Timberland Bancorp (TSBK) 8-K Timberland Bancorp Reports EPS of $0.16 for Fiscal Third Quarter 2012

Exhibit 99.1

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

Timberland Bancorp Reports EPS of $0.16 for Fiscal Third Quarter 2012

Net Interest Margin Increases, Credit Quality Improves, Capital Ratios Remain Strong

HOQUIAM, WA – July 24, 2012- Timberland Bancorp, Inc. (NASDAQ: TSBK) (“Timberland” or “the Company”) today reported fiscal 2012 third quarter net income of $1.35 million.  Net income available to common shareholders, after adjusting for the preferred stock dividend and the preferred stock discount accretion was $1.08 million, or $0.16 per diluted common share.  This compares to net income to common shareholders of $541,000, or $ 0.08 per diluted common share, for the quarter ended March 31, 2012 and a net loss to common shareholders of  $(1.55 million), or $(0.23) per diluted common share, for the quarter ended June 30, 2011.

Net income for the first nine months of fiscal 2012 of $3.44 million is a significant increase over the net income of $1.16 million recorded for the first nine months of fiscal 2011.  Net income available to common shareholders for the first nine months of fiscal 2012 after the preferred stock dividends and the preferred stock discount accretion was $2.64 million, or $0.39 per diluted common share, compared to $370,000, or $0.05 per diluted common share, in the like period one year ago.

“The continuation of a low interest rate environment presents challenges to the banking industry, however we noted significant improvements in a number of operational metrics this quarter,” stated Michael R. Sand, President and CEO.  “Net interest margin increased, credit costs declined, the efficiency ratio improved and net income significantly increased compared to the prior quarter and fiscal year to date.  Our employees continue to compete effectively in an extremely competitive environment which shows little near term signs of abating.  Demand for portfolio loans remains less than robust although the market for one- to four-family refinance mortgage loans continues to be strong.”

Fiscal Third Quarter 2012 Highlights (at or for the period ended June 30, 2012, compared to March 31, 2012, or June 30, 2011):

·   Net income increased to $1.35 million compared to $808,000 for the preceding quarter and a net loss of $(1.28 million) for the comparable quarter one year ago ;

·   Earnings per diluted common share increased to $0.16 from $0.08 for the preceding quarter and from a loss of $(0.23) for the comparable quarter one year ago;

·   Net interest margin increased to 3.96% compared to 3.72% for the preceding quarter and 3.76% for the comparable quarter one year ago;

·   Total delinquent and non-accrual loans decreased 21% during the quarter and 23% year-over-year;

·   The non-performing asset ratio improved to 5.14%;

·   Efficiency ratio improved to 67.98% compared to 74.97% for the preceding quarter and 82.98% for the comparable quarter one year ago;

·   Capital levels remain very strong: Total Risk Based Capital of 16.85%; Tier 1 Leverage Capital Ratio of 11.59%; Tangible Capital to Tangible Assets Ratio of 11.52%; and

·   Book value per common share increased to $10.38, and tangible book value per common share increased to $9.53 at quarter end.

Capital Ratios and Asset Quality

Timberland Bancorp remains very well capitalized with a total risk-based capital ratio of 16.85%, a Tier 1 leverage capital ratio of 11.59% and a tangible capital to tangible assets ratio of 11.52% at June 30, 2012.  On May 21, 2012 Timberland received approval and paid $1.0 million in dividends on the preferred shares issued to the U.S. Treasury in December 2008.  On July 16, 2012 Timberland requested permission from the Federal Reserve to pay the remaining accrued dividends of $1.19 million to

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the U.S. Treasury and is currently awaiting a response.  The payment of such dividends does not reduce Timberland’s reported capital ratios since appropriate accruals for the dividends were recorded in the current and prior quarters.

Timberland provisioned $900,000 to its loan loss allowance during the quarter ended June 30, 2012 compared to $1.05 million in the preceding quarter and $3.40 million in the comparable quarter one year ago.  Net charge-offs for the quarter totaled $1.56 million, of which $1.08 million had been previously classified as impairments and specifically reserved for in previous quarters.

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased 21% to $34.7 million at June 30, 2012 from $44.0 million at March 31, 2012 and decreased 23% from $45.0 million one year ago.  The non-performing assets to total assets ratio was 5.14% at June 30, 2012 compared to 5.40% three months earlier and 5.53% one year ago.

