Riverview Bancorp (RVSB) 10-K 2005 FY Annual report

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, 2005

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                                                                                (I.R.S. Employer
or organization)                                                                                                                                 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) 693-6650

Securities registered pursuant to Section 12(b) of the Act:                                                                           None

Securities registered pursuant to Section 12(g) of the Act:                 Common Stock, par value $.01 per share
                                                                                                                                             (Title of Class)

        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 an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes X No___

        The aggregate market value of the voting stock held by nonaffiliates of the Registrant, based on the closing sales price of the registrant's Common Stock as quoted on the Nasdaq National Market System under the symbol "RVSB" on September 30, 2004 was approximately $106,742,243 (4,997,296 shares at $21.36 per share). It is assumed for purposes of this calculation that none of the registrant's officers, directors and 5% stockholders (including the Riverview Bancorp, Inc. Employee Stock Ownership Plan) are affiliates. As of May 16, 2005, there were issued and outstanding 5,015,749 shares of the registrant's common stock.

DOCUMENTS INCORPORATED BY REFERENCE

        1.        Portions of registrant's Definitive Proxy Statement for the 2005 Annual Meeting of Shareholders (Part III).

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PART I

Item 1. Business

General

Riverview Bancorp, Inc. ("the Company"), a Washington corporation, was organized on June 23, 1997 for the purpose of becoming the holding company for Riverview Savings Bank FSB, upon its reorganization as a wholly-owned subsidiary of the Company resulting from the conversion of Riverview, M.H.C., Camas, Washington, from a federal mutual holding company to a stock holding company ("Conversion and Reorganization"). The Conversion and Reorganization was completed on September 30, 1997. Riverview Savings Bank, FSB changed its name to Riverview Community Bank (the "Bank") effective June 29, 1998. On July 18, 2003, the Company completed the acquisition of Today's Bancorp, Inc. ("Today's Bancorp"). The acquisition of Today's Bancorp's $122.3 million of assets and $105.1 million of deposits were accounted for using the purchase method of accounting. At March 31, 2005, the Company had total assets of $572.6 million, total deposits of $456.9 million and shareholders' equity of $69.5 million. All references to the Company herein include the Bank where applicable.

The Bank 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 Savings Association Insurance Fund ("SAIF"). 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 institution, which emphasizes local, personal service to residents of its primary market area. The Company considers Clark, Cowlitz, Klickitat and Skamania counties of Washington 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 mortgage loans secured by commercial real estate, one- to four- family residential real estate, multi-family, commercial construction, and non-mortgage loans providing financing for business commercial ("commercial") and consumer purposes. Commercial real estate loans and commercial loans have grown from 18.70% and 7.64% of the loan portfolio, respectively, in fiscal 2001 to 51.37% and 13.35%, respectively, in fiscal 2005. The Company continues to change the composition of its loan portfolio and the deposit base as part of its transition to commercial banking. T he 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 given that the administrative headquarters and nine of its 13 branches are located in Clark County, the second fastest growing county in the State of Washington according to the U.S. Census Bureau.

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 remain relatively high by industry standards for the foreseeable future due to 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 give its customers more financial options. With an emphasis on growth of non-interest income and control of non-interest expense, all new technology and services are

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reviewed for business development and cost saving purposes. The in-house processing of checks and production of images has supported the Bank's increased service to customers and at the same time has increased efficiency. The Company continues to experience growth in customer use of the online banking services. Customers are able to conduct a full range of services on a real-time basis, including balance inquiries, transfers and electronic bill-paying. This online service has also enhanced the delivery of cash management services to commercial customers. The internet banking branch web site is www.riverviewbank.com.

Market Area

The Company conducts operations from its home office in Vancouver and 13 branch offices in Camas, Washougal, Stevenson, White Salmon, Battle Ground, Goldendale, Vancouver (six branch offices) and Longview, Washington. The Company's market area for lending and deposit taking activities encompasses Clark, Cowlitz, Skamania and Klickitat counties, throughout the Columbia River Gorge area. The Company operates a trust and financial services company, Riverview Asset Management Corp., located in downtown Vancouver, Washington. Riverview Mortgage, a mortgage broker division of the Company, originates mortgage loans (including construction loans) for various mortgage companies predominantly in the Portland, Oregon metropolitan areas, as well as for the Company. The Business and Professional Banking Division located at the downtown Vancouver main branch and the Cascade Park lending office offers commercial and business banking services.

Vancouver is located in Clark County, Washington, which is just north of Portland, Oregon. Several businesses are located in the Vancouver area because of the favorable tax structure and lower energy costs in Washington as compared to Oregon. Washington has no state income tax and Clark County operates a public electric utility that provides relatively lower cost electricity. Located in the Vancouver area are Sharp Microelectronics, Hewlett Packard, Georgia Pacific, Underwriters Laboratory and Wafer Tech, as well as several support industries. In addition to this industrial base, the Columbia River Gorge Scenic Area has been a source of tourism, which has transformed the area from its past dependence on the timber industry.

Lending Activities

General. At March 31, 2005, the Company's total net loans receivable, including loans held for sale, amounted to $429.9 million, or 75.1% of total assets at that date. The principal lending activity of the Company is the origination of mortgage loans through its mortgage banking activities, including loans collateralized by commercial properties, residential and residential construction loans. While the Company has historically emphasized real estate mortgage loans secured by one-to-four residential real estate, it has been diversifying its loan portfolio by focusing on increasing the number of originations of commercial, commercial real estate and consumer 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.

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

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	At March 31,
	2005		2004		2003		2002		2001
	Amount	Percent	Amount	Percent	Amount	Percent	Amount	Percent	Amount	Percent
	(Dollars in thousands)
Real estate loans:
One- to four- family (1)	$ 36,569	8.42%	$ 43,785	11.34%	$ 59,021	19.38%	$ 72,406	24.87%	$115,608	38.69%
Multi-family	2,537	0.58	5,008	1.30	6,236	2.05	9,809	3.37	10,947	3.66
Construction one- to   four-family	43,633	10.05	47,589	12.33	45,579	14.97	44,156	15.17	40,579	13.58
Construction multi-      family	-	-	-	-	935	0.31	4,000	1.37	561	0.19
Construction commercial	10,982	2.53	1,453	0.38	4,239	1.39	3,742	1.29	4,231	1.42
Land	28,889	6.65	25,321	6.56	28,543	9.37	23,686	8.14	23,428	7.84
Commercial real estate	223,143	51.37	176,521	45.73	100,886	33.13	83,547	28.70	55,885	18.70
Total real estate loans	345,753	79.60	299,677	77.64	245,439	80.60	241,346	82.91	251,239	84.08
Commercial	57,981	13.35	57,578	14.91	34,145	11.21	23,216	7.98	22,837	7.64
Consumer loans:
Automobile loans	1,197	0.28	1,631	0.42	1,468	0.48	2,142	0.74	3,182	1.07
Savings account     loans	268	0.06	335	0.09	321	0.11	518	0.18	434	0.15
Home equity loans	26,556	6.11	23,914	6.20	21,236	6.97	21,701	7.46	18,522	6.20
Other consumer loans	2,599	0.60	2,880	0.74	1,941	0.63	2,144	0.73	2,563	0.86
Total consumer loans	30,620	7.05	28,760	7.45	24,966	8.19	26,505	9.11	24,701	8.28
Total loans and loans   held for sale	434,354	100.00%	386,015	100.00%	304,550	100.00%	291,067	100.00%	298,777	100.00%
Less:
Allowance for loan     losses	4,395		4,481			2,739		2,537	1,916
Total loans receivable,    net (1)	$429,959		$381,534			$301,811		$288,530	$296,861
(1) Includes loans held for sale of $510,000, $407,000, $1.5 million, $1.8 million and $569,000 at March 31, 2005, 2004, 2003, 2002 and 2001, respectively.

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Commercial Real Estate Lending. As of March 31, 2005, $223.1 million, or 51.37% of the total loan portfolio was secured by commercial real estate property. The Company originates commercial real estate loans including land development, retail shopping centers, office and medical buildings, warehouses, mini-storage facilities, industrial use buildings, multi-family and assisted living facilities primarily located in our market area. loans including land development, retail shopping centers, office and medical buildings, warehouses, mini-storage facilities, industrial use buildings, multi-family and assisted living facilities primarily located in our market area.

The Company actively pursues commercial real estate loans. These loans generally are priced at a higher rate of interest than one- to four-family residential 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; therefore, repayment of these loans may be affected by adverse conditions in the real estate market or the economy. Generally loan guarantees are required and obtained from financially capable parties based upon the review of personal financial statements. If the borrower is a corporation, personal guarantees are required and obtained from the corporate principals based upon a review of their personal financial statements and individual credit reports. A portio of the commercial real estate loan portfolio is relative ly unseasoned and contains a higher risk of default and loss than single-family residential loans.

The average size loan in the commercial real estate loan portfolios was approximately $800,000 as of March 31, 2005. The Company targets individual commercial real estate loans between $500,000 and $5.0 million; however, the loan policy allows origination of loans to one borrower up to 15% of the Bank's capital. The largest commercial real estate loan as of March 31, 2005 was an office building with an outstanding principal balance at March 31, 2005 of $7.2 million located in Vancouver, Washington. This loan is performing according to the loan terms, as were all commercial real estate loans as of March 31, 2005, except for one loan on non-accrual with a balance of $198,000.

Both fixed- and adjustable-rate loans are offered on commercial real estate loans. Loans originated on a fixed-rate basis generally are originated at fixed terms up to five years, with amortization terms up to 25 years. Interest rates on fixed-rate loans are generally established utilizing the Federal Home Loan Bank of Seattle's fixed advance rate for an equivalent period plus a margin ranging from 2.5% to 3.50%. Some of the loans have established floor rates and most have some form of prepayment penalty.

Adjustable-rate commercial real estate loans are originated with variable rates that generally adjust after an initial period ranging from one to five years. Adjustable-rate commercial real estate loans are generally priced utilizing the Federal Home Loan Bank of Seattle's fixed advance rate for an equivalent period plus a margin ranging from 2.5% to 3.50%, with principal and interest payments fully amortizing over terms up to 25 years. These loans generally have a prepayment penalty. Both adjustable-rate mortgages and fixed-rate mortgages generally allow provisions for assumption of a loan by another borrower subject to lender approval and a 1% assumption fee.

The maximum loan-to-value ratio for commercial real estate loans is generally 75% for both purchases and refinances. Appraisals are required on all properties securing commercial real estate loans. Independent appraisers designated by us perform appraisals. Commercial real estate loan borrowers with outstanding balances in excess of $500,000 are required to submit annual financial statements and tax returns. The subject property is inspected at least every two years if the loan balance exceeds $500,000. A minimum pro forma debt coverage ratio of 1.20 times is required for loans secured by commercial properties.

One- to Four- Family Real Estate Lending. The majority of the residential loans are secured by one- to four- family residences located in the Company's primary market area. 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, and the Company also offers balloon mortgage loans with terms of either five or seven years. The Company originates both fixed rate mortgages and adjustable rate mortgages ("ARMs") with repricing based on Treasury Bill or other index. The ability to generate volume in ARMs, however, is largely a function of consumer preference and the interest rate environment.

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In addition to originating one- to four- family loans for its portfolio, the Company is an active mortgage broker for several third party mortgage lenders. In recent periods, these mortgage brokerage activities have reduced the volume of fixed rate one- to- four family loans that are originated and sold by the Company. See "-Loan Originations, Sales and Purchases" and "-Mortgage Brokerage."

The Company generally sells fixed-rate mortgage loans with maturities of 15 years or more and balloon mortgages to the Federal Home Loan Mortgage Corporation ("FHLMC"), servicing retained. See "-Loan Originations, Sales and Purchases" and "-Mortgage Loan Servicing."

The retention of ARM loans in the portfolio helps reduce the Company's exposure to changes in interest rates. There are, however, unquantifiable credit risks resulting from the potential of increased costs arising from changed rates to be paid by the customer. It is possible that during periods of rising interest rates the risk of default on ARM loans may increase as a result of repricing and the increased costs to the borrower. Another consideration is that although ARM loans allow the Company to increase the sensitivity of its asset base to changes in interest rates, the extent of this interest sensitivity is limited by the periodic and lifetime interest rate adjustment limits. Because of these considerations, the Company has no assurance that yields on ARM loans will be sufficient to offset increases in its cost of funds.

While one- to four- family residential real estate loans typically are originated with 30-year terms and the Company permits its ARM loans to be assumed by qualified borrowers, these loans generally remain outstanding for substantially shorter periods because borrowers often prepay their loans in full upon sale of the property pledged as security or upon refinancing the original loan. In addition, substantially all of the fixed interest rate loans in the Company's loan portfolio contain due-on-sale clauses providing that the Company may declare the unpaid amount due and payable upon the sale of the property securing the loan. Thus, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans.

The Company requires title insurance insuring the status of its lien on all of the real estate secured loans and also requires that fire and extended coverage casualty insurance (and, if appropriate, flood insurance) be maintained in an amount at least equal to the lesser of the loan balance and the replacement cost of the improvements. Where the value of the unimproved real estate exceeds the amount of the loan on the real estate, the Company may make exceptions to its property insurance requirements.

Construction Lending. The Company actively originates three types of residential construction loans: (i) speculative construction loans, (ii) custom/presold construction loans and (iii) construction/permanent loans. Subject to market conditions, the Company intends to increase its residential construction lending activities. The Company also originates construction loans for the development of multi-family and commercial properties.

At March 31, 2005 and 2004, the composition of the Company's construction loan portfolio was as follows:

	At March 31,
	Amount(1)	Percent	Amount(1)	Percent
	(Dollars in thousands)
Speculative construction	$ 43,749	40.61%	$ 37,017	39.80%
Commercial/multi-family construction	18,912	17.55	1,453	1.56
Custom/presold construction	13,300	12.34	15,949	17.15
Construction/permanent	18,322	17.01	25,128	27.02
Construction/land	13,453	12.49	13,461	14.47
Total	$107,736	100.00%	$ 93,008	100.00%

(1)Includes loans in process.

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

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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, 2005, the Company had 14 borrowers with aggregate outstanding speculative loan balances of more than $1.0 million, which totaled $21.5 million and were performing according to original terms.

Unlike speculative construction loans, presold construction loans are made for homes that have buyers. Presold construction loans are made to home builders 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, 2005, the largest custom construction loan and presold construction loan had outstanding balances of $707,000 and $472,000, respectively, and were performing according to original terms.

Construction/permanent loans are originated to the homeowner rather than the home builder 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," "-Loan Originations, Sales and Purchases" and "-Mortgage Loan Servicing." At March 31, 2005, the largest outstanding construction/permanent loan had an outstanding balance of $52 8,000 and was performing according to its original terms.

The Company also provides construction financing for non-residential properties such as multi-family and commercial properties. The Company has increased its commercial lending resources with the intent of increasing the amount of commercial real estate loan balances such as construction commercial and construction multi-family loans. 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. The nature of these loans is such that they are generally more difficult to evaluate and monitor. If the estimate of construction cost proves to be inaccurate, the Company may be required to advance funds beyond the amount originally committed to permit completion of the project. Projects may also be jeopardized by disagreements between borrowers and builders and by the failure of builders to pay subcontractors. The Company addresses these risks by adhering to strict underwriting policies, disbursement procedures and monitoring practices. In addition, because the Company's construction lending is in its primary market area, changes in the local economy and real estate market could adversely affect the Company's construction loan portfolio. Of the $14.9 million commercial construction loans outstanding at March 31, 2005, the loan commitment amount was $19.2 million. At March 31, 2005, the largest construction commercial loan had an outstanding balance of $3.9 million and was performing according to its original terms.

