DEF 14A 1 prxy1068.txt TIMBERLAND BANCORP, INC. DEFINITIVE PROXY STATEMENT Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the registrant [x] Filed by a party other than the registrant [ ] Check the appropriate box: [ ] Preliminary proxy statement [x] Definitive proxy statement [ ] Definitive additional materials [ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12 TIMBERLAND BANCORP, INC. ------------------------------------------------------------------------------ (Name of Registrant as Specified in Its Charter) TIMBERLAND BANCORP, INC. ------------------------------------------------------------------------------ (Name of Person(s) Filing Proxy Statement) Payment of filing fee (Check the appropriate box): [x] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: N/A ------------------------------------------------------------------------------ (2) Aggregate number of securities to which transactions applies: N/A ------------------------------------------------------------------------------ (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: N/A ------------------------------------------------------------------------------ (4) Proposed maximum aggregate value of transaction: N/A ------------------------------------------------------------------------------ [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11 (a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount previously paid: N/A ------------------------------------------------------------------------------ (2) Form, schedule or registration statement no.: N/A ------------------------------------------------------------------------------ (3) Filing party: N/A ------------------------------------------------------------------------------ (4) Date filed: N/A ------------------------------------------------------------------------------ December 21, 2001 Dear Stockholder: You are cordially invited to attend the Annual Meeting of Stockholders of Timberland Bancorp, Inc. ("Company"). The meeting will be held at the Elks Lodge, 624 K Street, Hoquiam, Washington, on Thursday, January 24, 2002 at 1:00 p.m., local time. The Notice of Annual Meeting of Stockholders and Proxy Statement appearing on the following pages describe the formal business to be transacted at the meeting. During the meeting, we will also report on the operations of the Company. Directors and officers of the Company, as well as a representative of McGladrey & Pullen, LLP, the Company's independent auditors, will be present to respond to appropriate questions of shareholders. It is important that your shares are represented at this meeting, whether or not you attend the meeting in person and regardless of the number of shares you own. To make sure your shares are represented, we urge you to complete and mail the enclosed proxy card. If you attend the meeting, you may vote in person even if you have previously mailed a proxy card. We look forward to seeing you at the meeting. Sincerely, /s/Clarence E. Hamre Clarence E. Hamre President and Chief Executive Officer TIMBERLAND BANCORP, INC. 624 SIMPSON AVENUE HOQUIAM, WASHINGTON 98550 (360) 533-4747 ------------------------------------------------------------------------------ NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JANUARY 24, 2002 ------------------------------------------------------------------------------ NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Timberland Bancorp, Inc. ("Company") will be held at the Elks Lodge, 624 K Street, Hoquiam, Washington, on Thursday, January 24, 2002, at 1:00 p.m., local time, for the following purposes: (1) To elect three directors of the Company; (2) The approval of the appointment of McGladrey & Pullen, LLP as the Company's independent auditors for the fiscal year ending September 30, 2002; and (3) To consider and act upon such other matters as may properly come before the meeting or any adjournments thereof. NOTE: The Board of Directors is not aware of any other business to come before the meeting. Any action may be taken on the foregoing proposal at the meeting on the date specified above or on any date or dates to which, by original or later adjournment, the meeting may be adjourned. Stockholders of record at the close of business on December 5, 2001 are entitled to notice of and to vote at the meeting and any adjournments or postponements thereof. You are requested to complete and sign the enclosed form of proxy, which is solicited by the Board of Directors, and to mail it promptly in the enclosed envelope. The proxy will not be used if you attend the meeting and vote in person. BY ORDER OF THE BOARD OF DIRECTORS /s/MICHAEL R. SAND MICHAEL R. SAND CORPORATE SECRETARY Hoquiam, Washington December 21, 2001 ------------------------------------------------------------------------------ IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ PROXY STATEMENT OF TIMBERLAND BANCORP, INC. 624 SIMPSON AVENUE HOQUIAM, WASHINGTON 98550 (360) 533-4747 ------------------------------------------------------------------------------ ANNUAL MEETING OF STOCKHOLDERS JANUARY 24, 2002 ------------------------------------------------------------------------------ This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Timberland Bancorp, Inc. ("Company") to be used at the Annual Meeting of Stockholders of the Company ("Meeting"). The Company is the holding company for Timberland Bank ("Bank"). The Meeting will be held at the Elks Lodge,624 K Street, Hoquiam, Washington, on Thursday, January 24, 2002, at 1:00 p.m., local time. This Proxy Statement and the enclosed proxy card are being first mailed to shareholders on or about December 21, 2001. ------------------------------------------------------------------------------ VOTING AND PROXY PROCEDURE ------------------------------------------------------------------------------ Shareholders Entitled to Vote. Stockholders of record as of the close of business on December 5, 2001 ("Voting Record Date") are entitled to one vote for each share of common stock ("Common Stock") of the Company then held. At the close of the Voting Record Date the Company had 4,566,795 shares of Common Stock issued and outstanding. As provided in the Company's Articles of Incorporation, record holders of the Company's Common Stock who beneficially own, either directly or indirectly, in excess of 10% of the Company's outstanding shares are not entitled to any vote in respect of the shares held in excess of the 10% limit. If you are a beneficial owner of