Michael Sand Q & A

Michael R. Sand has been the president of Timberland BanCorp. Inc. and its subsidiary Timberland Bank (also known as Timberland Savings Bank) since Jan. 23, 2003, after a career that started at the bank in 1977.

The 58-year-old Hoquiam resident is a 1976 graduate of the University of Puget Sound, where he earned a bachelor of arts degree in economics and later a Master of Business Administration, and also a graduate of the Pacific Coast Banking School (1991).

He and his wife, Cindy, were married in August 1978 and have five children ranging in age from 27 to 13. When he is not working he enjoys riding his bicycle, golfing and watching any of the activities in which his children are involved.

Describe how you came to make Grays Harbor your home.

I moved to Grays Harbor in July of 1977 after graduating from college and working a third summer at a salmon cannery for a friend in Mountain Village, Alaska. I came to Grays Harbor to be near my future wife, Cindy, who was from Aberdeen. We met when we attended the University of Puget Sound and participated in a semester of study at the Australian National University in Canberra, Australia. Cindy graduated from UPS in May, 1977 and was hired by the Hoquiam School District three months later during a period when teaching jobs were difficult to obtain.

What does it mean for a community to have a banking institution locally that has now been in business for almost 100 years like Timberland?

Strong community based financial institutions help create and support strong local communities. Banks are successful when businesses and individuals in the community are successful. As a result, local banks are intent on assisting individuals and businesses achieve their goals whenever possible. Community banks provide financing and often advice to help businesses grow and prosper. They also provide funding that enables individuals to meet their goals and objectives — whether it is to buy or build a new home, purchase a car, or to invest or otherwise obtain desired assets. Local ownership means local knowledge, local decision-making and funds reinvested here to grow our local economy. Timberland Bank offers significant support to important local charities that serve the community in many critical ways.

What have been some of the biggest changes and challenges for the Bank and Timberland Bancorp over the past 20 years?

The biggest challenges have been related to national economic downturns. The early through mid-1980’s were particularly trying for the banking industry. Interest rates exceeded 21 percent, borrowing was simply unaffordable and economic activity was constrained. Net interest margin, which is a significant component of revenue for most community financial institutions, turned negative for many. The recent, “Great Recession” as it has come to be called was also a difficult period. Seventeen banks in the state of Washington failed including Washington Mutual, the largest bank failure in terms of assets in the history of the United States. Timberland has managed through each economic crisis successfully because it is governed by a board comprised of astute individuals with great business acumen overseeing management and employees intent on supporting and serving those in their communities.

Explain how Timberland came to be part of the TARP program, what that provided and how it worked.

In mid-2008 the United States Treasury Department sent many financial institutions a letter inviting them to participate in a program designed to increase the availability of credit in the United States. The program was intended to increase and support economic activity by providing banks with additional capital to support increased lending. The letter was clear — only healthy financial institutions needed to apply. Several Washington-based banks choose to apply. Applications were evaluated by each applicant’s primary regulator, which then forwarded a recommendation to Treasury. While many applications were denied, Timberland, along with Heritage Bank and Washington Federal, headquartered in Olympia and Seattle, respectively, applied for and received capital in the program that came to be known as the TARP program. Unfortunately, the program became a political football that in short order conferred a scarlet letter on any party associated with it. The direction that public opinion took was unfortunate in that the program, at least as it was designed for community banks, possessed significant merit. Other applications of the program were likely affected too intently by the political machinations of the time. Timberland exited the TARP program in November of this year — never having had a need to be “Bailed Out” and much wiser for the experience.

How would you assess the current state of the local economy and are you seeing some trends in the banking sector here and in Western Washington that are particularly noteworthy?

