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,
2008                                              
OR





[  ]
            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 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 (Check
One):




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, 2007 was $163,300,253 (10,996,650 shares at $14.85 per
share).  As of June 6, 2008, there were issued and outstanding
10,913,773 shares of the registrant’s common stock.




DOCUMENTS
INCORPORATED BY REFERENCE


Portions
of registrant's Definitive Proxy Statement for the 2008 Annual Meeting of
Shareholders (Part III).


1


PART
I








Item
1.  Business





General





Riverview
Bancorp, Inc. (the “Company"), a Washington corporation, is the savings and loan
holding company of Riverview Community Bank (the “Bank”).  At March
31, 2008, the Company had total assets of $886.8 million, total deposit accounts
of $667.0 million and shareholders' equity of $92.6 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.





The
Company is a progressive, community-oriented financial services company, which
emphasizes local, personal service to residents of its primary market
area.  The Company considers Clark, Cowlitz, Klickitat and Skamania
counties of Washington and Multnomah, Clackamas and Marion counties of Oregon as
its primary market area. The Company is engaged primarily in the business of
attracting deposits from the general public and using such funds in its primary
market area to originate commercial, commercial real estate, multi-family real
estate, real estate construction, residential real estate and consumer loans.
Commercial and construction loans have grown from 81.21% of the loan portfolio
at March 31, 2004 to 89.62% at March 31, 2008.  The Company’s
strategic plan includes targeting the commercial banking customer base in its
primary market area, specifically small and medium size businesses,
professionals and wealth building individuals.  In pursuit of these
goals, the Company emphasizes controlled growth and the diversification of its
loan portfolio to include a higher portion of commercial and commercial real
estate loans.  A related goal is to increase the proportion of
personal and business checking account deposits used to fund these new
loans.  Significant portions of these new loan products carry
adjustable rates, higher yields or shorter terms and higher credit risk than
traditional fixed-rate mortgages.  The strategic plan stresses
increased emphasis on non-interest income, including increased fees for asset
management and deposit service charges.  The strategic plan is
designed to enhance earnings, reduce interest rate risk and provide a more
complete range of financial services to customers and the local communities the
Company serves. The Company is well positioned to attract new customers and to
increase its market share with 18 branches including ten in fast growing Clark
county, three in the Portland metropolitan area and four lending
centers.





In order
to support its strategy of growth without compromising its local, personal
service to its customers and a commitment to asset quality, the Company has made
significant investments in experienced branch, lending, asset management and
support personnel and has incurred significant costs in facility expansion. The
Company’s efficiency ratios reflect this investment and will likely remain
relatively high by industry standards for the foreseeable future because of the
emphasis on growth and local, personal service.  Control of
non-interest expenses remains a high priority for the Company’s
management.





The
Company continuously reviews new products and services to provide its customers
more financial options. With the Company’s emphasis on the growth of
non-interest income and the control of non-interest expense, all new technology
and services are generally reviewed for business development and cost saving
purposes.  In-house processing of checks and check imaging has
supported the Bank’s increased service to customers and at the same time has
increased efficiency.  The Bank has implemented remote check capture
at selected branches and is in the process of implementing remote capture of
checks on site for selected customers of the Bank.  Emphasis on
enhancing the Bank’s cash management product line is in process with the hiring
of an experienced cash management officer during the third quarter of fiscal
year 2008.  The formation of a team consisting of this cash management
officer and existing Bank employees is expected to lead to a more robust cash
management product line for the Bank’s commercial customers.  The
Company continues to experience growth in customer use of its online banking
services, which allows customers to conduct a full range of services on a
real-time basis, including balance inquiries, transfers and electronic bill
paying.  The Company’s online service has also enhanced the delivery
of cash management services to commercial customers.






2


Special
Note Regarding Forward-Looking Statements





Management’s
Discussion and Analysis of Financial Condition and Results of Operations and
other portions of this Form 10-K contain certain “forward-looking statements”
concerning the future operations of the Company. Management desires to take
advantage of the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995 and is including this statement for the express purpose of
availing the Company of the protections of such safe harbor with respect to all
“forward-looking statements” contained in the Company’s Annual Report. The
Company has used “forward-looking statements’ to describe future plans and
strategies, including its expectations of the Company’s future financial
results. Management’s ability to predict results or the effect of future plans
or strategies is inherently uncertain. Factors which could affect actual results
include interest rate trends, the general economic climate in the Company’s
market area and the country as a whole, the ability of the Company to control
costs and expenses, deposit flows, demand for mortgages and other loans, real
estate value and vacancy rates, the ability of the Company to efficiently
incorporate acquisitions into its operations, competition, loan delinquency
rates, and changes in federal and state regulation. These factors should be
considered in evaluating the “forward-looking statements,” and undue reliance
should not be placed on such statements. The Company does not undertake to
update any forward-looking statement that may be made on behalf of the
Company.





Market
Area





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





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





Lending
Activities





General.  At March
31, 2008, the Company's total net loans receivable totaled $756.5 million, or
85.3% of total assets at that date.  The principal lending activity of
the Company is the origination of loans collateralized by commercial properties,
land for development, and residential construction 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.





Prior to
fiscal year 2007, Riverview reported and disclosed the composition of its loan
portfolio based on collateral with a focus upon residential construction and
permanent financing activities – a view that was consistent with Riverview’s
background as a thrift organization.  However, since 1998 and more
pronounced in recent years, Riverview has strategically migrated its lending
focus to that of a commercial bank.  This intended strategy is evident
not only in the changing mix of the loan portfolio that has occurred organically
but also has been accomplished through the Company’s acquisitions of community
banks that emphasized commercial lending activities.  To align with
the strategic direction of the Company, and to better conform to established
industry practices, the Company has modified certain loan disclosures to reflect
the increasingly commercial nature of our loan portfolio, and to classify loan
types based on loan purpose, rather than collateral.  All tables and
loan disclosures in this Form 10-K reflect these new disclosure and the related
reclassifications.





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


3














At
      March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent(Dollars
      in thousands)Commercial
      and construction:Commercial
            
            $
            109,585
            
            
            
            14.28
            %
            
            $
            91,174
            
            
            
            13.18
            %
            
            $
            90,083
            
            
            
            14.29
            %
            
            $
            78,280
            
            
            
            18.02
            %
            
            $
            57,578
            
            
            
            14.92
            %Other
      real estate mortgage
            
            
            429,422
            
            
            
            55.97
            
            
            
            360,930
            
            
            
            52.19
            
            
            
            329,631
            
            
            
            52.30
            
            
            
            220,813
            
            
            
            50.84
            
            
            
            206,850
            
            
            
            53.59Real
      estate construction
            
            
            148,631
            
            
            
            19.37
            
            
            
            166,073
            
            
            
            24.01
            
            
            
            137,598
            
            
            
            21.83
            
            
            
            58,699
            
            
            
            13.51
            
            
            
            49,042
            
            
            
            12.70Total
      commercial and construction
            
            
            687,638
            
            
            
            89.62
            
            
            
            618,177
            
            
            
            89.38
            
            
            
            557,312
            
            
            
            88.42
            
            
            
            357,792
            
            
            
            82.37
            
            
            
            313,470
            
            
            
            81.21Consumer:Real
      estate one-to-four family
            
            
            75,922
            
            
            
            9.90
            
            
            
            69,808
            
            
            
            10.10
            
            
            
            64,091
            
            
            
            10.17
            
            
            
            69,455
            
            
            
            15.99
            
            
            
            67,699
            
            
            
            17.53Other
      installment
            
            
            3,665
            
            
            
            0.48
            
            
            
            3,619
            
            
            
            0.52
            
            
            
            8,899
            
            
            
            1.41
            
            
            
            7,107
            
            
            
            1.64
            
            
            
            4,846
            
            
            
            1.26Total
      consumer loans
            
            
            79,587
            
            
            
            10.38
            
            
            
            73,427
            
            
            
            10.62
            
            
            
            72,990
            
            
            
            11.58
            
            
            
            76,562
            
            
            
            17.63
            
            
            
            72,545
            
            
            
            18.79Total
      loans and loans held for sale
            
            
            767,225
            
            
            
            100.00
            %
            
            
            691,604
            
            
            
            100.00
            %
            
            
            630,302
            
            
            
            100.00
            %
            
            
            434,354
            
            
            
            100.00
            %
            
            
            386,015
            
            
            
            100.00
            %Less:Allowance
      for loan losses
            
            
            10,687
            
            
            
            
            
            
            
            8,653
            
            
            
            
            
            
            
            7,221
            
            
            
            
            
            
            
            4,395
            
            
            
            
            
            
            
            4,481Total
      loans receivable, net (1)
            
            $
            756,538
            
            
            
            
            
            
            $
            682,951
            
            
            
            
            
            
            $
            623,081
            
            
            
            
            
            
            $
            429,959
            
            
            
            
            
            
            $
            381,534(1)
      Includes loans held for sale of none, none, $65,000, $510,000 and $407,000
      at March 31, 2008, 2007, 2006, 2005 and 2004,
respectively.


4


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 PURPOSEOther
            
            
            
            
            
            Commercial
      &Real
      Estate
            
            
            Real
      Estate
            
            
            ConstructionCommercial
            
            
            Mortgage
            
            
            Construction
            
            
            TotalMarch 31,
      2008
            
            (Dollars
      in thousands)Commercial
            
            $
            109,585
            
            
            $
            -
            
            
            $
            -
            
            
            $
            109,585Commercial
      construction
            
            
            -
            
            
            
            -
            
            
            
            55,277
            
            
            
            55,277Office
      buildings
            
            
            -
            
            
            
            88,106
            
            
            
            -
            
            
            
            88,106Warehouse/industrial
            
            
            -
            
            
            
            39,903
            
            
            
            -
            
            
            
            39,903Retail/shopping
      centers/strip malls
            
            
            -
            
            
            
            70,510
            
            
            
            -
            
            
            
            70,510Assisted
      living facilities
            
            
            -
            
            
            
            28,072
            
            
            
            -
            
            
            
            28,072Single
      purpose facilities
            
            
            -
            
            
            
            65,756
            
            
            
            -
            
            
            
            65,756Land
            
            
            -
            
            
            
            108,030
            
            
            
            -
            
            
            
            108,030Multi-family
            
            
            -
            
            
            
            29,045
            
            
            
            -
            
            
            
            29,045One-to-four
      family construction
            
            
            -
            
            
            
            -
            
            
            
            93,354
            
            
            
            93,354Total
            
            $
            109,585
            
            
            $
            429,422
            
            
            $
            148,631
            
            
            $
            687,638March 31,
      2007Commercial
            
            $
            91,174
            
            
            $
            -
            
            
            $
            -
            
            
            $
            91,174Commercial
      construction
            
            
            -
            
            
            
            -
            
            
            
            56,226
            
            
            
            56,226Office
      buildings
            
            
            -
            
            
            
            62,310
            
            
            
            -
            
            
            
            62,310Warehouse/industrial
            
            
            -
            
            
            
            40,238
            
            
            
            -
            
            
            
            40,238Retail/shopping
      centers/strip malls
            
            
            -
            
            
            
            70,219
            
            
            
            -
            
            
            
            70,219Assisted
      living facilities
            
            
            -
            
            
            
            11,381
            
            
            
            -
            
            
            
            11,381Single
      purpose facilities
            
            
            -
            
            
            
            41,501
            
            
            
            -
            
            
            
            41,501Land
            
            
            -
            
            
            
            103,240
            
            
            
            -
            
            
            
            103,240Multi-family
            
            
            -
            
            
            
            32,041
            
            
            
            -
            
            
            
            32,041One-to-four
      family construction
            
            
            -
            
            
            
            -
            
            
            
            109,847
            
            
            
            109,847Total
            
            $
            91,174
            
            
            $
            360,930
            
            
            $
            166,073
            
            
            $
            618,177





Commercial
Lending.Commercial loans are generally made to customers who
are well known to the Company and are typically secured by business assets or
other property. The Company’s commercial 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.  Commercial business loans are primarily made
based on the cash flow of the borrower and secondarily on the underlying
collateral provided by the borrower.





Other Real Estate Mortgage
Lending.At March 31, 2008, the other real estate lending
portfolio balance totaled $429.4 million, or 55.97% of total loans. The Company
originates other real estate loans including office buildings,
warehouse/industrial, retail, assisted living facilities, land and multi-family
primarily located in our market area.






5





The
Company actively pursues other real estate loans.  Typically, these
loans 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.





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 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
nationwide downturn in real estate has slowed lot and home sales within the
Company’s markets especially in late 2007 and early 2008.  This has
impacted certain developers by lengthening the marketing period of their
projects and negatively affecting borrower’s liquidity and collateral
values.  At March 31, 2008, land acquisition and development loans
totaled $108.0 million, or 14.1% of total loans.  The largest loan had
an outstanding balance of $6.5 million and was performing according to its
original terms.  With the exception of two loans totaling $3.8
million, all of the land acquisition and development loans were secured by
properties located in Washington and Oregon.  At March 31, 2008, the
Company had one land acquisition and development loan totaling $3.9 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 other real estate 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, not
including loan commitments, totaled $148.6 million at March 31, 2008. 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, 2008 and 2007 was as follows:




At March 31,2008
            
            
            2007Amount(1)
            
            
            Percent
            
            
            Amount(1)
            
            
            Percent(Dollars
      in thousands)Speculative
      construction
            
            $
            91,704
            
            
            
            44.57
            %
            
            $
            119,944
            
            
            
            50.59
            %Commercial/multi-family
      construction
            
            
            92,140
            
            
            
            44.79
            
            
            
            82,248
            
            
            
            34.69Custom/presold
      construction
            
            
            11,661
            
            
            
            5.67
            
            
            
            18,818
            
            
            
            7.93Construction/permanent
            
            
            10,235
            
            
            
            4.97
            
            
            
            16,096
            
            
            
            6.79Total
            
            $
            205,740
            
            
            
            100.00
            %
            
            $
            237,106
            
            
            
            100.00
            %





(1)     Includes
loans in process of $57.1 million and $71.0 million at March 31, 2008 and 2007,
respectively.





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
the home buyer is identified.  At March 31, 2008, the Company had 24
borrowers with aggregate outstanding speculative loan balances of more than $1.0
million, which totaled $56.4 million, the largest loan having an outstanding
balance of $6.1 million and were secured by properties located in the Company’s
market area. At March 31, 2008, three speculative construction loans totaling
$2.1 million were on non-accrual status.






6





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, 2008, the largest custom construction loan and
presold construction loan had outstanding balances of $1.4 million and $600,000,
respectively, and were performing according to its original terms.  At
March 31, 2008, the Company had no custom or presold construction loans on
non-accrual status.





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 ARM loan or use its mortgage
brokerage capabilities to obtain permanent financing for the customer with
another lender. At completion of construction, the Company-originated fixed rate
permanent loan’s interest rate 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,
2008, the largest outstanding construction/permanent loan had an outstanding
balance of $390,000 and was performing according to its original
terms.  At March 31, 2008, the Company had no construction/permanent
loans on non-accrual status.





The
Company also provides construction financing for non-residential business
properties and multi-family dwellings.  At March 31, 2008, such loans
totaled $55.3 million, or 7.2% 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 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, 2008, the largest outstanding
commercial construction loan had a balance of $7.4 million and was performing
according to its original terms.  At March 31, 2008, the Company had
no commercial construction loans on non-accrual status.





Construction
lending affords the Company the opportunity to achieve higher interest rates and
fees with shorter terms to maturity than does 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.





Consumer
Lending.Consumer loans totaled $79.6 million at March 31,
2008, or 10.38% of total loans.  Consumer lending is comprised of
one-to-four family mortgage loans, home equity lines of credit, land loans for
the future construction of one-to-four family homes, totaling $75.9 million, and
other secured and unsecured consumer loans, totaling $3.7 million at March 31,
2008.





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% or (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
adjustable rate mortgages (“ARMs”) with repricing based on one-year constant
maturity U.S. Treasury index or other index.  At March 31, 2008, the
Company had three one-to-four family loans totaling $320,000 on non-accrual
status.





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,






7


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, 2008, the Company had no installment loans on
non-accrual status.





Loan Maturity.  The
following table sets forth certain information at March 31, 2008 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.




Within
            
            
            
            1
      - 3
            
            
            After
              3
      - 5
            
            
            After
              5
      - 10
            
            
            Beyond1 Year
            
            
            Years
            
            
            Years
            
            
            Years
            
            
            10 Years
            
            
            TotalCommercial and construction
            
            (Dollars
      in thousands)CommercialAdjustable
      rate
            
            $
            56,754
            
            
            $
            18,580
            
            
            $
            1,315
            
            
            $
            8,481
            
            
            $
            617
            
            
            $
            85,747Fixed
      rate
            
            
            3,671
            
            
            
            9,352
            
            
            
            9,409
            
            
            
            1,406
            
            
            
            -
            
            
            
            23,838Other
      real estate mortgageAdjustable
      rate
            
            
            94,397
            
            
            
            25,599
            
            
            
            26,387
            
            
            
            174,009
            
            
            
            12,048
            
            
            
            332,440Fixed
      rate
            
            
            14,277
            
            
            
            20,864
            
            
            
            36,742
            
            
            
            21,286
            
            
            
            3,813
            
            
            
            96,982Real
      estate constructionAdjustable
      rate
            
            
            106,063
            
            
            
            4,441
            
            
            
            -
            
            
            
            7,125
            
            
            
            1,459
            
            
            
            119,088Fixed
      rate
            
            
            21,054
            
            
            
            1,355
            
            
            
            3,461
            
            
            
            3,673
            
            
            
            -
            
            
            
            29,543Total commercial &
              construction
            
            
            296,216
            
            
            
            80,191
            
            
            
            77,314
            
            
            
            215,980
            
            
            
            17,937
            
            
            
            687,638ConsumerReal
      estate one-to-four familyAdjustable
      rate
            
            
            176
            
            
            
            838
            
            
            
            197
            
            
            
            254
            
            
            
            35,687
            
            
            
            37,152Fixed
      rate
            
            
            2,742
            
            
            
            9,395
            
            
            
            7,172
            
            
            
            481
            
            
            
            18,980
            
            
            
            38,770Other
      installmentAdjustable
      rate
            
            
            72
            
            
            
            -
            
            
            
            -
            
            
            
            596
            
            
            
            -
            
            
            
            668Fixed
      rate
            
            
            396
            
            
            
            660
            
            
            
            1,481
            
            
            
            362
            
            
            
            98
            
            
            
            2,997Total consumer
            
            
            3,386
            
            
            
            10,893
            
            
            
            8,850
            
            
            
            1,693
            
            
            
            54,765
            
            
            
            79,587Total
      net loans
            
            $
            299,602
            
            
            $
            91,084
            
            
            $
            86,164
            
            
            $
            217,673
            
            
            $
            72,702
            
            
            $
            767,225




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 Board (“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, commercial 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 extend credit 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, 2008, the Company had
outstanding commitments to originate loans of $44.3 million, compared to $14.9
million at March 31, 2007.





Mortgage
Brokerage.  In addition to originating mortgage loans for
retention in its portfolio, the Company employs twelve commissioned brokers who
originate mortgage loans (including construction loans) for various mortgage
companies predominantly in the Portland metropolitan area, 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% 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 as if
the Company had originated them and the commissioned






8




broker
receives a fee of approximately 0.55% of the loan amount.  During the
year ended March 31, 2008, brokered loans totaled $206.7 million (including
$39.4 million brokered to the Company).  Gross fees of $1.3 million
(excluding the portion of fees shared with the commissioned brokers) were
recognized for the year ended March 31, 2008.  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
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.





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, 2008, total loans serviced for others were
$123.8 million, of which $105.7 million were sold to 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
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.





Non-performing
assets were $8.2 million or 0.92% of total assets at March 31, 2008 compared
with $226,000 or 0.03% of total assets at March 31, 2007.  The $7.6
million balance of non-accrual loans is comprised of one commercial loan for
$1.2 million, one land acquisition and development loan for $3.9 million, three
real estate construction loans totaling $2.1 million (the largest of which was
$1.7 million) and four residential real estate loans totaling
$382,000.  These loans are to borrowers located in the Company’s
primary market area except for one real estate construction loan totaling
$201,000 located on the southern Washington coast.  The amount of
non-accrual loans depends on portfolio growth, portfolio seasoning, problem loan
recognition and resolution through collections, sales and
charge-offs.  The performance of any one loan can be affected by
external factors, such as economic or market conditions, or factors particular
to a borrower, such as actions of a borrower’s management or conditions
affecting a borrower’s business.  The following table sets forth
information regarding the Company’s non-performing assets.  At the
dates indicated, the Company had no restructured loans within the meaning of
Statement of Financial Accounting Standards (“SFAS”) No. 15 (as amended by SFAS
No. 114), Accounting by
Debtors and Creditors for Troubled Debt Restructuring.


9





At
      March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(Dollars
      in thousands)Loans
      accounted for on a non-accrual basis:Commercial
            
            $
            1,164
            
            
            $
            -
            
            
            $
            -
            
            
            $
            97
            
            
            $
            872Other
      real estate mortgage
            
            
            3,892
            
            
            
            226
            
            
            
            415
            
            
            
            198
            
            
            
            340Real
      estate construction
            
            
            2,124
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Real
      estate one-to-four family
            
            
            382
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Consumer
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            161
            
            
            
            89Total
            
            
            7,562
            
            
            
            226
            
            
            
            415
            
            
            
            456
            
            
            
            1,301Accruing
      loans which are contractually
              past
      due 90 days or more
            
            
            115
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      of non-accrual and
              90
      days past due loans
            
            
            7,677
            
            
            
            226
            
            
            
            415
            
            
            
            456
            
            
            
            1,301Real
      estate owned
            
            
            494
            
            
            
            -
            
            
            
            -
            
            
            
            270
            
            
            
            742Total
      nonperforming assets
            
            $
            8,171
            
            
            $
            226
            
            
            $
            415
            
            
            $
            726
            
            
            $
            2,043Total
      loans delinquent 90 days
              or
      more to net loans
            
            
            1.00
            %
            
            
            0.03
            %
            
            
            0.07
            %
            
            
            0.10
            %
            
            
            0.34
            %Total
      loans delinquent 90 days or
              more
      to total assets
            
            
            0.87
            
            
            
            0.03
            
            
            
            0.05
            
            
            
            0.08
            
            
            
            0.25Total
      nonperforming assets to total assets
            
            
            0.92
            
            
            
            0.03
            
            
            
            0.05
            
            
            
            0.13
            
            
            
            0.39





In
addition to the non-performing assets set forth in the table above, at March 31,
2008 and 2007 the Company had other loans of concern totaling $6.8 million and
$3.9 million, respectively.  This increase is attributable to one land
development loan located in southern California and one multi-family mortgage
loan located in the Portland, Oregon market.  These two loans totaled
$4.9 million and were to a related borrower.  Neither of these loans
was on non-accrual status at March 31, 2008.  This increase is offset
primarily by two real estate constructions loans totaling $2.0 million that were
included in other loans of concern at March 31, 2007 but were on non-accrual
status at March 31, 2008.  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.





