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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 June 30, 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 JULY 31, 2004
----- -----------------------------------
common stock, $.01 par value 3,474,883
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 9-12
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 25
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 25-26
Item 3. Defaults Upon Senior Securities 26
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 26-27
SIGNATURES 28
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2004 and September 30, 2003
Dollars in Thousands
(unaudited)
June 30, September 30,
2004 2003
Assets ------------------
Cash and due from financial institutions $ 12,473 $ 8,587
Interest bearing deposits in banks 1,738 29,511
Investments and mortgage backed securities held to maturity 199 279
Investments and mortgage backed securities available for
sale 53,608 54,031
Federal Home Loan Bank stock 5,633 5,454
Loans receivable 337,381 325,126
Loans held for sale 612 1,001
Less: Allowance for loan losses (3,928) (3,891)
-------------------
Total Loans 334,065 322,236
-------------------
Accrued interest receivable 1,673 1,687
Premises and equipment 13,905 13,429
Real estate owned and other repossessed items 474 1,258
Bank owned life insurance ("BOLI") 10,904 10,566
Other assets 3,016 2,595
-------------------
Total Assets $ 437,688 $ 449,633
-------------------
Liabilities and Shareholders' Equity
Liabilities
Deposits $ 307,593 $ 307,672
Federal Home Loan Bank advances 55,980 61,605
Other liabilities and accrued expenses 2,332 2,745
-------------------
Total Liabilities 365,905 372,022
-------------------
Shareholders' Equity
Common Stock, $.01 par value; 50,000,000 shares authorized;
June 30, 2004 - 3,892,070 issued, 3,483,883 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 l24,984 33,775
Unearned shares - Employee Stock Ownership Plan (4,494) (4,891)
Unearned shares - Management Recognition & Development Plan (699) (1,182)
Retained earnings 52,217 49,699
Accumulated other comprehensive income (loss) (264) 167
-------------------
Total Shareholders' Equity 71,783 77,611
-------------------
Total Liabilities and Shareholders' Equity $ 437,688 $ 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 nine months ended June 30, 2004 and 2003
Dollars in Thousands, Except Per Share Amounts
(unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
Interest and Dividend Income ---------------- ----------------
Loans receivable $ 6,134 $ 6,203 $18,610 $19,165
Investments and mortgage-backed securities 234 209 717 697
Dividends from investments 243 259 762 805
Interest bearing deposits in banks 16 103 97 308
---------------- ----------------
Total interest and dividend income 6,627 6,774 20,186 20,975
Interest Expense
Deposits 988 1,338 3,199 4,361
Federal Home Loan Bank advances 723 840 2,383 2,521
---------------- ----------------
Total interest expense 1,711 2,178 5,582 6,882
---------------- ----------------
Net interest income 4,916 4,596 14,604 14,093
Provision for Loan Losses 14 66 94 347
---------------- ----------------
Net interest income after provision 4,902 4,530 14,510 13,746
for loan losses
Non-Interest Income
Service charges on deposits 510 531 1,409 1,522
Gain on sale of loans, net 159 364 585 1,187
Gain (loss) on sale of securities 135 (6) 135
BOLI net earnings 111 131 338 400
Escrow fees 32 70 105 205
Servicing income (expense) on loans sold (17) 50 (21) 245
ATM transaction fees 166 213 462 588
Other 122 154 340 511
---------------- ----------------
Total non-interest income 1,083 1,648 3,212 4,793
Non-interest Expense
Salaries and employee benefits 2,155 2,068 6,561 6,110
Premises and equipment 426 580 1,353 1,313
Advertising 207 170 559 550
Loss (gain) from real estate operations &
write-downs 48 68 (27) 141
ATM expenses 111 169 303 470
Other 947 888 2,814 2,384
---------------- ----------------
Total non-interest expense 3,894 3,943 11,563 10,968
Income before federal income taxes 2,091 2,235 6,159 7,571
Federal Income Taxes 645 694 1,904 2,372
---------------- ----------------
Net Income $ 1,446 $ 1,541 $ 4,255 $ 5,199
================ ================
Earnings Per Common Share:
Basic $0.41 $0.41 $1.16 $1.36
Diluted $0.39 $0.38 $1.10 $1.30
Weighted average shares outstanding:
Basic 3,492,286 3,783,219 3,681,059 3,820,142
Diluted 3,671,143 4,012,736 3,860,573 4,008,623
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 nine months ended June 30, 2004
Dollars in Thousands Except Common Stock Shares
(unaudited)
Unearned
Shares Unearned Accumulated
Issued to Shares Other
Employee Issued to Compre-
Common Common Additional Stock Management hensive
Stock Shares Stock Paid-In Ownership Recognition Retained Income