Non-accrual loans totaled $24.0 million at June 30, 2012 and were comprised of 57 loans and 50 credit relationships. By category: 41% of non-accrual loans are secured by land and land development properties; 38% are secured by commercial properties; 18% are secured by residential properties; and 3% are secured by residential construction projects.

Other real estate owned (“OREO”) and other repossessed assets increased by $2.0 million to $10.0 million at June 30, 2012 from $8.0 million at March 31, 2012 and decreased from $11.0 million at June 30, 2011.  The conversion of non-performing loans to OREO moves the assets closer to final resolution.  The OREO portfolio consisted of 56 individual properties and two other repossessed assets at June 30, 2012.  The properties consisted of 38 land parcels totaling $5.2 million, 12 single family homes totaling $1.5 million, five commercial real estate properties totaling $2.4 million and a condominium project of $842,000.  The two other repossessed assets totaled $44,000.  During the quarter ended June 30, 2012, nine OREO properties and other repossessed assets totaling $739,000 were sold for a net gain of $34,000.

Balance Sheet Management

Total assets decreased by $13.6 million, or 2%, to $729.1 million at June 30, 2012 from $742.7 million at March 31, 2012.  The decrease in total assets was primarily due to a $14.2 million decrease in total deposits which reduced the amount of assets held in overnight funds and contributed to an increased net interest margin.

Liquidity as measured by cash and cash equivalents, CDs held for investment and available for sale investments was 18.9% of total liabilities at June 30, 2012 compared to 20.9% at March 31, 2012 and 21.6% one year ago.

Net loans receivable increased $2.2 million to $537.2 million at June 30, 2012 from $535.0 million at March 31, 2012.  The increase was primarily due to a $7.4 million increase multi-family loan balances, a $4.1 million increase in one-to four-family loan balances and $3.2 million increase in commercial real estate loan balances.  These increases to net loans receivable were partially offset by an $8.4 million decrease in construction and land development loan balances, a $3.3 million decrease in land loan balances and an $829,000 decrease in commercial business loan balances.

Timberland continued to reduce its exposure to land development and land loans during the quarter.  Land development loan balances decreased to $609,000 at June 30, 2012, a 38% decrease from the preceding quarter and a 76% decrease year-over-year.  The Bank’s land loan portfolio decreased to $41.3 million at June 30, 2012, a 7% decrease from the preceding quarter and an 18% decrease year-over-year.  The well diversified land loan portfolio consists of 331 loans on a variety of land types including individual building lots, acreage, raw land and commercially zoned properties.  The average loan balance for the entire land portfolio was approximately $125,000 at June 30, 2012.

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LOAN PORTFOLIO

	June 30, 2012						March 31, 2012						June 30, 2011
($ in thousands)	Amount			Percent			Amount			Percent			Amount			Percent
Mortgage Loans:
One-to four-family	$	109,624			19	%	$	105,570			19	%	$	112,838			20	%
Multi-family		38,146			7			30,745			5			31,058			6
Commercial		258,545			46			255,327			46			229,800			41
Construction and land
Development		48,639			9			57,069			10			68,017			12
Land		41,273			7			44,553			8			50,238			9
Total mortgage loans		496,227			88			493,264			88			491,951			88
Consumer Loans:
Home equity and second
Mortgage		34,080			6			33,979			6			36,991			7
Other		6,413			1			6,234			1			8,226			1
Total consumer loans		40,493			7			40,213			7			45,217			8
Commercial business loans		26,052			5			26,881			5			20,621			4
Total loans		562,772			100	%		560,358			100	%		557,789			100	%
Less:
Undisbursed portion of
construction loans in
Process		(12,239	)					(11,245	)					(22,713	)
Deferred loan origination
Fees		(1,761	)					(1,856	)					(1,988	)
Allowance for loan losses		(11,603	)					(12,264	)					(11,790	)
Total loans receivable, net	$	537,169					$	534,993					$	521,298

CONSTRUCTION LOAN COMPOSITION

	June 30, 2012					March 31, 2012					June 30, 2011
($ in thousands)	Amount		Percent  of Loan Portfolio			Amount		Percent			Amount			Percent  of Loan Portfolio
													��
Custom and owner / builder	$	27,643		5	%	$	28,109		5	%	$	28,128			5	%
Speculative one- to four-
Family		2,122		1			2,271		1			3,028			1
Commercial real estate		17,920		3			17,079		3			26,081			4
Multi-family (including
condominium)		345		--			8,632		1			8,254			1
Land development		609		--			978		--			2,526			1
Total construction loans	$	48,639		9	%	$	57,069		10	%	$	68,017			12	%

Timberland’s loan originations increased 26% to $63.6 million during the quarter ended June 30, 2012 compared to $50.4 million for the preceding quarter and increased 78% from the $35.7 million originated during the 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, 2012, $21.2 million fixed-rate

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one-to four-family mortgage loans were sold compared to $23.9 million for the preceding quarter and $8.2 million for the like quarter ended one year ago.