Multi-Family Lending.Multi-family mortgage loans generally have terms up to 25 years with a loan-to-value ratio of up to 75%. Both fixed and adjustable rate loans are offered with a variety of terms to meet the multi-family residential financing needs. At March 31, 2005, the largest multi-family mortgage loan had an outstanding loan balance of $3.9 million and was performing according to its original terms.

Multi-family mortgage lending affords the Company an opportunity to receive interest at rates higher than those generally available from one- to four- family residential lending. However, loans secured by these properties usually are greater in amount, are more difficult to evaluate and monitor and, therefore, involve a greater degree of risk than one- to four- family residential mortgage loans. Because payments on loans secured by multi-family properties are often dependent on the successful operation and management of the properties, repayment of such loans may be affected by adverse conditions in the real estate market or the economy. The Company attempts to minimize these risks by strictly scrutinizing the financial condition of the borrower, the quality of the collateral and the management of the property securing the loan. The

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Company also generally obtains personal guarantees from financially capable parties based on a review of personal financial statements.

Land Lending. The Company originates loans to local real estate developers with whom it has established relationships for the purpose of developing residential subdivisions (i.e., installing roads, sewers, water and other utilities), as well as loans to individuals to purchase building lots. Land development loans are secured by a lien on the property and made for a period not to exceed five years with an interest rate that adjusts with the prime rate, and are made with loan-to-value ratios not exceeding 75%. Monthly interest payments are required during the term of the loan. Subdivision loans are structured so that the Company is repaid in full upon the sale by the borrower of approximately 90% of the subdivision lots. All of the Company's land loans are secured by property located in its primary market area. In addition, the Company also generally obtains personal guarantees from financially capable parties based on a review of personal financial statements. At March 31, 200 5, the largest outstanding land loan was $7.1 million and was performing according to its original terms.

Loans secured by undeveloped land or improved lots involve greater risks than one- to four- family residential mortgage loans because these loans are advanced upon the predicted future value of the developed property. If the estimate of these future values proves to be inaccurate, in the event of default and foreclosure, the Company may be confronted with a property the value of which is insufficient to assure full repayment. The Company attempts to minimize this risk by limiting the maximum loan-to-value ratio on land loans to 65% of the estimated developed value of the secured property. Loans on raw land may run the risk of adverse zoning changes, environmental or other restrictions on future use.

Commercial Lending.The Company's commercial loan portfolio has increased to 13.35% of the total loan portfolio at March 31, 2005 from 7.64% at March 31, 2001. The Company has been able to increase the balance of outstanding commercial loans and commitments as a result of the local economy, the consolidation of some local competitors offering commercial loans and the hiring of several experienced commercial bankers from competitors in the local market.

Commercial loans are generally made to customers who are well known to the Company and are typically secured by all 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 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 a fixed rate. The Company also generally obtains personal guarantees from financially capable parties based on a review of personal financial statements.

Commercial lending involves greater risk than residential mortgage lending and 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 is viewed as the primary source of repayment in the event of borrower default. Although commercial loans are often collateralized by equipment, inventory, accounts receivable or other business assets including real estate, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories and equipment may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial loan depends primarily on the cash flow of the borrower (and any guarantors), while liquidation of colla teral is a secondary and often insufficient source of repayment. At March 31, 2005, the Company had three commercial loans on nonaccrual status totaling $97,000.

Consumer Lending.The Company originates a variety of consumer loans, including home equity lines of credit, home equity term loans, home improvement loans, loans for debt consolidation and other purposes, automobile loans, boat loans and savings account loans.

Home equity lines of credit and home equity term loans are typically secured by a second mortgage on the borrower's primary residence. Home equity lines of credit are made at loan-to-value ratios of 90% or less, taking into consideration the outstanding balance on the first mortgage on the property. Home equity lines of credit have a variable interest rate while home equity term loans have a fixed rate of interest. The Company's procedures for underwriting consumer loans include an assessment of the applicant's payment history on other debts and ability to meet existing obligations and payments on

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the proposed loans. Although the applicant's creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the security, if any, to the proposed loan amount.

Consumer loans generally entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly, such as mobile homes, automobiles, boats and recreational vehicles. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. These loans may also give rise to claims and defenses by the borrower against the Company as the ho lder of the loan, and a borrower may be able to assert claims and defenses, which it has against the seller of the underlying collateral. At March 31, 2005, one consumer loan for $161,000 was on nonaccrual status.

Loan Maturity. The following table sets forth certain information at March 31, 2005 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 do not include unearned discounts, unearned income and allowance for loan losses.

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	Within One Year	After One Year to 3 Years	After 3 Years to 5 Years	After 5 Years to 10 Years	Beyond 10 Years	Total
(In thousands)
Residential one- to four-family:
Adjustable rate	$      -	$    21	$    521	$    812	$  21,013	$  22,367
Fixed rate	1,928	4,419	1,307	1,336	5,212	14,202
Construction:
Adjustable rate	36,065	7,068	-	-	-	43,133
Fixed rate	11,838	198	-	-	-	12,036
Other real estate:
Adjustable rate	41,336	22,790	14,954	112,893	7,115	199,088
Fixed rate	7,777	18,167	21,594	6,485	896	54,919
Commercial:
Adjustable rate	36,676	3,383	3,664	2,177	-	45,900
Fixed rate	4,097	4,163	3,596	233	-	12,089
Consumer:
Adjustable rate	470	341	771	1,180	21,759	24,521
Fixed rate	531	1,777	1,512	761	1,518	6,099
Total net loans	$140,718	$62,327	$47,919	$125,877	$57,513	$434,354

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The following table sets forth the dollar amount of all loans due one year after March 31, 2005, which have fixed interest rates or have floating or adjustable interest rates.

	Fixed- Rates	Floating or Adjustable Rates
	(In thousands)
Residential one- to four- family	$     12,274	$        22,367
Construction loans	198	7,068
Other real estate loans	47,142	157,752
Commercial	7,992	9,224
Consumer	5,568	24,051
Total	$      73,174	$       220,462

Scheduled contractual principal repayments of loans do not reflect the actual life of such assets. The average life of a loan is substantially less than its contractual terms because of prepayments. In addition, due-on-sale clauses on loans generally give the Company the right to declare loans immediately due and payable in the event, among other things, that the borrower sells the real property. The average life of mortgage loans tends to increase, however, when current mortgage loan market rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when rates on existing mortgage loans are substantially higher than current mortgage loan market rates. Furthermore, management believes that a significant number of the Company's residential mortgage loans are outstanding for a period less than their contractual terms because of the transitory nature of many of the borrowers who reside in its primary market area.

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 of Directors 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 residential mortgage loans, commercial real estate mortgage loans, consumer loans and commercial 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, 2005, the Company had outstanding commitments to originate loans in the amount of $19.5 million.

Loan Originations, Sales and Purchases. While the Company originates adjustable-rate and fixed-rate loans, its ability to generate each type of loan depends upon relative customer demand for loans in its primary market area. During the years ended March 31, 2005 and 2004, the Company's total loan originations, including mortgage loans originated for sale, were $434.4 million and $375.8 million, respectively, of which 83.8% and 70.4%, respectively, were subject to periodic interest rate adjustment and 15.1% and 29.6%, respectively, were fixed-rate loans.

The Company customarily sells the fixed-rate residential one- to four- family mortgage loans that it originates with maturities of 15 years or more to the FHLMC as part of its asset liability strategy. The sale of these loans allows the Company to continue to make loans during periods when savings flows decline or funds are not otherwise available for lending purposes; however, the Company assumes an increased risk if these loans cannot be sold in a rising interest rate environment. Changes in the level of interest rates and the condition of the local and national economies affect the amount of loans originated by the Company and demanded by investors to whom the loans are sold. Generally, the Company's residential one- to- four family mortgage loan origination and sale activity and, therefore, its results of operations, may be

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adversely affected by an increasing interest rate environment to the extent such environment results in decreased loan demand by borrowers and/or investors. Accordingly, the volume of loan originations and the profitability of this activity can vary significantly from period to period. Mortgage loans are sold to the FHLMC on a non-recourse basis whereby foreclosure losses are generally the responsibility of the FHLMC and not the Company. Servicing is retained on loans sold to FHLMC.

Interest rates on residential one- to four- family mortgage loan applications are typically locked with customers and the FHLMC during the application stage for periods ranging from 30 to 90 days, the most typical period being 45 days. These loans are locked with the FHLMC under a best-efforts delivery program. The Company makes every effort to deliver these loans before their rate locks expire. This arrangement requires the Company to deliver the loans to the FHLMC within ten days of funding. Delays in funding the loans can require a lock extension. The cost of a lock extension at times is borne by the borrower and at times by the Company. These lock extension costs paid by the Company are not expected to have a material impact to operations.This activity is managed daily.

There can be no assurance that the Company will be successful in its efforts to reduce the risk of interest rate fluctuation between the time of origination of a mortgage loan and the time of the ultimate sale of the loan. To the extent that the Company does not adequately manage its interest rate risk, the Company may incur significant mark-to-market losses or losses relating to the sale of such loans, adversely affecting its financial condition and results of operations.

The Company purchased $5.7 million of loan participations in fiscal year 2005.

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The following table shows total loans originated, sold and repaid during the periods indicated.

	For the Years Ended March 31,
	2005	2004	2003
	(In thousands)
Total net loans receivable and loans held for sale    at beginning of period	$381,534	$301,811	$288,530
Loans originated:
Mortgage loans:
One- to four- family	61,621	35,963	43,983
Multi-family	6,826	2,065	6,936
Construction one- to four- family	100,522	104,913	87,049
Construction commercial real estate	-	482	3,267
Construction multi-family	-	341	2,597
Land and commercial real estate	120,201	93,241	59,954
Commercial	136,726	101,432	68,083
Consumer	2,859	31,135	23,784
Total loans originated	428,755	369,572	295,653
Loans purchased:
One- to four- family	-	-	1,021
Multi-family	127	-	-
Land and commercial real estate	5,537	6,267	1,717
Total loans originated	5,664	6,267	2,738
Residential one- to four- family loans sold	(22,840)	(51,567)	(56,097)
Repayment of principal	(363,607)	(329,443)	(227,101)
Today's Bank acquisition	-	85,610	-
Increase (decrease) in other items, net	453	(716)	(1,912)
Net increase in loans	48,425	79,723	13,281
Total net loans receivable and loans held for    sale at end of period	$429,959	$381,534	$301,811

Mortgage Brokerage. In addition to originating mortgage loans for retention in its portfolio, the Company employs ten commissioned brokers who originate mortgage loans (including construction loans) for various mortgage companies predominately 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 broker receives a fee of approximately 0.50% of the loan amount. During the year ended March 31, 2005, brokered loans totaled $194.4 million (including $59.1 million brokered to the Company). Gross fees of $1.5 million (excluding the portion of fees shared with the commis sioned brokers) were recognized for the year ended March 31, 2005. 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 such as we are currently experiencing, the volume of loans and amount of loan fees generally decreases as a result of slower mortgage loan demand.Conversely, during periods of falling interest rates, the volume of loans and 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 FHLMC. The Company's general policy is to close its residential loans on the FHLMC modified loan documents to facilitate future sales to the FHLMC. Upon sale, the

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Company continues to collect payments on the loans, to supervise foreclosure proceedings, if necessary, and otherwise to service the loans.

The Company generally retains the servicing rights on the fixed-rate mortgage loans that it sells to the FHLMC. At March 31, 2005, total loans serviced for others were $129.4 million.

The value of loans serviced for others is significantly affected by interest rates. In general, during periods of falling interest rates, mortgage loans repay at faster rates and the value of the mortgage servicing declines. Conversely, during periods of rising interest rates, the value of the mortgage servicing rights generally increases as a result of slower rates of prepayments. The Company may be required to recognize this decrease in value by taking a charge against its earnings, which would cause its net income to decrease. The Company has experienced a decrease and an increase in prepayments of mortgages as interest rates have dramatically changed during the past two years, which has impacted the value of the servicing asset. Accordingly, the Company recognized a decrease of $22,000 and $307,000 for fiscal years 2005 and 2004, respectively in its valuation allowance for mortgage servicing rights reflecting the increase in mortgage interest rates and slowing of prepayments. We believe, based on historical experience, that the amount of prepayments and the related impairment charges should decrease as interest rates increase.

Loan Origination and Other Fees. The Company generally receives loan origination fees and discount "points." Loan fees and points are a percentage of the principal amount of the loan that is charged to the borrower for funding the loan. The Company usually charges origination fees of 1.5% to 2.0% on one- to four- family residential real estate loans, long-term commercial real estate loans and residential construction loans. Commercial loan fees are based on terms of the individual loan. Current accounting standards require fees received for originating loans to be deferred and amortized into interest income over the contractual life of the loan. Deferred fees associated with loans that are sold are recognized as gain on sale of loans. The Company had $3.1 million of net deferred loan fees at March 31, 2005. The Company also receives loan servicing fees on the loans it sells and on which it retains the servicing rights. See Note 9 of the Notes to the Consolidated Financial S tatements contained in Item 8 of this Form 10-K.

Delinquencies. The Company's collection procedures for all loans except consumer loans provide for a series of contacts with delinquent borrowers. A late charge delinquency notice is first sent to the borrower when the loan secured by real estate becomes 17 days past due. A follow-up telephone call, or letter if the borrower cannot be contacted by telephone, is made when the loan becomes 22 days past due. A delinquency notice is sent to the borrower when the loan becomes 30 days past due. When payment becomes 60 days past due, a notice of default letter is sent to the borrower stating that foreclosure proceedings will commence unless the delinquency is cured. If a loan continues in a delinquent status for 90 days or more, the Company generally initiates foreclosure proceedings. In certain instances, however, the Company may decide to modify the loan or grant a limited moratorium on loan payments to enable borrowers to reorganize their financial affairs.

A delinquent consumer loan borrower is contacted when the loan is 15 days past due. A letter of intent to repossess collateral is mailed to the borrower after the loan becomes 45 days past due and repossession proceedings are initiated after the loan becomes 90 days delinquent.

Delinquencies in commercial loans are handled on a case-by-case basis. Generally, notices are sent and personal contact is made with the borrower when the loan is 15 days past due. Loan officers are responsible for collecting loans they originate or that are assigned to them. Depending on the nature of the loan or type of collateral securing the loan, negotiations, or other actions, are undertaken depending upon the circumstances.

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 nonaccrual status, at which time the accrual of interest ceases and the reserve for any unrecoverable accrued interest is established and charged against operations. Typically, payments received on a nonaccrual loan are applied to the outstanding principal and interest as determined at the time of collection of the loan.

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Real estate owned is real estate acquired in settlement of loans and consists of real estate acquired through foreclosure or deeds in lieu of foreclosure. The acquired real estate is recorded at net realizable value. The Company periodically reviews the property's net realizable value and a charge to operations is taken if the property's recorded value exceeds the property's net realizable value.

