GlobeNewswire Inc | Jan 24, 2022 04:00PM EST

January 24, 2022

-- First Fiscal Quarter Net Income of $5.49 Million -- Quarterly Return on Average Equity of 10.55% -- Loan Portfolio (Excluding PPP Loans) Increased 5% During Quarter -- Announces a 5% increase in the Quarterly Cash Dividend

HOQUIAM, Wash., Jan. 24, 2022 (GLOBE NEWSWIRE) -- Timberland Bancorp, Inc. (NASDAQ: TSBK) (Timberland or the Company), the holding company for Timberland Bank (the Bank), today reported net income of $5.49 million, or $0.65 per diluted common share, for the quarter ended December 31, 2021. This compares to net income of $6.02 million, or $0.71 per diluted common share, for the preceding quarter and $7.29 million, or $0.87 per diluted common share, for the comparable quarter one year ago.

Timberlands Board of Directors announced a $0.01 increase in the quarterly cash dividend to shareholders to $0.22 per share, payable on February 25, 2022, to shareholders of record on February 11, 2022.

We are pleased to report very strong loan originations and significant loan growth for the quarter ended December 31, 2021, stated Michael Sand, CEO. Net loans outstanding, excluding Paycheck Protection Program (PPP) loans, increased $45.1 million, or nearly 5% (19.4% on an annualized basis) during the quarter; a significant increase from the 9% annualized loan growth (net of PPP loan balances) reported in the earnings release for the prior quarter. In that same earnings release I commented that we were, most encouraged by opportunities for increased loan originations in our strong, western Washington markets. Im pleased to reiterate that message as we continue to observe abundant opportunities to originate quality loans within our market footprint. While the best use of our ample liquidity is to commit funds to loans, recent increases in market interest rates combined with the prospect of near term Federal Reserve tightening has begun to provide more palatable opportunities for committing funds to investment securities at an increased pace. Our excess liquidity position will accommodate fairly significant investments during the next few quarters in short and moderate duration investments to supplement interest income without compromising our intentional positioning of the Bank to benefit strongly should rates rise sharply.

As expected, during the quarter, PPP loans continued to recede from the balance sheet due to staffs diligent efforts in obtaining loan forgiveness for PPP customers. PPP loan balances decreased to $21.4 million at December 31, 2021 from $40.9 million at the end of the preceding quarter and PPP loan origination fees of $907,000 remain to be accreted into income as forgiveness is obtained.

Also, Sand continued, I am pleased to announce the promotion of Dean Brydon to the position of President of Timberland Bank and Timberland Bancorp, Inc. and to announce the implementation of the Company's CEO succession plan, the details of which are included in the Form 8-K filing released contemporaneously with this earnings release. Dean and I have worked together for twenty-seven years and I can attest to his integrity, business acumen, foresight and commitment to the Company which, in my view, and in the opinion of Timberlands Directors, qualify him to serve as President for the next year and to assume the position of CEO upon my retirement from the Company in January 2023.

First Fiscal Quarter 2022 Earnings and Balance Sheet Highlights (at or for the period ended December 31, 2021, compared to December 31, 2020 or September 30, 2021):

Earnings Highlights:

-- Net income was $5.49 million for the current quarter compared to $6.02 million for the preceding quarter and $7.29 million for the comparable quarter one year ago; EPS was $0.65 for the current quarter compared to $0.71 for the preceding quarter and $0.87 for the comparable quarter one year ago; -- Return on average equity (ROE) and return on average assets (ROA) for the current quarter were 10.55% and 1.20%, respectively; -- Net interest margin (NIM) was 2.92% for the current quarter; and -- The efficiency ratio was 57.40% for the current quarter compared to 54.45% for the preceding quarter and 47.83% for the comparable quarter one year ago.

Balance Sheet Highlights:

-- Total assets increased 15% year-over-year and 2% from the prior quarter; -- Total deposits increased 17% year-over-year and 2% from the prior quarter; -- Net loans receivable (excluding SBA PPP loans) increased 8% year-over-year and increased 5% from the prior quarter; -- Net loans receivable (including SBA PPP loans) decreased 1% year-over-year and increased 3% from the prior quarter; -- Non-performing assets to total assets ratio improved to 0.17% from 0.19% one year ago; and -- Book and tangible book (non-GAAP) values per common share increased to $25.20 and $23.24, respectively, at December 31, 2021.

