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, 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 98550
(Address of principal executive office) (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 No X
----- -----
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, 2007
----- -----------------------------------
Common stock, $.01 par value 6,965,360
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 and Results of Operations 15-28
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
Item 5. Other Information 30
Item 6. Exhibits 31
SIGNATURES 32
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
------------------------------
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2007 and September 30, 2006
Dollars in thousands, except share amounts
June 30, September 30,
2007 2006
-----------------------
Assets (Unaudited)
Cash equivalents:
Non-interest bearing $ 11,798 $ 14,870
Interest bearing deposits in banks 1,188 2,519
Federal funds sold 205 5,400
-----------------------
13,191 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 64,911 81,408
Federal Home Loan Bank ("FHLB") stock 5,705 5,705
Loans receivable 500,694 426,318
Loans held for sale 1,165 2,449
Less: Allowance for loan losses (4,529) (4,122)
-----------------------
Net loans receivable 497,330 424,645
-----------------------
Accrued interest receivable 3,177 2,806
Premises and equipment 16,557 16,730
Other real estate owned ("OREO") and other
repossessed items 68 15
Bank owned life insurance ("BOLI") 12,294 11,951
Goodwill 5,650 5,650
Core deposit intangible 1,292 1,506
Mortgage servicing rights 1,018 932
Other assets 2,881 2,775
-----------------------
Total assets $624,146 $577,087
=======================
Liabilities and shareholders' equity
Deposits $433,514 $431,061
FHLB advances 112,463 62,761
Other borrowings: repurchase agreements 775 947
Other liabilities and accrued expenses 3,402 2,953
-----------------------
Total liabilities 550,154 497,722
-----------------------
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;
June 30, 2007 - 7,025,360 shares issued and
outstanding
September 30, 2006 - 3,757,676 shares issued
and outstanding on a pre-split basis 70 38
Additional paid in capital 11,425 20,888
Unearned shares - Employee Stock Ownership Plan
("ESOP") (3,106) (3,305)
Unearned shares - Management Recognition and
Development Plan ("MRDP") (415) (188)
Retained earnings 66,915 62,933
Accumulated other comprehensive loss (897) (1,001)
-----------------------
Total shareholders' equity 73,992 79,365
-----------------------
Total liabilities and shareholders' equity $624,146 $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 nine months ended June 30, 2007 and 2006
Dollars in thousands, except per share amounts
(unaudited)
Three Months Nine Months
Ended June 30, Ended June 30,
2007 2006 2007 2006
-------------------- -------------------
Interest and dividend income
Loans receivable $ 9,981 $ 8,036 $28,050 $23,144
Investments and mortgage-backed
securities 350 529 1,185 1,642
Dividends from investments 426 370 1,259 1,036
Federal funds sold 49 121 192 292
Interest bearing deposits in
banks 8 18 61 54
-------------------- -------------------
Total interest and dividend
income 10,814 9,074 30,747 26,168
-------------------- -------------------
Interest expense
Deposits 2,866 2,058 8,113 5,554
FHLB advances - short term 651 - - 1,298 13
FHLB advances - long term 627 718 1,875 2,188
Other borrowings 12 10 39 36
-------------------- -------------------
Total interest expense 4,156 2,786 11,325 7,791
-------------------- -------------------
Net interest income 6,658 6,288 19,422 18,377
Provision for loan losses 260 - - 416 --
-------------------- -------------------
Net interest income after
provision for loan losses 6,398 6,288 19,006 18,377
-------------------- -------------------
Non-interest income
Service charges on deposits 692 769 2,061 2,226
Gain on sale of loans, net 79 60 250 264
BOLI net earnings 116 112 343 333
Escrow fees 22 32 77 87
Servicing income on loans sold 127 80 373 266
ATM transaction fees 295 266 830 742
Other 170 209 471 674
-------------------- -------------------
Total non-interest income 1,501 1,528 4,405 4,592
-------------------- -------------------
Non-interest expense
Salaries and employee benefits 2,752 2,727 8,303 8,095
Premises and equipment 557 583 1,827 1,814
Advertising 190 185 569 501
Loss (gain) from other real
estate operations 1 5 (14) (79)
ATM expenses 128 105 354 299
Postage and courier 113 123 347 370
Amortization of core deposit
intangible 71 82 214 246
State and local taxes 148 138 420 427
Professional fees 175 222 524 611
Other 626 621 2,052 1,863
-------------------- -------------------
Total non-interest expense 4,761 4,791 14,596 14,147
-------------------- -------------------
Income before federal income
taxes 3,138 3,025 8,815 8,822
Federal income taxes 1,000 964 2,806 2,809
-------------------- -------------------
Net income $ 2,138 $ 2,061 $ 6,009 $ 6,013
==================== ===================
Earnings per common share:
Basic $ 0.32 $ 0.29 $ 0.88 $ 0.85
Diluted $ 0.31 $ 0.28 $ 0.85 $ 0.82
Weighted average shares
outstanding:
Basic 6,713,777 7,141,700 6,863,253 7,058,116
Diluted 6,910,165 7,382,876 7,080,530 7,305,004
Dividends paid per share: $ 0.09 $ 0.08 $ 0.27 $ 0.24
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 nine months ended June 30, 2007
Dollars in thousands, except per share amounts and common stock shares
Accumu-
lated
Unearned Unearned Other
Common Common Additional Shares Shares Compre-
Stock Shares Stock Paid-In Issued to Issued Retained hensive
