SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549

                                 FORM 10-K/A

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

      For the Fiscal Year Ended September 30, 2001                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 jurisdiction of incorporation                (I.R.S. Employer
or organization)                                               I.D. Number)

624 Simpson Avenue, Hoquiam, Washington                            98550
----------------------------------------------               -----------------
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code:            (360) 533-4747

Securities registered pursuant to Section 12(b)
of the Act:                                                         None
                                                             -----------------

Securities registered pursuant to Section 12(g)        Common Stock, par value
of the Act:                                                 $.01 per share
                                                       -----------------------
                                                              (Title of Class)

     Check whether the Registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.  YES   X      NO
                   -----       -----
     Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-K contained herein, and no disclosure will be contained, to
the best of the Registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K.   X
                              -----
     As of December 5, 2001, there were outstanding 4,006,103 shares of the
registrant's Common Stock, which are listed on the Nasdaq National Market
System under the symbol "TSBK."  Based on the average of the bid and asked
prices for the Common Stock on December 5, 2001, the aggregate value of the
Common Stock outstanding held by nonaffiliates of the registrant was
$58,889,714 (4,006,103 shares at $14.70 per share).  For purposes of this
calculation, Common Stock held by officers and directors of the registrant and
Timberland  Bank, Employee Stock Ownership Plan and Trust are considered
nonaffiliates.

                     DOCUMENTS INCORPORATED BY REFERENCE

     1.   Portions of Definitive Proxy Statement for the 2002 Annual Meeting
          of Stockholders (Part III).

<PAGE>



The Registrant hereby amends Part II, Item 8 of its Annual Report for the
fiscal year ended September 30, 2001 for the purpose of including its former
accountant's, Knight, Vale & Gregory PLLC, independent report.  No other
revisions were made to the Registrant's Consolidated Financial Statements for
the year ended September 30, 2001.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

                   TIMBERLAND BANCORP, INC. AND SUBSIDIARY

                 Index to Consolidated Financial Statements

                                                                        Page
                                                                        ----

Independent Auditor's Report
   McGladrey & Pullen, LLP                                               46
   Knight Vale & Gregory PLLC                                            47
Consolidated Balance Sheets as of September 30, 2001 and 2000            48
Consolidated Statements of Income For the Years Ended
   September 30, 2001, 2000, and 1999                                    49
Consolidated Statements of Shareholders' Equity For the
   Years Ended September 30, 2001, 2000 and 1999                         50
Consolidated Statements of Cash Flows For the Years Ended
   September 30, 2001, 2000 and 1999                                     51
Consolidated Statements of Comprehensive Income For the
   Years Ended September 30, 2001, 2000 and 1999                         53
Notes to Consolidated Financial Statements                               54

                                        45
<PAGE>




                     INDEPENDENT AUDITOR'S REPORT


The Board of Directors
Timberland Bancorp, Inc.
Hoquiam, Washington

We have audited the accompanying consolidated balance sheet of Timberland
Bancorp, Inc. and Subsidiaries as of September 30, 2001, and the related
consolidated statements of income, shareholders' equity, cash flows and
comprehensive income for the year then ended.  These consolidated financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.  The consolidated financial statements of
Timberland Bancorp, Inc. and Subsidiaries as of September 30, 2000 and for the
years ended September 30, 2000 and 1999 were audited by Knight Vale & Gregory
PLLC, independent accountants, whose members became partners  of McGladrey &
Pullen, LLP on September 1, 2001.  Knight Vale & Gregory PLLC's report, dated
November 2, 2000, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America.  Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the 2001 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Timberland
Bancorp, Inc. and Subsidiaries as of September 30, 2001, and the results of
their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.

McGladrey & Pullen,LLP


/s/McGladrey & Pullen,LLP

October 31, 2001
Tacoma, Washington

                                   46

<PAGE>


                     INDEPENDENT AUDITOR'S REPORT


The Board of Directors
Timberland Bancorp, Inc.
Hoquiam, Washington

We have audited the accompanying consolidated balance sheet of Timberland
Bancorp, Inc. and Subsidiaries as of September 30, 2000, and the related
consolidated statements of income, shareholders' equity, cash flows and
comprehensive income for the years ended September 30, 2000 and 1999.  These
consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America.  Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Timberland
Bancorp, Inc. and Subsidiaries as of September 30, 2000, and the results of
their operations and their cash flows for the years ended September 30, 2000
and 1999, in conformity with accounting principles generally accepted in the
United States of America.


/s/Knight Vale & Gregory PLLC

Tacoma, Washington
November 2, 2000

                                   47

<PAGE>




CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------
(Dollars in Thousands)

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

                                                            2001      2000

ASSETS
  Cash and due from financial institutions              $  10,017  $   8,893
  Interest bearing deposits in banks                        3,422      3,109
  Investments and mortgage-backed securities
   (available for sale)                                    29,369     24,925
  Federal Home Loan Bank stock (at cost)                    4,830      4,150

  Loans receivable, net                                   305,746    284,663
  Loans held for sale                                      18,022     28,343
                                                          323,768    313,006

  Accrued interest receivable                               1,880      1,756
  Premises and equipment                                   10,660      8,614
  Real estate owned                                         1,006      1,966
  Accrued interest receivable                               1,880      1,756
  Other assets                                              1,353      1,661

  TOTAL ASSETS                                           $386,305   $368,080


LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
  Deposits                                               $242,372   $212,611
  Federal Home Loan Bank advances                          68,978     81,137
  Other liabilities and accrued expenses                    3,146      2,020
  TOTAL LIABILITIES                                       314,496    295,768

SHAREHOLDERS' EQUITY
  Preferred stock, $0.01 par value; 1,000,000 shares
    authorized; none issued                                    --         --
  Common stock, $0.01 par value; 50,000,000 shares
  authorized;
    2001 - 4,570,995 shares issued, 4,010,303
      shares outstanding
    2000 - 4,793,295 shares issued, 4,361,279
      shares outstanding                                       46         48
  Additional paid-in capital                               39,574     42,250
  Unearned shares issued to employee stock
    ownership trust                                        (5,948)    (6,477)
  Unearned shares issued to management recognition
    and & development plan                                 (2,471)        --
  Retained earnings                                        40,332     36,795
  Accumulated other comprehensive income (loss)                276      (304)
  TOTAL SHAREHOLDERS' EQUITY                                71,809    72,312

  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY              $386,305  $368,080


See notes to consolidated financial statements.

                                       48
<PAGE>




CONSOLIDATED STATEMENTS OF INCOME
------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts)

Timberland Bancorp, Inc. and Subsidiaries
Years Ended September 30, 2001, 2000 and 1999

                                                2001        2000      1999

INTEREST AND DIVIDEND INCOME
  Loans receivable                            $29,777     $26,325    $20,721
  Investments and mortgage-backed securities      962       1,183      1,382
  Dividends from investments                      791         713        766
  Interest bearing deposits in banks              162         141        240
  TOTAL INTEREST AND DIVIDEND INCOME           31,692      28,362     23,109

INTEREST EXPENSE
  Deposits                                      9,491       8,393      7,276
  Federal Home Loan Bank advances               4,433       4,034      1,087
  TOTAL INTEREST EXPENSE                       13,924      12,427      8,363

  NET INTEREST INCOME                          17,768      15,935     14,746

PROVISION FOR LOAN LOSSES                       1,400         885        363

  NET INTEREST INCOME AFTER PROVISION
    FOR LOAN LOSSES                            16,368      15,050     14,383

NON-INTEREST INCOME
  Service charges on deposits                   1,040         507        440
  Gain on sale of loans, net                      367         103         74
  Market value adjustment on loans
    held for sale                                 175         408       (583)
  Gain (loss) on sale of securities
    available for sale, net                       205         (22)        --
  Escrow fees                                     205         198        240
  Servicing income (expenses) on loans sold       152         (2)       (17)
  ATM transaction fees                            379         250        156
  Other                                           404         296        282
  TOTAL NON-INTEREST INCOME                     2,927       1,738        592

NON-INTEREST EXPENSE
  Salaries and employee benefits                6,042       4,535      4,246
  Premises and equipment                        1,208         960        856
  Advertising                                     950         389        299
  Loss from real estate operations
    and write-downs                               481         134         45
  Other                                         2,411        1,948     1,714
  TOTAL NON-INTEREST EXPENSE                   11,092       7,966      7,160

  INCOME BEFORE FEDERAL INCOME TAXES            8,203       8,822      7,815

FEDERAL INCOME TAXES                            2,741       2,925      2,597

  NET INCOME                                 $  5,462    $  5,897   $  5,218

EARNINGS PER COMMON SHARE
  Basic                                         $1.30       $1.31      $1.03
  Diluted                                        1.28        1.31       1.03

See notes to consolidated financial statements.

