FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _____ to _____. Commission file number 000-23333 TIMBERLAND BANCORP, INC. (Exact name of registrant as specified in its charter) Washington 91-1863696 (State or other jurisdiction of incorporation or organization) (IRS Employer Identifica ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-23333 TIMBERLAND BANCORP, INC. | (Exact name of registrant as specified in its charter) | | | | | --- | --- | --- | --- | | Washington | | | 91-1863696 | | (State or other jurisd ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) This section presents Timberland Bancorp's unaudited consolidated financial statements, detailing asset and deposit growth, and increased loan loss provisions [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased by **22.0%** to **$1.52 billion** as of June 30, 2020, primarily driven by growth in cash, equivalents, and net loans, funded by a **23.4%** rise in total deposits Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2020 | September 30, 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $1,521,642 | $1,247,132 | +22.0% | | Cash and cash equivalents | $271,644 | $143,015 | +89.9% | | Loans receivable, net | $1,012,759 | $886,662 | +14.2% | | Total Deposits | $1,318,540 | $1,068,227 | +23.4% | | Total Liabilities | $1,338,836 | $1,076,065 | +24.4% | | Total Shareholders' Equity | $182,806 | $171,067 | +6.9% | [Consolidated Statements of Income](index=8&type=section&id=Consolidated%20Statements%20of%20Income) Net income for Q3 2020 rose **4.3%** year-over-year to **$6.21 million**, while the nine-month net income increased **1.3%** to **$17.91 million**, reflecting higher non-interest income offset by a significant provision for loan losses Key Income Statement Data (in thousands, except per share amounts) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $12,480 | $12,937 | $38,362 | $38,010 | | Provision for loan losses | $1,000 | $0 | $3,200 | $0 | | Non-interest income | $4,855 | $3,538 | $12,473 | $10,744 | | Net Income | $6,211 | $5,956 | $17,912 | $17,685 | | Diluted EPS | $0.74 | $0.70 | $2.12 | $2.09 | [Consolidated Statements of Comprehensive Income](index=10&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income for Q3 2020 was **$6.37 million**, and **$17.84 million** for the nine months ended June 30, 2020, primarily reflecting net income with minor adjustments Comprehensive Income (in thousands) | Period | Net Income | Other Comprehensive Income (Loss) | Total Comprehensive Income | | :--- | :--- | :--- | :--- | | **Three Months Ended June 30, 2020** | $6,211 | $155 | $6,366 | | **Three Months Ended June 30, 2019** | $5,956 | $12 | $5,968 | | **Nine Months Ended June 30, 2020** | $17,912 | ($74) | $17,838 | | **Nine Months Ended June 30, 2019** | $17,685 | $33 | $17,718 | [Consolidated Statements of Shareholders' Equity](index=11&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) Shareholders' equity increased to **$182.8 million** by June 30, 2020, driven by net income, partially offset by dividends and stock repurchases - Key drivers of the change in shareholders' equity for the nine months ended June 30, 2020 include: - Net Income: **+$17.91 million** - Common Stock Dividends: **-$5.42 million** - Repurchase of Common Stock: **-$1.24 million**[23](index=23&type=chunk) [Consolidated Statements of Cash Flows](index=13&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by financing activities totaled **$254.0 million** for the nine months ended June 30, 2020, primarily from increased deposits, supporting a **$128.6 million** net increase in cash and equivalents Cash Flow Summary for Nine Months Ended June 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,449 | $17,565 | | Net cash used in investing activities | ($146,865) | ($22,112) | | Net cash provided by financing activities | $254,045 | $26,518 | | **Net increase in cash and cash equivalents** | **$128,629** | **$21,971** | [Notes to Unaudited Consolidated Financial Statements](index=16&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) The notes detail the basis of presentation, the 2018 South Sound Acquisition, and specifics on financial instruments, including a breakdown of the loan portfolio, PPP loans, and increased allowance for loan losses - As of June 30, 2020, the company had approved COVID-19 pandemic-related loan modifications for **209 loans** totaling **$135.83 million**, which are not classified as Troubled Debt Restructurings (TDRs) per CARES Act guidance[87](index=87&type=chunk)[88](index=88&type=chunk) - The loan portfolio included **$122.58 million** in U.S. Small Business Administration (SBA) Paycheck Protection Program (PPP) loans as of June 30, 2020[66](index=66&type=chunk) - The allowance for loan losses increased from **$9.69 million** at September 30, 2019 to **$12.89 million** at June 30, 2020, with a **$3.2 million** provision recorded during the nine-month period primarily due to the economic outlook[68](index=68&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=54&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses significant balance sheet growth driven by deposits and PPP loans, operating results impacted by lower net interest margin, and proactive responses to the COVID-19 pandemic [Overview](index=55&type=section&id=Overview) The company, a community bank in Western Washington, expects profitability to be adversely affected by the COVID-19 pandemic and interest rate cuts, leading to a **$3.2 million** provision for loan losses - The company's profitability depends primarily on net interest income, which is expected to be adversely affected by the COVID-19 pandemic and the **150 basis point** reduction in the targeted federal funds rate[145](index=145&type=chunk) - A provision for loan losses of **$3.20 million** was recorded for the nine months ended June 30, 2020, compared to none in the prior-year period, due to probable credit losses from the COVID-19 pandemic's economic impact[146](index=146&type=chunk) [Comparison of Financial Condition](index=56&type=section&id=Comparison%20of%20Financial%20Condition) From September 30, 2019, to June 30, 2020, total assets grew **22.0%** to **$1.52 billion**, fueled by a **23.4%** increase in deposits and a **14.2%** rise in net loans, largely due to SBA PPP originations Key Financial Condition Changes (June 30, 2020 vs. Sep 30, 2019) | Metric | Change | Key Driver(s) | | :--- | :--- | :--- | | Total Assets | +$274.5M (+22.0%) | Increases in cash, net loans, and investment securities | | Net Loans Receivable | +$126.1M (+14.2%) | Origination of $122.58M in SBA PPP loans | | Total Deposits | +$250.3M (+23.4%) | Growth in demand, NOW, and savings accounts, partly from stimulus | | Shareholders' Equity | +$11.7M (+6.9%) | Net income partially offset by dividends and stock repurchases | [Comparison of Operating Results](index=60&type=section&id=Comparison%20of%20Operating%20Results) For the nine months ended June 30, 2020, net income rose **1.3%** to **$17.91 million**, driven by higher non-interest income and lower non-interest expense, largely offset by a **$3.20 million** provision for loan losses - Net income for the nine months ended June 30, 2020, increased by **$227,000 (1.3%)** year-over-year, primarily due to higher non-interest income and lower non-interest expense, offset by a **$3.20 million** provision for loan losses[177](index=177&type=chunk) - Net interest margin (NIM) for Q3 2020 decreased to **3.63%** from **4.49%** in Q3 2019, primarily due to the significant drop in market interest rates[182](index=182&type=chunk) - The efficiency ratio improved to **49.81%** for the nine months ended June 30, 2020, from **54.98%** in the prior-year period, reflecting better cost management[202](index=202&type=chunk) [Asset Quality](index=59&type=section&id=Asset%20Quality) Asset quality remained stable, with non-performing assets to total assets improving to **0.31%**, while the allowance for loan losses increased to **1.26%** of loans receivable (excluding PPP loans) due