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 in one of the aforementioned
categories but possess weaknesses are designated "special mention" and monitored
by the Company.






10





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


At
      or For the Year
              Ended March
31,2008
            
            
            2007(In
      thousands)Substandard
      assets
            
            $
            14,344
            
            
            $
            4,143Doubtful
      assets
            
            
            -
            
            
            
            -Loss
      assets
            
            
            -
            
            
            
            -General
      loss allowances
            
            
            9,785
            
            
            
            8,623Specific
      loss allowances
            
            
            902
            
            
            
            30Charge-offs
            
            
            905
            
            
            
            186





The loans
classified as substandard assets at March 31, 2008 are made up of nine
commercial loans totaling $2.1 million – the largest of these loans totaling
$1.2 million.  Six other real estate mortgage totaling $9.7 million
were also classified as substandard at March 31, 2008 – which includes two land
development loans totaling $7.4 million, two multi-family loans totaling $1.4
million and two commercial real estate properties totaling
$926,000.  The Company also had four one-to-four family real estate
loans totaling $382,000 and three real estate construction loans totaling $2.1
million that were also classified as substandard at March 31, 2008.





Real Estate
Owned.  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 of disposal. Management periodically performs valuations
and an allowance for loan losses is established by a charge to operations if the
carrying value exceeds the estimated net realizable value.  At March
31, 2008, the Company owned three properties with a recorded value of $494,000
compared to none at March 31, 2007. The $494,000 recorded value consists of two
lot loans totaling $175,000 and one multi-family real estate loan in the amount
of $319,000.





Allowance for Loan
Losses.  The Company maintains an allowance for loan losses to
provide for losses inherent in the loan portfolio.  The adequacy of
the allowance is evaluated monthly to maintain the allowance at levels
sufficient to provide for inherent losses.  A key component to the
evaluation is the Company’s external loan review and loan classification
systems.  The Problem Loan Committee reviews and monitors the risk and
quality of the Company’s loan portfolio. The Problem Loan Committee members
include the Executive Vice President and Chief Credit Officer, Chairman and
Chief Executive Officer, President and Chief Operating Officer, Senior Vice
President and Chief Financial Officer, Senior Vice President of Credit
Administration, and Vice President of Special Assets. Credit officers are
expected to monitor their portfolios and make recommendations to change loan
grades whenever changes are warranted.  At least annually, loans that
are delinquent 60 days or more and with specified outstanding loan balances are
subject to review by the internal audit department.  Credit
Administration approves any changes to loan grades and monitors loan
grades.  For a discussion of the
Company’s methodology for assessing the appropriate level of the allowance for
loan losses see Note 1 of the Notes to the Consolidated Financial Statements
included in Item 8 of this Form 10-K.





The
change in the balance of the allowance for loan losses at March 31, 2008
reflects the proportionate increase in loan balances, the change in mix of loan
balances and a change in loss rate when compared to March 31,
2007.  The mix of the loan portfolio showed an increase in the loan
balances of commercial and other real estate as well as a slight increase in
consumer at March 31, 2008 as compared to balances at March 31,
2007.  Substandard assets were $14.3 million at March 31, 2008
compared to $4.1 million at March 31, 2007.  The increase is primarily
attributed to two land development loans totaling $7.4 million, one commercial
loan totaling $1.1 million and one multi-family mortgage loan of $1.4 million
which were downgraded to substandard in the third and fourth quarters of fiscal
year 2008.  One of the land development loans is located in southern
California while the other loans are located in the Company’s primary market
area.  All of the loans on non-accrual status as of March 31, 2008
were classified as substandard.





At March
31, 2008, the Company had an allowance for loan losses of $10.7 million, or
1.39% of total loans.  The allowance for loan losses, including
unfunded commitments of $337,000, was $11.0 million, or 1.44% of total loans at
March 31, 2008.  Management considers the allowance for loan losses at
March 31, 2008 to be adequate to cover probable losses inherent in the loan
portfolio based on the assessment of various factors affecting the loan
portfolio.






11





While 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"), there can be no
assurance that regulators, in reviewing the Company's loan portfolio, will not
require the Company to significantly increase its allowance for loan losses,
thereby negatively affecting the Company's financial condition and results of
operations.  The following table sets forth an analysis of the
Company's allowance for loan losses for the periods indicated.





Year
      Ended March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(
      Dollars in thousands)Balance
      at beginning of period
            
            $
            8,653
            
            
            $
            7,221
            
            
            $
            4,395
            
            
            $
            4,481
            
            
            $
            2,739Provision
      for loan losses
            
            
            2,900
            
            
            
            1,425
            
            
            
            1,500
            
            
            
            410
            
            
            
            210Recoveries:Commercial
      and constructionCommercial
            
            
            10
            
            
            
            165
            
            
            
            87
            
            
            
            156
            
            
            
            74Other
      real estate mortgage
            
            
            12
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Real
      estate construction
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      commercial and construction
            
            
            22
            
            
            
            165
            
            
            
            87
            
            
            
            156
            
            
            
            74ConsumerResidential
      real estate
            
            
            -
            
            
            
            -
            
            
            
            48
            
            
            
            -
            
            
            
            7Other
      installment
            
            
            17
            
            
            
            28
            
            
            
            14
            
            
            
            17
            
            
            
            10Total
      consumer
            
            
            17
            
            
            
            28
            
            
            
            62
            
            
            
            17
            
            
            
            17Total
      recoveries
            
            
            39
            
            
            
            193
            
            
            
            149
            
            
            
            173
            
            
            
            91Charge-offs:Commercial
      and constructionCommercial
            
            
            794
            
            
            
            172
            
            
            
            577
            
            
            
            490
            
            
            
            882Other
      real estate mortgage
            
            
            42
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Real
      estate construction
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      commercial and construction
            
            
            836
            
            
            
            172
            
            
            
            577
            
            
            
            490
            
            
            
            882ConsumerResidential
      real estate
            
            
            48
            
            
            
            -
            
            
            
            41
            
            
            
            149
            
            
            
            85Other
      installment
            
            
            21
            
            
            
            14
            
            
            
            93
            
            
            
            30
            
            
            
            215Total
      consumer
            
            
            69
            
            
            
            14
            
            
            
            134
            
            
            
            179
            
            
            
            300Total
      charge-offs
            
            
            905
            
            
            
            186
            
            
            
            711
            
            
            
            669
            
            
            
            1,182Net
      charge-offs (recoveries)
            
            
            866
            
            
            
            (7
            )
            
            
            562
            
            
            
            496
            
            
            
            1,091Allowance
      acquired from Today’s Bank
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,639Allowance
      acquired from American Pacific Bank
            
            
            -
            
            
            
            -
            
            
            
            1,888
            
            
            
            -
            
            
            
            -Net
      change in allowance for unfunded loan commitments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (16
            )Balance
      at end of period
            
            $
            10,687
            
            
            $
            8,653
            
            
            $
            7,221
            
            
            $
            4,395
            
            
            $
            4,481Ratio
      of allowance to total loans
              outstanding
      at end of period
            
            
            1.39
            %
            
            
            1.25
            %
            
            
            1.15
            %
            
            
            1.01
            %
            
            
            1.16
            %Ratio
      of net charge-offs to average net loans outstanding
              during period
            
            
            0.12
            
            
            
            -
            
            
            
            0.10
            
            
            
            0.13
            
            
            
            0.31Ratio
      of allowance to total of non-accrual and 90 days past
              due loans
            
            
            139
            
            
            
            3,829
            
            
            
            1,740
            
            
            
            964
            
            
            
            344




12


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 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004Amount
            
            
            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
            
            $
            1,339
            
            
            
            14.28
            %
            
            $
            1,553
            
            
            
            13.18
            %
            
            $
            1,549
            
            
            
            14.29
            %
            
            $
            1,834
            
            
            
            18.02
            %
            
            $
            1,589
            
            
            
            14.92
            %Other
      real estate mortgage
            
            
            5,415
            
            
            
            55.97
            
            
            
            4,066
            
            
            
            52.19
            
            
            
            3,553
            
            
            
            52.30
            
            
            
            1,863
            
            
            
            50.84
            
            
            
            2,426
            
            
            
            53.59Real
      estate construction
            
            
            2,092
            
            
            
            19.37
            
            
            
            2,060
            
            
            
            24.01
            
            
            
            1,365
            
            
            
            21.83
            
            
            
            276
            
            
            
            13.51
            
            
            
            155
            
            
            
            12.70Consumer:Real
      estate one-to-four family
            
            
            669
            
            
            
            9.90
            
            
            
            333
            
            
            
            10.10
            
            
            
            292
            
            
            
            10.17
            
            
            
            278
            
            
            
            15.99
            
            
            
            264
            
            
            
            17.53Other
      installment
            
            
            64
            
            
            
            0.48
            
            
            
            63
            
            
            
            0.52
            
            
            
            168
            
            
            
            1.41
            
            
            
            144
            
            
            
            1.64
            
            
            
            37
            
            
            
            1.26Unallocated
            
            
            1,108
            
            
            
            -
            
            
            
            578
            
            
            
            -
            
            
            
            294
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            10
            
            
            
            -Total
      allowance for loan losses
            
            $
            10,687
            
            
            
            100.00
            %
            
            $
            8,653
            
            
            
            100.00
            %
            
            $
            7,221
            
            
            
            100.00
            %
            
            $
            4,395
            
            
            
            100.00
            %
            
            $
            4,481
            
            
            
            100.00
            %


13




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, 2008, no
investment securities were held for trading.   See Note 1 of the
Notes to the Consolidated Financial Statements contained in Item 8 of this Form
10-K.





The
Company’s MBS portfolio represents a participation interest in a pool of
single-family or multi-family mortgages. Principal and interest payments on MBS
are passed from the mortgage originators, through intermediaries such as FNMA,
FHLMC, or private issuers that pool and repackage the participation interests in
the form of securities to investors such as the Company.  MBS
generally increase the quality of the Company's assets by virtue of the
guarantees that back them, are more liquid than individual loans and may be used
to collateralize borrowings or other obligations of the Company.





Real
estate mortgage investment conduits (“REMICs”) are created by redirecting the
cash flows from the pool of mortgages or MBS underlying these securities to
create two or more classes, or tranches, with different maturity or risk
characteristics designed to meet a variety of investor needs and
preferences.  Management believes these securities may represent
attractive alternatives relative to other investments because of the wide
variety of maturity, repayment and interest rate options
available.  Current investment practices of the Company prohibit the
purchase of high risk REMICs.  REMICs may be sponsored by private
issuers, such as mortgage bankers or money center banks, or by U.S. Government
agencies and government-sponsored entities.  At March 31, 2008, the
Company owned no privately issued REMICs.





Investments
in MBS, including REMICs, involve a risk that actual prepayments will be greater
than estimated prepayments over the life of the security, which may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments thereby reducing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities.  In addition, the market value of such securities may be
adversely affected by changes in interest rates.  See Note 5 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 31,2008
            
            
            2007
            
            
            2006Carrying
              Value
            
            
            Percent
      of
              Portfolio
            
            
            Carrying
              Value
            
            
            Percent
      of
              Portfolio
            
            
            Carrying
              Value
            
            
            Percent
      of
              Portfolio(Dollars
      in thousands)Held
      to maturity (at amortized cost):REMICs
            
            $
            624
            
            
            
            4.55
            %
            
            $
            923
            
            
            
            3.40
            %
            
            $
            1,402
            
            
            
            4.13
            %FHLMC
      mortgage-backed securities
            
            
            104
            
            
            
            0.76
            
            
            
            116
            
            
            
            0.43
            
            
            
            138
            
            
            
            0.41FNMA
      mortgage-backed securities
            
            
            157
            
            
            
            1.15
            
            
            
            193
            
            
            
            0.71
            
            
            
            265
            
            
            
            0.78885
            
            
            
            6.46
            
            
            
            1,232
            
            
            
            4.54
            
            
            
            1,805
            
            
            
            5.32Available
      for sale (at fair value):Agency
      securities
            
            
            -
            
            
            
            -
            
            
            
            10,740
            
            
            
            39.57
            
            
            
            15,028
            
            
            
            44.25REMICs
            
            
            858
            
            
            
            6.25
            
            
            
            1,083
            
            
            
            4.00
            
            
            
            1,338
            
            
            
            3.94FHLMC
      mortgage-backed securities
            
            
            4,390
            
            
            
            32.02
            
            
            
            5,439
            
            
            
            20.04
            
            
            
            6,635
            
            
            
            19.54FNMA
      mortgage-backed securities
            
            
            90
            
            
            
            0.66
            
            
            
            118
            
            
            
            0.43
            
            
            
            161
            
            
            
            0.47Municipal
      securities
            
            
            2,875
            
            
            
            20.97
            
            
            
            3,508
            
            
            
            12.93
            
            
            
            3,950
            
            
            
            11.63Trust
      preferred securities
            
            
            4,612
            
            
            
            33.64
            
            
            
            5,019
            
            
            
            18.49
            
            
            
            5,044
            
            
            
            14.8512,825
            
            
            
            93.54
            
            
            
            25,907
            
            
            
            95.46
            
            
            
            32,156
            
            
            
            94.68Total
      investment securities
            
            $
            13,710
            
            
            
            100.00
            %
            
            $
            27,139
            
            
            
            100.00
            %
            
            $
            33,961
            
            
            
            100.00
            %







14




The
following table sets forth the maturities and weighted average yields in the
securities portfolio at March 31, 2008.





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
            
            $
            491
            
            
            
            4.24
            %
            
            $
            547
            
            
            
            4.30
            %
            
            $
            645
            
            
            
            4.83
            %
            
            $
            1,192
            
            
            
            4.38
            %REMICs
            
            
            31
            
            
            
            4.11
            
            
            
            -
            
            
            
            -
            
            
            
            326
            
            
            
            5.02
            
            
            
            1,125
            
            
            
            4.06FHLMC
      mortgage-
              backed securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4,390
            
            
            
            4.01
            
            
            
            104
            
            
            
            6.35FNMA
      mortgage-
              backed securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            76
            
            
            
            6.34
            
            
            
            171
            
            
            
            6.51Trust
      preferred
              securities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4,612
            
            
            
            6.66Total
            
            $
            522
            
            
            
            4.22
            %
            
            $
            547
            
            
            
            4.30
            %
            
            $
            5,437
            
            
            
            4.20
            %
            
            $
            7,204
            
            
            
            5.87
            %





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




The
Company does not believe that it has any exposure to sub-prime lending in its
mortgage-backed security portfolio.





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.  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 balances of deposit accounts in the various types
offered by the Company at the dates indicated.





Year
      Ended March 31,2008
              
              
              2007
              
              
              2006Average
                Balance
              
              
              Average
                Rate
              
              
              Average
                Balance
              
              
              Average
                Rate
              
              
              Average
      Balance
              
              
              Average
                Rate(Dollars
      in thousands)Non-interest-bearing
      demand
              
              $
              82,776
              
              
              
              0.00
              %
              
              $
              91,888
              
              
              
              0.00
              %
              
              $
              87,490
              
              
              
              0.00
              %Interest
      checking
              
              
              129,552
              
              
              
              3.02
              
              
              
              139,600
              
              
              
              3.17
              
              
              
              126,045
              
              
              
              1.78Regular
      savings accounts
              
              
              27,403
              
              
              
              0.55
              
              
              
              32,591
              
              
              
              0.55
              
              
              
              38,818
              
              
              
              0.55Money
      market accounts
              
              
              219,528
              
              
              
              4.05
              
              
              
              161,590
              
              
              
              4.31
              
              
              
              120,188
              
              
              
              2.73Certificates
      of deposit
              
              
              197,049
              
              
              
              4.67
              
              
              
              202,506
              
              
              
              4.41
              
              
              
              194,253
              
              
              
              3.42Total
              
              $
              656,308
              
              
              
              3.37
              %
              
              $
              628,175
              
              
              
              3.26
              %
              
              $
              566,794
              
              
              
              2.18
              %




15




The
average money market account balance increased during fiscal year 2008 primarily
due to the Company making available an existing money market product to all the
Bank’s branches during the latter half of fiscal year 2007.  However,
due to falling interest rates during the second half of fiscal year 2008, the
Company saw a shift in customer deposit choices into certificates of
deposit.  As a result, total certificates of deposit increased $65.8
million to $265.7 million at March 31, 2008 compared to $199.9 million at March
31, 2007.





At March
31, 2008 and 2007, the Company had deposits from RAMCorp. totaling $41.4 million
and $77.2 million, respectively.  These deposits were included in
money market accounts and represent assets under management by
RAMCorp.  The Company also had $25.2 million and $20.8 million in
brokered certificates of deposit at March 31, 2008 and 2007,
respectively.





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 and
results of operations.





The
following table presents the amount and weighted average rate of certificates of
deposit equal to or greater than $100,000 at March 31, 2008.


Maturity Period
            
            Amount
            
            
            Weighted
      #
              Average Rate(Dollars
      in thousands)Three
      months or less
            
            $
            33,749
            
            
            
            4.48
            %Over
      three through six months
            
            
            26,721
            
            
            
            4.62Over
      six through 12 months
            
            
            54,910
            
            
            
            4.44Over
      12 Months
            
            
            12,452
            
            
            
            4.44Total
            
            $
            127,832
            
            
            
            4.49
            %





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 to supplement its supply of lendable
funds and to meet deposit withdrawal requirements.  Advances from the
FHLB of Seattle are typically secured by the Bank's 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 30% of total assets line
of credit with the FHLB of Seattle to the extent the Bank provides qualifying
collateral and holds sufficient FHLB stock. At March 31, 2008, the Bank had
$92.9 million of outstanding advances from the FHLB of Seattle under an
available credit facility of $250.0 million, which is limited to available
collateral.  The growth in FHLB advances during fiscal year 2008 was
primarily used to fund the growth in the Company’s loan portfolio.





The
following tables set forth certain information concerning the Company's FHLB
borrowings at the dates and for the periods indicated.  All of the
FHLB advances are scheduled to mature during fiscal year 2009.


At
      March 31,2008
            
            
            2007
            
            
            2006(Dollars
      in thousands)FHLB
      advances outstanding
            
            $
            92,850
            
            
            $
            35,050
            
            
            $
            46,100Weighted
      average rate on FHLB advances
            
            
            3.35
            %
            
            
            5.66
            %
            
            
            4.65
            %







16


Year
      Ended March 31,2008
            
            
            2007
            
            
            2006(Dollars
      in thousands)Maximum
      amounts of FHLB
              advances outstanding
              at
      any month end
            
            $
            122,200
            
            
            $
            90,000
            
            
            $
            66,400Average
      FHLB
              advances
      outstanding
            
            
            47,769
            
            
            
            68,300
            
            
            
            51,091Weighted
      average rate on FHLB
              advances
            
            
            4.32
            %
            
            
            5.26
            %
            
            
            4.44
            %





In
addition, the Bank has a Fed Funds borrowing facility with Pacific Coast
Bankers’ Bank with a guideline limit of $10 million through June 30,
2008.  The facility may be reduced or withdrawn at any
time.  As of March 31, 2008, the Bank did not have any outstanding
advances on this facility.  See Note 11
of the Notes to Consolidated Financial Statements contained in Item 8 of this
Form 10-K,





At March
31, 2008, the Company had established 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 and $217,000 at March 31, 2008 and 2007,
respectively, is included in prepaid expenses and other assets in the
Consolidated Balance Sheets.  See Note 12 of the Notes to the
Consolidated Financial Statements contained in Item 8 of the Form
10-K.





Taxation





For
details regarding the Company’s taxes, see Note 13 of the Notes to the
Consolidated Financial Statements contained in Item 8 of this Form
10-K.





Personnel





As of
March 31, 2008, the Company had 270 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 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.





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, 2008, the Bank’s investments of $979,000 in
Riverview Services, Inc. (“Riverview Services”), its wholly owned subsidiary,
and $1.5 million in RAMCorp, an 85% owned subsidiary were within these
limitations.




17




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 $39,000 for the fiscal year ended March 31, 2008 and total
assets of $981,000 at that date. Riverview Services’ operations are included in
the Consolidated Financial Statements of the Company.





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 $479,000 for the fiscal year ended March 31, 2008 and total assets of
$1.9 million at that date. RAMCorp earns fees on the management of assets held
in fiduciary or agency capacity. At March 31, 2008, total assets under
management totaled $330.5 million. RAMCorp’s operations are included in the
Consolidated Financial Statements of the Company.





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





Name
            
            Age (1)
            
            PositionPatrick
      Sheaffer
            
            
            68
            
            Chairman
      of the Board and Chief Executive OfficerRonald
      A. Wysaske
            
            
            55
            
            President
      and Chief Operating OfficerDavid
      A. Dahlstrom
            
            
            57
            
            Executive
      Vice President and Chief Credit OfficerKevin
      J. Lycklama
            
            
            30
            
            Senior
      Vice President and Chief Financial OfficerJohn
      A. Karas
            
            
            59
            
            Executive
      Vice PresidentJames
      D. Baldovin
            
            
            49
            
            Executive
      Vice President Retail Banking


(1)           At
March 31, 2008





Patrick Sheaffer isChairman of the Board
and Chief Executive Officerof the Company and Chief
Executive Officer of the Bank. Prior to February 2004, Mr. Sheaffer served as
Chairman of the Board, President and Chief Executive Officer of the Company
since 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. 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 at 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 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 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 Senior
Vice President and Chief Financial Officer of the Company.  Prior to
February 2008, Mr. Lycklama served as Controller of the Bank since
2006.  Prior to joining Riverview, Mr. Lycklama spent 5 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, 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.






18





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 20 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.





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 injunctive
actions.  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.





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 also 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, 2008 was $182,000.





19


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, 2008, the Bank's lending limit under this restriction was $13.5
million and, at that date, the Bank’s largest loans to one borrower was $10.4
million, which was performing according to its original terms.





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.





As a
member, the Bank is required to purchase and maintain stock in the FHLB of
Seattle.  At March 31, 2008, the Bank had $7.4 million in FHLB stock,
which was in compliance with this requirement.  The Bank received
$55,000 and $15,000 in dividends from the FHLB of Seattle for the years ended
March 31, 2008 and 2007, respectively.





Under
federal law, the FHLBs are required to provide funds for the resolution of
troubled savings institutions and 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. The Deposit Insurance Fund is
the successor to the Bank Insurance Fund and the Savings Association Insurance
Fund, which were merged effective March 31, 2006. As insurer, the FDIC imposes
deposit insurance premiums and is authorized to conduct examinations of and to
require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the fund. The FDIC also has the
authority to initiate enforcement actions against savings institutions, after
giving the OTS an opportunity to take such action, and may terminate the deposit
insurance if it determines that the institution has engaged in unsafe or unsound
practices or is in an unsafe or unsound condition.





