TSBK Timberland Bancorp Inc

Timberland Bancorp, Inc. (NASDAQ: TSBK) (“Timberland” or “the Company”), the holding company for Timberland Bank (the “Bank”), today reported net income of $6.66 million, or $0.80 per diluted common share, for the quarter ended March 31, 2023. This compares to net income of $5.33 million, or $0.63 per diluted common share for the comparable quarter one year ago and $7.51 million, or $0.90 per diluted common share, for the preceding quarter.

For the first six months of fiscal 2023, Timberland’s net income increased 31% to $14.17 million, or $1.70 per diluted common share, compared to $10.81 million, or $1.28 per diluted common share for the first six months of fiscal 2022.

“We are pleased to report strong financial results for our second fiscal quarter, with net income and EPS increasing 25% and 27%, respectively, compared to the year ago quarter,” stated Dean Brydon, Chief Executive Officer. “Our results benefited from continued strong loan portfolio growth in conjunction with a higher interest rate environment compared to a year ago. As a result of the Company’s strong earnings and capital position, Timberland’s Board of Directors announced a quarterly cash dividend of $0.23 per share, payable on May 26, 2023, to shareholders of record on May 12, 2023. This represents the 42nd consecutive quarter that Timberland will have paid a cash dividend.”

“Asset quality remains strong with quarter end non-performing assets at 12 basis points of total assets,” Brydon continued. “Although loan origination volumes have moderated, loan prepayments have declined considerably resulting in a $38 million increase in net loans receivable for the quarter. As a result of this loan growth, we recorded a provision for loan losses of $475,000 for the quarter. Additionally, liquidity, both on-balance sheet and off-balance sheet, remained strong with no borrowings at March 31, 2023 and secured borrowing line capacity of $647 million available through the Federal Home Loan Bank (“FHLB”) and the Federal Reserve. While recent developments in the banking markets have been unsettling in the short term, we believe that with our strong capital position, excellent credit quality and ample sources of liquidity, we are well positioned to continue to deliver strong financial results.”

“The current quarter’s net interest margin remained strong at 3.99% and was 104 basis points higher compared to the year ago quarter. The year-over-year increase was primarily due to Federal Reserve rate increases and the continued deployment of overnight funds into higher yielding loans and investment securities,” said Jonathan Fischer, President and Chief Operating Officer. “Deposit retention and acquisition remains competitive, and as a result we saw a 3% outflow of deposits during the quarter. As expected, funding costs increased during the quarter as we continue to increase short-term deposit rates to retain rate sensitive customer deposits. We have a strong and diversified deposit base of consumer and commercial customers and only 12% of our deposits were uninsured (or uncollateralized) at quarter end.”

Earnings and Balance Sheet Highlights (at or for the periods ended March 31, 2023, compared to March 31, 2022, or December 31, 2022):       Earnings Highlights:

• Earnings per diluted common share (“EPS”) increased 27% to $0.80 for the current quarter from $0.63 for the comparable quarter one year ago and decreased 11% from $0.90 for the preceding quarter; EPS for the first six months of fiscal 2023 increased 33% to $1.70 from $1.28 for the first six months of fiscal 2022;
• Net income increased 25% to $6.66 million for the current quarter from $5.33 million for the comparable quarter one year ago and decreased 11% from $7.51 million for the preceding quarter; Net income increased 31% to $14.17 million for the first six months of fiscal 2023 compared to $10.81 million for the first six months of fiscal 2022;
• Return on average equity (“ROE”) and return on average assets (“ROA”) for the current quarter were 11.86% and 1.48%, respectively;
• Net interest margin (“NIM”) for the current quarter expanded to 3.99% from 2.95% for the comparable quarter one year ago and compressed slightly from 4.03% for the preceding quarter; and
• The efficiency ratio for the current quarter was 55.31% compared to 58.42% for the comparable quarter one year ago and 51.52% for the preceding quarter.

   Balance Sheet Highlights:

• Total assets decreased 5% year-over-year and 3% from the prior quarter;
• Net loans receivable (excluding SBA PPP loans) increased 18% year-over-year and 3% from the prior quarter;
• Net loans receivable (including SBA PPP loans) increased 17% year-over-year and 3% from the prior quarter;
• Total deposits decreased 6% year-over-year and 3% from the prior quarter;
• Non-performing assets to total assets ratio improved to 0.12% from 0.16% one year ago;
• Total shareholders’ equity increased 7% year-over-year and 2% from prior quarter; and
• Book and tangible book (non-GAAP) values per common share increased to $27.75 and $25.81, respectively, at March 31, 2023
• Liquidity (both on-balance sheet and off-balance sheet) remained strong with no borrowings at March 31, 2023 and secured borrowing line capacity of $647 million available through the Federal Home Loan Bank (“FHLB”) and the Federal Reserve.