                                        49
<PAGE>


<PAGE>
<TABLE>

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------
(Dollars in Thousands)

Timberland Bancorp, Inc. and Subsidiaries
Years Ended September 30, 2001, 2000 and 1999

                                                              UNEARNED   UNEARNED
                                                              SHARES     SHARES            ACCUMULATED
                                                              ISSUED TO  ISSUED TO         OTHER
                                                              EMPLOYEE   MANAGEMENT        COMPRE-
                                 COMMON STOCK      ADDITIONAL STOCK      RECOG-            HENSIVE
                                                   PAID-IN    OWNERSHIP  NITION  RETAINED  INCOME
                                 SHARES    AMOUNT  CAPITAL    TRUST      PLAN    EARNINGS  (LOSS)    TOTAL


                             <c>          <c>   <c>       <c>         <c>      <c>       <c>     <c>
Balance, September 30, 1998     5,779,325    $63   $60,183   ($7,534)    $  --    $28,948   $120    $81,780

Net income                             --     --        --        --        --      5,218     --      5,218
Repurchase of common stock     (1,064,453)   (11)  (13,139)       --        --         --     --    (13,150)
Cash dividends ($.27 per share)        --     --        --        --        --     (1,520)    --     (1,520)
Earned ESOP shares                 35,267     --      (101)      529        --         --     --        428
Change in fair value of
 unrealized loss on securities
 available for sale, net of tax        --     --        --        --        --         --   (511)      (511)

  BALANCE,
  SEPTEMBER 30, 1999            4,750,139     52    46,943    (7,005)       --     32,646   (391)    72,245

Net income                             --     --        --        --        --      5,897     --      5,897
Repurchase of common stock       (424,127)    (4)   (4,599)       --        --         --     --     (4,603)
Cash dividends ($.35 per share)        --     --        --        --        --     (1,748)    --     (1,748)
Earned ESOP shares                 35,267     --       (94)      528        --         --     --        434
Change in fair value of
  unrealized loss on securities
  available for sale, net of tax       --     --        --        --        --         --     87         87

  BALANCE,
  SEPTEMBER 30, 2000            4,361,279     48    42,250    (6,477)       --     36,795   (304)    72,312

Net income                             --     --        --        --        --      5,462     --      5,462
Issuance of MRDP shares                --      2     3,222        --    (3,224)        --     --         --
Repurchase of common stock       (428,827)    (4)   (5,914)       --        --         --     --     (5,918)
Exercise of stock options           1,600     --        19        --        --         --     --         19
Cash dividends ($.41 per share)        --     --        --        --        --     (1,925)    --     (1,925)
Earned ESOP shares                 35,266     --       (26)      529        --         --     --        503
Earned MRDP shares                 40,985     --        23        --       753         --     --        776
Change in fair value of
  unrealized loss on securities
  available for sale, net of tax       --     --        --        --        --         --    580        580

  BALANCE,
  SEPTEMBER 30, 2001            4,010,303    $46   $39,574   ($5,948)  ($2,471)   $40,332   $276    $71,809

</TABLE>

See notes to consolidated financial statements.
                                                                        50
<PAGE>



CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
(Dollars in Thousands)

Timberland Bancorp, Inc. and Subsidiaries
Years Ended September 30, 2001, 2000 and 1999

                                                2001       2000        1999
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                $   5,462    $  5,897   $  5,218
  Noncash revenues, expenses, gains and losses
    included in net income:
     Depreciation                                 527         424        364
     Deferred federal income taxes               (207)       (231)      (449)
     Earned ESOP shares                           503         434        428
     Earned MRDP Shares                           776          --         --
     Federal Home Loan Bank stock dividends      (310)       (224)      (134)
     Market value adjustment on loans held
       for sale                                  (175)       (408)       583
     Loss on sale of real estate owned, net        21          25         --
     (Gain) loss on sale of securities
       available for sale                        (205)         22         --
     Gain on sale of loans                       (367)       (103)       (74)
     Provision for loan and real estate
       owned losses                             1,756         936        391
  Net increase (decrease) in loans originated
    for sale                                   (1,063)     (5,169)   (14,783)
  Net change in accrued interest receivable
    and other assets, and other liabilities
    and accrued expenses                        1,167         (89)     1,339
  NET CASH PROVIDED BY (USED IN) OPERATING
    ACTIVITIES                                  7,885       1,514     (7,117)

CASH FLOWS FROM INVESTING ACTIVITIES
  Net (increase) decrease in interest-
    bearing deposits in banks                    (313)     (1,793)    13,429
  Activity in securities available for sale:
    Sales                                      12,334       2,482         --
    Maturities, prepayments and calls          10,549       2,421     29,889
    Purchases                                 (14,720)     (1,989)   (26,826)
  Increase in loans receivable, net           (23,653)    (54,139)   (44,568)
  Additions to premises and equipment          (2,573)     (1,416)    (2,664)
  Additions to real estate owned                 (198)       (271)        --
  Proceeds from sale of real estate owned       2,035       1,109      1,498
  Proceeds from sale of premises and equipment     --          --         20
  NET CASH USED IN INVESTING ACTIVITIES       (16,539)    (53,596)   (29,222)

CASH FLOWS FROM FINANCING ACTIVITIES
  Increase in deposits                         29,761      24,463     17,314
  Increase (decrease) in Federal Home
    Loan Bank advances                        (12,159)     36,053     33,466
  Proceeds from exercise of stock options          19          --         --
  Repurchase of common stock                   (5,918)     (4,603)   (13,150)
  Payment of dividends                         (1,925)     (1,748)    (1,520)
  Common stock purchased for ESOP                  --          --         --
  NET CASH PROVIDED BY FINANCING ACTIVITIES     9,778      54,165     36,110

  NET INCREASE (DECREASE) IN CASH               1,124       2,083       (229)

CASH AND DUE FROM FINANCIAL INSTITUTIONS
  Beginning of year                             8,893       6,810      7,039

  END OF YEAR                                 $10,017    $  8,893   $  6,810

(continued)

See notes to consolidated financial statements.
                                     51
<PAGE>



CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------
(concluded)  (Dollars in Thousands)

Timberland Bancorp, Inc. and Subsidiaries
Years Ended September 30, 2001, 2000 and 1999

                                               2001        2000        1999

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Income taxes paid                         $  2,260     $  3,195     $2,975
  Interest paid                               14,024       12,151      8,171

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
  AND FINANCING ACTIVITIES
    Market value adjustment of securities
      held for sale, net of tax             $    580     $     87      ($511)
    Loans transferred to real estate owned     1,254        2,013        581
    Shares issued to management recognition
      and development plan                     3,224           --         --
    Investment securities acquired in loan
      securitization                          11,926           --         --


See notes to consolidated financial statements.

                                       52

<PAGE>



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
------------------------------------------------------------------------------
(Dollars in Thousands)

Timberland Bancorp, Inc. and Subsidiaries
Years Ended September 30, 2001, 2000 and 1999


                                                 2001       2000       1999

COMPREHENSIVE INCOME
  Net income                                   $5,462      $5,897     $5,218
  Change in fair value of unrealized gains
    (losses) securities available for sale,
    net of tax                                    580          87       (511)

  TOTAL COMPREHENSIVE INCOME                   $6,042      $5,984     $4,707

See notes to consolidated financial statements.

                                       53

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Timberland
Bancorp, Inc. (the Company); its wholly owned subsidiary, Timberland Bank (the
Bank); and the Bank's wholly owned subsidiary, Timberland Service Corp.  All
significant intercompany transactions and balances have been eliminated.

