UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
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 by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. Check
one:
Large accelerated filer Accelerated Filer X Non-accelerated filer
--- --- ---
Indicate by check mark whether the registrant is a shell company (in Rule
12b-2 of the Exchange Act).
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AT April 30, 2007
----- ------------------------------------
Common stock, $.01 par value 3,627,210
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 9-15
Item 2. Management's Discussion and Analysis of Financial Condition 15-28
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
Item 4. Controls and Procedures 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 1A Risk Factors 29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30
Item 3. Defaults Upon Senior Securities 30
Item 4. Submission of Matters to a Vote of Security Holders 30-31
Item 5. Other Information 31
Item 6. Exhibits 31
SIGNATURES 32
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
------------------------------
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2007 and September 30, 2006
Dollars in thousands, except share amounts
March 31, September 30,
2007 2006
---------------------------
Assets (Unaudited)
Cash equivalents:
Non-interest bearing $ 14,604 $ 14,870
Interest bearing deposits in banks 659 2,519
Federal funds sold 6,655 5,400
---------------------------
21,918 22,789
---------------------------
Certificates of deposit ("CDs") held for investment - - 100
Investments and mortgage-backed
securities: held to maturity 72 75
Investments and mortgage-backed
securities: available for sale 67,221 81,408
Federal Home Loan Bank ("FHLB") stock 5,705 5,705
Loans receivable 482,226 426,318
Loans held for sale 1,934 2,449
Less: Allowance for loan losses (4,272) (4,122)
---------------------------
Net loans receivable 479,888 424,645
---------------------------
Accrued interest receivable 3,177 2,806
Premises and equipment 16,736 16,730
Other real estate owned ("OREO") and other
repossessed items 71 15
Bank owned life insurance ("BOLI") 12,178 11,951
Goodwill 5,650 5,650
Core deposit intangible 1,363 1,506
Mortgage servicing rights 986 932
Other assets 2,836 2,775
---------------------------
Total assets $ 617,801 $ 577,087
===========================
Liabilities and shareholders' equity
Deposits $ 444,122 $ 431,061
FHLB advances 92,230 62,761
Other borrowings: repurchase agreements 588 947
Other liabilities and accrued expenses 3,048 2,953
---------------------------
Total liabilities 539,988 497,722
---------------------------
Commitments and contingencies -- --
Shareholders' equity
Preferred stock, $.01 par value; 1,000,000
shares authorized; none issued
Common stock, $.01 par value; 50,000,000 shares
authorized; March 31, 2007 - 3,649,190 shares
issued and outstanding
September 30, 2006 - 3,757,676 shares issued
and outstanding 36 38
Additional paid in capital 16,439 20,888
Unearned shares - Employee Stock Ownership
Plan ("ESOP") (3,172) (3,305)
Unearned shares- Management Recognition and
Development Plan ("MRDP") (220) (188)
Retained earnings 65,465 62,933
Accumulated other comprehensive loss (735) (1,001)
---------------------------
Total shareholders' equity 77,813 79,365
---------------------------
Total liabilities and shareholders' equity $ 617,801 $ 577,087
===========================
See notes to unaudited condensed consolidated financial statements
3
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended March 31, 2007 and 2006
Dollars in thousands, except per share amounts
(unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
2007 2006 2007 2006
-------------------- --------------------
Interest and dividend income
Loans receivable $ 9,283 $ 7,624 $18,070 $15,108
Investments and mortgage-
backed securities 381 576 835 1,113
Dividends from investments 413 342 833 665
Federal funds sold 77 95 142 172
Interest bearing deposits
in banks 14 12 53 36
-------------------- --------------------
Total interest and dividend
income 10,168 8,649 19,933 17,094
-------------------- --------------------
Interest expense
Deposits 2,657 1,809 5,247 3,497
FHLB advances - short term 288 2 647 13
FHLB advances - long term 725 760 1,248 1,469
Other borrowings 10 16 27 26
-------------------- --------------------
Total interest expense 3,680 2,587 7,169 5,005
-------------------- --------------------
Net interest income 6,488 6,062 12,764 12,089
Provision for loan losses 156 - - 156 - -
-------------------- --------------------
Net interest income after
provision for loan losses 6,332 6,062 12,608 12,089
-------------------- --------------------
Non-interest income
Service charges on deposits 663 737 1,369 1,457
Gain on sale of loans, net 64 88 171 204
BOLI net earnings 114 111 227 221
Escrow fees 24 24 55 55
Servicing income on loans sold 115 78 246 186
ATM transaction fees 272 240 535 476
Other 172 231 301 465
-------------------- --------------------
Total non-interest income 1,424 1,509 2,904 3,064
-------------------- --------------------
Non-interest expense
Salaries and employee benefits 2,766 2,737 5,551 5,367
Premises and equipment 660 631 1,283 1,239
Advertising 201 179 379 315
Loss (gain) from real estate
operations (11) (39) (29) (91)
ATM expenses 107 97 226 194
Postage and courier 130 132 235 247
Amortization of core deposit
intangible 71 82 143 164
State and local taxes 133 128 272 288
Professional fees 172 181 349 389
Other 710 591 1,426 1,243
-------------------- --------------------
Total non-interest expense 4,939 4,719 9,835 9,355
-------------------- --------------------
Income before federal
income taxes 2,817 2,852 5,677 5,798
Federal income taxes 901 906 1,807 1,846
-------------------- --------------------
Net income $ 1,916 $ 1,946 $ 3,870 $ 3,952
==================== ====================
Earnings per common share:
Basic $ 0.56 $ 0.55 $ 1.12 $ 1.13
Diluted $ 0.54 $ 0.53 $ 1.08 $ 1.09
Weighted average shares
outstanding:
Basic 3,433,332 3,511,880 3,468,995 3,508,163
Diluted 3,541,710 3,640,612 3,582,856 3,633,034
Dividends paid per share: $ 0.18 $ 0.16 $ 0.36 $ 0.32
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, 2006 and the six months ended March 31, 2007
Dollars in thousands, except per share amounts and common stock shares
Accumu-
lated
Unearned Unearned Other
Shares Shares Compre-
Common Common Additional Issued Issued hensive
Stock Shares Stock Paid-In to to Retained Income
Outstanding Amount Capital ESOP MRDP Earnings (Loss) Total
----------- ------- -------- -------- ------- -------- ------ ---------
Balance, Sept. 30, 2005 3,759,937 $38 $22,040 ($3,833) - - $57,268 ($871) $74,642
Net income - - - - - - - - - - 8,157 - - 8,157
Issuance of MRDP shares 6,000 - - 195 - - (195) - - - - - -
Repurchase of
common stock (108,600) (1) (3,700) - - - - - - - - (3,701)
Exercise of stock options 100,339 1 1,827 - - - - - - - - 1,828
Cash dividends
($.66 per share) - - - - - - - - - - (2,492) - - (2,492)
Earned ESOP shares - - - - 480 528 - - - - - - 1,008
Earned MRDP shares - - - - (4) - - 7 - - - - 3
Stock option compensation exp. - - - - 50 - - - - - - - - 50
Change in fair value of
securities available
for sale, net of tax - - - - - - - - - - - - (130) (130)
Balance, Sept. 30, 2006 3,757,676 38 20,888 (3,305) (188) 62,933 (1,001) 79,365
(Unaudited)
Net income - - - - - - - - - - 3,870 - - 3,870
Issuance of MRDP shares 1,540 - - 56 - - (56) - - - - - -
Repurchase of
common stock (152,505) (2) (5,641) - - - - - - - - (5,643)
Exercise of stock options 42,479 - - 932 - - - - - - - - 932
Cash dividends
($.36 per share) - - - - - - - - - - (1,338) - - (1,338)
Earned ESOP shares - - - - 190 133 - - - - - - 323
Earned MRDP shares - - - - - - - - 24 - - - - 24
Stock option compensation exp. - - - - 14 - - - - - - - - 14
Change in fair value of
securities available
for sale, net of tax - - - - - - - - - - - - 266 266
Balance, March 31, 2007 3,649,190 $36 $16,439 ($3,172) ($220) $65,465 ($735) $77,813
See notes to unaudited condensed consolidated financial statements
5
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 2007 and 2006
In thousands
(unaudited)
Six Months
Ended March 31,
2007 2006
Cash flow from operating activities ---------------------
Net income $3,870 $3,952
Non-cash revenues, expenses, gains and
losses included in income:
Provision for loan losses 156 - -