The FDIC
amended its risk-based assessment system for 2007 to implement authority granted
by the Federal Deposit Insurance Reform Act of 2005, which was enacted in 2006
("Reform Act"). Under the revised system, insured institutions are assigned to
one of four risk categories based on supervisory evaluations, regulatory capital
levels and certain other factors. An institution's assessment rate depends upon
the category to which it is assigned. Risk Category I, which contains the least
risky depository institutions, is expected to include more than 90% of all
institutions. Unlike the other categories, Risk Category I contains further risk
differentiation based on the FDIC's analysis of financial ratios, examination
component ratings and other information. Assessment rates are determined by the
FDIC and currently range from five to seven basis points for the healthiest
institutions (Risk Category I) to 43 basis points of assessable deposits for the
riskiest (Risk Category IV). The FDIC may adjust rates uniformly from one
quarter to the next, except that no single adjustment can exceed three basis
points. No institution may pay a dividend if in default of the FDIC
assessment.





The
Reform Act also provided for a one-time credit for eligible institutions based
on their assessment base as of December 31, 1996. Subject to certain limitations
with respect to institutions that are exhibiting weaknesses, credits can be used
to offset assessments until exhausted. The Bank used all of its one-time credit
of $283,000 during the year ended March 31, 2008 to offset FDIC assessments. The
Reform Act also provided for the possibility that the FDIC may pay dividends to
insured institutions once the Deposit Insurance Fund reserve ratio equals or
exceeds 1.35% of estimated insured deposits.






20





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 calendar year ending March 31, 2008 averaged 5 basis
points of assessable deposits. The Financing Corporation was chartered in 1987,
by the FHLB board solely for the purpose of functioning as a vehicle for the
recapitalization of the Federal Savings and Loan Insurance
Corporation.





The
Reform Act provided the FDIC with authority to adjust the Deposit Insurance Fund
ratio to insured deposits within a range of 1.15% and 1.50%, in contrast to the
prior statutorily fixed ratio of 1.25%. The ratio, which is viewed by the FDIC
as the level that the fund should achieve, was established by the agency at
1.25% for 2008.





The FDIC
has authority to increase insurance assessments. A significant increase in
insurance premiums would likely have an adverse effect on the operating expenses
and results of operations of the Bank. There can be no prediction as to what
insurance assessment rates will be in the future. Insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the OTS. Management of the Bank is not aware of
any practice, condition or violation that might lead to termination of the
Bank’s deposit insurance.





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, 2008, the Bank was categorized as "well capitalized" under the prompt
corrective action regulations of the OTS.





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.  Previous legislation expanded the extent to which education
loans, credit card loans and small business loans may be considered “qualified
thrift investments.” As of March 31, 2008, the Bank maintained 65.11% 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




21




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. Core (Tier 1) 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, 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 in
appropriate cases upon a determination that an institution’s capital level is or
may become inadequate in light of the particular circumstances. At March 31,
2008, the Bank met each of its capital requirements.  For additional
information, see Note 16 of the Notes to Consolidated Financial Statements
included in Item 8 of this Annual Report on 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 may have its dividend authority restricted by the
OTS.  The Bank may pay dividends to the Company in accordance with
this general authority.





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 notify the FDIC and
the OTS 30 days in advance and provide the information each agency may, by
regulation, require.  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 would be 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 (“insiders”), as
well as entities such persons control is limited. The law






22


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 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.





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 costs 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.





23


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 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 Federal Change in Bank Control Act (“CIBCA”), a notice 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. Under the CIBCA, the OTS generally has 60 days from the filing of a
complete notice to act, taking into consideration certain factors, including the
financial and managerial resources of the acquirer and the anti-trust effect of
the acquisition. Any company that so acquires control would then be subject to
regulation as a savings and loan holding company.





Sarbanes-Oxley Act of
2002.  The Sarbanes-Oxley Act of 2002 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 Sarbanes-Oxley 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
Sarbanes-Oxley Act generally applies to all companies, both U.S. and non-U.S.,
that file or are required to file periodic reports with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934, including
the Company.





The
Sarbanes-Oxley 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.






24




The
Sarbanes-Oxley 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.





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.





Fluctuations
in interest rates could reduce our profitability and affect the value of our
assets.





Like
other financial institutions, we are subject to interest rate
risk.  Our primary source of income is net interest income, which is
the difference between interest earned on loans and investments and the interest
paid on deposits and borrowings.  We expect that we will periodically
experience imbalances in the interest rate sensitivities of our assets and
liabilities and the relationships of various interest rates to each
other.  Over any period of time, our interest-earning assets may be
more sensitive to changes in market interest rates than our interest-bearing
liabilities, or vice versa.  In addition, the individual market
interest rates underlying our loan and deposit products may not change to the
same degree over a given time period.  In any event, if market
interest rates should move contrary to our position, our earnings may be
negatively affected.  In addition, loan volume and quality and deposit
volume and mix can be affected by market interest rates.  Changes in
levels of market interest rates could materially adversely affect our net
interest spread, asset quality, origination volume and overall
profitability.





Interest
rates have recently decreased after increasing for several years.  The
U.S. Federal Reserve increased its target for the federal funds rate 17 times,
from 1.00% to 5.25% during the period from June 30, 2004 to June 30,
2006.  The U.S. Federal Reserve then decreased its target for the
federal funds rate by 300 basis points to 2.00% during the period from September
18, 2007 to March 31, 2008.  A sustained falling interest rate
environment has a negative impact on margins as the Bank has more
interest-earning assets that adjust downward than interest-bearing liabilities
that adjust downward.





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.  If
we are unable to manage interest rate risk effectively, our business, financial
condition and results of operations could be materially harmed.





Our business is subject to various
lending risks that could adversely impact our results of operations and
financial condition.





Our emphasis on commercial lending
may expose us to increased lending risks.Our current business strategy
is focused on the expansion of commercial real estate and commercial business
lending.  These types of lending activities, while potentially more
profitable than single-family residential lending, are 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.  While as of the date of this report
the economy generally remains good in our primary market of southwest Washington
and northwest Oregon, the housing market has slowed recently, 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.  In addition, these loans generally expose a lender to
greater risk of non-payment and loss because repayment of the loans often
depends on the successful operation of the property and the income stream of the
borrowers.  Further, such loans typically involve larger loan balances
to single borrowers or groups of related borrowers. Also, 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. Accordingly, when there are
defaults and losses on these types of loans, they are often larger on a per loan
basis than those for permanent single-family or consumer loans.  A
secondary market for most types of commercial real estate and construction 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.






25





Our other real estate mortgage loans
involve higher principal amounts than other loans and repayment of these loans
may be dependent on factors outside our control or the control of our
borrowers.At March 31, 2008, we had $429.4 million of other
real estate mortgage loans, representing 56.0% of our total loan
portfolio.  We originate other real estate mortgage loans for
individuals and businesses for various purposes which are secured by commercial
properties.  The credit risk related to other real estate mortgage
loans is considered to be greater than the risk related to one-to-four family
residential or other consumer loans because the repayment of these loans
typically is dependent on the income stream of the real estate securing the loan
as collateral and the successful operation of the borrower’s business, which can
be significantly affected by conditions in the real estate markets or in the
economy.  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.  In addition, many of these
loans are not fully amortizing and contain large balloon payments upon
maturity.  These balloon payments may require the borrower to either
sell or refinance the underlying property in order to make the balloon
payment.





If we
foreclose on these loans, our holding period for the collateral typically is
longer than for one-to-four family residential mortgagee loans because there are
fewer potential purchasers of the collateral.  Additionally, these
loans generally have relatively large balances to single borrowers or related
groups of borrowers.  Accordingly, if we make any errors in judgment
in the collectibility of our other real estate mortgage loans, any resulting
charge-offs may be larger on a per loan basis than those incurred with our
residential or other consumer loans.





Our real estate construction and
land acquisition and development loans are based upon estimates of costs and
value associated with the complete project. These estimates may be inaccurate.We originate construction loans for commercial properties, as well as for
single-family home construction.   At March 31, 2008,
construction loans totaled $148.6 million, or 19.4% of our total loan
portfolio.  Land acquisition and development loans totaled $108.0
million, or 14.1% of our total loan portfolio at March 31, 2008.  In
general, construction, land acquisition and development lending involves
additional risks 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 a result, construction loans and land acquisition and
development loans often involve the disbursement of 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.
The nature of these loans is also such that they are 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.  If our appraisal of the completed project proves to be
overstated, we may have inadequate security for the repayment of the loan upon
completion of the construction project and may incur a loss.  These
loans also pose additional risks because of the lack of income being produced by
the property and the potential illiquid nature of the
collateral.  Market conditions may result in borrowers having
difficulty selling lots or homes in their developments for an extended period,
which in turn could result in an increase in delinquencies and non-accrual
loans.  Additionally, if the current economic environment continues
for a prolonged period of time or deteriorates further, collateral values may
further decline and are likely to result in increased credit losses in these
loans.





A sustained downturn in real estate
within the Company’s markets could negatively impact the Company. Many of
the Company’s loans are secured by real estate located in southwest Washington
and northwest Oregon.  Declining real estate values may result in
customer’s inability to repay loans.  These trends may continue and
may result in losses that exceed the estimates that are currently included in
the allowance for loan losses, which could adversely affect the Company’s
financial condition and results of operations.





An
inadequate allowance for loan losses would reduce our earnings.





We make
various assumptions and judgments about the collectibility 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 several factors including our loan loss and delinquency
experience, underwriting practices, and economic conditions.  If our
assumptions are incorrect, our allowance for loan losses may not be sufficient
to cover future losses in the loan portfolio, resulting in the need for greater
additions to our allowance.  Material additions to the allowance could
materially decrease our net income.  Our allowance for loan losses was
1.39% of total loans at March 31, 2008.





In
addition, bank regulators periodically review our allowance for loan losses and
may require us to increase our allowance for loan losses or recognize further
loan charge-offs.  Any increase in our allowance for loan losses or
loan charge-offs as required by these regulatory authorities may have a material
adverse effect on our financial condition and results of
operations.


26


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
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 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.





Our
profitability depends significantly on economic conditions in the States of
Washington and Oregon.





Our
success depends primarily on the general economic conditions of the states of
Washington and Oregon and the specific local markets in which we
operate.  Unlike larger national or other regional banks that are more
geographically diversified, we provide banking and financial services to
customers located primarily in seven counties of Washington and
Oregon.  The local economic conditions in our market areas have a
significant impact on the demand for our products and services as well as the
ability of our customers to repay loans, the value of the collateral securing
loans and the stability of our deposit funding sources.  Adverse
economic conditions unique to these Northwest markets could have a material
adverse effect on our financial condition and results of
operations.  Further, a significant decline in general economic
conditions, caused by inflation, recession, acts of terrorism, outbreak of
hostilities or other international or domestic occurrences, unemployment,
changes in securities markets or other factors could impact these state and
local markets and, in turn, also have a material adverse effect on our financial
condition and results of operations.  Of particular concern are real
estate values, which may further decline.  If our market area were to
experience significant declines in real estate values this decline may inhibit
our ability to recover on defaulted loans by selling the underlying real
estate.





Our
funding sources may prove insufficient to replace deposits and support our
future growth.





We rely
on customer deposits and advances from the FHLB and other borrowings to fund our
operations.  Although we have historically been able to replace
maturing deposits and advances if desired, no assurance can be given that we
would be able to replace such funds in the future if our financial condition or
the financial condition of the FHLB or market conditions were to change. 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.  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.  In this case, our profitability would be adversely
affected.





Although
we consider such sources of funds adequate for our liquidity needs, we may seek
additional debt in the future to achieve our long-term business
objectives.  There can be no assurance additional borrowings, if
sought, would be available to us or, if available, would be on favorable
terms.  If additional financing sources are unavailable or are not
available on reasonable terms, our growth and future prospects could be
adversely affected.





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 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 among large banks, 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.


27


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.





We
may be unable to successfully integrate any acquisition we may
make.





We
regularly explore opportunities to acquire financial services businesses or
assets and may also consider opportunities to acquire other banks or financial
institutions. We cannot predict the number, size or timing of acquisitions.
Difficulties in integrating an acquired business or company may cause us not to
realize expected revenue increases, cost savings, increases in geographic or
product presence, and/or other projected benefits from the acquisition. The
process of integrating operations could cause an interruption of, or loss of
momentum in, the activities of our business and the loss of deposits, customers
and key personnel. The diversion of management’s attention and any delays or
difficulties encountered in connection with any merger could have an adverse
effect on our business and results of operations following the acquisition or
otherwise adversely affect our ability to achieve the anticipated benefits of
the acquisition.





We
are subject to extensive regulation that could restrict our activities and
impose financial requirements or limitations on the conduct of our
business.





We are
subject to extensive federal and state regulation and supervision, primarily
through the Bank.  Banking regulations are primarily intended to
protect depositors' funds, federal deposit insurance funds and the banking
system as a whole, not shareholders.  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 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
reputation 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.





We
rely on dividends from subsidiaries for most of our revenue.





Riverview
Bancorp, Inc is a separate and distinct legal entity from its
subsidiaries.  We receive substantially all of our revenue from
dividends from our subsidiaries.  These dividends are the principal
source of funds to pay dividends on our common stock and interest and principal
on our debt.  Various federal and/or state laws and regulations limit
the amount of dividends that the Bank may pay us.  Also, our right to
participate in a distribution of assets upon a subsidiary's liquidation or
reorganization is subject to the prior claims of the subsidiary's
creditors.  In the event the Bank is unable to pay dividends to us, we
may not be able to service our debt, pay obligations or pay dividends on our
common stock.  The inability to receive dividends from the Bank could
have a material adverse effect on our business, financial condition and results
of operations











28





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
restating prior period financial statements.





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, 2008, the Bank had 10 offices located in Clark
County (six of which are leased), one office in Cowlitz County, two offices in
Klickitat County, and one office in Skamania County.  The Bank also
had three offices in Multnomah County (two of which are leased), one office in
Clackamas County, and one office in Marion County.





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.  Submission of Matters to a Vote of Security
Holders





No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended March 31, 2008.




PART
II





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





At March
31, 2008, there were 10,913,773 shares of Company Common Stock issued and
outstanding, 913 stockholders of record and an estimated 2,500 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.  See
“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 2008 and 2007 fiscal years.  At March 31, 2008, there were 17
market makers in the Company’s common stock as reported by the Nasdaq Global
Select Market. On August 24, 2006 Riverview Bancorp. Inc. issued a 2-for-1 stock
split in the form of a 100% stock dividend. Shareholders received one additional
share for every share owned. The Board declared the stock split on July 27, 2006
and the record date was August 10, 2006. All share and per share amounts
(including stock options) in the Consolidated Financial Statements and
accompanying notes were restated to reflect the split.






29





Fiscal Year Ended
      March 31, 2008
            
            High
            
            
            Low
            
            
            Cash
      Dividends
              DeclaredQuarter
      ended March 31, 2008
            
            $
            12.84
            
            
            $
            9.93
            
            
            $
            0.090Quarter
      ended December 31, 2007
            
            
            15.36
            
            
            
            11.55
            
            
            
            0.110Quarter
      ended September 30, 2007
            
            
            15.73
            
            
            
            13.30
            
            
            
            0.110Quarter
      ended June 30, 2007
            
            
            16.28
            
            
            
            13.69
            
            
            
            0.110





Fiscal Year Ended
      March 31, 2007
            
            High
            
            
            Low
            
            
            Cash
      Dividends
              DeclaredQuarter
      ended March 31, 2007
            
            $
            17.58
            
            
            $
            15.29
            
            
            $
            0.100Quarter
      ended December 31, 2006
            
            
            15.72
            
            
            
            13.47
            
            
            
            0.100Quarter
      ended September 30, 2006
            
            
            13.65
            
            
            
            12.58
            
            
            
            0.100Quarter
      ended June 30, 2006
            
            
            13.53
            
            
            
            12.14
            
            
            
            0.095





Stock
Repurchase





Shares
are being 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.  The following table reflects
activity for the quarter ended March 31, 2008.





Common Stock
Repurchased


Total
      Number of
              Shares
      Purchased
            
            
            Average
              Price
              Paid
      per
              Share
            
            
            Total
      Number of
              Shares
              Purchased
      as
              Part
      of Publicly
              Announced
      Plan
              (1)
            
            
            Maximum
              Number
      of
              Shares
      That May
              Yet
      Be
              Purchased
              Under
      the
              Program
      (1)January
      1,  – January 31, 2008
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            125,000February
      1 – February 29, 2008
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            125,000March
      1 – March 31, 2008
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            125,000Total
            
            
            -
            
            
            
            
            
            
            
            -




(1)
            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 also has certain stock option plans which provide for the payment of the
option exercise price by tendering previously owned shares.  For the
year ended March 31, 2008, 14,287 shares were tendered in connection with option
exercises





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.






30




COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
 Among
Riverview Bancorp, Inc., The S&P 500 Index
 And The
NASDAQ Bank Index


3/03
            3/04
            3/05
            3/06
            3/07
            3/08Riverview
      Bancorp, Inc.
            
            100.00
            122.42
            132.60
            171.97
            210.58
            136.32S
      & P 500
            
            100.00
            135.12
            144.16
            161.07
            180.13
            170.98NASDAQ
      Bank
            
            100.00
            136.20
            138.35
            156.41
            155.93
            123.50





* $100
invested on 3/31/03 in stock or index-including reinvestment of dividends fiscal
year ending March 31.





Copyright
© 2008, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All
rights reserved.


www.researchdatagroup.com/S&P.htm


31


Item
6.   Selected Financial Data





The
following condensed consolidated statements of operations and financial
condition and selected performance ratios as of March 31, 2008, 2007, 2006, 2005
and 2004 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.”





At
      March 31,2008
            
            
            2007
            
            
            2006(2)
            
            
            2005
            
            
            2004(Dollars
      in thousands)FINANCIAL
      CONDITION DATA:Total
      assets
            
            $
            886,849
            
            
            $
            820,348
            
            
            $
            763,847
            
            
            $
            572,571
            
            
            $
            520,487Loans
      receivable, net (1)
            
            
            756,538
            
            
            
            682,951
            
            
            
            623,081
            
            
            
            429,959
            
            
            
            381,534Mortgage-backed
      securities held
              to
      maturity, at amortized cost
            
            
            885
            
            
            
            1,232
            
            
            
            1,805
            
            
            
            2,343
            
            
            
            2,517Mortgage-backed
      securities available
              for
      sale, at fair value
            
            
            5,338
            
            
            
            6,640
            
            
            
            8,134
            
            
            
            11,619
            
            
            
            10,607Cash
      and interest-bearing deposits
            
            
            36,439
            
            
            
            31,423
            
            
            
            31,346
            
            
            
            61,719
            
            
            
            47,907Investment
      securities available for
              sale,
      at fair value
            
            
            7,487
            
            
            
            19,267
            
            
            
            24,022
            
            
            
            22,945
            
            
            
            32,883Deposit
      accounts
            
            
            667,000
            
            
            
            665,405
            
            
            
            606,964
            
            
            
            456,878
            
            
            
            409,115FHLB
      advances
            
            
            92,850
            
            
            
            35,050
            
            
            
            46,100
            
            
            
            40,000
            
            
            
            40,000Shareholders’
      equity
            
            
            92,585
            
            
            
            100,209
            
            
            
            91,687
            
            
            
            69,522
            
            
            
            65,182





Year
      Ended March 31,2008
            
            
            2007
            
            
            2006(2)
            
            
            2005
            
            
            2004(Dollars
      in thousands)OPERATING
      DATA:Interest
      income
            
            $
            60,682
            
            
            $
            61,300
            
            
            $
            47,229
            
            
            $
            29,968
            
            
            $
            27,584Interest
      expense
            
            
            25,730
            
            
            
            24,782
            
            
            
            14,877
            
            
            
            7,395
            
            
            
            6,627Net
      interest income
            
            
            34,952
            
            
            
            36,518
            
            
            
            32,352
            
            
            
            22,573
            
            
            
            20,957Provision
      for loan losses
            
            
            2,900
            
            
            
            1,425
            
            
            
            1,500
            
            
            
            410
            
            
            
            210Net
      interest income after provision
              for
      loan losses
            
            
            32,052
            
            
            
            35,093
            
            
            
            30,852
            
            
            
            22,163
            
            
            
            20,747Gains
      (losses) from sale of loans,
              securities
      and real estate owned
            
            
            368
            
            
            
            434
            
            
            
            382
            
            
            
            (672
            )
            
            
            1,003Gain
      on sale of land and fixed assets
            
            
            6
            
            
            
            3
            
            
            
            2
            
            
            
            830
            
            
            
            3Other
      non-interest income
            
            
            8,508
            
            
            
            8,597
            
            
            
            8,453
            
            
            
            6,348
            
            
            
            5,583Non-interest
      expenses
            
            
            27,791
            
            
            
            26,353
            
            
            
            25,374
            
            
            
            19,104
            
            
            
            17,572Income
      before income taxes
            
            
            13,143
            
            
            
            17,774
            
            
            
            14,315
            
            
            
            9,565
            
            
            
            9,764Provision
      for income taxes
            
            
            4,499
            
            
            
            6,168
            
            
            
            4,577
            
            
            
            3,036
            
            
            
            3,210Net
      income
            
            $
            8,644
            
            
            $
            11,606
            
            
            $
            9,738
            
            
            $
            6,529
            
            
            $
            6,554





(1)  Includes
loans held for sale


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


32





At
      March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004OTHER
      DATA:Number
      of:Real
      estate loans outstanding
            
            
            2,926
            
            
            
            2,978
            
            
            
            3,084
            
            
            
            3,037
            
            
            
            3,141Deposit
      accounts
            
            
            41,354
            
            
            
            38,989
            
            
            
            39,095
            
            
            
            29,341
            
            
            
            27,209Full
      service offices
            
            
            18
            
            
            
            18
            
            
            
            17
            
            
            
            13
            
            
            
            13





At
      or For the Year Ended March 31,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004KEY
      FINANCIAL RATIOS:Performance
      Ratios:Return
      on average assets
            
            
            1.04
            %
            
            
            1.43
            %
            
            
            1.36
            %
            
            
            1.24
            %
            
            
            1.35
            %Return
      on average equity
            
            
            8.92
            
            
            
            11.88
            
            
            
            10.95
            
            
            
            9.56
            
            
            
            10.60Dividend
      payout ratio (1)
            
            
            53.16
            
            
            
            38.35
            
            
            
            39.08
            
            
            
            45.59
            
            
            
            39.72Interest
      rate spread
            
            
            4.09
            
            
            
            4.37
            
            
            
            4.55
            
            
            
            4.38
            
            
            
            4.42Net
      interest margin
            
            
            4.66
            
            
            
            5.01
            
            
            
            5.03
            
            
            
            4.74
            
            
            
            4.76Non-interest
      expense to
              average
      assets
            
            
            3.34
            
            
            
            3.24
            
            
            
            3.54
            
            
            
            3.62
            
            
            
            3.61Efficiency
      ratio (2)
            
            
            63.40
            
            
            
            57.85
            
            
            
            61.60
            
            
            
            65.70
            
            
            
            63.79Asset
      Quality Ratios:Average
      interest-earning assets
              to
      interest-bearing liabilities
            
            
            116.75
            
            
            
            118.96
            
            
            
            121.14
            
            
            
            123.45
            
            
            
            122.53Allowance
      for loan losses to
              total
      net loans at end of period
            
            
            1.39
            
            
            
            1.25
            
            
            
            1.15
            
            
            
            1.01
            
            
            
            1.16Net
      charge-offs to
              average
      outstanding loans during
              the
      period
            
            
            0.12
            
            
            
            -
            
            
            
            0.10
            
            
            
            0.13
            
            
            
            0.31Ratio
      of nonperforming assets
              to
      total assets
            
            
            0.92
            
            
            
            0.03
            
            
            
            0.05
            
            
            
            0.13
            
            
            
            0.39Capital
      Ratios:Average
      equity to average assets
            
            
            11.65
            
            
            
            12.01
            
            
            
            12.39
            
            
            
            12.92
            
            
            
            12.72Equity
      to assets at end of fiscal year
            
            
            10.44
            
            
            
            12.22
            
            
            
            12.00
            
            
            
            12.14
            
            
            
            12.52




(1)
            Dividends per share
      divided by net income per share(2)
            Non-interest expense
      divided by the sum of net interest income and non-interest
      income






33


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 impairment of investments
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 continuing analysis
of the pertinent factors underlying the quality of the loan portfolio. These
factors include changes in the size and composition of the loan portfolio,
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
appropriate allowance level is estimated based upon factors and trends
identified by management at the time the consolidated financial statements are
prepared.  For additional information regarding the allowance for loan
losses, see “Allowance for Loan Losses” included in Item 1 and in Note 1 of the
Consolidated Financial Statements included in Item 8 of this Form
10-K.





