UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2011
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 or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
624 Simpson Avenue, Hoquiam, Washington 98550
(Address of principal executive offices) (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 has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes X No
----- -----
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated Filer
----- -----
Non-accelerated filer Smaller reporting company X
----- -----
Indicate by check mark whether the registrant is a shell company (as defined
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 JANUARY 31, 2012
----- --------------------------------------
Common stock, $.01 par value 7,045,036
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4-5
Condensed Consolidated Statements of Comprehensive Income 6
Condensed Consolidated Statements of Shareholders' Equity 7
Condensed Consolidated Statements of Cash Flows 8-9
Notes to Unaudited Condensed Consolidated Financial
Statements 10-33
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 33-48
Item 3. Quantitative and Qualitative Disclosures About Market Risk 49
Item 4. Controls and Procedures 49
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 49
Item 1A. Risk Factors 49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 50
Item 3. Defaults Upon Senior Securities 50
Item 4. (Removed and Reserved) 50
Item 5. Other Information 50
Item 6. Exhibits 50-51
SIGNATURES 52
Certifications
Exhibit 31.1
Exhibit 31.2
Exhibit 32
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
------------------------------
TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2011 and September 30, 2011
(Dollars in thousands, except per share amounts)
(Unaudited)
December 31, September 30,
2011 2011
-----------------------
Assets
Cash and cash equivalents:
Cash and due from financial institutions $ 12,671 $ 11,455
Interest-bearing deposits in banks 98,876 100,610
-----------------------
Total cash and cash equivalents 111,547 112,065
-----------------------
Certificates of deposit ("CDs") held for investment
(at cost) 19,810 18,659
Mortgage-backed securities ("MBS") and other
investments - held to maturity, at amortized cost 3,941 4,145
(estimated fair value $4,006 and $4,229)
MBS and other investments - available for sale 6,284 6,717
Federal Home Loan Bank of Seattle ("FHLB") stock 5,705 5,705
Loans receivable 537,904 535,926
Loans held for sale 3,110 4,044
Less: Allowance for loan losses (11,972) (11,946)
-----------------------
Net loans receivable 529,042 528,024
-----------------------
Premises and equipment, net 17,353 17,390
Other real estate owned ("OREO") and other
repossessed assets, net 7,714 10,811
Accrued interest receivable 2,388 2,411
Bank owned life insurance ("BOLI") 16,074 15,917
Goodwill 5,650 5,650
Core deposit intangible ("CDI") 360 397
Mortgage servicing rights ("MSRs"), net 2,169 2,108
Prepaid Federal Deposit Insurance Corporation
("FDIC") insurance assessment 1,873 2,103
Other assets 5,939 6,122
-----------------------
Total assets $735,849 $738,224
=======================
Liabilities and shareholders' equity
Liabilities:
Deposits: Non-interest-bearing demand $ 61,178 $ 64,494
Deposits: Interest-bearing 527,997 528,184
-----------------------
Total deposits 589,175 592,678
-----------------------
FHLB advances 55,000 55,000
Repurchase agreements 538 729
Other liabilities and accrued expenses 3,806 3,612
-----------------------
Total liabilities 648,519 652,019
-----------------------
Shareholders' equity
Preferred stock, $.01 par value; 1,000,000 shares
authorized; 16,048 15,989
16,641 shares, Series A, issued and outstanding;
$1,000 per share liquidation value
Common stock, $.01 par value; 50,000,000 shares
authorized; 10,464 10,457
7,045,036 shares issued and outstanding
Unearned shares - Employee Stock Ownership Plan
("ESOP") (1,917) (1,983)
Retained earnings 63,286 62,270
Accumulated other comprehensive loss (551) (528)
-----------------------
Total shareholders' equity 87,330 86,205
-----------------------
Total liabilities and shareholders' equity $735,849 $738,224
=======================
See notes to unaudited condensed consolidated financial statements
3
TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended December 31, 2011 and 2010
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended December 31,
2011 2010
-------------------
Interest and dividend income
Loans receivable $7,805 $8,534
MBS and other investments 125 182
Dividends from mutual funds and FHLB stock 13 8
Interest-bearing deposits in banks 89 87
-------------------
Total interest and dividend income 8,032 8,811
-------------------
Interest expense
Deposits 1,169 1,751
FHLB advances - long term 562 729
-------------------
Total interest expense 1,731 2,480
-------------------
Net interest income 6,301 6,331
Provision for loan losses 650 900
-------------------
Net interest income after provision for loan losses 5,651 5,431
-------------------
Non-interest income
Other than temporary impairment ("OTTI")
on MBS and other investments (90) (145)
Adjustment for portion recorded as other
comprehensive loss (before taxes) 30 9
-------------------
Net OTTI on MBS and other investments (60) (136)
-------------------
Gain on sales of MBS and other investments - - 79
Service charges on deposits 970 984
ATM transaction fees 517 411
BOLI net earnings 157 122
Gain on sales of loans, net 560 701
Servicing income (expense) on loans sold 9 (36)
Escrow fees 27 21
Valuation recovery on MSRs 84 634
Fee income from non-deposit investment sales 12 31
Other 168 140
-------------------
Total non-interest income, net 2,444 2,951
-------------------
See notes to unaudited condensed consolidated financial statements
4
TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (continued)
For the three months ended December 31, 2011 and 2010
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended December 31,
2011 2010
-------------------
Non-interest expense
Salaries and employee benefits $2,929 $3,127
Premises and equipment 673 694
Advertising 208 167
OREO and other repossessed items expense, net 502 428
ATM expenses 194 175
Postage and courier 118 115
Amortization of CDI 37 42
State and local taxes 149 166
Professional fees 178 182
FDIC insurance 225 340
Other insurance 56 154
Loan administration and foreclosure 161 98
Data processing and telecommunications 257 234
Deposit operations 223 106
Other 311 348
-------------------
Total non-interest expense 6,221 6,376
-------------------
Income before federal and state income taxes 1,874 2,006
Provision for federal and state income taxes 591 647
-------------------
Net income 1,283 1,359
Preferred stock dividends (208) (208)
Preferred stock discount accretion (59) (54)
-------------------
Net income to common shareholders $1,016 $1,097
===================
Net income per common share
Basic $ 0.15 $ 0.16
Diluted $ 0.15 $ 0.16
Weighted average common shares outstanding
Basic 6,780,516 6,745,250
Diluted 6,780,516 6,745,250
See notes to unaudited condensed consolidated financial statements
5
TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended December 31, 2011 and 2010
(In thousands)
(Unaudited)
Three Months Ended December 31,
2011 2010
-------------------
Comprehensive income:
Net income $1,283 $1,359
Unrealized holding loss on securities
available for sale, net of tax (14) (75)
Change in OTTI on securities held-to-maturity,
net of tax:
Additions (14) (47)
Additional amount recognized related to credit loss
for which OTTI was previously recognized (13) (4)
Amount reclassified to credit loss for previously
recorded market loss 7 45
Accretion of OTTI securities held-to-maturity, net
of tax 11 6
------ ------
Total comprehensive income $1,260 $1,284
====== ======
See notes to unaudited condensed consolidated financial statements
6
TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
For the three months ended December 31, 2011 and the year ended September 30, 2011
(Dollars in thousands, except per share amounts)
(Unaudited)
Accumu-
lated
Number of Shares Amount Other
------------------- ------------------ Unearned Compre-
Preferred Common Preferred Common Shares - Retained hensive
Stock Stock Stock Stock ESOP Earnings Loss Total
------ ------ ------- ------ --------- -------- --------- -----
Balance, September 30, 2010 16,641 7,045,036 $15,764 $10,377 $(2,247) $62,238 $ (724) $85,408
Net income - - - - - - - - - - 1,089 - - 1,089
Accretion of preferred stock
discount - - - - 225 - - - - (225) - - - -
5% preferred stock dividend - - - - - - - - - - (832) - - (832)
Earned ESOP shares - - - - - - (61) 264 - - - - 203
MRDP (1) compensation expense - - - - - - 134 - - - - - - 134
Stock option compensation
expense - - - - - - 7 - - - - - - 7
Unrealized holding gain on
securities available for
sale, net of tax - - - - - - - - - - - - 14 14
Change in OTTI on securities
held to maturity, net of tax - - - - - - - - - - - - 139 139
Accretion of OTTI on securities
held to maturity, net of tax - - - - - - - - - - - - 43 43
------ --------- ------- ------- ------- ------- ----- -------
Balance, September 30, 2011 16,641 7,045,036 15,989 10,457 (1,983) 62,270 (528) 86,205
Net income - - - - - - - - - - 1,283 - - 1,283
Accretion of preferred stock
discount - - - - 59 - - - - (59) - - - -
5% preferred stock dividend - - - - - - - - - - (208) - - (208)
Earned ESOP shares - - - - - - (20) 66 - - - - 46
MRDP (1) compensation expense - - - - - - 25 - - - - - - 25
Stock option compensation
expense - - - - - - 2 - - - - - - 2
Unrealized holding loss on
securities available for
sale, net of tax - - - - - - - - - - - - (14) (14)
Change in OTTI on securities
held to maturity, net of tax - - - - - - - - - - - - (20) (20)
Accretion of OTTI on securities
held to maturity, net of tax - - - - - - - - - - - - 11 11
------ --------- ------- ------- ------- ------- ----- -------
Balance, December 31, 2011 16,641 7,045,036 $16,048 $10,464 $(1,917) $63,286 $(551) $87,330
====== ========= ======= ======= ======= ======= ===== =======
----------------
(1) 1998 Management Recognition and Development Plan ("MRDP").
See notes to unaudited condensed consolidated financial statements
TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31, 2011 and 2010
(Dollars in thousands)
(Unaudited)
Three Months Ended December 31,
2011 2010
------------------------------
Cash flow from operating activities
Net income $ 1,283 $ 1,359
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 650 900
Depreciation 234 253
Deferred federal income taxes (12) - -
Amortization of CDI 37 42
Earned ESOP shares 66 66
MRDP compensation expense 25 44
Stock option compensation expense 2 1
Loss (gain) on sales of OREO and other repossessed
assets, net 271 (14)
Provision for OREO losses 57 251
Loss on disposition of premises and equipment - - 5
BOLI net earnings (157) (122)
Gain on sales of loans, net (560) (701)
Decrease in deferred loan origination fees (58) (83)
Net OTTI on MBS and other investments 60 136
Gain on sales of MBS and other investments - - (79)
Valuations recovery on MSR's (84) (634)
Loans originated for sale (22,203) (25,045)
Proceeds from sales of loans 23,697 26,863
Decrease in other assets, net 463 874
Decrease in other liabilities and accrued expenses,
net (14) (109)
---------------------
Net cash provided by operating activities 3,757 4,007
Cash flow from investing activities
Net increase in CDs held for investment (1,151) (454)
Proceeds from maturities and prepayments of securities
available for sale 378 632
Proceeds from maturities and prepayments of securities
held to maturity 184 252
Proceeds from sales of MBS and other investments - - 2,271
(Increase) decrease in loans receivable, net (9) 207
Additions to premises and equipment (197) (112)
Proceeds from sales of OREO and other repossessed assets 234 370
---------------------
Net cash (used in) provided by investing activities (561) 3,166
Cash flow from financing activities
Decrease in deposits, net (3,503) (1,475)
Repayment of FHLB advances - - (20,000)
(Decrease) increase in repurchase agreements (191) 20
ESOP tax effect (20) (33)
---------------------
Net cash used in financing activities (3,714) (21,488)
---------------------
See notes to unaudited condensed consolidated financial statements
8
TIMBERLAND BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the three months ended December 31, 2011 and 2010
(Dollars in thousands)
(Unaudited)
Three Months Ended December 31,
2011 2010
------------------------------
Net decrease in cash and cash equivalents $ (518) $(14,315)
Cash and cash equivalents
Beginning of period 112,065 111,786
---------------------
End of period $111,547 $ 97,471
=====================
Supplemental disclosure of cash flow information
Income taxes paid $ - - $ 137
Interest paid 1,752 2,558
Supplemental disclosure of non-cash investing
activities
Loans transferred to OREO and other repossessed
assets $ 669 $ 1,700
Loan originated to facilitate the sale of OREO 3,204 - -
See notes to unaudited condensed consolidated financial statements
9
Timberland Bancorp, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
(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 ("GAAP") 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 GAAP. 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 consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended September 30, 2011 ("2011 Form 10-K").
The unaudited condensed consolidated results of operations for the three
months ended December 31, 2011 are not necessarily indicative of the results
that may be expected for the entire fiscal year.
(b) Principles of Consolidation: The unaudited 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.
(c) Operating Segment: The Company has one reportable operating segment
which is defined as community banking in western Washington under the
operating name, "Timberland Bank."
(d) The preparation of condensed consolidated financial statements in
conformity with GAAP 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 condensed consolidated
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
December 31, 2011 presentation with no change to net income or total
shareholders' equity previously reported.
(2) REGULATORY MATTERS
In December 2009, the FDIC and the Washington State Department of Financial
Institutions, Division of Banks ("Division") determined that the Bank required
supervisory attention and, on December 29, 2009, entered into an agreement on
a Memorandum of Understanding with the Bank ("Bank MOU"). Under the Bank MOU,
the Bank must, among other things, maintain Tier 1 Capital of not less than
10.0% of the Bank's adjusted total assets and maintain capital ratios above
the "well capitalized" thresholds as defined under FDIC Rules and Regulations;
obtain the prior consent from the FDIC and the Division prior to the Bank
declaring a dividend to its holding company; and not engage in any
transactions that would materially change the Bank's balance sheet composition
including growth in total assets of five percent or more or significant
changes in funding sources without the prior non-objection of the FDIC.
