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 2009 Form 10-K.

Critical Accounting Policies

Critical accounting policies and estimates are discussed in our 2009 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 as compared to the disclosure contained in the Company's 2009 Form 10-K.

This report contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("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

In January 2009, the Bank entered into a MOU with the OTS. Under that agreement, the Bank must, among other things, develop a plan for achieving and maintaining a minimum Tier 1 Capital (Leverage) Ratio of 8% and a minimum Total Risk-Based Capital Ratio of 12%, compared to its current minimum required regulatory Tier 1 Capital (Leverage) Ratio of 4% and Total Risk-Based Capital Ratio of 8%. As of June 30, 2009, the Bank's leverage ratio was 9.50% (1.50% over the new required minimum) and its risk-based capital ratio was 11.91% (0.09% less than the new required minimum). The MOU also requires the Bank to: (a) remain in compliance with the minimum capital ratios contained in the business plan (once achieved);
(b) provide notice to and obtain a non-objection from the OTS prior to the Bank declaring a dividend; (c) maintain an adequate allowance for loan and lease losses (ALLL); (d) engage an independent consultant to conduct a comprehensive evaluation of the Bank's asset quality; (e) develop a written comprehensive plan, that is acceptable to the OTS, to reduce classified assets; and (f) 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 a MOU with the OTS was due to the uncertain economic conditions currently affecting the financial industry. Except for the required minimum 12% risk-based capital ratio, 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 May 2009.

Executive Overview

Financial Highlights. Net income for the three months ended June 30, 2009 was $343,000, or $0.03 per basic share ($0.03 per diluted share), compared to net income of $793,000, or $0.07 per basic share ($0.07 per diluted share) for the three months ended June 30, 2008. Net interest income after provision for loan losses increased $713,000 to $6.3 million for the three months ended June 30, 2009 compared to $5.6 million for the same quarter last year. Non-interest income decreased slightly for the quarter-ended June 30, 2009 compared to the same quarter last year due to the $258,000 other than temporary impairment ("OTTI") charge during the quarter. Non-interest expense increased $1.3 million to $8.0 million for the three months ended June 30, 2009 compared to $6.7 million for the same quarter last year. The $1.3 million increase was due to increases in the FDIC insurance premiums of $581,000, write-down in the value of one REO property of $305,000 and additional professional fees and cost associated with REO properties accounted for the remaining increase.

The annualized return on average assets was 0.15% for the three months ended June 30, 2009, compared to 0.36% for the three months ended June 30, 2008. For the same periods, the annualized return on average common equity was 1.52% compared to 3.35%, respectively. The efficiency ratio was 74.08% for the first quarter of fiscal 2010 compared to 63.20% for the same period last year. The increase in the efficiency ratio is primarily a result of the $258,000 non-cash OTTI charge for the investment security coupled with the increase in FDIC insurance premiums and REO related expenses.

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 business, commercial real estate, multi-family real estate, real estate construction, residential real estate and consumer loans. Commercial and construction loans have grown from 82.47% of the loan portfolio at March 31, 2005 to 88.48% of the loan portfolio at June 30, 2009, increasing the risk profile of our total loan portfolio. The Company continues its strategy of controlling balance sheet growth in order to preserve capital, as well as the targeted reduction of residential construction related sectors within the loan portfolio. Speculative construction loans represent $47.0 million of the residential construction portfolio at June 30, 2009. These loan balances are down 42% from a year ago and 19% from the previous linked quarter. Overall, our residential construction loans decreased 22% from prior quarter and 32% from June 30, 2008.

The Company's strategic plan includes 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 while including a significant amount of commercial business and commercial real estate loans in its portfolio. Significant portions of these new loan products carry adjustable rates, higher yields or shorter terms and 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. At June 30, 2009, checking accounts totaled $176.4 million, or 27% of our total deposit mix. 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 eighteen branches including ten in Clark county, three in the Portland metropolitan area and four lending centers.

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 a majority of the 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 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. The Company began offering Certificate of Deposit Account Registry Service (CDARS™) deposits to its customers during fiscal 2009. Through the CDARS program, customers can access FDIC insurance up to $50 million. The Company also implemented Check 21 during fiscal 2009, which allows 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 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. In the first quarter of fiscal 2010, the Company began participating in the MoneyPass Network, which allows our customers access to over 16,000 ATMs across the country free of charge.

The Company conducts operations from its home office in Vancouver and eighteen 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, Riverview Asset Management Corp. ("RAMCorp"), located in downtown Vancouver. Riverview Mortgage, a mortgage broker division of the Bank, originates mortgage loans for various mortgage companies predominantly in the Vancouver/Portland metropolitan areas, as well as for the Bank. 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, experienced a notable slowdown in 2008, which has continued into 2009, and 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 quarter ended June 30, 2009, the local economy has continued to slow. Unemployment in Clark County increased to 12.6% in June 2009 compared with 6.1% in June 2008. Home values in the Company's market area at June 30, 2009 were lower than home values in 2008, with certain areas seeing more significant declines. The local area has seen a reduction in new residential building starts, which has continued into the quarter ended June 30, 2009. Commercial real estate leasing activity in the Portland/Vancouver area has performed better than the residential real estate market, but it is generally affected by a slow economy later than other indicators. Commercial vacancy rates in Clark County increased as of June 30, 2009 compared to prior year amounts. 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 believes there are indications of 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.