Company Common Stock held by a broker, bank or other nominee (i.e., in "street name"), you will need proof of ownership to be admitted to the Meeting. A recent brokerage statement or letter from a bank or broker are examples of proof of ownership. If you want to vote your shares of Company Common Stock held in street name in person at the meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares. Quorum. The presence, in person or by proxy, of at least a majority of the total number of outstanding shares of Common Stock entitled to vote is necessary to constitute a quorum at the Meeting. Abstentions and broker non-votes will be counted as shares present and entitled to vote at the Meeting for purposes of determining the existence of a quorum. Proxies; Proxy Revocation Procedures. The Board of Directors solicits proxies so that each shareholder has the opportunity to vote on the proposal to be considered at the Meeting. When a proxy card is returned properly signed and dated, the shares represented thereby will be voted in accordance with the instructions on the proxy card. Where no instructions are indicated, proxies will be voted FOR the nominees for directors set forth below and FOR the approval of the appointment of independent auditors set forth below. If a shareholder of record attends the Meeting, he or she may vote by ballot. Shareholders, who execute proxies retain the right to revoke them at any time. Proxies may be revoked by written notice delivered in person or mailed to the Secretary of the Company or by filing a later dated and signed proxy prior to a vote being taken on a particular proposal at the Meeting. Attendance at the Meeting will not automatically revoke a proxy, but a shareholder in attendance may request a ballot and vote in person, thereby revoking a prior granted proxy. If your Company Common Stock is held in street name, you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted. Your broker or bank may allow you to deliver your voting instructions via the telephone or Internet. Please see the instruction form that accompanies this proxy statement. If you wish to change your voting instructions after you have returned your voting instruction form to your broker or bank, you must contact your broker or bank. Participants in the Timberland Bank ESOP. If a shareholder is a participant in the Timberland Bank Employee Stock Ownership Plan ("ESOP"), the proxy card represents a voting instruction to the trustees of the ESOP as to the number of shares in the participant's plan account. Each participant in the ESOP may instruct the trustees as to the manner in which shares of Common Stock allocated to the participant's plan account are to be voted. The instructions are confidential and will not be disclosed to the Company. Unallocated shares of Common Stock held by the ESOP and allocated shares for which no voting instructions are received will be voted by the trustees in the same proportion as shares for which the trustees have received voting instructions. Vote Required. The directors to be elected at the Meeting will be elected by a plurality of the votes cast by shareholders present in person or by proxy and entitled to vote. Votes may be cast for or withheld from each nominee. Votes that are withheld and broker non-votes will have no effect on the outcome of the election because directors will be elected by a plurality of the votes cast. The Company's Articles of Incorporation prohibits stockholders from cumulating their votes for the election of directors. With respect to the other proposal to be voted upon at the Meeting, stockholders may vote for or against the proposal or may abstain from voting. Approval of the appointment of independent auditors requires the affirmative vote of a majority of the shares of Common Stock present in person or by proxy and entitled to vote at the Meeting. Broker non-votes will have no effect on the outcome of this proposal. Abstentions, however, will have the same effect as a vote against this proposal. ------------------------------------------------------------------------------ SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ------------------------------------------------------------------------------ Persons and groups who beneficially own in excess of 5% of the Company's Common Stock are required to file certain reports with the Securities and Exchange Commission ("SEC"), and provide a copy to the Company, disclosing such ownership pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act"). Based on such reports, the following table sets forth, at the close of business on the Voting Record Date, certain information as to those persons who were beneficial owners of more than 5% of the outstanding shares of Common Stock. Based on such reports, management knows of no persons other than those set forth below who beneficially owned more than 5% of the outstanding shares of Common Stock at the close of business on the Voting Record Date. The table also sets forth, as of the close of business on the Voting Record Date, certain information as to shares of Common Stock beneficially owned by the Company's directors and "named executive officers" and all directors and executive officers as a group. Number of Shares Percent of Shares Name Beneficially Owned (1) Outstanding ---- ---------------------- ----------- BENEFICIAL OWNERS OF MORE THAN 5% Timberland Bank (2) Employee Stock Ownership Plan Trust 526,472 11.1% Westport Asset Management, Inc.(3) 253 Riverside Avenue Westport, Connecticut 06880 424,900 8.9 (table continued, and footnotes located on following page) 2 Number of Shares Percent of Shares Name Beneficially Owned (1) Outstanding ---- ---------------------- ----------- BENEFICIAL OWNERS OF MORE THAN 5% (CONTINUED) Wellington Trust Company, NA(4) 75 State Street Boston, Massachusetts 02109 245,000 5.2% Wellington Management Company, LLP(5) 75 State Street Boston, Massachusetts 02109 430,000 9.0 DIRECTORS (6) Andrea M. Clinton 25,655 * Robert Backstrom 46,505 1.0 Richard R. Morris, Jr. 65,505 1.4 Peter J. Majar 40,505 * Jon C. Parker 47,905 1.0 James C. Mason 53,505 1.1 David A. Smith 11,335 * NAMED EXECUTIVE OFFICERS (6)(7) Clarence E. Hamre 137,678(8) 2.9 Michael R. Sand 99,311(8) 2.1 All Executive Officers and Directors as a Group (10 persons) 562,355(8) 11.8% ----------------- * Less than one percent of shares outstanding. (1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to be the beneficial owner, for purposes of