Outstanding Amount Capital Trust Plan Earnings (Loss) Total
----------- ------ ------- --------- ----------- -------- ------- ------
Balance, 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 -- -- -- -- -- 4,255 - 4,255
Repurchase of
common stock (463,016) (5) (10,641) -- -- -- -- (10,646)
Exercise of stock options 103,406 1 1,601 -- -- -- -- 1,602
Cash dividends
($.42 per share) -- -- -- -- -- (1,737) - (1,737)
Earned ESOP shares -- -- 215 397 -- -- -- 612
Earned MRDP shares -- -- 34 - 483 -- -- 517
Change in fair value of
securities available
for sale, net of tax -- -- -- -- -- -- (431) (431)
------------------------------------------------------------------------------------
Balance, June 30, 2004 3,483,883 $39 $24,984 ($4,494) ($699) $52,217 ($264)$71,783
------------------------------------------------------------------------------------
See notes to unaudited condensed consolidated financial statements
5
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended June 30, 2004 and 2003
Dollars in Thousands
(unaudited)
Nine Months Ended June 30,
Cash Flow from Operating Activities 2004 2003
------------------
Net income $ 4,255 $ 5,199
Noncash revenues, expenses, gains and losses ------------------
included in income:
Depreciation 562 500
Federal Home Loan Bank stock dividends (179) (244)
Earned ESOP Shares 612 570
Earned MRDP Shares 517 528
Loss (gain) on sale of securities available for sale 6 (135)
Loss (gain) on sale of real estate owned, net (85) 14
BOLI cash surrender value increase (338) (401)
Gain on sale of loans (585) (1,187)
Provision for loan and real estate owned losses 107 401
Loans originated for sale (32,892) (86,232)
Proceeds from sale of loans 33,866 89,191
Increase in other assets, net (184) (386)
Decrease in other liabilities and accrued expenses, net (413) (334)
------------------
Net Cash Provided by Operating Activities 5,249 7,484
Cash Flow from Investing Activities
Decrease (increase) in interest-bearing deposits in
banks, net 27,773 (14,124)
Purchase of securities available for sale (9,000) (16,500)
Proceeds from maturities of securities available for sale 7,244 7,099
Proceeds from sales of securities available for sale 1,600 2,010
Decrease (increase) in loans receivable, net (12,312) 9,612
Additions to premises and equipment (1,038) (1,885)
Additions to real estate owned (228) (1,032)
Proceeds from sale of real estate owned 1,084 397
------------------
Net Cash Provided by (Used in) Investing Activities 15,123 (14,423)
Cash Flow from Financing Activities
Increase (decrease) in deposits, net (79) 10,618
Decrease in Federal Home Loan Bank advances, net (5,626) (115)
Proceeds from exercise of stock options 1,602 742
Repurchase of common stock (10,646) (2,327)
Payment of dividends (1,737) (1,550)
------------------
Net Cash Provided by (Used in) Financing Activities (16,486) 7,368
Net Change in Cash 3,886 429
Cash and Due from Financial Institutions
Beginning of period 8,587 10,580
------------------
End of period $ 12,473 $ 11,009
==================
See notes to unaudited condensed consolidated financial statements (continued)
6
Nine Months Ended June 30,
2004 2003
------------------
Supplemental Disclosure of Cash Flow Information
Income taxes paid $ 1,560 $ 1,990
Interest paid 5,644 6,905
Supplemental Disclosure of Noncash Investing Activities
Market value adjustment of securities held for sale,
net of tax (431) (232)
Loans transferred to real estate owned 206 978
See notes to unaudited condensed consolidated financial statements
7
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and nine months ended June 30, 2004 and 2003
Dollars in Thousands
(unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
Comprehensive Income: ---------------- ----------------
Net Income $1,446 $1,541 $4,255 $5,199
Change in fair value of securities
available for sale, net of tax (447) (149) (431) (232)
---------------- ----------------
Total Comprehensive Income $999 $1,392 $3,824 $4,967
================ ================
See notes to unaudited condensed consolidated financial statements
8
Timberland Bancorp, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation: The accompanying unaudited condensed 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 condensed consolidated
financial statements have been included. All such adjustments are of a normal
recurring nature. The unaudited condensed 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 nine months ended June 30, 2004 are not necessarily
indicative of the results that may be expected for the entire fiscal year.
(b) Principles of Consolidation: The interim condensed 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 June 30, 2004 and 2003, there were 326,216 and 361,483 ESOP shares,
respectively, that had not been allocated.