Operating Results

Operating revenue (net interest income before the provision for loan losses plus non-interest income) decreased 3% to $16.13 million for the first fiscal quarter from $16.56 million for the preceding quarter and decreased 8% from $17.58 million for the comparable quarter one year ago. The decrease in operating revenue compared to the preceding quarter was primarily due a $657,000 decrease in interest and accreted loan origination fees associated with the PPP loan portfolio.

Net interest income decreased 3% to $12.70 million for the current quarter from $13.11 million for the preceding quarter and decreased 3% from $13.02 million for the comparable quarter one year ago. Timberlands NIM for the current quarter was 2.92% compared to 3.13% for the preceding quarter and 3.48% for the comparable quarter one year ago. The NIM for the current quarter was increased by approximately four basis points due to the accretion of $57,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $114,000 in pre-payment penalties, non-accrual interest, and late fees. The NIM for the preceding quarter was increased by approximately five basis points due to the accretion of $50,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $174,000 in pre-payment penalties, non-accrual interest and late fees. The NIM for the comparable quarter one year ago was increased by approximately nine basis points due to the accretion of $120,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $196,000 in pre-payment penalties, non-accrual interest and late fees.

U.S. Small Business Administration (SBA) PPP loans contributed to interest income through the 1.00% interest rate earned on outstanding loan balances and also through the accretion of loan origination fees into interest income over the life of each PPP loan. At December 31, 2021, Timberland had SBA PPP deferred loan origination fees of $907,000 remaining to be accreted into interest income over the remaining life of the loans. The following table details the interest income recognized from SBA PPP loans:

SBA PPP Loan Income($ in thousands) Three Months Ended Dec. Sept. 30, 31, 2021 Dec. 31, 2020 2021Interest income $ 71 $ $ 295 167Loan origination 927 1,488 1,144fee accretionTotal SBA PPP $ 998 $ 1,655 $ loan income 1,439

No provision for loan losses was made during the quarters ended December 31, 2021, September 30, 2021 and December 31, 2020.

Non-interest income decreased slightly to $3.44 million for the current quarter from $3.45 million for the preceding quarter and decreased 25% from $4.56 million for the comparable quarter one year ago. The decrease in non-interest income compared to the preceding quarter was primarily due to a $54,000 decrease in service charges on deposits, a $52,000 decrease in ATM and debit card interchange transaction fees and smaller decreases in several other categories. These decreases were partially offset by a $126,000 increase in gain on sales of loans, a $32,000 increase in the valuation recovery on loan servicing rights and smaller increases in several other categories. The year-over-year decrease in non-interest income was primarily due to a $1.34 million decrease in gain on sales of loans. The decrease in gain on sales of loans was primarily due to a decrease in the dollar amount of fixed-rate one- to four-family loans originated and sold during the current quarter (as refinance demand slowed) and a decrease in the average pricing margin compared to the same period last year.

Total operating expenses for the current quarter increased $247,000, or 3%, to $9.26 million from $9.02 million for the preceding quarter and increased $854,000, or 10%, from $8.41 million for the comparable quarter one year ago. The increase in operating expenses compared to the preceding quarter was primarily due to a $366,000 increase in salaries and employee benefits expense, a $121,000 increase in the Other, net expense category and smaller increases in several other expense categories. These increases were partially offset by smaller decreases in several expense categories. The increase in salaries and employee benefits was primarily due to annual salary adjustments (effective October 1st) and the hiring of additional lending personnel. The increase in the Other, net expense category was primarily related to refunds to customers for deposit account fees that were determined to have been charged in error after the Banks core system conversion in 2019. The Bank discovered this issue during the current quarter. Bank staff reviewed affected accounts and refunded all fees charged that were not consistent with the Banks deposit account disclosures (including all subsequent fees incurred as a result of the fees charged in error). The efficiency ratio for the current quarter was 57.40% compared to 54.45% for the preceding quarter and 47.83% for the comparable quarter one year ago.