Timberland’s mortgage-backed securities (“MBS”) and other investments decreased by $351,000 during the quarter to $8.6 million at June 30, 2012 from $9.0 million at March 31, 2012, primarily due to prepayments and scheduled amortization.  During the quarter ended June 30, 2012, other-than-temporary-impairment (“OTTI”) credit related write-downs and realized losses of $37,000 were recorded on the private label MBS that were acquired in the in-kind redemption from the AMF family of mutual funds in June 2008.  At June 30, 2012 the Bank’s remaining private label MBS portfolio had been reduced to $2.9 million from an original acquired balance of $15.3 million.

DEPOSIT BREAKDOWN ($ in thousands)
	June 30, 2012					March 31, 2012					June 30, 2011
	Amount		Percent			Amount		Percent			Amount		Percent
Non-interest bearing	$	70,004		12	%	$	69,633		12	%	$	57,735		10	%
N.O.W. checking		149,821		25			158,635		26			158,725		27
Savings		88,210		15			89,676		15			77,391		13
Money market		73,857		13			69,345		11			56,151		9
Certificates of deposit under $100		130,233		22			135,538		22			146,037		25
Certificates of deposit $100 and over		78,241		13			81,769		14			93,459		16
Certificates of deposit – brokered		- -		--			- -		--			--		--
Total deposits	$	590,366		100	%	$	604,596		100	%	$	589,498		100	%

Total deposits decreased 2% to $590.4 million at June 30, 2012, from $604.6 million at March 31, 2012 primarily as a result of an $8.8 million decrease in certificates of deposit account balances, an $8.8 million decrease in N.O.W. checking account balances and a $1.5 million decrease in savings account balances.   These decreases were partially offset by a $4.5 million increase in money market account balances and a $371,000 increase in non-interest bearing account balances.

Total shareholders’ equity increased $1.30 million to $89.28 million at June 30, 2012, from $87.98 million at March 31, 2012.  The increase in shareholders’ equity was primarily a result of net income for the quarter.  Book value per common share increased to $10.38 and tangible book value per common share increased to $9.53 at June 30, 2012.

Operating Results

Fiscal third quarter operating revenue (net interest income before provision for loan losses, plus non-interest income excluding OTTI charges and valuation allowances or recoveries on mortgage servicing rights (“MSRs”)), increased 4% to $9.09 million from $8.72 million for the preceding quarter and 7% from the $8.48 million for the comparable quarter one year ago.

Net interest income increased 6% to $6.63 million for the quarter ended June 30, 2012 from $6.27 million for the preceding quarter and increased 3% from $6.41 million for the comparable quarter one year ago.  The net interest margin for the current quarter increased to 3.96% from 3.72% for the preceding quarter and from 3.76% for the comparable quarter one year ago.  The increase in net interest income and net interest margin was primarily a result of an increase in average loans outstanding, a decrease in non-accrual loans and an in increase in late fees received and deferred loan origination fees taken into income on loans that paid off during the current quarter.  Average loans outstanding increased by $7.6 million to $548.5 million (81.9% of average total interest earning assets) for the quarter ended June 30, 2012 from $540.9 million (80.2% of average total interest earning assets) for the quarter ended March 31, 2012.  Late fees and deferred loan origination fees taken into income (and classified as interest income) on loans that paid off during the quarter ended June 30, 2012 increased $129,000 relative to the total recorded for the quarter ended March 31, 2012.  The increase in late fees and loan origination fees increased the net interest margin by approximately eight basis points.  For the first nine months of fiscal 2012, net interest income increased 1% to $19.20 million from $19.10 million for the first nine months of fiscal 2011. Timberland’s net interest margin for the first net months of fiscal 2012 increased to 3.80% from 3.78% for the first nine months of 2011.

