AP NEWS

Timberland Bancorp Earnings Per Share Increases to a Record $0.59 for 2018’s Third Fiscal Quarter

July 24, 2018

-- Net Income Increases 17% for the First Nine Months of Fiscal 2018 -- Earnings Per Share Increases 14% to $1.64 for the First Nine Months of Fiscal 2018 -- Reports Quarterly Return on Average Equity of 14.87% -- Reports Quarterly Return on Average Assets of 1.78% -- Announces $0.13 Quarterly Cash Dividend

HOQUIAM, Wash., July 24, 2018 (GLOBE NEWSWIRE) -- Timberland Bancorp, Inc. (NASDAQ:TSBK) (“Timberland” or “the Company”) today reported record quarterly net income of $4.42 million, or $0.59 per diluted common share, for the quarter ended June 30, 2018. This compares to net income of $4.27 million, or $0.57 per diluted common share, for the preceding quarter and net income of $4.28 million, or $0.58 per diluted common share, for the quarter ended June 30, 2017 which quarter’s earnings per share was increased by approximately $0.13 due to a significant loan loss reserve recapture and the collection of non-accrual interest partially offset by the cost of prepaying two FHLB borrowings.

For the first nine months of fiscal 2018, Timberland earned $12.30 million, or $1.64 per diluted common share, an increase in net income of 17% and an increase in earnings per diluted common share (“EPS”) of 14% from $10.55 million, or $1.44 per diluted common share, for the first nine months of fiscal 2017.

Timberland’s Board of Directors declared a quarterly cash dividend to shareholders of $0.13 per common share payable on August 24, 2018, to shareholders of record on August 10, 2018.

“We continue to expect the acquisition of South Sound Bank to occur in the fourth calendar quarter of this year subject to regulatory approvals, the approval of South Sound Bank’s shareholders and other customary closing conditions,” said Michael Sand, President and CEO. “The first of these approvals was obtained on July 10, 2018 when the State of Washington’s Department of Financial Institutions, Division of Banks granted its approval for the merger. The acquisition will enhance Timberland’s presence along Washington State’s economically important and rapidly growing I-5 corridor. During the quarter just ended, Timberland incurred approximately $147,000 in merger related expenses reducing the quarter’s EPS by approximately $0.01.”

“We also are looking forward to the benefit of a lower federal income tax rate effective upon the conclusion of our next fiscal quarter,” Sand also stated. “Since the enactment of the Tax Cuts and Jobs Act legislation, Timberland has employed a blended federal income tax rate of 24.5%. This tax rate will decline to 21.0% beginning October 1, 2018 and the benefit will be impactful to net income. Had the lower tax rate been available to Timberland for the quarter just ended, EPS would have been higher by approximately $0.02.”

Third Fiscal Quarter 2018 Earnings and Balance Sheet Highlights (at or for the period ended June 30, 2018, compared to March 31, 2018, or June 30, 2017):

Earnings Highlights:

-- Net income increased 17% for the first nine months of fiscal 2018; -- EPS for the first nine months of fiscal 2018 increased 14% to $1.64 from $1.44 for the first nine months of fiscal 2017; -- EPS increased to $0.59 from $0.57 for the preceding quarter and $0.58 for the comparable quarter one year ago; -- Return on average equity and return on average assets for the current quarter remained strong at 14.87% and 1.78%, respectively; -- Operating revenue increased 4% from the comparable quarter one year ago; -- Net interest margin remained strong at 4.18% for the current quarter; and -- Efficiency ratio improved to 55.33% for the current quarter from 56.83% for the preceding quarter.

Balance Sheet Highlights:

-- Total assets increased 8% year-over-year to $1.01 billion; -- Total deposits increased 8% year-over-year; -- Net loans receivable increased 4% year-over-year; and -- Book and tangible book (non-GAAP) values per common share increased to $16.35 and $15.58, respectively, at June 30, 2018.

Operating Results

Operating revenue (net interest income before the recapture of loan losses, plus non-interest income excluding other than temporary impairment (“OTTI”) charges (recoveries) on investment securities) increased 4% to $12.85 million for the current quarter from $12.40 million for the comparable quarter one year ago and increased 1% from $12.69 million for the preceding quarter. Operating revenue increased 8% to $38.09 million for the first nine months of fiscal 2018 from $35.24 million for the comparable period one year ago.