The provision for income taxes for the current quarter decreased $136,000 to $1.39 million from $1.53 million for the preceding quarter, primarily due to lower taxable income. Timberlands effective income tax rate was 20.2% for the quarter ended December 31, 2021 compared to 20.2% for the quarter ended September 30, 2021 and 20.5% for the quarter ended quarter ended December 31, 2020.

Balance Sheet Management

Total assets increased $39.10 million, or 2%, to $1.83 billion at December 31, 2021 from $1.79 billion at September 30, 2021. The quarterly increase was primarily due to a $35.03 million increase in investment securities and CDs held for investment, a $25.55 million increase in net loans receivable, and smaller increases in several other categories. These increases were partially offset by a $21.87 million decrease in total cash and cash equivalents, and smaller decreases in several other categories. The increase in total assets was funded primarily by an increase in total deposits and by retained net income.

Loans

Net loans receivable increased $25.55 million, or 3%, to $994.01 million at December 31, 2021 from $968.45 million at September 30, 2021. This increase was primarily due to a $26.71 million increase in commercial real estate loans, a $12.32 million increase in construction loans, a $10.43 million increase in commercial business loans (non-PPP), a $9.22 million increase in one- to four-family loans and smaller increases in other categories. These increases were partially offset by a $19.53 million decrease in SBA PPP loans, a $10.79 million increase in the undisbursed portion of construction loans in process, and smaller decreases in several other loan categories.

Loan Portfolio($ in thousands)

December 31, 2021 September 30, 2021 December 31, 2020 Amount Percent Amount Percent Amount PercentMortgage loans:One- tofour-family $ 129,151 12 % $ 119,935 11 % $ 115,613 10 %(a)Multi-family 84,180 7 87,563 8 89,413 8 Commercial 497,361 44 470,650 43 463,670 41 Construction - custom andowner/ 116,267 10 109,152 10 117,872 10 builderConstruction- speculativeone-to 18,255 2 17,813 2 20,291 2 four-familyConstruction 42,611 4 43,365 4 41,491 4 - commercialConstruction- 54,710 5 52,071 5 29,410 3 multi-familyConstruction - landdevelopment 13,680 1 10,804 1 6,943 1 Land 18,568 2 19,936 2 22,635 2 Totalmortgage 974,783 87 931,289 86 907,338 81 loans Consumer loans:Home equity and secondmortgage 34,375 3 32,988 3 35,446 3 Other 2,462 -- 2,512 -- 2,979 -- Totalconsumer 36,837 3 35,500 3 38,425 3 loans Commercial loans:Commercialbusiness 85,006 8 74,579 7 71,257 7 loansSBA PPP 21,397 2 40,922 4 103,468 9 loansTotalcommercial 106,403 10 115,501 11 174,725 16 loansTotal loans 1,118,023 100 % 1,082,290 100 % 1,120,488 100 %Less: Undisbursed portion ofconstruction loans inprocess (106,009 ) (95,224 ) (94,298 ) Deferredloan originationfees (4,539 ) (5,143 ) (5,449 ) Allowancefor loan (13,468 ) (13,469 ) (13,432 ) lossesTotal loansreceivable, $ 994,007 $ 968,454 $ 1,007,309 net

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(a)Does not include one- to four-family loans held for sale totaling $3,700, $3,217 and $10,871 at December 31, 2021, September 30, 2021, and December 31, 2020, respectively.

The following table provides a breakdown of commercial real estate (CRE) mortgage loans by collateral type as of December 31, 2021:

CRE Loan Portfolio Breakdown by Collateral($ in thousands)

Percent Percent ofCollateral Type Amount of CRE Total Loan Portfolio PortfolioIndustrial warehouse $ 91,779 18 % 8 %Office buildings 74,682 15 7 Medical/dental offices 61,807 12 5 Other retail buildings 44,544 9 4 Hotel/motels 26,602 5 2 Restaurants 25,404 5 2 Convenience stores 22,870 5 2 Mini-storage 18,895 4 2 Nursing homes 18,684 4 2 Churches 11,775 3 1 Shopping centers 10,714 2 1 Additional CRE 89,605 18 8 Total CRE $ 497,361 100 % 44 %

Timberland originated $178.84 million in loans during the quarter ended December 31, 2021, compared to $156.57 million for the comparable quarter one year ago and $132.91 million in loans for the preceding quarter. 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. Timberland also periodically sells the guaranteed portion of SBA loans. During the current quarter, fixed-rate one- to four-family mortgage loans totaling $22.56 million were sold compared to $43.84 million for the comparable quarter one year ago and $14.01 million for the preceding quarter. The decrease in loans sold during the current quarter compared to the prior year was primarily due to a decrease in single-family refinance loans originated as mortgage refinance activity diminished.