Outstanding Amount Capital ESOP to MRP Earnings Loss Total
----------- ------- -------- --------- ------ -------- ------ ---------
Balance, Sept. 30, 2005 7,519,874 $ 38 $22,040 ($3,833) $ - - $57,268 ($871) $74,642
Net income - - - - - - - - - - 8,157 - - 8,157
Issuance of MRDP shares 12,000 - - 195 - - (195) - - - - - -
Repurchase of
common stock (217,200) (1) (3,700) - - - - - - - - (3,701)
Exercise of stock options 200,678 1 1,827 - - - - - - - - 1,828
Cash dividends
($.33 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 7,515,352 $ 38 $20,888 ($3,305) ($188) $62,933 ($1,001) $79,365
(Unaudited)
Net income - - - - - - - - - - 6,009 - - 6,009
Stock split - - 36 - - - - - - (36) - - - -
Issuance of MRDP shares 15,080 - - 263 - - (263) - - - - - -
Repurchase of
common stock (615,542) (4) (11,232) - - - - - - - - (11,236)
Exercise of stock
options 110,470 - - 1,207 - - - - - - - - 1,207
Cash dividends
($.27 per share) - - - - - - - - - - (1,991) - - (1,991)
Earned ESOP shares - - - - 280 199 - - - - - - 479
Earned MRDP shares - - - - - - - - 36 - - - - 36
Stock option
compensation exp. - - - - 19 - - - - - - - - 19
Change in fair value of
securities available
for sale, net of tax - - - - - - - - - - - - 104 104
Balance, June 30, 2007 7,025,360 $ 70 $11,425 ($3,106) ($415) $66,915 ($897) $73,992
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, 2007 and 2006
In thousands
(unaudited)
Nine Months Ended
June 30,
Cash flow from operating activities 2007 2006
---------------------
Net income $ 6,009 $ 6,013
Non-cash revenues, expenses, gains and losses
included in income:
Provision for loan losses 416 - -
Depreciation 760 755
Deferred federal income taxes (178) - -
Amortization of core deposit intangible 214 246
Earned ESOP shares 199 396
Earned MRDP shares 36 - -
Stock option compensation expense 19 38
Stock option tax effect less excess tax benefit 110 92
Gain on sale of OREO, net (19) (49)
Gain on sale of premises and equipment (64) (38)
BOLI cash surrender value increase (343) (333)
Gain on sale of loans (250) (264)
Increase (decrease) in deferred loan origination fees 123 (322)
Loans originated for sale (20,102) (16,000)
Proceeds from sale of loans 21,636 17,595
Increase in other assets, net (412) (203)
Increase in other liabilities and accrued expenses, net 449 85
---------------------
Net cash provided by operating activities 8,603 8,011
Cash flow from investing activities
Decrease in certificates of deposit held for investment 100 - -
Proceeds from maturities of securities available
for sale 16,630 4,011
Proceeds from maturities of securities held to maturity 2 17
Increase in loans receivable, net (74,580) (10,868)
Additions to premises and equipment (847) (1,271)
Proceeds from the disposition of premises and equipment 324 - -
Proceeds from sale of OREO 37 473
---------------------
Net cash used in investing activities (58,334) (7,638)
Cash flow from financing activities
Increase in deposits, net 2,453 7,719
Increase (decrease) in FHLB advances - long term 5,952 (577)
Increase (decrease) in FHLB advances - short term 43,750 (8,000)
Increase (decrease) in repurchase agreements (172) 371
Proceeds from exercise of stock options 744 1,011
ESOP tax effect 280 299
Stock option excess tax benefit 353 376
Purchase and retirement of common stock (11,236) (1,745)
Payment of dividends (1,991) (1,810)
---------------------
Net cash provided (used in) by financing activities 40,133 (2,356)
Net decrease in cash equivalents (9,598) (1,983)
Cash equivalents
Beginning of period 22,789 28,718
---------------------
End of period $ 13,191 $ 26,735
---------------------
See notes to unaudited condensed consolidated financial statements
(continued)
6
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (concluded)
For the nine months ended June 30, 2007 and 2006
In thousands
(unaudited)
Nine Months Ended
June 30,
2007 2006
---------------------
Supplemental disclosure of cash flow information
Income taxes paid $ 2,674 $ 2,625
Interest paid 11,222 7,544
Supplemental disclosure of non-cash investing activities
Market value adjustment of securities held for
sale, net of tax 104 (489)
Loans transferred to OREO and other repossessed
assets 71 27
Supplemental disclosure of non-cash financing activities
Shares issued to MRDP 263 - -
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, 2007 and 2006
In thousands
(unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
2007 2006 2007 2006
-------------------- ------------------
Comprehensive income:
Net income $2,138 $2,061 $6,009 $6,013
Increase (decrease) in fair
value of securities available
for sale, net of tax (162) (197) 104 (489)
-------------------- ------------------
Total comprehensive income $1,976 $1,864 $6,113 $5,524
==================== ==================
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 nine months ended
June 30, 2007 are not necessarily indicative of the results that may be
expected for the entire fiscal year.
(b) Stock Split: On June 5, 2007 the Company's common stock was split
two-for-one in the form of a 100% stock dividend. Each shareholder of record
as of May 22, 2007 received one additional share for every share owned. All
share and per share amounts (including stock options) in the condensed
consolidated financial statements and accompanying notes were restated to
reflect the split, except as otherwise noted.
(c) Principles of Consolidation: The interim condensed consolidated
financial statements include the accounts of the Company 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.