Depreciation 505 518
Deferred federal income taxes (178) - -
Amortization of core deposit intangible 143 164
Earned ESOP shares 133 264
Earned MRDP shares 24 - -
Stock option compensation expense 14 11
Stock option tax effect less excess tax benefit 79
25
Gain on sale of OREO, net (18) (49)
Gain on sale of premises and equipment (5) - -
BOLI cash surrender value increase (227) (221)
Gain on sale of loans (171) (204)
Increase (decrease) in deferred loan origination fees 205 (208)
Loans originated for sale (13,191) (10,635)
Proceeds from sale of loans 13,877 13,054
(Increase) decrease in other assets, net (428) 42
Increase (decrease) in other liabilities
and accrued expenses, net 95 (319)
---------------------
Net cash provided by operating activities 4,883 6,394
Cash flow from investing activities
Decrease in certificates of deposit held for investment 100 - -
Proceeds from maturities of securities available
for sale 14,575 2,485
Proceeds from maturities of securities held to maturity 2 14
Increase in loans receivable, net (56,191) (7,179)
Additions to premises and equipment (511) (589)
Proceeds from the disposition of premises and equipment 5 - -
Proceeds from sale of OREO 33 472
---------------------
Net cash used in investing activities (41,987) (4,797)
Cash flow from financing activities
Increase in deposits, net 13,061 2,370
Increase (decrease) in FHLB advances - long term 24,969 (5,561)
Increase in FHLB advances - short term 4,500 5,000
Increase (decrease) in repurchase agreements (359) 57
Proceeds from exercise of stock options 585 274
ESOP tax effect 190 167
Stock option excess tax benefit 268 67
Purchase and retirement of common stock (5,643) (193)
Payment of dividends (1,338) (1,204)
---------------------
Net cash provided by financing activities 36,233 977
Net increase (decrease) in cash equivalents (871) 2,574
Cash equivalents
Beginning of period 22,789 28,718
---------------------
End of period $ 21,918 $ 31,292
---------------------
See notes to unaudited condensed consolidated
financial statements (continued)
6
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (concluded)
For the six months ended March 31, 2007 and 2006
In thousands
(unaudited)
Six Months
Ended March 31,
2007 2006
---------------------
Supplemental disclosure of cash flow information
Income taxes paid $ 1,714 $ 1,495
Interest paid 7,053 4,877
Supplemental disclosure of non-cash investing
activities
Market value adjustment of securities held for
sale, net of tax 266 (292)
Loans transferred to OREO and other repossessed assets 71 24
Supplemental disclosure of non-cash financing activities
Shares issued to MRDP 56 - -
See notes to unaudited condensed consolidated financial statements
7
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended March 31, 2007 and 2006
In thousands
(unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
2007 2006 2007 2006
---------------- ---------------
Comprehensive income:
Net income $1,916 $1,946 $3,870 $3,952
Increase (decrease) in fair value
of securities available for
sale, net of tax 139 (96) 266 (292)
---------------- ---------------
Total comprehensive income $2,055 $1,850 $4,136 $3,660
================ ===============
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 Company's Annual Report on Form 10-K for the year ended September 30,
2006 ("2006 Form 10-K"). The results of operations for the six months ended
March 31, 2007 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 inter-company balances
have been eliminated in consolidation.
(c) Operating Segments: Internal financial information is recorded for
individual Bank branch offices, escrow services and the sale of non-deposit
investment products. For financial statement purposes, the branch offices are
aggregated into one reportable operating segment and the escrow division and
non-deposit investment product division are not considered material.
Accordingly, all operations of the Company are aggregated into one reportable
operating segment.
(d) 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.
(e) Certain prior period amounts have been reclassified to conform to the
March 31, 2007 presentation with no change to net income or shareholders'
equity previously reported.
(2) EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of common shares outstanding during the period,
without considering any dilutive items. Diluted EPS is computed by dividing
net income 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
MRDP shares. In accordance with Statement of Position ("SOP") 93-6,
Employers' Accounting for Employee Stock Ownership Plans, issued by the
American Institute of Certified Public Accountants, shares owned by the Bank's
ESOP that have not been allocated are not considered to be outstanding for the
purpose of computing earnings per share. At March 31, 2007 and 2006, there
were 220,415 and 255,682 ESOP shares, respectively, that had not been
allocated.
9
Three Months Ended Six Months Ended
March 31, March 31,
2007 2006 2007 2006
------------------------ ----------------------
(In thousands, except share and per share data)
Basic EPS computation
Numerator - net income $ 1,916,000 $ 1,946,000 $3,870,000 $3,952,000
Denominator - weighted
average common shares
outstanding 3,433,332 3,511,880 3,468,995 3,508,163
----------- ----------- ---------- ----------
Basic EPS $ 0.56 $ 0.55 $ 1.12 $1.13
Diluted EPS computation
Numerator - net income $ 1,916,000 $ 1,946,000 $3,870,000 $3,952,000
Denominator - weighted
average common shares
outstanding 3,433,332 3,511,880 3,468,995 3,508,163
Effect of dilutive stock
options 107,313 128,732 112,967 124,871
Effect of dilutive MRDP
shares 1,065 - - 894 - -
----------- ----------- ---------- ----------
Weighted average common
shares and common
stock equivalents 3,541,710 3,640,612 3,582,856 3,633,034
----------- ----------- ---------- ----------
Diluted EPS $ 0.54 $ 0.53 $ 1.08 $ 1.09
(3) STOCK BASED COMPENSATION
On October 1, 2005, the Company adopted SFAS No. 123(R) which requires
measurement of the compensation cost for all stock-based awards based on the
grant-date fair value and recognition of compensation cost over the service
period of stock-based awards. The fair value of stock options is determined
using the Black-Scholes valuation model, which is consistent with the
Company's valuation methodology previously utilized for options in footnote
disclosures required under SFAS No. 123. The Company has adopted SFAS No.
123(R) using the modified prospective method, which provides for no
restatement of prior periods and no cumulative adjustment to equity accounts.
It also provides for expense recognition, for both new and existing
stock-based awards.
(4) STOCK COMPENSATION PLANS
Stock Option Plans
------------------
Under the Company's stock option plans (i.e., the 1999 Stock Option Plan and
the 2003 Stock Option Plan), the Company may grant options for up to a
combined total of 811,250 shares of common stock to employees, officers and
directors. Shares issued may be purchased in the open market or may be issued
from authorized and unissued shares. The exercise price of each option equals
the fair market value of the Company's common stock on the date of grant. The
options vest over a ten-year period, which may be accelerated if the Company
meets certain performance criteria. Generally, options vest in annual
installments 10% on each of the ten anniversaries from the date of the grant
and if the Company meets three of four established performance criteria the
vesting is accelerated to 20% for that year. These four performance criteria
are: (i) generating a return on assets which exceeds that of the median of all
thrifts in the 12th FHLB District having assets within $250 million of the
Company; (ii) generating an efficiency ratio which is less than that of the
median of all thrifts in the 12th FHLB District having assets within $250
million of the Company; (iii) generating a net interest margin which exceeds
the median of all thrifts in the 12th FHLB District having assets within $250
million of the Company; and (iv) increasing the Company's earnings per share
over the prior fiscal year. The Company performs the accelerated vesting
analysis in February of each year based on the results of the most recently
completed fiscal year. At March 31, 2007, options for 139,708 shares are
available for future grant under these plans.