to COVID-19 impacts Non-Performing Assets (in thousands) | Category | June 30, 2020 | September 30, 2019 | | :--- | :--- | :--- | | Non-accrual loans | $3,015 | $3,033 | | OREO and other repossessed assets | $1,466 | $1,683 | | **Total non-performing assets** | **$4,709** | **$5,010** | | **NPA / Total Assets** | **0.31%** | **0.40%** | - The company approved COVID-19 related loan modifications for **209 loans** aggregating to **$135.83 million**, or **13.2%** of loans receivable, as of June 30, 2020[175](index=175&type=chunk) [Liquidity and Capital Resources](index=67&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained a strong liquidity position with a regulatory liquidity ratio of **27.35%** and **$343.7 million** in cash and equivalents, remaining "well-capitalized" under all regulatory measures Bank Regulatory Capital Ratios (June 30, 2020) | Ratio | Actual | "Well Capitalized" Minimum | | :--- | :--- | :--- | | Tier 1 leverage capital | 11.35% | 5.00% | | Common equity tier 1 capital | 19.04% | 6.50% | | Tier 1 capital | 19.04% | 8.00% | | Total capital | 20.29% | 10.00% | - At June 30, 2020, the Bank had **$365.40 million** available for additional FHLB borrowings and **$73.39 million** available with the FRB[207](index=207&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=69&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reported no material changes in market risk information since its Annual Report on Form 10-K for the fiscal year ended September 30, 2019 - No material changes in market risk were reported since the last Form 10-K filing[217](index=217&type=chunk) [Item 4. Controls and Procedures](index=69&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2020[219](index=219&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020[219](index=219&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=71&type=section&id=Item%201.%20Legal%20Proceedings) The company reported that neither it nor its subsidiary, Timberland Bank, is a party to any material legal proceedings - The Company and the Bank are not currently party to any material legal proceedings[221](index=221&type=chunk) [Item 1A. Risk Factors](index=71&type=section&id=Item%201A.%20Risk%20Factors) The company added a significant risk factor concerning the COVID-19 pandemic, highlighting adverse impacts on operations, financial results, credit quality, cybersecurity, loan loss estimation, net interest margin, PPP loan administration, and potential goodwill impairment - The COVID-19 pandemic is expected to adversely impact net interest income and margin, and will likely lead to increased loan delinquencies, adversely classified loans, and charge-offs[226](index=226&type=chunk)[227](index=227&type=chunk) - The company faces operational risks from remote work arrangements and administrative complexities related to servicing its **$122.58 million** portfolio of SBA PPP loans, particularly concerning loan forgiveness[225](index=225&type=chunk)[229](index=229&type=chunk) - A sustained economic downturn or a continued decrease in the company's stock price could trigger a goodwill impairment charge, which would materially affect results of operations[230](index=230&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=73&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any common stock during the quarter ended June 30, 2020, with **144,852 shares** remaining available for repurchase under the existing plan - No shares were repurchased during the three months ended June 30, 2020[234](index=234&type=chunk) - As of June 30, 2020, there were **144,852 shares** authorized to be repurchased under the existing stock repurchase plan[234](index=234&type=chunk) [Item 3. Defaults Upon Senior Securities](index=73&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the company - Not applicable[235](index=235&type=chunk) [Item 4. Mine Safety Disclosures](index=73&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[236](index=236&type=chunk) [Item 5. Other Information](index=73&type=section&id=Item%205.%20Other%20Information) There was no other information to be reported for the period - None to be reported[237](index=237&type=chunk) [Item 6. Exhibits](index=74&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, compensation plans, and required CEO and CFO certifications - The report includes exhibits such as the Agreement and Plan of Merger, Articles of Incorporation, Bylaws, various stock and equity plans, and officer certifications (31.1, 31.2, 32)[241](index=241&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _____ to _____. Commission file number 000-23333 TIMBERLAND BANCORP, INC. (Exact name of registrant as specified in its charter) Washington 91-1863696 (State or othe ...

Financial Position - Total assets increased by $23.41 million, or 1.9%, to $1.271 billion at December 31, 2019, from $1.247 billion at September 30, 2019[140] - Total deposits increased by $16.25 million, or 1.5%, to $1.084 billion at December 31, 2019, primarily due to increases in savings account balances and NOW checking account balances[141] - Shareholders' equity increased by $4.59 million, or 2.7%, to $175.65 million at December 31, 2019, primarily due to net income[142] - Investment securities increased by $23.31 million, or 42.7%, to $77.91 million at December 31, 2019, due to the purchase of additional agency mortgage-backed investment securities[144] - Cash and cash equivalents decreased by $26.26 million, or 11.9%, to $195.10 million at December 31, 2019, as excess liquidity was allocated to higher-earning investment securities and loans[142] - OREO and other repossessed assets decreased by $24,000, or 1.4%, to $1.66 million at December 31, 2019, primarily due to the sale of a commercial real estate property[149] Loan Performance - Net loans receivable increased by $26.49 million, or 3.0%, to $913.15 million at December 31, 2019, primarily due to increases in commercial real estate loans and commercial business loans[141] - Loan originations increased by $26.16 million, or 24.6%, to $132.55 million for the three months ended December 31, 2019, compared to $106.39 million for the same period in 2018[147] - Non-accrual loans increased by $37,000, or 1.2%, to $3.07 million, while total delinquent loans decreased by $53,000, or 1.3%[170] - Provision for loan losses was $200,000 for the quarter, with net loans receivable increasing by $26.49 million[170] - The allowance for loan losses was $9.88 million, representing 1.07% of loans receivable and 321.9% of non-performing loans[174] Income and Expenses - Net income increased by $1.04 million, or 18.5%, to $6.65 million for the quarter ended December 31, 2019 from $5.62 million for the quarter ended December 31, 2018[160] - Net interest income increased by $658,000, or 5.3%, to $13.00 million for the quarter ended December 31, 2019 from $12.34 million for the quarter ended December 31, 2018[163] - Total interest and dividend income increased by $876,000, or 6.6%, to $14.19 million for the quarter ended December 31, 2019 from $13.32 million for the quarter ended December 31, 2018[164] - Non-interest income rose by $672,000, or 20.6%, to $3.94 million, driven by a $567,000 increase in loan sales gains[175] - Total non-interest expense decreased by $189,000, or 2.2%, to $8.37 million, primarily due to a reduction in FDIC insurance expense[176] Efficiency and Ratios - The efficiency ratio improved to 49.43% from 54.85% year-over-year, reflecting increased net interest and non-interest income alongside decreased expenses[176] - The net interest margin decreased to 4.43% for the quarter ended December 31, 2019 from 4.47% for the quarter ended December 31, 2018[166] - The interest rate spread was 4.22%, with a net interest margin of 4.43% for the quarter[168] - The regulatory liquidity ratio was 19.97% as of December 31, 2019, indicating sufficient liquidity to meet short-term needs[180] Capital and Regulatory Compliance - The Bank exceeded all regulatory capital requirements as of December 31, 2019, maintaining a "well-capitalized" status[184] - The Bank's Tier 1 capital was $157.28 million, with a leverage capital ratio of 12.69% as of December 31, 2019[185] - The Bank's common equity tier 1 capital ratio was 17.97% as of December 31, 2019, exceeding the minimum requirement[185] - The Bank maintained a capital conservation buffer above the required levels as of December 31, 2019[186] - The Bank's total capital was $167.39 million, with a total capital ratio of 19.13% as of December 31, 2019[185] Other Financial Metrics - The Company's total cash and cash equivalents decreased by $26.26 million, or 11.9%, to $195.10 million as of December 31, 2019[181] - The Bank had loan commitments totaling $103.63 million and undisbursed construction loans in process totaling $82.17 million as of December 31, 2019[182] - The Bank's return on average assets was 2.12% and return on average equity was 15.40% for the three months ended December 31, 2019[189] - Average total interest-earning assets increased by $68.36 million, or 6.2%, to $1.17 billion for the quarter ended December 31, 2019 from $1.11 billion for the quarter ended December 31, 2018[164] - The efficiency ratio improved to 49.43% for the three months ended December 31, 2019, compared to 54.85% in the same period of 2018[189] - The Bank had $367.28 million available for additional FHLB borrowings as of December 31, 2019[181]

Financial Performance - As of September 30, 2019, the Company had total assets of $1.25 billion, net loans receivable of $886.66 million, total deposits of $1.07 billion, and total shareholders' equity of $171.07 million[266] - Net income for the year ended September 30, 2019, increased by $7.30 million, or 43.7%, to $24.02 million, primarily due to increases in net interest income and non-interest income[307] - Net interest income rose by $12.11 million, or 31.0%, to $51.16 million for the year ended September 30, 2019, driven by an increase in interest income[308] - Total interest and dividend income increased by $13.89 million, or 33.2%, to $55.73 million for the year ended September 30, 2019, due to increases in both the average balance and yield on interest-earning assets[309] - Total non-interest income increased by $1.80 million, or 14.3%, to $14.34 million for the year ended September 30, 2019, from $12.54 million for the year ended September 30, 2018[317] - Total non-interest expense increased by $6.40 million, or 21.9%, to $35.58 million for the year ended September 30, 2019, from $29.18 million for the year ended September 30, 2018[318] - The provision for income taxes increased by $200,000, or 3.5%, to $5.90 million for the year ended September 30, 2019, from $5.70 million for the year ended September 30, 2018[321] Asset Quality - The percentage of non-performing loans to loans receivable, net was 0.34% at September 30, 2019, compared to 0.18% at September 30, 2018[278] - Non-performing assets decreased to $5.01 million at September 30, 2019, from $21.91 million at September 30, 2014[278] - The allowance for loan losses was $9.69 million at September 30, 2019, representing 1.08% of loans receivable and 319.5% of non-performing loans[317] - The level of delinquent loans increased by $1.37 million, or 53.6%, to $3.93 million at September 30, 2019, from $2.56 million at September 30, 2018[314] Growth and Acquisitions - The Company completed the South Sound Acquisition on October 1, 2018, which contributed to its operating results for the year ended September 30, 2019[267] - Total assets increased by $228.84 million, or 22.5%, to $1.25 billion at September 30, 2019, primarily due to the South Sound Acquisition[291] - Net loans receivable rose by $161.27 million, or 22.2%, to $886.66 million at September 30, 2019, driven by loans acquired in the South Sound Acquisition[292] - Total deposits increased by $178.72 million, or 20.1%, to $1.07 billion at September 30, 2019, mainly due to deposits acquired in the South Sound Acquisition[293] Interest Rates and Income - An immediate increase in interest rates of 100 basis points would increase the Bank's projected net interest income by approximately 4.1%[284] - In a hypothetical scenario of a 100 basis point increase in interest rates, net interest income is expected to increase by 4.1%[289] - The net interest margin increased by 27 basis points to 4.50% for the year ended September 30, 2019, from 4.23% for the year ended September 30, 2018[313] - The interest rate spread improved to 4.31% in 2019 from 4.10% in 2018, indicating better profitability on interest-earning assets[325] Liquidity and Funding - The Bank's regulatory liquidity ratio was 23.2% as of September 30, 2019, ensuring sufficient liquidity to meet financial commitments[330] - The Bank had $295.67 million available for additional borrowings with the FHLB as of September 30, 2019, enhancing its liquidity position[330] - Cash and cash equivalents, along with CDs held for investment, rose to $275.00 million at September 30, 2019, up from $226.12 million in 2018[335] - As of September 30, 2019, total commitments amounted to $188.99 million, an increase of 26% from $150.43 million in 2018[339] Operational Risks - The company is exposed to liquidity risk, relying on customer deposits and borrowings, which could be adversely affected by market conditions[220] - The company is subject to extensive regulations that could increase operational costs and affect profitability[222] - The company has established policies to prevent system failures, but there is no assurance that such events will not occur, which could adversely impact operations[232] - The occurrence of system failures or interruptions could damage the company's reputation and result in customer attrition, regulatory scrutiny, and legal liabilities[232] - The company is susceptible to fraudulent activities, with reported incidents of fraud increasing nationally, leading to potential financial losses and reputational damage[235] - The company has experienced losses due to fraud, despite having policies in place to prevent such occurrences, highlighting ongoing vulnerabilities[236] Human Resources and Management - The company relies on key personnel, and the loss of these individuals could materially affect its prospects, given the intense competition for qualified employees in the banking industry[237] - The company faces challenges in recruiting qualified personnel, which is critical for executing its strategies effectively[237] - Managing reputational risk is crucial for attracting and retaining customers, investors, and employees, with potential threats arising from various sources, including unethical practices and compliance deficiencies[238] Technology and Market Changes - The financial services market is rapidly changing, and the company must invest substantially in technology to remain competitive[219] - The company depends on external vendors for essential services, and any failure of these vendors to meet contractual obligations could disrupt operations and negatively impact financial results[239] - Cybersecurity risks are overseen by the board of directors, indicating a structured approach to managing these threats[234] - The company may not be insured against all types of losses resulting from third-party failures, which could lead to significant financial implications[233]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Presents unaudited consolidated financial statements for June 30, 2019, and September 30, 2018, including balance sheets, income, equity, and cash flows, with detailed accounting notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) | Metric | June 30, 2019 (Unaudited, in thousands) | September 30, 2018 (Audited, in thousands) | | :----------------------------------- | :-------------------------------------- | :----------------------------------------- | | **Assets** | | | | Total cash and cash equivalents | $170,835 | $148,864 | | Loans receivable, net | $873,982 | $725,391 | | Total assets | $1,247,310 | $1,018,290 | | **Liabilities** | | | | Total deposits | $1,072,535 | $889,506 | | Total liabilities | $1,081,041 | $893,633 | | **Shareholders' Equity** | | | | Total shareholders' equity | $166,269 | $124,657 | - Total assets increased by **$229.02 million (22.5%)** from September 30, 2018, to June 30, 2019, primarily driven by the South Sound Merger[150](index=150&type=chunk) - Loans receivable, net, increased by **$148.59 million (20.5%)** due to the South Sound Merger and organic growth[151](index=151&type=chunk) - Total deposits increased by **$183.03 million (20.6%)** mainly due to deposits acquired in the South Sound Merger[152](index=152&type=chunk) - Shareholders' equity increased by **$41.61 million (33.4%)** primarily due to common stock issued for the South Sound Merger and net income[153](index=153&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Nine Months Ended June 30, 2019 | Nine Months Ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total interest and dividend income | $14,185 | $10,457 | $41,342 | $30,781 | | Total interest expense | $1,248 | $730 | $3,332 | $1,996 | | Net interest income | $12,937 | $9,727 | $38,010 | $28,785 | | Total non-interest income, net | $3,538 | $3,145 | $10,744 | $9,364 | | Total non-interest expense | $8,967 | $7,122 | $26,807 | $21,519 | | Income before income taxes | $7,508 | $5,750 | $21,947 | $16,630 | | Provision for income taxes | $1,552 | $1,334 | $4,262 | $4,331 | | Net income | $5,956 | $4,416 | $17,685 | $12,299 | | Basic EPS | $0.71 | $0.60 | $2.13 | $1.68 | | Diluted EPS | $0.70 | $0.59 | $2.09 | $1.64 | | Dividends paid per common share | $0.25 | $0.23 | $0.63 | $0.47 | - Net income for the three months ended June 30, 2019, increased by **34.9% YoY to $5.96 million**, and for the nine months, it increased by **43.8% YoY to $17.69 million**[170](index=170&type=chunk)[171](index=171&type=chunk) - Diluted EPS increased by **18.6% to $0.70** for the quarter and by **27.4% to $2.09** for the nine months ended June 30, 2019[170](index=170&type=chunk)[171](index=171&type=chunk) [Consolidated Statements of Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Nine Months Ended June 30, 2019 | Nine Months Ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income | $5,956 | $4,416 | $17,685 | $12,299 | | Total other comprehensive income (loss), net of income taxes | $12 | $(2) | $33 | $(10) | | Total comprehensive income | $5,968 | $4,414 | $17,718 | $12,289 | - Total comprehensive income increased by **35.2% to $5.97 million** for the three months and by **44.2% to $17.72 million** for the nine months ended June 30, 2019, primarily driven by net income growth and positive other comprehensive income[20](index=20&type=chunk) [Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) | Metric (in thousands) | Balance, June 30, 2019 | Balance, June 30, 2018 | Balance, September 30, 2018 | | :-------------------- | :--------------------- | :--------------------- | :-------------------------- | | Common Stock | $43,398 | $14,162 | $14,394 | | Retained earnings | $122,904 | $107,065 | $110,525 | | Accumulated other comprehensive loss | $(33) | $(134) | $(129) | | Total shareholders' equity | $166,269 | $120,894 | $124,657 | - Shareholders' equity increased to **$166.27 million** at June 30, 2019, from **$124.66 million** at September 30, 2018, largely due to **$28.27 million** in common stock issued for the South Sound Merger and **$17.69 million** in net income[153](index=153&type=chunk)[166](index=166&type=chunk) - Dividends paid per common share for the nine months ended June 30, 2019, were **$0.63**, up from **$0.47** in the prior year[18](index=18&type=chunk)[25](index=25&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity (in thousands) | Nine Months Ended June 30, 2019 | Nine Months Ended June 30, 2018 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $17,565 | $16,542 | | Net cash used in investing activities | $(22,112) | $(47,556) | | Net cash provided by financing activities | $26,518 | $39,652 | | Net increase in cash and cash equivalents | $21,971 | $8,638 | | Cash and cash equivalents, End of period | $170,835 | $156,826 | - Net cash provided by operating activities increased by **$1.02 million (6.2%)** for the nine months ended June 30, 2019[28](index=28&type=chunk) - Net cash used in investing activities significantly decreased by **$25.44 million (53.5%)** due to cash acquired in business combination and proceeds from BOLI death benefit[28](index=28&type=chunk) - Net cash provided by financing activities decreased by **$13.13 million (33.1%)** primarily due to a lower net increase in deposits and higher dividend payments[30](index=30&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) [(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=(1)%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Outlines the basis of presentation for unaudited consolidated financial statements, noting GAAP adherence, normal recurring adjustments, and the South Sound Bank acquisition - Financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions[32](index=32&type=chunk) - The Company completed the acquisition of South Sound Bank on October 1, 2018, which is consolidated into the financial statements[33](index=33&type=chunk) - The Company operates as one reportable operating segment: community banking in western Washington[34](index=34&type=chunk) [(2) BUSINESS COMBINATION](index=13&type=section&id=(2)%20BUSINESS%20COMBINATION) Details the South Sound Merger completed on October 1, 2018, including consideration paid, goodwill recognition, fair value adjustments, and pro forma financial information - The Company acquired South Sound Bank on October 1, 2018, to expand its presence along Washington State's I-5 corridor[38](index=38&type=chunk) - Total consideration paid for the merger was **$35.17 million**, consisting of **904,826 shares of common stock ($28.27 million)** and **$6.90 million** in cash[39](index=39&type=chunk) - The merger resulted in **$9.48 million** of goodwill, primarily representing synergies and economies of scale[40](index=40&type=chunk) | Metric (in thousands) | At October 1, 2018 (Fair Value) | | :-------------------- | :------------------------------ | | Total merger consideration | $35,170 | | Total identifiable assets acquired | $180,518 | | Total liabilities assumed | $154,829 | | Goodwill recognized | $9,481 | | Operating Results of Acquired Business (in thousands) | Three Months Ended June 30, 2019 | Nine Months Ended June 30, 2019 | | :---------------------------------------------------- | :------------------------------- | :------------------------------ | | Interest income: Loans | $1,739 | $5,345 | | Interest expense | $(200) | $(484) | | Net effect, pre-tax | $1,009 | $3,712 | | Unaudited Pro Forma Nine Months Ended (in thousands except per share data) | June 30, 2019 | June 30, 2018 | | :------------------------------------------------------------------------- | :------------ | :------------ | | Total revenues | $48,754 | $43,958 | | Net income | $18,038 | $13,824 | | Basic net income per common share | $2.17 | $1.68 | | Diluted net income per common share | $2.13 | $1.64 | - Acquisition-related expenses for the nine months ended June 30, 2019, were **$447,000**, with an additional **$450,000** expected in the quarter ending September 30, 2019, for system conversion[49](index=49&type=chunk)[50](index=50&type=chunk) [(3) INVESTMENT SECURITIES](index=16&type=section&id=(3)%20INVESTMENT%20SECURITIES) Provides a detailed breakdown of investment securities, categorized as held-to-maturity and available-for-sale, including amortized cost, unrealized gains/losses, and fair values | Investment Securities (in thousands) | June 30, 2019 (Fair Value) | September 30, 2018 (Fair Value) | | :----------------------------------- | :------------------------- | :------------------------------ | | Held to maturity | $39,091 | $13,264 | | Available for sale | $2,028 | $1,154 | | Total | $41,119 | $14,418 | - The Company determined that unrealized losses on investment securities are temporary, primarily due to