(d) Operating Segment: The Company provides a broad range of financial
services to individuals and companies located primarily in Western Washington.
These services include demand, time and savings deposits; real estate,
business and consumer lending; escrow services; and investment advisory
services. While the Company's chief decision maker monitors the revenue
streams from the various products and services, operations are managed and
financial performance is evaluated on a Company-wide basis. Accordingly, all
of our operations are considered by management to be aggregated in one
reportable operating segment.
(e) 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.
(f) Certain prior period amounts have been reclassified to conform to the June
30, 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
9
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 June 30, 2007 and 2006,
there were 440,830 and 511,364 ESOP shares, respectively, that had not been
allocated.
Three Months Ended Nine Months Ended
June 30, June 30,
2007 2006 2007 2006
---------------------- ----------------------
Basic EPS computation
Numerator - net income $2,138,000 $2,061,000 $6,009,000 $6,013,000
Denominator - weighted
average common shares
outstanding 6,713,777 7,141,700 6,863,253 7,058,116
---------- ---------- ---------- ----------
Basic EPS $ 0.32 $ 0.29 $ 0.88 $ 0.85
Diluted EPS computation
Numerator - net income $2,138,000 $2,061,000 $6,009,000 $6,013,000
Denominator - weighted
average common shares
outstanding 6,713,777 7,141,700 6,863,253 7,058,116
Effect of dilutive stock
options 193,827 241,176 215,232 246,888
Effect of dilutive MRDP
shares 2,561 - - 2,045 - -
---------- ---------- ---------- ----------
Weighted average common shares
and common stock equivalents 6,910,165 7,382,876 7,080,530 7,305,004
---------- ---------- ---------- ----------
Diluted EPS $ 0.31 $ 0.28 $ 0.85 $ 0.82
(3) STOCK BASED COMPENSATION
On October 1, 2005, the Company adopted Statement of Financial Accounting
Standards ("SFAS" or "Statement") SFAS No. 123(R), Share Based Payment, 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 1,622,500 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 generally 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
10
$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 June 30, 2007, options for
279,416 shares are available for future grant under these plans.
Following is activity under the plans:
Nine Months Ended
June 30, 2007
Total Options Outstanding
-------------------------
Weighted
Weighted Average
Average Grant Date
Exercise Fair
Shares Price Value
-------- -------- ----------
Options outstanding, beginning of period 524,144 $7.26 $1.85
Exercised (110,470) 6.73 1.76
Forfeited (1,000) 7.61 1.99
Granted -- -- --
-------
Options outstanding, end of period 412,674 $7.39 $1.87
Options exercisable, end of period 391,670 $7.30 $1.85
Nine Months Ended
June 30, 2006
Total Options Outstanding
-------------------------
Weighted
Weighted Average
Average Grant Date
Exercise Fair
Shares Price Value
-------- -------- ----------
Options outstanding, beginning of period 724,822 $6.93 $1.79
Exercised (167,678) 6.04 1.64
Granted -- -- --
-------
Options outstanding, end of period 557,144 $7.20 $1.84
Options exercisable, end of period 510,136 $7.06 $1.81
The aggregate intrinsic value of all options outstanding at June 30, 2007 was
$3.43 million. The aggregate intrinsic value of all options that were
exercisable at June 30, 2007 was $3.29 million. The aggregate intrinsic value
of all options outstanding at June 30, 2006 was $4.69 million. The aggregate
intrinsic value of all options that were exercisable at June 30, 2006 was
$4.36 million.
11
Nine Months Ended June 30,
Total Unvested Options
----------------------
2007 2006
------------------ ------------------
Weighted Weighted
Average Average
Grant Grant
Date Date
Fair Fair
Shares Value Shares Value
--------------------------------------
Unvested options, beginning of period 45,008 $2.15 77,680 $2.09
Vested (23,004) 2.07 (30,672) 2.00
Forfeited (1,000) 1.99 -- --
Granted -- -- -- --
------ ------
Unvested options, end of period 21,004 $2.23 47,008 $2.14
The total fair value of options vested during the nine months ended June 30,
2007 was $48,000. The total fair value of options vested during the nine
months ended June 30, 2006 was $61,000.
Proceeds, related tax benefits realized from options exercised and intrinsic
value of options exercised were as follows:
Nine Months Ended
June 30,
-----------------
(In Thousands)
2007 2006
---- ----
Proceeds from options exercised $744 $1,012
Related tax benefit recognized 463 468
Intrinsic value of options exercised 1,231 1,377
Options outstanding at June 30, 2007 were as follows:
Outstanding Exercisable
----------------------------- -------------------------------
Weighted Weighted
Weighted Average Weighted Average
Range Average Remaining Average Remaining
Exercise Exercise Contractual Exercise Contractual
Prices Shares Price Life (Years) Shares Price Life (Years)
------------ ------ ------- ----------- ------ ------- -----------
$ 6.00-6.19 233,810 $ 6.00 1.7 233,810 $ 6.00 1.7
6.80-7.45 66,638 7.35 3.9 66,638 7.35 3.9
7.60-7.98 6,000 7.91 4.9 2,000 7.85 4.8
9.53 56,680 9.52 5.7 39,676 9.52 5.7
11.46-11.63 49,546 11.51 6.5 49,546 11.51 6.5
------- -------
412,674 $ 7.39 3.2 391,670 $ 7.30 3.1
12
Options outstanding at June 30, 2006 were as follows:
Outstanding Exercisable
----------------------------- -------------------------------
Weighted Weighted
Weighted Average Weighted Average
Range Average Remaining Average Remaining
Exercise Exercise Contractual Exercise Contractual
Prices Shares Price Life (Years) Shares Price Life (Years)
------------ ------ ------- ----------- ------ ------- -----------
$ 6.00-6.19 351,110 $ 6.01 2.6 350,110 $ 6.01 2.6
6.80-7.45 66,678 7.35 5.1 60,010 7.35 5.1
7.60-7.98 21,000 7.76 5.7 10,000 7.68 5.6
9.53 56,680 9.53 6.7 28,340 9.53 6.7
11.46-11.63 61,676 11.53 7.6 61,676 11.53 7.6
------- -------
557,144 $ 7.20 4.0 510,136 $ 7.06 3.8
There were no options granted during the nine months ended June 30, 2007 and
June 30, 2006.
