Regulatory Matters

12 Months Ended

Sep. 30, 2013

Regulatory Capital Requirements [Abstract]

Regulatory Matters

Regulatory Matters

Timberland Bancorp and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.  Under capital adequacy guidelines of the regulatory framework for prompt corrective action, the Bank must meet specific capital adequacy guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital classifications of Timberland Bancorp and the Bank are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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%.

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 agreed to terms on a Memorandum of Understanding with the Bank (the “Bank MOU”).  Under the Bank MOU, the Bank was required among other things, to 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. On December 12, 2012, the Bank was notified by the FDIC and the Division that the Bank MOU had been rescinded.

In addition, in February 2010, the FRB determined that Timberland Bancorp required additional supervisory attention and entered into a Memorandum of Understanding with Timberland Bancorp (the “Company MOU”).  Under the Company MOU, Timberland Bancorp was required, among other things, to obtain prior written approval or non-objection from the FRB to declare or pay any dividends, or make any other capital distributions; issue any trust preferred securities; or purchase or redeem any of its stock. On January 15, 2013, the FRB notified Timberland Bancorp that the Company MOU had been rescinded.

The following table compares Timberland Bancorp’s (consolidated) and the Bank’s actual capital amounts at September 30, 2013 and 2012 to their minimum regulatory capital requirements at that date (dollars in thousands):

	Actual				Capital Adequacy Purposes				To be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2013
Tier 1 leverage capital:
Timberland Bancorp	$	85,158	11.5	%	$	29,677	4.0	%	N/A		N/A
Timberland Bank	82,265		11.1		29,662		4.0		$	37,078	5.0	%
Tier 1 risk adjusted capital:
Timberland Bancorp	85,158		15.3		22,259		4.0		N/A		N/A
Timberland Bank	82,265		14.8		22,255		4.0		33,382		6.0
Total risk based capital:
Timberland Bancorp	92,168		16.6		44,518		8.0		N/A		N/A
Timberland Bank	89,273		16.1		44,509		8.0		55,636		10.0
September 30, 2012
Tier 1 leverage capital:
Timberland Bancorp	$	85,455	11.7	%	$	29,313	4.0	%	N/A		N/A
Timberland Bank	79,911		10.9		73,013		10.0	(1)	$	73,013	10.0	%
Tier 1 risk adjusted capital:
Timberland Bancorp	85,455		15.5		22,042		4.0		N/A		N/A
Timberland Bank	79,911		14.5		33,036		6.0	(1)	33,036		6.0
Total risk based capital:
Timberland Bancorp	92,406		16.8		44,084		8.0		N/A		N/A
Timberland Bank	86,856		15.8		55,059		10.0	(1)	55,059		10.0

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(1) Reflects the higher Tier 1 leverage capital ratio that the Bank was required to comply with under terms of the Bank MOU that was in effect at September 30, 2012.  Also reflects that the Bank was 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.

Restrictions on Retained Earnings

At the time of conversion of the Bank from a Washington-chartered mutual savings bank to a Washington-chartered stock savings bank, the Bank established a liquidation account in an amount equal to its retained earnings of $23,866,000 as of June 30, 1997, the date of the latest statement of financial condition used in the final conversion prospectus.  The liquidation account is maintained for the benefit of eligible account holders who have maintained their deposit accounts in the Bank after conversion.  The liquidation account reduces annually to the extent that eligible account holders have reduced their qualifying deposits as of each anniversary date.  Subsequent increases do not restore an eligible account holder’s interest in the liquidation account.  At September 30, 2013 management estimates the value of the liquidation account to be $429,000.  In the event of a complete liquidation of the Bank (and only in such an event), eligible depositors who have continued to maintain accounts will be entitled to receive a distribution from the liquidation account before any distribution may be made with respect to common stock.  The Bank may not declare or pay cash dividends if the effect thereof would reduce its regulatory capital below the amount required for the liquidation account.