Net interest income for the current quarter increased 5% to $9.73 million from $9.25 million for the comparable quarter one year ago and increased 1% from $9.62 million for the preceding quarter. The increase in net interest income compared to the preceding quarter was primarily due to an increase in average total interest-earning assets and an increase in the yield earned on average total interest-earning assets and was partially offset by an increase in the cost of interest-bearing deposits. The increase in net interest income relative to the comparable quarter one year ago was partially due to paying off FHLB borrowings and eliminating the associated interest expense. For the first nine months of fiscal 2018 net interest income increased 11% to $28.79 million from $26.01 million for the first nine months of fiscal 2017.

The net interest margin (“NIM”) for the current quarter was 4.18% compared to 4.19% for the preceding quarter and 4.29% for the comparable quarter one year ago. The NIM for the preceding quarter was increased by approximately six basis points due to the collection of a $134,000 loan prepayment penalty and the collection of $2,000 of non-accrual interest. The NIM for the comparable quarter one year ago was increased by approximately 22 basis points due to the net effect of collecting $748,000 of non-accrual interest and paying $282,000 in FHLB borrowing prepayment penalties. Timberland’s net interest margin for the first nine months of fiscal 2018 improved to 4.19% from to 4.03% for the first nine months of fiscal 2017.

Non-interest income increased 2% to $3.15 million for the current quarter from $3.08 million for the preceding quarter and decreased slightly from $3.16 million for the comparable quarter one year ago. The increased non-interest income for the current quarter compared to the preceding quarter was primarily due to an increase in ATM and debit card interchange transaction fees and smaller increases in several other categories. These increases were partially offset by a decrease in gain on sale of loans. Fiscal year-to-date non-interest income increased 2% to $9.36 million from $9.22 million for the first nine months of fiscal 2017.

Total operating expenses for the current quarter decreased 1% to $7.12 million from $7.22 million for the preceding quarter and increased 3% from $6.94 million for the comparable quarter one year ago. The decreased expenses for the current quarter compared to the preceding quarter were primarily due to a decrease of $183,000 in net OREO related expenses and smaller decreases in several other categories. These decreases were partially offset by a $125,000 increase in professional fees and smaller increases in several other categories. The decrease in net OREO related expenses was primarily due to a $124,000 gain on the sale of an OREO property during the current quarter. The increase in professional fees was primarily due to $147,000 in merger related expenses associated with Timberland’s announced acquisition of South Sound Bank. The efficiency ratio for the current quarter improved to 55.33% from 56.83% for the preceding quarter and 55.94% for the comparable quarter one year ago. Fiscal year-to-date operating expenses increased 4% to $21.52 million from $20.61 million for the first nine months of fiscal 2017. The efficiency ratio improved for the first nine months of fiscal 2018 to 56.41% from 58.48% for the first nine months of fiscal 2017.

The provision for income taxes for the current quarter increased by $118,000 to $1.33 million from $1.22 million for the preceding quarter, primarily due to higher pre-tax income. The fiscal year-to-date provision for income taxes decreased $997,000 to $4.33 million from $5.33 million for the first nine months of fiscal 2017, primarily due to the Tax Cuts and Jobs Act legislation which was signed into law on December 22, 2017. As a result of the new legislation (which decreased the federal corporate income tax rate to 21.0% from 35.0%), Timberland recorded a one-time income tax expense of $548,000 in conjunction with writing down its net deferred tax asset (“DTA”) during the quarter ended December 31, 2017 and began using a lower tax rate for the current fiscal year. Since Timberland is a September 30th fiscal year-end corporation, it will use a blended tax rate of 24.5% for the fiscal year ending September 30, 2018, and a 21.0% rate thereafter. Timberland’s effective tax rate for the quarter ended June 30, 2018, was 23.2%.

Balance Sheet Management

Total assets increased $5.18 million, or 1%, to $1.01 billion at June 30, 2018, from $1.00 billion at March 31, 2018. The increase was primarily due to a $7.10 million net increase in net loans receivable and loans held for sale, which was partially offset by a $2.39 million net decrease in total cash and cash equivalents and CDs held for investment.