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 529,000 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
nine months ended June 30, 2007 the Company awarded 15,080 MRDP shares to
officers and directors. These shares had a weighted average grant date fair
value of $17.44 per share. There were no MRDP shares granted during the nine
months ended June 30, 2006.
At June 30, 2007 there were a total of 27,080 unvested MRDP shares with a
weighted average grant date fair value of $16.90. There were no MRDP shares
that vested during the nine months ended June 30, 2007 and 2006. At June 30,
2007, there were 92,066 shares available for future award under the MRDP.
Expenses for Stock Compensation Plans
-------------------------------------
Compensation expenses for all stock-based plans were as follows:
Nine Months Ended June 30,
2007 2006
---------------------------
(In thousands)
Stock Stock Stock Stock
Options Grants Options Grants
------- ------ ------- ------
Compensation expense recognized
in income $ 19 $ 40 $ 38 $ - -
Related tax benefit recognized 7 14 13 - -
13
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 $ 6 $ 23 $ 29
2008 5 92 97
2009 2 92 94
2010 1 91 92
2011 -- 85 85
2012 -- 32 32
--- ---- ----
Total $14 $415 $429
(5) DIVIDEND / SUBSEQUENT EVENT
On July 12, 2007, the Company announced a quarterly cash dividend of $0.10 per
common share, payable August 23, 2007, to shareholders of record as of the
close of business on August 9, 2007.
(6) RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS 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 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 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
14
the FASB'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
nine months ended June 30, 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
13,225,000 shares of common stock by the Company. At June 30, 2007, the
Company had total assets of $624.15 million and total shareholders' equity of
$73.99 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 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 June 30, 2007 and September 30, 2006
The Company's total assets increased by $47.06 million, or 8.2%, to $624.15
million at June 30, 2007 from $577.09 million at September 30, 2006, primarily
attributable to a $72.68 million, or 17.1%, increase in net loans receivable.
This increase was partially offset by a $16.50 million decrease in investment
and mortgage-backed securities and a $9.60 million decrease in cash
equivalents.
Total deposits increased by $2.45 million to $433.51 million at June 30, 2007
from $431.06 million at September 30, 2006 primarily attributable to an
increase in certificate of deposit accounts and money market accounts. These
increases were partially offset by decreases in non-interest bearing accounts
and N.O.W. checking accounts.
Shareholders' equity decreased by $5.38 million to $73.99 million at June 30,
2007 from $79.37 million at September 30, 2006. The decrease in shareholders
equity was primarily a result of share repurchases and dividends paid to
shareholders.
16
A more detailed explanation of the changes in significant balance sheet
categories follows:
Cash Equivalents: Cash equivalents decreased by $9.60 million or 42.1% to
$13.19 million at June 30, 2007 from $22.79 million at September 30, 2006.
The decrease was primarily a result of federal funds sold decreasing by $5.20
million, non-interest bearing accounts decreasing by $3.07 million, and
interest bearing deposits in banks decreasing by $1.33 million. These liquid
funds decreased primarily to fund loan portfolio growth.
Investment Securities and Mortgage-backed Securities: Investment and
mortgage-backed securities decreased by $16.50 million or 20.3% to $64.98
million at June 30, 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 June 30, 2007, the
Company's securities' portfolio was comprised of mutual funds of $31.86
million, U.S. agency securities of $18.90 million, and mortgage-backed
securities of $14.22 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 $72.68 million or 17.1% to $497.33
million at June 30, 2007 from $424.65 million at September 30, 2006. The
increase in the portfolio was primarily a result of a $26.96 million increase
in construction loans (net of undisbursed portion of construction loans in
process), a $24.20 million increase in land loans, a $14.03 million increase
in multi-family loans, a $7.52 million increase in consumer loans, a $5.17
million increase in one- to four-family loans and a $4.82 million increase in
commercial business loans. These increases were partially offset by a $9.49
million decrease in commercial real estate loans. The majority of the
increase in multi-family loan category was a result of several loans being
switched to the multi-family category from the commercial real estate
category.
Loan demand remained strong as loan originations totaled $233.37 million for
the nine months ended June 30, 2007 compared to $169.82 million for nine
months ended June 30, 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 $21.64 million for nine months
ended June 30, 2007 compared to $17.60 million for the nine months ended June
30, 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 $68,000 at June 30, 2007 from $15,000 at
September 30, 2006 as one manufactured home was repossessed. At June 30,
2007, OREO and other repossessed items consisted of one manufactured home.
For additional information, see the section entitled "Non-performing Assets"
included herein.