Investment
Valuation


The
Company classifies its investments as held to maturity, available for sale or
trading.  The Company had no securities classified as trading at March
31, 2008.  Securities held to maturity are carried at cost, adjusted
for amortization of premiums and accretion of discounts, which are recognized in
interest income using the interest method.  Securities available for
sale are carried at fair value.  Premiums and discounts are amortized
using the interest method over the remaining period to contractual
maturity.  Unrealized holding gains and losses, or valuation
allowances established for net unrealized losses, are excluded from earnings and
reported as a separate component of shareholders’ equity as accumulated other
comprehensive income (loss), net of income taxes.  Realized gains and
losses and declines in fair value judged to be other than temporary are included
in earnings.





The
Company’s underlying principle in determining whether impairment is
other-than-temporary 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. 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 changes in
interest rates (not because of increased credit risk), and the Company asserts
that it has positive intent and ability to hold that security to maturity, no
other-than-temporary impairment is recognized.




34




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 13 of the Notes to the Consolidated Financial
Statements in Item 8 of this Form 10-K.





Operating
Strategy





In the
fiscal year ended March 31, 1998, the Company began to implement a growth
strategy to broaden its products and services from those of a traditional thrift
to those more closely related to commercial banking.  The growth
strategy included four elements: geographic and product expansion, loan
portfolio diversification, development of relationship banking and maintenance
of asset quality.





The April
2005 acquisition of American Pacific Bank added three branches in
Oregon:  Portland, Aumsville and Wood Village.  During
fiscal year 2006, the Company also opened in Vancouver the Riverview Center (an
operations center) and the Tech Center Branch. The Riverview Center is a 50,000
square foot office building where over 80 employees from accounting, audit, data
processing, human resources, information technology, loan origination, loan
servicing, marketing and operations are located. The Tech Center is a full
service branch with the convenience of two drive-up teller windows, drive-up ATM
and safe deposit boxes.  During fiscal year 2007, the Company opened a
new full service branch and commercial lending center (Gateway branch) in
Portland, Oregon. During fiscal year 2008, the Company opened a new lending
office in Clackamas Oregon and relocated one of its leased branches in Vancouver
into a new Company-owned facility.





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 check capture, expanded cash
management services 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.





Fiscal
year 2008 marked the 85th anniversary since the Bank opened its doors in
1923.  The historical emphasis had been on residential real estate
lending. However, the Company began diversifying its loan portfolio through the
expansion of commercial loans in 1998.  At March 31, 2004, commercial
and construction loans as a percentage of the loan portfolio were 81.2%, which
has increased to 89.6% of total loans at the end of fiscal year
2008.  Commercial lending including commercial real estate has higher
credit risk, wider interest margins and shorter loan terms than residential
lending which can increase the loan portfolio’s profitability.





The
Company’s relationship banking has been enhanced by the 1998 addition of
RAMCorp., a trust company directed by experienced trust officers, through
expanded loan products serviced by experienced commercial and consumer lending
officers, and an expanded branch network led by experienced branch
managers.  Development of relationship banking has been the key to the
Company’s growth.  Assets under management by RAMCorp. have increased
from $285.6 million at March 31, 2007, to $330.5 million at March 31,
2008.





Comparison
of Financial Condition at March 31, 2008 and 2007





At March
31, 2008, the Company had total assets of $886.8 million compared with $820.3
million at March 31, 2007.  The increase in total assets was primarily
a result of the increase in the balance of loans outstanding.





Cash,
including interest-earning accounts, totaled $36.4 million at March 31, 2008,
compared to $31.4 million at March 31, 2007, primarily as a result of the
maturity of investment securities, an increase in FHLB advances and the issuance
of junior subordinated debentures which were partially offset by an increase in
loan production.





Investment
securities available-for-sale were $7.5 million at March 31, 2008, compared to
$19.3 million at March 31, 2007.  The decrease was attributable to
maturities and scheduled cash flows of securities.





Mortgage-backed
securities available-for-sale were $5.3 million at March 31, 2008, compared to
$6.6 million at March 31, 2007.  The $1.3 million decrease was a
result of pay downs.   The Company does not believe it has any
exposure to sub-prime mortgage-backed securities.






35





Loans
receivable, net, was $756.5 million at March 31, 2008, compared to $683.0
million at March 31, 2007, a 10.8% increase. Net loans receivable increased
$40.7 million, or 5.7%, at March 31, 2008 compared to the previous linked
quarter as a result of continued strong loan growth.  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 sub-prime residential real estate loans in its
portfolio.





Deposit
accounts totaled $667.0 million at March 31, 2008 compared to $665.4 million at
March 31, 2007.  As a result of falling interest rates during fiscal
year 2008, the Company has seen a shift in customer deposit choices from money
market deposit and interest checking accounts into certificates of
deposit.  As a result, the balance of certificates of deposit
increased $65.8 million to $265.7 million at March 31, 2008, compared to $199.9
million at March 31, 2007.





Junior
subordinated debentures totaled $22.7 million at March 31, 2008 and $7.2 million
at March 31, 2007.  The $15.5 million increase was the result of the
issuance of additional trust preferred securities in June 2007.





FHLB
advances increased to $92.9 million at March 31, 2008 as compared to $35.1
million at March 31, 2007.  The increase was the result of the
Company’s continued strong loan growth and modest deposit growth, due to
continued competition for customer deposits.





Shareholders'
equity decreased $7.6 million to $92.6 million at March 31, 2008 from $100.2
million at March 31, 2007. The decrease in equity resulting from cash dividends
declared to shareholders of $4.6 million and stock repurchases of $12.6 million
was partially offset by earnings of $8.6 million for the year ended March 31,
2008.  Exercise of stock options, earned ESOP shares, FIN 48
adjustments and the net tax effect of SFAS No. 115 adjustment to securities
comprised the remaining $932,000 net increase.





Comparison of Operating Results for
the Years Ended March 31, 2008 and 2007





Net Income.  Net
income was $8.6 million, or $0.79 per diluted earning share for the year ended
March 31, 2008, compared to $11.6 million, or $1.01 per diluted share for the
year ended March 31, 2007.  The decrease was primarily due to a
combination of decreased net interest income and an increase in the provision
for loan losses.





Net Interest
Income.  Net interest income for fiscal year 2008 was $35.0
million, representing a $1.6 million, or a 4.3% decrease, from $36.5 million in
fiscal year 2007.  The ratio of average interest-earning assets to
average interest-bearing liabilities decreased to 116.75% for the fiscal year
ended March 31, 2008 compared to 118.96% for the fiscal year ended March 31,
2007 which indicates that the interest-earning asset growth is being funded more
by interest-bearing liabilities as compared to capital and non-interest-bearing
demand deposits.  The net interest margin for the fiscal year ended
March 31, 2008 was 4.66% compared to 5.01% for the same prior year
period.  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.  In a decreasing interest rate environment the Company
requires time to reduce deposit interest rates to recover the decline in the net
interest rate margin.  Interest rates on the Company’s
interest-earning asset reprice down faster than interest rates on the Company’s
interest-bearing liabilities.  As a result of the Federal Reserve’s
300 basis point reduction in the short-term federal funds rate during the year
ended March 31, 2008, approximately 40% of the Company’s loans immediately
repriced down 300 basis points. The Company expects interest rate floors on
certain loans to begin slowing asset yield reductions with future interest rate
reductions by the Federal Reserve.  The Company also immediately
reduced the interest rate paid on certain interest-bearing
deposits.  Further reductions will be reflected in future deposit
offering rates.  The amount and timing of these reductions is
dependent on competitive pricing pressures, yield curve shape and changes in
spreads.





Interest
Income.  Interest income was $60.7 million for the fiscal year
ended March 31, 2008 compared to $61.3 million, for the fiscal year ended March
31, 2007.  Decreases in interest income due to the Federal Reserve
rate cuts described above were partially offset by increases in the average loan
balance due to continued strong loan growth.  Average interest-bearing
assets increased $19.9 million to $751.0 million for fiscal year 2008 from
$731.1 million for fiscal year 2007.  The yield on interest-earning
assets was 8.09% for fiscal year 2008 compared to 8.40% for fiscal year
2007.






36





Interest
Expense.  Interest expense for the fiscal year ended March 31,
2008 totaled $25.7 million, a $948,000 or 3.8% increase from $24.8 million for
the fiscal year ended March 31, 2007.  The increase in interest
expense is the result of higher rates of interest paid on deposits and
borrowings that occurred during the first half of fiscal year
2008.  The weighted average interest rate of total deposits increased
from 3.82% for the year ended March 31, 2007 to 3.86% for the year ended March
31, 2008.  The weighted average interest rate of FHLB borrowings
decreased from 5.26% for the year ended March 31, 2007 to 4.32% for the year
ended March 31, 2008.  Due to the falling interest rate environment,
the mix of deposits has shifted into certificates of deposit.





Provision for Loan
Losses.  The provision for loan losses for fiscal year 2008 was
$2.9 million, compared to $1.4 million for the same period in the prior
year.  The increase in the provision for loan losses is 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 largely 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 1.44% at March 31, 2008, compared to 1.31% at
March 31, 2007.  Net charge-offs for the year ended March 31, 2008
were $866,000, compared to net recoveries of $7,000 for the same period last
year.  The increase in net charge-offs is primarily attributable to
the charge-off of three commercial loans totaling $787,000 for the year ended
March 31, 2008.  Annualized net charge-offs to average net loans for
the year ended March 31, 2008 were 0.12%, compared to annualized net recoveries
of 0.00% for the same period in the prior year.  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 other economic
conditions.  Management considers the allowance for loan losses at
March 31, 2008 to be adequate to cover probable losses inherent in the loan
portfolio based on the assessment of various factors affecting the loan
portfolio.





Non-Interest
Income.  Non-interest income decreased $152,000 to $8.9 million
for the year ended March 31, 2008 from $9.0 million for the same period in
2007.  Decreases in mortgage broker loan fees that are reported in
fees and service charges were partially offset by an increase in asset
management fees.  For the year ended March 31, 2008, broker loan fees
decreased by $480,000 compared to the year ended March 31, 2007.  The
increase in asset management fees of $271,000 for the year ended March 31, 2008
compared to the same prior year period reflects the increase in assets under
management by RAMCorp. from $285.6 million at March 31, 2007 to $330.5 million
at March 31, 2008.





Non-Interest
Expense.  Non-interest expense increased $1.4 million, or 5.5%,
to $27.8 million for fiscal year ended March 31, 2008 compared to $26.4 million
for fiscal year ended March 31, 2007. The principal component of the increase in
the Company's non-interest expense was salaries and employee
benefits.  For the year ended March 31, 2008, salaries and employee
benefits, which includes mortgage broker commission compensation, was $16.2
million, an 8.2% increase over the prior year total of $15.0 million. Salaries
increased as the number of full-time equivalent employees increased to 270 at
March 31, 2008 from 255 at March 31, 2007, which was primarily the result of the
expansion of the Company’s lending team and the opening of a new branch and
separate lending office.





Provision for Income
Taxes.  The provision for
income taxes was $4.5 million for the year ended March 31, 2008 compared to $6.2
million for the year ended March 31, 2007 as a result of the decrease in income
before taxes.  The effective tax rate for fiscal year 2008 was 34.2%
compared to 34.6% for fiscal year 2007. The Company’s overall effective tax rate
at March 31, 2008 and 2007 takes into account the estimated Oregon apportionment
factors for property, payroll and sales.  Reference is made to Note 13
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, 2007 and 2006





Net Income.  Net
income was $11.6 million, or $1.01 per diluted share for the year ended March
31, 2007, compared to $9.7 million, or $0.86 per diluted share for the year
ended March 31, 2006.  The increase resulted from an increase in
interest income and non-interest income partially offset by increases in
interest expense and non-interest expense.





Net Interest
Income.  Net interest income for fiscal year 2007 was $36.5
million, representing a $4.2 million, or a 12.9% increase, from $32.4 million in
fiscal year 2006.  This improvement reflected a 13.3% increase in the
average balance of interest earning assets to $731.1 million and an increase in
yield to 8.40%.  These increases were partially offset by a 15.4%
increase in the average balance of interest-bearing deposits to $536.3 million
and an increase in cost to 4.03%.  The ratio of average interest
earning assets to average interest bearing liabilities decreased to 118.96% in
fiscal year 2007 from 121.14% in fiscal year 2006.






37




Interest
Income.  Interest income was $61.3 million for the fiscal year
ended March 31, 2007 compared to $47.2 million, for the fiscal year ended March
31, 2006. Increased interest income was the result of the increase in the
average balance and yield on interest-earning assets. Average interest-bearing
assets increased $86.0 million to $731.1 million for fiscal 2007 from $645.1
million for fiscal year 2006.  The yield on interest-earning assets
was 8.40% for fiscal year 2007 compared to 7.34% for fiscal year
2006.  The increased yield was primarily the result of the increasing
interest rate environment.





Interest
Expense.  Interest expense for the fiscal year ended March 31,
2007 totaled $24.8 million, a $9.9 million or 66.6% increase from $14.9 million
for the fiscal year ended March 31, 2006.  The increase in interest
expense was the result of higher rates of interest paid on deposits and
borrowings that occurred during fiscal years 2007 and 2006. The weighted average
interest rate of total deposits increased from 2.58% for the year ended March
31, 2006 to 3.82% for the year ended March 31, 2007.  The weighted
average interest rate of FHLB borrowings increased from 4.44% for the year ended
March 31, 2006 to 5.26% for the year ended March 31, 2007. The mix of deposits
changed as the interest rates on deposit accounts increased. There was an
increased demand for higher yielding money market accounts which was reflected
in the growth of total average money market accounts in fiscal year 2007 to
$161.6 million compared to $120.2 million in fiscal year 2006. Growth in loans
in fiscal year 2007 was supported by the increased average total FHLB-Seattle
borrowings of $68.3 million for the fiscal year 2007 compared to $51.1 million
for the fiscal year 2006.





Provision for Loan
Losses.  The provision for loan losses for fiscal year 2007 was
$1.4 million, compared to $1.5 million for the same prior year period. Net
recoveries for the year ended March 31, 2007 were $7,000, compared to net
charge-offs of $562,000 for the same period of last year.  Annualized
net recoveries to average net loans for the year ended March 31, 2007 was 0.00%
compared to annualized net charge-offs of 0.10% for the same period in the prior
year.  The allowance for loan losses was $8.7 million at March 31,
2007 compared to $7.2 million at March 31, 2006.  The ratio of
allowance for credit losses and loan commitments to total loans at March 31,
2007 increased to 1.31% from 1.20% at March 31, 2006.





Non-Interest
Income.  Non-interest income increased $197,000, or 2.2%, to
$9.0 million for the year ended March 31, 2007 from $8.8 million for the same
period in 2006 primarily as a result of a $393,000 increase in asset management
fees.  The increase in asset management fees reflects the increase in
assets under management by RAMCorp. from $232.8 million at March 31, 2006 to
$285.6 million at March 31, 2007.  The $166,000 decrease in fees and
service charges reflects the $240,000 decrease in credit card fees resulting
from the sale of the credit card portfolio in the second quarter of fiscal 2006.
The decrease in credit card fees was partially offset by increases in fees
earned on deposit accounts and broker loan fees.





Non-Interest
Expense.  Non-interest expense increased $979,000, or 3.9%, to
$26.4 million for fiscal year ended March 31, 2007 compared to $25.4 million for
fiscal year ended March 31, 2006. For the year ended March 31, 2007, salaries
and employee benefits, which includes mortgage broker commission compensation,
was $15.0 million, a 3.3% increase over the prior year total of $14.5 million.
Salaries increased as the number of full-time equivalent employees increased to
255 at March 31, 2007 from 239 at March 31, 2006, which was primarily the result
of the expansion related to increased staffing in branches and
operations.





During
the third quarter of fiscal year 2007, the ESOP expiration date was extended
from December 31, 2011 to December 31, 2017. This extension resulted in the
third quarter reduction of ESOP expense of $240,000 reflecting the release of
24,633 ESOP shares to the ESOP participants at December 31, 2006.





Provision for Income
Taxes. The
provision for income taxes was $6.2 million for the year ended March 31, 2007
compared to $4.6 million for the year ended March 31, 2006.  The
increased tax provision was the result of the higher income in fiscal year 2007
compared to the prior year. The effective tax rate for fiscal year 2007 was
34.6% compared to 31.9% for fiscal year 2006. The primary reason for the
increase in the effective tax rate was the entry into a new tax jurisdiction
including the state of Oregon and Multnomah County in Oregon. Reference is made
to Note 13 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 from average
interest-earning assets and interest expense 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 $2.8 million, $3.7 million and $3.1 million are included in interest
income for the years ended March 31, 2008, 2007 and 2006,
respectively.


38


Year
      Ended March 31,2008
            
            
            2007
            
            
            2006Average
              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
            
            $
            600,386
            
            
            $
            50,229
            
            
            
            8.37
            %
            
            $
            585,595
            
            
            $
            50,981
            
            
            
            8.71
            %
            
            $
            485,554
            
            
            $
            37,916
            
            
            
            7.81
            %Non-mortgage
      loans
            
            
            105,470
            
            
            
            8,518
            
            
            
            8.08
            
            
            
            100,031
            
            
            
            8,515
            
            
            
            8.51
            
            
            
            96,472
            
            
            
            7,123
            
            
            
            7.38Total
      net loans (1)
            
            
            705,856
            
            
            
            58,747
            
            
            
            8.32
            
            
            
            685,626
            
            
            
            59,496
            
            
            
            8.68
            
            
            
            582,026
            
            
            
            45,039
            
            
            
            7.74Mortgage-backed
      securities (2)
            
            
            7,101
            
            
            
            323
            
            
            
            4.55
            
            
            
            9,077
            
            
            
            421
            
            
            
            4.64
            
            
            
            12,144
            
            
            
            530
            
            
            
            4.36Investment
      securities (2)
            
            
            11,480
            
            
            
            703
            
            
            
            6.12
            
            
            
            22,260
            
            
            
            1,101
            
            
            
            4.95
            
            
            
            24,101
            
            
            
            1,106
            
            
            
            4.59Daily
      interest-bearing assets
            
            
            18,656
            
            
            
            883
            
            
            
            4.73
            
            
            
            6,559
            
            
            
            337
            
            
            
            5.14
            
            
            
            19,480
            
            
            
            649
            
            
            
            3.33Other
      earning assets
            
            
            7,930
            
            
            
            99
            
            
            
            1.25
            
            
            
            7,567
            
            
            
            29
            
            
            
            0.38
            
            
            
            7,333
            
            
            
            3
            
            
            
            0.04Total
      interest-earning assets
            
            
            751,023
            
            
            
            60,755
            
            
            
            8.09
            
            
            
            731,089
            
            
            
            61,384
            
            
            
            8.40
            
            
            
            645,084
            
            
            
            47,327
            
            
            
            7.34Non-interest-earning
      assets:Office
      properties and equipment, net
            
            
            21,427
            
            
            
            
            
            
            
            
            
            
            
            20,387
            
            
            
            
            
            
            
            
            
            
            
            12,358Other
      non-interest-earning assets
            
            
            59,589
            
            
            
            
            
            
            
            
            
            
            
            61,623
            
            
            
            
            
            
            
            
            
            
            
            60,294Total
      assets
            
            $
            832,039
            
            
            
            
            
            
            
            
            
            
            $
            813,099
            
            
            
            
            
            
            
            
            
            
            $
            717,736Interest-bearing
      liabilities:Regular
      savings accounts
            
            $
            27,403
            
            
            
            151
            
            
            
            0.55
            
            
            $
            32,591
            
            
            
            179
            
            
            
            0.55
            
            
            $
            38,818
            
            
            
            213
            
            
            
            0.55Interest
      checking
            
            
            129,552
            
            
            
            3,906
            
            
            
            3.02
            
            
            
            139,600
            
            
            
            4,421
            
            
            
            3.17
            
            
            
            126,045
            
            
            
            2,248
            
            
            
            1.78Money
      market accounts
            
            
            219,528
            
            
            
            8,882
            
            
            
            4.05
            
            
            
            161,590
            
            
            
            6,969
            
            
            
            4.31
            
            
            
            120,188
            
            
            
            3,276
            
            
            
            2.73Certificates
      of deposit
            
            
            197,049
            
            
            
            9,204
            
            
            
            4.67
            
            
            
            202,506
            
            
            
            8,938
            
            
            
            4.41
            
            
            
            194,253
            
            
            
            6,646
            
            
            
            3.42Total
      interest-bearing deposits
            
            
            573,532
            
            
            
            22,143
            
            
            
            3.86
            
            
            
            536,287
            
            
            
            20,507
            
            
            
            3.82
            
            
            
            479,304
            
            
            
            12,383
            
            
            
            2.58Other
      interest-bearing liabilities
            
            
            69,733
            
            
            
            3,587
            
            
            
            5.14
            
            
            
            78,259
            
            
            
            4,275
            
            
            
            5.46
            
            
            
            53,217
            
            
            
            2,494
            
            
            
            4.69Total
      interest-bearing liabilities
            
            
            643,265
            
            
            
            25,730
            
            
            
            4.00
            
            
            
            614,546
            
            
            
            24,782
            
            
            
            4.03
            
            
            
            532,521
            
            
            
            14,877
            
            
            
            2.79Non-interest-bearing
      liabilities:Non-interest-bearing
      deposits
            
            
            82,776
            
            
            
            
            
            
            
            
            
            
            
            91,888
            
            
            
            
            
            
            
            
            
            
            
            87,490Other
      liabilities
            
            
            9,068
            
            
            
            
            
            
            
            
            
            
            
            8,995
            
            
            
            
            
            
            
            
            
            
            
            8,777Total
      liabilities
            
            
            735,109
            
            
            
            
            
            
            
            
            
            
            
            715,429
            
            
            
            
            
            
            
            
            
            
            
            628,788Shareholders’
      equity
            
            
            96,930
            
            
            
            
            
            
            
            
            
            
            
            97,670
            
            
            
            
            
            
            
            
            
            
            
            88,948Total
      liabilities and shareholders’
              equity
            
            $
            832,039
            
            
            
            
            
            
            
            
            
            
            $
            813,099
            
            
            
            
            
            
            
            
            
            
            $
            717,736Net
      interest income
            
            
            
            
            
            $
            35,025
            
            
            
            
            
            
            
            
            
            
            $
            36,602
            
            
            
            
            
            
            
            
            
            
            $
            32,450Interest
      rate spread
            
            
            
            
            
            
            
            
            
            
            4.09
            %
            
            
            
            
            
            
            
            
            
            
            4.37
            %
            
            
            
            
            
            
            
            
            
            
            4.55
            %Net
      interest margin
            
            
            
            
            
            
            
            
            
            
            4.66
            %
            
            
            
            
            
            
            
            
            
            
            5.01
            %
            
            
            
            
            
            
            
            
            
            
            5.03
            %Ratio
      of average interest-earning assets
              to
      average interest-bearing liabilities
            
            
            
            
            
            
            
            
            
            
            116.75
            %
            
            
            
            
            
            
            
            
            
            
            118.96
            %
            
            
            
            
            
            
            
            
            
            
            121.14
            %Tax
      Equivalent Adjustment (3)
            
            
            
            
            
            $
            73
            
            
            
            
            
            
            
            
            
            
            $
            84
            
            
            
            
            
            
            
            
            
            
            $
            98(1)   
      Includes non-accrual loans. Includes amortized loan fees of $2.8
      million, $3.7 million and $3.1 million for fiscal year 2008, 2007 and
      2006,
              respectively.(2)   
      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.(3)   
      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.





