SOURCE: Timberland Bancorp, Inc.

Timberland Bancorp, Inc.

January 24, 2011 23:30 ET

Timberland Bancorp Earns $1.36 Million in Fiscal First Quarter 2011

EPS Increased to $0.16; Total Risk Based Capital Increased to 16.5%; Net Interest Margin Increased to 3.82%

HOQUIAM, WA--(Marketwire - January 24, 2011) - Timberland Bancorp, Inc. (NASDAQ: TSBK) ("Timberland" or "the Company") today reported fiscal 2011 first quarter profit of $1.36 million. Net interest margin rose and strong capital ratios were further strengthened during the quarter. Net income available to common shareholders after adjusting for the preferred stock dividend and the preferred stock discount accretion was $1.10 million, or $0.16 per diluted common share. For the first fiscal quarter one year ago, the net loss to common shareholders was $(35,000), or $(0.01) per diluted common share, and was a net loss of $(403,000), or $(0.06) per diluted common share, for the immediately prior quarter after recognizing a mortgage servicing rights ("MSR") impairment of $890,000. During the quarter ended December 31, 2010, the Company recovered $634,000 of the prior quarter's MSR impairment.

"We have begun our new fiscal year with a strong first quarter profit, solid net interest margin, very strong capital ratios and a well balanced mix of loans and deposits," said Michael Sand, President and CEO. "For the first time in several quarters, we are seeing signs of improving loan demand and stabilizing real estate values. This is reflected by reduced charge offs and a lower loan loss provision for the quarter."

Fiscal First Quarter 2011 Highlights (at or for the period ended December 31, 2010, compared to December 31, 2009, or September 30, 2010):

--  Net income increased to $1.36 million from $224,000 one year ago;
--  Earnings per common diluted share increased to $0.16 from a loss of
    $(0.01) per diluted common share one year ago;
--  Capital levels remain very strong: Total Risk Based Capital of 16.54%;
    Tier 1 Leverage Capital Ratio of 11.37%; Tangible Capital to Tangible
    Assets Ratio of 11.22%, all solidly above well capitalized levels;
--  Net interest margin increased to 3.82% from 3.77% for the quarter
    immediately prior;
--  Speculative one- to four-family construction loans, multi-family
    construction loans and land development loans comprise only 2.1% of the
    loan portfolio;
--  Total construction and land development loans decreased 43%
    year-over-year and now account for only 12% of total loans;
--  Net charge-offs for the quarter decreased to $415,000; down 74% from
    the linked quarter and down 77% year-over-year;
--  FHLB advances decreased by 27% during the quarter;
--  Recorded a non-cash $634,000 MSR valuation allowance recovery
    representing the majority of the $890,000 MSR valuation allowance
    recorded in the quarter immediately prior.

Capital Ratios and Asset Quality

Timberland Bancorp remains very well capitalized with a total risk-based capital ratio of 16.54%, a Tier 1 leverage capital ratio of 11.37% and a tangible capital to tangible assets ratio of 11.22% at December 31, 2010.

"We remain focused on improving asset quality," said Sand. "Although non-performing assets increased marginally during the quarter, credit quality improved from one year ago. The loan loss provision decreased 65% and net charge-offs decreased 77% year-over-year. Our most recent FDIC visitation and exit conference concluded on January 13, 2011."

Timberland recorded a $900,000 provision to its allowance for loan losses during the current quarter. Net charge-offs for the quarter ended December 31, 2010 declined 74% to $415,000 compared to $1.6 million for the quarter ended September 30, 2010 and were down 77% from $1.8 million for the comparable quarter one year ago. The allowance for loan losses of $11.7 million represented 2.19% of loans receivable and loans held for sale at December 31, 2010 compared to 2.09% at September 30, 2010. Total delinquent and non-accrual loans were $42.9 million at December 31, 2010 compared to $51.7 million one year ago and $35.0 million at September 30, 2010. The non-performing assets ("NPAs") to total assets ratio was 5.87% at December 31, 2010 compared to 7.25% at December 31, 2009 and 5.53% at September 30, 2010.