Liquidity, as measured by the sum of cash and cash equivalents, CDs held for investment and available for sale investment securities, was 25.0% of total liabilities at June 30, 2018, compared to 25.3% at March 31, 2018, and 21.3% one year ago.

Net loans receivable increased $8.76 million, or 1%, to $717.32 million at June 30, 2018, from $708.57 million at March 31, 2018. The increase was primarily due to a $3.70 million increase in commercial real estate loans, a $3.06 million increase in land loans, a $3.01 million increase in multi-family loans, a $1.29 million increase in one- to four-family loans, a $1.18 million increase in commercial construction loans, a $12.43 million decrease in the undisbursed portion of construction loans in process and smaller increases in several other categories. These increases were partially offset by a $9.59 million decrease in multi-family construction loans, a $5.76 million decrease in one- to four-family construction loans and smaller decreases in several other categories.

LOAN PORTFOLIO

($ in thousands) June 30, 2018 March 31, 2018 June 30, 2017 ------------------ ------------------ ------------------ Amount Percen Amount Percen Amount Percen t t t ----------- ----- ----------- ----- ----------- ----- Mortgage loans: One- to four-family (a) $ 114,148 14 % $ 112,862 14 % $ 121,705 16 % Multi-family 58,169 7 55,157 7 61,051 8 Commercial 345,543 44 341,845 43 331,901 43 Construction - custom and 113,468 14 119,230 15 109,578 14 owner/builder Construction - speculative 10,146 1 10,876 1 8,002 1 one-to four-family Construction - commercial 26,347 3 25,166 3 20,067 3 Construction - multi-family 15,225 2 24,812 3 11,057 1 Construction - land 3,190 1 2,950 -- -- -- development Land 23,662 3 20,602 3 24,333 3 - ------- - --- - - ------- - --- - - ------- - --- - Total mortgage loans 709,898 89 713,500 89 687,694 89 - ------- - --- - - ------- - --- - - ------- - --- - Consumer loans: Home equity and second 38,143 5 38,124 5 36,320 5 Mortgage Other 3,674 1 3,646 1 3,789 -- - ------- - --- - - ------- - --- - - ------- - --- - Total consumer loans 41,817 6 41,770 6 40,109 5 - ------- - --- - - ------- - --- - - ------- - --- - Commercial business loans 43,284 5 43,465 5 43,407 6 - ------- - --- - - ------- - --- - - ------- - --- - Total loans 794,999 100 % 798,735 100 % 771,210 100 % --- - --- - --- - Less: Undisbursed portion of construction loans in (65,674 ) (78,108 ) (72,133 ) process Deferred loan origination (2,469 ) (2,515 ) (2,309 ) fees Allowance for loan losses (9,532 ) (9,544 ) (9,610 ) - ------- - - ------- - - ------- - Total loans receivable, net $ 717,324 $ 708,568 $ 687,158 - ------- - - ------- - - ------- -

_______________________

(a) Does not include one- to four-family loans held for sale totaling $2,321, $3,981 and $3,523 at June 30, 2018, March 31, 2018, and June 30, 2017, respectively.

Timberland originated $70.46 million in loans during the quarter ended June 30, 2018, compared to $92.93 million for the comparable quarter one year ago and $78.99 million 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 U.S. Small Business Administration (“SBA”) loans. During the third quarter of fiscal 2018 fixed-rate one- to four-family mortgage loans and SBA loans totaling $17.74 million were sold compared to $19.34 million for the comparable quarter one year ago and $15.31 million for the preceding quarter. Timberland’s investment securities and other investments decreased $136,000, or 1%, to $12.13 million at June 30, 2018, from $12.26 million at March 31, 2018, primarily due to scheduled amortization. Timberland’s CDs held for investment increased $10.19 million, or 19%, to $63.13 million at June 30, 2018, from $52.94 million at March 31, 2018.