39


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 31,2008
      vs. 2007
            
            
            2007
      vs. 2006Increase
      (Deacrease)
              Due
      to
            
            
            Total
            
            
            Increase
      (Decrease)
              Due to
            
            
            TotalVolume
            
            
            Rate
            
            
            Increase
              (Decrease)
            
            
            Volume
            
            
            Rate
            
            
            Increase
              (Decrease)(In
      thousands)Interest
      Income:Mortgage
      loans
            
            $
            1,269
            
            
            $
            (2,021
            )
            
            $
            (752
            )
            
            $
            8,392
            
            
            $
            4,673
            
            
            $
            13,065Non-mortgage
      loans
            
            
            447
            
            
            
            (444
            )
            
            
            3
            
            
            
            271
            
            
            
            1,121
            
            
            
            1,392Mortgage-backed
      securities
            
            
            (90
            )
            
            
            (8
            )
            
            
            (98
            )
            
            
            (141
            )
            
            
            32
            
            
            
            (109
            )Investment
      securities (1)
            
            
            (617
            )
            
            
            219
            
            
            
            (398
            )
            
            
            (88
            )
            
            
            83
            
            
            
            (5
            )Daily
      interest-bearing
            
            
            575
            
            
            
            (29
            )
            
            
            546
            
            
            
            (559
            )
            
            
            247
            
            
            
            (312
            )Other
      earning assets
            
            
            1
            
            
            
            69
            
            
            
            70
            
            
            
            -
            
            
            
            26
            
            
            
            26Total
      interest income
            
            
            1,585
            
            
            
            (2,214
            )
            
            
            (629
            )
            
            
            7,875
            
            
            
            6,182
            
            
            
            14,057Interest
      Expense:Regular
      savings accounts
            
            
            (28
            )
            
            
            -
            
            
            
            (28
            )
            
            
            (34
            )
            
            
            -
            
            
            
            (34
            )Interest
      checking
            
            
            (311
            )
            
            
            (204
            )
            
            
            (515
            )
            
            
            263
            
            
            
            1,910
            
            
            
            2,173Money
      market accounts
            
            
            2,357
            
            
            
            (444
            )
            
            
            1,913
            
            
            
            1,378
            
            
            
            2,315
            
            
            
            3,693Certificates
      of deposit
            
            
            (247
            )
            
            
            513
            
            
            
            266
            
            
            
            293
            
            
            
            1,999
            
            
            
            2,292Other
      interest-bearing liabilities
            
            
            (448
            )
            
            
            (240
            )
            
            
            (688
            )
            
            
            1,320
            
            
            
            461
            
            
            
            1,781Total
      interest expense
            
            
            1,323
            
            
            
            (375
            )
            
            
            948
            
            
            
            3,220
            
            
            
            6,685
            
            
            
            9,905Net
      interest income (1)
            
            $
            262
            
            
            $
            (1,839
            )
            
            $
            (1,577
            )
            
            $
            4,655
            
            
            $
            (503
            )
            
            $
            4,152





(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, consumer loans that are adjustable rate and
short-term loans and residential construction 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 and FHLB advances.







40





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 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.  The
mortgage loan servicing portfolio totaled $105.7 million at March 31,
2008.  The average balance of the servicing portfolio was $108.5
million and produced loan servicing income of $126,000 for the year ended March
31, 2008.  See "Item 1.  Business -- Lending Activities --
Mortgage Loan Servicing."





Consumer
loans, such as home equity line 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 $575.1 million or 75.0% of total gross loans at March 31,
2008 as compared to $550.3 million or 79.6% at March 31,
2007.  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 also invests 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, 2008, the combined portfolio carried at $13.7
million had an average term to repricing or maturity of 3.48
years.  Adjustable rate mortgage-backed securities totaled $1.4
million at March 31, 2008 compared to $1.9 million at March 31,
2007.  See "Item 1.  Business -- Investment
Activities."





Liquidity
and Capital Resources





The
Company’s primary source of cash flows is its operations as a lender, which
generates interest income on loans.  This is supplemented by fee
income, service charges, and interest on investment securities, and reduced by
payment of interest expense and non-interest expenses.  After payment
of expenses, the Company has significant positive cash flow from operating
activities.  The Company’s investing activities typically use cash,
primarily for loan originations.  For the year ended March 31, 2008
additional cash flows were provided by the Company’s financing activities as a
result of a increased borrowings and the issuance of subordinated debentures.
For the year ended March 31, 2007 additional cash flows were provided by the
Company’s financing activities as a result of a significant increase in deposit
accounts.





The
Company's primary source of funds are customer deposits, proceeds from principal
and interest payments on loans, the sale of loans, maturing securities and FHLB
advances.  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.





The
Company must maintain an adequate level of liquidity to ensure the availability
of sufficient funds to fund loan originations and deposit withdrawals, satisfy
other financial commitments and to take advantage of investment
opportunities.  The Company generally maintains sufficient cash and
short-term investments to meet short-term liquidity needs.  At March
31, 2008, cash totaled $36.4 million, or 4.1%, of total
assets.  Should the Bank require funds beyond its ability to generate
them internally, additional funds are available through the use of FHLB and
Pacific Coast Banker’s Bank borrowings.  At March 31, 2008 advances
from FHLB totaled $92.9 million and the Bank had additional borrowing capacity
available of $157.1 million from the FHLB, subject to collateral
limitations.  The Bank also has a $10.0 million fed funds line with
Pacific Coast Banker’s Bank at March 31, 2008.





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 borrowing capacity with the FHLB and
Pacific Coast Banker’s Bank.  At March 31, 2008, the Bank's ratio of
cash and eligible investments to the sum of withdrawable savings and borrowings
due within one year was 4.86%.






41





At March
31, 2008, the
Company had commitments to extend credit of $203.4 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, 2008 totaled $234.1
million.  Historically, the Company has been able to retain a
significant amount of its deposits as they mature.





Sources
of capital and liquidity for the Company on a stand-alone basis include
distributions from the Bank and the issuance of debt or
equity.  Dividends and other capital distributions from the Bank are
subject to regulatory restrictions.





OTS
regulations require the Bank to maintain specific amounts of regulatory
capital.  As of March 31, 2008, the Bank complied with all regulatory
capital requirements as of that date with tangible, core and risk-based capital
ratios of 9.29%, 9.78% and 10.99%, respectively. For a detailed discussion of
regulatory capital requirements, see "REGULATION -- Federal Regulation of
Savings Associations -- Capital Requirements."





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 Statement included in Item 8
of this Form 10-K.





Contractual
Obligations





The
following table shows the contractual obligations by expected period, as of
March 31, 2008. Further discussion of these commitments is included in Note 19
to the Consolidated Financial Statements included in Item 8 of this
report.




At March
31, 2008,
scheduled maturities of certificates of deposit, FHLB advances, future operating
minimum lease commitments and subordinated debentures were as follows (in
thousands):





Within
              1 Year
            
            
            1
      to 3Years
            
            
            3
      - 5Years
            
            
            After
              5 Years
            
            
            Total
              BalanceCertificates
      of deposit
            
            $
            234,090
            
            
            $
            22,762
            
            
            $
            6,597
            
            
            $
            2,231
            
            
            $
            265,680FHLB
      advances
            
            
            92,850
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            92,850Operating
      leases
            
            
            1,669
            
            
            
            2,640
            
            
            
            1,637
            
            
            
            3,693
            
            
            
            9,639Junior
      subordinates debentures
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            22,681
            
            
            
            22,681Total
      other contractual obligations
            
            $
            328,609
            
            
            $
            25,402
            
            
            $
            8,234
            
            
            $
            28,605
            
            
            $
            390,850




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






42




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 extend credit 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, 2008, the Company had outstanding real estate one-to-four family loan
commitments of $1.1 million and unused lines of credit on real estate
one-to-four family loans totaled $20.6 million.  Other installment
loan commitments totaled $17,000 and unused lines of credit on other installment
loans totaled $1.1 million at March 31, 2008.  Other real estate
mortgage loan commitments totaled $19.0 million and the undisbursed balance of
other real estate mortgage loans closed was $10.4 million at March 31,
2008.  Commercial loan commitments totaled $8.4 million, undisbursed
balances of commercial loans totaled $10.6 million and unused commercial lines
of credit totaled $56.2 million at March 31, 2008.  Construction loan
commitments totaled $15.7 million and unused construction lines of credit
totaled $60.2 million at March 31, 2008.  For additional information
regarding future financial commitments, this discussion and analysis should be
read in conjunction with the Consolidated Financial Statements and related notes
included elsewhere in this report including Footnote 19, “Commitments and
Contingencies.”





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 -- Loan
Portfolio Analysis,”  “-- Investment Activities” and “-- Deposit
Activities and Other Sources of Funds -- Certificates of Deposit by Rates and
Maturities” 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.  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 as well as 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.








43





The
following tables show the approximate percentage change in net interest income
over a 24-month period under several rate scenarios.





Change
      in interest rates:
                
                Percent
      Change in NetInterest
                  Income
      (12 months)
                
                Percent
      Change in NetInterest
                  Income
      (24 months)Up
      200 basis points
                
                2.7%
                
                4.9%Base
      Case
                
                -
                
                1.1%Down
      100 basis points
                
                (2.3%)
                
                (4.5%)
  As
illustrated in the above table, at March 31, 2008, our balance sheet continues
to be slightly asset sensitive, meaning that interest-earning assets reprice
faster than interest-bearing liabilities in a given period.  In the
current falling interest rate environment there continues to be a negative
impact on the net interest margin.  While a sustained rising interest
rate environment may increase net interest income.  We attempt to
limit our interest rate risk through managing the repricing characteristics of
our assets and liabilities.





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, 2008.  Market risk sensitive
instruments are generally defined as on- and off-balance sheet derivatives and
other financial instruments.











44











Average
              Rate
            
            
            Within
              1 Year
            
            
            1-3
              Years
            
            
            After
              3-5
              Years
            
            
            After
              5-10
              Years
            
            
            Beyond
              10
              Years
            
            
            Total
            
            
            Fair
              Value(Dollars
      in thousands)Interest-Sensitive
      Assets:Loans
      receivable (1)
            
            
            6.84
            %
            
            $
            299,602
            
            
            $
            91,084
            
            
            $
            86,164
            
            
            $
            217,673
            
            
            $
            72,702
            
            
            $
            767,225
            
            
            $
            786,141Mortgage-backedsecurities
            
            
            4.21
            
            
            
            1,438
            
            
            
            4,785
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            6,223
            
            
            
            6,230Investments
      and otherinterest-earning
      assets
            
            
            4.10
            
            
            
            19,341
            
            
            
            1,192
            
            
            
            -
            
            
            
            -
            
            
            
            1,192
            
            
            
            21,725
            
            
            
            21,725FHLB
      stock
            
            
            0.75
            
            
            
            1,470
            
            
            
            2,940
            
            
            
            2,940
            
            
            
            -
            
            
            
            -
            
            
            
            7,350
            
            
            
            7,350Total
      assets
            
            
            
            
            
            $
            321,851
            
            
            $
            100,001
            
            
            $
            89,104
            
            
            $
            217,673
            
            
            $
            73,894
            
            
            $
            802,523
            
            
            $
            821,446Interest-Sensitive
      Liabilities:Interest
      checking
            
            
            1.32
            
            
            $
            20,498
            
            
            $
            40,996
            
            
            $
            40,995
            
            
            $
            -
            
            
            $
            -
            
            
            $
            102,489
            
            
            $
            102,489Non-interest
      checking accounts
            
            
            -
            
            
            
            16,424
            
            
            
            32,848
            
            
            
            32,849
            
            
            
            -
            
            
            
            -
            
            
            
            82,121
            
            
            
            82,121Savings
      accounts
            
            
            0.55
            
            
            
            5,480
            
            
            
            10,960
            
            
            
            10,961
            
            
            
            -
            
            
            
            -
            
            
            
            27,401
            
            
            
            27,401Money
      market accounts
            
            
            2.39
            
            
            
            37,862
            
            
            
            75,724
            
            
            
            75,723
            
            
            
            -
            
            
            
            -
            
            
            
            189,309
            
            
            
            189,309Certificate
      accounts
            
            
            4.29
            
            
            
            234,090
            
            
            
            22,762
            
            
            
            6,597
            
            
            
            2,231
            
            
            
            -
            
            
            
            265,680
            
            
            
            268,747FHLB
      advances
            
            
            3.35
            
            
            
            92,850
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            92,850
            
            
            
            92,745Subordinated
      debentures
            
            
            6.12
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            22,681
            
            
            
            22,681
            
            
            
            15,734Obligations
      under capital   lease
            
            
            7.16
            
            
            
            37
            
            
            
            83
            
            
            
            127
            
            
            
            458
            
            
            
            1,981
            
            
            
            2,686
            
            
            
            2,686Total
      liabilities
            
            
            
            
            
            
            407,241
            
            
            
            183,373
            
            
            
            167,252
            
            
            
            2,689
            
            
            
            24,662
            
            
            
            785,217
            
            
            
            781,232Interest
      sensitivity gap
            
            
            
            
            
            
            (85,390
            )
            
            
            (83,372
            )
            
            
            (78,148
            )
            
            
            214,984
            
            
            
            49,232
            
            
            $
            17,306
            
            
            $
            40,214Cumulative
      interest sensitivity gap
            
            
            
            
            
            $
            (85,390
            )
            
            $
            (168,762
            )
            
            $
            (246,910
            )
            
            $
            (31,926
            )
            
            $
            17,306Off-Balance
      Sheet Items:Commitments
      to extend credit
            
            
            -
            
            
            $
            44,261
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            44,261
            
            
            
            -Unused
      lines of credit
            
            
            -
            
            
            $
            159,152
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            159,152
            
            
            
            -




(1)
Includes loans held for sale


45


Item
8.   Financial Statements and Supplementary
Data





RIVERVIEW
BANCORP, INC. AND SUBSIDIARY




Consolidated
Financial Statements for the Years Ended March 31, 2008, 2007 and
2006


Report of
Independent Registered Public Accounting Firm








TABLE
      OF CONTENTSPageReport
      of Independent Registered Public Accounting Firm – Deloitte & Touche
      LLP
            47Consolidated
      Balance Sheets as of March 31, 2008 and 2007
            48Consolidated
      Statements of Income for the Years Ended March 31, 2008, 2007 and
      2006
            49Consolidated
      Statements of Shareholders’ Equity for the Years Ended March 31, 2008,
      2007 and 2006
            50Consolidated
      Statements of Cash Flows for the Years Ended March 31, 2008, 2007 and
      2006
            51Notes
      to Consolidated Financial Statements
            52





46




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, 2008 and 2007, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended March 31, 2008.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these 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, 2008 and 2007 and the results of their operations and their cash flows
for each of the three years in the period ended March 31, 2008, 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, 2008, 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 June 12, 2008 expressed an unqualified
opinion on the Company's internal control over financial reporting.








Portland,
Oregon


June 12,
2008




47







RIVERVIEW
BANCORP, INC. AND SUBSIDIARY




CONSOLIDATED
BALANCE SHEETS


MARCH
31, 2008 AND 2007





(Dollars
      in thousands, except share data)
            
            2008
            
            
            2007ASSETSCash
      (including interest-earning accounts of $14,238and
      $7,818)
            
            $
            36,439
            
            
            $
            31,423Investment
      securities available for sale, at fair value
              (amortized
      cost of $7,825 and $19,258)
            
            
            7,487
            
            
            
            19,267Mortgage-backed
      securities held to maturity, at amortized
              cost
      (fair value of $892 and $1,243)
            
            
            885
            
            
            
            1,232Mortgage-backed
      securities available for sale, at fair value
              (amortized
      cost of $5,331 and $6,778)
            
            
            5,338
            
            
            
            6,640Loans
      receivable (net of allowance for loan losses of $10,687
              and
      $8,653)
            
            
            756,538
            
            
            
            682,951Real
      estate and other personal property owned
            
            
            494
            
            
            
            -Prepaid
      expenses and other assets
            
            
            2,679
            
            
            
            1,905Accrued
      interest receivable
            
            
            3,436
            
            
            
            3,822Federal
      Home Loan Bank stock, at cost
            
            
            7,350
            
            
            
            7,350Premises
      and equipment, net
            
            
            21,026
            
            
            
            21,402Deferred
      income taxes, net
            
            
            4,571
            
            
            
            4,108Mortgage
      servicing rights, net
            
            
            302
            
            
            
            351Goodwill
            
            
            25,572
            
            
            
            25,572Core
      deposit intangible, net
            
            
            556
            
            
            
            711Bank
      owned life insurance
            
            
            14,176
            
            
            
            13,614TOTAL
      ASSETS
            
            $
            886,849
            
            
            $
            820,348LIABILITIES
      AND SHAREHOLDERS’ EQUITYLIABILITIES:Deposit
      accounts
            
            $
            667,000
            
            
            $
            665,405Accrued
      expenses and other liabilities
            
            
            8,654
            
            
            
            9,349Advance
      payments by borrowers for taxes and insurance
            
            
            393
            
            
            
            397Federal
      Home Loan Bank advances
            
            
            92,850
            
            
            
            35,050Junior
      subordinated debentures
            
            
            22,681
            
            
            
            7,217Capital
      lease obligation
            
            
            2,686
            
            
            
            2,721Total
      liabilities
            
            
            794,264
            
            
            
            720,139COMMITMENTS
      AND CONTINGENCIES (See Note 19)
            
            
            -
            
            
            
            -SHAREHOLDERS’
      EQUITY:Serial
      preferred stock, $.01 par value; 250,000 authorized,
              issued
      and outstanding, none
            
            
            -
            
            
            
            -Common
      stock, $.01 par value; 50,000,000 authorized,issued
      and outstanding:2008
      – 10,913,773 issued and outstanding
            
            
            109
            
            
            
            1172007
      – 11,707,980 issued and outstandingAdditional
      paid-in capital
            
            
            46,799
            
            
            
            58,438Retained
      earnings
            
            
            46,871
            
            
            
            42,848Unearned
      shares issued to employee stock ownership trust
            
            
            (976
            )
            
            
            (1,108
            )Accumulated
      other comprehensive loss
            
            
            (218
            )
            
            
            (86
            )Total
      shareholders’ equity
            
            
            92,585
            
            
            
            100,209TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            886,849
            
            
            $
            820,348


See
notes to consolidated financial statements.


