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

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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 September 30, 2000

|/ / | 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

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

Washington

91-152984(State or other jurisdiction
of incorporation or organization)

(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)

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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
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 October 30, 2000: 3,825,627

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TABLE OF CONTENTS

|                     |                                                                                                          | Page
|-------------------- | -------------------------------------------------------------------------------------------------------- | ----
|Part I               |                                                                                                          |     
|Financial Statements |                                                                                                          |     
|                     | Consolidated Statements of Conditon
September 30, 2000 and December 31, 1999                            |     
|                     | Consolidated Statements of Income
Three and Nine months ended September 30, 2000 and September 30, 1999 |     
|                     | Consolidated Statements of Changes in Shareholders' Equity                                               |     
|                     | Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and September 30, 1999        |     
|                     | Notes to Consolidated Financial Statements                                                               |     
|                     | Management's Discussion and Analysis of Financial Condition And Results of Operations                    |     
|Part II              |                                                                                                          |     
|Other                |                                                                                                          |     
|                     | Quantitative and Qualitative Disclosure about Market Risk                                                |     
|                     | Other Information                                                                                        |     
|                     | Exhibits and Reports on Form 8-K                                                                         |     
|                     | Signatures                                                                                               |     
|                     |                                                                                                          |     

2

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COWLITZ BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

(in thousand of dollars)

|                                                                                                                                                                                                                  |                                                                                                                                             | September 30, 2000                         |         | December 31, 1999 |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------------- | -------
|
|ASSETS                                                                                                                                                                                                            |                                                                                                                                             |                                            |         |                   |        
|Cash and due from banks                                                                                                                                                                                           |                                                                                                                                             | $                                          | 26,051  |                   | $      
|Investment securities:                                                                                                                                                                                            |                                                                                                                                             |                                            |         |                   |        
|                                                                                                                                                                                                                  | Investments available-for-sale (at fair value, cost of $8,003 and $8,484 at September 30, 2000 and December 31, 1999, respectively)         |                                            |         | 7,986             |        
|                                                                                                                                                                                                                  | Investments held-to-maturity (at amortized cost, fair value of $4,563 and $4,558, at September 30, 2000 and December 31, 1999, respectively |                                            |         | 4,570             |        
|                                                                                                                                                                                                                  |                                                                                                                                             |                                            |         |                   |        
|                                                                                                                                                                                                                  |                                                                                                                                             | Total investment securities                |         |                   | 12,556 
|                                                                                                                                                                                                                  |                                                                                                                                             |                                            |         |                   |        
|Loans                                                                                                                                                                                                             |                                                                                                                                             |                                            | 232,028 |                   |        
|Allowance for loan losses                                                                                                                                                                                         |                                                                                                                                             |                                            | (4,772  | )                 |        
|                                                                                                                                                                                                                  |                                                                                                                                             |                                            |         |                   |        
|                                                                                                                                                                                                                  | Loans, net                                                                                                                                  |                                            |         | 227,256           |        
|                                                                                                                                                                                                                  |                                                                                                                                             |                                            |         |                   |        
|Loans held for sale                                                                                                                                                                                               |                                                                                                                                             |                                            | 11,471  |                   |        
|Premises and equipment, net of accumulated depreciation of $3,029 and $2,491, at September 30, 2000 and December 31, 1999, respectively                                                                           |                                                                                                                                             |                                            | 5,757   |                   |        
|Federal Home Loan Bank stock                                                                                                                                                                                      |                                                                                                                                             |                                            | 3,249   |                   |        
|Intangible asset, net of accumulated amortization of $1,286 and $877 at September 30, 2000 and December 31, 1999, respectively                                                                                    |                                                                                                                                             |                                            | 5,364   |                   |        
|Other assets                                                                                                                                                                                                      |                                                                                                                                             |                                            | 5,196   |                   |        
|                                                                                                                                                                                                                  |                                                                                                                                             |                                            |         |                   |        
|                                                                                                                                                                                                                  |                                                                                                                                             | Total assets                               |         | $                 | 296,900
|                                                                                                                                                                                                                  |                                                                                                                                             |                                            |         |                   |        
|LIABILITIES                                                                                                                                                                                                       |                                                                                                                                             |                                            |         |                   |        
|Deposits:                                                                                                                                                                                                         |                                                                                                                                             |                                            |         |                   |        
|                                                                                                                                                                                                                  | Demand                                                                                                                                      |                                            | $       | 40,745            |        
|                                                                                                                                                                                                                  | Savings and interest-bearing demand                                                                                                         |                                            |         | 74,038            |        
|                                                                                                                                                                                                                  | Certificates of deposit                                                                                                                     |                                            |         | 129,293           |        
|                                                                                                                                                                                                                  |                                                                                                                                             |                                            |         |                   |        
|                                                                                                                                                                                                                  |                                                                                                                                             | Total deposits                             |         |                   | 244,076
|Short-term borrowings                                                                                                                                                                                             |                                                                                                                                             |                                            | 1,200   |                   |        
|Long-term borrowings                                                                                                                                                                                              |                                                                                                                                             |                                            | 18,394  |                   |        
|Other liabilities                                                                                                                                                                                                 |                                                                                                                                             |                                            | 2,630   |                   |        
|                                                                                                                                                                                                                  |                                                                                                                                             |                                            |         |                   |        
|                                                                                                                                                                                                                  |                                                                                                                                             | Total liabilities                          |         | $                 | 266,300
|                                                                                                                                                                                                                  |                                                                                                                                             |                                            |         |                   |        
|SHAREHOLDERS' EQUITY                                                                                                                                                                                              |                                                                                                                                             |                                            |         |                   |        
|Preferred stock, no par value; 5,000,000 shares authorized as of September 30, 2000 and December 31, 1999; no shares issued and outstanding at September 30, 2000 and December 31, 1999,
respectively             |                                                                                                                                             | $                                          |        |                   | $      
|Common stock, no par value; 25,000,000 authorized as of September 30, 2000 and December 31, 1999; 3,825,421 and 4,022,052 shares issued and outstanding at September 30, 2000 and December 31,
1999, respectively |                                                                                                                                             |                                            | 17,467  |                   |        
|Additional paid in capital                                                                                                                                                                                        |                                                                                                                                             |                                            | 1,538   |                   |        
|Retained earnings                                                                                                                                                                                                 |                                                                                                                                             |                                            | 11,608  |                   |        
|Accumulated other comprehensive income (loss)                                                                                                                                                                     |                                                                                                                                             |                                            | (13     | )                 |        
|                                                                                                                                                                                                                  |                                                                                                                                             |                                            |         |                   |        
|                                                                                                                                                                                                                  |                                                                                                                                             | Total shareholders' equity                 |         |                   | 30,600 
|                                                                                                                                                                                                                  |                                                                                                                                             |                                            |         |                   |        
|                                                                                                                                                                                                                  |                                                                                                                                             | Total liabilities and shareholders' equity |         | $                 | 296,900
|                                                                                                                                                                                                                  |                                                                                                                                             |                                            |         |                   |        