Timberland provisioned $900,000 to its loan loss allowance for the quarter ended June 30, 2012, compared to $1.05 million in the preceding quarter and $3.40 million in the comparable quarter one year prior.  For the first nine months of fiscal 2012, the

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provision for loan losses totaled $2.6 million compared to $5.0 million in the first nine months of fiscal 2011. Net charge-offs for the quarter ended June 30, 2012 totaled $1.56 million compared to $758,000 for the quarter ended March 31, 2011 and $3.41 million for the quarter one year ago. Fiscal year-to-date, net charge-offs were $2.94 million compared to $4.47 million for the first nine months of fiscal 2011.

Non-interest income decreased 6% to $2.34 million for the quarter ended June 30, 2012, from $2.49 million in the preceding quarter and increased 33% from $1.76 million for the comparable quarter one year ago.  The decrease in non-interest income compared to the preceding quarter was primarily due to a $224,000 net decrease in the valuation recovery of the Bank’s MSRs, which was partially offset by an increase in service charges on deposits.  Year to date, non-interest income increased $458,000, or 7%, to $7.28 million from $6.82 million for the first nine months of fiscal 2011, primarily due to an increase in gain on sale of loans and an increase in ATM and debit card interchange fee income.

Total operating (non-interest) expenses decreased 7% to $6.10 million for the third fiscal quarter from $6.57 million for the preceding quarter and 10% from $6.78 million for the comparable quarter one year ago.  The decreased expenses for the current quarter compared to the preceding quarter were primarily the result of a $290,000 decrease in loan administration and foreclosure expenses and a $71,000 decrease in OREO and other repossessed assets expense.  Year to date, operating expenses decreased 2% to $18.89 million from $19.34 million for the first nine months of fiscal 2011, primarily due to decreased salaries and employee benefits expense and decreased FDIC insurance expense, which were partially offset by increased OREO and other repossessed assets 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.  

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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 fiscal 2012 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.

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TIMBERLAND BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS		Three Months Ended
($ in thousands, except per share amounts)		June 30,			March 31,			June 30,
(unaudited)		2012			2012			2011
	Interest and dividend income
	Loans receivable	$	7,842		$	7,607		$	8,192
	MBS and other investments		89			109			141
	Dividends from mutual funds		6			7			8
	Interest bearing deposits in banks		82			81			90
	Total interest and dividend income		8,019			7,804			8,431
	Interest expense
	Deposits		925			1,035			1,463
	FHLBadvances and other borrowings		466			496			556
	Total interest expense		1,391			1,531			2,019
	Net interest income		6,628			6,273			6,412
	Provision for loan losses		900			1,050			3,400
	Net interest income after provision for loan losses		5,728			5,223			3,012
	Non-interest income
	OTTI and realized losses on MBS
	and other investments, net		(37	)		(94	)		(165	)
	Gain on sale of MBS and other investments		2			20			--
	Service charges on deposits		955			890			993
	Gain on sale of loans, net		567			596			247
	Bank owned life insurance (“BOLI”) net earnings		146			154			121
	Valuation recovery (allowance) on MSRs		(82	)		142			(137	)
	ATM and debit card interchange transaction fees		564			540			515
	Other		226			245			187
	Total non-interest income, net		2,341			2,493			1,761
	Non-interest expense
	Salaries and employee benefits		3,006			3,055			3,150
	Premises and equipment		647			682			640
	Advertising		173			172			235
	OREO and other repossessed assets expense, net		363			434			496
	ATM		206			197			203
	Postage and courier		124			139			139
	Amortization of core deposit intangible (“CDI”)		37			37			42
	State and local taxes		159			152			155
	Professional fees		217			232			190
	FDIC insurance		237			241			248
	Other insurance		51			53			56
	Loan administration and foreclosure		82			372			345
	Data processing and telecommunications		303			315			285
	Deposit operations		177			193			202
	Other		315			298			396
	Total non-interest expense		6,097			6,572			6,782
	(Table continued on following page)

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	Three Months Ended
	June 30,			March 31,			June 30,
	2012			2012			2011
Income (loss) before income taxes	$	1,972		$	1,144		$	(2,009	)
Provision (benefit) for income taxes		624			336			(729	)
Net income (loss)		1,348			808			(1,280	)
Preferred stock dividends		(208	)		(208	)		(208	)
Preferred stock discount accretion		(61	)		(59	)		(57	)
Net income (loss) to common shareholders	$	1,079		$	541		$	(1,545	)
Net income (loss) per common share:
Basic	$	0.16		$	0.08		$	(0.23	)
Diluted		0.16			0.08			(0.23	)
Weighted average common shares outstanding:
Basic		6,780,516			6,780,516			6,745,250
Diluted		6,780,516			6,780,516			6,745,250

