Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

 
Filed by the registrant [X]O
Filed by a party other than the registrant [  ]Q
 
 
Check the appropriate box:
[  ]
O
Preliminary proxy statement
[  ]QConfidential, for use of the Commission only (as permitted by Rule 14a-6(e)(2))
[X]
Q
Definitive proxy statement
[  ]QDefinitive additional materials
[  ]Q
Soliciting material pursuant to Rule 14a-12' 240.14a-12
 
TIMBERLAND BANCORP, INC.
(Name of Registrantregistrant as Specifiedspecified in Its Charter)its charter)
 

(Name of Person(s) Filing Proxy Statement,person(s) filing proxy statement, if Other Thanother than the Registrant)registrant)
 
Payment of filing fee (Check the appropriate box):
[X]ONo fee required.
[  ]QFee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
(1)Title of each class of securities to which transaction applies:
N/A
(2)Aggregate number of securities to which transactions applies:
N/A
(3)Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-110-11:
N/A
(4)Proposed maximum aggregate value of transaction:
N/A

(5)Total fee paid:
N/A
[  ]QFee paid previously with preliminary materials:
N/A
[  ]QCheck box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1)Amount previously paid:
N/A
(2)Form, Scheduleschedule or Registration Statement No.registration statement no.:
N/A
(3)Filing party:
N/A
(4)Date filed:
N/A

<PAGE>










December 14, 2006

21, 2009





Dear Shareholder:


You are cordially invited to attend the Annual Meetingannual meeting of Shareholdersshareholders of Timberland Bancorp, Inc. ("Company"). The meeting willto be held at the Hoquiam Timberland Library, located at 420 7th Street, Hoquiam, Washington, on Tuesday, January 23, 200726, 2010 at 1:00 p.m., local time.


The Notice of Annual Meeting of Shareholders and Proxy Statement appearing on the following pages describesdescribe the formal business to be transacted at the meeting.  During the meeting, we will also report on the operations of the Company.our operations.  Directors and officers of the Company,Timberland Bancorp, Inc., as well as a representative of McGladrey & Pullen, LLP, our independent auditor for the Company's independent auditors,fiscal year ended September 30, 2009, will be present to respond to appropriate questions of shareholders.


It is important that your shares are represented at thisthe meeting, whether or not you attend the meeting in person and regardless of the number of shares you own.  To make sure your shares are represented, we urge you to complete and mail the enclosed proxy card.  If you attend the meeting, you may vote in person even if you have previously mailed a proxy card.


We look forward to seeing you at the meeting.

                                Sincerely,

Sincerely,
/s/Clarence E. Hamre
Clarence E. Hamre
Chairman of the Board


<PAGE>


                                                    0;          

                                Jon C. Parker
                                Chairman of the Board


TIMBERLAND BANCORP, INC.
624 SIMPSON AVENUE
HOQUIAM, WASHINGTON 98550
(360) 533-4747



NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 23, 2007

26, 2010

 NOTICE IS HEREBY GIVENNotice is hereby given that the Annual Meetingannual meeting of Shareholdersshareholders of Timberland Bancorp, Inc. will be held at the Hoquiam Timberland Library, located at 420 7thth Street, Hoquiam, Washington, on Tuesday, January 23, 2007,26, 2010, at 1:00 p.m., local time.A proxy card and a proxy statementtime, for the annual meeting are enclosed.following purposes:
        Proposal 1.
Election of two directors to each serve for a term of three years and one director to serve for a term of two years.

            The annual meeting is for the purpose of considering

        Proposal 2.
Advisory approval of the compensation of our named executive officers.

        Proposal 3.
Ratification of the Audit Committee=s selection of McGladrey & Pullen, LLP as our independent auditor for 2010.

We will also consider and voting on the following proposal:

             Proposal 1.             Election of three directors of Timberland Bancorp, Inc. for three year terms.

            Shareholders also will transactact upon such other business as may properly come before the annual meeting, or any adjournment or postponement thereof.  As of the date of this notice, we are not aware of any other business to come before the annual meeting.


The Board of Directors has fixed the close of business on December 1, 20062, 2009 as the record date for the annual meeting.  This means that shareholders of record at the close of business on that date are entitled to receive notice of, and to vote at the meeting and any adjournment thereof.To ensure that your shares are represented at the meeting, please take the time to vote by signing, dating and mailing the enclosed proxy card which is solicited on behalf ofby the Board of Directors.  The proxy will not be used if you attend and vote at the annual meeting in person.  Regardless of the number of shares you own, your vote is very important.  Please act today.

BY ORDER OF THE BOARD OF DIRECTORS
/s/Dean J. Brydon
DEAN J. BRYDON
CORPORATE SECRETARY


                                BY ORDER OF THE BOARD OF DIRECTORS

                                                    0;       

                                DEAN J. BRYDON
                                CORPORATE SECRETARY

Hoquiam, Washington
December 14, 2006

21, 2009


IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE US THE EXPENSE OF FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSUREThe prompt return of proxies will save us the expense of further requests for proxies in order to ensure a quorum.  A QUORUM. A PRE-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.pre-addressed envelope is enclosed for your convenience.  No postage is required if mailed in the United States.


<PAGE>


PROXY STATEMENT
OF
TIMBERLAND BANCORP, INC.
624 SIMPSON AVENUE
HOQUIAM, WASHINGTON 98550
(360) 533-4747


ANNUAL MEETING OF SHAREHOLDERS
JANUARY 23, 200726, 2010



The Board of Directors of Timberland Bancorp, Inc. is using this proxy statementProxy Statement to solicit proxies from our shareholders for use at the annual meeting of shareholders.  We are first mailing this proxy statementProxy Statement and the enclosed form of proxy to our shareholders on or about December 14, 2006.

21, 2009.


The information provided in this proxy statementProxy Statement relates to Timberland Bancorp, Inc. and its wholly-owned subsidiary, Timberland Bank.  Timberland Bancorp, Inc. may also be referred to as "Timberland" orATimberland@ and Timberland Bank may also be referred to as the "Company."ABank.@  References to "we," "us"Awe,@ Aus@ and "our"Aour@ refer to Timberland and, as the context requires, Timberland Bank.



INFORMATION ABOUT THE ANNUAL MEETING

Time and Place of the Annual Meeting


Our annual meeting will be held as follows:

                Date:          Tuesday, January 23, 2007

Date: Tuesday, January 26, 2010 
Time:1:00 p.m., local time
Place: 
Hoquiam Timberland Library, 420 7th Street, Hoquiam, Washington

                Time:         1:00 p.m., local time
                Place:         Hoquiam Timberland Library, 420 7th Street, Hoquiam, Washington

Matters to Be Considered at the Annual Meeting


At the meeting, you will be asked to consider and vote upon the following proposal:

                Proposal 1.             Election of three directors of Timberland Bancorp, Inc. for three-year term.

Youproposals:

               Proposal 1.Election of two directors to each serve for a term of three years and one director to serve for a term of two years.

               Proposal 2.Advisory approval of the compensation of our named executive officers.

               Proposal 3.
Ratification of the Audit Committee=s selection of McGladrey & Pullen, LLP as our independent auditor for 2010.

We also will transact any other business that may properly come before the annual meeting.  As of the date of this proxy statement,Proxy Statement, we are not aware of any other business to be presented for consideration at the annual meeting other than the matters described in this proxy statement.Proxy Statement.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to Be Held on January 26, 2010

Our Proxy Statement and Annual Report to Shareholders, are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=06973.  The following materials are available for review:

    $  Proxy Statement;
    $  proxy card; and
    $  Annual Report to Shareholders.

Directions to attend the annual meeting, where you may vote in person, can be found online at http://www.timberlandbank.com.


Who is Entitled to Vote?


We have fixed the close of business on December 1, 20062, 2009 as the record date for shareholders entitled to notice of and to vote at our annual meeting.  Only holders of record of Timberland'sTimberland=s common stock on that date are entitled to notice of and to vote at the annual meeting.  You are entitled to one vote for each share of Timberland common stock you own.  On December 1, 2006,2, 2009, there were 3,725,3117,045,036 shares of Timberland common stock outstanding and entitled to vote at the annual meeting.


How Do I Vote at the Annual Meeting?

Proxies are solicited to provide all shareholders of record on the voting record date an opportunity to vote on matters scheduled for the annual meeting and described in these materials.  You are a shareholder of record if your shares of Timberland common stock are held in your name.  If you are a beneficial owner of Timberland common stock held by a broker, bank or other nominee (i.e., in Astreet name@), please see the instructions in the following question.

Shares of Timberland common stock can only be voted if the shareholder is present in person or by proxy at the annual meeting.  To ensure your representation at the annual meeting, we recommend you vote by proxy even if you plan to attend the annual meeting.  You can always change your vote at the meeting if you are a shareholder of record.

Voting instructions are included on your proxy card.  Shares of Timberland common stock represented by properly executed proxies will be voted by the individuals named on the proxy card in accordance with the shareholder=s instructions.  Where properly executed proxies are returned to us with no specific instruction as how to vote at the annual meeting, the persons named in the proxy will vote the shares AFOR@ the election of each of our director nominees,  AFOR@ approval of the compensation of our named executive officers and AFOR@ ratification of the selection of McGladrey & Pullen, LLP as our independent auditor.  If any other matters are properly presented at the annual meeting for action, the persons named in the enclosed proxy and acting thereunder will have the discretion to vote on these matters in accordance with their best judgment.  We do not currently expect that any other matters will be properly presented for action at the annual meeting.

You may receive more than one proxy card depending on how your shares are held.  For example, you may hold some of your shares individually, some jointly with your spouse and some in trust for your children.  In this case, you will receive three separate proxy cards to vote.

What if My Shares Are Held in "Street Name" by a Broker?

Street Name?


If you are the beneficial owner of shares held in "street name"street name by a broker, your broker, as the record holder of the shares, is required to vote the shares in accordance with your instructions.  If your common stock is held in street name, you will receive instructions from your broker that you must follow in order to have your shares voted.  Your broker may allow you to deliver your voting instructions via the telephone or the Internet.  Please see the instruction form that accompanies this Proxy Statement.  If you do not give instructions to your broker, your broker may nevertheless vote the shares with respect to discretionary items, but will not be permitted to vote

<PAGE>

your shares with respect to non-discretionary items, pursuant to current industry practice.  In the case of non-discretionary items, the shares not voted will beare treated as "brokerAbroker non-votes."@  The proposal to elect directors described in this proxy statementProxy Statement is considered a discretionarynon-discretionary item under the rules governing brokers that are members of The Nasdaqthe New York Stock Market LLC.Exchange; therefore, you must provide instructions to your broker in order to have your shares voted in the election of directors.


If your shares are held in street name, you will need proof of ownership to be admitted to the annual meeting.  A recent brokerage statement or letter from the record holder of your shares are examples of proof of ownership.  If you
2
want to vote your shares of common stock held in street name in person at the annual meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.

How Will My Shares of Common Stock Held in the Employee Stock Ownership Plan Be Voted?


We maintain an employee stock ownership plan ("ESOP") which owns 13.2% of Timberland's common stock. Employees of Timberland andthe Timberland Bank participate inEmployee Stock Ownership and 401(k) Plan (AESOP and 401(k) Plan@) for the ESOP.benefit of our employees.  Each ESOP participant may instruct the trustee of the plan how to vote the shares of Timberland common stock allocated to his or her account under the ESOP portion of the plan by completing the voting instruction cardsheet distributed by the ESOP trustee.administrator.  If an ESOPa participant properly executes the voting instruction card,sheet, the ESOPadministrator will instruct the trustee willto vote the participant'sparticipant=s shares in accordance with the participant'sparticipant=s instructions.  Unallocated shares of Timberland common stock held byin the ESOP portion of the plan and allocated shares for which proper voting instructions are not received will be voted by trustee in the same proportion as shares for which the trustee has received voting instructions. Allocated shares for which proper voting instructions are not received will be voted by the trustee as directed by the ESOP administrator.


