Timberland Bancorp Earns $1.1 Million in Fiscal Third Quarter

Earnings per Share of $0.12 for Quarter; Non-Interest Income Increased 45%, Total Risk Based Capital at 16.19%; Loan Loss Reserve Strengthened to 2.23% of Loans; Total Loan Originations of $95 Million for the Quarter

• Press Release
• Source: Timberland Bancorp, Inc.
• On 7:39 pm EDT, Tuesday July 28, 2009

HOQUIAM, WA--(Marketwire - 07/28/09) - Timberland Bancorp, Inc. (NASDAQ:TSBK - News) ("Timberland" or "the Company") today reported fiscal third quarter profits of $1.06 million. Third quarter income available to common shareholders after being adjusted for preferred stock dividends of $210,000 and preferred stock discount accretion of $79,000 was $769,000, or $0.12 per diluted common share. This compares to a net loss of $546,000, or ($0.08) per diluted common share, for the quarter ended June 30, 2008 and a net loss of $1.60 million, or ($0.24) per diluted common share, for the quarter ended March 31, 2009.

For the first nine months of fiscal 2009, the Company reported net income of $27,000. However, income available to common shareholders after adjusting for the preferred stock dividend and the preferred stock discount accretion was a loss of $489,000, or ($0.07) per diluted common share. This compares to net income of $2.66 million or $0.40 per diluted common share for the first nine months of fiscal 2008 when no preferred dividends were due.

Fiscal Third Quarter 2009 Highlights: (quarter ended June 30, 2009 compared to the quarter ended June 30, 2008)

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--  Capital levels remain exceptionally strong: Tier 1 Capital Ratio at
    12.30%; Total Risk Based Capital at 16.19%
--  Revenues (excluding OTTI charges and the June 2008 loss on securities)
    increased 7% to $9.0 million from $8.4 million
--  Non-interest income (excluding OTTI charges and the June 2008 loss on
    securities) increased 45% to $2.8 million
--  Construction and land development loans decreased 30% year over year
    and 12% from the prior fiscal quarter
--  Tangible book value per common share was $9.36 at quarter end
--  Full service branch in Chehalis opened in May 2009
    

"The economic recession has significantly impacted the Pacific Northwest," said Michael R. Sand, President and CEO. "There are numerous opinions regarding the duration of this recession however, according to the July 13th Current Economic Indicators Letter produced by the Puget Sound Economic Forecaster, the Northwest may be seeing early signs of recovery." The newsletter states: '...we may be witnessing the first signs of the regional economic recovery. Over the three-month period ending in May, closed home sales increased at a 28.9 percent annual rate, while residential building permits rose at a 48.9 percent rate. Home prices fell at a 19.9 percent rate between February and May but increased at a 15.3 percent rate between March and May. More specifically, the average house price, after dropping from $368,600 in February to $341,500 in March, rose to $350,200 in May. It is too early to conclude that the housing market has found its way back, especially considering the extremely low volume of home sales and housing permits at the present time, but these are the kind of numbers that one would expect to see around the turning point.'

"Possibly the authors of the above quote, the economists Conway and Pedersen, are correct in their analysis. We remain cautiously optimistic that our region will begin to climb out of one of the worst economic recessions this country has experienced," Sand continued. "The upturn in home sales is reducing the housing supply and low mortgage rates are contributing to better affordability. With that said, we continue to see stress in our loan portfolio, primarily in the construction and land related segments. We are well positioned from a capital and a potential earnings perspective to succeed during this downturn. Timberland retains excellent liquidity, substantial capital and a diversified deposit base not dependent on brokered deposits."

Capital Ratios and Asset Quality

Timberland Bancorp remains very well capitalized with a total risk-based capital ratio of 16.19% and a Tier 1 capital ratio of 12.30% at June 30, 2009.

The non-performing assets ("NPAs") to total assets ratio was 4.94% at June 30, 2009 compared to 3.32% at March 31, 2009. During the quarter ended March 31, 2009 net charge-offs were $609,000 compared to $1.17 million during the quarter ended March 31, 2009. The allowance for loan losses totaled $12.4 million at June 30, 2009, or 2.23% of total loans compared to $12.0 million, or 2.13% of loans receivable at March 31, 2009 and $7.1 million, or 1.26% of loans receivable one year ago.

