deposits, a $79,000 decrease in ATM transaction fees, a
$63,000 decrease in escrow fees, and a $61,000 decrease in loan application
fees. Income from loan sales decreased as mortgage banking activity slowed.
The Bank sold $22.9 million in fixed rate one-to-four mortgages during the six
months ended March 31, 2004 compared to $62.3 million for the same period a
year ago.
Non-interest Expense: Total non-interest expense increased by $309,000 to
$3.84 million for the quarter ended March 31, 2004 from $3.53 million for the
quarter ended March 31, 2003. The increase is primarily a result of increased
employee expenses and increased premises and equipment expenses. Salaries and
employee benefit expenses increased by $203,000 due to a larger employee base,
annual salary adjustments, and increased medical insurance costs. The number
of full-time equivalent employees increased to 188 at March 31, 2004 from 175
at March 31, 2003. The Bank's employee base grew during this period as the
Olympia branch was opened (September 2003), several employees that will be
staffing the Gig Harbor branch were hired, and staffing levels in several
other departments were increased. Premises and equipment expenses increased
by $95,000 to $465,000 for the current quarter from $370,000 for the quarter
ended March 31, 2003, primarily due to the additional branch opened (Olympia),
costs associated with the upcoming Gig Harbor branch, and increased utility
expenses. Partially offsetting the increased non-interest expenses was a
$90,000 gain from real estate operations primarily due to the sale of three
REO properties.
Total non-interest expense increased by $645,000 to $7.67 million for the six
months ended March 31, 2004 from $7.02 million for the six ended March 31,
2003. The increase is primarily a result of increased employee expenses,
increased premises and equipment expenses, and expenses related to the Bank's
technology conversion. The technology-related conversion expenses totaled
$145,000 for the six months ended and are
20
reflected in the income statement under salaries and employee benefits
($67,000) and other non-interest expenses ($78,000). (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 $298,000 due to a larger employee base, annual salary
adjustments, and increased medical insurance costs. Premises and equipment
expenses increased by $194,000 to $927,000 for the six months ended March 31,
2004 from $733,000 for the six months ended March 31, 2003, primarily due to
the two additional branches opened (Silverdale - January 2003; Olympia -
September 2003), costs associated with the upcoming Gig Harbor branch, the
remodeling and expansion of the Bank's main office, and increased utility
expenses.
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
$647,000 for the quarter ended March 31, 2004 from $818,000 for the quarter
ended March 31, 2003. The Company's effective tax rate was 31.3% for the
quarter ended March 31, 2004 and 31.4% for the quarter ended March 31, 2003.
The provision for income taxes decreased to $1.26 million for the six months
ended March 31, 2004 from $1.68 million for the six months ended March 31,
2003. The Company's effective tax rate was 30.9% for the six months ended
March 31, 2004 compared to 31.4% for the six months ended March 31, 2003. The
lower effective tax rate resulted primarily from a higher percentage of
tax-exempt income during the current six month period.
Technology Improvement Update
- -----------------------------
The Company incurred additional expenses associated with the technology
improvements that were implemented in the previous fiscal year. 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
$145,000 ($96,000 net of income tax - $0.02 per diluted share) related to the
technology enhancements and associated conversion costs during the six months
ended March 31, 2004. Cumulatively, the Bank has incurred expenses of
$731,000 ($482,000 net of income tax - $0.12 per diluted share) related to the
technology enhancements since the project began in February 2003. 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 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 six months ended
March 31, 2004. 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
21
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, other borrowings
and stock related transactions.
The Company's consolidated total of cash and due from financial institutions
and interest bearing deposits in bank's decreased by $17.1 million to $21.0
million at March 31, 2004 from $38.1 million at September 30, 2003. The
Company's liquid assets decreased primarily due to the repurchase of 411,316
shares of the Timberland Bancorp, Inc. stock for $9.5 million and the
repayment of $6.6 million in maturing Federal Home Loan Bank advances.
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 March 31, 2004,
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 24.4%.
The Bank also maintained an uncommitted credit facility with the FHLB-Seattle
that provided for immediately available advances up to an aggregate amount of
$89.1 million, under which $55.0 million was outstanding at March 31, 2004.
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 March 31, 2004, the Bank had loan commitments totaling
$35.1 million and undisbursed loans in process totaling $28.1 million. The
Bank anticipates that it will have sufficient funds available to meet current
loan commitments. Certificates of deposit that are scheduled to mature in
less than one year from March 31, 2004 totaled $96.4 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 March 31, 2004, the Bank was in compliance with all applicable
capital requirements. For additional details see "Regulatory Capital".
22
Regulatory Capital
- ------------------
The following table compares the Bank's regulatory capital at March 31, 2004
to its minimum regulatory capital requirements at that date (dollars in
thousands):
Percent of
Amount Adjusted Total Assets (1)
------ ---------------------
Tier 1 (leverage) capital $63,925 14.2%
Tier 1 (leverage) capital requirement 18,041 4.0
------- ----
Excess $45,884 10.2%
======= ====
Tier 1 risk adjusted capital $63,925 18.1%
Tier 1 risk adjusted capital requirement 14,106 4.0
------- ----
Excess $49,819 14.1%
======= ====
Total risk based capital $67,852 19.2%
Total risk based capital requirement 28,212 8.0
------- ----
Excess $39,640 11.2%
======= ====
- ---------------
(1) For the Tier 1 (leverage) capital, percent of total average assets of
$451.0 million. For the Tier 1 risk-based capital and total risk-based
capital calculations, percent of total risk-weighted assets of $352.7
million.