In response to the adverse economic conditions, the Company has been, and will continue to work toward reducing the amount of nonperforming assets, adjusting its balance sheet by reducing loan totals and other assets as possible, reducing controllable operating costs, and augmenting deposits while maintaining available secured borrowing facilities to improve liquidity and preserve capital over the coming fiscal year. In this regard, as part of our strategic planning; we are currently considering raising additional capital. We anticipate that this capital will be raised through non-government sources for the purpose of increasing our capital position and achieving compliance with the additional capital requirements contained in the MOU. This additional capital would also be available to support our future acquisitions. We do not, however, have any plans arrangements or understandings regarding any acquisition transactions.

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 &
                       Commercial       Estate       Real Estate      Construction
                        Business       Mortgage      Construction        Total
June 30, 2009                               (in thousands)

Commercial business  $    127,366   $          -   $            -   $      127,366
Commercial
construction                    -              -           66,088           66,088
Office buildings                -         88,290                -           88,290
Warehouse/industrial            -         39,966                -           39,966
Retail/shopping
centers/strip malls             -         80,652                -           80,652
   Assisted living
facilities                      -         26,658                -           26,658
Single purpose
facilities                      -         88,326                -           88,326
Land                            -         87,808                -           87,808
Multi-family                    -         25,890                -           25,890
One-to-four family
construction                    -              -           57,417           57,417
Total                $    127,366   $    437,590   $      123,505   $      688,461




                                      Other Real                      Commercial &
                       Commercial       Estate       Real Estate      Construction
                        Business       Mortgage      Construction        Total
March 31, 2009                              (in thousands)

Commercial business  $    127,150   $          -   $            -   $      127,150
Commercial
construction                    -              -           65,459           65,459
Office buildings                -         90,621                -           90,621
Warehouse/industrial            -         40,214                -           40,214
Retail/shopping
centers/strip malls             -         81,233                -           81,233
   Assisted living
facilities                      -         26,743                -           26,743
Single purpose
facilities                      -         88,574                -           88,574
Land                            -         91,873                -           91,873
Multi-family                    -         28,394                -           28,394
One-to-four family
construction                    -              -           74,017           74,017
Total                $    127,150   $    447,652   $      139,476   $      714,278

Comparison of Financial Condition at June 30, 2009 and March 31, 2009

Cash, including interest-earning accounts, totaled $43.9 million at June 30, 2009, compared to $19.2 million at March 31, 2009. The $24.7 million increase was attributed to additional reserve balances maintained at the FRB.

Investment securities available for sale totaled $13.3 million at June 30, 2009, compared to $8.5 million at March 31, 2009. The $4.9 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 OTTI charge of $258,000. The investment security that the Company recognized a non-cash impairment charge on is a trust preferred pooled security with a fair market value of $1.1 million issued by other bank holding companies. The Company reviews investment securities for the presence of OTTI, 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 intentions or requirements to sell the investments, as well as other factors. Management believes it is possible that a substantial portion of the principal and interest will be received and the Company does not intend to sell this security and it is not more likely than not that the Company will be required to sell this security before the anticipated recovery of the remaining amortized cost basis. In accordance with FSP 115-2, the Company compared the amortized cost basis of the security to the present value of the revised expected cash flows, discounted using the current pre-impairment yield. The revised expected cash flow estimates were based primarily on an analysis of default rates, prepayment speeds and third-party analytical reports. In determining the expected default rates and prepayment speeds, management evaluated, among other things, the individual issuer's financial condition including capital levels, nonperforming assets amounts, loan loss reserve levels, and portfolio composition and concentrations. As a result of this analysis, the Company recognized a $258,000 OTTI charge on this investment security. 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 $760.3 million at June 30, 2009, compared to $784.1 million at March 31, 2009, a decrease of $23.8 million. The decrease in net loans is attributable to scheduled maturities and pay downs on loans as well as the transfer of certain loans to REO. In addition, the Company continues its strategy of controlling balance sheet growth in order to preserve capital. 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, 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.

Deposit accounts totaled $649.1 million at June 30, 2009, compared to $670.1 million at March 31, 2009. During the first fiscal quarter, the Company paid down its brokered deposits by $19.9 million and as of June 30, 2009, the Company had no wholesale-brokered deposits in its deposit mix. Core deposits (comprised of checking, savings and money market accounts) remained steady from March 31, 2009 to June 30, 2009 despite the general downturn in the real estate market as well as the overall economy. Core deposits account for 60.9% of total deposits at June 30, 2009, compared to 58.6% at March 31, 2009. The Company continues to focus on the growth of its core deposits and on building customer relationships as opposed to obtaining deposits through the wholesale markets. At June 30, 2009, customer relationships accounted for 100% of the Bank's deposits. During the quarter, the Company has continued to experience increased competition for customer deposits within its market area.

FHLB and FRB advances totaled $5.0 million and $145.0 million, respectively, at June 30, 2009 and $37.9 million and $85.0 million, respectively, at March 31, 2009. The $27.2 million increase was attributable to the Company's decrease in deposit balances, which resulted from the maturities of the brokered deposit accounts described above in addition to maintaining additional available cash at the FRB. The decision to shift the Company's borrowings to the FRB was a result of the lower cost of FRB borrowings as compared to those from the FHLB.

Shareholders' Equity and Capital Resources

Shareholders' equity increased $451,000 to $89.1 million at June 30, 2009 from $88.7 million at March 31, 2009. The increase in equity is mainly attributable to net income of $343,000 for the three months ended June 30, 2009. Earned ESOP shares, stock based compensation expense and the net tax effect of SFAS No. 115 adjustment to securities comprised the remaining $108,000 increase.

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 met all capital adequacy requirements to which it was subject as of June 30, 2009, except as described below.

As of June 30, 2009, 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 . . .