Non-accrual loans increased to $26.2 million at December 31, 2010 from $24.9 million at September 30, 2010 and were comprised of 78 loans and 55 credit relationships. Non-accrual loans were comprised of the following at December 31, 2010:

--  29 land loans totaling $8.10 million (of which the largest had a
    balance of $2.73 million)
--  Nine commercial real estate loans totaling $6.30 million (of which the
    largest had a balance of $2.71 million)
--  16 single family home loans totaling $4.12 million (of which the
    largest had a balance of $722,000 and was paid off subsequent to
    quarter end)
--  Eight land development loans totaling $3.52 million (of which the
    largest had a balance of $1.42 million)
--  Three single family speculative home loans totaling $1.70 million (of
    which the largest had a balance of $751,000)
--  Two condominium construction loans totaling $1.35 million (of which the
    largest had a balance of $1.03 million)
--  Five home equity loans totaling $739,000 (of which the largest had a
    balance of $344,000)
--  One single family owner / builder construction loan with a balance of
    $279,000
--  Two commercial business loans totaling $44,000
--  Three consumer loans totaling $28,000

Net charge-offs totaled $415,000 during the quarter ended December 31, 2010 and were primarily comprised of the following:

--  $129,000 on six single family home loans
--  $116,000 on five land loans
--  $78,000 on three home equity loans
--  $28,000 on one single family speculative construction loan
--  $27,000 on two consumer loans
--  $22,000 on one commercial business loan
--  $19,000 on one commercial real estate loan
--  $4,000 net recovery on one multi-family loan

Other real estate owned ("OREO") and other repossessed items totaled $12.61 million at December 31, 2010 compared to $11.52 million at September 30, 2010. At December 31, 2010 the OREO portfolio consisted of 33 individual properties and four other repossessed assets. The properties consisted of two condominium projects totaling $3.9 million, three land development projects totaling $2.9 million, 15 land parcels totaling $2.3 million, nine single family homes totaling $1.9 million and four commercial real estate properties totaling $1.5 million. During the quarter ended December 31, 2010 twelve OREO properties and one other repossessed asset totaling $355,000 were sold. Included in this total were nine residential building lots in a Clark County, Washington subdivision and two residential building lots in a Richland, Washington subdivision. The Bank has a 12.5% participation interest in the Clark County subdivision and the Bank recorded a gain of $27,000 from lots sold in the subdivision during the quarter. "We are seeing steady sales in these two projects and anticipate that lot sales will accelerate during the spring selling season," said Sand.

Balance Sheet Management

On October 1, 2010, a portion of the Bank's excess liquidity was used to repay four Federal Home Loan Bank ("FHLB") advances totaling $20.0 million. The average interest rate on these advances was 4.08%. The four advances of $5.0 million each had the following maturity dates: one on October 29, 2010, two on December 31, 2010 and one on January 14, 2011. Prepaying the advances required the prepayment of interest to the stated maturities of the advances. "Even with the repayment of the FHLB advances, we continue to maintain a high level of liquidity, both on balance sheet and through off-balance sheet sources," said Dean Brydon, Chief Financial Officer. Liquidity as measured by cash and cash equivalents, CDs held for investment and available for sale investments was 19.5% of total liabilities at December 31, 2010 compared to 21.4% at September 30, 2010 and 15.2% one year ago. Total assets decreased 3% to $722.5 million at December 31, 2010 from $742.7 million at September 30, 2010 primarily as a result of reducing cash equivalents to repay the $20 million of FHLB advances. During the quarter, Timberland reduced its cash balances by $14.3 million, decreased its loan portfolio by $3.8 million and reduced its mortgage-backed securities and other investments by $3.3 million.

Net loans receivable decreased 1% to $523.8 million at December 31, 2010 from $527.6 million at September 30, 2010. "The loan mix in our portfolio and the risk profile of the portfolio continues to improve," said Brydon. "Overall, we have reduced our total exposure to construction and land development loans by 43% from one year ago and by 61% from two years ago." Timberland continues to originate non-speculative owner / builder single family home construction loans and certain commercial real estate construction loans, but has dramatically reduced its exposure to speculative residential construction loans.