Timberlands investment securities and CDs held for investment increased $35.03 million, or 22%, to $196.75 million at December 31, 2021, from $161.72 million at September 30, 2021. The increase was primarily due to the purchase of additional mortgage-backed investment securities and U.S. Treasury securities and was partially offset by CDs held in other financial institutions that matured during the quarter.

Timberlands liquidity continues to remain strong. Liquidity, as measured by the sum of cash and cash equivalents, CDs held for investment, and available for sale investment securities, was 39.5% of total liabilities at December 31, 2021, compared to 42.4% at September 30, 2021, and 33.4% one year ago.

Deposits

Total deposits increased $36.08 million, or 2%, during the current quarter to $1.61 billion at December 31, 2021, from $1.57 billion at September 30, 2021. The quarters increase consisted of a $28.98 million increase in NOW checking account balances, a $12.03 million increase in money market account balances and an $8.73 million increase in savings account balances. These increases were partially offset by an $11.69 million decrease in non-interest bearing account balances and a $1.97 million decrease in certificates of deposit account balances.

Deposit Breakdown($ in thousands) December 31, 2021 September 30, 2021 December 31, 2020 Amount Percent Amount Percent Amount PercentNon-interest-bearing $ 523,518 33 % $ 535,212 34 % $ 437,953 32 %demandNOW checking 459,079 28 430,097 27 387,158 28 Savings 269,423 17 260,689 17 226,955 16 Money market 211,837 13 199,045 13 158,928 12 Money market ? 10,619 1 11,383 1 12,389 1 reciprocalCertificates of 110,168 7 112,348 7 124,789 9 deposit under $250Certificates ofdeposit $250 and 21,987 1 21,781 1 26,944 2 overTotal deposits $ 1,606,631 100 % $ 1,570,555 100 % $ 1,375,116 100 %

Shareholders Equity and Capital Ratios

Total shareholders equity increased $3.48 million, or 2%, to $210.38 million at December 31, 2021, from $206.90 million at September 30, 2021. The increase in shareholders equity was primarily due to net income of $5.49 million for the quarter, which was partially offset by the payment of $1.76 million in dividends to shareholders. In addition, there were 15,548 shares repurchased during the quarter ended December 31, 2021 at an average price of $27.86 per share. Timberland had 383,734 shares available to be repurchased on its existing stock repurchase plan at December 31, 2021.

Timberland remains well capitalized with a total risk-based capital ratio of 21.49% and a Tier 1 leverage capital ratio of 10.49% at December 31, 2021.

Asset Quality and Loan Deferrals

Timberlands non-performing assets to total assets ratio improved to 0.17% at December 31, 2021, from 0.19% one year ago and 0.18% at September 30, 2021. There were net charge-offs of $1,000 for the current quarter compared to no net charge-off/recoveries for the preceding quarter and net recoveries of $18,000 for the comparable quarter one year ago. No provisions for loan losses were made during quarters ended December 31, 2021, September 30, 2021 and December 31, 2020.

Timberland has consistently worked with borrowers affected by the COVID-19 pandemic by offering loan deferral and forbearance plans during the pandemic. Deferrals were primarily approved for 90-day periods with interest continuing to accrue or with interest scheduled to be paid monthly. All borrowers that were granted COVID-19 deferrals have resumed making regular payments as of December 31, 2021.

The allowance for loan losses (ALL) as a percentage of loans receivable was 1.34% at December 31, 2021, compared to 1.32% one year ago and 1.37% at September 30, 2021. If SBA PPP loans, which are 100% SBA guaranteed, are excluded, the ALL to loans receivable (excluding SBA PPP loans) at December 31, 2021 was 1.37% (non-GAAP).