In addition, on February 1, 2010, the Federal Reserve Bank of San Francisco
("FRB") determined that the Company required additional supervisory attention
and entered into a Memorandum of Understanding with the Company ("Company
MOU"). Under the Company MOU, the Company must, among other things, obtain
prior written approval or non-objection from the FRB to declare or pay any
dividends, or make any other capital
10
distributions; issue any trust preferred securities; or purchase or redeem any
of its stock. The FRB has denied the Company's requests to pay dividends on
its Series A Preferred Stock issued under the U.S. Treasury Department's
Capital Purchase Program ("CPP") for quarterly payments due for the last seven
quarters commencing with the payments due May 15, 2010. For additional
information on the CPP, see Note 3 below entitled "U.S Treasury Department's
Capital Purchase Program."
(3) U.S. TREASURY DEPARTMENT'S CAPITAL PURCHASE PROGRAM
On December 23, 2008, the Company received $16.64 million from the U.S.
Treasury Department ("Treasury") as a part of the Treasury's CPP. The CPP was
established as part of the Troubled Asset Relief Program ("TARP"). The
Company sold 16,641 shares of senior preferred stock with a related warrant to
purchase 370,899 shares of the Company's common stock at a price of $6.73 per
share at any time through December 23, 2018. The preferred stock pays a 5.0%
dividend for the first five years, after which the rate increases to 9.0% if
the preferred shares are not redeemed by the Company.
Preferred stock is initially recorded at the amount of proceeds received. Any
discount from the liquidation value is accreted to the expected call date and
charged to retained earnings. This accretion is recorded using the
level-yield method. Preferred dividends paid (or accrued) and any accretion
is deducted from net income for computing income available to common
shareholders and net income per share computations.
Under the Company MOU, the Company must, among other things, obtain prior
written approval or non-objection from the FRB to declare or pay any
dividends. The FRB has denied the Company's requests to pay dividends on its
Series A Preferred Stock issued under the CPP for quarterly payments due for
the last seven quarters commencing with the payment due May 15, 2010. There
can be no assurances that the FRB will approve such payments or dividends in
the future. The Company may not declare or pay dividends on its common stock
or, with certain exceptions, repurchase common stock without first having paid
all cumulative preferred dividends that are due. Since dividends on the
Series A Preferred Stock have not been paid for at least six quarters, the
Treasury has the right to appoint two members to the Company's Board of
Directors.
11
(4) MBS AND OTHER INVESTMENTS
MBS and other investments have been classified according to management's
intent and are as follows as of December 31, 2011 and September 30, 2011
(dollars in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
December 31, 2011
----------------
Held to Maturity
MBS:
U.S. government agencies $ 1,770 $ 47 $ (4) $ 1,813
Private label residential 2,144 207 (188) 2,163
U.S. agency securities 27 3 - - 30
------- ------- ------ -------
Total $ 3,941 $ 257 $ (192) $ 4,006
======= ======= ====== =======
Available for Sale
MBS:
U.S. government agencies $ 4,062 $ 163 $ - - $ 4,225
Private label residential 1,148 60 (144) 1,064
Mutual funds 1,000 - - (5) 995
------- ------- ------ -------
Total $ 6,210 $ 223 $ (149) $ 6,284
======= ======= ====== =======
September 30, 2011
------------------
Held to Maturity
MBS:
U.S. government agencies $ 1,831 $ 45 $ (4) $ 1,872
Private label residential 2,287 311 (271) 2,327
U.S. agency securities 27 3 - - 30
------- ------- ------ -------
Total $ 4,145 $ 359 $ (275) $ 4,229
======= ======= ====== =======
Available for Sale
MBS:
U.S. government agencies $ 4,395 $ 188 $ - - $ 4,583
Private label residential 1,227 59 (152) 1,134
Mutual funds 1,000 - - - - 1,000
------- ------- ------ -------
Total $ 6,622 $ 247 $ (152) $ 6,717
======= ======= ====== =======
12
The estimated fair value of temporarily impaired securities, the amount of
unrealized losses and the length of time these unrealized losses existed as of
December 31, 2011 are as follows (dollars in thousands):
Less Than 12 Months 12 Months or Longer
------------------- ------------------- Total
Esti- Esti- Esti-
mated Gross mated Gross mated Gross
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
----- ------ ----- ------ ----- ------
Held to Maturity
MBS:
U.S. government
agencies $ 106 $ (1) $ 348 $ (3) $ 454 $ (4)
Private label
residential 76 (3) 1,118 (185) 1,194 (188)
----- ----- ------ ------ ------ -----
Total $ 182 $ (4) $1,466 $ (188) $1,648 $(192)
===== ===== ====== ====== ====== ======
Available for Sale
MBS:
U.S. government
agencies $ - - $ - - $ - - $ - - $ - - $ - -
Private label
residential - - - - 724 (144) 724 (144)
Mutual funds - - - - 995 (5) 995 (5)
----- ----- ------ ------ ------ -----
Total $ - - $ - - $1,719 $ (149) $1,719 $(149)
===== ===== ====== ====== ====== ======
During the three months ended December 31, 2011 and 2010, the Company recorded
net OTTI charges through earnings on residential MBS of $60,000 and $136,000,
respectively. The Company provides for the bifurcation of OTTI into (i)
amounts related to credit losses which are recognized through earnings, and
(ii) amounts related to all other factors which are recognized as a component
of other comprehensive income (loss).
To determine the component of the gross OTTI related to credit losses, the
Company compared the amortized cost basis of each OTTI security to the present
value of its revised expected cash flows, discounted using its pre-impairment
yield. The revised expected cash flow estimates for individual securities are
based primarily on an analysis of default rates, prepayment speeds and
third-party analytic reports. Significant judgment by management is required
in this analysis that includes, but is not limited to, assumptions regarding
the collectability of principal and interest, net of related expenses, on the
underlying loans. The following table presents a summary of the significant
inputs utilized to measure management's estimate of the credit loss component
on OTTI securities as of December 31, 2011 and September 30, 2011:
Range
--------------------- Weighted
Minimum Maximum Average
------- ------- --------
At December 31, 2011
--------------------
Constant prepayment rate 6.00% 15.00% 8.45%
Collateral default rate 0.71% 30.03% 10.00%
Loss severity rate 25.92% 74.02% 49.39%
At September 30, 2011
---------------------
Constant prepayment rate 6.00% 15.00% 10.71%
Collateral default rate 0.43% 24.23% 8.03%
Loss severity rate 11.93% 64.54% 39.22%
13
The following tables present the OTTI for the three months ended December 31,
2011 and 2010 (dollars in thousands):
Three months ended Three months ended
December 31, 2011 December 31, 2010
------------------- --------------------
Held To Available Held To Available
Maturity For Sale Maturity For Sale
-------- --------- -------- ---------
Total OTTI $ 52 $ 38 $ 145 $ - -
Portion of OTTI recognized in
other comprehensive loss
(before income taxes) (1) (30) - - (9) - -
------- ------ ------ ------
Net OTTI recognized in
earnings (2) $ 22 $ 38 $ 136 $ - -
======= ====== ====== ======
-------------
(1) Represents OTTI related to all other factors.
(2) Represents OTTI related to credit losses.
The following table presents a roll-forward of the credit loss component of
held to maturity and available for sale debt securities that have been written
down for OTTI with the credit loss component recognized in earnings and the
remaining impairment loss related to all other factors recognized in other
comprehensive income for the three months ended December 31, 2011 and 2010 (in
thousands):
Three months ended December 31,
2011 2010
------ ------
Beginning balance of credit loss $3,361 $4,725
Additions:
Credit losses for which OTTI was
not previously recognized 1 46
Additional increases to the amount
related to credit loss for which OTTI
was previously recognized 59 90
Subtractions:
Realized losses previously recorded
as credit losses (196) (496)
------ ------
Ending balance of credit loss $3,225 $4,365
====== ======
There were no gross realized gains on sale of securities for the three months
ended December 31, 2011. There was a gross realized gain on sale of securities
for the three months ended December 31, 2010 of $79,000. During the three
months ended December 31, 2011, the Company recorded a $196,000 realized loss
(as a result of the securities being deemed worthless) on 21 held to maturity
residential MBS and one available for sale residential MBS, of which the
entire amount had been recognized previously as a credit loss. During the
three months ended December 31, 2010, the Company recorded a $496,000 realized
loss on 16 held to maturity residential MBS which had previously been
recognized as a credit loss.
The amortized cost of residential mortgage-backed and agency securities
pledged as collateral for public fund deposits, federal treasury tax and loan
deposits, FHLB collateral, retail repurchase agreements and other non-profit
organization deposits totaled $7.36 million and $7.88 million at December 31,
2011 and September 30, 2011, respectively.
14
The contractual maturities of debt securities at December 31, 2011 are as
follows (dollars in thousands). Expected maturities may differ from scheduled
maturities as a result of the prepayment of principal or call provisions.
Held to Maturity Available for Sale
---------------- ------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------------- ---------------------
Due within one year $ - - $ - - $ - - $ - -
Due after one year to five years 22 23 104 111
Due after five to ten years 37 39 - - - -
Due after ten years 3,882 3,944 5,106 5,178
------- ------- ------- -------
Total $ 3,941 $ 4,006 $ 5,210 $ 5,289
======= ======= ======= =======
(5) FHLB STOCK
The Company views its investment in the FHLB stock as a long-term investment.
Accordingly, when evaluating for impairment, the value is determined based on
the ultimate recovery of the par value rather than recognizing temporary
declines in value. The determination of whether a decline affects the
ultimate recovery is influenced by criteria such as: 1) the significance of
the decline in net assets of the FHLB as compared to the capital stock amount
and length of time a decline has persisted; 2) the impact of legislative and
regulatory changes on the FHLB; and 3) the liquidity position of the FHLB. On
October 25, 2010, the FHLB announced that it had entered into a Consent
Agreement with the Federal Housing Finance Agency ("FHFA"), which requires the
FHLB to take certain specific actions related to its business and operations.
As of its latest regulatory filing, the FHLB reported that it had met all of
its regulatory capital requirements, but remained classified as
"undercapitalized" by the FHFA. The FHLB will not pay a dividend or
repurchase capital stock while it is classified as undercapitalized. While
the FHLB was classified as undercapitalized, the Company does not believe that
its investment in the FHLB is impaired as of December 31, 2011. However, this
estimate could change in the near term if: 1) significant other-than-temporary
losses are incurred on the FHLB's MBS causing a significant decline in its
regulatory capital status; 2) the economic losses resulting from credit
deterioration on the FHLB's MBS increases significantly; or 3) capital
preservation strategies being utilized by the FHLB become ineffective.
15
(6) LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans receivable and loans held for sale consisted of the following at
December 31, 2011 and September 30, 2011 (dollars in thousands):
December 31, September 30,
2011 2011
------------------- ------------------
Amount Percent Amount Percent
------------------- ------------------
Mortgage loans:
One- to four-family (1) $110,502 19.7% $114,680 20.5%
Multi-family 30,866 5.5 30,982 5.5
Commercial 245,874 43.9 246,037 43.9
Construction and land development 57,803 10.3 52,484 9.4
Land 46,198 8.3 49,236 8.8
-------- ----- -------- -----
Total mortgage loans 491,243 87.7 493,419 88.1
Consumer loans:
Home equity and second mortgage 34,607 6.2 36,008 6.4
Other 6,695 1.2 8,240 1.5
-------- ----- -------- -----
Total consumer loans 41,302 7.4 44,248 7.9
Commercial business loans 27,426 4.9 22,510 4.0
-------- ----- -------- -----
Total loans receivable 559,971 100.0% 560,177 100.0%
-------- ===== -------- =====
Less:
Undisbursed portion of
construction loans in process (17,073) (18,265)
Deferred loan origination fees (1,884) (1,942)
Allowance for loan losses (11,972) (11,946)
-------- --------
Total loans receivable, net $529,042 $528,024
======== ========
-------------
(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 December 31, 2011 and September 30,
2011 (dollars in thousands):
December 31, September 30,
2011 2011
------------------- ------------------
Amount Percent Amount Percent
------------------- ------------------
Custom and owner/builder $ 28,797 49.8% $ 26,205 49.9%
Speculative one- to four-family 2,186 3.8 1,919 3.7
Commercial real estate 16,693 28.9 12,863 24.5
Multi-family
(including condominiums) 8,320 14.4 9,322 17.8
Land development 1,807 3.1 2,175 4.1
-------- ----- -------- -----
Total construction and
land development loans $ 57,803 100.0% $ 52,484 100.0%
======== ===== ======== =====
16
Allowance for Loan Losses
-------------------------
The following tables set forth information for the three months ended December
31, 2011 and December 31, 2010 regarding activity in the allowance for loan
losses (dollars in thousands):
For the Three Months Ended December 31, 2011
--------------------------------------------
Beginning Ending
Allowance Provision Charge-offs Recoveries Allowance
--------- --------- ----------- ---------- ---------
Mortgage loans:
One-to four-family $ 760 $ 92 $ 68 $ 1 $ 785
Multi-family 1,076 233 - - - - 1,309
Commercial 4,035 (18) 508 - - 3,509
Construction -
custom and
owner / builder 222 38 - - - - 260
Construction -
speculative one-
to four-family 169 (6) - - 1 164
Construction -
commercial 794 13 - - - - 807
Construction -
multi-family 354 (414) - - 450 390
Construction -
land development 79 247 230 - - 96
Land 2,795 76 285 71 2,657
Consumer loans:
Home equity and
second mortgage 460 (1) 50 - - 409
Other 415 (24) 1 - - 390
Commercial business
loans 787 414 6 1 1,196
------- ----- ------ ----- -------
Total $11,946 $ 650 $1,148 $ 524 $11,972
======= ===== ====== ===== =======
Three Months Ended
December 31, 2010
------------------------
Balance at beginning of period $11,264
Provision for loan losses 900
Loans charged off (439)
Recoveries of loans previously charged off 24
Net charge-offs (415)
-------
Balance at end of period $11,749
=======
17
The following table presents information on the loans evaluated individually
for impairment and collectively evaluated for impairment in the allowance for
loan losses at December 31, 2011 and September 30, 2011 (dollars in
thousands):
Allowance for Loan Losses Recorded Investment in Loans
------------------------- ----------------------------
Individually Collectively Individually Collectively
Evaluated for Evaluated for Evaluated for Evaluated for
Impairment Impairment Total Impairment Impairment Total
---------- ---------- ----- ---------- ---------- -----
December 31, 2011
-----------------
Mortgage loans:
One- to four-family $ 136 $ 649 $ 785 $ 4,335 $106,167 $110,502
Multi-family 976 333 1,309 6,921 23,945 30,866
Commercial 214 3,295 3,509 21,552 224,322 245,874
Construction - custom
and owner / builder 9 251 260 318 19,890 20,208
Construction -
speculative one- to
four-family 24 140 164 700 972 1,672
Construction -
commercial 687 120 807 5,413 4,817 10,230
Construction -
multi-family - - 390 390 370 6,443 6,813
Construction - land
development - - 96 96 1,597 210 1,807
Land 583 2,074 2,657 9,527 36,671 46,198
Consumer loans:
Home equity and
second mortgage 12 397 409 1,236 33,371 34,607
Other - - 390 390 - - 6,695 6,695
Commercial business
loans 276 920 1,196 317 27,109 27,426
------ ------ ------- ------- -------- --------
$2,917 $9,055 $11,972 $52,286 $490,612 $542,898
====== ====== ======= ======= ======== ========
September 30, 2011
------------------
Mortgage loans:
One- to four-family $ 45 $ 715 $ 760 $ 3,701 $110,979 $114,680
Multi-family 632 444 1,076 5,482 25,500 30,982
Commercial 255 3,780 4,035 19,322 226,715 246,037
Construction - custom
and owner / builder 11 211 222 320 16,777 17,097
Construction -
speculative one- to
four-family 37 132 169 700 906 1,606
Construction -
commercial 738 56 794 5,435 2,479 7,914
Construction -
multi-family - - 354 354 632 4,867 5,499
Construction -
land development - - 79 79 1,882 221 2,103
Land 560 2,235 2,795 9,997 39,239 49,236
Consumer loans:
Home equity and second
mortgage 10 450 460 1,014 34,994 36,008
Other 1 414 415 1 8,239 8,240
Commercial business
loans - - 787 787 44 22,466 22,510
------ ------ ------- ------- -------- --------
$2,289 $9,657 $11,946 $48,530 $493,382 $541,912
====== ====== ======= ======= ======== ========
Credit Quality Indicators
-------------------------
The Company uses credit risk grades which reflect the Company's assessment of
a loan's risk or loss potential. The Company categorizes loans into risk
grade categories based on relevant information about the ability of borrowers
to service their debt such as: current financial information, historical
payment experience, credit documentation, public information and current
economic trends, among other factors such as the estimated fair value of the
collateral. The Company uses the following definitions for credit risk
ratings as part of the on-going monitoring of the credit quality of its loan
portfolio:
Pass: Pass loans are defined as those loans that meet acceptable quality
underwriting standards.