this table, of any shares of Common Stock if he or she has voting and/or investment power with respect to such security. The table includes shares owned by spouses, other immediate family members in trust, shares held in retirement accounts or funds for the benefit of the named individuals, and other forms of ownership, over which shares the persons named in the table may possess voting and/or investment power. Table assumes pro rata vesting of stock options over a ten year period with the next 10% installment vesting on January 29, 2002. However, the additional amount vested on January 29, 2002 could increase to 20% if the Company meets three of four established performance criteria items. These four performance criteria items are: generating a return on assets which exceeds that of the median of all thrifts in the 12th FHLB District having assets within $250 million of the Company; generating an efficiency ratio which is less than that of the median of all thrifts in the 12th FHLB District having assets within $250 million of the Company; generating a net interest margin which exceeds the median of all thrifts in the 12th FHLB District having assets within $250 million of the Company; and increasing earnings per share over the prior fiscal year. The amounts shown also include the following number of shares which the indicated individuals have the right to acquire within 60 days of the Voting Record Date through the exercise of stock options granted pursuant to the Company's 1999 Stock Option Plan: Mr. Hamre, 49,593 shares; Mr. Sand, 39,675 shares; Ms. Clinton, 14,170 shares; Mr. Backstrom,14,170 shares; Mr. Morris, 14,170 shares; Mr. Majar, 14,170 shares; Mr. Parker, 14,170 shares; Mr. Mason, 14,170 shares; and all executive officers and directors as a group, 187,513 shares. (footnotes continued on following page) 3 (2) Under the terms of the ESOP, the trustees will vote unallocated shares and allocated shares for which no voting instructions are received in the same proportion as shares for which the trustees have received voting instructions from participants. As of the Voting Record Date, 129,722 shares have been allocated to participants' accounts. The trustees of the ESOP are Messrs. Major, Parker and Mason. (3) Based on an amended SEC Schedule 13G dated February 12, 2001, that discloses shared voting power as to 261,900 shares and shared dispositive power as to 424,900 shares of the Company's Common Stock. (4) Based on a SEC Schedule 13G dated February 14, 2001, that discloses sole voting and dispositive power as to 245,000 shares of the Company's Common Stock. (5) Based on a SEC Schedule 13G dated February 14, 2001, that discloses shared voting power as to 320,000 shares and shared dispositive power as to 430,000 shares of the Company's Common Stock. (6) Includes unvested shares in the Company's Management Recognition and Development Plan ("MRDP"). Participants in the MRDP exercise all rights incidental to ownership, including voting rights. (7) SEC regulations define the term "named executive officers" to include all individuals serving as chief executive officer during the most recently completed fiscal year, regardless of compensation level, and the four most highly compensated executive officers, other than the chief executive officer, whose total annual salary and bonus for the last completed fiscal year exceeded $100,000. Messrs. Hamre and Sand were the Company's only "named executive officers" for the fiscal year ended September 30, 2001. Messrs. Hamre and Sand are also directors of the Company. (8) Includes an approximation of the number of shares in the participant's ESOP account. Includes initial purchase of shares of Common Stock held in the Timberland Bank 401(k) Profit Sharing Plan. ------------------------------------------------------------------------------ PROPOSAL I -- ELECTION OF DIRECTORS ------------------------------------------------------------------------------ The Company's Board of Directors consists of nine members. In accordance with the Company's Articles of Incorporation, the Board is divided into three classes with three-year staggered terms, with approximately one-third of the directors elected each year. The Board of Directors has nominated Richard R. Morris, Jr., Jon C. Parker and James C. Mason for election as directors, each to serve for a three-year period or until their respective successors have been elected and qualified. Messrs. Morris, Parker and Mason are each current members of the Board of Directors of the Company. It is intended that the proxies solicited by the Board of Directors will be voted for the election of the nominees named in the following table. If any nominee is unable to serve, the shares represented by all valid proxies will be voted for the election of such substitute as the Board of Directors may recommend or the Board of Directors may adopt a resolution to amend the Bylaws and reduce the size of the Board. At this time the Board of Directors knows of no reason why any nominee might be unavailable to serve. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF MESSRS. MORRIS, PARKER AND MASON. The following table sets forth certain information regarding the nominees for election at the Meeting, as well as information regarding those directors continuing in office after the Meeting. Year First Elected or Term to Name Age(1) Appointed Director(2) Expire ---- ------ --------------------- ------ BOARD NOMINEES Richard R. Morris, Jr. 64 1992 2004(3) Jon C. Parker 52 1992 2004(3) James C. Mason 46 1993 2004(3) (table continued on following page) 4 Year First Elected or Term to Name Age(1) Appointed Director(2) Expire ---- ------ --------------------- ------ DIRECTORS CONTINUING IN OFFICE Clarence E. Hamre 67 1969 2002 Andrea M. Clinton 44 1996 2002 Robert Backstrom 72 1992 2002 Michael R. Sand 47 1993 2003 Peter J. Majar 74 1987 2003 David A. Smith 46 2000 2003 ---------------------- (1) As of September 30, 2001. (2) Includes prior service on the Board of Directors of the Bank. Each member of the Board of Directors of the Company is also a member of the Board of Directors of the Bank. (3) Assuming the individual is elected. The present principal occupation and other business experience during the last five years of each nominee for election and each director continuing in office is set forth below: Richard R. Morris, Jr. is the former owner of Dick's Food Centers, Inc., retail grocery stores located in Ocean Shores and Raymond, Washington. Jon