The accompanying notes are an integral part of these statements.

3

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COWLITZ BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousand of dollars, except number of shares and per share amounts)

|                                               |                                                      | Three months ended September 30, |       | Nine months ended September 30, |      
|---------------------------------------------- | ---------------------------------------------------- | -------------------------------- | ----- | ------------------------------- | -----
|
|
|INTEREST INCOME                                |                                                      |                                  |       |                                 |      
|Interest and fees on loans                     |                                                      | $                                | 6,963 |                                 | $    
|Interest on taxable investment securities      |                                                      |                                  | 232   |                                 |      
|Interest on non-taxable investments securities |                                                      |                                  | 2     |                                 |      
|Interest on due from banks                     |                                                      |                                  | 266   |                                 |      
|                                               |                                                      |                                  |       |                                 |      
|                                               | Total interest income                                |                                  |       | 7,463                           |      
|                                               |                                                      |                                  |       |                                 |      
|INTEREST EXPENSE                               |                                                      |                                  |       |                                 |      
|Savings and interest-bearing demand            |                                                      |                                  | 613   |                                 |      
|Certificates of deposit                        |                                                      |                                  | 2,000 |                                 |      
|Short-term borrowings                          |                                                      |                                  | 18    |                                 |      
|Long-term borrowings                           |                                                      |                                  | 368   |                                 |      
|                                               |                                                      |                                  |       |                                 |      
|                                               | Total interest expense                               |                                  |       | 2,999                           |      
|                                               |                                                      |                                  |       |                                 |      
|                                               | Net interest income before provision for loan losses |                                  |       | 4,464                           |      
|PROVISION FOR LOAN LOSSES                      |                                                      |                                  | 214   |                                 |      
|                                               |                                                      |                                  |       |                                 |      
|                                               | Net interest income after provision for loan losses  |                                  |       | 4,250                           |      
|                                               |                                                      |                                  |       |                                 |      
|NONINTEREST INCOME                             |                                                      |                                  |       |                                 |      
|                                               | Service charges on deposit accounts                  |                                  |       | 189                             |      
|                                               | Gains on loans sold                                  |                                  |       | 410                             |      
|                                               | Fiduciary income                                     |                                  |       | 64                              |      
|                                               | Other income                                         |                                  |       | 365                             |      
|                                               | Net gains on sales of available-for-sale securities  |                                  |       | 1                               |      
|                                               |                                                      |                                  |       |                                 |      
|                                               |                                                      | Total noninterest income         |       |                                 | 1,029
|                                               |                                                      |                                  |       |                                 |      
|NONINTEREST EXPENSE                            |                                                      |                                  |       |                                 |      
|                                               | Salaries and employee benefits                       |                                  |       | 2,797                           |      
|                                               | Net occupancy and equipment expense                  |                                  |       | 651                             |      
|                                               | Business tax expense                                 |                                  |       | 111                             |      
|                                               | Amortization of intangibles                          |                                  |       | 145                             |      
|                                               | Other operating expense                              |                                  |       | 1,036                           |      
|                                               |                                                      |                                  |       |                                 |      
|                                               |                                                      | Total noninterest expense        |       |                                 | 4,740
|                                               |                                                      |                                  |       |                                 |      
|                                               |                                                      | Income before income tax expense |       |                                 | 539  
|INCOME TAX EXPENSE                             |                                                      |                                  | 203   |                                 |      
|                                               |                                                      |                                  |       |                                 |      
|                                               |                                                      | Net income                       |       | $                               | 336  
|                                               |                                                      |                                  |       |                                 |      
|BASIC EARNINGS PER SHARE                       |                                                      | $                                | 0.09  |                                 | $    
|DILUTED EARNINGS PER SHARE                     |                                                      | $                                | 0.09  |                                 | $    

The
accompanying notes are an integral part of these statements.

