Management's Discussion and Analysis and other portions of this report contain statements that the Company believes are "forward-looking statements". These statements relate to the Company's financial condition, results of operations, plans, objectives, future performance or business. You should not place undue reliance on these statements, as they are subject to risks and uncertainties. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Company may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors which could cause actual results to differ materially include, but are not limited to, the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas; results of examinations of us by the Office of Thrift Supervision ("OTS") and our bank subsidiaries by the Federal Deposit Insurance Corporation ("FDIC") or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses or to write-down assets; our ability to control operating costs and expenses; our ability to implement our branch expansion strategy; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired or 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; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; legislative or regulatory changes that adversely affect our business; 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; war or terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and other risks detailed in the Company's reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended March 31, 2008.

Critical Accounting Policies

Critical accounting policies and estimates are discussed in our 2008 Form 10-K under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation - Critical Accounting Policies." That discussion highlights estimates the Company makes that involve uncertainty or potential for substantial change. There have not been any material changes in the Company's critical accounting policies and estimates contained in the Company's 2008 Form 10-K.

Non-GAAP Financial Information

This report contains certain financial information determined by methods other than in accordance with GAAP. These measures include net interest income on a fully tax equivalent basis and net interest margin on a fully tax equivalent basis. Management uses these non-GAAP measures in its analysis of the Company's performance. The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 34% tax rate. Management believes that it is a standard practice in the banking industry to present net interest income and net interest margin on a fully tax equivalent basis, and accordingly believes that providing these measures may be useful for peer comparison purposes. These disclosures should not be viewed as substitutes for the results determined to be in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. A reconciliation of net interest income as reported to net interest income on a fully tax equivalent basis are contained in the tables under "Net Interest Income."

Executive Overview

Financial Highlights. Net loss for the three months ended September 30, 2008 was $4.2 million, or $0.39 per basic share ($0.39 per diluted share), compared to net income of $2.4 million, or $0.22 per basic share ($0.22 per diluted share) for the three months ended September 30, 2007. Net interest income after provision for loan losses decreased $6.9 million to $1.4 million for the three months ended September 30, 2008 compared to $8.3 million for the same quarter last year. Non-interest income decreased $3.5 million for the three months ended September 30, 2008 compared to the same prior year period. Non-interest expense decreased $123,000 for the quarter-ended September 30, 2008 compared to the same quarter last year.

Net loss for the six months ended September 30, 2008 was $3.4 million, or $0.32 per basic share ($0.32 per diluted share), compared to net income of $5.3 million, or $0.47 per basic share ($0.47 per diluted share) for the six months ended September 30, 2007.

The annualized return on average assets was (1.86)% for the three months ended September 30, 2008, compared to 1.19% for the three months ended September 30, 2007. For the same periods, the annualized return on average common equity was
(17.66)% compared to 9.98%, respectively. The efficiency ratio was 91.53% for the second quarter of fiscal 2009 compared to 62.61% for the same period last year. The increase in the efficiency ratio is primarily a result of the $3.4 million non-cash impairment charge for the investment security taken during the second quarter.

The Company is a progressive, community-oriented financial institution, which emphasizes local, personal service to residents of its primary market area. The Company considers Clark, Cowlitz, Klickitat and Skamania counties of Washington and Multnomah, Clackamas and Marion counties of Oregon as its primary market area. The Company is engaged predominantly in the business of attracting deposits from the general public and using such funds in its primary market area to originate commercial, commercial real estate, multi-family real estate, real estate construction, residential real estate and consumer loans. Commercial and construction loans have grown from 72.42% of the loan portfolio at March 31, 2003 to 89.13% of the loan portfolio at September 30, 2008. The Company's strategic plan emphasizes targeting the commercial banking customer base in its primary market area, specifically small and medium size businesses, professionals and wealth building individuals. In pursuit of these goals, the Company manages growth diversification while including a significant amount of commercial and commercial real estate loans in its loan portfolio. Significant portions of these new loan products carry adjustable rates, higher yields or shorter terms but also carry higher credit risk than traditional fixed-rate mortgages. A related goal is to increase the proportion of personal and business checking account deposits used to fund these new loans. The strategic plan also stresses increased emphasis on non-interest income, including increased fees for asset management and deposit service charges. The strategic plan is designed to enhance earnings, reduce interest rate risk and provide a more complete range of financial services to customers and the local communities the Company serves. The Company is well positioned to attract new customers and to increase its market share with 18 branches including ten in fast growing Clark County, four in the Portland metropolitan area and four lending centers.