changes in market interest rates, and expects fair value to recover[52](index=52&type=chunk)[53](index=53&type=chunk) | OTTI Recoveries (in thousands) | Three Months Ended June 30, 2019 | Nine Months Ended June 30, 2019 | | :----------------------------- | :------------------------------- | :------------------------------ | | Net recoveries recognized in earnings | $14 | $34 | - Investment securities pledged as collateral totaled **$11.59 million** at June 30, 2019, and **$12.10 million** at September 30, 2018[58](index=58&type=chunk) [(4) GOODWILL AND CDI](index=19&type=section&id=(4)%20GOODWILL%20AND%20CDI) Explains the Company's accounting for goodwill and core deposit intangible (CDI), including annual impairment testing and the impact of the South Sound Merger - Goodwill is tested annually for impairment using a qualitative assessment, with no impairment identified as of May 31, 2019[60](index=60&type=chunk)[61](index=61&type=chunk)[64](index=64&type=chunk) | Metric (in thousands) | Nine Months Ended June 30, 2019 | | :-------------------- | :------------------------------ | | Goodwill, beginning of period | $5,650 | | Addition from South Sound Merger | $9,481 | | Goodwill, end of period | $15,131 | | Metric (in thousands) | Nine Months Ended June 30, 2019 | | :-------------------- | :------------------------------ | | CDI, beginning of period | $0 | | Addition from South Sound Merger | $2,483 | | Amortization | $(339) | | CDI, end of period | $2,144 | [(5) LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES](index=21&type=section&id=(5)%20LOANS%20RECEIVABLE%20AND%20ALLOWANCE%20FOR%20LOAN%20LOSSES) Analyzes the Company's loan portfolio composition, allowance for loan losses (ALLL) activity, impaired loans, troubled debt restructurings (TDRs), and credit quality indicators | Loan Portfolio Segment (in thousands) | June 30, 2019 | September 30, 2018 | | :------------------------------------ | :------------ | :----------------- | | Total mortgage loans | $867,788 | $736,886 | | Total consumer loans | $46,654 | $40,856 | | Commercial business loans | $65,185 | $43,053 | | Total loans receivable | $979,627 | $820,795 | | Loans receivable, net | $873,982 | $725,391 | | ALLL Activity (in thousands) | Three Months Ended June 30, 2019 | Nine Months Ended June 30, 2019 | | :--------------------------- | :------------------------------- | :------------------------------ | | Beginning Allowance | $9,741 | $9,530 | | Provision for Loan Losses | $0 | $0 | | Charge-offs | $(141) | $(157) | | Recoveries | $31 | $258 | | Ending Allowance | $9,631 | $9,631 | - The allowance for loan losses was **$9.63 million** at June 30, 2019, representing **1.09% of loans receivable** and **287.5% of non-performing loans**[192](index=192&type=chunk) | Credit Quality Indicator (in thousands) | June 30, 2019 | September 30, 2018 | | :-------------------------------------- | :------------ | :----------------- | | Pass | $868,760 | $720,600 | | Watch | $9,817 | $10,653 | | Special Mention | $2,477 | $3,123 | | Substandard | $5,397 | $3,182 | | Loss | $0 | $0 | - Total impaired loans were **$6.27 million** at June 30, 2019, with a related allowance of **$259,000**[90](index=90&type=chunk)[91](index=91&type=chunk) - TDRs totaled **$3.21 million** at June 30, 2019, with an allocated allowance for loan losses of **$69,000**[95](index=95&type=chunk)[97](index=97&type=chunk) [(6) NET INCOME PER COMMON SHARE](index=34&type=section&id=(6)%20NET%20INCOME%20PER%20COMMON%20SHARE) Details the calculation of basic and diluted net income per common share, including weighted average common shares outstanding and dilutive stock options for the periods ended June 30, 2019 and 2018 | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Nine Months Ended June 30, 2019 | Nine Months Ended June 30, 2018 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Basic net income per common share | $0.71 | $0.60 | $2.13 | $1.68 | | Diluted net income per common share | $0.70 | $0.59 | $2.09 | $1.64 | | Weighted average common shares outstanding (Basic) | 8,338,637 | 7,345,618 | 8,313,913 | 7,328,702 | | Weighted average common shares outstanding (Diluted) | 8,482,360 | 7,535,157 | 8,468,212 | 7,518,447 | - The increase in weighted average common shares outstanding is partly due to shares issued for the South Sound Merger[25](index=25&type=chunk) [(7) ACCUMULATED OTHER COMPREHENSIVE LOSS](index=35&type=section&id=(7)%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) Presents changes in accumulated other comprehensive loss (AOCI) by component, including fair value changes of available-for-sale securities and OTTI on held-to-maturity securities | AOCI Component (in thousands) | Balance, Beginning of Period (9M June 30, 2019) | Other Comprehensive Income (9M June 30, 2019) | Adoption of ASU 2016-01 (9M June 30, 2019) | Balance, End of Period (9M June 30, 2019) | | :---------------------------- | :--------------------------------------------- | :-------------------------------------------- | :----------------------------------------- | :---------------------------------------- | | Changes in fair value of available for sale securities | $(58) | $7 | $63 | $12 | | OTTI on held to maturity securities | $(71) | $26 | $0 | $(45) | | Total | $(129) | $33 | $63 | $(33) | - AOCI improved from a loss of **$129,000** at the beginning of the nine-month period to a loss of **$33,000** at June 30, 2019, benefiting from other comprehensive income and the adoption of ASU 2016-01[101](index=101&type=chunk) [(8) STOCK COMPENSATION PLANS](index=35&type=section&id=(8)%20STOCK%20COMPENSATION%20PLANS) Details the Company's stock option plans, including shares available for grant, stock option activity, outstanding and exercisable options, and unrecognized compensation cost - As of June 30, 2019, **75,316 shares** of common stock were available for future grants under the 2014 Equity Incentive Plan[103](index=103&type=chunk) | Stock Option Activity | Nine Months Ended June 30, 2019 | Nine Months Ended June 30, 2018 | | :-------------------- | :------------------------------ | :------------------------------ | | Options outstanding, beginning of period | 380,820 | 380,120 | | Exercised | (37,756) | (34,850) | | Forfeited | (3,900) | (5,150) | | Options outstanding, end of period | 339,164 | 340,120 | - Unrecognized compensation cost related to non-vested stock options was **$401,000** at June 30, 2019, expected to be recognized over a weighted average life of **2.14 years**[107](index=107&type=chunk) [(9) FAIR VALUE MEASUREMENTS](index=37&type=section&id=(9)%20FAIR%20VALUE%20MEASUREMENTS) Defines fair value and outlines the three-level fair value hierarchy used for financial instruments, presenting assets measured at fair value on both recurring and non-recurring bases - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (significant observable inputs), and Level 3 (significant unobservable inputs)[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) | Assets Measured at Fair Value (in thousands) | June 30, 2019 | September 30, 2018 | | :------------------------------------------- | :------------ | :----------------- | | **Recurring Basis** | | | | Available for sale investment securities | $2,028 | $237 | | Investments in equity securities | $951 | $917 | | Total recurring | $2,979 | $1,154 | | **Non-Recurring Basis** | | | | Impaired loans | $447 | $226 | | OREO and other repossessed assets | $1,719 | $1,913 | | Total non-recurring | $2,166 | $2,139 | - Impaired loans and OREO are measured at fair value on a non-recurring basis, primarily using Level 3 inputs based on appraised values less estimated selling costs[115](index=115&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) [(10) RECENT ACCOUNTING PRONOUNCEMENTS](index=40&type=section&id=(10)%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) Discusses the adoption and expected impact of several new Accounting Standards Updates (ASUs) issued by the FASB, including ASC 606, ASU 2016-01, ASU 2016-02, and ASU 2016-13 - The Company adopted ASC 606 (Revenue from Contracts with Customers) on October 1, 2018, with no material change to revenue timing or amount, as most revenue is interest income[121](index=121&type=chunk)[122](index=122&type=chunk) - ASU 2016-01 (Financial Instruments) was adopted on October 1, 2018, resulting in a one-time cumulative effect adjustment of **$63,000** for net unrealized losses on equity securities[123](index=123&type=chunk) - ASU 2016-02 (Leases) is effective for fiscal years beginning after December 15, 2018; adoption is expected to increase assets and liabilities but not materially impact future consolidated financial statements[124](index=124&type=chunk) - ASU 2016-13 (Credit Losses) is effective for fiscal years beginning after December 15, 2019; the Company anticipates an increase in the allowance for loan losses upon implementation[125](index=125&type=chunk)[126](index=126&type=chunk) [(11) U.S. TAX REFORM](index=43&type=section&id=(11)%20U.S.