Watch: Watch loans are defined as those loans that still exhibit marginal
acceptable quality, but have some concerns that justify greater attention. If
these concerns are not corrected, a potential for further adverse
categorization exists. These concerns could relate to a specific condition
peculiar to the borrower, its industry segment or the general economic
environment.
18
Special Mention: Special mention loans are defined as those loans deemed by
management to have some potential weaknesses that deserve management's close
attention. If left uncorrected, these potential weaknesses may result in the
deterioration of the payment prospects of the loan. Assets in this category
do not expose the Company to sufficient risk to warrant a substandard
classification.
Substandard: Substandard loans are defined as those loans that are
inadequately protected by the current net worth and paying capacity of the
obligor, or of the collateral pledged. Loans classified as substandard have a
well-defined weakness or weaknesses that jeopardize the repayment of the debt.
If the weakness or weaknesses are not corrected, there is the distinct
possibility that some loss will be sustained.
Loss: Loans in this classification are considered uncollectible and of such
little value that continuance as bankable assets is not warranted. This
classification does not mean that the loan has absolutely no recovery or
salvage value, but rather it is not practical or desirable to defer writing
off this loan even though partial recovery may be realized in the future.
The following table lists the loan credit risk grades utilized by the Company
that serve as credit quality indicators. Each of the credit risk loan grades
include high and low factors associated with their classification that are
utilized to calculate the aggregate ranges of the allowance for loan losses at
December 31, 2011 and September 30, 2011 (dollars in thousands):
Credit Risk Profile by Internally Assigned Grades
December 31, 2011 Loan Grades
----------------- ---------------------------------------
Special
Pass Watch Mention Substandard Total
------ ----- ------- ----------- -----
Mortgage loans:
One- to four-family $ 96,715 $ 4,708 $ 3,291 $ 5,788 $110,502
Multi-family 18,995 68 4,696 7,107 30,866
Commercial 215,172 696 6,040 23,966 245,874
Construction - custom
and owner / builder 19,629 261 - - 318 20,208
Construction - speculative
one- to four-family 212 155 - - 1,305 1,672
Construction - commercial 4,817 - - - - 5,413 10,230
Construction - multi-family 6,443 - - - - 370 6,813
Construction - land
development - - - - - - 1,807 1,807
Land 25,168 5,947 5,233 9,850 46,198
Consumer loans:
Home equity and second
mortgage 31,083 931 1,355 1,238 34,607
Other 6,638 48 - - 9 6,695
Commercial business loans 24,080 60 192 3,094 27,426
-------- ------- ------- ------- --------
Total $448,952 $12,874 $20,807 $60,265 $542,898
======== ======= ======= ======= ========
September 30, 2011
------------------
Mortgage loans:
One- to four-family $100,159 $ 6,131 $ 2,450 $ 5,940 $114,680
Multi-family 19,279 199 10,380 1,124 30,982
Commercial 212,898 1,042 6,320 25,777 246,037
Construction - custom
and owner / builder 16,522 255 - - 320 17,097
Construction - speculative
one- to four-family 323 - - 700 583 1,606
Construction - commercial 2,479 - - - - 5,435 7,914
Construction - multi-family 4,115 - - 752 632 5,499
Construction - land
development 83 - - - - 2,020 2,103
Land 26,825 6,604 5,084 10,723 49,236
Consumer loans:
Home equity and second
mortgage 32,389 901 1,513 1,205 36,008
Other 8,179 50 - - 11 8,240
Commercial business loans 19,060 20 220 3,210 22,510
-------- ------- ------- ------- --------
Total $442,311 $15,202 $27,419 $56,980 $541,912
======== ======= ======= ======= ========
19
The following tables present an age analysis of past due status of loans by
category at December 31, 2011 and September 30, 2011 (dollars in thousands):
Past Due
90 Days
30-59 Days 60-89 Days Non- or More and Total Total
Past Due Past Due Accrual (1) Still Accruing Past due Current Loans
-------- -------- ----------- ----------- -------- ------- ---------
Mortgage loans:
One- to four-family $2,889 $ - - $ 2,788 $ - - $ 5,677 $104,825 $110,502
Multi-family - - - - 1,449 - - 1,449 29,417 30,866
Commercial 8,902 - - 10,445 - - 19,347 226,527 245,874
Construction - custom and
owner / builder - - - - 318 - - 318 19,890 20,208
Construction - speculative
one- to four-family - - - - - - 201 201 1,471 1,672
Construction - commercial - - - - 666 - - 666 9,564 10,230
Construction - multi-family - - - - 370 - - 370 6,443 6,813
Construction - land
development - - - - 1,597 - - 1,597 210 1,807
Land 5,727 82 9,264 1,586 16,659 29,539 46,198
Consumer loans:
Home equity and second
mortgage 816 39 589 890 2,334 32,273 34,607
Other 83 - - - - - - 83 6,612 6,695
Commercial business loans - - 132 317 - - 449 26,977 27,426
------- ------ ------- ------ ------- -------- --------
Total $18,417 $ 253 $27,803 $2,677 $49,150 $493,748 $542,898
======= ====== ======= ====== ======= ======== ========
September 30, 2011
------------------
Mortgage loans:
One- to four-family $ - - $1,822 $ 2,150 $ - - $ 3,972 $110,708 $114,680
Multi-family - - - - - - 1,449 1,449 29,533 30,982
Commercial - - 12,723 6,571 - - 19,294 226,743 246,037
Construction - custom and
owner / builder - - - - 320 - - 320 16,777 17,097
Construction - speculative
one- to four-family - - - - - - - - - - 1,606 1,606
Construction - commercial - - - - 688 - - 688 7,226 7,914
Construction - multi-family - - 752 632 - - 1,384 4,115 5,499
Construction - land
development - - - - 1,882 - - 1,882 221 2,103
Land 1,100 2,558 8,935 29 12,622 36,614 49,236
Consumer loans:
Home equity and second
mortgage 643 441 366 - - 1,450 34,558 36,008
Other 9 7 1 - - 17 8,223 8,240
Commercial business loans - - 14 44 276 334 22,176 22,510
------- ------ ------- ------ ------- -------- --------
Total $ 1,752 $18,317 $21,589 $1,754 $43,412 $498,500 $541,912
======= ======= ======= ====== ======= ======== ========
-------------
(1) Includes non-accrual loans past due 90 days or more and manual non-accrual loans.
Impaired Loans
--------------
A loan is considered impaired when it is probable that the Company will be
unable to collect all contractual principal and interest payments due in
accordance with the original or modified terms of the loan agreement.
Impaired loans are measured based on the estimated fair value of the
collateral less estimated cost to sell if the loan is considered collateral
dependent. Impaired loans that are not considered to be collateral dependent
are measured based on the present value of expected future cash flows.
The categories of non-accrual loans and impaired loans overlap, although they
are not coextensive. The Company considers all circumstances regarding the
loan and borrower on an individual basis when determining whether an impaired
loan should be placed on non-accrual status, such as the financial strength of
the borrower, the estimated collateral value, reasons for the delay, payment
record, the amount past due and the number of days past due.
20
At December 31, 2011 and September 30, 2011, the Company had impaired loans
totaling $52.29 million and $48.53 million, respectively. At December 31,
2011, the Company had loans totaling $2.68 million that were 90 days or more
past due and still accruing interest. At September 30, 2011, the Company had
loans totaling $1.75 million that were 90 days or more past due and still
accruing interest. Interest income recognized on impaired loans for the three
months ended December 31, 2011 and 2010 was $419,000 and $322,000,
respectively. Interest income recognized on a cash basis on impaired loans
for the three months ended December 31, 2011 and 2010, was $294,000 and
$246,000, respectively. The average investment in impaired loans for the
three months ended December 31, 2011 and 2010 was $48.64 million and $41.44
million, respectively.