Premises and Equipment: Premises and equipment decreased to $16.56 million at
June 30, 2007 from $16.73 million at September 30, 2006. The decrease was
primarily a result of selling a land parcel in Grays Harbor County.
Goodwill and Core Deposit Intangible: The value of goodwill remained
unchanged. The amortized value of core deposit intangible decreased to $1.29
million at June 30, 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 $2.45 million, or 0.6%, to $433.51 million at
June 30, 2007 from $431.06 million at September 30, 2006. The deposit
increase was primarily a result of a $15.61 million increase in certificate of
deposit accounts and a $4.07 million increase in money market accounts. These
increases were
17
partially offset by a decrease of $9.22 million in N.O.W. checking accounts, a
$7.33 million decrease in non-interest bearing accounts, and a $677,000
decrease in savings accounts. For additional information, see the section
entitled "Deposit Breakdown" included herein.
FHLB Advances and Other Borrowings: FHLB advances and other borrowings
increased by $49.53 million to $113.24 million at June 30, 2007 from $63.71
million at September 30, 2006 as the Bank used additional advances to fund
loan portfolio growth. For additional information, see "FHLB Advance Maturity
Schedule" included herein.
Shareholders' Equity: Total shareholders' equity decreased by $5.38 million
to $73.99 million at June 30, 2007 from $79.37 million at September 30, 2006,
primarily as a result of share repurchases of $11.24 million and dividends to
shareholders of $1.99 million. These decreases to shareholders' equity were
partially offset by net income of $6.01 million, an increase of $1.72 million
from the exercise of stock options and vesting associated with the Company's
benefit plans, and a $104,000 net increase in the fair value of securities
available for sale.
During the nine months ended June 30, 2007 the Company repurchased 615,542
shares of its common stock for $11.24 million at an average price of $18.25
per share. Cumulatively, the Company has repurchased 7,566,984 shares (57.2%)
of the 13,225,000 shares that were issued in its 1998 initial public offering,
at an average price of $8.82 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 0.17% at
June 30, 2007 compared to 0.02% at September 30, 2006, as total non-performing
assets increased to $1.05 million at June 30, 2007 from $95,000 at September
30, 2006.
Total non-performing assets of $1.05 million at June 30, 2007 consisted of a
$347,000 commercial real estate loan, four single-family mortgage loans
totaling $351,000, a $250,000 single-family construction loan, a $34,000 land
loan and other repossessed items totaling $68,000. The Company had a net
charge-off of $9,000 during the nine months ended June 30, 2007. For
additional information, see the section entitled "Non-performing Assets" and
"Activity in the Allowance for Loan Losses" included herein.
Investment Securities
---------------------
The following table sets forth the composition of the Company's investment
securities portfolio.
At June 30, At September 30,
2007 2006
Amount Percent Amount Percent
------------------ ------------------
(Dollars in thousands)
Held-to-maturity:
Mortgage-backed securities $ 72 0.1% $ 75 0.1%
Available-for-sale (at fair value)
U.S. agency securities 18,904 29.1 31,718 38.9
Mortgage-backed securities 14,145 21.8 17,603 21.6
Mutual funds 31,862 49.0 32,087 39.4
------- ----- ------- -----
Total portfolio $64,983 100.0% $81,483 100.0%
======= ===== ======= =====
18
Loan Portfolio Composition
--------------------------
The following table sets forth the composition of the Company's loan
portfolio.
At June 30, At September 30,
2007 2006
Amount Percent Amount Percent
----------------- -----------------
(Dollars in thousands)
Mortgage loans:
One- to four-family (1) $103,883 18.2% $98,709 20.1%
Multi-family 31,719 5.6 17,689 3.6
Commercial 128,118 22.4 137,609 28.1
Construction and
land development 181,157 31.7 146,855 29.9
Land 53,794 9.4 29,598 6.0
-------- ----- -------- -----
Total mortgage loans 498,671 87.3 430,460 87.7
Consumer loans:
Home equity and second mortgage 44,347 7.8 37,435 7.6
Other 11,735 2.0 11,127 2.3
-------- ----- -------- -----
56,082 9.8 48,562 9.9
Commercial business loans 16,625 2.9 11,803 2.4
-------- ----- -------- -----
Total loans 571,378 100.0% 490,825 100.0%
===== =====
Less:
Undisbursed portion of
construction loans in process (66,598) (59,260)
Deferred loan origination fees (2,921) (2,798)
Allowance for loan losses (4,529) (4,122)
-------- --------
Total loans receivable, net $497,330 $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 June 30, At September 30,
2007 2006
Amount Percent Amount Percent
----------------- -----------------
(Dollars in thousands)
Custom and owner/builder const. $ 48,894 27.0% $ 46,346 31.6%
Speculative construction 43,655 24.1 34,363 23.4
Commercial real estate 50,729 28.0 42,398 28.9
Multi-family 19,801 10.9 7,662 5.2
Land development 18,078 10.0 16,086 10.9
-------- ----- -------- -----
Total construction loans $181,157 100.0% $146,855 100.0%
======== ===== ======== =====
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
June 30,
2007 2006
-------------------
(In thousands)
Balance at beginning of period $4,272 $4,119
Provision for loan losses 260 - -
Loans charged off (3) (2)
Recoveries on loans previously charged off -- 3
--------------------
Net recovery (charge-off) (3) 1
------ ------
Balance at end of period $4,529 $4,120
====== ======
Nine Months Ended
June 30,
2007 2006
-------------------
(In thousands)
Balance at beginning of period $4,122 $4,099
Provision for loan losses 416 - -
Loans charged off (10) (2)
Recoveries on loans previously charged off 1 23
---------------------
Net recovery (charge-off) (9) 21
------ ------
Balance at end of period $4,529 $4,120
====== ======
Non-performing Assets
---------------------
The following table sets forth information with respect to the Company's
non-performing assets.