Three Months Nine Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
---------------------------------------
Basic EPS computation
Numerator - Net Income $1,446,000 $1,541,000 $4,255,000 $5,199,000
Denominator - Weighted average
common shares outstanding 3,492,286 3,783,219 3,681,059 3,820,142
Basic EPS $ 0.41 $ 0.41 $ 1.16 $ 1.36
Diluted EPS computation
Numerator - Net Income $1,446,000 $1,541,000 $4,255,000 $5,199,000
Denominator - Weighted average
common shares outstanding 3,492,286 3,783,219 3,681,059 3,820,142
Effect of dilutive stock options 141,104 185,785 148,126 157,154
Effect of dilutive MRDP 37,753 43,732 31,388 31,327
Weighted average common shares --------- --------- --------- ---------
and common stock equivalents 3,671,143 4,012,736 3,860,573 4,008,623
Diluted EPS $ 0.39 $ 0.38 $ 1.10 $ 1.30
10
(3) STOCK BASED COMPENSATION
At June 30, 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 nine months ended June 30, 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 Nine Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
---------------------------------------
Net income as reported $1,446,000 $1,541,000 $4,255,000 $5,199,000
Less total stock-based
compensation expense
determined under fair
value method for all
qualifying awards, net of tax (46,000) (58,000) (126,000) (159,000)
--------- --------- --------- ---------
Pro forma net income 1,400,000 1,483,000 4,129,000 5,040,000
========= ========= ========= =========
Earnings per share:
Basic:
As reported $ 0.41 $ 0.41 $ 1.16 $ 1.36
Pro forma 0.40 0.39 1.12 1.32
Diluted:
As reported $ 0.39 $ 0.38 $ 1.10 $ 1.30
Pro forma 0.38 0.37 1.07 1.27
(4) DIVIDEND / SUBSEQUENT EVENT
On July 27, 2004, the Company announced a quarterly cash dividend of $0.15 per
common share. The dividend is to be paid August 24, 2004, to shareholders of
record as of the close of business August 10, 2004.
Branch Acquisition Information
- ------------------------------
On June 24, 2004, Timberland announced an agreement to acquire seven branch
offices and related deposits in three Western Washington counties from Venture
Bank. Timberland will acquire approximately $91 million in deposits, which
represents a 30% increase in its deposit base. In addition, Timberland will
acquire real estate, branch infrastructure, and employees for seven offices in
Toledo, Winlock, Elma, Montesano, Hoquiam,
11
Aberdeen and Panorama City. The transaction is scheduled to close in October
2004 and is subject to regulatory approval. The Company estimates that it will
incur transaction-related expenses of approximately $300,000 ($198,000 after
income tax). These costs will be expensed during the next two quarters.
(5) RECENT ACCOUNTING PRONOUNCEMENTS
None
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
- --------------------------------------------------------------------------
The following analysis discusses the material changes in the financial condition
and results of operations of the Company at and for the three and nine months
ended June 30, 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 June 30, 2004 and September 30, 2003
Total Assets: Total assets decreased $11.9 million to $437.7 million at June 30,
2004 from $449.6 million at September 30, 2003 due to a decrease in the
Company's interest bearing deposits in banks. The balance in the Company's
interest bearing deposits decreased by $27.8 million primarily due to the
repurchase of 463,016 shares of Timberland Bancorp, Inc. stock for $10.6
million, the repayment of $5.6 million of Federal Home Loan Bank advances, and
an increase in net loans receivable of $11.9 million.
Cash and Due from Financial Institutions: Cash and due from financial
institutions increased to $12.5 million at June 30, 2004 from $8.6 million at
September 30, 2003.
Interest Bearing Deposits in Banks: Interest bearing deposits in banks
decreased $27.8 million to $1.7 million at June 30, 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, and to fund loans.
Securities: Securities decreased $503,000 to $53.8 million at June 30, 2004
from $54.3 million at September 30, 2003. At June 30, 2004, the Company's
securities' portfolio was comprised of mutual funds of $32.5 million,
mortgage-backed securities of $13.4 million, and U.S. agency securities of $7.9
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 $11.9
million to $334.1 million at June 30, 2004 from $322.2 at September 30, 2003.
The increase in the portfolio was primarily a result of a $5.0 million increase
in land loans, a $4.5 million increase in commercial real estate loans, a $3.1
million increase in consumer loans, a $1.5 million increase in construction
loans (net of undisbursed portion), and a $1.5 million
12
increase in commercial business loans. These increases were partially offset by
a $3.6 million decrease in the Bank's one-to-four family mortgage loan
portfolio. Loan originations totaled $46.9 million and $133.6 million for the
three and nine months ended June 30, 2004, compared to $75.1 million and $184.4
million for the same periods a year earlier. The Bank sold $10.4 million and
$33.3 million in fixed rate one-to-four family mortgage loans for the three and
nine months ended June 30, 2004, compared to $25.7 million and $88.0 million for
the same periods a year earlier.