C. Parker is a member of the law firm of Parker, Johnson & Parker P.S., Hoquiam, Washington, which serves as general counsel to the Bank. James C. Mason is the President and owner of Mason Timber Co., Aberdeen, Washington. Mr. Mason also is the owner of Mason Trucking, Mason Properties, MASCO Petroleum and Mason Aviation, all of which are located in Aberdeen, Washington. Clarence E. Hamre has been affiliated with the Bank since 1969 and has served as President and Chief Executive Officer since 1969. Andrea M. Clinton, an interior designer, is the owner of AMC Interiors, Olympia, Washington. Robert Backstrom is retired after serving as owner of Price & Price Real Estate and Insurance, Montesano, Washington, for 31 years. Michael R. Sand has been affiliated with the Bank since 1977 and has served as Executive Vice President and Secretary since 1993. Peter J. Majar is retired as General Manager of Hoquiam Plywood Co., Inc., a plywood manufacturer, and former President of the Plywood Marketing Association and President of PMA Transportation Company, Vancouver, Washington. David A. Smith is a pharmacist and the owner of Harbor Drug, Inc., a retail pharmacy located in Hoquiam, Washington. 5 ------------------------------------------------------------------------------ MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS ------------------------------------------------------------------------------ The Boards of Directors of the Company and the Bank conduct their business through meetings of the Boards and through their committees. During the fiscal year ended September 30, 2001, the Board of Directors of the Company held 16 meetings, and the Board of Directors of the Bank held 25 meetings. No director of the Company or the Bank attended fewer than 75% of the total meetings of the Boards and committees on which such person served during this period, except for Director Morris who missed 12 of these 41 meetings because he was out of town. Committees of the Company's Board. The Company's Board of Directors established Audit, Nominating and Compensation Committees. The Audit Committee, consisting of Directors Backstrom, Majar and Parker, receives and reviews all reports prepared by the Company's external and internal auditor. The Audit Committee met seven times during the fiscal year ended September 30, 2001. The full Board of Directors acts as a Nominating Committee for the annual selection of management's nominees for election as directors of the Company. The full Board of Directors met once in its capacity as Nominating Committee during the fiscal year ended September 30, 2001. The Compensation Committee, consisting of Directors Parker and Clinton, makes recommendations to the full Board of Directors concerning employee compensation. The Compensation Committee meets as needed and met once during the fiscal year ended September 30, 2001. Committees of the Bank's Board. The Bank's Board of Directors has established Audit, Salary and Nominating Committees, among others. The Audit Committee, consisting of Directors Backstrom, Majar and Parker, is responsible for meeting with the Bank's internal and external auditors to discuss the results of the annual audit and any related matters. The Audit Committee is also responsible for the Bank's employee compliance issues. The Board also receives and reviews the reports and findings and other information presented to them by the Bank's outside auditor. The Audit Committee meets as needed and met seven times during the fiscal year ended September 30, 2001. The Compensation Committee, consisting of Directors Clinton and Parker, makes recommendations to the full Board of Directors concerning employee compensation. The Compensation Committee meets as needed and met once during the fiscal year ended September 30, 2001. The full Board of Directors acts as a Nominating Committee for the annual selection of management's nominees for election as directors of the Bank. The full Board of Directors met once in its capacity as Nominating Committee during the year ended September 30, 2001. ------------------------------------------------------------------------------ DIRECTORS' COMPENSATION ------------------------------------------------------------------------------ FEES Except for Directors Hamre and Sand, each director receives $750 per month and $375 for each regular Board meeting attended. Each director also receives $200 for each special Board meeting or committee meeting attended. Director fees totalled $125,325 for the year ended September 30, 2001. 6 DEFERRED COMPENSATION PLAN The Company maintains a deferred compensation plan for the benefit of directors who may elect to defer receipt of all or a portion of their fees until retirement or termination of service. At the director's election, benefits are distributed in a lump sum or installment payments. At September 30, 2001, none of the Company's directors had elected to participate in the plan. MANAGEMENT RECOGNITION AND DEVELOPMENT PLAN The Company awarded restricted shares of its Common Stock to directors on July 26, 2001 under the Company's MRDP. The MRDP was approved by stockholders at the 1999 Annual Meeting of Stockholders and provides for the award of Common Stock in the form of restricted stock awards to directors, officers and key employees. Dividends are paid on such awards if and when declared and paid by the Company on the Common Stock. Each director of the Company, with the exception of Messrs. Hamre and Sand, received 11,335 restricted shares of the Company's Common Stock under the MRDP, which shares had a value on the award date of $178,300. The restricted shares vest pro rata over a five year period following the July 26, 2001 award date, with the first 20% installment having vested on August 1, 2001. For information concerning the restricted shares received by Messrs. Hamre and Sand, see "Executive Compensation -- Summary Compensation Table" below. ------------------------------------------------------------------------------ EXECUTIVE COMPENSATION ------------------------------------------------------------------------------ SUMMARY COMPENSATION TABLE The following information is provided for Messrs. Hamre and Sand. Long-term Compensation Annual Compensation(1) Awards --------------------- ---------------------- Restricted Number All Name and Stock of Other Annual Position Year Salary($) Bonus Awards($)(2)Options(3)Compensation(4) -------- ---- -------- ----- ------------ --------- -------------- Clarence