SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 27, 2004
Timberland Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Washington 0-23333 91-1863696
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State or other jurisdiction Commission (I.R.S. Employer
Of incorporation File Number Identification
No.)
624 Simpson Avenue, Hoquiam, Washington 98550
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number (including area code) (360) 533-4747
Not Applicable
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(Former name or former address, if changed since last report)
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(c) Exhibits
99.1 Press Release of Timberland Bancorp, Inc. dated January 27, 2004
Item 12. Results of Operations and Financial Condition
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On January 27, 2004, Timberland Bancorp, Inc. issued its earnings release
for the quarter ended December 31, 2003. A copy of the earnings release is
attached hereto as Exhibit 99.1, which is incorporated herein by reference.
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, hereunto duly authorized.
TIMBERLAND BANCORP,INC.
DATE: January 27, 2004 By: /s/Dean J. Brydon
------------------------
Dean J. Brydon
Chief Financial Officer
Exhibit 99.1
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PRESS RELEASE: FOR IMMEDIATE PUBLICATION
========================================
For further information contact: Michael R. Sand, President
Dean Brydon, CFO
At (360) 533-4747
==============================================================================
Timberland Bancorp, Inc. Announces First Quarter Earnings
* Loan Portfolio Increases $11 Million
* Deposits Increase $9 million
* Net Interest Margin Increases to 4.65%
* Gig Harbor Branch Scheduled to Open in April 2004
HOQUIAM, Wash. January 27, 2004 Timberland Bancorp, Inc.(Nasdaq: TSBK),
("Company") the holding company for Timberland Bank, ("Bank"), today reported
net income of $1.39 million, or $0.34 per diluted share, for the quarter ended
December 31, 2003. This compares to $0.46 per diluted share that the Company
earned for the quarter ended December 31, 2002 and $0.36 per diluted share
that the Company earned for the quarter ended September 30, 2003. The
earnings for the current quarter were lower than a year ago primarily due to a
reduction in income from loan sales and increased non-interest expenses
resulting from the investment in technology improvements and increased
employee costs due to a larger employee base.
During the quarter the Company experienced solid growth in the loan portfolio
($11.2 million) and deposit base ($9.3 million). This contributed to an
increase in net interest income. Net interest margin increased to 4.65% from
4.49% for the quarter ended September 30, 2003. However, income from mortgage
banking operations decreased as refinance activity slowed. The Bank sold
$10.2 million in fixed rate one-to-four family loans during the current
quarter compared to loan sales of $20.8 million for the quarter ended
September 30, 2003 and $34.8 million for the quarter ended December 31, 2002.
Non-interest income declined by $634,000 to $1.01 million from $1.65 million
for the like quarter in the prior fiscal year. Reductions in gain on sale of
loans, servicing income on loans sold, and service charges on deposits
amounted to $472,000 of the decrease. This $634,000 decrease in fee income
reduced diluted earnings per share by $0.10. "One-to-four family mortgage
loan originations have declined as compared to prior periods, however,
prepayments have also decreased which has resulted in growth in the loan
portfolio. Increased interest income from a larger net loan portfolio should
begin to offset the decrease in fee income" stated President Michael Sand.
"Timberland's Business Banking division was successful in originating
commercial real estate and business loans during the quarter. The Division
was responsible for a significant portion of the quarter's net loan growth."
Non-interest expense increased $335,000 for the quarter as compared to the
like quarter in the prior fiscal year. This $335,000 increase in non-interest
expenses reduced diluted earnings per share by $0.05. The increased expense
was primarily due to the additional expenses associated with the two branches
added during the year, an increased employee base and increased hours worked
as a result of the conversion to a new core operating system. "We anticipate
a decrease in hours worked as staff becomes efficient at using the
enhancements offered by the new operating system," said Sand. "We have
continued our branching initiatives by branching into markets we consider
beneficial for our franchise. Branching has placed us near larger population
groups and has enabled us to operate in many diverse economies," Sand also
stated.
