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)

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, 2019 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 ...

[ ] 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) 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 December 31, 2018 OR Washington 91-1863696 (State or o ...