UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to .
----- -----
Commission file number 0-23333
TIMBERLAND BANCORP, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1863696
(State of Incorporation) (IRS Employer Identification No.)
624 Simpson Avenue, Hoquiam, Washington
(Address of principal executive office)
98550
(Zip Code)
(360) 533-4747
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AT FEBRUARY 9, 2000
----- --------------------------------------
common stock, $.01 par value 5,116,626
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INDEX
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Shareholders' Equity 5
Consolidated Statements of Cash Flows 6-7
Consolidated Statements of Comprehensive Income 8
Notes to Consolidated Financial Statements (unaudited) 9-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-19
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and September 30, 1999
Dollars in Thousands
(unaudited)
December 31, September 30,
1999 1999
----------------------------
Assets
Cash and due from financial institutions $ 8,087 $ 6,810
Interest bearing deposits in banks 3,833 1,316
Investments and mortgage-backed securities
(Available for Sale) 32,162 31,656
Loans receivable 248,913 233,597
Loans held for sale 23,699 22,488
---------------------------
Total Loans 272,612 256,085
---------------------------
Accrued interest receivable 1,505 1,480
Premises and equipment 8,124 7,621
Real estate owned 814 867
Other assets 1,175 1,281
---------------------------
Total Assets $ 328,312 $ 307,116
---------------------------
Liabilities and Shareholder's Equity
Liabilities
Deposits $ 190,038 $ 188,148
Federal Home Loan Bank advances 64,749 45,084
Other liabilities and accrued expenses 1,742 1,639
---------------------------
Total Liabilities 256,529 234,871
---------------------------
Shareholder's Equity
Common Stock, $.01 par value; 50,000,000
shares authorized; 6,612,500 shares issued,
5,116,626 and 5,217,422 shares outstanding. 51 52
Additional paid in capital 45,720 46,943
Unearned shares - Employee Stock Ownership Plan (6,873) (7,005)
Retained earnings 33,426 32,646
Accumulated other comprehensive income (loss) (541) (391)
---------------------------
Total Shareholder's Equity 71,783 72,245
---------------------------
Total Liabilities and Shareholder's Equity $ 328,312 $ 307,116
---------------------------
See notes to unaudited consolidated financial statements
3
<PAGE>
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended December 31, 1999 and 1998
Dollars in Thousands, Except Per Share Amounts
(unaudited)
Three Months Ended December 31,
1999 1998
------------------------------
Interest and Dividend Income
Loans receivable $ 6,035 $ 4,793
Investments and mortgage-backed securities 300 395
Dividends 179 209
Deposit in other financial institutions 41 115
------------------------------
Total Interest and Dividend Income 6,555 5,512
------------------------------
Interest Expense
Deposits 1,900 1,849
Federal Home Loan Bank advances 790 166
------------------------------
Total Interest Expense 2,690 2,015
------------------------------
Net Interest Income 3,865 3,497
Provision for Loan Losses 75 43
------------------------------
Net Interest Income After Provision
for Loan Losses 3,790 3,454
------------------------------
Non-Interest Income
Service charges on deposits 127 85
Gain on sale of loans, net 49 34
Market value adjustment on loans held for sale (280) (1)
Escrow and annuity fees 42 65
Servicing income on loans sold 4 - -
Other 113 71
------------------------------
Total Non-Interest Income 55 254
------------------------------
Non-Interest Expense
Salaries and employee benefits 1,188 1,051
Premises and equipment 248 220
Advertising 111 56
Other 508 404
------------------------------
Total Non-Interest Expense 2,055 1,731
------------------------------
Income Before Income Taxes 1,790 1,977
Provision for Income Taxes 592 660
------------------------------
Net Income $ 1,198 $ 1,317
Earnings per common share:
Basic $ 0.26 $ 0.24
Diluted $ 0.26 $ 0.24
(1) Unallocated ESOP shares are not considered outstanding (see Note 3).