23
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
KEY FINANCIAL RATIOS
(Dollars in thousands, except per share data)
Three Months Six Months
Ended March 31, Ended March 31,
2004 2003 2004 2003
------------------ -----------------
PERFORMANCE RATIOS:
Return on average assets (1) 1.25% 1.67% 1.24% 1.69%
Return on average equity (1) 7.51% 9.41% 7.31% 9.69%
Net interest margin (1) 4.62% 4.75% 4.63% 4.71%
Efficiency ratio 64.66% 56.56% 64.90% 55.57%
March 31, September 30,
2004 2003
---------------------------
ASSET QUALITY RATIOS:
Non-performing loans $ 3,959 $ 3,895
REO & other repossessed assets 484 1,258
Total non-performing assets 4,443 5,153
Non-performing assets to total assets 1.00% 1.15%
Allowance for loan losses to
non-performing loans 99.19% 99.90%
Book Value Per Share (2) $ 18.32 $ 18.25
Book Value Per Share (3) $ 19.89 $ 19.77
- -------------
(1) Annualized
(2) Calculation includes ESOP shares not committed to be released
(3) Calculation excludes ESOP shares not committed to be released
Three Months Six Months
Ended March 31, Ended March 31,
2004 2003 2004 2003
------------------ ------------------
AVERAGE BALANCE SHEET:
Average Total Loans $338,694 $315,469 $337,642 $320,335
Average Total Interest
Earning Assets 418,012 400,137 418,232 402,827
Average Total Assets 455,272 429,792 454,268 432,336
Average Total Interest
Bearing Deposits 286,792 266,514 285,218 269,276
Average FHLB Advances 57,786 61,698 58,917 61,716
Average Shareholders' Equity 75,755 76,062 76,877 75,531
24
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
13a-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 March 31, 2004, 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
- ------------------------------------------------------------------------
The following table sets forth the shares repurchased by the Company during
the quarter:
Total No. of Maximum No. of
Shares Purchased Shares that
Total No. Of As Part of May Yet Be
Shares Average Price Publicly Purchased
Period Purchased Paid per Share Announced Plan Under the Plan
- ----------- ------------ -------------- ----------------- ---------------
01/01/2004-
01/31/2004 - - $ - - - - 267,903 (1)
02/01/2004 -
02/29/2004 270,916 23.10 270,916 357,684 (1)(2)
03/31/2004 -
03/31/2004 140,400 23.01 140,400 271,284 (2)
------- ------- -------
Total 411,316 $ 23.07 411,316
======= ======= =======
(1) On February 14, 2003 Timberland Bancorp, Inc. announced a share
repurchase plan authorizing the repurchase of up to 10% of its outstanding
shares, or 380,038 shares. This repurchase plan was completed on February 23,
2004 with 380,038 shares repurchased at an average price of $22.64 per share.
All shares were repurchased through open market broker transactions and no
shares were directly repurchased from directors or officers of the Company.
(2) On February 27, 2004 Timberland Bancorp, Inc. announced a share
repurchase plan authorizing the repurchase of up to 10% of its outstanding
shares, or 360,670 shares. As of March 31, 2004, a total of 143,386 of these
shares were repurchased at an average price of $23.01 per share. All shares
were repurchased through open market broker transactions and no shares were
directly repurchased from directors or officers of the Company.
Item 3. Defaults Upon Senior Securities
- -----------------------------------------
None to be reported.
25
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
An annual meeting of Shareholders of the Company was held on January 27, 2004.
The results of the vote on the matters presented at the meeting are as
follows:
1. The following individuals were elected as directors:
For Withheld
No. of Votes Percentage No. of Votes Percentages
------------------------- --------------------------
Michael R. Sand 3,872,078 98.99% 39,656 1.01%
(three-year term)
David A. Smith 3,861,978 98.73% 49,756 1.27%
(three-year term)
Harold L. Warren 3,862,278 98.74% 49,456 1.26%
(three-year term)
2. The Timberland Bancorp, Inc. 2003 Stock Option Plan was approved by the
following votes:
For 2,708,251 69.23%
Against 245,613 6.28%
Abstain 957,870 24.49%
Item 5. Other Information
- ---------------------------
None to be reported.
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
906 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 January
29, 2004 that contained the Company's earnings release report for the
quarter ended December 31, 2003.
26
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, 2004 By: /s/ Michael R. Sand
-------------------------------
Michael R. Sand
Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 2004 By: /s/ Dean J. Brydon
-------------------------------
Dean J. Brydon
Chief Financial Officer
(Principal Financial Officer)
27
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: May 12, 2004 /s/ Michael R. Sand
----------------------------
Michael R. Sand
Chief Executive Officer
28
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: May 12, 2004 /s/ Dean J. Brydon
----------------------------
Dean J. Brydon
Chief Financial Officer
29
EXHIBIT 32
Certification Pursuant to Section 906 of the Sarbanes Oxley Act
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
OF TIMBERLAND BANCORP, INC.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report on
Form 10-Q, that:
* the report fully complies with the requirements of Sections 13(a) and
15(d) of the Securities Exchange Act of 1934, as amended, and
* the information contained in the report fairly presents, in all
material respects, the company's financial condition and results of
operations.
/s/ Michael R. Sand /s/ Dean J. Brydon
- ------------------------------- ---------------------------------
Michael R. Sand Dean J. Brydon
Chief Executive Officer Chief Financial Officer
Date: May 12, 2004
30