UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-K





[X]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
Fiscal Year Ended March 31, 2010OR





[  ]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


Commission
File Number: 0-22957





RIVERVIEW BANCORP, INC.


(Exact
name of registrant as specified in its charter)




Washington
            91-1838969(State or other
      jurisdiction of incorporation or organization)
            (I.R.S.
      Employer I.D. Number)900 Washington St., Ste. 900,Vancouver,
      Washington
            98660(Address of
      principal executive offices)
            (Zip
      Code)Registrant's
      telephone number, including area code:
            (360) 693-6650Securities
      registered pursuant to Section 12(b) of the Act:Title of Each
    Class
            Name of Each Exchange on Which
      RegisteredCommon Stock, Par Value $.01 per share
            Nasdaq Stock Market
      LLCSecurities
      registered pursuant to Section 12(g) of the Act:
            None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes  No  X





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes  No  X





Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X
No___





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes __
No  __





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and disclosure will not be contained, to
the best of the registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K   X





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.








Large accelerated
      filer  ____
            Accelerated
      filer        X
            Non-accelerated
      filer ____
            Smaller Reporting
      Company ____






Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes    No  X





The
aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing sales price of the registrant's Common Stock as
quoted on the Nasdaq Global Select Market System under the symbol "RVSB" on
September 30, 2009 was $40,417,960 (10,923,773 shares at $3.70 per
share).  As of May 25, 2010, there were issued and outstanding
10,923,773 shares of the registrant’s common stock.





DOCUMENTS
INCORPORATED BY REFERENCE


Portions
of registrant's Definitive Proxy Statement for the 2010 Annual Meeting of
Shareholders (Part III).


1





Table of ContentsPART I
            
            PAGEItem
      1.
            Business
            3Item
      1A.
            Risk
      Factors
            31Item
      1B.
            Unresolved
      Staff Comments
            44Item
      2.
            Properties
            44Item
      3.
            Legal
      Proceedings
            44Item
      4.
            [Removed
      and Reserved]
            44PART IIItem
      5.
            Market
      of Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            45Item
      6.
            Selected
      Financial Data
            47Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            49Item
      7A.
            Quantitative
      and Qualitative Disclosures about Market Risk
            66Item
      8.
            Financial
      Statements and Supplementary Data
            68Item
      9.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            98Item
      9A.
            Controls
      and Procedures
            98Item
      9B.
            Other
      Information
            101PART IIIItem
      10.
            Directors,
      Executive Officers and Corporate Governance
            101Item
      11.
            Executive
      Compensation
            101Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholders
            101Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            102Item
      14.
            Principal
      Accountant Fees and Services
            102PART IVItem
      15.
            Exhibits
      and Financial Statement Schedules
            103Signatures
            
            104Index
      to exhibits
            105














2


PART
I








Item
1.  Business





General





Riverview
Bancorp, Inc. (the “Company" or “Riverview”), a Washington corporation, is the
savings and loan holding company of Riverview Community Bank (the
“Bank”).  At March 31, 2010, the Company had total assets of $838.0
million, total deposit accounts of $688.0 million and shareholders' equity of
$83.9 million. The Company’s executive offices are located at 900 Washington
Street, Vancouver Washington. All references to the Company herein include the
Bank where applicable.





Substantially
all of the Company’s business is conducted through the Bank which is regulated
by the Office of Thrift Supervision ("OTS"), its primary regulator, and by the
Federal Deposit Insurance Corporation ("FDIC"), the insurer of its deposits. The
Bank's deposits are insured by the FDIC up to applicable legal limits under the
Deposit Insurance Fund ("DIF").  The Bank has been a member of the
Federal Home Loan Bank ("FHLB") of Seattle since 1937.





As a
progressive, community-oriented financial services company, the Company
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 other consumer loans.
Commercial, commercial real estate and real estate construction loans have
increased to 87.6% of the loan portfolio at March 31, 2010 increasing the risk
profile of the total loan portfolio. The Company’s recent strategy is to control
balance sheet growth in order to improve its regulatory capital ratios,
including the targeted reduction of residential construction related loans.
Speculative construction loans represented $30.6 million, or 86.4% of the
residential construction portfolio at March 31, 2010. These loan balances
decreased 47.0% from a year ago. Land acquisition and development loans were
$74.8 million at March 31, 2010 compared to $91.9 million a year ago, which
represents a decline of 18.6%.





The
Company’s goal is to deliver returns to shareholders by managing problem assets,
increasing higher-yielding assets (in particular, commercial real estate and
commercial loans), increasing core deposit balances, reducing expenses, hiring
experienced employees with a commercial lending focus and exploring
opportunistic acquisitions. 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 maintaining a
significant amount of commercial and commercial real estate loans in its loan
portfolio. Significant portions of these new loan originations 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 new loan production. At
March 31, 2010, checking accounts totaled $154.6 million, or 22.5% 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 seventeen branches,
including ten in Clark County, two in the Portland metropolitan area and three
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. Processing our own 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 all of its branches and is in the process of implementing remote
capture of checks on site for selected Bank customers. The Bank has formed a
cash management team with an emphasis on improving the Bank’s cash management
product line for its 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 is in the process
of upgrading its online banking product, which will allow its customers greater
flexibility and convenience in conducting their online banking. The Company’s
online service has also enhanced the delivery of cash management services to
commercial customers. During fiscal 2010, the Company enrolled in an Internet
deposit listing service. Under this listing service, the Company may post time
deposit rates on an internet site where institutional investors have the








3





ability
to deposit funds with the Company. In fiscal 2009, the Company began offering
Certificate of Deposit Account Registry Service (CDARSTM) deposits to its
customers. 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 fiscal
2009, 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 bankcard applications and retain interchange income that, under its
previous status as a “referral bank” was earned by a third party. During 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.





Special
Note Regarding Forward-Looking Statements





“Safe
Harbor” statement under the Private Securities Litigation Reform Act of 1995:
This Form 10-K contains forward-looking statements that are subject to risks and
uncertainties, including, but not limited to:  the Company’s ability
to raise common capital, the amount of capital it intends to raise and its
intended use of that capital. The credit risks of lending activities, including
changes in the level and trend of loan delinquencies and write-offs and changes
in the Company’s allowance for loan losses and provision for loan losses that
may be impacted by deterioration in the housing and commercial real estate
markets; changes in general economic conditions, either nationally or in the
Company’s market areas; changes in the levels of general interest rates, and the
relative differences between short and long term interest rates, deposit
interest rates, the Company’s 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 the Company’s market
areas;  secondary market conditions for loans and the Company’s
ability to sell loans in the secondary market; results of examinations of us by
the Office of Thrift Supervision or other regulatory authorities, including the
possibility that any such regulatory authority may, among other things, require
us to increase the Company’s reserve for loan losses, write-down assets, change
Riverview Community Bank’s regulatory capital position or affect the Company’s
ability to borrow funds or maintain or increase deposits, which could adversely
affect its  liquidity and earnings; the Company’s compliance
with  regulatory enforcement actions and the possibility that our
noncompliance could result in the imposition of additional enforcement actions
and additional requirements or restrictions on our operations; legislative or
regulatory changes that adversely affect the Company’s business including
changes in regulatory policies and principles, or  the interpretation
of regulatory capital or other rules; the Company’s ability to attract and
retain deposits; further increases in premiums for deposit insurance; the
Company’s ability to control operating costs and expenses; the use of estimates
in determining fair value of certain of the Company’s assets, which estimates
may prove to be incorrect and result in significant declines in valuation;
difficulties in reducing risks associated with the loans on the Company’s
balance sheet; staffing fluctuations in response to product demand or the
implementation of corporate strategies that affect the Company’s workforce and
potential associated charges; computer systems on which the Company depends
could fail or experience a security breach; the Company’s ability to retain key
members of its senior management team; costs and effects of litigation,
including settlements and judgments; the Company’s ability to implement its
business strategies; the Company’s ability to successfully integrate any assets,
liabilities, customers, systems, and management personnel it may in the future
acquire into its operations and the Company’s ability to realize related revenue
synergies and cost savings within expected time frames and any goodwill charges
related thereto; increased competitive pressures among financial services
companies; changes in consumer spending, borrowing and savings habits; the
availability of resources to address changes in laws, rules, or regulations or
to respond to regulatory actions; the Company’s ability to pay dividends on its
common stock and interest or principal payments on its junior subordinated
debentures; 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; and other economic, competitive,
governmental, regulatory, and technological factors affecting the Company’s
operations, pricing, products and services and the other risks detailed in Item
1A, “Risk Factors” of this Form 10-K.





The
Company cautions readers not to place undue reliance on any forward-looking
statements. 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. The Company does not undertake to revise any forward-looking statements
to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.





4


Market
Area





The
Company conducts operations from its home office in Vancouver and seventeen
branch offices located in Camas, Washougal, Stevenson, White Salmon, Battle
Ground, Goldendale, Vancouver (seven branch offices) and Longview, Washington
and Portland, Wood Village and Aumsville, Oregon. The Company operates a trust
and financial services company, Riverview Asset Management Corp. (“RAMCorp”),
located in downtown Vancouver, Washington.  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 Bank’s Business and Professional Banking
Division, with two lending offices in Vancouver and one lending office in
Portland, Oregon 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.





Weak
economic conditions and ongoing strains in the financial and housing markets
which accelerated throughout 2008 and generally continued into 2010 presenting
an unusually challenging environment for banks. This has resulted in an increase
in loan delinquencies and foreclosure rates, primarily in our residential
construction and land development loan portfolios. 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 slowdown in residential real estate sales, has resulted in
further uncertainty in the financial markets. This has been particularly evident
in the Company’s need to provide for credit losses during these periods at
significantly higher levels than its historical experience and has also affected
its net interest income and other operating revenue and expenses. During the
quarter-ended March 31, 2010, unemployment in Clark County increased during the
quarter ended March 31, 2010, unemployment in Portland, Oregon decreased during
this same time period. In addition, several other indicators, including home
values and housing inventory levels have shown improvements during the quarter
ended March 31, 2010. According to the Washington State Employment Security
Department, unemployment in Clark County increased to 14.6% in March 2010
compared to 13.7% at December 2009, 12.7% in September 2009 and 12.6% in June
2009. According to the Oregon Employment Department, unemployment in Portland
decreased to 10.1% in March 2010 compared to 10.4% in December 2009, 11.3% in
September 2009 and 11.6% in June 2009. Home values at March 31, 2010 in the
Company’s market area remained lower than home values in 2009 and 2008, due in
large part to an increase in volume of foreclosures and short sales. However, as
noted above, home values have begun to stabilize in the past quarter after
decreasing during the past fiscal year. According to the Regional Multiple
Listing Services (RMLS), inventory levels in Portland, Oregon have fallen to 7.8
months at March 2010, compared to 12.0 months at March 2009. Inventory levels in
Clark County have fallen to 7.7 months at March 2010, compared to 11.7 months at
March 2009. Closed home sales in Clark County increased 30.9% in March 2010
compared to March 2009. Closed home sales in Portland increased 51.9% during the
same time period. 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. Accordingly to Norris Beggs Simpson, commercial vacancy rates in
Clark County and Portland Oregon were approximately 18% and 22%, respectively as
of March 31, 2010. During the past 24 months, the Company has experienced a
decline in the values of real estate collateral underlying its loans, including
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.





Lending
Activities





General.  At March
31, 2010, the Company's net loans receivable totaled $712.8 million, or 85.1% of
total assets at that date. The principal lending activity of the Company is the
origination of loans collateralized by commercial properties and commercial
business loans. A substantial portion of the Company's loan portfolio is secured
by real estate, either as primary or secondary collateral, located in its
primary market area.





5








Loan Portfolio Analysis.  The following table sets forth the
composition of the Company's loan portfolio by type of loan at the dates
indicated.





At
      March 31,2010
            
            
            
            2009
            
            
            
            2008
            
            
            
            2007
            
            
            
            2006Amount
            
            Percent
            
            
            
            Amount
            
            Percent
            
            
            
            Amount
            
            Percent
            
            
            
            Amount
            
            Percent
            
            
            
            Amount
            
            Percent(Dollars
      in thousands)Commercial
      and construction:Commercial
      business
            $
            108,368
            
            14.76
            %
            
            $
            127,150
            
            15.87
            %
            
            $
            109,585
            
            14.28
            %
            
            $
            91,174
            
            13.18
            %
            
            $
            90,083
            
            14.29
            %Other
      real estate mortgage
            
            459,178
            
            62.52
            
            
            
            447,652
            
            55.88
            
            
            
            429,422
            
            55.97
            
            
            
            360,930
            
            52.19
            
            
            
            329,631
            
            52.31Real
      estate construction
            
            75,456
            
            10.27
            
            
            
            139,476
            
            17.41
            
            
            
            148,631
            
            19.37
            
            
            
            166,073
            
            24.01
            
            
            
            137,598
            
            21.83Total
      commercial and construction
            
            643,002
            
            87.55
            
            
            
            714,278
            
            89.16
            
            
            
            687,638
            
            89.62
            
            
            
            618,177
            
            89.38
            
            
            
            557,312
            
            88.43Consumer:Real
      estate one-to-four family
            
            88,861
            
            12.10
            
            
            
            83,762
            
            10.46
            
            
            
            75,922
            
            9.90
            
            
            
            69,808
            
            10.10
            
            
            
            64,026
            
            10.16Other
      installment
            
            2,616
            
            0.35
            
            
            
            3,051
            
            0.38
            
            
            
            3,665
            
            0.48
            
            
            
            3,619
            
            0.52
            
            
            
            8,899
            
            1.41Total
      consumer loans
            
            91,477
            
            12.45
            
            
            
            86,813
            
            10.84
            
            
            
            79,587
            
            10.38
            
            
            
            73,427
            
            10.62
            
            
            
            72,925
            
            11.57Total
      loans
            
            734,479
            
            100.00
            %
            
            
            801,091
            
            100.00
            %
            
            
            767,225
            
            100.00
            %
            
            
            691,604
            
            100.00
            %
            
            
            630,237
            
            100.00
            %Less:Allowance
      for loan losses
            
            21,642
            
            
            
            
            
            16,974
            
            
            
            
            
            10,687
            
            
            
            
            
            8,653
            
            
            
            
            
            7,221Total
      loans receivable, net
            $
            712,837
            
            
            
            
            $
            784,117
            
            
            
            
            $
            756,538
            
            
            
            
            $
            682,951
            
            
            
            
            $
            623,016


6


Loan Portfolio
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.





COMPOSITION OF COMMERCIAL AND CONSTRUCTION LOAN
      TYPES BASED ON LOAN PURPOSECommercial
            
            
            Other
              Real
      Estate Mortgage
            
            
            Real Estate
              Construction
            
            
            Commercial
      & Construction
              TotalMarch 31, 2010
            (in
      thousands)Commercial
      business
            $
            108,368
            
            $
            -
            
            $
            -
            
            $
            108,368Commercial
      construction
            
            -
            
            
            -
            
            
            40,017
            
            
            40,017Office
      buildings
            
            -
            
            
            90,000
            
            
            -
            
            
            90,000Warehouse/industrial
            
            -
            
            
            46,731
            
            
            -
            
            
            46,731Retail/shopping
      centers/strip malls
            
            -
            
            
            80,982
            
            
            -
            
            
            80,982Assisted
      living facilities
            
            -
            
            
            39,604
            
            
            -
            
            
            39,604Single
      purpose facilities
            
            -
            
            
            93,866
            
            
            -
            
            
            93,866Land
            
            -
            
            
            74,779
            
            
            -
            
            
            74,779Multi-family
            
            -
            
            
            33,216
            
            
            -
            
            
            33,216One-to-four
      family construction
            
            -
            
            
            -
            
            
            35,439
            
            
            35,439Total
            $
            108,368
            
            $
            459,178
            
            $
            75,456
            
            $
            643,002





Commercial
            
            
            Other
              Real
      Estate Mortgage
            
            
            Real Estate
              Construction
            
            
            Commercial
      & Construction
              TotalMarch 31, 2009
            (in
      thousands)Commercial
      business
            $
            127,150
            
            $
            -
            
            $
            -
            
            $
            127,150Commercial
      construction
            
            -
            
            
            -
            
            
            65,459
            
            
            65,459Office
      buildings
            
            -
            
            
            90,621
            
            
            -
            
            
            90,621Warehouse/industrial
            
            -
            
            
            40,214
            
            
            -
            
            
            40,214Retail/shopping
      centers/strip malls
            
            -
            
            
            81,233
            
            
            -
            
            
            81,233Assisted living facilities
            
            -
            
            
            26,743
            
            
            -
            
            
            26,743Single
      purpose facilities
            
            -
            
            
            88,574
            
            
            -
            
            
            88,574Land
            
            -
            
            
            91,873
            
            
            -
            
            
            91,873Multi-family
            
            -
            
            
            28,394
            
            
            -
            
            
            28,394One-to-four
      family construction
            
            -
            
            
            -
            
            
            74,017
            
            
            74,017Total
            $
            127,150
            
            $
            447,652
            
            $
            139,476
            
            $
            714,278





Commercial
Lending.Commercial business loans are typically secured by
business equipment, accounts receivable, inventory or other property. The
Company’s commercial business loans may be structured as term loans or as lines
of credit. Commercial term loans are generally made to finance the purchase of
assets and usually have maturities of five years or less. Commercial lines of
credit are typically made for the purpose of providing working capital and
usually have a term of one year or less. Lines of credit are made at variable
rates of interest equal to a negotiated margin above an index rate and term
loans are at either a variable or fixed rate. The Company also generally obtains
personal guarantees from financially capable parties based on a review of
personal financial statements.





Commercial
lending involves risks that are different from those associated with residential
and commercial real estate lending. Real estate lending is generally considered
to be collateral based lending with loan amounts based on predetermined loan to
collateral values and liquidation of the underlying real estate collateral being
viewed as the primary source of repayment in the event of borrower
default.  Although commercial business loans are often collateralized
by equipment, inventory, accounts receivable or other business assets, the
liquidation of collateral in the event of default is often an insufficient
source of repayment because accounts receivable may be uncollectible and
inventories may be obsolete or of limited use, among other
things.  Accordingly, the repayment of commercial business loans
depends primarily on the cash flow and credit worthiness of the borrower and
secondarily on the underlying collateral provided by the borrower.





Other Real Estate Mortgage
Lending.At March 31, 2010, the other real estate lending
portfolio totaled $459.2 million, or 62.52% of total loans. The Company
originates other real estate loans including office buildings,
warehouse/industrial, retail








7





and
assisted living facilities (collectively “commercial real estate loans”); as
well as land and multi-family loans primarily located in our market area. At
March 31, 2010, owner occupied properties accounted for 31% of the Company’s
commercial real estate portfolio and non-owner occupied properties accounted for
69%.


Commercial
real estate loans typically have higher loan balances, are more difficult to
evaluate and monitor, and involve a higher degree of risk than one-to-four
family residential loans. Often payments on loans secured by commercial
properties are dependent on the successful operation and management of the
property securing the loan or business conducted on the property securing the
loan; therefore, repayment of these loans may be affected by adverse conditions
in the real estate market or the economy. The Company seeks to minimize these
risks by generally limiting the maximum loan-to-value ratio to 80% and strictly
scrutinizing the financial condition of the borrower, the quality of the
collateral and the management of the property securing the loan. The Company
generally imposes a minimum debt service coverage ratio of 1.20 for loans
secured by income producing properties. The Company actively pursues commercial
real estate loans; however, new loan originations were lower in fiscal year 2010
reflecting the recessionary market conditions. At March 31, 2010, the Company
had three commercial real estate loans totaling $3.0 million on non-accrual
status. For more information concerning risks related to commercial real estate
loans, see Item 1A. “Risk Factors – Risks Related to our Business – Our emphasis
on commercial real estate lending may expose us to increased lending
risks.”





Land
acquisition and development loans are included in the other real estate mortgage
portfolio balance, and represent loans made to developers for the purpose of
acquiring raw land and/or for the subsequent development and sale of residential
lots. Such loans typically finance land purchase and infrastructure development
of properties (i.e. roads, utilities, etc.) with the aim of making improved lots
ready for subsequent sale to consumers or builders for ultimate construction of
residential units. The primary source of repayment is generally the cash flow
from developer sale of lots or improved parcels of land, secondary sources and
personal guarantees, which may provide an additional measure of security for
such loans. Strong demand for housing has led to loan growth in this category in
recent years. However, the recent downturn in real estate has slowed lot and
home sales within the Company’s markets. This has impacted certain developers by
lengthening the marketing period of their projects and negatively affecting
borrower’s liquidity and collateral values. The Company has focused on reducing
these loans during the past fiscal year and plans to continue to reduce these
portfolios. Additionally, the Company has ceased the origination of new land
acquisition and development loans. At March 31, 2010, land acquisition and
development loans totaled $74.8 million, or 10.18% of total loans compared to
$91.9 million, or 11.47% of total loans at March 31, 2009. The largest loan had
an outstanding balance at March 31, 2010 of $6.2 million and was performing
according to its original repayment terms. With the exception of four loans
totaling $8.1 million, all of the land acquisition and development loans were
secured by properties located in Washington and Oregon. At March 31, 2010, the
Company had fourteen land acquisition and development loans totaling $12.1
million on non-accrual status.





Both
fixed and adjustable-rate loans are offered on other real estate loans.
Adjustable-rate other real estate loans are originated with rates that generally
adjust after an initial period ranging from one to five years. Adjustable-rate
loans are generally priced utilizing the FHLB of Seattle's fixed advance rate
for an equivalent period plus a margin ranging from 2.5% to 3.5%, with principal
and interest payments fully amortizing over terms up to 30 years. These loans
generally have a prepayment penalty.





Real Estate
Construction.The real estate construction loan portfolio,
including loan commitments, totaled $88.7 million at March 31, 2010. The Company
originates three types of residential construction loans: (i) speculative
construction loans, (ii) custom/presold construction loans and (iii)
construction/permanent loans.  The Company also originates
construction loans for the development of business properties and multi-family
dwellings.  All of the Company’s real estate construction loans were
made on properties located in Washington and Oregon.





The
composition of the Company’s construction loan portfolio including loan
commitments at March 31, 2010 was as follows:




At
      March 31,2010
            
            
            
            2009Amount
      (1)
            
            
            Percent
            
            
            
            Amount
      (1)
            
            
            Percent(Dollars
      in thousands)Speculative
      construction
            $
            31,209
            
            
            35.20
            %
            
            $
            60,494
            
            
            37.45
            %Commercial/multi-family
      construction
            
            47,975
            
            
            54.11
            
            
            
            77,842
            
            
            48.19Custom/presold
      construction
            
            1,531
            
            
            1.73
            
            
            
            11,337
            
            
            7.02Construction/permanent
            
            7,941
            
            
            8.96
            
            
            
            11,864
            
            
            7.34Total
            $
            88,656
            
            
            100.00
            %
            
            $
            161,537
            
            
            100.00
            %





(1)
Includes loans in process of $13.2 million and $22.1 million at March 31, 2010
and 2009, respectively.






8





The
Company has remained diligent in managing its construction loan portfolio and
has continued to be successful at reducing its overall exposure in the
residential construction and commercial real estate construction loans. At March
31, 2010, the balance of the Company’s construction loan portfolio, including
loan commitments, was $88.7 million compared to $161.5 million at March 31,
2009. The $72.9 million reduction was a result of loan repayments, charge-offs,
and foreclosures reflecting the Company’s efforts to reduce its exposure to
these types of loans. The Company plans to continue its focus on aggressively
managing its construction loan portfolio in fiscal year 2011. Additionally, the
Company has significantly slowed the origination of new construction loans. In
general, the Company is only originating new construction loans to facilitate
the sale of existing loans or real estate owned properties; or on a very limited
basis to selected borrowers.





Speculative
construction loans are made to home builders and are termed “speculative”
because the home builder does not have, at the time of loan origination, a
signed contract with a home buyer who has a commitment for permanent financing
with either the Company or another lender for the finished home. The home buyer
may be identified either during or after the construction period, with the risk
that the builder will have to debt service the speculative construction loan and
finance real estate taxes and other carrying costs of the completed home for a
significant time after the completion of construction until a home buyer is
identified. Included in speculative construction loans are loans to finance the
construction of townhouses and condominiums. At March 31, 2010, loans for the
construction of townhouses and condominiums totaled $8.9 million and $18.1
million, respectively. At March 31, 2010, the Company had eleven borrowers with
aggregate outstanding loan balances of more than $1.0 million, which totaled
$27.5 million (the largest of which was $5.6 million) and were secured by
properties located in the Company’s market area. At March 31, 2010, six
speculative construction loans totaling $11.3 million were on non-accrual
status.





The
composition of the speculative construction and land acquisition and development
loans by geographical area is as follows:




Northwest
      Oregon
            
            
            Other
              Oregon
            
            
            Southwest
      Washington
            
            
            Other
              Washington
            
            
            Other
            
            
            TotalMarch 31, 2010
            
            
            
            
            
            
            (In
      thousands)Land
      development
            $
            6,911
            
            $
            6,301
            
            $
            51,899
            
            $
            1,649
            
            $
            8,019
            
            $
            74,779Speculative
      construction
            
            5,827
            
            
            10,807
            
            
            12,418
            
            
            1,564
            
            
            -
            
            
            30,616Total land and spec construction
            $
            12,738
            
            $
            17,108
            
            $
            64,317
            
            $
            3,213
            
            $
            8,019
            
            $
            105,395





Unlike
speculative construction loans, presold construction loans are made for homes
that have buyers. Presold construction loans are made to homebuilders who, at
the time of construction, have a signed contract with a home buyer who has a
commitment for permanent financing for the finished home from the Company or
another lender. Custom construction loans are made to the homeowner.
Custom/presold construction loans are generally originated for a term of 12
months. At March 31, 2010, the largest custom construction loan had outstanding
balance of $312,000 and was performing according to the original repayment
terms. The largest presold construction loan had an outstanding balance of
$266,000 and was on non-accrual status. At March 31, 2010, the Company had three
presold construction loans on non-accrual status totaling $527,000. There were
no custom construction loans on non-accrual status at March 31,
2010.





Construction/permanent
loans are originated to the homeowner rather than the homebuilder along with a
commitment by the Company to originate a permanent loan to the homeowner to
repay the construction loan at the completion of construction. The construction
phase of a construction/permanent loan generally lasts six to nine months. At
the completion of construction, the Company may either originate a fixed rate
mortgage loan or an adjustable rate mortgage (“ARM”) loan or use its mortgage
brokerage capabilities to obtain permanent financing for the customer with
another lender. At completion of construction, the interest rate of the
Company-originated fixed rate permanent loan is set at a market rate and for
adjustable rate loans, the interest rates adjust on their first adjustment
date.  See “—Mortgage Brokerage,” and “—Mortgage Loan Servicing.” At
March 31, 2010, the largest outstanding construction/permanent loan had an
outstanding balance of $364,000 and was performing according to its original
terms. At March 31, 2010, the Company had no construction/permanent loans on
non-accrual status.





The
Company provides construction financing for non-residential business properties
and multi-family dwellings. At March 31, 2010, such loans totaled $40.0 million,
or 53.0% of total real estate construction loans and 5.4% of total loans.
Borrowers may be the business owner/occupier of the building who intends to
operate its business from the property upon construction, or non-owner
developers. The expected source of repayment of these loans is typically the
sale or refinancing of the project upon completion of the construction phase. In
certain circumstances, the Company may provide or commit to take-out financing
upon construction. Take-out financing is subject to the project meeting specific
underwriting guidelines. No








9


assurance
can be given that such take-out financing will be available upon project
completion. These loans are secured by office buildings, retail rental space,
mini storage facilities, assisted living facilities and multi-family dwellings
located in the Company’s market area. At March 31, 2010, the largest commercial
construction loan had a balance of $7.2 million and was delinquent 71 days and
accruing interest. At March 31, 2010, the Company had one commercial
construction loan on non-accrual status totaling $31,000.





Construction
lending affords the Company the opportunity to achieve higher interest rates and
fees with shorter terms to maturity than the rates and fees generated by its
single-family permanent mortgage lending. Construction lending, however,
generally involves a higher degree of risk than single-family permanent mortgage
lending because of the inherent difficulty in estimating both a property’s value
at completion of the project and the estimated cost of the project, as well as
the time needed to sell the property at completion. The nature of these loans is
such that they are generally more difficult to evaluate and monitor. Because of
the uncertainties inherent in estimating construction costs, as well as the
market value of the completed project and the effects of governmental regulation
of real property, it is relatively difficult to evaluate accurately the total
funds required to complete a project and the related loan-to-value
ratio. This type of lending also typically involves higher loan principal
amounts and is often concentrated with a small number of builders. As a
result, construction loans often involve the disbursement of substantial funds
with repayment dependent, in part, on the success of the ultimate project and
the ability of the borrower to sell or lease the property or refinance the
indebtedness, rather than the ability of the borrower or guarantor to repay
principal and interest. If our appraisal of the value of the completed
project proves to be overstated, we may have inadequate security for the
repayment of the loan upon completion of construction of the project and may
incur a loss. For additional information concerning the risks related to
construction lending, see Item 1A. “Risk Factors – Risks related to our business
– Our real estate construction and land acquisition loans are based upon
estimates of costs and the value of the completed project.”





The
Company has originated construction and land acquisition and development loans
where a component of the cost of the project was the interest required to
service the debt during the construction period of the loan, sometimes known as
interest reserves. The Company allows disbursements of this interest component
as long as the project is progressing as originally projected and if there has
been no deterioration in the financial standing of the borrower or the
underlying project. If the Company makes a determination that there is such
deterioration, or if the loan becomes nonperforming, the Company halts any
disbursement of those funds identified for use in paying interest. In some
cases, additional interest reserves may be taken by use of deposited funds or
through credit lines secured by separate and additional collateral.





Consumer Lending.Consumer
loans totaled $91.5 million at March 31, 2010. Consumer lending is comprised of
one-to-four family mortgage loans, home equity lines of credit, land loans to
consumers for the future construction of one-to-four family homes, totaling
$88.9 million, and other secured and unsecured consumer loans, totaling $2.6
million at March 31, 2010.





One-to-four
family residences located in the Company’s primary market area secure the
majority of the residential loans. Underwriting standards require that
one-to-four family portfolio loans generally be owner occupied and that loan
amounts not exceed 80% (95% with private mortgage insurance) of the lesser of
current appraised value or cost of the underlying collateral. Terms typically
range from 15 to 30 years. The Company also offers balloon mortgage loans with
terms of either five or seven years and originates both fixed rate mortgages and
ARMs with repricing based on one-year constant maturity U.S. Treasury index or
other index.  At March 31, 2010, the Company had ten one-to-four
family loans totaling $2.7 million on non-accrual status. All of these loans
were located in Oregon and Washington.





The
Company originates a variety of installment loans, including loans for debt
consolidation and other purposes, automobile loans, boat loans and savings
account loans. Consumer loans generally entail greater risk than do residential
mortgage loans, particularly in the case of consumer loans that are unsecured or
secured by assets that depreciate rapidly, such as mobile homes, automobiles,
boats and recreational vehicles. At March 31, 2010, the Company had no
installment loans on non-accrual status.





Loan Maturity. The following
table sets forth certain information at March 31, 2010 regarding the dollar
amount of loans maturing in the Company’s portfolio based on their contractual
terms to maturity, but does not include potential prepayments.  Demand
loans, loans having no stated schedule of repayments and no stated maturity and
overdrafts are reported as due in one year or less.  Loan balances are
reported net of deferred fees.






10


Within
      1
              Year
            
            
            1
      – 3
              Years
            
            
            After
      3 – 5
              Years
            
            
            After
      5 – 10
              Years
            
            
            Beyond
              10
      Years
            
            
            TotalCommercial
      and construction:
            
            (In
      thousands)Commercial
      business
            $
            60,009
            
            $
            16,628
            
            $
            15,626
            
            $
            16,105
            
            $
            -
            
            $
            108,368Other
      real estate mortgage
            
            101,936
            
            
            41,643
            
            
            55,914
            
            
            242,838
            
            
            16,847
            
            
            459,178Real
      estate construction
            
            49,446
            
            
            8,521
            
            
            664
            
            
            16,825
            
            
            -
            
            
            75,456Total
      commercial & construction
            
            211,391
            
            
            66,792
            
            
            72,204
            
            
            275,768
            
            
            16,847
            
            
            643,002Consumer:Real
      estate one-to-four family
            
            5,635
            
            
            10,668
            
            
            5,319
            
            
            12,324
            
            
            54,915
            
            
            88,861Other
      installment
            
            285
            
            
            651
            
            
            755
            
            
            792
            
            
            133
            
            
            2,616Total
      consumer
            
            5,920
            
            
            11,319
            
            
            6,074
            
            
            13,116
            
            
            55,048
            
            
            91,477Total
      loans
            $
            217,311
            
            $
            78,111
            
            $
            78,278
            
            $
            288,884
            
            $
            71,895
            
            $
            734,479





The
following table sets forth the dollar amount of all loans due after one year
from March 31, 2010, which have fixed interest rates and have adjustable
interest rates.





Fixed
              Rate
            
            
            Adjustable
              Rate
            
            
            Total(In
      thousands)Commercial
      and Construction:Commercial
      business
            $
            24,171
            
            $
            24,188
            
            $
            48,359Other
      real estate mortgage
            
            61,567
            
            
            295,675
            
            
            357,242Real
      estate construction
            
            11,658
            
            
            14,352
            
            
            26,010Total
      commercial and construction
            
            97,396
            
            
            334,215
            
            
            431,611Consumer:Real
      estate one-to-four family
            
            37,781
            
            
            45,445
            
            
            83,226Other
      installment
            
            1,725
            
            
            606
            
            
            2,331Total
      consumer
            
            39,506
            
            
            46,051
            
            
            85,557Total
      loans
            $
            136,902
            
            $
            380,266
            
            $
            517,168





Loan Solicitation and
Processing. The Company’s lending activities are subject to the written,
non-discriminatory, underwriting standards and loan origination procedures
established by the Bank’s Board of Directors (“Board”) and management. The
customary sources of loan originations are realtors, walk-in customers,
referrals and existing customers. The Company also uses commissioned loan
brokers and print advertising to market its products and services.





The
Company’s loan approval process is intended to assess the borrower’s ability to
repay the loan, the viability of the loan, the adequacy of the value of the
property that will secure the loan, if any, and in the case of commercial and
multi-family real estate loans, the cash flow of the project and the quality of
management involved with the project. The Company’s lending policy requires
borrowers to obtain certain types of insurance to protect the Company’s interest
in any collateral securing the loan.  Loans are approved at various
levels of management, depending upon the amount of the loan.





Loan Commitments. The Company
issues commitments to originate commercial loans, other real estate mortgage
loans, construction loans, residential mortgage loans and other installment
loans conditioned upon the occurrence of certain events. The Company uses the
same credit policies in making commitments as it does for on-balance sheet
instruments. Commitments to originate loans are conditional, and are honored for
up to 45 days subject to the Company’s usual terms and
conditions.  Collateral is not required to support commitments. At
March 31, 2010, the Company had outstanding commitments to originate loans of
$12.4 million, compared to $7.2 million at March 31, 2009.





Mortgage Brokerage. In
addition to originating mortgage loans for retention in its portfolio, the
Company employs nine commissioned brokers who originate mortgage loans
(including construction loans) for various mortgage companies, as well as for
the Company. The loans brokered to mortgage companies are closed in the name of,
and funded by the purchasing mortgage company and are not originated as an asset
of the Company. In return, the Company receives a fee ranging from 1.0% to 1.5%
of the loan amount that it shares with the commissioned broker. Loans brokered
to the Company are closed on the Company's books and the commissioned broker
receives a fee of approximately 0.55% of the loan amount. During the year ended
March 31, 2010, brokered loans totaled $90.5 million (including $19.6 million
brokered to the Company), compared to $124.5 million of brokered loan in fiscal
year 2009. Gross fees of $586,000 (excluding the portion of fees shared with the
commissioned brokers) were recognized for the year ended March 31, 2010. The
interest rate environment has a strong influence on the loan volume and amount
of fees generated from the mortgage broker activity. In general, during





11





periods
of rising interest rates the volume of loans and the amount of loan fees
generally decrease as a result of slower mortgage loan demand. Conversely,
during periods of falling interest rates, the volume of loans and the amount of
loan fees generally increase as a result of the increased mortgage loan demand.
Due to the continued slowdown in the real estate markets during fiscal year
2010, the loan volume and amount of fees generated decreased compared to
previous years.





Mortgage Loan
Servicing.  The Company is a qualified servicer for the Federal
Home Loan Mortgage Corporation (“FHLMC”).  The Company generally sells
fixed-rate residential one-to-four mortgage loans that it originates with
maturities of 15 years or more and balloon mortgages to the FHLMC as part of its
asset liability strategy.  Mortgage loans are sold to FHLMC on a
non-recourse basis whereby foreclosure losses are generally the responsibility
of FHLMC and not the Company.  The Company's general policy is to
close its residential loans on the FHLMC modified loan documents to facilitate
future sales to FHLMC.  Upon sale, the Company continues to collect
payments on the loans, to supervise foreclosure proceedings, and to otherwise
service the loans. At March 31, 2010, total loans serviced for others were
$129.5 million, of which $115.4 million were serviced for FHLMC.


Nonperforming
Assets.  Loans are reviewed regularly and it is the Company’s
general policy that when a loan is 90 days delinquent or when collection of
principal or interest appears doubtful, it is placed on non-accrual status, at
which time the accrual of interest ceases and a reserve for any unrecoverable
accrued interest is established and charged against operations. Typically,
payments received on non-accrual loans are applied to reduce the outstanding
principal balance on a cash-basis method.





Nonperforming
assets were $49.3 million or 5.89% of total assets at March 31, 2010 compared
with $41.7 million or 4.57% of total assets at March 31, 2009. The Company also
had net charge offs totaling $11.2 million during fiscal 2010 compared to $9.9
million during fiscal 2009. Credit quality challenges continue to be centered in
residential land acquisition and development loans and speculative construction
loans. Slower sales and excess housing inventory were the primary cause of the
increase in delinquencies and foreclosures of such loans. While the Company has
not engaged in any sub-prime lending programs the effect on home values, housing
markets and construction lending from problems associated with sub-prime and
other non-traditional mortgage lending programs has we believe contributed to
the increased levels of builder and developer delinquencies. Continuation of
recent economic conditions could result in additional increases in nonperforming
assets, further increases in the provision for loan losses and charge-offs in
the future.





As noted
above, the problem loans identified by the Company have continued to remain
concentrated in speculative construction loans and land acquisition and
development loans. During the current fiscal year, management has focused on
managing these portfolios in an attempt to minimize the effects of declining
home values and slower home sales, which have contributed to the increase in the
allowance for loan losses. At March 31, 2010, the Company’s residential
construction and land development loan portfolios were $35.4 million and $74.8
million, respectively. Substantially all of the loans in these two portfolios
are located in the Company’s market area. The percentage of nonperforming loans
in the residential construction and land development portfolios was 33.3% and
16.2%, respectively. For the year ended March 31, 2010, the charge-off ratio for
the residential construction and land development portfolios was 7.76% and
4.60%, respectively.





Nonperforming
loans at March 31, 2010 totaled $36.0 million and consisted of fifty-four loans
to thirty-seven borrowers ranging in size from $19,000 to $4.4 million. As noted
above, land acquisition and development loans and speculative construction loans
continue to represent the largest portion of our nonperforming loans, totaling
$23.9 million, or 66.3%, of the total nonperforming loan balance at March 31,
2010.The remaining
balance includes seventeen commercial loans to ten borrowers totaling $6.4
million, three commercial real estate loans to three borrowers totaling $3.0
million, one commercial construction loan totaling $31,000 and ten residential
real estate loans to ten borrowers totaling $2.7 million. All of these loans are
to borrowers located in Oregon and Washington with the exception of two land
acquisition and development loans totaling $1.6 million. One of these loans
totaling $1.4 million is to a Washington borrower who has property located in
Southern California. The second loan totaling $255,000 is secured by collateral
located in Arizona. Thirty-six of the Company’s nonperforming loans, totaling
$33.2 million or 92.1% of total nonperforming loans, were measured for
impairment at March 31, 2010. The specific reserve associated with these
impaired loans totaled $6.9 million. These levels of nonperforming loans
resulted in elevated loan loss provisions and loan charge-offs for the year
ended March 31, 2010.





At March
31, 2010, the largest relationship to one borrower had nonperforming loans
totaling $6.6 million. These loans, which were placed on nonaccrual status in
fiscal year 2010, are to a builder/developer of single-family homes/lots
primarily in Clark County. Net charge-offs on these properties totaled $733,000
for fiscal year 2010. The Company believes that it is adequately reserved for
these loans.






12





At March
31, 2010, the largest single nonperforming loan totaled $4.4 million. This loan
was made to a builder/developer of a condominium project in Multnomah County of
Portland, Oregon. Net charge-offs for this property totaled $400,000 for fiscal
year 2010. The Company believes that it is adequately reserved for this
loan.





The
balance of nonperforming assets consisted of $13.3 million in real estate owned
(“REO”) at March 31, 2010. The REO was comprised of single-family homes totaling
$4.2 million, residential building lots totaling $4.2 million and land
development property totaling $4.9 million. All of the REO properties are
located in Oregon and Washington. As a result of the rapidly declining real
estate values, the Company had $4.8 million in write-downs on existing REO
properties during fiscal year 2010 and recognized an additional $902,000 on the
sale of properties. Total REO sales were $15.7 million during fiscal 2010.
Maintenance and operating expenses for these properties totaled $726,000 during
fiscal year 2010. The orderly resolution of nonperforming loans and REO
properties remains a priority for management. Because of the uncertain real
estate market, no assurance can be given as to the timing of ultimate
disposition of such assets or that the selling price will be at or above the
carrying value. Continued decline in market values in our area could lead to
additional valuation adjustments, which would have an adverse effect on our
results of operations.





The
coverage ratio of allowance for loan losses to nonperforming loans was 60.10% at
March 31, 2010 compared to 61.57% at March 31, 2009. This coverage ratio
decreased slightly from March 31, 2009 as more of the Company’s nonperforming
loans have been reduced to expected recovery values as a result of specific
impairment analysis performed on these loans and the increased charge-offs taken
on such loans.





The
following table sets forth information regarding the Company’s nonperforming
assets.  At the dates indicated, the Company had no restructured loans
within the meaning as defined in accounting standards for accounting by debtors
and creditors for troubled debt restructuring.





At
      March 31,2010
            
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006(Dollars
      in thousands)Loans
      accounted for on a non-accrual basis:Commercial
      business
            $
            6,430
            
            $
            6,018
            
            $
            1,164
            
            $
            -
            
            $
            -Other
      real estate mortgage
            
            15,079
            
            
            7,316
            
            
            3,892
            
            
            226
            
            
            415Real
      estate construction
            
            11,826
            
            
            12,720
            
            
            2,124
            
            
            -
            
            
            -Real
      estate one-to-four family
            
            2,676
            
            
            1,329
            
            
            382
            
            
            -
            
            
            -Total
            
            36,011
            
            
            27,383
            
            
            7,562
            
            
            226
            
            
            415Accruing
      loans which are contractually
              past
      due 90 days or more
            
            -
            
            
            187
            
            
            115
            
            
            -
            
            
            -Total
      nonperforming loans
            
            36,011
            
            
            27,570
            
            
            7,677
            
            
            226
            
            
            415REO
            
            13,325
            
            
            14,171
            
            
            494
            
            
            -
            
            
            -Total
      nonperforming assets
            $
            49,336
            
            $
            41,741
            
            $
            8,171
            
            $
            226
            
            $
            415Total
      nonperforming loans to net loans
            
            4.90
            %
            
            3.44
            %
            
            1.00
            %
            
            0.03
            %
            
            0.07
            %Total
      nonperforming loans to total assets
            
            4.30
            
            
            3.02
            
            
            0.87
            
            
            0.03
            
            
            0.05Total
      nonperforming assets to total assets
            
            5.89
            
            
            4.57
            
            
            0.92
            
            
            0.03
            
            
            0.05





The
following table sets forth information regarding the Company’s nonperforming
assets by loan type and geographical area.





Northwest
      Oregon
            
            
            Other
              Oregon
            
            
            Southwest
      Washington
            
            
            Other
              Washington
            
            
            Other
            
            
            TotalMarch 31, 2010
            (In
      thousands)Commercial
      business
            $
            1,138
            
            $
            2,724
            
            $
            2,568
            
            $
            -
            
            $
            -
            
            $
            6,430Commercial
      real estate
            
            1,846
            
            
            -
            
            
            1,150
            
            
            -
            
            
            -
            
            
            2,996Land
            
            -
            
            
            2,116
            
            
            8,029
            
            
            303
            
            
            1,635
            
            
            12,083Commercial
      construction
            
            -
            
            
            -
            
            
            -
            
            
            31
            
            
            -
            
            
            31One-to-four family construction
            
            4,356
            
            
            4,141
            
            
            1,734
            
            
            1,564
            
            
            -
            
            
            11,795Real
      estate one-to-four family
            
            1,095
            
            
            310
            
            
            1,271
            
            
            -
            
            
            -
            
            
            2,676Total nonperforming loans
            
            8,435
            
            
            9,291
            
            
            14,752
            
            
            1,898
            
            
            1,635
            
            
            36,011REO
            
            2,741
            
            
            503
            
            
            5,797
            
            
            4,284
            
            
            -
            
            
            13,325Total
      nonperforming assets
            $
            11,176
            
            $
            9,794
            
            $
            20,549
            
            $
            6,182
            
            $
            1,635
            
            $
            49,336








13


In
addition to the nonperforming assets set forth in the table above, at March 31,
2010 and 2009 the Company had other loans of concern totaling $16.2 million and
$10.1 million, respectively. Other loans of concern at March 31, 2010 consisted
of twenty loans to sixteen borrowers. Similar to trends noted above, the
increase in other loans of concern is concentrated around land development and
speculative construction loans. Included in other loans of concern at March 31,
2010 are two real estate construction loans totaling $5.7 million (the largest
of which was $4.6 million). The remaining $10.5 million of loans mainly
consisted of commercial and land acquisition and development loans. Other loans
of concern consist of loans where the borrowers have cash flow problems, or the
collateral securing the respective loans may be inadequate. In either or both of
these situations the borrowers may be unable to comply with the present loan
repayment terms, and the loans may subsequently be included in the non-accrual
category. Management considers the allowance for loan losses to be adequate to
cover the probable losses inherent in these and other loans.





At March
31, 2010, loans delinquent more than 30 days were 1.93% of total loans compared
to 1.94% at March 31, 2009. At March 31, 2010, the 30 to 89 day delinquency rate
in our commercial business loan portfolio was 1.06%. The 30 to 89 day
delinquency rate in our commercial real estate (“CRE”) portfolio was 0.91%. CRE
loans represent the largest portion of our loan portfolio at 47.81% of total
loans and the commercial business loans represent 14.75% of total
loans.





