Timberland Bancorp Earns $0.08 per Share in Fiscal Third Quarter

"Our fiscal third quarter performance demonstrates the progress we have made during the past few quarters toward improving the risk profile of the Bank. Asset quality, asset mix, deposit mix and our already strong Risk Based Capital ratios improved during the quarter," stated Michael Sand, the Company’s President and CEO. "We have relentlessly reduced our exposure to speculative single family construction loans which at June 30, 2010, comprised less than 1% of the total loan portfolio. Total construction credits at June 30, 2010, exclusive of our owner builder segment, represented less than 7% of our loan portfolio," Sand also stated. "Loan demand remained soft during the quarter which is reflected by a 1% reduction in net loans receivable at quarter end relative to the end of the prior quarter. We were also pleased to have completed our annual regulatory examination," added Sand.

Capital Ratios and Asset Quality

Timberland Bancorp remains very well capitalized with a total risk-based capital ratio of 15.96%, a Tier 1 leverage capital ratio of 11.15% and a tangible capital to tangible assets ratio of 10.94% at June 30, 2010.

The NPAs to total assets ratio decreased to 5.12% at June 30, 2010 from 5.95% at March 31, 2010. "We charged off a total of $6.5 million in loans in the third fiscal quarter. This total included $5.1 million of previously identified impairments that were provisioned for in prior quarters. Due to improving credit metrics and appropriate provisioning in prior periods for potential charge-offs, a $750,000 provision for the quarter was appropriate based on our detailed allowance for loan loss analysis," Sand stated. The allowance for loan losses of $10.9 million represented 2.00% of loans receivable and loans held for sale at June 30, 2010. Net charge-offs for the quarter ended June 30, 2010 totaled $6.5 million compared to $3.4 million for the quarter ended March 31, 2010 and $609,000 for the quarter ended June 30, 2009.

NPLs decreased 20% to $21.0 million at June 30, 2010 from $26.4 million at March 31, 2010 and were comprised of 66 loans and 44 credit relationships. NPLs were comprised of the following at June 30, 2010:

* Seven commercial real estate loans totaling $4.96 million (of which the largest had a balance of $2.84 million)
* 22 land loans totaling $4.85 million (of which the largest had a balance of $835,000)
* 12 single family home loans totaling $3.46 million (of which the largest had a balance of $722,000)
* Seven land development loans totaling $3.21 million (of which the largest had a balance of $1.49 million)
* Seven single family speculative home loans totaling $2.08 million (of which the largest had a balance of $767,000)
* Two condominium construction loans totaling $1.93 million (of which the largest had a balance of $1.60 million)
* One single family construction loan with a balance of $274,000
* Four home equity loans totaling $114,000
* Two commercial business loans totaling $98,000
* Two consumer loans totaling $62,000

Net charge-offs totaled $6.54 million during the quarter ended June 30, 2010 and were comprised of the following:

* $3.99 million on six land development loans (of which $3.57 million had already been specifically reserved for in previous quarters)
* $1.74 million on 14 land loans (of which $1.37 million had already been specifically reserved for in previous quarters)
* $189,000 on two commercial real estate properties
* $176,000 on two multi-family construction loans
* $144,000 on home equity and consumer loans
* $133,000 on three single family construction loans
* $116,000 on three single family loans
* $47,000 on two single family speculative construction loans

Other real estate owned ("OREO") and other repossessed items decreased to $12.96 million at June 30, 2010 from $13.48 million at March 31, 2010. At June 30, 2010 the OREO portfolio consisted of 28 individual properties and two other repossessed assets. The properties consisted of two condominium projects totaling $3.9 million, three land development projects totaling $3.6 million, ten single family homes totaling $2.9 million, ten land parcels totaling $1.3 million and three commercial real estate properties totaling $1.3 million. During the quarter ended June 30, 2010 seven OREO properties and three other repossessed assets totaling $1.1 million were sold for a net book gain of $73,000. In addition to these sales, 23 residential building lots were closed in the Clark County, Washington OREO subdivision during the quarter ended June 30, 2010 with three pending sales at quarter end. The Bank has a 12.5% participation interest in the plat. Also at quarter end, there were eight pending sales in the Bank’s Richland, Washington OREO plat with four sales closing during the quarter.