LOAN PORTFOLIO
($ in thousands)           Dec. 31, 2010   Sept. 30, 2010    Dec. 31, 2009   
                          Amount  Percent  Amount  Percent  Amount  Percent
                          ------  -------  ------  -------  ------  -------
Mortgage loans:
  One-to-four family      $116,631    21%  $121,014    22%  $112,678    19%
  Multi-family              29,419     5     32,267     6     27,833     5
  Commercial               217,845    39    208,002    37    197,614    34
  Construction and
   land development         68,081    12     69,271    12    118,552    20
  Land                      58,334    11     62,999    11     65,159    11
                          --------   ----  --------   ----  --------   ----
    Total mortgage loans   490,310    88    493,553    88    521,836    89

Consumer loans:
  Home equity and second
   mortgage                 37,239     7     38,418     7     40,212     7
  Other                      8,939     2      9,086     2      9,449     2
                          --------   ----  --------   ----  --------   ----
    Total consumer loans    46,178     9     47,504     9     49,661     9

Commercial business loans   17,452     3     17,979     3     13,023     2
                          --------   ----  --------   ----  --------   ----
Total loans                553,940   100%   559,036   100%   584,520   100%
                                    =====            =====            =====
Less:
  Undisbursed portion of
   construction loans in
   process                 (16,288)         (17,952)         (20,096)
  Deferred loan
   origination fees         (2,153)          (2,229)          (2,337)
  Allowance for loan
   losses                  (11,749)         (11,264)         (14,931)
                          --------         --------         --------
Total loans receivable,
 net                      $523,750         $527,591         $547,156
                          ========         ========         ========





CONSTRUCTION AND LAND DEVELOPMENT LOAN COMPOSITION
($ in thousands)          Dec. 31, 2010   Sept. 30, 2010    Dec. 31, 2009
                                 Percent          Percent          Percent
                                 of Loan          of Loan          of Loan
                         Amount Portfolio Amount Portfolio Amount Portfolio
                         ------ --------- ------ --------- ------ ---------
Custom and owner /
 builder                $32,483    5%    $30,945    5%    $32,014    6%
Speculative one- to
 four-family              3,469    1       4,777    1      12,523    2
Commercial real estate   23,869    4      23,528    4      36,890    6
Multi-family (including
 condominium)             2,938    1       3,587    1      19,084    3
Land development          5,322    1       6,434    1      18,041    3
                         ------ --------- ------ --------- ------ ---------
  Total construction
   and land development
   loans                $68,081   12%    $69,271   12%   $118,552   20%
                         ====== ========= ====== ========= ====== =========

Timberland's loan originations totaled $49.1 million for the quarter ended December 31, 2010 compared to $49.3 million for the preceding quarter and $54.1 million for the comparable quarter one year ago. Timberland continues to sell fixed rate one-to-four family mortgage loans into the secondary market for asset-liability management purposes and to generate non-interest income. During the quarter ended December 31, 2010, $26.9 million one-to-four family fixed-rate mortgage loans were sold on the secondary market compared to $24.0 million for the preceding quarter and $18.9 million for the quarter ended one year ago. Historically low mortgage interest rates boosted mortgage refinancing activity in fiscal 2010," said Brydon. "As a result the gain on sale of loans was strong and the average life of loans in the existing mortgage loan servicing portfolio declined. This caused us to record an $890,000 valuation allowance at the end of fiscal 2010. With refinancing activity diminishing towards the end of the first fiscal quarter, the average life of loans comprising the MSR asset increased, and we were able to recover most of the valuation allowance in the current quarter."

The Bank's land loan portfolio decreased to $58.3 million at December 31, 2010 from $63.0 million at September 30, 2010. The portfolio consists of 448 loans on a variety of land types including individual building lots, acreage, raw land and commercially zoned properties. The average loan size for the entire land portfolio was approximately $130,000 at December 31, 2010.