The following table sets forth information with respect to the Company's nonperforming 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.

	At March 31,
	2005	2004	2003	2002	2001
	(Dollars in thousands)
Loans accounted for on a nonaccrual basis:
Residential real estate	$       -	$        24	$       301	$         830	$        153
Commercial real estate	198	309	-	297	-
Land	-	31	-	180	-
Commercial	97	872	-	54	50
Consumer	161	65	22	39	116
Total	456	1,301	323	1,400	319
Accruing loans which are contractually     past due 90 days or more	- -	- -	- -	122	226
Total of nonaccrual and     90 days past due loans	456	1,301	323	1,522	545
Real estate owned (net)	270	742	425	853	473
Total nonperforming assets	$  726	$  2,043	$       748	$     2,375	$     1,018
Total loans delinquent 90 days      or more to net loans	0.10%	0.34%	0.11%	0.53%	0.18%
Total loans delinquent 90 days or      more to total assets	0.08	0.25	0.08	0.39	0.13
Total nonperforming assets to total assets	0.13	0.39	0.18	0.61	0.24

The gross amount of interest income on the nonaccrual loans that would have been recorded during the year ended March 31, 2005 if the nonaccrual loans had been current in accordance with their original terms was approximately $34,000. For the year ended March 31, 2005, $9,000 was earned on the nonaccrual loans and included in interest and fees on loans receivable interest income.

Loans not included in nonperforming or past due categories, but where information about possible credit problems causes management to be uncertain about the borrower's ability to comply with existing repayment terms, totaled $5.8 million at March 31, 2005 and $4.9 million at March 31, 2004.

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 uncol lectible and of such little value that continuance as an asset of the institution is not warranted. If an asset

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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.

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,
	2005	2004
	(In thousands)
Substandard assets	$ 6,209	$4,932
Doubtful assets	-	803
Loss assets	-	-
General loss allowances	4,395	4,481
Specific loss allowances	-	-
Charge-offs	669	1,182

The loans classified as substandard assets at March 31, 2005 are comprised of one home equity loan totaling $161,000, eight real estate secured commercial loans totaling $1.2 million and 33 commercial loans totaling $4.9 million.

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, 2005, the Company owned two properties with a recorded value of $270,000 compared to $742,000 at March 31, 2004. The $270,000 recorded value consists of one non-residential and one residential real estate loans in the amounts of $115,000 and $155,000.

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 internal loan review and loan classification system. The internal loan review system provides for at least an annual review by the internal audit department of all loans that meet selected criteria. 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 Chief Credit Officer, Chairman and Chief Executive Officer, President and Chief Operating Officer, Vice President Credit , Chief Financial Officer and Senior Vice President Business & Professional Banking. Credit officers are expected to monitor their portfolios and make recommendations to change loa n 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. The Problem Loan Committee meets quarterly to approve any changes to loan grades, monitor loan grades and to recommend any changes to the loan grades.

The Company uses the OTS loan classifications of special mention, substandard, doubtful and loss plus the additional loan classifications of pass and watch in order to assign a loan grade to be used in the determination of the proper amount of allowance for loan losses. The definition of a pass classification represents a level of credit quality, which contains no well-defined deficiency or weakness. The definition of watch classification is used to identify a loan that currently contains no well-defined deficiency or weakness, but management has deemed it desirable to closely monitor the loan.

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The Company uses the loan classifications from the internal loan review and Internal Loan Classification Committee in the following manner to determine the amount of the allowance for loan losses. The calculation of the allowance for loan losses must consider loan classification in order to determine the amount of the allowance for loan losses for the required three separate elements of the allowance for losses: general allowances, allocated allowances and unallocated allowances.

The general allowance element relates to assets with no well-defined deficiency or weakness such as assets classified pass or watch, and takes into consideration loss that is embedded within the portfolio but has not been realized. Borrowers are impacted by events that may ultimately result in a loan default and eventual loss well in advance of a lender's knowledge. Examples of such loss-causing events in the case of consumer or one- to four- family residential loans would be a borrower job loss, divorce or medical crisis. Examples in commercial or construction loans may be loss of customers as a result of competition or changes in the economy. General allowances for each major loan type are determined by applying loss factors that take into consideration past loss experience, asset duration, economic conditions and overall portfolio quality to the associated loan balance.

The allocated allowance element relates to assets with well-defined deficiencies or weaknesses such as assets classified special mention, substandard, doubtful or loss. The OTS loss factors are applied against current classified asset balances to determine the amount of allocated allowances. Included in these allowances are those amounts associated with loans where it is probable that the value of the loan has been impaired and the loss can be reasonably estimated.

The unallocated allowance element is more subjective and is reviewed quarterly to take into consideration estimation errors and economic trends that are not necessarily captured in determining the general and allocated allowance.

The change in the balance of the allowance for loan losses at March 31, 2005 reflects the proportionate increase in loan balances, the change in mix of loan balances, the increase in substandard assets and a change in loss rate when compared to March 31, 2004. The mix of the loan portfolio showed an increase in the balances of commercial real estate loans, and construction, and consumer loans at March 31, 2005 as compared to balances at March 31, 2004. Substandard assets and assets classified as doubtful increased by $500,000 to $6.2 million at March 31, 2005 compared to $5.7 million at March 31, 2004.

At March 31, 2005, the Company had an allowance for loan losses of $4.4 million, or 1.01% of total outstanding net loans at that date. Based on past experience and probable losses inherent in the loan portfolio, management believes that loan loss reserves are adequate.

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 request the Company to increase significantly 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.

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	Year Ended March 31,
	2005	2004	2003	2002	2001
	(Dollars in thousands)
Balance at beginning of period	$   4,481	$   2,739	$      2,537	$    1,916	$ 1,362
Provision for loan losses	410	210	727	1,116	949
Recoveries:
Residential real estate	-	-	2	-	-
Land	-	-	63	-	-
Commercial	156	74	-	-	-
Consumer	17	17	13	25	18
Total recoveries	173	91	78	25	18
Charge-offs:
Residential real estate	84	21	140	88	226
Land	-	15	17	-	-
Commercial	490	882	119	185	27
Consumer	95	264	152	166	160
Total charge-offs	669	1,182	428	439	413
Net charge-offs	496	1,091	350	414	395
Dispositions (1)	-	-	-	81	-
Allowance acquired from Today's Bank	-	2,639	-	-	-
Net change in allowance for unfunded loan             commitments and lines of credit	- -	(16)	(175)	-	- -
Balance at end of period	$   4,395	$   4,481	$  2,739	$   2,537	$  1,916
Ratio of allowance to total net loans    outstanding during period	1.01%	1.16%	0.90%	0.87%	0.64%
Ratio of net charge-offs to average net loans    outstanding during period	0.13	0.31	0.12	0.14	0.14
Ratio of allowance to total of nonaccrual and    90  days past due loans	963.82	344.43	847.99	166.69	351.56

   (1)    Allowance reclassified with securitization of one-to four-family loans to mortgage-backed securities.

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Changes in the allowance for unfunded loan commitments and lines of credit:

	Year Ended March 31,
	2005	2004	2003	2002	2001
	(In thousands)
Balance at beginning of period	$      191	$         175	$              -	$              -	$              -
Net change in allowance for unfunded loan commitments and lines of credit	62	16	175	-	-
Balance at end of period	$      253	$        191	$         175	$             -	$             -

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 related loan category outstanding loan balances as of the date of the allocation for the periods indicated.

	At March 31,
	2005		2004		2003		2002		2001
	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	Amount	Loan Category as a Percent of Total Loans
(Dollars in thousands )
Real estate loans
One -to four- family	$      74	8.42%	$       89	11.34%	$      122	19.38%	$      191	24.87%	$    263	38.69%
Multi-family	14	0.58	19	1.30	24	2.05	37	3.37	42	3.66
Construction one-to four- family	176	10.05	148	12.33	194	14.97	319	15.17	224	13.58
Construction multi-family	-	-	-	-	5	0.31	20	1.37	21	0.19
Construction commercial	84	2.53	7	0.38	20	1.39	26	1.29	34	1.42
Land	219	6.65	148	6.56	196	9.37	192	8.14	206	7.84
Commercial real estate	1,935	51.37	2,259	45.73	1,046	33.13	869	28.70	580	18.70
Commercial loans	1,556	13.35	1,589	14.91	796	11.21	668	7.98	354	7.64
Consumer loans:
Secured	197	6.67	175	7.01	141	7.75	180	8.61	154	7.65
Unsecured	44	0.38	37	0.44	33	0.44	27	0.50	34	0.63
Unallocated	96	-	10	-	162	-	8	-	4	-
Total allowance for loan losses	$4,395	100.00%	$4,481	100.00%	$  2,739	100.00%	$ 2,537	100.00%	$1,916	100.00%

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Investment Activities

OTS regulated institutions have authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, deposits at the applicable FHLB, certificates of deposit of federally insured institutions, certain bankers' acceptances and federal funds. Subject to various restrictions, OTS regulated institutions may also invest a portion of their assets in commercial paper, corporate debt securities and mutual funds, the assets of which conform to the investments that federally chartered savings institutions are otherwise authorized to make directly.

Federal regulations require the Bank to maintain a minimum sufficient liquidity to ensure its safe and sound operation. Liquid assets include cash, cash equivalents consisting of short-term interest-earning deposits, certain other time deposits, and other obligations generally having remaining maturities of less than five years. It is management's intention to hold securities with short maturities in the investment portfolio in order to match more closely the interest rate sensitivities of the Company's assets and liabilities. At March 31, 2005, the Bank's liquidity ratio, the ratio of cash and eligible investments to the sum of withdrawable savings and borrowings due within one year, was 15.68%.

The Investment Committee, composed of the Company's Chairman, President, Chief Financial Officer and Controller, makes investment decisions. The Company's investment objectives are: (i) to provide and maintain liquidity within regulatory guidelines; (ii) to maintain a balance of high quality, diversified investments to minimize risk; (iii) to provide collateral for pledging requirements; (iv) to serve as a balance to earnings; and (v) to optimize returns. At March 31, 2005, the Company's investment and mortgage-backed securities portfolio totaled $36.9 million and consisted primarily of obligations of federal agencies, and Federal National Mortgage Association ("FNMA") and FHLMC mortgage-backed securities.

At March 31, 2005, the Company's investment securities portfolio did not contain any tax-exempt securities of any issuer with an aggregate book value in excess of 10% of the Company's consolidated shareholders' equity, excluding those securities issued by the U.S. Government or its agencies.

The Board of Directors sets the investment policy of the Company which dictates that investments be made based on the safety of the principal amount, liquidity requirements of the Company and the return on the investments. At March 31, 2005, no investment securities were held for trading. The policy does not permit investment in non-investment grade bonds and 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 deposits of insured banks, repurchase agreements and federal funds.

The Company has adopted SFASNo. 115,Accounting for Certain Investments in Debt and Equity Securities, which requires the classification of securities at acquisition into one of three categories: held to maturity, available for sale or trading. See Note 1 of the Notes to the Consolidated Financial Statements contained in Item 8 of this Form 10-K.

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The following table sets forth the investment securities portfolio and carrying values at the dates indicated. The fair value of the investment and mortgage-backed securities portfolio was $37.0 million, $46.1 million and $36.9 million at March 31, 2005, 2004 and 2003, respectively.

		At March 31,
	2005			2004		2003
	Carrying Value		Percent of Portfolio	Carrying       Value	Percent of Portfolio	Carrying    Value	Percent of     Portfolio
	(Dollars in thousands)
Held to maturity (at amortized cost):
Real estate mortgage investment   conduits ("REMICs")	$  1,802		4.88%	$ 1,802	3.92%	$  1,803	4.90%
FHLMC mortgage-backed securities	218		0.59	332	0.72	589	1.60
FNMA mortgage-backed securities	323		0.88	383	0.83	909	2.47
	2,343		6.35	2,517	5.47	3,301	8.97
Available for sale (at fair value):
Agency securities	13,842		37.51	11,194	24.33	-	-
REMICs	1,873		5.07	3,015	6.55	6,421	17.45
FHLMC mortgage-backed securities	9,507		25.76	7,190	15.63	6,097	16.57
FNMA mortgage-backed securities	239		0.65	402	0.88	551	1.50
Municipal securities	4,072		11.03	4,270	9.28	2,751	7.48
Trust preferred securities	5,031		13.63	5,019	10.91	4,975	13.52
Equity securities	-		-	12,400	26.95	12,700	34.51
	34,564		93.65	43,490	94.53	33,495	91.03
Total investment securities	$36,907		100.00%	$46,007	100.00%	$ 36,796	100.00%

The following table sets forth the maturities and weighted average yields in the securities portfolio at March 31, 2005.

 

		Less Than One Year			One to Five Years			More Than Five to Ten Years		More Than Ten Years
			Weighted Average Yield(1)			Weighted Average Yield(1)			Weighted Average Yield(1)		Weighted Average Yield(1)
	Amount			Amount			Amount			Amount
	(Dollars in thousands)
Municipal securities	$          -		- %	$     2,016		4.17%	$         -		-%	$ 2,056	4.50%
Agency securities	-		-	13,842		3.21	-		-	-	-
REMICs	-		-	127		3.74	-		-	3,548	4.02
FHLMC mortgage-    backed securities	-		-	1,299		6.16	8,209		4.02	217	4.03
FNMA mortgage-backed    securities	-		-	67		6.85	172		5.91	323	4.62
Trust preferred    securities	-		-	-		-	-		-	5,031	4.33
Total	$          -		-%	$17,351		3.56%	$ 8,381		4.06%	$11,175	4.27%

(1)   For available for sale securities carried at fair value, the weighted average yield is computed using amortized
cost.

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In addition to U.S. Government treasury obligations, the Company invests in mortgage-backed securities and REMIC's. Mortgage-backed securities ("MBS"), which are also known as mortgage participation certificates or pass-through certificates, represent a participation interest in a pool of single-family or multi-family mortgages. Principal and interest payments on mortgage-backed securities are passed from the mortgage originators, through intermediaries such as FNMA, FHLMC, the Government National Mortgage Association ("GNMA") or private issuers that pool and repackage the participation interests in the form of securities, to investors such as the Company. Mortgage-backed securities generally increase the quality of the Company's assets by virtue of the guarantees that back them, are more liquid than individual mortgage loans and may be used to collateralize borrowings or other obligations of the Company. See Note 5 of the Notes to the Consolidated Financial Sta tements contained in Item 8 of this Form 10-K for additional information.

REMICs are created by redirecting the cash flows from the pool of mortgages or mortgage-backed securities 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. At March 31, 2005, the Company held REMICs with a net carrying value of $3.7 million, of which $1.8 million were classified as held-to-maturity and $1.9 million of which were available-for-sale. 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, 2005, the Company owned no privately issued REMICs .

Investments in mortgage-backed securities, 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.

The investment in municipal securities was $4.1 million at March 31, 2005 compared to $4.3 million at March 31, 2004. Total equity securities investment was none at March 31, 2005, compared to $12.4 million at March 31, 2004. The equity securities were sold in the fourth quarter of fiscal year 2005.