Balance Sheet Management

Total assets increased 1% to $732.4 million at June 30, 2010 from $724.8 million at March 31, 2010. The increase in total assets was primarily the result of a $16.9 million increase in cash equivalents and certificates of deposits ("CDs") held for investment, which was partially offset by a decrease in net loans receivable. "We continue to build and maintain a high level of liquidity, both on balance sheet and through off-balance sheet sources," said Dean Brydon, Chief Financial Officer. Liquidity as measured by cash equivalents, CDs held for investment and available for sale investments increased to 18.9% of total liabilities at June 30, 2010 from 16.5% at March 31, 2010 and 9.9% one year ago.

Net loans receivable decreased 1% to $533.1 million at June 30, 2010 from $538.7 million at March 31, 2010. "The mix of loans in our portfolio continues to improve," said Brydon. "Overall, we have reduced our total exposure to construction and land development loans by 34% during the last quarter and by 53% from one year ago." During the current quarter the one-to-four family speculative construction portfolio decreased by 50%, the land development portfolio decreased by 49% and the multi-family construction portfolio decreased by 35%.

LOAN PORTFOLIO
($ in thousands)    June 30, 2010      March 31, 2010       June 30, 2009
                  Amount   Percent    Amount   Percent    Amount   Percent
                 -------- ---------  -------- ---------  -------- ---------
Mortgage Loans:
  One-to-four
   family        $116,805       21%  $113,295       20%  $110,338       19%
  Multi-family     33,127        6     33,236        6     25,702        4
  Commercial      215,336       38    198,171       34    178,941       30
  Construction
   and land
   development     66,248       12    100,938       18    142,006       24
  Land             63,684       11     63,856       11     65,736       11
                 -------- ---------  -------- ---------  -------- ---------
    Total mortgage
     loans        495,200       88    509,496       89    522,723       88

Consumer Loans:
  Home equity
   and second
   mortgage        39,215        7     39,303        7     41,950        7
  Other             9,514        2      9,477        1     10,107        2
                 -------- ---------  -------- ---------  -------- ---------
    Total
     consumer
     loans         48,729        9     48,780        8     52,057        9

Commercial
 business loans    18,114        3     18,173        3     15,199        3
                 -------- ---------  -------- ---------  -------- ---------
Total loans       562,043      100%   576,449      100%   589,979      100%
Less:
  Undisbursed
   portion of
   construction
   loans in
   process        (15,780)            (18,824)            (29,447)
  Unearned income  (2,232)             (2,286)             (2,326)
  Allowance for
   loan losses    (10,900)            (16,687)            (12,440)
                 --------            --------            --------
Total loans
 receivable, net $533,131            $538,652            $545,766
                 ========            ========            ========




CONSTRUCTION LOAN
 COMPOSITION
($ in thousands)    June 30, 2010      March 31, 2010       June 30, 2009
                           Percent             Percent             Percent
                           of Loan             of Loan             of Loan
                  Amount  Portfolio   Amount  Portfolio   Amount  Portfolio
                 -------- ---------  -------- ---------  -------- ---------
Custom and
 owner / builder $ 29,080        5%  $ 29,101        5%  $ 34,373        6%
Speculative         5,071        1     10,070        2     19,332        3
Commercial real
 estate            20,363        4     40,369        7     42,056        7
Multi-family
 (including
 condominium)       4,014        1      6,135        1     25,631        4
Land development    7,720        1     15,263        3     20,614        4
                 -------- ---------  -------- ---------  -------- ---------
  Total
   construction
   and land
   development
   loans         $ 66,248       12%  $100,938       18%  $142,006       24%
                 ======== =========  ======== =========  ======== =========

 

Total loan originations were $36.5 million for the quarter ended June 30, 2010 compared to $42.6 million for the preceding quarter and $94.8 million for the comparable quarter one year ago. Timberland continues to sell fixed rate one-to-four family mortgage loans into the secondary market for asset-liability management purposes and to generate non-interest income. During the quarter ended June 30, 2010, $11.4 million one-to-four family fixed-rate mortgage loans were sold on the secondary market compared to $13.5 million for the preceding quarter and $69.6 million for the quarter ended one year ago.