4

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COWLITZ BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(in thousands of dollars, except number of shares)

|                              |                                                                                                                                    | Common Stock |          |   |        |        |   |       |   |   |        |      |  
|----------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ------------ | -------- | - | ------ | ------ | - | ----- | - | - | ------ | ---- | -
|
|
|BALANCE AT DECEMBER 31, 1998  |                                                                                                                                    | 4,001,999    |          | $ | 18,251 |        | $ | 1,538 |   | $ | 11,085 |      | $
|Comprehensive Income:         |                                                                                                                                    |              |          |   |        |        |   |       |   |   |        |      |  
|                              | Net income                                                                                                                         |              |         |   |        |       |   |       |  |   |        | 656  |  
|                              | Other comprehensive incomenet change in unrealized gains (losses) on investments available-for-sale, net of deferred taxes of $43 |              |         |   |        |       |   |       |  |   |        |     |  
|                              |                                                                                                                                    |              |          |   |        |        |   |       |   |   |        |      |  
|                              | Comprehensive Income                                                                                                               |              |         |   |        |       |   |       |  |   |        |     |  
|                              |                                                                                                                                    |              |          |   |        |        |   |       |   |   |        |      |  
|                              | Issuance of common stock for cash related to the employee stock purchase plan                                                      |              | 5,743    |   |        | 34     |   |       |  |   |        |     |  
|                              | Common stock repurchased                                                                                                           |              | (134,500 | ) |        | (732   | ) |       |  |   |        |     |  
|                              | Issuance of common stock for acquisition                                                                                           |              | 148,810  |   |        | 977    |   |       |  |   |        |     |  
|                              | Cash dividends paid ($.06 per share)                                                                                               |              |         |   |        |       |   |       |  |   |        | (281 | )
|                              |                                                                                                                                    |              |          |   |        |        |   |       |   |   |        |      |  
|BALANCE AT DECEMBER 31, 1999  |                                                                                                                                    | 4,022,052    |          | $ | 18,530 |        | $ | 1,538 |   | $ | 11,460 |      | $
|Comprehensive Income:         |                                                                                                                                    |              |          |   |        |        |   |       |   |   |        |      |  
|                              | Net income                                                                                                                         |              |         |   |        |       |   |       |  |   |        | 364  |  
|                              | Other comprehensive incomenet change in unrealized gains (losses) on investments available-for-sale, net of deferred taxes of $8  |              |         |   |        |       |   |       |  |   |        |     |  
|                              |                                                                                                                                    |              |          |   |        |        |   |       |   |   |        |      |  
|                              | Comprehensive Income                                                                                                               |              |         |   |        |       |   |       |  |   |        |     |  
|                              |                                                                                                                                    |              |          |   |        |        |   |       |   |   |        |      |  
|                              | Issuance of common stock for cash related to the employee stock purchase plan                                                      |              | 8,001    |   |        | 39     |   |       |  |   |        |     |  
|                              | Common stock repurchased                                                                                                           |              | (204,632 | ) |        | (1,102 | ) |       |  |   |        |     |  
|                              | Cash dividends paid ($.04 per share)                                                                                               |              |         |   |        |       |   |       |  |   |        | (215 | )
|                              |                                                                                                                                    |              |          |   |        |        |   |       |   |   |        |      |  
|BALANCE AT SEPTEMBER 30, 2000 |                                                                                                                                    | 3,825,421    |          | $ | 17,467 |        | $ | 1,538 |   | $ | 11,609 |      | $
|                              |                                                                                                                                    |              |          |   |        |        |   |       |   |   |        |      |  

The accompanying notes are an integral part of these statements.

5

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COWLITZ BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)