In the third quarter of fiscal 2005, the Company recognized a $1.3 million non-cash pre-tax charge to operations for investments in FHLMC preferred stock and FNMA preferred stock. Under SFAS No. 115, if the decline in fair market value below cost is determined to be other-than-temporary, the unrealized loss will be realized as expense on the income statement. Based on a number of factors, including the magnitude of the drop in the market value below the Company's cost and the length of time the market value had been below cost, management concluded that the decline in value was other-than-temporary at the end of the third quarter of fiscal year 2005. Accordingly, the other-than-temporary impairment was realized in the income statement, in the amount of $699,000 for FNMA preferred stock and $650,000 FHLMC preferred stock. A corresponding reduction in unrealized losses in the accumulated other comprehensive income (loss) category in shareholders' equity was realized in the a mount of $461,000 for FNMA preferred stock and $429,000 for FHLMC preferred stock. In the fourth quarter of fiscal 2005, these preferred stocks were sold at a pre-tax gain of $164,000.

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's 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

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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 its customer preferences and concerns. The Company generally reviews its deposit mix and pricing weekly.

Deposit Balances

The following table sets forth information concerning the Company's certificates of deposit, other interest-bearing and non-interest bearing deposits at March 31, 2005.

Interest Rate	Term	Category	Minimum        Amount	Balance	Percent  of Total Deposits
				(In thousands)
0.200%	None	NOW accounts	$ 100	$ 65,667	14.37%
2.551	None	High yield checking	25,000	50,562	11.07
0.550	None	Regular savings	500	35,513	7.77
1.437	None	Money market	2,500	76,331	16.71
None	None	Non-interest checking	100	79,499	17.40
	Total transaction accounts			307,572	67.32
		Certificates of Deposit
2.719	91 Days	Fixed-term, Fixed-rate	2,500	7,345	1.61
2.135	182-364 Days	Fixed-term, Fixed-rate	2,500	20,517	4.49
2.106	12-17 Months	Fixed-term, Fixed-rate	2,500	31,070	6.80
1.900	18 Months	Fixed-term, Variable   rate, Individual   Retirement account   ("IRA")	100	1,329	0.29
1.478	18-23 Months	Fixed-term, Fixed-rate	2,500	1,899	0.42
2.703	24-35 Months	Fixed-term, Fixed-rate	2,500	28,384	6.21
4.252	36-59 Months	Fixed-term, Fixed-rate	2,500	36,674	8.03
4.491	60-83 Months	Fixed-term, Fixed-rate	2,500	14,984	3.28
4.721	84-120 Months	Fixed-term, Fixed-rate	2,500	7,104	1.55
	Total certificates of deposit			149,306	32.68%
	Total deposits			$456,878	100.00%

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Deposit Flow

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

			At March 31,
			2005				2004			2003
			Balance	Percent	Increase/     Decrease)		Balance	Percent	Increase/   Decrease)	Balance	Percent	Increase/ Decrease)
			(Dollars in thousands)
Non-interest-bearing demand		$79,499		17.40%	$    17,597	$      61,902		15.13%	$(16,562)	$ 78,464	24.46%	$ 45,890
NOW accounts			65,667	14.37	(51)	65,718		16.06	38,605	27,113	8.45	(5,597)
High-yield checking			50,562	11.07	894	49,668		12.14	14,131	35,537	11.08	30,183
Regular savings accounts			35,513	7.77	6,179	29,334		7.17	4,479	24,855	7.75	2,916
Money market deposit accounts			76,331	16.71	6,347	69,984		17.11	16,267	53,717	16.75	(928)
Certificates of deposits which mature (1):
Within 12  months	77,058			16.87	(9,214)	86,272		21.09	15,117	71,155	22.19	(15,784)
Within 12-36 months	39,106			8.56	6,684	32,422		7.92	9,803	22,619	7.05	3,249
Beyond 36 months	33,142			7.25	19,327		13,815	3.38	6,533	7,282	2.27	1,123
Total	$456,878			100.00%	$47,763	$ 409,115		100.00%	$ 88,373	$320,742	100.00%	$61,052

(1)    IRAs of $15.4 million, $13.9 million and $12.9 million at March 31, 2005, 2004 and 2003, respectively, are included
        in certificate of deposit balances.

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Certificates of Deposit by Rates and Maturities

The following table sets forth the certificates of deposit in the Company classified by rates as of the dates indicated.

		At March 31,
	2005		2004	2003
	(In thousands)
Below 2.00%	$    34,136		$    63,241	$   43,969
2.00 - 2.99%	37,157		23,307	17,483
3.00 -  3.99%	36,216		14,221	18,770
4.00 - 4.99%	30,277		17,224	7,452
5.00 - 5.99%	9,670		10,230	7,058
6.00 - 7.99%	1,850		4,286	6,324
Total	$ 149,306		$ 132,509	$ 101,056

The following table sets forth the amount and maturities of certificates of deposit at March 31, 2005.

		Amount Due
	Less Than  One Year		1-2   Years	After   2-3 Years	After  3 Years	Total
	(In thousands)
Below 2.00%	$  31,370		$    2,675	$        68	$        23	$  34,136
2.00 - 2.99%	29,327		7,296	366	168	37,157
3.00 - 3.99%	10,020		9,441	12,220	4,535	36,216
4.00 - 4.99%	963		1,627	1,757	25,930	30,277
5.00 - 5.99%	3,804		1,875	1,613	2,378	9,670
6.00 - 7.99%	1,574		134	34	108	1,850
Total	$ 77,058		$ 23,048	$ 16,058	$ 33,142	$149,306

The following table presents the amount and weighted average rate of time deposits equal to or greater than $100,000 at March 31, 2005.

Maturity Period	Amount	Weighted Average Rate
	(Dollars in thousands)
Three months or less	$  13,814	2.55%
Over three through six months	8,719	3.23
Over six through 12 months	11,587	2.82
Over 12 Months	34,489	4.11
Total	$ 68,609	3.46%

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Deposit Activities

The following table sets forth the deposit activities of the Company for the periods indicated.

	Year Ended March 31,
	2005	2004	2003
	(In thousands)
Beginning balance	$409,115	$320,742	$259,690
Net increase before interest credited	42,342	83,618	55,535
Interest credited	5,421	4,755	5,517
Net increase in savings deposits	47,763	88,373	61,052
Ending balance	$456,878	$409,115	$320,742

In the unlikely event the Bank is liquidated, depositors are entitled to full payment of their deposit accounts prior to any payment being made to the shareholders of the Company. Substantially all of the Bank's depositors are residents of the States of Washington or Oregon.

Borrowings. Savings 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 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. Advances are made pursuant to several different programs. Each credit program has its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution's assets or on the FHLB's assessment of the institution's creditworthiness. 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, 2005, the Bank had $40.0 million of outstanding advances from the FHLB of Seattle under an available credit facility of $169.5 million, which is limited to available collateral.

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The following tables set forth certain information concerning the Company's borrowings at the dates and for the periods indicated.

	At March 31,
	2005	2004	2003
Weighted average rate on FHLB      advances	5.05%	4.88%	4.90%

	Year Ended March 31,
	2005	2004	2003
	(Dollars in thousands)
Maximum amounts of FHLB     advances outstanding     at any month end	$43,000	$40,000	$74,500
Average FHLB     advances outstanding	40,274	40,000	53,174
Weighted average rate on FHLB     advances	5.00%	4.96%	5.53%

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, 2005. The facility may be reduced or withdrawn at any time. As of March 31, 2005, the Bank did not have any outstanding advances on this facility.

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 our operations. In addition, the regulations governing us may be amended from time to time by the OTS. Any such legislation or regulatory changes in the future could adversely affect us. We cannot predict whether any such changes may occur.

General

The Bank, as a federally-chartered savings institution, is subject to federal regulation and oversight by the OTS extending to all aspects of its operations. The Bank also is subject to regulation and examination by the FDIC, which insures the deposits of the Bank to the maximum extent permitted by law, and requirements established by the Federal Reserve Board. Federally-chartered savings institutions are required to file periodic reports with the OTS and are subject to periodic examinations by the OTS and the FDIC. The investment and lending authority of savings institutions are prescribed by federal laws and regulations, and these institutions are prohibited from engaging in any activities not permitted by the laws and regulations. This regulation and supervision primarily is intended for the protection of depositors and not for the purpose of protecting shareholders.

The OTS regularly examines the Bank and prepares reports for the consideration of the Bank's Board of Directors on any deficiencies that it may find in the Bank's operations. The FDIC also has the authority to examine the Bank in its roles as the administrator of the SAIF. The Bank's relationship with its depositors and borrowers also is regulated to a great extent by both federal and state laws, especially in matters such as the ownership of savings accounts and the form and content of the Bank's mortgage requirements. Any change in these regulations, whether by theFDIC, the OTS or Congress, could have a material adverse impact on the Company, the Bank and their operations.

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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 and the FDIC. When these examinations are conducted by the OTS and the FDIC, the examiners may require the Bank to provide for higher general or specific loan loss reserves. All savings institutions are subject to a semi-annual assessment, based upon the institution's total assets, to fund the operations of 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,hority of the Bank is prescribed by federal laws and it is prohibited 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, 2005 was $114,557.

Federal law provides that savings institutions are generally subject to the national bank limit on loans to one borrower. A savings institution may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by specified readily-marketable collateral. At March 31, 2005, the Bank's regulatory limit on loans to one borrower is $8.6 million. At March 31, 2005, the Bank's largest single loan to one borrower was $8.3 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. At March 31, 2005, the Bank had $40.0 million of outstanding advances from the FHLB of Seattle under an available credit facility of $169.5 million, which is limited to available collateral. 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, 2005, the Bank had $6.1 million in FHLB stock, which was in compliance with this requirement. In past years, the Bank has received substantial dividends on its FHLB stock. Over the past two fiscal years such dividends have averaged 1.81% and 3.93% for the fiscal yearsended March 31, 2005 and 2004, respectively. As a result of the FHLB of Seattle recapitalization plans, the Bank recognized FHLB dividends on the cash basis for fiscal year 2005. For the

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year ended March 31, 2005, the Bank received $110,000 in dividends from the FHLB of Seattle. As of May 18, 2005, the FHLB-Seattle has suspended dividends on all classes of stock. For additional information see 'News' under 'Our Company' on the FHLB of Seattle's website at fhlbsea.com.

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

Deposit Insurance. The Bank is a member of the SAIF, which is administered by the FDIC. Deposits are insured up to the applicable limits by the FDIC and this insurance is backed by the full faith and credit of the United States.

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 SAIF. 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's deposit insurance premiums are assessed through a risk-based system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their level of capital and supervisory evaluation. Under the system, institutions classified as well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1 or core capital, to risk-weighted assets ("Tier 1 risk-based capital") of at least 6% and a risk-based capital ratio of at least 10%) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a risk-based capital ratio of less than 8%) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period.

The FDIC is authorized to increase assessment rates, on a semi-annual basis, if it determines that the reserve ratio of the SAIF will be less than the designated reserve ratio of 1.25% of SAIF insured deposits. In setting these increased assessments, the FDIC must seek to restore the reserve ratio to that designated reserve level, or such higher reserve ratio as established by the FDIC. The FDIC may also impose special assessments on SAIF members to repay amounts borrowed from the United States Treasury or for any other reason deemed necessary by the FDIC.

Since January 1, 1997, the premium schedule for Bank Insurance Fund ("BIF") and SAIF insured institutions has ranged from 0 to 27 basis points. However, SAIF and BIF insured institutions are required to pay a Financing Corporation assessment in order to fund the interest on bonds issued to resolve thrift failures in the 1980s equal to approximately 1.5 points for each $100 in domestic deposits annually. These assessments, which may be revised based upon the level of BIF and SAIF deposits, will continue until the bonds mature in the year 2017.

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 I (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 I 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."

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Compliance with the plan must be guaranteed by any parent holding company in an amount of up to the lesser of 5% of the institution's assets or the amount which would bring the institution into compliance with all capital standards. 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. 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, 2005, 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. At March 31, 2005, the Bank met the test and its QTL percentage was 69.43%.

Any savings institution that fails to meet the QTL test must convert to a national bank charter, unless it requalifies as a QTL and thereafter remains a QTL. If such an association has not yet requalified or converted to a national bank, its new investments and activities are limited to those permissible for both a savings institution and a national bank, and it is limited to national bank branching rights in its home state. In addition, the association is immediately ineligible to receive any new FHLB borrowings and is subject to national bank limits for payment of dividends. If such association has not requalified or converted to a national bank within three years after the failure, it must divest of all investments and cease all activities not permissible for a national bank. If any association that fails the QTL test is controlled by a holding company, then within one year after the failure, the holding company must register as a bank holding company and become subject to all restric tions on bank holding companies. See "- Savings and Loan Holding Company Regulations."

Capital Requirements. Federally-insured savings institutions, such as the Bank, are required to maintain a minimum level of regulatory capital. The OTS has established capital standards, including a tangible capital requirement, a leverage ratio (or core capital) requirement and a risk-based capital requirement applicable to such savings institutions. These capital requirements must be generally as stringent as the comparable capital requirements for national banks. The OTS is also authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis.

The OTS capital regulations require tangible capital of at least 1.5% of adjusted total assets, as defined by regulation. Tangible capital generally includes common stockholders' equity and retained income, and certain noncumulative perpetual preferred stock and related income. In addition, all intangible assets, other than a limited amount of purchased mortgage servicing rights, must be deducted from tangible capital for calculating compliance with the requirement. At March 31, 2005, the Bank had intangible assets in the form of mortgage servicing rights, goodwill and core deposit intangibles.

At March 31, 2005, the Bank had tangible capital of $53.0 million, or 9.54% of tangible assets, which is approximately $44.7 million above the minimum requirement of 1.5% of tangible assets as of that date.

The capital standards also require core capital equal to at least 4.0% of adjusted total assets unless an institution's supervisory condition is such to allow it to maintain a 3.0% ratio. Core capital generally consists of tangible capital plus certain intangible assets, including a limited amount of purchased credit card relationships. At March 31, 2005, the Bank's mortgage service rights were subject to these tests. At March 31, 2005, the Bank had core capital equal to $53.0 million, or 9.54% of adjusted total assets, which is $36.3 million above the minimum requirement of 4.0% in effect on that date.

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The OTS also requires savings institutions to have core capital equal to 4.0% of risk-weighted assets ("Tier 1 risk-based"). At March 31, 2005, the Bank had Tier 1 risk-based capital of $53.0 million or 11.42% of risk-weighted assets, which is approximately $34.4 million above the minimum on that date. The OTS also requires savings institutions to have total capital of at least 8.0% of risk-weighted assets. Total capital consists of core capital, as defined above, and supplementary capital. Supplementary capital consists of certain permanent and maturing capital instruments that do not qualify as core capital and general valuation loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used to satisfy the risk-based requirement only to the extent of core capital. The OTS is also authorized to require a savings institution to maintain an additional amount of total capital to account for concentration of credit risk and the risk of non-traditional activities.

In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet items, are multiplied by a risk weight, ranging from 0% to 100%, based on the risk inherent in the type of asset. For example, the OTS has assigned a risk weight of 50% for prudently underwritten permanent one- to four-family first lien mortgage loans not more than 90 days delinquent and having a loan-to-value ratio of not more than 80% at origination unless insured to such ratio by an insurer approved by Fannie Mae or Freddie Mac.

