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, 2000 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 JANUARY 31, 2001 ----- -------------------------------------- common stock, $.01 par value 4,276,279
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) 9-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-20 Item 3. Quantitative and Qualitative Disclosures about Market Risk. 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities and Use of Proceeds 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 23 2
PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ------------------------------ TIMBERLAND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2000 and September 30, 2000 Dollars in Thousands (unaudited) December 31, September 30, 2000 2000 --------------------------- Assets Cash and due from financial institutions $ 10,531 $ 8,893 Interest bearing deposits in banks 3,251 3,109 Investments and mortgage-backed securities (Available for Sale) 29,284 29,075 Loans receivable 288,573 287,303 Loans held for sale 26,408 28,343 Less: Allowance for loan losses (2,768) (2,640) --------------------------- Total Loans 312,213 313,006 --------------------------- Accrued interest receivable 1,829 1,756 Premises and equipment 9,097 8,614 Real estate owned 1,948 1,966 Other assets 1,393 1,661 --------------------------- Total Assets $369,546 $368,080 --------------------------- Liabilities and Shareholders' Equity Liabilities Deposits $209,263 $212,611 Federal Home Loan Bank advances 84,699 81,137 Other liabilities and accrued expenses 2,338 2,020 --------------------------- Total Liabilities 296,300 295,768 --------------------------- Shareholders' Equity Common Stock, $.01 par value; 50,000,000 shares authorized; December 31, 2000 - 4,748,295 issued, 4,316,279 outstanding September 30, 2000 - 4,793,295 issued, 4,361,279 outstanding (Unallocated ESOP shares are not considered outstanding) 47 48 Additional paid in capital 41,676 42,250 Unearned shares - Employee Stock Ownership Plan (6,344) (6,477) Retained earnings 37,857 36,795 Accumulated other comprehensive income (loss) 10 (304) --------------------------- Total Shareholders' Equity 73,246 72,312 --------------------------- Total Liabilities and Shareholders' Equity $369,546 $368,080 --------------------------- See notes to unaudited consolidated financial statements 3
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the three months ended December 31, 2000 and 1999 Dollars in Thousands, Except Per Share Amounts (unaudited) Three Months Ended December 31, 2000 1999 ------------------------------ Interest and Dividend Income Loans receivable $7,451 $6,035 Investments and mortgage-backed securities 276 300 Dividends from investments 179 179 Interest bearing deposits in banks 49 41 ------------------------------ Total interest and dividend income 7,955 6,555 Interest Expense Deposits 2,389 1,900 Federal Home Loan Bank advances 1,427 790 ------------------------------ Total interest expense 3,816 2,690 ------------------------------ Net interest income 4,139 3,865 Provision for Loan Losses 150 75 ------------------------------ Net interest income after provision for loan losses 3,989 3,790 ------------------------------ Non-Interest Income Service charges on deposits 165 127 Gain on sale of loans, net 68 49 Market value adjustment on loans held for sale 175 (280) Escrow fees 39 42 Servicing income on loans sold 19 4 Other 142 113 ------------------------------ Total non-interest income 608 55 Non-interest Expense Salaries and employee benefits 1,277 1,188 Premises and equipment 252 248 Advertising 177 111 Other 586 508 ------------------------------ Total non-interest expense 2,292 2,055 ------------------------------ Income before federal income taxes 2,305 1,790 Federal Income Taxes 764 592 ------------------------------ Net Income $1,541 $1,198 Earnings Per Common Share: Basic $0.35 $0.26 Diluted $0.35 $0.26 Weighted average shares outstanding: Basic 4,344,159 4,692,072 Diluted 4,351,147 4,692,072 See notes to unaudited consolidated financial statements 4