Non-performing loans ("NPLs") increased to $25.1 million at June 30, 2009 and were comprised of 46 loans and 38 credit relationships. Included in the NPLs are:

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--  5 - Land development loans totaling $5.88 million of which the largest
    has a balance of $2.12 million
--  2 - Condominium construction loans totaling $5.68 million of which the
    largest has a balance of $4.29 million
--  8 - Commercial real estate loans totaling $5.50 million of which the
    largest has a balance of $1.65 million
--  13 - Land loans totaling $3.38 million of which the largest has a
    balance of $986,000
--  7 - One-to-four family home loans totaling $2.32 million of which the
    largest loan has a balance of $995,000
--  7 - One-to-four family spec construction loans totaling $2.17 million
    of which the largest loan has a balance of $546,000
--  2 - Second mortgage loans secured by liens on one-to-four family homes
    totaling $92,000 of which the largest loan has a balance of $62,000
--  1 - Commercial business loan with a balance of $78,000 secured by a
    lien on three condominium units
--  1 - Equipment loan with a balance of $15,000
    

Since June 30, 2009 one land loan with a balance of $81,000 was brought current and one condominium construction loan with a balance of $1.39 million became other real estate owned ("OREO"). The OREO total at June 30, 2009 was $7.70 million. The balance was comprised of 27 individual properties representing 11 relationships. Eight of the properties have accepted earnest money agreements on them which, if closed, will result in a $1.73 million reduction in the OREO balance. The largest OREO property has a balance of $2.26 million and consists of a 78 lot plat located in Richland, Washington. The Richland/Kennewick/Pasco market is currently one of Washington State's better performing economic areas. Timberland continues to actively manage the disposition of OREO properties and has seen increased buyer interest in OREO properties.

Net charge-offs totaled $609,000 for the quarter ended June 30, 2009 and included the following:

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--  $340,000 on one land development loan
--  $215,000 on eight speculative construction loans
--  $39,000 on two single family home loans
--  $11,000 on a consumer auto loan
--  $4,000 on six land loans
    

Balance Sheet Management

Total assets decreased 2% during the quarter to $675.7 million at June 30, 2009 from $693.0 million at March 31, 2009. The $17.3 million decrease in total assets is primarily a result of a $12.9 million decrease in cash equivalents and an $8.6 million decrease in net loans receivable. During the quarter the Company used a portion of its excess liquidity to repay $26.0 million in brokered certificates of deposit. The Company continues to maintain a high level of liquidity, both on balance sheet and through off-balance sheet access to funds. Liquidity as measured by cash equivalents and available for sale investments securities to liabilities increased to 9.9% at June 30, 2009, from 7.2% one year ago. "We continue to work to improve the mix of loans in our portfolio, specifically by reducing our exposure to construction and land development loans, which have decreased more than $60 million year over year," said Dean Brydon, Chief Financial Officer. Although loan originations totaled $94.8 million during the current quarter, net loans receivable decreased 2% to $545.8 million at June 30, 2009, from $554.4 million at March 31, 2009. During the current quarter the one-to-four family speculative construction portfolio decreased by 21% and the land development portfolio decreased by 14%. "Combined, we have reduced our exposure to construction and land development loans by 30% from a year ago," Brydon added.

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LOAN PORTFOLIO
($ in thousands)     June 30, 2009      March 31, 2009     June 30, 2008
                    Amount   Percent   Amount   Percent   Amount   Percent
                   --------  -------  --------  -------  --------  -------
Mortgage Loans:
  One-to-four
   family          $110,338       19% $120,519       20% $105,791       17%
  Multi-family       25,702        4    22,472        4    37,465        6
  Commercial        178,941       30   164,778       27   140,785       23
  Construction and
   land
   development      142,006       24   160,980       26   202,029       32
  Land               65,736       11    67,388       11    56,489        9
                   --------  -------  --------  -------  --------  -------
    Total mortgage
     loans          522,723       88   536,137       88   542,559       87
Consumer Loans:
  Home equity and
   second mortgage   41,950        7    43,948        7    46,771        7
  Other              10,107        2    10,767        2    11,292        2
                   --------  -------  --------  -------  --------  -------
    Total consumer
     loans           52,057        9    54,715        9    58,063        9
Commercial business
 loans               15,199        3    15,624        3    23,307        4
                   --------  -------  --------  -------  --------  -------
Total loans        $589,979      100% $606,476      100% $623,929      100%
Less:
  Undisbursed
   portion of
   construction
   loans in
   process          (29,447)           (37,543)           (57,335)
  Unearned income    (2,326)            (2,511)            (2,865)
  Allowance for
   loan losses      (12,440)           (12,049)            (7,076)
                   --------           --------           --------
Total loans
 receivable, net   $545,766           $554,373           $556,653
                   ========           ========           ========