On March 31, 2005, the Bank had total risk-based capital of approximately $57.4 million, including $53.0 million in core capital and $4.4 million in qualifying supplementary capital, and risk-weighted assets of $464.0 million, or total capital of 12.37% of risk-weighted assets. This amount was $20.3 million above the 8.0% requirement in effect on that date.

The OTS and the FDIC are authorized and, under certain circumstances, required to take certain actions against savings institutions that fail to meet their capital requirements. The OTS is generally required to take action to restrict the activities of an "undercapitalized institution," which is an institution with less than either a 4.0% core capital ratio, a 4.0% Tier 1 risked-based capital ratio or an 8.0% risk-based capital ratio. Any such institution must submit a capital restoration plan and until the plan is approved by the OTS, may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions. The OTS is authorized to impose the additional restrictions that are applicable to significantly undercapitalized institutions. As a condition to the approval of the capital restoration plan, any company controlling an undercapitalized institution must agree that it will enter into a limited capit al maintenance guarantee with respect to the institution's achievement of its capital requirements.

Any savings institution that fails to comply with its capital plan or has Tier 1 risk-based or core capital ratios of less than 3.0% or a risk-based capital ratio of less than 6.0% and is considered "significantly undercapitalized" will be made subject to one or more additional specified actions and operating restrictions which may cover all aspects of its operations and may include a forced merger or acquisition of the institution. An institution that becomes "critically undercapitalized" because it has a tangible capital ratio of 2.0% or less is subject to further mandatory restrictions on its activities in addition to those applicable to significantly undercapitalized institutions. In addition, the OTS must appoint a receiver, or conservator with the concurrence of the FDIC, for a savings institution, with certain limited exceptions, within 90 days after it becomes critically undercapitalized. Any undercapitalized institution is also subject to the general enforcement authority of th e OTS and the FDIC, including the appointment of a conservator or a receiver.

The OTS is also generally authorized to reclassify an institution into a lower capital category and impose the restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition. The imposition by the OTS or the FDIC of any of these measures on the Bank may have a substantial adverse effect on its operations and profitability.

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

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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 FDIA. 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 SAIF. If so, it may require that no SAIF member engage in that activity directly.

Transactions with Affiliates. Savings institutions must comply with Sections 23A and 23B of the Federal Reserve Act relative to transactions with affiliates in the same manner and to the same extent as if the savings institution were a Federal Reserve member bank. Generally, transactions between a savings institution or its subsidiaries and its affiliates are required to be on terms as favorable to the association as transactions with non-affiliates. In addition, certain of these transactions, such as loans to an affiliate, are restricted to a percentage of the institution's capital. Affiliates of the Bank include the Company and any company which is under common control with the Bank. In addition, a savings institution may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of most affiliates. The OTS has the discretion to treat subsidiaries of savings institutions as affiliates on a case by case basis.

On April 1, 2003, the Federal Reserve's Regulation W, which comprehensively amends sections 23A and 23B of the Federal Reserve Act, became effective. The Federal Reserve Act and Regulation W are applicable to savings institutions such as the Bank. The Regulation unifies and updates staff interpretations issued over the years, incorporates several new interpretative proposals (such as to clarify when transactions with an unrelated third party will be attributed to an affiliate) and addresses new issues arising as a result of the expanded scope of nonbanking activities engaged in by banks and bank holding companies in recent years and authorized for financial holding companies under the Gramm-Leach-Bliley Financial Services Modernization Act of 1999.

In addition, OTS regulations prohibit a savings institution from lending to any of its affiliates that is engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary.

Certain transactions with directors, officers or controlling persons are also subject to conflict of interest regulations enforced by the OTS. These conflict of interest regulations and other statutes also impose restrictions on loans to such persons and their related interests. Among other things, such loans must be made on terms substantially the same as for loans to unaffiliated individuals.

Community Reinvestment Act.Under the Community Reinvestment Act, every FDIC-insured institution has a continuing and affirmative obligation consistent with safe and sound banking practices to help meet the credit needs

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 of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act 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 Community Reinvestment Act. The Community Reinvestment Act 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 Community Reinvestment Act in the past few years, the Bank may be required to devote additional funds for investment an d lending in its local community. The Bank was examined for Community Reinvestment Act compliance and received a rating of satisfactory in its latest examination.

Affiliate Transactions. The Company and the Bank are separate and distinct legal entities. Various legal limitations restrict the Bank from lending or otherwise supplying funds to the Company, generally limiting any single transaction to 10% of the Bank's capital and surplus and limiting all such transactions to 20% of the Bank's capital and surplus. These transactions also must be on terms and conditions consistent with safe and sound banking practices that are substantially the same as those prevailing at the time for transactions with unaffiliated companies.

Federally insured savings institutions are subject, with certain exceptions, to certain restrictions on extensions of credit to their parent holding companies or other affiliates, on investments in the stock or other securities of affiliates and on the taking of such stock or securities as collateral from any borrower. In addition, these institutions are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or the providing of any property or service.

Regulatory and Criminal Enforcement Provisions.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 amount to $25,000 per day, or $1.1 million per day in especially egregious cases. 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.

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 often substantially exceed the value of the collateral property.

Privacy Standards. On November 12, 1999, the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 ("GLBA") was signed into law. The purpose of this legislation is to modernize 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.

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The regulations also require the Bank to provide its customers with initial and annual notices that accurately reflect its privacy policies and practices. In addition, the Bank is required to provide its customers with the ability to "opt-out" of having the Bank share their non-public personal information with unaffiliated third parties before they can disclose such information, subject to certain exceptions.

The Bank is subject to regulatory guidelines establishing standards for safeguarding customer information. These regulations implement certain provisions of the GLBA. The guidelines describe the agencies' expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to insure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.

Anti-Money Laundering and Customer Identification.In response to the terrorist events of September 11, 2001, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA Patriot Act") was signed into law on October 26, 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. The Bank Secrecy Act, Title III of the USA Patriot Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions. Title III of the USA Patriot Act and the related OTS regulations impose the following requirements with respect to financial institutions:

• establishment of anti-money laundering programs;
• establishment of a program specifying procedures for obtaining identifying information from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time;
• establishment of enhanced due diligence policies, procedures and controls designed to detect and report money laundering;
• prohibitions on correspondent accounts for foreign shelled banks and compliance with record keeping obligations with respect to correspondent accounts of foreign banks.

Bank regulators are directed to consider a holding company's effectiveness in combating money laundering when ruling on Federal Reserve Act and Bank Merger Act applications. The Bank's policies and procedures have been updated to reflect the requirements of the USA Patriot Act, which had a minimal impact on business and customers.

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.

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 insurance funds, the convenience and the needs of the community and competitive factors.

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Activities Restrictions. As a unitary savings and loan holding company, the Company generally is not subject to activity restrictions. The Company and its non-savings institution subsidiariesare subject to statutory and regulatory restrictions on their business activities specified by federal regulations, which includeperforming services and holding properties used by a savings institution subsidiary, activities authorized for savings and loan holding companies as of March 5, 1987, and non-banking activities permissible for bank holding companies pursuant to the Bank Holding Company Act of 1956 or authorized for financial holding companies pursuant to the GLBA.

If the Bank fails the QTL test, the Company must, within one year of that failure, register as, and will become subject to, the restrictions applicable to bank holding companies. See "- Federal Regulation of Savings Institutions - Qualified Thrift Lender Test."

Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act") was signed into law on July 30, 2002 in response to public concerns regarding corporate accountability in connection with recent accounting scandals. The stated goals of the 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. 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.

Taxation

For details regarding the Company's Federal 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, 2005, the Company had 197 full-time equivalent employees, none of whom are represented by a collective bargaining unit. The Company believes its relationship with its employees is good.

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

Name	Age (1)	Position
Patrick Sheaffer	65	Chairman of the Board and Chief Executive Officer
Ron Wysaske	52	President and Chief Operating Officer
David A. Dahlstrom	54	Executive Vice President and Chief Credit Officer
Ron Dobyns	56	Senior Vice President and Chief Financial Officer
John A. Karas	56	Senior Vice President
James D. Baldovin	46	Senior Vice President
Terry Long	46	Senior Vice President

(1)At March 31, 2005.

Patrick SheafferisChairman 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 1965. He is responsible for leadership and management of the Company. Mr. Sheaffer is active in numerous professional and civic organizations.

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Ron 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, Executive Vice President and Chief Credit Officer, was hired in May 2002. He is responsible for all Riverview lending divisions related to its commercial, mortgage and consumer loan activities. Prior to joining Riverview, 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.

Ron Dobynsis Senior Vice President and Chief Financial Officer of the Company. Prior to February 2004, Mr. Dobyns served as Controller since 1996. He is responsible for accounting, SEC reporting as well as treasury functions for the Bank and the Company. He is a State of Oregon certified public accountant, holds an M.B.A. from the University of Minnesota and is a graduate of Pacific Coast Banking School.

John A. Karas, Senior Vice President of the Bank, also serves as Chairman of the Board, President and CEO of our subsidiary, Riverview Asset Management Corp. Mr. Karas came to Riverview in 1999 with 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 a Certified Trust and Financial Advisor. Mr. Karas is also active in numerous civic organizations.

James D. Baldovin, Senior Vice President, was hired in January 2003 to head Riverview's Retail Banking Division. Mr. Baldovin is responsible for Riverview's retail banking presence which includes the branch banking network, customer service, marketing, and community involvement. During his 24 year banking career, he has directed sales team efforts in retail banking, small business and commercial lending. Mr. Baldovin holds a B.A. from Linfield College, is a graduate of the Pacific Coast Banking School and is active in civic organizations.

Terry Long, Senior Vice President, was hired in June 1996 and heads our Operations and IT departments. Mr. Long has more than 20 years of diversified financial institution experience. An M.B.A. graduate of Fairfield University and Linfield College alum, Mr. Long serves on the Banking Advisory Council of the America's Community Bankers National School of Banking and works with groups benefiting several high schools in Portland.

Item 2. Properties

The following table sets forth certain information relating to the Company's offices as of March 31, 2005.

Location	Year Opened	Approximate Square Footage	Deposits
Main Office:			(In millions)
900 Washington, Suite 900 Vancouver, Washington (1)	2000	16,000	$ 36.8
Branch Offices:
700 N.E. Fourth Avenue Camas, Washington (1)(2)	1975	25,000	54.9

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3307 Evergreen Way Washougal, Washington (1)(2)(3)	1963	3,200	29.9
225 S.W. 2nd Street Stevenson, Washington (2)	1971	1,700	30.5
330 E. Jewett Boulevard White Salmon, Washington (2)(4)	1977	3,200	28.8
15 N.W. 13th Avenue Battle Ground, Washington (2)(5)	1979	2,900	33.6
412 South Columbus Goldendale, Washington (2)	1983	2,500	15.4
11505-K N.E. Fourth Plain Boulevard Vancouver, Washington (2)	1994	3,500	23.7
7735 N.E. Highway 99 Vancouver, Washington (1)(6)(2)	1994	4,800	26.2
1011 Washington Way Longview, Washington (6)(2)	1994	2,000	18.4
900 Washington St., Suite 100 Vancouver, Washington (1)(2)	1998	5,300	94.0
1901-E N.E. 162nd Avenue Vancouver, Washington (1)(2)	1999	3,200	14.6
800 N.E. Tenney Road, Suite D Vancouver, Washington (2)	2000	3,200	19.4
915 MacArthur Blvd. Vancouver, Washington (1)(2)(7)	2003	3,000	30.7
204 S.E. Park Plaza Dr., #109 Vancouver, Washington (1)(2)(7) Cascade Park Mortgage Center	2003	2565	-

(1)    Leased.
(2)    Location of an automated teller machine.
(3)    New facility in 2001.
(4)    New facility in 2000.
(5)    New facility in 1994.
(6)    Former branches of Great American Federal Savings Association, San Diego, California, that were acquired
        from the Resolution Trust Corporation on May 13, 1994. In the acquisition, the Company assumed all
        insured deposit liabilities of both branch offices totaling approximately $42.0 million.
(7)   Former location of Today's Bank, Vancouver, Washington, acquired on July 18, 2003.

During second quarter of fiscal year 2001, the Company's main office for administration was relocated from Camas to the downtown Vancouver address of 900 Washington Street. The Washougal branch office was relocated during the first quarter of the fiscal year 2001.

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The Company uses an outside data processing system to process customer records and monetary transactions, post deposit and general ledger entries and record activity in installment lending, loan servicing and loan originations. At March 31, 2005, the net book value of the Company's office properties, furniture, fixtures and equipment was $8.4 million.

Management believes that the facilities are of sound construction and good operating condition, and are appropriately insured and adequately equipped for carrying on the business of the Company.

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, 2005.

PART II

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

At March 31, 2005, there were 5,015,753 shares Company Common Stock issued and 5,015,749 outstanding, 821 stockholders of record and an estimated 1,500 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 Holding Company which utilize a three-tiered appro ach 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 Company below the amount required for the liquidation account established pursuant to the Company's Plan of Conversion adopted in connection with the Conversion and Reorganization. See Note 1 of the Notes to the Consolidated Financial Statements contained in Item 8 of this Form 10-K.

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The common stock of the Company has traded on the Nasdaq National Market System under the symbol "RVSB" since October 2, 1997. From October 22, 1993 until October 2, 1997, the common stock of the Company traded on The Nasdaq SmallCap Market under the same symbol. The following table sets forth the high and low trading prices, as reported by Nasdaq, and cash dividends paid for each quarter during 2005 and 2004 fiscal years. At March 31, 2005, there were ten market makers in the Company's common stock as reported by the Nasdaq Stock Market.

Fiscal Year Ended March 31, 2005	High	Low	Cash Dividends Declared
Quarter Ended March 31, 2005	$22.48	$21.00	$0.155
Quarter Ended December 31, 2004	22.50	20.95	0.155
Quarter Ended September 30, 2004	21.65	19.85	0.155
Quarter Ended June 30, 2004	21.00	19.49	0.155

Fiscal Year Ended March 31, 2004	High	Low	Cash Dividends Declared
Quarter Ended March 31, 2004	$21.43	$19.35	$0.140
Quarter Ended December 31, 2003	21.74	19.09	0.140
Quarter Ended September 30, 2003	20.50	18.08	0.140
Quarter Ended June 30, 2003	18.30	16.30	0.140

Stock Repurchase

The shares are being repurchased from time-to-time in open market transactions. The timing, volume and price of purchases will be made at our discretion, and will also be contingent upon our overall financial condition, as well, as market conditions in general. The following table reflects activity for the three months ended March 31, 2005.

                                                               Common Stock Repurchased

	Total Number ofShares Purchased (1)	Average Price Paid per Share	Maximum Number of shares that May Yet Be Purchased Under the Program (2)
December 31, 2004 - January 1, 2005
February 1, 2005 - February 28, 2005	-	-	-
March 1, 2005 - March 31, 2005
Balance at March 31, 2005	-	-	133,204

(1)    In September 2002, the Company announced a stock repurchase of up to 5%, or 214,000 shares, of its outstanding
        common stock. This program expires when all shares under the plan have been repurchased.

Securities for Equity Compensation Plans

Please refer to item 12 for a listing of securities authorized for issuance under equity compensation plans.

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Item 6. Selected Financial Data

The following tables set forth certain information concerning the consolidated financial position and results of operations of the Company at the dates and for the periods indicated.