Timberland’s mortgage-backed securities and other investments decreased by $1.0 million during the quarter to $17.2 million at June 30, 2010 from $18.2 million at March 31, 2010, primarily as a result of prepayments, regular amortization and impairment related write-downs. During the quarter ended June 30, 2010, other-than-temporary-impairment ("OTTI") credit related write-downs and realized losses of $152,000 were recorded on the private label mortgage-backed securities that were acquired in the in-kind redemption from the AMF family of mutual funds in June 2008. At June 30, 2010 the Bank’s remaining private label mortgage-backed securities portfolio had been reduced to $5.4 million from an original acquired balance of $15.3 million.

 

DEPOSIT BREAKDOWN
($ in thousands)    June 30, 2010      March 31, 2010       June 30, 2009
                  Amount   Percent    Amount   Percent    Amount   Percent
                 -------- ---------  -------- ---------  -------- ---------
Non-interest
 bearing         $ 52,018        9%    49,870        9%  $ 50,153       10%
N.O.W. checking   154,753       27    141,119       26    102,186       21
Savings            66,134       12     64,800       12     56,303       11
Money market       54,506       10     57,716       10     61,992       13
Certificates of
 deposit
 under $100       148,864       26    144,957       26    140,924       29
Certificates of
 deposit $100
 and over          91,710       16     89,262       16     75,861       16
Certificates of
 deposit -
 brokered              --       --      4,000        1         --       --
                 -------- ---------  -------- ---------  -------- ---------
  Total deposits $567,985      100%  $551,724      100%  $487,419      100%
                 ======== =========  ======== =========  ======== =========

 

Total deposits increased by 3% to $568.0 million at June 30, 2010, from $551.7 million at March 31, 2010 primarily as a result of a $13.6 million increase in N.O.W. checking account balances, a $2.1 million increase in non-interest bearing account balances, a $6.4 million increase in CD account balances and a $1.3 million increase in savings account balances. These increases were partially offset by a $3.2 million decrease in money market account balances.

Total shareholders’ equity increased $810,000 to $85.68 million at June 30, 2010, from $84.87 million at March 31, 2010. The increase in equity was primarily a result of net income for the quarter and a reduction in the accumulated other comprehensive loss equity component. Timberland continues to remain very well capitalized with a total risk based capital ratio of 15.96% and a Tier 1 leverage capital of 11.15%. Book value per common share was $9.93 and tangible book value per common share was $9.04 at June 30, 2010.

Operating Results

Fiscal third quarter operating revenue (net interest income before provision for loan losses, plus non-interest income excluding OTTI charges), increased 1% to $8.5 million from $8.4 million for the immediately prior quarter and decreased 6% compared to $9.0 million in the comparable quarter one year ago. The decrease in operating revenue from the comparable quarter one year ago was primarily the result of a decrease in gains on sale of loans as mortgage banking activity slowed. For the first nine months of fiscal 2010, operating revenue decreased 5% to $25.6 million compared to $26.9 million for the first nine months of fiscal 2009 primarily due to a decrease in gains on sale of loans. Also affecting the comparison to the first nine months of fiscal 2009 was a $134,000 non-recurring gain on the Bank’s investment in bank owned life insurance ("BOLI") recorded during the quarter ended March 31, 2009.

Net interest income before the provision for loan losses increased to $6.39 million for the quarter ended June 30, 2010, from $6.20 million for the comparable quarter one year ago with interest and dividend income decreasing by 5% and interest expense decreasing by 21%. The increase in net interest income was primarily due to a decrease in funding costs and an increased level of average interest earnings assets for the current quarter. In spite of the challenging interest rate environment and elevated liquidity levels, Timberland’s net interest margin remained strong at 3.85% for the current quarter compared to 3.93% for the quarter ended March 31, 2010 and 3.86% for the quarter one year ago. The net interest margin was reduced by approximately eight basis points for the quarter ended June 30, 2010 by the reversal of interest income on loans placed on non-accrual during the quarter. For the first nine months of fiscal 2010, net interest income before the provision for loan losses increased 1% to $19.2 million compared to $19.1 million for the first nine months of fiscal 2009. Timberland’s net interest margin for the first nine months of fiscal 2010 was 3.91% compared to 4.03% for the first nine months of fiscal 2009.