NATURE OF OPERATIONS

The Company is a holding company which operates primarily through its
subsidiary, the Bank.  The Bank was established in 1915 and, through its
thirteen branches located in Grays Harbor, Pierce, Thurston, Kitsap and King
Counties in Washington State, attracts deposits from the general public, and
uses those funds, along with other borrowings, to provide primarily real
estate loans to borrowers in western Washington, and to invest in investment
securities and mortgage-backed securities.

CONSOLIDATED FINANCIAL STATEMENT PRESENTATION

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and practices within the banking
industry.  The preparation of consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, and the disclosure of contingent assets and
liabilities, as of the date of the balance sheet, and the reported amounts of
revenues and expenses during the reporting period.  Actual results could
differ from those estimates.  Material estimates that are particularly
susceptible to significant change in the near term relate to the determination
of the allowance for loan losses and the valuation of real estate owned and
deferred tax assets.

Certain prior year amounts have been reclassified to conform to the 2001
presentation.

INVESTMENTS AND MORTGAGE-BACKED SECURITIES

Debt and equity securities that will be held for indefinite periods of time,
including securities that may be sold in response to changes in market
interest rates, prepayment rates, need for liquidity, and changes in the
availability of and the yield of alternative investments, are considered
securities available for sale, and are reported at fair value.  Fair value is
determined using published quotes as of the close of business on reporting
dates.  Unrealized gains and losses are excluded from earnings, and are
reported as a separate component of shareholders' equity, net of the related
deferred tax effect, entitled "Accumulated other comprehensive income (loss)."
Realized gains and losses on securities available for sale, determined using
the specific identification method, are included in earnings.  Amortization of
premiums and accretion of discounts are recognized in interest income over the
period to maturity.


(continued)

                                       54
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

LOANS HELD FOR SALE

Mortgage loans originated and intended for sale in the secondary market are
stated in the aggregate at the lower of cost or estimated market value.  Net
unrealized losses, if any, are recognized through a valuation allowance by
charges to income.  Gains or losses on sales of loans are recognized at the
time of sale.  The gain or loss is determined by the difference between the
net sales proceeds and the recorded value of the loans, including any
remaining unamortized deferred loan fees.

LOANS RECEIVABLE

Loans are stated at the amount of unpaid principal, reduced by the undisbursed
portion of loans in process, unearned income and an allowance for loan losses.

ALLOWANCES FOR LOSSES

Allowances for losses on specific problem loans and real estate owned are
charged to earnings when it is determined that the value of these loans and
properties, in the judgment of management, is impaired.  In addition to
specific reserves, the Bank also maintains general provisions for loan losses
based on evaluating known and inherent risks in the loan portfolio, including
management's continuing analysis of the factors and trends underlying the
quality of the loan portfolio.  These factors include changes in the size and
composition of the loan portfolio, actual loan loss experience, current and
anticipated economic conditions, detailed analysis of individual loans for
which full collectibility may not be assured, and determination of the
existence and realizable value of the collateral and guarantees securing the
loans.  The ultimate recovery of loans is susceptible to future market factors
beyond the Bank's control, which may result in losses or recoveries differing
significantly from those provided in the consolidated financial statements.

The Bank accounts for impaired loans in accordance with SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118.
These statements address the disclosure requirements and allocation of the
allowance for loan losses for certain impaired loans.  A loan within the scope
of these statements is considered impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement,
including scheduled interest payments.  The Bank excludes smaller balance
homogenous loans, including single-family residential and consumer loans, from
the scope of these statements.

When a loan has been identified as being impaired, the amount of the
impairment is measured by using discounted cash flows, except when it is
determined that the sole source of repayment for the loan is the operation or
liquidation of the underlying collateral.  In such case, impairment is
measured at current fair value of the collateral, reduced by estimated selling
costs.  When the measurement of the impaired loan is less than the recorded
investment in the loan, including accrued interest and net unamortized
deferred loan fees or costs, loan impairment is recognized by establishing or
adjusting an allocation of the allowance for loan losses.  SFAS No. 114, as
amended, does not change the timing of charge-offs of loans to reflect the
amount ultimately expected to be collected.


(continued)
                                       55
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

INTEREST ON LOANS AND LOAN FEES

Interest on loans is recorded as income when borrowers' monthly payments
become due.  Allowances are established for uncollected interest on loans for
which the interest is determined to be uncollectible.  Generally, all loans
past due 90 days or morethree or more payments are placed on nonaccrual status
and internally classified as substandard.  Any interest income recorded in the
current reporting period is fully reserved.  Subsequent collections are
applied proportionately to past due principal and interest.  Loans are removed
from nonaccrual status only when the loan is deemed current, and the
collectibility of principal and interest is no longer doubtful.

The Bank charges fees for originating loans.  These fees, net of certain loan
origination costs are deferred and amortized to income, on the level-yield
basis, over the loan term.  If the loan is repaid prior to maturity, the
remaining unamortized deferred loan fee is recognized in income at the time of
repayment.

LOAN SERVICING RIGHTS

Loan servicing rights are capitalized when acquired through the origination of
loans that are subsequently sold or securitized with the servicing rights
retained.  The value of loan servicing rights at the date of the sale of loans
is determined based on the discounted present value of expected future cash
flows using key assumptions for servicing income and costs and prepayment
rates on the underlying loans.  The estimated fair value is periodically
evaluated for impairment by comparing actual cash flows and estimated future
cash flows from the servicing assets to those estimated at the time servicing
assets were originated.  Loan servicing rights are amortized as an offset to
service fees in proportion to and over the period of estimated net servicing
income.

In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, a
replacement of SFAS No. 125.  This statement revised the standards for
accounting for securitizations and other transfers of financial assets and
collateral, and requires certain disclosures; however, it carries over most of
SFAS No. 125's provisions without reconsideration.  The standards addressed in
this statement are based on consistent application of a financial components
approach that focuses on control.  Under this approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered, and derecognizes The Bank records its
mortgage servicing rights at fair value in accordance with SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities, which requires the Bank to allocate the total cost of all
mortgage loans, whether originated or purchased, to the loans (without the
mortgage servicing rights), and to mortgage servicing rights based on their
relative fair values.  The Bank is amortizing the mortgage servicing assets,
which totaled $508,000 and $356,000 at September 30, 2001 and 2000,
respectively, over the period of the estimated servicing income. liabilities
when extinguished.  This statement is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring after March 31,
2001.  The adoption of this statement affects the disclosures in these
financial statements; however, the adoption of this statement did not have a
material impact on the Company's financial position of results of operations
for the year ended September 30, 2001.

(continued)
                                       56
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

PREMISES AND EQUIPMENT

Premises and equipment are recorded at cost.  Depreciation is computed on the
straight-line method over the following estimated useful lives:  buildings and
improvements up to forty years - thirty to forty years; furniture and
equipment - three to seven years; automobile - five years.  The cost of
maintenance and repairs is charged to expense as incurred.  Gains and losses
on dispositions are reflected in earnings.

REAL ESTATE OWNED

Real estate owned (REO) consists of properties acquired through or in lieu of
foreclosure, recorded initially at the lower of cost or fair value of the
properties less estimated costs of disposal.  Costs relating to development
and improvement of the properties are capitalized; costs relating to holding
the properties are expensed.

Valuations are periodically performed by management, and an allowance for
losses is established by a charge to earnings if the recorded value of a
property exceeds its estimated net realizable value.

INCOME TAXES

The Company files a consolidated federal income tax return with its
subsidiaryies.  Prior to fiscal year 1997, the Bank qualified under provisions
of the Internal Revenue Code which permitted, as a deduction from taxable
income, an allowance for bad debts based on a percentage of taxable income.

In 1996, the percentage-of-income bad debt deduction for federal tax purposes
was eliminated.  In addition, federal tax bad debt reserves which had been
accumulated since October 1, 1988, that exceeded the reserves which would have
been accumulated based on actual experience, are subject to recapture over a
six-year recapture period.  As of September 30, 2001, the Bank's federal tax
bad debt reserves subject to recapture approximated $900,000.

Deferred federal income taxes result from temporary differences between the
tax basis of assets and liabilities, and their reported amounts in the
consolidated financial statements.  These will result in differences between
income for tax purposes and income for financial reporting purposes in future
years.  As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.