1
Technology Improvements
The Company incurred additional expenses associated with the technology
improvements that were implemented in the previous quarter. In August 2003,
Timberland converted to the Kirchman Bankway core processing system from its
in-house supported system. The Bank also upgraded its Internet banking
system, its loan platform system and changed its ATM service provider. These
technology enhancements were undertaken to provide additional opportunities to
serve and expand the Bank's customer base. The Company incurred expenses of
$118,000 ($78,000 net of income tax - $0.02 per diluted share) related to the
technology enhancements and associated conversion costs during the current
quarter. The Company estimates that the remaining expenses from this
technology improvement project will be incurred during the March 31, 2004
quarter and will amount to less than $0.01 per diluted share. While the
technology upgrades have reduced profitability in the short term, we believe
the investment will be beneficial for our customers and ultimately to our
long-term investors.
Branch Expansion Update
The Bank anticipates opening its 16th full-service office in April 2004. The
office will be established in the expanding Gig Harbor Washington market.
Richard Pifer of Gig Harbor has been named Vice President and branch manager.
He is a 12-year resident of Gig Harbor and has over 23 years of banking
experience, most recently with Key Bank. "We are pleased to add a manager and
lender to our staff with such extensive experience and ability," stated
President Sand. "Mr. Pifer sees clearly the lending opportunities in the Gig
Harbor area. His 12 years of experience in the Gig Harbor market will be
particularly valuable in establishing a profitable branch operation. Mr.
Pifer has been actively generating loans for Timberland in the Gig Harbor
market since June 2003. He has been successful in developing a loan portfolio
that will serve to shorten the time required for the office to attain
profitability. Timberland has made loans in the market for more than 20 years
and we look forward to opening a full service office to service and expand our
relationships in this market."
Non-Performing Assets
The Company's non-performing asset ratio increased to 1.53% at December 31,
2003 from 1.15% at September 30, 2003 as detailed in the Provision for Loan
Loss section of this release. Management's goal is to reduce the
non-performing asset ratio to less than 1.0%. The Company's net-charge-offs to
outstanding loans ratio was a minimal .004% for the quarter ended December 31,
2003 and during the last five fiscal years has averaged less than 0.10% per
year.
Disclaimer
This report contains certain "forward-looking statements." The Company
desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and is including this statement for
the express purpose of availing itself of the protection of such safe harbor
with forward looking statements. These forward-looking statements may
describe future plans or strategies and include the Company's expectations of
future financial results. Forward-looking statements are subject to a number
of risks and uncertainties that might cause actual results to differ
materially from stated objectives. These risk factors include but are not
limited to the effect of interest rate changes, competition in the financial
services market for both deposits and loans as well as regional and general
economic conditions. The words "believe," "expect," "anticipate," "estimate,"
"project," and similar expressions identify forward-looking statements. The
Company's ability to predict results or the effect of future plans or
strategies is inherently uncertain and undue reliance should not be placed on
such statements.