In order to support the Company's strategy of growth without compromising its local, personal service to its customers and a commitment to asset quality, the Company has made significant investments in experienced branch, lending, asset management and support personnel and has incurred significant costs in facility expansion and in our infrastructure. Not withstanding the impact of the impairment of investment security, the Company's efficiency ratio reflects this investment and will likely remain relatively high by industry standards for the foreseeable future as a result of the emphasis on growth and local, personal service. Working to control its non-interest expenses remains a high priority for the Company's management.

The Company continuously reviews new products and services to provide its customers more financial options. All new technology and services are generally reviewed for business development and cost saving purposes. In-house processing of checks and check imaging has supported the Bank's increased service to customers and at the same time has increased efficiency. The Bank has implemented remote check capture at selected branches and is in the process of implementing remote capture of checks on site for selected customers of the Bank. Emphasis on enhancing the Bank's cash management product line is in process with the hiring of an experienced cash management officer. The formation of a team consisting of this cash management officer and existing Bank employees is expected to lead to a more robust cash management product line for the Bank's commercial customers. The Company continues to experience growth in customer use of its online banking services, which allows customers to conduct a full range of services on a real-time basis, including balance inquiries, transfers and electronic bill paying. The Company's online service has also enhanced the delivery of cash management services to commercial customers. During the second quarter, the Company began offering Certificate of Deposit Registry Service (CDARS™) deposits. Through the CDARS™ program, customers can now access FDIC insurance up to $50 million. The Company also implemented Check 21 during the second quarter, which will allow the Company to process checks faster and more efficiently.

The Company conducts operations from its home office in Vancouver and 18 branch offices in Camas, Washougal, Stevenson, White Salmon, Battle Ground, Goldendale, Vancouver (seven branch offices) and Longview, Washington and Portland (two branch offices), Wood Village and Aumsville, Oregon. The Company operates a trust and financial services company, RAM Corp., located in downtown Vancouver. Riverview Mortgage, a mortgage broker division of the Company, originates mortgage loans for various mortgage companies predominantly in the Vancouver/Portland metropolitan areas, as well as for the Company. The Business and Professional Banking Division, with two lending offices in Vancouver and two lending offices in Portland, offers commercial and business banking services.

Vancouver is located in Clark County, Washington, which is just north of Portland, Oregon. Many businesses are located in the Vancouver area because of the favorable tax structure and lower energy costs in Washington as compared to Oregon. Companies located in the Vancouver area include Sharp Microelectronics, Hewlett Packard, Georgia Pacific, Underwriters Laboratory, Wafer Tech, Nautilus and Barrett Business Services, as well as several support industries. In addition to this industry base, the Columbia River Gorge Scenic Area is a source of tourism, which has helped to transform the area from its past dependence on the timber industry.

In recent years, national real estate and home values have increased substantially, as a result of the generally strong national economy, speculative investing, and aggressive lending practices that provided loans to marginal borrowers (generally termed as "subprime" loans). The strong economy also resulted in significant increases in residential and commercial real estate values and commercial and residential construction. The national and regional residential lending market has experienced a noted slowdown in recent months, as loan delinquencies and foreclosure rates have increased. Foreclosures and delinquencies are also being driven by investor speculation in many states, while job losses and depressed economic conditions have resulted in the higher levels of delinquent loans. A continued economic downturn recently, and more specifically a continued slowdown in residential real estate sales, has resulted in further uncertainty in the financial markets. As a result, the Company has experienced a further decline in the values of real estate collateral supporting certain of its construction real estate and land acquisition and development loans and has seen signs for the potential for increased loan delinquencies. In addition, competition among financial institutions for deposits has also increased.

Loan Composition

The following table sets forth the composition of the Company's commercial and
construction loan portfolio based on loan purpose at the dates indicated.