(continued)

                                      57

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)

EMPLOYEE STOCK OWNERSHIP PLAN

The Bank sponsors a leveraged Employee Stock Ownership Plan (ESOP).  The ESOP
is accounted for in accordance with the American Institute of Certified Public
Accountants Statement of Position 93-6, Employers' Accounting for Employee
Stock Ownership Plan.  Accordingly, the debt of the ESOP is recorded as other
borrowed funds of the Bank, and the shares pledged as collateral are reported
as unearned shares issued to the employee stock ownership trust on the
consolidated balance sheets.  The debt of the ESOP is with the Company and is
thereby eliminated in the consolidated financial statements.  As shares are
released from collateral, compensation expense is recorded equal to the
average market price of the shares for the period, and the shares become
outstanding for earnings per share calculations.  Cash dividends on
unallocated shares which are collateral for debt are used to reduce scheduled
principal and interest payments, and are recorded as a reduction of
compensation expense.

CASH EQUIVALENTS

The Company considers all amounts included in the balance sheet caption "Cash
and due from financial institutions" to be cash equivalents.

STOCK-BASED COMPENSATION

The Company accounts for stock-optionsbased awards to employees using the
intrinsic value method, in accordance with APB No. 25, Accounting for Stock
Issued to Employees.  Accordingly, no compensation expense has been recognized
in the financial statements for employee stock optionsarrangements.  However,
the required pro forma disclosures of the effects of all options granted have
been provided in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation.

EARNINGS PER SHARE

Basic earnings per share exclude dilution and are computed by dividing net
income by the weighted average number of common shares outstanding.  Diluted
earnings per share reflect the potential dilution that could occur if common
shares were issued pursuant to the exercise of options under the Company's
stock option and management recognition and development plans.  In 2000 and
1999, the effect of the Company's stock options on earnings per share was
antidilutive and, thus, basic and diluted earnings per share are the same.

NOTE 2 - RESTRICTED ASSETS

Federal Reserve Board regulations require that the Bank maintain certain
minimum reserve balances on hard or on deposit with the Federal Reserve Bank.
The amount of such balances for year ended September 30, 2001 was
approximately $926,000.

                                       58

<PAGE>




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000


NOTE 3 - INVESTMENTS AND MORTGAGE-BACKED SECURITIES

Investments and mortgage-backed securities have been classified according to
management's intent (dollars in thousands):

                                             GROSS        GROSS
                               AMORTIZED     UNREALIZED   UNREALIZED  FAIR
                               COST          GAINS        LOSSES      VALUE

AVAILABLE FOR SALE

SEPTEMBER 30, 2001
  U.S. agency securities       $        --     $   --     $  --      $    --
  Mortgage-backed securities        18,755        420       (16)      19,159
  Municipal bonds                       55          2        --           57
  Mutual funds                      10,020         40        --       10,060
  FHLB stock                         4,830         --        --        4,830
  Equity securities                    121         --       (28)          93

     TOTAL                         $28,951       $462      ($44)     $29,369

SEPTEMBER 30, 2000
  U.S. agency securities         $   6,502     $   --    ($  86)     $ 6,416
  Mortgage-backed securities        11,846          2      (279)      11,569
  Municipal bonds                       73                   (2)          71
  Mutual funds                       6,641         --      (169)       6,472
  FHLB stock                         4,150         --        --        4,150
  Equity securities                    323        116       (42)         397


     TOTAL                         $25,385       $118     ($578)     $24,925


Mortgage-backed securities pledged as collateral for public fund deposits and
federal treasury tax and loan deposits totaled $2,437,000 and $2,459,000 at
September 30, 2001 and 2000, respectively.

The contractual maturities of debt securities available for sale at September
30, 2001 are as follows (dollars in thousands).  Expected maturities may
differ from scheduled maturities due to the prepayment of principal or call
provisions.

                                                         AMORTIZED   FAIR
                                                         COST        VALUE

Due within one year                                      $    --    $    --
Due from one year to five years                               55         57
Due from five to ten years                                 6,138      6,318
Due after ten years                                       12,617     12,841

   TOTAL                                                 $18,810    $19,216

                                      59

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 4 - LOANS RECEIVABLE AND LOANS HELD FOR SALE

Loans receivable and loans held for sale consisted of the following at
September 30 (dollars in thousands):

                                                            2001       2000

Mortgage loans:
  One- to four-family                                    $112,060   $108,307
  Multi-family                                             29,412     33,604
  Commercial                                               65,731     58,632
  Construction and land development                       106,244     89,903
  Land                                                     13,632     12,561
  TOTAL MORTGAGE LOANS                                    327,079    303,007

Consumer loans:
  Home equity and second mortgage                          11,039      9,816
  Other                                                     6,825      6,081
  TOTAL CONSUMER LOANS                                     17,864     15,897

Commercial business loans                                   7,150      4,808

  TOTAL LOANS RECEIVABLE                                  352,093    323,712

Less:
  Undisbursed portion of loans in process                  39,803     32,831
  Deferred loan origination fees and other                  3,494      3,578
  Allowance for loan losses                                 3,050      2,640
                                                           46,347     39,049

  LOANS RECEIVABLE, NET                                   305,746    284,663

Loans held for sale (one- to four-family)                  18,022     28,518
Market value adjustment                                        --       (175)
  LOANS HELD FOR SALE, NET                                 18,022     28,343

  TOTAL LOANS RECEIVABLE AND LOANS HELD FOR SALE         $323,768   $313,006


(continued)

                                      60
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 4 - LOANS RECEIVABLE AND LOANS HELD FOR SALE (continued)

The weighted average interest rate on all loans at September 30, 2001 and 2000
was 8.46% and 8.64%, respectively.

Loans serviced for the Federal Home Loan Mortgage Corporation and others at
September 30, 2001 and 2000 were $90,303,000 and $68,849,000, respectively.

Certain related parties of the Bank, principally Bank directors and officers,
were loan customers of the Bank in the ordinary course of business during 2001
and 2000.  Activity in related party loans during the years ended September 30
is as follows (dollars in thousands):

                                                             2001       2000

Balance, beginning of year                                   $807       $774
New loans                                                     374         63
Repayments                                                   (388)       (30)

     BALANCE, END OF YEAR                                    $793       $807

At September 30, 2001 and 2000, the Bank had non-accruing loans totaling
approximately $4,091,000 and $3,612,000, respectively.  At September 30, 2001
and September 30, 2000 no loans were 90 days or more past due and still
accruing interest.  No interest income was recorded on non-accrual loans for
the years ended September 30, 2001, 2000 and 1999.  The average investment in
non-accrual loans for the years ended September 30, 2001, 2000 and 1999 was
$3,778,000, $3,460,000 and $3,565,000, respectively.

An analysis of the allowance for loan losses for the years ended September 30
follows (dollars in thousands):

                                                 2001       2000       1999

Balance, beginning of year                     $2,640      $2,056     $1,728
Provision for loan losses                       1,400         885        363

Loans charged off                              (1,012)       (563)       (35)
Recoveries                                         22         262        - -

NET CHARGE-OFFS                                 (990)        (301)       (35)

  BALANCE, END OF YEAR                         $3,050      $2,640     $2,056


(continued)
                                      61

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 4 - LOANS RECEIVABLE AND LOANS HELD FOR SALE (concluded)

Following is a summary of information relating to impaired loans as of
September 30 (dollars in thousands):

                                                             2001       2000

Impaired loans without a valuation allowance                $2,300     $3,612
Impaired loans with a valuation allowance                    1,791         --

                                                            $4,091     $3,612

Valuation allowance related to impaired loans                 $270        $--


NOTE 5 - LOAN SERVICING

Loans serviced for the Federal Home Loan Mortgage Corporation and others are
not included in the consolidated balance sheets.  The principal amounts of
those loans at September 30, 2001 and 2000 were $90,303,000 and $68,849,000,
respectively.