There certainly have been improvements in the local and regional economies during the past year. The reopening of the mills in Hoquiam and Cosmopolis provided much-needed employment opportunities in our area. The Port continues to expand its role as an economic engine in the community with the ongoing export of grain, cars and potentially oil and other products. Port activity will continue to provide employment opportunities for our citizens. The numerous cranes dotting the skyline around the pontoon project have been a welcome sight in our community. Cranes in motion signify economic activity and progress. On a regional basis we are seeing increased housing prices and more demand for building lots. For nearly four years the demand for building lots was essentially nonexistent. However, in February of this year there began to be inquiries into land holdings followed by an increased level of sales. National builders began bargaining for and purchasing tracts of land in the Puget Sound area. When builders buy land it is likely that increased construction activity is not far behind. We have, in fact, observed and participated in an increasing number of construction related projects this past year. Overall the prospects for an improving Northwest economy are quite good. Businesses are eager to expand and are apt to do so when the cloud of uncertainty is lifted in Washington, D.C.

The company showed some significant profitability increases year in the last quarterly results posted. What is behind the numbers and what are your goals going forward?

Timberland has historically been a profitable company that has consistently produced strong core earnings. During the recent extended economic downturn, and particularly in 2010, significant amounts were set aside to offset the effects of rapidly declining real property values used as collateral for loans. Timberland was fortunate to have been in a position where its strong core earnings significantly offset the cost associated with these declining property values. Values began to stabilize earlier this year and now core earnings are translating into significant increases in net income which is a welcome consequence of the improving economy and the diligent efforts of Timberland’s employees. We will continue with our plans to expand our use of technology, to expand the products and services we offer and to expand the market area within which we conduct business.

As a Hoquiam-based company, what are some of the attractions of doing business there?

The people and the rural environment are two important attractions to doing business in Grays Harbor. My wife and I have enjoyed meeting individuals and families that thoroughly enjoy a less-urbanized location for employment, raising their families and engaging in business. The trip to work is short for many of our Grays Harbor employees and the cost of housing is much less than we see in many areas. People in our community are helpful and supportive and it is a pleasure for our employees to assist their friends and neighbors with their banking needs.

How has the banking industry regionally weathered the economic storm of the past five years?

Washington state has experienced the failure of 17 banks since the downturn began. The list includes banks such as Washington Mutual, Venture Bank, Rainier Pacific, WestSound Bank, Horizon Bank and Frontier Bank. All of the banks and many of the management teams were well known throughout and even beyond the Pacific Northwest. One shared characteristic of many of the failed institutions was a concentration in construction, land development and commercial real estate loans. Also contributing were, in some cases, fraud as well as the inopportune timing of investments in securities that lost value such as Fannie Mae and Freddie Mac preferred stock and various Trust Preferred securities. The lesson here for bankers is similar to that for individuals and other businesses — be diversified. Excess concentrations in any asset class are hard to overcome when the market takes a turn adverse to the assets being held.

You have helped to keep the golf programs at Hoquiam High School going and your sons have competed at high levels in golf. How did that become a family passion?

When our children were growing up they participated in the normal community sports activities including baseball, swimming, soccer, and basketball. Much of my free time was spent either coaching or transporting them to the various events. Two of the boys discovered golf and decided to concentrate on that sport. Their decision took me more frequently to the golf course to spend time with them. Nolan (now a a Junior at the Master’s College in Santa Clarita, Calif., attending on a golf scholarship) was a four-time Hoquiam High School MVP and a three time League MVP. He won the high school district tournament by 15 strokes as a junior shooting a score of 7 under par the second day of the tournament. This fall, Playing for the Master’s College he tied for 11th at a tournament held near Dallas, Texas. John (an 8th-grader preparing for his first year of high school golf next year) won the Washington State Junior Golf championship as an 11-year old and this year placed second in the State tournament. Nolan and John have spent countless hours at the Grays Harbor Country Club developing the skills needed to compete at a high level. I can think of few better and safer environments kids can enjoy while learning life skills such as discipline and integrity. I encourage parents to expose their children to the game of golf. Who knows, a scholarship could be just around the corner.