At At
June 30, September 30,
2007 2006
------------------------
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
One- to four-family $ 351 $ 80
Commercial real estate 347 - -
Construction and land development 250 - -
Land 34 - -
------ ----
Total 982 80
Accruing loans which are contractually
past due 90 days or more: - - - -
------ ----
Total - - - -
Total of non-accrual and
90 days past due loans 982 80
Other real estate owned and other
repossessed items 68 15
------ ----
Total non-performing assets $1,050 $ 95
====== ====
20
Restructured loans - - - -
Non-accrual and 90 days or more past
due loans as a percentage of loans
receivable (1) 0.20% 0.02%
Non-accrual and 90 days or more past
due loans as a percentage of total assets 0.16% 0.01%
Non-performing assets as a percentage
of total assets 0.17% 0.02%
Loans receivable (1) $501,859 $428,767
======== ========
Total assets $624,146 $577,087
======== ========
------------
(1) Includes loans held-for-sale and is before the allowance for loan losses.
Deposit Breakdown
-----------------
The following table sets forth the composition of the Company's deposit
balances.
At At
June 30, 2007 September 30, 2006
------------- ------------------
(In thousands)
Non-interest bearing $ 50,580 $ 57,905
N.O.W. checking 80,290 89,509
Savings 59,558 60,235
Money market accounts 46,446 42,378
Certificates of deposit under $100,000 131,803 128,183
Certificates of deposit $100,000 and over 64,837 52,851
-------- --------
Total Deposits $433,514 $431,061
======== ========
FHLB Advance Maturity Schedule
------------------------------
The Bank has short- and long-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 June 30, At September 30,
2007 2006
Amount Percent Amount Percent
----------------- ------------------
(Dollars in thousands)
Short-term $ 72,750 64.7% $29,000 46.2%
Long-term 39,713 35.3 33,761 53.8
-------- ----- ------- -----
Total FHLB advances $112,463 100.0% $62,761 100.0%
======== ===== ======= =====
21
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 $ 72,767
2008 15,069
2009 4,627
2010 - -
2011 - -
Thereafter 20,000
--------
Total $112,463
========
A portion of these advances have a putable feature and may be called by the
FHLB earlier than the above schedule indicates.
Comparison of Operating Results for the Three and Nine Months Ended June 30,
2007 and 2006
The Company's net income increased by $77,000 or 3.7% to $2.14 million for the
quarter ended June 30, 2007 from $2.06 million for the quarter ended June 30,
2006. Diluted earnings per share increased 10.7% to $0.31 for the quarter
ended June 30, 2007 from $0.28 for the quarter ended June 30, 2006.
Net income decreased slightly by $4,000 but remained at $6.01 million for the
nine months ended June 30, 2007 and for the comparable period in 2006.
Diluted earnings per share increased to $0.85 for the nine months ended June
30, 2007 from $0.82 for the nine months ended June 30, 2006.
The increase in diluted earnings per share was primarily a result of increased
net interest income and a decrease in the weighted average number of shares
outstanding due to share repurchases. 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 4.67% and 4.72% for the
three and nine months ended June 30, 2007 from 5.00% and 4.90% for the three
and nine months ended June 30, 2006.
A more detailed explanation of the income statement categories is presented
below.
Net Income: Net income for the quarter ended June 30, 2007 increased by
$77,000 to $2.14 million from $2.06 million for the quarter ended June 30,
2006. Earnings per diluted share for the quarter ended June 30, 2007
increased to $0.31 from $0.28 for the quarter ended June 30, 2006. The $0.03
increase in diluted earnings per share for the quarter ended June 30, 2007 was
primarily a result of a $370,000 ($244,000 net of income tax - $0.04 per
diluted share) increase in net interest income and a decrease in the number of
weighted average shares outstanding ($0.02 per diluted share) primarily due to
share repurchases. These increases to earnings per share were partially
offset by a $260,000 ($172,000 net of income tax - $0.03 per diluted share)
increase in the provision for loan losses.
Net income for the nine months ended June 30, 2007 decreased by $4,000 to
$6.01 million, or $0.85 per diluted share from $6.01 million, or $0.82 per
diluted share for the nine months ended June 30, 2006. The $0.03 increase in
diluted earnings per share for the nine months ended June 30, 2007 was
primarily the result of a $1.04 million ($690,000 net of income tax - $0.10
per diluted share) increase in net interest income, and a decrease in the
number of weighted average shares outstanding ($0.03 per diluted share)
primarily due to share
22
repurchases. These increases were partially offset by a $449,000 ($296,000
net of income tax - $0.04 per diluted share) increase in non-interest expense,
a $416,000 ($275,000 net of income tax - $0.04 per diluted share) increase in
the provision for loan losses and a $187,000 ($123,000 net of income tax -
$0.02 per diluted share) decrease in non-interest income.