Following is an analysis of the changes in mortgage servicing rights at
September 30 (dollars in thousands):

                                                 2001        2000       1999

Balance, at beginning of year                    $356        $358       $375
Additions                                         300          87        100
Amortization                                     (148)        (89)      (117)

  BALANCE, END OF YEAR                           $508        $356       $358

In June 2001, the Bank securitized and sold approximately $11.9 million in
first mortgage loans.  In the securitization, the Bank retained servicing
responsibilities, but has no other retained interest in the loans sold.  (see
Note 25)

                                     62

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 6 - PREMISES AND EQUIPMENT

Premises and equipment consisted of the following at September 30 (dollars in
thousands):

                                                           2001       2000

Land                                                     $  2,654   $  2,303
Buildings and improvements                                  7,675      6,271
Leasehold improvements                                        416         --
Furniture and equipment                                     3,223      2,294
Automobiles                                                    19         19
Property held for future expansion                            834        596
Construction and purchases in progress                        158        536
                                                           14,563     12,019
Less accumulated depreciation                               3,903      3,405

  TOTAL PREMISES AND EQUIPMENT                            $10,660   $  8,614


NOTE 7 - REAL ESTATE OWNED

Real estate owned consisted of the following at September 30 (dollars in
thousands):

                                                            2001       2000

Real estate acquired through foreclosure                  $1,1434     $1,992
Allowance for possible losses                                (137)       (26)

  TOTAL REAL ESTATE OWNED                                  $1,006     $1,966


An analysis of the allowance for possible losses follows (dollars in
thousands):

                                                 2001        2000       1999

Balance, beginning of year                      $  26         $38        $32
Provision for additional losses                   356          51         28
Write-downs                                      (245)        (63)       (22)

  BALANCE, END OF YEAR                           $137         $26        $38

                                     63

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 8 - ACCRUED INTEREST RECEIVABLE

Accrued interest receivable consisted of the following at September 30
(dollars in thousands):

                                                            2001       2000

Loans receivable                                           $2,064     $1,976
Less reserve for uncollected interest                         319        396
                                                            1,745      1,580
Investment securities and interest bearing deposits           135        176

  TOTAL ACCRUED INTEREST RECEIVABLE                        $1,880     $1,756


NOTE 9 - DEPOSITS

Deposits consisted of the following at September 30 (dollars in thousands):

                                                           2001        2000

Non-interest bearing                                   $   16,976  $  15,497
N.O.W. checking                                            30,626     24,467
Passbook savings                                           34,228     28,647
Money market accounts                                      27,251     20,863
Certificates of deposit                                   133,291    123,137

  TOTAL DEPOSITS                                         $242,372   $212,611

The weighted average interest rate on all deposits at September 30, 2001 and
2000 was 3.72% and 4.45%, respectively.

Time deposits of $100,000 or greater totaled $44,186,000 and $42,420,000 at
September 30, 2001 and 2000, respectively.

Scheduled maturities of certificates of deposit at September 30, 2001 are as
follows (dollars in thousands):

Within one year                                                     $113,735
Over one to two years                                                 15,577
Over two to five years                                                 3,128
After five years                                                         851

  TOTAL                                                             $133,291

(continued)
                                      64

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 9 - DEPOSITS (concluded)

Interest expense by account type is as follows for the years ended September
30 (dollars in thousands):

                                                 2001       2000       1999

Certificates of deposit                        $7,396      $6,573     $5,590
Money market accounts                             921         741        628
Passbook savings                                  728         694        695
N.O.W. checking                                   446         385        363

  TOTAL                                        $9,491      $8,393     $7,276


NOTE 10 - FEDERAL HOME LOAN BANK ADVANCES

The Bank currently has an Advance, Security and Deposit Agreement with Federal
Home Loan Bank that is maintained at 35% of the Bank's total assets
($134,068,000 at September 30, 2001).  The Bank had advances at September 30,
2001 as follows (dollars in thousands):

                                                         WEIGHTED
                                                         AVERAGE
                                                         INTEREST
                                                         RATE        AMOUNT
Maturities in years ending September 30:
  2002 Fixed rate set maturity                           3.92%       $12,500
  2002 Fixed rate monthly amortization                   6.11            196
  2002 Variable rate set maturity                        3.51          3,300
  2004 Fixed rate set maturity                           5.58          5,000
  2005 Fixed rate set maturity                           5.49          2,000
  2006 Fixed rate set maturity putable                   5.98         10,000
  2006 Fixed rate set maturity                           6.55            982
  2008 Fixed rate set maturity putable                   6.18         15,000
  2011 Fixed rate set maturity putable                   4.77         20,000

                                                                     $68,978

Under the Advances, Security and Deposit Agreement, virtually all of the
Bank's assets, not otherwise encumbered, are pledged as collateral for
advances.

                                     65

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 11 - OTHER LIABILITIES AND ACCRUED EXPENSES

Other liabilities and accrued expenses comprise the following at September 30
(dollars in thousands):

                                                            2001       2000

Federal income taxes                                      $   425    $    --
Accrued pension and profit sharing payable                    807        768
Accrued interest payable on deposits and FHLB advances        491        557
Accounts payable and accrued expenses - other               1,423        695

     TOTAL OTHER LIABILITIES AND ACCRUED EXPENSES          $3,146     $2,020


NOTE 12 - FEDERAL INCOME TAXES

The Bank previously qualified under provisions of the Internal Revenue Code
that permitted federal income taxes to be computed after a deduction for
additions to bad debt reserves.  Accordingly, retained earnings include
approximately $2,200,000 for which no provision for federal income taxes has
been made.  If in the future this portion of retained earnings is used for any
purpose other than to absorb bad debt losses, federal income taxes at the
current applicable rates would be imposed.

The components of the provision for income taxes at September 30 are as
follows (dollars in thousands):

                                                2000        1999       1999

Current                                        $2,948      $3,156     $3,046
Deferred benefit                                 (207)       (231)      (449)

     TOTAL FEDERAL INCOME TAXES                $2,741      $2,925     $2,597

The components of the Company's deferred tax assets and liabilities at
September 30 are as follows (dollars in thousands):

                                                            2001       2000
DEFERRED TAX ASSETS
  Accrued interest on loans                                $   64     $  110
  Accrued vacation                                             59         50
  Deferred compensation                                       106        105
  Unearned ESOP shares                                        270        239
  Allowance for loan losses                                   888        573
  Loans held for sale market value adjustment                  --         63
  Unrealized securities losses                                 --       1567
  Unearned MRRDP shares                                        37         --
  Other                                                        --          2
  TOTAL DEFERRED TAX ASSETS                                 1,424      1,296

(continued)

                                      66
<PAGE>




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 12 - FEDERAL INCOME TAXES (concluded)


                                                             2001      2000

DEFERRED TAX LIABILITIES
  FHLB stock dividends                                    $   576     $  501
  Real estate sale, installment basis                          30         33
  Unrealized securities gains                                 142        - -
  Other                                                       379        325
  TOTAL DEFERRED TAX LIABILITIES                              785        566

  NET DEFERRED TAX ASSETS                                 $   639     $  730

The provision for federal income taxes differs from that computed at the
statutory corporate tax rate as follows (dollars in thousands):

                             2001              2000               1999
                        AMOUNT  PERCENT   AMOUNT  PERCENT    AMOUNT  PERCENT

Taxes at
  statutory rate        $2,789   34.0%    $2,999    34.0%    $2,657    34.0%
Other - net               (487)   (.6)       (74)    (.8)       (60)    (.8)

  FEDERAL INCOME TAXES  $2,741   33.4%    $2,925    33.2%    $2,597    33.2%

NOTE 13 - PROFIT SHARING PLANS

The Bank maintains a tax-qualified profit sharing plan for the benefit of all
eligible employees who are at least 21 years of age and work a minimum of 501
hours.  The Bank contributed $362,000, $300,000 and $249,000 to the plan for
the years ended September 30, 2001, 2000 and 1999, respectively.
Contributions are made on a discretionary basis.

In addition, the Bank has an employee bonus plan based on net income.  Bonuses
accrued for the years ended September 30, 2001, 2000 and 1999 totaled
$208,000, $229,000 and $195,000, respectively.


NOTE 14 - EMPLOYEE STOCK OWNERSHIP PLAN

In 1998, the Bank established an Employee Stock Ownership Plan (ESOP) that
benefits all employees with at least one year of service who are 21 years of
age or older.  The ESOP is funded by Bank contributions in cash or stock.
Employee vesting occurs over six years.  The amount of the 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.

