k1193013.htm
FORM 11-K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



[X]           ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
                ACT OF 1934
 
For the fiscal year ended September 30, 2013

OR

[  ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934

Commission file number 0-23333


A.           
Full title of the plan and the address of the plan, if different from that of the issuer named
below:
Timberland Bank Employee Stock Ownership and 401(k) Plan
 
        B.    Name of issuer of securities held pursuant to the plan and the address of its principal
                              executive office:
 

 
Timberland Bank
624 Simpson Avenue
Hoquiam, Washington 98550


 
 
 
Financial Statements and Exhibits
 
 
      Page 
       
  (a)  Report of Independent Registered Public Accounting Firm 
1
       
 
(b)  Financial Statements
  
    Statements of Net Assets Available for Benefits   
          at September 30, 2013 and 2012   2 
       
    Statement of Changes in Net Assets Available for Benefits   
          for the Year Ended September 30, 2013  4 
       
    Notes to the Financial Statements  5 
       
 
(c)   Supplemental Schedule
  
       
    Schedule H, Line 4i – Schedule of Assets (Held at End of Year)  14 
       
  (d)   Exhibit 23 Consent of Independent Registered Public Accounting Firm 
16
 
 
Signatures

                 The Plan:  Pursuant to the requirements of the Securities and Exchange Act of 1934, the trustees (or other persons who administer employees benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
     
  Administrator, Timberland Bank Employee Stock Ownership and 401(k) Plan   
 

 
  By:   /s/Dean J. Brydon                                                            
    Dean J. Brydon                                                       (name)  
    Chief Financial Officer                                          (title)    
    Timberland Bank                                                     (bank)
 
Date:  March 27, 2014

 
 
 


Timberland Bank Employee Stock Ownership and 401(k) Plan

Financial Report
September 30, 2013












 
 
 












Timberland

Bank

Employee

Stock

Ownership

And

401(k)

Plan



Financial

Report



September 30

2013

 
 
 

 
Contents  
   
Report of Registered Independent  Public Accounting Firm 1 
   
Financial Statements  
   
Statements of Net Assets Available for Benefits  2-3 
   
Statement of Changes in Net Assets Available for Benefits  4 
   
Notes to Financial Statements  5-13 
   
Supplemental Schedule  
   
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)  14-15 
 
 


 

 


 
 
 



Independent Auditors’ Report
 

To the Plan Administrator, Investment and Benefit Committees
   of Timberland Bank Employee Stock Ownership and 401(k) Plan:

Report on the Financial Statements
We have audited the accompanying financial statements of Timberland Bank Employee Stock Ownership and 401(k) Plan, which comprise the statements of net assets available for benefits as of September 30, 2013 and 2012, and the related statement of changes in net assets available for benefits for the year ended September 30, 2013, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements
Plan management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Plan's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of Timberland Bank Employee Stock Ownership and 401(k) Plan as of September 30, 2013 and 2012, and the changes in its net assets available for benefits for the year ended September 30, 2013, in accordance with accounting principles generally accepted in the United States of America.
 
 
 
 
 

 
Report on Supplementary Information
Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The supplemental schedule of Schedule H, line 4i – Schedule of Assets (held at the end of year) is presented for the purpose of additional analysis and is not a required part of the financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. Such information is the responsibility of the Plan's management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.


PMB HELIN DONOVAN, LLP
Seattle, Washington
March 18, 2014




 
 
 


Financial

Statements

 
 
 
Statements of Net Assets Available for Benefits
Timberland Bank Employee Stock Ownership and 401(k) Plan
September 30, 2013 and 2012
 
 
          September 30, 2013        
                   
    Participant-     Nonparticipant-Directed        
    Directed     Allocated     Unallocated     Total  
Assets                        
    Investments, at fair value:                        
       Stable value common
            collective trust fund
   $ 1,098,440     $ - -     $ - -     $ 1,098,440  
       Other common collective
            trust funds
     8,814,116       - -       - -       8,814,116  
        Timberland Bancorp, Inc.
           (“Bancorp”) common stock
      2,991,186        5,332,212        1,745,712        10,069,110  
    Total investments      12,903,742       5,332,212       1,745,712       19,981,666  
                                 
    Cash     39,855       846       2,310       43,011  
                                 
    Total assets       12,943,597       5,333,058       1,748,022       20,024,677  
                                 
Liabilities                                
                                 
     Related party note payable      - -       - -       2,565,535       2,565,535  
                                 
Net assets available at fair value     12,943,597       5,333,058       (817,513 )      17,459,142  
                                 
Adjustment from fair value to
         contract value for fully
         benefit-responsive
         investment contracts
     (16,395 )        - -       - -       (16,395 ) 
                                 
    Net assets available                        
         for benefits 
   $ 12,927,202     $ 5,333,058     $ (817,513)     $ 17,442,747  
                                                                                                               
                                                                                   
See notes to financial statements.