Net Interest Income: Net interest income increased by $370,000, or 5.9%, to
$6.66 million for the quarter ended June 30, 2007 from $6.29 million for the
quarter ended June 30, 2006, primarily as a result of a larger interest
earning asset base. Total interest income increased by $1.74 million to
$10.81 million for the quarter ended June 30, 2007 from $9.07 million for the
quarter ended June 30, 2006 as average total interest earning assets increased
by $67.79 million. The yield on interest earning assets increased to 7.58%
for the quarter ended June 30, 2007 from 7.22% for the quarter ended June 30,
2006. Total interest expense increased by $1.37 million to $4.16 million for
the quarter ended June 30, 2007 from $2.79 million for the quarter ended June
30, 2006 as the average rate paid on interest bearing liabilities increased to
3.42% for the quarter ended June 30, 2007 from 2.65% for the quarter ended
June 30, 2006. The net interest margin decreased to 4.67% for the quarter
ended June 30, 2007 from 5.00% for the quarter ended June 30, 2006.
Net interest income increased by $1.04 million to $19.42 million for the nine
months ended June 30, 2007 from $18.38 million for the nine months ended June
30, 2006, primarily as a result of a larger interest earning asset base.
Total interest income increased by $4.58 million to $30.75 million for the
nine months ended June 30, 2007 from $26.17 million for the nine months ended
June 30, 2006 as average total interest earning assets increased by $49.32
million. The yield on interest earning assets increased to 7.47% for the nine
months ended June 30, 2007 from 6.98% for the nine months ended June 30, 2006.
Total interest expense increased by $3.54 million to $11.33 million for the
nine months ended June 30, 2007 from $7.79 million for the nine months ended
June 30, 2006 as the average rate paid on interest bearing liabilities
increased to 3.26% for the nine months ended June 30, 2007 from 2.47% for the
nine months ended June 30, 2006. The net interest margin decreased to 4.72%
for the nine months ended June 30, 2007 from 4.90% for the nine months ended
June 30, 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 ended Nine months ended
June 30, 2007 June 30, 2007
compared to three months compared to nine months
ended June 30, 2006 ended June 30, 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) $ 39 $1,904 $1,943 $ 728 $4,179 $4,907
Investments and
23
mortgage-backed
securities 27 (206) (179) (14) (443) (457)
FHLB stock and
equity securities 49 7 56 211 12 223
Federal funds sold 7 (77) (70) (4) (97) (101)
Interest-bearing
deposits 2 (12) (10) 7 - - 7
------ ------ ------ ------ ------ ------
Total net increase in
income on interest-
earning assets 124 1,616 1,740 928 3,651 4,579
Interest-bearing
liabilities:
Savings accounts 1 (4) (3) - - (11) (11)
NOW accounts (5) (24) (29) 7 (24) (17)
Money market
Accounts 135 30 165 331 15 346
Certificate accounts 415 260 675 1,461 779 2,240
Short-term borrowings 4 649 653 41 1,247 1,288
Long-term borrowings (23) (68) (91) (59) (253) (312)
------ ------ ------ ------ ------ ------
Total net increase
in expense on interest
bearing liabilities 527 843 1,370 1,781 1,753 3,534
Net increase (decrease)
in net interest income ($403) $ 773 $ 370 ($853) $1,898 $1,045
(1) Includes loans originated for sale.
Provision for Loan Losses: A provision for loan losses of $260,000 was made
during the quarter ended June 30, 2007 compared to no provision made during
quarter ended June 30, 2006. For the nine months ended June 30, 2007 a
provision for loan losses of $416,000 was made compared to no provision for
the nine months ended June 30, 2006. The provisions were made primarily in
connection with strong loan portfolio growth and changes in the composition of
the loan portfolio. At June 30, 2007, the Company's non-performing assets to
total assets were 0.17%.
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 $4.53 million at June 30, 2007 (0.90%
of loans receivable and 461% 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
(1.03% of loans receivable and 213% of non-performing loans) at June 30, 2006.
The Company had a net charge-off of $3,000 for the quarter June 30, 2007 and
net recovery of $1,000 for the quarter ended June 30, 2006. The Company had a
net charge-off of $9,000 for nine months ended June 30,
24
2007 and a net recovery of $21,000 for the nine months ended June 30, 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 $27,000 to $1.50
million for the quarter ended June 30, 2007 from $1.53 million for the quarter
ended June 30, 2006, primarily as a result of a decrease in service charges on
deposits and a decrease in fee income from the sale of non-deposit investment
products. These decreases were partially offset by increased servicing income
on loans sold, increased gains on sale of loans, and increased ATM transaction
fees.
Total non-interest income decreased by $187,000 to $4.41 million for the nine
months ended June 30, 2007 from $4.59 million for the nine months ended June
30, 2006, primarily as a result of a decrease in services charges on deposits
and a decrease in 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 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 decreased by $30,000 to
$4.76 million for the quarter ended June 30, 2007 from $4.79 million for the
quarter ended June 30, 2006. The decrease was primarily attributable to a
$59,000 gain on the sale of a land parcel that was recorded in the premises
and equipment expense category. The Company's efficiency ratio improved to
58.35% for the quarter ended June 30, 2007 from 61.30% for the quarter ended
June 30, 2006.
Total non-interest expense increased by $449,000 or 3.2% to $14.60 million for
the nine months ended June 30, 2007 from $14.15 million for the nine months
ended June 30, 2006. The increase was primarily a result of a $208,000
increase in salary expense, a $68,000 increase in advertising expense, a
$55,000 increase in ATM expense and smaller increases in several other
categories. The Company's efficiency ratio improved to 61.26% for the nine
months ended June 30, 2007 from 61.59% for the nine months ended June 30,
2006.