(continued)

                                     67

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 14 - EMPLOYEE STOCK OWNERSHIP PLAN (concluded)

In January 1998, the ESOP borrowed $7,930,000 from the Company to purchase
529,000 shares of common stock of the Company.  The loan will be repaid
primarily from the Company's contributions to the ESOP over 15 years.  The
interest rate on the loan is 8.5%.  As of September 30, 2001, 2,522 shares had
been distributed out of the ESOP to participants.  The balance of the loan at
September 30, 2001 was $6,743,000.

Shares held by the ESOP as of September 30 were classified as follows:

                                                  2001      2000       1999

Unallocated shares                              396,750   432,016    467,283

Shares released for allocation                  129,722    96,143     61,717

  TOTAL ESOP SHARES                             526,472   528,159    529,000

The approximate fair market value of the Bank's unallocated shares at
September 30, 2001,  and 2000 and 1999, respectively, is $5,872,000, and
$5,184,000 and $5,344,000.  Compensation expense recognized under the ESOP was
$273,000, $199,000 and $285,000 for the years ended September 30, 2001, 2000
and 1999, respectively.


NOTE 15 - STOCK OPTIONS

During the year ended September 30, 1999, the Company adopted a stock-based
option plan, which is described below.  The Company applies APB Opinion No. 25
and related interpretations in accounting for this plan.  Accordingly, no
compensation cost has been recognized for the plan.  Had compensation cost for
the Company's stock option plan been determined based on the fair value at the
grant dates for awards granted under this plan, consistent with the method of
SFAS No. 123, the Company's net income and earnings per share for the years
ended September 30 would have been reduced to these pro forma amounts (dollars
in thousands):

                                                  2001      2000       1999

Net income:
  As reported                                    $5,462    $5,897     $5,218
  Pro forma                                       5,264     5,589      4,901

Earnings per basic share:
  As reported                                     $1.30     $1.31      $1.03
  Pro forma                                        1.26      1.23        .96

Earnings per diluted share:
  As reported                                     $1.28     $1.31      $1.03
  Pro forma                                        1.25      1.23        .96

(continued)

                                         68

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 15 - STOCK OPTIONS (continued)

Under the Company's stock option plan, the Company may grant options for up to
661,250 shares of its common stock to certain key employees and directors.
The exercise price of each option equals the fair market value of the
Company's stock on the date of grant.  An option's maximum term is ten years.
Options are exercisable on a cumulative basis in annual installments of 10% on
each of the ten anniversaries from the date of grant.  Vesting will be
accelerated to 20% per year if certain criteria relating to Company
performance are met.  At September 30, 2001, options for 50,417 shares are
available for future grant under this plan.

The fair value of stock-based awards to employees is calculated through the
use of option pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable options without
vesting restrictions, which significantly differ from the Company's stock
option awards.  The Company's calculations were made using the Black-Scholes
option pricing model with the following weighted average assumptions.

                                RISK FREE        EXPECTED      EXPECTED
                                INTEREST RATE    LIFE (YEARS)  DIVIDENDS

Fiscal 2001                         5.3%             8.0         2.80%
Fiscal 1999                         6.0             10.0         2.25

Stock option activity is summarized in the following table:

                                                             WEIGHTED
                                                             AVERAGE
                                                 NUMBER OF   EXERCISE
                                                 SHARES      PRICE


Outstanding October 1, 1998                           --     $   --
Grants                                           582,494       12.02
  OUTSTANDING SEPTEMBER 30, 1999                 582,494       12.02
Forfeited                                        (10,000)      12.38
  OUTSTANDING SEPTEMBER 30, 2000                 572,494       12.01
Grants                                            38,339       14.35
Options exercised                                 (1,600)      12.00

  OUTSTANDING SEPTEMBER 30, 2001                 609,233      $12.16


(continued)

                                      69

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 15 - STOCK OPTIONS (concluded)

Additional information regarding options outstanding as of September 30, 2001
is as follows:

                                 OPTIONS OUTSTANDING     OPTIONS EXERCISABLE
                                ---------------------   ---------------------
                 WEIGHTED
                 AVERAGE                     WEIGHTED                WEIGHTED
                 REMAINING                   AVERAGE                 AVERAGE
EXERCISE         CONTRACTUAL    NUMBER       EXERCISE   NUMBER       EXERCISE
PRICE            LIFE (YEARS)   OUTSTANDING  PRICE      EXERCISABLE  PRICE

$12.00           6.5            553,394      $12.00     237,401      $12.00
12.06 to 12.38   7.7             22,500       12.31       7,000       12.38
13.59 to 14.50   9.6             33,339       14.70          --          --

                 7.0            609,233      $12.16     244,401      $12.01


NOTE 16 - DEFERRED COMPENSATION/NON-COMPETITION AGREEMENT AND SEVERANCE
COMPENSATION AGREEMENT

The Bank has a deferred compensation/noncompetition arrangement with its chief
executive officer which will provide monthly payments of $2,000 per month upon
retirement.  Once payments have commenced, they will continue until his death,
at which time, payments will continue to his surviving spouse until her death
or for 60 months.  The present value of the payments, based on the life
expectancy of the chief executive officer, has been accrued based on a
retirement age of 65 and is included in other liabilities in the consolidated
financial statements.  As of September 30, 2001 and 2000, $239,000, has been
accrued under the agreement.

In connection with the January 1998 conversion, the Bank adopted an Employee
Severance Compensation Plan, which expires in ten years, to provide benefits
to eligible employees in the event of a change in control of the Company or
the Bank (as defined in the plan).  In general, all employees with two or more
years of service will be eligible to participate in the plan.  Under the plan,
in the event of a change in control of the Company or the Bank, eligible
employees who are terminated or who terminate employment (but only upon the
occurrence of events specified in the plan) within 12 months of the effective
date of a change in control would be entitled to a payment based on years of
service with the Bank.  The maximum payment for any eligible employee would be
equal to 24 months of their current compensation.

                                      70

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 17 - MANAGEMENT RECOGNITION AND DEVELOPMENT PLAN

On November 10, 1998, the Board of Directors adopted a Management Recognition
and Development Plan (MRDP).  On January 25, 1999, shareholders approved the
adoption of the MRDP for the benefit of officers, employees and non-employee
directors of the Company.  The objective of the MRDP is to retain personnel of
experience and ability in key positions by providing them with a proprietary
interest in the Company.

The Plan allows for the issuance to participants of up to 264,500 shares of
the Company's common stock.  purchase, in the open market or through the
issuance of Shares issued may be purchased in the open market or may be issued
from authorized and unissued shares.  On July 26, 2001, the Company awarded
204,927 shares under the Plan to employees and directors.  Awards under the
MRDP were made in the form of restricted shares of common stock that are
subject to restrictions on the transfer of ownership.  Compensation expense in
the amount of the fair value of the common stock at the date of the grant to
the plan participants will be recognized over a five year vesting period, with
20% vesting immediately upon grant.  Compensation expense of $770,000 for the
year ended September 30, 2001 was recognized.

NOTE 18 - COMMITMENTS AND CONTINGENCIES

The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers.  These
financial instruments include commitments to extend credit.  These instruments
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated balance sheets.

The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments.  The Bank uses the
same credit policies in making commitments as it does for on-balance-sheet
instruments.  A summary of the Bank's commitments at September 30 is as
follows (dollars in thousands):

                                                       2001           2000

Commitments to extend credit                         $17,807        $17,322
Standby letters of credit                                350            100

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.  Since
many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.  The Bank evaluates each customer's creditworthiness on a
case-by-case basis.  The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation
of the party.  Collateral held varies, but may include accounts receivable,
inventory, property and equipment, residential real estate, and
income-producing commercial properties.

Because of the nature of its activities, the Company is subject to various
pending and threatened legal actions which arise in the ordinary course of
business.  In the opinion of management, liabilities arising from these
claims, if any, will not have a material effect on the financial position of
the Company.

                                     71

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 19 - REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies.  Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial statements.
Under capital adequacy guidelines of the regulatory framework for prompt
corrective action, the Bank must meet specific capital adequacy guidelines
that involve quantitative measures of the Bank's assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices.  The Bank's capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios as
defined in the regulations (set forth in the table below) of Tier 1 capital to
average assets, and minimum ratios of Tier 1 and total capital to
risk-weighted assets.