E. Hamre 2001 $175,000 $52,860 $624,088 -- $46,348 President 2000 170,000 44,845 -- -- 41,656 and Chief 1999 158,106 41,783 -- 99,188 61,384 Executive Officer Michael R. Sand 2001 120,000 26,430 499,270 -- 42,056 Executive Vice 2000 110,000 22,422 -- -- 34,350 President and 1999 99,533 20,891 -- 79,350 32,371 Secretary --------------- (1) Does not include certain benefits, the aggregate amounts of which do not exceed the lesser of $50,000 or 10% of total annual salary and bonus. (2) Represents the aggregate dollar value of the award of 39,675 and 31,740 shares of the Company's Common Stock to Messrs. Hamre and Sand, respectively, on July 26, 2001, the award date, pursuant to the MRDP. The restricted shares vest pro rata over a five year period following the award date, with the first 20% installment having vested on August 1, 2001. The MRDP was approved by stockholders at the 1999 Annual Meeting of Stockholders and provides for the award of Common Stock in the form of restricted stock awards to directors, (footnotes continued on following page) 7 officers and key employees. Dividends are paid on such awards if and when declared and paid by the Company on the Common Stock. At September 30, 2001, the value of the unvested awards (which vest pro rata over the remaining four year period) for Messrs. Hamre and Sand was approximately $469,752 (31,740 shares at $14.80 per share) and $375,802 (25,392 shares at $14.80 per share), respectively. (3) Table assumes pro rata vesting over a ten year period with the next 10% installment vesting on January 29, 2002. However, the amount vested on January 29, 2002 could increase to 20% if the Company meets three of four established performance criteria items. These four performance criteria items are: generating a return on assets which exceeds that of the median of all thrifts in the 12th District having assets within $250 million of the Company; generating an efficiency ratio which is less than that of the median of all thrifts in the 12th FHLB District having assets within $250 million of the Company; generating a net interest margin which exceeds the median of all thrifts in the 12th FHLB District having assets within $250 million of the Company; and increasing earnings per share over the prior fiscal year. (4) In 2001, includes employer profit sharing contribution ($17,000) and ESOP contribution ($29,348 based on the fair market value of the shares) for Mr. Hamre; and employer profit sharing contribution ($17,000) and ESOP contribution ($25,056, based on the fair market value of the shares) for Mr. Sand. OPTION GRANTS IN LAST FISCAL YEAR No stock options were granted to the named executive officers during the fiscal year ended September 30, 2001. OPTION EXERCISE/VALUE TABLE The following information with respect to options exercised during the fiscal year ended September 30, 2001, and remaining unexercised at the end of the fiscal year, is presented for the named executive officers. Number of Value of Unexercised Securities Underlying In-the-Money Options Shares Unexercised Options(1) at Fiscal Year End($)(2) Acquired on Value -------------------------- -------------------------- Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ---------- ----------- ------------- ----------- ------------- Clarence E. Hamre -- $-- 39,675 59,513 $111,090 $166,636 Michael R. Sand -- -- 31,740 47,610 88,872 133,308 ---------------- (1) For Mr. Hamre, includes 13,225 and 19,838 non-qualified options that are exercisable and unexercisable, respectively. (2) Value of unexercised in-the-money options equals market value of shares covered by in-the-money options on September 30, 2001, less the option exercise price. Options are in-the-money if the market value of the shares covered by the options is greater than the option exercise price. DEFERRED COMPENSATION AGREEMENT. The Bank has entered into a deferred compensation agreement with Mr. Hamre which provides that, commencing upon his retirement at or after age 65, Mr. Hamre will receive $2,000 per month for life. At Mr. Hamre's death, the monthly benefit would be payable to his surviving spouse until the earlier to occur of her death or 60 months. At September 30, 2001, the Bank had accrued $239,000 in compensation expense with respect to its obligation to Mr. Hamre under the agreement. Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate future filings, including this Proxy Statement, in whole or in part, the following Report of the Compensation Committee and Performance Graph shall not be incorporated by reference into any such filings. 8 ------------------------------------------------------------------------------ AUDIT COMMITTEE MATTERS ------------------------------------------------------------------------------ AUDIT COMMITTEE CHARTER The Audit Committee operates pursuant to a Charter approved by the Company's Board of Directors. The Audit Committee reports to the Board of Directors and is responsible for overseeing and monitoring financial accounting and reporting, the system of internal controls established by management and the audit process of the Company. The Audit Committee Charter sets out the responsibilities, authority and specific duties of the Audit Committee. The Charter specifies, among other things, the structure and membership requirements of the Committee, as well as the relationship of the Audit committee to the independent accountants, the internal audit department, and management of the Company. A copy of the Audit Committee Charter was filed as Appendix A to the Company's Annual Meeting Proxy Statement for the 2001 Annual Meeting of Stockholders. REPORT OF THE AUDIT COMMITTEE In connection with the specific activities performed by the Committee in its oversight role, it has issued the following report as of December 13, 2001: (1) The Audit Committee has reviewed and discussed the audited financial statements as of and for the year ended September 30, 2001 with management of the Company. (2) The Audit Committee has discussed with the independent auditors the matters required to be discussed by SAS 61 and SAS 90. (3) The Audit Committee has received from the independent accountants, as required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committee, (i) a written disclosure, indicating all relationships, if any, between the independent auditor and its related entities and the Company and its related entities which, in the auditor's professional judgment, reasonably may be thought to