2


 
 
 
Statements of Net Assets Available for Benefits
Timberland Bank Employee Stock Ownership and 401(k) Plan
September 30, 2013 and 2012

          September 30, 2012        
                   
    Participant-     Nonparticipant-Directed        
    Directed     Allocated     Unallocated     Total  
Assets                        
   Investments, at fair value:                                
       Stable value common
            collective trust fund
   $    1,109,112     $ - -     $ - -     $ 1,109,112  
       Other common collective
            trust funds
     7,830,130       - -       - -       7,830,130  
        Bancorp common stock      2,275,980        3,585,846        1,375,404        7,237,230  
  Total investments      11,215,222       3,585,846        1,375,404       16,176,472  
                                 
  Cash      39,166       901        2,310        42,377  
                                 
  Total assets       11,254,388       3,586,747          1,377,714        16,218,849  
                                 
Liabilities                                
                                 
   Related party note payable      - -       - -       2,917,458      
 2,917,458
  
                                 
Net assets available at fair value     11,254,388        3,586,747       (1,539,744 )      13,301,391  
                                 
Adjustment from fair value to
         contract value for fully
         benefit-responsive
         investment contracts
     (43,225 )        - -       - -       (43,225 ) 
                                 
    Net assets available                        
         for benefits 
   $ 11,211,163     $ 3,586,747     $ (1,539,744 )    $ 13,258,166  

See notes to financial statements.

3

 
 
 
Statement of Changes in Net Assets Available for Benefits
Timberland Bank Employee Stock Ownership and 401(k) Plan
Year Ended September 30, 2013

 
    Participant-     Nonparticipant-Directed        
    Directed     Allocated     Unallocated     Total  
Additions to net assets                        
Investment income: 
                                
     Net appreciation in fair value of investments:                                  
             Stable value common
                collective trust fund   
   $  19,423     $   - -     $  - -     $  19,423  
            Other common collective
                trust funds          
     995,153        - -       - -       995,153  
            Bancorp common stock       1,095,424        1,711,140        706,375        3,512,939  
     Interest and dividends     34,589       71,745         - -       106,334  
Contributions:                                 
     Employer      289,003       - -          517,127           806,130   
     Participant     413,826        - -        - -        413,826   
Allocation of 35,266.74 shares of
     Bancorp common stock
      - -        264,324        - -        264,324  
     Total additions to net assets      2,847,418        2,047,209        1,223,502         6,118,129  
                             
 
  
Deductions from net assets                                
      Interest expense     - -         - -        236,947       236,947  
      Benefit payments      1,131,379       300,898       - -       1,432,277  
     Allocation of 35,266.74 shares
           of Bancorp common stock 
    - -         - -       264,324       264,324  
     Total deductions from net assets     1,131,379       300,898       501,271       1,933,548  
                                 
Net increase      1,716,039        1,746,311       722,231       4,184,581  
                                 
Net assets available for benefits                                
                                 
     Beginning of year
     11,211,163        3,586,747       (1,539,744 )      13,258,166  
                                 
     End of year   $  12,927,202     $   5,333,058     $  (817,513 )   $   17,442,747  
                                    
See notes to financial statements.

4
 
 
 
 
 
Notes to Financial Statements
Timberland Bank Employee Stock Ownership and 401(k) Plan
September 30, 2013 and 2012


Note 1 - Plan Description and Basis of Presentation

The following description of the Timberland Bank Employee Stock Ownership and 401(k) Plan (“Plan”) provides only general information.  Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.