See notes to unaudited consolidated financial statements
4
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<TABLE>
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the year ended September 30, 1999 and the
three months ended December 31, 1999
Dollars in Thousands Except Common Stock Shares
(unaudited)
Unearned Accumu-
Shares lated
Issued to Other
Employee Compre-
Common Common Additional Stock hensive
Stock Stock Paid in Ownership Retained Income
Shares Amount Capital Trust Earnings (Loss) Total
------ ------ ------- ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, Sept. 30,
1998 6,281,875 $ 63 $ 60,183 ($7,534) $ 28,948 $ 120 $ 81,780
Net Income - - - - - - - - 5,218 - - 5,218
Repurchase of
Common Stock (1,064,453) (11) (13,139) - - - - - - (13,150)
Cash Dividends
($.27 per share) - - - - - - - - (1,520) - - (1,520)
Earned ESOP Shares - - - - (101) 529 - - - - 428
Unrealized loss on
securities available
for sale, net of tax - - - - - - - - - - (511) (511)
--------------------------------------------------------------------------------
Balance, Sept. 30,
1999 5,217,422 52 46,943 (7,005) 32,646 (391) 72,245
--------------------------------------------------------------------------------
Net Income - - - - - - - - 1,198 - - 1,198
Repurchase of
Common Stock (100,796) (1) (1,193) - - - - - - (1,194)
Cash Dividends
($.08 per share) - - - - - - - - (418) - - (418)
Earned ESOP Shares - - - - (30) 132 - - - - 102
Unrealized loss on
securities available
for sale, net of tax - - - - - - - - - - (150) (150)
--------------------------------------------------------------------------------
Balance, Dec. 31,
1999 5,116,626 $ 51 $ 45,720 ($6,873) $ 33,426 ($541) $ 71,783
--------------------------------------------------------------------------------
- ------------------
(1) Unearned ESOP Shares are not considered outstanding for the purpose of computing earnings per share
(see Note 3). They are however considered outstanding for legal purposes.
(2) The release of ESOP shares resulted in a market value adjustment to additional paid in capital.
5
</TABLE>
<PAGE>
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three months ended December 31, 1999 and 1998
Dollars in Thousands
(unaudited)
Three Months Ended December 31,
1999 1998
------------------------------
Cash Flow from Operating Activities
Net income $ 1,198 $ 1,317
Noncash revenues, expenses, gains and losses ------------------------------
included in income:
Depreciation 93 85
Deferred federal income taxes - - 69
Federal Home Loan Bank stock dividends (50) (33)
Market value adjustment - loans held for
sale 280 1
Earned ESOP Shares 102 111
Loss on sale of real estate owned, net 15 2
(Gain) Loss on sale of loans (49) 33
Provision for loan and real estate owned
losses 95 57
Net increase in loans originated for sale (1,442) (4,635)
Net decrease in other assets 159 268
Decrease in other liabilities and accrued
expenses, net 103 73
------------------------------
Net Cash (Used) Provided by Operating
Activities 504 (2,652)
Cash Flow from Investing Activities
Net decrease (increase) in interest-bearing
deposits in banks (2,517) 10,196
Purchase of securities available for sale (1,302) (15,130)
Proceeds from maturities of securities
available for sale 618 6,501
Increase in loans receivable, net (15,391) (1,594)
Additions to premises and equipment (596) (1,162)
Additions to real estate owned (115) (207)
Proceeds from Sale of real estate owned 133 626
------------------------------
Net Cash Used by Investing Activities (19,170) (770)
Cash Flow from Financing Activities
Increase in deposits, net 1,890 6,598
Increase (decrease) in Federal Home Loan
Bank advances, net 19,665 (32)
Repurchase of common stock (1,194) (3,828)
Payment of Dividends (418) (358)
------------------------------
Net Cash Provided by Financing Activities 19,943 2,380
Net Increase (Decrease) in Cash 1,277 (1,042)
Cash and Due from Financial Institutions
Beginning of period 6,810 7,039
------------------------------
End of period $ 8,087 $ 5,997
------------------------------
See notes to unaudited consolidated financial statements (continued)
6
<PAGE>
Three Months Ended December 31,
1999 1998
------------------------------
Supplemental Disclosure of Cash Flow
Information
Income taxes paid $ - - $ - -
Interest paid 2,603 2,016
Supplemental Disclosure of Noncash
Investing Activities
Loans transferred to real estate owned 58 94
Market value adjustment of securities
held for sale, net of tax (150) (133)
See notes to unaudited consolidated financial statements
7
<PAGE>
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months December 31, 1999 and 1998
Dollars in Thousands
(unaudited)
Three Months Ended December 31,
1999 1998
------------------------------
Comprehensive Income:
Net Income $1,198 $1,317
Change in unrealized gain (loss) on
securities available for sale, net of
tax (150) (133)
------------------------------
Total Comprehensive Income $1,048 $1,184
See notes to unaudited consolidated financial statements
8
<PAGE>
Timberland Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements (unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation: The accompanying unaudited consolidated financial
statements for Timberland Bancorp, Inc. ("Company") were prepared in
accordance with the instructions for Form 10-Q and therefore, do not include
all disclosures necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. However, all adjustments which are, in the opinion of
management, necessary for a fair presentation of the interim financial
statements have been included. All such adjustments are of a normal recurring
nature. The results of operations for the three months ended December 31, 1999
are not necessarily indicative of the results that may be expected for the
entire fiscal year.