bear on the auditor's independence, and (ii) a letter from the independent auditor confirming that, in its professional judgment, it is independent of the Company; and the Audit Committee has discussed with the auditor the auditor's independence from the Company. Based on the review and discussions referred to in paragraphs (1) through (3) above, the Audit Committee recommended to the Board of Directors that the audited financial statements should be included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2001, for filing with the Securities and Exchange Commission. The Audit Committee: Robert Backstrom Peter J. Majar (Chairman) Jon C. Parker INDEPENDENCE AND OTHER MATTERS Each member of the Audit Committee is "independent," as defined under the Nasdaq Stock Market Rules. The Audit Committee members do not have any relationship to the Company that may interfere with the exercise of their independence from management and the Company. None of the Audit Committee members are current officers or employees of the Company or its affiliates. 9 ------------------------------------------------------------------------------ COMPENSATION COMMITTEE MATTERS ------------------------------------------------------------------------------ Report of the Compensation Committee. The Compensation Committee of the Company and the Compensation Committee of the Bank ("Committees") administer all policies that govern executive compensation for the Company and the Bank. Since the Company has no employees other than Bank employees who perform services on behalf of the Company without additional compensation, the Bank's Compensation Committee evaluates individual executive performance, compensation policies and salaries. The Bank's Compensation Committee is responsible for evaluating the performance of the Chief Executive Officer of the Bank, while the Chief Executive Officer of the Bank evaluates the performance of other senior officers of the Bank and makes recommendations to the Committee regarding their compensation levels. The Company's executive compensation policies are intended to retain and attract key executives who are vital to the success of the Company and Bank by providing a compensation package that is competitive in the financial industry and motivational to each individual executive. Currently, the compensation for executive officers consists principally of a base salary and bonus. In addition, the Bank maintains a profit sharing pension plan for all qualifying employees and provides opportunities for employee ownership of Timberland Bancorp, Inc. stock through participation in an employee stock ownership plan. The Bank also maintains a deferred compensation agreement with the Chief Executive Officer. BASE SALARY. The Bank's Board of Directors approves an annual base salary for all senior officers and executive officers, based upon recommendations from the Bank's Compensation Committee. Annual base salaries are generally effective October 1st of each year. Factors considered in setting base salaries include the executive's performance, the Company's and the Bank's overall performance and compensation levels in the financial industry, among other factors. ANNUAL INCENTIVE BONUS. The Bank maintains a discretionary bonus plan, which is based on the Bank's net income for each fiscal year. Under the plan, Chief Executive Officer Clarence E. Hamre receives 1.0% of the Bank's net income and Executive Vice President Michael R. Sand receives 0.5% of the Bank's net income, and the remaining employees receive 2.84% of the Bank's net income, distributed based upon each employee's salary to total employees' salaries. PROFIT SHARING PENSION PLAN. The Bank maintains a tax-qualified profit-sharing plan for the benefit of employees with one year of service who have attained age 21. The Bank's annual contribution is 10% of a qualifying employee's compensation. EXECUTIVE OFFICER COMPENSATION. During the fiscal year ended September 30, 2001, the base salary of the Company's President and Chief Executive Officer, Clarence E. Hamre, was $175,000. In addition, he received an incentive bonus of $52,860 and was credited with $46,348 in other compensation as set forth in the preceding Summary Compensation Table. This resulted in total compensation of $274,208, which represents a 6.9% increase from the previous year. Mr. Hamre also received an award of restricted shares of the Company's Common Stock, as disclosed in the Summary Compensation Table herein. The Board of Directors believes that Mr. Hamre's compensation is appropriate based on the Bank's compensation policy, consideration of salaries for similar positions in the financial industry and the Bank's performance during the fiscal year. Compensation Committee of the Company and the Bank consisting of: /s/ Jon C. Parker /s/ Andrea M. Clinton COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. No executive officer of the Company or the Bank has served as a member of the compensation committee of another entity, one of whose executive officers served on the Personnel Committee. No executive officer of the Company or the Bank has served as a director of 10 another entity, one of whose executive officers served on the Personnel Committee. No executive officer of the Company or the Bank has served as a member of the compensation committee of another entity, one of whose executive officers served as a director of the Company or the Bank. PERFORMANCE GRAPH. The following graph compares the cumulative total shareholder return on the Company's Common Stock with the cumulative total return on the Nasdaq U.S. Companies Index and with the SNL $250 to $500 Million Asset Thrift Index, a peer group index. Total return assumes the reinvestment of all dividends. The base amount for the Company's Common Stock is $14.50 per share, which was the closing price on the initial day of trading on January 13, 1998. The initial offering price for the Company's Common Stock was $10.00 per share. Graph appears here Period Ending ---------------------------------------------------------- Index 01-13-98 06-30-98 09-30-98 09-30-99 09-30-00 09-30-01 ----- -------- -------- -------- -------- -------- -------- Timberland Bancorp, Inc. $100.00 114.18 91.20 81.21 88.04 111.83 Nasdaq - Total U.S.