Timberland recorded a $750,000 provision to its allowance for loan losses for the quarter ended June 30, 2010, compared to $5.2 million in the preceding quarter and $1.0 million in the comparable quarter one year prior. Net charge-offs during the current quarter exceeded the quarterly provision expense primarily due to the charge-off of $5.1 million in impairments previously identified and factored into prior quarters’ provisions. Net charge-offs for the quarter ended June 30, 2010 totaled $6.5 million compared to $3.4 million for the quarter ended March 31, 2010 and $609,000 for the quarter ended June 30, 2009. For the first nine months of fiscal 2010, the provision for loan losses totaled $8.5 million compared to $7.5 million in the first nine months of fiscal 2009. Year to date, net charge-offs were $11.8 million compared to $3.0 million in the first nine months of fiscal 2009.

Total operating (non-interest) expenses increased 1% to $6.42 million for the third fiscal quarter from $6.37 million from the comparable quarter one year ago and decreased 4% from $6.69 million for the immediately prior quarter. Year to date, total operating expenses increased 7% to $18.61 million from $17.35 million for the first nine months of fiscal 2009. Increased insurance expenses (FDIC and D&O), increased OREO expenses and increased salaries and employee benefits expenses accounted for the majority of the increased expense.

About Timberland Bancorp, Inc. Timberland Bancorp, Inc., a Washington corporation, is the holding company for Timberland Bank ("Bank"). The Bank opened for business in 1915 and serves consumers and businesses across Grays Harbor, Thurston, Pierce, King, Kitsap and Lewis counties, Washington with a full range of lending and deposit services through its 22 branches (including its main office in Hoquiam).

Disclaimer Certain matters discussed in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact and often include the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future performance. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results anticipated, including, but not limited to: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets and may lead to increased losses and non-performing assets in our loan portfolio, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our reserves; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to sell loans in the secondary market; results of examinations of us by the Federal Reserve and our bank subsidiary by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; our compliance with regulatory enforcement actions, including regulatory memoranda of understandings ("MOUs") to which we are subject; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules; our ability to attract and retain deposits; further increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; computer systems on which we depend could fail or experience a security breach; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, the interpretation of regulatory capital or other rules and any changes in the rules applicable to institutions participating in the TARP Capital Purchase Program; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations; pricing, products and services; and other risks detailed in our reports filed with the Securities and Exchange Commission.

Any of the forward-looking statements that we make in this press release and in the other public statements we make are based upon management’s beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. We caution readers not to place undue reliance on any forward-looking statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2010 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of us, and could negatively affect the Company’s operations and stock price performance.

 

TIMBERLAND BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
($ in thousands, except per share amounts)
(unaudited)
                                                Three Months Ended
                                         June 30,    March 31,   June 30,
                                           2010        2010        2009
                                         ---------   ---------   ---------
  Interest and dividend income
  Loans receivable                       $   8,764   $   8,832   $   9,240
  Mortgage-backed securities and other
   investments                                 239         239         322
  Dividends from mutual funds                    9           9           9
  Federal funds sold                            --          --           8
  Interest bearing deposits in banks            90          77          32
                                         ---------   ---------   ---------
     Total interest and dividend income      9,102       9,157       9,611

  Interest expense
  Deposits                                   1,951       1,958       2,440
  FHLB advances and other borrowings           760         753         979
                                         ---------   ---------   ---------
     Total interest expense                  2,711       2,711       3,419
                                         ---------   ---------   ---------
     Net interest income                     6,391       6,446       6,192

  Provision for loan losses                    750       5,195       1,000
                                         ---------   ---------   ---------
     Net interest income after
      provision for loan losses              5,641       1,251       5,192