10
Following is activity under the plans:
Six Months Ended
March 31, 2007
Total Options Outstanding
-------------------------
Weighted
Weighted Average
Average Grant Date
Exercise Fair
Shares Price Value
------- ----- -----
Options outstanding, beginning of period 262,072 $14.51 $3.70
Exercised (42,479) 13.76 3.58
Forfeited (500) 15.21 3.97
Granted -- -- --
-------
Options outstanding, end of period 219,093 $14.65 $3.72
Options exercisable, end of period 204,257 $14.45 $3.68
Six Months Ended
March 31, 2006
Total Options Outstanding
-------------------------
Weighted
Weighted Average
Average Grant Date
Exercise Fair
Shares Price Value
------- ----- -----
Options outstanding, beginning of period 362,411 $13.86 $3.58
Exercised (22,600) 12.16 3.29
Granted -- -- --
-------
Options outstanding, end of period 339,811 $13.98 $3.60
Options exercisable, end of period 308,639 $13.69 $3.55
The aggregate intrinsic value of all options outstanding at March 31, 2007 was
$4.51 million. The aggregate intrinsic value of all options that were
exercisable at March 31, 2007 was $4.25 million. The aggregate intrinsic
value of all options outstanding at March 31, 2006 was $4.83 million. The
aggregate intrinsic value of all options that were exercisable at March 31,
2006 was $4.48 million.
Six Months Ended March 31,
Total Unvested Options
----------------------
2007 2006
-------------------- --------------------
Weighted Weighted
Average Average
Grant Date Grant Date
Fair Fair
Shares Value Shares Value
------ ----- ------ -----
Unvested options, beginning
of period 22,504 $4.29 38,840 $4.17
Vested (7,168) 4.38 (7,668) 4.31
Forfeited (500) 3.97 -- --
Granted -- -- -- --
------ ------
Unvested options, end of period 14,836 $4.25 31,172 $4.13
11
The total fair value of options vested during the six months ended March 31,
2007 was $31,000. The total fair value of options vested during the six
months ended March 31, 2006 was $33,000.
Proceeds, related tax benefits realized from options exercised and intrinsic
value of options exercised were as follows:
Six Months Ended
March 31,
---------
(In Thousands)
2007 2006
----- -----
Proceeds from options exercised $ 585 $ 274
Related tax benefit recognized 347 92
Intrinsic value of options exercised 938 272
Options outstanding at March 31, 2007 were as follows:
Outstanding Exercisable
----------------------------- -----------------------------
Weighted Weighted
Average Average
Weighted Remaining Weighted Remaining
Range Average Contractual Average Contractual
Exercise Exercise Life Exercise Life
Prices Shares Price (Years) Shares Price (Years)
-------------- ------ ----- ------- ------ ----- -------
$12.00 - 12.38 128,161 $12.01 1.8 128,161 $12.01 1.8
13.59 - 14.90 33,319 14.70 4.2 29,985 14.70 4.2
15.70 - 15.96 4,500 15.84 5.1 1,500 15.87 5.2
19.05 28,340 19.05 5.9 19,838 19.05 5.9
22.92 - 23.25 24,773 23.02 6.8 24,773 23.02 6.8
------- -------
219,093 $14.65 3.4 204,257 $14.45 3.2
Options outstanding at March 31, 2006 were as follows:
Outstanding Exercisable
----------------------------- -----------------------------
Weighted Weighted
Average Average
Weighted Remaining Weighted Remaining
Range Average Contractual Average Contractual
Exercise Exercise Life Exercise Life
Prices Shares Price (Years) Shares Price (Years)
-------------- ------ ----- ------- ------ ----- -------
$12.00 - 12.38 236,294 $12.01 2.9 235,794 $12.01 2.9
13.59 - 14.90 33,339 14.70 5.3 23,337 14.70 5.3
15.20 - 15.96 11,000 15.54 6.0 4,500 15.34 5.8
19.05 28,340 19.05 6.9 14,170 19.05 6.9
22.92 - 23.25 30,838 23.06 7.8 30,838 23.06 7.8
------- -------
339,811 $13.98 4.0 308,639 $13.69 3.8
There were no options granted during the six months ended March 31, 2007 and
March 31, 2006.
12
Stock Grant Plans
-----------------
The Company adopted the MRDP in 1998, which was subsequently approved by
shareholders in 1999 for the benefit of employees, officers and directors of
the Company. The objective of the MRDP is to retain and attract personnel of
experience and ability in key positions by providing them with a proprietary
interest in the Company.
The MRDP allows for the issuance to participants of up to 264,500 shares of
the Company's common stock. Shares may be purchased in the open market or may
be issued from authorized and unissued shares. Awards under the MRDP are made
in the form of restricted shares of common stock that are subject to
restrictions on the transfer of ownership. Compensation expense in the amount
of the fair value of the common stock at the date of the grant to the plan
participants is recognized over a five-year vesting period, with 20% vesting
on each of the five anniversaries from the date of the grant. During the six
months ended March 31, 2007 the Company awarded 1,540 MRDP shares to
directors. These shares had a weighted average grant date fair value of
$36.48 per share. There were no MRDP shares granted during the six months
ended March 31, 2006.
At March 31, 2007 there were a total of 7,540 unvested MRDP shares with a
weighted average grant date fair value of $33.26. There were no MRDP shares
that vested during the six months ended March 31, 2007 and 2006. At March 31,
2007, there were 52,033 shares available for future award under the MRDP.
Expenses for Stock Compensation Plans
-------------------------------------
Compensation expenses for all stock-based plans were as follows:
Six Months Ended March 31,
2007 2006
-------------------------
(In thousands)
Stock Stock Stock Stock
Options Grants Options Grants
------- ------ ------- ------
Compensation expense
recognized in income $ 13 $ 27 $ 11 $ - -
Related tax benefit recognized 5 9 4 - -
The compensation expense yet to be recognized for stock based awards that have
been awarded but not vested for the years ending September 30 is as follows
(in thousands):
Stock Stock Total
Options Grants Awards
------- ------ ------
Remainder of 2007 $ 14 $ 25 $ 39
2008 5 50 55
2009 2 50 52
2010 1 50 51
2011 -- 44 44
2012 -- 1 1
---- ---- ----
Total $ 22 $220 $242
13
(5) DIVIDEND / SUBSEQUENT EVENT
On April 25, 2007, the Company announced a quarterly cash dividend of $0.18
per common share, payable May 21, 2007, to shareholders of record as of the
close of business on May 7, 2007.
On April 25, 2006, the Company also announced a two-for-one stock split in the
form of a 100% stock dividend. The shares will be distributed on June 5, 2007
to shareholders of record as of the close of business on May 22, 2007.
Shareholders will receive one additional share of common stock for every share
currently owned as of the record date. The Company has approximately
3,649,000 shares outstanding, and will have approximately 7,298,000 shares
outstanding after the stock split. The Consolidated Financial Statements as
of March 31, 2007 do not reflect this stock split.
(6) RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS" or "Statement") No. 157,
Fair Value Measurements, which defines fair value, establishes a framework for
measuring fair value under Generally Accepted Accounting Principles ("GAAP"),
and expands disclosures about fair value measurements. This Statement expands
other accounting pronouncements that require or permit fair value
measurements. This Statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. Management is assessing the impact of adoption of SFAS
157 on the Company's consolidated financial statements.
In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 108 ("SAB 108"), Considering the Effects of Prior Year
Misstatements When Quantifying Misstatements in Current Year Financial
Statements, providing guidance on quantifying financial statement misstatement
and implementation (e.g., restatement or cumulative effect to assets,
liabilities and retained earnings) when first applying this guidance. SAB 108
is effective for the Company for all financial statements issued after
November 15, 2006 and is not expected to have a material effect on the
Company's consolidated financial statements.
In June 2006, the FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109
("FIN 48"). The interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. The new
interpretation is effective for fiscal years beginning after December 15,
2006. The Company will adopt the provisions of FIN 48 on October 1, 2007 and
is currently evaluating FIN 48 to determine the effect the guidance will have
on the Company's consolidated financial statements.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of
Financial Assets. SFAS No. 156 amends Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, to require all separately recognized servicing assets and
servicing liabilities to be initially measured at fair value, if practicable.