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 $474,000 at June 30, 2004 from $1.26
million at September 30, 2003 as several properties were sold. At June 30,
2004, the REO amount was primarily comprised of one-to-four family homes
totaling $324,000 and land parcels totaling $137,000. For additional
information, see "Non-performing assets" section included herein.
Premises and Equipment: Premises and equipment increased by $476,000 to $13.9
million at June 30, 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 Gig Harbor branch. "We are
pleased to announce that Timberland's new Gig Harbor office opened on July 6,
2004. Occupying an exceptional location, the branch is managed by Richard
Pifer, who has invested 13 years of his 24-year banking career lending in the
Gig Harbor market."
Deposits: Deposits decreased by $79,000 to $307.6 million at June 30, 2004 from
$307.7 million at September 30, 2003, primarily due to a $13.8 million decrease
in the Bank's certificate of deposit accounts, a $1.9 million decrease in
savings accounts, and a $622,000 decrease in money market accounts. These
decreases were offset by a $15.0 million increase in N.O.W. checking accounts
and a $1.3 million increase in non-interest bearing 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 $56.0
million at June 30, 2004 from $61.6 million at September 30, 2003 as the Bank
repaid a maturing advance. For additional information, see "FHLB Advance
Maturity Schedule" included herein.
Shareholders' Equity: Total shareholders' equity decreased by $5.8 million to
$71.8 million at June 30, 2004 from $77.6 million at September 30, 2003,
primarily due to the repurchase of 463,016 shares of the Company's stock for
$10.6 million and the payment of $1.7 million in dividends to shareholders.
Partially offsetting these decreases to equity, were net income of $4.3 million
and a $1.6 million increase to additional paid in capital from the exercise of
stock options. Also affecting shareholders' equity were decreases of $483,000
and $397,000 in the equity components related to unearned shares issued to the
Management Recognition and Development Plan and the Employee Stock Ownership
Plan.
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 June 30, 2004, the Company has repurchased 195,086 of these shares at an
average price of $22.84 per share. Cumulatively the Company has repurchased
3,173,687 shares at an average price of $14.91 per share. This represents 48.0%
of the 6,612,500 shares that
13
were issued when the Company went public in January 1998. 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 0.59% at June 30, 2004 from 1.15% at September 30,
2003, as total non-performing assets decreased to $2.58 million from $5.15
million. The ratio decreased primarily due to a $1.79 million decrease in
non-performing loans and a $784,000 decrease in real estate owned.
The non-performing loan total of $2.1 million at June 30, 2004 consisted of
$659,000 in one-to-four family loans, $616,000 in commercial real estate loans,
$402,000 in one-to-four family construction loans, $367,000 in land loans,
$36,000 in commercial business loans, and $29,000 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 June 30, 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.
June 30, September 30,
2004 2003
----------------------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One-to-four family $ 659 $ 1,409
Commercial 616 538
Construction and land development 402 1,185
Land 367 521
Consumer loans 29 212
Commercial business loans 36 30
------- -------
Total 2,109 3,895
Accruing loans which are contractually
past due 90 days or more: - -
------- -------
Total - --
Total of nonaccrual and
90 days past due loans 2,109 3,895
Real estate owned and other
repossessed items 474 1,258
------- -------
Total nonperforming assets $ 2,583 $ 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) 0.62% 1.19%
Nonaccrual and 90 days or more past
due loans as a percentage of total assets 0.48% 0.87%
Nonperforming assets as a percentage
of total assets 0.59% 1.15%
Loans receivable, (including loans
held for sale) (1) $337,993 $326,127
======= =======
Total assets $437,688 $449,633
======= =======
______________
(1) Loans receivable is before the allowance for loan losses
15
Loan Portfolio Composition
- --------------------------
The following table sets forth the composition of the Company's loan portfolio
by type of loan as of the dates indicated.