  Non-interest income
  OTTI loss, net                              (152)     (1,556)       (125)
  Realized loss on investment securities        --          (1)         --
  Service charges on deposits                1,066       1,022       1,066
  Gain on sale of loans, net                   238         300       1,170
  Bank owned life insurance ("BOLI")
   net earnings                                120         115         123
  Servicing income on loans sold                32          25          20
  Valuation recovery (allowance)
   on mortgage servicing rights ("MSRs")        22         (22)       (169)
  ATM transaction fees                         439         386         326
  Other                                        176         161         263
                                         ---------   ---------   ---------
     Total non-interest income               1,941         430       2,674

  Non-interest expense
  Salaries and employee benefits             3,117       2,921       2,919
  Premises and equipment                       717         702         719
  Advertising                                  235         220         252
  OREO and other repossessed items
   expense, net                                373         344         391
  ATM expenses                                 164         171         162
  FDIC insurance                               317         806         400
  Postage and courier                          130         142         203
  Amortization of core deposit
   intangible                                   48          48          54
  State and local taxes                        159         153         152
  Professional fees                            193         196         199
  Other                                        969         989         922
                                         ---------   ---------   ---------
     Total non-interest expense              6,422       6,692       6,373
                                         ---------   ---------   ---------

  Income (loss) before income taxes          1,160      (5,011)      1,493
  Provision (benefit) for income taxes         356      (1,833)        435
                                         ---------   ---------   ---------
     Net income (loss)                   $     804   $  (3,178)  $   1,058
                                         =========   =========   =========

  Preferred stock dividends accrued      $     208   $     208   $     210
  Preferred stock discount accretion            53          52          79
                                         ---------   ---------   ---------
  Net income (loss) to common
   shareholders                          $     543   $  (3,438)  $     769
                                         =========   =========   =========

  Earnings (loss) per common share:
     Basic                               $    0.08   $   (0.51)  $    0.12
     Diluted                             $    0.08   $   (0.51)  $    0.12
  Weighted average common shares
   outstanding:
     Basic                               6,715,410   6,713,958   6,645,229
     Diluted                             6,715,410   6,713,958   6,645,229





TIMBERLAND BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
($ in thousands, except per share)
(unaudited)
                                                      Nine Months Ended
                                                     June 30,    June 30,
                                                       2010        2009
                                                     ---------   ---------
Interest and dividend income
Loans receivable                                     $  26,661   $  28,229
Mortgage-backed securities and other investments           695       1,081
Dividends from mutual funds                                 27          29
Federal funds sold                                          --          36
Interest bearing deposits in banks                         218          62
                                                     ---------   ---------
   Total interest and dividend income                   27,601      29,437

Interest expense
Deposits                                                 5,986       7,321
FHLB advances and other borrowings                       2,387       3,043
                                                     ---------   ---------
   Total interest expense                                8,373      10,364
                                                     ---------   ---------
   Net interest income                                  19,228      19,073

Provision for loan losses                                8,545       7,491
                                                     ---------   ---------
   Net interest income after provision
    for loan losses                                     10,683      11,582

Non-interest income
OTTI loss, net                                          (2,028)     (2,288)
Realized loss on investment securities                     (17)         --
Service charges on deposits                              3,218       3,224
Gain on sale of loans, net                                 987       2,471
BOLI net earnings                                          369         501
Servicing income on loans sold                              86          76
Valuation allowance on MSRs                                 --        (169)
ATM transaction fees                                     1,187         920
Other                                                      538         756
                                                     ---------   ---------
   Total non-interest income                             4,340       5,491

Non-interest expense
Salaries and employee benefits                           9,019       8,818
Premises and equipment                                   2,120       2,079
Advertising                                                626         672
OREO and other repossessed items expense, net              767         552
ATM expenses                                               490         448
FDIC insurance                                           1,323         586
Postage and courier                                        400         448
Amortization of core deposit intangible                    143         163
State and local taxes                                      453         449
Professional fees                                          561         547
Other                                                    2,710       2,589
                                                     ---------   ---------
   Total non-interest expense                           18,612      17,351
                                                     ---------   ---------

Loss before income taxes                                (3,589)       (278)
Benefit for income taxes                                (1,439)       (305)
                                                     ---------   ---------
   Net income (loss)                                 $  (2,150)  $      27
                                                     =========   =========