How Many Shares Must Be Present to Hold the Meeting?


A quorum must be present at the meeting for any business to be conducted.  The presence at the meeting, in person or by proxy, of at least a majority of the shares of Timberland common stock entitled to vote at the annual meeting as of the record date will constitute a quorum.  Proxies received but marked as abstentions or broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting.


What if a Quorum Is Not Present at the Meeting?


If a quorum is not present at the scheduled time of the meeting, a majority of the shareholders present or represented by proxy may adjourn the meeting until a quorum is present.  The time and place of the adjourned meeting will be announced at the time the adjournment is taken, and no other notice will be given unless the adjourned meeting is set to be held 120 days or more after February 15, 2007.the original meeting.  An adjournment will have no effect on the business that may be conducted at the meeting.


Vote Required to Approve Proposal 1: Election of Directors


Directors are elected by a plurality of the votes cast, in person or by proxy, at the annual meeting by holders of Timberland common stock.  Accordingly, the three nominees for election as directors who receive the highest number of votes actually cast will be elected.  Pursuant to our charter,Articles of Incorporation, shareholders are not permitted to cumulate their votes for the election of directors.  Votes may be cast for or withheld from each nominee.  Votes that are withheld and broker non-votes will have no effect on the outcome of the election because the nominees receiving the greatest number of votes will be elected.  Our Board of Directors unanimously recommends that you vote "FOR"AFOR@ the election of each of management'sits director nominees.

How Do I


Vote atRequired to Approve Proposal 2: Advisory Approval of Executive Compensation

The advisory vote to approve the Annual Meeting?

        Proxies are solicited to provide all shareholderscompensation of record onour named executive officers requires the voting record date an opportunity toaffirmative vote on matters scheduled forof a majority of the annual meeting and described in these materials. Shares of Timberland common stock can only be voted if the shareholder isoutstanding shares present in person or by proxy at the annual meeting.  To ensure your representationAbstentions will have the same effect as a vote against the proposal.  Our Board of Directors unanimously recommends that you vote AFOR@ approval of the compensation of our named executive officers.


Vote Required to Approve Proposal 3: Ratification of the Selection of the Independent Auditor

Ratification of the selection of McGladrey & Pullen, LLP as our independent auditor for the fiscal year ending September 30, 2010 requires the affirmative vote of a majority of the outstanding shares present in person or by proxy at the annual meeting, we recommend you vote by proxy even if you plan to attend the annual meeting.  You can always change your vote at the meeting if you are a shareholder of record.

        Voting instructions are included on your proxy card. Shares of Timberland common stock represented by properly executed proxies will be voted by the individuals named on the proxy card in accordance with the shareholder's instructions. Where properly executed proxies are returned to us with no specific instruction as how to vote at the annual meeting, the persons named in the proxy will vote the shares "FOR" the election of each of management's director nominees. If any other matters are properly presented at the annual meeting for action, the persons named in the enclosed proxy and acting thereunderAbstentions will have the discretion tosame effect as a vote on these matters in accordance with their best judgment. We do not currently expectagainst the proposal.  Our Board of Directors unanimously recommends that any other matters will be properly presented for action atyou vote AFOR@ the annual meeting.

2

<PAGE>

        You may receive more than one proxy card depending on how your shares are held. For example, you may hold someratification of your shares individually, some jointly with your spouse and some in trust for your children. In this case, you will receive three separate proxy cards to vote.the selection of the independent auditor.

3

May I Revoke My Proxy?


You may revoke your proxy before it is voted by:

        *        submitting a new proxy with a later date;

        *        notifying the Secretary of Timberland in writing before the annual meeting that you have revoked your proxy; or

    $  submitting a new proxy with a later date;

        *        voting in person at the annual meeting.
    $  notifying the Corporate Secretary of Timberland in writing before the annual meeting that you have revoked your proxy; or

    $  voting in person at the annual meeting.

If you plan to attend the annual meeting and wish to vote in person, we will give you a ballot at the annual meeting.  However, if your shares are held in "streetstreet name," you must bring a validly executed proxy from the nominee indicating that you have the right to vote your shares.



SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



The following table sets forth, as of December 1, 2006,2, 2009, the voting record date, information regarding share ownership of:

    $  
those persons or entities (or groups of affiliated person or entities) known by management to beneficially own more than five percent of Timberland=s common stock other than directors and executive officers;

    $  each director and director nominee of Timberland;

    $  
each executive officer of Timberland or Timberland Bank named in the Summary Compensation Table appearing under AExecutive Compensation@ below (known as Anamed executive officers@); and

    $  all current directors and executive officers of Timberland and Timberland Bank as a group.

        *       those persons or entities (or groups of affiliated person or entities) known by management to beneficially own more
                than five percent of Timberland's common stock other than directors and executive officers;

        *       each director and director nominee of Timberland;

        *       each executive officer of Timberland or Timberland Bank named in the Summary Compensation Table appearing
                under "Executive Compensation" below (known as "named executive officers"); and

        *       all current directors and executive officers of Timberland and Timberland Bank as a group.

Persons and groups who beneficially own in excess of five percent of Timberland'sTimberland=s common stock are required to file with the Securities and Exchange Commission ("SEC"(ASEC@), and provide us a copy, to Timberland, reports disclosing their ownership pursuant to the Securities Exchange Act of 1934.  To our knowledge, no other person or entity, other than the ones set forth below, beneficially owned more than five percent of the outstanding shares of Timberland'sTimberland=s common stock as of the close of business on the voting record date.


Beneficial ownership is determined in accordance with the rules and regulations of the SEC.  In accordance with Rule 13d-3 of the Securities Exchange Act, a person is deemed to be the beneficial owner of any shares of common stock if he or she has voting and/or investment power with respect to those shares.  Therefore, the table below includes shares owned by spouses, other immediate family members in trust, shares held in retirement accounts or funds for the benefit of the named individuals, unvested shares in Timberland'sour Management Recognition and Development Plan, shares held in the Timberland Bank Employee Stock OwnershipESOP portion of our ESOP and 401(k) Plan, and other forms of ownership, over which shares the persons named in the table may possess voting and/or investment power.  In addition, in computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to outstanding options that are currently exercisable or exercisable within 60 days after the voting record date are included in the number of shares beneficially owned by the person and are deemed outstanding for the purpose of calculating the person=

3

<PAGE>

person'ss percentage ownership.  These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.


As of the voting record date, there were 3,725,3117,045,036 shares of Timberland common stock outstanding.


4 

Number of SharesPercent of Shares
Name
Beneficially Owned (1)
Outstanding
 
Beneficial Owners of More Than 5% 
 
Timberland Bank 
Employee Stock Ownership Plan Trust(2) 491,523       13.2%
 
Dimensional Fund Advisors, Inc.301,392 (3) 

8.1

1299 Ocean Avenue 
Santa Monica, California 90401 
 
Crescent Capital VI, L.L.C.

208,184 (4) 

5.6

Jeffrey D. Gow 
11624 S.E. 5th Street, Suite 200 
Bellevue, Washington 98005 
 
Directors 
 
Andrea M. Clinton  9,204       *
Clarence E. Hamre88,545       2.4
James C. Mason  8,287       *
Jon C. Parker38,759       1.0
Ronald A. Robbel24,784       *
David A. Smith32,335       *
Harold L. Warren24,059       *
 
Named Executive Officers 
 
Michael R. Sand (5)77,378       

2.1

Dean J. Brydon38,010       

1.0

Roger A. Johansen13,661       *
Michael J. Rasmusson 4,076       *
 
All Executive Officers and 
Directors as a Group (15 persons)388,638         

9.9%

  Number of Shares Percent of Shares
Name Beneficially Owned (1) Outstanding (%)
     
Beneficial Owners of More Than 5%  
     
Timberland Bank Employee Stock Ownership and 401(k) Plan (2) 885,807 12.6%
624 Simpson Avenue    
Hoquiam, Washington 98550    
     
Dimensional Fund Advisors LP           611,575 (3) 8.7
6300 Bee Cave Road    
Austin, Texas 78746    
     
Royce & Associates, LLC           469,200 (4) 6.7
1414 Avenue of the Americas    
New York, New York 10019    
     
Directors    
     
Andrea M. Clinton 20,121 *
Larry D. Goldberg 2,000 *
James C. Mason 20,287 *
Jon C. Parker 49,553 *
Ronald A. Robbel 54,701 *
David A. Smith 78,511 1.1
     
Named Executive Officers    
     
Michael R. Sand (5) 138,449 2.0
Dean J. Brydon 37,940 *
Robert A. Drugge 18,581 *
John P. Norawong 18,387 *
Michael J. Scott -- *
     
All Executive Officers and Directors as a Group (13 persons) 464,941 6.5
___________     
*Less than one percent of shares outstanding.
_________(1)
*        Less than one percent of shares outstanding.
(1)

The amounts shown also include the following number of shares which the indicated individuals have the right to acquire within 60 days of the Voting Record Datevoting record date through the exercise of stock options granted pursuant to the Company's 1999 and 2003 Stock Option Plans: Mr. Hamre, 33,063 shares; Mr. Parker, 19,339 shares;options:  Mr. Robbel, 22,06444,548 shares; Mr. Smith, 25,505 shares; Mr. Warren, 22,064 shares; Mr. Sand, 25,000 shares; Mr. Brydon, 21,450 shares; Mr. Johansen, 9,500 shares; Mr. Rasmusson, 1,50056,638 shares; and all executive officers and directors as a group, 182,085101,186 shares.

(2)
(footnotes continued on following page)       

4

<PAGE>

(2)
UnderRepresents shares held in the termsESOP portion of the ESOP the trustees will vote unallocated shares and allocated shares for which no voting instructions are received in the same proportion as shares for which the trustees have received voting instructions from participants.401(k) Plan.  As of the voting record date, 271,108550,754 shares in the ESOP portion of the plan have been allocated to participants' accounts. The trustee of the ESOPparticipants= accounts including 69,288 shares to executive officers which is Home Federal Bank.included in their totals above.
(3)
Information concerning theBased solely on a Schedule 13G/A dated February 9, 2009, regarding shares owned by Dimensional Fund Advisors, Inc. was obtained from a Schedule 13F as of September 30, 2006.
(4)Information concerning the shares owned by Crescent Capital VI, L.L.C. and Mr. Gow was obtained from a Schedule 13D/A dated October 3, 2006.December 31, 2008. According to this filing, Crescent Capital VI, L.L.C.Dimensional Fund Advisors LP (ADimensional@), an investment adviser registered under Section 203 of the Investment Advisors Act of 1940, furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and Mr. Gow,serves as investment manager to certain other commingled group trusts and separate accounts (collectively, the managing member of Crescent Capital VI, L.L.C., have soleAFunds@). In its role as investment advisor or manager, Dimensional possesses investment and/or voting and dispositive power over 208,184the shares reported, and may be deemed to be the beneficial owner of the shares held by the Funds. However, the shares reported are owned by the Funds. Dimensional disclaims beneficial ownership of these shares.
(5)(4)Based solely on a Schedule 13G/A dated January 29, 2009, regarding shares owned as of December 31, 2008. According to this filing, various accounts managed by Royce & Associates, LLC, an investment registered under Section 203 of the Investment Advisors Act of 1940, have the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of the shares reported. One account, Royce Value Trust, Inc. an investment company registered under the Investment Company Act of 1940 and managed by Royce & Associates, LLC, held all of the shares reported.
(5)Mr. Sand is also a director of Timberland.