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TIMBERLAND BANCORP INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME		Nine Months Ended
($ in thousands, except per share amounts)		June 30,			June 30,
(unaudited)		2012			2011
	Interest and dividend income
	Loans receivable	$	23,254		$	24,966
	MBS and other investments		323			486
	Dividends from mutual funds		26			23
	Interest bearing deposits in banks		252			260
	Total interest and dividend income		23,855			25,735
	Interest expense
	Deposits		3,128			4,805
	FHLB advances and other borrowings		1,525			1,835
	Total interest expense		4,653			6,640
	Net interest income		19,202			19,095
	Provision for loan losses		2,600			5,000
	Net interest income after provision for loan losses		16,602			14,095
	Non-interest income
	OTTI and realized losses on MBS
	and other investments, net		(190	)		(338	)
	Gain on sale of MBS and other investments		22			79
	Service charges on deposits		2,815			2,875
	Gain on sale of loans, net		1,722			1,214
	BOLI net earnings		457			361
	Valuation recovery on MSRs		144			703
	ATM and debit card interchange transaction fees		1,621			1,384
	Other		687			542
	Total non-interest income, net		7,278			6,820
	Non-interest expense
	Salaries and employee benefits		8,989			9,393
	Premises and equipment		1,979			1,967
	Advertising		553			604
	OREO and other repossessed assets expense, net		1,299			930
	ATM		598			583
	Postage and courier		381			400
	Amortization of CDI		111			125
	State and local taxes		460			475
	Professional fees		628			567
	FDIC insurance		703			919
	Other insurance		161			299
	Loan administration and foreclosure		615			711
	Data processing and telecommunications		918			847
	Deposit operations		593			447
	Other		903			1,069
	Total non-interest expense		18,891			19,336
	(Table continued on following page)

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	Nine Months Ended
	June 30,			June 30,
	2012			2011
Income before income taxes	$	4,989		$	1,579
Provision for income taxes		1,551			417
Net income		3,438			1,162
Preferred stock dividends		(624	)		(624	)
Preferred stock discount accretion		(179	)		(168	)
Net income to common shareholders	$	2,635		$	370
Net income per common share:
Basic	$	0.39		$	0.05
Diluted		0.39			0.05
Weighted average common shares outstanding:
Basic		6,780,516			6,745,250
Diluted		6,780,516			6,745,250

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TIMBERLAND BANCORP INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share amounts) (unaudited)	June 30,			March 31,			June 30,
	2012			2012			2011
Assets
Cash and due from financial institutions	$	12,489		$	11,154		$	10,997
Interest-bearing deposits in banks		80,499			100,467			103,306
Total cash and cash equivalents		92,988			111,621			114,303
Certificates of deposit (“CDs”) held for investment, at cost		22,781			20,180			18,087
MBS and other investments:
Held to maturity, at amortized cost		3,503			3,706			4,283
Available for sale, at fair value		5,113			5,261			7,679
FHLB stock		5,705			5,705			5,705
Loans receivable		544,708			545,961			532,322
Loans held for sale		4,064			1,296			766
Less: Allowance for loan losses		(11,603	)		(12,264	)		(11,790	)
Net loans receivable		537,169			534,993			521,298
Premises and equipment, net		17,723			17,640			16,981
OREO and other repossessed assets, net		9,997			8,024			10,996
BOLI		16,374			16,228			13,762
Accrued interest receivable		2,161			2,369			2,527
Goodwill		5,650			5,650			5,650
Core deposit intangible		286			323			439
Mortgage servicing rights, net		2,150			2,284			2,463
Prepaid FDIC insurance assessment		1,415			1,643			2,335
Other assets		6,121			7,082			8,510
Total assets	$	729,136		$	742,709		$	735,018
Liabilities and shareholders’ equity
Deposits: Non-interest-bearing demand	$	70,004		$	69,633		$	57,735
Deposits: Interest-bearing		520,362			534,963			531,763
Total deposits		590,366			604,596			589,498
FHLB advances		45,000			45,000			55,000
Repurchase agreements		826			948			598
Other liabilities and accrued expenses		3,669			4,181			3,588
Total liabilities		639,861			654,725			648,684
Shareholders’ equity
Preferred stock, $.01 par value; 1,000,000 shares authorized;               16,641 shares, Series A, issued and outstanding $1,000 per share liquidation value		16,168			16,107			15,932
Common stock, $.01 par value; 50,000,000 shares authorized;               7,045,036 shares issued and outstanding		10,500			10,480			10,463
Unearned shares- Employee Stock Ownership Plan		(1,785	)		(1,851	)		(2,049	)
Retained earnings		64,905			63,826			62,609
Accumulated other comprehensive loss		(513	)		(578	)		(621	)
Total shareholders’ equity		89,275			87,984			86,334
Total liabilities and shareholders’ equity	$	729,136		$	742,709		$	735,018