Preferred stock dividends accrued                    $     624   $     437
Preferred stock discount accretion                         156          79
                                                     ---------   ---------
Net loss to common shareholders                      $  (2,930)  $    (489)
                                                     =========   =========

Loss per common share:
   Basic                                             $   (0.44)  $   (0.07)
   Diluted                                           $   (0.44)  $   (0.07)
Weighted average common shares outstanding:
   Basic                                             6,713,103   6,609,915
   Diluted                                           6,713,103   6,609,915





TIMBERLAND BANCORP, INC.
CONSOLIDATED BALANCE SHEET
($ in thousands, except per share amounts) (unaudited)

                                         June 30,    March 31,   June 30,
                                           2010        2010        2009
Assets                                   ---------   ---------   ---------
Cash equivalents:
   Cash and due from financial
    institutions                         $  11,748   $   9,883   $  12,118
   Interest-bearing deposits in
    other banks                             83,507      65,574      31,853
                                         ---------   ---------   ---------
                                            95,255      75,457      43,971

Certificate of deposits ("CDs") held
 for investment, at cost                    15,188      18,108          --
Mortgage-backed securities and other
 investments:
   Held to maturity, at amortized cost       5,604       5,982      10,196
   Available for sale, at fair value        11,578      12,225      13,898
FHLB stock                                   5,705       5,705       5,705
                                         ---------   ---------   ---------
                                            22,887      23,912      29,799

Loans receivable                           542,577     554,880     555,961
Loans held for sale                          1,454         459       2,245
Less: Allowance for loan losses            (10,900)    (16,687)    (12,440)
                                         ---------   ---------   ---------
Net loans receivable                       533,131     538,652     545,766

Premises and equipment                      17,529      17,751      18,174
OREO and other repossessed items            12,957      13,477       7,698
BOLI                                        13,278      13,158      13,403
Accrued interest receivable                  2,709       2,996       2,918
Goodwill                                     5,650       5,650       5,650
Core deposit intangible                        612         659         809
Mortgage servicing rights, net               2,683       2,678       2,366
Prepaid FDIC insurance assessment            3,569       3,863          --
Other assets                                 6,970       8,415       4,938
                                         ---------   ---------   ---------
Total Assets                             $ 732,418   $ 724,776   $ 675,492
                                         =========   =========   =========

Liabilities and Shareholders' Equity
Non-interest-bearing deposits            $  52,018   $  49,870   $  50,153
Interest-bearing deposits                  515,967     501,854     437,266
                                         ---------   ---------   ---------
   Total deposits                          567,985     551,724     487,419

FHLB advances                               75,000      75,000      95,000
Federal Reserve Bank of San Francisco
 advances                                       --      10,000          --
Repurchase agreements                          713         445         666
Other liabilities and accrued expenses       3,041       2,738       3,652
                                         ---------   ---------   ---------
Total Liabilities                          646,739     639,907     586,737
                                         ---------   ---------   ---------

Shareholders' Equity
Preferred stock - $.01 par value;
 1,000,000 shares authorized;               15,710      15,657      15,487
 16,641 shares, Series A, issued and
 outstanding
 Series A shares: $1,000 per share
 liquidation value
Common stock - $.01 par value;
 50,000,000 shares authorized;              10,373      10,357      10,328
 7,045,036 shares issued and
 outstanding
Unearned shares - Employee Stock
 Ownership Plan                             (2,313)     (2,379)     (2,578)
Retained earnings                           62,641      62,098      66,802
Accumulated other comprehensive loss          (732)       (864)     (1,284)
                                         ---------   ---------   ---------
Total Shareholders' Equity                  85,679      84,869      88,755
                                         ---------   ---------   ---------
Total Liabilities and Shareholders'
 Equity                                  $ 732,418   $ 724,776   $ 675,492
                                         =========   =========   =========





KEY FINANCIAL RATIOS AND DATA
($ in thousands, except per share amounts) (unaudited)


                                                Three Months Ended
                                         ---------------------------------
                                         June 30,    March 31,   June 30,
                                           2010        2010        2009
                                         ---------   ---------   ---------
PERFORMANCE RATIOS:
Return (loss) on average assets (a)           0.45%      (1.78)%      0.61%
Return (loss) on average equity (a)           3.78%     (14.56)%      4.79%
Net interest margin (a)                       3.85%       3.93%       3.86%
Efficiency ratio                             77.08%      97.32%      71.88%
Core efficiency ratio (b)                    70.92%      68.46%      64.72%