Operating Results

Operating revenue (net interest income before the provision for loan losses plus non-interest income) for the current quarter increased 24% to $19.79 million from $15.98 million for the comparable quarter one year ago and decreased 3% from $20.45 million for the preceding quarter. The decrease in operating revenue compared to the preceding quarter was primarily due to a decrease in net interest income as funding costs increased at a greater pace than interest income increased. Operating revenue increased by 25% to $40.24 million for the first six months of fiscal 2023 from $32.11 million for the first six months of fiscal 2022, primarily due to increased interest income from loans, overnight funds, and investment securities, which were partially offset by an increase in total interest expense. The increased interest income in these categories was primarily a result of increased short-term market interest rates and the continued deployment of liquidity into higher-yielding loans and investment securities.

Net interest income increased $4.26 million, or 33%, to $17.15 million for the current quarter from $12.89 million for the comparable quarter one year ago and decreased $592,000, or 3%, from $17.74 million for the preceding quarter. The decrease in net interest income compared to the preceding quarter was primarily due to increased funding costs and a decrease in average interest-earning assets. The weighted average cost of total interest-bearing liabilities increased to 0.84% for the current quarter from 0.50% for the preceding quarter as market interest rates increased. Partially offsetting the increase in interest expense was an increase in the weighted average yield on total interest-earning assets to 4.51% for the current quarter from 4.34% for the preceding quarter. Total average interest-earning assets decreased by $41.27 million, or 2%, to $1.72 billion for the current quarter from $1.76 billion for the preceding quarter. Timberland’s NIM for the current quarter decreased to 3.99% from 4.03% for the preceding quarter and improved from 2.95% for the comparable quarter one year ago.   The NIM for the current quarter was increased by approximately three basis points due to the accretion of $15,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $99,000 in pre-payment penalties, non-accrual interest, and late fees. The NIM for the preceding quarter was increased by approximately three basis points due to the accretion of $28,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $120,000 in pre-payment penalties, non-accrual interest and late fees. The NIM for the comparable quarter one year ago was increased by approximately six basis points due to the accretion of $34,000 of the fair value discount on loans acquired in the South Sound Acquisition and the collection of $246,000 in pre-payment penalties, non-accrual interest and late fees. Net interest income for the first six months of fiscal 2023 increased $9.31 million, or 36%, to $34.89 million from $25.29 million for the first six months of fiscal 2022. Timberland’s net interest margin for the first six months of fiscal 2023 expanded to 4.02% from 2.93% for the first six months of fiscal 2022.

U.S. Small Business Administration (“SBA”) PPP loans contribute 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 March 31, 2023, Timberland had SBA PPP deferred loan origination fees of $21,000 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
	March 31, 2023			Dec. 31, 2022			March 31, 2022
Interest income	$	1		$	2		$	31
Loan origination fee accretion		4			17			708
Total SBA PPP loan income	$	5		$	19		$	739

A $475,000 provision for loan losses was recorded for the quarter ended March 31, 2023.   The provision was made primarily due to loan portfolio growth. A $525,000 provision for loans losses was recorded for the quarter ended December 31, 2022.   No provision for loan losses was made during the quarter ended March 31, 2022.

Non-interest income decreased $69,000 or 3%, to $2.64 million for the current quarter from $2.71 million for the preceding quarter and decreased $447,000, or 14%, from $3.08 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 and smaller decreases in several other categories.   Fiscal year-to-date non-interest income decreased 18% to $5.34 million from $6.53 million for the first six months of fiscal 2022, primarily due to a $1.01 million decrease in gain on sales of loans as the dollar amount of fixed-rate one-to four-family loans originated and sold decreased as demand slowed and a larger portion of single family loan originations were retained in the portfolio rather than being sold.