Asset Classification. The OTS
has adopted various regulations regarding problem assets of savings
institutions. The regulations require that each insured institution review and
classify its assets on a regular basis.  In addition, in connection
with examinations of insured institutions, OTS examiners have authority to
identify problem assets and, if appropriate, require them to be
classified.  There are three classifications for problem
assets:  substandard, doubtful and loss. Substandard assets have one
or more defined weaknesses and are characterized by the distinct possibility
that the insured institution will sustain some loss if the deficiencies are not
corrected.  Doubtful assets have the weaknesses of substandard assets
with the additional characteristic that the weaknesses make collection or
liquidation in full on the basis of currently existing facts, conditions and
values questionable, and there is a high possibility of loss. An asset
classified as loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. If an asset or
portion thereof is classified as loss, the insured institution establishes
specific allowances for loan losses for the full amount of the portion of the
asset classified as loss. All or a portion of general loan loss allowances
established to cover possible losses related to assets classified substandard or
doubtful can be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital. Assets that do not currently expose the insured institution
to sufficient risk to warrant classification as a classified asset but possess
weaknesses are designated "special mention" and monitored by the
Company.





The
aggregate amount of the Company's classified loans, general loss allowances,
specific loss allowances and charge-offs were as follows at the dates
indicated:


At
      or For the YearEnded
      March 31,2010
            
            
            2009(In
      thousands)Classified
      loans
            $
            52,245
            
            $
            37,250General
      loss allowances
            
            13,608
            
            
            12,659Specific
      loss allowances
            
            8,034
            
            
            4,315Net
      charge-offs
            
            11,232
            
            
            9,863





All of
the loans on non-accrual status as of March 31, 2010 were categorized as
classified loans. Classified loans at March 31, 2010 were made up of twelve real
estate construction loans totaling $17.5 million (the largest of which was $4.6
million), twenty-six commercial loans totaling $9.7 million (the largest of
these loans totaling $2.7 million), twenty land acquisition and development
loans totaling $19.2 million, eleven one-to-four family real estate loans
totaling $2.7 million, one multi-family loan totaling $4,000 and four commercial
real estate property totaling $3.1 million. As discussed in “Market Area” and
“-Nonperforming Assets” above, the downturn in general economic conditions,
particularly in our local housing markets, was the primary reason for the
increased level of classified and other problem loans during fiscal year
2010.





The
balance of the classified loans continue to be concentrated in the land
acquisition and development and speculative construction categories, which
represented 36.8% and 33.5% respectively, of the balance at March 31, 2010. The
increase in classified loans reflects the continued economic conditions, which
have significantly affected homebuilders and developers.


Allowance for Loan Losses. The
Company maintains an allowance for loan losses to provide for probable losses
inherent in the loan portfolio. The adequacy of the allowance is evaluated
monthly to maintain the allowance at levels sufficient to








14





provide
for inherent losses existing at the balance sheet date. The key components to
the evaluation are the Company’s internal review function by its Credit
Administration, which reviews and monitors the risk and quality of the loan
portfolio; as well as the Company’s external loan reviews and its loan
classification systems. Credit officers are expected to monitor their portfolios
and make recommendations to change loan grades whenever changes are warranted.
Credit Administration approves any changes to loan grades and monitors loan
grades. For
additional discussion of the Company’s methodology for assessing the appropriate
level of the allowance for loan losses seeItem 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Policies."





At March
31, 2010, the Company had an allowance for loan losses of $21.6 million, or
2.95% of total loans. The allowance for loan losses, including unfunded
commitments of $185,000, was $21.8 million, or 2.97% of total loans at March 31,
2010. The increase in the balance of the allowance for loan losses at March 31,
2010 reflects the increased levels of delinquent and classified loans,
deteriorating economic conditions (particularly related to the real estate
market) and a change in loss rates when compared to March 31, 2009. Classified
assets were $52.2 million at March 31, 2010 compared to $37.3 million at March
31, 2009. The increase was primarily attributable to the current economic
conditions affecting borrowers’ repayment ability. Nonperforming loans increased
$8.4 million during the year-ended March 31, 2010, and specific reserves for
such loans were $6.9 million. As previously noted in “ – Nonperforming Assets,”
the increase in classified and nonperforming loans has continued to be centered
in the Company’s land acquisition and development loan portfolio and its
speculative loans portfolio. The deterioration in the loan portfolio resulted in
an increase in the allowance for loan losses, which were partially offset by the
$11.2 million in net charge-offs during fiscal year 2010. All of the loans on
non-accrual status as of March 31, 2010 were categorized as classified
loans.





Management
considers the allowance for loan losses to be adequate to cover probable losses
inherent in the loan portfolio based on the assessment of various factors
affecting the loan portfolio and the Company believes it has established
its existing allowance for loan losses in accordance with accounting principles
generally accepted in the United States of America (“generally accepted
accounting principles” or "GAAP"). However, a further decline in local economic
conditions, results of examinations by the Company’s regulators, or other
factors could result in a material increase in the allowance for loan losses and
may adversely effect the Company’s financial condition and results of
operations. In
addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses will be adequate or that substantial increases will not be
necessary should the quality of any loans deteriorate or should collateral
values further decline as a result of the factors discussed elsewhere in this
document.The following table sets forth an analysis of the Company's
allowance for loan losses for the periods indicated.


15








Year
      Ended March 31,2010
            
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006(Dollars
      in thousands)Balance
      at beginning of period
            $
            16,974
            
            $
            10,687
            
            $
            8,653
            
            $
            7,221
            
            $
            4,395Provision
      for loan losses
            
            15,900
            
            
            16,150
            
            
            2,900
            
            
            1,425
            
            
            1,500Recoveries:Commercial
      and constructionCommercial
      business
            
            5
            
            
            25
            
            
            10
            
            
            165
            
            
            87Other
      real estate mortgage
            
            77
            
            
            -
            
            
            12
            
            
            -
            
            
            -Total
      commercial and construction
            
            82
            
            
            25
            
            
            22
            
            
            165
            
            
            87ConsumerReal estate one-to-four family
            
            7
            
            
            -
            
            
            -
            
            
            -
            
            
            48Other installment
            
            -
            
            
            2
            
            
            17
            
            
            28
            
            
            14Total
      consumer
            
            7
            
            
            2
            
            
            17
            
            
            28
            
            
            62Total
      recoveries
            
            89
            
            
            27
            
            
            39
            
            
            193
            
            
            149Charge-offs:Commercial
      and constructionCommercial
      business
            
            2,466
            
            
            1,311
            
            
            794
            
            
            172
            
            
            577Other
      real estate mortgage
            
            3,836
            
            
            5,913
            
            
            42
            
            
            -
            
            
            -Real
      estate construction
            
            3,737
            
            
            2,073
            
            
            -
            
            
            -
            
            
            -Total
      commercial and construction
            
            10,039
            
            
            9,297
            
            
            836
            
            
            172
            
            
            577ConsumerReal estate one-to-four family
            
            1,232
            
            
            361
            
            
            48
            
            
            -
            
            
            41Other installment
            
            50
            
            
            232
            
            
            21
            
            
            14
            
            
            93Total
      consumer
            
            1,282
            
            
            593
            
            
            69
            
            
            14
            
            
            134Total
      charge-offs
            
            11,321
            
            
            9,890
            
            
            905
            
            
            186
            
            
            711Net
      charge-offs (recoveries)
            
            11,232
            
            
            9,863
            
            
            866
            
            
            (7
            )
            
            562Allowance
      acquired from American Pacific Bank
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,888Balance at end of period
            $
            21,642
            
            $
            16,974
            
            $
            10,687
            
            $
            8,653
            
            $
            7,221Ratio
      of allowance to total loans
              outstanding at end of period
            
            2.95
            %
            
            2.12
            %
            
            1.39
            %
            
            1.25
            %
            
            1.15
            %Ratio
      of net charge-offs to average net loans
              outstanding during period
            
            1.48
            
            
            1.24
            
            
            0.12
            
            
            -
            
            
            0.10Ratio
      of allowance to total nonperforming loans
            
            60.10
            
            
            61.57
            
            
            139.21
            
            
            3,828.76
            
            
            1,740.00


16


The
following table sets forth the breakdown of the allowance for loan losses by
loan category and is based on applying a specific loan loss factor to the
outstanding balances of related loan category as of the date of the allocation
for the periods indicated.





At
      March 31,2010
            
            
            
            2009
            
            
            
            2008
            
            
            
            2007
            
            
            
            2006Amount
            
            Loan
      Category as a Percent
              of
      Total Loans
            
            
            
            Amount
            
            Loan
      Category as a Percent of Total Loans
            
            
            
            Amount
            
            Loan
      Category as a Percent of Total Loans
            
            
            
            Amount
            
            Loan
      Category as a Percent of Total Loans
            
            
            
            Amount
            
            Loan
      Category as a Percent
              of
      Total Loans(Dollars
      in thousands)Commercial
      and construction:Commercial
      business
            $
            3,181
            
            14.76
            %
            
            $
            2,668
            
            15.87
            %
            
            $
            1,339
            
            14.28
            %
            
            $
            1,553
            
            13.18
            %
            
            $
            1,549
            
            14.29
            %Other
      real estate mortgage
            
            10,028
            
            62.52
            
            
            
            6,475
            
            55.88
            
            
            
            5,415
            
            55.97
            
            
            
            4,066
            
            52.19
            
            
            
            3,553
            
            52.30Real
      estate construction
            
            5,137
            
            10.27
            
            
            
            4,592
            
            17.41
            
            
            
            2,092
            
            19.37
            
            
            
            2,060
            
            24.01
            
            
            
            1,365
            
            21.83Consumer:Real
      estate one-to-four family
            
            1,522
            
            12.10
            
            
            
            1,148
            
            10.46
            
            
            
            669
            
            9.90
            
            
            
            333
            
            10.10
            
            
            
            292
            
            10.17Other
      installment
            
            52
            
            0.35
            
            
            
            61
            
            0.38
            
            
            
            64
            
            0.48
            
            
            
            63
            
            0.52
            
            
            
            168
            
            1.41Unallocated
            
            1,722
            
            -
            
            
            
            2,030
            
            -
            
            
            
            1,108
            
            -
            
            
            
            578
            
            -
            
            
            
            294
            
            -Total
      allowance for loan loss
            $
            21,642
            
            100.00
            %
            
            $
            16,974
            
            100.00
            %
            
            $
            10,687
            
            100.00
            %
            
            $
            8,653
            
            100.00
            %
            
            $
            7,221
            
            100.00
            %

















17




Investment
Activities


The Board
sets the investment policy of the Company. The Company's investment objectives
are: to provide and maintain liquidity within regulatory guidelines; to maintain
a balance of high quality, diversified investments to minimize risk; to provide
collateral for pledging requirements; to serve as a balance to earnings; and to
optimize returns.  The policy permits investment in various types of
liquid assets permissible under OTS regulation, which includes U.S. Treasury
obligations, securities of various federal agencies, "bank qualified" municipal
bonds, certain certificates of deposit of insured banks, repurchase agreements,
federal funds and mortgage-backed securities (“MBS”), but does not permit
investment in non-investment grade bonds. The policy also dictates the criteria
for classifying securities into one of three categories:  held to
maturity, available for sale or trading.  At March 31, 2010, no
investment securities were held for trading.  SeeItem
7.  “Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Critical Accounting Policies."





At March
31, 2010, the Company’s investment portfolio totaled $10.4 million, primarily
consisting of $5.1 million in U.S. agency securities available-for-sale, $2.8
million in mortgage-backed securities available-for-sale, and $1.0 million in
trust preferred securities available-for-sale. This compares with a total
investment portfolio of $13.7 million at March 31, 2009, primarily consisting of
$5.1 million in U.S. agency securities available-for-sale, $4.1 million in
mortgage-backed securities available-for-sale, $2.3 million in municipal
securities available-for-sale, and $1.1 million in trust preferred securities
available-for-sale. At March 31, 2010, the Company owned no privately issued
mortgage-backed securities. The Company does not believe that it has any
exposure to sub-prime lending in its mortgage-backed securities portfolio. See
Note 4 of the Notes to the Consolidated Financial Statements contained in Item 8
of this Form 10-K for additional information.





The
following table sets forth the investment securities portfolio and carrying
values at the dates indicated.





At
      March 31,2010
            
            
            
            2009
            
            
            
            2008Carrying
              Value
            
            Percent
      of
              Portfolio
            
            
            
            Carrying
              Value
            
            Percent
      of
              Portfolio
            
            
            
            Carrying
              Value
            
            Percent
      of
              Portfolio(Dollars
      in thousands)Held
      to maturity (at amortized cost):REMICs
            $
            53
            
            0.51
            %
            
            $
            348
            
            2.55
            %
            
            $
            624
            
            4.55
            %FHLMC
      mortgage-backed securities
            
            86
            
            0.83
            
            
            
            94
            
            0.69
            
            
            
            104
            
            0.76FNMA
      mortgage-backed securities
            
            120
            
            1.15
            
            
            
            128
            
            0.94
            
            
            
            157
            
            1.15Municipal
      securities
            
            517
            
            4.97
            
            
            
            529
            
            3.87
            
            
            
            -
            
            -776
            
            7.46
            
            
            
            1,099
            
            8.05
            
            
            
            885
            
            6.46Available
      for sale (at fair value):Agency
      securities
            
            5,017
            
            48.21
            
            
            
            5,054
            
            37.01
            
            
            
            -
            
            -REMICs
            
            556
            
            5.34
            
            
            
            685
            
            5.02
            
            
            
            858
            
            6.25FHLMC
      mortgage-backed securities
            
            2,219
            
            21.33
            
            
            
            3,310
            
            24.24
            
            
            
            4,390
            
            32.02FNMA
      mortgage-backed securities
            
            53
            
            0.51
            
            
            
            71
            
            0.52
            
            
            
            90
            
            0.66Municipal
      securities
            
            743
            
            7.14
            
            
            
            2,292
            
            16.78
            
            
            
            2,875
            
            20.97Trust
      preferred securities
            
            1,042
            
            10.01
            
            
            
            1,144
            
            8.38
            
            
            
            4,612
            
            33.649,630
            
            92.54
            
            
            
            12,556
            
            91.95
            
            
            
            12,825
            
            93.54Total
      investment securities
            $
            10,406
            
            100.00
            %
            
            $
            13,655
            
            100.00
            %
            
            $
            13,710
            
            100.00
            %


18


The
following table sets forth the maturities and weighted average yields in the
securities portfolio at March 31, 2010.





Less
      Than One Year
            
            
            
            One
      to Five Years
            
            
            
            More
      Than Five to
              Ten
      Years
            
            
            
            More
      Than
              Ten
      YearsAmount
            
            Weighted
      Average
              Yield
      (1)
            
            
            
            Amount
            
            Weighted
      Average
              Yield
      (1)
            
            
            
            Amount
            
            Weighted
      Average
              Yield
      (1)
            
            
            
            Amount
            
            Weighted
      Average
              Yield
      (1)(Dollars
      in thousands)Municipal
      securities
            $
            -
            
            -
            %
            
            $
            -
            
            -
            %
            
            $
            517
            
            4.97
            %
            
            $
            743
            
            4.38
            %Agency
      securities
            
            -
            
            -
            
            
            
            5,017
            
            3.06
            
            
            
            -
            
            -
            
            
            
            -
            
            -REMICs
            
            -
            
            -
            
            
            
            -
            
            -
            
            
            
            203
            
            5.01
            
            
            
            406
            
            1.43FHLMC
      mortgage-
              backed securities
            
            -
            
            -
            
            
            
            2,219
            
            4.01
            
            
            
            -
            
            -
            
            
            
            86
            
            3.55FNMA
      mortgage-
              backed securities
            
            -
            
            -
            
            
            
            40
            
            6.52
            
            
            
            -
            
            -
            
            
            
            133
            
            2.88Trust
      preferred
              securities
            
            -
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            -
            
            
            
            1,042
            
            2.43Total
            $
            -
            
            -
            %
            
            $
            7,276
            
            3.36
            %
            
            $
            720
            
            4.98
            %
            
            $
            2,410
            
            2.93
            %





(1)
            For
      available for sale securities carried at fair value, the weighted average
      yield is computed using amortized
              cost
      without a tax equivalent adjustment for tax-exempt
      obligations.





Investment
securities available-for-sale were $6.8 million at March 31, 2010, compared to
$8.5 million at March 31, 2009. The $1.7 million decrease was attributable to
calls, maturities, scheduled cash flows, principal paydowns and an impairment
charge of $1.0 million. Management reviews investment securities quarterly for
the presence of other than temporary impairment (“OTTI”), taking into
consideration current market conditions, the extent and nature of changes in
fair value, issuer rating changes and trends, financial condition of the
underlying issuers, 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. 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. Management believes it is possible that
a substantial portion of the principal and interest will be received, that 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.





At March
31, 2010, actual market prices, or relevant observable inputs for our trust
preferred pooled security, continued to be unavailable as a result of the
secondary market for trust preferred securities being restricted to a level
determined to be inactive. This determination was made considering the low
number of observable transactions for trust preferred securities or similar
collateral debt obligations, the significant widening of the bid-ask spread in
the brokered markets in which these securities trade, the low number of new
issuances for similar securities, the significant increase in implied liquidity
risk premiums, the lack of information that is released publicly, and from
discussions management had with third-party industry analysts. Consistent with
previous valuations, the Company 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 was
the most appropriate valuation technique. Management used significant
unobservable inputs that reflect our assumptions of what a market participant
would use to price this security at March 31, 2010. Significant unobservable
inputs included selecting an appropriate discount rate, default rate and
repayment assumptions. The Company estimated the discount rate by comparing
rates for similarly rated corporate bonds, with additional consideration given
to market liquidity. The default rates and repayment assumptions were estimated
based on the individual issuer’s financial conditions, historical repayment
information, as well as our future expectations of the capital markets. Using
this information, the Company estimated the fair value of the security at March
31, 2010 to be $1.0 million.





Additionally,
the Company received two independent Level 3 valuation estimates for this
security. Those valuation estimates were based on proprietary pricing models
utilizing significant unobservable inputs.  Although the Company’s
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.





In April
2009, accounting guidance was issued on the recognition and presentation of OTTI
– seeItem 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Critical Accounting Policies." To determine the component of OTTI
related to credit losses, 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








19





estimates
were based primarily on an analysis of default rates, prepayment speeds and
third-party analytical reports. In general, default rates of the underlying
individual issuers has increased resulting in a decline in value of the
security. In determining the expected default rates and prepayment speeds,
management evaluated, among other things, the individual issuers financial
condition including capital levels, nonperforming asset amounts, loan loss
reserve levels, and portfolio composition and concentrations. As a result of
this analysis, the Company recorded an adjustment, net of taxes, which decreased
accumulated other comprehensive income with a corresponding adjustment to
increase beginning retained earnings totaling $1.5 million at March 31,
2009.





For
additional information on our Level 3 fair value measurements seeItem 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Comparison of Financial Condition at March 31, 2010 and 2009,”
“Fair Value of Level 3 Assets,” and Item 1A, “Risk Factors – Risks Related to
our Business – Other-than-temporary impairment charges in our investment
securities portfolio could result in significant losses and cause Riverview
Community Bank to become significantly undercapitalized and adversely affect our
continuing operations,” and Note 18 of the Notes to the Consolidated Financial
Statements contained in Item 8 of the Form 10-K.





Deposit
Activities and Other Sources of Funds





General. Deposits, loan
repayments and loan sales are the major sources of the Company's funds for
lending and other investment purposes. Loan repayments are a relatively stable
source of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources. They may also be used on a longer-term
basis for general business purposes.





Deposit Accounts. The Company
attracts deposits from within its primary market area by offering a broad
selection of deposit instruments, including demand deposits, negotiable order of
withdrawal ("NOW") accounts, money market accounts, regular savings accounts,
certificates of deposit and retirement savings plans. Historically, the Company
has focused on retail deposits. Expansion in commercial lending has led to
growth in business deposits including demand deposit accounts. Business checking
accounts have grown $12.5 million to $75.4 million at March 31, 2010 from $62.9
million at March 31, 2008, an increase of 19.9%. Deposit account terms vary
according to the minimum balance required, the time periods the funds must
remain on deposit and the interest rate, among other factors. In determining the
terms of its deposit accounts, the Company considers the rates offered by its
competition, profitability to the Company, matching deposit and loan products
and customer preferences and concerns. The Company generally reviews its deposit
mix and pricing weekly.





The
following table sets forth the average balances of deposit accounts offered by
the Company at the dates indicated.





Year
      Ended March 31,2010
            
            
            
            2009
            
            
            
            2008Average
      Balance
            
            Average
              Rate
            
            
            
            Average
      Balance
            
            Average
              Rate
            
            
            
            Average
      Balance
            
            Average
              Rate(Dollars
      in thousands)Non-interest-bearing
      demand
            $
            87,508
            
            0.00
            %
            
            $
            81,566
            
            0.00
            %
            
            $
            82,776
            
            0.00
            %Interest
      checking
            
            79,444
            
            0.42
            
            
            
            86,986
            
            1.13
            
            
            
            129,552
            
            3.02Regular
      savings accounts
            
            29,526
            
            0.55
            
            
            
            27,138
            
            0.55
            
            
            
            27,403
            
            0.55Money
      market accounts
            
            192,064
            
            1.23
            
            
            
            173,853
            
            2.19
            
            
            
            219,528
            
            4.05Certificates
      of deposit
            
            277,639
            
            2.44
            
            
            
            282,055
            
            3.66
            
            
            
            197,049
            
            4.67Total
            $
            666,181
            
            1.45
            %
            
            $
            651,598
            
            2.34
            %
            
            $
            656,308
            
            3.37
            %





For
additional information regarding our deposit accounts, see Note 9 of the Notes
to the Consolidated Financial Statements contained in Item 8 of the Form
10-K.





Deposit
accounts totaled $688.0 million at March 31, 2010 compared to $670.1 million at
March 31, 2009. The continued low interest rates have resulted in customers
placing their deposits into money market accounts and certificate of deposits,
which earn the highest interest rate yields. Money market and certificate of
deposit accounts increased $31.1 million and $14.0 million, respectively at
March 31, 2010 compared to March 31, 2009.





The
Company did not have any wholesale-brokered deposits at March 31, 2010 compared
to $19.9 million, or 2.9% of total deposits, at March 31, 2009. Customer branch
deposit balances increased $51.3 million since March 31, 2009. The increase in
deposits resulted from a continued effort by the Company to increase its core
deposits. The Company continues to focus








20





deposit
growth around customer relationships as opposed to obtaining deposits through
the wholesale markets. However, the Company has continued to experience
increased competition for customer deposits within its market area. Overall,
growth in deposits was suppressed by a decrease in the average account balances
of many of our real estate related customers reflecting the slowdown of home
sales and other transaction closings. Additionally, the Company had $31.9
million, or 4.6% of total deposits, in CDARS deposits, which were gathered from
customers within the Company’s primary market-area. In the first quarter of
fiscal 2010, the OTS informed the Company that it was placing a restriction
through a Supervisory Letter Directive on the Bank’s ability to increase
brokered deposits, including the Bank’s reciprocal CDARS program, to no more
than 10% of total deposits.





At March
31, 2010 and 2009, deposits from RAMCorp totaled $1.9 million and $29.0 million,
respectively. These deposits were included in interest checking accounts and
represent assets under management by RAMCorp. The reduction in these deposits
was a strategic decision made by the Company to reduce its overall costs of
funding as these funds at the time were more costly than other deposits. At
March 31, 2010, the Company also had $5.4 million in deposits from public
entities located in the State of Washington, all of which were fully covered by
FDIC insurance or secured by pledged collateral.





Deposit
growth remains a key strategic focus for the Company and our ability to achieve
deposit growth, particularly growth in core deposits, is subject to many risk
factors including the effects of competitive pricing pressures, changing
customer deposit behavior, and increasing or decreasing interest rate
environments.  Adverse developments with respect to any of these risk
factors could limit the Company’s ability to attract and retain deposits and
could have a material negative impact on the Company’s financial condition,
results of operations and cash flows.





The
following table presents the amount and weighted average rate of certificates of
deposit equal to or greater than $100,000 at March 31, 2010.




Maturity Period
            
            Amount
            
            Weighted
              Average
      Rate(Dollars
      in thousands)Three
      months or less
            $
            51,031
            
            1.54
            %Over
      three through six months
            
            46,712
            
            1.83Over
      six through 12 months
            
            56,879
            
            1.62Over
      12 Months
            
            24,560
            
            2.91Total
            $
            179,182
            
            1.83
            %





Borrowings.  Deposits
are the primary source of funds for the Company's lending and investment
activities and for its general business purposes.  The Company relies
upon advances from the FHLB of Seattle and borrowings from the Federal Reserve
Bank of San Francisco (“FRB”) to supplement its supply of lendable funds and to
meet deposit withdrawal requirements.  Advances from the FHLB of
Seattle and borrowings from the FRB are typically secured by the Bank's
commercial loans, commercial real estate loans, first mortgage loans and
investment securities.





The FHLB
functions as a central reserve bank providing credit for savings and loan
associations and certain other member financial institutions.  As a
member, the Bank is required to own capital stock in the FHLB and is authorized
to apply for advances on the security of such stock and certain of its mortgage
loans and other assets (principally securities which are obligations of, or
guaranteed by, the United States) provided certain standards related to
creditworthiness have been met.  The FHLB determines specific lines of
credit for each member institution and the Bank has a line of credit with the
FHLB of Seattle equal to 30% of its total assets to the extent the Bank provides
qualifying collateral and holds sufficient FHLB stock. At March 31, 2010, the
Bank had $23.0 million of outstanding advances from the FHLB of Seattle under an
available credit facility of $256.7 million, which is limited to available
collateral.





The
Company also has a borrowing arrangement with the FRB under the
Borrower-In-Custody program.  Under this program, the Bank had an
available credit facility of $130.7 million, subject to pledged collateral, as
of March 31, 2010.  At March 31, 2010, the Bank had $10.0 million of
outstanding borrowings from the FRB.


21





The
following tables set forth certain information concerning the Company's FHLB
advances and FRB borrowings at the dates and for the periods
indicated.  All of the FHLB advances and FRB borrowings are scheduled
to mature during fiscal year 2011.





At
      March 31,2010
            
            
            
            2009
            
            
            
            2008(Dollars
      in thousands)FHLB
      advances outstanding
            $
            23,000
            
            
            $
            37,850
            
            
            $
            92,850Weighted
      average rate on FHLB advances
            
            0.64
            %
            
            
            2.02
            %
            
            
            3.35
            %FRB
      borrowings outstanding
            $
            10,000
            
            
            $
            85,000
            
            
            $
            -Weighted
      average rate on FRB advances
            
            0.50
            %
            
            
            0.25
            %
            
            
            -








Year
      Ended March 31,2010
            
            
            
            2009
            
            
            
            2008(Dollars
      in thousands)Maximum
      amounts of FHLB advances
              outstanding at any month end
            $
            23,000
            
            
            $
            144,860
            
            
            $
            122,200Average
      FHLB advances outstanding
            
            7,116
            
            
            
            115,303
            
            
            
            47,769Weighted
      average rate on FHLB advances
            
            1.07
            %
            
            
            1.99
            %
            
            
            4.32
            %Maximum
      amounts of FRB borrowings
              outstanding at any month end
            $
            145,000
            
            
            $
            85,000
            
            
            $
            -Average
      FRB borrowings outstanding
            
            85,978
            
            
            
            10,000
            
            
            
            -Weighted
      average rate on FRB borrowings
            
            0.28
            %
            
            
            0.25
            %
            
            
            -





At March
31, 2010, the Company had two wholly-owned subsidiary grantor trusts totaling
$22.7 million for the purpose of issuing trust preferred securities and common
securities.  The trust preferred securities accrue and pay
distributions periodically at specified annual rates as provided in each
indenture.  The trusts used the net proceeds from each of the
offerings to purchase a like amount of junior subordinated debentures (the
“Debentures”) of the Company.  The Debentures are the sole assets of
the trusts.  The Company’s obligations under the Debentures and
related documents, taken together, constitute a full and unconditional guarantee
by the Company of the obligations of the trusts.  The trust preferred
securities are mandatorily redeemable upon maturity of the Debentures, or upon
earlier redemption as provided in the indentures.  The Company has the
right to redeem the Debentures in whole or in part on or after specific dates,
at a redemption price specified in the indentures plus any accrued but unpaid
interest to the redemption date.  The common securities issued by the
grantor trusts were purchased by the Company, and the Company’s investment in
the common securities of $681,000 at March 31, 2010 and 2009 is included in
prepaid expenses and other assets in the Consolidated Balance Sheets included in
the Consolidated Financial Statements contained in Item 8 of the Form 10-K. See
also Note 13 of the Notes to the Consolidated Financial Statements contained in
Item 8 of this Form 10-K.





Taxation





For
details regarding the Company’s taxes, see Item 8 – “Financial Statements and
Supplementary Data - Note 14 of the Notes to the Consolidated Financial
Statements.”





Personnel





As of
March 31, 2010, the Company had 233 full-time equivalent employees, none of whom
are represented by a collective bargaining unit.  The Company believes
its relationship with its employees is good.





Corporate
Information





The
Company’s principal executive offices are located at 900 Washington Street,
Vancouver, Washington 98660. Its telephone number is (360) 693-6650. The Company
maintains a website with the address www.riverviewbank.com.
The information contained on the Company’s website is not included as a part of,
or incorporated by reference into, this Annual Report on Form 10-K. Other than
an investor’s own Internet access charges, the Company makes available free of
charge








22





through
its website the Annual Report on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, and amendments to these reports, as soon as
reasonably practicable after it has electronically filed such material with, or
furnished such material to, the Securities and Exchange Commission
(“SEC”).





Subsidiary
Activities





Under OTS
regulations, the Bank is authorized to invest up to 3% of its assets in
subsidiary corporations, with amounts in excess of 2% only if primarily for
community purposes. At March 31, 2010, the Bank’s investments of $1.0 million in
Riverview Services, Inc. (“Riverview Services”), its wholly owned subsidiary,
and $2.2 million in RAMCorp, an 85% owned subsidiary, were within these
limitations.





Riverview
Services acts as a trustee for deeds of trust on mortgage loans granted by the
Bank, and receives a reconveyance fee for each deed of trust. Riverview Services
had net income of $28,000 for the fiscal year ended March 31, 2010 and total
assets of $1.0 million at that date. Riverview Services’ operations are included
in the Consolidated Financial Statements of the Company contained in Item 8 of
the Form 10-K.





RAMCorp
is an asset management company providing trust, estate planning and investment
management services. RAMCorp commenced business in December 1998 and had net
income of $372,000 for the fiscal year ended March 31, 2010 and total assets of
$2.7 million at that date. RAMCorp earns fees on the management of assets held
in fiduciary or agency capacity. At March 31, 2010, total assets under
management totaled $279.5 million. RAMCorp’s operations are included in the
Consolidated Financial Statements of the Company contained in Item 8 of this
Form 10-K.





Executive
Officers.  The following table sets forth certain information
regarding the executive officers of the Company.





Name
            Age(1)
            PositionPatrick
      Sheaffer
            70
            Chairman
      of the Board and Chief Executive OfficerRonald
      A. Wysaske
            57
            President
      and Chief Operating OfficerDavid
      A. Dahlstrom
            59
            Executive
      Vice President and Chief Credit OfficerKevin
      J. Lycklama
            32
            Executive
      Vice President and Chief Financial OfficerJohn
      A. Karas
            61
            Executive
      Vice PresidentJames
      D. Baldovin
            51
            Executive
      Vice President Retail Banking


(1)      At
March 31, 2010





Patrick Sheaffer isChairman of the Board
and Chief Executive Officerof the Company and Chief
Executive Officer of the Bank, positions he has held since February 2004. Prior
to February 2004, Mr. Sheaffer served as Chairman of the Board, President and
Chief Executive Officer of the Company since its inception in 1997. He became
Chairman of the Board of the Bank in 1993. Mr. Sheaffer joined the Bank in 1963.
He is responsible for leadership and management of the Company. Mr. Sheaffer is
active in numerous professional and civic organizations.





Ronald A. Wysaske is President
and Chief Operating Officer of the Bank, positions he has held since February
2004. Prior to February 2004, Mr. Wysaske served as Executive Vice President,
Treasurer and Chief Financial Officer of the Bank from 1981 to 2004 and of the
Company since its inception in 1997. He joined the Bank in 1976. Mr. Wysaske is
responsible for daily operations and management of the Bank. He holds an M.B.A.
from Washington State University and is active in numerous professional,
educational and civic organizations.





David A. Dahlstrom is
Executive Vice President and Chief Credit Officer and is responsible for all
Riverview lending divisions related to its commercial, mortgage and consumer
loan activities.  Prior to joining Riverview in May 2002, Mr.
Dahlstrom spent 14 years with First Interstate Bank and progressed through a
number of management positions, including serving as Senior Vice President of
the Business Banking Group in Portland.  In 1999, Mr. Dahlstrom joined
a regional bank as Executive Vice President/Community Banking, responsible for
all branch operations and small business banking.





Kevin J. Lycklamais Executive
Vice President and Chief Financial Officer of the Company, positions he has held
since February 2009. Prior to February 2008, Mr. Lycklama served as Vice
President and Controller of the Bank since 2006. Prior to joining Riverview, Mr.
Lycklama spent five years with a local public accounting firm advancing to the
level of audit manager.  He is responsible for accounting, SEC
reporting as well as treasury functions for the Bank and the Company. He holds a
Bachelor of Arts degree from Washington State University and is a certified
public accountant.





John A. Karas is Executive
Vice President of the Bank and also serves as Chairman of the Board, President
and CEO of its subsidiary, RAMCorp.  Mr. Karas has been employed by
the Company since 1999 and has over 20 years of trust experience.  He
is familiar with all phases of the trust business and his experience includes
trust administration, trust legal council,






23




investments
and real estate. Mr. Karas received his B.A. from Willamette University and his
Juris Doctor degree from Lewis & Clark Law School’s Northwestern School of
Law.  He is a member of the Oregon, Multnomah County and American Bar
Associations and is a Certified Trust and Financial Advisor.  Mr.
Karas is also active in numerous civic organizations.





James
D.Baldovin is
Executive Vice President of Retail Banking and is responsible for the Bank’s
branch banking network, customer service, sales and community
development.  Mr. Baldovin has been employed by the Bank since January
2003 and has over 25 years of banking expertise in developing and leading sales
and service cultures. He holds a Bachelor of Arts degree in economics from
Linfield College and is a graduate of the Pacific Coast Banking
School.





REGULATION





The
following is a brief description of certain laws and regulations which are
applicable to the Company and the Bank.  The description of these laws
and regulations, as well as descriptions of laws and regulations contained
elsewhere herein, does not purport to be complete and is qualified in its
entirety by reference to the applicable laws and regulations.





Congress
is currently considering various significant regulatory reform
proposals.  If new legislation is enacted, it could have a significant
impact on the regulation and operations of financial institutions and their
holding companies.  The proposals generally provide for the
elimination of the OTS, the Company’s and the Bank’s primary regulator, and
could require the Company  to become a bank holding company, making it
subject to regulatory capital requirements for the first time.  In
addition, the Bank could be required to convert to a national bank or a state
bank charter.  There are also proposals for the creation of a new
consumer financial protection agency that would issue and enforce consumer
protection initiatives governing financial products and services.  The
details and impact of regulatory reform proposals cannot be determined until new
legislation is enacted.  In addition, the regulations governing the
Company and the Bank may be amended from time to time.  Any
legislative or regulatory changes in the future could adversely affect our
operations and financial condition.  No assurance can be given as to
whether or in what form any such changes may occur.





Legislation
is introduced from time to time in the United States Congress that may affect
the Company’s operations.  In addition, the regulations governing the
Bank may be amended from time to time by the OTS.  Any such
legislation or regulatory changes in the future could have an adverse
affect.  We cannot predict whether any such changes may
occur.





General





As a
federally chartered savings institution, the Bank is subject to extensive
regulation, examination and supervision by the OTS, as its primary federal
regulator, and the FDIC, as the insurer of its deposits. The Bank is a member of
the FHLB System and its deposit accounts are insured up to applicable limits by
the Deposit Insurance Fund, which is administered by the FDIC. The Bank must
file reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS to evaluate the Bank’s
safety and soundness and compliance with various regulatory requirements. Under
certain circumstances the FDIC may also examine the Bank.  This
regulatory structure is intended primarily for the protection of the insurance
fund and depositors. The regulatory structure also gives the regulatory
authorities extensive discretion in connection with their supervisory and
enforcement activities and examination policies, including policies with respect
to the classification of assets and the establishment of adequate loan loss
reserves for regulatory purposes. Any change in such policies, whether by the
OTS, the FDIC or Congress, could have a material adverse impact on the Company
and the Bank and their operations. The Company, as a savings and loan holding
company, is required to file certain reports with, is subject to examination by,
and otherwise must comply with the rules and regulations of the
OTS.  The Company is also subject to the rules and regulations of the
SEC under the federal securities laws.  See “-- Savings and Loan
Holding Company Regulations.”





Federal
Regulation of Savings Institutions





Office of Thrift
Supervision.  The OTS has extensive authority over the
operations of savings institutions.  As part of this authority, the
Bank is required to file periodic reports with the OTS and is subject to
periodic examinations by the OTS. The OTS also has extensive enforcement
authority over all savings institutions and their holding companies, including
the Bank and the Company.  This enforcement authority includes, among
other things, the ability to assess civil money penalties, issue
cease-and-desist or removal orders and initiate prompt corrective action
orders.  In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound
practices.  Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with the
OTS.  Except under certain circumstances, public disclosure of final
enforcement actions by the OTS is required by law.








24








In
January 2009, the OTS finalized an informal supervisory agreement, a Memorandum
of Understanding (“MOU”), which was reviewed and approved by the Board on
January 21, 2009. 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 March 31, 2010, the
Bank’s leverage ratio was 9.84% (1.84% over the new required minimum) and its
risk-based capital ratio was 12.11% (0.11% over 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; (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) submit a quarterly update to its written
comprehensive plan to reduce classified assets, that is acceptable to the OTS;
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
Company also entered into a separate MOU agreement with the
OTS.  Under the agreement, the Company must, among other things
support the Bank’s compliance with its MOU issued in January
2009.  The MOU also requires the Bank to: (a) provide notice to and
obtain written non-objection from the OTS prior to the Company declaring a
dividend or redeeming any capital stock or receiving dividends or other payments
from the Bank; (b) provide notice to and obtain written non-objection from the
OTS prior to the Company incurring, issuing, renewing or repurchasing any new
debt; and (c) submit quarterly updates to its written operations plan and
consolidated capital plan.





The Board
and Bank management do not believe that either of these agreements have or will
constrain the Bank’s business plan and furthermore, believes that the Company
and the Bank are currently in compliance with all of the requirements through
its normal business operations.  These requirements will remain in
effect until modified or terminated by the OTS.  For more information
about the MOU and its impact on the Bank, see “Item 1A, Risk Factors – Risks
Related to Our Business – We are subject to extensive regulation that could
restrict our activities and impose financial requirements or limitations on the
conduct of our business.”





In
addition, the investment, lending and branching authority of the Bank also are
prescribed by federal laws, which prohibit the Bank from engaging in any
activities not permitted by these laws. For example, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal institutions in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS.  Federal savings institutions are generally
authorized to branch nationwide. The Bank is in compliance with the noted
restrictions.





All
savings institutions are required to pay assessments to the OTS to fund the
agency's operations.  The general assessments, paid on a semi-annual
basis, are determined based on the savings institution's total assets, including
consolidated subsidiaries.  The Bank's OTS assessment for the fiscal
year ended March 31, 2010 was $309,000.





The
Bank's general permissible lending limit for loans-to-one-borrower is equal to
the greater of $500,000 or 15% of unimpaired capital and surplus (except for
loans fully secured by certain readily marketable collateral, in which case this
limit is increased to 25% of unimpaired capital and surplus).  At
March 31, 2010, the Bank's lending limit under this restriction was $15.2
million and, at that date, the Bank’s largest lending relationship with one
borrower was $11.0 million, which consisted of one commercial construction loan
with an outstanding balance of $2.1 million and one commercial real estate
mortgage loan with and outstanding balance of $8.3 million, both of which were
performing according to their original terms at March 31, 2010.





The OTS,
as well as the other federal banking agencies, has adopted guidelines
establishing safety and soundness standards on such matters as loan underwriting
and documentation, asset quality, earnings standards, internal controls and
audit systems, interest rate risk exposure and compensation and other employee
benefits.  Any institution that fails to comply with these standards
must submit a compliance plan.





Federal Home Loan Bank
System.  The Bank is a member of the FHLB of Seattle, which is
one of 12 regional FHLBs that administer the home financing credit function of
savings institutions.  Each FHLB serves as a reserve or central bank
for its members within its assigned region.  It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System.  It makes loans or advances to members in accordance with
policies and procedures, established by the Board of Directors of the FHLB,
which are subject to the oversight of the Federal Housing Finance
Board.  All advances from the FHLB are required to be fully secured by
sufficient collateral as determined by the FHLB.  In addition, all
long-term advances are required to provide funds for residential home
financing.  See Business – Deposit Activities and Other Sources of
Funds – Borrowings.”






25





As a
member, the Bank is required to purchase and maintain stock in the FHLB of
Seattle.  At March 31, 2010, the Bank had $7.4 million in FHLB stock,
which was in compliance with this requirement.  The Bank did not
receive any dividends from the FHLB of Seattle for the year ended March 31,
2010. Subsequent to December 31, 2008, the FHLB of Seattle announced that it was
below its regulatory risk-based capital requirement and it is now precluded from
paying dividends or repurchasing capital stock. The FHLB of Seattle is not
anticipated to resume dividend payments until their financial results improve.
The FHLB of Seattle has not indicated when dividend payments may
resume.





The FHLBs
have continued and continue to contribute to low- and moderately-priced housing
programs through direct loans or interest subsidies on advances targeted for
community investment and low- and moderate-income housing
projects.  These contributions have affected adversely the level of
FHLB dividends paid and could continue to do so in the future.  These
contributions could also have an adverse effect on the value of FHLB stock in
the future.  A reduction in value of the Bank's FHLB stock may result
in a corresponding reduction in the Bank's capital.





Federal Deposit Insurance
Corporation.  The Bank's deposits are insured up to applicable
limits by the Deposit Insurance Fund of the FDIC. Beginning in October 2008, the
FDIC temporarily increased FDIC deposit insurance coverage per separately
insured depositor to $250,000 through December 31, 2013.  On
January 1, 2014, the coverage limit is scheduled to return to $100,000,
except for certain retirement accounts which will be insured up to
$250,000.





The FDIC
assesses deposit insurance premiums on each FDIC-insured institution quarterly
based on annualized rates for four risk categories applied to its deposits,
subject to certain adjustments. Each institution is assigned to one of four risk
categories based on its capital, supervisory ratings and other factors. Well
capitalized institutions that are financially sound with only a few minor
weaknesses are assigned to Risk Category I. Risk Categories II, III and IV
present progressively greater risks to the DIF. Under FDIC’s risk-based
assessment rules, effective April 1, 2009, the initial base assessment rates
prior to adjustments range from 12 to 16 basis points for Risk Category I,
and  are 22 basis points for Risk Category II, 32 basis points for
Risk Category III, and 45 basis points for Risk Category IV.  Initial
base assessment rates are subject to adjustments based on an institution’s
unsecured debt, secured liabilities and brokered deposits, such that the total
base assessment rates after adjustments range from 7 to 24 basis points for Risk
Category I, 17 to 43 basis points for Risk Category II, 27 to 58 basis points
for Risk Category III, and 40 to 77.5 basis points for Risk Category IV. Rates
increase uniformly by three basis points effective January 1, 2011.





In
addition to the regular quarterly assessments, due to losses and projected
losses attributed to failed institutions, the FDIC imposed on every insured
institution a special assessment of five basis points on the amount of each
depository institution’s assets reduced by the amount of its Tier 1 capital (not
to exceed 10 basis points of its assessment base for regularly quarterly
premiums) as of June 30, 2009, which was collected on September 30, 2009. The
Bank paid $417,000 for this special FDIC assessment in September
2009.





As a
result of a decline in the reserve ratio (the ratio of the DIF to estimated
insured deposits) and concerns about expected failure costs and available liquid
assets in the DIF, the FDIC adopted a rule requiring each insured institution to
prepay on December 30, 2009 the estimated amount of its quarterly assessments
for the fourth quarter of 2009 and all quarters through the end of 2012 (in
addition to the regular quarterly assessment for the third quarter which was due
on December 30, 2009). The prepaid amount is recorded as an asset with a zero
risk weight and the institution will continue to record quarterly expenses for
deposit insurance. For purposes of calculating the prepaid amount, assessments
were measured at the institution’s assessment rate as of September 30, 2009,
with a uniform increase of 3 basis points effective January 1, 2011, and were
based on the institution’s assessment base for the third quarter of 2009, with
growth assumed quarterly at annual rate of 5%. If events cause actual
assessments during the prepayment period to vary from the prepaid amount,
institutions will pay excess assessments in cash or receive a rebate of prepaid
amounts not exhausted after collection of assessments due on June 30, 2013, as
applicable. Collection of the prepayment does not preclude the FDIC from
changing assessment rates or revising the risk-based assessment system in the
future. The rule includes a process for exemption from the prepayment for
institutions whose safety and soundness would be affected adversely. The Bank
prepaid $5.4 million in FDIC assessments during the fourth quarter of 2009,
which will be expensed over 2010, 2011 and 2012.  The balance of the
prepaid assessment was $4.7 million at March 31, 2010.





In
October 2008, the FDIC introduced the Temporary Liquidity Guarantee Program (the
“TLGP”), a program designed to improve the functioning of the credit markets and
to strengthen capital in the financial system during this period of economic
distress.  The TLGP has two components: 1) a Debt Guarantee
Program (“DGP”), guaranteeing newly issued senior unsecured debt, and 2) a
Transaction Account Guarantee Program (“TAGP”), providing a full guarantee of
non-interest bearing deposit transaction accounts, Negotiable Order of
Withdrawal (“NOW”) accounts paying less than 0.5%







26





annual
interest, and interest on lawyers trust accounts, regardless of the
amount.  The Bank and the Company participate in the DGP, however, no
debt has been issued by the Bank and the Company under the DGP as of March 31,
2010.  The Bank is presently participating in the TAGP during the
extension period ending December 31, 2010.  The fees for this program
range from 15 to 25 basis points (annualized), depending on the institutions
risk category for deposit insurance assessment purposes, assessed on amounts in
covered accounts exceeding $250,000.





In
addition to the assessment for deposit insurance, institutions are required to
make payments on bonds issued in the late 1980s by the Financing Corporation to
recapitalize a predecessor deposit insurance fund. This payment is established
quarterly and during the fiscal year ending March 31, 2010 averaged 5.36 basis
points of assessable deposits. The Financing Corporation was chartered in 1987,
by the OTS’ predecessor, the Federal Home Loan Bank Board solely for the purpose
of functioning as a vehicle for the recapitalization of the deposit insurance
system.