At June 30, At September 30,
2004 2003
Amount Percent Amount Percent
-------------- --------------
(Dollars In thousands)
Mortgage Loans:
One-to-four family (1) $91,799 24.92% $95,371 26.21%
Multi-family 18,043 4.90 18,241 5.01
Commercial 107,456 29.16 102,972 28.30
Construction and land development 88,446 24.00 94,117 25.87
Land 20,587 5.59 15,628 4.30
------ ------- ------ -------
Total mortgage loans 326,331 88.57 326,329 89.69
Consumer Loans:
Home equity and second mortgage 21,782 5.91 19,233 5.29
Other 9,339 2.53 8,799 2.42
------ ------- ------ -------
31,121 8.44 28,032 7.71
Commercial business loans 11,012 2.99 9,475 2.60
------ ------- ------ -------
Total loans 368,464 100.00% 363,836 100.00%
====== ======
Less:
Undisbursed portion of loans
in process (27,567) (34,785)
Unearned income (2,904) (2,924)
Allowance for loan losses (3,928) (3,891)
------- -------
Total loans, net $334,065 $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 June 30, At September 30,
2004 2003
Amount Percent Amount Percent
-------------- --------------
(Dollars In thousands)
Custom and owner/builder const. $ 45,020 50.90% $49,876 52.99%
Speculative construction 23,491 26.56 26,350 28.00
Commercial real estate 11,781 13.32 6,825 7.25
Multi-family 417 0.47 3,940 4.19
Land development 7,737 8.75 7,126 7.57
------ ------- ------ -------
Total construction loans $ 88,446 100.00% $94,117 100.00%
====== ====== ====== ======
16
Activity in the Allowance for Loan Losses
- -----------------------------------------
Activity in the allowance for loan losses in the nine months ended June 30, 2004
and 2003 is as follows:
2004 2003
----------------------
(Dollars in thousands)
Balance beginning of period $3,891 $3,630
Provision for loan losses 94 347
Loans charged off (75) (107)
Recoveries on loans previously charged off 18 68
Net charge offs (57) (39)
----- -----
Balance at end of period $3,928 $3,938
===== =====
17
Deposit Breakdown
- -----------------
The following table sets forth the balances of deposits in the various types of
accounts offered by the Bank at the dates indicated.
June 30, 2004 September 30, 2003
------------- ------------------
(in thousands) (in thousands)
Non-interest bearing $ 30,450 $ 29,133
N.O.W. checking 72,586 57,614
Savings 47,667 49,572
Money market accounts 38,822 39,444
Certificates of deposit under $100,000 96,261 109,720
Certificates of deposit $100,000 and over 21,807 22,189
------- -------
Total Deposits $307,593 $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 1.1% to 6.6%. Principal
reduction amounts due for future years ending September 30 are as follows
(dollars in thousands):
2004 $ 1,044
2005 4,583
2006 10,591
2007 64
2008 15,070
Thereafter 24,628
------
Total $55,980
======
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 Nine Months Ended June 30,
2004 and 2003
Net Income: Net income for the quarter ended June 30, 2004 was $1.45 million, or
$0.39 per diluted share ($0.41 per basic share) compared to $1.54 million, or
$0.38 per diluted share ($0.41 per basic share) for the quarter ended June 30,
2003. The increase in earnings per share was primarily a result of the lower
number of weighted average shares outstanding due to share repurchases. Net
income for the current quarter was $95,000 lower than the same period a year ago
primarily due to decreased non-interest income, which was partially offset by
increased net interest income.
Net income for the nine months ended June 30, 2004 was $4.26 million, or $1.10
per diluted share ($1.16 per basic share) compared to $5.20 million, or $1.30
per diluted share ($1.36 per basic share) for the nine months ended June 30,
2003. The $0.20 per share decrease in earnings for the nine months ended June
30, 2004 was primarily a result of the $1.58 million ($1.04 million net of
income tax - $0.27 per diluted share) decrease in non-interest income and the
$595,000 ($393,000 net of income tax - $0.10 per diluted share) increase in
non-interest expense. These items were partially offset by a $764,000 ($504,000
net of income tax - $0.13 per diluted share) increase in net interest income
after provision for loan losses and a lower number of shares outstanding which
increased diluted earnings per share by approximately $0.04.
In conjunction with the recently announced acquisition of seven Venture Bank
branches, the Company estimates that it will incur transaction-related expenses
of approximately $300,000 ($198,000 after income tax). These costs will be
expensed during the next two quarters. For additional information, see "Branch
Acquisition Information" section included herein.
Net Interest Income: Net interest income increased $320,000 to $4.92 million for
the quarter ended June 30, 2004 from $4.60 million for the quarter ended June
30, 2003, primarily due to a decrease in the Company's funding costs. Total
interest expense decreased by $467,000 to $1.71 million for the quarter ended
June 30, 2004 from $2.18 million for the quarter ended June 30, 2003 as the
Company's total cost of funds decreased to 2.03% from 2.62%. The lower funding
costs were due in part to a change in the composition of interest-bearing
liabilities, as certificate of deposit accounts and FHLB advances decreased
while N.O.W. checking accounts, a lower costing category of funds, increased.