Total operating (non-interest) expenses for the current quarter increased $409,000, or 4%, to $10.94 million from $10.54 million for the preceding quarter and increased $1.61 million, or 17%, from $9.33 million for the comparable quarter one year ago.   The increase in operating expenses compared to the preceding quarter was primarily due to a $146,000 increase in salaries and employee benefits, a $91,000 increase in data processing and telecommunications expense and smaller increases in several other expense categories. These increases were partially offset by a $100,000 decrease in deposit operations expense and smaller decreases in several other expense categories. The increase in salaries and employee benefits was primarily due to hiring additional personnel (which included filling a number of positions which had been open in prior quarters). The increase in data processing and telecommunications expense was primarily due to expenses associated with several new technology products and initiatives.   The efficiency ratio for the current quarter was 55.31% compared to 51.52% for the preceding quarter and 58.42% for the comparable quarter one year ago. Fiscal year-to-date operating expenses increased 15% to $21.48 million from $18.60 million for the first six months of fiscal 2022. The year-to-date increase in operating expenses was primarily due to a $1.58 million increase in salaries and employee benefits, a $386,000 increase in data processing and telecommunications expense, a $309,000 increase in professional fees expense and smaller increases in several other expense categories. The efficiency ratio for the first six months of fiscal 2023 was 53.58% compared to 57.91% for the first six months of fiscal 2022.

The provision for income taxes for the current quarter decreased $176,000, or 9%, to $1.71 million from $1.88 million for the preceding quarter, primarily due to lower taxable income.   Timberland’s effective income tax rate was 20.4% for the quarter ended March 31, 2023 compared to 20.0% for the quarter ended December 31, 2022 and 19.8% for the quarter ended March 31, 2022.   Timberland’s effective income tax rate was 20.2% for the first six months of fiscal 2023 compared to 20.0% for the first six months of fiscal 2022.

Balance Sheet Management

Total assets decreased by $48.93 million, or 3%, during the quarter to $1.79 billion at March 31, 2023 from $1.84 billion at December 31, 2022 and decreased by $90.85 million, or 5%, from $1.88 billion one year ago. The quarter’s decrease was primarily due to an $82.41 million decrease in total cash and cash equivalents, which was partially offset by a $37.63 million increase in net loans receivable.

Liquidity

Timberland has continued to maintain a strong liquidity position (both on-balance sheet and off-balance sheet) while deploying overnight funds into loans and investment securities during the past year. Liquidity, as measured by the sum of cash and cash equivalents, CDs held for investment, and available for sale investment securities, was 14.0% of total liabilities at March 31, 2023, compared to 18.9% at December 31, 2022, and 34.3% one year ago.   Timberland had no borrowings at March 31, 2023 and had secured borrowing line capacity of $647 million available through the Federal Home Loan Bank and the Federal Reserve. With a strong and diversified deposit base, only 12% of Timberland’s deposits were uninsured at March 31, 2023. (Note: The uninsured deposit calculation excludes public deposits that are fully collateralized.)

Loans

Net loans receivable increased $37.63 million, or 3%, during the quarter to $1.21 billion at March 31, 2023 from $1.17 billion at December 31, 2022. This increase was primarily due to a $16.35 million increase in one- to four-family loans, a $12.84 million decrease in the undisbursed portion of construction loans in process, a $7.04 million increase in multi-family loans, a $5.31 million increase in commercial real estate loans, and smaller increases in several other loan categories. These increases to net loans receivable were partially offset by a $4.75 million decrease in construction and land development loans, and smaller decreases in several other loan categories.

Loan Portfolio($ in thousands)

	March 31, 2023						December 31, 2022									March 31, 2022
	Amount				Percent		Amount					Percent						Amount						Percent
Mortgage loans:
One- to four-family (a)	$216,639				16%		$200,285					15%						$133,925						12%
Multi-family		103,870			8			96,831				7							82,526					7
Commercial		547,876			41			542,571				42							523,479					45
Construction - custom and
owner/builder		124,071			9			117,592			9						114,394						10
Construction - speculative
one-to four-family		11,343			1			11,220				1							15,438					1
Construction - commercial		31,458			3			36,825				3							35,416					3
Construction - multi-family		83,051			6			89,040				7							64,141					6
Construction - land
development		17,018			1			17,015				1							10,687					1
Land		24,520			2			25,872				2							22,192					2
Total mortgage loans		1,159,846			87			1,137,251				87							1,002,198					87
Consumer loans:
Home equity and second
mortgage		36,896			3			35,967				3							32,980					3
Other		2,283			--			2,482				--							2,277					--
Total consumer loans		39,179			3			38,449				3							35,257					3
Commercial loans:
Commercial business loans		129,306			10			127,085				10							108,644					9
SBA PPP loans		572			--			631				--							5,934					1
Total commercial loans		129,878			10			127,716				10							114,578					10
Total loans		1,328,903			100%			1,303,416				100%							1,152,033					100%
Less:
Undisbursed portion of
construction loans in
process		(99,253	)					(112,096	)										(100,719		)
Deferred loan origination
fees		(4,759	)					(4,532	)										(3,801		)
Allowance for loan losses		(14,698	)					(14,229	)										(13,433		)
Total loans receivable, net	$1,210,193						$1,172,559											$1,034,080

_______________________(a)   Does not include one- to four-family loans held for sale totaling $200, $0, and $2,772 at March 31, 2023, December 31, 2022, and March 31, 2022, respectively.  