5
PROPOSAL I --1 B ELECTION OF DIRECTORS

Our Board of Directors consists of eightseven members and is divided into three classes.  Approximately one-third of the directors are elected annually to serve for a three-year period or until their respective successors are elected and qualified.  A majority ofClarence E. Hamre retired from the Board of Directors is comprised of independent directors, in accordance with the requirements for companies quoted on The Nasdaq Stock Market LLC.February 28, 2009.  The Board of Directors has determined that allappointed Larry D. Goldberg, effective as of September 23, 2009, to fill the members of the Board of Directors are independent, except for Mr. Sand, who serves as President and Chief Executive Officer of Timberland and Timberland Bank, andvacancy created by Mr. Hamre the former President and Chief Executive Officer of Timberland and Timberland Bank.=

s retirement.  Mr. Goldberg was recommended by Director Jon Parker.


The table below sets forth information regarding each director of Timberland and each nominee for director, including his age, position and term of office.director.  The Nominating Committee of the Board of Directors selects nominees for election as directors and has nominated for election as directors Michael R. Sand and David A. Smith, and Harold L. Warren each to serve for a three-year term, and Larry D. Goldberg to serve for a two-year term, or until their respective successors have been elected and qualified.  AllEach of our nominees currently serveserves as a Timberland directors. Each nomineedirector, and has consented to being named in this proxy statementProxy Statement and has agreed to serve if elected.  If a nominee is unable to stand for election, the Board of Directors may either reduce the number of directors to be elected or select a substitute nominee.  If a substitute nominee is selected, the proxy holders will vote your shares for the substitute nominee, unless you have withheld authority.  At this time, we are not aware of any reason why a nominee might be unable to serve if elected.


The Board of Directors recommends a vote "FOR"AFOR@ the election of Messrs. Sand, Smith and Warren each for a three year term.Goldberg.


Year First Elected or
Appointed Director(2)
Term to
Expire
Name
Age(1)
 

Board Nominees

 
Michael R. Sand5219932009(3)
David A. Smith5120002009(3)
Harold L. Warren7220022009(3)
 

Directors Continuing in Office

 
Jon C. Parker5719922007     
James C. Mason5119932007     
Clarence E. Hamre7219692008     
Andrea M. Clinton4919962008     
Ronald A. Robbel6520022008     

(footnotes on following page)

5

<PAGE>

  Age as of Year First Elected or Term to
Name September 30, 2009 Appointed Director (1) Expire
 
Board Nominees
       
Michael R. Sand 55 1993      2013 (2)
David A. Smith 54 2000      2013 (2)
Larry D. Goldberg 63 2009      2012 (2)
 
Directors Continuing in Office
 
Jon C. Parker 60 1992 2011
James C. Mason 54 1993 2011
Andrea M. Clinton 52 1996 2012
Ronald A. Robbel 68 2002 2012
       
____________       
____________
(1)As of September 30, 2006.
(2)IncludesFor years prior to 1998, includes prior service on the Board of Directors of Timberland Bank. Each member of our Board of Directors  is also a member of the Board of Directors of Timberlandthe Bank.
(3)(2)Assuming election or re-election.


Set forth below is the principal occupation of each nominee for director and each director continuing in office.  All nominees and directors have held their present positions for at least five years unless otherwise indicated.


Michael R. Sand has been affiliated with Timberland Bank since 1977 and has served as our President of Timberland Bank and Timberland since January 23, 2003.  On September 30, 2003, he was appointed as our Chief Executive Officer of Timberland Bank and Timberland.Officer.  Prior to his appointment as President and Chief Executive Officer, Mr. Sand had served as Executive Vice President and Secretary of Timberland Bank since 1993 and as Executive Vice President and Secretary of Timberland since its formation in 1997.


David A. Smith is a pharmacist and the owner of Harbor Drug, Inc., a retail pharmacy located in Hoquiam, Washington.


        Harold L. WarrenLarry D. Goldberg is a Certified Public Accountantprincipal partner in Grays Harbor Paper LP and is an employeeSherwood Associates LP.  Prior to that, Mr. Goldberg spent more than 30 years as a principal partner of the accounting firmGoldberg Furniture Company, retiring in 2001.  Mr. Goldberg currently serves as a civilian member of Aiken and Sanders, Inc. P.S.Washington State Commission on Judicial Conduct.

6
Jon C. Parker is a member of the law firm of Parker, Johnson & Parker P.S., Hoquiam, Washington, which serves as general counsel to Timberland Bank and Timberland.Timberland Bank.


James C. Mason is the President and owner of the following companies: Mason Timber Company,Inc., Mason Trucking Company,Inc., Masco Petroleum Inc., Aloha Jet Inc., Mason Aviation, Inc., Trailer Services Inc., Shine Quarry Inc., Mason Properties LLC, Masco Petroleum, Mason Aviation, Aloha Jet,Maritime LLC, Grass Island LLC, Masco Oil Warehouse LLC, 110 Commerce Street LLC, 1100 Basich Blvd LLC, 954 Anderson Drive LLC, 2012 Ind Pkwy LLC, 1020 Anderson Dr. LLC, 1104 Basich Blvd LLC, 200 Myrtle LLC and MASCO Maritime Fueling,Shelton Renal Care LLC, all of which are headquartered in Aberdeen Washington.


        Clarence E. Hamre is Chairman of the Board of Timberland and Timberland Bank. He has been affiliated with Timberland Bank since 1969 and served as President and Chief Executive Officer of Timberland Bank since 1969 and as President and Chief Executive Officer of Timberland since 1997. In January 2003, Mr. Hamre retired as President of Timberland Bank and Timberland and on September 30, 2003, he retired as Chief Executive Officer of Timberland Bank and Timberland. Following his retirement, Mr. Hamre remained an employee of Timberland and Timberland Bank through February 2004 and provided consulting services as needed.

Andrea M. Clinton, an interior designer, is the owner of AMC Interiors, Olympia, Washington.


Ronald A. Robbel is a licensed Certified Public Accountant and is retired.



MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
AND CORPORATE GOVERNANCE MATTERS

Board of Directors

The Boards of Directors of Timberland and Timberland Bank conduct their business through meetings of the Boardsboard and through their committees.committee meetings.  Both Boards generally meet on a monthly basis, holding additional special meetings as needed.  During the fiscal year ended September 30, 2006,2009, the Board of Directors of Timberland held 1514 meetings and the Board of Directors of Timberlandthe Bank held 1314 meetings.  No director of Timberland or Timberland Bank attended fewer than 75% of the total meetings of the Boardsboards and committees on which such person served during this period.


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Timberland's

Committees and Committee Charters


The Board of Directors of Timberland has standing Audit Nominating and CompensationNominating Committees.  The Board has adopted written charters for its Audit and Nominating Committees.these Committees, copies of which are available on our website at www.timberlandbank.com.  You may also obtain a copy of these documents free of charge by writing to: Dean J. Brydon, Corporate Secretary, Timberland Bancorp, Inc., 624 Simpson Avenue, Hoquiam, Washington 98550, or by calling (360) 533-4747.  Our AuditBecause Timberland does not have its own employees, the Compensation Committee charter was attached to the 2005 annual meeting proxy statement as Appendix A. Copies of the AuditTimberland Bank Board of Directors serves as our compensation committee.  This Committee charter and the Nominating Committee charter are also available on our website at www.timberlandbank.com.

has not adopted a written charter.


Audit Committee.  The Audit Committee currently consists of Directors Warren, Robbel, Smith, Mason and Smith.Goldberg. The Committee meets at least quarterly and on an as needed basis to evaluate the effectiveness of Timberland'sour internal controls for safeguarding its assets and ensuring the integrity of the financial reporting.  The Committee also appoints the independent auditor and reviews the audit report prepared by the independent auditor.  The Audit Committee met teneight times during the year ended September 30, 2006.2009.


Each member of the Audit Committee is "independent"Aindependent@ in accordance with the requirements for companies quotedlisted on The Nasdaq Stock Market. Directors Warren andNasdaq.  Director Robbel havehas been designated by the Board of Directors as the "auditAaudit committee financial experts,"expert,@ as defined by the SEC.  Directors Warren andDirector Robbel are both certified public accountants.is a licensed Certified Public Accountant.


Nominating Committee.  The Nominating Committee currently consists of Directors Clinton, Parker, Robbel and Mason. Forall independent directors who do not have terms expiring at the year ended September 30, 2006, the Nominating Committee consisted of Directors Clinton, Smith and Parker.next annual meeting.  The Nominating Committee meets annually and on an as needed basis, and is responsible for selecting qualified individuals to fill expiring director'sdirectors= terms and openings on the Board of Directors.  Final approval of director nominees is determined by the full Board, based on the recommendations of the Nominating Committee.  This Committee met oncefive times during the year ended September 30, 2006 and met on November 28, 2006 to determine the nominees for election at the annual meeting. Nominating Committee members receive no additional fees for serving on the Committee.2009.


Only those nominations made by the Committee or properly presented by shareholders will be voted upon at the Meeting.annual meeting.  In its deliberations for selecting candidates for nominees as director, the Nominating Committee considers the candidate'scandidate=s knowledge of the banking business and involvement in community, business and civic affairs, and also considers whether the candidate would provide for adequate representation of itsTimberland Bank=s market area.  
7
Any nominee for director made by the Committee must be highly qualified with regard to some or all these attributes.  In searching for qualified director candidates to fill vacancies on the Board, the Committee solicits its current Board of Directors for names of potentially qualified candidates.  Additionally, the Committee may request that members of the Board of Directors pursue their own business contacts for the names of potentially qualified candidates.  The Committee would then consider the potential pool of director candidates, select the candidate the Committeeit believes best meets the then-current needs of the Board, and conduct a thorough investigation of the proposed candidate'scandidate=s background to ensure there is no past history that would cause the candidate not to be qualified to serve as a directorone of Timberland.our directors.  Although Timberland'sthe Nominating Committee Chartercharter does not specifically provide for the consideration of shareholder nominees for directors, the Committee will consider director candidates recommended by a shareholder that are submitted in accordance with our articlesArticles of incorporation.Incorporation.  Because our articlesArticles of incorporationIncorporation provide a process for shareholder nominations, the Committee did not believe it was necessary to provide for shareholder nominations of directors in its charter.  If a shareholder submits a proposed nominee, the Committee would consider the proposed nominee, along with any other proposed nominees recommended by members of our Board of Directors, in the same manner in which the Committee would evaluate its nominees for director.  For a description of the proper procedure for shareholder nominations, see "Shareholder Proposals"AShareholder Proposals@ in this proxy statement.Proxy Statement.


Compensation Committee.  The Compensation Committee currently consists of Directors Parker, Mason, Clinton and Clinton.Goldberg.  The Compensation Committee meets annually and on an as needed basis and makes recommendations to the full Board of Directors regarding the personnel, compensation and benefits related matters of Timberland.

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<PAGE>

matters.  The Compensation Committee also meets, outside of the presence of Mr. Sand, to discuss his compensation and make its recommendation to the full Board, which then votes on Mr. Sand'sSand=s compensation.  Mr. Sand makes recommendations to the Compensation Committee regarding the compensation of all other executive officers.  The Committee considers the recommendations of Mr. Sand and makes its recommendation to the full Board, which then votes on executive compensation. This Committee met four timesonce during the year ended September 30, 2006.

Board Policies Regarding Communications with the Board of Directors and Attendance at Annual Meetings

2009.  The Board of Directors maintains a process for shareholders to communicate with the Board of Directors. Shareholders wishing to communicate with the Board of Directors may do so by mailing a letter marked "Confidential" to the Board of Directors, Timberland Bancorp, Inc., P.O. Box 697, Hoquiam, Washington 98550. Any communication must state the number of shares beneficially owned by the shareholder making the communication.Compensation Committee has met three time since October 1, 2009.

        We do not have a policy regarding Board member attendance at annual meetings of shareholders. All of the members of the Board of Directors attended the 2006 Annual Meeting of Shareholders.