Partially offsetting the reduced funding costs was decreased interest income.
Total interest income decreased $147,000 to $6.63 million for the quarter ended
June 30, 2004 from $6.77 million for the quarter ended June 30, 2003, primarily
due to a reduction in average yields on earning assets. The yield on earning
assets was 6.54% for the quarter ended June 30, 2004 compared to 6.65% for the
quarter ended June 30, 2003. As a result of these changes, the net interest
margin increased to 4.85% for the quarter ended June 30, 2004 from 4.51% for the
quarter ended June 30, 2003.
Net interest income increased $511,000 to $14.60 million for the nine months
ended June 30, 2004 from $14.09 million for the nine months ended June 30, 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
$10.0 million to $414.3 million for the nine months ended June 30, 2004 from
$404.3 million for the nine months ended June 30, 2003. Total interest expense
decreased by $1.30 million to $5.58 million for the nine months ended June 30,
2004 from $6.88 million for the nine months ended June 30, 2003 as the Company's
total cost of funds decreased to 2.17% from 2.77%. Total interest income
decreased $789,000 to $20.19 million for the nine months ended June 30, 2004
from $20.98 million for the nine months ended June 30, 2003, primarily due to a
reduction in average yields on earning assets. The yield on earning assets was
6.50% for the nine months ended June 30, 2004 compared to 6.92% for the nine
months ended June 30, 2003. As a result of these changes, the net interest
margin increased to 4.70% for the nine months ended June 30, 2004 from 4.65% for
the nine months ended June 30, 2003.
19
Provision for Loan Losses: The provision for loan losses for the quarter ended
June 30, 2004 decreased $52,000 to $14,000 from $66,000 for the quarter ended
June 30, 2003. The provision for loan losses for the nine months ended June 30,
2004 decreased $253,000 to $94,000 from $347,000 for the period ended June 30,
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 June 30, 2004 (1.16% of loans receivable and 186.25% 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 $3.94 million (1.26% of loans receivable and
180.1% of non-performing loans) at June 30, 2003. The Company had a net
charge-off of $14,000 for the current quarter compared to a net recovery of
$3,000 in the same quarter of 2003. For the nine months ended June 30, 2004 and
2003, net charge-offs were $57,000 and $39,000, respectively. For additional
information, see the "Activity in the Allowance for Loan Losses" section
included herein.
Non-interest Income: Total non-interest income decreased $565,000 to $1.08
million for the quarter ended June 30, 2004 from $1.65 million for the quarter
ended June 30, 2003, primarily due to a $272,000 decrease in income from loan
sales (gain on sale of loans and servicing income on loans sold), a $135,000
decrease in gain on sale of securities, a $47,000 decrease in ATM transaction
fees, a $38,000 decrease in escrow fees, and a $26,000 decrease in loan
application fees. Income from loan sales decreased as mortgage banking
activity slowed. The Bank sold $10.4 million in fixed rate one-to-four
mortgages during the quarter ended June 30, 2004 compared to $25.7 million for
the same period a year ago.
Total non-interest income decreased $1.58 million to $3.21 million for the nine
months ended June 30, 2004 from $4.79 million for the nine months ended June 30,
2003, primarily due to an $868,000 decrease in income from loan sales (gain on
sale of loans and servicing income on loans sold), a $126,000 decrease in ATM
transaction fees, a $113,000 decrease in service charges on deposits, a $100,000
decrease in escrow fees, an $87,000 decrease in loan application fees and a
$62,000 decrease in BOLI income. Income from loan sales decreased as mortgage
banking activity slowed. The Bank sold $33.3 million in fixed rate one-to-four
mortgages during the nine months ended June 30, 2004 compared to $88.0 million
for the same period a year ago.
Non-interest Expense: Total non-interest expense decreased by $49,000 to $3.89
million for the quarter ended June 30, 2004 from $3.94 million for the quarter
ended June 30, 2003. The decrease is primarily a result of lower premises and
equipment expenses. Premises and equipment expenses decreased by $154,000
primarily due to technology conversion related expenses that were included in
the June 30, 2003 quarter. Partially offsetting this decrease was an $87,000
increase in salaries and benefits.
Total non-interest expense increased by $595,000 to $11.56 million for the nine
months ended June 30, 2004 from $10.97 million for the nine months ended June
30, 2003. The increase is primarily a result of increased employee expenses.
Salary and benefit expenses increased by $451,000 primarily due to a larger
employee base, annual salary adjustments, increased medical insurance costs, and
overtime related to the Bank's technology conversion.
