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U.S. SECURITIES AND EXCHANGE COMMISSIONWashington D.C.  20549



Form 10-Q





[X]
Quarterly report Pursuant to section 13 or 15(d) of the Securities and Exchange act of 1934
                                        For the quarter ended March 31, 2003[  ]
Transition report pursuant to section 13 or 15(d) of the Securities and Exchange act of 1934
          For the transition period from ________ to ________


Commission file number  0-23881



COWLITZ BANCORPORATION(Exact name of registrant as specified in its charter)



|Washington
Sate or other jurisdiction of
incorporation or organization | 91-1529841
(IRS Employer Identification No.)
|---------------------------------------------------------------------- | --------------------------------------------

927 Commerce Ave., Longview, Washington  98632(Address of principal executive offices)  (Zip Code)



(360) 423-9800
(Registrant's telephone number, including area code)



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

Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)

Yes[ ] No [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock, no par value on April 30, 2003: 3,824,232 shares



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COWLITZ BANCORPORATION & SUBSIDIARIESTABLE OF CONTENTS

PAGEPart I
FINANCIAL INFORMATIONItem 1.
Financial StatementsConsolidated Statements of Condition-
     March 31, 2003 and December 31, 2002
3Consolidated Statements of Operations-
     Three months ended March 31, 2003 and March 31, 2002
and year ended December 31, 2002
4Consolidated Statements of Changes in Shareholders' Equity-
     Year ended December 31, 2002 and three months ended March 31, 2003
5Consolidated Statements of Cash Flows-
     Three months ended March 31, 2003 and March 31, 2002
6Notes to Consolidated Financial Statements
7-14Item 2.
Management's Discussion and Analysis of Financial Condition 
     And Results of Operations
15Item 3.
Quantitative and Qualitative Disclosures About Market Risk
24-25Item 4.
Controls and Procedures
25Part II
OTHER INFORMATIONItem 1.
Legal Proceedings
26Item 2.
Changes in Securities and Use of Proceeds
26Item 3.
Defaults upon Senior Securities
26Item 4.
Submission of Matters to a Vote of Security Holders
26Item 5.
Other Information
26Item 6.
Exhibits and Reports on Form 8-K
26Signatures
27Certification of Chief Executive Officer and Chief Financial Officer
28-30


Forward-Looking Statements

Management's discussion and the information in this document and the accompanying financial statements contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by words such as "expect", "believe", "intend", "anticipate", "estimate" or similar expressions, and are subject to risks and uncertainties that could cause actual results to differ materially from those stated.  Examples of such risks and uncertainties that could have a material adverse affect on the operations and future prospects of the Company, and could render actual results different from those expressed in the forward-looking statements, include, without limitation: changes in general economic conditions, competition for financial services in the market area of the Company, the level of demand for loans, quality of the loan and investment portfolio, deposit flows, legislative and regulatory initiatives, and monetary and fiscal policies of the U.S. Government affecting interest rates. The reader is advised that this list of risks is not exhaustive and should not be construed as any prediction by the Company as to which risks would cause actual results to differ materially from those indicated by the forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements.



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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

COWLITZ BANCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF
      CONDITION(dollars in thousands)(unaudited)
      
      (audited)March 31,
      
      December 31,ASSETS
      
      2003
      
      2002Cash
      and cash equivalents
      $
      49,073
      $
      43,691Investment securities:Investments available-for-sale (at fair value, cost of $34,709 and$32,759
      at March 31, 2003 and December 31, 2002, respectively)
      
      35,111
      
      33,276Investments held-to-maturity (at amortized cost, fair value of $363 and$362 at
      March 31, 2003 and December 31, 2002, respectively)
      
      356
      
      357Total investment
      securities
      
      35,467
      
      33,633Federal
      Home Loan Bank stock, at cost
      
      2,342
      
      2,346Loans
      held-for-sale
      
      37,155
      
      63,645Loans,
      net of deferred loan fees
      
      178,809
      
      194,506Allowance for loan losses
      
      (5,970)
      
      (6,150)Total
      loans, net
      
      172,839
      
      188,356Premises and equipment, net of accumulated depreciation of $4,717 and$4,586
      at March 31, 2003 and December 31, 2002, respectively
      
      4,223
      
      4,377Goodwill, net of impairment adjustments and accumulated amortizationof $488
      at March 31, 2003 and December 31, 2002
      
      2,352
      
      2,352Intangible assets, net of accumulated amortization of $1,535 and$1,468
      at March 31, 2003 and December 31, 2002, respectively
      
      435
      
      502Accrued
      interest receivable and other assets
      
      6,804
      
      6,262TOTAL ASSETS
      $
      310,690
      $
      345,164LIABILITIESDeposits:Non-interest-bearing demand
      $
      44,642
      $
      46,539Savings
      and interest-bearing demand
      
      104,581
      
      108,961Certificates of deposit
      
      112,427
      
      134,620Total
      deposits
      
      261,650
      
      290,120Short-term borrowings
      
      3,675
      
      2,525Long-term borrowings
      
      10,627
      
      18,706Accrued
      interest payable and other liabilities
      
      2,878
      
      2,550TOTAL LIABILITIES
      
      278,830
      
      313,901SHAREHOLDERS' EQUITYPreferred stock, no par value; 5,000,000 shares authorized, no shares
      issued andoutstanding at March 31, 2003 and December 31, 2002
      
      -
      
      -Common
      stock, no par value; 25,000,000 shares authorized as of March 31, 2003 andDecember 31, 2002, with 3,823,632 and 3,818,272 shares issued and
      outstanding atMarch
      31, 2003 and December 31, 2002, respectively
      
      17,520
      
      17,491Additional paid-in capital
      
      1,538
      
      1,538Retained earnings
      
      12,537
      
      11,894Accumulated other comprehensive income, net of taxes
      
      265
      
      340TOTAL SHAREHOLDERS' EQUITY
      
      31,860
      
      31,263TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
      $
      310,690
      $
      345,164See
      accompanying notes




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COWLITZ BANCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF
      OPERATIONS(dollars in thousands, except per share amounts)Three Months Ended
      
      Year EndedMarch 31,
      
      December 31,2003
      
      2002
      
      2002INTEREST INCOME
      
      
      
      (unaudited)Interest and fees on loans
      
      
      $
      4,233
      $
      4,930
      $
      19,725Interest on taxable investment securities
      
      
      
      250
      
      367
      
      1,604Interest on non-taxable investment securities
      
      
      
      3
      
      2
      
      15Other
      interest and dividend income
      
      
      
      173
      
      260
      
      695Total interest
      income
      
      
      
      4,659
      
      5,559
      
      22,039INTEREST EXPENSESavings and interest-bearing demand
      
      
      
      324
      
      396
      
      1,714Certificates of deposit
      
      
      
      1,003
      
      1,892
      
      5,920Short-term borrowings
      
      
      
      7
      
      10
      
      44Long-term borrowings
      
      
      
      197
      
      237
      
      933Total interest
      expense
      
      
      
      1,531
      
      2,535
      
      8,611Net interest
      income before provision for loan losses
      
      
      
      3,128
      
      3,024
      
      13,428PROVISION FOR LOAN LOSSES
      
      
      
      523
      
      300
      
      2,783Net interest
      income after provision for loan losses
      
      
      
      2,605
      
      2,724
      
      10,645NON-INTEREST INCOMEGains
      on loans sold
      
      
      
      1,749
      
      1,174
      
      5,655Mortgage brokerage fees
      
      
      
      843
      
      605
      
      3,221Escrow
      fees
      
      
      
      337
      
      222
      
      1,140Service charges on deposit accounts
      
      
      
      246
      
      178
      
      752Credit
      card income
      
      
      
      153
      
      125
      
      547Fiduciary income
      
      
      
      90
      
      71
      
      275Net
      gains on sales of investment securities available-for-sale
      
      
      
      -
      
      -
      
      183Gain
      (loss) on sale of repossessed assets
      
      
      
      33
      
      2
      
      (113)Other
      income
      
      
      
      43
      
      61
      
      233Total non-interest
      income
      
      
      
      3,494
      
      2,438
      
      11,893NON-INTEREST EXPENSESalaries and employee benefits
      
      
      
      2,624
      
      2,414
      
      10,722Net
      occupancy and equipment expense
      
      
      
      647
      
      550
      
      2,260Professional fees
      
      
      
      467
      
      275
      
      1,491Business taxes
      
      
      
      133
      
      162
      
      606FDIC
      assessment
      
      
      
      138
      
      147
      
      557Credit
      card expense
      
      
      
      155
      
      116
      
      527Data
      processing and communications
      
      
      
      129
      
      101
      
      512Loan
      expense
      
      
      
      113
      
      78
      
      503Postage and freight
      
      
      
      103
      
      124
      
      484Travel
      and education
      
      
      
      71
      
      80
      
      401Stationery and supplies
      
      
      
      61
      
      71
      
      337Amortization of intangible assets
      
      
      
      66
      
      66
      
      265Costs
      relating to other real estate owned
      
      
      
      27
      
      84
      
      260Other
      expenses
      
      
      
      371
      
      273
      
      1,272Total non-interest
      expense
      
      
      
      5,105
      
      4,541
      
      20,197Income from
      continuing operations before provision for income taxes
      
      
      
      994
      
      621
      
      2,341PROVISION FOR INCOME TAXES
      
      
      
      351
      
      243
      
      339Income from
      continuing operations
      
      
      
      643
      
      378
      
      2,002DISCONTINUED OPERATIONS:INCOME FROM OPERATIONS, NET OF TAX
      
      
      
      -
      
      6
      
      6GAIN ON DISPOSAL, NET OF TAX
      
      
      
      -
      
      279
      
      279Income from
      discontinued operations
      
      
      
      -
      
      285
      
      285Income before
      cumulative effect of a change in accounting principle
      
      
      
      643
      
      663
      
      2,287CUMULATIVE EFFECT OF A CHANGE INACCOUNTING PRINCIPLE, NET OF TAX
      
      
      
      -
      
      (791)
      
      (791)Net income (loss)
      
      
      $
      643
      $
      (128)
      $
      1,496BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCKContinuing operations
      
      
      $
      0.17
      $
      0.10
      $
      0.53Discontinued operations
      
      
      
      -
      
      0.08
      
      0.08Cumulative effect of a change in accounting principle
      
      
      
      -
      
      (0.21)
      
      (0.21)Net
      income (loss) per basic share of common stock
      
      
      $
      0.17
      $
      (0.03)
      $
      0.40DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCKContinuing operations
      
      
      $
      0.16
      $
      0.10
      $
      0.53Discontinued operations
      
      
      
      -
      
      0.08
      
      0.07Cumulative effect of a change in accounting principle
      
      
      
      -
      
      (0.21)
      
      (0.21)Net
      income (loss) per diluted share of common stock
      
      
      $
      0.16
      $
      (0.03)
      $
      0.39WEIGHTED-AVERAGE SHARES OUTSTANDING - BASIC
      
      
      
      3,819,424
      
      3,699,519
      
      3,757,608WEIGHTED-AVERAGE SHARES OUTSTANDING - DILUTED
      
      
      
      3,918,460
      
      3,746,083
      
      3,851,196See
      accompanying notes




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COWLITZ BANCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(dollars in thousands)AccumulatedAdditional



Other

TotalCommon stock

Paid-in

Retained

Comprehensive

Shareholders'

ComprehensiveShares

Amount

Capital

Earnings

Income (Loss)

Equity

Income (Loss)BALANCE, December 31, 2001


3,692,560
$
16,802
$
1,538
$
10,398
$
10
$
28,748Comprehensive income:Net income


-

-

-

1,496

-

1,496
$
1,496Net changes in unrealized gains oninvestments available-for-sale,net of deferred taxes of $176


-

-

-

-

330

330

330Comprehensive income













$
1,826Proceeds from the exercise ofstock options


87,600

479

-

-

-

479Issuance of common stock inconnection with acquisition


38,112

210

-

-

-

210BALANCE, December 31, 2002


3,818,272

17,491

1,538

11,894

340

31,263Comprehensive income:Net income


-

-

-

643

-

643
$
643Net changes in unrealized gains oninvestments available-for-sale,net of deferred taxes of $39


-

-

-

-

(75)

(75)

(75)Comprehensive income













$
568Proceeds from the exercise ofstock options


5,360

29

-

-

-

29BALANCE, March 31, 2003


3,823,632
$
17,520
$
1,538
$
12,537
$
265
$
31,860(unaudited)See accompanying notes




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COWLITZ BANCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF
      CASH FLOWS(dollars in thousands)Three Months EndedMarch 31,2003
      
      2002(unaudited)CASH FLOWS FROM OPERATING ACTIVITIESNet
      income from continuing operations, net of a change in accounting principle
      in 2001
      
      $
      643
      $
      (413)Adjustments to reconcile net income from continuing operations to net cash
      from operating activities:Deferred tax benefit
      
      
      (769)
      
      27Depreciation and amortization
      
      
      217
      
      248Impairment of goodwill
      
      
      -
      
      1,208Provision for loan losses
      
      
      523
      
      300Net
      amortization of investment security premiums and accretion of discounts
      
      
      70
      
      36Net
      loss (gain) on sales of foreclosed assets
      
      
      (33)
      
      (2)(Gain)
      loss on the sale of premises and equipment
      
      
      10
      
      -Gains
      on loans sold
      
      
      (1,749)
      
      (1,174)Origination of loans held-for-sale
      
      
      (125,069)
      
      (92,936)Proceeds from loan sales
      
      
      153,308
      
      112,534(Increase) decrease in accrued interest receivable and other assets
      
      
      365
      
      (110)(Decrease) increase in accrued interest payable and other liabilities
      
      
      328
      
      (1,541)Federal Home Loan Bank stock dividends
      
      
      (38)
      
      (62)Net cash from
      continuing operations
      
      
      27,806
      
      18,115Net
      income (loss) from discontinued operations
      
      
      -
      
      285Adjustments to reconcile net income (loss) from discontinued operations to
      net cash from operating activities:Gain
      on sale of discontinued operations
      
      
      -
      
      (423)Decrease (increase) in accrued interest receivable and other assets
      
      
      -
      
      (16)Increase (decrease) in accrued interest payable and other liabilities
      
      
      -
      
      120Net cash from
      discontinued operations
      
      
      -
      
      (34)Net cash from
      operating activities
      
      
      27,806
      
      18,081CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sale of foreclosed assets
      
      
      711
      
      83Proceeds from maturities of investment securities held-to-maturity
      
      
      -
      
      2,598Proceeds from maturities and sales of investment securities
      available-for-sale
      
      
      6,097
      
      5,387Purchases of investment securities:Held-to-maturity
      
      
      -
      
      (300)Available-for-sale
      
      
      (8,117)
      
      (17,048)Proceeds from redemption of Federal Home Loan Bank stock
      
      
      42
      
      -Net
      decrease (increase) in loans - continuing operations
      
      
      14,220
      
      5,261Purchases of premises and equipment
      
      
      (11)
      
      (6)Proceeds from the sale of premise and equipment
      
      
      4
      
      7Net
      proceeds from the sale of discontinued operations
      
      
      -
      
      3,345Net cash from
      investment activities
      
      
      12,946
      
      (673)CASH FLOWS FROM FINANCING ACTIVITIESNet
      increase in demand, savings, and interest-bearing demand deposits
      
      
      (6,277)
      
      690Net
      (decrease) increase in certificates of deposit
      
      
      (22,193)
      
      (10,030)Net
      (decrease) increase in short-term borrowings
      
      
      1,150
      
      575Repayment of long-term borrowings
      
      
      (8,079)
      
      (76)Proceeds from the exercise of stock options
      
      
      29
      
      217Net cash from
      financing activities
      
      
      (35,370)
      
      (8,624)Net (decrease)
      increase in cash and cash equivalents
      
      
      5,382
      
      8,784CASH AND CASH EQUIVALENTS, beginning of year
      
      
      43,691
      
      50,177CASH AND CASH EQUIVALENTS, end of year
      
      $
      49,073
      $
      58,961See
      accompanying notes




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COWLITZ BANCORPORATIONNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(amounts in thousands, except number of shares and per share amounts)

1. Nature of Operations

Cowlitz Bancorporation (the "Company") was organized in 1991 under Washington law to become the holding company for Cowlitz Bank (the "Bank"), a Washington state chartered bank that commenced operations in 1978. The principal executive offices of the Company are located in Longview, Washington. The Company operates as a community bank under the names Cowlitz Bank with five branches in Cowlitz County and southwest Washington; Northern Bank of Commerce ("NBOC") in Portland, Oregon with one full service and one limited service branch; and Bay Bank operating one branch in Bellevue, Washington.  Cowlitz Bank also provides mortgage banking services through its Bay Mortgage and Bay Escrow divisions with offices in Seattle, Bellevue, Longview, and Vancouver, Washington.