Corporate Governance


We are committed to establishing and maintaining high standards of corporate governance.  Our executive officers and Board of Directors have worked together to establish a comprehensive set of corporate governance initiatives that they believe will serve the long-term interests of our shareholders and employees.  These initiatives are intended to comply with the provisions contained in the Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC adopted thereunder, and The Nasdaq Stock Market LLC.rules.  Our Board of Directors will continue to evaluate and improve our corporate governance principles and policies as necessary and as required.

Director Independence.

  Our common stock is listed on the Nasdaq Global Market.  In accordance with Nasdaq requirements, at least a majority of our directors must be independent directors.  The Board has determined that five of our seven directors are independent, as defined by Nasdaq.  Directors Clinton, Goldberg, Mason, Robbel and Smith are all independent.  Only Michael R. Sand, who is our President and Chief Executive Officer and Jon C. Parker, whose firm provides legal counsel to the Bank, are not independent.


Code of Ethics.  The Board of Directors has adopted Codescodes of Ethicsethics for each of Timberland's (i)our (1) principal executive officerofficers and senior financial officers; (ii) directors;officers, (2) directors and (iii)(3) officers and other employees.  The Codescodes of Ethicsethics require individuals to maintain the highest standards of professional conduct.  Our Code of Ethics for Timberland's principal executive officerPrincipal Executive Officers and senior financial officersSenior Financial Officers was filed with the SEC as Exhibit 14 to theour Annual Report on Form 10-K for the fiscal year ended September 30, 2003 and is available on our website at www.timberlandbank.com.


DIRECTORS' COMPENSATION

Fees

        ForShareholder Communication with the year ended September 30, 2006, each director, except Director Sand, receivedBoard of Directors.  The Board of Directors maintains a retainerprocess for shareholders to communicate with the Board.  Shareholders wishing to communicate with the Board of $1,500 per month, $500 for each regularDirectors may do so by mailing a letter marked AConfidential@ to the Board meeting attended, $500 for each Audit Committee meeting attended, and $300 for all other committee meetings (excluding loan committee and nominating committee meetings) attended. Director fees totalled $190,000 forof Directors, Timberland Bancorp, Inc., 624 Simpson Avenue, Hoquiam, Washington 98550.  Any communication must state the year ended September 30, 2006. In addition, each director, except Director Sand, may receive a discretionary stock based award based on attendance criteria. There were no stock based awards granted to directors during the year ended September 30, 2006. Each non-employee director was, however, granted 220number of shares of restricted common stock under Timberland's Management Recognition and Development Plan in October 2006 for meeting the attendance criteria during the year ended September 30, 2006.

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EXECUTIVE COMPENSATION

Summary Compensation Table

        The following table sets forth a summary of certain information concerning the compensation paid by Timberland Bank, including amounts deferred to future periodsbeneficially owned by the officers, for services rendered in all capacities duringshareholder making the year ended September 30, 2006 to the President and Chief Executive Officer and the four other most highly compensated executive officers who received totalcommunication.

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Annual Meeting Attendance by Directors.  We do not have a policy regarding Board member attendance at annual salary and bonus in excessmeetings of $100,000, also known as "named executive officers."


Annual Compensation
All
 Other AnnualOther
Name and Compen-Compen-
Position
Year
Salary
Bonus (1)
sation (2)
sation(3)
 
Michael R. Sand2006$186,375  $32,492

--

$50,110
President and Chief Executive Officer2005177,500  27,297

--

44,354
   of Timberland and Timberland Bank2004150,00031,782

--

50,118
 
Dean J. Brydon2006102,0602,613

--

24,978
Executive Vice President, Chief2005 94,5002,402

--

22,800
   Financial Officer and Secretary of2004 90,0002,838

--

23,518

   Timberland and Timberland Bank 
 
Roger A. Johansen2006111,2402,989

--

27,043
Executive Vice President and Chief2005108,0002,830

--

24,064
   Lending Officer of Timberland Bank2004100,0003,551

--

24,938

 
Michael J. Rasmusson2006105,0052,737

--

25,710
Senior Vice President of Timberland2005 98,8002,683

--

22,035
   and Timberland Bank2004 95,0003,183

--

23,645

 

_________
(1)Bonuses are discretionary and generally are paid in December following the September 30th year end. The bonuses reflected in the table are for the fiscal year that they were paid.
(2)Does not include certain benefits, the aggregate amounts of which do not exceed the lesser of $50,000 or 10% of total annual salary and bonus.
(3)Amounts for 2006 reflect: for Mr. Sand, employer profit sharing contribution of $16,800, and employer contribution to ESOP (based on the fair market value of the shares) of $33,310; for Mr. Brydon, employer profit sharing contribution of $8,374, and employer contribution to ESOP (based on the fair market value of the shares) of $16,604; for Mr. Johansen, employer profit sharing contribution of $9,066, and employer contribution to ESOP (based on the fair market value of the shares) of $17,977; and for Mr. Rasmusson, employer profit sharing contribution of $8,619, and employer contribution to ESOP (based on the fair market value of the shares) of $17,091.

Option Grants

        No stock options were granted to the Chief Executive Officer and named executive officers during the fiscal year ended September 30, 2006.

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Option Exercise/Value Table

        The following information with respect to options exercised during the fiscal year ended September 30, 2006, and remaining unexercised at the end of the fiscal year, is presented for the Chief Executive Officer and the named executive officers.

 
Number of
Securities Underlying
Unexercised Options
at Fiscal Year End(#)
 
Value of Unexercised
   In-the-Money Options
 Shares
Acquired on		Valueat Fiscal Year End($)(1)
Name
Exercise (#)
Realized($)
Exercisable
Unexercisable
Exercisable
Unexercisable
 
Michael R. Sand 8,350$141,982     25,000--$577,500   $        --           
Dean J. Brydon5,00085,75021,450--495,495

--

Roger A. Johansen

--

--

  9,0001,000200,475

22,275

Michael J. Rasmusson2,50059,488  1,0001,500  19,890

29,835

_______________
(1)Value of unexercised in-the-money options equals market value of shares covered by in-the-money options on September 30, 2006, less the option exercise price. Options are in-the-money if the market value of the shares covered by the options is greater than the option exercise price.

AUDIT COMMITTEE MATTERS

        The following Report of the Audit Committeeshareholders.  All then-members of the Board of Directors shall not be deemed to be soliciting material or to be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing underattended the Securities Act2009 annual meeting of 1933 or the Securities Exchange Act, except to the extent Timberland specifically incorporates this report therein, and shall not otherwise be deemed filed under these Acts.shareholders.



        The Audit Committee reports as follows with respect to Timberland's audited financial statements for the fiscal year ended September 30, 2006:Related Party Transactions.

1.          The Audit Committee has reviewed and discussed the audited financial statements as of and for the year ended September 30, 2006 with management of Timberland.
2.          The Audit Committee has discussed with the independent auditor, McGladrey & Pullen, LLP, the matters required to be discussed by Statement on Auditing Standards Board Standard ("SAS") No. 61,Communication with Audit Committees, as amended by SAS No. 90,Audit Committee Communications, including matters related to the conduct of the audit of Timberland's financial statements.
3.          The Audit Committee has received from the independent accountants, as required by Independence Standards Board Standard No. 1,Independence Discussions with Audit Committees, (i) a written disclosure, indicating all relationships, if any, between the independent auditor and its related entities and Timberland and its related entities which, in the auditor's professional judgment, reasonably may be thought to bear on the auditor's independence, and (ii) a letter from the independent auditor confirming that, in its professional judgment, it is independent of Timberland; and the Audit Committee has discussed with the auditor the auditor's independence from Timberland.


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        Based on the review and discussions referred to in paragraphs (1) through (3) above, the Audit Committee recommended to the Board of Directors that the audited financial statements should be included in Timberland's Annual Report on Form 10-K for the fiscal year ended September 30, 2006, for filing with the SEC.

The Audit Committee:
Ronald A. Robbel
David A. Smith
Harold L. Warren (Chairman)

COMPENSATION COMMITTEE MATTERS

        Notwithstanding anything to the contrary set forth in any of Timberland's previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act that might incorporate future filings, including this Proxy Statement, in whole or in part, the following Report of the Compensation Committee and Performance Graph shall not be incorporated by reference into any such filings.

Report of the Compensation Committee

        The Compensation Committee of Timberland and the Compensation Committee of Timberland Bank ("Committees") administer all policies that govern executive compensation for Timberland and Timberland Bank. Because Timberland has no employees other than Bank employees who perform services on behalf of Timberland without additional compensation, Timberland Bank's Compensation Committee evaluates individual executive performance, compensation policies and salaries. Timberland Bank's Compensation Committee is responsible for evaluating the performance of the Chief Executive Officer of Timberland Bank, while the Chief Executive Officer of Timberland Bank evaluates the performance of other senior officers of Timberland Bank and makes recommendations to the Committee regarding their compensation levels. Timberland's executive compensation policies are intended to retain and attract key executives who are vital to the success of Timberland and Bank by providing a compensation package that is competitive in the financial industry and motivational to each individual executive.

        In making its recommendations, the Committees consider numerous factors, including the past service of such employee, the present and potential contributions of such employee to the success of Timberland and Timberland Bank, and such other factors as the Committees shall deem relevant, including the employee's years of service, position with Timberland and Timberland Bank. In addition the Committees, in their discretion, may review compensation reports prepared by third parties of companies and banks that are of a similar size and in a similar location in order to make its recommendations. The Committees do not apply a formula assigning specific weights to any of these factors when making their determination.

        Currently, the compensation for executive officers consists principally of a base salary and bonus. In addition, Timberland Bank maintains a 401(k) profit sharing pension plan for all qualifying employees and provides opportunities for employee ownership of Timberland Bancorp, Inc. stock through participation in an employee stock ownership plan. Timberland Bank also maintains a deferred compensation agreement with the former Chief Executive Officer, Clarence E. Hamre.

        Base Salary. Timberland Bank's Board of Directors approves an annual base salary for all senior officers and executive officers, based upon recommendations from Timberland Bank's Compensation Committee. Annual base salaries are generally effective October 1st of each year. Factors considered in setting base salaries include the executive's performance, Timberland's and Timberland Bank's overall performance and compensation levels in the financial industry, among other factors.

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        Annual Incentive Bonus. Timberland Bank maintains a discretionary bonus plan, which is primarily based on Timberland Bank's net income and various loan goals for each fiscal year. The bonuses are typically paid in December following the September 30th year end. During the year ended September 30, 2006, Chief Executive Officer Michael R. Sand received 0.5% of Timberland Bank's net income for the year ended September 30, 2005, and the remaining employees received 2.84% of Timberland Bank's net income for the year ended September 30, 2005, distributed based upon each employee's salary to total employees' salaries.

        401(k) Profit Sharing Pension Plan. Timberland Bank maintains a tax-qualified 401(k) profit-sharing plan for the benefit of employees with one year of service who have attained age 21. Timberland Bank's annual discretionary contribution was 8% of a qualifying employee's compensation for the year ended September 30, 2006.

        Executive Officer Compensation. During the fiscal year ended September 30, 2006, the base salary of Timberland's Chief Executive Officer, Michael R. Sand, was $186,375. In addition, he received an incentive bonus of $32,492 and was credited with $50,110 in other compensation as set forth in the preceding Summary Compensation Table. This resulted in total compensation of $268,977, which represents an 8.0% increase from the previous year. The Board of Directors believes that Mr. Sand's compensation is appropriate based on Timberland Bank's compensation policy, consideration of salaries for similar positions in the financial industry and Timberland Bank's performance during the fiscal year.

        Compensation Committee of Timberland and Timberland Bank consisting of:

/s/ Andrea M. Clinton
/s/ James C. Mason
/s/ Jon C. Parker

        Compensation Committee Interlocks and Insider Participation. No members of the Compensation Committee were officers or employees of Timberland or any of its subsidiaries during the year ended September 30, 2006, were formerly Company officers or had any relationships otherwise requiring disclosure.