	At March 31,
	2005	2004	2003		2002	2001
	(In thousands)
FINANCIAL CONDITION DATA:
Total assets	$572,571	$520,487	$419,904	$392,101		$431,996
Loans receivable, net (1)	429,959	381,534	301,811	288,530		296,861
Mortgage-backed securities held      to maturity, at amortized cost	2,343	2,517	3,301	4,386		6,405
Mortgage-backed securities available      for sale, at fair value	11,619	10,607	13,069	36,999		43,139
Cash and interest-bearing deposits	61,719	47,907	60,858	22,492		38,935
Investment securities held to     maturity, at amortized cost	-	-	-	-		861
Investment securities available for     sale, at fair value	22,945	32,883	20,426	18,275		25,561
Deposit accounts	456,878	409,115	320,742	259,690		295,523
FHLB advances	40,000	40,000	40,000	74,500		79,500
Shareholders' equity	69,522	65,182	54,511	53,677		52,721

	Year Ended March 31,
	2005	2004	2003	2002	2001
	(In thousands)
OPERATING DATA:
Interest income	$29,968	$27,584	$26,461	$29,840	$31,343
Interest expense	7,395	6,627	8,417	14,318	16,288
Net interest income	22,573	20,957	18,044	15,522	15,055
Provision for loan losses	410	210	727	1,116	949
Net interest income after provision for loan losses	22,163	20,747	17,317	14,406	14,106
Gains (losses) from sale of loans, securities and real estate owned	(672)	1,003	(531)	1,964	129
Gain on sale of land and fixed assets	830	3	-	4	540
Other non-interest income	6,348	5,583	4,469	4,583	3,293
Non-interest expenses	19,104	17,572	14,908	13,953	12,867
Income before federal income taxes	9,565	9,764	6,347	7,004	5,201
Provision for federal income taxes	3,036	3,210	1,988	2,136	1,644
Net income	$6,529	$ 6,554	$4,359	$4,868	$ 3,557

(1) Includes loans held for sale

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		At March 31,
	2005		2004	2003	2002	2001
OTHER DATA:
Number of:
Real estate loans outstanding	3,037		3,141	2,904	2,176	2,510
Deposit accounts	29,341		27,209	25,752	26,625	26,068
Full service offices	13		13	12	12	12

		At or For the Year Ended March 31,
	2005		2004	2003	2002	2001
KEY FINANCIAL RATIOS:
Performance Ratios:
Return on average assets	1.24%		1.35%	1.07%	1.16%	0.94%
Return on average equity	9.56		10.60	7.99	9.01	7.04
Dividend payout ratio (1)	45.59		39.72	50.00	41.51	51.94
Interest rate spread	4.38		4.42	4.28	3.29	3.37
Net interest margin	4.74		4.76	4.83	4.04	4.27
Non-interest expense to   average assets	3.62		3.61	3.66	3.34	3.41
Efficiency ratio (2)	65.70		63.79	67.82	63.21	67.66
Asset Quality Ratios:
Average interest-earning assets    to interest-bearing liabilities	123.45		122.53	124.62	120.49	119.75
Allowance for loan losses to    total net loans at end of period	1.01		1.16	0.90	0.87	0.64
Net charge-offs to    average outstanding loans during    the period	0.13		0.31	0.12	0.14	0.14
Ratio of nonperforming assets    to total assets	0.13		0.39	0.18	0.61	0.24
Capital Ratios:
Average equity to average assets	12.92		12.72	13.39	12.93	13.41
Equity to assets at end of fiscal year	12.14		12.52	12.98	13.69	12.20

(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

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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.

Special Note Regarding Forward-Looking Statements

Management's Discussion and Analysis 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 our 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 contr ol 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.

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 ("GAAP") in the preparation of the Company's Consolidated Financial Statements. The Company has identified three policies, that due to judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company's Consolidated Financial Statements. These policies relate to the methodology for the determination of the allowance for loan losses, the valuation of the mortgage servicing rights ("MSR's") and the impairment of investments. 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 and Note 9, "Mortgage Servicing Rights" provides details used in valuing the Company's MSR's and the effect of changes to certain assumptions. 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

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repayment. The appropriate allowance level is estimated based upon factors and trends identified by management at the time the consolidated financial statements are prepared.

Mortgage Servicing Rights
The Company stratifies its MSR's based on the predominant characteristics of the underlying financial assets including coupon interest rate and contractual maturity of the mortgage. An estimated fair value of MSR's 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 prepayments 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 MSR's portfolio.

The Company's methodology for estimating the fair value of MSR's is highly sensitive to changes in assumptions. For example, the determination of fair value uses anticipated prepayment speeds. Actual prepayment experience may differ and any difference may have a material effect on the fair value. Thus, any measurement of MSR's fair value is limited by the conditions existing and assumptions made as of the date made. Those assumptions may not be appropriate if they are applied to a different time.

Future expected net cash flows from servicing a loan in the servicing portfolio would not be realized if the loan is paid off earlier than anticipated. Moreover, since most loans within the servicing portfolio do not contain penalty provisions for early payoff, the Company will not receive a corresponding economic benefit if the loan pays off earlier than expected. MSR's are the discounted present value of the future net cash flows projected from the servicing portfolio. Accordingly, prepayment risk subjects the Company's MSR's to impairment. MSR's impairment is recorded in the amount that the estimated fair value is less than the MSR's carrying value on a strata by strata basis.

Investment Valuation
The Company's determination of impairment for various types of investments accounted for in accordance with SFAS No. 115 is predicated on the notion of other-than-temporary. The key indicator that an investment may be impaired is that the fair value of the investment is less than its carrying value. Each reporting period, the Company reviews those investments the fair value is less than carrying value. The review includes determining whether certain indicators indicated the fair value of the investment has been negatively impacted. These indicators include deteriorating financial condition, regulatory, economic or technological changes, downgrade by a rating agency and length of time the fair value has been less than carrying value. If any indicators of impairment are present, management determines the fair value of the investment and compares this to its carrying value. If the fair value of the investment is less than the carrying value of the investment, the investment is considered impaired a nd a determination must be made as to whether the impairment is other-than-temporary.

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. If the cost basis of these securities is determined to be other-than-temporary impaired, the amount of the impairment is charged to operations.

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, unless the security is deemed other-than-temporary impaired. If the security is determined to be other-than-temporary impaired, the amount of the impairment is charged to operations.

The Company's underlying principle in determining whether impairment is other-than-temporary is an impairment shall be deemed other-than-temporary unless 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

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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, and that 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.

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.

Since the end of fiscal 1998, the Company has added three branches including the branch in downtown Vancouver. In addition, the July 2003 acquisition of Today's Bancorp, Inc. added one branch and a lending center. The Washougal branch was relocated to a new facility, and the Stevenson, White Salmon and Goldendale branches were remodeled. The number of automated teller machines increased from six to 17 so that each branch location now is serviced by at least one automated teller machine.

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 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 2005 marked the 82nd anniversary since the Bank opened its doors in 1923. The historical emphasis has been on residential real estate lending, however, the Company began diversifying its loan portfolio through the expansion of commercial loans in 1998. In fiscal 2000, the Company had four experienced commercial lenders and currently there are seven commercial lenders who are expanding the commercial lending services available to the Company's customers. In fiscal 2000, commercial loans including commercial real estate as a percentage of the loan portfolio were 21.59%, which has increased to 64.72% of total loans at the end of fiscal year 2005. 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 profitability.

The Company's relationship banking has been enhanced by the 1998 addition of Riverview Asset Management Corp, 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. The fair market value of assets under management has increased from $134.7 million at March 31, 2004, to $174.8 million at March 31, 2005.

Net Interest Income

The Company's profitability depends primarily on its net interest income, which is the difference between the income it receives on interest-earning assets and its cost of funds, which consists of interest paid on deposits and borrowings. Net interest income is also affected by the relative amounts of interest-earning assets and interest-bearing liabilities. When interest-earning assets equal or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income. The level of non-interest income and expenses also affects the Company's profitability. Non-interest income includes deposit service fees, income associated with the origination and sale of mortgage loans, brokering loans, loan servicing fees, income from real estate owned, net gains and losses on sales of interest-earning assets, bank owned life insurance income and asset management fee income. Non-interest expenses include compensation and benefits, occupancy and equipment expenses, deposit insurance premiums, data servicing expenses and other operating costs. The Company's results of operations are also significantly affected by general

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economic and competitive conditions, particularly changes in market interest rates, government legislation and regulation, and monetary and fiscal policies.

Comparison of Financial Condition at March 31, 2005 and 2004

At March 31, 2005, the Company had total assets of $572.6 million compared with $520.5 million at March 31, 2004. The increase in total assets was primarily as a result of the increase in loans outstanding. Cash, including interest-earning accounts, totaled $61.7 million at March 31, 2005, compared to $47.9 million at March 31, 2004, as a result of the Company's increase in total deposits.

Loans receivable, net, were $429.4 million at March 31, 2005, compared to $381.1 million at March 31, 2004, a 12.7% increase. The increases in commercial real estate, commercial construction, land, and consumer loans were partially offset by decreases in one- to four- family residential, multi-family, construction one- to four- family, and multi-family construction loans. Decreases in one- to four- family residential loans reflect managements decision to sell fixed interest rate mortgages and retain adjustable rate interest rate mortgages in the loan portfolio. As interest rates fall, loan volume shifts to fixed rate production. Conversely, in a rising interest rate environment, loan volume will shift to adjustable rate production. Selling fixed interest rate mortgage loans allows the Company to reduce the interest rate risk associated with long term fixed interest rate products. It also provides additional funds for new loans and provides a means for the diversification of the loan portfolio. The Company continues to service the loans it sells, maintaining the customer relationship and generating ongoing non-interest income. 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 areas.

Investment securities available-for-sale was $22.9 million at March 31, 2005, compared to $32.9 million at March 31, 2004. The decrease reflects pay downs of $3.7 million and the fiscal year 2005 third quarter impairment write down on Freddie Mac and Fannie Mae of $1.3 million and the subsequent sale of these securities during the fourth quarter with outstanding balances of $11.4 million. During the first and fourth quarter of fiscal year 2005 $6.4 million of agencies bonds were purchased by the Company.

Mortgage-backed securities held-to-maturity was $2.3 million at March 31, 2005, compared to $2.5 million at March 31, 2004. The $200,000 decrease was a result of pay downs.

Mortgage-backed securities available-for-sale was $11.6 million at March 31, 2005, compared to $10.6 million at March 31, 2004. The $1.0 million decrease was a result of pay downs.

Deposit accounts totaled $456.9 million at March 31, 2005 compared to $409.1 million at March 31, 2004. The increase in deposits is primarily a result of the increases in certificates of deposit and non-interest bearing account balances. Checking accounts and money market accounts ("transaction accounts") total average outstanding balance increased 10.3% to $243.2 million at March 31, 2005, compared to $220.1 million at March 31, 2004. Transaction accounts represented 58.8% and 57.9% of average total outstanding balance of deposits at March 31, 2005 and March 31, 2004, respectively.

FHLB advances were $40.0 million at March 31, 2005 and 2004. During the current year the Company borrowed and repaid overnight borrowings that totaled $15.1 million.

Shareholders' equity increased $4.3 million to $69.5 million at March 31, 2005 from $65.2 million at March 31, 2004. The increase was primarily the result of $6.2 million total comprehensive income, $520,000 earned ESOP shares and $595,000 exercise of stock options, offset by $3.0 million of cash dividends paid to shareholders.

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Comparison of Operating Results for the Years Ended March 31, 2005 and 2004

Net Income. Net income was $6.5 million, or $1.33 per diluted share for the year ended March 31, 2005, compared to $6.6 million, or $1.39 per diluted share for the year ended March 31, 2004.

Net Interest Income. Net interest income for fiscal year 2005 was $22.6 million, representing a $1.6 million, or a 7.7% increase, from $21.0 million in fiscal year 2004. This improvement reflected an 8.11% increase in the average balance of interest earning assets (primarily as a result of increases in the average balance of mortgage and non mortgage loans, mortgage-backed securities and investment securities, partially offset by a decrease in the average balance of daily interest bearing assets) to $479.5 million, which was offset by a 7.3% increase in the average balance of interest-bearing liabilities (an increase in all deposit categories and a $274,000 increase in FHLB borrowings) to $388.4 million. The ratio of average interest earning assets to average interest bearing liabilities increased to 123.45% in fiscal 2005 from 122.5% in fiscal 2004 which indicates that the interest-earning asset growth is being funded less by interest-bearing liabilities as compared to capital a nd non-interest-bearing demand deposits.

Interest Income. Interest income was $30.0 million for the fiscal year ended March 31, 2005 compared to $27.6 million, for the fiscal year ended 2004. Average interest-bearing assets increased $36.0 million to $479.5 million for fiscal 2005 from $443.5 million for fiscal 2004. The yield on interest-earning assets was 6.28% for fiscal year 2005 compared to 6.25% for fiscal 2004. The increased yield is the primarily the result of the higher yields on investment securities and daily interest earning assets that reflect the increases in interest rates that occurred during fiscal year 2005. The increased interest income is the result of the increase in the average balance of interest earning assets and the increase in the yield on interest earning assets.

Interest Expense. Interest expense for the year ended March 31, 2005 totaled $7.4 million, an $800,000 increase from $6.6 million for the year ended March 31, 2004. The increase in interest expense is the result of higher rates of interest that occurred during fiscal years 2004 and 2005. The weighted average interest rate of total deposits increased from 1.44% for the year ended March 31, 2004 to 1.55% for the year ended March 31, 2005. The weighted average interest rate of FHLB borrowings increased from 4.96% for the year ended March 31, 2004 to 5.00% for the year ended March 31, 2005. The level of liquidity in fiscal year 2005 allowed the runoff of high interest rate deposits acquired in the acquisition of Today's Bancorp and held FHLB borrowings at $40.0 million.

Provision for Loan Losses. The provision for loan losses for the year ended March 31, 2005 was $410,000 compared to $210,000 for the year ended March 31, 2004. The provision for loan losses increased during the year ended March 31, 2005 as net charge-offs decreased to $496,000 from $1.1 million in fiscal year 2004. Net charge-offs to average net loans was 0.13% for fiscal year 2005 as compared to 0.31% for prior year. Non-accrual loans continued to decrease from $1.3 million at March 31, 2004 to $456,000 at March 31, 2005. The allowance for loan losses was $4.4 million at March 31, 2005 compared to $4.5 million at March 31, 2004. The ratio of allowance for loan losses to total net loans was 1.01% at March 31, 2005 compared to 1.16% at March 31, 2004. The quality of the loan portfolio continues to increase as the criticized classified loan balances have decreased by $1.7 million and non-accrual loans decreased by $845,000 at March 31, 2005 compared to March 31, 2004. The mix o f the loan portfolio reflected an increase in the balances of commercial real estate loans, and construction, and consumer loans at March 31, 2005 as compared to balances at March 31, 2004. The loan loss rates for consumer and construction-other loans were increased by 0.25 basis points, speculative construction and multi-family loans were increased by 0.125 basis points, land and lots loans were increased by 0.50 basis points and commercial real estate loans were decreased by 0.25 basis points during fiscal year 2005 in order to reflect the risk of loss. Management considered the allowance for loan losses at March 31, 2005 to be adequate to cover probable losses inherent in the loan portfolio based on the assessment of various factors affecting the loan portfolio.