|                                             |                                                                                   | Nine months ended September 30,                                             |                                                     
|-------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----------------------------------------------------
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES         |                                                                                   |                                                                             |                                                     
|                                             | Net income                                                                        |                                                                             | $                                                   
|                                             | Adjustments to reconcile net income to net cash provided by Operating activities: |                                                                             |                                                     
|                                             |                                                                                   | Depreciation and amortization                                               |                                                     
|                                             |                                                                                   | Provisions for loan losses                                                  |                                                     
|                                             |                                                                                   | Net (gains) on sales of investments available-for-sale                      |                                                     
|                                             |                                                                                   | Net amortization of investment security premiums and accretion of discounts |                                                     
|                                             |                                                                                   | (Gains) on loans sold                                                       |                                                     
|                                             |                                                                                   | Origination of loans held for sale                                          |                                                     
|                                             |                                                                                   | Proceeds of loans sales                                                     |                                                     
|                                             |                                                                                   | (Increase) decrease in other assets                                         |                                                     
|                                             |                                                                                   | Increase (Decrease) in other liabilities                                    |                                                     
|                                             |                                                                                   | Federal Home Loan Bank stock dividends                                      |                                                     
|                                             |                                                                                   |                                                                             |                                                     
|                                             |                                                                                   |                                                                             | Net cash provided by operating activities           
|                                             |                                                                                   |                                                                             |                                                     
|CASH FLOWS FROM INVESTING ACTIVITIES         |                                                                                   |                                                                             |                                                     
|                                             | Proceeds from maturities of investment securities:                                |                                                                             |                                                     
|                                             |                                                                                   | Held-to-maturity                                                            |                                                     
|                                             |                                                                                   | Available-for-sale                                                          |                                                     
|                                             | Purchases of investment securities:                                               |                                                                             |                                                     
|                                             |                                                                                   | Held-to-maturity                                                            |                                                     
|                                             |                                                                                   | Available-for-sale                                                          |                                                     
|                                             | Net (increase) in loans                                                           |                                                                             |                                                     
|                                             | Purchases of premises and equipment                                               |                                                                             |                                                     
|                                             | Net cash received (paid) in acquisition of business                               |                                                                             |                                                     
|                                             |                                                                                   |                                                                             |                                                     
|                                             |                                                                                   |                                                                             | Net cash provided by (used in) investment activities
|                                             |                                                                                   |                                                                             |                                                     
|CASH FLOWS FROM FINANCING ACTIVITIES         |                                                                                   |                                                                             |                                                     
|                                             | Net increase (decrease) in demand, savings, and interest-bearing demand deposits  |                                                                             |                                                     
|                                             | Net increase (decrease) in certificates of deposit                                |                                                                             |                                                     
|                                             | Dividends paid                                                                    |                                                                             |                                                     
|                                             | Net increase (decrease) in short-term borrowings                                  |                                                                             |                                                     
|                                             | Proceeds from long-term borrowings                                                |                                                                             |                                                     
|                                             | Repayment of long-term borrowings                                                 |                                                                             |                                                     
|                                             | Repurchase of common stock                                                        |                                                                             |                                                     
|                                             | Issuance of common stock for cash                                                 |                                                                             |                                                     
|                                             |                                                                                   |                                                                             |                                                     
|                                             |                                                                                   |                                                                             | Net cash provided by shares financing activities    
|                                             |                                                                                   |                                                                             |                                                     
|                                             |                                                                                   |                                                                             | Net increase (decrease) in cash and due from banks  
|CASH AND DUE FROM BANKS AT BEGINNING OF YEAR |                                                                                   |                                                                             | 19,054                                              
|                                             |                                                                                   |                                                                             |                                                     
|CASH AND DUE FROM BANKS AT END OF PERIOD     |                                                                                   | $                                                                           | 26,051                                              
|                                             |                                                                                   |                                                                             |                                                     

The accompanying notes are an integral part of these statements.

6

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COWLITZ BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Nature of Operations

Cowlitz Bancorporation (the Company) is a holding company located in southwest Washington. The Company's principal subsidiaries are Cowlitz Bank (the Bank), a
Washington state-chartered commercial bank, and Business Finance Corporation (BFC) of Bellevue, Washington. Business Finance Corporation provides asset based financing to companies throughout the
western United States. Cowlitz Bank is the largest community bank headquartered in Cowlitz County and offers commercial banking services primarily to small and medium-sized businesses, professionals,
and retail customers. During the third quarter of 1999, the Company acquired Bay Mortgage of Bellevue, Washington and Bay Mortgage of Seattle, Washington. Bay Mortgage of Seattle and Bay Mortgage of
Bellevue have joined together as a division of Cowlitz Bank and serve customers throughout the greater Bellevue/Seattle market area. Other markets served by Bay Mortgage include Silverdale, and
Vancouver Washington and recently Portland, Oregon. Bay Escrow operates as a division of Cowlitz Bank and will complete escrow transactions for Bay Mortgage primarily for the Bellevue/Seattle market.
Cowlitz Bank operates ade
novobranch in Bellevue, Washington, doing business as Bay Bank. On July 3, 2000 the Company acquired Northern Bank of Commerce (NBOC) of Portland, Oregon. NBOC will
operate as a branch of Cowlitz Bank doing business as Northern Bank of Commerce, serving customers in the Portland area.

2.  Principles of Consolidation

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 nine months ended September 30, 2000 are not
necessarily indicative of results to be anticipated for the year ending December 31, 2000.

Certain
prior year amounts have been reclassified to conform to the current year presentation.

3.  Supplemental Cash Flow Information

For purposes of presentation in the statements of cash flows, cash and cash equivalents are defined as those amounts in the balance sheet caption "Cash and due
from banks" and included cash on hand, amounts due from banks and federal funds sold. Federal funds sold generally mature the day following purchase.

4.  Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates.

7

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5.  Earnings Per Share

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

Net Income

Weighted Avg Shares

Per Share AmountFor the three months ended September 30, 2000Basic earnings per share

$
336

3,825,364

$
.09Stock Options




Diluted earnings per share

$
336

3,825,364

$
.09For the three months ended September 30, 1999Basic earnings per share

$
134

4,132,932

$
.03Stock Options




19,218Diluted earnings per share

$
134

4,152,150

$
.03For the nine months ended September 30, 2000Basic earnings per share

$
364

3,912,674

$
.09Stock Options




Diluted earnings per share

$
364

3,912,674

$
.09For the nine months ended September 30, 1999Basic earnings per share

$
551

4,046,872

$
.14Stock Options




57,377Diluted earnings per share

$
551

4,104,249

$
.13


For
the periods reported the Company had no reconciling items between net income and income available to common shareholders.

Options
to purchase 335,280 and 61,000 shares of common stock at a price ranging from $4.94 to $7.94 were outstanding at September 30, 2000 and 1999, respectively. These
options 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.

6.  Recently Issued Accounting Standards

SFAS No. 133 and SFAS No. 137

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards requiring that derivative instruments (including certain derivative instruments embedded in other contracts) be recorded in the statement of
condition as either an asset or a liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gain and losses to offset related results on the hedged item in the income

8

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statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting.