SFAS No. 156 also permits servicers to subsequently measure each separate
class of servicing assets and liabilities at fair value rather than at the
lower of cost or market. For those companies that elect to measure their
servicing assets and liabilities at fair value, SFAS No. 156 requires the
difference between the recorded value and fair value at the date of adoption
to be recognized as a cumulative effect adjustment to retained earnings as of
the beginning of the fiscal year in which the election is made. The Company
adopted SFAS No. 156 on October 1, 2006 and will continue to measure servicing
assets at the lower of cost or market.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including an amendment of FASB
Statement No. 115. This Statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is
to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by
14
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This Statement is expected to expand the
use of fair value measurement, which is consistent with the Board's long-term
measurement objectives for accounting for financial instruments. This
Statement is effective as of the beginning of an entity's first fiscal year
that begins after November 15, 2007. The adoption of this Statement is not
expected to have a material impact on the Company's consolidated financial
statements.
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 and
six months ended March 31, 2007. This analysis as well as other sections of
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. The Company's actual results,
performance, or achievements may differ materially from those suggested,
expressed, or implied by forward looking statements as a result of a wide
variety or range of factors including, but not limited to: interest rate
fluctuations; economic conditions in the Company's primary market areas;
deposit flows; demand for residential, commercial real estate, consumer, and
other types of loans; real estate values; success of new products and
services; technological factors affecting operations; and other risks detailed
in the Company's reports filed with the SEC, including its 2006 Form 10-K.
Accordingly, these factors should be considered in evaluating forward-looking
statements, and undue reliance should not be placed on such statements. The
Company undertakes no responsibility to update or revise any forward-looking
statements.
Overview
Timberland Bancorp, Inc., a Washington corporation, was organized on September
8, 1997 for the purpose of becoming the holding company for Timberland Savings
Bank, SSB upon the Bank's conversion from a Washington-chartered mutual
savings bank to a Washington-chartered stock savings bank ("Conversion"). The
Conversion was completed on January 12, 1998 through the sale and issuance of
6,612,500 shares of common stock by the Company. At March 31, 2007, the
Company had total assets of $617.80 million and total shareholders' equity of
$77.81 million. The Company's business activities generally are limited to
passive investment activities and oversight of its investment in the Bank.
Accordingly, the information set forth in this report relates primarily to the
Bank.
The Bank was established in 1915 as "Southwest Washington Savings and Loan
Association." In 1935, the Bank converted from a state-chartered mutual
savings and loan association to a federally-chartered mutual savings and loan
association, and in 1972 changed its name to "Timberland Federal Savings and
Loan Association." In 1990, the Bank converted to a federally chartered
mutual savings bank under the name "Timberland Savings Bank, FSB." In 1991,
the Bank converted to a Washington-chartered mutual savings bank and changed
its name to "Timberland Savings Bank, SSB." In 2000, the Bank changed its
name to "Timberland Bank." The Bank's deposits are insured by the Federal
Deposit Insurance Corporation ("FDIC") up to applicable legal limits. The
Bank has been a member of the Federal Home Loan Bank ("FHLB") System since
1937. The Bank is regulated by the Washington State Department of Financial
Institutions, Division of Banks and the FDIC.
The Bank is a community-oriented bank which offers a variety of deposit and
loan products to its customers. The Bank operates 21 branches (including its
main office in Hoquiam) and a loan production office in the following
market areas:
15
* Grays Harbor County
* Thurston County
* Pierce County
* King County
* Kitsap County
* Lewis County
Critical Accounting Policies and Estimates
The Company has identified two accounting policies that as a result of
judgments, estimates and assumptions inherent in those policies, are critical
to an understanding of the Company's Consolidated Financial Statements.
Allowance for Loan Losses. The allowance for loan losses is maintained at a
level sufficient to provide for probable loan losses based on evaluating known
and inherent risks in the portfolio. The allowance is based upon management's
comprehensive analysis of the pertinent factors underlying the quality of the
loan portfolio. These factors include changes in the amount and composition
of the loan portfolio, actual loss experience, current economic conditions,
and detailed analysis of individual loans for which the full collectibility
may not be assured. The appropriate allowance for loan loss level is
estimated based upon factors and trends identified by management at the time
consolidated financial statements are prepared.
Mortgage Servicing Rights. Mortgage servicing rights ("MSRs") are capitalized
when acquired through the origination of loans that are subsequently sold with
servicing rights retained and are amortized to servicing income on loans sold
in proportion to and over the period of estimated net servicing income. The
value of MSRs at the date of the sale of loans is determined based on the
discounted present value of expected future cash flows using key assumptions
for servicing income and costs and prepayment rates on the underlying loans.
The estimated fair value is periodically evaluated for impairment by comparing
actual cash flows and estimated cash flows from the servicing assets to those
estimated at the time servicing assets were originated. The effect of changes
in market interest rates on estimated rates of loan prepayments represents the
predominant risk characteristic underlying the MSR portfolio. The Company's
methodology for estimating the fair value of MSRs is highly sensitive to
changes in assumptions. For example, the determination of fair value uses
anticipated prepayment speeds. Actual prepayment experience may differ and
any difference may have a material effect on the fair value. Thus, any
measurement of MSRs' fair value is limited by the conditions existing and
assumptions as of the date made. Those assumptions may not be appropriate if
they are applied at different times.
Comparison of Financial Condition at March 31, 2007 and September 30, 2006
The Company's total assets increased by $40.71 million, or 7.1%, to $617.80
million at March 31, 2007 from $577.09 million at September 30, 2006,
primarily attributable to a $55.24 million, or 13.0%, increase in net loans
receivable. This increase was partially offset by a $14.19 million decrease
in investment and mortgage-backed securities.
Total deposits increased by $13.06 million to $444.12 million at March 31,
2007 from $431.06 million at September 30, 2006 primarily attributable to an
increase in certificate of deposit accounts. Shareholders' equity decreased
by $1.56 million to $77.81 million at March 31, 2007 from $79.37 million at
September 30, 2006.
A more detailed explanation of the changes in significant balance sheet
categories follows:
16
Cash Equivalents: Cash equivalents decreased to $21.92 million at March 31,
2007 from $22.79 million at September 30, 2006. The decrease was primarily a
result of non-interest bearing accounts and interest bearing deposits in banks
decreasing by $2.13 million to $15.26 million at March 31, 2007 from $17.39
million at September 30, 2006. The decrease was partially offset by an
increase of $1.26 million in federal funds sold to $6.66 million at March 31,
2007 from $5.40 million at September 30, 2006.
Investment Securities and Mortgage-backed Securities: Investment and
mortgage-backed securities decreased by $14.19 million or 17.4% to $67.29
million at March 31, 2007 from $81.48 million at September 30, 2006, as a
result of regular amortization and prepayments on mortgage-backed securities
and the maturity or call of U.S. agency securities. At March 31, 2007, the
Company's securities' portfolio was comprised of mutual funds of $32.06
million, U.S. agency securities of $18.88 million, and mortgage-backed
securities of $16.36 million. The mutual funds invest primarily in
mortgage-backed products and U.S. agency securities. For additional
information, see the "Investment Securities" table included herein.
Loans: Net loans receivable increased by $55.24 million to $479.89 million at
March 31, 2007 from $424.65 million at September 30, 2006. The increase in
the portfolio was primarily a result of a $23.72 million increase in
construction loans (net of undisbursed portion of construction loans in
process), an $18.73 million increase in land loans, a $5.99 million increase
in one- to four-family loans, a $4.34 million increase in consumer loans, and
a $3.49 million increase in commercial business loans.