General

The Timberland Bank Employee Stock Ownership 401(k) Plan is comprised of two components, a defined contribution 401(k) plan and a leveraged employee stock ownership plan (“ESOP”).  It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”) and is designed to comply with Section 401(a) and 4975(e)(7) and the regulations thereunder of the Internal Revenue Code of 1986, as amended (“Code”).  The Plan is administered by Pentegra Retirement Services and Pentegra Trust Company is the trustee for Bancorp stock and Reliance Trust Company is the trustee for all other funds in the Plan.  Timberland Bank (“Company”) is the wholly owned subsidiary of Timberland Bancorp, Inc. (“Bancorp”).  The Plan has been amended and restated to comply with the Pension Protection Act of 2006 and subsequent legislation, including related guidance.

The Plan purchased Bancorp common stock using proceeds borrowed from the Bancorp to fund the ESOP portion of the Plan.  The borrowing is to be repaid over a period of 21.25 years by fully deductible Company contributions to the Plan.  As the Plan makes each payment of principal and interest, an appropriate percentage of stock is released and allocated annually to eligible employee accounts, in accordance with applicable Code regulations.

The borrowing is collateralized by unallocated shares of Bancorp common stock and guaranteed by the Company.  The Bancorp has no rights against shares once they are allocated under the Plan.  Accordingly, the accompanying financial statements present, separately, assets and liabilities, and changes therein pertaining to:
 
·  
The accounts of employees with rights under the Plan in allocated Bancorp common stock, whether or not vested (Allocated)
 
·  
Bancorp common stock not yet allocated to employees (Unallocated)

Voting Rights

Each participant may direct the trustee as to the voting rights attributable to allocated shares of Bancorp common stock held in the ESOP component of the Plan.  Any allocated Bancorp common shares in which voting instructions are not received, unallocated Bancorp common shares under the ESOP component of the Plan, and Bancorp common shares held in the 401(k) component of the Plan are voted by the trustee in the same proportion as shares for which the trustee receives voting instructions.

Eligibility for Participation and Contributions

The Plan covers substantially all employees of the Company or an affiliated entity (other than those excluded under the terms of the Plan) who have one year of service and are 21 years of age or older.  Generally, a year of service is credited upon the completion of at least 1,000 hours of service within a Plan year (October 1 to September 30).  The Plan provides entry dates on the first day of each calendar quarter.  However, employees who are at least age 21, but have not been credited with a year of service, are eligible to make 401(k) contributions as of the first day of the month after employment.  Participants who do not have at least 1,000 hours of service during such Plan year, or who are not employed on the last working day of the Plan year, are not eligible for an allocation of the ESOP contribution for that Plan year.


5
 
 
 
 
 
Notes to Financial Statements
Timberland Bank Employee Stock Ownership and 401(k) Plan
September 30, 2013 and 2012


Note 1 - Plan Description and Basis of Presentation (continued)

401(k) and Company Contributions and Participant Investment Options

The Plan participants may contribute into the 401(k) component up to the maximum of pretax annual compensation as set by law ($17,500 for 2013 and $17,000 for 2012).  Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans (rollover contributions).  The Company makes an annual safe harbor profit sharing contribution of three percent of eligible compensation, with additional amounts contributed at the option of its Board of Directors.  The Company also makes contributions necessary to repay the ESOP loan.

Participants age 50 and older during the Plan year are permitted to make elective 401(k) catch-up deferrals in accordance with Section 414(v) of the Code.  For 2013 and 2012, the maximum catch-up deferral by law was $5,500 per year.

Participants may direct the investments of their 401(k) salary deferral contributions, safe harbor contribution and the employer discretionary contribution, if any, into a variety of investment choices, which are more fully described in the Plan’s literature.


Participant Account Allocations

If participants are eligible the participant’s account is credited with allocations of the (a) Company’s safe-harbor contribution, (b) Company’s discretionary contribution, (c) Bancorp common stock released as a result of the ESOP loan repayments, (d) participant’s 401(k) and catch-up contributions, (e) the Plan’s earnings and (f) the forfeitures of terminated participants’ nonvested accounts.  ESOP allocations and Company discretionary contributions are based upon the relationship of the participant’s compensation to total eligible Plan compensation for the Plan year.  Eligible compensation is limited for any participant to $255,000 for the plan year beginning in 2013 and $250,000 for the plan year beginning in 2012.  Dividends from Bancorp common stock in the ESOP component are used, along with Company contributions, to make payments on the ESOP loan.  Dividends earned on allocated Bancorp common shares are credited to participant accounts in the form of Bancorp stock equal to the fair market value of the stock at the time of the dividend.  Forfeited balances of terminated participant nonvested accounts are treated as discretionary contributions for the Plan year in which the forfeitures occur.  Forfeitures allocated for the years ended September 30, 2013 and 2012, totaled $7,593 and $16,971, respectively for the ESOP part of the Plan.  For the years ended September 30, 2013 and 2012, the 401(k) forfeitures totaled $768 and $14,825, respectively.