The ALL as a percentage of loans receivable is also impacted by the loans acquired in the South Sound Acquisition. Included in the recorded value of loans acquired in acquisitions are net discounts which may reduce the need for an allowance for loan losses on such loans because they are carried at an amount below their outstanding principal balance. The initial recorded value of loans acquired in the South Sound Acquisition was $123.62 million and the related fair value discount was $2.08 million, or 1.68% of the loans acquired. The remaining fair value discount on loans acquired in the South Sound Acquisition was $392,000 at December 31, 2021. The allowance for loan losses to loans receivable (excluding SBA PPP loan balances and the remaining aggregate balance of the loans acquired in the South Sound Acquisition) was 1.41% (non-GAAP) at December 31, 2021.

The following table details the ALL as a percentage of loans receivable:

Dec. Sept Dec. 31, 30, 31, 2021 2021 2020ALL to loans receivable 1.34 % 1.37 % 1.32 %ALL to loans receivable (excluding SBA PPP loans) 1.37 % 1.43 % 1.46 %(non-GAAP)ALL to loans receivable (excluding SBA PPP loans 1.41 % 1.49 % 1.56 %and South SoundAcquisition loans) (non-GAAP)

Total delinquent loans (past due 30 days or more) and non-accrual loans increased $207,000, or 7%, to $3.25 million at December 31, 2021, from $3.04 million at September 30, 2021, and increased $424,000, or 15%, from $2.82 million one year ago. Non-accrual loans decreased slightly ($1,000) to $2.85 million at December 31, 2021, from $2.85 million at September 30, 2021 and increased $272,000, or 11%, from $2.58 million one year ago.

Non-Accrual Loans($ in thousands)

December 31, 2021 September 30, 2021 December 31, 2020 Amount Quantity Amount Quantity Amount QuantityMortgage loans:One- to $ 582 3 $ 406 2 $ 419 2four-familyCommercial 675 2 773 2 643 3Land 676 3 683 3 405 4Totalmortgage 1,933 8 1,862 7 1,467 9loans Consumer loansHome equity and secondmortgage 456 4 516 5 607 7Other 5 1 17 2 9 1Totalconsumer 461 5 533 7 616 8loans Commercialbusiness 459 7 459 6 498 8loansTotal loans $ 2,853 20 $ 2,854 20 $ 2,581 25

OREO and other repossessed assets decreased 41% to $157,000 at December 31, 2021, from $268,000 at December 31, 2020, and remained unchanged from $157,000 at September 30, 2021. At December 31, 2021, the OREO and other repossessed asset portfolio consisted of three individual land parcels. No OREO properties were sold during the quarter ended December 31, 2021.

OREO and Other Repossessed Assets($ in thousands)

December 31, 2021 September 30, 2021 December 31, 2020 Amount Quantity Amount Quantity Amount QuantityLand $ 157 3 $ 157 3 $ 268 4Total $ 157 3 $ 157 3 $ 268 4

Acquisition of South Sound BankOn October 1, 2018, the Company completed the acquisition of South Sound Bank, a Washington-state chartered bank, headquartered in Olympia, Washington (South Sound Acquisition). The Company acquired 100% of the outstanding common stock of South Sound Bank, and South Sound Bank was merged into Timberland Bank and the Company. Pursuant to the terms of the merger agreement, South Sound Bank shareholders received 0.746 of a share of the Companys common stock and $5.68825 in cash per share of South Sound Bank common stock. The Company issued 904,826 shares of its common stock (valued at $28,267,000 based on the Companys closing stock price on September 30, 2018 of $31.24 per share) and paid $6,903,000 in cash in the transaction for total consideration paid of $35,170,000.

About Timberland Bancorp, Inc. Timberland Bancorp, Inc., a Washington corporation, is the holding company for Timberland 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 24 branches (including its main office in Hoquiam).