48


RIVERVIEW
BANCORP, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF INCOME


YEARS
ENDED MARCH 31, 2008, 2007 AND 2006





(Dollars in thousands, except share data)
            
            2008
            
            
            2007
            
            
            2006INTEREST
      AND DIVIDEND INCOME:Interest
      and fees on loans receivable
            
            $
            58,747
            
            
            $
            59,496
            
            
            $
            45,039Interest
      on investment securities – taxable
            
            
            488
            
            
            
            854
            
            
            
            809Interest
      on investment securities – non taxable
            
            
            142
            
            
            
            163
            
            
            
            170Interest
      on mortgage-backed securities
            
            
            323
            
            
            
            421
            
            
            
            530Other
      interest and dividends
            
            
            982
            
            
            
            366
            
            
            
            681Total
      interest and dividend income
            
            
            60,682
            
            
            
            61,300
            
            
            
            47,229INTEREST
      EXPENSE:Interest
      on deposits
            
            
            22,143
            
            
            
            20,507
            
            
            
            12,383Interest
      on borrowings
            
            
            3,587
            
            
            
            4,275
            
            
            
            2,494Total
      interest expense
            
            
            25,730
            
            
            
            24,782
            
            
            
            14,877Net
      interest income
            
            
            34,952
            
            
            
            36,518
            
            
            
            32,352Less
      provision for loan losses
            
            
            2,900
            
            
            
            1,425
            
            
            
            1,500Net
      interest income after provision for loan losses
            
            
            32,052
            
            
            
            35,093
            
            
            
            30,852NON-INTEREST
      INCOME:Fees
      and service charges
            
            
            5,346
            
            
            
            5,747
            
            
            
            5,913Asset
      management fees
            
            
            2,145
            
            
            
            1,874
            
            
            
            1,481Net
      gain on sale of loans held for sale
            
            
            368
            
            
            
            434
            
            
            
            361Loan
      servicing income
            
            
            126
            
            
            
            155
            
            
            
            91Gain
      of sale of credit card portfolio
            
            
            -
            
            
            
            133
            
            
            
            311Bank
      owned life insurance
            
            
            562
            
            
            
            522
            
            
            
            485Other
            
            
            335
            
            
            
            169
            
            
            
            195Total
      non-interest income
            
            
            8,882
            
            
            
            9,034
            
            
            
            8,837NON-INTEREST
      EXPENSE:Salaries
      and employee benefits
            
            
            16,249
            
            
            
            15,012
            
            
            
            14,536Occupancy
      and depreciation
            
            
            5,146
            
            
            
            4,687
            
            
            
            3,798Data
      processing
            
            
            786
            
            
            
            988
            
            
            
            1,414Amortization
      of core deposit intangible
            
            
            155
            
            
            
            184
            
            
            
            210Advertising
      and marketing expense
            
            
            1,054
            
            
            
            1,102
            
            
            
            853FDIC
      insurance premium
            
            
            210
            
            
            
            74
            
            
            
            70State
      and local taxes
            
            
            741
            
            
            
            644
            
            
            
            580Telecommunications
            
            
            406
            
            
            
            437
            
            
            
            395Professional
      fees
            
            
            826
            
            
            
            809
            
            
            
            1,328Other
            
            
            2,218
            
            
            
            2,416
            
            
            
            2,190Total
      non-interest expense
            
            
            27,791
            
            
            
            26,353
            
            
            
            25,374INCOME
      BEFORE INCOME TAXES
            
            
            13,143
            
            
            
            17,774
            
            
            
            14,315PROVISION
      FOR INCOME TAXES
            
            
            4,499
            
            
            
            6,168
            
            
            
            4,577NET
      INCOME
            
            $
            8,644
            
            
            $
            11,606
            
            
            $
            9,738Earnings
      per common share:Basic
            
            $
            0.79
            
            
            $
            1.03
            
            
            $
            0.87Diluted
            
            
            0.79
            
            
            
            1.01
            
            
            
            0.86Weighted
      average number of shares outstanding:Basic
            
            
            10,915,271
            
            
            
            11,312,847
            
            
            
            11,204,479Diluted
            
            
            11,006,673
            
            
            
            11,516,232
            
            
            
            11,350,335


See notes to consolidated financial
statements.






49




RIVERVIEW
BANCORP, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY


YEARS
ENDED MARCH 31, 2008, 2007 AND 2006


Common
      Stock
            
            
            Additional 
      Paid-In
            
            
            Retained
            
            
            Unearned
              Shares
              Issued
      to
              Employee
              Stock
              Ownership
            
            
            Accumulated
              Other 
       Comprehensive(Dollars in thousands, except
      share data)
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Earnings
            
            
            Trust
            
            
            Loss
            
            
            TotalBalance
      April 1, 2005
            
            
            10,031,498
            
            
            $50
            
            
            $41,112
            
            
            $
            29,874
            
            
            $
            (1,392
            )
            
            $
            (122
            )
            
            $69,522Cash
      dividends ($0.34 per share)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,836
            )
            
            
            -
            
            
            
            -
            
            
            
            (3,836
            )Exercise
      of stock options
            
            
            37,144
            
            
            
            -
            
            
            
            314
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            314Stock
      repurchased and retired
            
            
            (100,000
            )
            
            
            -
            
            
            
            (1,227
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,227
            )Stock
      issued in connection with acquisition
            
            
            1,576,730
            
            
            
            7
            
            
            
            16,706
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            16,713Earned
      ESOP shares
            
            
            -
            
            
            
            -
            
            
            
            352
            
            
            
            -
            
            
            
            206
            
            
            
            -
            
            
            
            558Tax
      benefit, stock options
            
            -
            
            
            -
            
            
            59
            
            
            -
            
            
            -
            
            
            -
            
            
            5911,545,372
            
            
            
            57
            
            
            
            57,316
            
            
            
            26,038
            
            
            
            (1,186
            )
            
            
            (122
            )
            
            
            82,103Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            9,738
            
            
            
            -
            
            
            
            -
            
            
            
            9,738Other
      comprehensive income:Unrealized
      holding loss onsecurities
      of $154  (net of $79 tax effect)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (154
            )
            
            (154
            )Total
      comprehensive income
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            9,584Balance
      March 31, 2006
            
            
            11,545,372
            
            
            
            57
            
            
            
            57,316
            
            
            
            35,776
            
            
            
            (1,186
            )
            
            
            (276
            )
            
            
            91,687Stock
      split
            
            
            -
            
            
            
            58
            
            
            
            -
            
            
            
            (58
            )
            
            
            -
            
            
            
            -
            
            
            
            -Cash
      dividends ($0.395 per share)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (4,476
            )
            
            
            -
            
            
            
            -
            
            
            
            (4,476
            )Exercise
      of stock options
            
            
            212,054
            
            
            
            2
            
            
            
            878
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            880Stock
      repurchased and retired
            
            
            (49,446
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Earned
      ESOP shares
            
            
            -
            
            
            
            -
            
            
            
            196
            
            
            
            -
            
            
            
            78
            
            
            
            -
            
            
            
            274Tax
      benefit, stock options
            
            -
            
            
            -
            
            
            48
            
            
            -
            
            
            -
            
            
            -
            
            
            4811,707,980
            
            
            
            117
            
            
            
            58,438
            
            
            
            31,242
            
            
            
            (1,108
            )
            
            
            (276
            )
            
            
            88,413Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            11,606
            
            
            
            -
            
            
            
            -
            
            
            
            11,606Other
      comprehensive income:Unrealized
      holding gain onsecurities
      of $190  (net of $99 tax effect)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            190
            
            
            190Total
      comprehensive income
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            11,796Balance
      March 31, 2007
            
            
            11,707,980
            
            
            
            117
            
            
            
            58,438
            
            
            
            42,848
            
            
            
            (1,108
            )
            
            
            (86
            )
            
            
            100,209Cash
      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
            )FIN
      48 transition adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (65
            )
            
            
            -
            
            
            
            -
            
            
            
            (65
            )Earned
      ESOP shares
            
            
            -
            
            
            
            -
            
            
            
            282
            
            
            
            -
            
            
            
            132
            
            
            
            -
            
            
            
            414Tax
      benefit, stock options
            
            -
            
            
            -
            
            
            6
            
            
            -
            
            
            -
            
            
            -
            
            
            610,913,773
            
            
            
            109
            
            
            
            46,799
            
            
            
            38,227
            
            
            
            (976
            )
            
            
            (86
            )
            
            
            84,073Comprehensive
      income:Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,644
            
            
            
            -
            
            
            
            -
            
            
            
            8,644Other
      comprehensive income:Unrealized
      holding loss onsecurities
      of $132  (net of $69 tax effect)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (132
            )
            
            (132
            )Total
      comprehensive income
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8,512Balance
      March 31, 2008
            
            10,913,773
            
            
            $109
            
            
            $46,799
            
            
            $46,871
            
            
            $(976
            )
            
            $(218
            )
            
            $92,585


See
notes to consolidated financial statements.


50


RIVERVIEW
BANCORP, INC. AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWS


YEARS
ENDED MARCH 31, 2008, 2007 AND 2006


D(Dollars
      in thousands)
            2008
            2007
            2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
            $    8,644
            $   11,606
            $     9,738Adjustments
      to reconcile net income to cash provided by operating
      activities:Depreciation
      and amortization
            2,193
            2,258
            1,907Mortgage
      servicing rights valuation adjustment
            (28)
            (25)
            (24)Provision
      for loan losses
            2,900
            1,425
            1,500Benefit
      for deferred income taxes
            (395)
            (436)
            (704)Noncash
      expense related to ESOP
            414
            274
            558Noncash
      interest expense on capital lease obligation
            -
            -
            49Increase
      (decrease) in deferred loan origination fees, net of
      amortization
            51
            (407)
            933Origination
      of loans held for sale
            (14,829)
            (16,966)
            (17,308)Proceeds
      from sales of loans held for sale
            14,895
            17,116
            17,786Excess
      tax benefit from stock based compensation
            (14)
            (67)
            -Writedown
      of real estate owned
            9
            -
            -Net
      gain on loans held for sale, sale of real estate owned,
              mortgage-backed
      securities, investment securities and premises and
    equipment
            (361)
            (422)
            (363)Income
      from bank owned life insurance
            (562)
            (522)
            (485)Changes
      in assets and liabilities, net of acquisition:Prepaid
      expenses and other assets
            206
            397
            (455)Accrued
      interest receivable
            386
            (764)
            (371)Accrued
      expenses and other liabilities
            (956)
            437
            2,488Net
      cash provided by operating activities
            12,553
            13,904
            15,249CASH
      FLOWS FROM INVESTING ACTIVITIES:Loan
      originations, net
            (76,838)
            (60,707)
            (76,216)Proceeds
      from call, maturity, or sale of investment securities available for
      sale
            11,360
            4,850
            5,250Principal
      repayments on investment securities available for sale
            75
            75
            37Purchase
      of investment securities available for sale
            -
            -
            (4,996)Principal
      repayments on mortgage-backed securities available for
sale
            1,447
            1,658
            3,320Principal
      repayments on mortgage-backed securities held to maturity
            347
            572
            538Purchase
      of premises and equipment and capitalized software
            (1,629)
            (4,334)
            (8,087)Acquisition,
      net of cash received
            -
            -
            (14,663)Proceeds
      from sale of real estate owned and premises and equipment
            6
            3
            275Net
      cash used by investing activities
            (65,232)
            (57,883)
            (94,542)CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      change in deposit accounts, net of deposits acquired
            1,595
            58,441
            70,331Dividends
      paid
            (4,740)
            (4,289)
            (3,631)Repurchase
      of common stock
            (12,643)
            -
            (1,228)Proceeds
      from issuance of subordinated debentures
            15,000
            -
            7,000Proceeds
      from borrowings
            366,500
            559,350
            150,100Repayment
      of borrowings
            (308,700)
            (570,400)
            (174,000)Principal
      payments under capital lease obligation
            (35)
            (32)
            (10)Net
      increase (decrease) in advance payments by borrowers
            (4)
            39
            44Excess
      tax benefit from stock based compensation
            14
            67
            -Proceeds
      from exercise of stock options
            708
            880
            314Net
      cash provided by financing activities
            57,695
            44,056
            48,920NET
      INCREASE (DECREASE) IN CASH
            5,016
            77
            (30,373)CASH,
      BEGINNING OF YEAR
            31,423
            31,346
            61,719CASH,
      END OF YEAR
            $   36,439
            $   31,423
            $   31,346SUPPLEMENTAL
      DISCLOSURES:Cash
      paid during the year for:Interest
            $   25,511
            $   24,347
            $   14,663Income
      taxes
            4,639
            7,025
            5,206NONCASH
      INVESTING AND FINANCING ACTIVITIES:Transfer
      of loans to real estate owned, net
            $        503
            $             -
            $             -Dividends
      declared and accrued in other liabilities
            960
            1,144
            955Fair
      value adjustment to securities available for sale
            (201)
            289
            (234)Income
      tax effect related to fair value adjustment
            69
            (99)
            79Common
      stock issued upon business combination
            -
            -
            16,713Borrowings
      under capital lease obligation
            -
            -
            2,715Premises
      and equipment purchases included in accounts payable
            70
            64
            -Capitalized
      software acquired under a service agreement
            417
            -
            -


See notes to consolidated financial
statements.




51


RIVERVIEW BANCORP, INC. AND
      SUBSIDIARY

                  NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS
      ENDED MARCH 31, 2008 AND
2007





1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Principles of
Consolidation – The accompanying consolidated financial statements
include the accounts of Riverview Bancorp, Inc. (“Bancorp” or 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 12). In accordance with the
requirements of Financial Accounting Standards Board Interpretation No. 46
(revised), Consolidation of
Variable Interest Entities (as amended), the accounts and transactions of
the trusts are not included in the accompanying consolidated financial
statements.





Nature of
Operations – The Bank is an eighteen 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 real
estate mortgage loans, real estate construction loans, commercial loans, 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”), 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
Flows – Cash includes amounts on hand, due from banks and
interest-earning deposits in other banks.





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 the 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– In accordance with Statement of Financial Accounting Standards (“SFAS”)
No. 115, Accounting for
Certain Investments in Debt and Equity 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 an 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 Bank’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.




52





The
Company analyzes investment securities for other than temporary impairment on a
periodic basis. Declines in fair value that are deemed other than temporary, if
any, 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 continuing analysis 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 also classified as impaired, an
allowance is established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan is lower than the carrying value
of that loan. The general component covers non-classified 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, 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.





In
accordance with SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, and SFAS No. 118, An Amendment of SFAS No. 114,
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. When a loan has
been identified as being impaired, the amount of the impairment is measured by
using discounted cash flows, except when, as a practical expedient, the current
fair value of the collateral, reduced by costs to sell, is used. 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






53


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. These factors may result in losses or recoveries differing
significantly from those provided in the consolidated financial statements. 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 operations 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 recorded amount of FHLB stock equals
its fair value because the shares can only be redeemed by the FHLB at the $100
per share value.





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 estimated useful lives as
follows:





Buildings
      and improvements
            3
      to 45 yearsFurniture
      and equipment
            3
      to 20 yearsLeasehold
      improvements
            15 to 25 years





The
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.





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 mortgage servicing rights at fair value in
accordance with SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, 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






54


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.





The MSRs
are periodically reviewed 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.  If the fair value
exceeds the carrying value, goodwill at the subsidiary is not considered
impaired and no additional analysis is necessary.  As of March 31,
2008, 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
$330.5 million and $285.6  million were held in trust as of March 31,
2008 and 2007, respectively.





Earnings Per
Share– The Company accounts for earnings per share in accordance with
SFAS No. 128, Earnings Per Share, 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
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 and the shares issued
under the Company’s Management Recognition and Development Plan
(“MRDP”).





Stock Split– On August 24, 2006, Riverview Bancorp. Inc. common stock was split
2-for-1 in the form of a 100% stock dividend. Shareholders received one
additional share for every share owned. The Board of Directors (“Board”)
declared the stock split on July 27, 2006 and the record date was August 10,
2006. All share and per share amounts (including stock options) in the
consolidated financial statements and accompanying notes were restated to
reflect the split, except as otherwise noted.


55


Stock-Based
Compensation– Prior to April 1, 2006, the Company accounted for
stock-based compensation arrangements under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations.  Under this method, no
compensation expense was recognized for the year ended March 31, 2006, as the
exercise price of each stock option which the Company granted was equal to the
market value of the underlying common stock on the date of grant.





Effective
April 1, 2006, the Company adopted SFAS No. 123 (Revised)(SFAS 123R), Share-Based
Payment.  SFAS 123R requires the measurement of compensation
cost for all stock-based awards to be based on the grant-date fair value and
recognition of compensation cost over the service period of stock-based awards,
which is generally the same as the vesting period.  The fair value of
stock options is determined using the Black-Scholes valuation model, which is
consistent with the Company’s valuation methodology previously utilized for
stock options in the footnote disclosures required under SFAS No. 123 Accounting for Stock-Based
Compensation.





The
Company has adopted SFAS 123R using a modified version of prospective
application (modified prospective application). Under modified prospective
application, as it is applicable to the Company, SFAS 123R applies to new awards
and to awards modified, repurchased or cancelled after April 1,
2006.  Additionally, compensation cost for the portion of awards for
which the requisite service has not been rendered that are outstanding as of
April 1, 2006, must be recognized as the remaining requisite service is rendered
during the period of and/or the periods after the adoption of SFAS
123R.  The attribution of compensation cost for those earlier awards
will be based on the same method and on the same grant-date fair values
previously determined for the proforma disclosures required for companies that
did not adopt the fair value accounting method for stock-based employee
compensation.  Modified prospective application provides for no
retroactive application to prior periods and no cumulative adjustment to equity
accounts.




The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions established in
SFAS 123R to stock based compensation awards for the year ended March 31, 2006
(dollars in thousands, except per share amounts):





Net
      income:As
      reported
            $
      9,738Deduct:
      Total stock based compensation
              expense
      determined under fair value
              based
      method for all options, net of
              related
      tax benefit
            (1,345)Pro
      forma
            $ 8,393Earnings
      per common share – basic:As
      reported
            $  0.87Pro
      forma
            0.75Earnings
      per common share – fully diluted:As
      reported
            $  0.86Pro
      forma
            0.74





Employee Stock
Ownership Plan– The Company sponsors a leveraged ESOP. The ESOP is
accounted for in accordance with the AICPA Statement of Position ("SOP") 93-6,
Employer's Accounting for
Employee Stock Ownership Plans.  Stock and cash dividends on
allocated shares are recorded as a reduction of additional paid in capital and
paid directly to plan participants or distributed directly to participants'
accounts. 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, 2008, 2007 and 2006.





Acquisitions -
Acquisitionsare
accounted for in accordance with SFAS 141, Business Combinations under
the purchase method of accounting, which allocates costs to assets purchased and
liabilities assumed at their estimated fair market values.  The
results of operations subsequent to the date of acquisition are included in the
consolidated financial statements of the Company.






56





New Accounting
Pronouncements -
In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109 (“FIN
48”).  FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.  FIN 48
requires the recognition, in the financial statements, of the impact of the tax
position, if that position is more likely than not of being sustained on audit,
based on the technical merits of the position.  FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods and disclosure.  The Company adopted FIN 48 at the
beginning of fiscal year 2008.  The adoption of FIN 48 did not have a
material impact on the Company.  At the date of adoption, the Company
had unrecognized tax benefits related to its state filing positions of $90,000
that, if recognized, would affect the Company’s effective tax rate by
$65,000.  The Company recorded an adjustment to retained earnings (net
of federal benefits) for these uncertain tax positions totaling $65,000,
inclusive of interest and penalties.  The Company’s policy is to
recognize potential accrued interest and penalties related to unrecognized tax
benefits as income tax expense.  At March 31, 2008, the Company had
accrued $11,000 of possible interest and penalties.  The tax years
2003 – 2006 remain open to examination by the major taxing jurisdictions to
which the Company is subject.  As of March 31, 2008, the Company
recognized an additional $22,000 for its state filing positions.  This
adjustment was recorded in provision for income taxes in the consolidated
statements of income.





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No. 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements. The provisions of this standard apply to other accounting
pronouncements that require or permit fair value measurements. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. Management is
currently evaluating the impact on the Company’s financial position, results of
operations and cash flows upon adoption of SFAS No. 157.





In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS No. 159 permits companies to
choose, at specified election dates, to measure eligible items at fair value.
The standard is designed to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently. SFAS No. 159 is effective
for fiscal years beginning after November 15, 2007. Management is currently
evaluating the impact on the Company’s financial position, results of operations
and cash flows upon adoption of SFAS No. 159.





In
December 2007, the FASB issued SFAS No. 141 (Revised), Business
Combinations.  SFAS No. 141(R) establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and the
goodwill acquired.  The standard also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the
business combination.  SFAS No. 141(R) is effective for fiscal years
beginning after December 15, 2008.  Management is currently evaluating
the potential impact on the Company’s financial position, results of operations
and cash flows of SFAS No. 141(R).





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment to ARB No.
51.  SFAS No. 160 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.   SFAS No. 160 is effective for fiscal years
beginning after December 15, 2008.  Management is currently evaluating
the potential impact on the Company’s financial position, results of operations
and cash flows of SFAS No. 160.














57
















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, based on a
percentage of deposits. The amounts of such balances as of March 31, 2008 and
2007 were $476,000 and $258,000, respectively.





3.
            ACQUISITION





On April
22, 2005, the Company completed the acquisition of American Pacific Bank
("APB"), a commercial bank located in Portland, Oregon.  The cost to
acquire APB's 2,804,618 shares of common stock was a payment in cash for
1,404,000 shares at a transaction value of $11.94 per share and the issuance of
1,576,730 shares of the Company's common stock at a price of $10.60 per share
for the remaining 1,400,618 shares.  All APB stock options were cashed
out at a cost of $873,240, the difference between the transaction value of
$11.94 per share and the options' respective exercise prices prior to completion
of the merger.  The acquisition was accounted for using the purchase
method of accounting and, accordingly, the assets and liabilities of APB were
recorded at their respective fair values. The resulting core deposit intangible
is being amortized using an accelerated method over ten years.  The
excess of the purchase price over net fair value of the assets and liabilities
acquired was recorded as goodwill in the amount of $17.1
million.  Goodwill is not tax deductible because the transaction is
nontaxable for Internal Revenue Service purposes.  The purchased
assets and assumed liabilities were recorded as follows (in
thousands):








AssetsCash
            $     3,433Investments
            1,417Building
      and equipment
            1,080Loans
            119,536Core
      deposit intangible
            526Goodwill
            16,359Other,
      net
            2,547Total
      assets
            144,898LiabilitiesDeposits
            (79,755)Borrowings
            (29,882)Other
      liabilities
            (452)Total
      liabilities
            (110,089)Net
      assets
            $   34,809Less:Stock
      issued in acquisition
            (16,713)Cash
      acquired
            (3,433)Cash
      used in acquisition, net of cash acquired
            $   14,663





Subsequent
to the acquisition, tax amounts were adjusted as part of the allocation of the
purchase price. At March 31, 2006, the goodwill asset recorded in connection
with the APB acquisition was $16.4 million.

















58

















4.
            INVESTMENT
      SECURITIES





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, 2008Trust
      Preferred
            
            $    5,000
            $         -
            $    (388)
            $    4,612Municipal
      bonds
            
            2,825
            50
            -
            2,875Total
            
            $    7,825
            $        50
            $    (388)
            $    7,487March 31, 2007Trust
      Preferred
            
            $    5,000
            $        19
            $        -
            $    5,019Agency
      securities
            
            10,784
            -
            (44)
            10,740Municipal
      bonds
            
            3,474
            34
            -
            3,508Total
            
            $  19,258
            $        53
            $    (44)
            $  19,267





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, 2008 are as
follows (in thousands):





Less
      than 12 months
            12
      months or longer
            TotalDescription
      of Securities
            Fair
              Value
            Unrealized
              Losses
            Fair
              Value
            Unrealized
              Losses
            Fair
              Value
            Unrealized
              LossesTrust
      Preferred
            $    4,612
            $    (388)
            $          -
            $          -
            $    4,612
            $    (388)





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, 2007 are as
follows (in thousands):





Less
      than 12 months
            12
      months or longer
            TotalDescription
      of Securities
            Fair
              Value
            Unrealized
              Losses
            Fair
              Value
            Unrealized
              Losses
            Fair
              Value
            Unrealized
              LossesAgency
      securities
            $        -
            $        -
            $10,740
            $(44)
            $10,740
            $(44)





The
Company has evaluated these securities and has determined that the decline in
the value is temporary. The decline in value is not related to any company or
industry specific event.  The value of most of the Company’s
securities fluctuates as market interest rates change. The Company anticipates
full recovery of amortized cost with respect to these securities at maturity or
sooner in the event of a more favorable market interest rate environment. The
Company has the ability and intent to hold securities with unrealized losses
until their values recover.




