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 OTS or 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 or increase our capital; our ability to comply with agreements entered into with the OTS or FDIC, including the recent Memorandum of Understanding ("MOU" or "the agreement") entered into with the OTS; 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.

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.

Recent Developments

The Emergency Economic Stabilization Act of 2008, signed into law on October 3, 2008, provides authority to the United States Department of the Treasury ("UST") to, among other things, purchase up to $700 billion of mortgages, mortgage backed securities and certain other financial instruments from financial institutions. On October 14, 2008, the UST announced it will offer certain selected financial institutions the opportunity to issue and sell preferred stock, along with warrants to purchase common stock, to the U.S. government, acting through the UST, on terms specified by the government. This program is known as the Capital Purchase Program, which is part of the larger Troubled Asset Relief Program ("TARP") announced.

In addition, the FDIC has initiated the Temporary Liquidity Guarantee Program ("TLGP") that will provide a 100 percent guarantee for a limited period of time to newly issued senior unsecured debt and non-interest bearing transaction deposits. Coverage under the TLGP is available at a cost of 75 basis points per annum for senior unsecured debt and 10 basis points per annum for non-interest bearing transaction deposits. The Bank has elected to participate in the TLGP program.

In January 2009, the OTS finalized a supervisory agreement, an MOU, which was reviewed and approved by the Board on January 21, 2009. The MOU specifically requires the Bank to: (a) submit a business plan that sets forth a plan for achieving and maintaining Tier 1 (Core) Leverage Ratio of 8% and a minimum Total Risk-Based Capital Ratio of 12% and to provide a detailed financial forecast including capital ratios, earnings and liquidity and containing comprehensive business line goals and objectives; (b) remain in compliance with the minimum capital ratios contained in the business plan; (c) provide notice to and obtain a non-objection from the OTS prior to the Bank declaring a dividend; (d) maintain an adequate Allowance for Loan and Lease Losses (ALLL); (e) engage an independent consultant to conduct a comprehensive evaluation of the Bank's asset quality; (f) develop a written comprehensive plan, that is acceptable to the OTS, to reduce classified assets; (g) obtain written approval of the Loan Committee and the Board prior to the extension of credit to any borrower with a classified loan.

The Board and Bank management do not believe that this agreement will constrain the Bank's business plan and furthermore, we believe that the Bank is currently in compliance with many of the requirements of the agreement through its normal business operations. Management believes that the primary reason the Bank was requested to enter into an MOU with the OTS was due to the uncertain economic conditions currently affecting the financial industry. As of December 31, 2008, the Bank's Tier 1 (Core) Leverage ratio was 8.82% (0.82% over the new required minimum) and Risk-Based Capital Ratio was 10.73% (1.27% less than the new minimum). The Bank has submitted a comprehensive business plan to the OTS that sets forth a plan for achieving and maintaining the minimum Tier 1 (Core) Leverage and Risk-Based Capital Ratios during fiscal 2010, as well as a plan for reducing classified assets. Management is currently in compliance with the remaining requirements of the agreement, including maintaining an adequate ALLL; engaging an independent consultant to conduct semi-annual loan reviews; providing notice to and obtaining non-objection from the OTS prior to the Bank declaring a dividend; and obtaining approval of the Loan Committee prior to the extension of credit to borrowers with a classified loan. The most recent independent loan review for the Bank was completed in December 2008.

Executive Overview

Financial Highlights. Net income for the three months ended December 31, 2008 was $1.5 million, or $0.14 per basic share ($0.14 per diluted share), compared to net income of $2.2 million, or $0.21 per basic share ($0.21 per diluted share) for the three months ended December 31, 2007. Net interest income after provision for loan losses decreased $1.0 million to $7.2 million for the three months ended December 31, 2008 compared to $8.2 million for the same quarter last year. Non-interest income and non-interest expense decreased $248,000 and $104,000, respectively, for the three months ended December 31, 2008 compared to the same quarter last year.

Net loss for the nine months ended December 31, 2008 was $1.9 million, or $0.18 per basic share ($0.18 per diluted share), compared to net income of $7.5 million, or $0.68 per basic share ($0.67 per diluted share) for the nine months ended December 31, 2007.

The annualized return on average assets was 0.64% for the three months ended December 31, 2008, compared to 1.06% for the three months ended December 31, 2007. For the same periods, the annualized return on average common equity was 6.47% compared to 9.30%, respectively. The efficiency ratio was 67.23% and 63.69% for the three months ended December 31, 2008 and 2007, respectively.

For the nine months ended December 31, 2008, the Company recorded a provision for loan losses of $11.2 million compared to $1.1 million for the nine months ended December 31, 2007, which reduced our results of operations for the nine months ended December 31, 2008. The Company also recorded net loan charge-offs of $5.6 million for the nine months ended December 31, 2008 compared to $248,000 for the nine months ended December 31, 2007. At December 31, 2008, the Company's total non-performing loans had increased to $28.4 million compared to $1.1 million at December 31, 2007. The operating difficulties of individual borrowers resulting from the weakness in the economy of the Pacific Northwest, in addition to slowing home sales, have been contributing factors to the increase in non-performing loans as well as the increased level of delinquencies. These economic conditions have also contributed to the higher provision for loan losses for the nine months ended December 31, 2008 compared to the same period in prior year.

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 89.16% of the loan portfolio at December 31, 2008, increasing the risk profile of our total loan portfolio.