2
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
For the three months ended December 31, 2003 and 2002
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
December 31,
2003 2002
---------------------------
Interest and Dividend Income
Loans receivable $ 6,283 $ 6,583
Investments and mortgage-backed securities 244 243
Dividends from investments 269 260
Interest bearing deposits in banks 45 121
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Total interest and dividend income 6,841 7,207
Interest Expense
Deposits 1,129 1,611
Federal Home Loan Bank advances 850 850
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Total interest expense 1,979 2,461
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Net interest income 4,862 4,746
Provision for Loan Losses 50 173
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Net interest income after provision
for loan losses 4,812 4,573
Non-Interest Income
Service charges on deposits 449 530
Gain on sale of loans, net 170 430
BOLI net earnings 115 135
Escrow fees 45 73
Servicing income (expense) on loans sold (18) 113
ATM transaction fees 149 186
Other 102 179
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Total non-interest income 1,012 1,646
Non-interest Expense
Salaries and employee benefits 2,172 2,010
Premises and equipment 462 363
Advertising 151 204
Loss from real estate operations and write-downs 16 32
ATM expenses 101 149
Other 924 733
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Total non-interest expense 3,826 3,491
Income before federal income taxes 1,998 2,728
Federal Income Taxes 611 860
---------------------------
Net Income $ 1,387 $ 1,868
Earnings Per Common Share:
Basic $0.36 $0.48
Diluted $0.34 $0.46
Weighted average shares outstanding:
Basic 3,846,580 3,856,536
Diluted 4,070,336 4,019,197
3
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
SUMMARY BALANCE SHEETS
December 31, 2003 and September 30, 2003
(Dollars in thousands)
(unaudited)
December 31, September 30,
2003 2003
---------------------------
ASSETS
Cash and due from financial institutions $ 12,223 $ 8,587
Interest bearing deposits in banks 19,123 29,511
Investments and mortgage-backed securities
held to maturity 249 279
Investments and mortgage-backed securities
available for sale 57,726 54,031
Federal Home Loan Bank stock 5,522 5,454
Loans receivable 336,615 325,126
Loans held for sale 706 1,001
Less: Allowance for loan losses (3,926) (3,891)
---------------------------
Total loans 333,395 322,236
Accrued interest receivable 1,630 1,687
Premises and equipment 13,823 13,429
Real estate owned and other repossessed items 1,264 1,258
Bank owned life insurance ("BOLI") 10,681 10,566
Other assets 2,543 2,595
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TOTAL ASSETS $458,179 $449,633
===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $317,000 $307,672
Federal Home Loan Bank advances 60,064 61,605
Other liabilities and accrued expenses 2,275 2,745
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TOTAL LIABILITIES 379,339 372,022
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SHAREHOLDERS' EQUITY
Common stock - $.01 par value; 50,000,000
shares authorized;
December 31, 2003 - 4,258,180 shares issued,
3,849,993 shares outstanding
September 30, 2003 - 4,251,680 shares issued,
3,843,493 shares outstanding
(Unallocated ESOP shares and unvested MRDP
shares are not considered outstanding) 43 43
Additional paid in capital 33,974 33,775
Unearned shares - Employee Stock Ownership Plan (4,759) (4,891)
Unearned shares - Management Recognition &
Development Plan (1,021) (1,182)
Retained earnings 50,483 49,699
Accumulated other comprehensive income 120 167
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TOTAL SHAREHOLDERS' EQUITY 78,840 77,611
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 458,179 $ 449,633
===========================
4
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
KEY FINANCIAL RATIOS AND DATA
(Dollars in thousands, except per share data)
For the Three Months Ended
December 31, September 30, December 31,
2003 2003 2002
---------------------------------------------
PERFORMANCE RATIOS:
Return on average assets (1) 1.22% 1.28% 1.72%
Return on average equity (1) 7.11% 7.46% 9.96%
Net interest margin (1) 4.65% 4.49% 4.68%
Efficiency ratio 65.13% 65.50% 54.62%
December 31, September 30, December 31,
2003 2003 2002
---------------------------------------------
ASSET QUALITY RATIOS:
Non-performing loans $ 5,754 $ 3,895 $ 4,169
REO & other repossessed assets 1,264 1,258 692
Total non-performing assets 7,018 5,153 4,861
Non-performing assets to
total assets 1.53% 1.15% 1.12%
Allowance for loan losses to
non-performing loans 68.23% 99.90% 90.60%
Book Value Per Share (2) $ 18.51 $ 18.25 $ 17.52
Book Value Per Share (3) $ 20.05 $ 19.77 $ 19.07
----------------------
(1) Annualized
(2) Calculation includes ESOP shares not committed to be released
(3) Calculation excludes ESOP shares not committed to be released
For the Three Months Ended
December 31, September 30, December 31,
2003 2003 2002
---------------------------------------------
AVERAGE BALANCE SHEET:
Average Total Loans $ 336,601 $ 322,900 $ 325,200
Average Total Interest Earning
Assets 418,266 416,886 405,514
Average Total Assets 453,276 448,746 434,880
Average Total Interest Bearing
Deposits 283,660 271,947 272,037
Average FHLB Advances 60,036 61,653 61,735
Average Shareholders' Equity 77,987 77,218 75,000
5
Comparison of Financial Condition at December 31, 2003 and September 30, 2003
Total Assets: Total assets increased $8.5 million to $458.2 million at
December 31, 2003 from $449.6 million at September 30, 2003. This change is
due primarily to an increase in loans of $11.2 million, which was funded by an
increase in deposits of $9.3 million and a decrease in the Company's
investment in interest bearing deposits in banks.