The Company establishes a general reserve for loan losses through a periodic provision for loan losses based on management's evaluation of the loan portfolio and current economic conditions. The provisions for loan losses are based on management's estimate of net realizable value or fair value of the collateral, as applicable, and the Company's actual loss experience, and standards applied by the OTS and the FDIC. The Company regularly reviews its loan portfolio, including non-performing loans, to determine whether any loans require classification or

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the establishment of appropriate reserves. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. These agencies may require the Company to provide additions to the allowance for loan losses based upon judgments different from those of management. The allowance for loan losses 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. This detailed analysis includes techniques to estimate the fair value of the loan collateral and the existence of potential alternative sources of repayment. Assessment of the adequacy of the allowance for loan losses involves subjective judgments regarding future event s, and thus there can be no assurance those additional provisions for credit losses will not be required in future periods. Although management uses the best information available, future adjustments to the allowance may be necessary as a result of economic, operating, regulatory and other conditions that may be beyond the Company's control. Any increase or decrease in the provision for loan losses may have a corresponding negative or positive effect on the Company's net income.

Non-Interest Income. Non-interest income decreased $83,000, or 1.3%, to $6.5 million for the year ended March 31, 2005 from $6.6 million for the same period in 2004. Excluding the $1.2 million net impairment charge of investment securities and subsequent gain on sale, non-interest income increased $1.1 million or 16.7% for the year ended March 31, 2005 when compared to the prior year. The decrease in loan servicing income for fiscal year 2005 reflects the $177,000 decrease in servicing amortization as the servicing portfolio has decreased. It also reflects a $22,000 increase in market valuation of mortgage servicing right compared to the $307,000 increase in market valuation of mortgage servicing rights in fiscal 2004. For the year ended March 31, 2005, fees and service charges increased $264,000, or 6.1%, when compared to the year ended March 31, 2004. The $264,000 increase in fees and service charges is primarily a result of the $240,000, or 18.1%, growth in mortgage broker fe es and a $46,000 increase in fees from deposit services in fiscal year 2005 as compared to fiscal year 2004. The increase in the number of mortgage brokers from nine to ten in fiscal year 2005 combined with the mortgage interest rates experienced in fiscal 2005 increased the volume of mortgage refinance activity as compared to the mortgage refinance activity in fiscal 2004. The increased mortgage refinance activity resulted in increased mortgage broker activity. The reduced gains on sale of loans held for sale reflected the mortgage broker activity having a higher proportion of brokered loans versus portfolio loans. Mortgage brokered loan production increased from $183.0 million in 2004 to $194.4 million in 2005. Mortgage broker fees (included in fees and service charges) totaled $1.6 million for the year ended March 31, 2005 compared to $1.3 million for the previous year. Mortgage broker commission compensation expense was $1.0 million for the fiscal ended March 31, 2005 compared to $976,000 for the f iscal ended March 31, 2004. Asset management services income was $1.1 million for the fiscal year 2005 compared to $906,000 for the fiscal year 2004. Riverview Asset Management Corp. had $174.8 million in total assets under management at March 31, 2005 compared to $134.7 million at March 31, 2004. In first quarter of fiscal year 2005 the Camas branch and operations center was sold and leased back resulting in a gain of $828,000.

Non-Interest Expense. Non-interest expense increased $1.5 million, or 8.7%, to $19.1 million for fiscal year 2005 compared to $17.6 million for fiscal year 2004. One measure of a bank's ability to contain non-interest expense is the efficiency ratio, which is calculated by dividing total non-interest expense (less intangible asset amortization) by the sum of net interest income plus non-interest income (less intangible asset amortization, lower of cost or market adjustments and securities impairment charge). The Company's efficiency ratio excluding intangible asset amortization, lower cost or market adjustments and securities impairment charge was 64.46% in fiscal 2005 compared to 61.84% in fiscal 2004.

The principle component of the Company's non-interest expense is salaries and employee benefits. For the year ended March 31, 2005, salaries and employee benefits, which includes mortgage broker commission compensation, was $10.8 million, an 8.71% increase over the prior year total of $9.9 million. Salaries also increased as the number of full-time equivalent employees increased to 197 at March 31, 2005 from 186 at March 31, 2004, which was primarily the result of the expansion related to increased staffing in branches and operations.

The acquisition of Today's Bancorp and the related acquisition of $105.1 million in deposit accounts created an $820,000 core deposit intangibles ("CDI"), representing the excess of cost over fair market of the acquired deposits.

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The CDI is being amortized over a ten-year life using an accelerated amortization method. The amortization expense was $138,000 for fiscal 2005, compared to $103,000 for fiscal 2004.

The acquisition of the Hazel Dell and Longview branches from the Resolution Trust Corporation in fiscal 1995 (see Item 2. Properties), and the related acquisition of $42.0 million in customer deposits created a $3.2 million core deposit intangible asset, representing the excess of fair value of deposits over the acquired cost. CDI was $42,000 at March 31, 2005 and was fully amortized during the fiscal year 2005. The amortization expense of CDI was $327,000 for the fiscal year 2004.

Provision for Federal Income Taxes. The provision for federal income taxes was $3.0 million for the year ended March 31, 2005 compared to $3.2 million for the year ended March 31, 2004. The primary reason the tax provision is lower in the current year compared to the prior year is a result of the tax treatment of an increase in the cash surrender value of bank owned life insurance. The effective tax rate for fiscal year 2005 was 31.7% compared to 32.8% for fiscal 2004. 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 federal income taxes.

Comparison of Operating Results for the Years Ended March 31, 2004 and 2003

Net Income. Net income was $6.6 million, or $1.39 per diluted share for the year ended March 31, 2004, compared to $4.4 million, or $0.99 per diluted share for the year ended March 31, 2003. Earnings were lower for the year ended March 31, 2003, primarily as a result of the pre-tax other-than-temporary non-cash charges of $1.6 million for FHLMC preferred stock and $700,000 for FNMA preferred stock.

Net Interest Income. Net interest income for fiscal year 2004 was $21.0 million, representing a $3.0 million, or a 16.7% increase, from $18.0 million in fiscal year 2003. This improvement reflected a 16.7% increase in the average balance of interest earning assets (primarily as a result of increases in the average balance of non mortgage loans, investment securities and daily interest bearing assets, partially offset by a decrease in the average balance of mortgage loans and mortgage-backed securities) to $443.5 million, which was offset by a 18.7% increase in the average balance of interest-bearing liabilities (a increase in all deposit categories and a decrease in FHLB borrowings) to $362.0 million. The ratio of average interest earning assets to average interest bearing liabilities decreased to 122.5% in fiscal 2004 from 124.6% in fiscal 2003 which indicates that the interest-earning asset growth is being funded more by interest-bearing liabilities as compared to capital and n on-interest-bearing demand deposits.

Interest Income. Interest income was $27.6 million for the fiscal year ended March 31, 2004 compared to $26.5 million for the fiscal year ended March 31, 2003. Average interest-bearing assets increased $63.6 million to $443.5 million for fiscal 2004 from $379.9 million for fiscal 2003. The yield on interest-earning assets was 6.25% for fiscal year 2004 compared to 7.04% for fiscal 2003. The decreased yield is the primarily the result of the lower yields on loans that reflect decreases in the Federal Reserve Board discount rates that occurred during fiscal years 2003 and 2004.

Interest Expense. Interest expense for the year ended March 31, 2004 totaled $6.6 million, a $1.8 million decrease from $8.4 million for the year ended March 31, 2003. The decrease in interest expense is the result of lower rates of interest paid on deposits and FHLB borrowings as a result of decreases in the Federal Reserve Board discount rates that occurred during fiscal years 2003 and 2004. The weighted average interest rate of total deposits decreased from 2.18% for the year ended March 31, 2003 to 1.44% for the year ended March 31, 2004. The weighted average interest rate of FHLB borrowings decreased from 5.53% for the year ended March 31, 2003 to 4.96% for the year ended March 31, 2004. The level of liquidity in fiscal year 2004 allowed the runoff of high interest rate deposits acquired in the acquisition of Today's Bancorp and held FHLB borrowings at $40.0 million.

Provision for Loan Losses. The provision for loan losses for the year ended March 31, 2004 was $210,000 compared to $727,000 for the year ended March 31, 2003. The provision for loan losses for the year ended March 31, 2004 was less than the $1.1 million net charge-offs for the year. The allowance for loan losses increased $1.7 million to $4.5 million at March 31, 2004 from $2.7 million at March 31, 2003. The ratio of allowance for loan losses to total net loans increased to 1.16% compared to 0.90% at March 31, 2003. Net charge-offs to average net

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loans for fiscal 2004 increased to 0.31% from 0.12% for fiscal 2003. The increase in the balance of the allowance for loan losses at March 31, 2004 reflects the acquisition of Today's Bancorp, the proportionate increase in loan balances, the change in mix of loan balances, the increase in substandard assets and a change in loss rate when compared to March 31, 2003. The acquisition of Today's Bancorp added $2.6 million to the allowance for loan losses and approximately $900,000 of the charge-offs was related to loans acquired in the acquisition. The mix of the loan portfolio showed an increase in the balances of commercial, commercial real estate loans, and construction, and consumer loans at March 31, 2004 as compared to balances at March 31, 2003. Substandard assets increased by $3.0 million to $5.7 million at March 31, 2004 compared to $2.7 million at March 31, 2003. The balance of substandard asset of $5.7 million at March 31, 2004 is a decrease of $5.2 million from the $10.9 million balance of substandard assets after the acquisition of Today's Bancorp. The loss rate for other mention loans was increased from 1.5% at March 31, 2003 to 4.0% at March 31, 2004 in order to reflect the risk of loss. Management considered the allowance for loan losses at March 31, 2004 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 increased $2.7 million, or 67.3%, to $6.6 million for the year ended March 31, 2004 compared to $3.9 million for the same period in 2003. Excluding the fiscal 2003 $2.1 million pretax loss on sale of securities and other-than-temporary impairment on equity investments, non-interest income increased $513,000, or 8.4%, for the year ended March 31, 2004 when compared to the prior year. The increase was primarily attributable to the loan servicing income of $158,000 for fiscal year 2004 compared to a loss of $619,000 for fiscal year 2003. The increase in loan servicing income for fiscal year 2004 reflects the $307,000 increase in market valuation of mortgage servicing rights in fiscal 2004 as compared to the $320,000 write-down of mortgage servicing rights in fiscal 2003. For the year ended March 31, 2004, fees and service charges increased $61,000 or 1.4% when compared to the year ended March 31, 2003. The $61,000 increase in fees and servi ce charges is primarily a result of the $275,000, or 10.1%, growth in fee income from deposit services that was offset by the $214,000 decrease in mortgage broker fees in fiscal year 2004 as compared to fiscal year 2003. The rise in mortgage rates experienced in fiscal 2004 reduced the volume of mortgage refinance activity as compared to the mortgage finance activity in fiscal 2003. The reduced mortgage refinance activity resulted in reduced mortgage broker activity and reduced gains on sale of loans held for sale. Mortgage brokered loan production decreased from $200.3 million in 2003 to $183.0 million in 2004. Mortgage broker fees (included in fees and service charges) totaled $1.3 million for the year ended March 31, 2004 compared to $1.5 million for the previous year. Mortgage broker commission compensation expense was $976,000 for the fiscal ended March 31, 2004 compared to $1.1 million for the fiscal ended March 31, 2003. Asset management services income was $906,000 for the fiscal year 2004 comp ared to $742,000 for the fiscal year 2003. Riverview Asset Management Corp. had $134.7 million in total assets under management at March 31, 2004 compared to $114.8 million at March 31, 2003. In fiscal year 2004, the Bank purchased $12.0 million of bank owned life insurance that increased non-interest income by $121,000.

Non-Interest Expense. Non-interest expense increased $2.7 million, or 17.9%, to $17.6 million for fiscal year 2004 compared to $14.9 million for fiscal year 2003. One measure of a bank's ability to contain non-interest expense is the efficiency ratio, which is calculated by dividing total non-interest expense (less intangible asset amortization) by the sum of net interest income plus non-interest income (less intangible asset amortization and lower of cost or market adjustments). The Company's efficiency ratio excluding intangible asset amortization and lower cost or market adjustments was 61.84% in fiscal 2004 compared to 63.57% in fiscal 2003.

Merger related expenses that were non-capitalizable were not material to the Company in fiscal year 2004. The principal component of the Company's non-interest expense is salaries and employee benefits. For the year ended March 31, 2004, salaries and employee benefits, which includes mortgage broker commission compensation, was $9.9 million, or an 18.0% increase over the prior year total of $8.4 million. Full-time equivalent employees increased to 186 at March 31, 2004 from 157 at March 31, 2003. The primary reason for the increase was the expansion of lending and branch locations and the related staffing resulting from the acquisition of Today's Bancorp. This expansion also contributed to increase expense in occupancy, depreciation, data processing, telecommunication and other expense.

Provision for Federal Income Taxes. The provision for federal income taxes increase to $3.2 million for the year ended March 31, 2004 from $2.0 million for the year ended March 31, 2003 as a result of higher income before taxes in 2004. The effective tax rate for fiscal year 2004 was 32.8% compared to 31.3% for fiscal 2003. Reference is made to Note 13 of the Notes to the Consolidated Financial Statements contained in Item 8 of this Form 10-K, for a further discussion of the Company's federal income taxes.

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	Year Ended March 31,
	2005			2004			2003
	Average 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	$307,750	$22,345	7.26%	$274,763	$20,471	7.45%	$245,231	$19,397	7.91%
Non-mortgage loans	89,050	5,419	6.09	82,126	5,163	6.29	57,509	4,273	7.43
Total net loans (1)	396,800	27,764	7.00	356,889	25,634	7.18	302,740	23,670	7.82
Mortgage-backed    securities (2)	15,616	634	4.06	13,170	613	4.65	28,615	1,241	4.34
Investment securities (2)	30,021	1,055	3.51	28,283	889	3.14	20,914	1,204	5.76
Daily interest-bearing     assets	30,987	565	1.82	39,334	372	0.95	22,190	319	1.44
Other earning assets	6,088	110	1.81	5,849	231	3.95	5,440	329	6.05
Total interest-earning     assets	479,512	30,128	6.28	443,525	27,739	6.25	379,899	26,763	7.04
Non-interest-earning assets:
Office properties and    equipment, net	8,778			10,165			10,060
Other non-interest-    earning assets	40,038			32,400			17,809
Total assets	$528,328			$486,090			$407,768
Interest-bearing liabilities:
Regular savings    accounts	$ 32,420	178	0.55	$ 27,534	163	0.59	$ 22,861	182	0.80
NOW accounts	102,736	923	0.90	97,017	836	0.86	64,916	960	1.48
Money market accounts	75,063	901	1.20	65,176	582	0.89	54,514	692	1.27
Certificates of deposit	137,933	3,378	2.45	132,257	3,062	2.32	109,380	3,642	3.33
Total deposits	348,152	5,380	1.55	321,984	4,643	1.44	251,671	5,476	2.18
Other interest-  bearing liabilities	40,274	2,015	5.00	40,000	1,984	4.96	53,174	2,941	5.53
Total interest-     bearing liabilities	388,426	7,395	1.90	361,984	6,627	1.83	304,845	8,417	2.76
Non-interest-bearing liabilities:
Non-interest-    bearing deposits	65,415			57,899			45,109
Other liabilities	6,202			4,390			3,246
Total liabilities	460,043			424,273			353,200
Shareholders' equity	68,285			61,817			54,568
Total liabilities and     shareholders' equity	$528,328			$486,090			$407,768
Net interest income		$22,733			$21,112			$18,346
Interest rate spread			4.38%			4.42%			4.28%
Net interest margin			4.74%			4.76%			4.83%
Ratio of average interest-  earning assets to  average interest-bearing  liabilities			123.45%			122.53%			124.62%
Tax Equivalent Adjustment (3)		$161			$155			$302

(1)	Includes non-accrual loans. Includes amortized loan fees of $2.5 million, $2.3 million and $2.1 million for fiscal year 2005, 2004 and 2003, 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.