The following table provides a breakdown of commercial real estate (“CRE”) mortgage loans by collateral type as of March 31, 2023:

CRE Loan Portfolio Breakdown by Collateral($ in thousands)

Collateral Type		Amount			Percentof CREPortfolio		Percent ofTotal LoanPortfolio
Industrial warehouse		$	107,514		20%		8%
Medical/dental offices			78,266		14		6
Office buildings			67,797		12		5
Other retail buildings			48,993		9		4
Hotel/motel			29,430		6		2
Restaurants			28,793		5		2
Mini-storage			28,188		5		2
Convenience stores			20,104		4		1
Nursing homes			18,227		3		1
Shopping centers			10,416		2		1
Mobile home parks			10,263		2		1
Churches			7,589		1		1
Additional CRE			92,296		17		7
Total CRE		$	547,876		100%		41%

Timberland originated $77.15 million in loans during the quarter ended March 31, 2023, compared to $101.67 million for the preceding quarter and $130.41 million for the comparable quarter one year ago. Timberland continues to originate fixed-rate one- to four-family mortgage loans, a portion of which are sold into the secondary market for asset-liability management purposes and to generate non-interest income. During the past twelve months a larger percentage of single-family loan originations were retained in the portfolio rather than being sold due to the increased yield available on such loans.   During the current quarter, fixed-rate one- to four-family mortgage loans totaling $2.39 million were sold compared to $1.16 million for the preceding quarter and $16.88 million for the comparable quarter one year ago.         Timberland’s investment securities and CDs held for investment decreased $4.89 million, or 1%, to $353.77 million at March 31, 2023, from $358.66 million at December 31, 2022. The decrease was primarily due to maturities and scheduled amortization.

Deposits

Total deposits decreased $52.32 million, or 3%, during the quarter to $1.55 billion at March 31, 2023, from $1.60 billion at December 31, 2022. The quarter’s decrease consisted of a $41.28 million decrease in NOW checking account balances, a $19.25 million decrease in money market account balances, a $15.09 million decrease in non-interest-bearing account balances, and a $9.99 million decrease in savings account balances. These decreases were partially offset by a $33.29 million increase in certificates of deposit account balances. The net decrease in deposits was primarily due to competitive pricing pressure and customers moving excess funds to alternative higher yielding investments as well as general declines in individual customer balances.

Deposit Breakdown($ in thousands)
			March 31, 2023							December 31, 2022						March 31, 2022
			Amount			Percent				Amount				Percent		Amount					Percent
Non-interest-bearing demand			$479,283			31%				$494,370				31%		$525,488					32%
NOW checking			403,463			26				444,742				28		457,874					28
Savings			269,522			17				279,514				17		288,361					18
Money market			210,390			14				229,643				14		258,057					15
Certificates of deposit under $250			129,331			8				110,897				7		106,208					6
Certificates of deposit $250 and over			56,778			4				41,924				3		20,438					1
Total deposits			$1,548,767		100%					$1,601,090			100%			$1,656,426				100%

Shareholders’ Equity and Capital Ratios

Total shareholders’ equity increased $4.11 million, or 2%, to $227.66 million at March 31, 2023, from $223.55 million at December 31, 2022. The increase in shareholders’ equity was primarily due to net income of $6.66 million for the quarter and $122,000 from the exercise of stock options, which was partially offset by the payment of $1.89 million in dividends to shareholders and the repurchase of 34,263 shares of common stock for $1.10 million (an average price of $32.04 per share).   Timberland had 184,212 shares available to be repurchased in accordance with the terms of its existing stock repurchase plan at March 31, 2023.

Timberland remains well capitalized with a total risk-based capital ratio of 19.41%, a Tier 1 leverage capital ratio of 11.95%, a tangible common equity to tangible assets ratio (non-GAAP) of 11.96%, and a shareholders’ equity to total assets ratio of 12.74% at March 31, 2023. Timberland’s held to maturity investment securities were $277.91 million at March 31, 2023, with a net unrealized loss of $12.83 million (pre-tax). Although not permitted by U.S. Generally Accepted Accounting Principles, including these unrealized losses in accumulated other comprehensive income (loss) (“AOCI”) would result in a ratio of shareholders’ equity to total assets of 12.18%, compared to 12.74%, as reported.