Provision for Income Taxes: The provision for income taxes decreased to
$645,000 for the quarter ended June 30, 2004 from $694,000 for the quarter ended
June 30, 2003, primarily due to decreased net income before
20
taxes. The Company's effective tax rate was 30.8% for the quarter ended June
30, 2004 and 31.1% for the quarter ended June 30, 2003.
The provision for income taxes decreased to $1.90 million for the nine months
ended June 30, 2004 from $2.37 million for the nine months ended June 30, 2003
primarily due to decreased net income before taxes. The Company's effective tax
rate was 30.9% for the nine months ended June 30, 2004 compared to 31.3% for the
nine months ended June 30, 2003. The lower effective tax rate resulted
primarily from a higher percentage of tax-exempt income during the current
nine-month period.
Branch Acquisition Information
- ------------------------------
On June 24, 2004, Timberland announced an agreement to acquire seven branch
offices and related deposits in three Western Washington counties from Venture
Bank. Timberland will acquire approximately $91 million in deposits, which
represents a 30% increase in its deposit base. In addition, Timberland will
acquire real estate, branch infrastructure, and employees for seven offices in
Toledo, Winlock, Elma, Montesano, Hoquiam, Aberdeen and Panorama City. "This
acquisition complements our branching strategy and is a very good fit for us,
adding additional in-market branches, a solid customer base, productive
employees and stable low-cost deposits," said Michael R. Sand, President and
CEO. "The branch locations offer an ideal mix of in-market offices and new
territory. Five of the branches are located within our existing geographic
footprint and show solid prospects for generating operating synergies with our
current system. The two branches in Toledo and Winlock allow us to expand into
Lewis County. Entering this new market reflects our commitment to the continued
growth of our community banking philosophy, where decisions are made locally,
and community involvement is encouraged."
Of the approximately $91 million in acquired deposits, 53% are in N.O.W.
checking, savings, and money market accounts, 17% are non-interest-bearing
deposits and 30% are time certificates. "The mix of deposits is expected to
reduce our cost of funds and increase core deposits," said Dean J. Brydon, Chief
Financial Officer. "As we deploy deposits into loans in the communities we
serve, we anticipate this transaction will contribute to our net interest margin
and earnings. We believe the acquisition will be accretive within one year
following full integration of the new branches into our system. This
acquisition, which is the first we have done since going public in 1998, brings
solid potential to generate long-term earnings growth and also complements our
efforts to enhance shareholder value."
The transaction is scheduled to close in October 2004 and is subject to
regulatory approval. The Company estimates that it will incur
transaction-related expenses of approximately $300,000 ($198,000 after income
tax). These costs will be expensed during the next two quarters.
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 condensed consolidated statement of cash flows for the nine months ended
June 30, 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 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.
21
The Company's consolidated total of cash and due from financial institutions
and interest bearing deposits in banks decreased by $23.9 million to $14.2
million at June 30, 2004 from $38.1 million at September 30, 2003. The
Company's liquid assets decreased primarily due to the repurchase of shares of
Timberland Bancorp, Inc., the funding of loan portfolio growth, and the
repayment of FHLB 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 June 30, 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 19.8%. The Bank also maintained an
uncommitted credit facility with the FHLB-Seattle that provided for immediately
available advances up to an aggregate amount of $89.1 million, under which $56.0
million was outstanding at June 30, 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 June 30, 2004, the Bank had loan commitments totaling $30.3 million
and undisbursed loans in process totaling $27.6 million. The Bank anticipates
that it will have sufficient funds available to meet current loan commitments.
Certificates of deposit that are scheduled to mature in less than one year from
June 30, 2004 totaled $87.9 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
June 30, 2004, the Bank was in compliance with all applicable capital
requirements. For additional details see "Regulatory Capital".
Regulatory Capital
- ------------------
The following table compares the Bank's regulatory capital at June 30, 2004 to
its minimum regulatory capital requirements at that date (dollars in thousands):
Percent of
Amount Adjusted Total Assets (1)
------ ---------------------
Tier 1 (leverage) capital $64,019 14.5%
Tier 1 (leverage) capital requirement 17,659 4.0
------- ------
Excess $46,360 10.5%
======= ======
22
Tier 1 risk adjusted capital $64,019 19.1%
Tier 1 risk adjusted capital requirement 13,403 4.0
------- ------
Excess $50,616 15.1%
======= ======
Total risk based capital $67,947 20.3%
Total risk based capital requirement 26,805 8.0
------- ------
Excess $41,142 12.3%
======= ======
___________________
(1)For the Tier 1 (leverage) capital, percent of total average assets of $441.5
million. For the Tier 1 risk-based capital and total risk-based capital
calculations, percent of total risk-weighted assets of $335.1 million.