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the year ended September 30, 2000 and the three months ended December 31, 2000 Dollars in Thousands Except Common Stock Shares (unaudited) Unearned Shares Accumulated Issued to Other Addi- Employee Compre- Common Common tional Stock hensive Stock Stock Paid-In Ownership Retained Income Shares(1) Amount Capital Trust Earnings (Loss) Total --------- ------ ------- ----- -------- ------ ----- Balance, Sept. 30, 1999 4,750,139 $52 $46,943 ($7,005) $32,646 $(391) $72,245 Net Income - - - - - - - - 5,897 - - 5,897 Repurchase of Common Stock (424,127) (4) (4,599) - - - - - - (4,603) Cash Dividends ($.35 per share) - - - - - - - - (1,748) - - (1,748) Earned ESOP Shares (2) 35,267 - - (94) 528 - - - - 434 Change in fair value of securities available for sale, net of tax - - - - - - - - - - 87 87 - ------------------------------------------------------------------------------ Balance, Sept. 30, 2000 4,361,279 48 42,250 (6,477) 36,795 (304) 72,312 - ------------------------------------------------------------------------------ Net Income - - - - - - - - 1,541 - - 1,541 Repurchase of Common Stock (45,000) (1) (548) - - - - - - (549) Cash Dividends ($.10 per share) - - - - - - - - (479) - - (479) Earned ESOP Shares (2) - - - - (26) 133 - - - - 107 Change in fair value of securities available for sale, net of tax - - - - - - - - - - 314 314 - ------------------------------------------------------------------------------ Balance, Dec. 31, 2000 4,316,279 $47 $41,676 ($6,344) $37,857 $10 $73,246 - ------------------------------------------------------------------------------ - -------------------- (1) Unallocated ESOP Shares are considered issued but not outstanding. (2) The release of ESOP shares resulted in a market value adjustment to additional paid in capital. 5
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the three months ended December 31, 2000 and 1999 Dollars in Thousands (unaudited) Three Months Ended December 31, 2000 1999 ------------------------------ Cash Flow from Operating Activities Net income $1,541 $1,198 ------------------------------ Noncash revenues, expenses, gains and losses included in income: Depreciation 114 93 Federal Home Loan Bank stock dividends (71) (50) Market value adjustment - loans held for sale (175) 280 Earned ESOP Shares 107 102 (Gain) loss on sale of real estate owned, net (13) 15 Gain on sale of loans (68) (49) Provision for loan and real estate owned losses 150 95 Net increase (decrease) in loans originated for sale 2,179 (1,442) Net decrease in other assets 34 159 Increase in other liabilities and accrued expenses, net 317 103 ------------------------------ Net Cash Provided by Operating Activities 4,115 504 Cash Flow from Investing Activities Net increase in interest-bearing deposits in banks (142) (2,517) Purchase of securities available for sale (369) (1,302) Proceeds from maturities of securities available for sale 707 618 Increase in loans receivable, net (1,293) (15,391) Additions to premises and equipment (597) (596) Additions to real estate owned (46) (115) Proceeds from sale of real estate owned 77 133 ------------------------------ Net Cash Used by Investing Activities (1,663) (19,170) Cash Flow from Financing Activities Increase (decrease) in deposits, net (3,348) 1,890 Increase in Federal Home Loan Bank advances, net 3,562 19,665 Repurchase of common stock (549) (1,194) Payment of dividends (479) (418) ------------------------------ Net Cash Provided by (Used in) Financing Activities (814) 19,943 Net Increase in Cash 1,638 1,277 Cash and Due from Financial Institutions Beginning of period 8,893 6,810 ------------------------------ End of period $ 10,531 $ 8,087 ------------------------------ See notes to unaudited consolidated financial statements (continued) 6
Three Months Ended December 31, 2000 1999 ------------------------------ Supplemental Disclosure of Cash Flow Information Income taxes paid $ - - $ - - Interest paid 3,733 2,603 Supplemental Disclosure of Noncash Investing Activities Loans transferred to real estate owned - - 58 Market value adjustment of securities held for sale, net of tax 314 (150) See notes to unaudited consolidated financial statements 7
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the three months ended December 31, 2000 and 1999 Dollars in Thousands (unaudited) Three Months Ended December 31, 2000 1999 ------------------------------ Comprehensive Income: Net Income $1,541 $1,198 Change in fair value of securities available for sale, net of tax 314 (150) ------------------------------ Total Comprehensive Income $1,855 $1,048 See notes to unaudited consolidated financial statements 8
Timberland Bancorp, Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation: The accompanying unaudited consolidated financial statements for Timberland Bancorp, Inc. and Subsidiaries ("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, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year. (b) Principles of Consolidation: The interim consolidated financial statements include the accounts of Timberland Bancorp, Inc. and its wholly-owned subsidiary, Timberland Bank, ("Bank"), and the Bank's wholly- owned subsidiary, Timberland Service Corp. All significant intercompany balances have been eliminated in consolidation. (c) The preparation of financial statements in conformity with generally accepted accounting principles 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 revenues 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. 