(1) Includes loans held for sale



CONSTRUCTION LOAN COMPOSITION
($ in thousands)     June 30, 2009      March 31, 2009     June 30, 2008
                             Percent            Percent            Percent
                             of Loan            of Loan            of Loan
                    Amount  Portfolio  Amount  Portfolio  Amount  Portfolio
                   --------  -------  --------  -------  --------  -------
Custom and owner /
 builder           $ 34,373        6% $ 35,061        6% $ 48,384        8%
Speculative          19,332        3    24,393        4    36,979        6
Commercial real
 estate              42,056        7    47,642        8    66,846       10
Multi-family
 (including
 condominium)        25,631        4    29,979        5    19,044        3
Land development     20,614        4    23,905        4    30,776        5
                   --------           --------           --------
  Total
   construction
   loans           $142,006           $160,980           $202,029

Loan demand remained strong as loan originations totaled $94.8 million for the quarter ended June 30, 2009 compared to $98.3 million for the preceding quarter and $80.1 million for the quarter ended one year ago. Increased loan originations in the past two quarters were primarily a result of increased demand to refinance one-to-four family mortgage loans at historically low interest rates. Timberland Bank 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, 2009, fixed-rate one-to-four family mortgage loan sales totaled $69.6 million compared to $60.7 million for the preceding quarter and $16.0 million for the quarter ended one year ago.

Timberland's investment securities decreased by $837,000 during the quarter to $24.5 million at June 30, 2009 from $25.3 million at March 31, 2009, primarily as a result of regular amortization and prepayments and a $125,000 credit related other-than-temporary impairment ("OTTI") charge on 17 private label mortgage-backed securities that were acquired in the in-kind redemption from the AMF family of mutual funds in June 2008.

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DEPOSIT BREAKDOWN
($ in thousands)
                     June 30, 2009      March 31, 2009     June 30, 2008
                    Amount   Percent   Amount   Percent   Amount   Percent
                   --------  -------  --------  -------  --------  -------
Non-interest
 bearing           $ 50,153       10% $ 53,783       11% $ 50,701       11%
N.O.W. checking     102,186       21    95,093       19    90,476       19
Savings              56,303       11    54,525       11    58,604       12
Money market         61,992       13    62,940       12    48,082       10
Certificates of
 deposit under
 $100               140,924       29   139,863       28   128,791       27
Certificates of
 deposit $100 and
 over                75,861       16    73,703       14    77,343       16
Certificates of
 deposit -
 brokered                --       --    25,991        5    25,937        5
                   --------  -------  --------  -------  --------  -------
  Total deposits   $487,419      100% $505,898      100% $479,934      100%
                   ========  =======  ========  =======  ========  =======

Total deposits decreased 4% to $487.4 million at June 30, 2009, from $505.9 million at March 31, 2009 primarily as a result of a $26.0 million decrease in brokered certificate of deposit ("CDs") accounts. Excluding brokered CDs, deposits increased 2% to $487.4 million at June 30, 2009, from $479.9 million at March 31, 2009. This increase was primarily due to an increase in N.O.W. checking account balances.

Total shareholders' equity increased $644,000 to $89.0 million at June 30, 2009, from $88.3 million at March 31, 2009 primarily due to net income of $1.06 million and a $474,000 reduction in accumulated other comprehensive loss. These increases to shareholders' equity were partially offset by dividends to common and preferred shareholders.