Timberland's mortgage-backed securities and other investments decreased by $3.3 million during the quarter to $12.9 million at December 31, 2010 from $16.2 million at September 30, 2010, primarily as a result of the sale of $2.3 million in agency mortgage-backed securities for a gain of $79,000, prepayments, regular amortization and impairment related write-downs. During the quarter ended December 31, 2010, other-than-temporary-impairment ("OTTI") credit related write-downs of $136,000 were recorded on the private label mortgage-backed securities that were acquired in the in-kind redemption from the AMF family of mutual funds in June 2008. At December 31, 2010 the Bank's remaining private label mortgage-backed securities portfolio had been reduced to $4.6 million from an original acquired balance of $15.3 million.

DEPOSIT BREAKDOWN
($ in thousands)           Dec. 31, 2010   Sept. 30, 2010    Dec. 31, 2009
                          Amount  Percent  Amount  Percent  Amount  Percent
                          ------  -------  ------  -------  ------  -------
Non-interest bearing      $ 51,519     9%  $ 58,755    10%  $ 50,525     9%
N.O.W. checking            157,411    27    153,304    26    133,510    25
Savings                     69,168    12     67,448    12     61,697    11
Money market                58,756    10     55,723    10     63,965    12
Certificates of deposit
 under $100                148,296    26    150,633    26    136,838    25
Certificates of deposit
 $100 and over              92,244    16     93,006    16     90,478    17
Certificates of deposit -
 brokered                       --    --         --    --      4,000     1
                          --------   ----  --------   ----  --------   ----
  Total deposits          $577,394   100%  $578,869   100%  $541,013   100%
                          ========   ====  ========   ====  ========   ====

Total deposits decreased by less than 1% to $577.4 million at December 31, 2010, from $578.9 million at September 30, 2010 primarily as a result of a $7.2 million decrease in non-interest bearing account balances and a $3.1 million decrease in CD account balances. These decreases were partially offset by a $4.1 million increase in N.O.W. checking account balances, a $3.0 million increase in money market account balances and $1.7 million increase in savings account balances.

Total shareholders' equity increased $1.15 million to $86.56 million at December 31, 2010, from $85.41 million at September 30, 2010. The increase in equity was primarily a result of net income for the quarter, net of accrued dividends on preferred stock. Timberland continues to remain very well capitalized with a total risk based capital ratio of 16.54% and a Tier 1 leverage capital of 11.37%. Book value per common share was $10.04 and tangible book value per common share was $9.17 at December 31, 2010.

Operating Results

Fiscal first quarter operating revenue (net interest income before provision for loan losses, plus non-interest income excluding OTTI charges and valuation allowances or recoveries on MSRs), was $8.78 million compared to $8.80 million for the immediately prior quarter and $8.69 million for the comparable quarter one year ago. Operating revenue for the current quarter was improved by increased gains on sale of loans (from an increase in the dollar amount of fixed rate single family loans sold into the secondary market) and $79,000 in gains from the sale of agency mortgage-backed securities. These gains were partially offset by a reduction in service charges on deposits, which is in part attributable to new regulations regarding overdraft charges that became effective in August 2010.

Net interest income decreased to $6.33 million for the quarter ended December 31, 2010, from $6.41 million for the immediately prior quarter and from $6.39 million for the comparable quarter one year ago. The decrease in net interest income was primarily due to a decrease in the level of average total interest-earning assets during the current quarter as a portion of the Company's excess liquidity was used to repay $20 million in FHLB advances. In spite of the continued challenging interest rate environment, Timberland's net interest margin increased to 3.82% for the current quarter compared to 3.77% for the quarter ended September 30, 2010. The net interest margin was reduced by approximately four basis points for the quarter ended December 31, 2010 by the reversal of interest income on loans placed on non-accrual during the quarter.

Timberland recorded a $900,000 provision to its allowance for loan losses for the quarter ended December 31, 2010, compared to $2.0 million in the preceding quarter and $2.6 million in the comparable quarter one year prior. Net charge-offs for the quarter ended December 31, 2010 totaled $415,000 compared to $1.6 million for the quarter ended September 30, 2010 and $1.8 million for the quarter ended December 31, 2009.

Primarily as a result of recording a non-cash $634,000 valuation allowance recovery for the Bank's MSR asset, non-interest income increased 118% to $2.95 million for the first fiscal quarter from $1.36 million for the immediately prior quarter and by 50% from $1.97 million for the comparable quarter one year ago. The increase in the fair value of the MSR asset was primarily a result of increased mortgage interest rates during the quarter ended December 31, 2010. An increase in gain on sale of loans and gain on sale of securities also contributed to the increase in non-interest income for the current quarter.