* 100.00 122.40 110.43 180.43 239.55 97.92 SNL $250 to $500 Million Thrift Index 100.00 105.26 87.40 108.73 115.35 158.62 * Source: CRSP, Center for Research in Security Prices, Graduate School of Business, The University of Chicago, 2001. Used with permission. All rights reserved. crsp.com. 11 ------------------------------------------------------------------------------ COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ------------------------------------------------------------------------------ Section 16(a) of the Exchange Act requires the Company's executive officers and directors, and persons who own more than 10% of any registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than 10% shareholders are required by regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms it has received and written representations provided to the Company by the above referenced persons, the Company believes that during the fiscal year ended September 30, 2001 all filing requirements applicable to its reporting officers, directors and greater than 10% shareholders were properly and timely complied with. ------------------------------------------------------------------------------ TRANSACTIONS WITH MANAGEMENT ------------------------------------------------------------------------------ Current law requires that all loans or extensions of credit to executive officers and directors must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons (unless the loan or extension of credit is made under a benefit program generally available to all other employees and does not give preference to any insider over any other employee) and does not involve more than the normal risk of repayment or present other unfavorable features. The aggregate amount of loans by the Bank to its executive officers and directors was approximately $793,000 at September 30, 2001. Such loans (i)were made in the ordinary course of business, (ii) were made on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the time for comparable transactions with the Bank's other customers, or were available to all other employees under the Bank's employee loan program; and (iii) did not involve more than the normal risk of collectibility or present other unfavorable features when made. Director Parker is a member of the law firm of Parker, Johnson & Parker, P.S., which serves as general counsel to the Bank. The Bank paid legal fees of approximately $54,821 to the firm during the fiscal year ended September 30, 2001 for services rendered to the Bank. Director Clinton is the owner of AMC Interiors, which periodically does interior design work for the Bank. The Bank paid AMC Interiors approximately $5,286 for supplies and services provided during the fiscal year ended September 30, 2001. ------------------------------------------------------------------------------ CHANGES IN INDEPENDENT AUDITORS ------------------------------------------------------------------------------ On September 4, 2001, the Company was notified that McGladrey & Pullen, LLP, had acquired the attest assets and practice of the Company's independent auditors, Knight Vale & Gregory PLLC effective September 1, 2001 and that Knight Vale & Gregory PLLC would no longer be the auditor for the Company. On September 7, 2001, the Board of Directors, at the recommendation of its Audit Committee, engaged McGladrey & Pullen, LLP, as the Company's certifying accountants. The Company has not consulted with McGladrey & Pullen, LLP during its two most recent fiscal years nor during any subsequent interim period prior to its engagement regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements. The report of Knight Vale & Gregory PLLC on the Company's financial statements for either of the last two fiscal years did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. 12 During the Company's two most recent fiscal years and subsequent interim periods preceding the change in auditors, the Company was not in disagreement with Knight Vale & Gregory PLLC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Knight Vale & Gregory PLLC, would have caused Knight Vale & Gregory PLLC to make reference to the subject matter of the disagreement in connection with its audit report. ------------------------------------------------------------------------------ AUDITORS ------------------------------------------------------------------------------ McGladrey & Pullen, LLP, independent public accountants, was the Company's independent auditors for the fiscal year ended September 30, 2001. The Board of Directors has appointed McGladrey & Pullen, LLP as independent auditors for the fiscal year ending September 30, 2002, subject to approval by stockholders. A representative of McGladrey & Pullen, LLP will be present at the Meeting to respond to appropriate questions from shareholders and will have the opportunity to make a statement if he or she so desires. AUDIT FEES The aggregate fees billed to the Company for professional services rendered for the audit of the Company's financial statements for fiscal 2001 and the reviews of the financial statements included in the Company Forms 10-Q for that year, including travel expenses, were $75,790, which includes fees billed by Knight Vale & Gregory PLLC, the Company's former independent auditor, and McGladrey & Pullen LLP. FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES No independent public accountant performed financial information system design or implementation work for the Company during the fiscal year ended September 30, 2001. ALL OTHER FEES Other than audit fees, the aggregate fees billed to the Company by McGladrey & Pullen, LLP (including fees billed by the Company's former independent auditor, Knight Vale & Gregory PLLC ) for fiscal 2001, none of which were financial information systems design and implementation fees, were approximately $24,116. The Audit Committee of the Board of Directors determined that the services performed by McGladrey & Pullen, LLP, other than audit services, are not incompatible with McGladrey & Pullen, LLP maintaining its independence. If the ratification of the appointment of McGladrey & Pullen, LLP is not approved by a majority of the votes cast by shareholders at the Annual Meeting, other independent public accountants will be considered by the Board of Directors. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE APPOINTMENT MCGLADREY & PULLEN, LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2002. ------------------------------------------------------------------------------ OTHER MATTERS ------------------------------------------------------------------------------ The Board of Directors is not aware of any business to come before the Meeting other than those matters described above in this Proxy Statement. However, if any other matters should properly come before the Meeting, it is intended that proxies in the accompanying form will be voted in respect thereof in accordance with the judgment of the person or persons voting the proxies. 