Loan demand remained strong as loan originations totaled $166.96 million for
the six months ended March 31, 2007 compared to $109.76 million for six months
ended March 31, 2006. The Bank also continued to sell longer-term fixed rate
loans for asset liability management purposes. The Bank sold fixed rate one-
to four-family mortgage loans totaling $13.88 million for six months ended
March 31, 2007 compared to $13.05 million for the six months ended March 31,
2006.
For additional information, see the sections entitled "Loan Portfolio
Composition" and "Construction and Land Development Loan Portfolio
Composition" included herein.
Other Real Estate Owned and Other Repossessed Items: OREO and other
repossessed items increased to $71,000 at March 31, 2007 from $15,000 at
September 30, 2006 as one manufactured home was repossessed. At March 31,
2007, OREO and other repossessed items consisted of one vehicle and one
manufactured home. For additional information, see the section entitled
"Non-performing Assets" included herein.
Premises and Equipment: Premises and equipment increased to $16.74 million at
March 31, 2007 from $16.73 million at September 30, 2006.
Goodwill and Core Deposit Intangible: The value of goodwill remained
unchanged. The amortized value of core deposit intangible decreased to $1.36
million at March 31, 2007 from $1.51 million at September 30, 2006. The
decrease is attributable to scheduled amortization of the core deposit
intangible.
Deposits: Deposits increased by $13.06 million, or 3.0%, to $444.12 million at
March 31, 2007 from $431.06 million at September 30, 2006. The deposit
increase was primarily a result of a $17.70 million increase in certificate of
deposit accounts, a $3.57 million increase in money market accounts, and a
$1.93 million increase in savings accounts. These increases were partially
offset by a decrease of $5.56 million in N.O.W. checking accounts and a $4.58
million decrease in non-interest bearing accounts. For additional
information, see the section entitled "Deposit Breakdown" included herein.
FHLB Advances and Other Borrowings: FHLB advances and other borrowings
increased by $29.11 million to $92.82 million at March 31, 2007 from $63.71
million at September 30, 2006 as the Bank used additional
17
advances to fund loan portfolio growth. For additional information, see "FHLB
Advance Maturity Schedule" included herein.
Shareholders' Equity: Total shareholders' equity decreased by $1.56 million
to $77.81 million at March 31, 2007 from $79.37 million at September 30, 2006,
primarily as a result of share repurchases of $5.64 million and dividends to
shareholders of $1.34 million. These decreases to shareholders' equity were
partially offset by net income of $3.87 million, an increase of $932,000 to
additional paid in capital from the exercise of stock options, and a $266,000
net increase in the fair value of securities available for sale.
During the six months ended March 31, 2007 the Company repurchased 152,505
shares of its common stock for $5.64 million at an average price of $37.01 per
share. Cumulatively, the Company has repurchased 3,628,226 shares (54.9%) of
the 6,612,500 shares that were issued in its 1998 initial public offering, at
an average price of $16.86 per share. For additional information, see Item 2
of Part II of this Form 10-Q.
Non-performing Assets: Non-performing assets to total assets were 0.06% at
March 31, 2007 compared to 0.02% at September 30, 2006, as total
non-performing assets increased to $393,000 at March 31, 2007 from $95,000 at
September 30, 2006.
Total non-performing assets of $393,000 at March 31, 2007 consisted of a
$200,000 commercial business loan, two land loans totaling $86,000, a $34,000
single family mortgage loan, a $2,000 consumer loan and other repossessed
items totaling $71,000. The Company had a net charge-off of $6,000 during the
six months ended March 31, 2007 and during the last five fiscal years its net
charge-offs to outstanding loans ratio has averaged less than 0.10% per year.
For additional information, see the section entitled "Non-performing Assets"
included herein.
Investment Securities
---------------------
The following table sets forth the composition of the Company's investment
securities portfolio.
At March 31, At September 30,
2007 2006
Amount Percent Amount Percent
----------------- ------------------
(Dollars in thousands)
Held-to-maturity:
Mortgage-backed securities $ 72 0.11% $ 75 0.09%
Available-for-sale (at fair value)
U.S. agency securities 18,882 28.06 31,718 38.93
Mortgage-backed securities 16,283 24.20 17,603 21.60
Mutual funds 32,056 47.63 32,087 39.38
-------- ------ -------- ------
Total portfolio $ 67,293 100.00% $ 81,483 100.00%
======== ====== ======== ======
18
Loan Portfolio Composition
--------------------------
The following table sets forth the composition of the Company's loan
portfolio.
At March 31, At September 30,
2007 2006
Amount Percent Amount Percent
----------------- ------------------
(Dollars in thousands)
Mortgage Loans:
One- to four-family (1) $104,697 18.9% $ 98,709 20.1%
Multi-family 17,156 3.1 17,689 3.6
Commercial 137,474 24.8 137,609 28.1
Construction and
land development 179,350 32.3 146,855 29.9
Land 48,331 8.7 29,598 6.0
-------- ----- -------- -----
Total mortgage loans 487,008 87.8 430,460 87.7
Consumer Loans:
Home equity and second mortgage 41,357 7.4 37,435 7.6
Other 11,543 2.1 11,127 2.3
-------- ----- -------- -----
52,900 9.5 48,562 9.9
Commercial business loans 15,289 2.7 11,803 2.4
-------- ----- -------- -----
Total loans 555,197 100.0% 490,825 100.0%
===== =====
Less:
Undisbursed portion of construction
loans in process (68,034) (59,260)
Deferred loan origination fees (3,003) (2,798)
Allowance for loan losses (4,272) (4,122)
-------- --------
Total loans receivable, net $479,888 $424,645
======== ========
------------------
(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.
At March 31, At September 30,
2007 2006
Amount Percent Amount Percent
----------------- ------------------
(Dollars in thousands)
Custom and owner/builder const. $ 46,723 26.05% $ 46,346 31.56%
Speculative construction 36,753 20.49 34,363 23.40
Commercial real estate 57,191 31.89 42,398 28.87
Multi-family 17,756 9.90 7,662 5.22
Land development 20,927 11.67 16,086 10.95
-------- ------- -------- ------
Total construction loans $179,350 100.00% $146,855 100.00%
======== ======= ======== ======
19
Activity in the Allowance for Loan Losses
-----------------------------------------
The following table sets forth information regarding activity in the allowance
for loan losses.
Three Months Ended
March 31,
2007 2006
--------------------
(In thousands)
Balance at beginning of period $4,121 $4,117
Provision for loan losses 156 - -
Loans charged off (6) - -
Recoveries on loans previously charged off 1 2
------ ------
Net recoveries (charge-offs) (5) 2
------ ------
Balance at end of period $4,272 $4,119
====== ======
Six Months Ended
March 31,
2007 2006
--------------------
(In thousands)
Balance at beginning of period $4,122 $4,099
Provision for loan losses 156 - -
Loans charged off (7) - -
Recoveries on loans previously charged off 1 20
------ ------
Net recoveries (charge-offs) (6) 20
------ ------
Balance at end of period $4,272 $4,119
====== ======
20
Non-performing Assets
---------------------
The following table sets forth information with respect to the Company's
non-performing assets.
At At
March 31, September 30,
2007 2006
----------------------------
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
One- to four-family $ 34 $ 80
Land 86 - -
Consumer loans 2 - -
Commercial business loans 200 - -
-------- --------
Total 322 80
Accruing loans which are contractually
past due 90 days or more: - - - -
-------- --------
Total - - - -
Total of non-accrual and
90 days past due loans 322 80
Other real estate owned and other
repossessed items 71 15
-------- --------
Total non-performing assets $ 393 $ 95
======== ========
Restructured loans - - - -
Non-accrual and 90 days or more past
due loans as a percentage of loans
receivable (1) 0.07% 0.02%
Non-accrual and 90 days or more past
due loans as a percentage of total assets 0.05% 0.01%
Non-performing assets as a percentage
of total assets 0.06% 0.02%
Loans receivable (1) $484,160 $428,767
======== ========
Total assets $617,801 $577,087
======== ========
--------------
(1) Includes loans held-for-sale and is before the allowance for loan
losses.