Provision for Income Taxes: The provision for income taxes increased to $1.00
million for the quarter ended June 30, 2007 from $964,000 for the quarter
ended June 30, 2006 primarily as a result of higher income before taxes. The
Company's effective tax rate was 31.87% for the quarters ended June 30, 2007
and June 30, 2006.
The provision for income taxes was $2.81 million for the nine months ended
June 30, 2007 and the nine months ended June 30, 2006. The Company's
effective tax rate was 31.83% for the nine months ended June 30, 2007 and
31.84% for the nine months ended June 30, 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 nine months ended June 30, 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.
25
The Company's total cash equivalents decreased by $9.60 million to $13.19
million at June 30, 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 June 30, 2007,
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 8.95%.
The Bank maintained an uncommitted credit facility with the FHLB of Seattle
that provided for immediately available advances up to an aggregate amount of
$181.20 million, under which $112.46 million was outstanding at June 30, 2007.
The Bank also has a $10.00 million overnight credit line with Pacific Coast
Banker's Bank. At June 30, 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 June 30, 2007, the Bank had loan commitments totaling $43.30 million and
undisbursed loans in process totaling $66.60 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, 2007 totaled $170.45 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, 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 June 30, 2007 to
its minimum regulatory capital requirements at that date (Dollars in
thousands):
Percent of
Amount Adjusted Total Assets (1)
------ ------------------------
Tier 1 (leverage) capital $59,101 9.69%
Tier 1 (leverage) capital requirement 24,409 4.00
------- -----
Excess $34,692 5.69%
======= =====
Tier 1 risk adjusted capital $59,101 11.60%
Tier 1 risk adjusted capital requirement 20,380 4.00
------- -----
Excess $38,721 7.60%
======= =====
26
Total risk based capital $63,630 12.49%
Total risk based capital requirement 40,761 8.00
------- -----
Excess $22,869 4.49%
======= =====
-----------------
(1) For the Tier 1 (leverage) capital, percent of total average assets
calculation, total average of assets were $610.22 million. For the Tier
1 risk-based capital and total risk-based capital calculations, total
risk-weighted assets were $509.51 million.
27
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
KEY FINANCIAL RATIOS AND DATA
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
June 30, June 30,
2007 2006 2007 2006
------------------ ------------------
PERFORMANCE RATIOS:
Return on average assets (1) 1.38% 1.49% 1.34% 1.45%
Return on average equity (1) 11.24% 10.57% 10.36% 10.48%
Net interest margin (1) 4.67% 5.00% 4.72% 4.90%
Efficiency ratio 58.35% 61.30% 61.26% 61.59%
At At
June 30, September 30,
2007 2006
---------------------------
ASSET QUALITY RATIOS:
Non-performing loans $ 982 $ 80
OREO and other repossessed assets 68 15
------ ------
Total non-performing assets $1,050 $ 95
Non-performing assets to total assets 0.17% 0.02%
Allowance for loan losses to
non-performing loans 461% 5,153%
Book value per share (2) $10.53 $10.56
Book value per share (3) $11.19 $11.22
Tangible book value per share (2) (4) $ 9.54 $ 9.61
Tangible book value per share (3) (4) $10.14 $10.21
----------------
(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 Ended Nine Months Ended
June 30, June 30,
2007 2006 2007 2006
------------------ -----------------
AVERAGE BALANCE SHEET:
----------------------
Average total loans $494,137 $399,849 $466,200 $396,141
Average total interest
earning assets 570,597 502,804 548,942 499,624
Average total assets 619,120 554,716 598,688 552,100
Average total interest bearing
deposits 388,610 366,228 381,946 363,246
Average FHLB advances and
other borrowings 98,467 55,597 82,139 58,218
Average shareholders' equity 76,087 77,969 77,364 76,478
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 June 30, 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 June 30, 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 June 30, 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)
----------------------- --------- ---------- ----------- ---------------
04/01/2007 -
04/30/2007 50,000 $17.74 50,000 120,532
05/01/2007 -
05/31/2007 170,532 17.90 170,532 306,950
06/01/2007 -
06/30/2007 90,000 18.41 90,000 216,950
------- ------ -------
Total 310,532 $18.02 310,532
======= ====== =======
(1) On May 7, 2007, the Company completed its previously announced share
repurchase program. The Company repurchased 5% of its outstanding common
shares or 372,532 shares, at an average price of $18.23 per share. All shares
were repurchased through open market broker transactions and no shares were
directly repurchased from directors or officers of the Company.
(2) On May 25, 2007, the Company announced a share repurchase plan
authorizing the repurchase of up to 5% of its outstanding shares, or 356,950
shares. As of June 30, 2007, a total of 140,000 shares had been repurchased
at an average price of $18.09 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.
30
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
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; 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: August 7, 2007 By:/s/Michael R. Sand
-------------------------------
Michael R. Sand
Chief Executive Officer
(Principal Executive Officer)
Date: August 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: August 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: August 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
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
Section 1350), each of the undersigned hereby certifies in his capacity as an
officer of Timberland Bancorp, Inc. (the "Company") and in connection with the
Company's Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2007 ("Report"), 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 financial condition and results of operations of the Company
as of the dates and for the periods presented in the financial statements
included in the Report.
/s/Michael R. Sand /s/Dean J. Brydon
------------------------------ ----------------------------
Michael R. Sand Dean J. Brydon
Chief Executive Officer Chief Financial Officer
Date: August 7, 2007
36