The Company offers or makes available a broad range of financial services to its customers, primarily small and medium-sized businesses, professionals, and retail customers. The Bank's commercial and personal banking services include commercial and real estate lending, consumer lending, mortgage origination and trust services. The Company also provided asset-based lending services to companies throughout the Western United States through its subsidiary, Business Finance Corporation ("BFC"), from 1998 until its sale and discontinuance of operations in February 2002. The Company's goals are to offer exceptional customer service and to invest in the markets it serves through its business practices and community service.



The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries.  All significant intercompany transactions and balances have been eliminated.

The interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information.  Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments, including normal recurring accruals necessary for fair presentation of results of operations for the interim periods included herein have been made.  The results of operations for the three months ended March 31, 2003 are not necessarily indicative of results to be anticipated for the year ending December 31, 2003.



For purposes of presentation in the statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold.  Federal funds sold generally mature the day following purchase.



The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.  Significant estimates include the allowance for loan losses and the carrying value of the Company's goodwill.  Actual results could differ from those estimates.



The following table reconciles the denominator of the basic and diluted earnings per share computations:

Three
      Months Ended
      
      Year EndedMarch
      31,
      
      December 31,2003
      
      2002
      
      2002Weighted-average
      shares - basic
      
      3,819,424
      
      3,699,519
      
      3,757,608Effect of assumed
      conversion of stock options
      
      99,036
      
      46,564
      
      93,588Weighted-average
      shares - diluted
      
      3,918,460
      
      3,746,083
      
      3,851,196




Options to purchase 279,566 shares of common stock with exercise prices ranging from $7.00 to $12.00, with an average price of $11.02, were outstanding at March 31, 2003 but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares.  These options expire from 2008-2012.

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COWLITZ BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except number of shares and per share amounts)



1. Recently Issued Accounting Standards
2. Critical Accounting Policies

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COWLITZ BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except number of shares and per share amounts)



1. Stock-Based Compensation

9

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COWLITZ BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except number of shares and per share amounts)



1. Comprehensive Income
2. Segments of an Enterprise and Related Information:
The Company is principally engaged in community banking activities through its branches and corporate offices.  Community banking activities include accepting deposits, providing loans and lines of credit to local individuals, businesses and governmental entities, investing in securities and money market instruments, and holding or managing assets in a fiduciary agency capacity on behalf of its customers and their beneficiaries. Prior to the sale of Business Finance Corporation in the first quarter of 2002, the Company provided asset-based financing to companies throughout the western United States. Bay Mortgage specializes in all facets of residential lending including FHA and VA loans, construction loans and bridge loans.
The community banking and mortgage banking activities are monitored and reported by Company management as separate operating segments. The asset-based financing activity, conducted through Business Finance Corporation, was previously considered to be an additional segment of business.  However, in the following table for the three months ended March 31, 2002, this former segment of business is reported as discontinued operations.
The accounting policies for the Company's segment information provided below are the same as those described for the Company in the summary of significant accounting policies footnote included in the Company's 2002 annual report, except that some operating expenses and the results of discontinued operations are not allocated to segments.



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COWLITZ BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except number of shares and per share amounts)

> Summarized financial information for the three months ended March 31, 2003 and 2002 and the year ended December 31, 2002, concerning the Company's reportable segments is shown in the following tables:
> 
>   Three Months Ended March 31, 2003Mortgage
>         
>         HoldingBanking
>         
>         Banking
>         
>         Company
>         
>         Intersegment
>         
>         Consolidated(unaudited)Interest income
>         
>         
>         $
>         4,282
>         $
>         944
>         $
>         8
>         $
>         (575)
>         $
>         4,659Interest expense
>         
>         
>         
>         1,525
>         
>         525
>         
>         56
>         
>         (575)
>         
>         1,531Net interest
>         income
>         
>         
>         
>         2,757
>         
>         419
>         
>         (48)
>         
>         -
>         
>         3,128Provision for loan losses
>         
>         
>         
>         (751)
>         
>         -
>         
>         1,274
>         
>         -
>         
>         523Noninterest income
>         
>         
>         
>         565
>         
>         2,929
>         
>         -
>         
>         -
>         
>         3,494Noninterest expense
>         
>         
>         
>         2,735
>         
>         2,307
>         
>         63
>         
>         -
>         
>         5,105Income (loss) before provision(benefit) for income taxes
>         
>         
>         
>         1,338
>         
>         1,041
>         
>         (1,385)
>         
>         -
>         
>         994Provision (benefit) for income taxes
>         
>         
>         
>         468
>         
>         359
>         
>         (476)
>         
>         -
>         
>         351Net
>         income (loss)
>         
>         
>         $
>         870
>         $
>         682
>         $
>         (909)
>         $
>         -
>         $
>         643Depreciation and amortization
>         
>         
>         $
>         189
>         $
>         28
>         $
>         -
>         $
>         -
>         $
>         217Total
>         assets
>         
>         
>         $
>         308,376
>         $
>         54,156
>         $
>         34,707
>         $
>         (86,549)
>         $
>         310,690



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COWLITZ BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except number of shares and per share amounts)



> Three Months Ended March 31, 2002Mortgage
>         
>         HoldingBanking
>         
>         Banking
>         
>         Company
>         
>         Intersegment
>         
>         Consolidated(unaudited)Interest income
>         
>         
>         $
>         5,300
>         $
>         744
>         $
>         3
>         $
>         (488)
>         $
>         5,559Interest expense
>         
>         
>         
>         2,515
>         
>         425
>         
>         59
>         
>         (464)
>         
>         2,535Net interest
>         income
>         
>         
>         
>         2,785
>         
>         319
>         
>         (56)
>         
>         (24)
>         
>         3,024Provision for loan losses
>         
>         
>         
>         300
>         
>         -
>         
>         -
>         
>         -
>         
>         300Noninterest income
>         
>         
>         
>         401
>         
>         2,037
>         
>         -
>         
>         -
>         
>         2,438Noninterest expense
>         
>         
>         
>         2,634
>         
>         1,722
>         
>         185
>         
>         -
>         
>         4,541Income (loss) before provision(benefit) for income taxes
>         
>         
>         
>         252
>         
>         634
>         
>         (241)
>         
>         (24)
>         
>         621Provision (benefit) for income taxes
>         
>         
>         
>         98
>         
>         219
>         
>         (74)
>         
>         -
>         
>         243Net
>         income (loss) from continuing operationsbefore cumulative effect of a changein
>         accounting principle
>         
>         
>         
>         154
>         
>         415
>         
>         (167)
>         
>         (24)
>         
>         378Cumulative effect of a change inaccounting principle
>         
>         
>         
>         -
>         
>         (791)
>         
>         -
>         
>         -
>         
>         (791)Net
>         income (loss) from continuingoperations
>         
>         
>         $
>         154
>         $
>         (376)
>         $
>         (167)
>         $
>         (24)
>         
>         (413)Net
>         income from discontinuedoperations
>         
>         
>         
>         
>         
>         
>         
>         
>         
>         
>         
>         285Net
>         income
>         
>         
>         
>         
>         
>         
>         
>         
>         
>         
>         $
>         (128)Depreciation and amortization
>         
>         
>         $
>         217
>         $
>         29
>         $
>         -
>         $
>         -
>         $
>         246Total
>         assets
>         
>         
>         $
>         356,446
>         $
>         37,936
>         $
>         31,718
>         $
>         (65,954)
>         $
>         360,146

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COWLITZ BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except number of shares and per share amounts)



> Year Ended December 31, 2002Mortgage
>         
>         HoldingBanking
>         
>         Banking
>         
>         Company
>         
>         Intersegment
>         
>         ConsolidatedInterest income
>         
>         
>         $
>         20,007
>         $
>         3,853
>         $
>         13
>         $
>         (1,834)
>         $
>         22,039Interest expense
>         
>         
>         
>         8,578
>         
>         1,609
>         
>         234
>         
>         (1,810)
>         
>         8,611Net interest
>         income
>         
>         
>         
>         11,429
>         
>         2,244
>         
>         (221)
>         
>         (24)
>         
>         13,428Provision for loan losses
>         
>         
>         
>         2,705
>         
>         -
>         
>         78
>         
>         -
>         
>         2,783Noninterest income
>         
>         
>         
>         1,860
>         
>         10,033
>         
>         -
>         
>         -
>         
>         11,893Noninterest expense
>         
>         
>         
>         10,871
>         
>         8,799
>         
>         527
>         
>         -
>         
>         20,197Income (loss) before provision(benefit) for income taxes
>         
>         
>         
>         (287)
>         
>         3,478
>         
>         (826)
>         
>         (24)
>         
>         2,341Provision (benefit) for income taxes
>         
>         
>         
>         (77)
>         
>         1,200
>         
>         (784)
>         
>         -
>         
>         339Net
>         income (loss) from continuing operationsbefore cumulative effect of a changein
>         accounting principle
>         
>         
>         
>         (210)
>         
>         2,278
>         
>         (42)
>         
>         (24)
>         
>         2,002Cumulative effect of a change inaccounting principle
>         
>         
>         
>         -
>         
>         (791)
>         
>         -
>         
>         -
>         
>         (791)Net
>         income (loss) from continuingoperations
>         
>         
>         $
>         (210)
>         $
>         1,487
>         $
>         (42)
>         $
>         (24)
>         
>         1,211Net
>         income from discontinuedoperations
>         
>         
>         
>         
>         
>         
>         
>         
>         
>         
>         
>         285Net
>         income
>         
>         
>         
>         
>         
>         
>         
>         
>         
>         
>         $
>         1,496Depreciation and amortization
>         
>         
>         $
>         770
>         $
>         111
>         $
>         -
>         $
>         -
>         $
>         881Total
>         assets
>         
>         
>         $
>         341,160
>         $
>         84,108
>         $
>         34,142
>         $
>         (114,246)
>         $
>         345,164

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COWLITZ BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except number of shares and per share amounts)



1. Business Acquisitions and Sales:

> In February 2002, the Company sold substantially all assets of Business Finance Corporation (BFC) for a pre-tax gain of $423,000. The sale represents the disposal of a business segment and the gain from disposition has been recorded within discontinued operations for the three months ended March 31, 2002 and the year ended December 31, 2002, respectively. The following table summarizes the sale transaction:
> 
>   Net
>         finance receivables sold
>         
>         $
>         2,800Allowance for finance receivable
>         
>         
>         (289)Other
>         assets sold
>         
>         
>         119Total assets sold
>         
>         $
>         2,630Loan
>         payable to Company
>         
>         $
>         2,800Other
>         liabilities assumed
>         
>         
>         212Cash
>         paid by purchaser
>         
>         
>         41Total liabilities
>         assumed
>         
>         $
>         3,053Pre-tax gain on
>         sale
>         
>         $
>         423



> During December 2002 and January 2003, the Bank closed 11 limited service branches in the greater Portland, Oregon market that were doing business as Northern Bank of Commerce. This decision was partially due to relatively high interest rates paid on low deposit volumes at these branches. At March 31, 2003, the deposit volume associated with these former locations was $15.2 million of which $11.1 million were certificates of deposit. At December 31, 2002, these locations had an aggregate deposit balance of $17.3 million of which $11.9 million were certificates of deposit. Although the Bank will attempt to retain the lower cost deposits by moving the deposit relationship to the main NBOC branch in Portland, management expects some of the deposit accounts will be withdrawn and close.



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Item 2. 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations for the Three Months Ended March 31, 2003 and 2002

During the first quarter of 2003 the Company had net income of $643,000, or $0.16 per diluted share, compared to a net loss of $128,000, or $(0.03) per diluted share, in the first quarter of 2002. Net income from continuing operations prior to a change in accounting principle and net income from discontinued operations (both discussed below) for the first quarter 2002 was $378,000 or $0.10 per diluted share. For the first quarter of 2003, the Company's revenues (net interest income before provision for loan losses plus non-interest income) were $6.6 million, an increase of $1.2 million from revenues of $5.4 million during the same period in 2002.  Non-interest expenses were $5.1 million for the three months ended March 31, 2003 compared to $4.5 million for the comparable period in 2002.

During the first quarter of 2002, the Company recorded an impairment charge to the carrying amount of its goodwill from the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142).  The impairment charge was recognized as a result of a transitional goodwill impairment test required by SFAS No. 142.  The charge totaled $791,000 or $.21 per diluted share, net of tax of $417,000. The Company does not currently anticipate additional adjustments or charges related to the adoption of SFAS No. 142. Net income for the first quarter of 2002, prior to this charge, was $663,000 or $0.18 per diluted share.

Net income for the first quarter of 2002 also included income from the discontinued operations of Business Finance Corporation (BFC) of $285,000, or $0.08 per diluted share, net of tax. Included in discontinued operations is a gain, net of tax, of $279,000 from the sale of BFC during the first quarter of 2002. The Company originally purchased BFC to diversify its business and to offer asset-based lending services to its customers. However, due to a poor return on investment, and the desire to focus resources on the core banking business, the BFC subsidiary was sold in February, 2002.

The increase in net income from continuing operations to $643,000 from $378,000 for the first quarters of 2003 and 2002, respectively, is primarily due to an increase of slightly more than $900,000 in non-interest income from the Company's mortgage segment, Bay Mortgage. Total non-interest income increased to $3.5 million for the three months ended March 31, 2003 from $2.4 million for the same period of 2002. The $1.1 million increase in non-interest income was offset by an increase of $600,000 in non-interest expenses when comparing the same periods Non-interest expense increased $585,000 at Bay Mortgage for these periods.

Financial Condition as of March 31, 2003 and December 31, 2002

At March 31, 2003, total assets were $310.7 million and total liabilities were $278.8 million.  Total assets have decreased $34.5 million or 10.0% from $345.2 million at December 31, 2002 and liabilities have decreased $35.1 million or 11.2% from $313.9 million at December 31, 2002.