Prompt Corrective
Action.  The OTS is required to take certain supervisory
actions against undercapitalized savings institutions, the severity of which
depends upon the institution's degree of
undercapitalization.  Generally, an institution that has a ratio of
total capital to risk-weighted assets of less than 8%, a ratio of Tier 1 (core)
capital to risk-weighted assets of less than 4%, or a ratio of core capital to
total assets of less than 4% (3% or less for institutions with the highest
examination rating) is considered to be "undercapitalized."  An
institution that has a total risk-based capital ratio less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized" and an institution that has a
tangible capital to assets ratio equal to or less than 2% is deemed to be
"critically undercapitalized."  Subject to a narrow exception, the OTS
is required to appoint a receiver or conservator for a savings institution that
is "critically undercapitalized."  OTS regulations also require that a
capital restoration plan be filed with the OTS within 45 days of the date a
savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion.  “Significantly undercapitalized” and “critically
undercapitalized” institutions are subject to more extensive mandatory
regulatory actions.  The OTS also could take any one of a number of
discretionary supervisory actions, including the issuance of a capital directive
and the replacement of senior executive officers and directors.  At
March 31, 2010, the Bank’s capital ratios met the "well capitalized"
standards.





Qualified Thrift Lender
Test.  All savings institutions, including the Bank, are
required to meet a qualified thrift lender ("QTL") test to avoid certain
restrictions on their operations.  This test requires a savings
institution to have at least 65% of its total assets, as defined by regulation,
in qualified thrift investments on a monthly average for nine out of every 12
months on a rolling basis.  As an alternative, the savings institution
may maintain 60% of its assets in those assets specified in Section 7701(a)(19)
of the Internal Revenue Code ("Code").  Under either test, such assets
primarily consist of residential housing related loans and
investments.





A savings
institution that fails to meet the QTL is subject to certain operating
restrictions and may be required to convert to a national bank charter. As of
March 31, 2010, the Bank maintained 67.50% of its portfolio assets in qualified
thrift investments and, therefore, met the qualified thrift lender
test.





Capital
Requirements. Federally insured savings institutions, such as the
Bank, are required by the OTS to maintain minimum levels of regulatory
capital.  These minimum capital standards include: a 1.5% tangible
capital to total assets ratio, a 4% leverage ratio (3% for institutions
receiving the highest rating on the CAMELS examination rating system) and an 8%
risk-based capital ratio. In addition, the prompt corrective action standards,
discussed above, also establish, in effect, a minimum 2% tangible capital
standard, a 4% leverage ratio (3% for institutions receiving the highest rating
on the CAMELS system) and, together with the risk-based capital standard itself,
a 4% Tier 1 risk-based capital standard. The OTS regulations also require that,
in meeting the tangible, leverage and risk-based capital standards, institutions
must generally deduct investments in and loans to subsidiaries engaged in
activities as principal that are not permissible for a national
bank.





The
risk-based capital standard requires federal savings institutions to maintain
Tier 1 (core) and total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, recourse obligations, residual
interests and direct credit substitutes, are multiplied by a risk-weight factor
of 0% to 100%, assigned by the OTS capital regulation based on the risks
believed inherent in the type of asset. Tier 1 (core) capital is defined as
common stockholders’ equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus and minority interests in equity
accounts of consolidated subsidiaries, less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock,





27





the
allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets and up to 45% of unrealized gains on available-for-sale
equity securities with readily determinable fair market values. Overall, the
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital.





The OTS
also has authority to establish individual minimum capital requirements for
financial institutions. As previously discussed, in January 2009, the Bank
entered into an MOU with the OTS which requires the Bank to achieve and maintain
capital levels in excess of the minimum capital standards required under OTS’s
Prompt Corrective Actions.  Under the MOU, the Bank must achieve and
maintain Tier 1 (core) leverage ratio of 8% and total risk-based capital ratio
of 12%.  For additional information, see Item 1A, “Risk Factors –
Risks Related to Our Business – We are required to comply with the terms of two
memoranda of understanding and a supervisory letter directive issued by the OTS
and lack of compliance could result in monetary penalties and/or additional
regulatory actions” and Note 17 of the Notes to Consolidated Financial
Statements included in Item 8 of this Form 10-K.





Limitations on Capital
Distributions.  OTS regulations impose various restrictions on
savings institutions with respect to their ability to make distributions of
capital, which include dividends, stock redemptions or repurchases, cash-out
mergers and other transactions charged to the capital account. Generally,
savings institutions, such as the Bank, that before and after the proposed
distribution are well-capitalized, may make capital distributions during any
calendar year equal to up to 100% of net income for the year-to-date plus
retained net income for the two preceding years. However, an institution deemed
to be in need of more than normal supervision by the OTS, such as the Bank, may
have its dividend authority restricted by the OTS. In accordance with the
provisions of the MOU, the Bank may not pay dividends to the Company without
prior approval of the OTS.





Generally,
savings institutions proposing to make any capital distribution need not submit
written notice to the OTS prior to such distribution unless they are a
subsidiary of a holding company or would not remain well capitalized following
the distribution.  Savings institutions that do not, or would not meet
their current minimum capital requirements following a proposed capital
distribution or propose to exceed these net income limitations, must obtain OTS
approval prior to making such distribution.  The OTS may object to the
distribution during that 30-day period based on safety and soundness
concerns.  See "- Capital Requirements."





Activities of Associations and their
Subsidiaries.  When a savings institution establishes or
acquires a subsidiary or elects to conduct any new activity through a subsidiary
that the association controls, the savings institution must file a notice or
application with the FDIC and the OTS at least 30 days in advance and receive
regulatory approval or non-objection.  Savings institutions also must
conduct the activities of subsidiaries in accordance with existing regulations
and orders.





The OTS
may determine that the continuation by a savings institution of its ownership
control of, or its relationship to, the subsidiary constitutes a serious risk to
the safety, soundness or stability of the association or is inconsistent with
sound banking practices or with the purposes of the FDIC.  Based upon
that determination, the FDIC or the OTS has the authority to order the savings
institution to divest itself of control of the subsidiary.  The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the Deposit Insurance Fund.  If so, it may require
that no FDIC insured institution engage in that activity directly.





Transactions with Affiliates.
The Bank’s authority to engage in transactions with “affiliates” is limited by
OTS regulations and by Sections 23A and 23B of the Federal Reserve Act as
implemented by the Federal Reserve Board’s Regulation W. The term “affiliates”
for these purposes generally means any company that controls or is under common
control with an institution. The Company and its non-savings institution
subsidiaries are affiliates of the Bank. In general, transactions with
affiliates must be on terms that are as favorable to the institution as
comparable transactions with non-affiliates. In addition, certain types of
transactions are restricted to an aggregate percentage of the institution’s
capital. Collateral in specified amounts must be provided by affiliates in order
to receive loans from an institution. In addition, savings institutions are
prohibited from lending to any affiliate that is engaged in activities that are
not permissible for bank holding companies and no savings institution may
purchase the securities of any affiliate other than a subsidiary.





The
Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act")generally prohibits a company from making loans to its executive officers
and directors. However, that act contains a specific exception for loans by a
depository institution to its executive officers and directors in compliance
with federal banking laws. Under such laws, the Bank’s authority to extend
credit to executive officers, directors and 10% stockholders of the Bank and its
affiliates (“insiders”), as well as entities such persons control is limited.
The law restricts both the individual and aggregate amount of loans the Bank may
make to insiders based, in part, on the Bank’s capital position and requires
certain Board approval procedures to be followed. Such loans must be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk








28





of
repayment. There is an exception for loans made pursuant to a benefit or
compensation program that is widely available to all employees of the
institution and does not give preference to insiders over other employees. There
are additional restrictions applicable to loans to executive
officers.





Community Reinvestment
Act.  Under the Community Reinvestment Act (“CRA”), every
FDIC-insured institution has a continuing and affirmative obligation consistent
with safe and sound banking practices to help meet the credit needs of its
entire community, including low and moderate income neighborhoods. The CRA does
not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA.  The CRA requires the OTS, in
connection with the examination of the Bank, to assess the institution's record
of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications, such as a merger or the
establishment of a branch, by the Bank.  An unsatisfactory rating may
be used as the basis for the denial of an application by the OTS.  Due
to the heightened attention being given to the CRA in the past few years, the
Bank may be required to devote additional funds for investment and lending in
its local community. The Bank was examined for CRA compliance and received a
rating of outstanding in its latest examination.





Enforcement.  The
OTS has primary enforcement responsibility over savings institutions and has the
authority to bring action against all "institution-affiliated parties,"
including shareholders, and any attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action likely to have an adverse
effect on an insured institution.  Formal enforcement action may range
from the issuance of a capital directive or cease and desist order to removal of
officers or directors, receivership, conservatorship or termination of deposit
insurance.  Civil penalties cover a wide range of violations and can
range from $25,000 to $1.1 million per day.  The FDIC has the
authority to recommend to the Director of the OTS that enforcement action be
taken with respect to a particular savings institution.  If action is
not taken by the Director, the FDIC has authority to take such action under
certain circumstances. Federal law also establishes criminal penalties for
certain violations.





Standards for Safety and
Soundness.  As required by statute, the federal banking
agencies have adopted Interagency Guidelines prescribing Standards for Safety
and Soundness. The guidelines set forth the safety and soundness standards that
the federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. If the OTS determines
that a savings institution fails to meet any standard prescribed by the
guidelines, the OTS may require the institution to submit an acceptable plan to
achieve compliance with the standard.





Environmental Issues Associated with
Real Estate Lending.  The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), a federal statute, generally imposes
strict liability on all prior and present "owners and operators" of sites
containing hazardous waste.  However, Congress asked to protect
secured creditors by providing that the term "owner and operator" excludes a
person whose ownership is limited to protecting its security interest in the
site.  Since the enactment of the CERCLA, this "secured creditor
exemption" has been the subject of judicial interpretations which have left open
the possibility that lenders could be liable for cleanup costs on contaminated
property that they hold as collateral for a loan.  In addition, we may
be subject to environmental liabilities with respect to real estate properties
that are placed in foreclosure that we subsequently take title
to.  See Item 1A, “Risk Factors – Our real estate lending also exposes
us to the risk of environmental liabilities.”





To the
extent that legal uncertainty exists in this area, all creditors, including the
Bank, that have made loans secured by properties with potential hazardous waste
contamination (such as petroleum contamination) could be subject to liability
for cleanup costs, which could substantially exceed the value of the collateral
property.





Privacy
Standards.  The Gramm-Leach-Bliley Financial Services
Modernization Act of 1999 ("GLBA"), which was enacted in 1999, modernized the
financial services industry by establishing a comprehensive framework to permit
affiliations among commercial banks, insurance companies, securities firms and
other financial service providers.   The Bank is subject to OTS
regulations implementing the privacy protection provisions of the GLBA. These
regulations require the Bank to disclose its privacy policy, including
identifying with whom it shares "non-public personal information," to customers
at the time of establishing the customer relationship and annually
thereafter.





Anti-Money Laundering and Customer
Identification.  Congress enacted the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001 (the "USA Patriot Act") on October 26, 2001 in response to
the terrorist events of September 11, 2001. The USA Patriot Act gives the
federal government new powers to address terrorist threats through enhanced
domestic security measures, expanded surveillance powers, increased








29





information
sharing, and broadened anti-money laundering requirements. In March 2007,
Congress re-enacted certain expiring provisions of the USA Patriot
Act.





Savings
and Loan Holding Company Regulations





General. The Company is a
unitary savings and loan holding company subject to regulatory oversight of the
OTS.  Accordingly, the Company is required to register and file
reports with the OTS and is subject to regulation and examination by the OTS. In
addition, the OTS has enforcement authority over the Company and its non-savings
institution subsidiaries which also permits the OTS to restrict or prohibit
activities that are determined to present a serious risk to the subsidiary
savings institution.





Activities
Restrictions. The GLBA provides that no company may acquire control
of a savings association after May 4, 1999 unless it engages only in the
financial activities permitted for financial holding companies under the law or
for multiple savings and loan holding companies as described below. Further, the
GLBA specifies that, subject to a grandfather provision, existing savings and
loan holding companies may only engage in such activities. The Company qualifies
for the grandfathering and is therefore not restricted in terms of its
activities. Upon any non-supervisory acquisition by the Company of another
savings association as a separate subsidiary, the Company would become a
multiple savings and loan holding company and would be limited to activities
permitted multiple holding companies by OTS regulation. OTS has issued an
interpretation concluding that multiple savings holding companies may also
engage in activities permitted for financial holding companies, including
lending, trust services, insurance activities and underwriting, investment
banking and real estate investments.





Mergers and Acquisitions. The
Company must obtain approval from the OTS before acquiring more than 5% of the
voting stock of another savings institution or savings and loan holding company
or acquiring such an institution or holding company by merger, consolidation or
purchase of its assets.  In evaluating an application for the Company
to acquire control of a savings institution, the OTS would consider the
financial and managerial resources and future prospects of the Company and the
target institution, the effect of the acquisition on the risk to the Deposit
Insurance Fund, the convenience and the needs of the community and competitive
factors.





The OTS
may not approve any acquisition that would result in a multiple savings and loan
holding company controlling savings institutions in more than one state, subject
to two exceptions; (i) the approval of interstate supervisory acquisitions by
savings and loan holding companies and (ii) the acquisition of a savings
institution in another state if the laws of the state of the target savings
institution specifically permit such acquisitions. The states vary in the extent
to which they permit interstate savings and loan holding company
acquisitions.




Acquisition of the
Company.Under
the Savings and Loan Holding Company Act and the Change in Bank Control Act, a
notice or application must be submitted to the OTS if any person (including a
company), or a group acting in concert, seeks to acquire 10% or more of the
Company’s outstanding voting stock, unless the OTS has found that the
acquisition will not result in a change in control of the Company. In acting on
such a notice or application, the OTS must take into consideration certain
factors, including the financial and managerial resources of the acquirer and
the anti-trust effect of the acquisition. Any company that acquires control will
be subject to regulation as a savings and loan holding company.





Sarbanes-Oxley Act of
2002.  The Sarbanes-Oxley Act of 2002 (“SOX Act”) was signed
into law on July 30, 2002 in response to public concerns regarding corporate
accountability in connection with recent accounting scandals. The stated goals
of the SOX Act are to increase corporate responsibility, to provide for enhanced
penalties for accounting and auditing improprieties at publicly traded companies
and to protect investors by improving the accuracy and reliability of corporate
disclosures pursuant to the securities laws. The SOX Act generally applies to
all companies, both U.S. and non-U.S., that file or are required to file
periodic reports with the SEC under the Securities Exchange Act of 1934,
including the Company.





The SOX
Act includes very specific additional disclosure requirements and new corporate
governance rules, requires the SEC and securities exchanges to adopt extensive
additional disclosure, corporate governance and related rules.  The
SOX Act represents significant federal involvement in matters traditionally left
to state regulatory systems, such as the regulation of the accounting
profession, and to state corporate law, such as the relationship between a board
of directors and management and between a board of directors and its
committees.





30


Item1A.  Risk
Factors





An investment in our common stock is
subject to risks inherent in our business.  Before making an
investment decision, you should carefully consider the risks and uncertainties
described below together with all of the other information included in this
report.  In addition to the risks and uncertainties described below,otherrisks and uncertainties
not currently known to us or that we currently deem to be immaterial also may
materially and adversely affect our business, financial condition and results of
operations. The value or
market price of our common stock could decline due to any of these identified or
other risks, and you could lose all or part of your investment.  The
risks below also include forward-looking statements.  This report is
qualified in its entirety by these risk factors.





Risks
Related to the U.S. Financial Industry





Difficult
market conditions have adversely affected our industry.





We are
particularly exposed to downturns in the U.S. housing market. Dramatic declines
in the housing market over the past year, with falling home prices and
increasing foreclosures, unemployment and under-employment, have negatively
impacted the credit performance of mortgage loans and resulted in significant
write-downs of asset values by financial institutions, including
government-sponsored entities, major commercial and investment banks, and
regional financial institutions such as Riverview.  Reflecting concern
about the stability of the financial markets generally and the strength of
counterparties, many lenders and institutional investors have reduced or ceased
providing funding to borrowers, including to other financial institutions. This
market turmoil and tightening of credit have led to an increased level of
commercial and consumer delinquencies, lack of consumer confidence, increased
market volatility and widespread reduction of business activity generally. The
resulting economic pressures on consumers and lack of confidence in the
financial markets have adversely affected our business, financial condition and
results of operations. We do not expect that the difficult conditions in the
financial markets are likely to improve in the near future. A worsening of these
conditions would likely exacerbate the adverse effects of these difficult market
conditions on us and others in the financial institutions
industry.  In particular, we may face the following risks in
connection with these events:





•
            We
      potentially face increased regulation of our industry and a change in
      regulators for Riverview and Riverview Community Bank. Compliance with
      such regulation and the requirements of different regulators may increase
      our costs and limit our ability to pursue business
      opportunities.





•
            Our
      ability to assess the creditworthiness of our customers may be impaired if
      the models and approaches we use to select, manage and underwrite our
      customers become less predictive of future
  behaviors.





•
            The
      process we use to estimate losses inherent in our loan and investment
      portfolios requires difficult, subjective and complex judgments, including
      forecasts of economic conditions and how these economic conditions might
      impair the ability of our borrowers and trust preferred securities issuers
      to repay their debts.  The level of uncertainty concerning
      economic conditions may adversely affect the accuracy of our estimates
      which may, in turn, impact the reliability of the
  process.





•
            Competition
      in our industry could intensify as a result of the increasing
      consolidation of financial services companies in connection with current
      market conditions.





•
            We
      may be required to pay significantly higher FDIC premiums because market
      developments have significantly depleted the insurance fund of the FDIC
      and reduced the ratio of reserves to insured
  deposits.





Risks
Related to our Business





We
are required to comply with the terms of two memoranda of understanding and a
supervisory letter directive issued by the OTS and lack of compliance could
result in monetary penalties and /or additional regulatory actions.




In
January 2009, Riverview Community Bank entered into a Memorandum of
Understanding or MOU with the OTS. Under that agreement, Riverview
Community 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 March 31, 2010, Riverview Community Bank’s leverage
ratio was 9.84% (1.84% over the new required minimum) and its risk-based capital
ratio was 12.11% (0.11% over the new required minimum). The MOU also
requires Riverview Community Bank to:





·
            remain
      in compliance with the minimum capital ratios contained in Riverview
      Community Bank’s business plan;






31





·
            provide
      notice to and obtain a non-objection from the OTS prior to declaring a
      dividend;





·
            maintain
      an adequate allowance for loan and lease
losses;





·
            engage
      an independent consultant to conduct a comprehensive evaluation of
      Riverview Community Bank’s asset
quality;





·
            submit
      a quarterly update to its written comprehensive plan to reduce classified
      assets, that is acceptable to the OTS;
and





·
            obtain
      written approval of the loan committee and the Board prior to the
      extension of credit to any borrower with a classified
  loan.





On June
9, 2009 the OTS issued a Supervisory Letter Directive or SLD to Riverview
Community Bank that restricts the its brokered deposits (including CDARS) to 10%
of total deposits.  At March 31, 2010 and June 9, 2009, we did not
have any wholesale-brokered deposits as compared to $19.9 million, or 3.0% of
total deposits, at March 31, 2009. Riverview Community Bank participates in the
CDARS product, which allows Riverview Community Bank to accept deposits in
excess of the FDIC insurance limit for that depositor and obtain “pass-through”
insurance for the total deposit. Riverview Community Bank’s CDARS balance was
$31.9 million, or 4.6% of total deposits, and $22.2 million, or 3.3% of total
deposits, at March 31, 2010 and March 31, 2009, respectively.




In
October 2009 Riverview entered into a separate MOU with the OTS. Under this
agreement, Riverview must, among other things, support Riverview Community
Bank’s compliance with its MOU issued in January 2009. The MOU also
requires Riverview to:




·
            provide
      notice to and obtain written non-objection from the OTS prior to declaring
      a dividend or redeeming any capital stock or receiving dividends or other
      payments from Riverview Community
Bank;




·
            provide
      notice to and obtain written non-objection from the OTS prior to
      incurring, issuing, renewing or repurchasing any new debt;
    and




·
            submit
      to the OTS within prescribed time periods an operations plan and a
      consolidated capital plan that respectively addresses Riverview’s ability
      to meet its financial obligations through December 2012 and how Riverview
      Community Bank will maintain capital ratios mandated by its
      MOU.




The MOUs
and SLD will remain in effect until stayed, modified, terminated or suspended by
the OTS.  If the OTS were to determine that Riverview or Riverview
Community Bank were not in compliance with their respective MOUs, it would have
available various remedies, including among others, the power to enjoin "unsafe
or unsound" practices, to require affirmative action to correct any conditions
resulting from any violation or practice, to direct an increase in capital, to
restrict the growth of Riverview or Riverview Community Bank, to remove officers
and/or directors, and to assess civil monetary penalties. Management of
Riverview and Riverview Community Bank have been taking action and implementing
programs to comply with the requirements of the MOU and SLD. Although compliance
with the MOUs and SLD will be determined by the OTS, management believes that
Riverview and Riverview Community Bank have complied in all material respects
with the provisions of the MOUs and SLD required to be complied with as of the
date of this prospectus, including the capital requirements and restrictions on
brokered deposits imposed by the OTS.  The OTS may determine, however,
in its sole discretion that the issues raised by the MOUs and SLD have not been
addressed satisfactorily, or that any current or past actions, violations or
deficiencies could be the subject of further regulatory enforcement actions.
Such enforcement actions could involve penalties or limitations on our business
at Riverview Community Bank or Riverview and negatively affect our ability to
implement our business plan, pay dividends on or our common stock the value of
our common stock as well as our financial condition and results of
operations.





The
current economic recession in the market areas we serve may continue to
adversely impact our earnings and could increase the credit risk associated with
our loan portfolio.





Substantially
all of our loans are to businesses and individuals in the states of Washington
and Oregon. A continuing decline in the economies of the seven counties in which
we operate, including the Portland, Oregon metropolitan area, which we consider
to be our primary market areas, could have a material adverse effect on our
business, financial condition, results of operations and
prospects.  In particular, Washington and Oregon have experienced
substantial home price declines and increased foreclosures and have experienced
above average unemployment rates.






32





A further
deterioration in economic conditions in the market areas we serve could result
in the following consequences, any of which could have a materially adverse
impact on our business, financial condition and results of
operations:




·
            loan
      delinquencies, problem assets and foreclosures may
    increase;




·
            demand
      for our products and services may
decline;




·
            collateral
      for loans made may decline further in value, in turn reducing customers’
      borrowing power, reducing the value of assets and collateral associated
      with existing loans; and




·
            the
      amount of our low-cost or non-interest bearing deposits may
      decrease.




Our real estate construction and land
acquisition or development loans are based upon estimates of costs and the value
of the completed project.





We make
real estate construction loans to individuals and builders, primarily for the
construction of residential properties. We originate these loans whether or not
the collateral property underlying the loan is under contract for sale. At March
31, 2010, construction loans totaled $75.5 million, or 10.3% of our total loan
portfolio, of which $35.4 million were for residential real estate projects.
Approximately $4.8 million of our residential construction loans were made to
finance the construction of owner-occupied homes and are structured to be
converted to permanent loans at the end of the construction
phase.  Land loans, which are loans made with land as security,
totaled $74.8 million, or 10.2%, of our total loan portfolio at March 31, 2010.
Land loans include raw land and land acquisition and development
loans.  In general, construction, and land lending involves additional
risks because of the inherent difficulty in estimating a property's value both
before and at completion of the project as well as the estimated cost of the
project.  Construction costs may exceed original estimates as a result
of increased materials, labor or other costs.  In addition, because of
current uncertainties in the residential real estate market, property values
have become more difficult to determine than they have historically
been.  Construction loans and land acquisition and development loans
often involve the disbursement of funds with repayment dependent, in part, on
the success of the project and the ability of the borrower to sell or lease the
property or refinance the indebtedness, rather than the ability of the borrower
or guarantor to repay principal and interest.  These loans are also
generally more difficult to monitor.  In addition, speculative
construction loans to a builder are often associated with homes that are not
pre-sold, and thus pose a greater potential risk than construction loans to
individuals on their personal residences. At March 31, 2010, $105.4 million of
our construction and land loans were for speculative construction loans.
Approximately $23.9 million, or 22.7%, of our speculative construction and land
loans were nonperforming at March 31, 2010.





Our
emphasis on commercial real estate lending may expose us to increased lending
risks.




Our
current business strategy is focused on the expansion of commercial real estate
lending. This type of lending activity, while potentially more profitable than
single-family residential lending, is generally more sensitive to regional and
local economic conditions, making loss levels more difficult to predict.
Collateral evaluation and financial statement analysis in these types of loans
requires a more detailed analysis at the time of loan underwriting and on an
ongoing basis. In our primary market of southwest Washington and northwest
Oregon, the housing market has slowed, with weaker demand for housing, higher
inventory levels and longer marketing times. A further downturn in housing, or
the real estate market, could increase loan delinquencies, defaults and
foreclosures, and significantly impair the value of our collateral and our
ability to sell the collateral upon foreclosure. Many of our commercial
borrowers have more than one loan outstanding with us. Consequently, an adverse
development with respect to one loan or one credit relationship can expose us to
a significantly greater risk of loss.





At March
31, 2010, we had $384.4 million of commercial and multi-family real estate
mortgage loans, representing 52.3% of our total loan portfolio. These loans typically
involve higher principal amounts than other types of loans, and repayment is
dependent upon income generated, or expected to be generated, by the property
securing the loan in amounts sufficient to cover operating expenses and debt
service, which may be adversely affected by changes in the economy or local
market conditions. For example, if the cash flow from the borrower’s project is
reduced as a result of leases not being obtained or renewed, the borrower’s
ability to repay the loan may be impaired. Commercial and multi-family mortgage
loans also expose a lender to greater credit risk than loans secured by
residential real estate because the collateral securing these loans typically
cannot be sold as easily as residential real estate. In addition, many of our
commercial and multi-family real estate loans are not fully amortizing and
contain large balloon payments upon maturity. Such balloon payments may require
the borrower to either sell or refinance the underlying property in order to
make the payment, which may increase the risk of default or
non-payment.






33





A
secondary market for most types of commercial real estate and multi-family loans
is not readily liquid, so we have less opportunity to mitigate credit risk by
selling part or all of our interest in these loans.  As a result of
these characteristics, if we foreclose on a commercial or multi-family real
estate loan, our holding period for the collateral typically is longer than for
one-to-four family residential mortgage loans because there are fewer potential
purchasers of the collateral. Accordingly, charge-offs on commercial and
multi-family real estate loans may be larger on a per loan basis than those
incurred with our residential or consumer loan portfolios.





The
level of our commercial real estate loan portfolio may subject us to additional
regulatory scrutiny.





The FDIC,
the Federal Reserve and the Office of Thrift Supervision have promulgated joint
guidance on sound risk management practices for financial institutions with
concentrations in commercial real estate lending. Under this guidance, a
financial institution that, like us, is actively involved in commercial real
estate lending should perform a risk assessment to identify concentrations. A
financial institution may have a concentration in commercial real estate lending
if, among other factors (i) total reported loans for construction, land
development, and other land represent 100% or more of total capital, or (ii)
total reported loans secured by multifamily and non-farm residential properties,
loans for construction, land development and other land, and loans otherwise
sensitive to the general commercial real estate market, including loans to
commercial real estate related entities, represent 300% or more of total
capital. The particular focus of the guidance is on exposure to commercial real
estate loans that are dependent on the cash flow from the real estate held as
collateral and that are likely to be at greater risk to conditions in the
commercial real estate market (as opposed to real estate collateral held as a
secondary source of repayment or as an abundance of caution).  The
purpose of the guidance is to guide banks in developing risk management
practices and capital levels commensurate with the level and nature of real
estate concentrations.  The guidance states that management should
employ heightened risk management practices including board and management
oversight and strategic planning, development of underwriting standards, risk
assessment and monitoring through market analysis and stress testing. We have
concluded that we have a concentration in commercial real estate lending under
the foregoing standards because our $317.4 million balance in commercial real
estate loans at March 31, 2010 represents 300% or more of total capital. While
we believe we have implemented policies and procedures with respect to our
commercial real estate loan portfolio consistent with this guidance, bank
regulators could require us to implement additional policies and procedures
consistent with their interpretation of the guidance that may result in
additional costs to us.





Repayment
of our commercial loans is often dependent on the cash flows of the borrower,
which may be unpredictable, and the collateral securing these loans may
fluctuate in value.




At March
31, 2010, we had $108.4 million or 14.8% of total loans in commercial business
loans.  Commercial lending involves risks that are different from
those associated with residential and commercial real estate lending. Real
estate lending is generally considered to be collateral based lending with loan
amounts based on predetermined loan to collateral values and liquidation of the
underlying real estate collateral being viewed as the primary source of
repayment in the event of borrower default. Our commercial loans are primarily
made based on the cash flow of the borrower and secondarily on the underlying
collateral provided by the borrower. The borrowers' cash flow may be
unpredictable, and collateral securing these loans may fluctuate in value.
Although commercial loans are often collateralized by equipment, inventory,
accounts receivable, or other business assets, the liquidation of collateral in
the event of default is often an insufficient source of repayment because
accounts receivable may be uncollectible and inventories may be obsolete or of
limited use, among other things.  Accordingly, the repayment of
commercial loans depends primarily on the cash flow and credit worthiness of the
borrower and secondarily on the underlying collateral provided by the
borrower.




Our
business may be adversely affected by credit risk associated with residential
property.




At March
31, 2010, $91.5 million, or 12.5% of our total loan portfolio, was secured by
one-to-four single-family mortgage loans and home equity lines of credit.This type of lending is
generally sensitive to regional and local economic conditions that significantly
impact the ability of borrowers to meet their loan payment obligations, making
loss levels difficult to predict. The decline in residential real estate values
as a result of the downturn in the Washington and Oregon housing markets has
reduced the value of the real estate collateral securing these types of loans
and increased the risk that we would incur losses if borrowers default on their
loans. Continued declines in both the volume of real estate sales and the sales
prices coupled with the current recession and the associated increases in
unemployment may result in higher than expected loan delinquencies or problem
assets, a decline in demand for our products and services, or lack of growth or
a decrease in deposits. These potential negative events may cause us to incur
losses, adversely affect our capital and liquidity, and damage our financial
condition and business operations.





34


High
loan-to-value ratios on a portion of our residential mortgage loan portfolio
exposes us to greater risk of loss.





Many of
our residential mortgage loans are secured by liens on mortgage properties in
which the borrowers have little or no equity because either we originated upon
purchase a first mortgage with an 80% loan-to-value ratio, have originated a
home equity loan with a combined loan-to-value ratio of up to 90% or because of
the decline in home values in our market areas. Residential loans with high
loan-to-value ratios will be more sensitive to declining property values than
those with lower combined loan-to-value ratios and, therefore, may experience a
higher incidence of default and severity of losses. In addition, if the
borrowers sell their homes, such borrowers may be unable to repay their loans in
full from the sale. As a result, these loans may experience higher rates of
delinquencies, defaults and losses.




Our
provision for loan losses has increased substantially and we may be required to
make further increases in our provision for loan losses and to charge-off
additional loans in the future, which could adversely affect our results of
operations.





For the
fiscal years ended March 31, 2010 and 2009 we recorded a provision for loan
losses of $15.9 million and $16.2 million, respectively. We also recorded net
loan charge-offs of $11.2 million and $9.9 million for the fiscal years ended
March 31, 2010 and 2009, respectively. During these last two fiscal years, we
experienced increasing loan delinquencies and credit losses. With the exception
of residential construction and development loans, nonperforming loans and
assets generally reflect unique operating difficulties for individual borrowers
rather than weakness in the overall economy of the Pacific Northwest; however,
more recently the deterioration in the general economy has become a significant
contributing factor to the increased levels of delinquencies and nonperforming
loans. Slower sales and excess inventory in the housing market has been the
primary cause of the increase in delinquencies and foreclosures for residential
construction and land development loans, which represent 66.3% of our
nonperforming loan balance at March 31, 2010.  At March 31, 2010 our
total nonperforming assets had increased to $49.3 million compared to $41.7
million at March 31, 2009. Further, our portfolio
is concentrated in construction and land loans and commercial and commercial
real estate loans, all of which have a higher risk of loss than residential
mortgage loans.




If
current trends in the housing and real estate markets continue, we expect that
we will continue to experience higher than normal delinquencies and credit
losses. Moreover, until general economic conditions improve, we expect that we
will continue to experience significantly higher than normal delinquencies and
credit losses. As a result, we could be required to make further increases in
our provision for loan losses and to charge off additional loans in the future,
which could have a material adverse effect on our financial condition and
results of operations.




We
may have continuing losses.





We
reported a net loss of $5.4 million and $2.7 million for the fiscal years ended
March 31, 2010 and 2009, respectively. These losses primarily resulted from our
high level of nonperforming assets and the resultant increased provision for
loan losses and real estate owned (“REO”), related expenses and write-downs. We
may continue to suffer further losses.


Our
allowance for loan losses may prove to be insufficient to absorb losses in our
loan portfolio.




Lending
money is a substantial part of our business and each loan carries a certain risk
that it will not be repaid in accordance with its terms or that any underlying
collateral will not be sufficient to assure repayment. This risk is affected by,
among other things:




·
            the
      cash flow of the borrower and/or the project being
    financed;




·
            changes
      and uncertainties as to the future value of the collateral, in the case of
      a collateralized loan;




·
            the
      duration of the loan;




·
            the
      credit history of a particular borrower;
and




·
            changes
      in economic and industry
conditions.




We
maintain an allowance for loan losses, which is a reserve established through a
provision for loan losses charged to expense, which we believe is appropriate to
provide for probable losses in our loan portfolio. The amount of this allowance
is determined by our management through periodic reviews and consideration of
several factors, including, but not limited to:




·
            our
      general reserve, based on our historical default and loss experience and
      certain macroeconomic factors based on management’s expectations of future
      events; and








35




·
            our
      specific reserve, based on our evaluation of nonperforming loans and their
      underlying collateral.




The
determination of the appropriate level of the allowance for loan losses
inherently involves a high degree of subjectivity and requires us to make
various assumptions and judgments about the collectability of our loan
portfolio, including the creditworthiness of our borrowers and the value of the
real estate and other assets serving as collateral for the repayment of many of
our loans. In determining the amount of the allowance for loan losses, we review
our loans and the loss and delinquency experience, and evaluate economic
conditions and make significant estimates of current credit risks and future
trends, all of which may undergo material changes. If our estimates are
incorrect, the allowance for loan losses may not be sufficient to cover losses
inherent in our loan portfolio, resulting in the need for additions to our
allowance through an increase in the provision for loan
losses.  Continuing deterioration in economic conditions affecting
borrowers, new information regarding existing loans, identification of
additional problem loans and other factors, both within and outside of our
control, may require an increase in the allowance for loan
losses.  Our allowance for loan losses was 2.95% of gross loans held
for investment and 60.10% of nonperforming loans at March 31, 2010. In addition,
bank regulatory agencies periodically review our allowance for loan losses and
may require an increase in the provision for possible loan losses or the
recognition of further loan charge-offs, based on judgments different than those
of management. If charge-offs in future periods exceed the allowance for loan
losses, we will need additional provisions to increase the allowance for loan
losses. Any increases in the provision for loan losses will result in a decrease
in net income and may have a material adverse effect on our financial condition,
results of operations and our capital.





If
our investments in real estate are not properly valued or sufficiently reserved
to cover actual losses, or if we are required to increase our valuation
reserves, our earnings could be reduced.





We obtain
updated valuations in the form of appraisals and broker price opinions when a
loan has been foreclosed upon and the property taken in as REO, and at certain
other times during the assets holding period.  Our net book value
(“NBV”) in the loan at the time of foreclosure and thereafter is compared to the
updated market value of the foreclosed property less estimated selling costs
(fair value). A charge-off is recorded for any excess in the asset’s NBV over
its fair value.  If our valuation process is incorrect, the fair value
of our investments in real estate may not be sufficient to recover our NBV in
such assets, resulting in the need for additional charge-offs. Additional
material charge-offs to our investments in real estate could have a material
adverse effect on our financial condition and results of
operations.





In
addition, bank regulators periodically review our REO and may require us to
recognize further charge-offs.  Any increase in our charge-offs, as
required by such regulators, may have a material adverse effect on our financial
condition and results of operations.




Other-than-temporary
impairment charges in our investment securities portfolio could result in
significant losses and cause Riverview Community Bank to become significantly
undercapitalized and adversely affect our continuing operations.




During
the fiscal year ended March 31, 2010, we recognized a $1.0 million non-cash OTTI
charge on a single trust preferred investment security we hold for
investment.  At March 31, 2010 the fair value of this security was
$1.0 million. Management concluded that the decline of the estimated fair value
below the cost of the security was other than temporary and recorded a credit
loss of $1.0 million through non-interest income. We determined the remaining
decline in value was not related to specific credit deterioration.  We
do not intend to sell this security and it is not more likely than not that we
will be required to sell the security before anticipated recovery of the
remaining amortized cost basis.




We
closely monitor this security and our other investment securities for changes in
credit risk. The valuation of our investment securities also is influenced by
external market and other factors, including implementation of Securities and
Exchange Commission and Financial Accounting Standards Board guidance on fair
value accounting. Our valuation of our trust preferred security will be
influenced by the default rates of specific financial institutions whose
securities provide the underlying collateral for this security. The current
market environment significantly limits our ability to mitigate our exposure to
valuation changes in this security by selling it. Accordingly, if market
conditions deteriorate further and we determine our holdings of this or other
investment securities are OTTI, our future earnings, shareholders’ equity,
regulatory capital and continuing operations could be materially adversely
affected.




Our
real estate lending also exposes us to the risk of environmental
liabilities.




In the
course of our business, we may foreclose and take title to real estate, and we
could be subject to environmental liabilities with respect to these properties.
We may be held liable to a governmental entity or to third persons for property
damage, personal injury, investigation, and clean-up costs incurred by these
parties in connection with environmental





36


contamination,
or may be required to investigate or clean up hazardous or toxic substances, or
chemical releases at a property. The costs associated with investigation or
remediation activities could be substantial. In addition, as the owner or former
owner of a contaminated site, we may be subject to common law claims by third
parties based on damages and costs resulting from environmental contamination
emanating from the property. If we ever become subject to significant
environmental liabilities, our business, financial condition and results of
operations could be materially and adversely affected.




Fluctuating
interest rates can adversely affect our profitability.





Our
profitability is dependent to a large extent upon net interest income, which is
the difference, or spread, between the interest earned on loans, securities and
other interest-earning assets and the interest paid on deposits, borrowings, and
other interest-bearing liabilities. Because of the differences in maturities and
repricing characteristics of our interest-earning assets and interest-bearing
liabilities, changes in interest rates do not produce equivalent changes in
interest income earned on interest-earning assets and interest paid on
interest-bearing liabilities.  We principally manage interest rate
risk by managing our volume and mix of our earning assets and funding
liabilities. In a changing interest rate environment, we may not be able to
manage this risk effectively.  Changes in interest rates also can
affect: (1) our ability to originate and/or sell loans; (2) the value of our
interest-earning assets, which would negatively impact shareholders’ equity, and
our ability to realize gains from the sale of such assets; (3) our ability to
obtain and retain deposits in competition with other available investment
alternatives; and (4) the ability of our borrowers to repay adjustable or
variable rate loans.  Interest rates are highly sensitive to many
factors, including government monetary policies, domestic and international
economic and political conditions and other factors beyond our
control.  If we are unable to manage interest rate risk effectively,
our business, financial condition and results of operations could be materially
harmed.




Our
loan portfolio possesses increased risk due to our level of adjustable rate
loans.




A
substantial majority of our real estate secured loans held  are
adjustable-rate loans.  Any rise in prevailing market interest rates
may result in increased payments for borrowers who have adjustable rate mortgage
loans, increasing the possibility of defaults that may adversely affect our
profitability.




Increases
in deposit insurance premiums and special FDIC assessments will hurt
our earnings.




Beginning
in late 2008, the economic environment caused higher levels of bank failures,
which dramatically increased FDIC resolution costs and led to a significant
reduction in the Deposit Insurance Fund. As a result, the FDIC has significantly
increased the initial base assessment rates paid by financial institutions for
deposit insurance. The base assessment rate was increased by seven basis points
(seven cents for every $100 of deposits) for the first quarter of 2009.
Effective April 1, 2009, initial base assessment rates were changed to
range from 12 basis points to 45 basis points across all risk categories with
possible adjustments to these rates based on certain debt-related components.
These increases in the base assessment rate have increased our deposit insurance
costs and negatively impacted our earnings. In addition, in May 2009, the FDIC
imposed a special assessment on all insured institutions due to recent bank and
savings association failures. The emergency assessment amounts to five basis
points on each institution’s assets minus Tier 1 capital as of June 30,
2009, subject to a maximum equal to 10 basis points times the institution’s
assessment base. Our FDIC deposit insurance expense for fiscal 2010 was $1.9
million, including the special assessment of $417,000 recorded in June 2009 and
paid on September 30, 2009.




Further,
the FDIC may impose additional emergency special assessments of up to five basis
points per quarter on each institution’s assets minus Tier 1
capital if necessary to maintain public confidence in federal deposit
insurance or as a result of deterioration in the Deposit Insurance Fund reserve
ratio due to institution failures.  The latest date possible for
imposing any such additional special assessment is December 31, 2009, with
collection on March 30, 2010.  Additionally, in November 2009,
the FDIC announced that financial institutions are required to prepay their
estimated quarterly risk-based assessment for the fourth quarter of 2009 and for
all of 2010, 2011 and 2012.  In December 2009, we prepaid $5.4
million, which will be expensed over this three-year period. This prepayment did
not immediately impact our earnings as the payment will be expensed over time,
however, any additional emergency special assessment imposed by the FDIC will
adversely affect our earnings.





We
participate in the FDIC's Transaction Account Guarantee Program, or TAGP, for
non-interest-bearing transaction deposit accounts. The TAGP is a component of
the FDIC's Temporary Liquidity Guarantee Program, or TLGP. The TAGP was
originally set to expire on December 31, 2009, but the FDIC established an
extension period for the TAGP to run from January 1, 2010 through
June 30, 2010, and subsequently extended it through December 31, 2010 with
the possibility of a further extension through December 31, 2011. During the
extension period, the fees for participating banks range from 15 to











37





25 basis
points on the amounts in such accounts above the amounts covered by FDIC deposit
insurance, depending on the risk category to which the bank is assigned for
deposit insurance assessment purposes.





To the
extent that assessments under the TAGP are insufficient to cover any loss or
expenses arising from the TLGP, the FDIC is authorized to impose an emergency
special assessment on all FDIC-insured depository institutions. The FDIC has
authority to impose charges for the TLGP upon depository institution holding
companies, as well. These charges would cause the premiums and TAGP assessments
charged by the FDIC to increase. These actions could significantly increase our
non-interest expense.





Liquidity
risk could impair our ability to fund operations and jeopardize our financial
condition, growth and prospects.




Liquidity
is essential to our business. An inability to raise funds through deposits,
borrowings, the sale of loans and other sources could have a substantial
negative effect on our liquidity. We rely on customer deposits and advances from
the FHLB of Seattle (“FHLB”), borrowings from the Federal Reserve Bank of San
Francisco ("FRB") and other borrowings to fund our operations. Although we have
historically been able to replace maturing deposits and advances if desired, we
may not be able to replace such funds in the future if, among other things, our
financial condition, the financial condition of the FHLB or FRB, or market
conditions change. Our access to funding sources in amounts adequate to finance
our activities or the terms of which are acceptable could be impaired by factors
that affect us specifically or the financial services industry or economy in
general - such as a disruption in the financial markets or negative views and
expectations about the prospects for the financial services industry in light of
the recent turmoil faced by banking organizations and the continued
deterioration in credit markets. Factors that could detrimentally impact our
access to liquidity sources include a decrease in the level of our business
activity as a result of a downturn in the Washington or Oregon markets where our
loans are concentrated or adverse regulatory action against us.  In
addition, the OTS has limited our ability to use brokered deposits as a source
of liquidity by restricting them to not more than 10% of our total
deposits.




Our
financial flexibility will be severely constrained if we are unable to maintain
our access to funding or if adequate financing is not available to accommodate
future growth at acceptable interest rates. Although we consider our sources of
funds adequate for our liquidity needs, we may seek additional debt in the
future to achieve our long-term business objectives. Additional borrowings, if
sought, may not be available to us or, if available, may not be available on
reasonable terms. If additional financing sources are unavailable, or are not
available on reasonable terms, our financial condition, results of operations,
growth and future prospects could be materially adversely
affected.  In addition, Riverview may not incur additional debt
without the prior written non-objective of the OTS.  Finally, if we
are required to rely more heavily on more expensive funding sources to support
future growth, our revenues may not increase proportionately to cover our
costs.





Decreased
volumes and lower gains on sales and brokering of mortgage loans sold could
adversely impact net income.





We
originate and sell mortgage loans as well as broker mortgage loans. Changes in
interest rates affect demand for our loan products and the revenue realized on
the sale of loans. A decrease in the volume of loans sold/brokered can
decrease our revenues and net income.




A
general decline in economic conditions may adversely affect the fees generated
by our asset management company.





To the
extent our asset management clients and their assets become adversely affected
by weak economic and stock market conditions, they may choose to withdraw the
amount of assets managed by us and the value of their assets may decline. Our
asset management revenues are based on the value of the assets we manage. If our
clients withdraw assets or the value of their assets decline, the revenues
generated by Riverview Asset Management Corp. will be adversely
affected.





Our
growth or future losses may require us to raise additional capital in the
future, but that capital may not be available when it is needed or the cost of
that capital may be very high.





We are
required by federal regulatory authorities to maintain adequate levels of
capital to support our operations. We anticipate that our capital resources
will satisfy our capital requirements for the foreseeable future, including the
heightened capital requirements under Riverview Community Bank’s
MOU. Nonetheless, we may at some point need to raise additional capital to
support continued growth.




Our
ability to raise additional capital, if needed, will depend on conditions in the
capital markets at that time, which are outside our control, and on our
financial condition and performance. Accordingly, we cannot make assurances
that we will











38





be able
to raise additional capital if needed on terms that are acceptable to us, or at
all. If we cannot raise additional capital when needed, our operations
could be materially impaired and our financial condition and liquidity could be
materially and adversely affected. In addition, if we are unable to raise
additional capital when required by the OTS, we may be subject to additional
adverse regulatory action.  See “We are required to comply with the
terms of two memoranda of understanding and a supervisory letter directive
issued by the OTS and lack of compliance could result in monetary penalties and
/or additional regulatory actions.”




We
operate in a highly regulated environment and may be adversely affected by
changes in federal and state laws and regulations, including changes that may
restrict our ability to foreclose on single-family home loans and offer
overdraft protection.