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 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 infrastructure development. 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 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. The Bank has increased its emphasis on enhancing its 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 an improved 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 of fiscal 2009, 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 of fiscal 2009, which will allow the Company to process checks faster and more efficiently. In December 2008, the Company began operating as a merchant bankcard "agent bank" facilitating credit and debit card transactions for business customers through an outside merchant bankcard processor. This allows the Company to underwrite and approve merchant bankcard applications and retain interchange income that, under its previous status as a "referral bank", was heretofore earned by a third party. A branch manager of the Bank, who previously had experience in leading similar merchant bankcard programs with other community financial institutions, currently manages the merchant bankcard service.

The Company conducts operations from its home office in Vancouver, Washington 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.

Prior to 2008, national real estate and home values 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). That 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, however, has experienced a notable slowdown in 2008, 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. The continued economic downturn, and more specifically the continued slowdown in residential real estate sales, has resulted in further uncertainty in the financial markets. During the third quarter of fiscal 2009, the local economy has continued to slow. Unemployment in Clark County increased to 8.2% in November 2008 compared with 5.7% in November 2007. Home values in the Portland/Vancouver area at December 31, 2008 were lower than home values last year, with certain areas seeing more significant declines. The local area has continued to see a reduction in new residential building starts during 2008. Commercial real estate leasing activity in the Portland/Vancouver area, however, has remained steady, but it is generally affected by a slow economy later than other indicators. Commercial vacancy rates in Clark County have continued to increase during the quarter ended December 31, 2008. As a result of these and other factors, 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, has experienced increased loan delinquencies and defaults, and sees signs for potential further increased loan delinquencies and defaults. In addition, competition among financial institutions for deposits has also continued to increase, making it more expensive to attract core deposits.

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.

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

Commercial           $     133,616   $          -   $             -   $      133,616
Commercial
construction                     -              -            57,486           57,486
Office buildings                 -         89,112                 -           89,112
Warehouse/industrial             -         43,424                 -           43,424
Retail/shopping
centers/strip malls              -         83,250                 -           83,250
Assisted living
facilities                       -         30,472                 -           30,472
Single purpose
facilities                       -         89,586                 -           89,586
Land                             -        100,394                 -          100,394
Multi-family                     -         29,175                 -           29,175
One-to-four family
construction                     -              -            76,151           76,151
   Total             $     133,616   $    465,413   $       133,637   $      732,666

                                       Commercial                        Commercial
                                          Real                               &
                                         Estate       Real Estate       Construction
                        Commercial      Mortgage      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 December 31, 2008 and March 31, 2008

Cash, including interest-earning accounts, totaled $23.9 million at December 31, 2008, compared to $36.4 million at March 31, 2008. The $12.6 million decrease was primarily attributable to a decrease in the cash balance maintained at the Federal Reserve Bank ("FRB") as a result of the implementation of Check 21 during the second quarter of fiscal 2009 and the utilization of cash for the repayment of FHLB advances.

Investment securities available for sale totaled $9.0 million at December 31, 2008, compared to $7.5 million at March 31, 2008. The $1.5 million increase was attributable to a new $5.0 million agency security purchased, which was offset by maturities, scheduled cash flows 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. We review investment securities for the presence of OTTI, taking into consideration current market conditions, the extent and nature of changes 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. 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, caused the fair value to decline severely enough during the second quarter to warrant an OTTI charge. Using a discounted cash flow approach, we estimated the security's fair value to be $1.6 million and recognized a $3.4 million OTTI charge.

During the third quarter of fiscal 2009, the investment rating of the security was lowered from "Baa3" to "Caa2" and three additional issuers announced their intent to defer interest payments. At December 31, 2008, actual market prices, or relevant observable inputs, continued to be unavailable as a result of the secondary market for trust preferred securities being restricted to a level determined to be inactive. That determination was made considering that there are few observable transactions for trust preferred securities or similar CDO securities and the observable prices for those transactions have varied substantially over time. Therefore, the Company has determined that an income approach valuation technique (using cash flows and present value techniques) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs is more representative of fair value then relying on the estimation of market value technique used prior to September 30, 2008, which now has few observable inputs and relies on an inactive market with distressed sales conditions that would require significant adjustment. Management used significant unobservable inputs that reflect our assumptions of what a market participant would use to price this security at December 31, 2008. Significant unobservable inputs included selecting an appropriate discount rate, default rate and repayment assumptions. We estimated the discount rate by comparing rates for similarly rated corporate bonds, with additional consideration given to market liquidity. We estimated the default rates and repayment assumptions based on the individual issuer's financial conditions, historical repayment information, as well as our future expectations of the capital markets. Using this information, we estimated the fair value of the security at December 31, 2008 and concluded the results did not warrant a further write-down in fair value. Additionally, we received two independent Level 3 valuation estimates for this security. Those valuation estimates were based on proprietary pricing models utilizing significant unobservable inputs. Although our estimate of fair value fell within the range of valuations provided, the magnitude in the range of fair values estimates further supported the difficulty in estimating the fair value for these types securities in the current environment. We do not believe that the OTTI charge that was previously recognized 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 $805.5 million at December 31, 2008, compared to $756.5 million at March 31, 2008, an increase of $49.0 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 $5.6 million in loans for the nine months ended December 31, 2008. Commercial real estate loans, excluding land acquisition and development loans, increased $22.2 million during the quarter-ended December 31, 2008. This . . .