21
Deposit Breakdown
-----------------
The following table sets forth the composition of the Company's deposit
balances.
At At
March 31, 2007 September 30, 2006
-------------- ------------------
(In thousands)
Non-interest bearing $ 53,321 $ 57,905
N.O.W. checking 83,945 89,509
Savings 62,169 60,235
Money market accounts 45,950 42,378
Certificates of deposit under $100,000 129,986 128,183
Certificates of deposit $100,000 and over 68,751 52,851
-------- --------
Total Deposits $444,122 $431,061
======== ========
FHLB Advance Maturity Schedule
------------------------------
The Bank has long- and short-term borrowing lines with the FHLB of Seattle
with total credit on the lines equal to 30% of the Bank's total assets,
limited by available collateral. Borrowings are considered short-term when
the original maturity is less than one year. FHLB advances consisted of the
following:
At March 31, At September 30,
2007 2006
Amount Percent Amount Percent
------------------ -----------------
(Dollars in thousands)
Short-term $37,500 40.66% $29,000 46.21%
Long-term 54,730 59.34 33,761 53.79
------- ------ ------- ------
Total FHLB advances $92,230 100.00% $62,761 100.00%
======= ====== ======= ======
The Bank's FHLB borrowings mature at various dates through December 2016 and
bear interest at rates ranging from 4.10% to 6.18%. Principal reduction
amounts due for future years ending September 30 are as follows (in
thousands):
2007 $37,533
2008 15,069
2009 4,628
2010 - -
2011 - -
Thereafter 35,000
-------
Total $92,230
=======
A portion of these advances have a putable feature and may be called by the
FHLB earlier than the above schedule indicates.
22
Comparison of Operating Results for the Three and Six Months Ended March 31,
2007 and 2006
The Company's net income decreased by $30,000 to $1.92 million for the quarter
ended March 31, 2007 from $1.95 million for the quarter ended March 31, 2006.
Diluted earnings per share increased to $0.54 for the quarter ended March 31,
2007 from $0.53 for the quarter ended March 31, 2006.
Net income decreased by $82,000 to $3.87 million for the six months ended
March 31, 2007 from $3.95 million for the six months ended March 31, 2006.
Diluted earnings per share decreased to $1.08 for the six months ended March
31, 2007 from $1.09 for the six months ended March 31, 2006.
The decreased net income for the three and six months ended March 31, 2007 was
primarily a result of increased non-interest expense, decreased non-interest
income, and a provision to the allowance for loan losses, which were partially
offset by increased net interest income. Increased employee and advertising
expenses in addition to expenses associated with expanding the Bank's lending
team were partially responsible for the increased non-interest expense. The
Bank made significant investments in its lending operations during the last
twelve months as a number of experienced lenders were added. While these
personnel investments produced a significant increase in loan originations and
net loans outstanding during the past two quarters, they have also led to
increased salary and benefit expenses.
Net interest income increased during the current periods as a result of a
larger interest earning asset base, however, margin compression resulting from
higher funding costs mitigated the impact of this growth. Following the
industry trend and a flat yield curve environment, the net interest margin
compressed to 4.75% and 4.74% for the three and six months ended March 31,
2007 from 4.84% and 4.85% for the three and six months ended March 31, 2006.
A more detailed explanation of the income statement categories is presented
below.
Net Income: Net income for the quarter ended March 31, 2007 decreased by
$30,000 to $1.92 million from $1.95 million for the quarter ended March 31,
2006. Despite the decrease in net income, earnings per diluted share for the
quarter ended March 31, 2007 increased to $0.54 from $0.53 for the quarter
ended March 31, 2006 as the Company had fewer weighted average shares
outstanding during the current quarter. The $0.01 increase in diluted
earnings per share for the quarter ended March 31, 2007 was primarily a result
of a $426,000 ($277,000 net of income tax - $0.08 per diluted share) increase
in net interest income and a decrease in the number of weighted average shares
outstanding ($0.01 per diluted share). These increases to earnings per share
were partially offset by a $220,000 ($143,000 net of income tax - $0.04 per
diluted share) increase in non-interest expense, a $156,000 ($101,000 net of
income tax - $0.03 per diluted share) provision for loan losses and an $85,000
decrease ($55,000 net of income tax - $0.01 per diluted share) in non-interest
income.
Net income for the six months ended March 31, 2007 decreased by $82,000 to
$3.87 million, or $1.08 per diluted share from $3.95 million, or $1.09 per
diluted share for the six months ended March 31, 2006. The $0.01 decrease in
diluted earnings per share for the six months ended March 31, 2007 was
primarily the result of a $480,000 ($312,000 net of income tax - $0.09 per
diluted share) increase in non-interest expense, a $160,000 ($104,000 net of
income tax - $0.03 per diluted share) decrease in non-interest income, and a
$156,000 ($101,000 net of income tax - $0.03 per diluted share) provision for
loan losses. These decreases were partially offset by a $675,000 ($439,000
net of income tax - $0.12 per diluted share) increase in net interest income
and a decrease in the number of weighted shares outstanding ($0.02 per diluted
share).
Net Interest Income: Net interest income increased by $426,000, or 7.0%, to
$6.49 million for the quarter ended March 31, 2007 from $6.06 million for the
quarter ended March 31, 2006, primarily as a result of a larger interest
earning asset base. Total interest income increased by $1.52 million to
$10.17 million for the quarter ended March 31, 2007 from $8.65 million for the
quarter ended March 31, 2006 as average total interest earning
23
assets increased by $46.04 million. The yield on interest earning assets
increased to 7.44% for the quarter ended March 31, 2007 from 6.91% for the
quarter ended March 31, 2006. Total interest expense increased by $1.09
million to $3.68 million for the quarter ended March 31, 2007 from $2.59
million for the quarter ended March 31, 2006 as the average rate paid on
interest bearing liabilities increased to 3.23% for the quarter ended March
31, 2007 from 2.47% for the quarter ended March 31, 2006. The net interest
margin decreased to 4.75% for the quarter ended March 31, 2007 from 4.84% for
the quarter ended March 31, 2006.
Net interest income increased by $675,000 to $12.76 million for the six months
ended March 31, 2007 from $12.09 million for the six months ended March 31,
2006, primarily as a result of a larger interest earning asset base. Total
interest income increased by $2.84 million to $19.93 million for the six
months ended March 31, 2007 from $17.09 million for the six months ended March
31, 2006 as average total interest earning assets increased by $40.09 million.
The yield on interest earning assets increased to 7.41% for the six months
ended March 31, 2007 from 6.87% for the six months ended March 31, 2006.
Total interest expense increased by $2.16 million to $7.17 million for the six
months ended March 31, 2007 from $5.01 million for the six months ended March
31, 2006 as the average rate paid on interest bearing liabilities increased to
3.18% for the six months ended March 31, 2007 from 2.38% for the six months
ended March 31, 2006. The net interest margin decreased to 4.74% for the six
months ended March 31, 2007 from 4.85% for the six months ended March 31,
2006.
The margin compression was primarily attributable to increased funding costs
which were greater than the increased yield on interest earning assets.
Increased funding costs resulted from an increase in interest rates on
deposits and an increased reliance on FHLB advances to fund loan growth. For
additional information, see the section entitled "Rate Volume Analysis"
included herein.
Rate Volume Analysis
The following table sets forth the effects of changing rates and volumes on
the net interest income on the Company. Information is provided with respect
to the (i) effects on interest income attributable to change in volume
(changes in volume multiplied by prior rate), and (ii) effects on interest
income attributable to changes in rate (changes in rate multiplied by prior
volume), and (iii) the net change (sum of the prior columns). Changes in
rate/volume have been allocated to rate and volume variances based on the
absolute values of each.