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




Amortized
              Cost
            Estimated
              Fair ValueMarch 31, 2008Due
      in one year or less
            
            $        484
            $        491Due
      after one year through five years
            
            530
            547Due
      after five years through ten years
            
            619
            645Due
      after ten years
            
            6,192
            5,804Total
            
            $     7,825
            $     7,487








Investment
securities with an amortized cost of $5.8 million and a fair value $5.8 million
at March 31, 2007, were pledged as collateral for advances at the FHLB.
Investment securities with an amortized cost of $1.1 million and a fair value of
$1.2 million at March 31, 2008 and 2007, respectively, were pledged as
collateral for treasury tax and loan funds held by the Bank. Investment
securities with an amortized cost of $484,000 and $490,000 and a fair value of




59




$491,000
and $495,000 at March 31, 2008 and 2007, respectively, were pledged as
collateral for government public funds held by the Bank. Investment securities
with an amortized cost of $5.0 million and a fair value $5.0 million March 31,
2007 were pledged as collateral for borrowings from the discount window at the
Federal Reserve Bank.





The
Company realized no gains or losses on sales of investment securities available
for sale in fiscal years 2008, 2007 and 2006.





5.
            MORTGAGE-BACKED
      SECURITIES





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


March 31, 2008
            
            Amortized
              Cost
            Gross
      Unrealized
              Gains
            Gross
              Unrealized
              Losses
            Estimated
              Fair
              ValueReal
      estate mortgage investment conduits
            
            $      624
            $          2
            $          -
            $       626FHLMC
      mortgage-backed securities
            
            104
            1
            -
            105FNMA
      mortgage-backed securities
            
            157
            4
            -
            161Total
            
            $      885
            $          7
            $          -
            $       892March 31, 2007Real
      estate mortgage investment conduits
            
            $      923
            $          6
            $          -
            $       929FHLMC
      mortgage-backed securities
            
            116
            1
            -
            117FNMA
      mortgage-backed securities
            
            193
            4
            -
            197Total
            
            $   1,232
            $        11
            $          -
            $    1,243





Mortgage-backed
securities held to maturity with an amortized cost of $631,000 and $931,000 and
a fair value of $633,000 and $938,000 at March 31, 2008 and 2007, respectively,
were pledged as collateral for governmental public funds held by the Bank.
Mortgage-backed securities held to maturity with an amortized cost of $138,000
and $143,000 and a fair value of $141,000 and $144,000 at March 31, 2008 and
2007, 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, 2008
            
            Amortized
              Cost
            Estimated
              Fair ValueDue
      in one year or less
            
            $          -
            $          -Due
      after one year through five years
            
            -
            -Due
      after five years through ten years
            
            12
            13Due
      after ten years
            
            873
            879Total
            
            $      885
            $      892


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




March 31, 2008
            
            Amortized
              Cost
            Gross
      Unrealized
              Gains
            Gross
      Unrealized
              Losses
            Estimated
              Fair
              ValueReal
      estate mortgage investment conduits
            
            $        851
            $           8
            $         (1)
            $       858FHLMC
      mortgage-backed securities
            
            4,393
            1
            (4)
            4,390FNMA
      mortgage-backed securities
            
            87
            3
            -
            90Total
            
            $     5,331
            $         12
            $         (5)
            $    5,338March 31, 2007Real
      estate mortgage investment conduits
            
            $     1,070
            $         15
            $         (2)
            $    1,083FHLMC
      mortgage-backed securities
            
            5,592
            -
            (153)
            5,439FNMA
      mortgage-backed securities
            
            116
            2
            -
            118Total
            
            $     6,778
            $         17
            $     (155)
            $    6,640








60


The fair
value of temporarily impaired mortgage-backed securities, the amount of
unrealized losses and the length of time these unrealized losses existed as of
March 31, 2008 are as follows (in thousands):





Less
      than 12 months
            12
      months or longer
            TotalDescription
      of Securities
            Fair
              Value
            Unrealized
              Losses
            Fair
              Value
            Unrealized
              Losses
            Fair
              Value
            Unrealized
              LossesReal
      estate mortgage investment conduits
            $   501
            $       (1)
            $        -
            $        -
            $    501
            $       (1)FHLMC
      mortgage-backed
              securities
            -
            -
            2,393
            (4)
            2,393
            (4)Total
      temporarily impaired securities
            $   501
            $       (1)
            $ 2,393
            $      (4)
            $2,894
            $       (5)





The fair
value of temporarily impaired mortgage-backed securities, the amount of
unrealized losses and the length of time these unrealized losses existed as of
March 31, 2007 as follows (in thousands):





Less
      than 12 months
            12
      months or longer
            TotalDescription
      of Securities
            
            Fair
              Value
            Unrealized
              Losses
            Fair
              Value
            Unrealized
              Losses
            Fair
              Value
            Unrealized
              LossesReal
      estate mortgage investment conduits
            
            $        -
            $        -
            $    407
            $       (2)
            $    407
            $      (2)FHLMC
      mortgage-backed securities
            
            -
            -
            5,439
            (153)
            5,439
            (153)FNMA
      mortgage-backed   securities
            
            2
            -
            -
            -
            2
            -Total
      temporarily impaired securities
            
            $       2
            $        -
            $ 5,846
            $   (155)
            $ 5,848
            $  (155)







The
Company has evaluated these securities and has determined that the decline in
the value is temporary. The decline in value is not related to any company or
industry specific event. The value of most of the Company’s securities
fluctuates as market interest rates change. The Company anticipates full
recovery of amortized cost with respect to these securities at maturity or
sooner in the event of a more favorable market interest rate environment. The
Company has the ability and intent to hold securities with unrealized losses
until their values recover. The Company realized no gains or losses on sale of
mortgage-backed securities available for sale in fiscal years 2008, 2007 and
2006.  The Company does not believe that it has any exposure to
sub-prime lending in its mortgage-backed security portfolio.




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







March 31, 2008
            
            Amortized
              Cost
            Estimated
              Fair ValueDue
      in one year or less
            
            $       31
            $       31Due
      after one year through five years
            
            -
            -Due
      after five years through ten years
            
            4,773
            4,780Due
      after ten years
            
            527
            527Total
            
            $   5,331
            $   5,338





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 $5.2 million and $6.7
million and a fair value of $5.2 million and $6.5 million at March 31, 2008 and
2007, respectively, were pledged as collateral for advances at the
FHLB.  Mortgage-backed securities available for sale with an amortized
cost of $62,000 and a fair value of $64,000 at March 31, 2008 were pledged as
collateral for government public funds held by the Bank.






61











6.
            LOANS
      RECEIVABLE





A summary
of the major categories of loans outstanding is shown in the following
table.  Outstanding loan balances at March 31, 2008 and 2007 are net
of unearned income, including net deferred loan fees of $3.5 million and $3.7
million, respectively.





Loans
receivable excluding loans held for sale consisted of the following (in
thousands):








March
      31 ,2008
            2007Commercial
      and constructionCommercial
            $109,585
            $  91,174Other
      real estate mortgage
            429,422
            360,930Real
      estate construction
            148,631
            166,073Total
      commercial and construction
            687,638
            618,177ConsumerReal
      estate one-to-four family
            75,922
            69,808Other
      installment
            3,665
            3,619Total
      consumer
            79,587
            73,427Total
      loans
            767,225
            691,604Less:Allowance
      for loan losses
            10,687
            8,653Loans
      receivable, net
            $756,538
            $682,951







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.




The
Company originates commercial, commercial real estate, multi-family real estate,
real estate construction, residential real estate and consumer
loans.  Substantially all of the mortgage loans 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.




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





Year
      Ended March 31,2008
            2007
            2006Beginning
      balance
            $   185
            $       7
            $   408Originations
            360
            192
            5Principal
      repayments
            (127)
            (14)
            (406)Ending
      balance
            $   418
            $   185
            $       7











62


7.
            ALLOWANCE
      FOR LOAN LOSSES





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








Year
      Ended March 31,2008
            2007
            2006Beginning
      balance
            $  8,653
            $  7,221
            $  4,395Provision
      for losses
            2,900
            1,425
            1,500Charge-offs
            (905)
            (186)
            (711)Recoveries
            39
            193
            149Allowance
      transferred from APB acquisition
            -
            -
            1,888Ending
      balance
            $ 10,687
            $  8,653
            $  7,221





Changes
in the allowance for unfunded loan commitments were as follows (in
thousands):








Year
      Ended March 31,2008
            2007
            2006Beginning
      balance
            $  380
            $  362
            $  253Net
      change in allowance for unfunded loan commitments
            (43)
            18
            109Ending
      balance
            $  337
            $  380
            $  362





Loans on
which the accrual of interest has been discontinued were $7.6 million, $226,000
and $415,000 at March 31, 2008, 2007 and 2006, respectively. Interest income
foregone on non-accrual loans was $199,000, $12,000 and $21,000 during the years
ended March 31, 2008, 2007, and 2006, respectively,





At March
31, 2008 and 2007, non-performing assets were $8.2 million and $226,000,
respectively.





At March
31, 2008, 2007 and 2006, the Company’s recorded investment in certain loans that
were considered to be impaired was $7.2 million, $426,000, and $415,000
respectively. At March 31, 2008, all of the impaired loans had specific
valuation allowances totaling $902,000.  At March 31, 2007, $294,000
of the impaired loans had a specific related valuation allowance of $30,000,
while $132,000 did not require a specific valuation allowance.  At
March 31, 2006, none of the impaired loans required specific valuation
allowances.  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
$2.0 million, $959,000 and $889,000 during the years ended March 31, 2008, 2007
and 2006, respectively. The related amount of interest income recognized on
loans that were impaired was $65,000, $85,000 and $100,000 during the years
ended March 31, 2008, 2007 and 2006, respectively.  At March 31, 2008,
loans past due 90 days or more and still accruing interest totaled
$115,000.  There were no loans past due 90 days or more and still
accruing interest at March 31, 2007 and 2006.





8.
            PREMISES
      AND EQUIPMENT





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





March 
      31,2008
            
            2007Land
            $    3,878
            
            $    2,847Buildings
      and improvements
            13,067
            
            11,736Leasehold
      improvements
            1,996
            
            1,961Furniture
      and equipment
            10,151
            
            10,401Buildings
      under capitalized leases
            2,715
            
            2,715Construction
      in progress
            2
            
            1,798Total
            31,809
            
            31,458Less
      accumulated depreciation and amortization
            (10,783)
            
            (10,056)Premises
      and equipment, net
            $  21,026
            
            $  21,402









63




Depreciation
expense was $1.8 million, $1.8 million and $1.2 million for years ended March
31, 2008, 2007 and 2006, 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 for 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, 2008, 2007 and 2006 the Company has recorded $113,000, $113,000 and
$38,000, respectively, in amortization expense. At March 31, 2008 and 2007, the
Company had accumulated amortization of $263,000 and $150,000, respectively,
related to the capital lease.





The
following is a schedule of future minimum lease payments under capital leases
together with the present value of net minimum lease payments as of March 31,
2008 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,
2008 (in thousands):





Year
      Ending March 31:
            
            Operating
              Leases
            
            
            Capital
      Leases2009
            
            $1,669
            
            
            $2282010
            
            
            1,594
            
            
            
            2282011
            
            
            1,046
            
            
            
            2282012
            
            
            817
            
            
            
            2362013
            
            
            820
            
            
            
            251Thereafter
            
            3,693
            
            
            4,185Total
      minimum lease payments
            
            $9,639
            
            
            
            5,356Less
      amount representing interest
            
            
            
            
            
            (2,670
            )Present
      value of net minimum lease payments
            
            
            
            
            
            $2,686





Rent
expense was $1.9 million, $1.5 million and $1.6 million for the years ended
March 31, 2008, 2007 and 2006, respectively.





9.
            MORTGAGE
      SERVICING RIGHTS





The
following table is a summary of the activity in MSRs and the related valuation
allowance for the periods indicated and other related financial data (in
thousands):




March
      31,2008
            2007
            2006Balance
      at beginning of year, net
            $   351
            $   384
            $   470Additions
            139
            148
            123Amortization
            (216)
            (206)
            (233)Change
      in valuation allowance
            28
            25
            24Balance
      end of year, net
            $   302
            $   351
            $   384Valuation
      allowance at beginning of year
            $     35
            $     60
            $     84Change
      in valuation allowance
            (28)
            (25)
            (24)Valuation
      allowance balance at end of year
            $       7
            $     35
            $     60





The
Company evaluates MSRs for impairment by stratifying MSRs based on the
predominant risk characteristics of the underlying financial
assets.  At March 31, 2008 and 2007, the MSRs estimated fair value
totaled $1.0 million. The 2008 fair value was estimated using discount rate and
a range of PSA values (The Bond Market Association’s standard prepayment values)
that ranged from 87 to 618.  Total loans serviced for others were
$123.8 million, $130.6 million and $139.2 million at March 31, 2008, 2007 and
2006, respectively.








64














10.
            DEPOSIT
      ACCOUNTS





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





Account Type
            
            Weighted
      Average
              Rate
            March
      31,
              2008
            Weighted
      Average
              Rate
            March
      31,
              2007Non-interest-bearing
            
            0.00%
            $     82,121
            0.00%
            $     86,601Interest
      checking
            
            1.32
            102,489
            3.19
            144,451Money
      market
            
            2.39
            189,309
            4.62
            205,007Savings
      accounts
            
            0.55
            27,401
            0.55
            29,472Certificates
      of deposit
            
            4.29
            265,680
            4.69
            199,874Total
            
            2.61%
            $   667,000
            3.54%
            $   665,405





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 $127.8 million and $79.3
million at March 31, 2008 and 2007, respectively.





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





Year
      Ended March 31,2008
            
            2007
            
            2006Interest
      checking
            $  3,906
            
            $  4,364
            
            $  2,248Money
      market
            8,882
            
            6,971
            
            3,276Savings
      accounts
            151
            
            179
            
            213Certificates
      of deposit
            9,204
            
            8,993
            
            6,646Total
            $22,143
            
            $20,507
            
            $12,383





11.
            FEDERAL
      HOME LOAN BANK ADVANCES





At March
31, 2008 and 2007, advances from the FHLB totaled $92.9 million and $35.1
million with a weighted average interest rate of 3.35% and 5.66%,
respectively.  The FHLB borrowings at March 31, 2008 consisted of a
Cash Management Advance (CMA) with a rate set daily by the Federal Home Loan
Bank.  The weighted average interest rate for fixed and adjustable
rate advances was 4.32%, 5.26%, and 4.44% for the years ended March 31, 2008,
2007 and 2006, respectively.





The Bank
has a credit line with the FHLB equal to 30% of total assets, limited by
available collateral. At March 31, 2008, based on collateral values, the Bank
had additional borrowing capacity available of $65 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, 2008, loans carried at $319.8 million and investments and
mortgage-backed securities carried at $5.2 million were pledged as collateral to
the FHLB.





At March
31, 2008, all of the Bank’s FHLB advances were scheduled to mature during the
fiscal year 2009.





In
addition, the Bank has a Fed Funds borrowing facility with Pacific Coast
Bankers’ Bank with a guideline limit of $10 million through June 30,
2008.  The facility may be reduced or withdrawn at any
time.  As of March 31, 2008 the Bank did not have any outstanding
advances on this facility.














65








12.
            JUNIOR
      SUBORDINATED DEBENTURES





At March
31, 2008, 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 at
March 31, 2008, 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 and $217,000
at March 31, 2008 and 2007, respectively, is included in prepaid expenses and
otherassets in the
consolidated balance sheets.  The Company records interest expense on
the Debentures in the consolidated statements of income.






The
following table is a summary of the terms of the current Debentures at March 31,
2008:




Issuance Trust
            
            Issuance
      Date
            
            
            Amount
      Outstanding
            
            Rate Type
            
            Initial
      Rate
            
            
            Rate
      at3/31/08
            
            
            Maturing
      Date(Dollars
      in thousands)Riverview
      Bancorp
              Statutory
      Trust I
            
            
            12/2005
            
            
            $7,217
            
            Variable
      (1)
            
            
            5.88
            %
            
            
            4.16
            %
            
            
            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.




















66











13.
            INCOME
      TAXES





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





2008
            
            2007
            
            2006Current
            $
      4,894
            
            $
      6,604
            
            $
      5,281Deferred
            (395)
            
            (436)
            
            (704)Total
            $ 4,499
            
            $ 6,168
            
            $
4,577







A
reconciliation between income taxes computed at the statutory rate and the
effective tax rate for the years ended March 31 is as follows:





2008
            2007
            2006Statutory
      federal income tax rate
            35.0%
            35.0%
            35.0%State
      and local income tax rate
            1.2
            0.9
            1.0ESOP
      market value adjustment
            0.8
            0.5
            0.9Interest
      income on municipal securities
            (0.4)
            (0.3)
            (0.4)Bank
      owned life insurance
            (1.5)
            (1.1)
            (1.2)Other,
      net
            (0.9)
            (0.4)
            (3.4)Effective
      federal income tax rate
            34.2%
            34.6%
            31.9%







There
were no taxes related to the gains on sales of securities for the years ended
March 31, 2008, 2007 and 2006.





The tax
effect of temporary differences that give rise to significant portions of
deferred tax assets and deferred tax liabilities at March 31, 2008 and 2007 are
as follows (in thousands):








2008
            2007Deferred
      tax assets:Deferred
      compensation
            $      660
            $      715Loan
      loss reserve
            4,014
            3,287Core
      deposit intangible
            90
            169Accrued
      expenses
            215
            373Accumulated
      depreciation
            446
            462Net
      operating loss carry forward
            -
            91Net
      unrealized loss on securities available for sale
            112
            44Capital
      loss carry forward
            699
            725REO
      expense
            186
            186Non-compete
            164
            169Other
            159
            64Total
      deferred tax asset
            6,745
            6,285Deferred
      tax liabilities:FHLB
      stock dividend
            (1,093)
            (1,093)Deferred
      gain on sale
            (170)
            (157)Tax
      qualified loan loss reserve
            (27)
            (55)Purchase
      accounting
            (203)
            (259)Prepaid
      expense
            (97)
            (139)Loan
      fees/costs
            (584)
            (474)Total
      deferred tax liability
            (2,174)
            (2,177)Deferred
      tax asset, net
            $   4,571
            $   4,108





The
Bank’s retained earnings at March 31, 2008 and 2007 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, 2008 and 2007 was $800,000.  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






67




federal
tax purposes, (2) redeem their stock, or (3) liquidate.  Management
does not expect this temporary difference to reverse in the foreseeable
future.





The
Company has a capital loss carry forward of $2.0 million, which will expire in
2010.  Utilization of this loss is subject to certain limitations of
the Internal Revenue Code.  The tax effects of certain tax benefits
related to stock options are recorded directly to shareholders’
equity.





No
valuation allowance for deferred tax assets was deemed necessary at March 31,
2008 or 2007 based upon the Company’s anticipated future ability to generate
taxable income from operations.





14.
            EMPLOYEE
      BENEFITS 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, 2008, 2007 and 2006 were $455,000,
$409,000 and $359,000, 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 7.57%, 7.51% and 6.66%
for the years ended March 31, 2008, 2007 and 2006, respectively. The estimated
liability under the plan is accrued as earned by the participant. At March 31,
2008 and 2007, the Company’s aggregate liability under the plan was $1.8 million
and $2.0 million, respectively.





Bonus
Programs - The Company maintains a bonus program for senior management
and certain key individuals. The bonus program represents 8.5% of fiscal year
profits, assuming profit goals are attained, and is divided among participants
based on specific individual goals. The Company also has an incentive program
for retail employees that is paid based on the attainment of certain goals. The
Company expensed $926,000, $1.3 million and $1.3 million in bonuses and
incentives during the years ended March 31, 2008, 2007 and 2006,
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 will expire on the tenth anniversary of the effective date, unless
terminated sooner by the Board.  Under the 1998 Plan, the Company may
grant both incentive and non-qualified stock options of up to 714,150 shares of
its common stock to officers, directors and employees.  The exercise
price of each option granted under the 1998 Plan equals the fair market value of
the Company’s common stock on the date of grant with a maximum term of ten years
and a vesting period of zero to five years.  At March 31, 2008, there
were options for 26,562 shares available for grant under the 1998
Plan.





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 up to 458,554 shares of its common
stock to officers, directors and employees.  The exercise price of
each option granted under the 2003 Plan equals the fair market value of the
Company’s stock on the date of grant with a maximum term of ten years and a
vesting period from zero to five years. At March 31, 2008, there were options
for 170,154 shares available for grant under the 2003 Plan.





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 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 dividend trends and the market value of the Company's
common stock at the time of grant.  The risk-free interest rate for
periods within the contractual life of the options is based on the U.S. Treasury
yield curve in effect at the time of grant.








68




The
Company granted 20,000 and 354,000 stock options during the years ended March
31, 2008 and 2006, respectively.  No options were granted during the
year ended March 31, 2007.





Risk
      Free
              Interest Rate
            Expected
              Life (yrs)
            Expected
              Volatility
            Expected
              DividendsFiscal
      2008
            
            4.32%
            6.25
            15.13%
            3.06%Fiscal
      2006
            
            4.67%
            10.00
            26.32%
            3.07%





The
weighted average grant-date fair value of fiscal years 2008 and 2006 awards were
$2.07 and $3.80, respectively.  As of March 31, 2008, unrecognized
compensation cost related to nonvested stock options totaled
$36,000.  For the year ended March 31, 2008, the Company recognized
pre-tax compensation expense related to stock options of $34,000.