Benefit Payments and Plan Amendments

On termination of service, a participant whose vested Plan accounts totaled $1,000 or less will receive a lump-sum amount equal to the value of the vested interest in his or her account.   A participant whose vested Plan accounts exceed $1,000 may leave the funds in the Plan or elect to receive his or her vested interest in either a lump sum distribution or a distribution over a certain period in monthly, quarterly, semiannual or annual installments. A participant’s vested Plan accounts will be distributed upon attaining age 65, unless an election has been made to defer or accelerate the distribution of benefits.  All distributions from the 401(k) component are in cash. Distributions from the ESOP component are in the form of Bancorp common stock or cash as elected by the participant. During the year ended September 30, 2013, the Plan distributed 35,266 shares of Bancorp common stock from the ESOP component.




6
 
 
 
 
 
Notes to Financial Statements
Timberland Bank Employee Stock Ownership and 401(k) Plan
September 30, 2013 and 2012


Note 1 – Plan Description and Basis of Presentation (continued)

Vesting

Participants are immediately vested in all employee contributions, rollover and safe harbor contributions, plus actual earnings thereon.  Vesting in the Company’s discretionary contribution portion of accounts and the ESOP, plus earnings thereon, is based on years of credited service.  Participants gradually vest in these accounts, and are fully vested after six years of credited service.  A participant’s account also becomes 100 percent vested upon attaining the age of 65 while actively employed, or if the participant’s separation from service is a result of death or disability.

ESOP Component Diversification

Diversification is available to a participant that has three years or more of service with the Company.  They may diversify their entire ESOP balance or any portion they choose.  The divestment may be directed into the same fund choices available for the 401(k) component of the Plan.  Divestment and reinvestment may occur once a month.  During the Plan year ended September 30, 2013, there were no shares diversified out of the ESOP component of the Plan.

Plan Termination

The Company reserves the right to terminate the Plan at any time, subject to the Plan’s provisions.  Upon termination of the Plan, the interest of each participant will be distributed to the participant or to their beneficiary at the time prescribed by the Plan terms and the Code.  In the event of Plan termination, participants become 100 percent vested in their accounts.


Note 2 – Summary of Significant Accounting Policies

Basis of Accounting

The financial statements of the Plan are prepared under the accrual method of accounting.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and changes therein, and the disclosure of contingent assets and liabilities, at the date of the financial statements.  Actual results could differ from those estimates.

Investment Valuation and Income Recognition

The Plan’s investments at September 30, 2013 and 2012 consist of common collective trust funds and Bancorp common stock; both of which are stated at fair value. Quoted market prices are used to value shares of Bancorp common stock. The Plan’s interest in the common collective trust funds are based on the fair values of the common collective trust funds’ underlying investments, based on net asset value information reported by the investment manager (State Street Global Advisors) to the asset custodian (Reliance Trust Company) and trustees (Reliance Trust Company and Pentegra Trust Company). Fluctuations in market value are reflected as net appreciation (depreciation) in fair value of investments.


7
 
 
 
 
Notes to Financial Statements
Timberland Bank Employee Stock Ownership and 401(k) Plan
September 30, 2013 and 2012


Note 2 – Summary of Significant Accounting Policies (continued)

Investment Valuation and Income Recognition (concluded)

Purchases and sales of securities are recorded on the trade-date basis. Interest income is recognized when earned. Dividends are recorded on the ex-dividend date.

Payment of Benefits

Benefits are recorded when paid.