Operating Results

Fiscal third quarter operating revenue (net interest income before provision for loan losses, plus non-interest income excluding OTTI charges and the June 2008 loss on the redemption of mutual funds) increased 7% to $9.0 million compared to $8.4 million in the like quarter a year ago. The increase was primarily a result of increased non-interest income from loan sales (gain on sale of loans and servicing income recorded) and increased non-interest income from service charges on deposits. For the first nine months of fiscal 2009, operating revenues (excluding OTTI charges and loss on redemption of mutual funds) increased 7% to $26.9 million from $25.1 million in the first nine months of fiscal 2008. The increase was primarily a result of increased non-interest income from loan sales, increased fee income on deposit accounts and a $134,000 non-recurring gain from a change in the Bank's investment in bank owned life insurance ("BOLI").

Net interest income before the provision for loan losses decreased 5% to $6.2 million for the quarter ended June 30, 2009, from $6.5 million for the like quarter one year ago with interest and dividend income decreasing 7% and interest expense decreasing 12%. The decrease in net interest income was primarily due to an increase in non-accrual interest and margin compression due to the lower interest rate environment. In spite of the challenging interest rate environment, Timberland's net interest margin remained strong at 3.86% for the current quarter, a decrease of 20 basis points from 4.06% for the quarter ended March 31, 2009 and a decrease of 37 basis points from 4.23% for the quarter a year ago. The reversal of interest income on loans placed on non-accrual status during the quarter ended June 30, 2009 reduced the net interest margin by approximately 22 basis points.

For the first nine months of fiscal 2009, net interest income before the provision for loan losses decreased 5% to $19.1 million from $20.1 million in the like period a year ago. Net interest margin year to date was 4.03%, down 39 basis points from a year ago.

In the third fiscal quarter Timberland recorded a provision of $1.0 million to its allowance for loan losses, compared to $5.2 million in the preceding quarter and $500,000 in the like quarter in the prior fiscal year. For the first nine months of fiscal 2009, the provision for loan losses totaled $7.5 million, compared to $2.4 million in the first nine months of fiscal 2008. Net charge-offs for the quarter ended June 30, 2009 totaled $609,000 compared to $1.17 million for the quarter ended March 31, 2009 and $121,000 for the quarter ended June 30, 2008. Year to date, net charge-offs were $3.0 million compared to $121,000 in the first nine months one year ago.

Timberland's total operating (non-interest) expenses increased 30% to $6.4 million for the third fiscal quarter from $4.9 million from the like quarter one year ago and increased 17% from $5.4 million from the immediately prior quarter. The increased expenses during the current quarter were primarily due to increased FDIC insurance expenses (including a special FDIC assessment of $300,000), increased OREO related expenses and increased loan monitoring and collection related expenses. Year to date, total operating expenses increased 16% to $17.4 million from $15.0 million in the first nine months of fiscal 2008.

About Timberland Bancorp, Inc.

Timberland Bancorp operates 22 branches in the state of Washington in Hoquiam, Aberdeen, Ocean Shores, Montesano, Elma, Olympia, Lacey, Tumwater, Yelm, Puyallup, Edgewood, Tacoma, Spanaway (Bethel Station), Gig Harbor, Poulsbo, Silverdale, Auburn, Chehalis, Winlock, and Toledo. Timberland Bank received a four-star rating from Bauer Financial, a widely recognized independent bank rating agency.

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TIMBERLAND BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT                   Three Months Ended
($ in thousands, except per share amounts)  June 30,   March 31,  June 30,
(unaudited)                                  2009       2009       2008
                                           ---------  ---------  ---------
        Interest and dividend income
        Loans receivable                   $   9,240  $   9,419  $   9,825
        Investments and mortgage-backed
         securities                              322        347        235
        Dividends from mutual funds and
         FHLB stock                                9          9        272
        Federal funds sold                         8          5         28
        Interest bearing deposits in banks        32         21          8
                                           ---------  ---------  ---------
            Total interest and dividend
             income                            9,611      9,801     10,368

        Interest expense
        Deposits                               2,440      2,385      2,703
        FHLB advances                            979        999      1,161
        Other borrowings                          --         --          4
                                           ---------  ---------  ---------
            Total interest expense             3,419      3,384      3,868
                                           ---------  ---------  ---------
            Net interest income                6,192      6,417      6,500

        Provision for loan losses              1,000      5,176        500
                                           ---------  ---------  ---------
            Net interest income after
             provision for loan losses         5,192      1,241      6,000