The decline in total assets is due to a reduction in volume of both loans and loans held-for-sale since December 31, 2002. At March 31, 2003, loans were $178.8 million compared to $194.5 million at December 31, 2002, a decline of $15.7 million or 8.1%. This reduction in loan volume is a combination of charged-off balances of approximately $700,000 and balances transferred to repossessed assets of approximately $775,000 with loan pay-downs and pay-offs accounting for the remainder. Loans held-for-sale have decreased $26.4 million or 41.5% from $63.6 million at December 31, 2002 to $37.2 million at March 31, 2003. During the first quarter of 2003 loan pay-offs were relatively high because, under the current low rate environment, many borrowers began shopping the marketplace. While the Bank makes every effort to be competitive for and retain favorable client relationships, management also sees this time as an opportunity to encourage some customers representing weaker credits to seek alternative lending relationships.

Reductions in the volumes of brokered certificates of deposit and borrowings from the Federal Home Loan Bank (FHLB) account for the majority of the decline in total liabilities from December 31, 2002 to March 31, 2003. At March 31, 2003, the Company had $23.1 million in brokered deposits or 8.8% of the $261.7 million total deposits compared to $29.7 million at December 31, 2002. Approximately $12.8 million of these brokered deposits are scheduled to mature during the remainder of 2003. An additional $13.0 million in public fund certificates matured during the first quarter of 2003 and were not renewed. A reduction of $8.0 million in FHLB borrowings during the first quarter of 2003 has reduced the Company's long-term borrowings to $10.6 million at March 31, 2003 compared to $18.7 million at December 31, 2002. Because the reduction in loans and loans held-for-sale has generated some excess cash and liquidity, management's current practice is to not renew brokered and public funds certificates or long-term borrowings as they mature. If future circumstances change to warrant increasing liquidity or cash balances, the Company retains the ability to access these funding sources.



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Critical Accounting Policies

The Company's most critical accounting policy is related to the allowance for loan losses. The Company utilizes both quantitative and qualitative considerations in establishing an allowance for loan losses believed to be appropriate as of each reporting date. Quantitative factors include:

- historical loss experience,
- recent delinquency and charge-off experience,
- changes in the levels of non-performing loans,
- portfolio size, and
- other known factors regarding specific loans.



Qualitative factors include assessments of the types and quality of the loans within the loan portfolio as well as current local, regional, and national economic considerations. Changes in the above factors could have a significant affect on the determination of the allowance for loan losses. Management performs a full analysis, no less often than quarterly, to ensure that changes in estimated loan loss levels are adjusted on a timely basis. For further discussion of this significant management estimate, see "Allowance for Loan Losses."

Another critical accounting policy for the Company is that related to the carrying value of goodwill. During the first quarter of 2002, the Company recorded an impairment charge to the carrying amount of its goodwill related to the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142).  The impairment charge was recognized as a result of a transitional goodwill impairment test required by SFAS No. 142. The Company adopted a market valuation approach in assessing goodwill impairment and will measure the carrying value similarly at least annually under these accounting rules. Ongoing impairment analysis of the fair value of the remaining goodwill will involve a substantial amount of judgment, as will establishing and monitoring estimated amounts and lives of other intangible assets.  Also as required upon adoption of SFAS No. 142, the Company ceased amortization of goodwill on January 1, 2002.

SFAS No. 123, "Accounting for Stock-Based Compensation," requires disclosure about stock-based compensation arrangements regardless of the method used to account for them. As permitted by SFAS No. 123, the Company has decided to apply the accounting provisions of Accounting Principles Board (APB) Opinion No. 25, and therefore discloses the difference between compensation cost included in net income and the related cost measured by the fair value-based method defined by SFAS No. 123, including tax effects, that would have been recognized in the statement of operations if the fair value method had been used. Under APB Opinion No. 25, no compensation cost has been recognized for the Company's stock option plans. 
Had compensation costs for these plans been determined consistent with SFAS No.
123 and recognized over the vesting period, the Company's net income (loss) and
earnings (loss) per share would have been reduced to the amounts as disclosed in
the notes to the consolidated financial statements.

Analysis of Net Interest Income

For financial institutions, the primary component of earnings is net interest income.  Net interest income is the difference between interest income, principally from loans and the investment securities portfolio, and interest expense, principally on customer deposits and borrowings.  Changes in net interest income result from changes in "volume," "spread," and "margin."  Volume refers to the dollar level of interest-earning assets and interest-bearing liabilities.  Spread refers to the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.  Net interest margin is the ratio of net interest income to total interest-earning assets and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities.



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The following table presents interest income and expense and the resulting yields earned, rates paid, interest rate spread, and net interest margin for the periods indicated.



Three
      Months Ended(unaudited)
      
      March 31,
      
      Increase(dollars in
      thousands)
      
      2003
      
      2002
      
      (Decrease)
      
      ChangeInterest Income (1)
      $
      4,660
      $
      5,560
      $
      (900)
      
      -16.2%Interest Expense
      
      1,531
      
      2,535
      
      (1,004)
      
      -39.6%Net Interest Income
      $
      3,129
      $
      3,025
      $
      104
      
      3.4%Average Interest
      Earning Assets
      $
      304,488
      $
      335,590
      $
      (31,102)
      
      -9.3%Average Interest
      Bearing Liabilities
      $
      242,167
      $
      284,273
      $
      (42,106)
      
      -14.8%Average Yields
      Earned (2)
      
      6.12%
      
      6.63%
      
      -0.51%Average Rates Paid
      (2)
      
      2.53%
      
      3.57%
      
      -1.04%Net Interest Spread
      (2)
      
      3.59%
      
      3.06%
      
      0.53%Net Interest Margin
      (2)
      
      4.11%
      
      3.61%
      
      0.50%(1) Interest earned
      on non-taxable securities has been computed on a 34% tax equivalent basis(2) Ratios for the
      three months ended March 31, 2003 and 2002 have been annualized


Comparing the quarter ended March 31, 2003 to the quarter ended March 31, 2002 interest income and interest expense each declined approximately $1.0 million and net interest income increased slightly to $3.1 million from $3.0 million.

The overall tax-equivalent average earning asset yield was 6.12% for the quarter ended March 31, 2003 compared to 6.63% for the quarter ended March 31, 2002. Contributing to the decline in interest rates was a 50 basis points reduction in the national federal funds rate and the Company's prime rate in November 2002. Earning assets averaged $304.5 million for the three months ended March 31, 2003 compared to $335.6 million for the same period of 2002. A change in asset mix from higher yielding loans to lower rate loans held-for-sale has also contributed to a lower overall yield comparing the periods. The average volume of loans has declined from $228.4 million during the first quarter of 2002 to $186.9 million during the first quarter of 2003 while the average volume of loans held-for-sale has increased from $18.4 million to $35.4 million under the same comparison. The average balance of other interest-earning assets has remained relatively unchanged.

The average cost of interest-bearing liabilities decreased to 2.53% for the quarter ended March 31, 2003 from 3.57% for the same period of 2002. Average interest-bearing liabilities decreased $42.1 million from $284.3 million for the three months ended March 31, 2002 to $242.2 million for the three months ended March 31, 2003. The majority of the decline in average interest-bearing liabilities is due to a reduction in brokered certificates of deposit. At March 31, 2003 the volume of brokered certificates was $23.1 million compared to $55.6 million at March 31, 2002. During the first quarter of 2003 the volume of other borrowed money decreased by $8.1 million upon the maturity of borrowings from the FHLB, but because this transaction occurred later in the quarter, the average balance of other borrowed money declined less than $3.0 million comparing the first quarter of 2003 to the first quarter of 2002.

The average interest spread for the quarter ended March 31, 2003 was over 50 basis points higher than the average interest rate spread for the quarter ended March 31, 2002. The average costs paid on interest-bearing liabilities declined more than the yield earned on interest-earning assets widening the spread. The interest margin also increased 50 basis points when comparing the two periods since net interest income was nearly unchanged, while the average volume of interest-earning assets declined over $31.1 million.

Provision for Loan Losses

The amount of the allowance for loan losses is analyzed by management on a regular basis to ensure that it is adequate to absorb losses inherent in the loan portfolio as of the reporting date.  When a provision for loan losses is recorded, the amount is based on past charge-off experience, a careful analysis of the current loan portfolio, the level of non-performing and impaired loans, evaluation of future economic trends in the Company's market area, and other factors relevant to the loan portfolio.  The quarterly provision recorded as an increase to the allowance for loan losses is based upon estimates of probable losses inherent in the loan portfolio.  The loss amount actually realized for these loans can vary significantly from the estimated amounts. See the "Allowance for Loan Losses" disclosure for a more detailed discussion.



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The Company's provision for loan losses was $523,000 for the quarter ended March 31, 2003 and $300,000 for the quarter ended March 31, 2002. Charge-offs, net of recoveries, were $703,000 for the three months ended March 31, 2003 compared to net charge-offs of $393,000 for the three months ended March 31, 2002 and $2.3 million for the year ended December 31, 2002. The first quarter 2003 loan loss provision includes an increase to the allowance for loan losses against the charge-off of $383,000 for a specific loan.

Future loan loss provisions will be based on Management's quarterly adequacy analysis of the allowance for loan losses. Management anticipates a possible reduction in future provisions if the economy strengthens and bolsters the Company's borrowers' ability to repay or increases underlying collateral values of the loans.

Non-Interest Income

Non-interest income consists of the following components:



Three
      Months Ended(unaudited)
      
      March 31,(dollars in
      thousands)
      
      2003
      
      2002Service charge on
      deposit accounts
      $
      246
      $
      178Gains on loans sold
      
      1,749
      
      1,174Mortgage brokerage
      fees
      
      843
      
      605Fiduciary income
      
      90
      
      71Escrow fees
      
      337
      
      222Credit Card income
      
      153
      
      125ATM income
      
      13
      
      28Safe deposit box
      fees
      
      25
      
      24Gain on sale of
      repossessed assets
      
      33
      
      2Gain on sale of
      available-for-sale securities
      
      -
      
      -Other miscellaneous
      fees and income
      
      5
      
      9Total
      non-interest income
      $
      3,494
      $
      2,438




Non-interest income was $3.5 million for the quarter ended March 31, 2003, an increase of $1.1 million from $2.4 million for the same period of 2002. Non-interest income generated by the mortgage banking segment continued to account for the majority of the total non-interest income for the periods.  Gains on loans sold, brokerage fees, and escrow fees were $2.9 million, which accounted for 82.9% of the total non-interest income for the first quarter of 2003, and were $2.0 million or 83.3% for the same period of 2002.



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Non-Interest Expense

Non-interest expense consists of the following components:



Three
      Months Ended(unaudited)
      
      March
      31,(dollars in
      thousands)
      
      2003
      
      2002Salaries and
      employee benefits
      $
      2,624
      $
      2,414Net occupancy and
      equipment
      
      647
      
      580Amortization of
      intangible assets
      
      66
      
      66Net cost of
      operation of other real estate owned
      
      27
      
      84Business taxes
      
      133
      
      162Data processing and
      communications
      
      129
      
      101Stationary and
      supplies
      
      61
      
      71Credit card expense
      
      155
      
      116Travel and
      education
      
      71
      
      50Loan expense
      
      113
      
      78Advertising
      
      17
      
      39Professional fees
      
      467
      
      275Postage and freight
      
      103
      
      124FDIC insurance
      
      138
      
      147Other miscellaneous
      expenses
      
      354
      
      234Total non-interest
      expense
      $
      5,105
      $
      4,541




Non-interest expenses increased $600,000 to $5.1 million for the quarter ended March 31, 2003 compared to $4.5 million for the quarter ended March 31, 2002.

Salary expenses have accounted for approximately $200,000 of the increase in total non-interest expenses.  Salaries and employee benefits have increased to $2.6 million from $2.4 million comparing the first quarter 2003 to the first quarter of 2002. At March 31, 2003, the Company had 179 full-time equivalent employees compared to 195 at March 31, 2002. Although the number of employees has declined, commission expenses at Bay Mortgage have increased from period to period due to a higher volume of mortgage loans originated and sold. During the first quarter of 2003, Bay Mortgage originated $125.1 million of mortgage loans, an increase of $32.2 million from $92.9 million originated during the first quarter of 2002. The resulting increase in mortgage lending income has resulted in a higher commission expense. Also contributing to higher salaries is ordinary annual wage increases for many existing employees, generally ranging from three to six percent per year.

Net occupancy and equipment expenses consist of depreciation on premises, lease costs, equipment, maintenance and repair expenses, utilities and related expenses.  The Company's net occupancy expense for the quarter ended March 31, 2003 was $647,000 or 11.6% higher than $580,000 for the same period of 2002. Bay Mortgage has expanded into additional office space contributing to an increase of $77,000 of lease expense.

Although the FDIC insurance premium rate remains unchanged at $.17 per $100 of domestic deposits when comparing the first quarters of 2003 and 2002, the total expense has declined due to a reduction in deposit volume. The FDIC sets deposit insurance premiums based upon the risks a particular bank or savings association poses to the deposit insurance funds. This system bases an institution's risk category partly upon whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. Each insured depository institution is also assigned to one of three "supervisory" categories based on reviews by regulators, statistical analysis of financial statements and other relevant information. An institution's assessment rate depends upon the capital category and supervisory category to which it is assigned. Annual assessment rates currently range from zero per $100 of domestic deposits for the highest rated institution to $0.27 per $100 of domestic deposits for an institution in the lowest category. Under legislation enacted in 1996 to recapitalize the Savings Association Insurance Fund, the FDIC is authorized to collect assessments against insured deposits to be paid to the Financing Corporation ("FICO") to service FICO debt incurred in the 1980's. The current FICO assessment rate for BIF insured deposits is $0.0162 per $100 of deposits per year. Any increase in deposit insurance of FICO assessments could have an adverse effect on Cowlitz Bank's earnings.



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Professional fees include exam and audit expenses, consulting and legal fees, and other professional fees. These expenses were $467,000 for the three months ended March 31, 2003 compared to $275,000 for the three months ended March 31, 2002. Approximately $79,000 of this $192,000 increase is due to the State of Washington examination conducted in 2002. The remaining increase is attributable to consultation to establish or improve internal controls and procedures to improve regulatory reporting, and for employee placement services.

Other miscellaneous expenses were higher during the first quarter of 2003 when compared to the first quarter of 2002 primarily due to higher temporary help costs. Contracted temporary employees have been utilized during the first quarter to assist management on various special projects and to help during the transition of new management.

Income Taxes

During the first quarter of 2003 the provision for income taxes was $351,000 compared to $243,000 for the first quarter of 2002. The effective tax rate for the first quarter of 2003 was 35.3% compared to 39.1% for the first quarter of 2002. The results from discontinued operations and the cumulative effect of a change in accounting principles disclosed on the consolidated statements of operations are net of income taxes.

Loans

Total loans outstanding were $178.8 million and $194.5 million at March 31, 2003 and December 31, 2002, respectively.  Loan commitments such as home equity and other lines of credit, unused available
amounts on credit cards, and letters of credit, were $34.1 million at March 31, 2003 and $39.9 million at December 31, 2002. In addition, the Company had $37.2 million of loans held-for-sale at March 31, 2003 compared to $63.6 million at December 31, 2002.  During the first three months of 2003, the Company funded $125.1 million of loans to be sold into the secondary market, and delivered $153.3 million to the market.  This compares to $92.9 million funded and $112.5 million delivered during the first three months of 2002.