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, 2000, there were 432,016 ESOP shares that had not been allocated. Three Months Ended December 31, 2000 1999 ------------------------------- Basic EPS computation Numerator - Net Income $ 1,541,000 $ 1,198,000 Denominator - Weighted average common shares outstanding 4,344,159 4,692,072 Basic EPS $ 0.35 $ 0.26 Diluted EPS computation Numerator - Net Income $ 1,541,000 $ 1,198,000 Denominator - Weighted average common shares outstanding 4,344,159 4,692,072 Effect of dilutive stock options 6,988 -- ----------- ----------- Weighted average common shares and common stock equivalents 4,351,147 4,692,072 Diluted EPS $ 0.35 $ 0.26 (3) DIVIDEND On January 25, 2001, the Company announced a quarterly cash dividend of $0.10 per common share. The dividend is to be paid February 16, 2001, to shareholders of record as of the close of business February 2, 2001. (4) ACCOUNTING CHANGES None to be reported. 10
Item 2. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------ Results of Operations --------------------- 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, 2000. 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, 2000 and September 30, 2000 Total Assets: Total assets increased to $369.5 million at December 31, 2000 from $368.1 million at September 30, 2000, primarily reflected in a $1.8 million increase in cash and due from financial institutions and interest bearing deposits in banks and a $483,000 increase in premises and equipment. These increases were partially offset by a $793,000 decrease in total loans, due primarily to loan sales and loan payoffs. Cash and Due from Financial Institutions: Cash and due from financial institutions increased to $10.5 million at December 31, 2000 from $8.9 million at September 30, 2000. Interest Bearing Deposits in Banks: Interest bearing deposits in banks increased to $3.3 million at December 31, 2000 from $3.1 million at September 30, 2000. Investments and Mortgage-backed Securities: Investments and mortgage-backed securities increased to $29.3 million at December 31, 2000 from $29.1 million at September 30, 2000, primarily due to increases in market valuations. Loans Receivable and Loans Held-for-sale, net of allowance for loan losses: Net loans receivable, including loans held-for-sale, decreased to $312.2 million at December 31, 2000 from $313.0 million at September 30, 2000. This decrease is primarily a result of the sale of $6.6 million of fixed rate one-to-four family loans and the payoff of three large loans totaling $6.1 million, and is partially offset by loan originations. Loan originations for the quarter ended December 31, 2000 declined to $23.5 million from $41.5 million for the quarter ended September 30, 2000 and from $27.3 million for the quarter ended December 31, 1999. The Company anticipates that loan origination activity will begin to increase as declining interest rates typically facilitate increased mortgage lending. Real Estate Owned: Real estate owned decreased to $1.9 million at December 31, 2000 from $2.0 million at September 30, 2000. 11
Premises and Equipment: Premises and equipment increased by $483,000 to $9.1 million at December 31, 2000 from $8.6 million at September 30, 2000. This increase is primarily due to construction costs for the Bank's Tumwater branch (Thurston County), which is scheduled to open in March. Deposits: Deposits decreased by 1.6% to $209.3 million at December 31, 2000 from $212.6 million at September 30, 2000, primarily due to decreases in the Bank's certificate of deposit accounts and passbook savings accounts. Competition for high-rate long term CDs was such that the Company made a decision to utilize short-term FHLB advances in the declining rate environment rather than locking into high cost CD funding for up to 24 months. Federal Home Loan Bank Advances: FHLB advances increased by 4.4% to $84.7 million at December 31, 2000 from $81.1 million at September 30, 2000. The advances were increased primarily to replace the $3.3 million decrease in deposits. Short-term FHLB advances were acquired rather than high-rate long term CD's to take advantage of an anticipated decline in interest rates for the purpose of lowering the Company's cost of funds. Shareholders' Equity: Total shareholders' equity increased to $73.2 million at December 31, 2000 from $72.3 million at September 30, 2000, primarily as a result of net income of $1.5 million, and a $315,000 increase in the accumulated other comprehensive income category. These increases to shareholders' equity were partially offset by the repurchase of 45,000 shares of the Company's stock for $549,000 and the payment of $479,000 in dividends to shareholders. On June 26, 2000 the Company announced a plan to repurchase 243,040 shares of the Company's stock. This marked the Company's seventh 5% stock repurchase plan since the Bank's conversion to a public company in January of 1998. As of December 31, 2000, the Company had repurchased 112,500 of these 243,040 shares at an average price of $11.82. 12
