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) <TABLE> 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 ----------- ------ ------- --------- ----------- -------- ------- ------ <s> <c> <c> <c> <c> <c> <c> <c> <c> 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 ------------------------------------------------------------------------------------ </TABLE> 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 30
EXHIBIT 32 Certification Pursuant to Section 906 of the Sarbanes Oxley Act CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER OF TIMBERLAND BANCORP, INC. PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report on Form 10-Q, that: * the report fully complies with the requirements of Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, and * the information contained in the report fairly presents, in all material respects, the company's financial condition and results of operations. /s/Michael R. Sand /s/Dean J. Brydon ------------------ ----------------- Michael R. Sand Dean J. Brydon Chief Executive Officer Chief Financial Officer Date: August 10, 2004 31