%20TAX%20REFORM) Addresses the impact of the Tax Cuts and Jobs Act (Tax Act) enacted on December 22, 2017, highlighting the reduction in the federal corporate income tax rate and its effect on the Company's blended tax rate and deferred tax assets - The Tax Act reduced the federal corporate income tax rate to **21.0%** from **35.0%** effective January 1, 2018[134](index=134&type=chunk) - The Company's blended federal income tax rate for fiscal year ended September 30, 2018, was approximately **24.5%**[134](index=134&type=chunk) - A one-time income tax expense of **$548,000** was recorded in Q4 2017 due to the re-measurement of net deferred tax assets[135](index=135&type=chunk) [(12) REVENUE FROM CONTRACTS WITH CUSTOMERS](index=43&type=section&id=(12)%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) Clarifies the Company's revenue recognition policies under ASC 606, specifying which revenue streams fall within its scope and how they are recognized based on performance obligations - The majority of the Company's revenues, including interest income and gains on sales of loans, are outside the scope of ASC 606[136](index=136&type=chunk) - Revenues within ASC 606 scope include service charges on deposits, ATM and debit card interchange transaction fees, merchant services fees, non-deposit investment fees, and escrow fees[136](index=136&type=chunk) - Non-transaction-based deposit fees are recognized over the month, while transaction-based fees are recognized when the transaction occurs[137](index=137&type=chunk)[138](index=138&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on the Company's financial performance and condition, analyzing changes in assets, liabilities, equity, and operating results, including the impact of the South Sound Merger [Overview](index=44&type=section&id=Overview) - Timberland Bancorp Inc. is the holding company for Timberland Bank, serving western Washington with **24 offices**[143](index=143&type=chunk) - As of June 30, 2019, the Company had total assets of **$1.25 billion**, net loans receivable of **$873.98 million**, total deposits of **$1.07 billion**, and total shareholders' equity of **$166.27 million**[143](index=143&type=chunk) - The South Sound Merger, completed October 1, 2018, significantly impacted operating results for the three and nine months ended June 30, 2019[144](index=144&type=chunk) - Profitability is primarily driven by net interest income after provision for loan losses, influenced by interest-earning assets, interest-bearing liabilities, and market interest rates[145](index=145&type=chunk) [Critical Accounting Policies and Estimates](index=46&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - No material changes in critical accounting policies and estimates from the 2018 Form 10-K, except for the accounting for business combinations[149](index=149&type=chunk) [Comparison of Financial Condition at June 30, 2019 and September 30, 2018](index=46&type=section&id=Comparison%20of%20Financial%20Condition%20at%20June%2030,%202019%20and%20September%2030,%202018) - Total assets increased by **$229.02 million (22.5%)** to **$1.25 billion**, primarily due to the South Sound Merger (**$183.10 million** increase)[150](index=150&type=chunk) - Net loans receivable increased by **$148.59 million (20.5%)** to **$873.98 million**, driven by the merger and organic growth[151](index=151&type=chunk)[157](index=157&type=chunk) - Total deposits increased by **$183.03 million (20.6%)** to **$1.07 billion**, mainly from merger-acquired deposits (**$151.54 million**)[152](index=152&type=chunk)[164](index=164&type=chunk) - Shareholders' equity increased by **$41.61 million (33.4%)** to **$166.27 million**, due to common stock issued in the merger and net income[153](index=153&type=chunk)[166](index=166&type=chunk) | Asset Quality Metric | June 30, 2019 | September 30, 2018 | | :------------------- | :------------ | :----------------- | | Non-performing assets to total assets | 0.43% | 0.36% | | Total non-performing assets (in thousands) | $5,372 | $3,636 | | Non-accrual loans (in thousands) | $3,350 | $1,317 | [Comparison of Operating Results for the Three and Nine Months Ended June 30, 2019 and 2018](index=49&type=section&id=Comparison%20of%20Operating%20Results%20for%20the%20Three%20and%20Nine%20Months%20Ended%20June%2030,%202019%20and%202018) [Net Interest Income](index=50&type=section&id=Net%20Interest%20Income) - Net interest income increased by **$3.21 million (33.0%)** to **$12.94 million** for the quarter and by **$9.23 million (32.0%)** to **$38.01 million** for the nine months ended June 30, 2019[174](index=174&type=chunk)[177](index=177&type=chunk) - The increase was primarily due to a **24.0% increase** in average interest-earning assets, mainly from the South Sound Merger, and higher yields on assets outpacing deposit costs[174](index=174&type=chunk)[175](index=175&type=chunk) - Net interest margin (NIM) increased to **4.49%** for both the quarter and nine months ended June 30, 2019, from **4.18%** and **4.19%** respectively in the prior year[181](index=181&type=chunk) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Nine Months Ended June 30, 2019 | Nine Months Ended June 30, 2018 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Average interest-earning assets (in thousands) | $1,153,207 | $930,305 | $1,129,700 | $916,507 | | Average yield on interest-earning assets | 4.92% | 4.50% | 4.88% | 4.48% | | Average interest-bearing liabilities (in thousands) | $779,927 | $646,979 | $766,288 | $639,399 | | Average cost of interest-bearing liabilities | 0.64% | 0.45% | 0.58% | 0.42% | [Provision for Loan Losses](index=53&type=section&id=Provision%20for%20Loan%20Losses) - No provision for loan losses was recorded for the three and nine months ended June 30, 2019 and 2018[187](index=187&type=chunk)[188](index=188&type=chunk) - Net charge-offs for the quarter ended June 30, 2019, were **$110,000**, compared to **$12,000** in the prior year[187](index=187&type=chunk) - Non-accrual loans increased by **$2.03 million (154.4%)** to **$3.35 million** at June 30, 2019, from September 30, 2018[187](index=187&type=chunk) - The allowance for loan losses was **$9.63 million (1.09% of loans receivable)** at June 30, 2019, deemed adequate by management[192](index=192&type=chunk) [Non-interest Income](index=54&type=section&id=Non-interest%20Income) - Total non-interest income increased by **$393,000 (12.5%)** to **$3.54 million** for the quarter and by **$1.38 million (14.7%)** to **$10.74 million** for the nine months ended June 30, 2019[192](index=192&type=chunk)[193](index=193&type=chunk) - Quarterly increase was driven by higher ATM and debit card interchange fees (**$169,000**) and gain on sales of loans (**$85,000**)[192](index=192&type=chunk) - Nine-month increase was primarily due to a **$1.10 million** increase in BOLI net earnings (including a death benefit claim) and higher ATM/debit card fees and service charges on deposits[193](index=193&type=chunk) [Non-interest Expense](index=54&type=section&id=Non-interest%20Expense) - Total non-interest