Three months Six months
ended March 31, 2007 ended March 31, 2007
compared to three months compared to six months
ended March 31, 2006 ended March 31, 2006
increase (decrease) increase (decrease)
due to due to
------ ------
Net Net
Rate Volume Change Rate Volume Change
---- ------ ------ ---- ------ ------
(In thousands)
Interest-earning assets:
Loans receivable (1) $ 321 $1,338 $1,659 $ 667 $2,295 $2,962
Investments and
mortgage-backed
securities 3 (198) (195) 41 (319) (278)
FHLB stock and
equity securities 68 3 71 164 4 168
Federal funds sold 15 (32) (17) 75 (105) (30)
Interest-bearing
deposits 3 (2) 1 11 6 17
----- ------ ------ ----- ------ ------
Total net increase in
income on interest-
earning assets 410 1,109 1,519 958 1,881 2,839
Interest-bearing
liabilities:
Savings accounts 1 (3) (2) 3 (11) (8)
NOW accounts 23 (18) 5 47 (35) 12
Money market
Accounts 107 6 113 194 (13) 181
Certificate accounts 489 243 732 1,054 510 1,564
Short-term borrowings 8 272 280 39 597 636
Long-term borrowings (24) (11) (35) 9 (230) (221)
----- ------ ------ ----- ------ ------
Total net increase
in expense on interest
bearing liabilities 604 489 1,093 1,346 818 2,164
Net increase (decrease)
in net interest
income ($194) $ 620 $ 426 ($388) $1,063 $ 675
(1) Excludes interest on loans 90 days or more past due. Includes loans
originated for sale.
Provision for Loan Losses: A provision for loan losses of $156,000 was made
during the quarter and six months ended March 31, 2007. Despite excellent
asset quality, a provision was made primarily in connection with loan
portfolio growth and composition. At March 31, 2007, the Company's
non-performing assets to total assets were only 0.06%.
The Bank has established a comprehensive methodology for determining the
provision for loan losses. On a quarterly basis the Bank performs an analysis
that considers pertinent factors underlying the quality of the loan portfolio.
The factors include changes in the amount and composition of the loan
portfolio, historic loss experience for various loan segments, changes in
economic conditions, delinquency rates, a detailed analysis of loans on non-
accrual status, and other factors to determine an appropriate level of
allowance for loan losses. Based on its comprehensive analysis, management
deemed the allowance for loan losses of $4.27 million at March 31, 2007 (0.89%
of loans receivable and 1,327% 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 $4.12 million
(1.04% of loans receivable and 202% of non-performing loans) at March 31,
2006. The Company had a net charge-off of $6,000 for the six months ended
March 31, 2007 and a net recovery of $20,000 for the six months ended March
31, 2006. For additional information, see the section entitled "Activity in
the Allowance for Loan Losses" included herein.
Non-interest Income: Total non-interest income decreased by $85,000 to $1.42
million for the quarter ended March 31, 2007 from $1.51 million for the
quarter ended March 31, 2006, primarily as a result of a decrease in service
charges on deposits and gain on sale of loans. These decreases were partially
offset by increased servicing income on loans sold and increased ATM
transaction fees.
Total non-interest income decreased by $160,000 to $2.90 million for the six
months ended March 31, 2007 from $3.06 million for the six months ended March
31, 2006, primarily as a result of decreases in services charges on deposits,
gain on sale of loans, and fee income from the sale of non-deposit investment
products. The decrease in service charges on deposits was primarily a result
of fewer overdrafts on checking accounts. The decrease in loan sale income
was primarily a result of reduced profit margins on the loans sold due to
25
competitive market pricing and the reduction in non-deposit investment sale
fee income was a result of decreased sales volume. These decreases were
partially offset by increased servicing income on loans sold and increased ATM
transaction fees.
Non-interest Expense: Total non-interest expense increased by $220,000 to
$4.94 million for the quarter ended March 31, 2007 from $4.72 million for the
quarter ended March 31, 2006. The increase was primarily a result of a
$29,000 increase in salary expense, a $29,000 increase in premises and
equipment expense, a $22,000 increase in advertising expense and smaller
increases in several other categories. The Company's efficiency ratio
increased to 62.42% for the quarter ended March 31, 2007 from 62.33% for the
quarter ended March 31, 2006.
Total non-interest expense increased by $480,000 to $9.84 million for the six
months ended March 31, 2007 from $9.36 million for the six months ended March
31, 2006. The increase was primarily a result of a $184,000 increase in
salary expense, a $64,000 increase in advertising expense, a $44,000 increase
in premises and equipment expense, a $32,000 increase in ATM expense and
smaller increases in several other categories. The Company's efficiency ratio
increased to 62.78% for the six months ended March 31, 2007 from 61.74% for
the six months ended March 31, 2006.
Provision for Income Taxes: The provision for income taxes decreased to
$901,000 for the quarter ended March 31, 2007 from $906,000 for the quarter
ended March 31, 2006 primarily as a result of lower income before taxes. The
Company's effective tax rate was 31.98% for the quarter ended March 31, 2007
and 31.77% for the quarter ended March 31, 2006.
The provision for income taxes decreased to $1.81 million for the six months
ended March 31, 2007 from $1.85 million for the six months ended March 31,
2006 primarily as a result of lower income before taxes. The Company's
effective tax rate was 31.83% for the six months ended March 31, 2007 and
31.84% for the six months ended March 31, 2006.
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,
proceeds from the sale of loans, proceeds from maturing securities, FHLB
advances, and other borrowings. 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 include a review of the Condensed Consolidated
Statement of Cash Flows for the six months ended March 31, 2007. 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 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.
The Company's total cash equivalents decreased by $871,000 to $21.92 million
at March 31, 2007 from $22.79 million at September 30, 2006. The Company's
decreased liquid assets were primarily a result of funding loan growth.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds for loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. The Bank generally maintains sufficient cash and
short-term investments to meet short-term liquidity needs. At March 31, 2007,
the Bank's regulatory liquidity ratio (net cash, and short-term
26
and marketable assets, as a percentage of net deposits and short-term
liabilities) was 11.53%. The Bank maintained an uncommitted credit facility
with the FHLB of Seattle that provided for immediately available advances up
to an aggregate amount of $128.30 million, under which $92.23 million was
outstanding at March 31, 2007. The Bank also has a $10.0 million overnight
credit line with Pacific Coast Banker's Bank. At March 31, 2007, the Bank did
not have any outstanding advances on this credit line.
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, federal funds sold, and other short-term
investments. If the Bank requires funds that exceed its ability to generate
them internally, it has additional borrowing capacity with the FHLB and
Pacific Coast Banker's Bank.
The Bank's primary investing activity is the origination of one- to
four-family mortgage loans, commercial mortgage loans, construction and land
development loans, land loans, consumer loans, and commercial business loans.
At March 31, 2007, the Bank had loan commitments totaling $31.56 million and
undisbursed loans in process totaling $68.03 million. The Bank anticipates
that it will have sufficient funds available to meet current loan commitments.
Certificates of deposit that are scheduled to mature in less than one year
from March 31, 2007 totaled $178.99 million. Historically, the Bank has been
able to retain a significant amount of its certificates of deposit as they
mature.
Federally-insured state-chartered banks are required to maintain minimum
levels of regulatory capital. Under current FDIC regulations, insured
state-chartered banks generally must maintain (i) a ratio of Tier 1 leverage
capital to total assets of at least 3.0% (4.0% to 5.0% for all but the most
highly rated banks), (ii) a ratio of Tier 1 capital to risk weighted assets of
at least 4.0% and (iii) a ratio of total capital to risk weighted assets of at
least 8.0%. At March 31, 2007, the Bank was in compliance with all applicable
capital requirements. For additional details see the section below entitled
"Regulatory Capital."
Regulatory Capital
The following table compares the Bank's regulatory capital at March 31, 2007
to its minimum regulatory capital requirements at that date (Dollars in
thousands):
Percent of
Amount Adjusted Total Assets (1)
------ -------------------------
Tier 1 (leverage) capital $62,727 10.69%
Tier 1 (leverage) capital requirement 23,479 4.00
------- -----
Excess $39,248 6.69%
======= =====
Tier 1 risk adjusted capital $66,999 12.96%
Tier 1 risk adjusted capital
requirement 19,359 4.00
------- -----
Excess $47,640 8.96%
======= =====
Total risk based capital $66,999 13.84%
Total risk based capital requirement 38,718 8.00
------- -----
Excess $28,281 5.84%
======= =====
------------
(1) For the Tier 1 (leverage) capital, percent of total average assets
calculation, total average of assets were $586.98 million. For the Tier 1
risk-based capital and total risk-based capital calculations, total
risk-weighted assets were $483.97 million.