21
The following table is a summary of information related to impaired loans as of and for the three
months ended December 31, 2011 (dollars in thousands):
Unpaid Principal Cash Basis
Balance (Loan Average Interest Interest
Recorded Balance Plus Related Recorded Income Income
Investment Charge Off) Allowance Investment Recognized(1) Recognized(1)
---------- ------------ --------- ---------- ------------ ------------
With no related allowance
recorded:
Mortgage loans:
One- to four-family $ 2,266 $ 2,486 $ - - $ 2,623 $ 6 $ 6
Multi-family - - 982 - - - - - - - -
Commercial 17,704 19,354 - - 15,514 190 135
Construction - custom and
owner / builder 209 209 - - 345 - - - -
Construction - speculative
one- to four-family - - - - - - 243 - - - -
Construction - multi-family 370 810 - - 1,071 - - - -
Construction - land
development 1,597 7,124 - - 2,482 5 5
Land 5,214 8,750 - - 7,034 8 4
Consumer loans:
Home equity and second
mortgage 592 658 - - 534 - - - -
Other - - - - - - 8 - - - -
Commercial business loans 41 61 - - 43 1 1
------- ------- ------ ------- ----- -----
Subtotal 27,993 40,434 - - 29,897 210 151
With an allowance recorded:
Mortgage loans:
One- to four-family 2,069 2,069 136 1,181 22 17
Multi-family 6,921 6,921 976 5,768 73 55
Commercial 3,848 3,848 214 2,179 24 3
Construction - custom and
owner / builder 109 109 9 67 - - - -
Construction - speculative
one- to four-family 700 700 24 1,030 8 6
Construction - commercial 5,413 6,857 687 4,620 63 47
Land 4,313 4,337 583 3,428 8 8
Consumer loans:
Home equity and second
mortgage 644 644 12 412 11 7
Other - - - - - - 1 - - - -
Commercial business loans 276 276 276 55 - - - -
------- ------- ------ ------- ----- -----
Subtotal 24,293 25,761 2,917 18,741 209 143
Total
Mortgage loans:
One- to four-family 4,335 4,555 136 3,804 28 23
Multi-family 6,921 7,903 976 5,768 73 55
Commercial 21,552 23,202 214 17,693 214 138
Construction - custom and
owner / builder 318 318 9 412 - - - -
Construction - speculative
one- to four-family 700 700 24 1,273 8 6
Construction - commercial 5,413 6,857 687 4,620 63 47
Construction - multi-family 370 810 - - 1,071 5 - -
Construction - land
development 1,597 7,124 - - 2,482 - - 5
Land 9,527 13,087 583 10,462 16 12
Consumer loans:
Home equity and second
mortgage 1,236 1,302 12 946 11 7
Other - - - - - - 9 - - - -
Commercial business loans 317 337 276 98 1 1
------- ------- ------ ------- ----- -----
Total $52,286 $66,195 $2,917 $48,638 $ 419 $ 294
======= ======= ====== ======= ===== =====
-------------
(1) For the three months ended December 31, 2011
22
Following is a summary of information related to impaired loans as of and for the year ended September 30,
2011 (in thousands):
Unpaid Principal Cash Basis
Balance (Loan Average Interest Interest
Recorded Balance Plus Related Recorded Income Income
Investment Charge Off) Allowance Investment Recognized(1) Recognized(1)
---------- ------------ --------- ---------- ------------ ------------
With no related allowance
recorded:
Mortgage loans:
One- to four-family $ 2,092 $ 2,387 $ - - $ 2,908 $ 30 $ 22
Multi-family - - 982 - - 681 - - - -
Commercial 18,137 19,279 - - 14,623 1,060 573
Construction - custom and
owner / builder 209 209 - - 303 7 1
Construction speculative
one- to four-family - - - - - - 502 7 7
Construction - multi-family 632 1,135 - - 1,287 4 4
Construction - land
development 1,882 7,179 - - 2,920 5 - -
Land 8,198 11,533 - - 7,883 69 42
Consumer loans:
Home equity and second
mortgage 669 719 - - 430 26 16
Other - - - - - - 13 - - - -
Commercial business loans 44 65 - - 44 2 2
------- ------- ------ ------- ------ ------
Subtotal 31,863 43,488 - - 31,594 1,210 667
With an allowance recorded:
Mortgage loans:
One- to four-family 1,609 1,609 45 768 47 38
Multi-family 5,482 5,482 632 4,798 298 222
Commercial 1,185 1,185 255 1,409 50 118
Construction - custom and
owner / builder 111 111 11 45 2 2
Construction - speculative
one- to four-family 700 700 37 1,042 50 37
Construction - commercial 5,435 6,879 738 3,537 273 123
Construction - multi-family - - - - - - 65 - - - -
Land 1,799 1,821 560 2,946 114 83
Consumer loans:
Home equity and second
mortgage 345 345 10 425 10 9
Other 1 1 1 1 - - - -
------- ------- ------ ------- ------ ------
Subtotal 16,667 18,133 2,289 15,036 844 632
Total
Mortgage loans:
One- to four-family 3,701 3,996 45 3,676 77 60
Multi-family 5,482 6,464 632 5,479 298 222
Commercial 19,322 20,464 255 16,032 1,110 691
Construction - custom and
owner / builder 320 320 11 348 9 3
Construction - speculative
one- to four-family 700 700 37 1,544 57 44
Construction - commercial 5,435 6,879 738 3,537 273 123
Construction - multi-family 632 1,135 - - 1,352 4 4
Construction - land
development 1,882 7,179 - - 2,920 5 - -
Land 9,997 13,354 560 10,829 183 125
Consumer loans:
Home equity and second
mortgage 1,014 1,064 10 855 36 25
Other 1 1 1 14 - - - -
Commercial business loans 44 65 - - 44 2 2
------- ------- ------ ------- ------ ------
Total $48,530 $61,621 $2,289 $46,630 $2,054 $1,299
======= ======= ====== ======= ====== ======
-------------
(1) For the year ended September 30, 2011
23
The following table sets forth information with respect to the Company's
non-performing assets at December 31, 2011 and September 30, 2011 (dollars in
thousands):
Loans accounted for on a non-accrual basis:
December 31, September 30,
2011 2011
-------- --------
Mortgage loans:
One- to four-family $ 2,788 $ 2,150
Multi-family 1,449 - -
Commercial 10,445 6,571
Construction custom and owner / builder 318 320
Construction speculative one- to four-family - - - -
Construction commercial 666 688
Construction multi-family 370 632
Construction land development 1,597 1,882
Land 9,264 8,935
Consumer loans:
Home equity and second mortgage 589 367
Commercial business 317 43
-------- --------
Total 27,803 21,589
Accruing loans which are contractually
past due 90 days or more 2,677 1,754
-------- --------
Total of non-accrual and 90 days past due loans 30,480 23,343
Non-accrual investment securities 2,650 2,796
OREO and other repossessed assets 7,714 10,811
-------- --------
Total non-performing assets (1) $ 40,844 $ 36,950
======== ========
Troubled debt restructured loans on accrual
status (2) $ 18,297 $ 18,166
Non-accrual and 90 days or more past
due loans as a percentage of loans receivable 5.64% 4.32%
Non-accrual and 90 days or more past
due loans as a percentage of total assets 4.15% 3.16%
Non-performing assets as a percentage of total
assets 5.55% 5.01%
Loans receivable (3) $541,014 $539,970
======== ========
Total assets $735,849 $738,224
======== ========
(1) Does not include troubled debt restructured loans on accrual status.
(2) Does not include troubled debt restructured loans totaling $7.33 million
and $7.38 million reported as non-accrual loans at December 31, 2011 and
September 30, 2011, respectively.
(3) Includes loans held for sale and is before the allowance for loan losses.
24
Troubled debt restructured loans are loans for which the Company, for economic
or legal reasons related to the borrower's financial condition, has granted a
significant concession to the borrower that it would otherwise not consider.
The loan terms which have been modified or restructured due to a borrower's
financial difficulty, include but are not limited to: a reduction in the
stated interest rate; an extension of the maturity at an interest rate below
current market; a reduction in the face amount of the debt; a reduction in the
accrued interest; or re-aging, extensions, deferrals and renewals. Troubled
debt restructured loans are considered impaired loans and are individually
evaluated for impairment. Troubled debt restructured loans can be classified
as either accrual or non-accrual. The Company had $25.63 million in troubled
debt restructured loans included in impaired loans at December 31, 2011 and
had no commitments to lend additional funds on these loans. At December 31,
2011, $7.33 million of the $25.63 million in troubled debt restructured loans
were on non-accrual status and included in non-performing loans. The Company
had $25.54 million in troubled debt restructured loans included in impaired
loans at September 30, 2011 and had $144,000 in commitments to lend additional
funds on these loans. At September 30, 2011, $7.38 million of the $25.54
million in troubled debt restructured loans were on non-accrual status and
included in non-performing loans.
The following table sets forth information with respect to the Company's
troubled debt restructurings by portfolio segment at December 31, 2011 and
September 30, 2011 (dollars in thousands):
December 31, 2011
-----------------
Pre- Post-
Modification Modification
Outstanding Outstanding End of
Number of Recorded Recorded Period
Contracts Investment Investment Balance
--------- ---------- ---------- -------
One-to four-family 5 $ 1,619 $ 1,619 $1,547
Multi-family 4 6,534 5,482 5,472
Commercial 8 5,903 6,226 5,840
Construction -
speculative one-to
four-family 1 700 700 700
Construction - commercial 2 6,800 5,451 5,413
Construction - land
development 4 5,433 5,433 756
Land 12 7,263 7,051 5,256
Home equity 3 654 654 647
-- ------- ------- -------
Total 39 $34,906 $32,616 $25,631
== ======= ======= =======
September 30, 2011
------------------
Pre- Post-
Modification Modification
Outstanding Outstanding End of
Number of Recorded Recorded Period
Contracts Investment Investment Balance
--------- ---------- ---------- -------
One-to four-family 5 $ 1,619 $ 1,619 $1,618
Multi-family 4 6,534 5,482 5,482
Commercial 8 5,903 6,226 5,696
Construction -
speculative one-to
four-family 1 700 700 700
Construction - commercial 2 6,800 5,451 5,435
Construction - land
development 4 5,433 5,433 756
Land 12 7,263 7,051 5,208
Home equity 3 654 654 647
-- ------- ------- -------
Total 39 $34,906 $32,616 $25,542
== ======= ======= =======
There were no new troubled debt restructured loans that were recorded during
the three months ended December 31, 2011. There were no troubled debt
restructured loans that were recorded in the twelve months prior to December
31, 2011 that subsequently defaulted in the three months ended December 31,
2011.
25
(7) NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing net income to common
shareholders by the weighted average number of common shares outstanding
during the period, without considering any dilutive items. Diluted net income
per common share is computed by dividing net income to common shareholders 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 the assumed
conversion of outstanding stock options and the outstanding warrant to
purchase common stock. In accordance with the Financial Accounting Standards
Board ("FASB") guidance for stock compensation, shares owned by the Bank's
ESOP that have not been allocated are not considered to be outstanding for the
purpose of computing net income per common share. At December 31, 2011 and
2010, there were 264,520 and 299,786 shares, respectively, that had not been
allocated under the Bank's ESOP.
Three Months Ended December 31,
2011 2010
--------------------
(in thousands, except for share
and per share data)
----------------------------------------------------------------------------
Basic net income per common share computation
---------------------------------------------
Numerator - net income $ 1,283 $ 1,359
Preferred stock dividends (208) (208)
Preferred stock discount accretion (59) (54)
------- -------
Net income to common shareholders $ 1,016 $ 1,097
======= =======
Denominator - weighted average
common shares outstanding 6,780,516 6,745,250
Basic net income per common share $ 0.15 $ 0.16
Diluted net income per common share computation
-----------------------------------------------
Numerator - net income $ 1,283 $ 1,359
Preferred stock dividend (208) (208)
Preferred stock discount accretion (59) (54)
------- -------
Net income to common shareholders $ 1,016 $ 1,097
======= =======
Denominator - weighted average
common shares outstanding 6,780,516 6,745,250
Effect of dilutive stock options (1) - - - -
Effect of dilutive stock warrant (2) - - - -
------- -------
Weighted average common shares
and common stock equivalents 6,780,516 6,745,250
Diluted net income per common share $ 0.15 $ 0.16
--------------------
(1) For the three months ended December 31, 2011 and 2010, options to
purchase 153,376 and 194,864 shares of common stock, respectively, were
outstanding but not included in the computation of diluted net income per
common share because the options' exercise prices were greater than the
average market price of the common stock, and, therefore, their effect would
have been anti-dilutive.
(2) For the three months ended December 31, 2011 and 2010, a warrant to
purchase 370,899 shares of common stock was outstanding but not included in
the computation of diluted net income per common share because the warrant's
exercise price was greater than the average market price of the common stock,
and, therefore, its effect would have been anti-dilutive.
26
(8) STOCK PLANS AND STOCK BASED COMPENSATION
Stock Option Plans
------------------
Under the Company's stock option plans (the 1999 Stock Option Plan and the
2003 Stock Option Plan), the Company was able to 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.
Generally, options vest in 20% annual installments on each of the five
anniversaries from the date of the grant. At December 31, 2011, options for
218,938 shares are available for future grant under the 2003 Stock Option Plan
and no shares are available for future grant under the 1999 Stock Option Plan.
Activity under the plans for the three months ended December 31, 2011 and 2010
is as follows:
Three Months Ended Three Months Ended
December 31, 2011 December 31, 2010
------------------ ------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
Options outstanding, beginning of
period 137,726 $ 9.25 194,864 $ 8.71
Granted 33,500 4.01 - - - -
Forfeited 2,200 4.55 - - - -
------- -------
Options outstanding, end of period 169,026 $ 8.27 194,864 $ 8.71
======= =======
Options exercisable, end of period 123,326 174,064
======= =======
There was no aggregate intrinsic value of options outstanding at December 31,
2011.
At December 31, 2011, there were 46,700 unvested options with an aggregate
grant date fair value of $69,000, all of which the Company assumes will vest.
There was no aggregate intrinsic value of unvested options at December 31,
2011. There were 5,000 options with an aggregate grant date fair value of
$6,000 that vested during the three months ended December 31, 2011.
At December 31, 2010, there were 20,800 unvested options with an aggregate
grant date fair value of $27,000. There were 5,200 options with an aggregate
grant date fair value of $7,000 that vested during the three months ended
December 31, 2010.
The Company uses the Black-Scholes option pricing model to estimate the fair
value of stock-based awards with the weighted average assumptions noted in the
following table. The risk-free interest rate is based on the U.S. Treasury
rate of a similar term as the stock option at the particular grant date. The
expected life is based on historical data, vesting terms and estimated
exercise dates. The expected dividend yield is based on the most recent
quarterly dividend on an annualized basis in effect at the time the options
were granted. The expected volatility is based on historical volatility of
the Company's stock price. There were 33,500 options granted during the three
months ended December 31, 2011 with an aggregate grant date fair value of
$52,000. There were no options granted during the three months ended December
31, 2010.
27
The Black-Scholes option pricing model was used in estimating the fair value
of option grants. The weighted average assumptions used for options granted
during the three months ended December 31, 2011 were:
Expected Volatility 44%
Expected term (in years) 5
Expected dividend yield - -%
Risk free interest rate 0.89%
Grant date fair value per share $1.56
Stock Grant Plan
----------------
The Company adopted the Management Recognition and Development Plan ("MRDP")
in 1998 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 allowed for the issuance to participants of up to 529,000 shares of
the Company's common stock. Awards under the MRDP are made in the form of
shares of common stock that are subject to restrictions on the transfer of
ownership and are subject to a five-year vesting period. Compensation expense
is the amount of the fair value of the common stock at the date of the grant
to the plan participants and is recognized over a five-year vesting period,
with 20% vesting on each of the five anniversaries from the date of the grant.
There were no MRDP shares granted to officers or directors during the three
months ended December 31, 2011 and 2010.
At December 31, 2011, there were a total of 15,161 unvested MRDP shares with
an aggregated grant date fair value of $155,000. There were 7,231 MRDP shares
that vested during the three months ended December 31, 2011 with an aggregated
grant date fair value of $79,000. There were 100 MRDP shares forfeited during
the three months ended December 31, 2011 with a grant date fair value of
$1,000. At December 31, 2011, there were no shares available for future
awards under the MRDP.
At December 31, 2010, there were a total of 28,992 unvested MRDP shares with
an aggregate grant date fair value of $329,000. There were 7,433 MRDP shares
that vested during the three months ended December 31, 2010 with and
aggregated grant date fair value of $81,000.
Expenses for Stock Compensation Plans
-------------------------------------
Compensation expenses for all stock-based plans were as follows:
Three Months Ended December 31,
------------------------------
2011 2010
---- ----
(Dollars in thousands)
Stock Stock Stock Stock
Options Grants Options Grants
------- ------ ------- ------
Compensation expense recognized in income $ 2 $ 25 $ 1 $ 44
Related tax benefit recognized - - 9 - - 15
28
As of December 31, 2011, 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 (dollars in thousands):
Stock Stock Total
Options Grants Awards
------- ------ ------
2012 $ 13 $ 80 $ 93
2013 17 39 56
2014 17 2 19
2015 11 - - 11
2016 10 - - 10
2017 2 - - 2
---- ----- -----
Total $ 70 $ 121 $ 191
==== ===== =====
(9) FAIR VALUE MEASUREMENTS
GAAP requires disclosure of estimated fair values for financial instruments.