SFAS
No. 133 was to have been effective for fiscal years beginning after June 15, 1999. A company may also implement the Statement as of the beginning of any fiscal quarter after
issuance (that is, fiscal
quarters beginning June 16, 1998 and thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the company's election, before January 1,
1998).

In
May 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging ActivitiesDeferral of the Effective
Date of SFAS No. 133", that amends SFAS No. 133 and defers the effective date to fiscal years beginning after June 15, 2000.

The
implementation of this Statement is not expected to have a material impact on the Company's financial position or results of operation.

7.  Comprehensive Income

For the Company, comprehensive income includes net income reported on the statements of income and changes in the fair value of its available-for-sale
investments reported as a component of shareholders' equity.

The
components of comprehensive income for the periods ended September 30, 2000 and 1999 are as follows:

Three months ended September 30,

Nine months ended September 30,2000

1999

2000

1999Unrealized gain (loss) arising during the period, net of tax

$
21

$
(7
)
$
32

$
(61
)Reclassification adjustment for net realized gains (losses) on securities available-for-sale included in net income during the year net of tax of $0, $1, $2, and $1


7


(3
)

8


(1
)Net unrealized gain (loss) included in Other comprehensive income

$
14

$
(4
)
$
24

$
(60
)


8.  Segments of an Enterprise and Related Information:

The Company is principally engaged in community banking activities through its branches and corporate offices. The community banking activities include
accepting deposits, providing loans and lines of credit to local individuals, businesses and governmental entities, investing in investment securities and money market instruments, and holding or
managing assets in a fiduciary agency capacity on behalf of its customers and their beneficiaries. Beginning in 1998 with the acquisition of Business Finance Corporation, the Company provides asset
based financing to companies throughout the western United States. In the third quarter of 1999, the Company acquired Bay Mortgage of Bellevue,

9

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Washington, Bay Mortgage of Seattle, Washington, and Bay Escrow of Seattle, Washington. These companies specialize in all facets of residential lending including FHA and VA loans, construction loans
and bridge loans. On July 1, 2000 the company acquired Northern Bank of Commerce, in Portland, Oregon. NBOC will be a branch of Cowlitz Bank doing business as Northern Bank of Commerce.

The
community banking, asset based financing activity, and mortgage-banking activities are monitored and reported by Company management as separate operating segments. The six
separate banking offices have been aggregated into a single reportable segment, community banking and the mortgage banking activities are included as a separate segment. The asset based financing
segment does not meet the prescribed aggregation or materiality criteria and therefore is reported as Other in the following table below.

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 1999 annual report, except that some operating expenses are not allocated to segments.

Summarized
financial information for the periods ended September 30, 2000 and 1999 concerning the Company's reportable segments is shown in the following tables.

|                                       |                     | Three months ended September 30, 2000
|-------------------------------------- | ------------------- | -------------------------------------
|
|Interest income                        |                     | $                                    
|Interest expense                       |                     |                                      
|                                       |                     |                                      
|                                       | Net interest income |                                      
|Provision for loan losses              |                     |                                      
|Noninterest income                     |                     |                                      
|Noninterest expense                    |                     |                                      
|                                       |                     |                                      
|Income(loss) before income tax expense |                     |                                      
|                                       | Income tax expense  |                                      
|                                       |                     |                                      
|Net income(loss)                       |                     | $                                    
|                                       |                     |                                      
|
|
|Interest income                        |                     | $                                    
|Interest expense                       |                     |                                      
|                                       |                     |                                      
|                                       | Net interest income |                                      
|Provision for loan losses              |                     |                                      
|Noninterest income                     |                     |                                      
|Noninterest expense                    |                     |                                      
|                                       |                     |                                      
|Income(loss) before income tax expense |                     |                                      
|                                       | Income tax expense  |                                      
|                                       |                     |                                      
|Net income(loss)                       |                     | $                                    
|                                       |                     |                                      

10

---

|                                       |                     | Nine months ended September 30, 2000
|-------------------------------------- | ------------------- | ------------------------------------
|
|Interest income                        |                     | $                                   
|Interest expense                       |                     |                                     
|                                       |                     |                                     
|                                       | Net interest income |                                     
|Provision for loan losses              |                     |                                     
|Noninterest income                     |                     |                                     
|Noninterest expense                    |                     |                                     
|                                       |                     |                                     
|Income(loss) before income tax expense |                     |                                     
|                                       | Income tax expense  |                                     
|                                       |                     |                                     
|Net income(loss)                       |                     | $                                   
|                                       |                     |                                     
|
|
|Interest income                        |                     | $                                   
|Interest expense                       |                     |                                     
|                                       |                     |                                     
|                                       | Net interest income |                                     
|Provision for loan losses              |                     |                                     
|Noninterest income                     |                     |                                     
|Noninterest expense                    |                     |                                     
|                                       |                     |                                     
|Income(loss) before income tax expense |                     |                                     
|                                       | Income tax expense  |                                     
|                                       |                     |                                     
|Net income(loss)                       |                     | $                                   
|                                       |                     |                                     

9.  Acquisition of Northern Bank of Commerce

On July 3, 2000, the Company acquired Northern Bank of Commerce "NBOC", of Portland, Oregon for approximately $3.7 million in cash, including
acquisition costs. The Company will account for the transaction using the purchase method. Under the terms of the merger agreement, the shareholders of NBOC received $2.48 in cash for each share of
NBOC stock. $999,000 of the purchase price, or $.815
per share, was deposited in an escrow account, on behalf of NBOC's shareholders, to indemnify the Company for losses it incurs on certain specified NBOC loans in excess of established thresholds
during a one year period following the merger. Losses on the indemnified loans in excess of the agreed-upon thresholds will be recognized in income through a provision for loan losses in the period in
which they occur. The Company will at the same time record a receivable for the cash to be received from the NBOC shareholders via the escrow account under their indemnification arrangement (up to the
remaining balance in the escrow account), with a corresponding credit to the provision for loan losses.