The following table presents the composition of the Company's loan portfolio at the dates indicated:



(unaudited)
      
      March 31, 2003
      
      December 31, 2002(dollars in thousands)
      
      Amount
      
      Percent
      
      Amount
      
      PercentCommercial
      $
      39,976
      
      22.28%
      $
      42,200
      
      21.62%Real
      estate construction
      
      30,958
      
      17.25%
      
      37,229
      
      19.07%Real
      estate commercial
      
      78,225
      
      43.61%
      
      82,763
      
      42.41%Real
      estate mortgage
      
      25,966
      
      14.47%
      
      28,370
      
      14.53%Consumer and other
      
      4,292
      
      2.39%
      
      4,626
      
      2.37%179,417
      
      100.00%
      
      195,188
      
      100.00%Deferred loan fees
      
      (608)
      
      
      
      (682)Total loans
      
      178,809
      
      
      
      194,506Allowance for loan losses
      
      (5,970)
      
      
      
      (6,150)Total loan, net
      $
      172,839
      
      
      $
      188,356




Allowance for Loan Losses

The allowance for loan losses represents management's estimate of probable losses that have occurred as of the date of the financial statements. The loan portfolio is regularly reviewed to evaluate the adequacy of the allowance for loan losses. In determining the level of the allowance, the Company evaluates the amount necessary for specific non-performing loans and estimates losses inherent in other loans. An important element in determining the adequacy of the allowance for loan losses is an analysis of loans by loan rating categories. At a loan's inception, management evaluates the credit risk by using a grading system. This grading system currently includes ten levels of risk. Risk gradings range from "1" for the strongest credits to "10" for the weakest. A "10" rated loan would normally represent a loss, and all loans rated 7-10 collectively comprise the Company's "watch list". The specific grades from 7-10 are "special mention", "substandard", "doubtful", and "loss", respectively. When indicators such as operating losses, collateral impairment or delinquency problems show that a credit may have weakened, the credit will be downgraded as appropriate. Similarly, as borrowers bring loans current, show improved cash flows, or improve the collateral position of a loan, the credits may be upgraded. Management reviews all credits periodically for changes in such factors. The result is an allowance with two components, specific reserves and a general allowance.



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Specific Reserves: Loans on the Company's watch list, as described above, are specifically reserved for by applying a separate reserve factor to the volume of loans within each risk grade. The reserve factors are determined on the basis of regulatory guidelines, industry standards, and management judgment. Management assesses each loan on the watch list, and selected additional loans, to assure the reserve factor applied to each risk grade is sufficient for each individual loan within the pool. When significant conditions or circumstances exist on an individual loan indicating greater risk, additional specific reserves may be required. Management considers in its analysis expected future cash flows, the value of collateral and other factors that may impact the borrower's ability to pay.

General Allowance: Any loan that does not require a specific reserve is subject to a general reserve loss factor. Management determines this factor by analyzing the volume and mix of the existing loan portfolio, in addition to other factors. Management analyzes:

- the volume and severity of non-performing loans and adversely classified credits;
- the level of net charge-offs previously experienced;
- the nature and value of collateral securing the loans;
- the trend in loan growth, including any rapid increase in loan volume within a relatively short period of time;
- the general and local economic and business conditions affecting the Company's ability to collect on these loans;
- the relationship and trend over the past several years of recoveries in relation to charge-offs; and
- any changes in lending policies, lending management, or the loan review system.

Management also attempts to ensure that the overall allowance appropriately reflects a margin for the imprecision necessarily inherent in estimates of expected loan losses.

The quarterly analysis of specific and general loss components of the allowance is the principal method relied upon by management to ensure that changes in estimated loan loss levels are adjusted on a timely basis. The inclusion of historical loss factors in the process of determining the general component of the allowance also acts as a self-correcting mechanism of management's estimation process, as loss experience more remote in time is replaced by more recent experience. In its analysis of the specific and the general components of the allowance, management also considers regulatory guidance in addition to the Company's own experience. There have been no changes to the Company's allowance for loan losses related to changes in methods or assumptions since December 31, 2002. Any adjustments or changes in the elements and components of the allowance since year-end are primarily the result of loan quality assessments and variations in total loan volumes.

Loans and other extensions of credit deemed uncollectible are charged to the allowance. Subsequent recoveries, if any, are credited to the allowance. Actual losses may vary from current estimates and the amount of the provision may be either greater than or less than actual net charge-offs. The related provision for loan losses that is charged to income is the amount necessary to adjust the allowance to the level determined through the above process.

Management's evaluation of the loan portfolio resulted in total allowances for loan losses of $6.0 million and $6.2 million at March 31, 2003 and March 31, 2002, respectively, a decline of approximately $200,000. The allowance, as a percentage of year-end total loans, increased from 3.16% at year-end 2002 and 2.48% at March 31, 2002, to 3.34% at March 31, 2003.

In accordance with the Company's methodology for assessing the appropriate allowance for loan losses, the general portion of the allowance was $2.7 million at March 31, 2003 compared to $2.0 million at December 31, 2002. The increase in the general allowance is due to a reduction in the volume of loans requiring specific reserves. As loans have been upgraded, the associated additional specific reserves on those loans are moved into the general pool.



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At March 31, 2003, approximately $3.3 million of the allowance for loan losses was allocated based on an estimate of the amount that was necessary to provide for potential losses related to the watch list and other specific loans, compared to $4.2 million at December 31, 2002. During the first quarter of 2003, the volume of loans on the Company's watch list requiring specific reserves has decreased by approximately $7.1 million. As conditions on specific loans have changed and the loans have been upgraded, the amount of reserves required against those loans has declined. Although the total allowance for loan losses declined only slightly during the first quarter of 2003, the upgraded loans have resulted in a shift in reserves from specific to general. Loans on the watch list are closely monitored for quality issues, including collateral adequacy and the borrower's ability to repay. Management periodically reviews these loans and assesses the adequacy of the associated allowance. At March 31, 2003, management believes that all potential losses associated with these loans are fully reserved.

The allowance for loan losses is based upon estimates of probable losses inherent in the loan portfolio.  The amount actually observed for these losses can vary significantly from the estimated amounts. The following table shows the Company's loan loss performance for the periods indicated.



Three Months Ended
      
      Year
      Ended(balances exclude amounts from
      discontinued operations)
      
      March 31,
      December 31,(dollars in thousands) (unaudited)
      
      2003
      
      2002
      
      2002Loans outstanding at end of period,
      net of deferred fees (1)
      $
      178,809
      $
      226,101
      $
      194,506Average loans outstanding during the
      period
      $
      186,876
      $
      228,355
      $
      219,231Allowance for loan losses, beginning
      of period
      $
      6,150
      $
      5,710
      $
      5,710Loans charged off:Commercial
      
      470
      
      391
      
      2,111Real Estate
      
      180
      
      30
      
      415Consumer
      
      43
      
      1
      
      7Credit Cards
      
      18
      
      36
      
      83Total loans charged-off
      
      711
      
      458
      
      2,616Recoveries:Commercial
      
      6
      
      28
      
      99Real Estate
      
      -
      
      27
      
      156Consumer
      
      -
      
      1
      
      1Credit Cards
      
      2
      
      9
      
      17Total
      recoveries
      
      8
      
      65
      
      273Provision for loan losses
      
      523
      
      300
      
      2,783Allowance for loan losses, end of
      period
      $
      5,970
      $
      5,617
      $
      6,150Net loans charged-off during the
      period
      
      703
      
      393
      
      2,343Ratio of net loans charged-off to
      average loans outstanding
      
      0.38%
      
      0.17%
      
      1.07%Ratio of allowance for loan losses
      to loans at end of period
      
      3.34%
      
      2.48%
      
      3.16%(1) Excludes loans held-for-sale




Impaired Loans

The Company, during its normal loan review procedures, considers a loan to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. A loan is not considered to be impaired during a period of minimal delay (less than 90 days) unless available information strongly suggests impairment. The Company measures impaired loans based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair market value of the collateral if the loan is collateral dependent. Impaired loans are charged to the allowance when management believes that, after considering economic and business conditions, collection efforts, and collateral position, the borrower's financial condition indicates that collection of principal is not probable.

Generally, no interest is accrued on loans when factors indicate collection of interest is doubtful or when principal or interest payments become 90 days past due, unless collection of principal and interest are anticipated within a reasonable period of time and the loans are well secured. For such loans, previously accrued but uncollected interest is charged against current earnings, and income is only recognized to the extent payments are subsequently received and collection of the remaining recorded principal balance is considered probable.



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Non-Performing Assets

Non-performing loans include all loans greater than 90 days past due with respect to either principal or interest, and all loans to which the accrual of interest has been suspended. These loans, combined with repossessed real estate and other repossessed assets, are collectively considered to be non-performing assets. The following table presents information on all non-performing assets:



(unaudited)
      
      
      March
      31,
      
      December 31,(dollars in thousands)
      
      
      2003
      
      2002Loans on non-accrual status
      
      $
      3,268
      $
      5,097Loans past due greater than 90 days
      but not on non-accrual status
      
      
      549
      
      982Other real estate owned
      
      
      1,404
      
      1,304Other repossessed assets
      
      
      -
      
      4Total
      non-performing assets
      
      $
      5,221
      $
      7,387Total assets
      
      $
      310,690
      $
      345,164Percentage of non-performing assets
      to total assets
      
      
      1.68%
      
      2.14%




At March 31, 2003 non-performing assets were $5.2 million or 1.68% of total assets compared to $7.4 million or 2.14% of total assets at December 31, 2002. A reduction in total non-accrual loans of $1.8 million accounts for the majority of the decrease, and is related to a real estate development company whose loans were brought current and taken off of non-accrual status. Approximately $2.8 million of the $3.3 million of non-accrual loans at March 31, 2003 are primarily secured by real estate and the remainder consists of commercial and consumer loans with varying collateral. Any losses on non-accrual loans that are considered probable have been estimated by management in its routine assessment of the allowance for loan losses as discussed above.

The Company is actively working on identifying and reducing the level of non-performing assets, and has undertaken a more aggressive approach relating to the collection and ultimate reduction of non-performing assets. As these impaired loans are brought current, charged-off, or the repossessed collateral sold, the level of non-performing assets is expected to continue to decrease.

Other real estate owned increased slightly to $1.4 million at March 31, 2003 compared to $1.3 million at December 31, 2002. During the first quarter of 2003, four properties with a total asset value of $674,000 were sold, while six properties were repossessed with a total asset value of $774,000.

Liquidity

Liquidity represents the ability to meet deposit withdrawals and fund loan demand, while retaining the flexibility to take advantage of business opportunities. The Company's primary sources of funds have been customer and brokered deposits, loan payments, sales of investments, sales of loans or other assets, borrowings, and the use of the federal funds market.

As of March 31, 2003, approximately $6.3 million of the securities portfolio matures within one year, and another $5.0 million is callable within one year. The maturities of mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the expected maturity of the underlying collateral. Mortgage-backed securities may mature earlier than their stated contractual maturities because of accelerated principal repayments of the underlying loans.

Historically the Company has utilized borrowings from the FHLB as an important source of funding for its growth. The Company has an established borrowing line with the FHLB that permits it to borrow up to 15% of the Bank's assets, subject to collateral limitations. Advances from the FHLB have maturity periods ranging from 1 through 15 years and at March 31, 2003, bear interest at rates ranging from 2.63% to 8.62%. Because the Company currently has excess liquidity, during the first quarter of 2003 $8.0 million of advances matured and were not renewed. At March 31, 2003, $7.8 million in advances were outstanding from the FHLB compared to $15.8 million at December 31, 2002.



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Currently, the primary utilization of the Company's excess liquidity is related to changes in the origination volume of loans held-for-sale. In order to take advantage of income generated from high volumes of mortgage lending during 2002 and 2001, the Company utilized the brokered certificates of deposit to help fund the mortgage lending growth. As loans held-for-sale and other loan volumes have declined, the excess funds generated have been deposited in the Company's cash account with the FHLB. To offset this increase in cash and the resulting increase in liquidity, higher rate brokered certificates of deposit are not renewed as they mature. At March 31, 2003, brokered certificates of deposit have decreased to $23.1 million or 8.8% of total deposits compared to $29.7 million or 10.2% of total deposits at December 31, 2002 and to $56.7 million or 18.0% of total deposits at December 31, 2001. An additional $13.0 million of public funds certificates matured during the first quarter of 2003, and have not been renewed. During the first quarter of 2003, total loans have decreased $15.7 million and loans held-for-sale have declined $26.4 million, offsetting the reduction in deposits and keeping the cash balance and liquidity higher.

Capital

The Company and the Bank are required to maintain minimum amounts of capital to "risk-weighted" assets, as defined by banking regulators. The Company and the Bank are required to have Total Capital and Tier 1 Capital ratios of 8.0% and 4.0%, respectively. In addition the Bank is required to maintain a Tier 1 leverage ratio of not less than 4%. At March 31, 2003, the Company's Total and Tier 1 Capital ratios were 14.32% and 13.05%, respectively; and at December 31, 2002, the Company's ratios were 12.56% and 11.29%, respectively. The ratio of shareholder's equity to average assets was 9.90% and 9.03% at March 31, 2003 and December 31, 2002, respectively. At March 31, 2003, the Bank's Total Capital, Tier 1 Capital, and Tier 1 leverage ratios were 15.07%, 13.80%, and 9.42%, respectively and at December 31, 2002 were 12.83%. 11.57%, and 8.28%, respectively. To be considered "well capitalized" as defined by banking regulators, the Bank and the Company must maintain a Total Capital ratio of greater than 10%, a Tier 1 Capital ratio of greater than 6%, and the Bank must maintain a Tier 1 leverage capital ratio of greater than 5%. At March 31, 2003 and at December 31, 2002, both the Company and the Bank exceeded the minimum requirements to be considered "well capitalized" under banking regulations.

Regulatory Consent Order

On May 6, 2003, Cowlitz Bank entered into a stipulation which will permit the FDIC, its primary federal regulator, to issue a Consent Order requiring a series of affirmative actions to address weaknesses and deficiencies identified in an earlier examination of the Bank with respect to its condition as of September 30, 2002. Since the examination date, the Bank has taken a number of steps to address the requirements, chief among them was hiring the replacements for the recently departed President/Chief Executive Officer and Credit Administrator. Under the Order the Bank, among other things, will: refrain from paying any dividends without FDIC consent; review its strategic, profitability and liquidity plans; provide progress reports to the FDIC; maintain its well-capitalized status pursuant to a capital plan to ensure Tier 1 capital equaling or exceeding 8.0% of the Bank's total assets; establish and maintain an adequate allowance for loan and lease losses; refrain from extending credit to borrowers whose previous loans have been charged off; undertake a full internal audit of its Bay Mortgage division; retain an internal auditor and  formulate and implement an effective internal audit policy; and will reduce the amount of classified assets identified in the examination to no more than 50% of Tier 1 capital plus the allowance for loan and lease losses by November 30, 2003 and will further reduce the amount to no more than 25% by December 31, 2004. If the Bank fails to adhere to the terms of the Order, the FDIC is empowered by federal statutes and regulations to assess civil monetary penalties or initiate other enforcement actions against the Bank, its management or the
Board of Directors. Management believes the Bank is, or within the timelines set forth in the Order, will be, in compliance with the requirements of the Order.

From December 31, 2002 to March 31, 2003, the amount of classified assets identified in the examination had been reduced to 51.8% of Tier 1 capital plus the allowance for loan and lease losses. The objective of 50% has nearly been reached eight months prior to the November 30, 2003 target date. In addition, the strategic, profitability, and liquidity plans have been revised during the first quarter of 2003 and have been submitted to the FDIC for review.



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Item 3.
Quantitative and Qualitative Disclosures about Market Risk

Credit Risk

The Company, like other lenders, is subject to credit risk, which is the risk of losing principal and interest due to customers' failure to repay loans in accordance with their terms. Although the Company has established lending criteria and an adequate allowance for loan losses to help mitigate credit risk, a continued downturn in the economy or the real estate market or a rapid increase in interest rates could have a negative effect on collateral values and borrowers' ability to repay. The Company's targeted customers are small to medium-size businesses, professionals and retail customers that may have limited capital resources to repay loans during a prolonged economic downturn.