DEPOSIT BREAKDOWN($ in thousands)

June 30, 2018 March 31, 2018 June 30, 2017 ---------------- ---------------- ---------------- Amount Percen Amount Percen Amount Percen t t t Non-interest-bearing demand $229,201 26 % $222,302 25 % $197,527 24 % NOW checking 222,203 25 227,075 26 216,719 26 Savings 148,690 17 147,750 17 136,750 17 Money market 129,559 15 130,844 15 119,025 15 Money market – brokered 10,084 1 10,363 1 8,506 1 Certificates of deposit under $250 120,156 14 121,157 14 121,505 15 Certificates of deposit $250 and over 17,637 2 17,720 2 15,590 2 Certificates of deposit – brokered 3,197 -- 3,200 -- 3,196 -- -------- --- - -------- --- - -------- --- - Total deposits $880,727 100 % $880,411 100 % $818,818 100 % -------- --- - -------- --- - -------- --- -

Total deposits increased $61.91 million, or 8%, to $880.73 million at June 30, 2018, from $818.82 million one year ago, and increased slightly from $880.41 million at March 31, 2018.

Shareholders’ Equity

Total shareholders’ equity increased $3.05 million to $120.89 million at June 30, 2018, from $117.84 million at March 31, 2018. The increase in shareholders’ equity was primarily due to net income of $4.42 million for the quarter, which was partially offset by dividend payments to shareholders of $1.70 million.

Capital Ratios and Asset Quality

Timberland remains well capitalized with a total risk-based capital ratio of 18.24% and a Tier 1 leverage capital ratio of 11.80% at June 30, 2018.

Asset quality remains strong with the non-performing assets to total assets ratio at 0.56% at June 30, 2018, compared to 0.65% one year ago and 0.46% at March 31, 2018.

No provision for loan losses was made for the quarters ended June 30, 2018 and March 31, 2018. Timberland recorded a $1.0 million loan loss reserve recapture during the comparable quarter one year ago. Net charge-offs totaled $12,000 for the current quarter compared to net charge-offs of $21,000 for the preceding quarter and a net recovery of $1.02 million for the comparable quarter one year ago. The allowance for loan losses was 1.31% of loans receivable at June 30, 2018, compared to 1.33% at March 31, 2018, and 1.38% at June 30, 2017.

Total delinquent loans (past due 30 days or more) and non-accrual loans increased $139,000, or 4%, to $3.43 million at June 30, 2018, from $3.29 million at March 31, 2018, and increased $985,000, or 40%, from $2.44 million one year ago. The increase in delinquencies is primarily a result of two one- to four-family loans becoming delinquent. Non-accrual loans increased $774,000, or 40%, to $2.71 million at June 30, 2018, from $1.93 million at March 31, 2018, and increased $651,000, or 32%, from $2.06 million one year ago.

NON-ACCRUAL LOANS June 30, 2018 March 31, 2018 June 30, 2017 ----------------- ------------------ ------------- --- ($ in thousands) Amount Quantity Amount Quantity Amount Quantity ------- -------- ------- -------- ------- -------- Mortgage loans: One- to four-family $ 1,361 7 $ 801 6 $ 896 7 Commercial 598 3 370 3 403 1 Land 295 3 395 4 496 2 - ----- -------- - ----- -------- - ----- -------- Total mortgage loans 2,254 13 1,566 13 1,795 10 - ----- -------- - ----- -------- - ----- -------- Consumer loans: Home equity and second mortgage 278 6 185 4 260 3 Total consumer loans 278 6 185 4 260 3 - ----- -------- - ----- -------- - ----- -------- Commercial business 174 2 181 2 -- -- - ----- -------- - ----- -------- - ----- -------- Total loans $ 2,706 21 $ 1,932 19 $ 2,055 13 - ----- -------- - ----- -------- - ----- --------

OREO and other repossessed assets decreased 38% to $2.11 million at June 30, 2018, from $3.42 million at June 30, 2017, and decreased 5% from $2.22 million at March 31, 2018. At June 30, 2018, the OREO and other repossessed asset portfolio consisted of 13 individual real estate properties. During the quarter ended June 30, 2018, one OREO property was sold for a net gain of $124,000.