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Performance Graph

        The following graph compares the cumulative total shareholder return on our common stock with the cumulative total return on the Nasdaq U.S. Companies Index and with the SNL $250 to $500 Million Asset Thrift Index, a peer group index. Total return assumes the reinvestment of all dividends and that the value of the Company's Common Stock and each index was $100 on September 30, 2002.

Period Ending
Index
09-30-00
09-30-02
09-30-03
09-30-04
09-30-05
09-30-06
Timberland Bancorp, Inc.$100.00   $116.41$170.48   171.56173.99269.54
NASDAQ Composite100.00   78.49120.23128.30146.51155.06
SNL $250m-$500 M Thrift Index100.00  132.95183.61206.69203.23221.15
* Source: SNL Financial LC, Charlottesville, VA


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

        Section 16(a) of the Securities Exchange Act requires our directors and executive officers, and persons who own more than 10% of Timberland's common stock to report their initial ownership of the common stock and any subsequent changes in that ownership to the SEC. Specific due dates for these reports have been established by the SEC and we are required to disclose in this proxy statement any late filings or failures to file. Based solely on our review of the copies of such forms we have received and written representations provided to us by the above referenced persons, we believe that, during the fiscal year ended September 30, 2006, all filing requirements applicable to our reporting officers, directors and greater than 10% shareholders were properly and timely complied with.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  We have followed a policy of granting loans to our employees, officers and directors, which fully complies with all applicable federal regulations.  Loans to our directors and executive officers are made in the ordinary course of business and on the same terms and conditions as those of comparable transactions with non-insider employees prevailing at the time, (unlessunless the loan or extension of credit is made under a benefit program generally available to all other employees and does not give preference to any insider over any other employee), in accordance with our underwriting guidelines, and do not involve more than the normal risk of collectibility or present other unfavorable features.employee.  Under Timberland Bank'sBank=s current employee and director loan benefit program, all employees and directors are entitled to the following preferred terms:


          *          Adjustable rate mortgage for personal residence -

$  
Adjustable rate mortgage for personal residence: interest rate is 1.5% above Timberland Bank=s cost of funds (subject to a floor of 5.25% for loans originated after August 1, 2006); no loan fee is charged.

$  
Fixed rate mortgage for personal residence: interest rate is set at the current Federal Home Loan Mortgage Corporation par rate; no loan fee is charged.

$  
Consumer loans: normal interest rates apply; no loan fee is charged.

$  
Personal computer purchases: interest rate is currently 3.0%; no loan fee is charged.

The rate is 1.5% above Timberland Bank's costfollowing directors and executive officers had loans in excess of funds (subject$120,000 outstanding under the loan benefit program:

Name 
 
 
 
Type of
 Loan
 
Amount
Involved
in the
Transaction
($)(1)
 
Amount
Outstanding
as of
September 30,
2009 ($)
 
Principal Paid
During the
Year Ended
September 30,
2009 ($)
 
Interest Paid
During the
Year Ended
September 30,
2009 ($)
 
Interest
Rate
(%)
             
David A. Smith First Mortgage 421,968 412,117 9,851 17,749 4.250
             
Jon C. Parker First Mortgage 194,462 191,344 3,118 10,135 5.250
             
Robert A. Drugge First Mortgage 327,198 322,402 4,796 17,064 5.250
             
Kathie M. Bailey First Mortgage 146,152 141,294 4,858 6,120 4.250
  
Home Equity
 Line of Credit
   41,475   41,368   107 1,129 5.875
_________             
(1)Consists of the largest aggregate amount of principal outstanding during the year ended September 30, 2009.

Loans to a floor
                     of 5.25% as of August 1, 2006). No loan fee is charged.
          *          Fixed rate mortgage for personal residence - No loan fee is charged.
          *          Consumer loans - No loan fee is charged. Normal interest rates apply.
          *          Computer purchases - No loan fee is charged. A 3.0% interest rate applies.

        All loans we make to our directors and executive officers are subjectmade in accordance with the same underwriting guidelines for non-insider customers and do not involve more than the normal risk of collectibility, or present other unfavorable features.  Loans to federal regulations restricting loansdirectors and other transactionsexecutive officers are approved by the Board of Directors, with affiliated persons of Timberland.the director involved excluded from the vote.  Loans and available lines of credit to all directors and executive officers and their associates totaled approximately $2.6$2.0 million at September 30, 2006,2009, which was 3.3%2.27% of our equity at that date.  All loans to directors and executive officers were performing in accordance with their terms at September 30, 2006. Total deposits of directors and executive officers were approximately $627,000 at September 30, 2006.

2009.


Director Parker is a member of the law firm of Parker, Johnson & Parker, P.S., which serves as general counsel to Timberland Bank and Timberland.  Timberland BankWe paid legal fees of  $40,537$125,037 to Parker, Johnson & Parker, P.S. for services it receivedrendered during the fiscal year ended September 30, 2006.2009.  Of this amount, Director Parker=

s interest was $125,037.


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INDEPENDENT AUDITORSDIRECTORS= COMPENSATION



The Audit Committee offollowing table shows the Board of Directors has appointed McGladrey & Pullen, LLP as the independent public accounting firmcompensation paid to audit Timberland's financial statements for the fiscal year ending September 30, 2007.McGladrey & Pullen, LLP served as Timberland's independent auditorour non-employee directors for the fiscal year ended September 30, 2006. 2009.  Compensation for Michael R. Sand, who is our President and Chief Executive Officer, is included in the section below entitled AExecutive Compensation.@  We do not have any non-equity incentive plans or defined benefit plans, nor do we permit deferral of compensation on a basis that is not tax-qualified.

Name Fees Earned or Paid in Cash ($) 
Stock Awards
($)(1)(2)
 
Option
Awards
($)(1)(3)
 
All Other
Compensation
($)(4)
 
Total
($)
           
Andrea M. Clinton 25,000 4,579     -- 600 30,179
Larry D. Goldberg (5) 2,000     --     --    -- 2,000
Clarence E. Hamre (6) 10,000 1,748     -- 10,282 22,030
James C. Mason 27,000 4,579     -- 600 32,179
Jon C. Parker 25,000 4,579     -- 600 30,179
Ronald A. Robbel 29,000 4,579 1,351 600 35,530
David A. Smith 29,000 4,579     -- 600 34,179
Harold L. Warren (7) 2,000 267   113 -- 2,380
______________           

(1)
Represents the dollar amount of expense recognized for financial statement reporting purposes in fiscal 2009 for awards made in fiscal 2009 and prior years and being earned by the director ratably over the vesting period of the award. Amounts are calculated pursuant to the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004), AShare-Based Payment@ (AFAS 123R@). For a discussion of valuation assumptions, see Note 15 of the Notes to Consolidated Financial Statements in Timberland=s Annual Report on Form 10-K for the year ended September 30, 2009.
(2)Consists of an award to each non-employee director, other than Mr. Goldberg, of 440 shares of restricted stock on October 24, 2006 (aggregate grant date fair value of $8,026), 545 shares of restricted stock on October 23, 2007 (aggregate grant date fair value of $8,006) and 1,168 shares of restricted stock on December 4, 2008 (aggregate grant date fair value of $8,234).
(3)Consists of an award to each of Mr. Robbel and Mr. Warren of 28,340 stock options granted on March 13, 2003 with an aggregate grant date fair value of $64,556.
(4)Consists of restricted stock dividends. For Mr. Hamre, also consists of payments under his deferred compensation/non-competition agreement, as described below.
(5)Mr. Goldberg was appointed to the Board of Directors effective as of September 23, 2009.
(6)Mr. Hamre retired from the Board of Directors on February 28, 2009.
(7)Mr. Warren retired from the Board of Directors on October 31, 2008.

For the year ended September 30, 2009, each of the non-employee directors received a retainer of $1,500 per month, $500 for each regular Board meeting attended, $500 for each Audit Committee meeting attended and $300 for certain other committee meetings attended.  In addition, each non-employee director may receive a discretionary stock-based award based on attendance criteria.  Although each non-employee director, other than Mr. Goldberg who was appointed on September 23, 2009, met the attendance criteria for the year ended September 30, 2009, no stock based-award was granted.

Timberland Bank entered into a deferred compensation/non-competition agreement in 1994 with Clarence E. Hamre, its former Chief Executive Officer, which provides monthly payments of $2,000 per month upon retirement.  Payments under this agreement began in March 2004 and will continue until Mr. Hamre=s death, at which time payments will continue to his surviving spouse until the earlier of her death or for 60 months.  The present value of the payments as of September 30, 2009 and 2008, $105,000 and $129,000, respectively, has been accrued under the agreement and is included in other liabilities on the consolidated balance sheets.  The Bank=s obligation to make payments under the agreement is subject to the condition that Mr. Hamre not compete with the Bank for a period of 15 years after the termination of his employment.

10

EXECUTIVE COMPENSATION
Compensation Discussion and Analysis

Compensation Committee.  The Compensation Committee of Timberland Bank administers all policies that govern executive compensation for Timberland and Timberland Bank.  Because Timberland has no employees other than Bank employees who perform services on behalf of Timberland without additional compensation, the Bank=s Compensation Committee evaluates individual executive performance, compensation policies and salaries.  This Committee is responsible for evaluating the performance of our Chief Executive Officer, while the Chief Executive Officer evaluates the performance of other senior officers of Timberland Bank and makes recommendations to the Committee regarding their compensation levels.

Impact of Recent Legislation on Executive Compensation.  Effective December 23, 2008, Timberland completed the sale to the U.S. Department of the Treasury of 16,641 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A, with a related warrant to purchase 370,889 shares of Timberland=s common stock.  The issuance was the result of the Treasury=s approval of Timberland=s application to participate in the Treasury=s Capital Purchase Program, which was established by Treasury pursuant to the authority granted by the Emergency Economic Stabilization Act of 2008 (the AEESA@).  The EESA authorizes the Treasury Department to purchase from financial institutions and their holding companies up to $700 billion in mortgage loans, mortgage-related securities and certain other financial instruments, including debt and equity securities issued by financial institutions and their holding companies in a troubled asset relief program (ATARP@). Timberland was required to make certain changes to its executive compensation arrangements as necessary to comply with the provisions of the EESA.  Effective February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (AARRA@).  The ARRA amends the provisions of the EESA that are applicable to TARP recipients, such as Timberland.  Accordingly, Timberland is now subject to additional limitations on executive compensation, including a provision for recovery of bonus, retention awards, or incentive compensation paid based on earnings, revenue, gains or other criteria later found to be materially inaccurate, a prohibition on making golden parachute payments, a prohibition on paying or accruing any bonus, retention award or incentive compensation (except for certain grants of long-term restricted stock), and providing tax gross-ups.  These restrictions and prohibitions apply to various Timberland officers, as discussed in greater detail below.

Waiver of Changes to Compensation.  In connection with Timberland=s receipt of funds under the Treasury Department=s Capital Purchase Program, each of our named executive officers signed a waiver voluntarily waiving any claim against the Treasury Department or Timberland for any changes to his or her compensation or benefits that are required to comply with the October 20, 2008 regulations issued by the Treasury Department under the Capital Purchase Program and acknowledging that the regulations may require modification of the compensation, bonus, incentive and other benefit plans, arrangements and policies and agreements (including Agolden parachute@ agreements).  In addition, the named executive officers entered into compensation modification agreements with Timberland amending their executive compensation agreements as may be necessary to comply with Section 111(b) of the EESA, which governs executive compensation.

Objectives and Overview of the Compensation Program.  Our executive compensation policies are designed to establish an appropriate relationship between executive pay and the annual and long-term performance of Timberland and Timberland Bank.  The principles underlying our executive compensation policies are:

$  to attract and retain key executives who are vital to our long-term success;

$  to provide levels of compensation competitive with those offered throughout the banking industry and consistent with our level of performance; and

$  to motivate executives to enhance long-term shareholder value by building their equity interest in Timberland.