23
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
KEY FINANCIAL RATIOS
(Dollars in thousands, except per share data)
Three Months Nine Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
-------------- --------------
PERFORMANCE RATIOS:
Return on average assets (1) 1.31% 1.41% 1.26% 1.60%
Return on average equity (1) 8.11% 7.91% 7.51% 9.08%
Net interest margin (1) 4.85% 4.51% 4.70% 4.65%
Efficiency ratio 64.91% 63.15% 64.90% 58.07%
June 30, September 30,
2004 2003
ASSET QUALITY RATIOS: -------------------------------
Non-performing loans $ 2,109 $ 3,895
REO & other repossessed assets 474 1,258
Total non-performing assets 2,583 5,153
Non-performing assets to total assets 0.59% 1.15%
Allowance for loan losses to
non-performing loans 186.25% 99.90%
Book Value Per Share (2) $ 18.44 $ 18.25
Book Value Per Share (3) $ 19.98 $ 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 Nine Months
Ended June 30, Ended June 30,
2004 2003 2004 2003
--------------- ---------------
AVERAGE BALANCE SHEET:
Average Total Loans $338,215 $314,764 $338,497 $318,478
Average Total Interest Earning Assets 405,227 407,287 414,298 404,313
Average Total Assets 442,653 437,819 451,039 434,164
Average Total Interest Bearing Deposits 281,933 270,562 284,127 269,704
Average FHLB Advances 55,512 61,695 57,786 61,736
Average Shareholders' Equity 71,344 77,949 75,541 76,337
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 as of the end of the period covered by this report.
The Company's Chief Executive Officer and Chief Financial Officer concluded that
the Company's disclosure controls and procedures as currently in effect are
effective in ensuring that the information required to be disclosed by the
Company in the reports it files or submits under the Act is (i) accumulated and
communicated to the Company's management (including the Chief Executive Officer
and Chief Financial Officer) in a timely manner, and (ii) recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms.
(b) Changes in Internal Controls: In the quarter ended June 30, 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 Shares Maximum No. of
Purchased as Part Shares that May
Total No. of Average Price of Publicly Yet Be Purchased
Period Share Purchased Paid per Share Announced Plan Under the Plan
- -------------------------------------------------------------------------------
04/01/2004 - -- $ -- -- 217,284 (1)
04/30/2004
05/01/2004 - 16,700 22.01 16,700 200,584 (1)
05/31/2004
25
06/30/2004 - 35,000 22.55 35,000 165,584(1)
06/30/2004
- -----------------------------------------------------------------------------
Total 51,700 $ 22.38 51,700
- -----------------------------------------------------------------------------
(1) 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 June 30, 2004, a total of 195,086 of these shares were
repurchased at an average price of $22.84 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.
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------
None to be reported.
Item 5. Other Information
- -----------------------------
None to be reported.
Item 6. Exhibits and Reports on Form 8-K
- --------------------------------------------
(a) Exhibits
3.1 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.
26
(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 April 28, 2004 that contained the
Company's earnings release report for the quarter ended March 31, 2004.
Timberland Bancorp, Inc. filed a Form 8-K on June 24, 2004 containing
information regarding the Bank's agreement to purchase seven Venture Bank branch
offices located in Toledo, Winlock, Elma, Montesano, Hoquiam, Aberdeen and
Panorama City, in the State of Washington. The purchase of the branches
includes deposit accounts of approximately $91 million. A premium of 9.0% will
be paid for all deposits transferred with the exception of certain public
deposits that will transfer with no premium. The transaction also includes $1.8
million for land and premises. Consummation of the transaction contemplated by
the agreement is anticipated by the beginning of fourth calendar quarter 2004
and is subject to receipt of all applicable regulatory approvals.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Timberland Bancorp, Inc.
Date: August 10, 2004 By: /s/Michael R. Sand
----------------------------
Michael R. Sand
Chief Executive Officer
(Principal Executive Officer)
Date: August 10, 2004 By: /s/Dean J. Brydon
----------------------------
Dean J. Brydon
Chief Financial Officer
(Principal Financial Officer)
28
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: August 10, 2004 /s/Michael R. Sand
-----------------------
Michael R. Sand
Chief Executive Officer
29
Exhibit 31.2
Certification of Chief Executive 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: August 10, 2004 /s/Dean J. Brydon
-----------------------
Dean J. Brydon
Chief Financial Officer
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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
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Michael R. Sand Dean J. Brydon
Chief Executive Officer Chief Financial Officer
Date: August 10, 2004
31