As of September 30, 2001, the most recent notification from the Bank's
regulator categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action.  To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table.  There are
no conditions or events since that notification that management believes have
changed the Bank's category.

The Company's and the Bank's actual capital amounts (dollars in thousands) and
ratios are also presented in the table.

                                                             TO BE WELL
                                                             CAPITALIZED
                                                             UNDER PROMPT
                                          CAPITAL ADEQUACY   CORRECTIVE ACTION
                        ACTUAL            PURPOSES           PROVISIONS
                        AMOUNT    RATIO   AMOUNT   RATIO     AMOUNT    RATIO

SEPTEMBER 30, 2001
 Tier 1 capital (to
  average assets):
   Consolidated        $71,482   18.8%   $15,218   4.0%        N/A       N/A
   Timberland Bank      61,930   16.5     15,038   4.0       $18,798     5.0%
 Tier 1 capital (to
  risk-weighted assets):
   Consolidated         71,482   26.2     10,915   4.0         N/A       N/A
   Timberland Bank      61,930   22.7     10,907   4.0        16,361     6.0
 Total capital (to
  risk-weighted assets):
   Consolidated         74,532   27.3     21,830   8.0         N/A       N/A
   Timberland Bank      64,980   23.8     21,814   8.0        27,678    10.0


(continued)
                                      72

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 19 - REGULATORY MATTERS (concluded)

                                                             TO BE WELL
                                                             CAPITALIZED
                                                             UNDER PROMPT
                                          CAPITAL ADEQUACY   CORRECTIVE ACTION
                        ACTUAL            PURPOSES           PROVISIONS
                        AMOUNT    RATIO   AMOUNT   RATIO     AMOUNT    RATIO


SEPTEMBER 30, 2000
  Tier 1 capital (to
   average assets):
    Consolidated       $72,516   20.0%   $14,334   4.0%        N/A       N/A
    Timberland Bank     58,470   16.6     14,068   4.0       $17,585     5.0%
  Tier 1 capital (to
   risk-weighted assets):
    Consolidated        72,516   26.7     10,857   4.0         N/A       N/A
    Timberland Bank     58,470   21.7     10,765   4.0        16,148     6.0
  Total capital (to
   risk-weighted assets):
    Consolidated        75,156   27.7     21,714   8.0         N/A       N/A
    Timberland Bank     61,110   22.7     21,530   8.0        26,913    10.0


RESTRICTIONS ON RETAINED EARNINGS

The Bank is subject to certain restrictions on the amount of dividends that it
may declare without prior regulatory approval.

At the time of conversion of the Bank from a Washington-charted mutual savings
bank to a Washington-chartered stock savings bank, the Bank established a
liquidation account in an amount equal to its retained earnings of $23,866,000
as of June 30, 1997, the date of the latest statement of financial condition
used in the final conversion prospectus.  The liquidation account will be
maintained for the benefit of eligible withdrawable account holders who have
maintained their deposit accounts in the Bank after conversion.  The
liquidation account will be reduced annually to the extent that eligible
account holders have reduced their qualifying deposits as of each anniversary
date.  Subsequent increases will not restore an eligible account holder's
interest in the liquidation account.  In the event of a complete liquidation
of the Bank (and only in such an event), eligible depositors who have
continued to maintain accounts will be entitled to receive a distribution from
the liquidation account before any liquidation may be made with respect to
common stock.  The Bank may not declare or pay cash dividends if the effect
thereof would reduce its regulatory capital below the amount required for the
liquidation account.

                                        73

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 20 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

CONDENSED BALANCE SHEETS - SEPTEMBER 30
(Dollars in Thousands)

                                                         2001         2000

ASSETS
  Cash and due from financial institutions               $     24   $     14
  Interest bearing deposits                                   227      1,140
  Investments and mortgage-backed securities
    available for sale                                      3,837      5,712
  Loan receivable from Bank                                 6,743      7,089
  Investment in Bank                                       62,270     58,337
  OTHER ASSETS                                                 26         53

  TOTAL ASSETS                                           $ 73,127   $ 72,345

LIABILITIES AND SHAREHOLDERS' EQUITY
  Liabilities and accrued expenses                       $  1,318   $     33
  Shareholders' equity                                     71,809     72,312

  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY             $ 73,127   $ 72,345

CONDENSED STATEMENTS OF INCOME - YEARS ENDED SEPTEMBER 30
(Dollars in Thousands)

                                                 2001       2000       1999

OPERATING INCOME
  Interest on investments and mortgage-
    backed securities                          $   107    $   199    $   287
  Interest on loan receivable from Bank            592        621        645
  Dividends on investments                         180        235        352
  Gain (loss) on sale of investment
    securities available for sale                  227        (22)        (1)
  Dividends from Timberland Bank                 1,949      1,863      1,612
  Other                                              1          2         --
  TOTAL OPERATING INCOME                         3,056      2,898      2,895

OPERATING EXPENSES                                 191        204        245


  INCOME BEFORE INCOME TAXES AND EQUITY
  IN UNDISTRIBUTED INCOME OF BANK                2,865      2,694      2,650

INCOME TAXES                                       238        220        304

  INCOME BEFORE EQUITY IN UNDISTRIBUTED
    INCOME OF BANK                               2,627      2,474      2,346

EQUITY IN UNDISTRIBUTED INCOME OF BANK           2,835      3,423      2,872

  NET INCOME                                    $5,462     $5,897     $5,218

(continued)
                                      74

<PAGE>




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 20 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONCLUDED)

CONDENSED STATEMENTS OF CASH FLOWS - YEARS ENDED SEPTEMBER 30
(Dollars in Thousands)

                                                 2001       2000       1999

CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                    $5,462     $5,897    $ 5,218
  Adjustments to reconcile net income to
  net cash provided:
    Equity in undistributed income of Bank      (2,835)    (3,423)    (2,872)
    ESOP shares earned                             503        434        428
    MRDP shares earned                             776         --         --
    (Gain) loss on sale of securities
      available for sale                          (227)        22         (1)
    Other, net                                   1,331        (37)       117
  NET CASH PROVIDED BY OPERATING ACTIVITIES      5,010      2,893      2,890

CASH FLOWS FROM INVESTING ACTIVITIES
  Net (increase) decrease in interest-bearing
    deposits in banks                              913       (921)     6,685
  Investment in Bank                              (485)     1,859       (429)
  Purchases of securities available for sale    (2,500)      (269)   (12,575)
  Proceeds from maturities of securities
    available for sale                           4,122         --     17,809
  Proceeds from sale of securities available
    for sale                                       430      2,482         --
  Principal repayments on loan receivable
    from Bank                                      346        316        292
  NET CASH PROVIDED BY INVESTING ACTIVITIES      2,826      3,467     11,782

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from exercise of stock options the
    issuance of common stock, net of
    related costs                                   19         --         --
  Repurchase of common stock                    (5,920)    (4,603)   (13,150)
  Payment of dividends                          (1,925)    (1,748)    (1,520)
  NET CASH PROVIDED BY (USED IN) FINANCING
    ACTIVITIES                                  (7,826)    (6,351)   (14,670)

  NET INCREASE IN CASH                              10          9          2

CASH AND DUE FROM FINANCIAL INSTITUTIONS
  Beginning of year                                 14          5          3

  END OF YEAR                                 $     24   $     14   $      5

(continued)
                                     75

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 21 - EARNINGS PER SHARE DISCLOSURES

Basic earnings per share are computed by dividing net income applicable to
common stock by the weighted average number of common shares outstanding
during the period, without considering any dilutive items.  Diluted earnings
per share are computed by dividing net income applicable to common stock by
the weighted average number of common shares and common stock equivalents for
items that are dilutive, net of shares assumed to be repurchased using the
treasury stock method at the average share price for the Company's common
stock during the period.  Common stock equivalents arise from assumed
conversion of outstanding stock options and from assumed vesting of shares
awarded but not released under the Company's Management Recognition and
Development Plan.  In accordance with Statement of Position 93-6, Employers'
Accounting for Employee Stock Ownership Plans, issued by the American
Institute of Certified Public Accountants, shares owned by the Bank's Employee
Stock Ownership Plan that have not been allocated are not considered to be
outstanding for the purpose of computing earnings per share.  Information
regarding the calculation of basic and diluted earnings per share for the
years ended September 30, 2001 and 2000, respectively, is as follows (dollars
in thousands, except per share amounts).