Total operating (non-interest) expenses increased 6% to $6.38 million for the first fiscal quarter from $6.03 million for the immediately prior quarter and increased 16% from $5.50 million for the comparable quarter one year ago. The increase in expenses compared to the immediately prior quarter was primarily due to increased OREO related expenses. The increased OREO related expenses for the current quarter were primarily due to lower valuations on updated appraisals received for several properties. The increase in expenses compared to the comparable quarter one year ago was primarily due to increased OREO related expenses and increased insurance expenses (FDIC and D&O). Also affecting the comparison was a change in the Bank's vacation accrual policy during the prior year which reduced the salaries and employee benefits expense by $164,000 for the quarter ended December 31, 2009.

About Timberland Bancorp, Inc.

Timberland Bancorp, Inc., a Washington corporation, is the holding company for Timberland Bank ("Bank"). The Bank opened for business in 1915 and serves consumers and businesses across Grays Harbor, Thurston, Pierce, King, Kitsap and Lewis counties, Washington with a full range of lending and deposit services through its 22 branches (including its main office in Hoquiam).

Disclaimer

Certain matters discussed in this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact and often include the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future or conditional verbs such as "may," "will," "should," "would" and "could." Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future performance. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results to differ materially from the results anticipated, including, but not limited to: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write- offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets and may lead to increased losses and non-performing assets in our loan portfolio, and may result in our allowance for loan losses not being adequate to cover actual losses, and require us to materially increase our reserves; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to sell loans in the secondary market; results of examinations of us by the Federal Reserve and our bank subsidiary by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; our compliance with regulatory enforcement actions, including regulatory memoranda of understandings ("MOUs") to which we are subject; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules; our ability to attract and retain deposits; further increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; difficulties in reducing risk associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; computer systems on which we depend could fail or experience a security breach; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may in the future acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, the interpretation of regulatory capital or other rules and any changes in the rules applicable to institutions participating in the TARP Capital Purchase Program; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations; pricing, products and services; and other risks detailed in our reports filed with the Securities and Exchange Commission.

Any of the forward-looking statements that we make in this press release and in the other public statements we make are based upon management's beliefs and assumptions at the time they are made. We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. 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 2011 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 SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share amounts)
(unaudited)

                                                Three Months Ended
                                         Dec. 31,    Sept. 30,   Dec. 31,
                                           2010         2010       2009
                                         ---------   ---------   ---------
   Interest and dividend income
   Loans receivable                      $   8,534   $   8,683   $   9,065
   Mortgage-backed securities and other
    investments                                182         215         216
   Dividends from mutual funds                   8           8           9
   Interest bearing deposits in banks           87          90          51
                                         ---------   ---------   ---------
     Total interest and dividend income      8,811       8,996       9,341
                                         ---------   ---------   ---------

   Interest expense
   Deposits                                  1,751       1,821       2,077
   FHLB advances and other borrowings          729         768         873
                                         ---------   ---------   ---------
     Total interest expense                  2,480       2,589       2,950
                                         ---------   ---------   ---------
     Net interest income                     6,331       6,407       6,391

   Provision for loan losses                   900       2,005       2,600
                                         ---------   ---------   ---------
     Net interest income after
      provision for loan losses              5,431       4,402       3,791

   Non-interest income
   OTTI on mortgage-backed
    securities, net                           (136)       (148)       (288)
   Realized loss on mortgage-backed
    securities                                  --          (3)        (48)
   Gain on sale of securities                   79          --          --
   Service charges on deposits                 984       1,022       1,130
   Gain on sale of loans, net                  701         560         449
   Bank owned life insurance ("BOLI")
    net earnings                               122         122         134
   Servicing income (expense) on
    loans sold                                 (36)         48          29
   Valuation recovery (allowance)
     on mortgage servicing rights
     ("MSRs")                                  634        (890)         --
   ATM transaction fees                        411         432         362
   Other                                       192         213         201
                                         ---------   ---------   ---------
     Total non-interest income, net          2,951       1,356       1,969
                                         ---------   ---------   ---------