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In making its determinationrecommendations for executive compensation, the Committee considers numerous factors, including the past service of the executive, the present and potential contributions of the executive to appoint McGladrey & Pullen, LLPour success, and other factors deemed relevant, including the executive=s number of years of service and position with Timberland and Timberland Bank.  In addition, the Committee may review compensation reports prepared by third parties of companies and banks that are of a similar size and in a similar location in order to make their recommendations.  The Committee does not apply a formula assigning specific weights to any of these factors when making its determinations.

Elements of Compensation.  The Compensation Committee focuses primarily on the following three components in forming the total compensation package for our executive officers:

$  base salary;

$  annual bonus; and

$  long-term incentive compensation.

The current compensation plans involve a combination of salary and annual bonus to reward short-term performance, and equity awards and contributions to the Timberland Bank ESOP and 401(k) Plan as long-term incentive compensation, as well as to provide employees with a retirement benefit.  There is no formula whereby one element of compensation is used to offset another element.

Base Salary.  Base salary is intended to create a secure base of cash compensation for executives and to reward an executive=s ongoing performance.  Base salaries are standard in the independent auditorbanking industry for most positions, including executive positions.  Timberland Bank=s Board of Directors approves an annual base salary for all senior officers and executive officers, based upon recommendations from the Compensation Committee.  Annual base salaries are generally effective October 1st of each year.  Factors considered in setting base salaries include the executive=s performance, our overall performance and compensation levels in the financial industry, among other factors.

The salary levels of our executive officers are designed to be competitive with those of executives at similarly-sized institutions in our market area.  Each year, management reviews the Northwest Financial Industry Salary Survey prepared by Milliman USA and provides salary range information to the Compensation Committees.  Executive salaries generally fall within the ranges provided by the survey data; however, individual salaries may fall outside the range depending on an individual=s qualifications and contributions.  Individual annual performance is reviewed by the Compensation Committee (in the case of the Chief Executive Officer) or the Chief Executive Officer (in the case of the other executive officers) to determine adjustments to compensation.  The Compensation Committee also evaluates compensation in light of our annual financial performance.  Material changes in compensation are rare but may be made to reward an executive for his or her contributions to our success.

In the past, we have also engaged compensation consultants to review the base salaries of our executives.  Watson Wyatt was engaged in 2002 to provide a market analysis of compensation for the 2007majority of the positions with Timberland Bank.  The study was used to determine if Timberland=s compensation practices resulted in the payment of competitive salaries.  John Parry and Alexander was engaged in October 2004 to develop an incentive compensation plan for executive management, business bankers and branch managers.  We used this study primarily to provide a methodology to determine incentive compensation for lenders.  Watson Wyatt was engaged in August 2006 to perform a total cash compensation study to evaluate competitive salary ranges for executive and other key positions.  We may again engage compensation consultants to review our compensation practices, although we have no immediate plans to do so.

Annual Bonus.  Bonuses are intended to reward performance in furthering our financial goals.  Annual bonuses supplement base salary and allow us to provide a competitive pay package to our executive officers.  We maintain a discretionary bonus plan, which is primarily based on Timberland Bank=s net income and various loan goals for each fiscal year.  The bonuses are typically paid in December following the September 30th year end.
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In the past, the Chief Executive Officer received a bonus equal to one-half of one percent of Timberland Bank=s net income.  However, as a result of Timberland=s participation in the Treasury=s Capital Purchase Program, it is currently prohibited from paying or accruing any bonus, retention award or incentive compensation to its most highly compensated employee; therefore, Mr. Sand is not eligible for an annual incentive bonus.  The Chief Financial Officer may receive a bonus of up to one-quarter of one percent of Timberland Bank=s net income.  This bonus will be awarded based on subjective factors and the Bank=s net income.  The other named executive officers have the potential to earn up to $45,000 in annual bonuses.  These bonuses are awarded based on a subjective determination, but objective factors such as net income, lenders meeting established goals, loan quality and deposit growth will also be considered.

As a result of Timberland=s participation in the Treasury=s Capital Purchase Program, it must ensure that it implements provisions for the recovery of any bonus, incentive compensation or retention award paid to a named executive officer or the next 20 most highly compensated employees based on financial statements or performance metric criteria later determined to be materially inaccurate or to be material and inaccurately applied.  Such employees shall be required to sign an acknowledgment of this restriction if and when bonus compensation is paid.

Long-Term Incentive Compensation.  Long-term incentive compensation is intended to reward executives for their performance, while encouraging them to remain employed by Timberland and Timberland Bank.  We grant long-term compensation in the form of equity awards and contributions to the Timberland Bank ESOP and 401(k) Plan.  As a result of Timberland=s participation in the Treasury=s Capital Purchase Program, the most highly compensated employee may not receive any bonus, retention award or incentive payment other than certain forms of restricted stock; therefore, Mr. Sand is not eligible to receive stock options.

Equity-based compensation functions as long-term incentive because awards are generally made with a five-year vesting schedule.  In addition, the value of awards varies in part as a function of our financial performance.  Awards are made either in the form of stock options or restricted stock.  We maintain the 1999 Stock Option Plan, the 2003 Stock Option Plan and the Management Recognition and Development Plan, each of which was approved by our shareholders.  These are administered and interpreted by the Compensation Committee.  Under the plans, the Committee determines which officers and key employees will receive awards, the number of shares subject to each option or shares of restricted stock awarded, and the vesting of the awards.  In addition, newly hired employees may receive awards at the time of their employment.  The per share exercise price of an option will equal at least 100% of the fair market value of a share of common stock on the date the option is granted.  All equity-based awards are subject to the approval of the Board of Directors.

Timberland Bank also maintains an ESOP and 401(k) Plan, which is for the benefit of employees with one year of service who have attained age 21.  Each year, we make a contribution of up to five percent of each participant=s eligible compensation to the 401(k) portion of the plan.  Each year shares held in the ESOP are released for allocation as debt of the ESOP is repaid.  The released shares are allocated based on the percentage of a participant=s salary in relation to total salaries of all eligible participants.

Other Considerations.  We have not adopted a formal policy or any employment agreement provisions that enable recovery of incentive awards in the event of misstated or restated financial results. However, Section 304 of the Sarbanes-Oxley Act of 2002 provides some ability to recover incentive awards in certain circumstances.  If we are required to restate our financials due to noncompliance with any financial reporting requirements as a result of misconduct, the Chief Executive Officer and Chief Financial Officer must reimburse us for (1) any bonus or other incentive- or equity-based compensation received during the 12 months following the first public issuance of the non-complying document, and (2) any profits realized from the sale of Timberland securities during those 12 months.  In addition, as a result of Timberland=s participation in the Treasury=s Capital Purchase Program, it must ensure that it implements provisions for the recovery of any bonus, incentive compensation or retention award paid to a named executive officer or the next 20 most highly compensated employees based on financial statements or performance metric criteria later determined to be materially inaccurate or to be material and inaccurately applied.

The Compensation Committee does not have a formal written policy guiding the timing of equity grants.  All equity grants were made after formal Board approval.  We have reviewed our equity grant practices and have confirmed that all past equity grants have been consistent with SEC guidelines.
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Compensation Committee Report

The Compensation Committee of the Board of Directors of Timberland Bank has submitted the following report for inclusion in this Proxy Statement:

We have reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with management.  Based on the Committee=s review of and the discussion with management with respect to the Compensation Discussion and Analysis, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

Prior to September 14, 2009, the Compensation Committee was required to review with the Company=s senior risk officers the relationship between the Company=s risk management policies and practices and the bonus and incentive compensation arrangements for our senior executive officers (ASEOs), who are our named executive officers and to review those plans and arrangements and make reasonable efforts to ensure they do not encourage those officers to take unnecessary and excessive risks that threaten the value of the Company.  On December 17, 2008, the Compensation Committee conducted those reviews with the senior risk officer, including a review of the annual bonus plan, stock option plans and management recognition and development plan discussed elsewhere in this Proxy Statement in AB Elements of Compensation@ and AB Potential Payments Upon Termination.@  The Compensation Committee determined that none of the bonus and incentive compensation plans and arrangements for the Company=s SEOs encouraged those officers to take unnecessary or excessive risks that threatened the value of the Company.   It also requested that all SEOs execute compensation modification agreements to amend all their compensation agreements and plans to comply with the then-current TARP compensation guidelines issued by the United States Department of the Treasury (AUST@).

In accordance with new UST regulations issued on June 15, 2009, the Compensation Committee is required to conduct the following three compensation reviews once every six months beginning September 14, 2009:

(1)Discuss, evaluate and review with senior risk officers all the SEO compensation plans and make all reasonable efforts to ensure that these plans do not encourage SEOs to take unnecessary and excessive risks that threaten the value of Timberland;

(2)Discuss, evaluate and review with senior risk officers the risks all employee compensation plans pose to the Company and make all reasonable efforts to limit those identified risks; and

(3)Discuss, evaluate and review all employee compensation plans to revise or eliminate any features that encourage the manipulation of reported earnings of Timberland to enhance the compensation of any employee.

The Compensation Committee has scheduled a meeting for December 22, 2009, to conduct these required reviews.  In conducting the required risk reviews of all identified SEO and employee compensation plans, the Compensation Committee plans to:  (1) consider long-term and short-term risks to Timberland; (2) identify the features in each plan that raise the those risks; (3) identify features of the plans that encourage behavior focusing on short-term results versus the long-term creation of value; and (4) limit or eliminate these identified features to eliminate the relevant risk.  The Compensation Committee expects to conduct this review at least one more time during the 2010 fiscal year and will report and certify on its findings and actions in the proxy statement for the 2011 annual meeting.

The foregoing report is provided by the following directors, who constitute the Compensation Committee:

Compensation Committee:                   James C. Mason, Chairman
         Andrea M. Clinton
         Larry D. Goldberg
This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, and shall not otherwise be deemed filed under such acts.
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Summary Compensation Table

The following table shows information regarding compensation earned during the fiscal years ended September 30, 2009, 2008 and 2007 by our named executive officers: (1) Michael R. Sand, our principal executive officer; (2) Dean J. Brydon, our principal financial officer; (3) our three other most highly compensated officers who earned in excess of $100,000, who are Robert A. Drugge, John P. Norawong and Michael J. Scott.  We do not have any non-equity incentive plans or defined benefit plans, nor do we permit deferral of compensation on a basis that is not tax-qualified.  As of September 30, 2009, the named executive officers do not have any unvested stock options outstanding.

 
Name and Principal Position
 
 
 
Year
 
 
Salary ($)
 Bonus ($) 
Stock
Awards
($)(1)
 
All Other
Compen-
sation
($)(2)
 Total  ($)
             
Michael R. Sand 2009 210,000        --   4,342 16,939 231,281
President and Chief Executive 2008 210,000 20,812   2,693 18,450 251,955
  Officer of Timberland and 2007 200,000 40,607        -- 60,798 301,405
  Timberland Bank            
             
Dean J. Brydon 2009 157,500        --   4,342   9,605 171,447
Executive Vice President, 2008 157,500 10,406   2,693 12,206 182,805
  Chief Financial Officer and 2007 120,000 20,000        -- 39,161 179,161
  Secretary of Timberland and            
  Timberland Bank            
             
Robert A. Drugge 2009 165,000        -- 50,794 16,605 232,399
Executive Vice President and 2008 157,500 14,000 44,067 18,099 233,666
  Business Banking Manager 2007 150,000 16,000 24,633   8,476 199,109
  of Timberland Bank            
             
John P. Norawong 2009 165,000        -- 50,794 14,842 230,636
Executive Vice President and 2008 157,500 14,000 44,067 16,595 232,162
  Community Banking Division 2007 150,000 16,000 24,633   3,000 193,633
  Manager of Timberland Bank            
             
Michael J. Scott (3) 2009 120,000  2,000        --  5,455 127,455
Senior Vice President and 2008   86,250  5,000        --  1,363  92,613
  Chief Credit Administrator 2007        --        --        --        --        --
  of Timberland Bank            
             
__________
(1)
Represents the dollar amount of expense recognized for financial statement reporting purposes in fiscal 2009 for awards made in fiscal 2009 and prior years and being earned by the officer ratably over the vesting period of the award. Amounts are calculated pursuant to the provisions of FAS 123R. For a discussion of valuation assumptions, see Note 15 of the Notes to Consolidated Financial Statements in Timberland=s Annual Report on Form 10-K for the year ended September 30, 2009.
(2)Please see the table below for more information on the other compensation paid to our executive officers in the year ended September 30, 2009.
(3)Mr. Scott joined Timberland on January 1, 2008.