Investments and Interest Bearing Deposits in Banks: Investments and interest
bearing deposits in banks decreased by $6.7 million to $77.1 million at
December 31, 2003 from $83.8 million at September 30, 2003, as a portion of
the Company's short-term deposits were used to fund loan growth.
Loans: Net loans receivable, including loans held-for-sale, increased by $11.2
million to $333.4 million at December 31, 2003 from $322.2 at September 30,
2003. The increase in the portfolio was primarily a result of a $7.3 million
increase in commercial real estate loans, a $3.7 million increase in net
construction loans, a $2.0 million increase in consumer loans, and a $1.0
million increase in land loans. These increases were partially offset by a
$2.1 million decrease in the Bank's one-to-four family mortgage loan
portfolio. Loan originations totaled $54.3 million for the current quarter
compared to $50.9 million for the quarter ended December 31, 2002 and $65.2
million for the quarter ended September 30, 2003. The Bank sold $10.2
million in fixed rate one-to-four family mortgage loans during the current
quarter compared to loan sales of $34.8 million for the quarter ended December
31, 2002 and $20.8 million for the quarter ended September 30, 2003.
Deposits: Deposits increased by $9.3 million to $317.0 million at December 31,
2003 from $307.7 million at September 30, 2003, primarily due to a $7.7
million increase in the Bank's N.O.W. checking accounts, a $2.2 million
increase in non-interest-bearing accounts, and a $1.3 million increase in
certificate of deposit accounts. These increases were partially offset by a
$1.1 million decrease in savings accounts and a $793,000 decrease in money
market accounts. The Bank continues to focus on attracting transaction
accounts rather than higher-rate time deposits. Transaction accounts
represent a stronger core deposit relationship than other types of deposit
accounts.
Shareholders' Equity: Total shareholders' equity increased by $1.2 million to
$78.8 million at December 31, 2003 from $77.6 million at September 30, 2003.
The components of shareholders' equity were primarily affected by net income
of $1.39 million and the payment of $596,000 in dividends to shareholders.
Also affecting shareholders' equity was an $82,000 increase to additional paid
in capital from the exercise of stock options, a $47,000 decrease in
accumulated other comprehensive income, and decreases of $161,000 and $132,000
in the equity components related to unearned shares issued to the Management
Recognition and Development Plan and Employee Stock Ownership Plans.
On February 14, 2003 the Company announced a plan to repurchase 380,028 shares
of the Company's stock. This marked the Company's eleventh stock repurchase
plan. As of December 31, 2003, the Company had purchased 112,108 of these
shares and cumulatively had repurchased 2,710,671 (41.0%) of the 6,612,500
shares that were issued when the Company went public in January 1998.
6
Comparison of Operating Results for the Three Months Ended December 31, 2003
and 2002
Net Income: Net income for the quarter ended December 31, 2003 was $1.39
million, or $0.34 per diluted share ($0.36 per basic share) compared to $1.87
million, or $0.46 per diluted share ($0.48 per basic share) for the quarter
ended December 31, 2002. The lower earnings for the current quarter were
primarily a result of decreased income from loan sales and increased
non-interest expenses related to technology improvements, higher employee
costs resulting from a larger employee base, and higher premises and equipment
expenses due to additional branches and remodeling costs.