(b) Principles of Consolidation: The interim consolidated financial
statements include the accounts of Timberland Bancorp, Inc. and its
wholly-owned subsidiary, Timberland Savings Bank, S.S.B. ("Bank"), and the
Bank's wholly-owned subsidiary, Timberland Service Corp. All significant
intercompany balances have been eliminated in consolidation.
(2) CONVERSION AND REORGANIZATION
On January 12, 1998, the Bank converted from a Washington-chartered mutual
savings bank to a Washington-chartered capital stock savings bank and became a
wholly-owned subsidiary of the Company. The stock conversion resulted in the
sale and issuance by the Company of 6,612,500 shares of $.01 par value common
stock at a price of $10.00 per share which resulted in gross proceeds of
$66,125,000. After reducing gross proceeds for conversion costs of
$1,175,000, net proceeds totaled $64,950,000. In conjunction with the
conversion, the Company loaned $7,930,307 to the Bank's employee stock
ownership plan for the purchase of 529,000 shares of common stock in the open
market immediately following the completion of the stock conversion. On
January 13, 1998, the Company's common stock began trading on the Nasdaq
National Market under the symbol "TSBK".
9
<PAGE>
(3) 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. In accordance with Statement of
Position ("SOP") 93-6, Employers' Accounting for Employee Stock Ownership
Plans (ESOP), issued by the American Institute of Certified Public
Accountants, shares owned by the Bank's Employee Stock Ownership Plan that
have not been allocated are not considered to be outstanding for the purpose
of computing earnings per share. At December 31, 1999, there were 467,283
ESOP shares that had not been allocated.
Three Months Ended December 31,
1999 1998
Basic EPS computation ------------------------------
Numerator - Net Income $ 1,197,556 $ 1,316,674
Denominator - Weighted average
common shares outstanding 4,692,075 5,478,514
Basic EPS $ 0.26 $ 0.24
Diluted EPS computation
Numerator - Net Income $ 1,197,556 $ 1,316,674
Denominator - Weighted average
common shares outstanding 4,692,072 5,478,514
Effect of dilutive stock option -- --
Weighted average common shares ------------------------------
and common stock equivalents 4,692,072 5,478,514
Diluted EPS $ 0.26 $ 0.24
(4) DIVIDEND
On January 27, 2000, the Company announced a quarterly cash dividend of $0.08
per common share. The dividend is to be paid February 18, 2000, to
shareholders of record as of the close of business February 4, 2000.
(5) ACCOUNTING CHANGES
Accounting for Employee Stock Ownership Plans. In November 1993 the American
Institute of Certified Public Accountants issued SOP 93-6, which requires an
employer to record compensation expense in an amount equal to the fair value
of shares committed to be released to employees from an employee stock
ownership plan and to exclude unallocated shares from earnings per share
computations. The effect of SOP 93-6 on net income and book value per share
in future periods cannot be predicted due to the uncertainty of the fair value
of the shares at the time they will be committed to be released. Subsequent
to the Bank's conversion to stock ownership on January 12, 1998, the Company
acquired 529,000 shares for the Bank's employee stock ownership plan.