        Non-interest income
        Total OTTI on securities                (522)    (1,742)        --
        Less: portion recorded as other
         comprehensive loss                      397        749         --
                                           ---------  ---------  ---------
        Net OTTI loss recognized                (125)      (993)        --

        Service charges on deposits            1,066      1,009        948
        Gain on sale of loans, net               414        340        127
        Loss on redemption of mutual funds        --         --     (2,822)
        Bank owned life insurance ("BOLI")
         net earnings                            123        256        121
        Servicing income on loans sold           607        703        234
        ATM transaction fees                     326        306        329
        Other                                    263        291        170
                                           ---------  ---------  ---------
            Total non-interest income          2,674      1,912       (893)

        Non-interest expense
        Salaries and employee benefits         2,919      2,826      2,812
        Premises and equipment                   719        696        519
        Advertising                              252        229        228
        OREO and other repossessed items
         expense                                 391         99         --
        ATM expenses                             162        161        136
        FDIC insurance expense                   400         99         25
        Postage and courier                      203        126        129
        Amortization of core deposit
         intangible                               54         54         62
        State and local taxes                    152        154        149
        Professional fees                        199        213        175
        Other                                    922        785        684
                                           ---------  ---------  ---------
            Total non-interest expense         6,373      5,442      4,919

        Income (loss) before federal and
         state income taxes                    1,493     (2,289)       188
        Provision (benefit) for federal and
         state income taxes                      435       (896)       734
                                           ---------  ---------  ---------
            Net income (loss)              $   1,058  $  (1,393) $    (546)
                                           =========  =========  =========

        Preferred stock dividends          $     210  $     208  $      --
        Preferred stock discount accretion        79         --         --
                                           ---------  ---------  ---------
        Net income (loss) avail. to common
         shareholders:                     $     769  $  (1,601) $    (546)
                                           =========  =========  =========

        Earnings (loss) per common share:
            Basic                          $    0.12  $   (0.24) $   (0.08)
            Diluted                        $    0.12  $   (0.24) $   (0.08)
        Weighted average common shares
         outstanding:
            Basic                          6,645,229  6,614,216  6,446,303
            Diluted                        6,645,229  6,614,216  6,524,818






        TIMBERLAND BANCORP INC. AND SUBSIDIARIES
        CONSOLIDATED INCOME STATEMENT             Nine Months Ended
        ($ in thousands, except per share) June 30,              June 30,
        (unaudited)                          2009                  2008
                                           ---------             ---------
        Interest and dividend income
        Loans receivable                   $  28,229             $  30,947
        Investments and mortgage-backed
         securities                            1,081                   625
        Dividends from mutual funds and
         FHLB stock                               29                 1,090
        Federal funds sold                        36                    87
        Interest bearing deposits in banks        62                    22
                                           ---------             ---------
             Total interest and dividend
              income                          29,437                32,771

        Interest expense
        Deposits                               7,321                 9,153
        FHLB advances                          3,042                 3,510
        Other borrowings                           1                    18
                                           ---------             ---------
            Total interest expense            10,364                12,681
                                           ---------             ---------
            Net interest income               19,073                20,090

        Provision for loan losses              7,491                 2,400
                                           ---------             ---------
            Net interest income after
             provision for loan losses        11,582                17,690

        Non-interest income
        Total OTTI on securities              (2,685)                   --
        Less: portion recorded as other
         comprehensive loss                      397                    --
                                           ---------             ---------
        Net OTTI loss recognized              (2,288)                   --

        Service charges on deposits            3,224                 2,292
        Gain on sale of loans, net               918                   364
        Loss on redemption of mutual funds        --                (2,822)
        BOLI net earnings                        501                   360
        Servicing income on loans sold         1,460                   531
        ATM transaction fees                     920                   930
        Other                                    756                   504
                                           ---------             ---------
            Total non-interest income          5,491                 2,159

        Non-interest expense
        Salaries and employee benefits         8,818                 8,718
        Premises and equipment                 2,079                 1,634
        Advertising                              672                   678
        OREO and other repossessed items
         expense                                 552                    --
        ATM expenses                             448                   426
        FDIC insurance expense                   586                    51
        Postage and courier                      448                   376
        Amortization of core deposit
         intangible                              163                   186
        State and local taxes                    449                   447
        Professional fees                        547                   467
        Other                                  2,589                 1,993
                                           ---------             ---------
            Total non-interest expense        17,351                14,976