The $0.12 per share decrease in earnings was primarily a result of the
$634,000 ($418,000 net of income tax - $0.10 per diluted share) decrease in
non-interest income and the $335,000 ($221,000 net of income tax - $0.05 per
diluted share) increase in non-interest expense. These items were partially
offset by a $239,000 ($158,000 net of income tax - $0.04 per diluted share)
increase in net interest income after provision for loan losses.
Net Interest Income: Net interest income increased $116,000 to $4.86 million
for the quarter ended December 31, 2003 from $4.75 million for the quarter
ended December 31, 2002, primarily due to a larger interest earning asset base
and a decrease in the Company's funding costs. Average total interest
earning assets increased by $12.8 million to $418.3 million for the current
quarter from $405.5 million for the quarter ended December 31, 2002. Total
interest expense decreased by $482,000 to $1.98 million for the quarter ended
December 31, 2003 from $2.46 million for the quarter ended December 31, 2002
as the Bank's total cost of funds decreased to 2.30% from 2.95%. Total
interest income decreased $366,000 to $6.84 million for the quarter ended
December 31, 2003 from $7.21 million for the quarter ended December 31, 2002,
primarily due to a reduction in average yields on earning assets. The yield
on earning assets was 6.54% for the quarter ended December 31, 2003 compared
to 7.11% for the quarter ended December 31, 2002. As a result of these
changes, the net interest margin decreased slightly to 4.65% for the quarter
ended December 31, 2003 from 4.68% for the quarter ended December 31, 2002.
Provision for Loan Losses: The provision for loan losses for the quarter
ended December 31, 2003 decreased $123,000 to $50,000 from $173,000 for the
quarter ended December 31, 2002. Management deemed the allowance for loan
losses of $3.93 million at December 31, 2003 (1.17% of loans receivable and
68.2% of non-performing loans) adequate to provide for probable losses based
on an evaluation of known and inherent risks in the loan portfolio at that
date. The allowance for loan losses was $3.78 million (1.21% of loans
receivable and 90.6% of non-performing loans) at December 31, 2002. The
Company had a net charge-off of $14,000 for the current quarter compared to a
net charge-off of $27,000 in the same quarter of 2002.
The Company's non-performing asset ratio increased to 1.53% at December 31,
2003 from 1.15% at September 30, 2003 and from 1.12% at December 31, 2002.
The ratio increased as several loans became 90 days due and were put on non-
accrual status. The non-performing loan total of $5.8 million at December 31,
2003 consisted of $2.2 million in one-to-four family loans, $1.2 million in
one-to-four family construction loans, $1.0 million in land development loans,
$774,000 in commercial real estate loans, $415,000 in land loans, $117,000 in
commercial business loans, and $90,000 in consumer loans. Despite
historically maintaining a higher percentage of non-performing loans than
relevant peer group averages, the Company's actual charge-offs have remained
low. The Company's net charge-offs to outstanding loans ratio was a minimal
..004% for the quarter ended December 31, 2003 and during the last five fiscal
years has averaged less than .10% per year. Several of these non-performing
loans were in the process of resolution. At January 23, 2004, a non-
performing land development loan of $872,000 had an accepted earnest money
agreement of $1,390,000, which provided for a due diligence period ending
January 23rd and a closing date of February 16th. Two REO properties with
book values totaling $152,000 sold and closed in January, and an offer has
been accepted on an additional REO property with a book balance of $466,000.
The Bank cannot assure that properties under contract that have not yet closed
will in fact close in accordance with the terms of the applicable earnest
money agreements, if at all.
Non-interest Income: Total non-interest income decreased $634,000 to $1.01
million for the quarter ended December 31, 2003 from $1.65 million for the
quarter ended December 31, 2002, primarily due to a $391,000 decrease in
income from loan sales (gain on sale of loans and servicing income on loans
sold), an $81,000 decrease in service charges on deposits, a $37,000 decrease
in ATM transaction fees, and a $33,000 decrease in loan application fees.