Earnings Per Share. Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," issued in February 1997, establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities
with publicly-held common stock or potential common stock. It replaces the
presentation of
10
<PAGE>
primary EPS with a presentation of basic EPS and requires the dual
presentation of basic and diluted EPS on the face of the income statement.
Subsequent to the Bank's conversion to stock ownership on January 12, 1998,
the Company adopted SFAS No. 128 for all future periods.
Reporting Comprehensive Income. SFAS No. 130, " Reporting Comprehensive
Income," was issued in June 1997 and requires businesses to disclose
comprehensive income and its components in their financial statements. This
statement does not affect the results of operations or financial condition of
the Company. The Company adopted SFAS No. 130 on October 1, 1998.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998 and establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company adopted SFAS No. 133
as of September 30, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operation
--------------------
The following analysis discusses the material changes in the financial
condition and results of operations of the Company at and for the three months
ended December 31, 1999. 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 interest rate trends, the economic
climate in the Company's market areas and the country as a whole, loan
delinquency rates, and changes in federal and state regulation. These factors
should be considered in evaluating the forward-looking statements, and undue
reliance should not be placed on such statements.
Comparison of Financial Condition at December 31, 1999 and September 30, 1999
Total Assets: Total assets increased 6.9% from $ 307.1 million at September
30, 1999 to $328.3 million at December 31, 1999, primarily as a result of a
$16.5 million increase in loans receivable and loans held for sale, net, which
was primarily funded by increased Federal Home Loan Bank ("FHLB") borrowings
and increased deposits. Asset growth was partially offset by the use of $1.2
million to repurchase shares of the Company's stock.
Cash and Due from Financial Institutions: Cash and due from financial
institutions increased by 18.8% from $6.8 million at September 30, 1999 to
$8.1 million at December 31, 1999, primarily as a result of the Bank's year
end liquidity planning for year 2000 (Y2K) contingencies.
Interest Bearing Deposits in Banks: Interest bearing deposits in banks
increased from $1.3 million at September 30, 1999 to $3.8 million at December
31, 1999, primarily as a result of the Bank's year end liquidity planning for
year 2000 (Y2K) contingencies.
Investments and Mortgage-backed Securities: Investments and mortgage-backed
securities increased by 1.6% from $31.7 million at September 30, 1999 to $32.1
million at December 31, 1999, primarily as a result of the Bank's increased
investment in FHLB stock.
11
<PAGE>
Loans Receivable, and Loans Held-for-sale, net of allowance for loan losses:
Loans receivable, including loans held-for-sale, net, increased by 6.5% from
$256.1 million at September 30, 1999 to $272.6 million at December 31, 1999.
This increase is primarily a result of an increase in one-to-four family
mortgage loans, multi-family mortgage loans, construction loans (net of LIP
balance), and commercial mortgage loans.
Premises and Equipment: Premises and equipment increased by 6.6% from $7.6
million at September 30, 1999 to $8.1 million at December 31, 1999, primarily
due to the addition of two new branches (Poulsbo and Spanaway).
Real Estate Owned, net: Real estate owned, net, decreased from $867,000 at
September 30, 1999 to $814,000 at December 31, 1999.
Deposits: Deposits increased by 1.0% from $188.1 million at September 30, 1999
to $190.0 million at December 31, 1999, primarily due to growth in the Bank's
certificate of deposit accounts.
Federal Home Loan Bank Advances: Federal Home Loan Bank ("FHLB") advances
increased 43.6% from $45.1 million at September 30, 1999 to $64.7 million at
December 31, 1999, primarily to fund loan portfolio growth.
Shareholders' Equity: Total shareholders' equity decreased 0.6 % from $72.2
million at September 30, 1999 to $71.8 million at December 31, 1999, primarily
as a result of the repurchase of 100,796 shares of the Company's stock for
$1.2 million and the payment of $418,000 in dividends to shareholders. This
decrease in shareholders' equity was partially offset by net income of $1.2
million.
12
<PAGE>
Non Performing Assets
- ---------------------
The following table sets forth information with respect to the Company's
nonperforming assets at December 31, 1999 and September 30, 1999.