        Income (loss) before federal and
         state income taxes                     (278)                4,873
        Provision (benefit) for federal
         and state income taxes                 (305)                2,218
                                           ---------             ---------
            Net income                     $      27             $   2,655
                                           =========             =========

        Preferred stock dividends          $     437             $      --
        Preferred stock discount accretion        79                    --
                                           ---------             ---------
        Net income (loss) avail. to common
         shareholders                      $    (489)            $   2,655
        Earnings (loss) per common share:
            Basic                          $   (0.07)            $    0.41
            Diluted                        $   (0.07)            $    0.40
        Weighted average common shares
         outstanding:
            Basic                          6,609,915             6,467,874
            Diluted                        6,609,915             6,587,120


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

                                           June 30,   March 31,   June 30,
                                             2009       2009        2008
Assets                                     ---------  ---------  ---------
Cash equivalents:
  Cash and due from financial institutions $  12,118  $  10,001  $  14,776
  Interest-bearing deposits in other banks    31,853     46,892      3,196
  Federal funds sold                              --         --      5,565
                                           ---------  ---------  ---------
                                              43,971     56,893     23,537

Investments and mortgage-backed securities:
  Held to maturity                            10,554     10,726     14,684
  Available for sale                          13,898     14,563     18,828
FHLB stock                                     5,705      5,705      5,705
                                           ---------  ---------  ---------
                                              30,157     30,994     39,217

Loans receivable                             555,961    558,644    562,664
Loans held for sale                            2,245      7,778      1,065
Less: Allowance for loan losses              (12,440)   (12,049)    (7,076)
                                           ---------  ---------  ---------
Net loans receivable                         545,766    554,373    556,653


Accrued interest receivable                    2,918      2,913      2,932
Premises and equipment                        18,174     17,698     16,286
OREO and other repossessed items               7,698      2,827        879
BOLI                                          13,403     13,280     12,775
Goodwill                                       5,650      5,650      5,650
Core deposit intangible                          809        863      1,034
Mortgage servicing rights                      2,366      1,912      1,277
Other assets                                   4,812      5,601      3,514
                                           ---------  ---------  ---------
Total Assets                               $ 675,724  $ 693,004  $ 663,754
                                           =========  =========  =========

Liabilities and Shareholders' Equity
Non-interest-bearing deposits              $  50,153  $  53,783  $  50,697
Interest-bearing deposits                    437,266    452,115    429,237
                                           ---------  ---------  ---------
  Total deposits                             487,419    505,898    479,934

FHLB advances                                 95,000     95,000    104,645
Other borrowings: repurchase agreements          666        689      1,007
Other liabilities and accrued expenses         3,652      3,074      3,393
                                           ---------  ---------  ---------
Total Liabilities                            586,737    604,661    588,979
                                           ---------  ---------  ---------

Shareholders' Equity
Preferred stock - $.01 par value;
 1,000,000 shares authorized;                 15,487     15,437         --
 June 30, 2009 - 16,641 shares issued
 and outstanding
 March 31, 2009 - 16,641 shares issued
 and outstanding
Common stock - $.01 par value; 50,000,000
 shares authorized;                           10,328     10,301      8,775
 June 30, 2009 - 7,045,036 shares issued
 and outstanding
 March 31, 2009 - 7,045,036 shares issued
 and outstanding
 June 30, 2008 - 6,901,453 shares issued
 and outstanding
Unearned shares - Employee Stock Ownership
 Plan                                         (2,578)    (2,644)    (2,842)
Retained earnings                             66,802     66,775     68,822
Accumulated other comprehensive income
 (loss)                                       (1,052)    (1,526)        20
                                           ---------  ---------  ---------
Total Shareholders' Equity                    88,987     88,343     74,775
                                           ---------  ---------  ---------
Total Liabilities and Shareholders' Equity $ 675,724  $ 693,004  $ 663,754
                                           =========  =========  =========