                                          2001         2000          1999

BASIC EPS COMPUTATION

  Numerator - net income           $      5,462   $     5,897    $     5,218

  Denominator - weighted average
    common shares outstanding         4,193,314     4,508,427      5,089,414


  Basic EPS                               $1.30         $1.31          $1.03


DILUTED EPS COMPUTATION

  Numerator - net income           $      5,462   $     5,897    $     5,218

  Denominator - weighted average
    common shares outstanding         4,193,314     4,508,427      5,089,414

  Effect of dilutive stock options       79,299            --             --

  Weighted average common shares
    outstanding-assuming dilution     4,727,613     4,508,427      5,089,414


  Diluted EPS                             $1.28         $1.31          $1.03


                                      76

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 22 - COMPREHENSIVE INCOME

Net unrealized gains and losses included in comprehensive income were computed
as follows for the years ended September 30 (dollars in thousands):

                                                         TAX
                                            BEFORE-TAX   (BENEFIT)  NET-OF-TAX
                                            AMOUNT       EXPENSE    AMOUNT

2001
  Unrealized holding gains arising
    during the year                         $1,084       $369        $715
  Reclassification adjustment for gains
    included in net income                    (205)       (70)       (135)


  NET UNREALIZED GAINS                     $   879       $299        $580


2000
  Unrealized holding gains arising
    during the year                        $   111       $ 39        $ 72
  Reclassification adjustment for losses
    included in net income                      22          7          15

  NET UNREALIZED GAINS                     $   133       $ 46        $ 87


1999
  Unrealized holding losses arising
    during the year                          ($774)     ($263)      ($511)
  Reclassification adjustment for gains
    included in net income                      --         --          --

  NET UNREALIZED LOSSES                      ($774)     ($263)      ($511)

                                      77

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 23 - FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires disclosure of estimated fair values
for financial instruments.  Such estimates are subjective in nature, and
significant judgment is required regarding the risk characteristics of various
financial instruments at a discrete point in time.  Therefore, such estimates
could vary significantly if assumptions regarding uncertain factors were to
change.  Major assumptions, methods and fair value estimates for the Company's
significant financial instruments are set forth below:

     CASH AND DUE FROM FINANCIAL INSTITUTIONS AND INTEREST BEARING DEPOSITS IN
     BANKS
     The recorded amount is a reasonable estimate of fair value.

     INVESTMENTS, MORTGAGE-BACKED SECURITIES AND LOANS HELD FOR SALE
     The fair value of investments, mortgage-backed securities and loans held
     for sale has been based on quoted market prices or dealer quotes.

     FEDERAL HOME LOAN BANK STOCK

     The carrying values of stock holdings approximate fair value.

     LOANS RECEIVABLE
     Fair values for loans are estimated for portfolios of loans with similar
     financial characteristics.  Fair value is estimated by discounting the
     future cash flows using the current rates at which similar loans would be
     made to borrowers for the same remaining maturities.  Prepayments are
     based on the historical experience of the Bank.

     DEPOSITS
     The fair value of deposits with no stated maturity date is included at
     the amount payable on demand.  The fair value of fixed maturity
     certificates of deposit is estimated by discounting future cash flows
     using the rates currently offered by the Bank for deposits of similar
     remaining maturities.

     FEDERAL HOME LOAN BANK ADVANCES
     The fair value of borrowed funds is estimated by discounting the future
     cash flows of the borrowings at a rate which approximates the current
     offering rate of the borrowings with a comparable remaining life.

     ACCRUED INTEREST
     The carrying amounts of accrued interest approximate fair value.


(continued)

                                        78

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 23 - FAIR VALUES OF FINANCIAL INSTRUMENTS (concluded)

The estimated fair values of financial instruments at September 30, 2001 and
2000 were as follows (dollars in thousands):

                                        2001                 2000
                                        RECORDED   FAIR      RECORDED   FAIR
                                        AMOUNT     VALUE     AMOUNT     VALUE

FINANCIAL ASSETS
 Cash and due from financial
  institutions and interest bearing
    deposits in banks                 $ 13,439   $ 13,439  $ 12,002   $ 12,002
  Investments and mortgage-backed
    securities                          29,369     29,369    24,925     24,925
  Federal Home Loan Bank stock           4,830      4,830     4,150      4,150
  Loans receivable                     323,768    327,153        --     13,006
      313,604
  Accrued interest receivable            1,880      1,880     1,756      1,756

FINANCIAL LIABILITIES
  Deposits                            $242,372   $243,368  $212,611   $213,234
  Federal Home Loan Bank advances       68,978     78,405    81,137     80,712
  Accrued interest payable                 491        491       557        557


NOTE 24 - STOCK REPURCHASE PLAN

In September 2001, the Company initiated a stock repurchase plan for the
purchase of 200,872 shares of stock which had not been completed as of
September 30, 2001.  As of September 30, 2001, 44,000 shares had been
repurchased.  The remainder is anticipated to be purchased during the year
ending September 30, 2002.

NOTE 25 - SECURITIZATION OF MORTGAGE LOANS

In June 2001, the Bank securitized and sold approximately $11.9 million in
first mortgage loans.  Upon closing the transaction, the Bank sold the
securities received, recognizing a loss of $22,000, and invested the majority
of the proceeds in other investment securities.  The Bank retained servicing
responsibilities, but has no other interest in the loans sold.  The Bank
receives servicing fees of .25% of the outstanding principal balance of the
loans sold.  A servicing asset of $92,000 was recognized in this transaction,
based on the following factors:  estimated life of loans of 84 months and cash
flow discount rate of 6.87%.  Investors have no recourse to the Bank's other
assets in the event debtors fail to pay the balance owned.


                                  79

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Timberland Bancorp, Inc. and Subsidiaries
September 30, 2001 and 2000

NOTE 26 - SUBSEQUENT EVENT

Subsequent to September 30On October 25, 2001, the Board of DirectorsCompany
approved a dividend in the amount of $.11 per share to be paid on November 16,
2001 tofor shareholders of record as of November 2, 2001.


NOTE 27 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following selected financial data are presented for the quarters ended
(dollars in thousands, except per share amounts):

                                SEPTEM-                             DECEM-
                                BER 30,     JUNE 30,    MARCH 31,   BER 31,
                                2001        2001        2001        2000


Interest and dividend income    $7,915      $7,977      $7,845      $7,955
Interest expense                (3,237)     (3,352)     (3,519)     (3,816)
  NET INTEREST INCOME            4,678       4,625       4,326       4,139

Provision for loan losses         (250)       (800)       (200)       (150)
Noninterest income                 664         857         798         608
Noninterest expense             (3,543)     (2,554)     (2,703)     (2,292)

  INCOME BEFORE INCOME TAXES     1,549       2,128       2,221       2,305

Federal income taxes               522         721         734         764

  NET INCOME                    $1,027      $1,407      $1,487      $1,541

Basic earnings per share         $0.25       $0.34       $0.35       $0.35
Diluted earnings per share       $0.24       $0.34       $0.35       $0.35

Interest and dividend income    $7,551      $7,460      $6,796      $6,555
Interest expense                (3,636)     (3,213)     (2,888)     (2,690)
  NET INTEREST INCOME            3,915       4,247       3,908       3,865


Provision for loan losses         (120)       (410)       (280)        (75)
Noninterest income                 869         647         167          55
Noninterest expense             (2,107)     (1,965)     (1,839)     (2,055)

  INCOME BEFORE INCOME TAXES     2,557       2,519       1,956       1,790


Federal income taxes               848         838         647         592

  NET INCOME                    $1,709      $1,681      $1,309      $1,198

Basic and diluted earnings
  per share                       $.39        $.38        $.29        $.26

                                  80

<PAGE>





                                 SIGNATURES

     Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                TIMBERLAND BANCORP, INC.


Date: February 14, 2002        By: /s/Dean J. Brydon
                                   ------------------------------------
                                   Dean J. Brydon
                                   Chief Financial Officer
                                   (Duly Authorized Representative)


                                      81

<PAGE>