Non Performing Assets - --------------------- The following table sets forth information with respect to the Company's nonperforming assets at December 31, 2000 and September 30, 2000. At December 31, At September 30, 2000 2000 ----------------------------------- (Dollars in thousands) Loans accounted for on a nonaccrual basis: Mortgage loans: One-to-four family $ 1,341 $ 1,203 Commercial 283 551 Construction and land development 859 1,267 Land 305 233 Consumer loans 196 273 Commercial Business Loans 164 85 --------- -------- Total 3,148 3,612 Accruing loans which are contractually past due 90 days or more: Mortgage loans: Construction and land development - - - - --------- -------- Total - - - - --------- -------- Total of nonaccrual and 90 days past due loans 3,148 3,612 Real estate owned and other repossessed assets 1,948 1,966 --------- -------- Total nonperforming assets 5,096 5,578 Restructured loans - - - - Nonaccrual and 90 days or more past due loans as a percentage of loans receivable, (including loans held for sale)(1) 1.00% 1.14% Nonaccrual and 90 days or more past due loans as a percentage of total assets 0.85% 0.98% Nonperforming assets as a percentage of total assets 1.38% 1.52% Loans receivable, (including loans held for sale) (1) $314,981 $315,646 ======== ======== Total assets $369,546 $368,080 ======== ======== - -------------- (1) Loans receivable is before the allowance for loan losses 13
The following is a discussion of the Company's non-performing assets at December 31, 2000: Total non-performing assets decreased to $5.1 million at December 31, 2000 from $5.6 million at September 30, 2000. This decrease was primarily a result of the payoff of $601,000 in loans (that were non-performing at September 30, 2000) and a $577,000 land development loan being removed from non-performing status. These decreases were partially offset by certain other loans being classified as non-performing during the quarter. The Company's non-performing assets to total asset ratio (NPA) decreased to 1.38% at December 31, 2000 from 1.52% at September 30, 2000. The Company's REO balance decreased slightly to $1.95 million at December 31, 2000 from $1.97 million at September 30, 2000. The largest individual REO property is a $1.3 million convenience store with retail / office space. For resale marketing purposes the Company has divided the properties into three distinct properties (two retail / office sections and the convenience store). The Company expects the sale of one of the retail / office sections to close by the end of February. It is anticipated that this sale will reduce the REO balance on the property by approximately $320,000. 14
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, 2000 2000 Amount Percent Amount Percent ------------------ ------------------ (Dollars In thousands) Mortgage Loans: One-to-four family (1)(2) $140,331 40.52% $136,825 38.85% Multi family 28,790 8.31 33,604 9.54 Commercial 61,523 17.77 58,632 16.65 Construction and land development 80,497 23.25 89,903 25.52 Land 13,327 3.85 12,561 3.56 -------- ------ -------- ------ Total mortgage loans 324,468 93.70 331,525 94.12 Consumer Loans: Home equity and second mortgage 10,196 2.94 9,816 2.79 Other 6,349 1.84 6,081 1.72 -------- ------ -------- ------ 16,545 4.78 15,897 4.51 Commercial business loans 5,276 1.52 4,808 1.37 -------- ------ -------- ------ Total loans 346,289 100.00% 352,230 100.00% Less: Undisbursed portion of loans in process (27,834) (32,831) Unearned income (3,474) (3,578) Allowance for loan losses (2,768) (2,640) Market value adjustment of loans held-for-sale - - (175) -------- -------- Total loans receivable, net $312,213 $313,006 ======== ======== - ---------------- (1) Includes loans held-for-sale. (2) Includes real estate contracts totaling $1.3 million at December 31, 2000. 15