13 ------------------------------------------------------------------------------ MISCELLANEOUS ------------------------------------------------------------------------------ The cost of solicitation of proxies will be borne by the Company. The Company will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy material to the beneficial owners of the Company's Common Stock. In addition to solicitations by mail, directors, officers and regular employees of the Company may solicit proxies personally or by telephone without additional compensation. The Company's Annual Report to Stockholders, which includes the Company's Annual Report on Form 10-K as filed with the SEC, has been mailed to stockholders as of the close of business on the Voting Record Date. Any stockholder who has not received a copy of such Annual Report may obtain a copy by writing to the Secretary of the Company. The Annual Report is not to be treated as part of the proxy solicitation material or as having been incorporated herein by reference. ------------------------------------------------------------------------------ STOCKHOLDER PROPOSALS ------------------------------------------------------------------------------ In order to be eligible for inclusion in the Company's proxy solicitation materials for next year's Annual Meeting of Stockholders, any stockholder proposal to take action at such meeting must be received at the Company's main office at 624 Simpson Avenue, Hoquiam, Washington, no later than August 24, 2002. Any such proposals shall be subject to the requirements of the proxy solicitation rules adopted under the Exchange Act. The Company's Articles of Incorporation generally provide that shareholders will have the opportunity to nominate directors of the Company if such nominations are made in writing and are delivered to the Secretary of the Company not less than 30 days nor more than 60 days before the annual meeting of shareholders; provided, however, if less than 31 days notice is given, such notice shall be delivered to the Secretary of the Company no later than the close of the tenth day following the date on which notice of the meeting was mailed to shareholders. The notice must set forth (i) the name, age, business address and, if known, residence address of each nominee for election as a director, (ii) the principal occupation or employment of each nominee, (iii) the number of shares of stock of the Company which are beneficially owned by each such nominee, (iv) such other information as would be required to be included in a proxy statement soliciting proxies for the election of the proposed nominee pursuant to the Exchange Act, including, without limitation, such person's written consent to being named in the proxy statement as a nominee and to serving as a director, if elected, and (v) as to the shareholder giving such notice (a) his or her name and address as they appear on the Company's books and (b) the class and number of shares of the Company which are beneficially owned by such shareholder. BY ORDER OF THE BOARD OF DIRECTORS /s/MICHAEL R. SAND MICHAEL R. SAND CORPORATE SECRETARY Hoquiam, Washington December 21, 2001 14 REVOCABLE PROXY TIMBERLAND BANCORP, INC. ------------------------------------------------------------------------------ ANNUAL MEETING OF STOCKHOLDERS JANUARY 24, 2002 ------------------------------------------------------------------------------ The undersigned hereby appoints the official Proxy Committee of the Board of Directors of Timberland Bancorp, Inc. with full powers of substitution, as attorneys and proxies for the undersigned, to vote all shares of common stock of Timberland Bancorp, Inc. ("Company") which the undersigned is entitled to vote at the Annual Meeting of Stockholders ("Meeting"), to be held at the Elks Lodge, 624 K Street, Hoquiam, Washington, on Thursday, January 24, 2002, at 1:00 p.m., local time, and at any and all adjournments thereof, as indicated. THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING. (Continued and to be signed on the reverse side.) Please date, sign and mail your proxy card back as soon as possible! Annual Meeting of Stockholders TIMBERLAND BANCORP, INC. January 24, 2002 Please Detach and Mail in the Envelope Provided ------------------------------------------------------------------------------ [ X ] Please mark your Votes as in this Example THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS VOTE FOR WITHHELD FOR AGAINST ABSTAIN 1. The election as [ ] [ ] Nominees: 2. The approval of the appoint- [ ] [ ] [ ] director of the Richard R. Morris, Jr. ment of McGladrey & Pullen, nominees listed Jon C. Parker LLP as independent auditors at right (except as marked to James C. Mason for the fiscal year ending the contrary below). September 30, 2002. 3. In their discretion, upon such other matters ------------------------------ as may properly come before the meeting. The Board of Directors recommends a vote "FOR" the above proposals. INSTRUCTIONS: To withhold your vote for any Should the undersigned be present and elect to individual nominee, write the nominee's name vote at the Meeting or at any adjournment thereof on the line below. and after notification to the Secretary of the Company at the Meeting of the shareholder's -------------------------------------------- decision to terminate this proxy, then the power of said attorneys and proxies shall be deemed terminated and of no further force and effect. The undersigned acknowledges receipt from the Company prior to the execution of this proxy of the Notice of Annual Meeting of Stockholders, a Proxy Statement for the Annual Meeting of Stockholders, and the 2001 Annual Report to Stockholders. PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. Dated: --------------------- -------------------- -------------------- ---------------------- --------------- Signature of Print Name of Signature of Print Name of Shareholder Shareholder Shareholder Shareholder Please sign exactly as your name appears on this proxy card. When signing as attorney, executor, administrator, trustee or guardian, please give your full title. If shares are held jointly, each holder should sign.