We are
subject to extensive examination, supervision and comprehensive regulation by
the OTS and the FDIC. Banking regulations are primarily intended to protect
depositors' funds, federal deposit insurance funds, and the banking system as a
whole, and not holders of our common stock. These regulations affect our lending
practices, capital structure, investment practices, dividend policy, and growth,
among other things. Congress and federal regulatory agencies continually review
banking laws, regulations, and policies for possible changes. Changes to
statutes, regulations, or regulatory policies, including changes in
interpretation or implementation of statutes, regulations, or policies, could
affect us in substantial and unpredictable ways. Such changes could subject us
to additional costs, limit the types of financial services and products we may
offer, restrict mergers and acquisitions, investments, access to capital, the
location of banking offices, and/or increase the ability of non-banks to offer
competing financial services and products, among other things. Failure to comply
with laws, regulations or policies could result in sanctions by regulatory
agencies, civil money penalties and/or reputational damage, which could have a
material adverse effect on our business, financial condition and results of
operations. While we have policies and procedures designed to prevent any such
violations, there can be no assurance that such violations will not
occur.




New
legislation proposed by Congress may give bankruptcy courts the power to reduce
the increasing number of home foreclosures by giving bankruptcy judges the
authority to restructure mortgages and reduce a borrower’s payments. Property
owners would be allowed to keep their property while working out their debts.
Other similar
bills placing additional temporary moratoriums on foreclosure sales or otherwise
modifying foreclosure procedures to the benefit of borrowers and the detriment
of lenders may be enacted by either Congress or the States of Washington and
Oregon in the future. These laws may further restrict our collection efforts on
one-to-four single-family loans. Additional legislation proposed or under
consideration in Congress would give current debit and credit card holders the
chance to opt out of an overdraft protection program and limit overdraft fees
which could result in additional operational costs and a reduction in our
non-interest income.




Further,
our regulators have significant discretion and authority to prevent or remedy
unsafe or unsound practices or violations of laws by financial institutions and
holding companies in the performance of their supervisory and enforcement
duties. In this regard, banking regulators are considering additional
regulations governing compensation which may adversely affect our ability to
attract and retain employees. On June 17, 2009, the Obama Administration
published a comprehensive regulatory reform plan that is intended to modernize
and protect the integrity of the United States financial system. The President’s
plan contains several elements that would have a direct effect on Riverview and
Riverview Community Bank. Under the reform plan, the federal thrift charter and
the OTS would be eliminated and all companies that control an insured depository
institution must register as a bank holding company. Draft legislation would
require Riverview Community Bank to become a national bank or adopt a state
charter and require Riverview Bancorp to register as a bank holding company.
Registration as a bank holding company would represent a significant change, as
there currently exist significant differences between savings and loan holding
company and bank holding company supervision and regulation. For example, the
Federal Reserve imposes leverage and risk-based capital requirements on bank
holding companies whereas the OTS does not impose any capital requirements on
savings and loan holding companies. The reform plan also proposes the creation
of a new federal agency, the Consumer Financial Protection Agency that would be
dedicated to protecting consumers in the financial products and services market.
The creation of this agency could result in new regulatory requirements and
raise the cost of regulatory compliance. In addition, legislation stemming from
the reform plan could require changes in regulatory capital requirements, and
compensation practices. If implemented, the foregoing regulatory reforms may
have a material impact on our operations.




We
may experience future goodwill impairment, which could reduce our
earnings.




We
performed our annual goodwill impairment test during the quarter-ended December
31, 2009, but no impairment was identified. Our assessment of the fair value of
goodwill is based on an evaluation of current purchase transactions, discounted
cash flows from forecasted earnings, our current market capitalization, and a
valuation of our assets. Our evaluation of the fair








39





value of
goodwill involves a substantial amount of judgment. If our judgment was
incorrect and an impairment of goodwill was deemed to exist, we would be
required to write down our assets resulting in a charge to earnings, which would
adversely affect our results of operations, perhaps materially; however, it
would have no impact on our liquidity, operations or regulatory
capital.




Our
litigation related costs might continue to increase.




Riverview
Community Bank is subject to a variety of legal proceedings that have arisen in
the ordinary course of Riverview Community Bank’s business. In the current
economic environment Riverview Community Bank’s involvement in litigation has
increased significantly, primarily as a result of defaulted borrowers asserting
claims in order to defeat or delay foreclosure proceedings. Riverview Community
Bank believes that it has meritorious defenses in legal actions where it has
been named as a defendant and is vigorously defending these suits. Although
management, based on discussion with litigation counsel, believes that such
proceedings will not have a material adverse effect on the financial condition
or operations of Riverview Community Bank, there can be no assurance that a
resolution of any such legal matters will not result in significant liability to
Riverview Community Bank nor have a material adverse impact on its financial
condition and results of operations or Riverview Community Bank’s ability to
meet applicable regulatory requirements. Moreover, the expenses of pending legal
proceedings will adversely affect Riverview Community Bank’s results of
operations until they are resolved. There can be no assurance that Riverview
Community Bank’s loan workout and other activities will not expose Riverview
Community Bank to additional legal actions, including lender liability or
environmental claims.




Our
investment in Federal Home Loan Bank stock may become impaired.




At March
31, 2010, we owned $7.4 million in FHLB stock. As a condition of
membership at the FHLB, we are required to purchase and hold a certain amount of
FHLB stock. Our stock purchase requirement is based, in part, upon the
outstanding principal balance of advances from the FHLB and is calculated in
accordance with the Capital Plan of the FHLB. Our FHLB stock has a par value of
$100, is carried at cost, and it is subject to recoverability testing per
applicable accounting standards. The FHLB has announced that
it had a risk-based capital deficiency under the regulations of the Federal
Housing Finance Agency (the "FHFA"), its primary regulator, as of December 31,
2008, and that it would suspend future dividends and the repurchase and
redemption of outstanding common stock. As a result, the FHLB has not paid a
dividend since the fourth quarter of 2008. The FHLB has communicated that it
believes the calculation of risk-based capital under the current rules of the
FHFA significantly overstates the market risk of the FHLB's private-label
mortgage-backed securities in the current market environment and that it has
enough capital to cover the risks reflected in its balance sheet. As a result,
we have not recorded an other-than-temporary impairment on our investment in
FHLB stock. However, continued deterioration in the FHLB's financial position
may result in impairment in the value of those securities. We will continue to
monitor the financial condition of the FHLB as it relates to, among other
things, the recoverability of our investment.




If
other financial institutions holding deposits for government related entities in
Washington State fail, we may be assessed a pro-rata share of the uninsured
portion of the deposits by the State of Washington.





We
participate in the Washington Public Deposit Protection Program by accepting
deposits from local governments, school districts and other municipalities
located in the State of Washington.  Under the recovery provisions of
the 1969 Public Deposits Protection Act, when a participating bank fails and has
public entity deposits that are not insured by the FDIC, the remaining banks
that participate in the program are assessed a pro-rata share of the uninsured
deposits.





We
could see declines in our uninsured deposits, which would reduce the funds we
have available for lending and other funding purposes.





The FDIC
in the fourth quarter of 2008 increased the federal insurance of deposit
accounts from $100,000 to $250,000 and provided 100% insurance coverage for
noninterest-bearing transaction accounts for participating members including
Riverview Community Bank.  These increases of coverage, with the
exception of IRA and certain retirement accounts, are scheduled to expire
December 31, 2013. With the increase of bank failures, depositors are reviewing
deposit relationships to maximize federal deposit insurance
coverage.  We may see outflows of uninsured deposits as customers
restructure their banking relationships in setting up multiple accounts in
multiple banks to maximize federal deposit insurance coverage.





Competition
with other financial institutions could adversely affect our
profitability.





The
banking and financial services industry is very competitive. Legal and
regulatory developments have made it easier for new and sometimes unregulated
competitors to compete with us. Consolidation among financial service providers
has resulted in fewer very large national and regional banking and financial
institutions holding a large accumulation of assets. These institutions
generally have significantly greater resources, a wider geographic presence or
greater accessibility. Our competitors sometimes are also able to offer more
services, more favorable pricing or greater customer convenience than we








40








do. In
addition, our competition has grown from new banks and other financial services
providers that target our existing or potential customers. As consolidation
continues, we expect additional institutions to try to exploit our
market.





Technological
developments have allowed competitors including some non-depository
institutions, to compete more effectively in local markets and have expanded the
range of financial products, services and capital available to our target
customers. If we are unable to implement, maintain and use such technologies
effectively, we may not be able to offer products or achieve cost-efficiencies
necessary to compete in our industry. In addition, some of these competitors
have fewer regulatory constraints and lower cost structures.





We
rely heavily on the proper functioning of our technology.





We rely
heavily on communications and information systems to conduct our
business.  Any failure, interruption or breach in security of these
systems could result in failures or disruptions in our customer relationship
management, general ledger, deposit, loan and other systems.  While we
have policies and procedures designed to prevent or limit the effect of the
failure, interruption or security breach of our information systems, there can
be no assurance that any such failures, interruptions or security breaches will
not occur or, if they do occur, that they will be adequately
addressed.  The occurrence of any failures, interruptions or security
breaches of our information systems could damage our reputation, result in a
loss of customer business, subject us to additional regulatory scrutiny, or
expose us to civil litigation and possible financial liability, any of which
could have a material adverse effect on our financial condition and results of
operations.





We rely
on third-party service providers for much of our communications, information,
operating and financial control systems technology. If any of our third-party
service providers experience financial, operational or technological
difficulties, or if there is any other disruption in our relationships with
them, we may be required to locate alternative sources of such services, and we
cannot assure that we could negotiate terms that are as favorable to us, or
could obtain services with similar functionality, as found in our existing
systems, without the need to expend substantial resources, if at all. Any of
these circumstances could have an adverse effect on our business.





Changes
in accounting standards may affect our performance.





Our
accounting policies and methods are fundamental to how we record and report our
financial condition and results of operations.  From time to time
there are changes in the financial accounting and reporting standards that
govern the preparation of our financial statements.  These changes can
be difficult to predict and can materially impact how we report and record our
financial condition and results of operations.  In some cases, we
could be required to apply a new or revised standard retroactively, resulting in
a retrospective adjustment to prior financial statements.





An
increase in interest rates, change in the programs offered by governmental
sponsored entities (“GSE”) or our ability to qualify for such programs may
reduce our mortgage revenues, which would negatively impact our non-interest
income.





Our
mortgage banking operations provide a significant portion of our non-interest
income.  We generate mortgage revenues primarily from gains on the
sale of single-family mortgage loans pursuant to programs currently offered by
Fannie Mae, Freddie Mac and non-GSE investors.  These entities account
for a substantial portion of the secondary market in residential mortgage
loans.  Any future changes in these programs, our eligibility to
participate in such programs, the criteria for loans to be accepted or laws that
significantly affect the activity of such entities could, in turn, materially
adversely affect our results of operations.  Further, in a rising or
higher interest rate environment, our originations of mortgage loans may
decrease, resulting in fewer loans that are available to be sold to
investors.  This would result in a decrease in mortgage banking
revenues and a corresponding decrease in non-interest income.  In
addition, our results of operations are affected by the amount of non-interest
expense associated with mortgage banking activities, such as salaries and
employee benefits, occupancy, equipment and data processing expense and other
operating costs.  During periods of reduced loan demand, our results
of operations may be adversely affected to the extent that we are unable to
reduce expenses commensurate with the decline in loan originations.




We
may engage in FDIC-assisted transactions, which could present additional risks
to our business.





We may
have opportunities to acquire the assets and liabilities of failed banks in
FDIC-assisted transactions, including transactions in the states of Washington,
Oregon and Idaho.  Although these FDIC-assisted transactions typically
provide for FDIC assistance to an acquirer to mitigate certain risks, such as
sharing exposure to loan losses and providing indemnification against certain
liabilities of the failed institution, we are (and would be in future
transactions) subject to many of the same risks we would face in acquiring
another bank in a negotiated transaction, including risks associated with








41





maintaining
customer relationships and failure to realize the anticipated acquisition
benefits in the amounts and within the timeframes we expect.  In
addition, because these acquisitions are structured in a manner that would not
allow us the time and access to information normally associated with preparing
for and evaluating a negotiated acquisition, we may face additional risks in
FDIC-assisted transactions, including additional strain on management resources,
management of problem loans, problems related to integration of personnel and
operating systems and impact to our capital resources requiring us to raise
additional capital.  We cannot provide assurance that we would be
successful in overcoming these risks or any other problems encountered in
connection with FDIC-assisted transactions.  Our inability to overcome
these risks could have a material adverse effect on our business, financial
condition and results of operations.





We
are dependent on key personnel and the loss of one or more of those key
personnel may materially and adversely affect our prospects.





Competition
for qualified employees and personnel in the banking industry is intense and
there are a limited number of qualified persons with knowledge of, and
experience in, the community banking industry where Riverview Community Bank
conducts its business. The process of recruiting personnel with the
combination of skills and attributes required to carry out our strategies is
often lengthy. Our success depends to a significant degree upon our ability to
attract and retain qualified management, loan origination, finance,
administrative, marketing and technical personnel and upon the continued
contributions of our management and personnel. In particular, our success
has been and continues to be highly dependent upon the abilities of key
executives, including our President, and certain other employees. In
addition, our success has been and continues to be highly dependent upon the
services of our directors, many of whom are at or nearing retirement age, and we
may not be able to identify and attract suitable candidates to replace such
directors.





Our
business may be adversely affected by an increasing prevalence of fraud and
other financial crimes.





Our loans
to businesses and individuals and our deposit relationships and related
transactions are subject to exposure to the risk of loss due to fraud and other
financial crimes.  Nationally, reported incidents of fraud and other
financial crimes have increased.  We have also experienced an increase
in apparent fraud and other financial crimes; however, we have not recently
experienced material losses due to such crimes.  While we have
policies and procedures designed to prevent such losses, there can be no
assurance that such losses will not occur.





Managing
reputational risk is important to attracting and maintaining customers,
investors and employees.





Threats
to our reputation can come from many sources, including adverse sentiment about
financial institutions generally, unethical practices, employee misconduct,
failure to deliver minimum standards of service or quality, compliance
deficiencies, and questionable or fraudulent activities of our
customers.  We have policies and procedures in place to protect our
reputation and promote ethical conduct, but these policies and procedures may
not be fully effective.  Negative publicity regarding our business,
employees, or customers, with or without merit, may result in the loss of
customers, investors and employees, costly litigation, a decline in revenues and
increased governmental regulation.





Our
assets as of March 31, 2010 include a deferred tax asset and we may not be able
to realize the full amount of such asset.





We
recognize deferred tax assets and liabilities based on differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities. At March 31, 2010, the net deferred tax asset was approximately
$11.2 million an increase from a balance of approximately $8.2 million at March
31, 2009. The increase in Riverview Community Bank’s net deferred tax asset
resulted mainly from loan loss provisions and REO write-downs, neither of which
is currently deductible for federal income tax reporting purposes. The deferred
tax asset balance at March 31, 2010 attributable to our loan loss reserves and
REO write-downs was $7.7 million and $2.3 million, respectively.





We
regularly review our net deferred tax assets for recoverability based on history
of earnings, expectations for future earnings and expected timing of reversals
of temporary differences. Realization of deferred tax assets ultimately depends
on the existence of sufficient taxable income, including taxable income in prior
carryback years, as well as future taxable income. We believe the recorded net
deferred tax asset at March 31, 2010 is fully realizable; however, if we
determine that we will be unable to realize all or part of the net deferred tax
asset, we would adjust this net deferred tax asset, which would negatively
impact our earnings or increase our net loss.





42


Regulatory
and contractual restrictions may limit or prevent us from paying dividends on
our common stock.





Holders
of our common stock are only entitled to receive such dividends as our board of
directors may declare out of funds legally available for such payments.
Furthermore, holders of our common stock are subject to the prior dividend
rights of any holders of our preferred stock at any time outstanding or
depositary shares representing such preferred stock then outstanding. Although
we have historically declared cash dividends on our common stock, we are not
required to do so. We suspended our cash dividend during the quarter ended
December 31, 2008 and we do not know if we will resume the payment of dividends
in the future.  In addition, under the terms of the October 2009 MOU
the payment of dividends by Riverview to its shareholders is also subject to the
prior written non-objection of the OTS.  As an entity separate and
distinct from Riverview Community Bank, Riverview derives substantially all of
its revenue in the form of dividends from Riverview Community
Bank.  Accordingly, Riverview is and will be dependent upon dividends
from Riverview Community Bank to satisfy its cash needs and to pay dividends on
its common stock.  The inability to receive dividends from Riverview
Community Bank could have a material adverse effect on Riverview’s business,
financial condition and results of operations. Riverview Community Bank’s
ability to pay dividends is subject to its ability to earn net income and, to
meet certain regulatory requirements. Riverview Community Bank does not
currently meet these regulatory requirements. As discussed above, Riverview
Community Bank may not pay dividends to Riverview without prior notice to the
OTS which limits Riverview’s ability to pay dividends on its common stock. The
lack of a cash dividend could adversely affect the market price of our common
stock.




We
have deferred payments of interest on our outstanding junior subordinated
debentures and as a result  we are prohibited from declaring or paying
dividends or distributions on, and from making liquidation payments with respect
to, our common stock.





In the
first quarter of fiscal 2011, we elected to defer regularly scheduled interest
payments on our  outstanding $22.7 million aggregate principal amount
of junior subordinated debentures issued in connection with the sale of trust
preferred securities through statutory business trusts. There are currently two
separate series of these junior subordinated debentures outstanding, each series
having been issued under a separate indenture and with a separate guarantee from
Riverview. During the deferral period, interest will continue to accrue on the
junior subordinated debentures at the stated coupon rate, including the deferred
interest, and Riverview may not, among other things and with limited exceptions,
pay cash dividends on or repurchase its common stock nor make any payment on
outstanding debt obligations that rank equally with or are junior to the junior
subordinated debentures.





We may,
without notice to or consent from the holders of our common stock, issue
additional series of junior subordinated debentures in the future with terms
similar to those of our existing junior subordinated debentures or enter into
other financing agreements that limit our ability to purchase or to pay
dividends or distributions on our capital stock, including our common stock.
Under Riverview’s MOU the issuance of any new debt is subject to the
non-objection of the OTS. Assuming we were to receive such non-objection, as a
result of our deferral of interest on the junior subordinated debentures, it is
likely that we will not be able to raise funds through the offering of debt
securities until we become current on these obligations or these obligations are
restructured.





This
deferral may also adversely affect our ability to obtain debt financing on
commercially reasonable terms, or at all. In addition, if Riverview defers
interest payments on the junior subordinated debentures for more than 20
consecutive quarters, it would be in default under the indentures governing
these debentures and the amount due under such agreements would be immediately
due and payable.Events of
default under the indenture generally consist of our failure to pay interest on
the junior subordinated debt securities under certain circumstances, our failure
to pay any principal of or premium on such junior subordinated debt securities
when due, our failure to comply with certain covenants under the indenture, and
certain events of bankruptcy, insolvency or liquidation relating to us or the
Bank.





For so
long as we defer interest payments, we will likely have greater difficulty in
obtaining financing and have fewer financing sources. In addition, the market
value of our common stock may be adversely affected.





Anti-takeover
provisions could negatively impact our shareholders.





Provisions
in our articles of incorporation and bylaws, the corporate law of the State of
Washington and federal regulations could delay, defer or prevent a third party
from acquiring us, despite the possible benefit to our shareholders, or
otherwise adversely affect the market price of our common
stock.  These provisions include: supermajority voting requirements
for certain business combinations with any person who beneficially owns 15% or
more of our outstanding common stock; limitations on voting by any person
holding more than 10% of any class of Riverview equity securities; the election
of directors to staggered terms of three years; advance notice requirements for
nominations for election to our board of directors and for proposing matters
that shareholders may act on at shareholder meetings, a requirement that only
directors may fill a vacancy in our board of








43





directors,
supermajority voting requirements to remove any of our directors and the other
provisions described under “Certain Anti-Takeover Provisions in Our Articles of
Incorporation and Bylaws.”  Our articles of incorporation also
authorize our board of directors to issue preferred stock,and preferred stock could be
issued as a defensive measure in response to a takeover proposal.  For
further information, see “Description of Capital Stock—Preferred
Stock.”  In addition, pursuant to OTS regulations, as a general
matter, no person or company, acting individually or in concert with others, may
acquire more than 10% of our common stock without prior approval from the
OTS.





These
provisions may discourage potential takeover attempts, discourage bids for our
common stock at a premium over market price or adversely affect the market price
of, and the voting and other rights of the holders of, our common
stock.  These provisions could also discourage proxy contests and make
it more difficult for holders of our common stock to elect directors other than
the candidates nominated by our board of directors.





Item
1B. Unresolved Staff Comments





None.





Item
2.  Properties





The
executive offices of the Company are located in downtown Vancouver, Washington
at 900 Washington Street.   The Company’s operational center,
opened in 2006, is also located in Vancouver, Washington (both offices are
leased).  At March 31, 2010, the Bank had 10 offices located in Clark
County (five of which are leased), one office in Cowlitz County, two offices in
Klickitat County, and one office in Skamania County.  The Bank also
had two offices in Multnomah County (one of which is leased), and one office in
Marion County.  During fiscal year March 31, 2010, the Company sold
two of its branches and immediately entered into lease agreements for both
locations.





Item 3.  Legal
Proceedings





Periodically,
there have been various claims and lawsuits involving the Company, such as
claims to enforce liens, condemnation proceedings on properties in which the
Company holds security interests, claims involving the making and servicing of
real property loans and other issues incident to the Company’s
business.  The Company is not a party to any pending legal proceedings
that it believes would have a material adverse effect on the financial
condition, results of operations or liquidity of the Company.





Item 4.  [Removed
and Reserved]





44


PART
II





Item
5.   Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities





At March
31, 2010, there were 10,923,773 shares of Company common stock issued and
outstanding, 819 stockholders of record and an estimated 1,614 holders in
nominee or “street name.” Under Washington law, the Company is prohibited from
paying a dividend if, as a result of its payment, the Company would be unable to
pay its debts as they become due in the normal course of business, or if the
Company’s total liabilities would exceed its total assets. The principal source
of funds for the Company is dividend payments from the Bank. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company. The OTS
imposes certain limitations on the payment of dividends from the Bank to the
Company which utilize a three-tiered approach that permits various levels of
distributions based primarily upon a savings association’s capital level. In
addition, the Bank is required to provide notice to and receive the
non-objective of the OTS prior to declaring a dividend pursuant to the terms of
an MOU See Item 1A, “Risk Factors – We are required to comply
with the terms of two memoranda of understanding and a supervisory letter
directive issued by the OTS and lack of compliance could result in monetary
penalties and /or additional regulatory actions” and Item 1, “Regulation
– Federal Regulation of Savings Associations – Limitations on Capital
Distributions.” In addition, the Company may not declare or pay a cash dividend
on its capital stock if the effect thereof would be to reduce the regulatory
capital of the Bank below the amount required for the liquidation account
established pursuant to the Bank’s conversion from the mutual stock form of
organization. See Note 1 of the Notes to the Consolidated Financial Statements
contained in Item 8 of this Form 10-K.





The
common stock of the Company is traded on the Nasdaq Global Select Market under
the symbol “RVSB”.  The following table sets forth the high and low
trading prices, as reported by Nasdaq, and cash dividends paid for each quarter
during 2010 and 2009 fiscal years.  At March 31, 2010, there were 21
market makers in the Company’s common stock as reported by the Nasdaq Global
Select Market.





Fiscal
      Year Ended March 31, 2010
            
            High
            
            
            Low
            
            
            Cash
              Dividends
      DeclaredQuarter
      ended March 31, 2010
            $
            2.94
            
            $
            2.21
            
            $
            -Quarter
      ended December 31, 2009
            
            3.93
            
            
            2.24
            
            
            -Quarter
      ended September 30, 2009
            
            4.32
            
            
            2.95
            
            
            -Quarter
      ended June 30, 2009
            
            3.90
            
            
            2.63
            
            
            -





Fiscal
      Year Ended March 31, 2009
            
            High
            
            
            Low
            
            
            Cash
              Dividends
      DeclaredQuarter
      ended March 31, 2009
            $
            4.35
            
            $
            1.60
            
            $
            -Quarter
      ended December 31, 2008
            
            6.10
            
            
            2.25
            
            
            -Quarter
      ended September 30, 2008
            
            7.38
            
            
            4.52
            
            
            0.045Quarter
      ended June 30, 2008
            
            9.79
            
            
            7.42
            
            
            0.090





Stock
Repurchase





Shares
are repurchased from time-to-time in open market transactions.  The
timing, volume and price of purchases are made at our discretion, and are also
contingent upon our overall financial condition, as well as general market
conditions.




On June
21, 2007, the Company announced a stock repurchase program of up to 750,000
shares of its outstanding common stock, representing approximately 6% of
outstanding shares at that date.  The Company did not repurchase any
shares during the year ended March 31, 2010.  As of March 31, 2010,
there were 125,000 shares that may be repurchased under the program, there is no
stated expiration date for the stock repurchase program. Under the Company’s MOU
the non-objection of the OTS must be received prior to any future stock
repurchases.





Securities
for Equity Compensation Plans





Please
refer to Item 12 in this Form 10-K for a listing of securities authorized for
issuance under equity compensation plans.


45


COMPARISON OF 5 YEAR CUMULATIVE TOTAL
RETURN*


Among Riverview Bancorp, Inc., The S&P 500
Index


And The NASDAQ Bank Index





3/31/05*
            3/31/06
            3/31/07
            3/31/08
            3/31/09
            3/31/10Riverview
      Bancorp, Inc.
            
            100.00
            129.69
            158.81
            102.81
            40.62
            24.14S
      & P 500
            
            100.00
            111.73
            124.95
            118.60
            73.43
            109.97NASDAQ
      Bank
            
            100.00
            112.19
            114.77
            92.96
            58.25
            73.97





*$100
invested on 3/31/05 in stock or index-including reinvestment of
dividends





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46


Item
6.   Selected Financial Data





The
following condensed consolidated statements of operations and financial
condition and selected performance ratios as of March 31, 2010, 2009, 2008, 2007
and 2006 and for the years then ended have been derived from the Company’s
audited Consolidated Financial Statements. The information below is qualified in
its entirety by the detailed information included elsewhere herein and should be
read along with Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and Item 8. “Financial Statement and
Supplementary Data” included in this Form 10-K.





At
      March 31,2010
            
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
      (1)(In
      thousands)FINANCIAL
      CONDITION DATA:Total
      assets
            $
            837,953
            
            $
            914,333
            
            $
            886,849
            
            $
            820,348
            
            $
            763,847Loans
      receivable, net
            
            712,837
            
            
            784,117
            
            
            756,538
            
            
            682,951
            
            
            623,016Loans
      held for sale
            
            255
            
            
            1,332
            
            
            -
            
            
            -
            
            
            65Mortgage-backed
      securities held
              to
      maturity
            
            259
            
            
            570
            
            
            885
            
            
            1,232
            
            
            1,805Mortgage-backed
      securities available
              for
      sale
            
            2,828
            
            
            4,066
            
            
            5,338
            
            
            6,640
            
            
            8,134Cash
      and interest-bearing deposits
            
            13,587
            
            
            19,199
            
            
            36,439
            
            
            31,423
            
            
            31,346Investment
      securities held to maturity
            
            517
            
            
            529
            
            
            -
            
            
            -
            
            
            -Investment
      securities available for
              sale
            
            6,802
            
            
            8,490
            
            
            7,487
            
            
            19,267
            
            
            24,022Deposit
      accounts
            
            688,048
            
            
            670,066
            
            
            667,000
            
            
            665,405
            
            
            606,964FHLB
      advances
            
            23,000
            
            
            37,850
            
            
            92,850
            
            
            35,050
            
            
            46,100Federal
      Reserve Bank advances
            
            10,000
            
            
            85,000
            
            
            -
            
            
            -
            
            
            -Shareholders’
      equity
            
            83,934
            
            
            88,663
            
            
            92,585
            
            
            100,209
            
            
            91,687Year
      Ended March 31,2010
            
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
      (1)(Dollars
      in thousands, except per share data)OPERATING
      DATA:Interest
      income
            $
            46,262
            
            $
            52,850
            
            $
            60,682
            
            $
            61,300
            
            $
            47,229Interest
      expense
            
            11,376
            
            
            19,183
            
            
            25,730
            
            
            24,782
            
            
            14,877Net
      interest income
            
            34,886
            
            
            33,667
            
            
            34,952
            
            
            36,518
            
            
            32,352Provision
      for loan losses
            
            15,900
            
            
            16,150
            
            
            2,900
            
            
            1,425
            
            
            1,500Net
      interest income after provision
              for
      loan losses
            
            18,986
            
            
            17,517
            
            
            32,052
            
            
            35,093
            
            
            30,852Gains
      from sale of loans,
              securities
      and real estate owned
            
            1,032
            
            
            729
            
            
            368
            
            
            434
            
            
            382Impairment
      on investment security
            
            (1,003
            )
            
            (3,414
            )
            
            -
            
            
            -
            
            
            -Other
      non-interest income
            
            7,237
            
            
            8,215
            
            
            8,514
            
            
            8,600
            
            
            8,455Non-interest
      expenses
            
            34,973
            
            
            27,259
            
            
            27,791
            
            
            26,353
            
            
            25,374Income
      (loss) before income taxes
            
            (8,721
            )
            
            (4,212
            )
            
            13,143
            
            
            17,774
            
            
            14,315Provision
      (benefit) for income taxes
            
            (3,277
            )
            
            (1,562
            )
            
            4,499
            
            
            6,168
            
            
            4,577Net
      income (loss)
            $
            (5,444
            )
            $
            (2,650
            )
            $
            8,644
            
            $
            11,606
            
            $
            9,738





(1)  On
April 22, 2005, the Company acquired American Pacific Bank.





Earnings
per share:


Basic
            $
            (0.51
            )
            $
            (0.25
            )
            $
            0.79
            
            $
            1.03
            
            $
            0.87Diluted
            
            (0.51
            )
            
            (0.25
            )
            
            0.79
            
            
            1.01
            
            
            0.86Dividends
      per share
            
            -
            
            
            0.135
            
            
            0.42
            
            
            0.395
            
            
            0.34









47


At
      or For the Year Ended March 31,2010
            
            
            2009
            
            
            2008
            
            
            2007
            
            
            2006
      (1)KEY
      FINANCIAL RATIOS:Performance
      Ratios:Return
      on average assets
            
            (0.62
            )%
            
            (0.29
            )%
            
            1.04
            %
            
            1.43
            %
            
            1.36
            %Return
      on average equity
            
            (6.00
            )
            
            (2.85
            )
            
            8.92
            
            
            11.88
            
            
            10.95Dividend
      payout ratio (2)
            
            -
            
            
            (54.00
            )
            
            53.16
            
            
            38.35
            
            
            39.08Interest
      rate spread
            
            4.19
            
            
            3.73
            
            
            4.09
            
            
            4.37
            
            
            4.55Net
      interest margin
            
            4.39
            
            
            4.08
            
            
            4.66
            
            
            5.01
            
            
            5.03Non-interest
      expense to average assets
            
            3.97
            
            
            3.02
            
            
            3.34
            
            
            3.24
            
            
            3.54Efficiency
      ratio (3)
            
            82.97
            
            
            69.50
            
            
            63.40
            
            
            57.85
            
            
            61.60Asset
      Quality Ratios:Average
      interest-earning assets
              to
      interest-bearing liabilities
            
            114.21
            
            
            114.85
            
            
            116.75
            
            
            118.96
            
            
            121.14Allowance
      for loan losses to
              total
      net loans at end of period
            
            2.95
            
            
            2.12
            
            
            1.39
            
            
            1.25
            
            
            1.15Net
      charge-offs to average outstanding
              loans
      during the period
            
            1.48
            
            
            1.24
            
            
            0.12
            
            
            -
            
            
            0.10Ratio
      of nonperforming assets
              to
      total assets
            
            5.89
            
            
            4.57
            
            
            0.92
            
            
            0.03
            
            
            0.05Capital
      Ratios:Average
      equity to average assets
            
            10.29
            
            
            10.29
            
            
            11.65
            
            
            12.01
            
            
            12.39Equity
      to assets at end of fiscal year
            
            10.02
            
            
            9.70
            
            
            10.44
            
            
            12.22
            
            
            12.00





(1)
            On
      April 22, 2005, the Company acquired American Pacific
  Bank


(2)
            Dividends
      per share divided by earnings (loss) per
share


(3)
            Non-interest
      expense divided by the sum of net interest income and non-interest
      income


48


Item
7.   Management’s Discussion and Analysis of Financial Condition
and Results of Operations





General





Management’s
Discussion and Analysis of Financial Condition and Results of Operations is
intended to assist in understanding the financial condition and results of
operations of the Company.  The information contained in this section
should be read in conjunction with the Consolidated Financial Statements and
accompanying Notes thereto contained in Item 8 of this Form 10-K and the other
sections contained in this Form 10-K.





Critical
Accounting Policies





The
Company has established various accounting policies that govern the application
of accounting principles generally accepted in the United States of America in
the preparation of the Company’s Consolidated Financial
Statements.  The Company has identified three policies, that due to
judgments, estimates and assumptions inherent in those policies, are critical to
an understanding of the Company’s Consolidated Financial
Statements.  These policies relate to the methodology for the
determination of the allowance for loan losses, the valuation of investment
securities, the valuation of real estate owned (“REO”), and foreclosed assets,
goodwill valuation and the calculation of income taxes.  These
policies and the judgments, estimates and assumptions are described in greater
detail in subsequent sections of Management’s Discussions and Analysis contained
herein and in the Notes to the Consolidated Financial Statements contained in
Item 8 of this Form 10-K.  In particular, Note 1 of the Notes to
Consolidated Financial Statements, “Summary of Significant Accounting Policies,”
describes generally the Company’s accounting policies.  Management
believes that the judgments, estimates and assumptions used in the preparation
of the Company’s Consolidated Financial Statements are appropriate given the
factual circumstances at the time.  However, given the sensitivity of
the Company’s Consolidated Financial Statements to these critical accounting
policies, the use of other judgments, estimates and assumptions could result in
material differences in the Company’s results of operations or financial
condition.





Allowance for Loan
Losses


The
allowance for loan losses is maintained at a level sufficient to provide for
probable loan losses based on evaluating known and inherent risks in the loan
portfolio. The allowance is provided based upon management’s ongoing quarterly
assessment of the pertinent factors underlying the quality of the loan
portfolio. These factors include changes in the size and composition of the loan
portfolio, delinquency levels, actual loan loss experience, current economic
conditions, and detailed analysis of individual loans for which full
collectibility may not be assured.  The detailed analysis includes
techniques to estimate the fair value of loan collateral and the existence of
potential alternative sources of repayment. The allowance consists of specific,
general and unallocated components. The specific component relates to loans that
are considered impaired. For such loans that are classified as impaired, an
allowance is established when the net realizable value of the impaired loan is
lower than the carrying value of that loan. The general component covers
non-impaired loans and is based on historical loss experience adjusted for
qualitative factors. An unallocated component is maintained to cover
uncertainties that could affect management’s estimate of probable losses. Such
factors include uncertainties in economic conditions, uncertainties in
identifying triggering events that directly correlate to subsequent loss rates,
changes in appraised value of underlying collateral, risk factors that have not
yet manifested themselves in loss allocation factors and historical loss
experience data that may not precisely correspond to the current portfolio or
economic conditions. The unallocated component of the allowance reflects the
margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the portfolio. The
appropriate allowance level is estimated based upon factors and trends
identified by management at the time the consolidated financial statements are
prepared.





When
available information confirms that specific loans or portions thereof are
uncollectible, identified amounts are charged against the allowance for loan
losses. The existence of some or all of the following criteria will generally
confirm that a loss has been incurred: the loan is significantly delinquent and
the borrower has not demonstrated the ability or intent to bring the loan
current; the Bank has no recourse to the borrower, or if it does, the borrower
has insufficient assets to pay the debt; the estimated fair value of the loan
collateral is significantly below the current loan balance, and there is little
or no near-term prospect for improvement.





A loan is
considered impaired when it is probable that a creditor will be unable to
collect all amounts (principal and interest) due according to the contractual
terms of the loan agreement. Large groups of smaller balance homogenous loans
such as consumer secured loans, residential mortgage loans and consumer
unsecured loans are collectively evaluated for potential loss. Impaired loans
are generally carried at the lower of cost or fair value, which are determined
by management based upon a number of factors, including recent independent
appraisals which are further reduced for estimated selling costs or as a
practical expedient by estimating the present value of expected future cash
flows, discounted at the loan’s effective interest rate. When the measurement of
the impaired loan is less than the recorded investment in the loan (including
accrued interest,








49





net
deferred loan fees or costs, and unamortized premium or discount), impairment is
recognized by creating or adjusting an allocation of the allowance for loan
losses.





Investment
Valuation


Investment
securities are classified as held to maturity when the Company has the ability
and positive intent to hold such securities to maturity. Investment securities
held to maturity are carried at amortized cost. Unrealized losses due to
fluctuations in fair value are recognized when it is determined that a credit
related other than temporary decline in value has occurred. Investment
securities bought and held principally for the purpose of sale in the near term
are classified as trading securities. Securities that the Company intends to
hold for an indefinite period, but not necessarily to maturity are classified as
available for sale. Securities available for sale are reported at fair value.
Unrealized gains and losses, net of the related deferred tax effect, are
reported as a net amount in a separate component of shareholders’ equity
entitled “accumulated other comprehensive income (loss).” Realized gains and
losses on securities available for sale, determined using the specific
identification method, are included in earnings.  Premiums and
discounts are amortized using the interest method over the period to maturity or
expected call, if sooner.





Unrealized
losses on available for sale and held to maturity securities are evaluated at
least quarterly to determine whether the declines in value should be considered
other than temporary.  OTTI is separated into a credit and noncredit
component.  Noncredit component losses are recorded in other
comprehensive income (loss) when the Company a) does not intend to sell the
security or b) is not more likely than not to have to sell the security prior to
the security’s anticipated recovery. Credit component losses are reported
through earnings. To determine the component of OTTI related to credit losses,
the Company compares the amortized cost basis of the OTTI security to the
present value of the revised expected cash flows, discounted using the current
pre-impairment yield. Significant judgment of management is required in this
analysis that includes, but is not limited to, assumptions regarding the
ultimate collectibility of principal and interest on the underlying
collateral.





Although
the determination of whether an impairment is other-than-temporary involves
significant judgment, the underlying principle used is based on positive
evidence indicating that an investment’s carrying value is recoverable within a
reasonable period of time outweighs negative evidence to the
contrary.  Evidence that is objectively determinable and verifiable is
given greater weight than evidence that is subjective and or not verifiable.
Evidence based on future events will generally be less objective as it is based
on future expectations and therefore is generally less verifiable or not
verifiable at all.  Factors considered in evaluating whether a decline
in value is other-than-temporary include, (a) the length of time and the extent
to which the fair value has been less than amortized cost, (b) the financial
condition and near-term prospects of the issuer and (c) the Company’s intent and
ability to retain the investment for a period of time. Other factors that may be
considered include the ratings by recognized rating agencies; capital strength
and other near-term prospects of the issuer and recommendation of investment
advisors or market analysts.  In situations in which the security’s
fair value is below amortized cost but it continues to be probable that all
contractual terms of the security will be satisfied, the decline is solely
attributable to noncredit factors, and the Company asserts that it has positive
intent and ability to hold that security to maturity, no other-than-temporary
impairment is recognized.





Valuation of REO and
Foreclosed Assets


Real
estate properties acquired through foreclosure or by deed-in-lieu of foreclosure
are recorded at the lower of cost or fair value less estimated costs to sell.
Fair value is generally determined by management based on a number of factors,
including third-party appraisals of fair value in an orderly sale. Accordingly,
the valuation of REO is subject to significant external and internal judgment.
Any differences between management’s assessment of fair value, less estimated
costs to sell, and the carrying value of the loan at the date a particular
property is transferred into REO are charged to the allowance for loan losses.
Management periodically reviews REO values to determine whether the property
continues to be carried at the lower of its recorded book value or fair value,
net of estimated costs to sell. Any further decreases in the value of REO are
considered valuation adjustments and trigger a corresponding charge to
non-interest expense in the Consolidated Statements of Operations. Expenses from
the maintenance and operations of REO are included in other non-interest
expense.





Goodwill
Valuation


Goodwill
is initially recorded when the purchase price paid for an acquisition exceeds
the estimated fair value of the net identified tangible and intangible assets
acquired. Goodwill is presumed to have an indefinite useful life and is tested,
at least annually, for impairment at the reporting unit level. The Company has
one reporting unit, the Bank, for purposes of computing goodwill. All of the
Company’s goodwill has been allocated to this single reporting unit. The Company
performs an annual review in the third quarter of each year, or more frequently
if indications of potential impairment exist, to determine if the recorded
goodwill is impaired. If the fair value exceeds the carrying value, goodwill at
the reporting unit level is not considered impaired and no additional analysis
is necessary. If the carrying value of the reporting unit is higher than its
fair value, there is an indication that impairment may exist and additional
analysis must be performed to measure the








50





amount of
impairment loss, if any. The amount of impairment is determined by comparing the
implied fair value of the reporting unit’s goodwill to the carrying value of the
goodwill in the same manner as if the reporting unit was being acquired in a
business combination. Specifically, the Company would allocate the fair value to
all of the assets and liabilities of the reporting unit, including unrecognized
intangible assets, in a hypothetical analysis that would calculate the implied
fair value of goodwill. If the implied fair value of goodwill is less than the
recorded goodwill, the Company would record an impairment charge for the
difference.





A
significant amount of judgment is involved in determining if an indicator of
impairment has occurred. Such indicators may include, among others; a
significant decline in our expected future cash flows; a sustained, significant
decline in our stock price and market capitalization; a significant adverse
change in legal factors or in the business climate; adverse action or assessment
by a regulator; and unanticipated competition. Any adverse change in these
factors could have a significant impact on the recoverability of these assets
and could have a material impact on the Company’s Consolidated Financial
Statements.





The
goodwill impairment test involves a two-step process. The first step is a
comparison of the reporting unit’s fair value to its carrying
value.  The Company estimates fair value using the best information
available, including market information and a discounted cash flow analysis,
which is also referred to as the income approach. The income approach uses a
reporting unit’s projection of estimated operating results and cash flows that
is discounted using a rate that reflects current market conditions. The
projection uses management’s best estimates of economic and market conditions
over the projected period including growth rates in loans and deposits,
estimates of future expected changes in net interest margins and cash
expenditures. The market approach estimates fair value by applying cash flow
multiples to the reporting unit’s operating performance. The multiples are
derived from comparable publicly traded companies with similar operating and
investment characteristics of the reporting unit. We validate our estimated fair
value by comparing the fair value estimates using the income approach to the
fair value estimates using the market approach.





Income
taxes


The
Company estimates tax expense based on the amount it expects to owe various tax
authorities.  Accrued taxes represent the net estimated amount due or
to be received from taxing authorities.  In estimating accrued taxes,
management assesses the relative merits and risks of the appropriate tax
treatment of transactions taking into account statutory, judicial and regulatory
guidance in the context of our tax position.  For additional
information see Note 1 and Note 14 of the Notes to the Consolidated Financial
Statements in Item 8 of this Form 10-K.





Operating
Strategy





Fiscal
year 2010 marked the 87th anniversary since the Bank began operations in
1923.  The historical emphasis had been on residential real estate
lending. Since 1998, however, the Company has been diversifying its loan
portfolio through the expansion of its commercial and construction loan
portfolios. At March 31, 2010, commercial and construction loans represented
87.6% of total loans. Commercial lending including commercial real estate has
higher credit risk, greater interest margins and shorter terms than residential
lending which can increase the loan portfolio’s profitability.





The
primary business strategy of the Company is to provide comprehensive banking and
related financial services within its local communities. The Company’s growing
commercial customer base has enjoyed new products and the improvements in
existing products. These new products include business checking, internet
banking, remote deposit capture, expanded cash management services, bankcard
merchant services, CDARS deposit offerings and new loan products. Retail
customers have benefited from expanded choices ranging from additional automated
teller machines, consumer lending products, checking accounts, debit cards, 24
hour account information service and internet banking.





During 2008, the national and regional
residential lending market experienced a notable slowdown. This downturn, which
has continued into  2010, has negatively affected the economy in our
market area. As a result, the Company experienced a decline in the values of
real estate collateral supporting its construction real estate and land
acquisition and development loans, andexperienced increased loan
delinquencies and defaults. In response to these financial challenges, the
Company has taken and is continuing to take a number of actions aimed at
preserving existing capital, reducing lending concentrations and associated
capital requirements, and increasing liquidity. The tactical actions taken
include, but are not limited to: focusing on reducing the amount of
nonperforming assets, adjusting the balance sheet by reducing loan receivables,
selling real estate owned, reducing controllable operating costs, increasing
retail deposits while maintaining available secured borrowing facilities to
improve liquidity and eliminating dividends to shareholders.





The
Company’s goal is to deliver returns to shareholders by managing problem assets,
increasing higher-yielding assets (in particular commercial real estate and
commercial loans), increasing core deposit balances, reducing expenses, hiring







51





experienced
employees with a commercial lending focus and exploring opportunistic
acquisitions. The Company seeks to achieve these results by focusing on the
following objectives:





Focusing on Asset Quality. The
Company is focused on monitoring existing performing loans, resolving
nonperforming loans and selling foreclosed assets. The Company has aggressively
sought to reduce its level of nonperforming assets through write-downs,
collections, modifications and sales of nonperforming loans and real estate
owned. The Company has taken proactive steps to resolve its nonperforming loans,
including negotiating repayment plans, forbearances, loan modifications and loan
extensions with borrowers when appropriate, and accepting short payoffs on
delinquent loans, particularly when such payoffs result in a smaller loss than
foreclosure. The Company also have added experienced personnel to the department
that monitors loans to enable the Company to better identify problem loans in a
timely manner and reduce its exposure to a further deterioration in asset
quality. Beginning in 2008, in connection with the downturn in real estate
markets, the Company applied more conservative and stringent underwriting
practices to new loans, including, among other things, increasing the amount of
required collateral or equity requirements, reducing loan-to-value ratios and
increasing debt service coverage
ratios.  Although   nonperforming assets increased from
$41.7 million at March 31, 2009 to $49.3 million at March 31, 2010, the Company
has continued to reduce its exposure to land development and speculative
construction loans which represented $23.9 million or 66% of  its
nonperforming loans at March 31, 2010. The total land development and
speculative construction loan portfolios declined to $105.4 million compared to
$149.6 million a year ago





Improving Earnings by Expanding
Product Offerings. The Company intends to prudently increase the
percentage of its assets consisting of higher-yielding commercial real estate
and commercial loans, which offer higher risk-adjusted returns, shorter
maturities and more sensitivity to interest rate fluctuations.  The
Company also intends to selectively add additional products to further diversify
revenue sources and to capture more of each customer’s banking relationship by
cross selling  loan and deposit products and additional services to
Bank customers, including services provided through RAMCorp to increase its fee
income. Assets under management by RAMCorp. totaled $279.5 million at March 31,
2010.  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.