Fully Benefit-Responsive Investment Contracts

Investment contracts held by a defined contribution plan are required to be reported at fair value.  Contract value is the relevant measurement attributed for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan.  The Plan invests in investment contracts through a common collective trust fund.  Contract value for the common collective trust fund is based on the net asset value of the fund, as reported by the investment manager.  The statements of net assets available for benefits present the fair value of the investment in the common collective trust fund as well as the adjustment of the investment in the common collective trust fund from fair value to contract value relating to the investment contracts.  The statement of changes in net assets available for benefits is prepared on a contract value basis.  The Company has applied the provisions for reporting of fully benefit-responsive investment contracts  to the statement of net assets available for benefits as of September 30, 2013 and 2012.


Note 3 – Tax Status

The Plan obtained its latest determination letter dated September 26, 2013, in which the Internal Revenue Service (“IRS”) stated that the Plan, as designed, was in compliance with the applicable requirements of the code.


Note 4 – Administration of Plan Assets

Certain non-fiduciary administrative functions of the Plan are performed by officers and employees of the Company.  No such officers or employees receive compensation from the Plan.  The Company also retained the services of a third party to perform third-party administrative functions.  Administrative expenses are paid directly by the Company and totaled $25,526 for the year ended September 30, 2013.





8
 
 
 
 
 
Notes to Financial Statements
Timberland Bank Employee Stock Ownership and 401(k) Plan
September 30, 2013 and 2012


Note 5 – Investments

The following presents, separately, identified investments that represent five percent or more of the Plan’s net assets and Bancorp common stock at September 30, 2013:
 
   
Participant-
    
 Nonparticipant-directed
        
   
Directed
    
Allocated
    
Unallocated
    
Total
  
                         
Bancorp common stock
                        
       Number of shares
     332,354       592,468       193,968       1,118,790  
                                 
       Market value   $ 2,991,186     $ 5,332,212     $ 1,745,712     $ 10,069,110  
                                 
State Street Global Advisors Common
                          
       Collective Trust Short Term
                                
        Investment Fund
     1,677,713       - -       - -       1,677,713  
                                 
State Street Global Advisors Russell
                                
        2000 Index SL Series Fund – Class A     1,327,720       - -       - -       1,327,720  
                                 
State Street Global Advisors Moderate
                          
        Strategic Balanced SL Fund     1,089,551       - -       - -       1,089,551  
                                 
Invesco Stable Value Common Collective
                          
        Trust – Pentegra Class     1,089,440       - -       - -       1,089,440  
                                 
State Street Global Advisors S&P
                                
        500 Flagship SL Series Fund – Class A     1,026,893       - -       - -       1,026,893  
                                 
State Street Global Advisors Aggressive
                          
        Strategic Balanced SL Fund     900,516       - -       - -       900,516  
                                 
Other (including common collective
                          
        trust funds)
     2,800,723       - -       - -       2,800,723  
           
                                
Total investments at fair value
   $ 12,903,742     $ 5,332,212     $ 1,745,712     $ 19,981,666  

 
 
9
 
 
 
 
 
Notes to Financial Statements
Timberland Bank Employee Stock Ownership and 401(k) Plan
September 30, 2013 and 2012

Note 5 – Investments (continued)

The following presents, separately, identified investments that represent five percent or more of the Plan’s net assets and Bancorp common stock at September 30, 2012:
 
   
Participant-
    
Nonparticipant-directed
        
   
Directed
    
Allocated
    
Unallocated
    
Total
  
Bancorp common stock
                        
Number of shares
     379,330       597,641       229,234       1,206,205  
                                 
       Market value   $ 2,275,980     $ 3,585,846     $ 1,375,404     $ 7,237,230  
                                 
State Street Global Advisors Common
                          
       Collective Trust Short Term
                                
        Investment Fund
     1,544,610       - -       - -       1,544,610  
                                 
Invesco Stable Value Common Collective
                          
        Trust – Pentegra Class     1,109,112       - -       - -       1,109,112  
                                 
State Street Global Advisors Russell
                                
        2000 Index SL Series Fund – Class A     1,048,843       - -       - -       1,048,843  
                                 
State Street Global Advisors Moderate
                          
        Strategic Balanced SL Fund     1,042,973       - -       - -       1,042,973  
                                 
State Street Global Advisors S&P
                                
        500 Flagship SL Series Fund – Class A     859,460       - -       - -       859,460  
                                 
State Street Global Advisors Aggressive
                          
        Strategic Balanced SL Fund     858,256       - -       - -       858,256  
                                 
Other (including common collective
                          
       trust funds)
     2,475,988       - -       - -       2,475,988  
           
                                
Total investments at fair value
   $ 11,215,222     $ 3,585,846     $ 1,375,404     $ 16,176,472  