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





2008
            2007
            2006Number
      of
              Shares
            Weighted
              Average
              Exercise
              Price
            Number
      of
              Shares
            Weighted
              Average
              Exercise
              Price
            Number
      of
              Shares
            Weighted
              Average
              Exercise
              PriceBalance,
      beginning of period
            526,192
            $    10.41
            755,846
            $      9.68
            454,990
            $      7.18Grants
            20,000
            13.42
            -
            -
            354,000
            12.70Options
      exercised
            (95,620)
            7.68
            (212,054)
            7.79
            (53,144)
            8.48Forfeited
            (25,600)
            12.69
            (17,600)
            10.65
            -
            -Balance,
      end of period
            424,972
            $    11.02
            526,192
            $    10.41
            755,846
            $      9.68





Additional
information regarding options outstanding as of March 31, 2008 is as
follows:





Options Outstanding
            Options
      ExercisableRange of
              Exercise Price
            Weighted Avg
              Remaining
              Contractual
              Life (years)
            Number
              Outstanding
            Weighted
              Average
              Exercise
              Price
            Number
              Exercisable
            Weighted
              Average
              Exercise
              Price$    4.03-$6.16
            1.89
            29,996
            $    5.22
            29,996
            $   5.226.51-  6.88
            1.84
            53,776
            6.83
            53,776
            6.837.49-  9.51
            5.13
            41,200
            8.73
            41,200
            8.7310.10-
      10.83
            7.06
            43,000
            10.28
            27,400
            10.2712.98-14.52
            8.04
            257,000
            13.06
            245,000
            12.996.44
            424,972
            $  11.02
            397,372
            $  10.94





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





Year
      ended
            
            Year
      endedMarch
      31, 2008
            
            March
      31, 2007Stock
      options fully vested and expected to vest:Number
            422,572
            
            
            523,052Weighted
      average exercise price
            
            $       11.02
            
            
            $       10.41Aggregate
      intrinsic value
            
            $  (437,882)
            
            
            $2,892,379Weighted
      average contractual term of options
            
            6.82
      years
            
            
            7.07
      yearsStock
      options vested and currently exercisable:Number
            397,372
            
            
            493,192Weighted
      average exercise price
            
            $       10.94
            
            
            $       10.43Aggregate
      intrinsic value
            
            $  (382,675)
            
            
            $2,717,710Weighted
      average contractual term of options
            
            6.31
      years
            
            
            6.65
      years









69




The total
intrinsic value of stock options exercised was $613,000, $1.7 million and
$159,000 for the years ended March 31, 2008, 2007, and 2006,
respectively.





15.
            EMPLOYEE
      STOCK OWNERSHIP PLAN





The
Company sponsors an Employee Stock Ownership Plan (“ESOP”) that covers all
employees with at least one year and 1000 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 $414,000, $274,000 and $558,000 for years
ended March 31, 2008, 2007 and 2006, 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, 2005
            $3,664,000
            344,862
            
            617,722
            
            962,584Allocation
      December 31, 2005
            
            (49,266)
            
            49,266
            
            -Balance,
      March 31, 2006
            $3,955,000
            295,596
            
            666,988
            
            962,584Allocation
      December 31, 2006
            
            (24,633)
            
            24,633
            
            -Balance,
      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
            
            962,584





16.
            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, 2008 or
2007.





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, of 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, 2008.





As of
March 31, 2008, the most recent notification from the OTS categorized the Bank
as “well capitalized” under the regulatory framework for prompt corrective
action.To be
categorized as “well capitalized,” the Bank must maintain minimum total capital
and Tier I capital to risk weighted assets, core capital to total assets and
tangible capital to tangible assets (set forth in the table below).There are no conditions or
events since that notification that management believes have changed the
Company’s category.











70




















The
Bank’s actual and required minimum capital amounts and ratios are presented in
the following table (dollars in thousands):




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





Actual
            For
      Capital
              Adequacy
      Purposes
            Categorized
      as "Well
              Capitalized"
      Under
              Prompt
      Corrective
              Action
      ProvisionAmount
            Ratio
            Amount
            Ratio
            Amount
            RatioMarch
      31, 2007Total
      Capital:(To
      Risk Weighted Assets)
            $  84,363
            11.38%
            $  59,310
            8.0%
            $  74,137
            10.0%Tier
      I Capital:(To
      Risk Weighted Assets)
            75,740
            10.22
            29,655
            4.0
            44,482
            6.0Tier
      I Capital:(To
      Adjusted Tangible Assets)
            75,740
            9.60
            23,662
            3.0
            39,436
            5.0Tangible
      Capital:(To
      Tangible Assets)
            75,740
            9.60
            11,831
            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 2008 consolidated financial statements. In view of the uncertain
regulatory environment in which the Company operates, the extent, if any, to
which a forthcoming regulatory examination may ultimately result in adjustments
to the 2008 consolidated financial statements cannot presently be
determined.





At March
31, 2008, 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.  The following table summarizes the Company’s
common stock repurchased in each of the following periods (dollars in
thousands):





Shares
            
            Value2008
            875,000
            
            $12,6432007
            -
            
            -2006
            100,000
            
            $  1,228





17.
            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








71




from
assumed conversion of outstanding stock options. ESOP shares are not
considered outstanding for earnings per share purposes until they are committed
to be released.   For the year ended March 31, 2008, stock
options for 15,000 shares of common stock were excluded in computing diluted EPS
because they were antidilutive.  There were no antidilutive stock
options for the year ended March 31, 2007.





Years
      Ended March 31,2008
            
            2007
            
            2006Basic
      EPS computation:Numerator-Net
      income
            $   8,644,000
            
            $
      11,606,000
            
            $   9,738,000Denominator-Weighted
      average common shares outstanding
            10,915,271
            
            11,312,847
            
            11,204,479Basic
      EPS
            $            0.79
            
            $            1.03
            
            $            0.87Diluted
      EPS computation:Numerator-Net
      Income
            $   8,644,000
            
            $
      11,606,000
            
            $   9,738,000Denominator-Weighted
      averagecommon
      shares outstanding
            10,915,271
            
            11,312,847
            
            11,204,479Effect
      of dilutive stock options
            91,402
            
            203,385
            
            145,856Weighted
      average common sharesand
      common stock equivalents
            11,006,673
            
            11,516,232
            
            11,350,335Diluted
      EPS
            $            0.79
            
            $            1.01
            
            $            0.86





18.
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS





The
following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, Disclosures About Fair Value of
Financial Instruments. 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 a current market exchange. 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
      31,2008
            
            2007Carrying
              Value
            
            Fair
              Value
            
            Carrying
              Value
            
            Fair
              ValueAssets:Cash
            $   36,439
            
            $   36,439
            
            $   31,423
            
            $   31,423Investment
      securities available for sale
            7,487
            
            7,487
            
            19,267
            
            19,267Mortgage-backed
      securities held to maturity
            885
            
            892
            
            1,232
            
            1,243Mortgage-backed
      securities available for sale
            5,338
            
            5,338
            
            6,640
            
            6,640Loans
      receivable, net
            756,538
            
            775,454
            
            682,951
            
            680,861Mortgage
      servicing rights
            302
            
            973
            
            351
            
            1,032FHLB
      stock
            7,350
            
            7,350
            
            7,350
            
            7,350Liabilities:Demand
      – savings deposits
            401,320
            
            401,320
            
            465,531
            
            465,531Time
      deposits
            265,680
            
            268,747
            
            199,874
            
            199,174FHLB
      advances
            92,850
            
            92,745
            
            35,050
            
            34,982Junior
      subordinated debentures
            22,681
            
            15,734
            
            7,217
            
            7,235





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.






72




Cash- Fair value
approximates the carrying amount.





Investments
and Mortgage-Backed Securities - Fair values were based on quoted market
rates and dealer quotes.





Loans
Receivable and Loans Held for Sale - Loans were priced using a discounted
cash flow method. The discount rate used was the rate currently offered on
similar products, risk adjusted for credit concerns or dissimilar
characteristics.  For variable rate loans that reprice frequently and
have no significant change in credit, fair values are based on carrying
values.





Mortgage
Servicing Rights-The fair value of
mortgage servicing rights 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, 2008, the MSRs fair value totaled
$1.0 million, which was estimated using a range of prepayment speed assumptions
(The Bond Market Association’s standard prepayment) values that ranged from 87
to 618.





Federal Home Loan
Bank Stock - Fair value approximates the carrying amounts.





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 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.





Junior
Subordinated Debentures - The fair value of junior subordinated
debentures was based on the discounted cash flow method. The discount rate was
estimated using rates currently available for the junior subordinated
debentures.





Off-Balance
Sheet Financial Instruments - The estimated fair value of loan
commitments approximates fees recorded associated with such commitments as of
March 31, 2008 and 2007. 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.





Other- The carrying value of other financial instruments was determined to be
a reasonable estimate of their fair value.





19.
            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 extend
credit 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, 2008, the Company had outstanding real estate one-to-four family loan
commitments of $1.1 million and unused lines of credit on real estate
one-to-four family loans totaled $20.6 million.  Other installment
loan commitments totaled $17,000 and unused lines of credit on other installment
loans totaled $1.1 million.  Other real estate mortgage loan
commitments totaled $19.0 million and the undisbursed balance of other real
estate mortgage loans closed was $10.4 million.  Commercial loan
commitments totaled $8.4 million, undisbursed balances of commercial loans
totaled $10.6 million and unused commercial lines of credit totaled $56.2
million.  Construction loan commitments totaled $15.7 million and
unused construction lines of credit totaled $60.2 million.






73





The
allowance for unfunded loan commitments was $337,000 at March 31,
2008.





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,
2008 and 2007, standby letters of credit totaled $2.3 million.





At March
31, 2008, the Company had no firm commitments to sell 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, 2008 loans
under warranty totaled $105.7 million, which substantially represents the unpaid
principal balance of the Bank’s loans serviced for others.  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
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.


74


20.
            RIVERVIEW
      BANCORP, INC. (PARENT COMPANY)








BALANCE
      SHEETSMARCH
      31, 2008 AND 2007D((Dollars
      in thousands)
            2008
            2007ASSETSCash
      (including interest earning accounts of $8,269 and $4,530)
            $     8,295
            $     4,907Investment
      in the Bank
            105,731
            102,310Other
      assets
            2,318
            1,401Deferred
      income taxes
            -
            22TOTAL
      ASSETS
            $ 116,344
            $ 108,640LIABILITIES
      AND SHAREHOLDERS’ EQUITYAccrued
      expenses and other liabilities
            $       106
            $          71Deferred
      income taxes
            12
            -Borrowings
            22,681
            7,217Dividend
      payable
            960
            1,143Shareholders'
      equity
            92,585
            100,209TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
            $ 116,344
            $
108,640








STATEMENTS OF INCOMEYEARS ENDED MARCH 31, 2008, 2007 AND 2006(Dollars
      in thousands)
            2008
            2007
            2006INCOME:Dividend
      income from Bank
            $  6,386
            $  7,907
            $  15,000Interest
      on investment securities and other short-term investments
            468
            172
            73Interest
      on loan receivable from the Bank
            94
            126
            149Total
      income
            6,948
            8,205
            15,222EXPENSE:Management
      service fees paid to the Bank
            143
            143
            143Other
      expenses
            1,636
            815
            360Total
      expense
            1,779
            958
            503INCOME
      BEFORE INCOME TAXES AND EQUITYIN
      UNDISTRIBUTED INCOME OF THE BANK
            5,169
            7,247
            14,719BENEFIT
      FOR INCOME TAXES
            (426)
            (231)
            (363)INCOME
      OF PARENT COMPANY
            5,595
            7,478
            15,082EQUITY
      IN UNDISTRIBUTED INCOME (LOSS) OF THE BANK
            3,049
            4,128
            (5,344)NET
      INCOME
            $  8,644
            $ 11,606
            $   9,738





75





RIVERVIEW
BANCORP, INC. (PARENT COMPANY)





STATEMENTS
OF CASH FLOWS


YEARS
ENDED MARCH 31, 2008, 2007 AND 2006





(Dollars
      in thousands)
            2008
            2007
            2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Net income
            $   8,644
            $
      11,606
            $   9,738Adjustments to reconcile net income cash provided by operating
      activities:Equity in undistributed earnings (loss) of the Bank
            (3,049)
            (4,128)
            5,344Provision for (benefit from) deferred income taxes
            34
            13
            (4)Earned ESOP shares
            414
            274
            558Changes in assets and liabilities, net of acquisitionOther assets
            (445)
            (724)
            323Accrued
      expenses and other liabilities
            (535)
            (376)
            (588)Net
      cash provided by operating activities
            5,063
            6,665
            15,371CASH
      FLOWS FROM INVESTING ACTIVITIES:Additional
      investment in subsidiary
            -
            -
            (5,000)Acquisition,
      net of cash acquired
            -
            -
            (18,096)Net
      cash used by investing activities
            -
            -
            (23,096)CASH
      FLOWS FROM FINANCING ACTIVITIES:Dividends
      paid
            (4,740)
            (4,289)
            (3,631)Proceeds
      from subordinated debentures
            15,000
            -
            7,000Repurchase
      of common stock
            (12,643)
            -
            (1,228)Proceeds
      from exercise of stock options
            708
            880
            314Net
      cash provided (used) by financing activities
            (1,675)
            (3,409)
            2,455NET
      INCREASE (DECREASE) IN CASH
            3,388
            3,256
            (5,270)CASH,
      BEGINNING OF YEAR
            4,907
            1,651
            6,921CASH,
      END OF YEAR
            $   8,295
            $   4,907
            $   1,651





76


RIVERVIEW
BANCORP, INC.


SELECTED
QUARTERLY FINANCIAL DATA (UNAUDITED):





(Dollars in thousands, except
      share data)
            Three
      Months EndedMarch 31
            
            December 31
            
            September 30
            
            June 30Fiscal
      2008:Interest
      income
            $    14,608
            
            $    15,336
            
            $      15,314
            
            $   15,424Interest
      expense
            6,036
            
            6,478
            
            6,620
            
            6,596Net
      interest income
            8,572
            
            8,858
            
            8,694
            
            8,828Provision
      for loan losses
            1,800
            
            650
            
            400
            
            50Non-interest
      income
            2,214
            
            2,150
            
            2,216
            
            2,302Non-interest
      expense
            7,168
            
            7,011
            
            6,831
            
            6,781Income
      before income taxes
            1,818
            
            3,347
            
            3,679
            
            4,299Provision
      for income taxes
            656
            
            1,134
            
            1,249
            
            1,460Net
      income
            $      1,162
            
            $      2,213
            
            $      2,430
            
            $    2,839Basic
      earnings per share (1)
            $        0.11
            
            $        0.21
            
            $        0.22
            
            $      0.25Diluted
      earnings per share
            $        0.11
            
            $        0.21
            
            $        0.22
            
            $      0.25Fiscal
      2007:Interest
      income
            $    15,722
            
            $    16,078
            
            $    15,302
            
            $  14,198Interest
      expense
            6,662
            
            6,760
            
            6,175
            
            5,185Net
      interest income
            9,060
            
            9,318
            
            9,127
            
            9,013Provision
      for loan losses
            100
            
            375
            
            600
            
            350Non-interest
      income
            2,218
            
            2,410
            
            2,291
            
            2,115Non-interest
      expense
            6,851
            
            6,461
            
            6,272
            
            6,769Income
      before income taxes
            4,327
            
            4,892
            
            4,546
            
            4,009Provision
      for income taxes
            1,563
            
            1,654
            
            1,573
            
            1,378Net
      income
            $      2,764
            
            $      3,238
            
            $      2,973
            
            $    2,631Basic
      earnings per share (1)
            $        0.24
            
            $        0.29
            
            $        0.26
            
            $      0.23Diluted
      earnings per share
            $        0.24
            
            $        0.28
            
            $        0.26
            
            $      0.23


(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 currently in effect are 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, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in
decision-








77




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 Company’s management is
responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) of the Act).  As
required by Rule 13a-15(c) of the Act, management has evaluated the
effectiveness of the Company’s internal control over financial
reporting.  Management’s Annual Report on Internal Control Over
Financial Reporting appears in Item 9 of this Form 10-K.


78







RIVERVIEW
BANCORP, INC




Sarbanes-Oxley
404


Management’s
Report on Internal Controls 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,
2008.  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, 2008, the Company’s internal control over financial reporting met
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, 2008, as stated in their report
appearing below.





79


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, 2008, 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.
   80
 
 In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of March 31, 2008, 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, 2008 of the Company and our report dated June 12,
2008 expressed an unqualified opinion on those financial
statements.
    Portland,
Oregon
 June 12,
2008


81


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 2008 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 2008 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, Michael D. Allen and Paul L. Runyan.  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 2008 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 2008
Annual Meeting of Stockholders is incorporated herein by
reference.


82





Equity Compensation Plan
Information.  The following table summarizes share and exercise
price information about the Company’s equity compensation plan as of March 31,
2008.





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
            242,000
            $12.98
            170,1541998
      Stock Option Plan
            182,972
            8.43
            26,562Equity
      compensation plans not approved
              by
      security holders:
            -
            -
            -Total
            424,972
            
            196,716





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 2008 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 2008 Annual Meeting of Stockholders is incorporated
herein by reference.


83


PART
IV


Item
15.  Exhibits, Financial Statement Schedules





(a)       1.         
Financial Statements


See
“Part II –Item 8. Financial Statements and Supplementary Data.”





2.
            Financial Statement Schedules


All 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 Patrick Sheaffer, Ronald
      A. Wysaske, David A. Dahlstrom and John A. Karas (2)10.2
            Form
      of Change of Control Agreement between the Bank and Ronald L. Dobyns
      (3)10.5
            Employee
      Severance Compensation Plan (4)10.6
            Employee
      Stock Ownership Plan (5)10.7
            Management
      Recognition and Development Plan (6)10.8
            1998
      Stock Option Plan (6)10.9
            1993
      Stock Option and Incentive Plan (6)10.10
            2003
      Stock Option Plan (7)10.11
            Form
      of Incentive Stock Option Award Pursuant to 2003 Stock Option Plan
      (8)10.12
            Form
      of Non-qualified Stock Option Award Pursuant to 2003 Stock Option Plan
      (8)11
            Statement
      of recomputation of per share earnings (See Note 17 of Notes to
      Consolidated Financial Statements contained herein.)21
            Subsidiaries
      of Registrant (9)23
            Consent
      of Independent Registered Public Accounting Firm31.1
            Certifications of Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act31.2
            Certifications
      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 Current Report on Form 8-K filed with
      the SEC on September 18, 2007, and incorporated herein by
      reference.


(4)
            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.


(5)
            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.


(6)
            Filed
      as an exhibit to the Registrant’s Registration Statement on Form S-8
      (Registration No. 333-66049), and incorporated herein by
      reference.


(7)
            Filed
      as Exhibit 99 to the Registration Statement on Form S-8 (Registration No.
      333-66049), and incorporated herein by
  reference.


(8)
            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.


(9)
            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.


84


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:    
      June 8, 2008
            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:   
      June 8, 2008
            Date:
            June 8,
      2008By:      
      /s/Kevin J. Lycklama
            By:
            /s/
      Paul L. RunyanKevin J.
      Lycklama
            
            Paul L.
      RunyanSenior
      Vice President and
            
            Vice Chairman
      of the Board andChief Financial Officer
            
            Director(Principal Financial and Accounting Officer)Date:    June
      8, 2008
            Date:
            June 8,
      2008By:        /s/ Gary R. Douglass
            By:
            /s/
      Edward R. GeigerGary R. Douglass
            
            Edward R.
      GeigerDirector
            
            DirectorDate:    
      June 8, 2008
            Date:
            June
      8, 2008By:        
      /s/ Michael D.
    Allen
            By:
            /s/
      Jerry C. OlsonMichael D. Allen
            
            Jerry C.
      OlsonDirector
            
            DirectorDate:     
      June 8, 2008
            Date:
            June 8,
      2008










85


EXHIBIT
INDEX [REQUIRED BY 601 ((a)(2)) OF REGULATION S-K]








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








86




Exhibit
23




Consent of Independent Registered
Public Accounting Firm




We
consent to the incorporation by reference in Registration Statement
Nos. 333-66049, 333-38887, and 333-109894 on Form S-8 our reports
dated June 12, 2008, relating to the consolidated financial statements of
Riverview Bancorp, Inc. and Subsidiary, and the effectiveness of Riverview
Bancorp, Inc.’s internal control over financial reporting, appearing in this
Annual Report on Form 10-K of Riverview Bancorp, Inc. and Subsidiary for
the year ended March 31, 2008.
  /s/Deloitte
& Touche LLP
  Portland,
Oregon
 June 12,
2008


87


Exhibit
31.1


Certification
Required


By
Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of
1934





I,
Patrick Sheaffer, certify that:





1.
            I
      have reviewed this Annual Report on Form 10-K of Riverview Bancorp,
      Inc.;





2.
            Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;





3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the
      registrant as of, and for, the periods presented in this
      report;





4.
            The
      registrant’s other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e)-4 and 15d-15(e)-4) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and we
  have:





a)
            designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;





b)
            designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, 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;





c)
            evaluated
      the effectiveness of the registrant’s disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such
evaluation;





d)
            disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s fiscal fourth quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting; and





5.
            The
      registrant’s other certifying officers and I have disclosed, based on our
      most recent evaluation of internal control over financial reporting, to
      the registrant’s auditors and the audit committee of registrant’s board of
      directors (or persons performing the equivalent
  functions):





a)
            all
      significant deficiencies and material weakness in the design or operation
      of internal control over financial reporting which are reasonably likely
      to adversely affect the registrant’s ability to record, process, summarize
      and report financial data information;
and





b)
            any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant’s internal control
      over financial reporting.





Date:  June
8,
2008                                                                            /S/ Patrick
Sheaffer


Patrick Sheaffer


Chairman
and Chief Executive Officer


88


Exhibit
31.2


Certification
Required


By
Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of
1934





I, Kevin
J. Lycklama, certify that:





1.
            I
      have reviewed this Annual Report on Form 10-K of Riverview Bancorp,
      Inc.;





2.
            Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;





3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the
      registrant as of, and for, the periods presented in this
      report;





4.
            The
      registrant’s other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 15(e) abd 15d-15(e)) and internal control
      over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
      15d-15(f)) for the registrant and we
have:





a)
            designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;





b)
            designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, 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





c)
            evaluated
      the effectiveness of the registrant’s disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
  and





d)
            disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s fiscal fourth quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting; and





5.
            The
      registrant’s other certifying officers and I have disclosed, based on our
      most recent evaluation of internal control over financial reporting, to
      the registrant’s auditors and the audit committee of registrant’s board of
      directors (or persons performing the equivalent
  function):





a)
            all
      significant deficiencies and material weakness in the design or operation
      of internal control over financial reporting which are reasonably likely
      to adversely affect the registrant’s ability to record, process, summarize
      and report financial data information;
and





d)
            any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant’s internal control
      over financial reporting.





Date:  June 8,
2008                                                
                              /s/ Kevin J.
Lycklama


Kevin J. Lycklama


Chief Financial Officer


89





Exhibit
32





CERTIFICATION
PURSUANT TO





18 U.S.C.
1350,





AS
ADOPTED PURSUANT TO





SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002








The
undersigned herby certifies in his capacity as an officer of Riverview Bancorp,
Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley act of 2002 and in connection with this Annual Report on Form
10-K that:





1.
            the report fully complies with the requirements of sections 13(a) or 15(d)
      of the Securities Exchange Act of 1934, as amended,
  and





2.
            the information contained in the report fairly presents, in all material
      respects, the company’s financial condition and results of operations as
      of the dates and for the periods
              presented in the financial statements
              included
      in such report.











/S/ Patrick Sheaffer
            /S/ Kevin J.
      Lycklama


Patrick
Sheaffer                                                                                       
Kevin J. Lycklama


Chief
Executive
Officer                                                                           Chief
Financial Officer








Dated:
June 8,
2008                                                                                  Dated:
June 8, 2008














90