Deposit Breakdown - ----------------- The following table sets forth the balances of savings deposits in the various types of savings accounts offered by the Bank at the dates indicated. At December 31, 2000 At September 30, 2000 -------------------- --------------------- Non-interest bearing $ 11,303 $ 11,861 N.O.W. checking 24,534 24,467 Passbook savings 27,723 28,647 Money market accounts 20,831 20,863 Certificates of deposit 121,415 123,137 Other 3,457 3,636 Total Deposits $209,263 $212,611 ======== ======== Comparison of Operating Results for the Three Months Ended December 31, 2000 and 1999 Net Income: Net income for the three months ended December 31, 2000 was $1.5 million or $0.35 per basic share ($0.35 per diluted share) compared to net income of $1.2 million or $0.26 per basic share ($0.26 per diluted share) for the three months ended December 31, 1999. Net income for the current quarter was increased by a $175,000 ($116,000 after income tax) market value recovery on loans held for sale. Net income for the current quarter was reduced by $115,000 ($76,000 after income tax) in net start-up expenses associated with the Bank's new checking account acquisition program. Net income for the quarter ending December 31, 1999 was reduced by a $280,000 ($185,000 after income tax) market value writedown on loans held for sale. Net Interest Income: Net interest income increased 7.1% to $4.1 million for the three months ended December 31, 2000 from $3.9 million for the three months ended December 31, 1999. Net interest margin for the three months ended December 31, 2000 was 4.67% compared with a net interest margin of 5.07% for the three months ended December 31, 1999. Total interest and dividend income increased 21.4% to $8.0 million for the three months ended December 31, 2000 from $6.6 million for the three months ended December 31, 1999. The increase is primarily a result of a $1.4 million increase in interest from loans receivable. 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. Average loan balances increased to $322.7 million for the quarter ended December 31, 2000 from $270.0 million for the quarter ended December 31, 1999. The average rate on loans receivable increased to 9.24% for the quarter ended December 31, 2000 from 8.94% for the quarter ended December 31, 1999. Total interest expense increased 41.9% to $3.8 million for the three months ended December 31, 2000 from $2.7 million for the three months ended December 31, 1999. This increase is primarily a result of a $637,000 increase in interest paid on FHLB advances and a $489,000 increase in interest expense on interest bearing deposit accounts. Average FHLB advances increased to $85.7 million for the quarter ended December 31, 2000 from 16
$54.7 million for the quarter ended December 31, 1999 and the average rate on FHLB borrowings increased to 6.66% from 5.78%. Average interest bearing deposit accounts increased to $193.5 million for the quarter ended December 31, 2000 from $176.8 million for the same period in 1999 and the average rate on interest bearing deposit accounts increased to 4.94% from 4.30%. Provision for Loan Losses: The provision for loan losses for the three months ended December 31, 2000 was $150,000 compared with $75,000 for the three months ended December 31, 1999. Management increased the provision for loan losses primarily due to changes in the composition of the loan portfolio. Management deemed the general loan loss reserves of $2.8 million at December 31, 2000 (0.88% of loans receivable and loans held for sale and 87.9% 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. Net charge-offs for the current quarter were $22,000 compared to $9,000 in the same quarter in 1999. Noninterest Income: Total noninterest income increased to $608,000 for the three months ended December 31, 2000 from $55,000 for the three months ended December 31, 1999. This increase is primarily due to a combined change of $455,000 in the market value adjustments on loans held for sale as the Company had a $175,000 market value recovery for the quarter ended December 31, 2000 compared to a $280,000 market value writedown for the quarter ended December 31, 1999. (The Company's loans held for sale portfolio had no net market value writedown remaining at December 31, 2000.) Service charges on deposits also increased by $38,000 for the quarter ended December 31, 2000 to $165,000 from $127,000 for the quarter ended December 31, 1999, primarily as a result of the fees associated with the Bank's new checking account programs. Smaller increases in gain on sale of loans, servicing income on loans sold and other fees made up the remainder of the noninterest income increase. Noninterest Expense: Total noninterest expense increased to $2.3 million for the three months ended December 31, 2000 from $2.1 million for the three months ended December 31, 1999. This is primarily due to $147,000 in start-up expenses associated with the new checking account acquisition program and an $89,000 increase in salary and employee benefit expense. The Company's efficiency ratio for the quarter ended December 31, 2000 was 48.3% compared to 52.4% for the quarter ended December 31, 1999. Provision for Income Taxes: The provision for income taxes increased to $764,000 for the three months ended December 31, 2000 from $592,000 for the three months ended December 31, 1999 primarily as a result of higher income before income taxes. The effective tax rate in both periods was 33%. 17