Such estimates are subjective in nature, and significant judgment is required
regarding the risk characteristics of various financial instruments at a
discrete point in time. Therefore, such estimates could vary significantly if
assumptions regarding uncertain factors were to change. In addition, as the
Company normally intends to hold the majority of its financial instruments
until maturity, it does not expect to realize many of the estimated amounts
disclosed. The disclosures also do not include estimated fair value amounts
for certain items which are not defined as financial instruments but which may
have significant value. The Company does not believe that it would be
practicable to estimate a representational fair value for these types of items
as of December 31, 2011 and September 30, 2011. Because GAAP excludes certain
items from fair value disclosure requirements, any aggregation of the fair
value amounts presented would not represent the underlying value of the
Company. Major assumptions, methods and fair value estimates for the
Company's significant financial instruments are set forth below:
Cash and Cash Equivalents
-------------------------
The estimated fair value of financial instruments that are short-term or
re-price frequently and that have little or no risk are considered to
have an estimated fair value equal to the recorded value.
CDs Held for Investment
-----------------------
The estimated fair value of financial instruments that are short-term or
re-price frequently and that have little or no risk are considered to
have an estimated fair value equal to the recorded value.
MBS and Other Investments
-------------------------
The estimated fair value of MBS and other investments are based upon the
assumptions market participants would use in pricing the security. Such
assumptions include observable and unobservable inputs such as quoted
market prices, dealer quotes, or discounted cash flows.
FHLB Stock
----------
FHLB stock is not publicly traded; however, the recorded value of the
stock holdings approximates the estimated fair value, as the FHLB is
required to pay par value upon re-acquiring this stock.
Loans Receivable, Net
---------------------
At December 31, 2011 and September 30, 2011, because of the illiquid
market for loan sales, loans were priced using comparable market
statistics. The loan portfolio was segregated into various categories
and
29
a weighted average valuation discount that approximated similar loan
sales was applied to each category.
Loans Held for Sale
-------------------
The estimated fair value is based on quoted market prices obtained from
the Federal Home Loan Mortgage Corporation.
Accrued Interest
----------------
The recorded amount of accrued interest approximates the estimated fair
value.
Deposits
--------
The estimated fair value of deposits with no stated maturity date is
included at the amount payable on demand. The estimated fair value of
fixed maturity certificates of deposit is computed by discounting
future cash flows using the rates currently offered by the Bank for
deposits of similar remaining maturities.
FHLB Advances
-------------
The estimated fair value of FHLB advances is computed by discounting the
future cash flows of the borrowings at a rate which approximates the
current offering rate of the borrowings with a comparable remaining life.
Repurchase Agreements
---------------------
The recorded value of repurchase agreements approximates the estimated
fair value due to the short-term nature of the borrowings.
Off-Balance-Sheet Instruments
-----------------------------
Since the majority of the Company's off-balance-sheet instruments consist
of variable-rate commitments, the Company has determined that they do not
have a distinguishable estimated fair value.
The estimated fair values of financial instruments were as follows as of
December 31, 2011 and September 30, 2011 (dollars in thousands):
December 31, 2011 September 30, 2011
----------------- ------------------
Estimated Estimated
Recorded Fair Recorded Fair
Amount Value Amount Value
------ ----- ------ -----
Financial Assets
Cash and cash equivalents $111,547 $111,547 $112,065 $112,065
CDs held for investment 19,810 19,810 18,659 18,659
MBS and other investments 10,225 10,290 10,862 10,946
FHLB stock 5,705 5,705 5,705 5,705
Loans receivable, net 525,932 481,212 523,980 490,322
Loans held for sale 3,110 3,216 4,044 4,185
Accrued interest receivable 2,388 2,388 2,411 2,411
Financial Liabilities
Deposits $589,175 $591,595 $592,678 $595,331
FHLB advances - long term 55,000 60,878 55,000 61,009
Repurchase agreements 538 538 729 729
Accrued interest payable 525 525 545 545
30
The Company assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, the
estimated fair value of the Company's financial instruments will change when
interest rate levels change, and that change may either be favorable or
unfavorable to the Company. Management attempts to match maturities of assets
and liabilities to the extent believed necessary to minimize interest rate
risk. However, borrowers with fixed interest rate obligations are less likely
to prepay in a rising interest rate environment and more likely to prepay in a
falling interest rate environment. Conversely, depositors who are receiving
fixed interest rates are more likely to withdraw funds before maturity in a
rising interest rate environment and less likely to do so in a falling
interest rate environment. Management monitors interest rates and maturities
of assets and liabilities, and attempts to minimize interest rate risk by
adjusting terms of new loans and deposits and by investing in securities with
terms that mitigate the Company's overall interest rate risk.
Accounting guidance regarding fair value measurements defines fair value and
establishes a framework for measuring fair value in accordance with GAAP.
Fair value is the exchange price that would be received for an asset or paid
to transfer a liability in an orderly transaction between market participants
on the measurement date. The following definitions describe the levels of
inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) in active markets for identical
assets or liabilities that the reporting entity has the ability to access
at the measurement date.
Level 2: Significant observable inputs other than quoted prices included
within Level 1, such as quoted prices in markets that are not active, and
inputs other than quoted prices that are observable or can be
corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company's own
assumptions about the assumptions market participants would use in
pricing an asset or liability based on the best information available in
the circumstances.
The following table summarizes the balances of assets and liabilities measured
at estimated fair value on a recurring basis at December 31, 2011, and the
total losses resulting from these estimated fair value adjustments for the
three months ended December 31, 2011 (dollars in thousands):
Estimated Fair Value
-----------------------------
Level 1 Level 2 Level 3 Total Losses
------- ------- ------- ------------
Available for Sale Securities
Mutual funds $ 995 $ - - $ - - $ - -
MBS - - 5,289 - - 38
----- ------ ------ ------
Total $ 995 $5,289 $ - - $ 38
===== ====== ====== ======
The following table summarizes the balances of assets and liabilities measured
at estimated fair value on a nonrecurring basis at December 31, 2011, and the
total losses resulting from these estimated fair value adjustments for the
three months ended December 31, 2011 (dollars in thousands):
Estimated Fair Value
-----------------------------
Level 1 Level 2 Level 3 Total Losses
------- ------- ------- ------------
Impaired loans (1) $ - - $ - - $23,520 $ 1,148
MBS - held to maturity (2) - - 267 - - 22
OREO and other repossessed
items (3) - - - - 7,714 369
MSR's (4) - - - - 2,169 - -
------ ----- ------- -------
Total $ - - $ 267 $33,403 $ 1,439
====== ===== ======= =======
31
-------------
(1) The loss represents charge offs on collateral dependent loans for
estimated fair value adjustments based on the estimated fair value of the
collateral. A loan is considered to be impaired when, based on current
information and events, it is probable the Company will be unable to collect
all amounts due according to the contractual terms of the loan agreement. The
specific reserve for collateral dependent impaired loans was based on the
estimated fair value of the collateral less estimated costs to sell. The
estimated fair value of collateral was determined based primarily on
appraisals. In some cases, adjustments were made to the appraised values due
to various factors including age of the appraisal, age of comparables included
in the appraisal, and known changes in the market and in the collateral.
(2) The loss represents OTTI credit-related charges on held-to-maturity MBS.
(3) The Company's OREO and other repossessed assets are initially recorded at
estimated fair value less estimated costs to sell. This amount becomes the
property's new basis. Estimated fair value was generally determined by
management based on a number of factors, including third-party appraisals of
estimated fair value in an orderly sale. Estimated costs to sell were based
on standard market factors. The valuation of OREO and other repossessed items
is subject to significant external and internal judgment. Management
periodically reviews the recorded value to determine whether the property
continues to be recorded at the lower of its recorded book value or estimated
fair value, net of estimated costs to sell.
(4) The fair value of the MSRs was determined using a third-party model, which
incorporates the expected life of the loans, estimated cost to service the
loans, servicing fees received and other factors. The estimated fair value is
calculated by stratifying the mortgage servicing rights based on the
predominant risk characteristics that include the underlying loan's interest
rate, cash flows of the loan, origination date and term. The amount of
impairment recognized is the amount, if any, by which the amortized cost of
the rights exceed their estimated fair value. Impairment, if deemed
temporary, is recognized through a valuation allowance to the extent that
estimated fair value is less than the recorded amount.
(10) RECENT ACCOUNTING PRONOUNCEMENTS
In December 2010, the FASB issued updated guidance on goodwill and other
intangibles regarding when to perform step two of the goodwill impairment test
for reporting units with zero or negative carrying amounts. This guidance
became effective for the Company on October 1, 2011. The adoption of this
guidance did not have a material effect on the Company's condensed
consolidated financial statements.
In September 2011, the FASB issued guidance regarding testing goodwill for
impairment. The new guidance allows an entity the option to make a
qualitative evaluation about the likelihood of goodwill impairment to
determine whether it should calculate the fair value of the reporting unit.
The guidance is effective for annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011, with early
adoption permitted. The Company does not expect the adoption of this guidance
to have a material impact on its condensed consolidated financial statements.
In April 2011, the FASB issued guidance regarding Transfer and Servicing for
the Reconsideration of Effective Control for Repurchase Agreements. The
guidance removes from the assessment of effective control the criterion
requiring the transferor to have the ability to repurchase or redeem the
financial assets on substantially the agreed terms, even in the event of
default by the transferee, and the collateral maintenance implementation
guidance related to that criterion. Other criteria applicable to the
assessment of effective control are not changed by the amendments. The
guidance is effective for the first interim or annual period beginning on or
after December 15, 2011. The guidance should be applied prospectively to
transactions or modifications of existing transactions that occur on or after
the effective date. Early adoption is not permitted. The Company does not
expect the adoption of this guidance to have a material impact on its
condensed consolidated financial statements.
32
In May 2011, the FASB issued amended guidance regarding the application of
existing fair value measurement guidance. The provisions of the amended
guidance clarify the application of existing fair value measurement guidance
and revise certain measurement and disclosure requirements to achieve
convergence of GAAP and International Financial Reporting Standards. The
provisions of this amended guidance are effective for the Company's first
reporting period beginning January 1, 2012, with early adoption not permitted.
The Company is in the process of evaluating the impact of adoption of this
guidance and does not expect it to have a material impact on its condensed
consolidated financial statements.
In June 2011, the FASB issued amended guidance on the presentation of
comprehensive income (loss). The new guidance eliminates the current option
to present the components of other comprehensive income (loss) in the
statement of changes in equity and requires the presentation of net income
(loss) and other comprehensive income (loss) (and their respective components)
either in a single continuous statement or in two separate but consecutive
statements. The amendments do not alter any current recognition or
measurement requirements with respect to the items of other comprehensive
income (loss). The provisions of this guidance are effective for the
Company's first reporting period beginning on January 1, 2012, with early
adoption permitted. The Company does not expect it to have a material impact
on its condensed consolidated financial statements.
In December 2011, the FASB issued guidance that defers the effective date of
the requirement to present separate line items on the income statement for
reclassification adjustments of items out of accumulated other comprehensive
income into net income. The deferral is temporary until FASB reconsiders the
operational concerns and needs of financial statement users. The FASB has not
yet announced a timetable for its reconsideration. The Company does not
expect this guidance to have a material impact on its condensed 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 consolidated
financial condition and results of operations of the Company at and for the
three months ended December 31, 2011. This analysis as well as other sections
of this report contains certain "forward-looking statements."
Certain matters discussed in this Quarterly Report on Form 10-Q may contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are not statements
of historical fact and often include the words "believes," "expects,"
"anticipates," "estimates," "forecasts," "intends," "plans," "targets,"
"potentially," "probably," "projects," "outlook" or similar expressions or
future or conditional verbs such as "may," "will," "should," "would" and
"could." Forward-looking statements include statements with respect to our
beliefs, plans, objectives, goals, expectations, assumptions and statements
about, among other things, expectations of the business environment in which
we operate and projections of future performance. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors that could cause our actual results to differ materially from the
results anticipated or implied by forward-looking statements, including, but
not limited to: the credit risks of lending activities, including changes in
the level and trend of loan delinquencies and write-offs and changes in our
allowance for loan losses and provision for loan losses that may be impacted
by deterioration in the housing and commercial real estate markets which may
lead to increased losses and non-performing assets in our loan portfolio, and
may result in our allowance for loan losses not being adequate to cover actual
losses, and require us to materially increase our loan loss reserves; changes
in general economic conditions, either nationally or in our market areas;
changes in the levels of general interest rates, and the relative differences
between short and long term interest rates, deposit interest rates, our net
interest margin and funding sources; fluctuations in the demand for loans, the
number of unsold homes, land and other properties and fluctuations in real
estate values in our market areas; secondary market conditions for loans and
our ability to sell loans in the secondary market; results of examinations of
us by the Board of Governors of the Federal Reserve System and our bank
subsidiary by the Federal Deposit Insurance Corporation, the Washington State
Department of Financial Institutions, Division of Banks or other regulatory
authorities, including the possibility that any such regulatory authority may
require us, among other things, to increase our allowance for loan losses,
write-down assets, change our regulatory capital position or affect our
ability to borrow funds or maintain or increase deposits or impose additional
requirements or restrictions, which could adversely affect our liquidity and
earnings; our compliance with regulatory enforcement actions, including
regulatory memoranda of understandings ("MOUs") to which we are subject;
legislative or regulatory changes that adversely affect our business including
changes in regulatory
33
policies and principles, or the interpretation of regulatory capital or other
rules and any changes in the rules applicable to institutions participating in
the TARP Capital Purchase Program; the impact of the Dodd-Frank Wall Street
Reform and Consumer Protection Act and the implementation of related rules and
regulations; our ability to attract and retain deposits; further increases in
premiums for deposit insurance; our ability to control operating costs and
expenses; the use of estimates in determining the fair values of certain of
our assets, which estimates may prove to be incorrect and result in
significant declines in valuation; difficulties in reducing risk associated
with the loans on our consolidated balance sheet; staffing fluctuations in
response to product demand or the implementation of corporate strategies that
affect our work force and potential associated charges; computer systems on
which we depend could fail or experience a security breach; our ability to
retain key members of our senior management team; costs and effects of
litigation, including settlements and judgments; our ability to successfully
integrate any assets, liabilities, customers, systems, and management
personnel we may in the future acquire into our operations and our ability to
realize related revenue synergies and cost savings within expected time frames
and any goodwill charges related thereto; our ability to manage loan
delinquency rates; increased competitive pressures among financial services
companies; changes in consumer spending, borrowing and savings habits; the
availability of resources to address changes in laws, rules, or regulations or
to respond to regulatory actions; our ability to pay dividends on our common
and preferred stock; adverse changes in the securities markets; inability of
key third-party providers to perform their obligations to us; changes in
accounting policies and practices, as may be adopted by the financial
institution regulatory agencies or the Financial Accounting Standards Board,
including additional guidance and interpretation on accounting issues and
details of the implementation of new accounting methods; the economic impact
of war or any terrorist activities; other economic, competitive, governmental,
regulatory, and technological factors affecting our operations; pricing,
products and services; and other risks detailed in our reports filed with the
Securities and Exchange Commission, including our Annual Report on Form 10-K
for the year ended September 30, 2011.