Asset Quality

Timberland’s non-performing assets to total assets ratio was 0.12% at March 31, 2023 and December 31, 2022, an improvement from 0.16% at March 31, 2022. There were net charge-offs of $6,000 for the current quarter, compared to net recoveries of $1,000 for the preceding quarter and net charge-offs of $35,000 for the comparable quarter one year ago. Due primarily to loan portfolio growth, a $475,000 provision for loan losses was made for the quarter ended March 31, 2023 and a $525,000 provision for loan losses was made for the quarter ended December 31, 2022. No provision for loan losses was made during the quarter ended March 31, 2022.

The allowance for loan losses (“ALL”) as a percentage of loans receivable was 1.20% at March 31, 2023, compared to 1.20% at December 31, 2022 and 1.28% one year ago.

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 $225,000 at March 31, 2023. 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 1.21% (non-GAAP) at March 31, 2023.

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

		March 31,			Dec. 31,			March 31,
		2023			2022			2022
ALL to loans receivable		1.20	%		1.20	%		1.28	%
ALL to loans receivable (excluding SBA PPP loans) (non-GAAP)		1.20	%		1.20	%		1.29	%
ALL to loans receivable (excluding SBA PPP loans and South Sound         Acquisition loans) (non-GAAP)		1.21	%		1.22	%		1.33	%

Total delinquent loans (past due 30 days or more) and non-accrual loans decreased $755,000 or 26%, to $2.19 million at March 31, 2023, from $2.95 million one year ago, and decreased $62,000, or 3%, from $2.25 million at December 31, 2022. Non-accrual loans decreased $682,000, or 26%, to $1.97 million at March 31, 2023, from $2.65 million one year ago, and decreased $66,000, or 3%, from $2.04 million at December 31, 2022.

Non-Accrual Loans($ in thousands)

	March 31, 2023					December 31, 2022					March 31, 2022
	Amount			Quantity		Amount			Quantity		Amount			Quantity
Mortgage loans:
One- to four-family	$378			2		$383			2		$578			3
Commercial		694		2			658		2			671		3
Land		362		1			425		2			723		4
Total mortgage loans		1,434		5			1,466		6			1,972		10
Consumer loans:
Home equity and second
Mortgage		241		2			263		3			269		2
Other		1		1			2		1			5		1
Total consumer loans		242		3			265		4			274		3
Commercial business loans		293		4			304		6			405		6
Total loans	$1,969			12		$2,035			16		$2,651			19

        

At March 31, 2023 and December 31, 2022, the OREO and other repossessed assets portfolio consisted of two individual land parcels that have been written down to a book value of $0. OREO and other repossessed assets were $157,000 at March 31, 2022.     

OREO and Other Repossessed Assets($ in thousands)

	March 31, 2023					December 31, 2022					March 31, 2022
	Amount			Quantity		Amount			Quantity		Amount			Quantity
Land	$	--		2		$	--		2		$	157		3
Total	$	--		2		$	--		2		$	157		3

        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 Company’s 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 Company’s 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 primarily 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 23 branches (including its main office in Hoquiam).    

Disclaimer

Certain matters discussed in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our financial condition, results of operations, plans, 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: potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth caused by increasing political instability from acts of war including Russia's invasion of Ukraine, as well as increasing oil prices and supply chain disruptions, and any governmental or societal responses to novel coronavirus disease 2019 ("COVID-19") pandemic, including the possibility of new COVID-19 variants; 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 loans in our loan portfolio 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 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 of 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 banking, securities and tax law, in regulatory policies and principles, or the interpretation of regulatory capital or other rules and including changes as a result of COVID-19; 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 risks associated with the loans in 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 stock; the quality and composition of our securities portfolio and the impact if any adverse changes in the securities markets, including on market liquidity; 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 climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and other risks described in our reports filed with or furnished to 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 do not undertake and specifically disclaim any obligation to publicly update or revise any forward-looking statements included in this press release 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 2023 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 consolidated financial condition and results of operations as well as its stock price performance.

