Employee Stock Ownership and 401(k) Plan

12 Months Ended

Sep. 30, 2017

Employee Stock Ownership and 401(k) Plan

The Timberland Bank Employee Stock Ownership and 401(k) Plan (“KSOP”) is comprised of two components, the ESOP and the 401(k) Plan. The KSOP benefits employees with at least one year of service who are 21 years of age or older. The Bank may fund the ESOP with contributions of cash or stock, and may fund the 401(k) Plan with contributions of cash. Employee vesting occurs over six years.

ESOP

In January 1998, the ESOP borrowed $7,930,000 from the Company to purchase 1,058,000 shares of common stock of the Company. The loan is being repaid primarily from the Bank’s contributions to the ESOP and is scheduled to be fully repaid by March 31, 2019. The interest rate on the loan is 8.5%. Interest expense on the ESOP debt was $96,000, $136,000 and

$173,000 for the years ended September 30, 2017, 2016 and 2015, respectively. The balance of the loan at September 30, 2017 was $821,000.

The amount of the Bank's annual contribution is discretionary, except that it must be sufficient to enable the ESOP to service its debt. All dividends received by the ESOP are used to pay debt service. Dividends of $293,000, $243,000 and $170,000 were used to service the debt during the years ended September 30, 2017, 2016 and 2015, respectively. 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 regulations. As of September 30, 2017, 515,430 ESOP shares, which were previously released for allocation to participants, had been distributed to participants.

Shares held by the ESOP as of September 30, 2017, 2016 and 2015 were classified as follows:



	2017	2016	2015
Unallocated shares	52,905	88,171	123,436
Shares released for allocation	489,665	535,927	554,745
Total ESOP shares	542,570	624,098	678,181

The approximate fair market value of the ESOP’s unallocated shares at September 30, 2017, 2016 and 2015 was $1,658,000, $1,389,000 and $1,344,000, respectively. Compensation expense recognized under the ESOP for the years ended September 30, 2017, 2016 and 2015 was $495,000, $233,000, and $203,000, respectively.

401(k) Plan

Eligible employees may contribute a portion of their wages to the 401(k) Plan up to the maximum established under the Internal Revenue Code. Contributions by the Bank are at the discretion of the Board except for a safe harbor contribution of 3% of eligible employees' wages, which is mandatory according to the plan document. Bank contributions totaled $358,000, $333,000 and $313,000 for the years ended September 30, 2017, 2016 and 2015, respectively.