OREO and OTHER REPOSSESSED ASSETS June 30, 2018 March 31, 2018 June 30, 2017 ----------------- ----------------- ------------- ($ in thousands) Amount Quantity Amount Quantity Amount Quantity ------- -------- ------- -------- ------- -------- One- to four-family $ -- -- $ -- -- $ 927 3 Commercial 448 2 287 1 587 2 Land 1,664 11 1,934 12 1,903 12 Consumer -- -- -- -- -- -- ------- -------- ------- -------- ------- -------- Total $ 2,112 13 $ 2,221 13 $ 3,417 17 - ----- -------- - ----- -------- - ----- --------

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 Company’s 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. In addition, tangible assets equal total assets less goodwill.

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) June 30, 2018 March 31, June 30, 2018 2017 ------------- ------------- ----------- Shareholders’ equity $ 120,894 $ 117,843 $ 108,616 Less goodwill (5,650 ) (5,650 ) (5,650 ) - --------- - - --------- - - ------- - Tangible common equity $ 115,244 $ 112,193 $ 102,966 - --------- - - --------- - - ------- - Total assets $ 1,006,383 $ 1,001,201 $ 931,009 Less goodwill (5,650 ) (5,650 ) (5,650 ) - --------- - - --------- - - ------- - Tangible assets $ 1,000,733 $ 995,551 $ 925,359 - --------- - - --------- - - ------- -

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).

DisclaimerCertain 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 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; 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 Board of Governors of the Federal Reserve System 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 or 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, 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 the implementation of related rules and regulations; our ability to attract and retain deposits; 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 consolidated 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; 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, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations; pricing, products and services; and other risks detailed in our reports filed with the Securities and Exchange Commission.

Any of the forward-looking statements that we make in this press release and in the other public statements we make are based upon management’s beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. We caution readers not to place undue reliance on any forward-looking statements. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for fiscal 2018 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of us, and could negatively affect the Company’s operations and stock price performance.