   Non-interest expense
   Salaries and employee benefits            3,127       3,047       2,981
   Premises and equipment                      694         648         701
   Advertising                                 167         203         172
   OREO and other repossessed items
    expense, net                               428         114          50
   ATM expenses                                175         208         155
   FDIC insurance                              340         336         200
   Insurance                                   154         151          20
   Postage and courier                         115         139         128
   Amortization of core deposit
    intangible                                  42          48          48
   State and local taxes                       166         173         141
   Professional fees                           182         102         172
   Other                                       786         860         730
                                         ---------   ---------   ---------
     Total non-interest expense              6,376       6,029       5,498
                                         ---------   ---------   ---------

   Income (loss) before income taxes         2,006        (271)        262
   Provision (benefit) for income taxes        647        (130)         38
                                         ---------   ---------   ---------
     Net income (loss)                   $   1,359   $    (141)  $     224
                                         =========   =========   =========

   Preferred stock dividends accrued     $    (208)  $    (208)  $    (208)
   Preferred stock discount accretion          (54)        (54)        (51)
                                         ---------   ---------   ---------
   Net income (loss) to common
    shareholders                         $   1,097   $    (403)  $     (35)
                                         =========   =========   =========

   Net income (loss) per common share:
     Basic                               $    0.16   $   (0.06)  $   (0.01)
     Diluted                             $    0.16   $   (0.06)  $   (0.01)
   Weighted average common shares
    outstanding:
     Basic                               6,745,250   6,715,734   6,709,985
     Diluted                             6,745,250   6,715,734   6,709,985





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

                                         Dec. 31,    Sept. 30,   Dec. 31,
                                           2010        2010        2009
                                         ---------   ---------   ---------
Assets
Cash and cash equivalents:
  Cash and due from financial
   institutions                          $   8,955   $   9,466   $  11,676
  Interest-bearing deposits in other
   banks                                    88,516     102,320      57,250
                                         ---------   ---------   ---------
                                            97,471     111,786      68,926
                                         ---------   ---------   ---------

Certificate of deposits ("CDs") held for
 investment, at cost                        18,501      18,047      14,442
Mortgage-backed securities and other
 investments:
  Held to maturity, at amortized cost        4,715       5,066       6,413
  Available for sale, at fair value          8,191      11,119      12,594
FHLB stock                                   5,705       5,705       5,705

Loans receivable                           533,646     535,885     559,153
Loans held for sale                          1,853       2,970       2,934
Less: Allowance for loan losses            (11,749)    (11,264)    (14,931)
                                         ---------   ---------   ---------
Net loans receivable                       523,750     527,591     547,156

Premises and equipment, net                 17,237      17,383      17,951
OREO and other repossessed items, net       12,612      11,519       8,119
BOLI                                        13,522      13,400      13,042
Accrued interest receivable                  2,706       2,630       2,997
Goodwill                                     5,650       5,650       5,650
Core deposit intangible                        522         564         707
Mortgage servicing rights, net               2,587       1,929       2,691
Prepaid FDIC insurance assessment            2,959       3,268       4,364
Other assets                                 6,357       7,030       5,709
                                         ---------   ---------   ---------
Total assets                             $ 722,485   $ 742,687   $ 716,466
                                         =========   =========   =========

Liabilities and shareholders' equity
Deposits: Demand, non-interest-bearing   $  51,519   $  58,755   $  50,525
Deposits: Interest-bearing                 525,875     520,114     490,488
                                         ---------   ---------   ---------
    Total deposits                         577,394     578,869     541,013
                                         ---------   ---------   ---------

FHLB advances                               55,000      75,000      75,000
Federal Reserve Bank of San Francisco
 borrowings                                     --          --      10,000
Repurchase agreements                          642         622         622
Other liabilities and accrued expenses       2,887       2,788       2,625
                                         ---------   ---------   ---------
Total liabilities                          635,923     657,279     629,260
                                         ---------   ---------   ---------