DisclaimerCertain matters discussed in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plan, objectives, future performance or business. Forward-looking statements are not statements of historical fact, are based on certain assumptions 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 economic 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 or implied by our forward-looking statements, including, but not limited to: the effect of the novel coronavirus of 2019 (COVID-19) pandemic, including the Companys credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate customers, including economic activity, employment levels and market liquidity; 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 which 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 loan loss 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; uncertainty regarding the future of the London Interbank Offered Rate (LIBOR), and the potential transition away from LIBOR toward new interest rate benchmarks; 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, institute a formal or informal enforcement action against us or our bank subsidiary which could 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 or impose additional requirements or restrictions on us, any of which could adversely affect our liquidity and earnings; 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 including as a result of Basel III; the impact of the Dodd Frank Wall Street Reform and Consumer Protection Act and implementing regulations; our ability to attract and retain deposits; 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 consolidated balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement our business strategies; our ability to manage loan delinquency rates; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common and stock; 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 (FASB), 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 including the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act), the Consolidated Appropriations Act, 2021 (CAA), and the American Rescue Plan Act of 2021; 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 managements beliefs and assumptions at the time they are made. We do not undertake and specifically disclaim any obligation to publicly update or revise any forward-looking statements included in this report to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements 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. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this document might not occur and we caution readers not to place undue reliance on any forward-looking statements. These risks could cause our actual results for fiscal 2022 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of us, and could negatively affect the Companys consolidated financial condition and results of operations as well as its stock price performance.

TIMBERLAND BANCORP INC. ANDSUBSIDIARY Three Months EndedCONSOLIDATED STATEMENTS OF INCOME($ in thousands, except per share Dec. 31, Sept. 30, Dec. 31,amounts)(unaudited) 2021 2021 2020 Interest and dividend income Loans receivable $ 12,622 $ 13,132 $ 13,318 Investment securities 405 318 301 Dividends from mutual funds, FHLB stock and other 27 28 28 investments Interest bearing deposits in 288 301 310 banks Total interest and dividend 13,342 13,779 13,957 income Interest expense Deposits 631 654 904 Borrowings 15 15 29 Total interest expense 646 669 933 Net interest income 12,696 13,110 13,024 Provision for loan losses -- -- -- Net interest income after 12,696 13,110 13,024 provision for loan losses Non-interest income Service charges on deposits 913 967 1,055 ATM and debit card interchange 1,277 1,329 1,156 transaction fees Gain on sales of loans, net 663 537 2,002 Bank owned life insurance 154 152 149 (?BOLI?) net earnings Valuation recovery (allowance) 119 87 (236 ) on loan servicing rights, net Recoveries on investment 8 5 5 securities, net Other 308 373 428 Total non-interest income, net 3,442 3,450 4,559 Non-interest expense Salaries and employee benefits 5,171 4,805 4,613 Premises and equipment 928 993 957 Advertising 166 153 156 OREO and other repossessed (18 ) 2 (26 ) assets, net ATM and debit card processing 464 489 431 Postage and courier 136 159 138 State and local taxes 255 267 283 Professional fees 271 331 231 FDIC insurance expense 128 113 96 Loan administration and 104 153 80 foreclosure Data processing and 613 642 606 telecommunications Deposit operations 299 273 284 Amortization of core deposit 79 90 90 intangible (?CDI?) Other, net 668 547 471 Total non-interest expense, net 9,264 9,017 8,410 Income before income taxes 6,874 7,543 9,173 Provision for income taxes 1,389 1,525 1,883 Net income $ 5,485 $ 6,018 $ 7,290 Net income per common share: Basic $ 0.66 $ 0.72 $ 0.88 Diluted 0.65 0.71 0.87 Weighted average common shares outstanding: Basic 8,356,066 8,354,018 8,313,493 Diluted 8,448,900 8,454,636 8,412,744