                                                           Other Real                               Commercial
                                                             Estate          Real Estate                &
                                          Commercial        Mortgage         Construction       Construction Total
September 30, 2008                                                    (in thousands)

Commercial                              $     123,569     $           -     $            -     $            123,569
Commercial construction                             -                 -             50,925                   50,925
Office buildings                                    -            83,168                  -                   83,168
Warehouse/industrial                                -            41,501                  -                   41,501
Retail/shopping centers/strip malls                 -            81,007                  -                   81,007
  Assisted living facilities                        -            30,553                  -                   30,553
Single purpose facilities                           -            79,307                  -                   79,307
Land                                                -            99,668                  -                   99,668
Multi-family                                        -            27,278                  -                   27,278
One-to-four family construction                     -                 -             84,005                   84,005
Total                                   $     123,569     $     442,482     $      134,930     $            700,981




                                                           Other Real                               Commercial
                                                             Estate          Real Estate                &
                                          Commercial        Mortgage         Construction       Construction Total
March 31, 2008                                                        (in thousands)

Commercial                              $     109,585     $           -     $            -     $            109,585
Commercial construction                             -                 -             55,277                   55,277
Office buildings                                    -            88,106                  -                   88,106
Warehouse/industrial                                -            39,903                  -                   39,903
Retail/shopping centers/strip malls                 -            70,510                  -                   70,510
  Assisted living facilities                        -            28,072                  -                   28,072
Single purpose facilities                           -            65,756                  -                   65,756
Land                                                -           108,030                  -                  108,030
Multi-family                                        -            29,045                  -                   29,045
One-to-four family construction                     -                 -             93,354                   93,354
Total                                   $     109,585     $     429,422     $      148,631     $            687,638

Comparison of Financial Condition at September 30, 2008 and March 31, 2008

At September 30, 2008, the Company had total assets of $895.6 million, compared with $886.8 million at March 31, 2008.

Cash, including interest-earning accounts, totaled $26.2 million at September 30, 2008, compared to $36.4 million at March 31, 2008. The $10.2 million decrease was primarily attributable to a decrease in the cash balance maintained at the Federal Reserve Bank as a result of the implementation of Check 21 during the second quarter.

Investment securities available for sale totaled $9.5 million at September 30, 2008, compared to $7.5 million at March 31, 2008. The $2.0 million increase was attributable to a new $5.0 million agency security purchased, which was offset by maturities and scheduled cash flows of securities and an impairment charge of $3.4 million. The investment security that the Company recognized a non-cash impairment charge on is a trust preferred pooled security issued by other bank holding companies. The Company reviews investment securities for the presence of other-than-temporary impairment, taking into consideration current market conditions, extent and nature of change in fair value, issuer rating changes and trends, current analysts' evaluations, the Company's ability and intent to hold investments until a recovery of fair value, which may be maturity, as well as other factors. During the second quarter of fiscal 2009, the investment rating of the security was lowered from "A1" to "Baa3" by one rating agency, two of the issuers of the security invoked their original contractual right to defer interest payments and one issuer of the security defaulted. However, the tranche of the security held by the Company continues to pay as agreed. Additionally, the secondary market for trust preferred securities became further restricted to a level determined to be inactive in the Company's judgment. Although management believes it is possible that all principal and interest will be received and the Company has the ability and intention to continue to hold the security until there is a recovery in value, general market concerns over these and similar types of securities, as well as the lowering of the investment rating for the security, has caused the fair value to decline severely enough during the second quarter to warrant an OTTI charge. Consequently, management chose to recognize a $3.4 million OTTI charge bringing the value of the security to $1.6 million. Management does not believe that the recognition of this OTTI charge has any other implications for the Company's business fundamentals or its outlook. For additional information on our Level 3 fair value measurements see "Fair Value of Level 3 Assets" included in Item 2.

Loans receivable, net, totaled $770.4 million at September 30, 2008, compared to $756.5 million at March 31, 2008, an increase of $13.9 million. The increase in net loans is attributable to continued loan growth as the Company followed its strategic plan of increasing commercial real estate loan originations. This increase was partially offset by the pay down of several large loans as well as net charge-offs of $4.5 million in loans for the six months ended September 30, 2008. Commercial real estate loans, excluding land acquisition and development loans, increased $6.4 million during the quarter-ended September 30, 2008. This increase was partially offset by a $2.8 million decrease in land acquisition and development loans and a $3.4 million decrease in one-to-four family construction loans. A substantial portion of the loan portfolio is secured by real estate, either as primary or secondary collateral, located in the Company's primary market areas. Risks associated with loans secured by real estate include decreasing land and property values, increases in interest rates, deterioration in local economic conditions, reduced sales of homes and land, tightening credit or refinancing markets, and a concentration of loans within any one area. The Company has no sub-prime residential real estate loans in its portfolio.