Any of the forward-looking statements that we make in this Form 10-Q and in
the other public statements we make are based upon management's beliefs and
assumptions at the time they are made. We undertake no obligation to publicly
update or revise any forward-looking statements included in this report or to
update the reasons why actual results could differ from those contained in
such statements, whether as a result of new information, future events or
otherwise. We caution readers not to place undue reliance on any
forward-looking statements. We do not undertake and specifically disclaim any
obligation to revise any forward-looking statements to reflect the occurrence
of anticipated or unanticipated events or circumstances after the date of such
statements. These risks could cause our actual results for 2012 and beyond to
differ materially from those expressed in any forward-looking statements by,
or on behalf of us, and could negatively affect the Company's operations and
stock price performance.
Overview
Timberland Bancorp, Inc., a Washington corporation, is the holding company for
Timberland Bank. The Bank opened for business in 1915 and serves consumers
and businesses across Grays Harbor, Thurston, Pierce, King, Kitsap and Lewis
counties, Washington with a full range of lending and deposit services through
its 22 branches (including its main office in Hoquiam). At December 31, 2011,
the Company had total assets of $735.85 million and total shareholders' equity
of $87.33 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's operations.
The profitability of the Company's operations depends primarily on its net
interest income after provision for loan losses. Net interest income is the
difference between interest income, which is the income that the Company earns
on interest-earning assets, comprised of primarily loans and investments, and
interest expense, the amount the Company pays on its interest-bearing
liabilities, which are primarily deposits and borrowings. Net interest income
is affected by changes in the volume and mix of interest earning assets,
interest earned
34
on those assets, the volume and mix of interest bearing liabilities and
interest paid on those interest bearing liabilities. Management strives to
match the re-pricing characteristics of the interest earning assets and
interest bearing liabilities to protect net interest income from changes in
market interest rates and changes in the shape of the yield curve.
The provision for loan losses is dependent on changes in the loan portfolio
and management's assessment of the collectability of the loan portfolio as
well as prevailing economic and market conditions. The provision for loan
losses reflects the amount that the Company believes is adequate to cover
potential credit losses in its loan portfolio.
Net income is also affected by non-interest income and non-interest expenses.
For the three month period ended December 31, 2011, non-interest income
consisted primarily of service charges and fees on deposit accounts, gain on
sale of loans, ATM transaction fees, an increase in the cash surrender value
of life insurance, other operating income and a valuation recovery on MSRs.
Non-interest income is reduced by net OTTI losses on MBS and other
investments. Non-interest expenses consisted primarily of salaries and
employee benefits, premises and equipment, advertising, ATM expenses, OREO
expenses, postage and courier expenses, professional fees, deposit insurance
premiums, other insurance premiums, state and local taxes, loan administration
expenses, deposit operation expenses, data processing expenses and
telecommunication expenses. Non-interest income and non-interest expenses are
affected by the growth of our operations and growth in the number of loan and
deposit accounts.
Results of operations may be affected significantly by general and local
economic and competitive conditions, changes in market interest rates,
governmental policies and actions of regulatory authorities.
The Bank is a community-oriented bank which has traditionally offered a
variety of savings products to its retail customers while concentrating its
lending activities on real estate mortgage loans. Lending activities have
been focused primarily on the origination of loans secured by real estate,
including residential construction loans, one- to four-family residential
loans, multi-family loans, commercial real estate loans and land loans. The
Bank originates adjustable-rate residential mortgage loans that do not qualify
for sale in the secondary market. The Bank also originates commercial
business loans.
Critical Accounting Policies and Estimates
The Company has identified several accounting policies that as a result of
judgments, estimates and assumptions inherent in those policies, are critical
to an understanding of the Company's Condensed Consolidated Financial
Statements.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed to be
sufficient to provide for estimated loan losses based on evaluating known and
inherent risks in the loan portfolio. The allowance is provided 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, delinquency levels, actual loan loss
experience, current economic conditions, and detailed analysis of individual
loans for which the full collectability may not be assured. The detailed
analysis includes methods to estimate the fair value of loan collateral and
the existence of potential alternative sources of repayment. The allowance
consists of specific and general components. The specific component relates to
loans that are deemed impaired. For such loans that are classified as
impaired, an allowance is established when the discounted cash flows (or
collateral value or observable market price) of the impaired loan is lower
than the recorded value of that loan. The general component covers loans that
are not evaluated individually for impairment and is based on historical loss
experience adjusted for qualitative factors. The appropriateness of the
allowance for loan losses is estimated
35
based upon these factors and trends identified by management at the time
consolidated financial statements are prepared.
In accordance with the FASB guidance for receivables, a loan is considered
impaired when it is probable that a creditor will be unable to collect all
amounts (principal and interest) due according to the contractual terms of the
loan agreement. Troubled debt restructured loans are considered impaired
loans. Smaller balance homogenous loans, such as residential mortgage loans
and consumer loans, may be collectively evaluated for impairment. When a loan
has been identified as being impaired, the amount of the impairment is
measured by using discounted cash flows, except when, as an alternative, the
current estimated fair value of the collateral, reduced by estimated costs to
sell, is used. The valuation of real estate collateral is subjective in nature
and may be adjusted in future periods because of changes in economic
conditions. Management considers third-party appraisals, as well as
independent fair market value assessments from realtors or persons involved in
selling real estate in determining the estimated fair value of particular
properties. In addition, as certain of these third-party appraisals and
independent fair market value assessments are only updated periodically,
changes in the values of specific properties may have occurred subsequent to
the most recent appraisals. Accordingly, the amounts of any such potential
changes and any related adjustments are generally recorded at the time such
information is received. When the measurement of the impaired loan is less
than the recorded investment in the loan (including accrued interest and net
deferred loan origination fees or costs), impairment is recognized by creating
or adjusting an allocation of the allowance for loan losses and uncollected
accrued interest is reversed against interest income. If ultimate collection
of principal is in doubt, all cash receipts on impaired loans are applied to
reduce the principal balance.
A provision for loan losses is charged against operations and is added to the
allowance for loan losses based on quarterly comprehensive analyses of the
loan portfolio. The allowance for loan losses is allocated to certain loan
categories based on the relative risk characteristics, asset classifications
and actual loss experience of the loan portfolio. While management has
allocated the allowance for loan losses to various loan portfolio segments,
the allowance is general in nature and is available for the loan portfolio in
its entirety.
The ultimate recovery of all loans is susceptible to future market and other
factors beyond the Company's control. These factors may result in losses or
recoveries differing significantly from those provided in the consolidated
financial statements. The Company has experienced a significant decline in
valuations for some real estate collateral since October 2008. If real estate
values continue to decline and as updated appraisals are received on
collateral for impaired loans, the Company may need to increase the allowance
for loan losses appropriately. In addition, bank regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowance for loan losses, and may require the Company to make additions to
the allowance based on their judgment about information available to them at
the time of their examinations.
MSRs (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 evaluated at least annually by a third party firm
for impairment by comparing actual cash flows and estimated cash flows from
the servicing assets to those estimated at the time the 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 MSRs 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
36
appropriate if they are applied at different times.
For purposes of measuring impairment, the rights must be stratified by one or
more predominant risk characteristics of the underlying loans. The Company
stratifies its capitalized MSRs based on product type, interest rate and term
of the underlying loans. The amount of impairment recognized is the amount,
if any, by which the amortized cost of the rights for each stratum exceed
their fair value. Impairment, if deemed temporary, is recognized through a
valuation allowance to the extent that fair value is less than the recorded
amount.
OTTIs (Other-Than-Temporary Impairments) in the Estimated Fair Value of
Investment Securities Unrealized losses on available for sale and held to
maturity investment securities are evaluated at least quarterly to determine
whether declines in value should be considered "other than temporary" and
therefore be subject to immediate loss recognition through earnings for the
portion related to credit losses. Although these evaluations involve
significant judgment, an unrealized loss in the fair value of a debt security
is generally deemed to be temporary when the fair value of the security is
less than the recorded value primarily as a result of changes in interest
rates, when there has not been significant deterioration in the financial
condition of the issuer, and it is more likely than not the Company will not
have to sell the security before recovery of its cost basis. An unrealized
loss in the value of an equity security is generally considered temporary when
the estimated fair value of the security is less than the recorded value
primarily as a result of current market conditions and not a result of
deterioration in the financial condition of the issuer or the underlying
collateral (in the case of mutual funds) and the Company has the intent and
the ability to hold the security for a sufficient time to recover the recorded
value. Other factors that may be considered in determining whether a decline
in the value of either a debt or equity security is "other than temporary"
include ratings by recognized rating agencies, capital strength and near-term
prospects of the issuer, and recommendation of investment advisors or market
analysts. Therefore, continued deterioration of current market conditions
could result in additional impairment losses recognized within the Company's
investment portfolio.
Goodwill
Goodwill is initially recorded when the purchase price paid for an acquisition
exceeds the estimated fair value of the net identified tangible and intangible
assets acquired and liabilities assumed. Goodwill is presumed to have an
indefinite useful life and is analyzed annually for impairment. An annual
test is performed during the third quarter of each fiscal year, or more
frequently if indicators of potential impairment exist, to determine if the
recorded goodwill is impaired. If the estimated fair value of the Company's
sole reporting unit exceeds the recorded value, goodwill is not considered
impaired and no additional analysis is necessary.
One of the circumstances evaluated when determining if an impairment test of
goodwill is needed more frequently than annually is the extent and duration
that the Company's market capitalization (total common shares outstanding
multiplied by current stock price) is less than the total equity applicable to
common shareholders. During the quarter ended June 30, 2011, the Company
engaged a third party firm to perform the annual test for goodwill impairment.
The test concluded that recorded goodwill was not impaired. As of December
31, 2011, there have been no events or changes in circumstances that would
indicate a potential impairment. No assurance can be given, however, that the
Company will not record an impairment loss on goodwill in the future.
OREO (Other Real Estate Owned) and Other Repossessed Assets
OREO and other repossessed assets consist of properties or assets acquired
through or by deed in lieu of foreclosure, and are recorded initially at the
estimated fair value of the properties less estimated costs of disposal.
Costs relating to the development and improvement of the properties or assets
are capitalized while costs relating to holding the properties or assets are
expensed. The valuation of real estate is subjective in nature and may be
adjusted in future periods because of changes in economic conditions.
Management periodically obtains updated valuations from third party
appraisals, as well as independent fair market value
37
assessments from realtors or persons involved in the selling of real estate in
determining the estimated fair value of particular properties. A charge to
earnings is recorded if the recorded value of a property exceeds its estimated
net realizable value.
Comparison of Financial Condition at December 31, 2011 and September 30, 2011
The Company's total assets decreased by $2.37 million, or 0.3%, to $735.85
million at December 31, 2011 from $738.22 million at September 30, 2011. The
decrease was primarily the result of a decrease in OREO and other repossessed
assets.
Net loans receivable increased by $1.02 million, or 0.2%, to $529.04 million
at December 31, 2011 from $528.02 million at September 30, 2011. The increase
was primarily due to an increase in commercial business loan balances,
commercial real estate construction loan balances and custom and owner/builder
construction loan balances. These increases were partially offset by
decreases in one-to four-family loan balances, land loan balances and consumer
loan balances.
Total deposits decreased by $3.50 million, or 0.6%, to $589.18 million at
December 31, 2011 from $592.68 million at September 30, 2011, primarily as a
result of decreases in certificates of deposit account balances and
non-interest bearing account balances. These decreases were partially offset
by increases in money market account balances, savings account balances and
N.O.W. checking account balances.
Shareholders' equity increased by $1.13 million, or 1.3%, to $87.33 million at
December 31, 2011 from $86.21 million at September 30, 2011.The increase in
shareholders' equity was primarily a result of net income for the quarter.
A more detailed explanation of the changes in significant balance sheet
categories follows:
Cash and Cash Equivalents and CDs Held for Investment: Cash and cash
equivalents and CDs held for investment increased by $633,000, or 0.5%, to
$131.36 million at December 31, 2011 from $130.72 million at September 30,
2011. The increase was primarily due to a $1.15 million increase in CDs held
for investment, which was partially offset by a $518,000 decrease in cash and
cash equivalents.
MBS (Mortgage-backed Securities) and Other Investments: Mortgage-backed
securities and other investments decreased by $637,000, or 5.9%, to $10.23
million at December 31, 2011 from $10.86 million at September 30, 2011. The
decrease was primarily a result of scheduled amortization and prepayments on
MBS and OTTI charges recorded on private label residential MBS. The securities
on which the OTTI charges were recognized were acquired from the in-kind
redemption of the Company's investment in the AMF family of mutual funds in
June 2008. For additional information on MBS and other investments, see Note
4 of the Notes to Condensed Consolidated Financial Statements contained in
"Item 1, Financial Statements."