Interest Rate Risk

The Company's earnings are largely derived from net interest income, which is interest income and fees earned on loans and investment income, less interest expense paid on deposits and other borrowings. Interest rates are highly sensitive to many factors that are beyond the control of the Company's management, including general economic conditions, and the policies of various governmental and regulatory authorities. As interest rates change, net interest income is affected. With fixed rate assets (such as fixed rate loans) and liabilities (such as certificates of deposit), the effect on net interest income depends on the maturities of the assets and liabilities. The Company's primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Company's net interest income and capital, while structuring the Company's asset/liability position to obtain the maximum yield-cost spread on that structure. Interest rate risk is managed through the monitoring of the Company's gap position and sensitivity to interest rate risk by subjecting the Company's balance sheet to hypothetical interest rate shocks.  In a falling rate environment, the spread between interest yields earned and interest rates paid, may narrow, depending on the relative level of fixed and variable rate assets and liabilities.  In a stable or increasing rate environment the Company's variable rate loans will remain steady or increase immediately with changes in interest rates, while fixed rate liabilities, particularly certificates of deposit will only re-price as the liability matures.  As experienced in the relatively stable rate environment during 2002 and the first three months of 2003, the interest rate spread has widened as long-term certificates of deposit have matured and re-priced at the current, lower rates or not been renewed.

Item 4. Controls and Procedures

In April 2003, the Company evaluated, under the supervision and the participation of Management, including the Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of disclosure controls and procedures.  Based on that evaluation, Management, including the Chief Executive Officer and Chief Financial Officer, concluded that disclosure controls and procedures were effective.

There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.



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Part II. OTHER INFORMATION

Item 1.	Legal Proceedings

Not applicable

Item 2.	Changes in Securities and Use of Proceeds

Not applicable

Item 3.	Defaults upon Senior Securities

Not applicable

Item 4. 	Submission of Matters to a Vote of Security Holders

Not applicable

Item 5. Other Information

Not applicable

Item 6.	Exhibits and Reports on Form 8-K

> (a)    Exhibits.  The following constitutes the exhibit index.

|3.1*   | Restated and Amended Articles of Incorporation of Registrant.                                                            
|------ | -------------------------------------------------------------------------------------------------------------------------
|3.2*   | Bylaws of Registrant.                                                                                                    
|10.1*  | Advances Security and Deposit Agreement dated March 29, 1991 between Federal Home Loan Bank of Seattle and Cowlitz Bank. 
|10.2*  | Federal Home Loan Bank of Seattle Form of Promissory Note (Credit Line Fixed Rate Advance).                              
|10.4*  | Lease Agreement dated October 7, 1963 between Twin City Development Co. and Bank of Cowlitz County.                      
|10.5*  | Assignment of Lease dated March 4, 1976 between Bank of the West and Old National Bank of Washington.                    
|10.6*  | Assignment of Lease dated March 30, 1979 between Old National Bank of Washington and Pacific National Bank of Washington.
|10.7*  | Extension of Lease dated April 1, 1989 between Triangle Development Company and First Interstate Bank of Washington, N.A.
|10.8*  | Employment Agreement dated January 1, 1998 between Cowlitz Bancorporation and Ben Namatinia.                             
|10.9*  | Cowlitz Bancorporation 1997 Stock Option Plan.                                                                           
|10.10* | Form of Stock Option Agreement.                                                                                          
|10.11* | Cowlitz Bancorporation Employee Stock Purchase Plan.                                                                     
|10.12  | Employment Agreement with Richard Fitzpatrick                                                                            
|10.13  | Employment Agreement with Ernie Ballou                                                                                   
|99.1   | Certification of Chief Executive Officer and Chief Financial Officer                                                     

*
Incorporated by reference from Registration Statement on Form S-1, Reg. No. 333-44355

> (b)	The Company did not file any reports on Form 8-K during the quarter ended March 31, 2003.





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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





Dated: May 14, 2003By:
Cowlitz Bancorporation(Registrant)
/s/ Richard J. FitzpatrickRichard J. Fitzpatrick, President and Chief Executive OfficerBy:
/s/ Don P. KiserDon P. Kiser, Vice-President, Chief Financial Officer, and Secretary




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I, Richard J. Fitzpatrick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cowlitz Bancorporation;

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

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

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ Richard J. FitzpatrickRichard J. Fitzpatrick, Chief Executive Officer

Cowlitz Bancorporation



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I, Don P. Kiser, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cowlitz Bancorporation;

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

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

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ Don P. KiserDon P. Kiser, Chief Financial Officer

Cowlitz Bancorporation



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EXHIBIT 10.12



CONSULTING AND EXECUTIVE EMPLOYMENT AGREEMENT



THIS AGREEMENT is made effective February 10, 2003, by and between
COWLITZ BANCORPORATION and COWLITZ BANK (jointly and severally "Cowlitz") and
RICHARD FITZPATRICK ("Executive").

In consideration of the mutual covenants and conditions set forth
below, the parties hereby agree as follows:

1.    Consulting Services, Employment and Duties.
Beginning February 10, 2003 (the "Commencement Date") and until the necessary
regulatory approvals (or non-disapprovals) are received for Executive to take
the position of President and Chief Executive Officer of both Cowlitz
Bancorporation and Cowlitz Bank in accordance with the terms of this Agreement,
Cowlitz will retain Executive as a consultant without any policy making
authority. Cowlitz will promptly seek such regulatory approvals or
non-disapprovals. Upon receipt of all such regulatory approvals or
non-disapprovals, Executive shall take the position of President and Chief
Executive Officer of both Cowlitz Bancorporation and Cowlitz Bank and will
have all of the authority and responsibilities of that position, which includes
management of Cowlitz Bancorporation and Cowlitz Bank, and the Bay Bank,
Northern Bank of Commerce and Bay Mortgage Divisions, and such other duties as
relate to such positions or as the Board of Directors in its discretion may from
time to time assign to him and as shall be customary for a CEO of Cowlitz's peer
institutions. Executive shall have lending authority of not less than three
million dollars except to the extent banking regulators require a more limited
authority. Executive agrees to make all reasonable efforts to diligently perform
all such duties in accordance with reasonable policy directives of Cowlitz's
Board of Directors.

Upon receiving the necessary regulatory approvals or
non-disapprovals referred to above, the Boards of Directors of Cowlitz
Bancorporation and Cowlitz Bank shall appoint Executive to fill a vacancy on
their respective boards. Executive may be removed from service on either Board
pursuant to the applicable provisions governing removal of directors in the
respective Articles of Incorporation or Bylaws, and his continuing service on
the Cowlitz Bancorporation Board is subject to re-election at the next annual
meeting and following expiration of subsequent terms of service. For so long as
he continues to be employed hereunder, Cowlitz Bancorporation and Cowlitz Bank
will endeavor to cause their respective Boards of Directors to nominate and
re-nominate Executive to serve on such Boards. Executive shall serve as a
director without additional compensation for board service.

Executive shall devote Executive's entire working time, attention
and efforts to Cowlitz's business and affairs, shall faithfully and diligently
serve Cowlitz's interests and shall not engage in any business or employment
activity that is not on Cowlitz's behalf (whether or not pursued for gain or
profit) except for (a) activities approved in writing in advance by the Board
(which will not be unreasonably withheld or delayed) and (b) passive investments
that do not involve Executive providing any advice or services to the businesses
in which the investments are made.

If all or any of the regulatory approvals or non-disapprovals
referred to above are not obtained within three (3) months after the
Commencement Date then, except to the extent otherwise specifically agreed by
Executive and Cowlitz, this Agreement shall terminate and notwithstanding
anything to the contrary elsewhere in this Agreement, Executive shall be
entitled to only his Base Salary and benefits for the period of time in which
Executive served as a consultant and any relocation expenses incurred by
Executive prior to the expiration of such period or, if earlier, the date of a
regulatory disapproval.



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2.    Term. The term of this Agreement shall
begin on the Commencement Date and shall continue through February 11, 2008;
provided, however, that on the third anniversary of the Commencement Date and on
each anniversary thereafter the term shall be extended for an additional period
of one (1) year unless either party shall have given to the other, prior to such
anniversary, written notice of non-extension; and provided, further, that the
term shall end no later than the anniversary immediately following the
Executive's sixty-fifth birthdayor the earlier termination of this
Agreement as provided herein.

3.    Compensation. Executive shall be
entitled to the following compensation:

(a)    Salary. For all services to
be rendered by Executive, including any duties assigned to him by the Board of
Directors in accordance with the terms of this Agreement, whether as consultant
or as President and Chief Executive Officer, Cowlitz agrees to pay Executive an
initial base salary of $237,500 per year (the "Base Salary"). The Base Salary is
subject to annual review and appropriate upward adjustments. The Base Salary
shall not be reduced (i) except to the extent the regulators require a reduction
for the Cowlitz senior management group (Senior Vice Presidents and above) or
(ii) the Board of Directors, in response to a material adverse financial
condition, concludes that the salaries of the senior management group should be
reduced and elects to proportionately reduce the salaries of all such
executives, but in any event such reduction will not exceed 15% of the Base
Salary. If there is any such reduction, Cowlitz and the Executive, when and if
circumstances thereafter permit, shall negotiate for an appropriate adjustment
in the compensation and benefits subsequently provided to Executive, to
compensate him fairly for any such reduction.

(b)    Stock Options. Effective as
of the Commencement Date or as soon as permissible thereafter Cowlitz will grant
to Executive options to purchase at least 50,000 shares of Cowlitz
Bancorporation's common stock at a cash price equal to the market price at the
close of business on the date of grant. Twenty percent (20%) of the options will
vest on the date on which Executive takes the position of President and Chief
Executive Officer and an additional 20% will vest each anniversary of such
effective date until fully vested. All unvested options will vest upon a Change
in Control, as defined below in Section 5(d). To the extent not sooner
exercised, all options will expire at the earlier of ten years after the date on
which they are granted or 180 days after termination of employment. The options
shall be non-qualified stock options. At its expense, Cowlitz Bancorporation
will register these option and the shares to be issued upon exercise of the
same, on a Form S-8 registration prior to issuance of the shares. Although not
guaranteed, it is the parties' expectation that on or about each anniversary of
the term of this Agreement, options for at least an additional 15,000 shares or
more will be granted to Executive, on similar vesting terms.

(c)    Bonus. Executive shall be
entitled to receive 30% or more of Executive's Base Salary in the form of a
performance bonus if Executive meets the reasonable performance goals set on an
annual basis by the Board of Directors.

(d)    Other Benefits.
Executive shall be entitled to the following additional benefits:

> (i)    Four (4) weeks of paid vacation each calendar
>       year, to be used in accordance with policies in the employment manual
>       (vacation to accrue at one week per quarter; any use beyond the accrual
>       shall be reimbursed if Executive terminates employment);
>       (ii)    Participation in Cowlitz Bank's medical, dental,
>       life and disability insurance made generally available to employees;
>       (iii)    Participation in Cowlitz Bank's 401(k)
>       retirement programs as established from time to time by the Board of
>       Directors;



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> (iv)    A supplemental executive retirement benefit (SERP)
>       under a SERP Plan to be approved by the Board of Directors, which shall
>       provide for payment to Executive of supplemental retirement benefits as
>       follows. The supplemental retirement benefit to be paid annually until
>       Executive's death shall be calculated by taking the average of the three
>       highest years of Executive's combined salary and bonus (or, if the
>       Executive's employment has not continued for at least three years, by
>       taking his total salary and bonus compensation for the period of his
>       employment and determining the annual average) and multiplying the result
>       by the product of (a) 1.5% and (b) the number of whole plus fractional
>       years of Executive's employment. Executive shall be entitled to start
>       receiving the supplemental benefit following the Executive's sixty-fifty
>       birthday (or permanent disability), provided however that in the event of
>       a Change in Control, as defined below in Section 5(d), or upon termination
>       by Cowlitz without Cause, defined below in Section 5(a), or upon his
>       Disability, defined below in Section 5(c), Executive may make an election
>       to start receiving the retirement benefit earlier. If Executive's
>       employment is terminated prior to his 65th birthday, the
>       amounts to be paid to him will be reduced to reflect the amount of the
>       accrued SERP liability at the time of termination and the actuarially
>       determined life payment period remaining. At Executive's election, so long
>       as such election does not increase the costs to Cowlitz, the supplemental
>       retirement benefit shall be provided on a joint and survivor basis for
>       Executive and Executive's spouse, with an appropriate reduction in the
>       annual benefit payment to compensate for the increase in the actuarial
>       term; and
>       (v)    Use of automobile and reimbursement of insurance,
>       maintenance and gasoline expenses. At Executive's option, the automobile
>       will be purchased or leased. If purchased, the cost shall not exceed
>       $45,000. If leased, the monthly lease payment shall not exceed $750. A new
>       automobile will be provided not less frequently than every three (3)
>       years.

(e)    Relocation Expenses.
Executive shall be reimbursed, upon presentation of receipts to the chairman or
vice chairman of the Board of Cowlitz Bancorporation, for the following
relocation expenses:



> (i)    Travel expenses incurred after Commencement Date
>       associated with trips for the Executive to return to Vermont in connection
>       with relocation arrangements and/or for Executive's wife and daughter to
>       travel to the Longview area for one or more house hunting trips, so long
>       as all trips are "coach fare" and the aggregate expense reimbursement by
>       Cowlitz for such trips does not exceed $5,000;
>       (ii)    Reasonable moving expenses associated with
>       moving Executive and Executive's family and household possessions to the
>       Longview, Washington area;
>       (iii)    From the Commencement Date and until (a) 90
>       days after the date on which Executive becomes President and Chief
>       Executive Officer or (b) the earlier date on which Executive has fully
>       relocated Executive's family to the Longview area, temporary living costs
>       for Executive consisting of reasonable housing and outside meals;
>       (iv)    Reimbursement of the real estate broker fee on
>       the sale of Executive's home in Vermont; and
>       (v)    Reimbursement of up to two points on the mortgage
>       loan for the purchase of Executive's home in Washington.



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(f)    No Reductions.
Without Executive's specific written consent, except as otherwise specifically
provided in Subsection 3(a), under no circumstances shall the Base Salary or the
benefits provided for in Subsection 3(d), above, be decreased, nor shall there
be any material reduction in the support services and facilities available to
the Executive.

(g)    Professional Fees in Connection with Agreement. Cowlitz will pay Executive's reasonable legal and
professional fees incurred in connection with this Agreement, not to exceed a
maximum of $3,000.

4.    Termination of Employment. Executive's employment shall terminate for any of
the following reasons:

(a)    For Cause. Upon Cowlitz's termination of Executive
for Cause (as defined in Section 5(a) below) ("Termination For Cause").

(b)    Without Cause. Upon Cowlitz's termination of
Executive without Cause, at any time at Cowlitz's sole discretion, for any
reason other than for Cause or for no reason ("Termination Without Cause").

(c)    For Good Reason. Upon Executive's termination of
the employment for Good Reason (as defined in Section 5(b) below) ("Termination
For Good Reason").

(d)    Death or Disability. Upon Executive's death or
Disability (as defined in Section 5(c) below).

(e)    Resignation. Upon Executive's voluntary resignation
in writing, which shall be given to Cowlitz at least 60 days prior to the
effective date of such resignation ("Resignation"); provided, resignation shall
not be permitted if an event has occurred that would give rise to Termination
for Cause.