At December 31, At September 30,
1999 1999
-----------------------------------
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One-to-four family $ 1,142 $ 941
Commercial 1,869 1,675
Construction and land development 210 390
Land 191 253
Consumer loans 260 330
Commercial Business Loans - - - -
--------- ---------
Total 3,672 3,589
Accruing loans which are contractually
past due 90 days or more:
Mortgage loans:
Construction and land development 411 449
--------- ---------
Total 411 449
--------- ---------
Total of nonaccrual and
90 days past due loans 4,083 4,038
Real estate owned and other
repossessed assets 814 867
--------- ---------
Total nonperforming assets 4,897 4,905
Restructured loans - - 509
Nonaccrual and 90 days or more past
due loans as a percentage of loans
receivable, (including loans held for
sale)(1) 1.49% 1.56%
Nonaccrual and 90 days or more past
due loans as a percentage of total assets 1.24% 1.31%
Nonperforming assets as a percentage
of total assets 1.49% 1.60%
Loans receivable, (including loans
held for sale) (1) $ 274,734 $ 258,141
========= =========
Total assets $ 328,312 $ 307,116
========= =========
- --------------
(1) Loans receivable is before the allowance for loan losses
13
<PAGE>
The following is a discussion of the Company's major problem assets at
December 31, 1999:
Convenience store/retail space and mini-storage, Kitsap County, Washington.
The Bank had two loans that were originated in 1996 on two separate
properties: a convenience store combined with retail space and a 436 unit mini
storage facility. These two loans had a combined balance of $2.9 million at
September 30, 1998. These loans became delinquent primarily because of a
dispute between the two borrowers. The Bank initiated foreclosure proceedings
which were stayed due to a bankruptcy filing by the borrowers in January of
1998. The bankruptcy was subsequently dismissed and the mini storage facility
was sold at a trustees sale on March 12, 1999 for the full balance, accrued
interest, late charges and fees owed. The foreclosure of the convenience
store progressed to a sheriffs sale on December 10, 1999. The Bank was the
successful bidder and the sale was confirmed on January 28, 2000. The Bank
can now market the property. As of December 31, 1999, the remaining loan was
classified as "substandard" and had a principal balance of $1.4 million.
Although no assurances can be given, the Bank does not expect to incur any
material loss on this loan.
14
<PAGE>
Loans Receivable
- ----------------
The following table sets forth the composition of the Company's loan portfolio
by type of loan.
At December 31, At September 30,
1999 1999
Amount Percent Amount Percent
------------------- --------------------
(Dollars In thousands)
Mortgage Loans:
One-to-four family (1)(2) $ 119,659 38.90% $ 115,133 38.42%
Multi family 18,232 5.93 15,945 5.32
Commercial 54,442 17.70 52,049 17.37
Construction and
land development 87,311 28.38 90,621 30.24
Land 10,373 3.37 9,059 3.02
--------- ------ --------- ------
Total mortgage loans 290,017 94.28 282,807 94.37
Consumer Loans:
Home equity and second
mortgage 8,513 2.77 7,978 2.66
Other 4,472 1.45 4,279 1.43
--------- ------ --------- ------
12,985 4.22 12,257 4.09
Commercial business loans 4,604 1.50 4,611 1.54
--------- ------ --------- ------
Total loans 307,606 100.00% 299,675 100.00%
Less:
Undisbursed portion of
loans in process (28,831) (37,781)
Unearned income (3,178) (3,170)
Allowance for loan losses (2,122) (2,056)
Market value adjustment
of loans held-for-sale (863) (583)
--------- ---------
Total loans receivable, net $ 272,612 $ 256,085
========= =========
- ----------------
(1) Includes loans held-for-sale.
(2) Includes real estate contracts totaling $1.5 million at December 31, 1999
15
<PAGE>
Comparison of Operating Results for the Three Months Ended December 31, 1999
and 1998
Net Income: Net income for the quarter ended December 31, 1999 was $1.2
million or $0.26 per basic share ($0.26 per diluted share) compared to net
income of $1.3 million or $0.24 per basic share ($0.24 per diluted share) for
the quarter ended December 31, 1998. Net income for the current quarter was
reduced by a $280,000 ($185,000 after income tax) market value adjustment on
loans held for sale. Earnings per basic share and earnings per diluted share
would have been $0.29 without this market value adjustment.