11

---

The following table reconciles the acquisition of NBOC. As part of the transaction approximately $809,000 was recorded in goodwill and will be amortized on a straight-line basis over
a fifteen year period. Fair value adjustments are subject to update as additional information becomes available.

Fair Value of assets acquired, including goodwill

$
46,983Less liabilities assumed


43,256Cash paid for acquisition


(3,727
)Less cash acquired


7,023Net cash received in acquisition

$
3,296


The
following pro forma information is provided regarding the purchase of NBOC, as if the combination occurred at the beginning of the year:

Six Months Ending June 30, 2000

Six Months Ending June 30, 1999(Unaudited)

(Unaudited)Pro forma Financial Information
(In Thousands, except for per share data)Net Interest Income

$
8,485

$
6,873Net Income (loss)

$
(92
)
$
325Net Interest Income Per Share

$
2.14

$
1.72Net Income (loss) Per Share

$
(.02
)
$
.08


12

---

## 

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Conditions and Results of Operations includes a discussion of certain significant business
trends and uncertainties as well as certain forward-looking statements and is intended to be read in conjunction with and is qualified in its entirety by reference to the consolidated financial
statements of the Company and accompanying notes included elsewhere herein.

Results of Operations

Introduction

On July 3, 2000, the Company acquired Northern Bank of Commerce "NBOC," of Portland, Oregon in a business combination accounted for using the purchase
method. The results of operations of the Company for the third quarter of 2000 and for the nine months ending September 30, 2000 do not include the results of operations for NBOC prior to the
date of purchase.

During
the third quarter of 2000 the Company had net income of $336,000, or $.09 per diluted share compared to net income of $134,000, or $.03 in the third quarter of 1999. The
primary reason for the increase in net income for the three month period ending September 30, 2000 was an increase in interest and fees on loans, which included approximately $807,000 of
interest and fees earned on loans acquired from NBOC. Interest income increased from $4.6 million in the third quarter of 1999 to $7.5 million during the comparable period in 2000. Noninterest income
increased from $0.5 million in the third quarter of 1999 to $1.0 million during the comparable period in 2000. The primary factor contributing to this increase was a strong period of new loan
originations and sales for the mortgage division. The bank expanded its mortgage operation by acquiring Bay Mortgage of Bellevue, Washington; Bay Mortgage of Seattle, Washington; and Bay Escrow of
Seattle, Washington in the third quarter of 1999.

For
the first nine months of 2000 revenues (net interest income before provision for loan losses and non interest income) have increased 39% when compared to the like period in 1999
and assets have grown 50% during the first nine months of 2000. Cowlitz Bank's Bellevue Washington branch, doing business as Bay Bank, has made a significant contribution to the Company's growth,
adding $58.8 million in loans and $25.7 million in deposits during the first nine months of 2000. The purchase of NBOC in July, 2000 added $33.0 million in loans and $42.9 million in deposits, which
has increased the Company's third quarter interest income and interest expense over the prior year comparable quarter. Bay Mortgage and Bay Escrow, acquired in the third quarter of 1999, have also
contributed to income through interest and fees on loans held for sale.

The
Company's net income for the nine months ended September 30, 2000 and 1999 was $364,000 and $551,000, respectively. This decrease in net income is the result of a severance
charge of $540,000 after the resignation of the Company's Chief Operating Officer and Cowlitz Bank's President and Chief Executive Officer, Charles W. Jarrett. Also contributing to the decline in net
income was an increase in noninterest expense related to the Company's growth.

Net Interest Income



Net interest income for the quarter ended September 30, 2000 was $4.5 million, compared to $3.2 million at September 30, 1999. The overall
tax-equivalent earning asset yield was 10.98% at September 30, 2000 compared to 11.96% at September 30, 1999. Average earning assets increased to $272 million for the quarter ended
September 30, 2000 compared to $153 million during the same period last year. The increase in average earning assets is primarily attributable to recent business

13

---

acquisitions and to the origination of new loans by the Company. The increase in net interest income is primarily a result of the increase in earning assets, and is offset by the lower average yield
on earning assets.

Average
interest bearing liabilities increased for the quarter ended September 30, 2000 to $220 million, compared to $111 million during the like period in 1999. The average
cost of interest bearing liabilities has increased to 5.45% during the three-month period ending September 30, 2000 from 4.99% during the three-month period ending September 30, 1999.
The increase in the average interest bearing liabilities is primarily due to recent business acquisitions and due to the Company's efforts to attract core deposits at all of its branch locations, and
to obtain out-of-state certificates of deposit that are needed to help fund the Company's growth in interest earning assets. The cost of interest bearing liabilities is higher primarily due to the
impact of these higher-yielding certificates. In addition, as described in the Analysis of Net Interest Income, the Company's net interest spread has narrowed during the third quarter due to the
combined impact of these higher yielding certificates and due to the lower yield on average earning assets.