Attracting Core Deposits and Other
Deposit Products. The Company’s strategic focus is to emphasize total
relationship banking with its customers to internally fund its loan
growth.  The Company is also focused on reducing its reliance on other
wholesale funding sources, including Federal Home Loan Bank of Seattle and
Federal Reserve Bank of San Francisco advances, through the continued growth of
core customer deposits. The Company believes that a continued focus on customer
relationships will help to increase the level of core deposits and locally-based
retail certificates of deposit.  In addition to its retail branches, the Company maintains state of the art
technology-based products, such as on-line personal financial management,
business cash management, and business remote deposit products, that enable it to compete effectively
with banks of all sizes. The Company recently 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 employees is expected to lead to an improved
cash management product line for commercial customers.  Branch
deposits have increased from $603.2 million at March 31, 2009 to $654.5 million
at March 31, 2010.  Advances from the Federal Home Loan Bank of
Seattle and Federal Reserve Bank of San Francisco have decreased from $122.9
million at March 31, 2009 to $33.0 million at March 31, 2010.


Continued Expense Control.
Beginning in fiscal 2009 and continuing into fiscal 2010, management has
undertaken several initiatives to reduce non-interest expense and will continue
to make it a priority to identify cost savings opportunities throughout all
phases of the Company’s operations. Beginning in fiscal 2009, the Company
instituted expense control measures such as reducing many marketing expenses,
cancelling certain projects and capital purchases, and reducing travel and
entertainment expenditures. The Company also reduced its full-time equivalent
employees from 247 at March 31, 2009 to 233 at March 31, 2010.  During
October 2009, a branch and a loan origination office, were closed as a result of
their failure to meet required growth standards. As a result of the reduction in
personnel and closure of the offices the Company will save approximately $1.3
million per year.





Recruiting and Retaining Highly
Competent Personnel With a Focus on Commercial Lending. The Companys
ability to continue to attract and retain banking professionals with strong
community relationships and significant knowledge of its markets will be a key
to its success. The Company believes that it enhances its market position and
adds profitable growth opportunities by focusing on hiring and retaining
experienced bankers focused on owner occupied commercial real estate and
commercial lending, and the deposit balances that accompany these relationships.
The Company emphasizes to its employees the importance of delivering exemplary
customer service and seeking opportunities to build further relationships





52





with its
customers. The goal is to compete with other financial service providers by
relying on the strength of the Company’s customer service and relationship
banking approach. The Company believes that one of its strengths is that its
employees are also significant shareholders through the Company’s employee stock
ownership {ESOP”) and 401(k) plans.  The Company also offers an
incentive system that is designed to reward well-balanced and high quality
growth amongst its employees.





Disciplined Franchise
Expansion.  The Company believes that opportunities currently
exist within its current market area to grow its franchise.  The
Company anticipates organic growth, through its marketing efforts targeted to
take advantage of the opportunities being created as a result of the
consolidation of financial institutions that is occurring in its market
area.  The Company will also seek to grow its franchise through the
acquisition of individual branches and FDIC-assisted whole bank transactions
that meet its investment and market objectives.  The Company has a
proven ability to execute acquisitions, with two bank acquisitions in the past
six years.  The Company expects to gradually expand its operations
further in the Portland Oregon metropolitan area which has a population of
approximately two million people.  The Company will continue to be
disciplined as it pertains to future acquisitions and de novo branching focusing
on the Pacific Northwest markets it knows and understands. The Company currently
has no arrangements, agreements or understandings related to any acquisition or
de novo branching.





Comparison
of Financial Condition at March 31, 2010 and 2009





At March
31, 2010, the Company had total assets of $838.0 million compared with $914.3
million at March 31, 2009.  The decrease in total assets was part of
the Company’s strategic plan to reduce its balance sheet through the reduction
in the balance of loans receivable to increase the Company’s capital and
liquidity positions.





Cash,
including interest-earning accounts, totaled $13.6 million at March 31, 2010,
compared to $19.2 million at March 31, 2009.  The $5.6 million
decrease was primarily attributable to a decrease in cash balances maintained at
the FRB as a result of the Company’s effort to reduce secured
borrowings.





Investment
securities available-for-sale totaled $6.8 million at March 31, 2010, compared
to $8.5 million at March 31, 2009.  The $1.7 million decrease was
attributable to called, maturities, scheduled cash flows, principal paydowns and
an impairment charge. During the fiscal year ended March 31,2010, the Company
recognized a non-cash OTTI charge on an investment security of $1.0 million
compared to $3.4 million in the prior fiscal year. The investment security is a
trust preferred pooled security with a fair market value of $1.0 million secured
by trust securities and the underlying debentures issued by bank holding
companies. For additional information on our Level 3 fair value measurements see
“-Fair Value of Level 3 Assets”.





Mortgage-backed
securities available-for-sale totaled $2.8 million at March 31, 2010, compared
to $4.1 million at March 31, 2009.  The $1.2 million decrease was a
result of repayments. The Company does not believe it has any exposure to
sub-prime mortgage-backed securities.





Loans
receivable, net, was $712.8 million at March 31, 2010, compared to $784.1
million at March 31, 2009, a 9.1% decrease due primarily to the Company’s
planned balance sheet restructuring strategy, which includes reducing the loan
portfolio to preserve capital and liquidity. This reduction was accomplished
primarily through a decrease in the land acquisition and development and
residential construction loan portfolios, which were reduced $55.7 million since
March 31, 2009. The Company also reduced the balances in the commercial
construction and commercial business loan portfolios during the year. The
decline in the loan portfolio was a result of a combination of loan payoffs,
principal repayments, a reduced emphasis on lending in certain sectors of the
loan portfolio, transfer of loans to REO and loan charge-offs. 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
area.  Risks associated with loans secured by real estate include
decreasing land and property values, material 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 option ARM, teaser, or sub-prime residential real estate loans in
its portfolio.





Prepaid
expenses and other assets were $7.9 million at March 31, 2010 compared to $2.5
million at March 31, 2009. The increase was primarily due to $4.7 million in
payments made to the FDIC for the Bank’s estimated prepayment of FDIC insurance
assessments for the calendar years 2010, 2011 and 2012 that is included in
prepaid expenses at March 31, 2010.





Goodwill
was $25.6 million at March 31, 2010 and 2009.  The Company performed
its annual goodwill impairment test during the third quarter ended December 31,
2009.  The results of these tests indicated that the Company’s
goodwill was not impaired.  For additional information on our goodwill
impairment testing, see "Goodwill Valuation" included in this Item
7.






53





Deposit
accounts totaled $688.0 million at March 31, 2010 compared to $670.1 million at
March 31, 2009. Customer branch deposits balances increased $51.3 million at
March 31, 2010 compared to the prior year. This growth was attributable to gains
in both new relationships and the deepening of existing customer relationships.
The continued low interest rates have resulted in customers placing their
deposits into money market accounts and certificates of deposit, which earn the
highest interest rate yields.  Money market and certificate of deposit
accounts increased $31.1 million and $14.0 million, respectively at March 31,
2010 compared to March 31, 2009. At March 31, 2010, checking accounts totaled
$154.6 million, or 22.5% of total deposits. Core branch deposits (comprised of
all demand, savings and interest checking accounts, plus all time deposits and
excludes wholesale-brokered deposits, Trust account deposits, Interest on Lawyer
Trust Accounts (“IOLTA”), public funds and Internet-based deposits) account for
94.8% of total deposits at March 31, 2010, compared to 90.0% at March 31, 2009.
At March 31, 2010, there were no brokered deposits (exclusive of CDARS
deposits), compared to $19.9 million, or 2.9% of total deposits, at March 31,
2009. The Company plans to continue its focus on the growth of customer branch
deposits and on building customer relationships as opposed to obtaining brokered
deposits.





FHLB
advances decreased to $23.0 million at March 31, 2010 as compared to $37.9
million at March 31, 2009.  During the first three quarters of fiscal
year 2010, the Company utilized the FRB for its borrowings. 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 for the first three quarters of
fiscal year 2010.  During the fourth quarter of fiscal year 2010, the
Company began to utilize the FHLB for its advances due to the increase in the
FRB discount rate on February 17, 2010. FRB borrowings totaled $10.0 million at
March 31, 2010, compared to $85.0 million at March 31, 2009.  Overall
borrowings decreased $89.9 million to $33.0 million at March 31, 2010 compared
to $122.9 million at March 31, 2009, as a result of the increase in deposits and
the planned reduction in the loan portfolio.





Shareholders'
equity decreased $4.7 million to $83.9 million at March 31, 2010 from $88.7
million at March 31, 2009. The decrease in equity resulted from a net loss of
$5.4 million for the year ended March 31, 2010.  The decrease was
partially offset by earned ESOP shares, the net tax effect on securities and
noncontrolling interest of $771,000.





Goodwill
Valuation





Goodwill
is initially recorded when the purchase price paid for an acquisition exceeds
the estimated fair value of the net identified tangible and intangible assets
acquired. Goodwill is presumed to have an indefinite useful life and is tested,
at least annually, for impairment at the reporting unit level. The Company has
one reporting unit, the Bank, for purposes of computing goodwill. All of the
Company’s goodwill has been allocated to this single reporting unit. The Company
performs an annual review in the third quarter of each fiscal year, or more
frequently if indications of potential impairment exist, to determine if the
recorded goodwill is impaired. If the fair value exceeds the carrying value,
goodwill at the reporting unit level is not considered impaired and no
additional analysis is necessary.  If the carrying value of the
reporting unit is higher than its fair value, there is an indication that
impairment may exist and additional analysis must be performed to measure the
amount of impairment loss, if any. The amount of impairment is determined by
comparing the implied fair value of the reporting unit’s goodwill to the
carrying value of the goodwill in the same manner as if the reporting unit was
being acquired in a business combination. Specifically, the Company would
allocate the fair value to all of the assets and liabilities of the reporting
unit, including unrecognized intangible assets, in a hypothetical analysis that
would calculate the implied fair value of goodwill. If the implied fair value of
goodwill is less than the recorded goodwill, the Company would record an
impairment charge for the difference.





A
significant amount of judgment is involved in determining if an indicator of
impairment has occurred. Such indicators may include, among others; a
significant decline in expected future cash flows; a sustained, significant
decline in our stock price and market capitalization; a significant adverse
change in legal factors or in the business climate; adverse assessment or action
by a regulator; and unanticipated competition. Any adverse change in these
factors could have a significant impact on the recoverability of such assets and
could have a material impact on the Company’s Consolidated Financial
Statements.





The
goodwill impairment test involves a two-step process. The first step is a
comparison of the reporting unit’s fair value to its carrying value. The Company
estimates fair value using the best information available, including market
information and a discounted cash flow analysis, which is also referred to as
the income approach. The income approach uses a reporting unit’s projection of
estimated operating results and cash flows that is discounted using a rate that
reflects current market conditions. The projection uses management’s best
estimates of economic and market conditions over the projected period including
growth rates in loans and deposits, estimates of future expected changes in net
interest margins and cash expenditures. The market approach estimates fair value
by applying cash flow multiples to the reporting unit’s operating performance.
The multiples are derived from comparable publicly traded companies with similar
operating and investment








54





characteristics
of the reporting unit. The Company validates its estimated fair value by
comparing the fair value estimates using the income approach to the fair value
estimates using the market approach.





The
Company performed its annual goodwill impairment test during the quarter-ended
December 31, 2009. As part of its process for performing the step one impairment
test of goodwill, the Company estimated the fair value of the reporting unit
utilizing the allocation of corporate value approach, the income approach and
the market approach in order to derive an enterprise value of the Company. The
allocation of corporate value approach applies the aggregate market value of the
Company and divides it among the reporting units. A key assumption in this
approach is the control premium applied to the aggregate market value. A control
premium is utilized as the value of a company from the perspective of a
controlling interest is generally higher than the widely quoted market price per
share. The Company used an expected control premium of 30%, which was based on
comparable transactional history. Assumptions used by the Company in its
discounted cash flow model (income approach) included an annual revenue growth
rate that approximated 5%, a net interest margin that approximated 4.5% and a
return on assets that ranged from 0.14% to 1.09% (average of 0.74%). In addition
to utilizing the above projections of estimated operating results, key
assumptions used to determine the fair value estimate under the income approach
was the discount rate of 14.4% utilized for our cash flow estimates and a
terminal value estimated at 0.8 times the ending book value of the reporting
unit. The Company used a build-up approach in developing the discount rate that
included: an assessment of the risk free interest rate, the rate of return
expected from publicly traded stocks, the industry the Company operates in and
the size of the Company. In applying the market approach method, the Company
selected eight publicly traded comparable institutions based on a variety of
financial metrics (tangible equity, leverage ratio, return on assets, return on
equity, net interest margin, nonperforming assets, net charge-offs, and reserves
for loan losses) and other relevant qualitative factors (geographical location,
lines of business, business model, risk profile, availability of financial
information, etc.)  After selecting comparable institutions, the
Company derived the fair value of the reporting unit by completing a comparative
analysis of the relationship between their financial metrics listed above and
their market values utilizing various market multiples.  The Company
calculated a fair value of its reporting unit of $57 million using the corporate
value approach, $66 million using the income approach and $68 million using the
market approach.  Based on the results of the step one impairment
analysis, the Company determined the second step must be performed.





The
Company calculated the implied fair value of its reporting unit under the step
two goodwill impairment test. Under this approach, the Company calculated the
fair value for its unrecognized deposit intangible, as well as the remaining
assets and liabilities of the reporting unit. The calculated implied fair value
of the Company’s goodwill exceeded the carrying value by $18.0 million.
Significant adjustments were made to the fair value of the Company’s loans
receivable compared to its recorded value. Key assumptions used in its fair
value estimate of loans receivable was the discount for comparable loan sales.
The Company used a weighted average discount rate that approximated the discount
for similar loan sales by the FDIC during the past year. The Company segregated
its loan portfolio into seven categories, including performing loans,
non-performing loans and sub-performing loans. The weighted average discount
rates for these individual categories ranged from 3% (for performing loans) to
75% (for non-performing commercial loans). Based on results of the step two
impairment test, the Company determined no impairment charge of goodwill was
required.





An
interim impairment test was not deemed necessary as of March 31, 2010, due to
there not being a significant change in the reporting unit’s assets and
liabilities, the amount that the fair value of the reporting unit exceeded the
carrying value as of the most recent valuation, and because the Company
determined that, based on an analysis of events that have occurred and
circumstances that have changed since the most recent valuation date, the
likelihood that a current fair value determination would be less than the
current carrying amount of the reporting unit is remote.





Even
though the Company determined that there was no goodwill impairment during the
third quarter of fiscal 2010, continued declines in the value of its stock price
as well as values of other financial institutions, declines in revenue for the
Bank beyond our current forecasts and significant adverse changes in the
operating environment for the financial industry may result in a future
impairment charge.





It is
possible that changes in circumstances existing at the measurement date or at
other times in the future, or in the numerous estimates associated with
management’s judgments, assumptions and estimates made in assessing the fair
value of our goodwill, could result in an impairment charge of a portion or all
of our goodwill. If the Company recorded an impairment charge, its financial
position and results of operations would be adversely affected, however, such an
impairment charge would have no impact on our liquidity, operations or
regulatory capital.








55


Fair
Value of Level 3 Assets





The
Company determines the fair value of certain assets that are classified as Level
3 under the fair value hierarchy established by accounting standards. These
Level 3 assets are valued using significant unobservable inputs that are
supported by little or no market activity and that are significant to the fair
value of the assets. These Level 3 assets include certain available for sale
securities, loans measured for impairment, and REO for which there is neither an
active market for identical assets from which to determine fair value, nor is
there sufficient, current market information about similar assets to use as
observable, corroborated data for all significant inputs in a valuation model.
Under these circumstances, the fair values of these assets are determined using
pricing models, discounted cash flow methodologies, appraisals, valuation in
accordance with accounting standards, for which the determination of fair value
requires significant management judgment or estimation.




Valuations
using models or other techniques are dependent upon assumptions used for the
significant inputs.  Where market data is available, the inputs used
for valuation reflect that information as of the valuation date. In periods of
extreme volatility, lessened liquidity or in illiquid markets, there may be more
variability in market pricing or a lack of market data to use in the valuation
process.  Judgment is then applied in formulating those
inputs.





At March
31, 2010, the market for the Company’s single trust preferred pooled security
was determined to be inactive in management’s judgment. This determination was
made by the Company after considering the last known trade date for this
specific security, the low number of transactions for similar types of
securities, the low number of new issuances for similar securities, the
significant increase in the implied liquidity risk premium for similar
securities, the lack of information that is released publicly and discussions
with third-party industry analysts. Due to the inactivity in the market,
observable market data was not readily available for all significant inputs for
this security. Accordingly, the trust preferred pooled security was classified
as Level 3 in the fair value hierarchy. The Company utilized observable inputs
where available, unobservable data and modeled the cash flows adjusted by an
appropriate liquidity and credit risk adjusted discount rate using an income
approach valuation technique in order to measure the fair value of the security.
Significant unobservable inputs were used that reflect our assumptions of what a
market participant would use to price the security. Significant unobservable
inputs included selecting an appropriate discount rate, default rate and
repayment assumptions. In selecting its assumptions, the Company considered the
current rates for similarly rated corporate securities, market liquidity, the
individual issuer’s financial conditions, historical repayment information, and
future expectations of the capital markets. The reasonableness of the fair
value, and classification as a Level 3 asset, was validated through comparison
of fair value as determined by two independent third-party pricing
services.





Certain
loans included in the loan portfolio were deemed impaired at March 31,
2010.  Accordingly, loans measured for impairment were classified as
Level 3 in the fair value hierarchy as there is no active market for these
loans.  Measuring impairment of a loan requires judgment and
estimates, and the eventual outcomes may differ from those
estimates.  Impairment was measured based on a number of factors,
including recent independent appraisals which are further reduced for estimated
selling costs or as a practical expedient by estimating the present value of
expected future cash flows, discounted at the loan’s effective interest
rate.





In
addition, REO was classified as Level 3 in the fair value
hierarchy.  Management generally determines fair value based on a
number of factors, including third-party appraisals of fair value less estimated
costs to sell.  The valuation of REO is subject to significant
external and internal judgment, and the eventual outcomes may differ from those
estimates.





For
additional information on our Level 1, 2 and 3 fair value measurements see Note
19 of the Notes to the Consolidated Financial Statements contained in Item 8 of
this Form 10-K.





Comparison of Operating Results for
the Years Ended March 31, 2010 and 2009





Net Income or
Loss.  Our net loss was $5.4 million, or $0.51 per diluted
earning share for the year ended March 31, 2010, compared to a net loss of $2.7
million, or $0.25 per diluted share for the year ended March 31, 2009. The
decrease in earnings reflects the current economic recession, ongoing strains in
the financial and housing markets and further deterioration in property values.
These conditions resulted in an increase in the provision for loan losses, an
increase in FDIC insurance premiums and an increase in cost associated with REO
properties.





Net Interest
Income.  The Company’s profitability depends primarily on its
net interest income, which is the difference between the income it receives on
interest-earning assets and the interest paid on deposits and borrowings. When
interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The Company’s
results of operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government legislation and regulation, and monetary and fiscal
policies.






56





Net
interest income for fiscal year 2010 was $34.9 million, representing a $1.2
million, or a 3.6% increase, from $33.7 million in fiscal year
2009.  The net interest margin for the fiscal year ended March 31,
2010 was 4.39% compared to 4.08% for the same prior year period. The Company’s
net interest margin has increased for the last five consecutive quarters. This
increase was primarily the result of a decrease in the Company’s deposit and
borrowing costs.





The ratio
of average interest-earning assets to average interest-bearing liabilities
decreased to 114.21% for the fiscal year ended March 31, 2010 compared to
114.85% for the fiscal year ended March 31, 2009, which indicates that the
interest-earning asset growth was being funded more by interest-bearing
liabilities as compared to capital and non-interest-bearing demand deposits.
Generally, the Company’s balance sheet interest rate sensitivity achieves better
net interest rate margins in a stable or increasing interest rate environment
due to the balance sheet being slightly asset interest rate
sensitive.  However, due to a number of loans in the loan portfolio
with interest rate floors, net interest income will be negatively impacted in a
rising interest rate environment until such time as the current rate exceeds
these interest rate floors. In a decreasing interest rate environment, it takes
time to reduce deposit interest rates to recover the decline in the net interest
rate margin. Interest rates on the Company’s interest-earning assets reprice
downward more rapidly than interest rates on the Company’s interest-bearing
liabilities. As a result of the Federal Reserve’s monetary policy actions
beginning in September 2007 to aggressively lower short-term federal funds
rates, approximately 36% of the Company’s loans were immediately repriced down.
The Company also immediately reduced the interest rate paid on certain
interest-bearing deposits. During the year ended March 31, 2010, the Company
made further progress in reducing its deposit and borrowing costs resulting in
improved net interest margin. Further reductions will be reflected in future
deposit offering rates and as existing long term deposits renew upon maturity.
The amount and timing of these reductions is dependent on competitive pricing
pressures, the relationship of short term and long term interest rates and
changes in interest rate spreads.





Interest
Income.  Interest income was $46.3 million for the fiscal year
ended March 31, 2010 compared to $52.9 million, for the fiscal year ended March
31, 2009. The 12.5% decrease in interest income was due to the continued low
level of interest rates, a decrease in the average balance of loans receivable
and the continued low interest rates on short-term federal funds. The yield on
interest-earning assets was 5.82% for fiscal year 2010 compared to 6.39% for
fiscal year 2009.  During the year ended March 31, 2010 and 2009, the
Company reversed $757,000 and $854,000, respectively, of interest income on
nonperforming loans. Average interest-bearing assets decreased $31.6 million to
$796.2 million for fiscal year 2010 from $827.7 million for fiscal year 2009.
The decrease in average loan balances was due to the Company’s recent efforts to
realign its balance sheet and reduce its overall loans receivable as part of the
Company’s capital and liquidity strategy. Other interest and dividend income
decreased $132,000 to $80,000 for fiscal year 2010 compared to $212,000 for
fiscal year 2009. This decrease was primarily due to a reduction in the yield on
daily interest-bearing assets to 0.10% for fiscal year 2010 compared to 1.17%
for fiscal year 2009. The decrease in the yield for such assets was primarily
due to lower interest rates during the year resulting from the Federal Reserve
interest rate cuts described above.





Interest
Expense.  Interest expense for the fiscal year ended March 31,
2010 totaled $11.4 million, a $7.8 million or 40.70% decrease from $19.2 million
for the fiscal year ended March 31, 2009. The decrease in interest expense was
the result of declining deposit and borrowing costs attributable to the
continued low interest rate environment. The Company has continued to lower its
deposit costs throughout the year on many of its deposit products. The weighted
average interest rate on interest-bearing deposits decreased from 2.68% for the
year ended March 31, 2009 to 1.67% for the year ended March 31,
2010.  The weighted average interest rate of FHLB borrowings decreased
from 1.99% for the year ended March 31, 2009 to 1.07% for the year ended March
31, 2010. During fiscal year 2010, the Company primarily utilized the FRB for
its borrowing needs, allowing it to take advantage of borrowings that averaged
0.28% for fiscal year 2010. The weighted average cost of FHLB and FRB
borrowings, junior subordinated debenture and capital lease obligations
decreased to 1.47% for the year ended March 31, 2010 from 2.59% for the prior
year.





Provision for Loan Losses. The
provision for loan losses for fiscal year 2010 was $15.9 million, compared to
$16.2 million for the same period in the prior year. The provision for loan
losses continues to reflect the high level of classified loans, delinquencies,
nonperforming loans and net charge-offs. The conditions are primarily the result
of the current economic conditions and slowdown in residential real estate sales
that affected among others, homebuilders and developers. A slowdown in home
buying has resulted in slower sales and declining real estate values which have
significantly affected these borrowers liquidity and ability to repay loans.
Recent appraisals received by the Company have reflected the significant
declines in real estate values, especially on land development projects.
Nonperforming loans generally reflect unique operating difficulties for the
individual borrower; however, more recently the deterioration in the general
economy has become a significant contributing factor to the increased levels of
delinquencies and nonperforming loans. The Company’s problem loans continue to
be concentrated in land acquisition and development loans.






57





Net
charge-offs for the year ended March 31, 2010 were $11.2 million, compared to
$9.9 million for the same period last year. The increase in net charge-offs was
primarily attributable to the charge-off of land and lot loans totaling $4.0
million, speculative construction loans totaling $3.5 million and commercial
loans totaling $2.5 million for the year ended March 31, 2010. Net charge-offs
to average net loans for the year ended March 31, 2010 were 1.48%, compared to
1.24% for the same period last year. Nonperforming loans increased to $36.0
million at March 31, 2010 compared to $27.6 million at March 31, 2009. The ratio
of allowance for loan losses and unfunded loan commitments to total net loans
was 2.97% at March 31, 2010, compared to 2.15% at March 31, 2009.  The
allowance as a percentage of nonperforming loans remained relatively unchanged
at 60.1% at March 31, 2010, compared to 61.6% at March 31, 2009. This ratio
remained stable despite the increase in nonperforming loans as the Company
continued to increase its allowance for loan losses during fiscal year
2010.





Impaired
loans are subjected to an impairment analysis to determine an appropriate
reserve amount to be held against each loan. As of March 31, 2010, the Company
had identified $37.8 million of impaired loans. Because the significant majority
of our impaired loans are collateral dependent, nearly all of our specific
allowances are calculated based on the fair value of the collateral. Of those
impaired loans, $7.7 million have no specific valuation allowance as their
estimated collateral value is equal to or exceeds the carrying costs which in
some cases is the result of previous loan charge-offs. The remaining $30.1
million have specific valuation allowances totaling $8.0 million. Management’s
evaluation of the allowance for loan losses is based on ongoing, quarterly
assessments of the known and inherent risks in the loan portfolio. Loss factors
are based on the Company’s historical loss experience with additional
consideration and adjustments made for changes in economic conditions, changes
in the amount and composition of the loan portfolio, delinquency rates, a
detailed analysis of impaired loans and other factors as deemed appropriate.
These factors are evaluated on a quarterly basis. Loss rates used by the Company
are affected as changes in these risk factors increase or decrease from quarter
to quarter. At March 31, 2010, management’s analysis placed greater emphasis on
the Company’s construction and land acquisition and development loan portfolios
and the effect of various factors such as geographic and loan type
concentrations. The Company also considered the effects of declining home values
and slower home sales. Based on its comprehensive analysis, management deemed
the allowance for loan losses of $21.6 million at March 31, 2010 (2.95% of total
loans and 60.1% of nonperforming loans) adequate to cover probable losses
inherent in the loan portfolio.





Non-Interest
Income.  Non-interest income increased $1.7 million to $7.3
million for the year ended March 31, 2010 from $5.5 million for the same period
in 2009. The increase in non-interest income was primarily due to a $1.0 million
OTTI charge on a trust preferred security taken during for the year ended March
31, 2010 compared to a $3.4 million OTTI charge on the same security during the
year ended March 31, 2009. Gain on sale of loans held for sale increased
$158,000 for the year ended March 31, 2010 compared to the same period in prior
year. The increase was due to the increase in refinance activity the Company
experienced in the first half of fiscal 2010 as homeowners took advantage of the
historically low interest rates. These increases were partially offset by
decreases in mortgage broker income and asset management fees. For the year
ended March 31, 2010, broker loan fees decreased by $134,000 compared to the
year ended March 31, 2009 primarily as a result the slowdown in real estate loan
sales. Asset management fees decreased $192,000 for the year ended March 31,
2010 compared to the same prior year period. The decrease in asset management
fees was a result of the decrease in average assets under management of
RAMCorp., which totaled $306.6 million at March 31, 2009 compared to $278.8
million at March 31, 2010. Most recently, assets under management have begun to
recover and increase due to the recovery experienced in the financial markets.
Total assets under management totaled $279.5 million at March 31, 2010 compared
to $276.6 million at March 31, 2009.





Non-Interest
Expense.  Non-interest expense increased $7.7 million to $35.0
million for fiscal year ended March 31, 2010 compared to $27.3 million for
fiscal year ended March 31, 2009. Despite the increase in non-controllable
expenses such as REO related costs and FDIC insurance premiums, management
continues to focus on managing controllable costs as the Company proactively
adjusts to lower levels of real estate lending activity. The Company has reduced
the number of full-time equivalent employees from 247 at March 31, 2009 to 233
at March 31, 2010. The Company also closed its downtown Portland branch and its
loan production office in Clackamas, Oregon, both of which failed to meet
required growth standards and experienced low transaction volume. Despite these
reductions, salary and employee benefits increased slightly as a result of lower
loan production volumes causing deferred loan origination costs to
decline.





The
principal component of the increase in the Company’s non-interest expense was
the increases in REO related expenses.  REO related expenses (which
includes operating costs, write-downs, and losses on the disposition of
property) increased $6.1 million for the year ended March 31, 2010 compared to
the same prior year period. In addition, the increase can also be attributable
to an increase in professional fees of $207,000 from the year ended March 31,
2010 due primarily to legal fees








58





related
to problem assets, including REO. REO related expense will remain elevated
compared to historical levels due to increased levels of REO activity compared
to previous years.





The
Company’s FDIC deposit insurance premiums were $1.9 million for the year ended
March 31, 2010, compared to $760,000 for same prior year period. The increase in
FDIC insurance premiums was a result of a FDIC special assessment during the
first fiscal quarter of 2010 of $417,000 in addition to an industry wide
increase in FDIC insurance premiums.





Income Taxes.  The
benefit for income taxes was $3.3 million for the year ended March 31, 2010
compared to $1.6 million for the year ended March 31, 2009.  The
benefit for income taxes was a result of the pre-tax losses incurred for the
years ended March 31, 2010 and 2009, respectively.  The effective tax
rate for fiscal year 2010 was 37.6% compared to 37.1% for fiscal year
2009.  When the Company incurs a pre-tax loss, its effective tax rate
is higher than the statutory tax rate primarily as a result of non-taxable
income generated from investments in bank owned life insurance and tax-exempt
municipal bonds. The increase from prior year was the result of the increase in
pre-tax loss for the year ended March 31, 2010 compared to March 31, 2009.
Reference is made to Note 14 of the Notes to the Consolidated Financial
Statements contained in Item 8 of this Form 10-K, for further discussion of the
Company’s income taxes.





Comparison
of Operating Results for the Years Ended March 31, 2009 and 2008





Net Income or
Loss.  Net loss was $2.7 million, or $0.25 per diluted share
for the year ended March 31, 2009, compared to $8.6 million, or $0.79 per
diluted share for the year ended March 31, 2008.  The decrease was
primarily due to a decrease in net interest income, an increase in the provision
for loan losses and a $3.4 million OTTI charge related to a trust preferred
security held by the Company.





Net Interest
Income.  Net interest income for fiscal year 2009 was $33.7
million, representing a $1.3 million, or a 3.7% decrease, from $35.0 million in
fiscal year 2008.  The ratio of average interest earning assets to
average interest bearing liabilities decreased to 114.85% in fiscal year 2009
from 116.75% in fiscal year 2008. The decrease was a result of the repricing of
assets and liabilities due to the Federal Reserve’s decrease in interest
rates.





Interest
Income.  Interest income was $52.9 million for the fiscal year
ended March 31, 2009 compared to $60.7 million for the fiscal year ended March
31, 2008. Decreased interest income was the result of Federal Reserve rate cuts
and interest income reversals on non-performing loans. Average interest-bearing
assets increased $76.7 million to $827.7 million for fiscal 2009 from $751.0
million for fiscal year 2008.  The yield on interest-earning assets
was 6.39% for fiscal year 2009 compared to 8.09% for fiscal year
2008.





Interest
Expense.  Interest expense for the fiscal year ended March 31,
2009 totaled $19.2 million, a $6.5 million or 25.4% decrease from $25.7 million
for the fiscal year ended March 31, 2008. The decrease in interest expense is
the result of lower rates of interest paid on deposits and borrowings as a
result of the Federal Reserve interest rate cuts described above.  The
weighted average interest rate of interest-bearing deposits decreased from 3.86%
for the year ended March 31, 2008 to 2.68% for the year ended March 31,
2009.  The weighted average interest rate of FHLB borrowings decreased
from 4.32% for the year ended March 31, 2008 to 1.99% for the year ended March
31, 2009.





Provision for Loan
Losses.  The provision for loan losses for fiscal year 2009 was
$16.2 million, compared to $2.9 million for the same period in the prior
year.  The increase in the provision for loan losses was the result of
increased loan growth, changes in the loan loss rates and a negative trend in
the risk rating migration of certain loans. The risk rating migration primarily
consisted of land acquisition and development loans and residential construction
loans being moved to higher risk rating categories.  The ratio of
allowance for loan losses and unfunded loan commitments to total net loans was
2.15% at March 31, 2009, compared to 1.44% at March 31, 2008.  Net
charge-offs for the year ended March 31, 2009 were $9.9 million, compared to
$866,000 for the same period last year.  The increase in net
charge-offs is primarily attributable to the charge-off of land and lot loans
totaling $6.1 million, speculative construction loans totaling $1.8 million and
commercial loans totaling $1.2 million for the year ended March 31,
2009.  Annualized net charge-offs to average net loans for the year
ended March 31, 2009 were 1.24%, compared to 0.12% for the same period in the
prior year.





Non-Interest
Income.  Non-interest income decreased $3.4 million to $5.5
million for the year ended March 31, 2009 from $8.9 million for the same period
in 2008.  The decrease in non-interest income is primarily due to the
OTTI charge of $3.4 million on a trust preferred security taken during the
second quarter of fiscal year 2009.  For the year ended March 31,
2009, broker loan fees decreased by $804,000 compared to the year ended March
31, 2008 primarily as a result of the slowdown in real estate loan
sales.  The decrease in asset management fees of $68,000 for the year
ended March 31, 2009 compared to the same prior year period corresponds with the
decrease in assets under management by RAMCorp. from $330.5 million at March 31,
2008 to $276.6 million at March 31, 2009.  The decrease in value of
assets under management is primarily








59





attributable
to the decline in the stock market during fiscal year 2009.  These
decreases were partially offset by an increase of $361,000 in gains on loans
held for sale, as well as the reversal of $489,000 for a contingent liability
previously reserved for a property, which the Company disposed of during the
fourth quarter of fiscal year 2009.





Non-Interest
Expense.  Non-interest expense decreased $532,000 to $27.3
million for fiscal year ended March 31, 2009 compared to $27.8 million for
fiscal year ended March 31, 2008. The principal components of the decrease in
the Company’s non-interest expense were decreases in salaries and employee
benefits and marketing expenses. For the year ended March 31, 2009, salaries and
employee benefits, which includes mortgage broker commission compensation, was
$15.1 million, a 7.2% decrease over the prior year total of $16.2 million.
Salaries decreased primarily as a result of a decrease in the number of
full-time equivalent employees from 270 at March 31, 2008 to 247 at March 31,
2009, and as a result of the decrease in mortgage broker
commissions.





Income Taxes.  The
benefit for income taxes was $1.6 million for the year ended March 31, 2009
compared to an income tax provision of $4.5 million for the year ended March 31,
2008.  The benefit for income taxes was a result of the net pre-tax
loss incurred for the year ended March 31, 2009.  The effective tax
rate for fiscal year 2009 was 37.1% compared to 34.2% for fiscal year
2008.  When the Company incurs a pre-tax loss, its effective tax rate
is higher than the statutory tax rate primarily as a result of non-taxable
income generated from investments in bank owned life insurance and tax-exempt
municipal bonds.  Reference is made to Note 14 of the Notes to the
Consolidated Financial Statements contained in Item 8 of this Form 10-K, for
further discussion of the Company’s income taxes.





Average Balance
Sheet.  The following table sets forth, for the periods
indicated, information regarding average balances of assets and liabilities as
well as the total dollar amounts of interest income earned on average
interest-earning assets and interest expense paid on average interest-bearing
liabilities, resultant yields, interest rate spread, ratio of interest-earning
assets to interest-bearing liabilities and net interest margin. Average balances
for a period have been calculated using monthly average balances during such
period. Interest income on tax-exempt securities has been adjusted to a
taxable-equivalent basis using the statutory federal income tax rate of 34%.
Non-accruing loans were included in the average loan amounts outstanding. Loan
fees of $1.2 million, $2.0 million and $2.8 million are included in interest
income for the years ended March 31, 2010, 2009 and 2008,
respectively.


60


Year
      Ended March 31,2010
            
            
            2009
            
            
            2008Average
      Balance
            
            
            Interest
      and Dividends
            
            Yield/
      Cost
            
            
            
            Average
      Balance
            
            
            Interest
              and
              Dividends
            
            Yield/
              Cost
            
            
            
            Average
      Balance
            
            
            Interest
              and
              Dividends
            
            Yield/
              Cost(Dollars
      in thousands)Interest-earning
      assets:Mortgage
      loans
            $
            650,101
            
            $
            39,896
            
            6.14
            %
            
            $
            674,144
            
            $
            44,781
            
            6.64
            %
            
            $
            600,386
            
            $
            50,229
            
            8.37
            %Non-mortgage
      loans
            
            109,389
            
            
            5,779
            
            5.28
            
            
            
            120,077
            
            
            7,102
            
            5.91
            
            
            
            105,470
            
            
            8,518
            
            8.08Total
      net loans
            
            759,490
            
            
            45,675
            
            6.01
            
            
            
            794,221
            
            
            51,883
            
            6.53
            
            
            
            705,856
            
            
            58,747
            
            8.32Mortgage-backed
      securities (1)
            
            3,738
            
            
            136
            
            3.64
            
            
            
            5,348
            
            
            211
            
            3.95
            
            
            
            7,101
            
            
            323
            
            4.55Investment
      securities (1)
            
            10,861
            
            
            425
            
            3.91
            
            
            
            10,063
            
            
            615
            
            6.11
            
            
            
            11,480
            
            
            703
            
            6.12Daily
      interest-bearing assets
            
            964
            
            
            1
            
            0.10
            
            
            
            9,593
            
            
            112
            
            1.17
            
            
            
            18,656
            
            
            883
            
            4.73Other
      earning assets
            
            21,113
            
            
            79
            
            0.37
            
            
            
            8,515
            
            
            100
            
            1.17
            
            
            
            7,930
            
            
            99
            
            1.25Total
      interest-earning assets
            
            796,166
            
            
            46,316
            
            5.82
            
            
            
            827,740
            
            
            52,921
            
            6.39
            
            
            
            751,023
            
            
            60,755
            
            8.09Non-interest-earning
      assets:Office properties and equipment, net
            
            18,738
            
            
            
            
            
            
            
            
            20,339
            
            
            
            
            
            
            
            
            21,427Other
      non-interest-earning assets
            
            66,628
            
            
            
            
            
            
            
            
            54,180
            
            
            
            
            
            
            
            
            59,589Total
      assets
            $
            881,532
            
            
            
            
            
            
            
            $
            902,259
            
            
            
            
            
            
            
            $
            832,039Interest-bearing
      liabilities:Regular
      savings accounts
            $
            29,526
            
            $
            162
            
            0.55
            
            
            $
            27,138
            
            $
            149
            
            0.55
            
            
            $
            27,403
            
            $
            151
            
            0.55Interest
      checking
            
            79,444
            
            
            331
            
            0.42
            
            
            
            86,986
            
            
            983
            
            1.13
            
            
            
            129,552
            
            
            3,906
            
            3.02Money
      market accounts
            
            192,064
            
            
            2,360
            
            1.23
            
            
            
            173,853
            
            
            3,810
            
            2.19
            
            
            
            219,528
            
            
            8,882
            
            4.05Certificates
      of deposit
            
            277,639
            
            
            6,782
            
            2.44
            
            
            
            282,055
            
            
            10,337
            
            3.66
            
            
            
            197,049
            
            
            9,204
            
            4.67Total
      interest-bearing deposits
            
            578,673
            
            
            9,635
            
            1.67
            
            
            
            570,032
            
            
            15,279
            
            2.68
            
            
            
            573,532
            
            
            22,143
            
            3.86Other
      interest-bearing liabilities
            
            118,408
            
            
            1,741
            
            1.47
            
            
            
            150,681
            
            
            3,904
            
            2.59
            
            
            
            69,733
            
            
            3,587
            
            5.14Total
      interest-bearing liabilities
            
            697,081
            
            
            11,376
            
            1.63
            
            
            
            720,713
            
            
            19,183
            
            2.66
            
            
            
            643,265
            
            
            25,730
            
            4.00Non-interest-bearing
      liabilities:Non-interest-bearing
      deposits
            
            87,508
            
            
            
            
            
            
            
            
            81,566
            
            
            
            
            
            
            
            
            82,776Other
      liabilities
            
            6,197
            
            
            
            
            
            
            
            
            7,108
            
            
            
            
            
            
            
            
            9,068Total
      liabilities
            
            790,786
            
            
            
            
            
            
            
            
            809,387
            
            
            
            
            
            
            
            
            735,109Shareholders’
      equity
            
            90,746
            
            
            
            
            
            
            
            
            92,872
            
            
            
            
            
            
            
            
            96,930Total
      liabilities and shareholders’ equity
            $
            881,532
            
            
            
            
            
            
            
            $
            902,259
            
            
            
            
            
            
            
            $
            832,039Net
      interest income
            
            
            
            $
            34,940
            
            
            
            
            
            
            
            $
            33,738
            
            
            
            
            
            
            
            $
            35,025Interest
      rate spread
            
            
            
            
            
            
            4.19
            %
            
            
            
            
            
            
            
            3.73
            %
            
            
            
            
            
            
            
            4.09
            %Net
      interest margin
            
            
            
            
            
            
            4.39
            %
            
            
            
            
            
            
            
            4.08
            %
            
            
            
            
            
            
            
            4.66
            %Ratio
      of average interest-earning assets
              to
      average interest-bearing liabilities
            
            
            
            
            
            
            114.21
            %
            
            
            
            
            
            
            
            114.85
            %
            
            
            
            
            
            
            
            116.75
            %Tax
      Equivalent Adjustment (2)
            
            
            
            $
            54
            
            
            
            
            
            
            
            $
            71
            
            
            
            
            
            
            
            $
            73(1)
      For purposes of the computation of average yield on investments available
      for sale, historical cost balances were utilized, therefore, the yield
      information does not give effect to change in fair value that are
      reflected as a component of shareholders’ equity.(2)
      Tax-equivalent adjustment relates to non-taxable investment interest
      income and preferred equity securities dividend income.  The
      federal statutory tax rate was 34% for all years
  presented.





61


Rate/Volume
Analysis





The
following table sets forth the effects of changing rates and volumes on net
interest income of the Company. Information is provided with respect to: (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) effects on interest income attributable to
changes in rate (changes in rate multiplied by prior volume); and (iii) changes
in rate/volume (change in rate multiplied by change in volume). Rate/volume
variance is allocated based on the percentage relationship of changes in volume
and changes in rate to the total net change.





Year
      Ended March 31,2010
      vs. 2009
            
            2009
      vs. 2008Increase
      (Decrease) Due to
            
            
            
            
            
            Increase
      (Decrease) Due toTotal
            
            
            
            
            
            
            
            
            TotalIncrease
            
            
            
            
            
            
            
            
            IncreaseVolume
            
            Rate
            
            (Decrease)
            
            
            Volume
            
            Rate
            
            (Decrease)(in
      thousands)Interest
      Income:Mortgage
      loans
            $
            (1,570
            )
            $
            (3,315
            )
            $
            (4,885
            )
            
            $
            5,714
            
            $
            (11,162
            )
            $
            (5,448
            )Non-mortgage
      loans
            
            (602
            )
            
            (721
            )
            
            (1,323
            )
            
            
            1,076
            
            
            (2,492
            )
            
            (1,416
            )Mortgage-backed
      securities
            
            (59
            )
            
            (16
            )
            
            (75
            )
            
            
            (73
            )
            
            (39
            )
            
            (112
            )Investment
      securities (1)
            
            46
            
            
            (236
            )
            
            (190
            )
            
            
            (87
            )
            
            (1
            )
            
            (88
            )Daily
      interest-bearing
            
            (55
            )
            
            (56
            )
            
            (111
            )
            
            
            (303
            )
            
            (468
            )
            
            (771
            )Other
      earning assets
            
            79
            
            
            (100
            )
            
            (21
            )
            
            
            7
            
            
            (6
            )
            
            1Total
      interest income
            
            (2,161
            )
            
            (4,444
            )
            
            (6,605
            )
            
            
            6,334
            
            
            (14,168
            )
            
            (7,834
            )Interest
      Expense:Regular
      savings accounts
            
            13
            
            
            -
            
            
            13
            
            
            
            (2
            )
            
            -
            
            
            (2
            )Interest
      checking accounts
            
            (79
            )
            
            (573
            )
            
            (652
            )
            
            
            (1,006
            )
            
            (1,917
            )
            
            (2,923
            )Money
      market deposit accounts
            
            364
            
            
            (1,814
            )
            
            (1,450
            )
            
            
            (1,582
            )
            
            (3,490
            )
            
            (5,072
            )Certificates
      of deposit
            
            (160
            )
            
            (3,395
            )
            
            (3,555
            )
            
            
            3,406
            
            
            (2,273
            )
            
            1,133Other
      interest-bearing liabilities
            
            (716
            )
            
            (1,447
            )
            
            (2,163
            )
            
            
            2,714
            
            
            (2,397
            )
            
            317Total
      interest expense
            
            (578
            )
            
            (7,229
            )
            
            (7,807
            )
            
            
            3,530
            
            
            (10,077
            )
            
            (6,547
            )Net
      interest income
            $
            (1,583
            )
            $
            2,785
            
            $
            1,202
            
            
            $
            2,804
            
            $
            (4,091
            )
            $
            (1,287
            )(1)
      Interest is presented on a fully tax-equivalent basis under a tax rate of
      34%





Asset
and Liability Management





The
Company's principal financial objective is to achieve long-term profitability
while reducing its exposure to fluctuating market interest rates. The Company
has sought to reduce the exposure of its earnings to changes in market interest
rates by attempting to manage the difference between asset and liability
maturities and interest rates. The principal element in achieving this objective
is to increase the interest rate sensitivity of the Company's interest-earning
assets and interest-bearing liabilities. Interest rate sensitivity increases by
retaining portfolio loans with interest rates subject to periodic adjustment to
market conditions and selling fixed-rate one-to-four family mortgage loans with
terms to maturity of more than 15 years. The Company relies on retail deposits
as its primary source of funds. Management believes retail deposits reduce the
effects of interest rate fluctuations because they generally represent a stable
source of funds. As part of its interest rate risk management strategy, the
Company promotes transaction accounts and certificates of deposit with terms up
to ten years.