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All Other Compensation.  The following table sets forth details of AAll Other Compensation,@ as presented above in the Summary Compensation Table.

Name 
401(k)
Plan
Contribu-
tion ($)
 
ESOP
Contribu-
tion ($)
 
Restricted
 Stock
Dividends
($)
 
Life
Insurance
Premiums
($)
 
Country
Club Dues
($)
 
Personal
Use of
Company
Vehicle ($)
 Total ($)
               
Michael R. Sand 11,500 -- 702 2,052 2,356 329 16,939
Dean J. Brydon 8,395 -- 702 508      --   -- 9,605
Robert A. Drugge 8,950 -- 5,358 2,297      --   -- 16,605
John P. Norawong 8,950 -- 5,358 534      --   -- 14,842
Michael J. Scott 3,000 -- -- 2,455      --   -- 5,455

Employment Agreements.  We entered into employment agreements with Michael R. Sand and Dean J. Brydon on April 13, 2007.  Each agreement has an initial term of three years and on each anniversary beginning on April 13, 2008, the term of the agreements will be extended for an additional year provided that (1) neither the executive nor Timberland has given notice to the other at least 90 days prior to the anniversary date and (2) prior to the anniversary date, the Board or a Board committee with delegated authority reviews and approves the extension.  The current base salaries of Mr. Sand and Mr. Brydon under their agreements are $210,000 and $157,500, respectively, and are subject to annual review.  Under the agreement, the executives are eligible to participate in all bonus programs, benefit plans and fringe benefits offered to other executive officers of Timberland and Timberland Bank.  The agreements provide that compensation may be paid in the event of disability, death, involuntary termination or a change in control, as described below under APotential Payments Upon Termination.@

Grants of Plan-Based Awards

The following table shows information regarding grants of plan-based awards made to our named executive officers for the fiscal year ended September 30, 2009.

 
Name
 
 
Grant
Date
 
Option Awards:
Number of  Shares of Stock
or Units (#)(1)
 
Grant Date Fair
Value of Stock and Option
Awards ($)
       
Michael R. Sand N/A       --     --
Dean J. Brydon N/A       --     --
Robert A. Drugge N/A       --     --
John P. Norawong N/A       --     --
Michael J. Scott 10/26/2009 2,500 5,063
____________
(1)Option awards vest ratably over the five-year period from the grant date, with the first 20% vesting one year after the grant date.


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Outstanding Equity Awards

The following information with respect to outstanding equity awards as of September 30, 2009 is presented for the named executive officers.

    Option Awards  Stock Awards (1)
    
Number of
Securities
Underlying
Unexercised
 
Number of
Securities
Underlying
Unexercised
 Option Option  
Number of
Shares or
Units of Stock
That
 
Market Value
of Shares or
Units of Stock
  Grant Options (#) Options (#) Exercise Expiration  Have Not That Have Not
Name Date Exercisable Unexercisable Price ($) Date  Vested (#) Vested ($)
                
Michael R. Sand 10/23/07 -- -- -- --  800 3,712
  10/1/08 -- -- -- --  1,000 4,640
                
Dean J. Brydon 10/23/07 -- -- -- --  800 3,712
  10/1/08 -- -- -- --  1,000 4,640
                
Robert A. Drugge 07/25/06 -- -- -- --  2,400 11,136
  06/26/07 -- -- -- --  3,600 16,704
  10/23/07 -- -- -- --  800 3,712
  06/24/08 -- -- -- --  2,400 11,136
  10/1/08 -- -- -- --  2,000 9,280
                
John P. Norawong 07/25/06 -- -- -- --  2,400 11,136
  06/26/07 -- -- -- --  3,600 16,704
  10/23/07 -- -- -- --  800 3,712
  06/24/08 -- -- -- --  2,400 11,136
  10/1/08 -- -- -- --  2,000 9,280
                
Michael J. Scott -- -- -- -- --  -- --

___________
(1)   Stock awards vest ratably over the five-year period from the grant date, with the first 20% vesting one year after the grant date.
Option Exercised and Stock Vested

The following table shows the value realized upon exercise of stock options and vesting of stock awards for our named executive officers in the year ended September 30, 2009.

  Option Awards  Stock Awards
  Number of    Number of  
  Shares Value  Shares Value
  Acquired on Realized on  Acquired on Realized on
Name  Exercise (#) Exercise ($)  Vesting (#) Vesting ($)
          
Michael R. Sand 1,343 672  200 1,100
Dean J. Brydon 20,000 19,800  200 1,100
Robert A. Drugge -- --  3,200 14,456
John P. Norawong -- --  3,200 14,456
Michael J. Scott -- --  -- --

Potential Payments Upon Termination

We have entered into agreements with the named executive officers that provide for potential payments upon disability, termination and death.  Timberland entered into employment agreements with Mr. Sand and Mr. Brydon.  These employment agreements provide for payments in the event of disability, death or termination.  However, as a result of
17
Timberland=s participation in the Treasury=s Capital Purchase Program, it is currently prohibited from making a golden parachute payment to a senior executive officer or any of the next five most highly compensated employees.  For purposes of this restriction, a golden parachute payment means any payment for the departure from a TARP recipient for any reason, or any payment due to a change in control of the TARP recipient, except for payments for services performed or benefits accrued.  Excluded from the restriction are payments made in the event of an employee=s death or disability.  The affected executives signed compensation modification agreements to comply with the restriction against making golden parachute payments.  Accordingly, Mr. Sand and Mr. Brydon are not currently eligible to receive any payments upon involuntary termination without cause or in connection with a change in control pursuant to their employment agreements but they, or their beneficiaries, remain eligible to receive payments upon a termination due to death or disability.  In addition, our equity plans also provide for accelerated vesting of awards in connection with a change in control, or upon death or disability.  As a result of Timberland=s participation in the Treasury=s Capital Purchase Program, accelerated vesting in connection with a change in control is prohibited for the senior executive officers or any of the next five most highly compensated employees.  The following table shows, as of September 30, 2009, the value of potential payments and benefits following a termination of employment due to death or disability.

 Death ($) Disability ($)
    
Michael R. Sand   
Employment Agreement-- --
Equity Plans8,352 8,352
    
Dean J. Brydon   
Employment Agreement-- --
Equity Plans8,352 8,352
    
Robert A. Drugge   
Equity Plans51,968 51,968
    
John P. Norawong   
Equity Plans51,968 51,968
    
Michael J. Scott   
Equity Plans-- --

Employment Agreements.  The employment agreements with Mr. Sand and Mr. Brydon provide for payments in the event of disability, death or termination.  If either executive becomes entitled to benefits under the terms of our then-current disability plan, if any, or becomes otherwise unable to fulfill his duties under his employment agreement, he shall be entitled to receive such group and other disability benefits as are then provided for executive employees.  In the event of the executive=s disability, his employment agreement will not be suspended, except that the obligation to pay his salary shall be reduced in accordance with the amount of any disability income benefits he receives such that, on an after-tax basis, he realizes from the sum of disability income benefits and his salary the same amount as he would realize on an after-tax basis from his salary if he had not become disabled.  Upon a resolution adopted by a majority of the disinterested members of the Board of Directors or an authorized committee, we may discontinue payment of the executive=s salary beginning six months after a determination that he has become entitled to benefits under the disability plan or is otherwise unable to fulfill his duties under the employment agreement.  If the executive=s disability does not constitute a disability within the meaning of Section 409A of the Internal Revenue Code, then payments under the employment agreement will not begin until the earlier of the executive=s death or the sixth month anniversary of his separation from service.

In the event of either of the executive=s death while employed under his employment agreement and prior to any termination of employment, we will pay to his estate, or such person as he may have previously designated, the salary which was not previously paid to him and which he would have earned if he had continued to be employed under the agreement through the last day of the month in which he died, together with the benefits provided under the employment agreement through that date.
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The employment agreements also provide for benefits in the event of the executives= involuntary termination or in connection with a change in control.  As discussed above, such payments are currently prohibited as a result of Timberland=s participation in the Treasury=s Capital Purchase Program.

Equity Plans.  Our Management Recognition and Development Plan, 1999 Stock Option Plan and 2003 Stock Option Plan provide for accelerated vesting of awards in certain circumstances.  If a change in control occurs prior to the vesting of an award, the vesting date will be accelerated to the effective date of the change in control.  As discussed above, acceleration of vesting in connection with a change in control is currently prohibited as a result of Timberland=s participation in the Treasury=s Capital Purchase Program.  However, if an award recipient dies or becomes disabled prior to vesting of his awards, the vesting date will be accelerated upon the occurrence of such event.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee are Directors Mason, Clinton and Goldberg.  No members of this Committee were officers or employees of Timberland or any of its subsidiaries during the year ended September 30, 2009, nor were they formerly Timberland officers or had any relationships otherwise requiring disclosure.  Director Parker served as a member of the Compensation Committee during the year ended September 30, 2009 but stepped down when it was determined that he was no longer an independent director as a result of the fees paid by Timberland and Timberland Bank to his law firm.


PROPOSAL 2 B ADVISORY VOTE ON EXECUTIVE COMPENSATION
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (AARRA@) into law.  For financial institutions that have received or will receive financial assistance under the troubled asset relief program (ATARP@) or related programs, such as Timberland, the ARRA significantly rewrites the original executive compensation and corporate governance provisions of Section 111 of the Emergency Economic Stabilization Act of 2008.  Notably, the ARRA requires that TARP recipients permit shareholders to vote to approve executive compensation.  This proposal, commonly known as a Asay on pay@ proposal gives shareholders the opportunity to endorse or not endorse the compensation of our named executive officers.  The proposal will be presented at the annual meeting in the form of the following resolution:

RESOLVED, that the shareholders approve the compensation of Timberland Bancorp, Inc.=s named executive officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables and related material in the Proxy Statement for the 2010 annual meeting of shareholders.

As provided under the ARRA, this vote will not be binding on our Board of Directors and may not be construed as overruling a decision by the Board.  The Compensation Committee and the Board may, however, take into account the outcome of the vote when considering future executive compensation arrangements.

Our executive compensation policies are designed to establish an appropriate relationship between executive pay and the annual and long-term performance of Timberland and Timberland Bank, to reflect the attainment of short- and long-term financial performance goals, to enhance our ability to attract and retain qualified executive officers, and to align to the greatest extent possible the interests of management and shareholders.  Our Board of Directors believes that our compensation policies and procedures achieve these objectives.  The Board of Directors unanimously recommends that you vote AFOR@ approval of the compensation of our named executive officers.


AUDIT COMMITTEE REPORT


The Audit Committee reports as follows with respect to Timberland=s audited financial statements for the fiscal year ended September 30, 2009:
19
    $  The Audit Committee has completed its review and discussion of the 2009 audited financial statements with management;

    $  
The Audit Committee has discussed with the independent auditor, McGladrey & Pullen, LLP, the matters required to be discussed by Statement on Auditing Standards (ASAS@) No. 61, Communication with Audit Committees, as amended, as adopted by the Public Company Accounting Oversight Board in Rule 3200T;

    $  
The Audit Committee has received written disclosures and the letter from the independent auditor required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor=s communications with the audit committee concerning independence, and has discussed with the independent auditor the independent auditor=s independence; and

    $  
The Audit Committee has, based on its review and discussions with management of the 2009 audited financial statements and discussions with the independent auditor, recommended to the Board of Directors that Timberland=s audited financial statements for the year ended September 30, 2009 be included in its Annual Report on Form 10-K.