                                                Nine Months Ended
                                         ---------------------------------
                                         June 30,                June 30,
                                           2010                    2009
                                         ---------               ---------
Return (loss) on average assets (a)          (0.40)%                  0.01%
Return (loss) on average equity (a)          (3.31)%                  0.04%
Net interest margin (a)                       3.91%                   4.03%
Efficiency ratio                             78.97%                  70.64%
Core efficiency ratio (b)                    67.11%                  61.57%


                                         June 30,    March 31,   June 30,
                                           2010        2010        2009
                                         ---------   ---------   ---------
ASSET QUALITY RATIOS:
Non-performing loans                     $  21,031   $  26,351   $  25,113
Non-performing investment securities         3,482       3,262         175
OREO and other repossessed assets           12,957      13,477       7,698
                                         ---------   ---------   ---------
Total non-performing assets              $  37,470   $  43,090   $  32,986
                                         =========   =========   =========

Non-performing assets to total
 assets (c)                                   5.12%       5.95%       4.88%
Allowance for loan losses to
 non-performing loans                           52%         63%         50%
Allowance for loan losses to
 net loans receivable                         2.00%       3.00%         --
Troubled debt restructured loans (d)     $  14,359   $  18,623   $      --
Past due 90 days and still accruing      $   1,198   $   5,216   $     830

CAPITAL RATIOS:
Tier 1 leverage capital                      11.15%      11.27%      12.30%
Tier 1 risk based capital                    14.70%      14.04%      14.93%
Total risk based capital                     15.96%      15.31%      16.19%
Tangible capital to tangible assets          10.94%      10.93%      12.30%

BOOK VALUES:
Book value per common share              $    9.93   $    9.82   $   10.39
Tangible book value per common
 share (e)                               $    9.04   $    8.93   $    9.33


(a)  Annualized
(b)  Calculation excludes OTTI losses, OREO expenses, realized losses on
     investment securities, valuation allowance / recovery on MSRs and
     amortization of CDI. For the nine-month period ending June 30, 2010
     the non-recurring FDIC insurance expense accrual adjustment ($512)
     has also been excluded.
(c)  Non-performing assets include non-accrual loans, non-accrual
     investment securities, and other real estate owned and other
     repossessed assets
(d)  At June 30, 2010, $5,464 of the $14,359 in troubled debt
     restructured loans were on non-accrual status and included in
     non-performing loans.  At March 31, 2010, $10,265 of the $18,623 in
     troubled debt restructured loans were on non-accrual status and
     included in total non-performing loans.
(e)  Calculation subtracts goodwill and core deposit intangible from the
     equity component





AVERAGE BALANCE SHEET:

                                                Three Months Ended
                                         ---------------------------------
                                         June 30,    March 31,   June 30,
                                           2010        2010        2009
                                         ---------   ---------   ---------
Average total loans                      $ 552,055   $ 562,335   $ 562,105
Average total interest-earning
 assets (a)                                663,511     655,357     641,468
Average total assets                       721,001     712,205     688,411
Average total interest-bearing
 deposits                                  508,185     496,148     450,974
Average FHLB advances and other
 borrowings                                 75,859      76,561      95,612
Average shareholders' equity                85,101      87,333      88,433


                                                Nine Months Ended
                                         ---------------------------------
                                         June 30,                June 30,
                                           2010                    2009
                                         ---------               ---------
Average total loans                      $ 558,586               $ 565,274
Average total interest-earning
 assets (a)                                655,847                 630,421
Average total assets                       711,551                 676,809
Average total interest-bearing
 deposits                                  492,999                 438,762
Average FHLB advances and other
 borrowings                                 79,352                  97,954
Average shareholders' equity                86,732                  85,445


(a)  Includes loans on non-accrual status

 

Contact:
Michael R. Sand,
President & CEO
Dean J. Brydon
CFO
(360) 533-4747
www.timberlandbank.com

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