expense increased by **$1.85 million (25.9%)** to **$8.97 million** for the quarter and by **$5.29 million (24.6%)** to **$26.81 million** for the nine months ended June 30, 2019[194](index=194&type=chunk)[195](index=195&type=chunk) - Key drivers for the increase include salaries and employee benefits, data processing and telecommunications (due to system conversion), OREO expenses, premises and equipment, and CDI amortization[194](index=194&type=chunk)[195](index=195&type=chunk) - Acquisition-related expenses for the South Sound Merger totaled **$447,000** for the nine months, with an additional **$450,000** expected in the next quarter for system integration[196](index=196&type=chunk) - The efficiency ratio improved to **54.43%** for the quarter and **54.98%** for the nine months ended June 30, 2019, from **55.33%** and **56.41%** respectively[197](index=197&type=chunk) [Provision for Income Taxes](index=55&type=section&id=Provision%20for%20Income%20Taxes) - Provision for income taxes increased by **$218,000 (16.3%)** to **$1.55 million** for the quarter but decreased by **$69,000 (1.6%)** to **$4.26 million** for the nine months ended June 30, 2019[198](index=198&type=chunk) - The effective tax rate decreased to **20.67%** for the quarter and **19.42%** for the nine months, primarily due to the lower corporate federal income tax rate from the Tax Act and higher tax-exempt income (BOLI death benefit)[198](index=198&type=chunk) [Liquidity](index=55&type=section&id=Liquidity) - Primary funding sources include customer deposits, loan payments, loan sales, and maturing investments[199](index=199&type=chunk) - The Bank's regulatory liquidity ratio was **24.93%** at June 30, 2019[201](index=201&type=chunk) - Available borrowing capacity includes **$294.12 million** with FHLB, **$84.02 million** with FRB, and a **$10.00 million** overnight line with PCBB[202](index=202&type=chunk) - Loan commitments totaled **$96.31 million** and undisbursed construction loans in process were **$93.18 million** at June 30, 2019[203](index=203&type=chunk) [Capital Resources](index=55&type=section&id=Capital%20Resources) - The Bank exceeded all regulatory capital requirements and was considered 'well-capitalized' at June 30, 2019[206](index=206&type=chunk) | Capital Ratio | Actual Amount (in thousands) | Actual Ratio | Minimum to Be "Adequately Capitalized" Ratio | To Be "Well Capitalized" Ratio | | :-------------------- | :--------------------------- | :----------- | :------------------------------------------- | :----------------------------- | | Leverage Capital Ratio: Tier 1 capital | $147,311 | 12.11% | 4.00% | 5.00% | | Common equity tier 1 capital | $147,311 | 17.41% | 4.50% | 6.50% | | Tier 1 capital | $147,311 | 17.41% | 6.00% | 8.00% | | Total capital | $157,179 | 18.58% | 8.00% | 10.00% | - The Bank's capital conservation buffer was **10.41%** at June 30, 2019, exceeding the **2.5%** requirement[207](index=207&type=chunk) - Timberland Bancorp, Inc. (as a holding company with less than **$3.0 billion** in assets) would also exceed all regulatory capital requirements if subject to those guidelines[208](index=208&type=chunk)[209](index=209&type=chunk) [Key Financial Ratios and Data](index=57&type=section&id=Key%20Financial%20Ratios%20and%20Data) | Performance Ratio | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Nine Months Ended June 30, 2019 | Nine Months Ended June 30, 2018 | | :---------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Return on average assets | 1.93% | 1.78% | 1.94% | 1.68% | | Return on average equity | 14.56% | 14.87% | 14.86% | 14.21% | | Net interest margin | 4.49% | 4.18% | 4.49% | 4.19% | | Efficiency ratio | 54.43% | 55.33% | 54.98% | 56.41% | - Return on average assets (ROAA) and Return on average equity (ROAE) improved for the nine months ended June 30, 2019, reflecting increased profitability[210](index=210&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=57&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) States that there have been no material changes in market risk disclosures from the Company's previous Form 10-K filing for the fiscal year ended September 30, 2018 - No material changes in market risk information from the Company's 2018 Form 10-K[211](index=211&type=chunk) [Item 4. Controls and Procedures](index=57&type=section&id=Item%204.%20Controls%20and%20Procedures) Details the evaluation of the Company's disclosure controls and procedures, concluding their effectiveness as of June 30, 2019, and confirming no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2019[214](index=214&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2019[214](index=214&type=chunk) - The Company acknowledges that controls provide only reasonable assurance and cannot prevent all errors or fraud due to inherent limitations[214](index=214&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) States that neither the Company nor the Bank is currently involved in any material legal proceedings, though they may encounter various claims in the ordinary course of business - Neither the Company nor the Bank is a party to any material legal proceedings[213](index=213&type=chunk) [Item 1A. Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) Indicates that there have been no material changes to the risk factors previously disclosed in Item 1A of the Company's 2018 Form 10-K - No material changes in the Risk Factors previously disclosed in the Company's 2018 Form 10-K[214](index=214&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=58&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details the Company's common stock repurchase activity during the quarter ended June 30, 2019, including the number of shares repurchased, average price paid, and remaining authorized shares | Period | Total No. of Shares Repurchased | Average Price Paid Per Share | | :----------------- | :------------------------------ | :--------------------------- | | 06/01/2019 - 06/30/2019 | 2,831 | $24.89 | | Total | 2,831 | $24.89 | - As of June 30, 2019, **219,062 shares** remained authorized for repurchase under the Company's plan[215](index=215&type=chunk) [Item 3. Defaults Upon Senior Securities](index=58&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) States that there are no defaults upon senior securities to be reported - Not applicable; none to be reported[216](index=216&type=chunk)[217](index=217&type=chunk) [Item 4. Mine Safety Disclosures](index=58&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Indicates that mine safety disclosures are not applicable to the Company - Not applicable[219](index=219&type=chunk) [Item 5. Other Information](index=58&type=section&id=Item%205.%20Other%20Information) States that there is no other information to be reported - None to be reported[219](index=219&type=chunk) [Item 6. Exhibits](index=59&type=section&id=Item%206.%20Exhibits) Provides a list of exhibits filed with the Form 10-Q, including merger agreements, articles of incorporation, bylaws, stock plans, employment agreements, certifications, and XBRL formatted financial statements - Includes certifications (CEO, CFO), XBRL financial statements, and various corporate governance and compensation documents[221](index=221&type=chunk)[227](index=227&type=chunk)[228](index=228&type=chunk)