TIMBERLAND BANCORP INC. ANDSUBSIDIARY CONSOLIDATED BALANCE SHEETS($ in thousands, except per Dec. 31, Sept. 30, Dec. 31,share amounts) (unaudited) 2021 2021 2020 Assets Cash and due from financial $ 20,539 $ 26,316 $ 24,226 institutionsInterest-bearing deposits in 537,789 553,880 325,987 banks Total cash and cash 558,328 580,196 350,213 equivalents Certificates of deposit (?CDs?) 24,648 28,482 49,629 held for investment, at costInvestment securities: Held to maturity, at 114,600 69,102 24,509 amortized cost Available for sale, at fair 56,552 63,176 65,762 valueInvestments in equity 946 955 974 securities, at fair valueFHLB stock 2,103 2,103 1,922 Other investments, at cost 3,000 3,000 3,000 Loans held for sale 3,700 3,217 10,871 Loans receivable 1,007,475 981,923 1,020,741 Less: Allowance for loan losses (13,468 ) (13,469 ) (13,432 ) Net loans receivable 994,007 968,454 1,007,309 Premises and equipment, net 22,108 22,367 22,753 OREO and other repossessed 157 157 268 assets, netBOLI 22,346 22,193 21,745 Accrued interest receivable 3,938 3,745 4,490 Goodwill 15,131 15,131 15,131 CDI 1,185 1,264 1,535 Loan servicing rights, net 3,524 3,482 3,036 Operating lease right-of-use 2,206 2,283 2,512 assetsOther assets 2,796 2,873 2,746 Total assets $ 1,831,275 $ 1,792,180 $ 1,588,405 Liabilities and shareholders? equityDeposits: Non-interest-bearing $ 523,518 $ 535,212 $ 437,953 demandDeposits: Interest-bearing 1,083,113 1,035,343 937,163 Total deposits 1,606,631 1,570,555 1,375,116 Operating lease liabilities 2,285 2,359 2,565 FHLB borrowings 5,000 5,000 10,000 Other liabilities and accrued 6,984 7,367 7,399 expenses Total liabilities 1,620,900 1,585,281 1,395,080 Shareholders? equity Common stock, $.01 par value;50,000,000 shares authorized; 8,348,821 sharesissued and outstanding ?December 31, 2021 8,355,469 shares 42,673 42,480 issued and outstanding ? 42,436September 30, 2021 8,317,793 sharesissued and outstanding ?December 31, 2020

Retained earnings 167,897 164,167 150,801 Accumulated other comprehensive 42 59 44 income Total shareholders? equity 210,375 206,899 193,325 Total liabilities and $ 1,831,275 $ 1,792,180 $ 1,588,405 shareholders? equity

Three Months EndedKEY FINANCIAL RATIOS AND DATA($ in thousands, except per share Dec. 31, Sept. 30, Dec. 31,amounts) (unaudited) 2021 2021 2020 PERFORMANCE RATIOS: Return on average assets (a) 1.20 % 1.36 % 1.84 %Return on average equity (a) 10.55 % 11.77 % 15.39 %Net interest margin (a) 2.92 % 3.13 % 3.48 %Efficiency ratio 57.40 % 54.45 % 47.83 % ASSET QUALITY RATIOS AND DATA: Non-accrual loans $ 2,853 $ 2,854 $ 2,581 Loans past due 90 days and still -- -- -- accruingNon-performing investment 140 159 205 securitiesOREO and other repossessed assets 157 157 268 Total non-performing assets (b) $ 3,150 $ 3,170 $ 3,054 Non-performing assets to total 0.17 % 0.18 % 0.19 %assets (b)Net charge-offs (recoveries) $ 1 $ -- $ (18 )during quarterALL to non-accrual loans 472 % 472 % 520 %ALL to loans receivable (c) 1.34 % 1.37 % 1.32 %ALL to loans receivable (excluding 1.37 % 1.43 % 1.46 %SBA PPP loans) (d) (non-GAAP)ALL to loans receivable (excludingSBA PPP loans and South Sound Acquisition loans) (d) (e) 1.41 % 1.49 % 1.56 %(non-GAAP)Troubled debt restructured loans $ 2,361 $ 2,371 $ 2,868 on accrual status (f) CAPITAL RATIOS: Tier 1 leverage capital 10.81 % 10.97 % 11.36 %Tier 1 risk-based capital 20.24 % 20.92 % 20.23 %Common equity Tier 1 risk-based 20.24 % 20.92 % 20.23 %capitalTotal risk-based capital 21.49 % 22.17 % 21.48 %Tangible common equity to tangible 10.69 % 10.73 % 11.24 %assets (non-GAAP) BOOK VALUES: Book value per common share $ 25.20 $ 24.76 $ 23.24 Tangible book value per common 23.24 22.80 21.24 share (g)