Goodwill was $25.6 million at September 30, 2008 and March 31, 2008. As a result of ongoing volatility in the financial services industry, the Company's market capitalization decreased to a level below tangible book value which made it necessary for the Company to perform an interim goodwill impairment test during the second quarter ended September 30, 2008. The interim goodwill impairment test indicated that the Company's goodwill was not impaired. The Company will perform its annual impairment test of goodwill in the third quarter of fiscal 2009.

Deposit accounts totaled $637.5 million at September 30, 2008, compared to $667.0 million at March 31, 2008. At September 30, 2008, the Company had $10.0 million less in brokered deposits compared to March 31, 2008. The decrease in deposits is also a result of the general downturn in the real estate market as well as the overall economy. The Company has continued to experience increased competition for customer deposits within its market area. In addition, as market interest rates have decreased, the Company has seen a shift in customer deposit choices from money market deposit and interest checking accounts into certificates of deposit. As a result, the balance of certificates of deposit increased $99.9 million to $279.3 million at September 30, 2008, compared to $179.5 million at September 30, 2007.

FHLB advances totaled $136.7 million at September 30, 2008 and $92.9 million at March 31, 2008. The $43.8 million increase was attributable to the Company's continued loan growth coupled with a decrease in deposit balances described above and competition for customer deposits.

Shareholders' Equity and Capital Resources

Shareholders' equity decreased $4.5 million to $88.1 million at September 30, 2008 from $92.6 million at March 31, 2008. The decrease in equity primarily was attributable to cash dividends declared to shareholders of $1.4 million and the net loss of $3.4 million for the six months ended September 30, 2008 as a result of the ITTI charge. The exercise of stock options, earned ESOP shares and the net tax effect for unrealized losses on investment securities resulted in a $320,000 net increase, partially offsetting the decrease.

The Bank is subject to various regulatory capital requirements administered by the OTS. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance sheet items as calculated in accordance with regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk, weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total capital to risk-weighted assets, Tier I capital to risk-weighted assets, Tier I capital to adjusted tangible assets and tangible capital to tangible assets (set forth in the table below). Management believes the Bank meets all capital adequacy requirements to which it is subject as of September 30, 2008.

As of September 30, 2008, the most recent notification from the OTS categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized," the Bank must maintain minimum total capital and Tier I capital to risk-weighted assets, Tier I capital to adjusted tangible assets and tangible capital to tangible assets (set forth in the table below). There are no conditions or events since that notification that management believes have changed the Bank's regulatory capital categorization. The Bank's actual and required minimum capital amounts and ratios are presented in the following table (dollars in thousands):

                                                                                      Categorized as "Well
                                                                                       Capitalized" Under
                                                         For Capital                    Prompt Corrective
                            Actual                    Adequacy Purposes                 Action Provision
                     Amount         Ratio          Amount            Ratio           Amount            Ratio
September 30,
2008
Total Capital:
(To
Risk-Weighted
Assets)            $   86,301          10.70 %   $    64,527              8.0 %   $     80,659             10.0 %
Tier I Capital:
(To
Risk-Weighted
Assets)                76,216           9.45          32,263              4.0           48,395              6.0
Tier I Capital:
(To Adjusted
Tangible Assets)       76,216           8.86          34,423              4.0           43,029              5.0
Tangible
Capital:
(To Tangible
Assets)                76,216           8.86          12,909              1.5              N/A              N/A



                                                                                      Categorized as "Well
                                                                                       Capitalized" Under
                                                         For Capital                    Prompt Corrective
                            Actual                    Adequacy Purposes                  Action Provision
                     Amount         Ratio          Amount            Ratio           Amount            Ratio
March 31, 2008
Total Capital:
(To
Risk-Weighted
Assets)            $   88,806          10.99 %   $    64,627              8.0 %   $     80,784             10.0 %
Tier I Capital:
(To
Risk-Weighted
Assets)                79,021           9.78          32,314              4.0           48,470              6.0
Tier I Capital:
(To Adjusted
Tangible Assets)       79,021           9.29          25,530              3.0           42,550              5.0
Tangible
Capital:
(To Tangible
Assets)                79,021           9.29          12,765              1.5              N/A              N/A

Liquidity

The Bank's primary source of funds are customer deposits, proceeds from principal and interest payments on loans, maturing securities and FHLB advances. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced general interest rates, economic conditions and competition.

The Bank must maintain an adequate level of liquidity to ensure the availability . . .