Loans: Net loans receivable increased by $1.02 million, or 0.2%, to $529.04
million at December 31, 2011 from $528.02 million at September 30, 2011. The
increase in the portfolio was primarily a result of a $4.92 million increase
in commercial business loan balances, a $3.83 million increase in commercial
real estate construction loan balances and a $2.59 million increase in custom
and owner/builder construction loan balances. These increases to net loans
receivable were partially offset by a $4.18 million decrease in one-to
four-family loan balances and a $3.04 million decrease in land loan balances.
Loan originations increased to $51.63 million for the three months ended
December 31, 2011 from $49.15 million for the three months ended December 31,
2010. The Company continued to sell longer-term fixed rate loans for asset
liability management purposes and to generate non-interest income. The
Company sold fixed
38
rate one- to four-family mortgage loans totaling $22.92 million for the three
months ended December 31, 2011 compared to $26.86 million for the three months
ended December 31, 2010.
For additional information, see Note 6 of the Notes to Condensed Consolidated
Financial Statements contained in "Item 1, Financial Statements."
Premises and Equipment: Premises and equipment decreased by $36,000, or 0.2%,
to $17.35 million at December 31, 2011 from $17.39 million at September 30,
2011. The decrease was primarily a result of depreciation.
OREO (Other Real Estate Owned): OREO and other repossessed assets decreased by
$3.10 million, or 28.6%, to $7.71 million at December 31, 2011 from $10.81
million at September 30, 2011, primarily due to the sale of OREO properties.
During the three months ended December 31, 2011, 12 OREO properties and other
repossessed assets totaling $3.70 million were sold for a net loss of
$271,000. At December 31, 2011, OREO consisted of 52 individual properties
and three other repossessed assets. The properties consisted of 37 land
parcels totaling $3.50 million, ten single family homes totaling $1.60
million, three commercial real estate properties totaling $1.23 million, a
condominium project of $842,000, and a land development project of $469,000.
The three other repossessed assets totaled $73,000.
Goodwill and CDI: The recorded value of goodwill of $5.65 million at December
31, 2011 remained unchanged from September 30, 2011. The amortized value of
the CDI decreased $37,000, or 9.3%, to $360,000 at December 31, 2011 from
$397,000 at September 30, 2011. The decrease was attributable to scheduled
amortization of the CDI.
Prepaid FDIC Insurance Assessment: The prepaid FDIC insurance assessment
decreased $230,000, or 10.9%, to $1.87 million at December 31, 2011 from $2.10
million at September 30, 2011 as a portion of the prepaid amount was expensed.
Deposits: Deposits decreased by $3.50 million, or 0.6%, to $589.18 million at
December 31, 2011 from $592.68 million at September 30, 2011. The decrease
was primarily a result of an $8.62 million decrease in certificates of deposit
account balances and a $3.32 million decrease in non-interest bearing deposit
account balances. These decreases were partially offset by a $5.24 million
increase in money market account balances, a $1.70 million increase in savings
account balances and a $1.50 million increase in N.O.W. checking account
balances. See the "Deposit Breakdown" schedule below for additional
information.
FHLB Advances: FHLB advances were $55.00 million at December 31, 2011 and
September 30, 2011. For additional information, see the "Borrowing Maturity
Schedule" set forth below.
Shareholders' Equity: Total shareholders' equity increased by $1.13 million,
or 1.3%, to $87.33 million at December 31, 2011 from $86.21 million at
September 30, 2011. The increase was primarily due to net income of $1.02
million for the three months ended December 31, 2011.
The FRB has denied the Company's requests to pay cash dividends on its
outstanding Series A Preferred Stock held by the Treasury for the quarterly
dividend payments due for the last seven quarters commencing with the payment
due May 15, 2010. Cash dividends on the Series A Preferred Stock are
cumulative and accrue and compound on each subsequent date. Accordingly,
during the deferral period, the Company will continue to accrue, and reflect
in the consolidated financial statements, the deferred dividends on the
outstanding Series A Preferred Stock. As a result of not receiving permission
from the FRB to pay these dividends, the Company had not made seven quarterly
dividend payments as of December 31, 2011. At December 31, 2011, the Company
had accrued preferred stock dividends in arrears of $1.46 million.
39
Non-performing Assets: Non-performing assets consist of non-accrual loans,
loans past due 90 days or more and still accruing, non-accrual investment
securities, and OREO and other repossessed assets. Non-performing assets
increased by $3.89 million, or 10.5%, to $40.84 million at December 31, 2011
from $36.95 million at September 30, 2011. The increase in non-performing
assets was primarily a result of a $6.21 million increase in non-accrual loans
and a $923,000 increase in loans past due 90 days and still accruing. These
increases to non-performing assets were partially offset by a $3.10 million
decrease in OREO and other repossessed assets and a $146,000 decrease in
non-performing investment securities. The increase in loans past due 90 days
or more and still accruing was primarily due to a delay in obtaining final
plat approval for a pre-sold residential building plat in King County,
Washington. The Company expects the sale to be consummated by February 28,
2012, which will reduce the loans in the past 90 days and still accruing
category by $2.32 million.
For additional information, see Note 6 of the Notes to Condensed Consolidated
Financial Statements contained in "Item 1, Financial Statements."
Deposit Breakdown
-----------------
The following table sets forth the composition of the Company's deposit
balances.
At At
December 31, 2011 September 30, 2011
----------------- ------------------
(Dollars in thousands)
Non-interest bearing $ 61,178 $ 64,494
N.O.W. checking 156,799 155,299
Savings 85,335 83,636
Money market accounts 66,266 61,028
CDs under $100 136,859 141,899
CDs $100 and over 82,738 86,322
-------- --------
Total deposits $589,175 $592,678
======== ========
The Company had no brokered deposits at December 31, 2011 or September 30,
2011.
Borrowing Maturity Schedule
---------------------------
The Company has short- and long-term borrowing lines with the FHLB of Seattle
with total credit available 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 December 31, At September 30,
2011 2011
----------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
Short-term $ - - - -% $ - - - -%
Long-term 55,000 100.0 55,000 100.0
------- ----- ------- -----
Total FHLB advances $55,000 100.0% $55,000 100.0%
======= ===== ======= =====
The long-term borrowings mature at various dates through September 2017 and
bear interest at rates ranging from 3.49% to 4.34%. The weighted average
interest rate on FHLB borrowings at December 31, 2011 was
40
4.01%. Principal reduction amounts due for future years ending September 30
are as follows (dollars in thousands):
Remainder of 2012 $10,000
2013 - -
2014 - -
2015 - -
2016 - -
2017 45,000
-------
Total $55,000
=======
A portion of these advances have a putable feature and may be called by the
FHLB earlier than the above schedule indicates. As of December 31, 2011, the
Company had additional available borrowing capacity of $117.79 million with
the FHLB.
The Company also maintains a short-term borrowing line with the FRB with total
credit based on eligible collateral. As of December 31, 2011, the Company had
a borrowing line capacity with the FRB of $50.58 million of which none was
outstanding.
Comparison of Operating Results for the Three Months Ended December 31, 2011
and 2010
The Company reported net income of $1.28 million for the quarter ended
December 31, 2011 compared to net income of $1.36 million for the quarter
ended December 31, 2010. Net income to common shareholders after adjusting
for the preferred stock dividend and the preferred stock discount accretion
was $1.02 million for the quarter ended December 31, 2011 compared to net
income of $1.10 million for the quarter ended December 31, 2010. The slight
decrease in earnings for the quarter was primarily a result of decreased
non-interest income and decreased net interest income, which was partially
offset by a decreased provision for loan losses and decreased non-interest
expense. Net income per diluted common share was $0.15 for the quarter ended
December 31, 2011 compared to net income per diluted common share of $0.16 for
the quarter ended December 31, 2010.
A more detailed explanation of the income statement categories is presented
below.
Net Income: The Company reported net income of $1.28 million for the quarter
ended December 31, 2011 compared to net income of $1.36 million for the
quarter ended December 31, 2010. Net income to common shareholders after
adjusting for preferred stock dividends of $208,000 and preferred stock
discount accretion of $59,000 was $1.02 million, or $0.15 per diluted common
share for the quarter ended December 31, 2011, compared to $1.10 million, or
$0.16 per diluted common share for the quarter ended December 31, 2010.
The $76,000 decrease in net income for the quarter ended December 31, 2011 was
primarily the result of a $507,000 decrease in non-interest income and a
$30,000 decrease in net interest income. These decreases to net income were
partially offset by a $250,000 decrease in the provision for loan losses, a
$155,000 decrease in non-interest expenses and a $56,000 decrease in the
provision for federal and state income taxes.
Net Interest Income: Net interest income decreased by $30,000, or 0.5%, to
$6.30 million for the quarter ended December 31, 2011 from $6.33 million for
the quarter ended December 31, 2010. The slight decrease in net interest
income was primarily attributable to a decrease in the net interest margin,
which was partially offset by an increase in the level of total
interest-bearing assets.
Total interest and dividend income decreased by $779,000 or 8.8%, to $8.03
million for the quarter ended December 31, 2011 from $8.81 million for the
quarter ended December 31, 2010 as the yield on interest bearing
41
assets decreased to 4.76% from 5.31% and average loans receivable declined
$1.13 million as compared to the same period last year. The decrease in the
weighted average yield on interest bearing assets was primarily a result of
decreased market rates for loans and an increase in the amount of lower
yielding cash equivalents and other liquid assets. Total interest expense
decreased by $749,000, or 30.2%, to $1.73 million for the quarter ended
December 31, 2011 from $2.48 million for the quarter ended December 31, 2010
as the average rate paid on interest bearing liabilities decreased to 1.18%
for the quarter ended December 31, 2011 from 1.70% for the quarter ended
December 31, 2010. The decrease in funding costs was primarily a result of a
decrease in overall market rates and a change in the composition of the
deposit base as the percentage of certificates of deposit account balances
decreased. The net interest margin decreased to 3.73% for the quarter ended
December 31, 2011 from 3.82% for the quarter ended December 31, 2010.
42
Average Balances, Interest and Average Yields/Cost
The following tables sets forth, for the periods indicated, information
regarding average balances of assets and liabilities as well as the total
dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average yields
and costs. Such yields and costs for the periods indicated are derived by
dividing income or expense by the average daily balance of assets or
liabilities, respectively, for the periods presented. (Dollars in thousands)
Three Months Ended December 31,
----------------------------------------------------
2011 2010
------------------------ -------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ---- ------- --------- ----
Interest-bearing assets: (1)
Loans receivable (2) $537,876 $7,805 5.80% $539,007 $8,534 6.33%
MBS and other
investments (2) 9,616 125 5.20 13,195 182 5.52
FHLB stock and equity
securities 6,704 13 0.78 6,689 8 0.47
Interest-bearing
deposits 121,236 89 0.29 104,870 87 0.33
-------- ------ -------- ------
Total interest-
bearing assets 675,432 8,032 4.76 663,761 8,811 5.31
Non-interest-bearing
assets 60,833 58,246
-------- --------
Total assets $736,265 $722,007
======== ========
Interest-bearing
liabilities:
Savings accounts $ 84,511 83 0.39 $ 68,040 123 0.72
Money market accounts 63,708 96 0.60 56,935 134 0.93
N.O.W. accounts 154,319 210 0.54 155,118 420 1.07
Certificates of
deposit 223,562 780 1.38 243,128 1,074 1.75
Short-term
borrowings (3) 559 - 0.05 546 - 0.05
Long-term
borrowings (4) 55,000 562 4.05 55,000 729 5.26
-------- ------ -------- ------
Total interest-
bearing
liabilities 581,659 1,731 1.18 578,767 2,480 1.70
-------- ------ -------- ------
Non-interest-bearing
liabilities 68,072 57,644
-------- --------
Total liabilities 649,731 636,411
Shareholders' equity 86,534 85,596
-------- --------
Total liabilities and
shareholders' equity $736,265 $722,007
======== ========
Net interest income
$6,301 $6,331
====== ======
Interest rate spread 3.58% 3.61%
====== ======
Net interest margin (5) 3.73% 3.82%
====== ======
Ratio of average
interest-bearing
assets to average
interest-bearing
liabilities 116.12% 114.69%
====== ======
-----------------
(1) Interest yield on loans and MBS is calculated assuming a 30/360 basis;
interest yield on all other categories is based on daily interest basis.
(2) Average balances include loans and MBS on non-accrual status.
(3) Includes FHLB and FRB advances with original maturities of less than one
year and other short-term borrowings repurchase agreements.
(4) Includes FHLB advances with original maturities of one year or greater.
(5) Net interest income divided by total average interest bearing assets,
annualized.
43
Rate Volume Analysis
The following table sets forth the effects of changing rates and volumes on
the net interest income of the Company. Information is provided with respect
to the (i) effects on interest income attributable to changes 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. (In thousands)
Three months ended December 31, 2011
compared to three months
ended December 31, 2010
increase (decrease)
due to
------
Rate Volume Net Change
------ -------- ----------
Interest-bearing assets:
Loans receivable (1) $ (712) $ (17) $ (729)
MBS and other investments (10) (47) (57)
FHLB stock and equity securities 5 - - 5
Interest-bearing deposits (10) 12 2
------ ----- ------
Total net decrease in
income on interest-earning assets (727) (52) (779)
Interest-bearing liabilities:
Savings accounts (65) 25 (40)
N.O.W. accounts (208) (2) (210)
Money market accounts (53) 15 (38)
CD accounts (212) (82) (294)
Long-term borrowings (167) - - (167)
------ ----- ------
Total net decrease in expense
on interest bearing liabilities (705) (44) (749)
------ ----- ------
Net decrease in
net interest income $ (22) $ (8) $ (30)
====== ===== ======
(1) Excludes interest on loans 90 days or more past due. Includes loans
originated for sale.
Provision for Loan Losses: The provision for loan losses decreased $250,000,
or 27.8%, to $650,000 for the quarter ended December 31, 2011 from $900,000
for the quarter ended December 31, 2010. The decrease in the provision for
loan losses was primarily due to $524,000 in allowance for loan loss
recoveries for the quarter ended December 31, 2011. Also contributing to the
reduction in the provision for loan losses was a change in the composition of
the loan portfolio as the level of higher risk loan categories (construction
and land development loans and land loans) decreased at December 31, 2011
relative to December 31, 2010. Net charge-offs for the quarter ended
December 31, 2011 were $624,000 compared to $1.60 million for the quarter
ended September 30, 2011 and $415,000 for the quarter ended December 31, 2010.