The
Company has adopted a strategy that is designed to maintain or improve the
interest rate sensitivity of assets relative to its liabilities.  The
primary elements of this strategy involve: the origination of adjustable rate
loans; increasing commercial loans, consumer loans that are adjustable rate and
other short-term loans loans as a portion of total net loans receivable because
of their generally shorter terms and higher yields than other one-to-four family
residential mortgage loans; matching asset and liability maturities; investing
in short-term securities; and the origination of fixed-rate loans for sale in
the secondary market and the retention of the related loan servicing rights. The
strategy for liabilities has been to shorten the maturities for both deposits
and borrowings. This approach has remained consistent throughout the past year,
as the Company has experienced a change in the mix of loans, deposits, FRB
borrowings and FHLB advances.


The
Company's mortgage servicing activities provide additional protection from
interest rate risk.  The Company retains servicing rights on all
mortgage loans sold.  As market interest rates rise, the fixed rate
loans held in portfolio diminish in








62


value.  However,
the value of the servicing portfolio tends to rise as market interest rates
increase because borrowers tend not to prepay the underlying mortgages, thus
providing an interest rate risk hedge versus the fixed rate loan portfolio.
Loans serviced for others totaled $129.5 million of which $115.4 million is
serviced for FHLMC at March 31, 2010. See "Item 1.  Business --
Lending Activities -- Mortgage Loan Servicing."





Consumer
loans, such as home equity lines of credit and installment loans, commercial
loans and construction loans typically have shorter terms and higher yields than
permanent residential mortgage loans, and accordingly reduce the Company's
exposure to fluctuations in interest rates. Adjustable interest rate loans
totaled $545.6 million or 74.3% of total loans at March 31, 2010 as compared to
$618.9 million or 77.2% at March 31, 2009. Although the Company has sought to
originate adjustable rate loans, the ability to originate and purchase such
loans depends to a great extent on market interest rates and borrowers'
preferences. Particularly in lower interest rate environments, borrowers often
prefer to obtain fixed rate loans. See Item 1. “Business - Lending Activities -
Construction Lending" and " - Lending Activities - Consumer
Lending."





The
Company may also invest in short-term to medium-term U.S. Government securities
as well as mortgage-backed securities issued or guaranteed by U.S. Government
agencies.  At March 31, 2010, the combined portfolio carried at $10.4
million had an average term to repricing or maturity of 3.48
years.  Adjustable rate mortgage-backed securities totaled $623,000 at
March 31, 2010 compared to $1.0 million at March 31, 2009.  See Item
1. “Business -- Investment Activities."





Liquidity
and Capital Resources





Liquidity
is essential to our business.  The objective of the Bank’s liquidity
management is to maintain ample cash flows to meet obligations for depositor
withdrawals, fund the borrowing needs of loan customers, and to fund ongoing
operations.  Core relationship deposits are the primary source of the
Bank’s liquidity.  As such, the Bank focuses on deposit relationships
with local consumer and business clients who maintain multiple accounts and
services at the Bank. With the significant downturn in economic conditions our
customers in general have experienced reduced funds available to deposit in the
Bank.  Despite these difficult economic conditions, customer
relationship deposit balances increased $51.3 million over fiscal year 2010,
including an increase in money market accounts of approximately $31.1 million.
Total deposits were $688.0 million at March 31, 2010 compared to $670.1 million
at March 31, 2009. The growth in deposits; coupled with the decrease in the loan
portfolio, provided the Company with the funds to reduce its secured borrowings
from FHLB and FRB. The Company continues to focus on reducing its use of secured
borrowings. During the year ended March 31, 2010, the Company reduced its FHLB
and FRB borrowings by $89.9 million to $33.0 million, compared to $122.9 million
at March 31, 2009.





In
response to the adverse economic conditions, the Company has been, and will
continue to work toward reducing the amount of nonperforming assets, adjusting
the balance sheet by reducing loans and other assets as possible, reducing
controllable operating costs, and augmenting deposits while striving to maximize
secured borrowing facilities to improve liquidity and preserve capital over the
coming fiscal year.  However, the Company’s inability to successfully
implement its plans or further deterioration in economic conditions and real
estate prices could have a material adverse effect on the Company’s
liquidity.  During fiscal year 2010, the Company enrolled in an
Internet deposit listing service. Under this listing service, the Company may
post time deposit rates on an internet site where institutional investors have
the ability to deposit funds with the Company. During fiscal year 2010, the
Company used this listing service as an additional source of funding and to
further diversify its funding sources. These deposits carry a lower interest
rate than the Company core branch deposits. As of March 31, 2010, the Company
had deposits totaling $24.5 million through this listing service.





Liquidity
management is both a short- and long-term responsibility of the Company's
management.  The Company adjusts its investments in liquid assets
based upon management's assessment of (i) expected loan demand, (ii) projected
loan sales, (iii) expected deposit flows, (iv) yields available on
interest-bearing deposits and (v) its asset/liability management program
objectives.  Excess liquidity is invested generally in
interest-bearing overnight deposits and other short-term government and agency
obligations.  If the Company requires funds beyond its ability to
generate them internally, it has additional diversified and reliable sources of
funds with the FHLB, the FRB, and other wholesale facilities. These sources of
funds may be used on a long or short-term basis to compensate for reduction in
other sources of funds or on a long-term basis to support lending activities. In
the first quarter of fiscal 2011, we elected to defer regularly scheduled
interest payments on our outstanding $22.7 million aggregate principal amount of
junior subordinated debentures issued in connection with the sale of trust
preferred securities through statutory business trusts. This deferral may
adversely affect our ability to access wholesale funding facilities or obtain
other debt financing on commercially reasonable terms, or at all. For more
information concerning limitations on our ability to incur additional debt and
the risks related to our recent deferral of interest on our trust preferred
securities, see Item 1A. “Risk Factors – Risks Related to our Business – We are
required to comply with the terms of two memoranda of understanding and a
supervisory letter directive issued by the OTS and lack of compliance could
result in monetary penalties and /or additional regulatory actions.” And “--We
have deferred payments of interest on our








63








outstanding
junior subordinated debentures and as a result we are prohibited from declaring
or paying dividends or distributions on, and from making liquidation payments
with respect to, our common stock.”





The
Company's primary source of funds is customer deposits, proceeds from principal
and interest payments on loans, the sale of loans, maturing securities, FHLB
advances and FRB borrowings. While maturities and scheduled amortization of
loans and securities are a predictable source of funds, deposit flows and
prepayment of mortgage loans and mortgage-backed securities are greatly
influenced by general interest rates, economic conditions and
competition.  Management believes that its focus on core relationship
deposits coupled with access to borrowing through reliable counterparties
provides reasonable and prudent assurance that ample liquidity is
available.  However, depositor or counterparty behavior could change
in response to competition, economic or market situations or other unforeseen
circumstances, which could have liquidity implications that may require
different strategic or operational actions.





The
Company must maintain an adequate level of liquidity to ensure the availability
of sufficient funds in order to fund loan originations and deposit withdrawals,
satisfy other financial commitments and to take advantage of investment
opportunities. We generally maintain cash and readily marketable securities to
meet a portion of our short-term liquidity needs; however, our primary liquidity
management practice is to increase or decrease short-term borrowings, including
FHLB advances and FRB borrowings.  At March 31, 2010, advances from
FHLB totaled $23.0 million and the Bank had additional borrowing capacity
available of $157.0 million from the FHLB, subject to sufficient collateral and
stock investment.  At March 31, 2010, borrowings from the FRB totaled
$10.0 million and the Bank had additional borrowing capacity of $120.7 million
from the FRB, subject to sufficient collateral. At March 31, 2010, the Bank had
sufficient unpledged collateral to allow it to utilize its available borrowing
capacity from the FRB and FHLB. Borrowing capacity from FHLB or FRB may
fluctuate based on acceptability and risk rating of loan collateral and
counterparties could adjust discount rates applied to such collateral at their
discretion.





An
additional source of wholesale funding includes brokered certificate of
deposits.  The Company has historically not relied on brokered
deposits to fund its operations.  At March 31, 2010, the Company had
no brokered deposits, compared to $19.9 million at March 31, 2009, exclusive of
CDARS deposits.  The Bank participates in the CDARS product, which
allows the Bank to accept deposits in excess of the FDIC insurance limits for
that depositor and obtain “pass-through” insurance for the total
deposit.  The Bank’s CDARS balance was $31.9 million, or 4.6% of total
deposits, and $22.2 million, or 3.3% of total deposits, at March 31, 2010 and
March 31, 2009, respectively.  With news of bank failures and
increased levels of distress in the financial services industry and growing
customer concern with FDIC insurance limits, customer interest in and demand for
CDARS deposits has remained strong with continued renewals of existing CDARS
deposits and the opening of new accounts.





On June
9, 2009, the OTS informed the Bank that it was restricting the Bank’s brokered
deposits to 10% of total deposits (including CDARS).  At March 31,
2010 and June 9, 2009, the Company did not have any wholesale-brokered deposits.
At June 9, 2009, the Company had $20.4 million in CDARS deposits, which
represented 3.2% of total deposits. The combination of all the Bank’s funding
sources, gives the Bank available liquidity of $318.3 million, or 37.9% of total
assets at March 31, 2010.





Under the
TLGP, all noninterest-bearing transaction accounts, IOLTA accounts (or interest
on lawyer’s trust accounts), and certain NOW accounts are fully guaranteed by
the FDIC for the entire amount in the account.  The Bank has elected
to participate in this program at an additional cost to the
Bank.  Other deposits maintained at the Bank are also insured by the
FDIC up to $250,000 per account owner through December 31, 2013.





At March
31, 2010, the
Company had commitments to extend credit of $104.0 million.  The
Company anticipates that it will have sufficient funds available to meet current
loan commitments.  Certificates of deposit that are scheduled to
mature in less than one year from March 31, 2010 totaled $244.1
million.  Historically, the Company has been able to retain a
significant amount of its deposits as they mature.  Offsetting these
cash outflows are scheduled loan maturities of less than one year totaling
$217.3 million at March 31, 2010.





Sources
of capital and liquidity for the Company include distributions from the Bank and
the issuance of debt or equity securities. Dividends and other capital
distributions from the Bank arise from the cash flow and earnings of the Bank,
which distributions are subject to regulatory restriction and approval. To the
extent the Bank cannot pay dividends to the Company, the Company may not have
sufficient funds to pay dividends to its stockholders or may be forced to defer
interest payments on its subordinated debentures, which in turn, may restrict
the Company’s ability to pay dividends on its common stock.





OTS
regulations require the Bank to maintain specific amounts of regulatory
capital.  For a detailed discussion of regulatory capital
requirements, see "Regulation -- Federal Regulation of Savings Associations --
Capital Requirements" and Note 17 of








64





the Notes
to the Consolidated Financial Statements contained in Item 8 of this Form
10-K.  In this regard, as part of our strategic planning; the Company
has filed a registration statement in connection with a proposed public offering
of its common stock.





Effect
of Inflation and Changing Prices





The
Consolidated Financial Statements and related financial data presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time due
to inflation.  The primary impact of inflation is reflected in the
increased cost of the Company's operations.  Unlike most industrial
companies, virtually all the assets and liabilities of a financial institution
are monetary in nature.  As a result, interest rates generally have a
more significant impact on a financial institution's performance than do general
levels of inflation.  Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and
services.





New
Accounting Pronouncements





For a
discussion of new accounting pronouncement and their impact on the Company, see
Note 1 of the Notes to the Consolidated Financial Statements included in Item 8
of this Form 10-K.





Contractual
Obligations





The
following table shows the contractual obligations by expected period. Further
discussion of these commitments is included in Note 21 of the Notes to the
Consolidated Financial Statements included in Item 8 of this Form
10-K.





At March
31, 2010,
scheduled maturities of certificates of deposit, FRB borrowings, FHLB advances,
future operating minimum lease commitments, capital lease obligations and
subordinated debentures were as follows (in thousands):





Within
              1
      Year
            
            
            Over
              1
      to 3
              Years
            
            
            Over
              3
      - 5
              Years
            
            
            After
              5
      Years
            
            
            Total
              BalanceCertificates
      of deposit
            $
            244,090
            
            $
            37,939
            
            $
            7,801
            
            $
            1,876
            
            $
            291,706FRB
      borrowings
            
            10,000
            
            
            -
            
            
            -
            
            
            -
            
            
            10,000FHLB
      advances
            
            23,000
            
            
            -
            
            
            -
            
            
            -
            
            
            23,000Operating
      leases
            
            1,264
            
            
            2,098
            
            
            2,058
            
            
            4,683
            
            
            10,103Capital
      leases
            
            43
            
            
            127
            
            
            163
            
            
            2,277
            
            
            2,610Junior
      subordinates debentures
            
            -
            
            
            -
            
            
            -
            
            
            22,681
            
            
            22,681Total
      other contractual obligations
            $
            278,397
            
            $
            40,164
            
            $
            10,022
            
            $
            31,517
            
            $
            360,100





The
Company is party to litigation arising in the ordinary course of
business.  In the opinion of management, these actions will not have a
material adverse effect, if any, on the Company’s financial position, results of
operations, or liquidity.





The Bank
has entered into employment contracts with certain key employees, which provide
for contingent payment subject to future events.





Off-Balance
Sheet Arrangements





The
Company is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments generally include commitments to originate mortgage,
commercial and consumer loans. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the balance sheet. The Company’s maximum exposure to credit loss in the event of
nonperformance by the borrower is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments as
it does for on-balance sheet instruments. Commitments to originate loans are
conditional, and are honored for up to 45 days subject to the Company’s usual
terms and conditions. Collateral is not required to support
commitments.





At March
31, 2010, the Company had outstanding real estate one-to-four family loan
commitments of $1.4 million and unused lines of credit secured by real estate
one-to-four family loans of $18.7 million.  Other installment loan
commitments totaled $349,000 and unused lines of credit on other installment
loans totaled $1.0 million at March 31, 2010.  Commercial real estate
mortgage loan commitments totaled $10.6 million and the undisbursed balance of
commercial real estate mortgage loans closed was $2.8 million at March 31,
2010.  Commercial loan commitments totaled $75,000, undisbursed








65





balances
of commercial loans totaled $5.0 million and unused commercial lines of credit
totaled $51.1 million at March 31, 2010.  At March 31, 2010, there
were no construction loan commitments. Unused construction lines of credit
totaled $13.2 million at March 31, 2010.  For additional information
regarding future financial commitments, this discussion and analysis should be
read in conjunction with Note 21 of the Notes to the Consolidated Financial
Statements contained in Item 8 of this Form 10-K.





Item 7A. Quantitative and
Qualitative Disclosures About Market Risk





Quantitative Aspects of Market
Risk.  The Company does not maintain a trading account for any
class of financial instrument nor does it engage in hedging activities or
purchase high-risk derivative instruments.  Furthermore, the Company
is not subject to foreign currency exchange rate risk or commodity price
risk.  For information regarding the sensitivity to interest rate risk
of the Company's interest-earning assets and interest-bearing liabilities, see
the tables under Item 1.  “Business -- Lending
Activities,”  “-- Investment Activities” and “-- Deposit Activities
and Other Sources of Funds” contained herein.





Qualitative Aspects of Market
Risk.  The Company's principal financial objective is to
achieve long-term profitability while limiting its exposure to fluctuating
market interest rates.  The Company intends to reduce risk where
appropriate but accepts a degree of risk when warranted by economic
circumstances.  The Company has sought to reduce the exposure of its
earnings to changes in market interest rates by attempting to manage the
mismatch between asset and liability maturities and interest
rates.  The principal element in achieving this objective is to
increase the interest rate sensitivity of the Company's interest-earning assets
by retainingin itsportfolio, short–term loans and loans with interest rates subject to
periodic adjustments.  The Company relies on retail deposits as its
primary source of funds.  As part of its interest rate risk management
strategy, the Company promotes transaction accounts and certificates of deposit
with terms up to ten years.





Consumer
and commercial loans are originated and held in portfolio as the short term
nature of these portfolio loans match durations more closely with the short term
nature of retail deposits such as interest checking, money market accounts and
savings accounts. The Company relies on retail deposits as its primary source of
funds. Management believes retail deposits reduce the effects of interest rate
fluctuations because they generally represent a more stable source of funds. As
part of its interest rate risk management strategy, the Company promotes
transaction accounts and certificates of deposit with longer terms to maturity.
Except for immediate short-term cash needs, and depending on the current
interest rate environment, FHLB advances will have maturities of long or short
term. FRB borrowings have short term maturities. For additional information, see
Item 7. “Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained herein.





A number
of measures are utilized to monitor and manage interest rate risk, including
simulation modeling and traditional interest rate gap analysis. While both
methods provide an indication of risk for a given change in interest rates, the
simulation model is primarily used to assess the impact on earning changes in
interest rates may produce. Key assumptions in the model include cash flows and
maturities of financial instruments, changes in market conditions, loan volumes
and pricing, deposit sensitivity, consumer preferences and management’s capital
leverage plans. These assumptions are inherently uncertain; therefore, the model
cannot precisely estimate net interest income or precisely predict the impact of
higher or lower interest rates on net interest income. Actual results may
significantly differ from simulated results due to timing, magnitude and
frequency of interest rate changes and changes in market conditions and specific
strategies among other factors.





The
following tables show the approximate percentage change in net interest income
as of March 31, 2010 over a 24-month period under several rate
scenarios.




Change
      in interest rates
            
            Percent
      change in net
              interest
      income (12 months)
            
            Percent
      change in net
              interest
      income (24 months)Up
      200 basis points
            
            (4.3%)
            
            (8.4%)Base
      case
            
            -
            
            (1.2%)Down
      100 basis points
            
            1.6%
            
            0.8%





Our
balance sheet continues to be slightly asset sensitive, meaning that
interest-earning assets reprice faster than interest-bearing liabilities in a
given period.  However, due to a number of loans in our loan portfolio
with interest rate floors, our net interest income will be negatively impacted
in a rising interest rate environment until such time as the current rate
exceeds these interest rate floors.  Conversely, in a falling interest
rate environment these interest rate floors will assist in maintaining our net
interest income.  We attempt to limit our interest rate risk through
managing the repricing characteristics of our assets and
liabilities.






66





As with
any method of measuring interest rate risk, certain shortcomings are inherent in
the method of analysis presented in the foregoing table.  For example,
although certain assets and liabilities may have similar maturities or periods
of repricing, they may react in different degrees to changes in market interest
rates.  Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market
rates.  Additionally, certain assets, such as ARM loans, have features
which restrict changes in interest rates on a short-term basis and over the life
of the asset.  Furthermore, in the event of a change in interest
rates, expected rates of prepayments on loans and early withdrawals from
certificates could deviate significantly from those assumed in calculating the
table.





The
following table shows the Company's financial instruments that are sensitive to
changes in interest rates, categorized by expected maturity, and the
instruments' fair values at March 31, 2010.  Market risk sensitive
instruments are generally defined as on- and off-balance sheet derivatives and
other financial instruments.





Average
              Rate
            
            
            
            Within
              1
      Year
            
            
            After
              1
      - 3
              Years
            
            
            After
              3
      - 5
              Years
            
            
            After
              5
      - 10
              Years
            
            
            Beyond
              10
              Years
            
            
            TotalInterest-Sensitive
      Assets:
            
            
            
            (Dollars
      in thousands)Loans
      receivable
            6.12
            %
            
            $
            217,311
            
            $
            78,111
            
            $
            78,278
            
            $
            288,884
            
            $
            71,895
            
            $
            734,479Mortgage-backedsecurities
            3.70
            
            
            
            633
            
            
            2,454
            
            
            -
            
            
            -
            
            
            -
            
            
            3,087Investments
      and otherinterest-earning
      assets
            2.66
            
            
            
            9,443
            
            
            -
            
            
            -
            
            
            517
            
            
            743
            
            
            10,703FHLB
      stock
            -
            
            
            
            1,470
            
            
            2,940
            
            
            2,940
            
            
            -
            
            
            -
            
            
            7,350Total
      assets
            
            
            
            $
            228,857
            
            $
            83,505
            
            $
            81,218
            
            $
            289,401
            
            $
            72,638
            
            $
            755,619Interest-Sensitive
      Liabilities:Interest
      checking
            0.34
            
            
            $
            14,167
            
            $
            28,335
            
            $
            28,335
            
            $
            -
            
            $
            -
            
            $
            70,837Savings
      accounts
            0.55
            
            
            
            6,427
            
            
            12,852
            
            
            12,852
            
            
            -
            
            
            -
            
            
            32,131Money
      market accounts
            1.04
            
            
            
            41,916
            
            
            83,832
            
            
            83,832
            
            
            -
            
            
            -
            
            
            209,580Certificate
      accounts
            1.86
            
            
            
            244,090
            
            
            37,939
            
            
            7,801
            
            
            1,876
            
            
            -
            
            
            291,706FHLB
      advances
            0.63
            
            
            
            23,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            23,000FRB
      borrowings
            0.50
            
            
            
            10,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            10,000Subordinated
      debentures
            5.31
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            22,681
            
            
            22,681Obligations
      under capital lease
            7.16
            
            
            
            43
            
            
            127
            
            
            164
            
            
            528
            
            
            1,748
            
            
            2,610Total
      liabilities
            
            
            
            
            339,643
            
            
            163,085
            
            
            132,984
            
            
            2,404
            
            
            24,429
            
            
            662,545Interest
      sensitivity gap
            
            
            
            
            (110,786
            )
            
            (79,580
            )
            
            (51,766
            )
            
            286,997
            
            
            48,209
            
            $
            93,074Cumulative
      interest sensitivity gap
            
            
            
            $
            (110,786
            )
            $
            (190,366
            )
            $
            (242,132
            )
            $
            44,865
            
            $
            93,074Off-Balance
      Sheet Items:Commitments
      to extend credit
            -
            
            
            $
            12,375
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            12,375Unused
      lines of credit
            -
            
            
            $
            91,611
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            $
            91,611





67


Item
8.   Financial Statements and Supplementary
Data





RIVERVIEW
BANCORP, INC. AND SUBSIDIARY




Consolidated
Financial Statements for the Years Ended March 31, 2010, 2009 and
2008


Report of
Independent Registered Public Accounting Firm








TABLE
      OF CONTENTSPageReport
      of Independent Registered Public Accounting Firm – Deloitte & Touche
      LLP
            69Consolidated
      Balance Sheets as of March 31, 2010 and 2009
            70Consolidated
      Statements of Operations for the Years Ended March 31, 2010, 2009 and
      2008
            71Consolidated
      Statements of Shareholders’ Equity for the Years Ended March 31, 2010,
      2009 and 2008
            72Consolidated
      Statements of Cash Flows for the Years Ended March 31, 2010, 2009 and
      2008
            73Notes
      to Consolidated Financial Statements
            74





68




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






To the
Board of Directors and Shareholders of


Riverview
Bancorp, Inc.


Vancouver,
Washington




We have
audited the accompanying consolidated balance sheets of Riverview Bancorp, Inc.
and subsidiary (the "Company") as of March 31, 2010 and 2009, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended March 31, 2010.These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on the financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Riverview Bancorp, Inc. and subsidiary as of
March 31, 2010 and 2009, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 2010, in
conformity with accounting principles generally accepted in the United States of
America.





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of March 31, 2010, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated May 28, 2010 expressed an unqualified
opinion on the Company's internal control over financial reporting.









Portland,
Oregon


May 28,
2010




69







RIVERVIEW
BANCORP, INC. AND SUBSIDIARY




CONSOLIDATED
BALANCE SHEETS


MARCH
31, 2010 AND 2009





(In
      thousands, except share and per share data)
            
            2010
            
            
            2009ASSETSCash
      and cash equivalents (including interest-earning accounts of $3,384 and
      $6,405)
            $
            13,587
            
            $
            19,199Loans
      held for sale
            
            255
            
            
            1,332Investment
      securities held to maturity, at amortized cost
              (fair
      value of $573 and $552)
            
            517
            
            
            529Investment
      securities available for sale, at fair value
              (amortized
      cost of $8,706 and $11,244)
            
            6,802
            
            
            8,490Mortgage-backed
      securities held to maturity, at amortized
              cost
      (fair value of $265 and $572)
            
            259
            
            
            570Mortgage-backed
      securities available for sale, at fair value
              (amortized
      cost of $2,746 and $3,991)
            
            2,828
            
            
            4,066Loans
      receivable (net of allowance for loan losses of $21,642 and
      $16,974)
            
            712,837
            
            
            784,117Real
      estate and other personal property owned
            
            13,325
            
            
            14,171Prepaid
      expenses and other assets
            
            7,934
            
            
            2,518Accrued
      interest receivable
            
            2,849
            
            
            3,054Federal
      Home Loan Bank stock, at cost
            
            7,350
            
            
            7,350Premises
      and equipment, net
            
            16,487
            
            
            19,514Deferred
      income taxes, net
            
            11,177
            
            
            8,209Mortgage
      servicing rights, net
            
            509
            
            
            468Goodwill
            
            25,572
            
            
            25,572Core
      deposit intangible, net
            
            314
            
            
            425Bank
      owned life insurance
            
            15,351
            
            
            14,749TOTAL
      ASSETS
            $
            837,953
            
            $
            914,333LIABILITIES
      AND EQUITYLIABILITIES:Deposit
      accounts
            $
            688,048
            
            $
            670,066Accrued
      expenses and other liabilities
            
            6,833
            
            
            6,700Advanced
      payments by borrowers for taxes and insurance
            
            427
            
            
            360Federal
      Home Loan Bank advances
            
            23,000
            
            
            37,850Federal
      Reserve Bank borrowings
            
            10,000
            
            
            85,000Junior
      subordinated debentures
            
            22,681
            
            
            22,681Capital
      lease obligations
            
            2,610
            
            
            2,649Total
      liabilities
            
            753,599
            
            
            825,306COMMITMENTS
      AND CONTINGENCIES (See Note 21)EQUITY:Shareholders’
      equitySerial
      preferred stock, $.01 par value; 250,000 authorized, issued and
      outstanding: none
            
            -
            
            
            -Common
      stock, $.01 par value; 50,000,000 authorizedMarch
      31, 2010 – 10,923,773 issued and outstanding
            
            109
            
            
            109March
      31, 2009 – 10,923,773 issued and outstandingAdditional
      paid-in capital
            
            46,948
            
            
            46,866Retained
      earnings
            
            38,878
            
            
            44,322Unearned
      shares issued to employee stock ownership trust
            
            (799
            )
            
            (902
            )Accumulated
      other comprehensive loss
            
            (1,202
            )
            
            (1,732
            )Total
      shareholders’ equity
            
            83,934
            
            
            88,663Noncontrolling
      interest
            
            420
            
            
            364Total
      equity
            
            84,354
            
            
            89,027TOTAL
      LIABILITIES AND EQUITY
            $
            837,953
            
            $
            914,333


See
notes to consolidated financial statements.


70


RIVERVIEW
BANCORP, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF OPERATIONS


YEARS
ENDED MARCH 31, 2010, 2009 AND 2008





(Dollars
      in thousands, except share data)
            
            2010
            
            
            
            2009
            
            
            
            2008INTEREST
      AND DIVIDEND INCOME:Interest
      and fees on loans receivable
            $
            45,675
            
            
            $
            51,883
            
            
            $
            58,747Interest
      on investment securities – taxable
            
            267
            
            
            
            407
            
            
            
            488Interest
      on investment securities – non taxable
            
            104
            
            
            
            137
            
            
            
            142Interest
      on mortgage-backed securities
            
            136
            
            
            
            211
            
            
            
            323Other
      interest and dividends
            
            80
            
            
            
            212
            
            
            
            982Total
      interest and dividend income
            
            46,262
            
            
            
            52,850
            
            
            
            60,682INTEREST
      EXPENSE:Interest
      on deposits
            
            9,635
            
            
            
            15,279
            
            
            
            22,143Interest
      on borrowings
            
            1,741
            
            
            
            3,904
            
            
            
            3,587Total
      interest expense
            
            11,376
            
            
            
            19,183
            
            
            
            25,730Net
      interest income
            
            34,886
            
            
            
            33,667
            
            
            
            34,952Less
      provision for loan losses
            
            15,900
            
            
            
            16,150
            
            
            
            2,900Net
      interest income after provision for loan losses
            
            18,986
            
            
            
            17,517
            
            
            
            32,052NON-INTEREST
      INCOME:Fees
      and service charges
            
            4,513
            
            
            
            4,669
            
            
            
            5,346Asset
      management fees
            
            1,885
            
            
            
            2,077
            
            
            
            2,145Net
      gain on sale of loans held for sale
            
            887
            
            
            
            729
            
            
            
            368Impairment
      on investment security
            
            (1,003
            )
            
            
            (3,414
            )
            
            
            -Bank
      owned life insurance
            
            603
            
            
            
            573
            
            
            
            562Other
            
            381
            
            
            
            896
            
            
            
            461Total
      non-interest income
            
            7,266
            
            
            
            5,530
            
            
            
            8,882NON-INTEREST
      EXPENSE:Salaries
      and employee benefits
            
            15,326
            
            
            
            15,080
            
            
            
            16,249Occupancy
      and depreciation
            
            4,814
            
            
            
            5,064
            
            
            
            5,146Data
      processing
            
            957
            
            
            
            841
            
            
            
            786Amortization
      of core deposit intangible
            
            111
            
            
            
            131
            
            
            
            155Advertising
      and marketing expense
            
            627
            
            
            
            727
            
            
            
            1,054FDIC
      insurance premium
            
            1,912
            
            
            
            760
            
            
            
            210State
      and local taxes
            
            732
            
            
            
            668
            
            
            
            741Telecommunications
            
            440
            
            
            
            466
            
            
            
            406Professional
      fees
            
            1,317
            
            
            
            1,110
            
            
            
            826Real
      estate owned expenses
            
            6,421
            
            
            
            317
            
            
            
            22Other
            
            2,316
            
            
            
            2,095
            
            
            
            2,196Total
      non-interest expense
            
            34,973
            
            
            
            27,259
            
            
            
            27,791INCOME
      (LOSS) BEFORE INCOME TAXES
            
            (8,721
            )
            
            
            (4,212
            )
            
            
            13,143PROVISION
      (BENEFIT) FOR INCOME TAXES
            
            (3,277
            )
            
            
            (1,562
            )
            
            
            4,499NET
      INCOME (LOSS)
            $
            (5,444
            )
            
            $
            (2,650
            )
            
            $
            8,644Earnings
      (loss) per common share:Basic
            $
            (0.51
            )
            
            $
            (0.25
            )
            
            $
            0.79Diluted
            
            (0.51
            )
            
            
            (0.25
            )
            
            
            0.79Weighted
      average number of shares outstanding:Basic
            
            10,720,525
            
            
            
            10,693,795
            
            
            
            10,915,271Diluted
            
            10,720,525
            
            
            
            10,693,795
            
            
            
            11,006,673


See notes to consolidated financial
statements.


71


RIVERVIEW
BANCORP, INC. AND SUBSIDIARY




CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


YEARS ENDED MARCH 31, 2010, 2009 AND 2008


(In
      thousands, except share data)
            Common
      Stock
            
            
            Additional
      Paid-In Capital
            
            
            Retained
              Earnings
            
            
            Unearned
              Shares
              Issued
      to
              Employee
              Stock
      Ownership
              Trust
            
            
            Accumulated
              Other
              Comprehensive
              Loss
            
            
            Noncontrolling
      Interest
            
            
            TotalShares
            
            
            AmountBalance
      April 1, 2007
            
            11,707,980
            
            $
            117
            
            $
            58,438
            
            $
            42,848
            
            $
            (1,108
            )
            $
            (86
            )
            $
            221
            
            $
            100,430Cash
      dividends ($0.42 per share)
            
            -
            
            
            -
            
            
            -
            
            
            (4,556
            )
            
            -
            
            
            -
            
            
            -
            
            
            (4,556
            )Exercise
      of stock options
            
            95,620
            
            
            1
            
            
            707
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            708Stock
      repurchased and retired
            
            (889,827
            )
            
            (9
            )
            
            (12,634
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (12,643
            )ASC
      740 transition adjustment
            
            -
            
            
            -
            
            
            -
            
            
            (65
            )
            
            -
            
            
            -
            
            
            -
            
            
            (65
            )Earned
      ESOP shares
            
            -
            
            
            -
            
            
            282
            
            
            -
            
            
            132
            
            
            -
            
            
            -
            
            
            414Tax
      benefit, stock options
            
            -
            
            
            -
            
            
            6
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            610,913,773
            
            
            109
            
            
            46,799
            
            
            38,227
            
            
            (976
            )
            
            (86
            )
            
            221
            
            
            84,294Comprehensive
      income:Net
      income
            
            -
            
            
            -
            
            
            -
            
            
            8,644
            
            
            -
            
            
            -
            
            
            -
            
            
            8,644Other
      comprehensive income:Unrealized
      holding loss onsecurities
      of $132  (net of $69 tax effect)
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (132
            )
            
            -
            
            
            (132
            )Noncontrolling
      interest
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            71
            
            
            71Total
      comprehensive income
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8,583Balance
      March 31, 2008
            
            10,913,773
            
            
            109
            
            
            46,799
            
            
            46,871
            
            
            (976
            )
            
            (218
            )
            
            292
            
            
            92,877Cash
      dividends ($0.135 per share)
            
            -
            
            
            -
            
            
            -
            
            
            (1,441
            )
            
            -
            
            
            -
            
            
            -
            
            
            (1,441
            )Exercise
      of stock options
            
            10,000
            
            
            -
            
            
            96
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            96Earned
      ESOP shares
            
            -
            
            
            -
            
            
            (31
            )
            
            -
            
            
            74
            
            
            -
            
            
            -
            
            
            43Cumulative
      effect of adopting
              ASC
      320
            
            -
            
            
            -
            
            
            -
            
            
            1,542
            
            
            
            
            
            (1,542
            )
            
            -
            
            
            -Tax
      benefit, stock options
            
            -
            
            
            -
            
            
            2
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            210,923,773
            
            
            109
            
            
            46,866
            
            
            46,972
            
            
            (902
            )
            
            (1,760
            )
            
            292
            
            
            91,577Comprehensive
      loss:Net
      loss
            
            -
            
            
            -
            
            
            -
            
            
            (2,650
            )
            
            -
            
            
            -
            
            
            -
            
            
            (2,650
            )Other
      comprehensive loss:Unrealized
      holding gain onsecurities
      of $2,225  (net of $1,146 tax
              effect)
      less reclassification adjustment for
              net
      losses included in net income of $2,253
              (net
      of $1,161 tax effect)
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            28
            
            
            -
            
            
            28Noncontrolling
      interest
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            72
            
            
            72Total
      comprehensive loss
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,550
            )Balance
      March 31, 2009
            
            10,923,773
            
            
            109
            
            
            46,866
            
            
            44,322
            
            
            (902
            )
            
            (1,732
            )
            
            364
            
            
            89,027Stock
      option expense
            
            -
            
            
            -
            
            
            112
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            112Earned
      ESOP shares
            
            -
            
            
            -
            
            
            (30
            )
            
            
            
            
            103
            
            
            -
            
            
            -
            
            
            7310,923,773
            
            
            109
            
            
            46,948
            
            
            44,322
            
            
            (799
            )
            
            (1,732
            )
            
            364
            
            
            89,212Comprehensive
      loss:Net
      loss
            
            -
            
            
            -
            
            
            -
            
            
            (5,444
            )
            
            -
            
            
            -
            
            
            -
            
            
            (5,444
            )Other
      comprehensive loss:Unrealized
      holding gain on securities of
              $132
      (net of $14 tax effect) less
              reclassification
      adjustment for net losses
              included
      in net income of $662 (net of
              $341
      tax effect)
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            530
            
            
            -
            
            
            530Noncontrolling
      interest
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            56
            
            
            56Total
      comprehensive loss
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (4,858
            )Balance
      March 31, 2010
            
            10,923,773
            
            $
            109
            
            $
            46,948
            
            $
            38,878
            
            $
            (799
            )
            $
            (1,202
            )
            $
            420
            
            $
            84,354


See
notes to consolidated financial statements.






72





RIVERVIEW BANCORP, INC. AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF CASH FLOWS


YEARS ENDED MARCH 31, 2010, 2009 AND 2008


(Dollars
      in thousands)
            
            2010
            
            
            
            2009
            
            
            
            2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
            $
            (5,444
            )
            
            $
            (2,650
            )
            
            $
            8,644Adjustments
      to reconcile net income to cash provided by operating
      activities:Depreciation
      and amortization
            
            2,225
            
            
            
            2,320
            
            
            
            2,193Mortgage
      servicing rights valuation adjustment
            
            2
            
            
            
            (6
            )
            
            
            (28
            )Provision
      for loan losses
            
            15,900
            
            
            
            16,150
            
            
            
            2,900Benefit
      for deferred income taxes
            
            (3,295
            )
            
            
            (3,653
            )
            
            
            (395
            )Noncash
      expense related to ESOP
            
            73
            
            
            
            43
            
            
            
            414Increase
      (decrease) in deferred loan origination fees, net of
      amortization
            
            (31
            )
            
            
            179
            
            
            
            51Origination
      of loans held for sale
            
            (29,514
            )
            
            
            (27,997
            )
            
            
            (14,829
            )Proceeds
      from sales of loans held for sale
            
            30,851
            
            
            
            26,782
            
            
            
            14,895Stock
      based compensation
            
            112
            
            
            
            -
            
            
            
            -Excess
      tax benefit from stock based compensation
            
            -
            
            
            
            (11
            )
            
            
            (14
            )Writedown
      of real estate owned
            
            4,794
            
            
            
            100
            
            
            
            9Loss
      on impairment of security
            
            1,003
            
            
            
            3,414
            
            
            
            -Net
      gain on loans held for sale, sale of real estate owned,
      mortgage-backed
              securities,
      sale of investment securities and premises and equipment
            
            (6
            )
            
            
            (618
            )
            
            
            (361
            )Income
      from bank owned life insurance
            
            (603
            )
            
            
            (573
            )
            
            
            (562
            )Changes
      in assets and liabilities, net of acquisition:Prepaid
      expenses and other assets
            
            (5,567
            )
            
            
            93
            
            
            
            206Accrued
      interest receivable
            
            205
            
            
            
            382
            
            
            
            386Accrued
      expenses and other liabilities
            
            (831
            )
            
            
            (573
            )
            
            
            (956
            )Net
      cash provided by operating activities
            
            9,874
            
            
            
            13,382
            
            
            
            12,553CASH
      FLOWS FROM INVESTING ACTIVITIES:Loan
      repayments (originations), net
            
            41,729
            
            
            
            (57,891
            )
            
            
            (76,838
            )Proceeds
      from call, maturity, or sale of investment securities available for
      sale
            
            6,150
            
            
            
            480
            
            
            
            11,360Principal
      repayments on investment securities available for sale
            
            375
            
            
            
            75
            
            
            
            75Purchase
      of investment securities held to maturity
            
            -
            
            
            
            (536
            )
            
            
            -Purchase
      of investment securities available for sale
            
            (4,988
            )
            
            
            (5,000
            )
            
            
            -Principal
      repayments on mortgage-backed securities available for
sale
            
            1,244
            
            
            
            1,341
            
            
            
            1,447Principal
      repayments on mortgage-backed securities held to maturity
            
            311
            
            
            
            315
            
            
            
            347Principal
      repayments on investment securities held to maturity
            
            12
            
            
            
            7
            
            
            
            -Purchase
      of premises and equipment and capitalized software
            
            (475
            )
            
            
            (545
            )
            
            
            (1,629
            )Capital
      expenditures on real estate owned
            
            (47
            )
            
            
            -
            
            
            
            -Proceeds
      from sale of real estate owned and premises and equipment
            
            12,044
            
            
            
            431
            
            
            
            6Net
      cash provided by (used in) investing activities
            
            56,355
            
            
            
            (61,323
            )
            
            
            (65,232
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      change in deposit accounts, net of deposits acquired
            
            17,982
            
            
            
            3,066
            
            
            
            1,595Dividends
      paid
            
            -
            
            
            
            (2,402
            )
            
            
            (4,740
            )Repurchase
      of common stock
            
            -
            
            
            
            -
            
            
            
            (12,643
            )Proceeds
      from issuance of subordinated debentures
            
            -
            
            
            
            -
            
            
            
            15,000Proceeds
      from borrowings
            
            922,600
            
            
            
            1,321,510
            
            
            
            366,500Repayment
      of borrowings
            
            (1,012,450
            )
            
            
            (1,291,510
            )
            
            
            (308,700
            )Principal
      payments under capital lease obligation
            
            (40
            )
            
            
            (37
            )
            
            
            (35
            )Net
      increase (decrease) in advance payments by borrowers
            
            67
            
            
            
            (33
            )
            
            
            (4
            )Excess
      tax benefit from stock based compensation
            
            -
            
            
            
            11
            
            
            
            14Proceeds
      from exercise of stock options
            
            -
            
            
            
            96
            
            
            
            708Net
      cash provided by (used in) financing activities
            
            (71,841
            )
            
            
            30,701
            
            
            
            57,695NET
      INCREASE (DECREASE) IN CASH
            
            (5,612
            )
            
            
            (17,240
            )
            
            
            5,016CASH,
      BEGINNING OF YEAR
            
            19,199
            
            
            
            36,439
            
            
            
            31,423CASH,
      END OF YEAR
            $
            13,587
            
            
            $
            19,199
            
            
            $
            36,439SUPPLEMENTAL
      DISCLOSURES:Cash paid during the year for:Interest
            $
            11,343
            
            
            $
            19,372
            
            
            $
            25,511Income
      taxes
            
            1,320
            
            
            
            1,538
            
            
            
            4,639NONCASH
      INVESTING AND FINANCING ACTIVITIES:Transfer
      of loans to real estate owned, net
            $
            16,085
            
            
            $
            14,306
            
            
            $
            503Dividends
      declared and accrued in other liabilities
            
            -
            
            
            
            -
            
            
            
            960Fair
      value adjustment to securities available for sale
            
            857
            
            
            
            43
            
            
            
            (201
            )Income
      tax effect related to fair value adjustment
            
            (327
            )
            
            
            (15
            )
            
            
            69Capitalized
      software acquired under a service agreement
            
            19
            
            
            
            130
            
            
            
            417Sale-leaseback
      of building
            
            2,000
            
            
            
            -
            
            
            
            -


See notes to consolidated financial
statements.


73


RIVERVIEW
BANCORP, INC. AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


YEARS ENDED MARCH 31, 2010 AND
2009


1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Principles of
Consolidation – The accompanying consolidated financial statements
include the accounts of Riverview Bancorp, Inc. (the “Company”); its
wholly-owned subsidiary, Riverview Community Bank (the “Bank”); the Bank’s
wholly-owned subsidiary, Riverview Services, Inc.; and the Bank’s majority owned
subsidiary, Riverview Asset Management Corp. (“RAMCorp”). All inter-company
transactions and balances have been eliminated in consolidation.





The
Company has also established two subsidiary grantor trusts in connection with
the issuance of trust preferred securities (see Note 13). In accordance with
accounting standards, the accounts and transactions of the trusts are not
included in the accompanying consolidated financial statements.





As a
result of the adoption of accounting standards for noncontrolling interest, the
Company reclassified its noncontrolling interest from accrued expenses and other
liabilities to a separate component of equity on the Consolidated Balance Sheet
for 2009 to conform with the 2010 presentation.





Nature of
Operations – The Bank is a seventeen branch community-oriented financial
institution operating in rural and suburban communities in southwest Washington
State and Multnomah, Clackamas and Marion counties of Oregon. The Bank is
engaged primarily in the business of attracting deposits from the general public
and using such funds, together with other borrowings, to invest in various
commercial, commercial real estate, multi-family real estate, real estate
construction, residential real estate and consumer loans.





Use of Estimates
in the Preparation of Financial Statements – The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America (“generally accepted accounting principles” or “GAAP”),
requires management to make estimates and assumptions that affect the reported
amounts of certain assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of related revenue and expense during the reporting period. Actual results could
differ from those estimates.





Cash and Cash
Equivalents – Cash and cash equivalents include amounts on hand, due from
banks and interest-earning deposits in other banks. Cash and cash equivalents
have a maturity of 90 days or less at the time of purchase.





Loans Held for
Sale – The Company identifies loans held for sale at the time of
origination and such loans are carried at the lower of aggregate cost or net
realizable value. Market values are derived from available market quotations for
comparable pools of mortgage loans. Adjustments for unrealized losses, if any,
are charged to income.





Gains or
losses on sales of loans held for sale are recognized at the time of sale and
are determined by the difference between the net sales proceeds and the
allocated basis of thse loans sold. The Company capitalizes mortgage servicing
rights (“MSRs”) acquired through either the purchase of MSRs, the sale of
originated mortgage loans or the securitization of mortgage loans with servicing
rights retained. Upon sale of mortgage loans held for sale, the total cost of
the loans designated for sale is allocated to mortgage loans with and without
MSRs based on their relative fair values. The MSRs are included as a component
of gain on sale of loans. The MSRs are amortized in proportion to and over the
estimated period of the net servicing income, such amortization is reflected as
a component of loan servicing income.





Securities– Investment securities are classified as held to maturity when the
Company has the ability and positive intent to hold such securities to maturity.
Investment securities held to maturity are carried at amortized cost. Unrealized
losses due to fluctuations in fair value are recognized when it is determined
that a credit related other than temporary decline in value has occurred.
Investment securities bought and held principally for the purpose of sale in the
near term are classified as trading securities. Securities that the Company
intends to hold for an indefinite period, but not necessarily to maturity are
classified as available for sale. Such securities may be sold to implement the
Company’s asset/liability management strategies and in response to changes in
interest rates and similar factors.  Securities available for sale are
reported at fair value. Unrealized gains and losses, net of the related deferred
tax effect, are reported as a net amount in a separate component of
shareholders’ equity entitled “accumulated other comprehensive income (loss).”
Realized gains and losses on securities available for sale, determined using the
specific identification method, are included in
earnings.  Amortization of premiums and accretion of discounts are
recognized in interest income over the period to maturity or expected call, if
sooner.













74


The
Company analyzes investment securities for other than temporary impairment
(“OTTI”) on a quarterly basis.  OTTI is separated into a credit and
noncredit component.  Noncredit component losses are recorded in other
comprehensive income
(loss) when the Company a) does not intend to sell the security or b) is not
more likely than not to have to sell the security prior to the security’s
anticipated recovery.  Credit component losses are reported in
non-interest income.





Loans –
Loans are stated at the amount of unpaid principal, reduced by deferred loan
origination fees and an allowance for loan losses. Interest on loans is accrued
daily based on the principal amount outstanding.





Generally,
the accrual of interest on loans is discontinued when, in management’s opinion,
the borrower may be unable to meet payments as they become due or when they are
past due 90 days as to either principal or interest, unless they are well
secured and in the process of collection. When interest accrual is discontinued,
all unpaid accrued interest is reversed against current income. If management
determines that the ultimate collectibility of principal is in doubt, cash
receipts on non-accrual loans are applied to reduce the principal balance on a
cash-basis method until the loans qualify for return to accrual status. Loans
are returned to accrual status when all principal and interest amounts
contractually due are brought current and future payments are reasonably
assured.





Loan
origination and commitment fees and certain direct loan origination costs are
deferred and amortized as an adjustment of the yield of the related
loan.