TIMBERLAND BANCORP INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF INCOME			Three Months Ended
($ in thousands, except per share amounts) (unaudited)			March 31,			Dec. 31,			March 31,
			2023			2022			2022
	Interest and dividend income
	Loans receivable		$	14,950		$	14,457		$	12,620
	Investment securities			2,460			2,214			590
	Dividends from mutual funds, FHLB stock and other investments			64			51			27
	Interest bearing deposits in banks			1,913			2,390			283
	Total interest and dividend income			19,387			19,112			13,520
	Interest expense
	Deposits			2,236			1,369			625
	Borrowings			--			--			2
	Total interest expense			2,236			1,369			627
	Net interest income			17,151			17,743			12,893
	Provision for loan losses			475			525			--
	Net interest income after provision for loan losses			16,676			17,218			12,893
	Non-interest income
	Service charges on deposits			893			947			1,014
	ATM and debit card interchange transaction fees			1,275			1,251			1,247
	Gain on sales of loans, net			46			21			416
	Bank owned life insurance (“BOLI”) net earnings			157			156			152
	Recoveries on investment securities, net			2			3			3
	Other			263			327			251
	Total non-interest income, net			2,636			2,705			3,083
	Non-interest expense
	Salaries and employee benefits			6,046			5,900			5,192
	Premises and equipment			1,001			924			988
	Advertising			178			195			161
	OREO and other repossessed assets, net			--			--			2
	ATM and debit card processing			489			483			450
	Postage and courier			147			121			164
	State and local taxes			298			299			235
	Professional fees			473			429			322
	FDIC insurance expense			202			124			126
	Loan administration and foreclosure			138			120			96
	Data processing and telecommunications			880			789			669
	Deposit operations			246			346			262
	Amortization of core deposit intangible (“CDI”)			67			68			79
	Other, net			779			737			587
	Total non-interest expense, net			10,944			10,535			9,333
	Income before income taxes			8,368			9,388			6,643
	Provision for income taxes			1,705			1,881			1,316
	Net income		$	6,663		$	7,507		$	5,327
	Net income per common share:
	Basic		$	0.81		$	0.91		$	0.64
	Diluted			0.80			0.90			0.63
	Weighted average common shares outstanding:
	Basic			8,220,532			8,232,273			8,337,407
	Diluted			8,304,370			8,318,733			8,421,875

TIMBERLAND BANCORP INC. AND SUBSIDIARYCONSOLIDATED STATEMENTS OF INCOME			Six Months Ended
($ in thousands, except per share amounts) (unaudited)			March 31,					March 31,
			2023						2022
	Interest and dividend income
	Loans receivable		$	29,407				$	25,242
	Investment securities			4,674					996
	Dividends from mutual funds, FHLB stock and other investments			115					54
	Interest bearing deposits in banks			4,304					571
	Total interest and dividend income			38,500					26,863
	Interest expense
	Deposits			3,606					1,257
	Borrowings			--					17
	Total interest expense			3,606					1,274
	Net interest income			34,894					25,589
	Provision for loan losses			1,000					--
	Net interest income after provision for loan losses			33,894					25,589
	Non-interest income
	Service charges on deposits			1,840					1,927
	ATM and debit card interchange transaction fees			2,526					2,523
	Gain on sales of loans, net			67					1,079
	Bank owned life insurance (“BOLI”) net earnings			312					305
	Valuation recovery on loan servicing rights, net			--					119
	Recoveries on investment securities, net			5					11
	Other			591					561
	Total non-interest income, net			5,341					6,525
	Non-interest expense
	Salaries and employee benefits			11,946					10,363
	Premises and equipment			1,925					1,916
	Advertising			372					327
	OREO and other repossessed assets, net			--					(16	)
	ATM and debit card processing			972					914
	Postage and courier			268					300
	State and local taxes			597					489
	Professional fees			902					593
	FDIC insurance expense			326					254
	Loan administration and foreclosure			259					200
	Data processing and telecommunications			1,668					1,282
	Deposit operations			592					561
	Amortization of CDI			135					158
	Other, net			1,517					1,256
	Total non-interest expense, net			21,479					18,597
	Income before income taxes			17,756					13,517
	Provision for income taxes			3,587					2,705
	Net income		$	14,169				$	10,812
	Net income per common share:
	Basic		$	1.72				$	1.30
	Diluted			1.70					1.28
	Weighted average common shares outstanding:
	Basic			8,226,467					8,346,839
	Diluted			8,311,630					8,435,536