TIMBERLAND BANCORP INC. AND SUBSIDIARY Three Months Ended CONSOLIDATED STATEMENTS OF INCOME -------------------------------------------- ($ in thousands, except per share amounts) June 30, March 31, June 30, (unaudited) 2018 2018 2017 - --------- - - --------- - - --------- - Interest and dividend income Loans receivable $ 9,530 $ 9,484 $ 9,652 Investment securities 51 39 69 Dividends from mutual funds and FHLB stock 31 26 23 Interest bearing deposits in banks 845 741 421 - --------- - - --------- - - --------- - Total interest and dividend income 10,457 10,290 10,165 - --------- - - --------- - - --------- - Interest expense Deposits 730 666 549 FHLB borrowings -- -- 369 - --------- - - --------- - - --------- - Total interest expense 730 666 918 - --------- - - --------- - - --------- - Net interest income 9,727 9,624 9,247 Recapture of loan losses -- -- (1,000 ) - --------- - - --------- - - --------- - Net interest income after recapture of loan losses 9,727 9,624 10,247 - --------- - - --------- - - --------- - Non-interest income Service charges on deposits 1,137 1,132 1,153 ATM and debit card interchange transaction fees 921 883 855 Gain on sale of loans, net 435 470 561 Bank owned life insurance (“BOLI”) net earnings 134 137 133 Servicing income on loans sold 121 117 106 Recoveries on investment securities, net 19 13 -- Other 378 330 348 - --------- - - --------- - - --------- - Total non-interest income 3,145 3,082 3,156 - --------- - - --------- - - --------- - Non-interest expense Salaries and employee benefits 3,912 4,001 3,741 Premises and equipment 795 799 764 Gain on disposition of premises and equipment, net -- (113 ) 3 Advertising 205 176 170 OREO and other repossessed assets, net (92 ) 91 4 ATM and debit card processing 334 318 375 Postage and courier 104 131 109 State and local taxes 169 168 176 Professional fees 368 243 230 FDIC insurance 101 75 99 Loan administration and foreclosure 76 92 20 Data processing and telecommunications 465 495 480 Deposit operations 285 252 301 Other, net 400 493 466 - --------- - - --------- - - --------- - Total non-interest expense, net 7,122 7,221 6,938 - --------- - - --------- - - --------- - Income before income taxes 5,750 5,485 6,465 Provision for income taxes 1,334 1,216 2,188 - --------- - - --------- - - --------- - Net income $ 4,416 $ 4,269 $ 4,277 - --------- - - --------- - - --------- - Net income per common share: Basic $ 0.60 $ 0.58 $ 0.59 Diluted 0.59 0.57 0.58 Weighted average common shares outstanding: Basic 7,345,618 7,328,127 7,269,564 Diluted 7,535,157 7,512,058 7,432,171 TIMBERLAND BANCORP INC. AND SUBSIDIARY Nine Months Ended CONSOLIDATED STATEMENTS OF INCOME ----------------------------- ($ in thousands, except per share amounts) June 30, June 30, (unaudited) 2018 2017 ----------- -- ------------- Interest and dividend income Loans receivable $ 28,342 $ 27,280 Investment securities 147 207 Dividends from mutual funds and FHLB stock 83 60 Interest bearing deposits in banks 2,209 1,081 ----------- -- ----------- - Total interest and dividend income 30,781 28,628 ----------- -- ----------- - Interest expense Deposits 1,996 1,637 FHLB borrowings -- 979 ----------- -- ----------- - Total interest expense 1,996 2,616 ----------- -- ----------- - Net interest income 28,785 26,012 Recapture of loan losses -- (1,250 ) ----------- -- ----------- - Net interest income after recapture of loan losses 28,785 27,262 ----------- -- ----------- - Non-interest income Service charges on deposits 3,447 3,348 ATM and debit card interchange transaction fees 2,648 2,448 Gain on sale of loans, net 1,427 1,656 BOLI net earnings 407 407 Servicing income on loans sold 354 302 Recoveries on investment securities, net 55 -- Other 1,026 1,063 - --------- -- ----------- - Total non-interest income 9,364 9,224 - --------- -- ----------- - Non-interest expense Salaries and employee benefits 11,862 11,176 Premises and equipment 2,361 2,295 Gain on disposition of premises and equipment, net (113 ) 3 Advertising 591 499 OREO and other repossessed assets, net 114 22 ATM and debit card processing 982 1,036 Postage and courier 340 324 State and local taxes 498 484 Professional fees 829 629 FDIC insurance 242 319 Loan administration and foreclosure 247 113 Data processing and telecommunications 1,427 1,394 Deposit operations 815 850 Other, net 1,324 1,462 - --------- -- ----------- - Total non-interest expense, net 21,519 20,606 - --------- -- ----------- - Income before income taxes $ 16,630 $ 15,880 Provision for income taxes 4,331 5,328 - --------- -- ----------- - Net income $ 12,299 $ 10,552 -- - --------- - Net income per common share: Basic $ 1.68 $ 1.49 Diluted 1.64 1.44 Weighted average common shares outstanding: Basic 7,328,702 7,088,134 Diluted 7,518,447 7,348,486