Income from
7
loans sales decreased as mortgage banking activity slowed. The Bank sold
$10.2 million in fixed rate one-to-four mortgages during the quarter ended
December 31, 2003 compared to $34.8 million for the same period a year ago.
The decrease in deposit service charges is primarily a result of fewer
overdrafts by transaction account customers and a higher than normal amount of
fees waived during the first three months after the Bank's technology
conversion date.
Non-interest Expense: Total non-interest expense increased by $335,000 to
$3.83 million for the quarter ended December 30, 2003 from $3.49 million for
the quarter ended December 31, 2002. The increase is primarily a result of
expenses related to the Bank's technology-related enhancements, increased
employee expenses, and increased premises and equipment expenses. The
technology-related conversion expenses totaled $118,000 for the current
quarter and are reflected in the income statement under salaries and employee
benefits ($62,000) and other non-interest expenses ($56,000). In addition to
the conversion related expenses for employee overtime, salaries and employee
benefit expenses also increased by $100,000 due to a larger employee base,
annual salary adjustments, and increased medical insurance costs. The number
of full-time equivalent employees increased to 184 at December 31, 2003 from
166 at December 31, 2002. The Bank's employee base grew during this period as
two branches were opened and staffing levels in several other departments were
increased.
Premises and equipment expenses increased by $99,000 to $462,000 for the
current quarter from $363,000 for the quarter ended December 31, 2002,
primarily due to the additional branches opened and the remodeling and
expansion of the Bank's main office.
8
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
LOANS RECEIVABLE BREAKDOWN
(Dollars in thousands)
The following table sets forth the composition of the Company's loan portfolio
by type of loan.
At December 31, At September 30,
2003 2003
Amount Percent Amount Percent
------------------- ------------------
Mortgage Loans:
One-to-four family (1) $ 93,246 24.69% $ 95,371 26.21%
Multi family 17,597 4.66 18,241 5.01
Commercial 110,233 29.19 102,971 28.30
Construction and
land development 100,386 26.58 94,117 25.87
Land 16,637 4.40 15,628 4.30
-------- ------ -------- ------
Total mortgage loans 338,099 89.52 326,329 89.69
Consumer Loans:
Home equity and second mortgage 21,098 5.59 19,233 5.29
Other 8,968 2.37 8,799 2.42
-------- ------ -------- ------
30,066 7.96 28,032 7.71
Commercial business loans 9,532 2.52 9,475 2.60
-------- ------ -------- ------
Total loans 377,697 100.00% 363,836 100.00%
Less:
Undisbursed portion of loans
in process (37,370) (34,785)
Unearned income (3,006) (2,924)
Allowance for loan losses (3,926) (3,891)
-------- --------
Total loans receivable, net $333,395 $322,236
======== ========
------------------
(1) Includes loans held-for-sale.
9
TIMBERLAND BANCORP, INC. AND SUBSIDIARIES
DEPOSIT BREAKDOWN
(Dollars in thousands)
The following table sets forth the balances of deposits in the various types
of accounts offered by the Bank at the dates indicated.
December 31, 2003 September 30, 2003
----------------- ------------------
Non-interest bearing $ 31,350 $ 29,133
N.O.W checking 65,339 57,614
Passbook savings 48,433 49,572
Money market accounts 38,651 39,444
Certificates of deposit under $100,000 113,678 109,720
Certificates of deposit $100,000 and over 19,549 22,189
-------- --------
Total deposits $317,000 $307,672
======== ========
Timberland Bancorp, Inc. stock trades on the NASDAQ national market under the
symbol "TSBK." The Bank owns and operates branches in the state of Washington
in Hoquiam, Aberdeen, Ocean Shores, Montesano, Lacey, Puyallup, Edgewood,
Auburn, Yelm, Poulsbo, Spanaway (Bethel Station), Tumwater, Tacoma,
Silverdale, and Olympia.
CONTACT:
Timberland Bancorp, Inc.
Michael Sand, President or Dean Brydon, CFO 360/533-4747
10