During the year ended September 30, 2013, the Plan’s investments, including gains and losses on investments bought and sold, as well as held during each period, appreciated in value as follows:
 
 
Stable value common collective trust fund       $      19,423  
Other common collective trust funds   995,153  
Bancorp common stock     3,512,939  
     
      Net appreciation in fair value of investments $ 4,527,515  
 
The Stable value common collective trust fund is administrated by Invesco.  The average yield and crediting interest rates were approximately  1.1% and 1.5%, respectively for the Plan year 2013.  The average yield and crediting interest rates were approximately 1.4% and 2.0%, respectively for the Plan year 2012.
10
 
 
 
 
 
Notes to Financial Statements
Timberland Bank Employee Stock Ownership and 401(k) Plan
September 30, 2013 and 2012


Note 6 – Related Party Note Payable

The Plan’s term loan agreement with Bancorp (a related party) maturing March 31, 2019, has an interest rate of 8.5 percent and annual payments of $588,870.  The note is guaranteed by the Company and remains collateralized by unallocated shares of Bancorp common stock.

Note 7 – Employer Contributions

The Company is obligated to make contributions in cash to the Plan for the ESOP component, which, when aggregated with the Plan’s dividends and interest earnings, equal the amount necessary to enable the Plan to make its regularly scheduled payments of principal and interest on the term loan.  In addition, the Company is obligated to make an annual safe-harbor contribution of three percent of eligible compensation into the 401(k) component which totaled $289,003 for the year ended September 30, 2013.  At the discretion of the Board of Directors, the Company may make an additional profit sharing contribution to the 401(k) component of the Plan.  For the year ended September 30, 2013, there was no such discretionary contribution.


Note 8 – Risks and Uncertainties

The Plan invests in various investment securities.  Investment securities are exposed to various risks, such as interest rate, market and credit risks.  Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the value of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported on the statement of net assets available for benefits.

11
 
 
 
 
 
Notes to Financial Statements
Timberland Bank Employee Stock Ownership and 401(k) Plan
September 30, 2013 and 2012


Note 9 – Fair Value of Investments

The authoritative guidance established a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques in fair value calculations.  The three levels of inputs are defined as follows:

Level 1 – unadjusted quoted prices for identical assets or liabilities in active markets accessible by the Company.
Level 2 – inputs that are observable in the marketplace other than those inputs classified as Level 1
Level 3 – inputs that are unobservable in the marketplace and significant to the valuation

The guidance on fair value of financial instruments requires the Plan to maximize the use of observable inputs and minimize the use of unobservable inputs.  If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.

The following table summarizes the balances of assets measured at fair value on a recurring basis at September 30, 2013 and 2012 (in thousands):
 
      Fair Value        
2013
  
Level 1
    
Level 2
    
Level 3
    
Total Losses
  
                         
Available for Sale Securities
                        
Bancorp common stock
   $ 10,069     $ - -     $ - -     $ - -  
Stable value common collective trust fund
     - -       1,099       - -       - -  
Other common collective trust funds
     - -       8,814       - -       - -  
 Total
   $ 10,069     $ 9,913     $ - -     $ - -  
                                 
                                 
 
     Fair Value          
2012
  
Level 1
    
Level 2
    
Level 3
    
Total Losses
  
                                 
Available for Sale Securities
                                
Bancorp common stock
   $ 7,237     $ - -     $ - -     $ - -  
Stable value common collective trust fund
     - -       1,109       - -       - -  
Other common collective trust funds
     - -       7,830       - -       - -  
 Total
   $ 7,237     $ 8,939     $ - -     $ - -  
 
Note 10 – Subsequent Events

Management has evaluated events and transactions that occurred after the balance sheet date of September 30, 2013 through March 18, 2014, the date the financial statements were available to be issued.