TIMBERLAND BANCORP INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS ($ in thousands, except per share amounts) June 30, March 31, June 30, (unaudited) 2018 2018 2017 - --------- - - --------- - - ------- - Assets Cash and due from financial institutions $ 19,552 $ 15,508 $ 17,476 Interest-bearing deposits in banks 137,274 153,897 114,964 - --------- - - --------- - - ------- - Total cash and cash equivalents 156,826 169,405 132,440 - --------- - - --------- - - ------- - Certificates of deposit (“CDs”) held for 63,132 52,938 41,187 investment, at cost Investment securities: Held to maturity, at amortized cost 7,951 8,070 7,244 Available for sale, at fair value 1,176 1,193 1,260 FHLB stock 1,190 1,107 1,107 Other investments, at cost 3,000 3,000 3,000 Loans held for sale 2,321 3,981 3,523 Loans receivable 726,856 718,112 696,768 Less: Allowance for loan losses (9,532 ) (9,544 ) (9,610 ) - --------- - - --------- - - ------- - Net loans receivable 717,324 708,568 687,158 - --------- - - --------- - - ------- - Premises and equipment, net 18,515 18,053 18,465 OREO and other repossessed assets, net 2,112 2,221 3,417 BOLI 19,673 19,539 19,127 Accrued interest receivable 2,797 2,655 2,437 Goodwill 5,650 5,650 5,650 Mortgage servicing rights, net 1,980 1,910 1,781 Other assets 2,736 2,911 3,213 - --------- - - --------- - - ------- - Total assets $ 1,006,383 $ 1,001,201 $ 931,009 - --------- - - --------- - - ------- - Liabilities and shareholders’ equity Deposits: Non-interest-bearing demand $ 229,201 $ 222,302 $ 197,527 Deposits: Interest-bearing 651,526 658,109 621,291 - --------- - - --------- - - ------- - Total deposits 880,727 880,411 818,818 - --------- - - --------- - - ------- - FHLB borrowings -- -- -- Other liabilities and accrued expenses 4,762 2,947 3,575 - --------- - - --------- - - ------- - Total liabilities 885,489 883,358 822,393 - --------- - - --------- - - ------- - Shareholders’ equity Common stock, $.01 par value; 50,000,000 shares authorized; 7,395,927 shares issued and outstanding – June 30, 2018 14,162 13,891 13,223 7,390,227 shares issued and outstanding – March 31, 2018 7,354,577 shares issued and outstanding – June 30, 2017 Unearned shares issued to Employee Stock (199 ) (265 ) (463 ) Ownership Plan (“ESOP”) Retained earnings 107,065 104,349 96,018 Accumulated other comprehensive loss (134 ) (132 ) (162 ) - --------- - - --------- - - ------- - Total shareholders’ equity 120,894 117,843 108,616 - --------- - - --------- - - ------- - Total liabilities and shareholders’ equity $ 1,006,383 $ 1,001,201 $ 931,009 - --------- - - --------- - - ------- -

KEY FINANCIAL RATIOS AND DATA Three Months Ended ($ in thousands, except per share amounts) (unaudited) June 30, March 31, June 30, 2018 2018 2017 - ----- - - ----- - - ------ - PERFORMANCE RATIOS: Return on average assets (a) 1.78 % 1.75 % 1.86 % Return on average equity (a) 14.87 % 14.79 % 16.14 % Net interest margin (a) 4.18 % 4.19 % 4.29 % Efficiency ratio 55.33 % 56.83 % 55.94 % Nine Months Ended -------------------------------- June 30, June 30, 2018 2017 - ----- - - ------ - PERFORMANCE RATIOS: Return on average assets (a) 1.68 % 1.53 % Return on average equity (a) 14.21 % 13.80 % Net interest margin (a) 4.19 % 4.03 % Efficiency ratio 56.41 % 58.48 % --------- June 30, March 31, June 30, 2018 2018 2017 - ----- - - ----- - - ------ - ASSET QUALITY RATIOS AND DATA: Non-accrual loans $ 2,706 $ 1,932 $ 2,055 Loans past due 90 days and still accruing 428 -- -- Non-performing investment securities 433 470 590 OREO and other repossessed assets 2,112 2,221 3,417 - ----- - - ----- - - ------ - Total non-performing assets (b) $ 5,679 $ 4,623 $ 6,062 - ----- - - ----- - - ------ - Non-performing assets to total assets (b) 0.56 % 0.46 % 0.65 % Net charge-offs (recoveries) during quarter $ 12 $ 21 $ (1,020 ) Allowance for loan losses to non-accrual loans 352 % 494 % 468 % Allowance for loan losses to loans receivable (c) 1.31 % 1.33 % 1.38 % Troubled debt restructured loans on accrual status (d) $ 2,960 $ 2,970 $ 3,360 CAPITAL RATIOS: Tier 1 leverage capital 11.80 % 11.66 % 11.42 % Tier 1 risk-based capital 16.98 % 16.76 % 16.05 % Common equity Tier 1 risk-based capital 16.98 % 16.76 % 16.05 % Total risk-based capital 18.24 % 18.01 % 17.30 % Tangible common equity to tangible assets (non-GAAP) 11.52 % 11.27 % 11.13 % BOOK VALUES: Book value per common share $ 16.35 $ 15.95 $ 14.77 Tangible book value per common share (e) 15.58 15.18 14.00

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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 troubled debt restructured loans totaling $155, $155 and $252 reported as non-accrual loans at June 30, 2018, March 31, 2018 and June 30, 2017, respectively. (e) Tangible common equity divided by common shares outstanding (non-GAAP).