The Company has established a comprehensive methodology for determining the
provision for loan losses. On a quarterly basis the Company 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
44
experience for various loan segments, changes in economic conditions,
delinquency rates, a detailed analysis of impaired loans, and other factors to
determine an appropriate level of allowance for loan losses. Based on its
comprehensive analysis, management believes the allowance for loan losses of
$11.97 million at December 31, 2011 (2.21% of loans receivable and loans held
for sale and 39.3% of non-performing loans) was adequate to provide for
probable losses based on an evaluation of known and inherent risks in the loan
portfolio at that date. Impaired loans are subjected to an impairment analysis
to determine an appropriate reserve amount to be held against each loan. The
aggregate principal impairment amount determined at December 31, 2011 was
$2.92 million. The allowance for loan losses was $11.75 million (2.19% of
loans receivable and loans held for sale and 44.4% of non-performing loans) at
December 31, 2010.
Non-accrual and loans past due 90 days or more and still accruing increased
$7.14 million to $30.48 million at December 31, 2011 from $23.34 million at
September 30, 2011. For additional information, see the section entitled
"Comparison of Financial Condition at December 31, 2011 and September 30, 2011
- Non-performing Assets" included herein.
While management believes the estimates and assumptions used in its
determination of the adequacy of the allowance are reasonable, there can be no
assurance that such estimates and assumptions will not be proven incorrect in
the future, or that the actual amount of future provisions will not exceed the
amount of past provisions or that any increased provisions that may be
required will not adversely impact the Company's consolidated financial
condition and results of operations. In addition, the determination of the
amount of the Bank's allowance for loan losses is subject to review by bank
regulators as part of the routine examination process, which may result in the
establishment of additional reserves based upon their analysis of information
available to them at the time of their examination. In addition, because
future events affecting borrowers and collateral cannot be predicted with
certainty, there can be no assurance that the existing allowance for loan
losses is adequate or that substantial increases will not be necessary should
the quality of any loans deteriorate. Any material increase in the allowance
for loan losses would adversely affect the Company's financial condition and
results of operations. For additional information, see Note 6 of the Notes to
Condensed Consolidated Financial Statements contained in "Item 1, Financial
Statements."
Non-interest Income: Total non-interest income decreased $507,000, or 17.2%,
to $2.44 million for the quarter ended December 31, 2011 from $2.95 million
for the quarter ended December 31, 2010. The decrease was primarily a result
of a $550,000 change in the valuation recovery on MSRs and a $141,000 decrease
in gain on sale of loans. These decreases to non-interest income were
partially offset by a $106,000 increase in ATM transaction fees and a $76,000
reduction in net OTTI on MBS and other investments.
The valuation recovery on MSRs is based on a third party valuation of the MSR
asset. The Company recorded a valuation recovery on MSRs of $84,000 for the
quarter ended December 31, 2011 compared to a recovery of $634,000 for the
quarter ended December 31, 2010. At December 31, 2011, the MSR asset had a
remaining valuation allowance of $400,000 that is available for future
recovery. The decrease in gain on sale of loans was primarily a result of a
decreased volume of fixed rate one-to four family loans sold during the
quarter ended December 31, 2011.
Non-interest Expense: Total non-interest expense decreased by $155,000, or
2.4%, to $6.22 million for the quarter ended December 31, 2011 from $6.38
million for the quarter ended December 31, 2010. The decrease was primarily
the result of a $198,000 decrease in salaries and employee benefits expense, a
$115,000 decrease in FDIC insurance expense and a $98,000 decrease in other
insurance expense. The decrease in salaries and employee benefits expense was
primarily a result of increased loan origination fees that offset salary
expense and a one-time benefit of $99,000 from changing the Company's employee
medical insurance provider. These decreases to non-interest expense were
partially offset by increases to deposit operations expense and OREO and other
repossessed assets expense.
45
Provision for Federal and State Income Taxes: The provision for federal and
state income taxes decreased $56,000, or 8.7%, to $591,000 for the quarter
ended December 31, 2011 from $647,000 for the quarter ended December 31, 2010,
primarily due to lower income before taxes. The Company's effective tax rate
was 31.54% for the quarter ended December 31, 2011 and 32.25% for the quarter
ended December 31, 2010.
Liquidity
---------
The Company's primary sources of funds are customer deposits, proceeds from
principal and interest payments on loans and MBS, proceeds from the sale of
loans, proceeds from maturing securities and maturing CDs held for investment,
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 three months ended December 31, 2011. The
Condensed Consolidated 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 certain assets and liabilities. Investing activities consist primarily of
proceeds from maturities and sales of securities, purchases of securities, the
net change in loans and proceeds from the sale of OREO and other repossessed
assets. Financing activities present the cash flows associated with the
Company's deposit accounts, other borrowings and stock related transactions.
The Company's total cash and cash equivalents decreased by $518,000, or 0.5%
to $111.55 million at December 31, 2011 from $112.07 million at September 30,
2011.
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 December 31,
2011, the Bank's regulatory liquidity ratio (net cash, and short-term and
marketable assets, as a percentage of net deposits and short-term liabilities)
was 22.24%. The Bank maintained an uncommitted credit facility with the FHLB
that provided for immediately available advances up to an aggregate amount
equal to 30% of total assets, limited by available collateral, under which
$55.00 million was outstanding and $117.79 million was available for
additional borrowings at December 31, 2011. The Bank also maintains a
short-term borrowing line with the FRB with total credit based on eligible
collateral. At December 31, 2011, the Bank had $50.58 million available for
borrowings with the FRB and there was no outstanding balance on this borrowing
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 the
FRB.
The Bank's primary investing activity is the origination of one- to
four-family mortgage loans, commercial mortgage loans, construction loans,
consumer loans, and commercial business loans. At December 31, 2011, the Bank
had loan commitments totaling $33.13 million and undisbursed construction
loans in process totaling $17.07 million. The Bank anticipates that it will
have sufficient funds available to meet current loan commitments. CDs that
are scheduled to mature in less than one year from December 31, 2011 totaled
$149.46 million. Historically, the Bank has been able to retain a significant
amount of its non-brokered CDs as they mature. At December 31, 2011, the Bank
had no brokered deposits.
46
Capital Resources
-----------------
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 4.0%, (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%. The Bank is currently required to
maintain a "well capitalized" status and a Tier 1 leverage capital ratio of at
least 10.0% under terms of the Bank MOU.
At December 31, 2011, the Bank was in compliance with all applicable capital
requirements.
The following table compares the Company's and the Bank's actual capital
amounts at December 31, 2011 to its minimum regulatory capital requirements at
that date (dollars in thousands):
To Be Well
Capitalized
Regulatory Under Prompt
Minimum To Corrective
Be "Adequately Action
Actual Capitalized" Provisions
--------------- --------------- --------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Tier 1 leverage capital:
Consolidated $82,250 11.26% $29,226 4.00% N/A N/A
Timberland Bank (1) 75,967 10.45 72,676 10.00 $72,676 10.00%
Tier 1 risk adjusted capital:
Consolidated 82,250 15.39 21,378 4.00 N/A N/A
Timberland Bank (1) 75,967 14.25 31,989 6.00 31,989 6.00
Total risk based capital
Consolidated 88,996 16.65 42,756 8.00 N/A N/A
Timberland Bank (1) 82,967 15.51 53,315 10.00 53,315 10.00
------------
(1) Reflects the higher Tier 1 leverage capital ratio that the Bank is
required to comply with under terms of the Bank MOU with the FDIC and the
Division. Also reflects that the Bank is required to maintain Tier 1 risk
adjusted capital ratio and Total risk-based capital ratio at or above the
"well capitalized" thresholds under the terms of the Bank MOU.
47
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
KEY FINANCIAL RATIOS AND DATA
(Dollars in thousands, except per share data)
Three Months Ended
-----------------------------------------
December 31, September 30, December 31,
2011 2011 2010
-----------------------------------------
PERFORMANCE RATIOS:
Return (loss) on average assets (1) 0.70% (0.04)% 0.75%
Return (loss) on average equity (1) 5.93% (0.34)% 6.35%
Net interest margin (1) 3.73% 3.75% 3.82%
Efficiency ratio 71.14% 80.83% 68.69%
At At At
December 31, September 30, December 31,
2011 2011 2010
-----------------------------------------
ASSET QUALITY RATIOS:
Non-accrual loans $27,803 $21,589 $26,166
Loans past due 90 days and still
accruing 2,677 1,754 305
Non-performing investment
securities 2,650 2,796 3,325
OREO & other repossessed assets 7,714 10,811 12,612
------- ------- -------
Total non-performing assets $40,844 $36,950 $42,408
======= ======= =======
Non-performing assets to total
assets 5.55% 5.01% 5.87%
Allowance for loan losses to
non-performing loans 39% 51% 44%
Troubled debt restructured loans
on accrual status (2) $18,297 $18,166 $ 8,841
BOOK VALUES:
Book value per common share $ 10.12 $ 9.97 $ 10.04
Tangible book value per common
share (3) $ 9.26 $ 9.11 $ 9.17
--------------
(1) Annualized
(2) Does not include troubled debt restructured loans totaling $7,334, $7,376
and $6,756 that were included as non-accrual loans at December 31, 2011,
September 30, 2011 and December 31, 2010, respectively.
(3) Calculation subtracts goodwill and core deposit intangible from the
equity component.
Three Months Ended
-----------------------------------------
December 31, September 30, December 31,
2011 2011 2010
-----------------------------------------
AVERAGE BALANCE SHEET:
Average total loans $537,876 $537,612 $539,007
Average total interest-bearing
assets (1) 675,432 675,800 663,761
Average total assets 736,265 737,152 722,007
Average total interest-bearing
deposits 526,100 526,659 523,221
Average FHLB advances & other
borrowings 55,559 55,502 55,546
Average shareholders' equity 86,534 86,465 85,596
----------------
(1) Includes loans and MBS on non-accrual status
48
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, 2011.
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 December 31, 2011 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 to
allow timely decisions regarding required disclosure, 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 December 31,
2011, that have materially affected, or are 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 control over financial reporting will prevent all errors 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. 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 2011 Form 10-K.
49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
--------------------------------------------------------------------
Not applicable
Item 3. Defaults Upon Senior Securities
----------------------------------------
See discussion in Item 2 of Part 1 with respect to cumulative preferred
stock dividends in arrears, which discussion is incorporated here by
reference.
Item 4. (Removed and Reserved)
------------------------------
Item 5. Other Information
--------------------------
None to be reported.
Item 6. Exhibits
-----------------
(a) Exhibits
3.1 Articles of Incorporation of the Registrant (1)
3.2 Certificate of Designation relating to the Company's Fixed Rate
Cumulative Perpetual Preferred Stock Series A (2)
3.3 Bylaws of the Registrant (1)
3.4 Amendment to Bylaws (3)
4.1 Warrant to purchase shares of Company's common stock dated
December 23, 2008 (2)
4.2 Letter Agreement (including Securities Purchase Agreement
Standard Terms attached as Exhibit A) dated December 23, 2008
between the Company and the United States Department of the
Treasury (2)
10.1 Employee Severance Compensation Plan, as revised (4)
10.2 Employee Stock Ownership Plan (4)
10.3 1999 Stock Option Plan (5)
10.4 Management Recognition and Development Plan (5)
10.5 2003 Stock Option Plan (6)
10.6 Form of Incentive Stock Option Agreement (7)
10.7 Form of Non-qualified Stock Option Agreement (7)
10.8 Form of Management Recognition and Development Award Agreement
(7)
10.9 Form of Compensation Modification Agreements (2)
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 of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes Oxley Act
101 The following materials from Timberland Bancorp Inc.'s
Quarterly Report on Form 10-Q for the quarter ended December
31, 2011, formatted on Extensible Business Reporting
Language (XBRL) (a) Condensed Consolidated Balance Sheets; (b)
Condensed Consolidated Statements of Income; (c) Condensed
Consolidated Statements of Shareholders' Equity; (d) Condensed
Consolidated Statements of Comprehensive Income; and (e) Notes
to Unaudited Condensed Consolidated Financial Statements (8)
---------------
(1) Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (333- 35817).
50
(2) Incorporated by reference to the Registrant's Current Report on
Form 8-K filed on December 23, 2008.
(3) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2002.
(4) 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, and
to the Registrant's Current Report on Form 8-K dated December 18,
2007.
(5) Incorporated by reference to the Registrant's 1999 Annual Meeting
Proxy Statement dated December 15, 1998.
(6) Incorporated by reference to the Registrant's 2004 Annual Meeting
Proxy Statement dated December 24, 2003.
(7) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended September 30, 2005.
(8) Pursuant to Rule 406T of Regulation S-T, these interactive data
files are deemed not filed or part of a registration statement or
prospectus for purposes of Section 11 or 12 of the Securities Act
of 1933 or Section 18 of the Securities Exchange Act of 1934, as
amended And otherwise not subject to liability under those
sections.
51
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Timberland Bancorp, Inc.
Date: February 8, 2012 By: /s/ Michael R. Sand
-----------------------------
Michael R. Sand
Chief Executive Officer
(Principal Executive Officer)
Date: February 8, 2012 By: /s/ Dean J. Brydon
-----------------------------
Dean J. Brydon
Chief Financial Officer
(Principal Financial Officer)
52
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
101 The following materials from Timberland Bancorp Inc.'s
Quarterly Report on Form 10-Q for the quarter ended December
31, 2011, formatted on Extensible Business Reporting
Language (XBRL) (a) Condensed Consolidated Balance Sheets; (b)
Condensed Consolidated Statements of Income; (c) Condensed
Consolidated Statements of Shareholders' Equity; (d) Condensed
Consolidated Statements of Comprehensive Income; and (e) Notes
to Unaudited Condensed Consolidated Financial Statements
53