Allowance for
Loan Losses – The allowance for loan losses is maintained at a level
sufficient to provide for probable loan losses based on evaluating known and
inherent risks in the loan portfolio. The allowance is provided based upon
management’s ongoing quarterly assessment of the pertinent factors underlying
the quality of the loan portfolio. These factors include changes in the size and
composition of the loan portfolio, delinquency levels, actual loan loss
experience, current economic conditions, and detailed analysis of individual
loans for which full collectibility may not be assured.  The detailed
analysis includes techniques to estimate the fair value of loan collateral and
the existence of potential alternative sources of repayment. The allowance
consists of specific, general and unallocated components. The specific component
relates to loans that are considered impaired. For such loans that are
classified as impaired, an allowance is established when the net realizable
value of the impaired loan is lower than the carrying value of that loan. The
general component covers non-impaired loans and is based on historical loss
experience adjusted for qualitative factors. An unallocated component is
maintained to cover uncertainties that could affect management’s estimate of
probable losses. Such factors include uncertainties in economic conditions,
uncertainties in identifying triggering events that directly correlate to
subsequent loss rates, changes in appraised value of underlying collateral, risk
factors that have not yet manifested themselves in loss allocation factors and
historical loss experience data that may not precisely correspond to the current
portfolio or economic conditions.  The unallocated component of the
allowance reflects the margin of imprecision inherent in the underlying
assumptions used in the methodologies for estimating specific and general losses
in the portfolio. The appropriate allowance level is estimated based upon
factors and trends identified by management at the time the consolidated
financial statements are prepared.





When
available information confirms that specific loans or portions thereof are
uncollectible, identified amounts are charged against the allowance for loan
losses. The existence of some or all of the following criteria will generally
confirm that a loss has been incurred: the loan is significantly delinquent and
the borrower has not demonstrated the ability or intent to bring the loan
current; the Bank has no recourse to the borrower, or if it does, the borrower
has insufficient assets to pay the debt; the estimated fair value of the loan
collateral is significantly below the current loan balance, and there is little
or no near-term prospect for improvement.





A loan is
considered impaired when it is probable that a creditor will be unable to
collect all amounts (principal and interest) due according to the contractual
terms of the loan agreement. Large groups of smaller balance homogenous loans
such as consumer secured loans, residential mortgage loans and consumer
unsecured loans are collectively evaluated for potential loss. Impaired loans
are generally carried at the lower of cost or fair value, which may be
determined based upon recent independent appraisals which are further reduced
for estimated selling costs or as a practical expedient by estimating the
present value of expected future cash flows, discounted at the loan’s effective
interest rate.  When the measurement of the impaired loan is less than
the recorded investment in the loan (including accrued interest, net deferred
loan fees or costs, and unamortized premium or discount), impairment is
recognized by creating or adjusting an allocation of the allowance for loan
losses.





A
provision for loan losses is charged against income and is added to the
allowance for loan losses based on regular assessments of the loan portfolio.
The allowance for loan losses is allocated to certain loan categories based on
the relative risk characteristics, asset classifications and actual loss
experience of the loan portfolio. While management has








75


allocated
the allowance for loan losses to various loan portfolio segments, the allowance
is general in nature and is available for the loan portfolio in its
entirety.





The
ultimate recovery of all loans is susceptible to future market factors beyond
the Bank’s control. There can be no assurance that the Company will not be
required to make future adjustments to the allowance in response to changing
economic conditions, particularly in the Company’s primary market, since the
majority of the Company’s loans are collateralized
by real estate. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Bank’s allowance for loan losses,
and may require the Bank to make additions to the allowance based on their
judgment about information available to them at the time of their
examinations.





Allowance for
Unfunded Loan Commitments– The allowance for unfunded loan commitments
is maintained at a level believed by management to be sufficient to absorb
estimated probable losses related to these unfunded credit facilities. The
determination of the adequacy of the allowance is based on periodic evaluations
of the unfunded credit facilities including an assessment of the probability of
commitment usage, credit risk factors for loans outstanding to these same
customers, and the terms and expiration dates of the unfunded credit facilities.
The allowance for unfunded loan commitments is included in other liabilities on
the consolidated balance sheets, with changes to the balance charged against
non-interest expense.





Real Estate Owned
(“REO”) – REO consists of properties acquired through foreclosure.
Specific charge-offs are taken based upon detailed analysis of the fair value of
collateral on the underlying loans on which the Company is in the process of
foreclosing. Such collateral is transferred into REO at the lower of recorded
cost or fair value less estimated costs of disposal. Subsequently, the Company
performs an evaluation of the properties and writes down the REO directly and
charges real estate owned expenses for any declines in value. The amounts the
Company will ultimately recover from REO may differ from the amounts used in
arriving at the net carrying value of these assets because of future market
factors beyond the Company’s control or because of changes in the Company’s
strategy for the sale of the property.





Federal Home Bank
Loan Bank Stock – The Bank, as a member of Federal Home Loan Bank of
Seattle (“FHLB”), is required to maintain an investment in capital stock of the
FHLB in an amount equal to the greater of 1% of its outstanding home loans or 5%
of advances from the FHLB. The Company views its investment in FHLB stock as a
long-term investment. Accordingly, when evaluating for impairment, the value is
determined based on the ultimate redemption of the par value rather than
recognizing temporary declines in value. The determination of whether a decline
affects the ultimate redemption is influenced by criteria such as: 1) the
significance of the decline in net assets of the FHLB as compared to the capital
stock amount and length of time a decline has persisted; 2) impact of
legislative and regulatory changes on the FHLB and 3) the liquidity position of
the FHLB. The FHLB of Seattle had a deterioration in its financial position and
as a result had a risk-based capital deficiency under the regulations of its
primary federal regulator. Therefore, the Company evaluated its investment in
FHLB of Seattle stock for other than temporary impairment, consistent with its
accounting policy. Based on the Company’s evaluation of the underlying
investment, including the long-term nature of the investment, the liquidity
position of the FHLB of Seattle, the actions being taken by the FHLB of Seattle
to address its regulatory situation and the Company’s intent and ability to hold
the investment for a period of time sufficient to be able to redeem its
investment at par value, the Company did not recognize an other than temporary
impairment loss on its FHLB stock. However, this estimate could change in the
near term if: 1) significant other-than-temporary losses are incurred on the
mortgage backed securities causing a significant decline in their regulatory
capital status; 2) the economic losses resulting from credit deterioration on
the mortgage backed securities increases significantly and 3) capital
preservation strategies being utilized by the FHLB become
ineffective.





Premises and
Equipment – Premises and equipment are stated at cost less accumulated
depreciation. Leasehold improvements are amortized over the term of the lease or
the estimated useful life of the improvements, whichever is less. Gains or
losses on dispositions are reflected in earnings. Depreciation is generally
computed on the straight-line method over the following estimated useful lives:
building and improvements – up to 45 years; furniture and equipment – three to
twenty years; and leasehold improvements – fifteen to twenty-five years. The
cost of maintenance and repairs is charged to expense as
incurred.  Assets are reviewed for impairment when events indicate
their carrying value may not be recoverable.  If management determines
impairment exists the asset is reduced by an offsetting charge to
expense.





The
capitalized lease, less accumulated amortization is included in premises and
equipment. The capitalized lease is amortized on a straight-line basis over the
lease term and the amortization is included in depreciation
expense.






76





Mortgage
Servicing Rights – Fees earned for servicing loans for the Federal Home
Loan Mortgage Corporation (“FHLMC”) are reported as income when the related
mortgage loan payments are collected. Loan servicing costs are charged to
expense as incurred.





MSRs are
the rights to service loans. Loan servicing includes collecting payments,
remitting funds to investors, insurance companies and tax authorities,
collecting delinquent payments, and foreclosing on properties when
necessary.





The
Company records its originated MSRs at fair value in accordance with accounting
standards, which requires the Company to allocate the total cost of all mortgage
loans sold to the MSRs and the loans (without the MSRs) based on their relative
fair values if it is practicable to estimate those fair values. The Company
stratifies its MSRs based on the predominant
characteristics of the underlying financial assets including coupon interest
rate and contractual maturity of the mortgage. An estimated fair value of MSRs
is determined quarterly using a discounted cash flow model.  The model
estimates the present value of the future net cash flows of the servicing
portfolio based on various factors, such as servicing costs, servicing income,
expected prepayment speeds, discount rate, loan maturity and interest rate. The
effect of changes in market interest rates on estimated rates of loan
prepayments represents the predominant risk characteristic underlying the MSRs
portfolio. The Company is amortizing the MSR in proportion to and over the
period of estimated net servicing income.





MSRs are
reviewed quarterly for impairment based on their fair value. The fair value of
the MSRs, for the purposes of impairment, is measured using a discounted cash
flow analysis based on market adjusted discount rates, anticipated prepayment
speeds, mortgage loan term and coupon rate.  Market sources are used
to determine prepayment speeds, ancillary income, servicing cost and pre-tax
required yield.  Impairment losses are recognized through a valuation
allowance for each impaired stratum, with any associated provision recorded as a
component of loan servicing income.





Goodwill –
Goodwill is initially recorded when the purchase price paid for an acquisition
exceeds the estimated fair value of the net identified tangible and intangible
assets acquired.  Goodwill is presumed to have an indefinite useful
life and is tested, at least annually, for impairment at the reporting unit
level.  The Company performs an annual review in the third quarter of
each year, or more frequently if indicators of potential impairment exist, to
determine if the recorded goodwill is impaired.  The impairment test
is performed in two phases.  The first step of the goodwill impairment
test compares the fair value of the reporting unit with its carrying amount,
including goodwill.  If the fair value of the reporting unit exceeds
its carrying amount, goodwill is considered not impaired; however, if the
carrying amount of the reporting unit exceeds its fair value, a second phase
step must be performed.  In the second step the implied fair value of
the reporting unit is calculated. The implied fair value of goodwill is then
compared to the carrying amount of goodwill on the Company’s balance
sheet.  If the carrying amount of the goodwill is greater than the
implied fair value of that goodwill, an impairment loss must be recognized in an
amount equal to that excess.  As of March 31, 2010, the Company has
not recognized any impairment loss on the recorded goodwill.





Core Deposit
Intangible – Core deposit intangibles are amortized to non-interest
expense using an accelerated method (based on expected attrition and cash flows
of core deposit accounts purchased) over ten years.





Advertising and
Marketing Expense – Costs incurred for advertising, merchandising, market
research, community investment, travel and business development are classified
as marketing expense and are expensed as incurred.





Income
Taxes – Income taxes are accounted for using the asset and liability
method. Under this method, a deferred tax asset or liability is determined based
on the enacted tax rates which will be in effect when the differences between
the financial statement carrying amounts and tax basis of existing assets and
liabilities are expected to be reported in the Company’s income tax returns. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are established to
reduce the net carrying amount of deferred tax assets if it is determined to be
more likely than not, that all or some portion of the potential deferred tax
asset will not be realized. The Company files a consolidated federal income tax
return. The Bank provides for income taxes separately and remits to the Company
amounts currently due.





Trust
Assets – Assets held by RAMCorp. in a fiduciary or agency capacity for
trust customers are not included in the consolidated financial statements
because such items are not assets of the Company. Assets totaling $279.5 million
and $276.6 million were held in trust as of March 31, 2010 and 2009,
respectively.





Earnings Per
Share– The Company accounts for earnings per share in accordance with
accounting standards, which requires all companies whose capital structure
includes dilutive potential common shares to make a dual presentation of basic
and diluted earnings per share for all periods presented. Basic earnings per
share is computed by dividing income








77





available
to common shareholders by the weighted average number of common shares
outstanding for the period, excluding restricted stock and unallocated shares
owned by the Company’s Employee Stock Ownership Plan
(“ESOP”).  Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised and has been computed after giving consideration to the weighted
average diluted effect of the Company’s stock options. For the years ended March
31, 2010 and 2009, the Company recognized a net loss and therefore all
outstanding stock options were excluded from the calculation of diluted earnings
per share because they were antidilutive.





Stock-Based
Compensation– The Company accounts for stock based compensation in
accordance with accounting guidance for stock compensation. The guidance
requires measurement of the compensation cost for all stock-based awards based
on the grant-date fair value and recognition of compensation cost over the
service period of stock-based awards. The fair value of stock options is
determined using the Black-Scholes valuation model.




Employee Stock
Ownership Plan– The Company sponsors a leveraged ESOP. As shares are
released, compensation expense is recorded equal to the then current market
price of the shares and the shares become available for earnings per share
calculations. The Company records cash dividends on unallocated shares as a
reduction of debt and accrued interest.





Business
segments – The Company operates a single business segment. The financial
information that is used by the chief operating decision maker in allocating
resources and assessing performance is only provided for one reportable segment
for years ended March 31, 2010, 2009 and 2008.





Recently Adopted
Accounting Pronouncements- In December 2007, the FASB
issued accounting guidance on noncontrolling interests in consolidated financial
statements, which establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. The standard also requires additional disclosures that clearly
identify and distinguish between the interests of the parent’s owners and the
interest of the noncontrolling owners of the subsidiary. The accounting guidance
is effective for fiscal years beginning after December 15, 2008.  The
Company has incorporated the guidance into preparing the Consolidated Financial
Statements as of March 31, 2010, including retrospectively restating prior
periods to conform to the requirements of this standard.





In April
2009, the FASB issued accounting guidance on the recognition and presentation of
OTTI. This guidance amends current OTTI guidance in GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of OTTI on debt and equity securities in the financial statements.
This guidance does not amend existing recognition and measurement guidance
related to OTTI of equity securities. The literature provides for the
bifurcation of OTTI into: (i) amounts related to credit losses, which are
recognized through earnings, and (ii) amounts related to all other factors that
are recognized as a component of other comprehensive income. The Company elected
to early adopt this guidance effective January 1, 2009 and has incorporated the
guidance into preparing the Consolidated Financial Statements as of March 31,
2009 and March 31, 2010.





In April
2009, the FASB issued accounting guidance on determining fair value when the
volume and level of activity for the asset or liability have significantly
decreased and identifying transactions that are not orderly. This accounting
guidance provides additional guidance for fair value measures in determining if
the market for an asset or liability is inactive and accordingly, if quoted
market prices may not be indicative of fair value and also re-emphasizes that
the objective of a fair value measurement remains an exit price. This accounting
guidance is effective for periods ending after June 15, 2009, with earlier
adoption permitted for periods ending after March 15, 2009. The Company elected
to early adopt this accounting guidance for the year ended March 31, 2009. The
adoption of this guidance did not have a material affect on the financial
position or results of operations.





In April
2009, the FASB issued accounting guidance on interim disclosures about fair
value of financial instruments.  The guidance is designed to enhance
consistency in financial reporting by increasing the frequency of fair value
disclosures. This accounting guidance is effective for interim reporting periods
ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. The Company elected to early adopt this FSP for the year
ended March 31, 2009. The adoption of the FSP did not have a material affect on
the financial position or results of operations.





Effective
March 1, 2009, the Company adopted accounting guidance issued by the FASB in
June 2008 regarding the determination on whether instruments granted in
share-base payment transactions are participating securities.  Under
this guidance, unvested share-based payment awards that contain non-forfeitable
rights to dividends will be considered to be a separate class of common stock
and will be included in the basic EPS calculation using the two-class method
that








78





is
described in accounting guidance related to earnings per share.  The
adoption of this accounting guidance did not have an impact on the Company’s
financial position or results of operations.





In May
2009, the FASB issued accounting guidance on subsequent events. This accounting
guidance establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued.  This accounting guidance is
effective for periods ending after June 15, 2009.  In February 2010,
the FASB amended its guidance on subsequent events. As a public reporting
company, the Company is required to evaluate subsequent events through the date
its financial statements are issued. The adoption of these rules did not have a
material impact on the Company’s consolidated financial statements.





In June
2009, the FASB issued accounting guidance on the accounting for transfers of
financial assets. This guidance improves the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets; the
effects of a transfer on its financial position, financial performance, and cash
flows; and a transferor’s continuing involvement, if any, in transferred
financial assets.





The
guidance is effective for periods ending after November 15, 2009. The adoption
of this guidance did not have a material impact on the Company’s financial
position, results of operations and cash flows.





In June
2009, the FASB issued guidance that significantly changes the criteria for
determining whether the consolidation of a variable interest entity is required.
This guidance also addresses the effect of changes on consolidation of variable
interest entities and concerns regarding the application of certain provisions
in previously issued accounting guidance, including concerns that the accounting
and disclosures do not always provide timely and useful information about an
entity’s involvement in a variable interest entity. This guidance is effective
for interim and annual reporting periods that begin after November 15, 2009. The
adoption of this guidance did not have a material impact on the Company’s
financial position, results of operations and cash flows.





In
January 2010, the FASB issued an accounting standards update on accounting and
reporting for decreases in ownership of a subsidiary related to a scope
clarification. The standards updates implementation issues related to changes in
ownership provisions including clarifying the scope of the decrease in ownership
and additional disclosures.  This updated accounting standard is
effective beginning in the period that an entity adopts accounting standards for
noncontrolling interest. If an entity has previously adopted the standard for
noncontrolling interest, this updated accounting standard is effective beginning
in the first interim or annual reporting period ending on or after December 15,
2009 and should be applied retrospectively to the first period the standard on
noncontrolling interest was adopted.   The adoption of this
guidance did not have a material impact on the Company’s financial position or
results of operation.





New Accounting
Pronouncements-
In January 2010, the FASB issued an accounting standards update on fair value
measurements and disclosures, which focuses on improving disclosures about fair
value measurement.  The standards update requires new disclosures
about transfers in and out of Level 1 and Level 2 fair value measurements and
the activity in Level 3 fair value measurements (i.e. purchases, sales,
issuances, and settlements).  This accounting standards update also
amended disclosure requirements related to the level of disaggregation of assets
and liabilities, as well as disclosures about input and valuation techniques
used to measure fair value for both recurring and nonrecurring fair value
measurements.  The new guidance became effective for interim and
annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements and did not have a
material impact on the Company’s consolidated financial
statements.  Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years.





2.
            RESTRICTED
      ASSETS





Federal
Reserve Board regulations require that the Bank maintain minimum reserve
balances either on hand or on deposit with the Federal Reserve Bank (“FRB”),
based on a percentage of deposits. The amounts of such balances as of March 31,
2010 and 2009 were $726,000 and $604,000, respectively.


79


3.
            INVESTMENT
      SECURITIES





The
amortized cost and approximate fair value of investment securities held to
maturity consisted of the following (in thousands):




Amortized
              Cost
            
            Gross
      Unrealized Gains
            
            Gross
      Unrealized Losses
            
            Estimated
              Fair
      ValueMarch 31, 2010Municipal
      bonds
            $
            517
            
            $
            56
            
            $
            -
            
            $
            573March 31, 2009Municipal
      bonds
            $
            529
            
            $
            23
            
            $
            -
            
            $
            552





The
contractual maturities of investment securities held to maturity are as follows
(in thousands):




March 31, 2010
            
            Amortized
              Cost
            
            
            Estimated
              Fair
      ValueDue
      in one year or less
            $
            -
            
            $
            -Due
      after one year through five years
            
            -
            
            
            -Due
      after five years through ten years
            
            517
            
            
            573Due
      after ten years
            
            -
            
            
            -Total
            $
            517
            
            $
            573





The
amortized cost and approximate fair value of investment securities available for
sale consisted of the following (in thousands):


Amortized
              Cost
            
            Gross
      Unrealized Gains
            
            Gross
      Unrealized Losses
            
            Estimated
              Fair
      ValueMarch 31, 2010Trust
      preferred
            $
            2,974
            
            $
            -
            
            $
            (1,932
            )
            $
            1,042Agency
      securities
            
            4,989
            
            
            28
            
            
            -
            
            
            5,017Municipal
      bonds
            
            743
            
            
            -
            
            
            -
            
            
            743Total
            $
            8,706
            
            $
            28
            
            $
            (1,932
            )
            $
            6,802March 31, 2009Trust
      preferred
            $
            3,977
            
            $
            -
            
            $
            (2,833
            )
            $
            1,144Agency
      securities
            
            5,000
            
            
            54
            
            
            -
            
            
            5,054Municipal
      bonds
            
            2,267
            
            
            25
            
            
            -
            
            
            2,292Total
            $
            11,244
            
            $
            79
            
            $
            (2,833
            )
            $
            8,490





The fair
value of temporarily impaired securities, the amount of unrealized losses and
the length of time these unrealized losses existed as of March 31, 2010 are as
follows (in thousands):





Less
      than 12 months
            
            12
      months or longer
            
            TotalFair
              Value
            
            
            Unrealized
              Losses
            
            
            Fair
              Value
            
            
            Unrealized
              Losses
            
            
            Fair
              Value
            
            
            Unrealized
              LossesTrust
      preferred
            $
            -
            
            $
            -
            
            $
            1,042
            
            $
            (1,932
            )
            $
            1,042
            
            $
            (1,932
            )








The fair
value of temporarily impaired securities, the amount of unrealized losses and
the length of time these unrealized losses existed as of March 31, 2009 are as
follows (in thousands):





Less
      than 12 months
            
            12
      months or longer
            
            TotalFair
              Value
            
            
            Unrealized
              Losses
            
            
            Fair
              Value
            
            
            Unrealized
              Losses
            
            
            Fair
              Value
            
            
            Unrealized
              LossesTrust
      preferred
            $
            -
            
            $
            -
            
            $
            1,144
            
            $
            (2,833
            )
            $
            1,144
            
            $
            (2,833
            )





During the year ended
March 31, 2010, the Company recognized $1.0 million in non-cash OTTI charges on
the above trust preferred investment security.Management concluded that
a portion of the decline of the estimated fair value below the Company’s cost
was other than temporary and accordingly, recorded a credit loss through
non-interest








80





income.
The Company determined the remaining decline in value was not related to
specific credit deterioration. 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 the
security before the anticipated recovery of the remaining amortized cost
basis.




To
determine the component of gross OTTI related to credit losses, the Company
compared the amortized cost basis of the OTTI security to the present value of
the revised expected cash flows, discounted using the current pre-impairment
yield. The revised expected cash flow estimates are based primarily on an
analysis of default rates, prepayment speeds and third-party analytical reports.
Significant judgment of management is required in this analysis that includes,
but is not limited to, assumptions regarding the ultimate collectibility of
principal and interest on the underlying collateral.




The
contractual maturities of investment securities available for sale are as
follows (in thousands):




March 31, 2010
            
            Amortized
              Cost
            
            
            Estimated
              Fair
      ValueDue
      in one year or less
            $
            -
            
            $
            -Due
      after one year through five years
            
            4,989
            
            
            5,017Due
      after five years through ten years
            
            -
            
            
            -Due
      after ten years
            
            3,717
            
            
            1,785Total
            $
            8,706
            
            $
            6,802








Investment
securities with an amortized cost of $499,000 and $1.1 million and a fair value
of $502,000 and  $1.2 million at March 31, 2010 and 2009,
respectively, were pledged as collateral for treasury tax and loan funds held by
the Bank. Investment securities with an amortized cost of $2.8 million and $1.8
million and a fair value of $2.9 million and $1.8 million at March 31, 2010 and
2009, respectively, were pledged as collateral for government public funds held
by the Bank. The Company realized no gains or losses on sales of investment
securities in the years ended March 31, 2010, 2009 and 2008.





4.
            MORTGAGE-BACKED
      SECURITIES





Mortgage-backed
securities held to maturity consisted of the following (in
thousands):


March 31, 2010
            
            Amortized
              Cost
            
            
            Gross
              Unrealized
              Gains
            
            
            Gross
              Unrealized
              Losses
            
            
            Estimated
              Fair
              ValueReal
      estate mortgage investment conduits
            $
            53
            
            $
            -
            
            $
            -
            
            $
            53FHLMC
      mortgage-backed securities
            
            86
            
            
            3
            
            
            -
            
            
            89FNMA
      mortgage-backed securities
            
            120
            
            
            3
            
            
            -
            
            
            123Total
            $
            259
            
            $
            6
            
            $
            -
            
            $
            265March 31, 2009Real
      estate mortgage investment conduits
            $
            348
            
            $
            -
            
            $
            -
            
            $
            348FHLMC
      mortgage-backed securities
            
            94
            
            
            1
            
            
            -
            
            
            95FNMA
      mortgage-backed securities
            
            128
            
            
            1
            
            
            -
            
            
            129Total
            $
            570
            
            $
            2
            
            $
            -
            
            $
            572





Mortgage-backed
securities held to maturity with an amortized cost of $136,000 and $438,000 and
a fair value of $138,000 and $439,000 at March 31, 2010 and 2009, respectively,
were pledged as collateral for governmental public funds. Mortgage-backed
securities held to maturity with an amortized cost of $105,000 and $110,000 and
a fair value of $107,000 and $111,000 at March 31, 2010 and 2009, respectively,
were pledged as collateral for treasury tax and loan funds held by the Bank. The
real estate mortgage investment conduits consist of FHLMC and FNMA
securities.





The
contractual maturities of mortgage-backed securities classified as held to
maturity are as follows (in thousands):





March 31, 2010
            
            Amortized
              Cost
            
            
            Estimated
              Fair
      ValueDue
      in one year or less
            $
            -
            
            $
            -Due
      after one year through five years
            
            8
            
            
            8Due
      after five years through ten years
            
            -
            
            
            -Due
      after ten years
            
            251
            
            
            257Total
            $
            259
            
            $
            265







81


Mortgage-backed
securities available for sale consisted of the following (in
thousands):




March 31, 2010
            
            Amortized
              Cost
            
            
            Gross
      Unrealized
              Gains
            
            
            Gross
      Unrealized
              Losses
            
            
            Estimated
              Fair
              ValueReal
      estate mortgage investment conduits
            $
            538
            
            $
            18
            
            $
            -
            
            $
            556FHLMC
      mortgage-backed securities
            
            2,158
            
            
            61
            
            
            -
            
            
            2,219FNMA
      mortgage-backed securities
            
            50
            
            
            3
            
            
            -
            
            
            53Total
            $
            2,746
            
            $
            82
            
            $
            -
            
            $
            2,828March 31, 2009Real
      estate mortgage investment conduits
            $
            673
            
            $
            12
            
            $
            -
            
            $
            685FHLMC
      mortgage-backed securities
            
            3,249
            
            
            61
            
            
            -
            
            
            3,310FNMA
      mortgage-backed securities
            
            69
            
            
            2
            
            
            -
            
            
            71Total
            $
            3,991
            
            $
            75
            
            $
            -
            
            $
            4,066





The
contractual maturities of mortgage-backed securities available for sale are as
follows (in thousands):




March 31, 2010
            
            Amortized
              Cost
            
            
            Estimated
              Fair
      ValueDue
      in one year or less
            $
            -
            
            $
            -Due
      after one year through five years
            
            2,188
            
            
            2,251Due
      after five years through ten years
            
            192
            
            
            203Due
      after ten years
            
            366
            
            
            374Total
            $
            2,746
            
            $
            2,828





Expected
maturities of mortgage-backed securities held to maturity and available for sale
will differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties.





Mortgage-backed
securities available for sale with an amortized cost of $2.7 million and $3.9
million and a fair value of $2.8 million and $4.0 million at March 31, 2010 and
2009, respectively, were pledged as collateral for advances at the
FHLB.  Mortgage-backed securities available for sale with an amortized
cost of $51,000 and $66,000 and a fair value of $53,000 and $68,000 at March 31,
2010 and 2009, respectively, were pledged as collateral for government public
funds held by the Bank.





5.
            LOANS
      RECEIVABLE





Loans
receivable at March 31, 2010 and 2009 are reported net of deferred loan fees
totaling $3.0 million and $3.4 million, respectively. Loans receivable,
excluding loans held for sale, consisted of the following (in
thousands):








March
      31, 2010
            
            
            March
      31, 2009Commercial
      and constructionCommercial
            $
            108,368
            
            $
            127,150Other
      real estate mortgage
            
            459,178
            
            
            447,652Real
      estate construction
            
            75,456
            
            
            139,476Total
      commercial and construction
            
            643,002
            
            
            714,278ConsumerReal
      estate one-to-four family
            
            88,861
            
            
            83,762Other
      installment
            
            2,616
            
            
            3,051Total
      consumer
            
            91,477
            
            
            86,813Total
      loans
            
            734,479
            
            
            801,091Less:Allowance
      for loan losses
            
            21,642
            
            
            16,974Loans
      receivable, net
            $
            712,837
            
            $
            784,117


The
Company originates commercial business, commercial real estate, multi-family
real estate, real estate construction, residential real estate and consumer
loans. At March 31, 2010 and 2009, the Company had no loans to foreign domiciled
businesses or foreign countries, or loans related to highly leveraged
transactions. Substantially all of the mortgage loans




82


in the
Company’s portfolio are secured by properties located in Washington and Oregon,
and, accordingly, the ultimate collectibility of a substantial portion of the
Company’s loan portfolio is susceptible to changes in the local economic conditions
in these markets. The Company considers its loan portfolio to have very little
exposure to sub-prime mortgage loans since the Company has not historically
engaged in this type of lending.





Aggregate
loans to officers and directors, all of which are current, consist of the
following (in thousands):








Year
      Ended March 31,2010
            
            2009
            
            2008Beginning
      balance
            $
            1,021
            
            $
            418
            
            $
            185Originations
            
            628
            
            
            681
            
            
            360Principal
      repayments
            
            (201
            )
            
            (78
            )
            
            (127
            )Ending
      balance
            $
            1,448
            
            $
            1,021
            
            $
            418





6.
            ALLOWANCE
      FOR LOAN LOSSES





A
reconciliation of the allowance for loan losses is as follows (in
thousands):





Year
      Ended March 31,2010
            
            2009
            
            2008Beginning
      balance
            $
            16,974
            
            $
            10,687
            
            $
            8,653Provision
      for loan losses
            
            15,900
            
            
            16,150
            
            
            2,900Charge-offs
            
            (11,321
            )
            
            (9,890
            )
            
            (905
            )Recoveries
            
            89
            
            
            27
            
            
            39Ending
      balance
            $
            21,642
            
            $
            16,974
            
            $
            10,687





Changes
in the allowance for unfunded loan commitments, which were recorded in accrued
expenses and other liabilities on the Consolidated Balance Sheets, were as
follows (in thousands):





Year
      Ended March 31,2010
            
            2009
            
            2008Beginning
      balance
            $
            296
            
            $
            337
            
            $
            380Net
      change in allowance for unfunded loan commitments
            
            (111
            )
            
            (41
            )
            
            (43
            )Ending
      balance
            $
            185
            
            $
            296
            
            $
            337





Loans on
which the accrual of interest has been discontinued were $36.0 million, $27.4
million and $7.6 million at March 31, 2010, 2009 and 2008, respectively.
Interest income foregone on non-accrual loans was $2.8 million, $2.0 million and
$199,000 during the years ended March 31, 2010, 2009, and 2008,
respectively.At
March 31, 2010 and 2009, nonperforming assets were $49.3 million and $41.7
million, respectively.





At March
31, 2010, 2009 and 2008, the Company’s recorded investment in certain loans that
were considered to be impaired was $37.8 million, $28.7 million, and $7.2
million, respectively. At March 31, 2010, $30.1 million of the impaired
loans had a specific related valuation allowance of $8.0 million, while $7.7
million did not require a specific valuation allowance.  At March 31,
2009, $25.0 million of the impaired loans had a specific related valuation
allowance of $4.3 million, while $3.7 million did not require a specific
valuation allowance.  At March 31, 2008, all of the impaired loans had
specific valuation allowances totaling $902,000.  The balance of the
allowance for loan losses in excess of these specific reserves is available to
absorb the inherent losses from all loans in the portfolio.  The
average investment in impaired loans was $36.4 million, $24.3 million and $2.0
million during the years ended March 31, 2010, 2009 and 2008, respectively. The
related amount of interest income recognized on loans that were impaired was
$175,000, $373,000 and $65,000 during the years ended March 31, 2010, 2009 and
2008, respectively.  At March 31, 2010, there were no loans past due
90 days or more and still accruing interest. At March 31, 2009 and 2008, loans
past due 90 days or more and still accruing interest totaled $187,000 and
$115,000 respectively.





83


7.
            PREMISES
      AND EQUIPMENT





Premises
and equipment consisted of the following (in thousands):





March
      31,2010
            
            
            
            2009Land
            $
            3,213
            
            
            $
            3,890Buildings
      and improvements
            
            11,941
            
            
            
            13,074Leasehold
      improvements
            
            1,413
            
            
            
            1,994Furniture
      and equipment
            
            10,091
            
            
            
            10,275Buildings
      under capitalized leases
            
            2,715
            
            
            
            2,715Total
            
            29,373
            
            
            
            31,948Less
      accumulated depreciation and amortization
            
            (12,886
            )
            
            
            (12,434
            )Premises
      and equipment, net
            $
            16,487
            
            
            $
            19,514





Depreciation
expense was $1.7 million, $1.8 million and $1.8 million for the years ended
March 31, 2010, 2009 and 2008, respectively.  The Company is obligated
under various noncancellable lease agreements for land and buildings that
require future minimum rental payments, exclusive of taxes and other
charges.





During
fiscal year 2006, the Company entered into a capital lease for the shell of the
building constructed as the Company’s new operations center. The lease period is
for twelve years with two six-year lease renewal options. For the years ended
March 31, 2010, 2009 and 2008, the Company recorded $113,000 in amortization
expense. At March 31, 2010 and 2009, accumulated amortization for the capital
lease totaled $488,000 and $376,000, respectively.





In March
2010, the Company sold two of its branch locations. The Company maintains a
substantial continuing involvement in the locations through various
non-cancellable operating leases that contain certain renewal options. The
resulting gain on sale of $2.1 million was deferred and is being amortized over
the life of the respective leases. At March 31, 2010, the deferred gain was $2.1
million and is included in accrued expenses and other liabilities in the
accompanying Consolidated Balance Sheets.





The
following is a schedule of future minimum lease payments under capital leases
together with the present value of net minimum lease payments and the future
minimum rental payments required under operating leases that have initial or
noncancellable lease terms in excess of one year as of March 31, 2010 (in
thousands):





Year
      Ending March 31:
            
            Operating
      Lease
            
            
            
            Capital
      Lease2011
            $
            1,264
            
            
            $
            2282012
            
            1,033
            
            
            
            2362013
            
            1,065
            
            
            
            2512014
            
            1,054
            
            
            
            2512015
            
            1,004
            
            
            
            251Thereafter
            
            4,683
            
            
            
            3,683Total
      minimum lease payments
            $
            10,103
            
            
            
            4,900Less
      amount representing interest
            
            
            
            
            
            (2,290
            )Present
      value of net minimum lease
            
            
            
            
            $
            2,610





Rent
expense was $1.7 million, $1.8 million and $1.9 million for the years ended
March 31, 2010, 2009 and 2008, respectively.





8.
            REAL
      ESTATE OWNED





The
following table is a summary of the activity in REO for the periods indicated
(in thousands):





Year
      Ended March 31,2010
            
            2009
            
            2008Balance
      at beginning of year, net
            $
            14,171
            
            $
            494
            
            $
            -Additions
            
            19,644
            
            
            14,666
            
            
            503Dispositions
            
            (15,696
            )
            
            (889
            )
            
            -Writedowns
            
            (4,794
            )
            
            (100
            )
            
            (9
            )Balance
      end or year, net
            $
            13,325
            
            $
            14,171
            
            $
            494













84


REO
expenses for the year ended March 31, 2010 consisted of write-downs on existing
REO properties of $4.8 million, operating expenses of $726,000 and losses on
dispositions of REO of $902,000.  REO expenses for the year ended March 31,
2009 primarily consisted of operating expense of $114,000 and losses on
dispositions of REO of $104,000.  REO expenses for the year ended
March 31, 2008 were insignificant.





9.
            GOODWILL




The
majority of goodwill and intangibles generally arise from business combinations
accounted for under the purchase method. Goodwill and other intangibles deemed
to have indefinite lives generated from purchase business combinations are not
subject to amortization and are instead tested for impairment no less than
annually. The Company has one reporting unit, the Bank, for purposes of
computing goodwill.





During
the third quarter of fiscal 2010, the Company performed its annual goodwill
impairment test to determine whether an impairment of its goodwill asset exists.
The goodwill impairment test involves a two-step process. The first step is a
comparison of the reporting unit’s fair value to its carrying value. If the
reporting unit’s fair value is less than its carrying value, the Company would
be required to progress to the second step. In the second step the Company
calculates the implied fair value of its reporting unit. The GAAP standards with
respect to goodwill require the Company to compare the implied fair value of
goodwill to the carrying amount of goodwill on the Company’s balance sheet. If
the carrying amount of the goodwill is greater than the implied fair value of
that goodwill, an impairment loss must be recognized in an amount equal to that
excess. The implied fair value of goodwill is determined in the same manner as
goodwill recognized in a business combination. The estimated fair value of the
Company is allocated to all of the Company’s individual assets and liabilities,
including any unrecognized identifiable intangible assets, as if the Company had
been acquired in a business combination and the estimated fair value of the
Company is the price paid to acquire it. The allocation process is performed
only for purposes of determining the amount of goodwill impairment, as no assets
or liabilities are written up or down, nor are any additional unrecognized
identifiable intangible assets recorded as part of this process. The results of
the Company’s step one indicated that the reporting unit’s fair value was less
than its carrying value and therefore the Company performed a step two analysis.
After the step two analysis was completed, the Company determined the implied
fair value of goodwill was greater than the carrying value on the Company’s
balance sheet and no goodwill impairment existed; however, no assurance can be
given that the Company’s goodwill will not be written down in future
periods.





10.
            DEPOSIT
      ACCOUNTS





Deposit
accounts consisted of the following (dollars in thousands):





Account Type
            Weighted
              Average
              Rate
            
            
            
            March
      31,
              2010
            
            Weighted
              Average
              Rate
            
            
            
            March
      31,
              2009Non-interest-bearing
            0.00
            %
            
            $
            83,794
            
            0.00
            %
            
            $
            88,528Interest
      checking
            0.34
            
            
            
            70,837
            
            0.53
            
            
            
            96,629Money
      market
            1.04
            
            
            
            209,580
            
            1.55
            
            
            
            178,479Savings
      accounts
            0.55
            
            
            
            32,131
            
            0.55
            
            
            
            28,753Certificate
      of deposit
            1.86
            
            
            
            291,706
            
            3.08
            
            
            
            277,677Total
            1.16
            %
            
            $
            688,048
            
            1.79
            %
            
            $
            670,066





The
weighted average rate is based on interest rates at the end of the
period.





Certificates
of deposit in amounts of $100,000 or more totaled $179.2 million and $142.5
million at March 31, 2010 and 2009, respectively.





Interest
expense by deposit type was as follows (in thousands):





Year
      Ended March 31,2010
            
            2009
            
            2008Interest
      checking
            $
            331
            
            $
            983
            
            $
            3,906Money
      market
            
            2,360
            
            
            3,810
            
            
            8,882Savings
      accounts
            
            162
            
            
            149
            
            
            151Certificate
      of deposit
            
            6,782
            
            
            10,337
            
            
            9,204Total
            $
            9,635
            
            $
            15,279
            
            $
            22,143





85


11.
            FEDERAL
      HOME LOAN BANK ADVANCES





At March
31, 2010 and 2009, advances from the FHLB totaled $23.0 million and $37.9
million with a weighted average interest rate of 0.64% and 2.02%,
respectively.  The FHLB borrowings at March 31, 2010 consisted of two
$10.0 million fixed rate advance and a Cash Management Advance (CMA) with a rate
set daily by the FHLB.  The weighted average interest rate for fixed
and adjustable rate advances was 1.07%, 1.99%, and 4.32% for the years ended
March 31, 2010, 2009 and 2008, respectively.





The Bank
has a credit line with the FHLB equal to 30% of total assets, limited by
available collateral. At March 31, 2010, based on collateral values, the Bank
had additional borrowing capacity of $157.0 million from the FHLB. FHLB advances
are collateralized as provided for in the Advance, Pledge and Security
Agreements with the FHLB by certain investment and mortgage-backed securities,
FHLB stock owned by the Bank, deposits with the FHLB, and certain mortgages on
deeds of trust securing such properties as provided in the agreements with the
FHLB. At March 31, 2010, loans carried at $263.5 million and investments and
mortgage-backed securities carried at $2.6 million were pledged as collateral to
the FHLB. At March 31, 2010, all of the Bank’s FHLB advances were scheduled to
mature during the fiscal year 2011.





12.
            FEDERAL
      RESERVE BANK BORROWINGS





The
Company has a borrowing arrangement with the FRB under the Borrower-In-Custody
program.  Under this program, the Bank has an available credit
facility of $130.7 million, subject to pledged collateral.  As of
March 31, 2010, the Company had outstanding borrowings of $10.0 million with the
FRB.  The weighted average interest rate for these advances was
0.50%.  At March 31, 2010, loans carried at $255.4 million were
pledged as collateral to the FRB. All of the Bank’s FRB borrowings are scheduled
to mature in April 2011; however, the Bank plans to renew these borrowings when
they mature.





13.
            JUNIOR
      SUBORDINATED DEBENTURES





At March
31, 2010, the Company had two wholly-owned subsidiary grantor trusts that were
established for the purpose of issuing trust preferred securities and common
securities.  The trust preferred securities accrue and pay
distributions periodically at specified annual rates as provided in each
indenture.  The trusts used the net proceeds from each of the
offerings to purchase a like amount of junior subordinated debentures (the
“Debentures”) of the Company.  The Debentures are the sole assets of
the trusts.  The Company’s obligations under the Debentures and
related documents, taken together, constitute a full and unconditional guarantee
by the Company of the obligations of the trusts.  The trust preferred
securities are mandatorily redeemable upon maturity of the Debentures, or upon
earlier redemption as provided in the indentures.  The Company has the
right to redeem the Debentures in whole or in part on or after specific dates,
at a redemption price specified in the indentures plus any accrued but unpaid
interest to the redemption date.





The
Debentures issued by the Company to the grantor trusts, totaling $22.7 million,
are reflected in the consolidated balance sheets in the liabilities section,
under the caption “junior subordinated debentures.”  The common securities
issued by the grantor trusts were purchased by the Company, and the Company’s
investment in the common securities of $681,000 at March 31, 2010 and 2009, is
included in prepaid expenses and other assets in the consolidated balance
sheets.  The Company records interest expense on the Debentures in the
Consolidated Statements of Operations.




The
following table is a summary of the terms of the current Debentures at March 31,
2010:




Issuance Trust
            
            Issuance
              Date
            
            
            Amount
              Outstanding
            
            Rate Type
            
            Initial
              Rate
            
            
            Rate
            
            
            Maturing
              Date(Dollars
      in thousands)Riverview
      Bancorp Statutory Trust I
            
            
            12/2005
            
            
            $
            7,217
            
            Variable
      (1)
            
            
            5.88
            %
            
            
            1.62
            %
            
            
            3/2036Riverview
      Bancorp Statutory Trust II
            
            
            6/2007
            
            
            
            15,464
            
            Fixed
      (2)
            
            
            7.03
            %
            
            
            7.03
            %
            
            
            9/2037$
            22,681


(1)
            The trust preferred
      securities reprice quarterly based on the three-month LIBOR plus
      1.36%.(2)
            The trust preferred
      securities bear a fixed quarterly interest rate for 60 months, at which
      time the rate begins to float on a quarterly basis based on the
      three-month LIBOR plus 1.35% until
maturity.







86


14.
            INCOME
      TAXES





Income
tax provision (benefit) for the years ended March 31 consisted of the following
(in thousands):





2010
            
            2009
            
            2008Current
            $
            18
            
            $
            2,091
            
            $
            4,894Deferred
            
            (3,295
            )
            
            (3,653
            )
            
            (395
            )Total
            $
            (3,277
            )
            $
            (1,562
            )
            $
            4,499





The tax
effect of temporary differences that give rise to significant portions of
deferred tax assets and deferred tax liabilities at March 31, 2010 and 2009 are
as follows (in thousands):





2010
            
            2009Deferred
      tax assets:Deferred
      compensation
            $
            624
            
            $
            593Loan
      loss reserve
            
            7,749
            
            
            6,131Core
      deposit intangible
            
            -
            
            
            10Accrued
      expenses
            
            199
            
            
            190Accumulated
      depreciation
            
            410
            
            
            368Deferred
      gain on sale
            
            522
            
            
            -Net
      unrealized loss on securities available for sale
            
            620
            
            
            98Impairment
      on investment security
            
            233
            
            
            1,212Capital
      loss carry forward
            
            -
            
            
            684REO
      expense
            
            2,286
            
            
            796Non-compete
            
            132
            
            
            146Other
            
            216
            
            
            117Total
      deferred tax asset
            
            12,991
            
            
            10,345





Deferred
      tax liabilities:FHLB
      stock dividend
            
            (1,063
            )
            
            (1,063
            )Deferred
      gain on sale
            
            -
            
            
            (210
            )Purchase
      accounting
            
            (112
            )
            
            (151
            )Prepaid
      expense
            
            (122
            )
            
            (125
            )Loan
      fees/costs
            
            (517
            )
            
            (587
            )Total
      deferred tax liability
            
            (1,814
            )
            
            (2,136
            )Deferred
      tax asset, net
            $
            11,177
            
            $
            8,209





A
reconciliation of the Company’s effective income tax rate with the federal
statutory tax rate for the years ended March 31 is as follows:





2010
            
            
            2009
            
            
            2008Statutory
      federal income tax rate
            
            34.0
            %
            
            34.0
            %
            
            35.0
            %State
      and local income tax rate
            
            1.5
            
            
            1.5
            
            
            1.2ESOP
      market value adjustment
            
            0.1
            
            
            (0.3
            )
            
            0.8Interest
      income on municipal securities
            
            0.4
            
            
            1.2
            
            
            (0.4
            )Bank
      owned life insurance
            
            2.5
            
            
            4.8
            
            
            (1.5
            )Other,
      net
            
            (0.9
            )
            
            (4.1
            )
            
            (0.9
            )Effective
      federal income tax rate
            
            37.6
            %
            
            37.1
            %
            
            34.2
            %





There
were no taxes related to the gains on sales of securities for the years ended
March 31, 2010, 2009 and 2008. The tax effects of certain tax benefits related
to stock options are recorded directly to shareholders’ equity.





The
Bank’s retained earnings at March 31, 2010 and 2009 include base year bad debt
reserves, which amounted to $2.2 million, for which no federal income tax
liability has been recognized.  The amount of unrecognized deferred
tax liability at March 31, 2010 and 2009 was $781,000.  This
represents the balance of bad debt reserves created for tax purposes as of
December 31, 1987.  These amounts are subject to recapture in the
unlikely event that the Company’s banking subsidiaries (1) make distributions in
excess of current and accumulated earnings and profits, as calculated for
federal tax purposes, (2) redeem their stock, or (3)
liquidate.  Management does not expect this temporary difference to
reverse in the foreseeable future.