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Yields Earned and Rates Paid

The following table sets forth for the periods and at the date indicated the weighted average yields earned on the Company's assets, the weighted average interest rates paid on the Company's liabilities, together with the net yield on interest-earning assets on a tax equivalent basis.

	At March 31,	Year Ended March 31,
	2005	2005	2004	2003
Weighted average yield earned on:
Total net loans (1)	6.63%	6.36%	6.53%	7.13%
Mortgage-backed securities	4.27	4.06	4.65	4.34
Investment securities	4.03	3.51	3.14	5.76
All interest-earning assets (1)	6.04	5.76	5.73	6.49
Weighted average rate paid on:
Deposits	1.69	1.55	1.44	2.18
FHLB advances and other borrowings	5.05	5.00	4.96	5.53
All interest-bearing liabilities	1.96	1.90	1.83	2.76
Interest rate spread (spread between weighted    average rate on all interest-earning
assets and all interest-bearing liabilities)(1)	4.08	3.86	3.90	3.73
Net interest margin (net interest income    (expense) as a percentage of average    interest-earning assets)(1)	4.57	4.22	4.23	4.28

(1)Weighted average yield on total net loans excludes deferred loan fees.

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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,
	2005 vs 2004			2004 vs 2003
	Increase (Decrease) Due to			Increase (Decrease) Due to
	Volume	Rate	Total Increase (Decrease)	Volume	Rate	Total Increase (Decrease)
	(In thousands)
Interest Income:
Mortgage loans	$ 2,406	$ (532)	$ 1,874	$ 2,244	$ (1,170)	$ 1,074
Non-mortgage loans	425	(169)	256	1,622	(732)	890
Mortgage-backed securities	105	(84)	21	(713)	85	(628)
Investment securities (1)	57	109	166	340	(655)	(315)
Daily interest-bearing	(93)	286	193	188	(135)	53
Other earning assets	9	(130)	(121)	23	(121)	(98)
Total interest income	2,909	(520)	2,389	3,704	(2,728)	976
Interest Expense:
Regular savings accounts	28	(13)	15	33	(52)	(19)
NOW accounts	50	37	87	368	(492)	(124)
Money market accounts	97	222	319	119	(229)	(110)
Certificates of deposit	134	182	316	668	(1,248)	(580)
Other interest-bearing liabilities	15	16	31	(675)	(282)	(957)
Total interest expense	324	444	768	513	(2,303)	(1,790)
Net interest income (1)	$ 2,585	$ (964)	$ 1,621	$ 3,191	$ (425)	$ 2,766

(1) Taxable equivalent

Asset and Liability Management

The Company's principle 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 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. Interest rate sensitivity will increase 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 of more than 15 years. However, the Company may originate fixed rate loans for investment when funded with long-term funds to mitigate interest rate risk. The Company relies on retail deposits as its primary source of funds. Management believes retail deposits reduce the effects of interest rate fluctuation s 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 or purchase of adjustable rate mortgage-backed securities for its portfolio; increasing commercial, consumer 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 mortgage-backed and other securities; and the origination of fixed-rate loans for sale in the

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secondary market and the retention of the related loan servicing rights. 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.

Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect the Company's earnings while decreases in interest rates may beneficially affect the Company's earnings. To reduce the potential volatility of the Company's earnings, management has sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Pursuant to this strategy, the Company actively originates ARM loans for retention in its loan portfolio. Fixed-rate mortgage loans with terms of more than 15 years generally are originated for the intended purpose of resale in the secondary mortgage market. The Company has also invested in adjustable rate mortgage-backed securities to increase the level of short-term adjustable assets. At March 31, 2005, ARM loans and adjustable rate mortgage-backed securities c onstituted $268.0 million, or 74.5%, of the Company's total combined mortgage loan and mortgage-backed securities portfolio. This compares to ARM loans and adjustable rate mortgage-backed securities at March 31, 2004 that totaled $217.9 million, or 62.8%, of the Company's total combined mortgage loan and mortgage-backed securities portfolio. Although the Company has sought to originate ARM 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.

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 loan servicing portfolio totaled $122.9 million at March 31, 2005, including $2.3 million of purchased mortgage servicing. The purchase of loan servicing replaced loan servicing balances extinguished through prepayment of the underlying loans. The average balance of the servicing portfolio was $127.9 million and produced loan servicing income of $47,000 for the year ended March 31, 2005. See "Item 1. Business -- Lending Activities -- Mortgage Loan Servicing."

Consumer 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 consumer, commercial, construction and other loans totaled $335.0 million or 77.1% of total gross loans at March 31, 2005 as compared to $276.7 million, or 65.8%, at March 31, 2004. At March 31, 2005, the construction, commercial, consumer and other loan portfolios amounted to $54.6 million, $58.0 million, $30.6 million and $291.2 million, or 12.6%, 13.4%, 7.1% and 66.9% of total loans, net of deferred fees, respectively. 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, 2005, the combined portfolio carried at $36.9 million had an average term to repricing or maturity of 3.08 years. See "Item 1. Business -- Investment Activities."

A measure of the Company's exposure to differential changes in interest rates between assets and liabilities is provided by the test required by OTS Thrift Bulletin No. 13a, "Interest Rate Risk Management." This test measures the impact on net interest income and on net portfolio value of an immediate change in interest rates in 100 basis point increments. Using data compiled by the OTS, the Company receives a report which measures interest rate risk by modeling the change in net portfolio value ("NPV") over a variety of interest rate scenarios. This procedure for measuring interest rate risk was developed by the OTS to replace the "gap" analysis (the difference between interest-earning assets and interest-bearing liabilities that mature or reprice within a specific time period). NPV is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The following table provides the estimated impacts of immediate changes in interest rates at th e specified levels based on the latest OTS report dated December 31, 2004.

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		At December 31, 2004
		Net Portfolio Value			Net Portfolio Value as a
Change		Dollar Amount	Dollar Change	Percent Change	Percent of Present Value of Assets
In Rates					NPV Ratio	Change
		(Dollars in thousands)
300	bp	$85,533	$6,123	+8%	15.39%	+105 bp
200	bp	84,456	5,046	+6%	15.20	+85 bp
100	bp	82,466	3,056	+4%	14.86	+51 bp
0	bp	79,410	-	-	14.34	-
(100)	bp	75,564	(3,846)	(5)%	13.69	(65) bp
(200)	bp(1)	-	-	-	-	-
(300)	bp(1)	-	-	-	-	-

(1) No information is provided because the three-month treasury bill was 2.18% at December 31, 2004.

For example, the above table illustrates that an instantaneous 100 basis point increase in market interest rates at December 31, 2004 would increasillion, or 4%, at that date. At December 31, 2003, an instantaneous 100 basis point increase in market interest rates would have increased the Company's NPV by approximately $749,000, or 1%, at that date. The $4.7 million increase in the NPV to $82,466 at December 31, 2004 is the result of the impact of more adjustable loan balances in the loan portfolio at December 31, 2004 as compared to December 31, 2003.

Certain assumptions used by the OTS in assessing the interest rate risk of savings associations within its region were used in preparing the preceding table. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under differing interest rate scenarios, among others.

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.

Liquidity and Capital Resources

The Company's primary source of cash flows is its operations as a lender, which generate 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, 2005, 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 are a predictable source of funds, deposit flows and mortgage prepayments 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, 2005, cash totaled $61.7 million, or 10.8%, of total assets. 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, 2005, the Bank had $40.0 million of outstanding advances from the FHLB of Seattle under an available credit facility of $169.5 million, limited to available collateral.

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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) liquidity of its asset/liability management program. 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 collateral for borrowing at the Federal Reserve Bank discount window. At March 31, 2005, the Bank's ratio of cash and eligible investments to the sum of withdrawable savings and borrowings due within one year was 15.84%.

The Company's primary investing activity is the origination of loans. During the years ended March 31, 2005, 2004 and 2003, the Company originated $434.4 million, $375.8 million and $298.4 million of loans held for investment and loans held for sale, respectively. At March 31, 2005, the Company had outstanding mortgage loan commitments of $7.0 million and undisbursed balance of mortgage loans closed of $37.4 million. Consumer loan commitments totaled $814,000 and unused lines of consumer credit totaled $20.2 million at March 31, 2005. Commercial real estate loan commitments totaled $11.4 million and undisbursed balance of commercial real estate loans closed was $21.5 million at March 31, 2005. Commercial loan commitments totaled $200,000 and unused commercial lines of credit totaled $36.0 million at March 31, 2005. 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 on e year from March 31, 2005 totaled $77.1 million. Historically, the Company has been able to retain a significant amount of its deposits as they mature.

At March 31, 2005, scheduled maturities of certificates of deposit, FHLB advances, commitments to originate loans, undisbursed loan funds, unused lines of credit, standby letters of credit and future operating minimum lease commitments were as follows:

	Within 1 year	1-3 Years	4-5 Years	Over 5 Years	Total Balance
(In thousands)
Certificates of deposit	$ 77,058	$39,106	$28,233	$ 4,909	$149,306
FHLB advances	15,000	25,000	-	-	40,000
Commitments to originate loans
Adjustable	16,603	-	-	-	16,603
Fixed	2,929	-	-	-	2,929
Undisbursed loan funds, unused lines of credit and standby letters of credit	108,964	6,555	-	-	115,519
Operating leases	990	1,772	1,664	1,737	6,163
Total other contractual obligations	$221,544	$72,433	$29,897	$ 6,646	$330,520

The Bank's primary sources of funds are deposits, FHLB borrowings, proceeds from the principal and interest payments on loans and securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, prepayment of mortgage loans and mortgage-backed securities are greatly influenced by general interest rates, economic conditions and competition.

The increase in interest rates during the fiscal year 2005 has created an interest rate environment that caused the demand for fixed rate single family loans and repayment of existing single family mortgage loans and mortgage-backed securities to be less than in the prior year. The Company's business plan emphasizes the sale of fixed rate mortgages as part of its interest rate risk strategy. The decrease in the cash flows from operating activities of loans sold to $22.9 million for the fiscal 2005 compared to $51.7 million for fiscal 2004 reflects this strategy under the changing interest rate environment.

The Bank has experienced growth in deposit accounts that is attributable to organic growth. The information contained in "Item 1, Business - Deposit Activities and Other Sources of Funds -- Deposit Flow" reflects this net increase in cash flows from deposits of $47.8 million for fiscal 2005 as compared to an $88.4 million increase in net cash flows for the same period in the prior year. The higher interest rate certificates of deposit have been allowed to runoff.

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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, 2005 advances from FHLB totaled $40.0 million and the Bank had additional borrowing capacity available of $129.5 million from the FHLB, subject to collateral limitations. At March 31, 2005 the Bank's available borrowing line subject to collateral limitations was $21.3 million. The Bank has a $10.0 million fed funds line with Pacific Coast Banker's Bank at March 31, 2005.

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, 2005, the Bank complied with all regulatory capital requirements as of that date with tangible, core and risk-based capital ratios of 9.54%, 9.54% and 12.37%, 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.

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 accept 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. Interest rate sensitivity will increase 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 of more than 15 years. Interest rates on residential one- to four- fami ly mortgage loan applications are typically locked during the application stage for periods ranging from 30 to 90 days, the most typical period being 45 days. These loans are locked with the FHLMC under a best-efforts delivery program. The Company makes every effort to deliver these loans before their rate locks expire. This arrangement requires the Company to deliver the loans to the FHLMC within ten days of funding. Delays in funding the loans can require a lock extension. The cost of a lock extension at times is borne by the borrower and at times by the Company. These lock extension costs paid by the Company are not expected to have a material impact to operations.This activity is managed daily.

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 NOW accounts, money market

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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 usually be of longer term. For additional information, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" contained herein.

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, 2005. Market risk sensitive instruments are generally defined as on- and off-balance sheet derivatives and other financial instruments.

	Average Rate	Within One Year	One Year to 3 Years	After 3 Years to 5 Years			After 5 Years to 10 Years	Beyond 10 Years	Total	Fair Value
	(Dollars in thousands)
Interest-Sensitive Assets:
Loans receivable (1)	6.63%	$234,077	$125,400		$50,997	$16,254		$7,626	$434,354	$428,878
Mortgage-backed
securities	4.27	4,660	1,086		8,216	-		-	13,962	14,021
Investments and other
interest-earning assets	3.05	55,500	9,810		1,721	-		1,415	68,446	68,446
FHLB stock	1.81	1,229	2,457		2,457	-		-	6,143	6,143
Interest-Sensitive Liabilities:
NOW accounts	0.20	13,133	26,267		26,267	-		-	65,667	65,667
High-yield checking	2.55	10,112	20,225		20,225	-		-	50,562	50,562
Non-interest checking         accounts	-	15,900	31,800		31,800	-		-	79,500	79,500
Savings accounts	0.55	7,103	14,205		14,205	-		-	35,513	35,513
Money market accounts	1.44	15,266	30,532		30,532	-		-	76,330	76,330
Certificate accounts	3.13	77,058	39,106		28,233	4,840		69	149,306	148,941
FHLB advances	5.05	35,000	5,000		-	-		-	40,000	40,120
Off-Balance Sheet Items:
Commitment to extend      credit	-	19,533	-		-	-		-	19,533	19,533
Unused lines of credit	-	115,174	-		-	-		-	115,174	115,174

    (1) Includes loans held for sale

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Item 8. Financial Statements and Supplementary Data

RIVERVIEW BANCORP, INC. AND SUBSIDIARY

Consolidated Financial Statements for Years Ended March 31, 2005, 2004 and 2003
Independent Auditor's Reports

TABLE OF CONTENTS
	Page
Report of Independent Registered Public Accounting Firm - McGladrey & Pullen, LLP	61
Report of Independent Registered Public Accounting Firm - Deloitte & Touche  LLP	62
Report of Independent Registered Public Accounting Firm - McGladrey & Pullen, LLP	63
Management's Report on Internal Control Over Financial Reporting	64
Consolidated Balance Sheets as of March 31, 2005 and 2004	65
Consolidated Statements of Income for the Years Ended March 31, 2005, 2004 and 2003	66
Consolidated Statements of Shareholders' Equity for the Years Ended March 31, 2005, 2004 and 2003	67
Consolidated Statements of Cash Flows for the Years Ended March 31, 2005, 2004 and 2003	68
Notes to Consolidated Financial Statements	69

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Riverview Bancorp, Inc.Vancouver, Washington