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

For the Three Months Ended -------------------------------------------------------------- June 30, 2018 March 31, 2018 June 30, 2017 ------------------- ------------------- -------------------- Amount Rate Amount Rate Amount Rate ----------- ------ ----------- ------ ----------- ------- Assets Loans receivable and loans held for sale $ 727,807 5.24 % $ 717,502 5.29 % $ 693,931 5.56 % Investment securities and FHLB stock (1) 13,378 2.45 13,190 1.97 12,482 2.98 Interest-bearing deposits in banks and CDs 189,120 1.79 187,181 1.61 156,507 1.08 - ------- - - ------- - - ------- - Total interest-earning assets 930,305 4.50 917,873 4.48 862,920 4.71 Other assets 60,395 58,590 57,841 - ------- - - ------- - - ------- - Total assets $ 990,700 $ 976,463 $ 920,761 - ------- - - ------- - - ------- - Liabilities and Shareholders’ Equity NOW checking accounts $ 214,256 0.21 % $ 217,734 0.21 % $ 207,060 0.22 % Money market accounts 142,557 0.57 141,594 0.53 125,787 0.35 Savings accounts 147,881 0.06 143,449 0.06 137,108 0.06 Certificates of deposit accounts 142,285 1.12 139,620 1.01 141,254 0.87 - ------- - - ------- - - ------- - Total interest-bearing deposits 646,979 0.45 642,397 0.42 611,209 0.36 FHLB borrowings -- -- -- -- 8,571 17.57 - ------- - - ------- - - ------- - Total interest-bearing liabilities 646,979 0.45 642,397 0.42 619,780 0.59 Non-interest-bearing demand deposits 220,511 214,722 190,631 Other liabilities 4,456 3,868 4,379 Shareholders’ equity 118,754 115,476 105,971 - ------- - - ------- - - ------- - Total liabilities and shareholders’ equity $ 990,700 $ 976,463 $ 920,761 - ------- - - ------- - - ------- - Interest rate spread 4.05 % 4.06 % 4.12 % ---- - ---- - ----- - Net interest margin (2) 4.18 % 4.19 % 4.29 % ---- - ---- - ----- - Average interest-earning assets to 143.79 % 142.88 % 139.23 % average interest-bearing liabilities - ------- - - ------- - - ------- -

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

AVERAGE BALANCES, YIELDS, AND RATES – YEAR-TO-DATE ($ in thousands)(unaudited)

For the Nine Months Ended ----------------------------------------- June 30, 2018 June 30, 2017 ------------------- -------------------- Amount Rate Amount Rate ----------- ------ ----------- ------ Assets Loans receivable and loans held for sale $ 718,099 5.26 % $ 688,936 5.29 % Investment securities and FHLB Stock (1) 13,003 2.36 11,447 3.11 Interest-bearing deposits in banks and CDs 185,405 1.59 160,458 0.90 - ------- - - ------- - Total interest-earning assets 916,507 4.48 860,841 4.43 Other assets 59,704 58,324 - ------- - - ------- - Total assets $ 976,211 $ 919,165 - ------- - - ------- - Liabilities and Shareholders’ Equity NOW checking accounts $ 214,828 0.21 % $ 206,037 0.22 % Money market accounts 140,186 0.50 124,650 0.34 Savings accounts 144,191 0.06 132,922 0.06 Certificate of deposit accounts 140,194 1.03 144,249 0.85 - ------- - - ------- - Total interest-bearing deposits 639,399 0.42 607,858 0.36 FHLB borrowings -- -- 22,857 5.73 - ------- - - ------- - Total interest-bearing liabilities 639,399 0.42 630,715 0.55 Non-interest-bearing demand deposits 217,388 182,117 Other liabilities 3,997 4,368 Shareholders’ equity 115,427 101,965 - ------- - - ------- - Total liabilities and shareholders’ equity $ 976,211 $ 919,165 - ------- - - ------- - Interest rate spread 4.06 % 3.88 % ---- - ---- - Net interest margin (2) 4.19 % 4.03 % ---- - ---- - Average interest-earning assets to 143.34 % 136.49 % average interest-bearing liabilities - ------- - - ------- -

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

Contact:

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

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