Net Interest Income: Net interest income increased 10.5% from $3.5 million for
the three months ended December 31, 1998 to $3.9 million for the three months
ended December 31, 1999.
Total interest and dividend income increased 18.9% from $5.5 million for the
three months ended December 31, 1998 to $6.6 million for the three months
ended December 31, 1999. The increase is primarily a result of a $1.2 million
increase in interest from loans receivable and is partially offset by a
$199,000 net decrease in interest and dividends from investment securities and
financial institutions. The increase in interest income from loans receivable
is primarily a result of higher average balances for the quarter in loans
receivable due to loan growth. The net decrease in interest and dividends from
investments securities and financial institutions is primarily a result of
lower average balances for the quarter in funds held with financial
institutions due to a portion of these funds being used to repurchase shares
of the Company's stock and to fund loan growth.
Total interest expense increased 33.5% from $2.0 million for the three months
ended December 31, 1998 to $2.7 million for the three months ended December
31, 1999. This increase is primarily a result of a $624,000 increase in
interest paid on FHLB advances as average FHLB advances increased from $11.9
million for the quarter ended December 31, 1998 to $54.6 million for the
quarter ended December 31, 1999.
Provision for Loan Losses: The provision for loan losses increased from
$43,000 for the three months ended December 31, 1998 to $75,000 for the three
months ended December 31, 1999. Management increased the provision for loan
losses due to growth in the Bank's loan portfolio. Management deemed the
general loan loss reserves of $2.1 million at December 31, 1999 (.77% of loans
receivable and loans held for sale, and 52.0% of non-performing loans)
adequate to provide for estimated losses based on an evaluation of known and
inherent risks in the loan portfolio at that date. Non-performing loans
decreased from $4.7 million at December 31, 1998 to $4.1 million at December
31, 1999.
Noninterest Income: Total noninterest income decreased 78.3% from $254,000
for the quarter ended December 31, 1998 to $55,000 for the quarter ended
December 31, 1999, primarily due to a $280,000 market value writedown on loans
held for sale. This decrease is partially offset by a $42,000 increase in
service charges on deposits, a $23,000 increase in other fees, and a $15,000
increase in gain on sale of loans.
Noninterest Expense: Total noninterest expense increased 18.7% from $1.7
million for the three months ended December 31, 1998 to $2.1 million for the
three months ended December 31, 1999, primarily due to a $137,000 increase in
salary and benefit expense, a $55,000 increase in advertising expense, and
smaller increases in ATM expenses and premises and equipment expenses. The
increase in salary and benefit expense was primarily due to adding personnel
to staff three new branches (Yelm, Poulsbo, and Spanaway) that were opened in
1999 and salary increases for current employees.
Provision for Income Taxes: The provision for income taxes decreased from
$660,000 for the three months ended December 31, 1998 to $592,000 for the
three months ended December 31, 1999 primarily as a result of lower income
before income taxes.
16
<PAGE>
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. The
Company also raised $65.0 million in net proceeds from the January 1998 stock
offering. While maturities and the scheduled amortization of loans are a
predictable source of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions and
competition.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. The Bank generally maintains sufficient cash and
short-term investments to meet short-term liquidity needs. At December 31,
1999, 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 23.0%. The Bank also maintained an uncommitted credit facility with the
FHLB-Seattle that provided for immediately available advances up to an
aggregate amount of $90 million, under which $65 million was outstanding at
December 31, 1999.
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 government and agency obligations. 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 and construction and land development loans. At December 31,
1999, the Bank had loan commitments totaling $13.1 million and undisbursed
loans in process totaling $28.8 million. The Bank anticipates that it will
have sufficient funds available to meet current loan commitments.
Certificates of deposit that are scheduled to mature in less than one year
from December 31, 1999 totaled $83.9 million. Historically, the Bank has been
able to retain a significant amount of its deposits as they mature.