87


The
Company adopted authoritative accounting guidance on April 1, 2007 related to
uncertain tax positions. At March 31, 2010 and 2009, the Company had no
unrecognized tax benefits or uncertain tax positions. In addition, the Company
had no accrued interest or penalties as of March 31, 2010 or 2009. It is the
Company’s policy to recognize potential accrued
interest and penalties as a component of income tax expense. The Company is
subject to U.S. federal income tax and income tax of the State of Oregon. The
years 2006 to 2009 remain open to examination for federal income taxes, and
years 2005 to 2009 remain open to State examination.





In
accordance with current accounting guidance, a valuation allowance is required
to be recognized if it is “more likely than not” that all or a portion of the
deferred tax assets will not be realized. “More likely than not” is defined as
greater than 50% probability of occurrence. A determination as to the ultimate
realization of the deferred tax assets is dependent upon management’s judgment
and evaluation of both positive and negative evidence, forecasts of future
taxable income, applicable tax planning strategies, and an assessment of current
and future economic and business conditions. Positive evidence reviewed included
long-term earnings history prior to recent economic downturn, recent improved
performance trends, proven ability to utilize deferred tax credits, projection
of future income, capital levels and net operating loss carryback availability.
Negative evidence reviewed included the losses sustained by the Company during
the past two years.





After
considering both the positive and negative factors, management believes it has
sufficient positive indicators to outweigh the negative factors and therefore
believes it is more likely than not that we will be able to fully realize all of
the recorded deferred tax assets. Accordingly, the Company did not establish a
valuation allowance for deferred tax assets at March 31, 2010 or 2009 as the
Company believes it is more likely than not that the deferred tax assets will be
realized principally through future reversals of existing temporary differences
and based on projections of future taxable income from operations.





15.
            EMPLOYEE
      BENEFIT PLANS





Retirement
Plan - The Riverview Bancorp, Inc. Employees’ Savings and Profit Sharing
Plan (the “Plan”) is a defined contribution profit-sharing plan incorporating
the provisions of Section 401(k) of the Internal Revenue Code.  The
Plan covers all employees with at least six months and 500 hours of service who
are over the age of 18. The Company matches the employee’s elective
contribution up to 4% of the employee’s compensation. Company expenses related
to the Plan for the years ended March 31, 2010, 2009 and 2008 were $401,000,
$432,000 and $455,000, respectively.





Directors
Deferred Compensation Plan - Directors may elect to defer their monthly
directors’ fees until retirement with no income tax payable by the director
until retirement benefits are received.  Chairman, President,
Executive and Senior Vice Presidents of the Company may also defer salary into
this plan. This alternative is made available to them through a nonqualified
deferred compensation plan. The Company accrues annual interest on the unfunded
liability under the Directors Deferred Compensation Plan based upon a formula
relating to gross revenues, which amounted to 5.13%, 6.19% and 7.57% for the
years ended March 31, 2010, 2009 and 2008, respectively. The estimated liability
under the plan is accrued as earned by the participant. At March 31, 2010 and
2009, the Company’s aggregate liability under the plan was $1.8 million and $1.7
million, respectively.





Stock
Option Plans -
In July 1998, shareholders of the Company approved the adoption of the 1998
Stock Option Plan (“1998 Plan”). The 1998 Plan was effective October 1, 1998 and
terminated on October 1, 2008.  Accordingly, no further option awards
may be granted under the 1998 Plan; however, any awards granted prior to its
expiration remain outstanding subject to their terms.  Under the 1998
Plan, the Company had the ability to grant both incentive and non-qualified
stock options to purchase up to 714,150 shares of its common stock to officers,
directors and employees. Each option granted under the 1998 Plan has an exercise
price equal to the fair market value of the Company’s common stock on the date
of the grant, a maximum term of ten years and a vesting period from zero to five
years.





In July
2003, shareholders of the Company approved the adoption of the 2003 Stock Option
Plan (“2003 Plan”).  The 2003 Plan was effective July 2003 and will
expire on the tenth anniversary of the effective date, unless terminated sooner
by the Board.  Under the 2003 Plan, the Company may grant both
incentive and non-qualified stock options to purchase up to 458,554 shares of
its common stock to officers, directors and employees.  Each option
granted under the 2003 Plan has an exercise price equal to the fair market value
of the Company’s common stock on the date of grant, a maximum term of ten years
and a vesting period from zero to five years. At March 31, 2010, there were
options for 78,154 shares of the Company’s common stock available for future
grant under the 2003 Plan.





88


The fair
value of each stock option granted is estimated on the date of grant using the
Black-Scholes based stock option valuation model. The fair value of all awards
is amortized on a straight-line basis over the requisite service periods, which
are generally the vesting periods. The Black-Scholes model uses the assumptions
listed in the table below.  The expected life of options granted
represents the period of time that they are expected to be outstanding. The
expected life is determined based on historical experience with similar options,
giving consideration to the contractual terms and vesting schedules. Expected
volatility was estimated at the date of grant based on the historical volatility
of the Company's common stock. Expected dividends are based on dividend trends
and the market value of the Company's common stock at the time of grant. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at
the time of grant. The Company granted 122,000, 38,500 and 20,000 stock options
during the years ended March 31, 2010, 2009 and 2008, respectively.





Risk
      Free
              Interest Rate
            
            Expected
              Life (yrs)
            
            Expected
              Volatility
            
            Expected
              DividendsFiscal
      2010
            
            3.08%
            
            6.25
            
            37.55%
            
            2.45%Fiscal
      2009
            
            2.99%
            
            6.25
            
            20.20%
            
            2.77%Fiscal
      2008
            
            4.32%
            
            6.25
            
            15.13%
            
            3.06%





The
weighted average grant-date fair value of fiscal years 2010, 2009 and 2008
awards were $1.22, $1.09 and $2.07, respectively.  As of March 31,
2010, unrecognized compensation cost related to nonvested stock options totaled
$75,000.  The Company recognized pre-tax compensation expense related
to stock options of $112,000, $38,000 and $34,000 for the years ended March 31,
2010, 2009 and 2008, respectively.





The
following table presents the activity related to options under all plans for the
periods indicated.





Year
      Ended March 31,2010
            
            2009
            
            2008Number
      of
              Shares
            
            
            Weighted
              Average
              Exercise
              Price
            
            Number
      of
              Shares
            
            
            Weighted
      Average
              Exercise
              Price
            
            Number
      of
              Shares
            
            
            Weighted
              Average
              Exercise
              PriceBalance,
      beginning of period
            371,696
            
            $
            10.99
            
            424,972
            
            $
            11.02
            
            526,192
            
            $
            10.41Grants
            122,000
            
            
            3.82
            
            38,500
            
            
            6.30
            
            20,000
            
            
            13.42Options
      exercised
            -
            
            
            -
            
            (10,000
            )
            
            4.70
            
            (95,620
            )
            
            7.68Forfeited
            (8,000
            )
            
            10.82
            
            (48,000
            )
            
            11.71
            
            (25,600
            )
            
            12.69Expired
            (19,996
            )
            
            5.50
            
            (33,776
            )
            
            6.88
            
            -
            
            
            -Balance,
      end of period
            465,700
            
            $
            9.35
            
            371,696
            
            $
            10.99
            
            424,972
            
            $
            11.02





Additional
information regarding options outstanding as of March 31, 2010 is as
follows:


`


Options
      Outstanding
            
            Options
      ExercisableWeighted
      Avg
            
            
            
            
            Weighted
            
            
            
            
            WeightedRemaining
            
            
            
            
            Average
            
            
            
            
            AverageRange
      of
            
            Contractual
            
            Number
            
            
            Exercise
            
            Number
            
            
            ExerciseExercise
      Price
            
            Life
      (years)
            
            Outstanding
            
            
            Price
            
            Exercisable
            
            
            Price$3.64
      - $6.17
            
            9.26
            
            158,000
            
            $
            4.36
            
            36,000
            
            $
            6.17$6.51
      - $6.88
            
            2.10
            
            20,000
            
            
            6.76
            
            20,000
            
            
            6.76$7.49
      - $9.51
            
            3.46
            
            33,700
            
            
            8.45
            
            32,200
            
            
            8.47$10.10
      - $10.83
            
            5.22
            
            27,000
            
            
            10.30
            
            25,000
            
            
            10.30$12.98
      - $14.52
            
            6.05
            
            227,000
            
            
            13.08
            
            221,000
            
            
            13.046.73
            
            465,700
            
            $
            9.35
            
            334,200
            
            $
            11.28





89


The
following table presents information on stock options outstanding for the
periods shown, less estimated forfeitures.





Year
      Ended
              March
      31, 2010
            
            Year
      Ended
              March
      31, 2009Stock
      options fully vested and expected to vest:Number
            
            458,475
            
            
            
            368,271Weighted
      average exercise price
            $
            9.42
            
            
            $
            11.01Aggregate
      intrinsic value (1)
            $
            -
            
            
            $
            -Weighted
      average contractual term of options (years)
            
            6.69
            
            
            
            6.33Stock
      options fully vested and currently exercisable:Number
            
            334,200
            
            
            
            318,896Weighted
      average exercise price
            $
            11.28
            
            
            $
            11.46Aggregate
      intrinsic value (1)
            $
            -
            
            
            $
            -Weighted
      average contractual term of options (years)
            
            5.70
            
            
            
            5.93(1)  The
      aggregate intrinsic value of a stock options in the table above represents
      the total pre-tax intrinsic value (the amount by which the current market
      value of the underlying stock exceeds the exercise price) that would have
      been received by the option holders had all option holders
      exercised.  This amount changes based on changes in the market
      value of the Company’s stock.





There
were no stock options exercised for the year ended March 31,
2010.  The total intrinsic value of stock options exercised was
$31,000 and $613,000 for the years ended March 31, 2009 and 2008,
respectively.





16.
            EMPLOYEE
      STOCK OWNERSHIP PLAN





The
Company sponsors an ESOP that covers all employees with at least one year and
1,000 hours of service who are over the age of 21.  Shares are
released and allocated to participant accounts on December 31 of each year until
2017. ESOP compensation expense included in salaries and employee benefits was
$73,000, $43,000 and $414,000 for years ended March 31, 2010, 2009 and 2008,
respectively.





ESOP
share activity is summarized in the following table:








Fair
      Value
              of
              Unreleased
              Shares
            
            Unreleased
              ESOP
              Shares
            
            Allocated
              and
              Released
              Shares
            
            TotalBalance,
      March 31, 2007
            $
            4,319,000
            
            270,963
            
            691,621
            
            962,584Allocation
      December 31, 2007
            
            
            
            (24,633
            )
            24,633
            
            -Balance,
      March 31, 2008
            $
            2,458,000
            
            246,330
            
            716,254
            
            962,584Allocation
      December 31, 2008
            
            
            
            (24,633
            )
            24,633
            
            -Balance,
      March 31, 2009
            $
            858,000
            
            221,697
            
            740,887
            
            962,584Allocation
      December 31, 2009
            
            
            
            (24,633
            )
            24,633
            
            -Balance,
      March 31, 2010
            $
            453,000
            
            197,064
            
            765,520
            
            962,584





17.
            SHAREHOLDERS’
      EQUITY AND REGULATORY CAPITAL
REQUIREMENTS





The
Company’s Board authorized 250,000 shares of serial preferred stock as part of
the Conversion and Reorganization completed on September 30, 1997.  No
preferred shares were issued or outstanding at March 31, 2010 or
2009.





The Bank
is subject to various regulatory capital requirements administered by the Office
of Thrift Supervision (“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 onthe Bank’sfinancial
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 under 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 and Tier I capital to
risk-weighted assets, core capital to total 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 March 31, 2010.






90





As of
March 31, 2010, 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, core capital to total
assets and tangible capital to tangible assets (set forth in the table
below).





The
Bank’s actual and required minimum capital amounts and ratios are as follows
(dollars in thousands):





Actual
            
            
            For
      Capital Adequacy Purposes
            
            
            “Well
      Capitalized”
              Under
      Prompt
              Corrective
      ActionAmount
            
            Ratio
            
            
            Amount
            
            Ratio
            
            
            Amount
            
            RatioMarch
      31, 2010Total
      Capital:(To
      Risk-Weighted Assets)
            $
            89,048
            
            12.11
            %
            $
            58,835
            
            8.0
            %
            $
            73,544
            
            10.0
            %Tier
      1 Capital:(To
      Risk-Weighted Assets)
            
            79,801
            
            10.85
            
            
            29,417
            
            4.0
            
            
            44,126
            
            6.0Tier
      1 Capital (Leverage):(To
      Adjusted Tangible Assets)
            
            79,801
            
            9.84
            
            
            32,453
            
            4.0
            
            
            40,566
            
            5.0Tangible
      Capital:(To
      Tangible Assets)
            
            79,801
            
            9.84
            
            
            12,170
            
            1.5
            
            
            N/A
            
            N/A








Actual
            
            
            For
      Capital Adequacy Purposes
            
            
            “Well
      Capitalized”
              Under
      Prompt
              Corrective
      ActionAmount
            
            Ratio
            
            
            Amount
            
            Ratio
            
            
            Amount
            
            RatioMarch
      31, 2009Total
      Capital:(To
      Risk-Weighted Assets)
            $
            94,654
            
            11.46
            %
            $
            66,080
            
            8.0
            %
            $
            82,599
            
            10.0
            %Tier
      1 Capital:(To
      Risk-Weighted Assets)
            
            84,300
            
            10.21
            
            
            33,040
            
            4.0
            
            
            49,560
            
            6.0Tier
      1 Capital (Leverage):(To
      Adjusted Tangible Assets)
            
            84,300
            
            9.50
            
            
            35,502
            
            4.0
            
            
            44,377
            
            5.0Tangible
      Capital:(To
      Tangible Assets)
            
            84,300
            
            9.50
            
            
            13,313
            
            1.5
            
            
            N/A
            
            N/A





At
periodic intervals, the OTS and the FDIC routinely examine the Company’s
Consolidated Financial Statements as part of their legally prescribed oversight
of the savings and loan industry. Based on their examinations, these regulators
can direct that the Company’s Consolidated Financial Statements be adjusted in
accordance with their findings. A future examination by the OTS or the FDIC
could include a review of certain transactions or other amounts reported in the
Company’s 2010 Consolidated Financial Statements.





At March
31, 2010, the Company had 125,000 shares of its outstanding common stock
available for repurchase under the June 21, 2007 Board approved stock repurchase
plan of 750,000 shares. Stock repurchases are subject to non-objection of the
OTS. The following table summarizes the Company’s common stock repurchased in
each of the following periods (dollars in thousands):





Shares
            
            
            Value2010
            -
            
            $
            -2009
            -
            
            $
            -2008
            875,000
            
            $
            12,643





18.
            EARNINGS
      PER SHARE





Basic
earning per share (“EPS”) is computed by dividing net income applicable to
common stock by the weighted average number of common shares outstanding during
the period, without considering any dilutive items.  Diluted EPS is
computed by dividing net income applicable to common stock by the weighted
average number of common shares and common stock equivalents for items that are
dilutive, net of shares assumed to be repurchased using the treasury stock
method at the average share price for the Company’s common stock during the
period. Common stock equivalents arise from assumed conversion of outstanding
stock options. ESOP
shares are not considered outstanding for EPS purposes until they are committed
to be released.   For the years ended March 31, 2010 and 2009,
stock options for 414,000 and


91


385,000
shares, respectively, of common stock were excluded in computing diluted EPS
because they were antidilutive.





Years
      Ended March 31,(Dollars
      and share data in thousands, except per share data)
            
            2010
            
            
            2009
            
            
            2008Basic
      EPS computation:Numerator-net
      income (loss)
            $
            (5,444
            )
            $
            (2,650
            )
            $
            8,644Denominator-weighted
      average
              common
      shares outstanding
            
            10,721
            
            
            10,694
            
            
            10,915Basic
      EPS
            $
            (0.51
            )
            $
            (0.25
            )
            $
            0.79Diluted
      EPS computation:Numerator-net
      income (loss)
            $
            (5,444
            )
            $
            (2,650
            )
            $
            8,644Denominator-weighted
      average
              common
      shares outstanding
            
            10,721
            
            
            10,694
            
            
            10,915Effect
      of dilutive stock options
            
            -
            
            
            -
            
            
            92Weighted
      average common sharesand
      common stock equivalents
            
            10,721
            
            
            10,694
            
            
            11,007Diluted
      EPS
            $
            (0.51
            )
            $
            (0.25
            )
            $
            0.79





19.
            FAIR
      VALUE MEASUREMENT





SFAS No.
157, “Fair Value Measurements” defines fair value and establishes a framework
for measuring fair value in GAAP, and expands disclosures about fair value
measurements.  The following definitions describe the categories used
in the tables presented under fair value measurement.




Quoted
prices in active markets for identical assets (Level 1): Inputs that are quoted
unadjusted prices in active markets for identical assets that the Company has
the ability to access at the measurement date.  An active market for
the asset is a market in which transactions for the asset or liability occur
with sufficient frequency and volume to provide pricing information on an
ongoing basis.





Other
observable inputs (Level 2): Inputs that reflect the assumptions market
participants would use in pricing the asset or liability developed based on
market data obtained from sources independent of the reporting entity including
quoted prices for similar assets, quoted prices for securities in inactive
markets and inputs derived principally from or corroborated by observable market
data by correlation or other means.





Significant
unobservable inputs (Level 3): Inputs that reflect the reporting entity's own
assumptions about the assumptions market participants would use in pricing the
asset or liability developed based on the best information available in the
circumstances.





Financial
instruments are broken down in the tables that follow by recurring or
nonrecurring measurement status.  Recurring assets are initially
measured at fair value and are required to be remeasured at fair value in the
financial statements at each reporting date. Assets measured on a nonrecurring
basis are assets that, as a result of an event or circumstance, were required to
be remeasured at fair value after initial recognition in the financial
statements at some time during the reporting period.





The
following tables presents assets that are measured at fair value on a recurring
basis (in thousands).


Fair
      value measurements at March 31, 2010, usingFair
      value
            
            Quoted
      prices in
              active
      markets for
              identical
      assets
            
            Other
              observable
              inputs
            
            Significant
              unobservable
              inputsMarch
      31, 2010
            
            (Level
      1)
            
            (Level
      2)
            
            (Level
      3)Investment
      securities available for saleTrust
      preferred
            $
            1,042
            
            
            -
            
            $
            -
            
            $
            1,042Agency
      securities
            
            5,017
            
            
            -
            
            
            5,017
            
            
            -Municipal
      bonds
            
            743
            
            
            -
            
            
            743
            
            
            -Mortgage-backed
      securities available for saleReal
      estate mortgage investment conduits
            
            556
            
            
            -
            
            
            556
            
            
            -FHLMC
      mortgage-backed securities
            
            2,219
            
            
            -
            
            
            2,219
            
            
            -FNMA
      mortgage-backed securities
            
            53
            
            
            -
            
            
            53
            
            
            -Total
      recurring assets measured at fair value
            $
            9,630
            
            $
            -
            
            $
            8,588
            
            $
            1,042







92


The
following table presents a reconciliation of assets that are measured at fair
value on a recurring basis using significant
unobservable inputs (Level 3) during the year ended March 31, 2010 (in
thousands).  There were no transfers of assets in to or out of Level 3
for the year ended March 31, 2010.




For
      the Year EndedMarch
      31, 2010Balance
      at March 31, 2009
            $
            1,144Transfers
      in to Level 3
            
            -Included
      in earnings(1)
            
            (1,003
            )Included
      in other comprehensive income (2)
            
            901Balance
      at March 31, 2010
            $
            1,042(1)Included in other non-interest income(2)Includes the reversal of previously recorded OTTI





The
following method was used to estimate the fair value of each class of financial
instrument above:





Investments and Mortgage-Backed
Securities– Investment securities available-for-sale are included within
Level 1 of the hierarchy when quoted prices in an active market for identical
assets are available. The Company uses a third party pricing service to assist
the Company in determining the fair value of its Level 2 securities, which
incorporates pricing models and/or quoted prices of investment securities with
similar characteristics. Our Level 3 assets consist of a single pooled trust
preferred security. The fair value for this security was estimated using an
income approach valuation technique (using cash flows and present value
techniques). Significant unobservable inputs used for this security included
selecting an appropriate discount rate, default rate and repayment
assumptions.





The
following table represents certain loans and REO, which were marked down to
their fair value for the year ended March 31, 2010. The following assets are
measured at fair value on a nonrecurring basis (in thousands).


Fair
      value measurements at March 31, 2010, usingQuoted
      prices in
              active
      markets for
              identical
      assets
            
            Other
      observable
              inputs
            
            Significant
              unobservable
              inputsFair
      value
              March
      31, 2010
            
            (Level
      1)
            
            (Level
      2)
            
            (Level
      3)Loans
      measured for impairment
            $
            24,505
            
            $
            -
            
            $
            -
            
            $
            24,505Real
      estate owned
            
            14,540
            
            
            -
            
            
            -
            
            
            14,540Total
      nonrecurring assets measured at fair value
            $
            39,045
            
            $
            -
            
            $
            -
            
            $
            39,045





The
following method was used to estimate the fair value of each class of financial
instrument above:





Impaired loans– A loan is
considered to be impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due (both
interest and principal) according to the contractual terms of the loan
agreement. Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan’s effective interest rate or, as a
practical expedient, at the loans’ observable market price or the fair market
value of the collateral. A significant portion of the Bank’s impaired loans is
measured using the fair market value of the collateral.





Real estate owned – REO is
real property that the Bank has taken ownership of in partial or full
satisfaction of a loan or loans. REO is recorded at the lower of the carrying
amount of the loan or fair value less estimated costs to sell. This amount
becomes the property’s new basis. Any write downs based on the property’s fair
value less estimated costs to sell at the date of acquisition are charged to the
allowance for loan losses. Management periodically reviews REO in an effort to
ensure the property is carried at the lower of its new basis or fair value, net
of estimated costs to sell.





93


20.
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS





The
following disclosure of the estimated fair value of financial instruments is
made in accordance with applicable accounting standards. The Company, using
available market information and appropriate valuation methodologies, has
determined the estimated fair value amounts. However, considerable judgment is
necessary to interpret market data in the development of the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in the future. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.





The
estimated fair value of financial instruments is as follows (in
thousands):





March
      31,2010
            
            
            2009Carrying
              Value
            
            
            Fair
              Value
            
            
            Carrying
              Value
            
            
            Fair
              ValueAssets:Cash
            $
            13,587
            
            $
            13,587
            
            $
            19,199
            
            $
            19,199Investment
      securities held to maturity
            
            517
            
            
            573
            
            
            529
            
            
            552Investment
      securities available for sale
            
            6,802
            
            
            6,802
            
            
            8,490
            
            
            8,490Mortgage-backed
      securities held to maturity
            
            259
            
            
            265
            
            
            570
            
            
            572Mortgage-backed
      securities available for sale
            
            2,828
            
            
            2,828
            
            
            4,066
            
            
            4,066Loans
      receivable, net
            
            712,837
            
            
            631,706
            
            
            784,117
            
            
            733,436Loans
      held for sale
            
            255
            
            
            255
            
            
            1,332
            
            
            1,332Mortgage
      servicing rights
            
            509
            
            
            1,015
            
            
            468
            
            
            929Liabilities:Demand
      – savings deposits
            
            396,342
            
            
            396,342
            
            
            392,389
            
            
            392,389Time
      deposits
            
            291,706
            
            
            294,337
            
            
            277,677
            
            
            281,120FHLB
      advances
            
            23,000
            
            
            23,006
            
            
            37,850
            
            
            37,869FRB
      borrowings
            
            10,000
            
            
            9,998
            
            
            85,000
            
            
            84,980Junior
      subordinated debentures
            
            22,681
            
            
            14,124
            
            
            22,681
            
            
            12,702





Fair
value estimates were based on existing financial instruments without attempting
to estimate the value of anticipated future business. The fair value has not
been estimated for assets and liabilities that were not considered financial
instruments.





Fair
value estimates, methods and assumptions are set forth below.





Cash- Fair value
approximates the carrying amount.





Investments
and Mortgage-Backed Securities - Fair values were based on quoted market
rates and dealer quotes. The fair value of the trust preferred investment was
determined using a discounted cash flow method (see also Note 19 – Fair Value
Measurements).





Loans
Receivable and Loans Held for Sale – Loans were priced using comparable
market statistics. The loan portfolio was segregated into various categories and
a weighted average valuation discount that approximated similar loan sales data
from the FDIC was applied to each of these categories.





Mortgage
Servicing Rights-The fair value of MSRs
was determined using the Company’s model, which incorporates the expected life
of the loans, estimated cost to service the loans, servicing fees received and
other factors. The Company calculates MSRs fair value by stratifying MSRs based
on the predominant risk characteristics that include the underlying loan’s
interest rate, cash flows of the loan, origination date and term. Key economic
assumptions that vary due to changes in market interest rates are used to
determine the fair value of the MSRs and include expected prepayment speeds,
which impact the average life of the portfolio, annual service cost, annual
ancillary income and the discount rate used in valuing the cash flows. At March
31, 2010, the MSRs fair value totaled $1.0 which was estimated using a range of
prepayment speed assumptions values that ranged from 170 to 695.





Deposits
- The fair value of deposits with no stated maturity such as
non-interest-bearing demand deposits, interest checking, money market and
savings accounts was equal to the amount payable on demand. The fair value of
time











94





deposits
with stated maturity was based on the discounted value of contractual cash
flows. The discount rate was estimated using rates currently available in the
local market.




Federal
Home Loan Bank Advances - The fair value for FHLB advances was based on
the discounted cash flow method. The discount rate was estimated using rates
currently available from the FHLB.





Federal
Reserve Bank Borrowings - The fair value for FRB borrowings was based on
the discounted cash flow method. The discount rate was estimated using rates
currently available from the FRB.





Junior
Subordinated Debentures - The fair value of the Debentures was based on
the discounted cash flow method. Management believes that the discount rate
utilized is indicative of those that would be used by market participants for
similar types of debentures.





Off-Balance
Sheet Financial Instruments - The estimated fair value of loan
commitments approximates fees recorded associated with such commitments as of
March 31, 2010 and 2009. Since the majority of the Bank’s off-balance-sheet
instruments consist of non-fee producing, variable rate commitments, the Bank
has determined they do not have a distinguishable fair value.





21.
            COMMITMENTS
      AND CONTINGENCIES





The
Company is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its
customers.  These financial instruments generally include commitments
to originate mortgage, commercial and consumer loans.  Those
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the balance sheet.  The
Company’s maximum exposure to credit loss in the event of nonperformance by the
borrower is represented by the contractual amount of those
instruments.  The Company uses the same credit policies in making
commitments as it does for on-balance sheet instruments. Commitments to
originate loans are conditional, and are honored for up to 45 days subject to
the Company’s usual terms and conditions.  Collateral is not required
to support commitments.





At March
31, 2010, the Company had outstanding commitments to extend credit totaling
$12.4 million, unused lines of credit totaling $78.4 million and undisbursed
construction loans totaling $13.2 million.





The
allowance for unfunded loan commitments was $185,000 at March 31,
2010.





Standby
letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. Those guarantees are primarily
used to support public and private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Collateral held varies as specified
above, and is required in instances where the Bank deems necessary. At March 31,
2010 and 2009, standby letters of credit totaled $1.4 million and $1.8 million,
respectively.





At March
31, 2010, the Company had firm commitments to sell $673,000 of residential loans
to FHLMC. Typically, these agreements are short term fixed rate commitments and
no material gain or loss is likely.





In
connection with certain asset sales, the Bank typically makes representation and
warranties about the underlying assets conforming to specified
guidelines.  If the underlying assets do not conform to the
specifications, the Bank may have an obligation to repurchase the assets or
indemnify the purchaser against loss.  As of March 31, 2010, loans
under warranty totaled $115.4 million, which substantially represents the unpaid
principal balance of the Bank’s loans serviced for FHLMC.  The Bank
believes that the potential for loss under these arrangements is
remote.  Accordingly, no contingent liability is recorded in the
Consolidated Financial Statements.





The Bank
is a public depository and, accordingly, accepts deposit and other public funds
belonging to, or held for the benefit of, Washington and Oregon states,
political subdivisions thereof and, municipal corporations.  In
accordance with applicable state law, in the event of default of a participating
bank, all other participating banks in the state collectively assure that no
loss of funds are suffered by any public depositor.  Generally, in the
event of default by a public depositary, the assessment attributable to all
public depositaries is allocated on a pro rata basis in proportion to the
maximum liability of each depository as it existed on the date of
loss.  The Company has not incurred any losses related to public
depository funds for the years ended March 31, 2010, 2009 and 2008.







95


The
Company is party to litigation arising in the ordinary course of
business.  In the opinion of management, these actions will not have a
material adverse effect, if any, on the Company’s financial position, results of
operations, or liquidity.





The Bank
has entered into employment contracts with certain key employees, which provide
for contingent payment subject to future events.




22.
            RIVERVIEW
      BANCORP, INC. (PARENT COMPANY)








BALANCE
      SHEETSMARCH
      31, 2010 AND 2009(Dollars
      in thousands)
            
            2010
            
            
            2009ASSETSCash
      (including interest earning accounts of $159 and $1,073)
            $
            190
            
            $
            1,105Investment
      in the Bank
            
            104,724
            
            
            108,967Other
      assets
            
            1,765
            
            
            1,352TOTAL
      ASSETS
            $
            106,679
            
            $
            111,424LIABILITIES
      AND SHAREHOLDERS’ EQUITYAccrued expenses and other liabilities
            $
            59
            
            $
            68Deferred
      income taxes
            
            5
            
            
            12Borrowings
            
            22,681
            
            
            22,681Shareholders'
      equity
            
            83,934
            
            
            88,663TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
            $
            106,679
            
            $
            111,424





STATEMENTS
      OF OPERATIONSYEARS
      ENDED MARCH 31, 2010, 2009 AND 2008(Dollars
      in thousands)
            
            2010
            
            
            2009
            
            
            2008INCOME:Dividend
      income from Bank
            $
            300
            
            $
            -
            
            $
            6,386Interest
      on investment securities and other short-term investments
            
            37
            
            
            114
            
            
            468Interest
      on loan receivable from the Bank
            
            77
            
            
            86
            
            
            94Total
      income
            
            414
            
            
            200
            
            
            6,948EXPENSE:Management
      service fees paid to the Bank
            
            143
            
            
            143
            
            
            143Other
      expenses
            
            1,318
            
            
            1,656
            
            
            1,636Total
      expense
            
            1,461
            
            
            1,799
            
            
            1,779INCOME
      (LOSS) BEFORE INCOME TAXES AND EQUITYIN
      UNDISTRIBUTED INCOME OF THE BANK
            
            (1,047
            )
            
            (1,599
            )
            
            5,169BENEFIT
      FOR INCOME TAXES
            
            (458
            )
            
            (544
            )
            
            (426
            )INCOME
      (LOSS) OF PARENT COMPANY
            
            (589
            )
            
            (1,055
            )
            
            5,595EQUITY
      IN UNDISTRIBUTED INCOME (LOSS) OF THE BANK
            
            (4,855
            )
            
            (1,595
            )
            
            3,049NET
      INCOME (LOSS)
            $
            (5,444
            )
            $
            (2,650
            )
            $
            8,644


96





RIVERVIEW
BANCORP, INC. (PARENT COMPANY)





STATEMENTS
OF CASH FLOWS


YEARS
ENDED MARCH 31, 2010, 2009 AND 2008





(Dollars
      in thousands)
            
            2010
            
            
            2009
            
            
            2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
            $
            (5,444
            )
            $
            (2,650
            )
            $
            8,644Adjustments
      to reconcile net income cash provided by operating
    activities:Equity
      in undistributed (earnings) loss of the Bank
            
            4,855
            
            
            1,595
            
            
            (3,049
            )Provision
      for deferred income taxes
            
            (7
            )
            
            -
            
            
            34Earned
      ESOP shares
            
            73
            
            
            43
            
            
            414Stock
      based compensation
            
            112
            
            
            -
            
            
            -Changes
      in assets and liabilitiesOther
      assets
            
            (413
            )
            
            965
            
            
            (445
            )Accrued
      expenses and other liabilities
            
            (91
            )
            
            (87
            )
            
            (535
            )Net
      cash provided by (used in) operating activities
            
            (915
            )
            
            (134
            )
            
            5,063CASH
      FLOWS FROM INVESTING ACTIVITIES:Additional
      investment in subsidiary
            
            -
            
            
            (4,750
            )
            
            -Net
      cash used in investing activities
            
            -
            
            
            (4,750
            )
            
            -CASH
      FLOWS FROM FINANCING ACTIVITIES:Dividends
      paid
            
            -
            
            
            (2,402
            )
            
            (4,740
            )Proceeds
      from subordinated debentures
            
            -
            
            
            -
            
            
            15,000Repurchase
      of common stock
            
            -
            
            
            -
            
            
            (12,643
            )Proceeds
      from exercise of stock options
            
            -
            
            
            96
            
            
            708Net
      cash used in financing activities
            
            -
            
            
            (2,306
            )
            
            (1,675
            )NET
      INCREASE (DECREASE) IN CASH
            
            (915
            )
            
            (7,190
            )
            
            3,388CASH,
      BEGINNING OF YEAR
            
            1,105
            
            
            8,295
            
            
            4,907CASH,
      END OF YEAR
            $
            190
            
            $
            1,105
            
            $
            8,295





97


RIVERVIEW
BANCORP, INC.


SELECTED
QUARTERLY FINANCIAL DATA (UNAUDITED):





(Dollars in thousands, except
      share data)
            Three
      Months EndedMarch
      31
            
            
            
            December
      31
            
            
            
            September
      30
            
            
            
            June
      30Fiscal
      2010:Interest
      income
            $
            11,058
            
            
            $
            11,513
            
            
            $
            11,797
            
            
            $
            11,894Interest
      expense
            
            2,491
            
            
            
            2,787
            
            
            
            2,884
            
            
            
            3,214Net
      interest income
            
            8,567
            
            
            
            8,726
            
            
            
            8,913
            
            
            
            8,680Provision
      for loan losses
            
            5,850
            
            
            
            4,500
            
            
            
            3,200
            
            
            
            2,350Non-interest
      income
            
            1,846
            
            
            
            1,522
            
            
            
            1,795
            
            
            
            2,103Non-interest
      expense
            
            11,926
            
            
            
            7,792
            
            
            
            7,267
            
            
            
            7,988Income
      before income taxes
            
            (7,363
            )
            
            
            (2,044
            )
            
            
            241
            
            
            
            445Provision
      (benefit) for income taxes
            
            (2,660
            )
            
            
            (758
            )
            
            
            39
            
            
            
            102Net income (loss)
            $
            (4,703
            )
            
            $
            (1,286
            )
            
            $
            202
            
            
            $
            343Basic earnings (loss) per share (1)
            $
            (0.44
            )
            
            $
            (0.12
            )
            
            $
            0.02
            
            
            $
            0.03Diluted earnings (loss) per share
            $
            (0.44
            )
            
            $
            (0.12
            )
            
            $
            0.02
            
            
            $
            0.03Fiscal
      2009:Interest
      income
            $
            12,383
            
            
            $
            13,172
            
            
            $
            13,729
            
            
            $
            13,566Interest
      expense
            
            4,096
            
            
            
            4,801
            
            
            
            5,087
            
            
            
            5,199Net
      interest income
            
            8,287
            
            
            
            8,371
            
            
            
            8,642
            
            
            
            8,367Provision
      for loan losses
            
            5,000
            
            
            
            1,200
            
            
            
            7,200
            
            
            
            2,750Non-interest
      income
            
            2,759
            
            
            
            1,902
            
            
            
            (1,313
            )
            
            
            2,182Non-interest
      expense
            
            6,977
            
            
            
            6,907
            
            
            
            6,708
            
            
            
            6,667Income
      before income taxes
            
            (931
            )
            
            
            2,166
            
            
            
            (6,579
            )
            
            
            1,132Provision
      (benefit) for income taxes
            
            (211
            )
            
            
            691
            
            
            
            (2,381
            )
            
            
            339Net income (loss)
            $
            (720
            )
            
            $
            1,475
            
            
            $
            (4,198
            )
            
            $
            793Basic earnings (loss) per share (1)
            $
            (0.07
            )
            
            $
            0.14
            
            
            $
            (0.39
            )
            
            $
            0.07Diluted earnings (loss) per share
            $
            (0.07
            )
            
            $
            0.14
            
            
            $
            (0.39
            )
            
            $
            0.07


(1)
            Quarterly earnings per share may
      vary from annual earnings per share due to
  rounding.





Item 9. Changes in and
Disagreements With Accountants on Accounting and Financial
Disclosure





Not
Applicable





Item 9A. Controls and
Procedures





(a) Evaluation of Disclosure
Controls and Procedures:  An evaluation of the Company’s
disclosure controls and procedures (as defined in Section 13(a)-15(e) of the
Securities Exchange Act of 1934) was carried out under the supervision and with
the participation of the Company’s Chief Executive Officer, Chief Financial
Officer and several other members of the Company’s senior management as of the
end of the period covered by this report.  The Company’s Chief
Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures as in effect on March 31, 2010, were
effective in ensuring that the information required to be disclosed by the
Company in the reports it files or submits under the Securities and Exchange Act
of 1934 is (i) accumulated and communicated to the Company’s management
(including the Chief Executive Officer and Chief Financial Officer) in a timely
manner, and (ii) recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms as of the end of the period
covered by this report.





The
Company does not expect that its disclosure controls and procedures and internal
control over financial reporting will prevent all error and all fraud. A control
procedure, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control procedure
are met. Because of the inherent limitations in all control procedures, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud,








98








if any,
within the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control.
The design of any control procedure also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
procedure, misstatements due to error or fraud may occur and not be
detected.





(b)  Changes in Internal
Controls:  There was no change in the Company’s internal
control over financial reporting during the Company’s most recently completed
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.





(c)  Management’s Annual Report
on Internal Control Over Financial Reporting:




The
management of Riverview Bancorp, Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting.  This
internal control system has been designed to provide reasonable assurance to the
Company’s management and board of directors regarding the preparation and fair
presentation of the company’s published financial statements.




All
internal control systems, no matter how well designed, have inherent
limitations.  Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.




The
management of Riverview Bancorp, Inc. has assessed the effectiveness of the
Company’s internal control over financial reporting as of March 31,
2010.  To make the assessment, we used the criteria for effective
internal control over financial reporting described in Internal Control –
Integrated Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Based on our assessment, we believe that, as of
March 31, 2010, the Company’s internal control over financial reporting is
effective based on those criteria.





The
Company’s independent registered public accounting firm that audits the
Company’s consolidated financial statements has audited the Company’s internal
control over financial reporting as of March 31, 2010, as stated in their report
appearing below.





99







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






To the
Board of Directors and Shareholders of


Riverview
Bancorp, Inc.


Vancouver,
Washington




We have
audited the internal control over financial reporting of Riverview Bancorp, Inc.
and subsidiary (the "Company") as of March 31, 2010, based on criteria
established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.  The Company's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting.  Our
responsibility is to express an opinion on the Company's internal control over
financial reporting based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects.  Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances.  We
believe that our audit provides a reasonable basis for our opinion.





A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.  A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.





Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis.  Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.





In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of March 31, 2010, based on the criteria
established in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended March 31, 2010 of the Company and our report dated May 28,
2010 expressed an unqualified opinion on those financial
statements.









Portland,
Oregon


May 28,
2010


100


Item 9B. Other
Information





There was
no information to be disclosed by the Company in a report on Form 8-K during the
fourth quarter of fiscal year 2010 that was not so disclosed.




PART
III





Item
10.  Directors, Executive Officers and Corporate
Governance





The
information contained under the section captioned "Proposal I - Election of
Directors" contained in the Company's Proxy Statement for the 2010 Annual
Meeting of Stockholders, and "Part I -- Business -- Personnel -- Executive
Officers" of this Form 10-K, is incorporated herein by
reference.  Reference is made to the cover page of this Form 10-K for
information regarding compliance with Section 16(a) of the Exchange
Act.





Code of
Ethics





In
December 2003, the Board of Directors adopted the Officer and Director Code of
Ethics.  The code is applicable to each of the Company’s officers,
including the principal executive officer and senior financial officers, and
requires individuals to maintain the highest standards of professional
conduct.  A copy of the Code of Ethics is available on the Company’s
website at www.riverviewbank.com.





Audit Committee Matters and
Audit Committee Financial Expert





The
Company has a separately-designated standing Audit Committee, composed of
Directors Edward R. Geiger, Paul L. Runyan and Jerry C. Olson.  Each
member of the Audit Committee is “independent” as defined in the Nasdaq Stock
Market Listing Standards.  The Company’s Board of Directors has Mr.
Geiger, Audit Committee Chairman, as its financial expert, as defined in SEC’s
Regulation S-K.





Nomination
Procedures





There
have been no material changes to the procedures by which shareholders may
recommend nominees to the Company’s Board of Directors.





Item
11.  Executive Compensation





The
information set forth under the sections captioned "Executive Compensation" and
"Directors' Compensation" under "Proposal I - Election of Directors" in the
Proxy Statement for the 2010 Annual Meeting of Stockholders is incorporated
herein by reference.





Item 12.  Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters





The
information set forth under the caption  "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement for the 2010
Annual Meeting of Stockholders is incorporated herein by
reference.


101





Equity Compensation Plan
Information.  The following table summarizes share and exercise
price information about the Company’s equity compensation plan as of March 31,
2010.





Plan
      category
            
            Number
      of
              securities
      to be
              issued
      upon
              exercise
      of
              outstanding
              options
            
            
            Weighted-
              average
              price
      of
              outstanding
              options
            
            Number
      of
              securities
              remaining
              available
      for
              future
      issuance
              under
      equity
              compensation
              plans
      excluding
              securities
              reflected
      in
              column
      (A)Equity
      compensation plans approved by security holders:
            
            
            (A)
            
            
            (B)
            
            
            (C)2003
      Stock Option Plan
            
            
            334,000
            
            
            9.63
            
            
            78,1541998
      Stock Option Plan
            
            
            131,700
            
            
            8.64
            
            
            -Equity
      compensation plans not approved by security holders:
            
            
            -
            
            
            -
            
            
            -Total
            
            
            465,700
            
            
            
            
            
            78,154





Item 13.  Certain
Relationships and Related Transactions; and Director
Independence





The
information set forth under the headings “Related Party Transactions” and
“Director Independence” in the Proxy Statement for the 2010 Annual Meeting of
Stockholders is incorporated herein by reference.





Item
14.  Principal Accounting Fees and Services





The
information set forth under the section captioned “Independent Auditor” in the
Proxy statement for the 2010 Annual Meeting of Stockholders is incorporated
herein by reference.


102


PART
IV


Item
15.  Exhibits, Financial Statement Schedules




(a)
            1.
            Financial
      StatementsSee
      “Part II –Item 8. Financial Statements and Supplementary
      Data.”2.
            Financial
      Statement SchedulesAll
      schedules are omitted because they are not required or applicable, or the
      required information is shown in the consolidated financial statements or
      the notes thereto.3.
            Exhibits3.1
            Articles
      of Incorporation of the Registrant (1)3.2
            Bylaws
      of the Registrant (1)4
            Form
      of Certificate of Common Stock of the Registrant (1)10.1
            Form
      of Employment Agreement between the Bank and each of Patrick Sheaffer,
      Ronald A. Wysaske, David A. Dahlstrom and John A. Karas
  (2)10.2
            Employee
      Severance Compensation Plan (3)10.3
            Employee
      Stock Ownership Plan (4)10.4
            1998
      Stock Option Plan (5)10.5
            2003
      Stock Option Plan (6)10.6
            Form
      of Incentive Stock Option Award Pursuant to 2003 Stock Option Plan
      (7)10.7
            Form
      of Non-qualified Stock Option Award Pursuant to 2003 Stock Option Plan
      (7)11
            Statement
      of recomputation of per share earnings (See Note 18 of the Notes to
      Consolidated Financial Statements contained herein.)21
            Subsidiaries
      of Registrant (8)23
            Consent
      of Independent Registered Public Accounting Firm31.1
            Certification of Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act31.2
            Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act32
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to Section
      906 of the Sarbanes-Oxley Act





(1)
            Filed
      as an exhibit to the Registrant's Registration Statement on Form S-1
      (Registration No. 333-30203), and incorporated herein by
      reference.


(2)
            Filed
      as an exhibit to the Registrant’s Current Report on Form 8-K filed with
      the SEC on September 18, 2007, and incorporated herein by
      reference.


(3)
            Filed
      as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 1997, and incorporated herein by
      reference.


(4)
            Filed
      as an exhibit to the Registrant's Annual Report on Form 10-K for the year
      ended March 31, 1998, and incorporated herein by
  reference.


(5)
            Filed
      as an exhibit to the Registrant’s Registration Statement on Form S-8
      (Registration No. 333-66049), and incorporated herein by
      reference.


(6)
            Filed
      as an exhibit to the Registrant’s Definitive Annual Meeting Proxy
      Statement (000-22957), filed with the Commission on June 5, 2003, and
      incorporated herein by reference.


(7)
            Filed
      as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended December 31, 2005, and incorporated herein by
      reference.


(8)
            Filed
      as an exhibit to the Registrant’s Annual Report on Form 10-K for the year
      ended March 31, 2007, and incorporated herein by
  reference.


103


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.









RIVERVIEW BANCORP,
      INC.Date:
            May 27,
      2010
            
            By:
            /s/ Patrick
      SheafferPatrick
      SheafferChairman of the
      Board andChief Executive
      Officer(Duly Authorized
      Representative)





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.




By:
            /s/ Patrick
      Sheaffer
            
            By:
            /s/
      Ronald A. WysaskePatrick
      Sheaffer
            
            
            Ronald A.
      WysaskeChairman
      of the Board and
            
            
            President
      and Chief Operating OfficerChief
      Executive Officer
            
            
            Director(Principal Executive
      Officer)Date:
            May 27,
      2010
            
            Date:
            May 27,
      2010By:
            /s/ Kevin J. Lycklama
            
            By:
            /s/ Paul L. RunyanKevin J.
      Lycklama
            
            
            Paul L.
      RunyanExecutive Vice
      President and
            
            
            Vice Chairman of the
      Board andChief Financial
      Officer
            
            
            Director(Principal Financial
      and Accounting Officer)Date:
            May 27,
      2010
            
            Date:
            May 27,
      2010By:
            /s/ Gary R. Douglass
            
            By:
            /s/
      Edward R. GeigerGary R.
      Douglass
            
            
            Edward R.
      GeigerDirector
            
            
            DirectorDate:
            May 27,
      2010
            
            Date:
            May 27,
      2010By:
            /s/
      Michael D. Allen
            
            By:
            /s/
      Jerry C. OlsonMichael
      D. Allen
            
            
            Jerry
      C. OlsonDirector
            
            
            DirectorDate:
            May 27,
      2010
            
            Date:
            May 27,
      2010By:
            /s/ Gerald L.
NiesGerald L.
    NiesDirectorDate:
            May 27,
      2010


104


EXHIBIT
INDEX









Exhibit
      23
            Consent of
      Independent Registered Public Accounting FirmExhibit
      31.1
            Certification of
      Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002Exhibit
      31.2
            Certification of
      Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002Exhibit
      32
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002








105