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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) Does not include loans held for sale and is before the allowance for loan losses.(d) Does not include PPP loans totaling $21,397, $40,922 and $103,468 at December 31, 2021, September 30, 2021 and December 31, 2020, respectively.(e) Does not include loans acquired in the South Sound Acquisition totaling $31,907, $36,491 and $56,874 at December 31, 2021, September 30, 2021 and December 31, 2020, respectively.(f) Does not include troubled debt restructured loans totaling $177, $182 and $197 reported as non-accrual loans at December 31, 2021, September 30, 2021 and December 31, 2020, respectively. (g) Tangible common equity divided by common shares outstanding (non-GAAP).

AVERAGE BALANCES, YIELDS, AND RATES - QUARTERLY($ in thousands)(unaudited)

For the Three Months Ended December 31, 2021 September 30, 2021 December 31, 2020 Amount Rate Amount Rate Amount Rate Assets Loans receivable and $ 997,358 5.06 % $ 1,000,063 5.25 % $ 1,030,289 5.17 %loans held for saleInvestmentsecurities and FHLB 162,077 1.07 125,627 1.10 94,033 1.40 stock (1)Interest-earningdeposits in banks 580,337 0.20 551,918 0.22 374,376 0.33 and CDsTotalinterest-earning 1,739,772 3.07 1,677,608 3.29 1,498,698 3.73 assetsOther assets 83,563 86,838 84,077 Total assets $ 1,823,335 $ 1,764,446 $ 1,582,775 Liabilities and Shareholders? EquityNOW checking $ 440,744 0.13 % $ 421,095 0.13 % $ 377,760 0.19 %accountsMoney market 222,945 0.29 202,435 0.29 168,503 0.33 accountsSavings accounts 264,651 0.08 257,856 0.08 222,866 0.08 Certificates of 132,590 0.83 137,518 0.91 155,125 1.38 deposit accountsTotalinterest-bearing 1,060,930 0.24 1,018,904 0.26 924,254 0.39 depositsBorrowings 5,000 1.20 5,000 1.19 10,000 1.15 Totalinterest-bearing 1,065,930 0.24 1,023,904 0.26 934,254 0.40 liabilities Non-interest-bearing 538,865 525,047 448,350 demand depositsOther liabilities 10,567 10,991 10,687 Shareholders? equity 207,973 204,504 189,484 Total liabilitiesand shareholders? $ 1,823,335 $ 1,764,446 $ 1,582,775 equity Interest rate spread 2.83 % 3.03 % 3.33 %Net interest margin 2.92 % 3.13 % 3.48 %(2)Averageinterest-earning assets toaverageinterest-bearing 163.22 % 163.84 % 160.42 % liabilities

_____________________________________(1) Includes other investments(2) Net interest margin = annualized net interest income / average interest-earning assets

Non-GAAP Financial MeasuresIn addition to results presented in accordance with generally accepted accounting principles (GAAP), this press release contains certain non-GAAP financial measures. Timberland believes that certain non-GAAP financial measures provide investors with information useful in understanding the Companys financial performance; however, readers of this report are urged to review these non-GAAP financial measures in conjunction with GAAP results as reported.

Financial measures that exclude intangible assets are non-GAAP measures. To provide investors with a broader understanding of capital adequacy, Timberland provides non-GAAP financial measures for tangible common equity, along with the GAAP measure. Tangible common equity is calculated as shareholders equity less goodwill and CDI. In addition, tangible assets equal total assets less goodwill and CDI.

The following table provides a reconciliation of ending shareholders equity (GAAP) to ending tangible shareholders equity (non-GAAP) and ending total assets (GAAP) to ending tangible assets (non-GAAP).

($ in thousands) December 31, September 30, December 31, 2021 2021 2020 Shareholders? equity $ 210,375 $ 206,899 $ 193,325 Less goodwill and CDI (16,316 ) (16,395 ) (16,666 )Tangible common $ 194,059 $ 190,504 $ 176,659 equity Total assets $ 1,831,275 $ 1,792,180 $ 1,588,405 Less goodwill and CDI (16,316 ) (16,395 ) (16,666 )Tangible assets $ 1,814,959 $ 1,775,785 $ 1,571,739

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