The foregoing report is provided by the following directors, who constitute the Audit Committee considered whetherCommittee:

Audit Committee:                 Ronald A. Robbel, Chairman
David A. Smith
James C. Mason
Larry D. Goldberg

This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the providingSecurities Act of services (and1933 or the aggregate fees billed for those services) by McGladrey & Pullen, LLP, other than audit services, is compatible with maintaining the independenceSecurities Exchange Act of the independent auditor.1934, and shall not otherwise be deemed filed under such acts.

PROPOSAL 3 B

RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR

The Audit Committee operates under a written charter adopted by the Board of Directors.  In fulfilling its oversight responsibility of reviewing the services performed by Timberland'sTimberland=s independent auditor, the Committee carefully reviews the policies and procedures for the engagement of the independent auditor.  The Audit Committee also discussed with McGladrey & Pullen, LLP the overall scope and plans for the audit, and the results of its audit.  The Committee also reviewed and discussed with McGladrey & Pullen, LLP the fees paid, as described below.


        A representativeThe Audit Committee of the Board of Directors has selected McGladrey & Pullen, LLP as our independent auditor for the year ending September 30, 2010 and that selection is being submitted to shareholders for ratification.  Although ratification is not required by our Bylaws or otherwise, the Board is submitting the selection of McGladrey & Pullen, LLP to our shareholders for ratification as a matter of good corporate practice.  If the selection is expectednot ratified, the Audit Committee will consider whether it is appropriate to attendselect another registered public accounting firm.  Even if the selection is ratified, the Audit Committee in its discretion may select a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of Timberland and our shareholders.  McGladrey & Pullen, LLP served as our independent auditor for the year ended September 30, 2009 and a representative of the firm will be present at the annual meeting to respond to appropriate questions and will have an opportunity to make a statement if he or she so desires.


14The Board of Directors unanimously recommends that you vote A

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FOR@ the ratification of the appointment of McGladrey & Pullen, LLP as our independent auditor.


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The following table sets forth the aggregate fees billed to Timberland and Timberland Bank by McGladrey & Pullen, LLP for professional services rendered for the fiscal years ended September 30, 20062009 and 2005.

Year Ended
 September 30,
2006
2005
Audit Fees (1)$275,000    $246,000    
Audit-Related Fees (2)26,00032,000
Tax Fees (3)15,60011,600
      ____________2008.

 Year Ended
 September 30,
 2009 2008
Audit Fees (1)                                                                          $249,172
Audit-Related Fees (2)                                                                              11,500
Tax Fees (3)                                                                              15,856
___________    
(1)Includes fees for the annual audit and quarterly reviews of the consolidated financial statements. Also  includes fees related to compliance with Section 404 of the Sarbanes-Oxley Act of 2002, regarding Timberland'sour internal control over financial reporting.
(2)Includes fees for audits of Timberland'sour employee benefit plans.
(3)Includes fees for the preparationspreparation of federal tax returns.

Pre-approval Policy


The Audit Committee pre-approves all audit and permissible non-audit services to be provided by the independent auditor and the estimated fees for these services in connection with its annual review of its Charter.charter.  Pre-approval may be granted by action of the full Audit Committee or by delegated authority to one or more members of the Audit Committee.  If this authority is delegated, all approved non-audit services will be presented to the Audit Committee at its next meeting.  In considering non-audit services, the Audit Committee or its delegate will consider various factors, including but not limited to, whether it would be beneficial to have the service provided by the independent auditorsauditor and whether the service could compromise the independence of the independent auditors.auditor.  All of the services provided by McGladrey & Pullen, LLP described above were approved by the Audit Committee.


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

OTHER MATTERS
Section 16(a) of the Securities Exchange Act requires our directors and executive officers, and persons who own more than 10% of Timberland=s common stock to report their initial ownership of the common stock and any subsequent changes in that ownership to the SEC.  Directors, executive officers and greater than 10% shareholders are required by regulation to furnish us with copes of all Section 16(a) forms they file.  The SEC has established filing deadlines for these reports and we are required to disclose in this Proxy Statement any late filings or failures to file.  Based solely on our review of the copies of such forms we have received and written representations provided to us by the above referenced persons, we believe that, during the fiscal year ended September 30, 2009, all filing requirements applicable to our reporting officers, directors and greater than 10% shareholders were properly and timely complied with.

MISCELLANEOUS
The Board of Directors is not aware of any business to come before the Meetingannual meeting other than those matters described above in this Proxy Statement.  However, if any other matters should properly come before the Meeting,meeting, it is intended that proxies in the accompanying form will be voted in respect thereof in accordance with the judgment of the person or persons voting the proxies.

MISCELLANEOUS

Proxy Solicitation Costs


We will pay the cost of soliciting proxies.  In addition to this mailing, our directors, officers and employees may also solicit proxies personally, electronically or by telephone.telephone without additional compensation.  We will also reimburse brokers and other nominees for their expenses in sending these materials to you and obtaining your voting instructions. We have engaged Regan & Associates, Inc. to assist in distributing proxy materials and contacting record and beneficial owners of Timberland's common stock, and have agreed to pay a fee of $8,000, including out-of-pocket expenses, for its services to be rendered on behalf of Timberland.

Annual Reports and Financial Statements


Our annual report to shareholders, including financial statements, will be mailed on or about December 14, 200621, 2009 to all shareholders of record as of the close of business on the record date.  Any shareholder who has not received a copy of the annual report may obtain a copy by writing to the Corporate Secretary, Timberland Bancorp, Inc., 624 Simpson Avenue,

15

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Hoquiam, Washington 98550.  The annual report is not to be treated as part of the proxy solicitation material

21
or as having been incorporated herein by reference.

  In addition, a copy our Annual Report on Form 10-K for the fiscal year ended September 30, 20062009 is available to each record and beneficial owner of Timberland'sTimberland=s common stock without charge upon written request to the Corporate Secretary at the address given above.



SHAREHOLDER PROPOSALS

Proposals of shareholders intended to be presented at next year'syear=s annual of shareholders must be received at the executive office at624 Simpson Avenue,Avenue/P.O. Box 697, Hoquiam, Washington 98550,, no later than August 17, 2007.24, 2010.  Any such proposals shall be subject to the requirements of the proxy rules adopted under the Securities Exchange Act, and as with any shareholder proposal (regardless of whether included in our proxy materials), our articlesArticles of incorporationIncorporation and bylaws.Bylaws.


Our articlesArticles of incorporationIncorporation provide that in order for a shareholder to make nominations for the election of directors or proposals for business to be brought before a meeting, a shareholder must deliver notice of such nominations and/or proposals to the Corporate Secretary not less than 30 nor more than 60 days prior to the date of the meeting; provided that if less than 31 days'days= notice of the Meetingmeeting is given to shareholders, such written notice must be delivered not later than the close of the tenth day following the day on which notice of the meeting was mailed to shareholders.  We anticipate that, in order to be timely, shareholder nominations or proposals intended to be made at the annual meeting must be made by December 22, 2006.24, 2009.  As specified in the articlesArticles of incorporation,Incorporation, the notice with respect to nominations for election of directors must set forth certain information regarding each nominee for election as a director, including such person'sthe person=s name, age, business address and number of shares of common stock held, a written consent to being named in the proxy statementProxy Statement as a nominee and to serving as a director, if elected, and certain other information regarding the shareholder giving such notice.  The notice with respect to business proposals to be brought before the annual meeting must state the shareholder'sshareholder=s name, address and number of shares of common stock held, a brief discussion of the business to be brought before the annual meeting, the reasons for conducting such business at the meeting, and any interest of the shareholder in the proposal.

BY ORDER OF THE BOARD OF DIRECTORS
/s/Dean J. Brydon
DEAN J. BRYDON
CORPORATE SECRETARY


                                BY ORDER OF THE BOARD OF DIRECTORS

                                                    0;            

                                DEAN J. BRYDON
                                CORPORATE SECRETARY

Hoquiam, Washington
December 14, 2006

16

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21, 2009

22 

REVOCABLE PROXY
TIMBERLAND BANCORP, INC.


ANNUAL MEETING OF SHAREHOLDERS

JANUARY 23, 2007

26, 2010


The undersigned hereby appoints the official Proxy Committee of the Board of Directors of Timberland Bancorp, Inc. (ATimberland@) with full powers of substitution, as attorneys and proxies for the undersigned, to vote all shares of common stock of Timberland Bancorp, Inc. ("Company") which the undersigned is entitled to vote at the Annual Meetingannual meeting of Shareholders ("Meeting"),shareholders, to be held at the Hoquiam Timberland Library, located at 420 7th Street, Hoquiam, Washington, on Tuesday, January 23, 2007,26, 2010, at 1:00 p.m., local time, and at any and all adjournments thereof, as indicated.


FORWITHHELD
   VOTE
1.

FOR

WITHHELD
1.The election as director of the nominees listed below[   ][   ]
 listed below (except(except as marked to the
contrary below).  
    
 
Michael R. SandThree-year term:
  
 David A. SmithMichael R. Sand  
 Harold L. WarrenDavid A. Smith  
    
 
INSTRUCTIONS: To withhold your voteTwo-year term:
  
 for any individual nominee, write theLarry D. Goldberg 
nominee's name on the line below.
______________________________  
    
2.In their discretion, upon such other matters as mayINSTRUCTIONS:  To withhold your vote  
 for any individual nominee, write the
properly come beforenominee=s name on the meeting.line below.
  
    
 The Board of Directors recommends a vote "FOR" the above proposal.
  


FORAGAINSTABSTAIN
2.
Advisory approval of the compensation of Timberland Bancorp, Inc.=s named executive officers.
[   ][   ][   ]
3.
The ratification of the Audit Committee=s selection of McGladrey & Pullen, LLP as the independent auditor for the year ending September 30, 2010.
[   ][   ][   ]
3.In their discretion, upon such other matters as may properly come before the meeting.

The Board of Directors recommends a vote AFOR@ the listed propositions.

THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.This proxy will be voted as directed, but if no instructions are specified, this proxy will be voted for the proposition stated.  If any other business is presented at the annual meeting, this proxy will be voted by those named in this proxy in their best judgment.  At the present time, the Board of Directors knows of no other business to be presented at the meeting.

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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS


Should the undersigned be present and elect to vote at the Meetingannual meeting or at any adjournment thereof and after notification to the Corporate Secretary of the CompanyTimberland at the Meetingmeeting of the shareholder'sshareholder=s decision to terminate this proxy, then the power of said attorneys and proxies shall be deemed terminated and of no further force and effect.


The undersigned acknowledges receipt from the CompanyTimberland prior to the execution of this proxy of the Notice of Annual Meeting of Shareholders, a Proxy Statement for the Annual Meetingannual meeting of Shareholders,shareholders, and the 20062009 Annual Report to Shareholders.



Dated: ___________________________, ______

______________________________



__________________________________________________________________________________________________________________________________
PRINT NAME OF SHAREHOLDERPRINT NAME OF SHAREHOLDER


________________________________________________________________________
__________________________________________________________
SIGNATURE OF SHAREHOLDERSIGNATURE OF SHAREHOLDER





Please sign exactly as your name appears on this proxy card.proxy.  When signing as attorney, executor, administrator, trustee or guardian, please give your full title. If shares are held jointly, each holder should sign.

  When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such.  If signer is a partnership, please sign in partnership name by authorized person.


Please complete, date, sign and mail this proxy promptly in the enclosed postage-paid envelope.


PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.

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