Federally-insured state-chartered banks are required to maintained minimum
levels of regulatory capital. Under current FDIC regulations, insured
state-chartered banks generally must maintain (i) a ratio of Tier 1 leverage
capital to total assets of at least 3.0% (4.0% to 5.0% for all but the most
highly rated banks), (ii) a ratio of Tier 1 capital to risk weighted assets of
at least 4.0% and (iii) a ratio of total capital to risk weighted assets of at
least 8.0%. At December 31, 1999, the Bank was in compliance with all
applicable capital requirements. For additional details see "Regulatory
Capital"
17
<PAGE>
Regulatory Capital
- ------------------
The following table compares the Bank's regulatory capital at December 31,
1999 to its minimum regulatory capital requirements at that date (dollars in
thousands):
Percent of
Amount Adjusted Total Assets (1)
------ -------------------------
Tier 1 (leverage) capital $55,721 18.0%
Tier 1 (leverage) capital
requirement 12,371 4.0
------- ----
Excess $43,350 14.0%
Tier 1 risk adjusted capital $55,721 23.7%
Tier 1 risk adjusted capital
requirement 9,416 4.0
------- ----
Excess $46,305 19.7%
Total risk based capital $57,793 24.6%
Total risk based capital
requirement 18,831 8.0
------- ----
Excess $38,962 16.6%
- -------------------
(1) For the Tier 1 (leverage) capital, percent of total average assets of
$309.3 million. For the Tier 1 risk-based capital and total risk-based
capital calculations, percent of total risk-weighted assets of $235.4 million.
18
<PAGE>
TIMBERLAND BANCORP, INC. AND SUBSIDIARY
KEY FINANCIAL RATIOS
(Dollars in thousands, except per share data)
(unaudited)
Three Months Ended December 31,
1999 1998
---------------------
PERFORMANCE RATIOS:
Return on average assets (1) 1.51% 1.97%
Return on average equity (1) 6.67% 6.70%
Net interest margin (1) 5.07% 5.46%
Efficiency ratio 53.45% 46.68%
December 31, September 30,
1999 1999
-------------------------------
ASSET QUALITY RATIOS:
Non-performing loans $ 4,083 $ 4,038
Total non-performing assets 4,897 4,905
Non-performing assets to
total assets 1.49% 1.60%
Allowance for loan losses to
non-performing loans 51.97% 50.92%
BOOK VALUE PER SHARE (2) $ 14.03 $ 13.85
- ------------------
(1) Annualized
(2) Calculation includes ESOP shares not committed to be released
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, 1999.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Neither the Company nor the Bank is a party to any material legal proceedings
at this time. Further, neither the Company nor the Bank is aware of the
threat of any such proceedings. From time to time, the Bank is involved in
various claims and legal actions arising in the ordinary course of business.
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
Change in Securities -- None to be reported.
Use of proceeds -- None to be reported.
19
<PAGE>
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
None to be reported.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
An annual Meeting of Shareholders of the Company was held on January 27, 2000.
The results of the vote on the matters presented at the meeting is as follows:
The following individuals were elected as directors:
For Withheld
--- --------
No. of Votes Percentage No. of Votes Percentage
------------------------- -------------------------
Clarence E. Hamre 4,311,245 96.57% 153,058 3.43%
(three-year term)
Andrea M. Clinton 4,309,370 96.53% 154,933 3.47%
(three-year term)
Robert Backstrom 4,311,470 96.58% 152,833 3.42%
(three-year term)
Item 5. Other Information
- --------------------------
None to be reported.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
3(a) Articles of Incorporation of the Registrant *
3(b) Bylaws of the Registrant *
10(a) Employee Severance Compensation Plan **
10(b) Timberland Savings Bank, S.S.B. Employee Stock Ownership
Plan **
10(c) Timberland Bancorp, Inc. 1999 Stock Option Plan ***
10(d) Timberland Bancorp, Inc. Management Recognition and
Development Plan ***
27 Financial Data Schedule
-----------------
* Incorporated by reference to the Registrant's Registration
Statement of Form S-1 (333-35817).
** Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1997.
*** Incorporated by reference to the Registrants Annual Meeting Proxy
Statement dated December 15, 1998.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December
31, 1999.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Timberland Bancorp, Inc.
Date: February 9, 2000 By: /s/ Clarence E. Hamre
-------------------------------------
Clarence E. Hamre
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 9, 2000 By: /s/ Michael R. Sand
-------------------------------------
Michael R. Sand
Executive Vice President
(Principal Financial Officer)
<PAGE>
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