Financial Position - Total assets increased by $222.28 million, or 21.8%, to $1.24 billion at March 31, 2019, primarily due to the South Sound Merger[153] - Net loans receivable rose by $147.89 million, or 20.4%, to $873.28 million at March 31, 2019, driven by loans acquired in the South Sound Merger[154] - Total deposits increased by $182.09 million, or 20.5%, to $1.07 billion at March 31, 2019, largely due to deposits acquired in the South Sound Merger[155] - Shareholders' equity grew by $37.68 million, or 30.2%, to $162.34 million at March 31, 2019, mainly from common stock issued in the South Sound Merger[156] - Cash and cash equivalents and CDs held for investment increased by $28.17 million, or 13.3%, to $240.32 million at March 31, 2019, due to the South Sound Merger[157] - Investment securities rose by $30.48 million, or 218.2%, to $44.44 million at March 31, 2019, primarily from securities acquired in the South Sound Merger[158] Profitability - Net income increased by $3.85 million, or 48.8%, to $11.73 million for the six months ended March 31, 2019 from $7.88 million for the same period in 2018[174] - Net interest income increased by $6.01 million, or 31.6%, to $25.07 million for the six months ended March 31, 2019 from $19.06 million for the same period in 2018[179] - Total interest and dividend income increased by $6.83 million, or 33.6%, to $27.16 million for the six months ended March 31, 2019, from $20.32 million for the same period in 2018[180] - Net interest income for the six months ended March 31, 2019, was $25.072 million, compared to $19.058 million for the same period in 2018[185] Loan Performance - The provision for loan losses is influenced by changes in the loan portfolio and economic conditions, reflecting the Company's assessment of credit losses[148] - Non-accrual loans increased by $1.43 million, or 108.4%, to $2.75 million at March 31, 2019, from $1.32 million at September 30, 2018[188] - Total delinquent loans increased by $1.02 million, or 39.9%, to $3.58 million at March 31, 2019, from $2.56 million at September 30, 2018[188] - The allowance for loan losses was $9.74 million at March 31, 2019, representing 1.10% of loans receivable and 354.9% of non-performing loans[193] Efficiency and Expenses - Total non-interest expense increased by $2.06 million, or 28.5%, to $9.28 million for the quarter ended March 31, 2019, driven by increases in salaries and employee benefits[195] - The efficiency ratio improved to 55.66% for the quarter ended March 31, 2019, compared to 56.83% for the same quarter last year[197] - The provision for income taxes increased by $61,000, or 5.0%, to $1.28 million for the quarter ended March 31, 2019[198] Capital and Liquidity - The Bank's regulatory liquidity ratio was 25.05% at March 31, 2019[201] - The Bank's Tier 1 capital was $143.202 million, with a leverage capital ratio of 11.96% at March 31, 2019[206] Asset Quality - The non-performing assets to total assets ratio was 0.41% at March 31, 2019 compared to 0.36% at September 30, 2018[170] - The average cost of interest-bearing liabilities increased to 0.55% for the six months ended March 31, 2019, from 0.40% for the same period in 2018[182] Loan Activity - Loan originations increased by $9.35 million, or 5.8%, to $170.86 million for the six months ended March 31, 2019 from $161.51 million for the same period in 2018[161] - Average loans receivable increased by $155.94 million, or 21.9%, and average investment securities increased by $26.09 million, or 336.0%[180] Interest Rates - The average yield on interest-earning assets increased to 4.90% for the quarter ended March 31, 2019 from 4.48% for the same period in 2018[178] - The net interest margin (NIM) increased to 4.51% for the quarter ended March 31, 2019, from 4.19% for the same quarter in 2018[183] - For the six months ended March 31, 2019, the NIM increased to 4.49% from 4.19% for the same period in 2018[185] Other Income - Non-interest income for the three and six months ended March 31, 2019 included service charges on deposit accounts and gain on sales of loans[149] - Total non-interest income increased by $858,000, or 27.8%, to $3.94 million for the quarter ended March 31, 2019, primarily due to a $1.02 million increase in BOLI net earnings[193]

Financial Position - Total assets increased by $182.03 million, or 17.9%, to $1.20 billion at December 31, 2018, primarily due to the South Sound Merger[151] - Net loans receivable rose by $131.68 million, or 18.2%, to $857.07 million at December 31, 2018, driven mainly by loans acquired in the South Sound Merger[152] - Total deposits increased by $145.67 million, or 16.4%, to $1.04 billion at December 31, 2018, largely due to deposits acquired in the South Sound Merger[153] - Shareholders' equity grew by $32.25 million, or 25.9%, to $156.91 million at December 31, 2018, influenced by $28.27 million in common stock issued in the South Sound Merger[154] - Investment securities surged by $21.11 million, or 161.7%, to $34.15 million at December 31, 2018, mainly due to securities acquired in the South Sound Merger[155] Income and Profitability - Net income increased by $2.00 million, or 55.4%, to $5.62 million for the quarter ended December 31, 2018, from $3.61 million for the same quarter in 2017[167] - Net interest income increased by $2.91 million, or 30.8%, to $12.34 million for the quarter ended December 31, 2018, from $9.43 million for the same quarter in 2017[170] - Total interest and dividend income increased by $3.28 million, or 32.7%, to $13.32 million for the quarter ended December 31, 2018, from $10.04 million for the same quarter in 2017[171] - The return on average assets was 1.88%, an increase from 1.50% in the same period of 2017[195] - The return on average equity improved to 14.56% from 12.90% year-over-year[195] - The net interest margin increased to 4.47%, compared to 4.19% in the previous year[195] Loan and Deposit Activity - Loan originations increased by $23.88 million, or 28.9%, to $106.39 million for the three months ended December 31, 2018, compared to $82.51 million for the same period in 2017[158] - Total deposits increased by $145.67 million, or 16.4%, to $1.04 billion at December 31, 2018, from $889.51 million at September 30, 2018, primarily due to deposits acquired in the South Sound Merger[161] - Non-accrual loans increased by $273,000, or 20.7%, to $1.59 million at December 31, 2018, compared to $1.32 million at September 30, 2018[177] Expenses and Efficiency - Total non-interest expense increased by $1.39 million, or 19.3%, to $8.56 million for the quarter ended December 31, 2018, mainly due to higher salaries and employee benefits expenses[181] - The efficiency ratio improved to 54.85% from 57.08% year-over-year, indicating better cost management relative to income growth[182] Regulatory and Capital Position - The Bank was considered "well-capitalized" under applicable regulatory requirements as of December 31, 2018, exceeding all regulatory capital requirements[190] - As of December 31, 2018, Timberland Bancorp, Inc. reported a Tier 1 capital of $141,201 thousand, with a leverage capital ratio of 11.96%[194] - The common equity tier 1 capital ratio was 17.26%, exceeding the required minimum of 4.50%[194] - The total capital ratio stood at 18.43%, significantly above the minimum requirement of 10.00%[194] - Timberland Bancorp, Inc. maintained a capital conservation buffer of more than 1.875% as of December 31, 2018[193] - The company is subject to capital adequacy requirements under the Bank Holding Company Act, ensuring it remains well-capitalized[193] Other Financial Metrics - The provision for loan losses is influenced by changes in the loan portfolio and management's assessment of collectability, reflecting economic conditions[147] - The provision for income taxes decreased by $348,000, or 19.5%, to $1.43 million for the quarter ended December 31, 2018, due to a lower effective corporate federal income tax rate[183] - The Bank's regulatory liquidity ratio was 23.12% at December 31, 2018, indicating a strong liquidity position[186] - The Bank had loan commitments totaling $75.47 million and undisbursed construction loans in process totaling $100.60 million as of December 31, 2018[188] - The non-performing assets to total assets ratio improved to 0.33% at December 31, 2018, from 0.36% at September 30, 2018[163] - There were no material changes in market risk information from the previous fiscal year[196] Merger Impact - The South Sound Merger was completed on October 1, 2018, contributing to the operating results for the three months ended December 31, 2018[145] - Goodwill increased by $8.97 million, or 158.8%, to $14.62 million at December 31, 2018, due to the preliminary goodwill recorded in the South Sound Merger[161]