5.    Definitions.

(a)    Cause.For the purposes of this Agreement, "Cause"
for Executive's termination will exist upon the occurrence of one or more of the
following events:

> (i)    A good faith determination by the Cowlitz Board,
>       based on demonstrable evidence, that the Executive has committed or
>       abetted another in the commission of: (i) any act established or
>       recognized by law as a serious criminal act; (ii) any act established or
>       recognized by law as an act of moral turpitude; (iii) dishonest or
>       fraudulent conduct by Executive with respect to the performance of his
>       duties with Cowlitz; or (iv) other egregious acts or a series of egregious
>       acts or conduct which would be considered highly inappropriate or
>       unprofessional for the president and chief executive officer of a bank in
>       the Longview area community;
>       (ii)    Following written notice to the Executive that
>       the Board believes that the Executive has failed to carry out and
>       implement reasonable and proper policies of the Board that the Board has
>       conveyed to him in writing, which notice shall state with reasonable
>       particularity the matter(s) complained of and the step(s) necessary to
>       cure or remedy the same, the Executive demonstrably fails to use
>       reasonable efforts to cure or remedy the matters complained of within a
>       reasonable period of time thereafter; or
>       (iii)    An order or directive from a state or federal
>       banking regulatory agency requiring removal of Executive or a finding by
>       any such agency that Executive's performance threatens the safety or
>       soundness of Cowlitz Bancorporation or any of its subsidiaries;



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(b)    Good Reason. For the purposes of this Agreement,
"Good Reason" will exist if, without the written consent of Executive, Executive
is required to move his principal place of employment more than 20 miles from
Cowlitz Financial Center in Longview, Washington (other than the greater
Portland, Oregon area to include Multnomah, Clackamas or Washington Counties,
Oregon or Clark County, Washington), or Cowlitz breaches any obligation under
this Agreement and fails to cure or remedy the same to Executive's reasonable
satisfaction promptly following written notice from Executive, stating with
reasonable particularity the matter(s) complained of, and the step(s) required
to cure or remedy the same, or Cowlitz shall at any time decrease Executive's
lending authority (except as permitted herein), or seek to require him to
perform duties not reasonably customary for a President and Chief Executive
Officer, or in the event of a Change of Control.



(c)    Disability.For purposes of this Agreement,
"Disability" shall mean that Executive has been determined to be disabled, and
entitled to disability benefits, by the insurance company providing disability
insurance maintained by Cowlitz on the Executive, within the meaning of
Cowlitz's long term/permanent disability insurance policy, so long as a
physician selected by Cowlitz and its insurers and acceptable to Executive or
Executive's legal representative (with such agreement on acceptability of the
physician not to be unreasonably withheld), determines the incapacity to be (a)
total and permanent and (b) prohibiting of Executive's ability to perform the
essential functions of Executive's position with or without reasonable
accommodation. In any event, should Executive receive disability benefits albeit
on a short term basis, Cowlitz shall be relieved of its obligation to pay any
cash compensation provided in Subsection 3 (a) and (c) herein for so long as
such disability benefits are being received by Executive.

(d)    Change in Control. For the purposes of this
Agreement, a "Change in Control" shall be deemed to have occurred when any of
the following events takes place:

> (i)    Any person (including any individual or entity
>       not controlled by Cowlitz Bancorp) or persons acting in concert becomes
>       the beneficial owner of voting shares representing thirty-four percent
>       (34%) or more of the voting shares of Cowlitz or its parent company.
>       (ii)    A majority of the Board of Directors of Cowlitz
>       Bank or its parent company is removed from office by a vote of the
>       shareholders over the recommendation of the Board of Directors then
>       serving, or at least a majority of new or additional directors are elected
>       over the recommendation of the Board of Directors then serving.
>       (iii)    Cowlitz Bank or its parent company is a party
>       to a plan of merger or plan of exchange and upon consummation of such
>       plan, the shareholders of Cowlitz or its parent company immediately prior
>       to the transaction do not own or continue to own, directly or indirectly,
>       at least a majority of the shares of the surviving company.



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6.    Payment
Upon Termination. Upon a Termination Without Cause or a Termination for Good
Reason, Executive will continue to receive his Base Salary and all benefits
provided for herein (or, to the extent any such benefits are for any reason not
available, payments of comparable value to Executive after taking into account
any income tax effects) for the balance of the Term; provided, however, that to
the extent (if at all) the continuation of the compensation and benefits
provided for herein exceeds the maximum amount Cowlitz may lawfully pay under
then-applicable law and regulation, the amount to be paid hereunder shall be
limited to such maximum lawful amount; provided, further, that to the extent (if
at all) laws or regulations, or the application of the same to Cowlitz or its
successors, thereafter allow such payments to be resumed following a suspension
or discontinuation by reason of the provisions of this sentence, Cowlitz shall
to the fullest extent permitted by applicable law and regulation resume such
payments; and provided, finally, that if the Termination for Good Reason was on
account of a Change of Control, the provisions of Section 7 shall apply. In
addition, upon a Termination Without Cause or a Termination for Good Reason, the
Executive shall become fully-vested in any and all retirement benefits and in
any stock options (or, if such vesting is not permitted under the instruments
governing such plans, Cowlitz shall provide additional compensation equal to the
value of the foregone or forfeited benefits that Executive would have received
if such vesting had been permitted). In the event of Termination For Cause or
termination due to death or Disability, Cowlitz shall have no other obligation
upon termination.

7.    Change of
Control.

(a)    Notwithstanding anything to the contrary in Section 6, if
Executive's Termination for Good Reason is on account of a Change of Control, or
if there is a Termination Without Cause within twenty-four months following a
Change of Control, then Executive shall be entitled to receive, in a lump sum
within not more than sixty (60) days thereafter, an amount equal to three times
the sum of the following: (a) the Executive's highest annual Base Salary; plus
(b) the Executive's highest annual performance bonus under Section 3(c); plus
(c) the value of the contributions that Cowlitz would have made to or for the
credit of Executive's account if the amounts referred to in (a) and (b) had been
received by Executive on a basis that made them eligible for a Cowlitz
contribution to a Cowlitz-sponsored retirement plan (for purposes of making this
calculation all such contributions shall be considered to have been fully-vested
when made); plus (d) the value of the annual Cowlitz contributions being made to
any employee welfare benefit plans, whether qualified or non-qualified, in which
the Executive participated at the time of the Change in Control (including
without limitation, plans for hospitalization, medical care, major medical,
dental, disability, survivor benefits, and life insurance).

(b)    In the event Executive becomes entitled to a payment or
benefit pursuant to the terms of this Agreement or of any other plan,
arrangement or agreement (collectively, the "Payments") of Cowlitz or its
successor (or any affiliate) (collectively, the "Employer"), and the Employer's
Auditor determines that the Payments result in "excess parachute payments" under
section 280G of the Code, then Executive shall receive, instead of the Payments,
aggregate payments equal to the Reduced Amount, if such Reduced Amount would
result in net after-tax payments to Executive that are greater than the net
after-tax payments he would have received without regard to this section. For
purposes of this subsection 7(b), the "Reduced Amount" shall be the amount,
expressed as a present value, that maximizes the aggregate present value of the
payments without causing any payment to be nondeductible by the Employer under
section 280G of the Code and "Employer's Auditor" shall mean the independent
auditors retained most recently prior to the transaction implicating section
280G of the Code by the Employer, or, if the Employer is not the surviving
entity following the Change in Control, by the Employer's successor (or any
affiliate). In computing the maximum amount payable, the Employer's auditor
shall take into account the independent value to the Employer of Executive's
restrictive covenants for three years following a Change of Control as set forth
in Sections 8, 9 and 10 of this Agreement, which value should constitute
separate consideration outside of sections 280G and 4999 of the Code.



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(c)    If the amount of the aggregate payments to Executive must
be reduced under Section 7(b), then Executive shall direct in which order the
payments are to be reduced, but no change in the timing of any payment shall be
made without the consent of the Employer. As a result of uncertainty in the
application of sections 280G and 4999 of the Code at the time of an initial
determination by the Employer's Auditor, it is possible that a payment will have
been made by the Employer that should not have been made (an "Overpayment") or
that an additional payment that will not have been made by the Employer could
have been made (an "Underpayment"). In the event that the Employer's Auditor,
based upon the assertion of a deficiency by the Internal Revenue Service against
the Employer or Executive that the Employer's Auditor believes has a high
probability of success, determines that an Overpayment has been made, such
Overpayment shall be treated for all purposes as a bilateral error subject to
adjustment which Executive shall repay to the Employer, together with interest
at the applicable federal rate specified in section 7872(f)(2) of the Code. In
the event that the Employer's Auditor determines that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the
Employer to, or for the benefit of, Executive, together with interest at the
applicable federal rate specified in section 7872(f)(2) of the Code.

8.    Noncompetition. Executive agrees that during his employment and (a) for so
long as Cowlitz continues to provide compensation and benefits to him in
accordance with Section 6 of this Agreement, (b) in the event of a Change of
Control payment as provided in Section 7, for a period of three (3) years from
the Change of Control, or (c) for twelve months following a termination for
Cause or Executive's Resignation (the period ending on expiration of the
continuation period specified in (a), (b) or (c) as applicable, is referred to
herein as the "Non-compete Period"), he will not, without the prior written
consent of Cowlitz, be associated with any other financial institution (as such
term is defined in the Gramm-Leach-Bliley Act of 1999) or mortgage company or
their affiliates, having branches or offices within 30 miles of any branch or
office of Cowlitz, whether directly or indirectly, alone or as a member of a
partnership, or as an officer, director, employee, shareholder (except as a
holder of less than 1% of any company with securities registered under Section
12 of the Securities Exchange Act of 1934). Should Executive fail to honor the
non-competition covenant set forth in this section or the covenants set forth in
Section 9 and 10 below, Cowlitz will be relieved from its obligation to make any
further payments under this Agreement, but such relief of Cowlitz's obligation
shall not discharge Executive of his commitment under each of those sections.

9.    Non-Solicitation. During the Non-compete Period, Executive shall not solicit
any customer of Cowlitz or of any of its subsidiaries. For purposes of this
Section, "customers" are defined as (a) all customers serviced by Cowlitz or any
of Cowlitz's subsidiaries at any time within 12 months before termination of
Executive's employment, (b) all customers and potential customers whom Cowlitz
or any of Cowlitz's subsidiaries actively solicited at any time within 12 months
before termination of Executive's employment, and (c) all successors, owners,
directors, partners and management personnel of the customers just described in
(a) and (b).

10.    Nonraiding of Employees. Executive recognizes that Cowlitz's workforce is a
vital part of its business; therefore, Executive agrees that during employment
and the Non-compete Period, Executive shall not solicit any employee, directly
or indirectly, to leave his or her employment with Cowlitz or any of Cowlitz's
subsidiaries. This includes a commitment that Executive will not (a) disclose to
any third party the names, backgrounds or qualifications of any Cowlitz or any
of Cowlitz subsidiary's employees or otherwise identify them as potential
candidates for employment, or (b) personally or through any other person
approach, recruit, interview or otherwise solicit employees of Cowlitz or any of
Cowlitz's subsidiaries to work for any other employer. For purposes of this
Section, employees include all employees working for Cowlitz or any of Cowlitz's
subsidiaries or affiliates at the time of termination of Executive's employment.



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11.    Non-Disclosure. Executive acknowledges that certain proprietary information,
whether of a technical or non-technical nature and whether of a tangible or
intangible form, including but not limited to business plans, marketing plans,
customer lists, customer account information, techniques, methods, data, tables,
calculations, letters or other paperwork, documents, technology and processes of
Cowlitz and its affiliates, collectively referred to as "Confidential
Information," were and will be prepared and developed by Cowlitz at significant
expense and over extended periods of time, are secret and confidential, are
unique and constitute the exclusive property and secrets of Cowlitz, and that
any use or disclosure of such Confidential Information, except in accordance
with and under the provisions of this or any other written agreement between the
parties, would be wrongful and would cause irreparable injury to Cowlitz.
Additionally, it is understood that by virtue of the employment contemplated by
this Agreement, Executive may have access to information that is confidential
and proprietary to Cowlitz's customers, suppliers, and other third persons, and
that such information should be subject to the same restrictions against
disclosure by Executive as Cowlitz's Confidential Information. Executive
therefore agrees that he:

(a)    will not, at any time, without the express written consent
of Cowlitz, publish, disclose, or divulge to any person (except other Bank
employees or agents who have a need to know for purposes of performing their
duties), firm, or corporation any Confidential Information except in accordance
with, and under the provisions of this Agreement or other written agreements
between the parties;

(b)    will not use, directly or indirectly, for Executive's own
benefit or the benefit of any other person, firm, or corporation any
Confidential Information except in accordance with and under the provisions of
this Agreement or other written agreements between the parties;

(c)    will treat confidentially all documents involving
Confidential Information that are delivered or made available to Executive as a
necessary part of Executive's responsibilities as an employee of Cowlitz,
whether or not they are identified or marked by Cowlitz as proprietary or
confidential documents, and will not reproduce or use such documents without
appropriate authority;

(d)    will not advise others (except other Bank employees or
agents who have a need to know for purposes of performing their duties) of
Confidential Information known or used by Cowlitz or others associated with
Cowlitz;

(e)    will not, following his leaving the employ of Cowlitz,
accept employment where the duties under such employment would require or would
pose a reasonable likelihood of requiring Executive to use or disclose
Confidential Information; and

(f)    will abide by the same restrictions set forth above in
subsections (a) through (e), inclusive, as to any information that is
proprietary and confidential to third persons and that was divulged to Executive
by virtue of his employment with Cowlitz.

12.     Enforcement. In the event of any breach of this Agreement by Executive or
any threatened or attempted breach by Executive of the non-competition,
non-solicitation, non-raiding, and non-disclosure, obligations set forth above
in Sections 8, 9, 10 and 11 of this Agreement, Cowlitz will be entitled to
injunctive relief against Executive and the parties hereby agree that the amount
of any bond for damages to be posted by Cowlitz in seeking such injunction will
be Five Hundred Dollars ($500), provided, however, that this provision will in
no way limit or be evidence of the amount of damages to the enjoined party.
Nothing herein will be construed as precluding or limiting any other remedies
available hereunder or at law or in equity for any breach or threatened or
attempted breach of this Agreement, including the recovery of damages.



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13.    Entire
Agreement. This Agreement constitutes the sole agreement of the parties
regarding the benefits in the event of termination or change in control and
together with the employee manual governs the terms of Executive's employment.
Where there is a conflict between the employee manual and this Agreement, the
terms of this Agreement shall govern.

14.    Modification. This Agreement may not be changed, modified, released,
discharged, abandoned, or otherwise amended, in whole or in part, except by an
instrument in writing, signed by Executive and the chairman of the Board acting
at the direction of the Board. Executive agrees that any subsequent change or
changes in his duties, salary, or compensation will not affect the validity or
scope of this Agreement.

15.    Savings
Provision. If any part of this Agreement is rejected by a regulatory agency
or is held by a court to be unenforceable, it shall not affect any other part.
If any part of this Agreement is held to be unenforceable as written, it shall
be enforced to the maximum extent allowed by applicable law. The noncompetition,
non-solicitation, confidential information, and dispute resolution provisions of
this Agreement shall survive after termination of this Agreement, and shall be
enforceable regardless of any claim Executive may have against Cowlitz.

16.    Governing
Law. This Agreement will be governed by and construed in accordance with the
laws of the State of Washington.