Shareholders' equity
Preferred stock - $.01 par value;
 1,000,000 shares authorized;
 16,641 shares, Series A, issued
 and outstanding
 Series A shares: $1,000
 per share liquidation value                15,818      15,764      15,605
Common stock - $.01 par value;
 50,000,000 shares authorized;
 7,045,036 shares issued and
 outstanding                                10,389      10,377      10,343
Unearned shares - Employee Stock
 Ownership Plan                             (2,181)     (2,247)     (2,446)
Retained earnings                           63,335      62,238      65,607
Accumulated other comprehensive loss          (799)       (724)     (1,903)
                                         ---------   ---------   ---------
Total shareholders' equity                  86,562      85,408      87,206
                                         ---------   ---------   ---------
Total liabilities and shareholders'
 equity                                  $ 722,485   $ 742,687   $ 716,466
                                         =========   =========   =========





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

                                              Three Months Ended
                                      -----------------------------------
                                      Dec. 31,     Sept. 30,    Dec. 31,
                                        2010         2010         2009
                                      ---------    ---------    ---------
PERFORMANCE RATIOS:
Return (loss) on average assets (a)        0.75%       (0.08)%       0.13%
Return (loss) on average equity (a)        6.35%       (0.66)%       1.02%
Net interest margin (a)                    3.82%        3.77%        3.94%
Efficiency ratio                          68.69%       77.66%       65.77%
Core efficiency ratio (b)                 67.24%       66.66%       62.10%


                                      Dec. 31,     Sept. 30,    Dec. 31,
                                        2010         2010         2009
                                      ---------    ---------    ---------
ASSET QUALITY RATIOS:
Non-accrual loans                     $  26,166    $  24,864    $  34,563
Past due 90 days and still accruing         305        1,325        6,299
Non-performing investment securities      3,325        3,390        2,976
OREO and other repossessed assets        12,612       11,519        8,119
                                      ---------    ---------    ---------
Total non-performing assets (c)       $  42,408    $  41,098    $  51,957
                                      =========    =========    =========

Non-performing assets to total
 assets (c)                                5.87%        5.53%        7.25%
Net charge-offs                       $     415    $   1,641    $   1,841
Allowance for loan losses to
 non-accrual loans                           45%          45%          43%
Allowance for loan losses to loans
 receivable, net (d)                       2.19%        2.09%        2.66%
Troubled debt restructured loans on
 accrual status (e)                   $   8,841    $   8,995    $      --

CAPITAL RATIOS:
Tier 1 leverage capital                   11.37%       10.96%       11.95%
Tier 1 risk based capital                 15.28%       15.00%       14.63%
Total risk based capital                  16.54%       16.26%       15.90%
Tangible capital to tangible
 assets (f)                               11.22%       10.75%       11.39%

BOOK VALUES:
Book value per common share           $   10.04    $    9.89    $   10.16
Tangible book value per common
 share (f)                            $    9.17    $    9.00    $    9.26


(a) Annualized
(b) Calculation excludes OTTI losses, OREO expenses, realized losses on
    investment securities, valuation allowance / recovery on MSRs and
    amortization of CDI.
(c) 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.
(d) Includes loans held for sale and is before the allowance for loan
    losses.
(e) Does not include troubled debt restructured loans totaling $6,756,
    $7,405 and $9,799 reported as non-accrual loans at December 31, 2010,
    September 30, 2010 and December 31, 2009, respectively.
(f) Calculation subtracts goodwill and core deposit intangible from the
    equity component and from assets.





AVERAGE BALANCE SHEETS:                       Three Months Ended
                                      -----------------------------------
                                      Dec. 31,     Sept. 30,    Dec. 31,
                                        2010         2010         2009
                                      ---------    ---------    ---------
Average total loans                   $ 539,007    $ 544,561    $ 561,378
Average total interest-earning
 assets (a)                             663,761      678,925      648,716
Average total assets                    722,007      737,854      701,614
Average total interest-bearing
 deposits                               523,221      518,683      474,898
Average FHLB advances and other
 borrowings                              55,546       75,584       85,537
Average shareholders' equity             85,596       86,086       87,756


(a) Includes loans on non-accrual status

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