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, 2000, 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 22.6%. The Bank also maintained an uncommitted credit facility with the FHLB-Seattle that provided for immediately available advances up to an aggregate amount of $109.0 million, under which $84.7 million was outstanding at December 31, 2000. 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, 2000, the Bank had loan commitments totaling $15.5 million and undisbursed loans in process totaling $27.8 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, 2000 totaled $102.0 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, 2000, the Bank was in compliance with all applicable capital requirements. For additional details see "Regulatory Capital". 18
Regulatory Capital - ------------------ The following table compares the Bank's regulatory capital at December 31, 2000 to its minimum regulatory capital requirements at that date (dollars in thousands): Percent of Amount Adjusted Total Assets (1) ------ ------------------------ Tier 1 (leverage) capital $60,060 16.6% Tier 1 (leverage) capital requirement 14,483 4.0 ------- ---- Excess $45,577 12.6% Tier 1 risk adjusted capital $60,060 22.5% Tier 1 risk adjusted capital requirement 10,697 4.0 ------- ---- Excess $49,363 18.5% Total risk based capital $62,828 23.5% Total risk based capital requirement 21,394 8.0 ------- ---- Excess $41,434 15.5% - ------------------- (1) For the Tier 1 (leverage) capital, percent of total average assets of $362.1 million. For the Tier 1 risk-based capital and total risk-based capital calculations, percent of total risk-weighted assets of $267.4 million. 19
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES KEY FINANCIAL RATIOS (Dollars in thousands, except per share data) For the Three Months Ended December 31, September 30, December 31, 2000 2000 1999 ----------------------------------------------- PERFORMANCE RATIOS: Return on average assets (1) 1.67% 1.91% 1.51% Return on average equity (1) 8.48% 9.54% 6.67% Net interest margin (1) 4.67% 4.56% 5.07% Efficiency ratio 48.28% 44.04% 52.42% December 31, September 30, 2000 2000 ------------------------------ ASSET QUALITY RATIOS: Non-performing loans $ 3,148 $ 3,612 REO's & other repossessed assets 1,948 1,966 Total non-performing assets 5,096 5,578 Non-performing assets to total assets 1.38% 1.52% Allowance for loan losses to non-performing loans 87.93% 73.09% Book Value Per Share (2) $ 15.43 $ 15.09 Book Value Per Share (3) $ 16.93 $ 16.58 - ---------------------- (1) Annualized (2) Calculation includes ESOP shares not committed to be released (3) Calculation excludes ESOP shares not committed to be released For the Three Months Ended December 31, September 30, December 31, 2000 2000 1999 ----------------------------------------------- AVERAGE BALANCE SHEET: Average Total Loans $ 322,679 $ 312,134 $ 269,975 Average Total Interest Earning Assets 354,305 343,259 304,689 Average Total Assets 368,647 358,379 317,799 Average Total Interest Bearing Deposits 193,540 194,789 189,093 Average FHLB Advances 85,699 75,981 54,649 Average Shareholders' Equity 72,707 71,651 71,865 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, 2000. 20
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. 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 25, 2001. The results of the vote on the matters presented at the meeting are as follows: The following individuals were elected as directors: For Withheld --- -------- No. Of Voles Percentage No. of Votes Percentage ------------------------ ------------------------ Michael R. Sand 4,045,269 97.91% 86,425 2.09% (three-year term) Peter J. Majar 4,045,719 97.92% 85,975 2.08% (three-year term) David A. Smith 4,044,694 97.89% 87,000 2.11% (three-year term) Knight Vale & Gregory PLLC was appointed as the Company's independent auditors for the fiscal year ending September 30, 2001. Voting results are as follows: No. of Votes Percentage ---------------------------------------- FOR 4,092,834 99.06% AGAINST 28,630 0.69% ABSTAIN 10,230 0.25% 21
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, 2000. 22
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 8, 2001 By: /s/ Clarence E. Hamre ----------------------------------- Clarence E. Hamre President and Chief Executive Officer (Principal Executive Officer) Date: February 8, 2001 By: /s/ Dean J. Brydon ----------------------------------- Dean J. Brydon Chief Financial Officer (Principal Financial Officer) 23