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

                                                Three Months Ended
                                          -------------------------------
                                           June 30,  March 31,  June 30,
                                             2009      2009       2008
                                          ---------  ---------  ---------
PERFORMANCE RATIOS:
Return (loss) on average assets (a)            0.61%     (0.82%)    (0.33%)
Return (loss) on average equity (a)            4.79%     (6.10%)    (2.91%)
Net interest margin (a)                        3.86%      4.06%      4.23%
Efficiency ratio (b)                          71.88%     65.34%     87.73%


                                                Nine Months Ended
                                          -------------------------------
                                           June 30,              June 30,
                                             2009                  2008
                                          ---------             ---------
Return on average assets (a)                   0.01%                 0.54%
Return on average equity (a)                   0.04%                 4.73%
Net interest margin (a)                        4.03%                 4.42%
Efficiency ratio (b)                          70.64%                67.31%


                                           June 30,  March 31,   June 30,
                                             2009      2009       2008
                                          ---------  ---------  ---------
ASSET QUALITY RATIOS:
Non-performing loans                      $  25,113  $  19,867  $   9,391
Non-performing investment securities            572        310         --
OREO and other repossessed assets             7,698      2,827        879
                                          ---------  ---------  ---------
Total non-performing assets               $  33,383  $  23,004  $  10,270

Non-performing assets to total assets (c)      4.94%      3.32%      1.55%
Allowance for loan losses to non-performing
 loans                                           50%        61%        75%
Troubled debt restructured loans          $      --   $     --  $      --
Past due 90 days and still accruing       $     830   $     --  $      --

CAPITAL RATIOS:
Tier 1 leverage capital                       12.30%     12.47%     10.41%
Tier 1 risk based capital                     14.93%     15.01%     12.08%
Total risk based capital                      16.19%     16.27%     13.33%

BOOK VALUES:
Book value per common share (d)            $  10.42   $  10.18  $   10.83
Book value per common share (e)            $  10.80   $  10.72  $   11.46
Tangible book value per common share
 (d) (f)                                   $   9.36   $   9.26  $    9.87
Tangible book value per common share
 (e) (f)                                   $   9.84   $   9.75  $   10.44

(a) Annualized
(b) Calculation includes the OTTI charge incurred during the periods
    ended March 31, 2009 and June 30, 2009. Excluding OTTI charges the
    efficiency ratio was 70.88% for three months ended June 30, 2009;
    58.38% for the three months ended March 31, 2009; and 64.62% for
    the nine months ended June 30, 2009.
(c) Non-performing assets include non-accrual loans, non-accrual
    investment securities, and other real estate owned and other
    repossessed assets
(d) Calculation includes ESOP shares not committed to be released
(e) Calculation excludes ESOP shares not committed to be released
(f) Calculation subtracts goodwill and core deposit intangible from the
    equity component

                                                Three Months Ended
AVERAGE BALANCE SHEET:                    -------------------------------
                                           June 30,  March 31,   June 30,
                                             2009      2009       2008
                                          ---------  ---------  ---------
Average total loans                       $ 562,105  $ 568,981  $ 560,515
Average total interest earning assets (a)   641,468    632,479    614,383
Average total assets                        688,411    678,750    659,998
Average total interest bearing deposits     450,974    434,896    415,495
Average FHLB advances and other borrowings   95,612     97,786    110,903
Average shareholders' equity                 88,433     91,368     74,956

                                                Nine Months Ended
                                          -------------------------------
                                           June 30,              June 30,
                                             2009                  2008
                                          ---------             ---------
Average total loans                       $ 565,274             $ 548,346
Average total interest earning assets (a)   630,421               605,949
Average total assets                        676,809               652,804
Average total interest bearing deposits     438,762               412,904
Average FHLB advances and other borrowings   97,954               109,794
Average shareholders' equity                 85,445                74,901

(a) Includes loans on non-accrual status

Disclaimer

This report contains certain "forward-looking statements." The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and is including this statement for the express purpose of availing itself of the protection of such safe harbor with forward-looking statements. These forward-looking statements may describe future plans or strategies and include the Company's expectations of future financial results. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results to differ materially from stated objectives. These risk factors include but are not limited to the effect of interest rate changes, competition in the financial services market for both deposits and loans as well as regional and general economic conditions. The words "believe," "expect," "anticipate," "estimate," "project," and similar expressions identify forward-looking statements. The Company's ability to predict results or the effect of future plans or strategies is inherently uncertain and undue reliance should not be placed on such statements.

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