Timberland Q3 Earnings

July 24, 2012

Page 12

KEY FINANCIAL RATIOS AND DATA	Three Months Ended
($ in thousands, except per share amounts) (unaudited)		June 30,	March 31,	June 30,
		2012	2012	2011
PERFORMANCE RATIOS:
Return (loss) on average assets (a)		0.74%	0.44%	(0.69)%
Return (loss) on average equity (a)		6.09%	3.69%	(5.83)%
Net interest margin (a)		3.96%	3.72%	3.76%
Efficiency ratio		67.98%	74.97%	82.98%
		Nine Months Ended
		June 30,		June 30,
		2012		2011
PERFORMANCE RATIOS:
Return on average assets (a)		0.62%		0.21%
Return on average equity (a)		5.24%		1.79%
Net interest margin (a)		3.80%		3.78%
Efficiency ratio		71.34%		74.61%
		June 30,	March 31,	June 30,
		2012	2012	2011
ASSET QUALITY RATIOS AND DATA:
Non-accrual loans		$24,018	$26,623	$21,545
Loans past due 90 days and still accruing		945	2,967	4,893
Non-performing investment securities		2,484	2,516	3,184
OREO and other repossessed assets		9,997	8,024	10,996
Total non-performing assets (b)		$37,444	$40,130	$40,618
Non-performing assets to total assets (b)		5.14%	5.40%	5.53%
Net charge-offs during quarter		$      1,561	$      758	$   3,408
Allowance for loan losses to non-accrual loans		48%	46%	55%
Allowance for loan losses to loans receivable, net (c)		2.11%	2.24%	2.21%
Troubled debt restructured loans on accrual status (d)		$14,579	$15,890	$  20,783
CAPITAL RATIOS:
Tier 1 leverage capital		11.59%	11.42%	11.01%
Tier 1 risk based capital		15.58%	15.27%	15.34%
Total risk based capital		16.85%	16.54%	16.60%
Tangible capital to tangible assets (e)		11.52%	11.13%	11.01%
BOOK VALUES:
Book value per common share		$  10.38	$  10.20	$  9.99
Tangible book value per common share (e)		9.53	9.35	9.13

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(a)  Annualized

(b) Non-performing assets include non-accrual loans, loans past due 90 days and still accruing, non-performing investment securities and OREO and other repossessed assets.  Troubled debt restructured loans on accrual status are not included.

(c)  Includes loans held for sale and is before the allowance for loan losses.

(d)  Does not include troubled debt restructured loans totaling $9,319, $7,097 and $4,956 reported as non-accrual loans at June 30, 2012, March 31, 2012 and June 30, 2011, respectively.

(e)  Calculation subtracts goodwill and core deposit intangible from the equity component and from assets.

Timberland Q3 Earnings

July 24, 2012

Page 13

AVERAGE CONSOLIDATED BALANCE SHEETS:	Three Months Ended
($ in thousands) (unaudited)		June 30,	March 31,	June 30,
		2012	2012	2011
Average total loans		$548,450	$540,858	$537,858
Average total interest-bearing assets (a)		669,715	673,970	682,529
Average total assets		733,243	732,882	743,207
Average total interest-bearing deposits		524,249	529,707	535,873
Average FHLB advances and other borrowings		45,818	45,967	55,509
Average shareholders’ equity		88,535	87,587	87,797
	Nine Months Ended
		June 30,		June 30,
		2012		2011
Average total loans		$542,378		$537,782
Average total interest-bearing assets (a)		673,049		672,772
Average total assets		734,138		732,041
Average total interest-bearing deposits		526,683		529,736
Average FHLB advances and other borrowings		49,138		55,514
Average shareholders’ equity		87,548		86,686

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(a)  Includes loans and MBS on non-accrual status