Analysis of Net Interest Income

The following table presents information regarding yields and interest earning assets, expense on interest bearing liabilities, and net yields on interest
earning assets for periods indicated on a tax equivalent basis.

Three Months Ended September 30,Increase (Decrease)(unaudited)
(in thousands of dollars)

2000

1999

ChangeInterest income(1)

$
7,464

$
4,588

$
2,876

62.7
%Interest expense


2,999


1,386


1,613

100.2
%Net interest income

$
4,465

$
3,202

$
1,263

39.4
%Average interest earning assets

$
272,022

$
153,447


118,575

77.2
%Average interest bearing liabilities

$
220,133

$
111,172


108,961

98.0
%Average yields earned(2)


10.98
%

11.96
%

(.98
)Average rates paid(2)


5.45
%

4.99
%

.46Net interest spread(2)


5.53
%

6.97
%

(1.44
)Net interest margin(2)


6.57
%

8.35
%

(1.78
)


---

The
decline in average yields earned from 11.96% at September 30, 1999 to 10.98% at September 30, 2000 is primarily due to the increased amount of loans placed on
non-accrual status during the third quarter of 2000 compared to the same period in the prior year. Non-accrual loans increased to $7.2 million at September 30, 2000 from $3.0 million at
September 30, 1999. The Company does not earn any interest income when loans are placed on non-accrual status, and any earned but uncollected income is reversed against interest income during
the period in which non-accrual status is established. In addition, the Company's loan mix during the quarter ending September 30, 2000 included a higher concentration of lower yielding loans,
such as mortgage loans originated by the Company's mortgage banking division, which increased to 7.7% of total loans outstanding at September 30, 2000 from 5.5% of total loans at
September 30, 1999.

14

---



Total interest earning assets averaged $221 million for the nine months ended September 30, 2000, compared to $175 million for the corresponding period
in 1999. The average yield on interest earning assets increased to 11.06% during the first nine months of 2000 compared to 10.75% for the corresponding period in 1999. This increase is a result of the
increase in average earning assets at BFC, the mortgage division, and the addition of earning assets acquired with the acquisition of NBOC. Loans at BFC typically earn a higher rate of interest than
those loans at the Bank reflecting the more aggressive lending mix of its portfolio. Average loans at BFC have increased from $2.8 million at September 30, 1999 to $5.1 million at
September 30, 2000. Also contributing to this increase in loan yield is a higher level of income earned from interest and fees on mortgage loans originated and held for sale. The Company's
mortgage operations originated $95.7 million of loans held for sale during the
nine months ending September 30, 2000 compared to approximately $36.0 million during the same period of the prior year.

Interest
bearing liabilities averaged $175 million and $112 million during the first nine months of 2000 and 1999, respectively. The average cost of these liabilities increased in the
first nine months of 2000 to 5.18% from 5.00% in the first nine months of 1999. The increase in average interest bearing liabilities is primarily the result of the additional deposits acquired during
the purchase of Northern Bank of Commerce, while the higher cost of funds is primarily due to higher yielding out of state certificates of deposits.

Analysis of Net Interest Income

The following table presents information regarding yields and interest earning assets, expense on interest bearing liabilities, and net yields on interest
earning assets for periods indicated on a tax equivalent basis.

Nine Months Ended September 30,Increase (Decrease)(unaudited)
(in thousands of dollars)

2000

1999

ChangeInterest income(1)

$
18,337

$
12,448

$
5,889

47.3
%Interest expense


6,804


4,190


2,614

62.4
%Net interest income

$
11,533

$
8,258

$
3,275

39.6
%Average interest earning assets

$
221,085

$
154,422


66,663

43.2
%Average interest bearing liabilities

$
175,055

$
111,751


63,304

56.6
%Average yields earned(2)


11.06
%

10.75
%

.31Average rates paid(2)


5.18
%

5.00
%

.18Net interest spread(2)


5.88
%

5.75
%

.13Net interest margin(2)


6.96
%

7.13
%

(.17
)


---

Market Risk

Interest rate risk and credit risk are the most significant market risks impacting the Company's performance. The Company relies on loan reviews, prudent loan
underwriting standards and an adequate allowance for loan losses to mitigate credit risk. 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. The Company's primary objective in

15

---

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. Management has assessed these risks and feels that there has been no material change since December 31, 1999, except for the credit risk
associated with certain specifically designated loans acquired from NBOC totaling $15.2 million. As part of the purchase agreement, the Company established specific reserves on these loans at the date
of purchase, and also placed $999,000 of the purchase price in an escrow account, which is to be held for one year in order to indemnify the Company against possible credit losses arising from such
loans. Additional discussion is included in the section Allowance for Loan Losses.

Non-Interest Income



Non-interest income consists of the following components:

Three month ended September 30,2000

1999Service charge on deposit accounts

$
189

$
183Gains on loans sold


410


208Fiduciary income


64


39Escrow fees


100


29Credit Card income


95


37Loan underwriting fees


87


21ATM income


19


16Other miscellaneous fees and income


65


11Total non-interest income

$
1,029

$
544


Non-interest
income was $1,029,000 for the three months ended September 30, 2000 and $544,000 in the corresponding period in 1999. An increase in gains on loans sold, escrow
fees, and loan underwriting fees associated with the expansion of the Bank's mortgage division have been the primary drivers behind the increase in noninterest income for the three-month period ending
September 30, 2000. Also contributing to this increase was the continued growth of the Company's trust services.