27
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
KEY FINANCIAL RATIOS AND DATA
(Dollars in thousands, except per share data)
Three Months Six Months
Ended March 31, Ended March 31,
2007 2006 2007 2006
----------------- -----------------
PERFORMANCE RATIOS:
Return on average assets (1) 1.28% 1.41% 1.32% 1.44%
Return on average equity (1) 9.91% 10.18% 9.92% 10.44%
Net interest margin (1) 4.75% 4.84% 4.74% 4.85%
Efficiency ratio 62.42% 62.33% 62.78% 61.74%
At At
March 31, September 30,
2007 2006
--------------------------
ASSET QUALITY RATIOS:
Non-performing loans $ 322 $ 80
OREO and other repossessed assets 71 15
----- -----
Total non-performing assets $ 393 $ 95
Non-performing assets to total assets 0.06% 0.02%
Allowance for loan losses to
non-performing loans 1,327% 5,153%
Book value per share (2) $ 21.32 $ 21.12
Book value per share (3) $ 22.64 $ 22.44
Tangible book value per share (2) (4) $ 19.40 $ 19.22
Tangible book value per share (3) (4) $ 20.60 $ 20.41
---------
(1) Annualized
(2) Calculation includes ESOP shares not committed to be released
(3) Calculation excludes ESOP shares not committed to be released
(4) Calculation subtracts goodwill and core deposit intangible from the
equity component
Three Months Six Months
Ended March 31, Ended March 31,
2007 2006 2007 2006
----------------- -----------------
AVERAGE BALANCE SHEET:
---------------------
Average total loans $ 465,460 $ 397,880 $ 452,232 $ 394,290
Average total interest
earning assets 546,870 500,835 538,115 498,030
Average total assets 597,015 553,210 588,470 550,792
Average total interest
bearing deposits 380,916 361,893 378,614 361,755
Average FHLB advances
& other borrowings 81,578 62,176 73,688 59,528
Average shareholders' equity 77,340 76,740 78,002 75,729
28
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, 2006.
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 Rule
13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange
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 as of March 31, 2007 the
Company's disclosure controls and procedures were effective in ensuring
that the information required to be disclosed by the Company in
the reports it files or submits under the Exchange 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: There have been no changes in our internal
control over financial reporting (as defined in 13a-15(f) of the Exchange
Act) that occurred during the quarter ended March 31, 2007, that has
materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. The Company continued,
however, to implement suggestions from its internal auditor and
independent auditors to strengthen existing controls. The Company does
not expect that its disclosure controls and procedures and internal
controls over financial reporting will prevent all error and fraud. A
control procedure, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the
control procedure are met. Because of the inherent limitations in all
control procedures, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within
the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that
breakdowns in controls or procedures can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any control procedure
is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; as over
time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control
procedure, misstatements due to error or fraud may occur and not be
detected.
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 1A. Risk Factors
----------------------
There have been no material changes in the Risk Factors previously disclosed
in Item 1A of the Company's 2006 Form 10-K.
29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
--------------------------------------------------------------------
Not applicable
Stock Repurchases
The following table sets forth the shares repurchased by the Company during
the quarter ended March 31, 2007:
Total No.
of Shares
Purchased as Maximum No.
Total Part of of Shares that
No. of Average Publicly May Yet Be
Shares Price Paid Announced Purchased Under
Period Purchased per Share Plan (1)(2) the Plan(1)(2)
----------------------- --------- ---------- ----------- --------------
01/01/2007 - - - $ - - - - 125,266
01/31/2007
02/01/2007 - 20,000 36.89 20,000 105,266
02/28/2007
03/01/2007 - 20,000 36.40 20,000 85,266
03/31/2007
Total 40,000 $ 36.69 40,000
On November 20, 2006, the Company announced a share repurchase plan
authorizing the repurchase of up to 5% of its outstanding shares, or 186,266
shares. As of March 31, 2007, a total of 101,000 shares had been repurchased
at an average price of $36.89 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
------------------------------------------------------------
The Company's 2006 Annual Meeting of Shareholders was held on January 23, 2007
at the Hoquiam Timberland Library, 420 7th Street, Hoquiam, Washington. The
results of the vote on the election of directors for a three-year term, the
only item presented at the meeting, were as follows:
For Withheld
No. of Votes Percentage No. of Votes Percentage
-------------------------- --------------------------
Michael R. Sand 3,375,126 99.35% 21,953 0.65%
David A. Smith 3,371,811 99.26% 25,268 0.74%
Harold L. Warren 3,334,078 98.15% 63,001 1.85%
30
The following directors, who were not up for re-election at the Annual Meeting
of Shareholders, will continue to serve as directors: Clarence E. Hamre,
Andrea M. Clinton, James C. Mason, Jon C. Parker and Ronald A. Robbel.
Item 5. Other Information
--------------------------
None to be reported.
Item 6. Exhibits
-----------------
(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, as revised (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)
10.6 Form of Incentive Stock Option Agreement (6)
10.7 Form of Non-qualified Stock Option Agreement (6)
10.8 Form of Management Recognition and Development Award
Agreement (6)
10.9 Employment Agreement between the Company and the Bank and
Michael R. Sand (7)
10.10 Employment Agreement between the Company and the Bank and
Dean J. Brydon (7)
31.1 Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes Oxley Act
31.2 Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes Oxley Act
32 Certifications of Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906 of the Sarbanes
Oxley Act
------------------
(1) Incorporated by reference to the Registrant's Registration
Statement of Form S-1 (333- 35817).
(2) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2002.
(3) Incorporated by reference to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1997; and to the
Registrant's Current Report on Form 8-K dated April 13, 2007.
(4) Incorporated by reference to the Registrant's 1999 Annual
Meeting Proxy Statement dated December 15, 1998.
(5) Incorporated by reference to the Registrant's 2004 Annual
Meeting Proxy Statement dated December 24, 2003.
(6) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2005.
(7) Incorporated by reference to the Registrant's Current Report on
Form 8-K dated April 13, 2007.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Timberland Bancorp, Inc.
Date: May 7, 2007 By: /s/Michael R. Sand
--------------------------------
Michael R. Sand
Chief Executive Officer
(Principal Executive Officer)
Date: May 7, 2007 By: /s/Dean J. Brydon
---------------------------------
Dean J. Brydon
Chief Financial Officer
(Principal Financial Officer)
32
EXHIBIT INDEX
Exhibit No. Description of Exhibit
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 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
33
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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) 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
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are likely
to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: May 7, 2007 /s/Michael R. Sand
---------------------------------
Michael R. Sand
Chief Executive Officer
34
Exhibit 31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes Oxley Act
I, Dean J. Brydon, certify that:
1. I have reviewed this Form 10-Q of Timberland Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) 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
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are likely
to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: May 7, 2007 /s/Dean J. Brydon
----------------------------
Dean J. Brydon
Chief Financial Officer
35
EXHIBIT 32
Certification Pursuant to Section 906 of the Sarbanes Oxley Act
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
OF TIMBERLAND BANCORP, INC.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and in connection with this Quarterly Report on
Form 10-Q, that:
* the report fully complies with the requirements of Sections 13(a)
and 15(d) of the Securities Exchange Act of 1934, as amended, and
* the information contained in the report fairly presents, in all
material respects, the company's financial condition and results of
operations.
/s/Michael R. Sand /s/Dean J. Brydon
---------------------------- ---------------------------
Michael R. Sand Dean J. Brydon
Chief Executive Officer Chief Financial Officer
Date: May 7, 2007
36