17.    Attorneys' Fees. If either party institutes a proceeding to enforce its
rights under, or to recover damages for breach of, this Agreement, the
prevailing party shall be awarded all costs and expenses of the proceeding,
including, but not limited to, attorneys' fees, filing and service fees, witness
fees, and arbitrator's fees. Nothing in the preceding sentence shall be
construed to limit or modify the parties' agreement to resolve all disputes by
arbitration as provided in Section 18 below. If arbitration is commenced, the
arbitrator will have full authority and complete discretion to determine the
"prevailing party" and the amount of costs and expenses to be awarded under this
paragraph.

18.    Final and
Binding Arbitration. The parties agree to submit any dispute arising under
this Agreement to final, binding, private arbitration in Seattle, Washington.
This includes not only disputes about the meaning or performance of the
Agreement, but disputes about negotiation, drafting, or execution. The
arbitration will be conduced by Judicial Dispute Resolution LLC with the
arbitrator appointed and the arbitration conducted in accordance with Judicial
Dispute Resolution rules and procedures. The arbitrator will have full authority
to determine all issues, including arbitrability, to award any remedy, including
permanent injunctive relief, and to determine any request for costs and
expenses, and attorney fees in accordance with Section 17 of the Agreement. The
arbitrator's award may be reduced to final judgment in Cowlitz County Superior
Court. The complaining party shall bear the arbitration expenses and may seek
their recovery if it prevails. Notwithstanding any other provision of this
Agreement, an aggrieved party may seek a temporary restraining order or
preliminary injunction in Cowlitz County Superior Court to preserve the status
quo during the arbitration proceeding.



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19.    Assignment. Executive shall not assign or transfer any of Executive's rights
pursuant to this Agreement, wholly or partially, to any other person or to
delegate the performance of its duties under the terms of this Agreement. The
rights and obligations of Cowlitz under this Agreement shall inure to the
benefit of and be binding in each and every respect upon the direct and indirect
successors and assigns of Cowlitz, regardless of the manner in which the
successors or assigns succeed to the interests or assets of Cowlitz, provided,
however, that as a condition of any such assignment Cowlitz shall require the
successor or assignee to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that Cowlitz would be required to perform
it if such succession or assignment had not taken place, and such assumption and
agreement shall expressly provide that Executive is a third party beneficiary of
such undertaking, with full right to enforce the same. Failure of Cowlitz to
obtain such assumption and agreement shall be deemed Good Reason under Section
5(b). This Agreement shall not be terminated by the voluntary or involuntary
dissolution of Cowlitz, by any merger, consolidation or acquisition where
Cowlitz is not the surviving corporation, by any transfer of all or
substantially all of Cowlitz's assets, or by any other change in Cowlitz's
structure or the manner in which Cowlitz's business or assets are held. In the
event of any merger, consolidation or transfer of assets, this Agreement shall
be binding upon and shall inure to the benefit of the surviving corporation or
the corporation to which the assets are transferred.

20.    Non-disapproval by Regulators. This Agreement is subject to the
non-disapproval of the FDIC, the Federal Reserve and the State of Washington of
Executive as President and Chief Executive Officer of Cowlitz and Cowlitz Bank.
If any of these regulatory authorities disapproves Executive for the position of
President and Chief Executive Officer, Executive's employment and this Agreement
shall be terminated and Executive shall be entitled to only the compensation and
benefits specifically provided for herein to the date of termination and on
account of the disapproval or lack of non-disapproval.

21.    Advice of
Counsel. Executive acknowledges that, in executing this Agreement, he
has had the opportunity to seek the advice of independent legal counsel, and has
read and understood all of the terms and provisions of this Agreement. This
Agreement shall not be construed against any party by reason of the drafting or
preparation hereof.

EXECUTIVE:
      ____________________________________Richard Fitzpatrick
      COWLITZ BANCORP:By:__________________________________Benjamin Namatinia,
      Chairman of the Board






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EXHIBIT 10.13



EMPLOYMENT AGREEMENT



THIS AGREEMENT is made effective January 13, 2003, by and
between COWLITZ BANCORPORATION, COWLITZ BANK (the "Bank") and ERNIE BALLOU
("Employee").

In consideration of the mutual covenants and conditions
set forth below, the parties hereby agree as follows:

1. Employment and Duties. Beginning on or before
January 13, 2003, and until Employee receives the necessary regulatory approvals
to take the position Chief Credit Administrator, the Bank will employ Employee
as a consultant without any policy-making authority. Upon receipt of all
necessary regulatory approvals or nondisapprovals, Employee shall take the
position of Chief Credit Administrator of the Bank, and the Bay Bank,
Northern Bank of Commerce, and Bay Mortgage Divisions and will have all of the
authority and responsibilities of that position and shall perform such duties as
relate to such position or as the Board in its discretion may from time to time
determine and assign to him, so long as any such additional or different duties
assigned by the Board shall be consistent with, and involve responsibility and
authority similar to, the duties of Employee's position as Chief Credit
Administrator. Employee agrees to diligently perform all such duties in
accordance with lawful policy directives of the Bank's President and Board of
Directors. If Employee is appointed to serve as an officer of the Bank's holding
company, or as an officer or director of any subsidiary of the Bank during the
Term of this Agreement, Employee will serve in such capacity without further
compensation.

Employee shall devote sufficient working time, attention
and efforts to the Bank's business and affairs, such that he shall faithfully
and diligently serve the Bank's interests and shall not engage in any business
or employment activity that is not on the Bank's behalf (whether or not pursued
for gain or profit) except for (a) activities approved in writing in advance by
the Board, (b) passive investments that do not involve Employee providing any
advice or services to the businesses in which the investments are made,
(c) charitable and public interest or trade association activities, and
(d) activities in connection with Employee's existing and ongoing teaching, as
well as completion of Employee's last independent loan review engagement.

2. Compensation. Employee shall be entitled to the
following compensation:

> (a)    Salary



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> (b)    Stock Options. The Bank hereby agrees to cause
>   Cowlitz Bancorporation to grant to Employee the option to purchase up to
>   30,000 shares of the Cowlitz Bancorporation's common stock at a cash price
>   equal to the market price at the close of business on the effective date of
>   this Agreement. Twenty percent (20%) of the options will vest upon Employee's
>   receipt of regulatory approval or nondisapproval to take the position of Chief
>   Credit Administrator and an additional 20% will vest each anniversary of the
>   effective date until fully vested. The options will be nonqualified options.
>   The Bank agrees to cause Cowlitz Bancorporation, at Cowlitz Bancorporation's
>   expense, to register these options and the shares to be issued upon exercise
>   of the stock options, on a Form S-8 registration prior to issuance of the
>   shares.
>   (c)    Bonus. Employee shall be entitled to receive up
>   to 25% of Employee's Base Salary in the form of a performance bonus if
>   Employee meets certain performance goals set on an annual basis by the Board
>   of Directors. The Board shall work with Employee to set such performance goals
>   and shall communicate such goals for calendar 2003 to Employee no later than
>   June 30, 2003.
>   (d)    Other Benefits. Employee shall be entitled to
>   the following additional benefits:
>   (i)    Four (4) weeks of paid vacation each calendar year,
>     to be used in accordance with policies in the employment manual (vacation to
>     accrue at one week per quarter; any use beyond the accrual shall be
>     reimbursed if Employee terminates employment);
>     (ii)    Participation in the Bank's medical, dental, life
>     and disability insurance made generally available to employees;
>     (iii)    Participation in the Bank's 401(k) retirement
>     programs as established from time to time by the Board of Directors; and
>     (iv)    Use of an automobile to be selected by Employee at
>     a reasonable retail value not to exceed $45,000, which shall be replaced by
>     Employer every three (3) years or every 80,000 miles, whichever occurs
>     first, and reimbursement of insurance, maintenance and gasoline expenses;
>     (v)    Reimbursement of Employee's reasonable attorney
>     fees incurred in negotiation and preparation of this Agreement, not to
>     exceed a maximum of $1,800.
>   (e)    Relocation Expenses. Employee shall be
>   reimbursed, upon presentation of receipts, for the following relocation
>   expenses:
>   (i)    Reasonable moving and travel expenses associated
>     with moving Employee and Employee's family and household possessions to the
>     Longview, Washington area, which expenses Employee shall be entitled to
>     recover from Employer regardless of the date on which said expenses are
>     incurred by Employee; and

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> (ii)    After the effective date and until the earlier of
>     90 days after this Agreement is actually executed by the parties or the date
>     on which Employee has fully relocated Employee's family to the Longview
>     area, temporary housing costs for Employee and Employee's family.

3. Termination of Employment. Employee's employment shall
terminate for any of the following reasons:

> (a)    For Cause. Upon the Bank's termination of
>   Employee for Cause (as defined in Section 4(a) below) ("Termination for
>   Cause").
>   (b)    Without Cause. Upon the Bank's termination of
>   Employee without Cause, at any time at the Bank's sole discretion, for any
>   reason other than for Cause or for no reason ("Termination Without Cause").
>   (c)    For Good Reason. Upon Employee's termination
>   of the employment for Good Reason (as defined in Section 4(b) below)
>   ("Termination for Good Reason").
>   (d)    Death or Disability. Upon Employee's death or
>   Disability (as defined in Section 4(c) below).
>   (e)    Resignation. Upon Employee's voluntary
>   resignation in writing, which shall be given to the Bank at least 60 days
>   prior to the effective date of such resignation ("Resignation"); provided,
>   resignation shall not be permitted if an event has occurred that would give
>   rise to Termination for Cause.

4. Definitions.

> (a)    Cause. For the purposes of this Agreement,
>   "Cause" for Employee's termination will exist upon the occurrence of one or
>   more of the following events:
>   (i) Dishonest or fraudulent conduct by Employee with respect to the
>     performance of his duties with the Bank;
>     (ii) Criminal conduct by Employee that materially discredits the Bank or
>     is materially detrimental to the Bank's reputation;
>     (iii) Employee's willful misconduct or gross negligence in performance of
>     his duties under this Agreement, including but not limited to Employee's
>     refusal to comply in any material respect with the lawful directives of the
>     Board of Directors or the President of the Bank;
>     (iv) An order or directive from a state or federal banking regulatory
>     agency requesting or requiring removal of Employee or a finding by any such
>     agency that Employee's performance threatens the safety or soundness of the
>     Bank or any of its subsidiaries;

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> (v) Employee's failure to materially perform the duties set forth in
>     Section 1 of this Agreement if such failure has not been remedied or is not
>     being remedied to the Board's reasonable satisfaction within thirty
>     (30) days after written notice, including a detailed description of the
>     failure, has been delivered by the Board to Employee, provided, however that
>     a good faith mistake in the normal course of business shall not be deemed
>     Cause under this Agreement; or
>     (vi) Material breach of Employee's fiduciary duties to the Bank,
>     provided, however, that a breach of the duty of care resulting from a good
>     faith mistake in the normal course of business shall not be deemed Cause
>     under this Agreement.
>   (b)    Good Reason. For the purposes of this
>   Agreement, "Good Reason" will exist if Employee has given written notice of
>   his intention to resign for one of the below listed reasons, which he
>   describes in reasonable detail, and the Bank fails to remedy the circumstances
>   within (30) days after receipt of the written notice. The reasons include: (i) without
>   the written consent of Employee, Employee is required to move his principle
>   place of employment more than 20 miles from the Cowlitz Financial Center in
>   Longview, Washington or from the city limits of Vancouver, Washington or
>   Portland, Oregon, (ii) there is a material diminution in Employee's authority
>   or responsibility including a material adverse change in Employee's
>   compensation (except as provided by Section 2 (a)), level of support services
>   or direct report to the Bank's Chief Executive Officer, or (iii) the Bank
>   breaches any of its obligations under this Agreement including a reduction in
>   his lending authority. Good Reason for termination after the announcement of a
>   proposed Change in Control or within the first six (6) months following the
>   effective date of a Change in Control is specifically and separately provided
>   for in Section 7 below.
>   (c)    Disability. For purposes of this Agreement,
>   "Disability" shall mean that (i) Employee has been unable to perform
>   Employee's duties under this Agreement as a result of Employee's incapacity
>   due to physical or mental illness for at least 90 consecutive calendar days or
>   150 calendar days during any consecutive 12 month period and (ii) a physician
>   selected by the Bank and its insurers and acceptable to Employee or Employee's
>   legal representative (with such agreement on acceptability of the physician
>   not to be unreasonably withheld), determines the incapacity to be (a) total
>   and permanent and (b) prohibiting of Employee's ability to perform the
>   essential functions of Employee's position with or without reasonable
>   accommodation. During any period when Employee may be unable to perform the
>   essential functions of Employee's position with or without reasonable
>   accommodation, the Bank shall continue to pay Employee's Base Salary and
>   provide the other benefits set forth in Section 2 (d) until such time as he is
>   receiving appropriate benefits under the disability insurance policy provided
>   to Employee by the Bank.
>   (d)    Change in Control. For the purposes of this
>   Agreement, a Change in Control shall be deemed to have occurred when any of
>   the following events takes place:
>   (i) Any person (including any individual or entity not controlled by
>     Cowlitz Bancorp) or persons acting in concert becomes the beneficial owner
>     of voting shares representing fifty percent (50%) or more of the voting
>     shares of the Bank or its parent company.

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> (ii) A majority of the Board of Directors of the Bank or its parent
>     company is removed from office by a vote of the shareholders over the
>     recommendation of the Board of Directors then serving.
>     (iii) The Bank or its parent company is a party to a plan of merger or
>     plan of exchange and upon consummation of such plan, the shareholders of the
>     Bank or its parent company immediately prior to the transaction do not own
>     or continue to own, directly or indirectly, at least a majority of the
>     shares of the surviving company.

5.    Payment Upon Termination. Upon termination
of Employee's employment for any of the reasons set forth in Section 3 above,
Employee will receive payment for all Base Salary and benefits accrued as of the
date of Employee's termination. In the event of termination due to death or
disability, Employee or his estate shall also be entitled to a bonus based upon
Employee's prior year bonus, pro rated for the number of months elapsed in the
current year prior to the effective date of termination. In the event of
Termination for Cause or voluntary termination, the Bank shall have no other
obligation upon termination. In the event of Termination without Cause or for
Good Reason, Employee shall be entitled to the benefits set forth in Section 6
or Section 7 below, as applicable.

6.    Severance Benefit. In the event of
Termination without Cause or Termination for Good Reason, other than for a
period following the announcement of a proposed Change in Control until one year
after the Effective Date of any Change in Control, the following benefits shall
be paid to Employee ("Severance Benefit"):

> (a)    If termination is within the first year of
>   employment, Employee shall receive nine (9) months Base Salary based on
>   Employee's Base Salary just prior to termination;
>   (b)    If termination is after the first anniversary of the
>   effective date, Employee shall receive six (6) months Base Salary based upon
>   Employee's Base Salary just prior to termination;
>   (c)    For the shorter of (i) the period of time in which
>   Employee continues to receive his Base Salary, as set forth in this Section 6,
>   or (ii) the full COBRA period, the Bank will continue to provide insurance
>   benefits as set forth in Section 2(d)(ii); and
>   (d)    Continued use of the Bank's automobile and
>   reimbursement of insurance for the period of time he receives his salary
>   continuation.

The Severance Benefit shall be paid in equal installments over the number of
months of Base Salary to which Employee is entitled, starting on the next
regular pay day following termination. Receipt of the Severance Benefit is
conditioned on Employee not being in violation of any material term of this
Agreement.