TIMBERLAND BANCORP INC. AND SUBSIDIARYCONSOLIDATED BALANCE SHEETS
($ in thousands, except per share amounts) (unaudited)			March 31,				Dec. 31,				March 31,
				2023				2022				2022
Assets
Cash and due from financial institutions			$	26,015			$	31,237			$	26,500
Interest-bearing deposits in banks				116,468				193,659				465,802
	Total cash and cash equivalents			142,483				224,896				492,302
Certificates of deposit (“CDs”) held for investment, at cost				20,168				23,392				28,619
Investment securities:
	Held to maturity, at amortized cost			277,911				278,585				189,405
	Available for sale, at fair value			54,838				55,841				50,624
Investments in equity securities, at fair value				850				837				902
FHLB stock				2,202				2,194				2,194
Other investments, at cost				3,000				3,000				3,000
Loans held for sale				200				--				2,772
Loans receivable				1,224,891				1,186,788				1,047,513
Less: Allowance for loan losses				(14,698	)			(14,229	)			(13,433	)
	Net loans receivable			1,210,193				1,172,559				1,034,080
Premises and equipment, net				21,744				21,703				21,878
OREO and other repossessed assets, net				--				--				157
BOLI				23,119				22,962				22,498
Accrued interest receivable				5,295				5,508				3,927
Goodwill				15,131				15,131				15,131
CDI				813				880				1,106
Loan servicing rights, net				2,535				2,770				3,390
Operating lease right-of-use assets				1,844				1,912				2,129
Other assets				4,292				3,374				3,356
	Total assets		$	1,786,618			$	1,835,544			$	1,877,470
Liabilities and shareholders’ equity
Deposits: Non-interest-bearing demand			$	479,283			$	494,370			$	525,488
Deposits: Interest-bearing				1,069,484				1,106,720				1,130,938
	Total deposits			1,548,767				1,601,090				1,656,426
Operating lease liabilities				1,935				2,001				2,210
FHLB borrowings				--				--				--
Other liabilities and accrued expenses				8,255				8,904				6,565
	Total liabilities			1,558,957				1,611,995				1,665,201
Shareholders’ equity
Common stock, $.01 par value; 50,000,000 shares authorized;         8,203,174 shares issued and outstanding – March 31, 2023         8,231,197 shares issued and outstanding – December 31, 2022         8,305, 826 shares issued and outstanding – March 31, 2022				37,979				38,878				40,988
Retained earnings				190,177				185,406				171,388
Accumulated other comprehensive loss				(495	)			(735	)			(107	)
	Total shareholders’ equity			227,661				223,549				212,269
	Total liabilities and shareholders’ equity		$	1,786,618			$	1,835,544			$	1,877,470

KEY FINANCIAL RATIOS AND DATA	Three Months Ended
($ in thousands, except per share amounts) (unaudited)		March 31,				Dec. 31,				March 31,
			2023				2022				2022
PERFORMANCE RATIOS:
Return on average assets (a)			1.48%				1.63%				1.16%
Return on average equity (a)			11.86%				13.63%				10.10%
Net interest margin (a)			3.99%				4.03%				2.95%
Efficiency ratio			55.31%				51.52%				58.42%
		Six Months Ended
		March 31,								March 31,
			2023								2022
PERFORMANCE RATIOS:
Return on average assets (a)			1.55%								1.18%
Return on average equity (a)			12.74%								10.33%
Net interest margin (a)			4.02%								2.93%
Efficiency ratio			53.38%								57.91%
ASSET QUALITY RATIOS AND DATA:
Non-accrual loans		$1,969				$2,035				$2,651
Loans past due 90 days and still accruing			--				--				--
Non-performing investment securities			93				98				127
OREO and other repossessed assets			--				--				157
Total non-performing assets (b)		$2,062				$2,133				$2,935
Non-performing assets to total assets (b)			0.12%				0.12%				0.16%
Net charge-offs (recoveries) during quarter		$6				$(1)				$35
ALL to non-accrual loans,			746.47%				699.21%				506.71%
ALL to loans receivable (c)			1.20%				1.20%				1.28%
ALL to loans receivable (excluding SBA PPP loans) (d) (non-GAAP)			1.20%				1.20%				1.29%
ALL to loans receivable (excluding SBA PPP loans and South Sound Acquisition loans) (d) (e) (non-GAAP)			1.21%				1.22%				1.33%
Troubled debt restructured loans on accrual status (f)		$2,550				$2,464				$2,496
CAPITAL RATIOS:
Tier 1 leverage capital			11.95%				11.46%				10.86%
Tier 1 risk-based capital			18.16%				18.07%				19.50%
Common equity Tier 1 risk-based capital			18.16%				18.07%				19.50%
Total risk-based capital			19.41%				19.32%				20.75%
Tangible common equity to tangible assets (non-GAAP)			11.96%				11.41%				10.53%
BOOK VALUES:
Book value per common share		$27.75				$27.16				$25.56
Tangible book value per common share (g)			25.81				25.21				23.60