12

 
 
 
Notes to Financial Statements
Timberland Bank Employee Stock Ownership and 401(k) Plan
September 30, 2012 and 2011


Note 11 – Reconciliation of Financial Statements to Form 5500

The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500 for the year ended September 30, 2013:
 
               
 
  
   
Account
Balance per
Financial 
Statements
     Variance    
Balance per
Form 5500
  
                   
               
 
  
                   
Cash and cash equivalents
   $ 43,011     $ 1,677,713     $ 1,720,724  
Common collective trust funds
     9,912,556       (1,694,108 )     8,218,448  
Adjustment from fair value to
                        
   contract value for fully benefit-
                        
   responsive investment contracts
     (16,395 )     16,395          
Total   $  9,939,172        --     $  9,939,172  

The Plan’s Administrator has classified the Plan’s State Street Global Advisors Common Collective Trust Short Term Investment Fund as a cash equivalent for reporting on the Form 5500.  This investment has been classified as an investment for financial statement reporting purpose.



 
13

 
 
 


Supplemental

Schedule

 
 
 
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
Timberland Bank Employee Stock Ownership and 401(k) Plan
September 30, 2013

EIN:            20-5645878
Plan #:                      002
 
 
(a) and (b)   
Identity of Issue,
Borrower, Lessor
or Similar Party  
  
 (c)
Description of Investment, Including  
Maturity Date, Rate of Interest, 
Collateral, Par or Maturity Value   
  
 (d) 
Cost
  
 (e)
Current
Value
             
 Stable Value Common Collective Trust Fund           
 Invesco     Pentegra Stable Value Fund, at Fair Value  $  *    $  1,098,440
             
Employer Stock            
**Timberland Bancorp, Inc.     Common Stock – 786,436 Shares      5,894,338    7,077,924
             
**Timberland Bancorp, Inc.    Common Stock – 332,354 Shares     *    2,991,186
            10,069,110
Other Common Collective Trust Funds        
State Street Global Advisors    Common Collective Trust Short Term Invesment Fund     *     1,677,713
             
State Street Global Advisors   Russell 2000 Index SL Series Fund – Class A    *    1,327,720
             
State Street Global Advisors    Moderate Strategic Balanced SL Fund   *    1,089,551
             
State Street Global Advisors    S&P 500 Flagship SL Series Fund – Class A     *     1,026,893
             
State Street Global Advisors    Aggressive Strategic Balanced SL Fund     *     900,516
             
State Street Global Advisors   Daily EAFE Index SL Series Fund – Class T      *    552,206
             
State Street Global Advisors   S&P Midcap Index SL Series Fund – Class A    *    348,550
             
State Street Global Advisors     S&P Value Index SL Fund Series A   *    325,447
             
State Street Global Advisors   NASDAQ 100 Index Non-Lending Fund Series A    *    262,251
             
State Street Global Advisors    S&P Growth Index SL Fund Series A       *   248,260
             
State Street Global Advisors    Passive Bond Market Index SL Series Fund A      *    209,955
             
State Street Global Advisors    REIT Index Non-Lending Series Fund – Class A     *   164,179
             
State Street Global Advisors    Long US Treasury Index SL Series Fund Class A      *     148,130
 
             
14
 
 
 
 
 
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) (continued)
Timberland Bank Employee Stock Ownership and 401(k) Plan
September 30, 2013

EIN:            20-5645878
Plan #:                      002
 
(a) and (b)   
Identity of Issue,
Borrower, Lessor
or Similar Party  
  
 (c)
Description of Investment, Including  
Maturity Date, Rate of Interest, 
Collateral, Par or Maturity Value   
  
 (d) 
Cost
  
 (e)
Current
Value
         
Other Common Collective Trust Funds (continued)        
State Street Global Advisors    Conservative Strategic Balanced SL Fund     *     140,428
             
State Street Global Advisors   Target Retirement Fund 2015    *   131,494
             
State Street Global Advisors    Target Retirement Fund 2025      *   107,819
             
State Street Global Advisors    Target Retirement Fund 2035      *     59,543
             
State Street Global Advisors     Target Retirement Fund 2045       *    44,927
             
State Street Global Advisors   Target Retirement Fund 2020     *   33,128
             
State Street Global Advisors   Target Retirement Fund 2055    *   5,622
             
State Street Global Advisors     Target Retirement Fund 2040    *   5,048
             
State Street Global Advisors   Target Retirement Fund 2050    *   2,973
             
State Street Global Advisors    Target Retirement Fund 2030    *   1,583
             
State Street Global Advisors    Target Retirement Income Fund      *    180
             
            8,814,116
             
             $19,981,666

* Historical cost not required for participant-directed accounts.
**Represents a party-in-interest


15