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7.    Change in Control Benefit.

> (a)    After announcement of a proposed Change in Control
>   and for a period continuing for two years following a Change in Control, in
>   the event of Termination Without Cause or Termination for Good Reason, instead
>   of receiving the Severance Benefit set forth in Section 6 above, Employee
>   shall receive (i) 24 months of Base Salary, based on Employee's highest Base
>   Salary in the two years preceding termination, (ii) two times the amount of
>   Employee's highest bonus paid in the two years preceding termination, and
>   (iii) continuing insurance benefits as set forth in Section 2(d)(ii) above for
>   the shorter of 24 months or the full COBRA period, (collectively the "Change
>   in Control Benefit"). Further, all outstanding unvested stock options held by
>   Employee will fully vest. The cash Change in Control Benefit shall be paid in
>   a lump sum within 60 days of the termination.. Receipt of the Change in
>   Control Benefit is conditioned on Employee not being in violation of any
>   material term of this Agreement.
>   (b)    In the event Employee becomes entitled to a payment
>   or benefit pursuant to the terms of this Agreement or of any other plan,
>   arrangement or agreement (collectively, the "Payments") of Cowlitz or its
>   successor (or any affiliate) (collectively, the "Employer"), and the
>   Employer's Auditor determines that the Payments result in "excess parachute
>   payments" under section 280G of the Code, then Employee shall receive, instead
>   of the Payments, aggregate payments equal to the Reduced Amount, if such
>   Reduced Amount would result in net after-tax payments to Employee that are
>   greater than the net after-tax payments he would have received without regard
>   to this section. For purposes of this subsection 7(b), the "Reduced Amount"
>   shall be the amount, expressed as a present value, that maximizes the
>   aggregate present value of the payments without causing any payment to be
>   nondeductible by the Employer under section 280G of the Code and "Employer's
>   Auditor" shall mean the independent auditors retained most recently prior to
>   the transaction implicating section 280G of the Code by the Employer, or, if
>   the Employer is not the surviving entity following the Change in Control, by
>   the Employer's successor (or any affiliate). In computing the maximum amount
>   payable, the Employer's auditor shall take into account the independent value
>   to the Employer of Employee's restrictive covenants following a Change of
>   Control as set forth in Sections 9, 10 and 11 of this Agreement, which value
>   should constitute separate consideration outside of sections 280G and 4999 of
>   the Code.
>   (c)    If the amount of the aggregate payments to Employee
>   must be reduced under Section 7(b), then Employee shall direct in which order
>   the payments are to be reduced, but no change in the timing of any payment
>   shall be made without the consent of the Employer. As a result of uncertainty
>   in the application of sections 280G and 4999 of the Code at the time of an
>   initial determination by the Employer's Auditor, it is possible that a payment
>   will have been made by the Employer that should not have been made (an
>   "Overpayment") or that an additional payment that will not have been made by
>   the Employer could have been made (an "Underpayment"). In the event that the
>   Employer's Auditor, based upon the assertion of a deficiency by the Internal
>   Revenue Service against the Employer or Employee that the Employer's Auditor
>   believes has a high probability of success, determines that an Overpayment has
>   been made, such Overpayment shall be treated for all purposes as a bilateral
>   error subject to adjustment which Employee shall repay to the Employer,
>   together with interest at the applicable federal rate specified in
>   section 7872(f)(2) of the Code. In the event that the Employer's Auditor
>   determines that an Underpayment has occurred, such Underpayment shall promptly
>   be paid or transferred by the Employer to, or for the benefit of, Employee,
>   together with interest at the applicable federal rate specified in
>   section 7872(f)(2) of the Code.

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8.    Walk-Away Right. Following a Change in
Control, if Employee remains employed with the Bank for six months, Employee may
resign for any reason or no reason and will be entitled to (i) 18 months of Base
Salary based upon the highest Base Salary in the two years preceding
termination, (ii) 1.5 times the amount of Employee's highest bonus paid in the
two years preceding termination and (iii) continuing insurance benefits as set
forth in Section 2(d)(ii) above for the shorter of 18 months or the full COBRA
period, (collectively the "Walk-Away Right Benefit"). Further, all unvested
stock options held by Employee will fully vest. The cash Walk-Away Right Benefit
shall be paid in a lump sum within 60 days of Employee's termination. Receipt of
the cash Walk-Away Right Benefit is conditioned on Employee not being in
violation of any material term of this Agreement.

9.    Noncompetition. Except for those permitted
activities set forth in Section 1 above, and except for Employee's right to
engage in an independent business involving teaching and credit training,
Employee's right to accept independent loan review engagements and to consult in
the areas of credit policy and procedure, including for clients that may be
competitors of Employer, Employee agrees that during his employment and for a
period of nine (9) months (if termination is within the first year of
employment) or six (6) months (if termination is after the first anniversary of
the effective date of this Agreement) following termination of employment (the "Noncompete
Period"), he will not, without the prior written consent of the Bank, be
associated with any other financial institution (as such term is defined in the
Gramm-Leach-Bliley Act of 1999) or mortgage company or their affiliates, having
branches or offices within 30 miles of any branch or office of the Bank, whether
directly or indirectly, alone or as a member of a partnership, or as an officer,
director, employee, shareholder (except as a holder of less than 1% of any
company with securities registered under Section 12 of the Securities Exchange
Act of 1934). If Employee is entitled to a Change in Control Benefit under
Section 7 or a Walk-Away Right Benefit under Section 8 above, the Noncompete
Period shall be extended to 24 months after termination with respect to a Change
in Control or 18 months following commencement of the Walk-Away Benefit,
respectively. Should Employee fail to honor the noncompetition covenant set
forth in this section, the Bank will be relieved from its obligation to make any
further payments under this Agreement but such relief of the Bank's obligation
shall not discharge Employee of his commitment under this section. In the event
that the Bank fails to honor its obligations with regard to Severance Benefits,
Employee is relieved from his obligations under this Section.

10.    Nonsolicitation. Following termination of
employment, Employee shall not solicit any customer of the Bank or of any of its
subsidiaries for the same time periods set forth in Section 9 with respect to
the Noncompete Period. For purposes of this Section, "customers" are defined
as all customers serviced by the Bank or any of the Bank's subsidiaries at the
time of Termination.

11.    Nonraiding of Employees. Employee
recognizes that the Bank's workforce is a vital part of its business; therefore,
Employee agrees that during employment and for one (1) year following
termination, Employee shall not solicit any employee, directly or indirectly, to
leave his or her employment with the Bank or any of the Bank's subsidiaries.
This includes a commitment that Employee will not (a) disclose to any third
party the names, backgrounds or qualifications of any the Bank or any of the
Bank subsidiary's employees or otherwise identify them as potential candidates
for employment, or (b) personally or through any other person approach, recruit,
interview for employment or otherwise solicit employees of the Bank or any of
the Bank's subsidiaries to work for any other employer. For purposes of this
Section, employees include all employees working for the Bank or any of the
Bank's subsidiaries or affiliates at the time of termination of Employee's
employment.

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12.    Nondisclosure. Employee acknowledges that
certain proprietary information, whether of a technical or nontechnical nature
and whether of a tangible or intangible form, including but not limited to
business plans, marketing plans, customer lists, customer account information,
techniques, methods, data, tables, calculations, letters or other paperwork,
documents, technology and processes of the Bank and its affiliates, collectively
referred to as "Confidential Information," were and will be prepared and
developed by the Bank at significant expense and over extended periods of time,
are secret and confidential, are unique and constitute the exclusive property
and secrets of the Bank, and that any use or disclosure of such Confidential
Information, except in accordance with and under the provisions of this or any
other written agreement between the parties, would be wrongful and would cause
irreparable injury to the Bank. Additionally, it is understood that by virtue of
the employment contemplated by this Agreement, Employee may have access to
information that is confidential and proprietary to the Bank's customers,
suppliers, and other third persons, and that such information should be subject
to the same restrictions against disclosure by Employee as the Bank's
Confidential Information. Notwithstanding the foregoing, Employee and the Bank
acknowledge and agree that Employee's personal experience, expertise, "know how"
and abilities in the field of banking in general, and credit and loan review and
credit policy and procedure, in particular, shall not be deemed Confidential
Information subject to the restrictions in this Agreement. Employee therefore
agrees that he:

> (a)    will not, at any time, without the express written
>   consent of the Bank, publish, disclose, or divulge to any person (except other
>   Bank employees or agents who have a need to know for purposes of performing
>   their duties), firm, or corporation any Confidential Information except in
>   accordance with, and under the provisions of this Agreement or other written
>   agreements between the parties;
>   (b)    will not use, directly or indirectly, for Employee's
>   own benefit or the benefit of any other person, firm, or corporation any
>   Confidential Information except in accordance with and under the provisions of
>   this Agreement or other written agreements between the parties;
>   (c)    will treat confidentially all documents involving
>   Confidential Information that are delivered or made available to Employee as a
>   necessary part of Employee's responsibilities as an employee of the Bank,
>   whether or not they are identified or marked by the Bank as proprietary or
>   confidential documents, and will not reproduce or use such documents without
>   appropriate authority;
>   (d)    will not advise others (except other Bank employees
>   or agents who have a need to know for purposes of performing their duties) of
>   Confidential Information known or used by the Bank or others associated with
>   the Bank; and
>   (e)    will abide by the same restrictions set forth above
>   in subsections (a) through (d), inclusive, as to any information that is
>   proprietary and confidential to third persons and that was divulged to
>   Employee by virtue of his employment with the Bank.

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13.    Enforcement. In the event of any breach of
this Agreement by Employee or any threatened or attempted breach by Employee of
the noncompetition, nonsolicitation, nonraiding, and nondisclosure, obligations
set forth above in Sections 9, 10, 11 and 12 of this Agreement, the Bank will be
entitled to injunctive relief against Employee, and the parties hereby agree
that the amount of any bond for damages to be posted by the Bank in seeking such
injunction will be Five Hundred Dollars ($500) provided, however, that this
provision will in no way limit or be evidence of the amount of damages to the
enjoined party. Nothing herein will be construed as precluding or limiting any
other remedies available hereunder or at law or in equity for any breach or
threatened or attempted breach of this Agreement, including the recovery of
damages.

14.    Entire Agreement. This Agreement
constitutes the sole agreement of the parties regarding the benefits in the
event of termination or change in control and together with the employee manual
governs the terms of Employee's employment. Where there is a conflict between
the employee manual and this Agreement, the terms of this Agreement shall
govern.

15.    Modification. This Agreement may not be
changed, modified, released, discharged, abandoned, or otherwise amended, in
whole or in part, except by an instrument in writing, signed by Employee and an
authorized officer of the Bank. Employee agrees that any subsequent change or
changes in his duties, salary, or compensation will not affect the validity or
scope of this Agreement.

16.    Savings Provision. If any part of this
Agreement is rejected by a regulatory agency or is held by a court to be
unenforceable, it shall not affect any other part. If any part of this Agreement
is held to be unenforceable as written, it shall be enforced to the maximum
extent allowed by applicable law. The noncompetition, nonsolicitation,
nonraiding, nondisclosure, and dispute resolution provisions of this Agreement
shall survive after termination of this Agreement in accordance with their
specific terms, and shall be enforceable regardless of any claim Employee may
have against the Bank.

17.    Governing Law. This Agreement will be
governed by and construed in accordance with the laws of the State of
Washington.

18.    Attorneys' Fees. If either party institutes
a proceeding to enforce its rights under, or to recover damages for breach of,
this Agreement, the prevailing party shall be awarded all costs and expenses of
the proceeding, including, but not limited to, attorneys' fees, filing and
service fees, witness fees, and arbitrator's fees. If arbitration is commenced,
the arbitrator will have full authority and complete discretion to determine the
prevailing party and the amount of costs and expenses to be awarded under this
paragraph.

19.    Final and Binding Arbitration. The parties
agree to submit any dispute arising under this Agreement to final, binding,
private arbitration in Seattle, Washington. This includes not only disputes
about the meaning or performance of the Agreement, but disputes about
negotiation, drafting, or execution. The arbitration will be conduced by
Judicial Dispute Resolution LLC with the arbitrator appointed and the
arbitration conducted in accordance with Judicial Dispute Resolution rules and
procedures. The arbitrator will have full authority to determine all issues,
including arbitrability, to award any remedy, including permanent injunctive
relief, and to determine any request for costs and expenses, and attorney fees
in accordance with Section 18 of the Agreement. The arbitrator's award may be
reduced to final judgment in Cowlitz County Superior Court. The complaining
party shall bear the arbitration expenses and may seek their recovery if it
prevails. Notwithstanding any other provision of this Agreement, an aggrieved
party may seek a temporary restraining order or preliminary injunction in
Cowlitz County Superior Court to preserve the status quo during the arbitration
proceeding.

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20.    Assignment. Employee shall not assign or
transfer any of Employee's rights pursuant to this Agreement, wholly or
partially, to any other person or to delegate the performance of his duties
under the terms of this Agreement. The rights and obligations of the Bank under
this Agreement shall inure to the benefit of and be binding in each and every
respect upon the direct and indirect successors and assigns of the Bank,
regardless of the manner in which the successors or assigns succeed to the
interests or assets of the Bank, provided that any such successor or assignee
expressly assumes in writing the Bank's obligations to Employee. This Agreement
shall not be terminated by the voluntary or involuntary dissolution of the Bank,
by any merger, consolidation or acquisition where the Bank is not the surviving
corporation, by any transfer of all or substantially all of the Bank's assets,
or by any other change in the Bank's structure or the manner in which the Bank's
business or assets are held. In the event of any merger, consolidation or
transfer of assets, this Agreement shall be binding upon and shall inure to the
benefit of the surviving corporation or the corporation to which the assets are
transferred, provided that the surviving corporation or the corporation to which
the assets are transferred expressly assumes in writing the Bank's obligations
to Employee.

21.    Nondisapproval by Regulators. This
Agreement is subject to the nondisapproval of the FDIC, the Federal Reserve and
the State of Washington of Employee as Chief Credit Administrator of Cowlitz
Bank. If any of these regulatory authorities disapproves Employee for the
position of Chief Credit Administrator, Employee's employment and this Agreement
shall terminate and Employee shall be entitled to only his Base Salary on a
prorated basis for the period of time in which Employee served as a consultant
and any relocation expenses incurred by Employee prior to the date of the
disapproval. Should such regulatory authorities withdraw any approvals
subsequent to giving such approvals, Employee's entitlement to a Severance
Benefit under Section 6 above.

22.    Advice of Counsel. Employee acknowledges
that, in executing this Agreement, he has had the opportunity to seek the advice
of independent legal counsel, and has read and understood all of the terms and
provisions of this Agreement. This Agreement shall not be construed against any
party by reason of the drafting or preparation hereof.

EMPLOYEE:
      
      Ernie Ballou
      COWLITZ BANCORPORATION:
      
      By:Benjamin Namatinia,
      Chairman of the BoardCOWLITZ BANK:
      By:Its:




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Exhibit 99.1

CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

This certification is given by the undersigned Chief Executive Officer and Chief Financial Officer of Cowlitz Bancorporation (the "Registrant") pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  Each of the undersigned hereby certifies, with respect to the Registrant's quarterly report of Form 10-Q for the period ended March  31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), that:

> (1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
> (2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.



/s/ Richard J. Fitzpatrick			Richard J. Fitzpatrick
Chief Executive Officer
Cowlitz Bancorporation

/s/ Don P. Kiser				Don P. Kiser
Chief Financial Officer
Cowlitz Bancorporation

May 14, 2003



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