________________________________________________

(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 $572, $631 and $5,934 at March 31, 2023, December 31, 2022 and March 31, 2022, respectively.(e) Does not include loans acquired in the South Sound Acquisition totaling $13,917, $16,794 and $28,549 at March 31, 2023, December 31, 2022 and March 31, 2022, respectively.(f) Does not include troubled debt restructured loans totaling $50, $116 and $172 reported as non-accrual loans at March 31, 2023, December 31, 2022 and March 31, 2022, respectively. (g) Tangible common equity divided by common shares outstanding (non-GAAP).                                AVERAGE BALANCES, YIELDS, AND RATES - QUARTERLY ($ in thousands)(unaudited)

	For the Three Months Ended
	March 31, 2023									December 31, 2022								March 31, 2022
	Amount				Rate					Amount				Rate					Amount				Rate
Assets
Loans receivable and loans held for sale	$	1,200,872			4.98		%			$	1,164,369			4.97		%			$	1,029,582			4.90		%
Investment securities and FHLB stock (1)		340,317			2.97						329,396			2.75						209,868			1.18
Interest-earning deposits in banks and CDs		177,748			4.30						266,439			3.59						510,211			0.22
Total interest-earning assets		1,718,937			4.51						1,760,204			4.34						1,749,661			3.09
Other assets		84,072									84,806									84,252
Total assets	$	1,803,009								$	1,845,010								$	1,833,913
Liabilities and Shareholders’ Equity
NOW checking accounts	$	412,642			0.83		%			$	439,750			0.45		%			$	441,259			0.13		%
Money market accounts		218,718			0.68						239,424			0.53						244,250			0.29
Savings accounts		274,877			0.14						279,832			0.12						277,888			0.08
Certificates of deposit accounts		170,547			2.22						135,467			1.39						128,588			0.80
Total interest-bearing deposits		1,076,784			0.84						1,094,473			0.50						1,091,985			0.23
Borrowings		6			5.43						--			--						677			1.18
Total interest-bearing liabilities		1,076,790			0.84						1,094,473			0.50						1,092,662			0.23
Non-interest-bearing demand deposits		492,294									519,307									521,284
Other liabilities		9,136									11,002									9,072
Shareholders’ equity		224,789									220,228									210,895
Total liabilities and shareholders’ equity	$	1,803,009								$	1,845,010								$	1,833,913
Interest rate spread					3.67		%							3.84		%							2.86		%
Net interest margin (2)					3.99		%							4.03		%							2.95		%
Average interest-earning assets to
average interest-bearing liabilities		159.64	%								160.83	%								160.13	%

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

	For the Six Months Ended
	March 31, 2023														March 31, 2022
	Amount				Rate											Amount				Rate
Assets
Loans receivable and loans held for sale	$	1,182,420			4.97		%									$	1,013,293			4.98		%
Investment securities and FHLB stock (1)		332,815			2.88												185,710			1.13
Interest-earning deposits in banks and CDs		222,569			3.87												545,651			0.21
Total interest-earning assets		1,737,804			4.43												1,744,654			3.08
Other assets		86,171															83,908
Total assets	$	1,823,975														$	1,828,562
Liabilities and Shareholders’ Equity
NOW checking accounts	$	426,345			0.63		%									$	440,999			0.13		%
Money market accounts		229,185			0.60												233,480			0.29
Savings accounts		277,382			0.13												271,197			0.08
Certificates of deposit accounts		152,814			1.84												130,611			0.81
Total interest-bearing deposits		1,085,726			0.67												1,076,287			0.23
Borrowings		3			5.43												2,862			1.19
Total interest-bearing liabilities		1,085,729			0.67												1,079,149			0.24
Non-interest-bearing demand deposits		505,949															530,171
Other liabilities		9,813															9,824
Shareholders’ equity		222,484															209,418
Total liabilities and shareholders’ equity	$	1,823,975														$	1,828,562
Interest rate spread					3.76		%													2.84		%
Net interest margin (2)					4.02		%													2.93		%
Average interest-earning assets to
average interest-bearing liabilities		160.06	%														161.67	%

_____________________________________(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 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 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)		March 31, 2023				December 31, 2022				March 31, 2022
Shareholders’ equity		$	227,661			$	223,549			$	212,269
Less goodwill and CDI			(15,944	)			(16,011	)			(16,237	)
Tangible common equity		$	211,717			$	207,538			$	196,032
Total assets		$	1,786,618			$	1,835,544			$	1,877,470
Less goodwill and CDI			(15,944	)			(16,011	)			(16,237	)
Tangible assets		$	1,770,674			$	1,819,533			$	1,861,233

Contact:Dean J. Brydon, CEOJonathan A. Fischer, President & COOMarci A. Basich, CFO(360) 533-4747www.timberlandbank.com