Total non-interest income increased to $2.2 million for the first nine months of 2000 compared to $1.2 million during the same period in 1999.

16

---

Non-interest income consists of the following components:

Nine Month ended September 30,2000

1999Service charge on deposit accounts

$
533

$
511Gains on loans sold


713


294Fiduciary income


209


105Escrow fees


245


29Credit Card income


172


101Loan underwriting fees


173


39ATM income


53


41Safe deposit box fees


31


32Other miscellaneous fees and income


106


48Total non-interest income

$
2,235

$
1,200


The
increase in non-interest income is primarily a result of the expansion in services provided by the mortgage division of the Bank as well as the continued growth of the Trust
Department.

Non-Interest Expense



Non-interest expense consists principally of employees' salaries and benefits, occupancy costs, data processing and communication expenses, FDIC (Federal
Deposit Insurance Corporation) insurance premium, professional fees, and other non-interest expenses. Non-interest expenses increased 44.2% to $4.7 million for the quarter ended September 30,
2000 compared to $3.3 million for the quarter ended September 30, 1999, primarily due to increased staffing costs and occupancy expenses and amortization of goodwill related to the acquisitions
in the last half of 1999 and the third quarter of 2000.

Other
operating expense such as insurance, legal and accounting expenses, service charges, postage and other business expenses were $1,036,000 for the quarter ending
September 30, 2000 and $755,000 for the same period in 1999. The increase from quarter to quarter was due to the Company's recent expansion.



For the nine months ended September 30, 2000, non-interest expense was $12.2 million as compared to $7.5 million for the nine months ended September 30,
1999. Salaries and benefits expense of $7.4 million for the first nine months of 2000 represents an increase from $4.2 million for the comparable period in 1999. Contributing to this increase was a
severance charge of $540,000 related to the resignation of the Company's President and Chief Operating Officer. This increase is also a result of the addition of employees after the acquisition of Bay
Mortgage and Bay Escrow and the start up of the Bank's Bellevue, Washington branch, doing business as Bay Bank in the third quarter of 1999, and the acquisition of Northern Bank of Commerce in
July of 2000. In addition, ordinary salary increases for existing employees generally ranging from three to six percent a year have contributed to this increase. At September 30, 2000,
the Company had 174 full-time equivalent employees compared to 162 at September 30, 1999. Also adding to the increase in non-interest expenses was an increase in occupancy expense and
amortization of goodwill from the acquisitions.

Net
occupancy expenses consist of depreciation on premises, lease costs of buildings and equipment, maintenance and repair expenses, utilities and related expenses. The Company's net
occupancy expense at September 30, 2000 was $1,600,000 or 61.8% higher than $980,000 at

17

---

September 30, 1999. The increase in occupancy expense in 2000 was due primarily to an increase of $420,000 in lease payments after the acquisition of Bay Mortgage, the start up of Bay Bank in
Bellevue, Washington, and the addition of Northern Bank of Commerce, in Portland, Oregon along with the additional depreciation and service costs on equipment at these locations.

Other
operating expense such as insurance, legal and accounting expenses, service charges, postage and other business expenses were $2.5 million at September 30, 2000 and $1.8
million at September 30, 1999. The increase from year to year was due to the Company's continued growth and expansion.

Income Taxes



For the three-month period ending September 30, 2000 the provision for income taxes was $203,000 compared to $88,000 during the corresponding period in
1999. The effective tax rates were 37.7% and 39.6% for the quarter ending September 30, 2000 and 1999, respectively. This increase was due to the impact of the amortization of goodwill
associated with the NBOC acquisition that is not deductible for income tax purposes in relation to the level of pretax income.



The provision for income taxes amounts to $242,000 and $341,000 at September 30, 2000 and 1999, respectively. The provision resulted in an effective tax
rate of 39.9% and 38.2%, respectively. This increase was due to the impact of the amortization of goodwill associated with the NBOC acquisition that is not deductible for income tax purposes in
relation to the level of pretax income.

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 cover 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 portfolio, the level of
nonperforming and impaired loans, evaluation of current economic trends in the Company's market area, and other relevant factors related to the loan portfolio. See Allowance for Loan Losses disclosure
for a more detailed discussion.

The
Company's provision for loan losses was $214,000 and $235,000 for the three months ended September 30, 2000 and 1999, respectively. Net charge-offs for the three months
ended September 30, 2000 were $295,000, compared to net recoveries of loans previously charged off of $47,000 for the same period in 1999. Total charge-offs were $369,000 in the third quarter
of 2000 compared to $82,000 in the third quarter of 1999. Management continues to closely monitor the loan quality and existing relationships. For a more detailed discussion please see Allowance for
Loan Losses.



Provisions for loan losses recorded for the nine months ended September 30, 2000 were $955,000 as compared to $1,065,000 at September 30, 1999.
Net charge-offs were $452,000 and $785,000 at September 30, 2000 and 1999, respectively. Total charges offs of $653,000 at September 30, 2000 and $895,000 at September 30, 1999. At
September 30, 2000 the allowance for loan losses was 2.06% of total loans outstanding. During the first quarter of 1999, the Company determined that approximately $348,000 in receivables
purchased by its subsidiary BFC were not collectible. These receivables were charged off during the first quarter of 1999 and the Company increased its provision for loan losses accordingly, which
resulted in a higher loss provision requirement in the prior period relative the the same period ending September 30, 2000. As discussed more fully in the Allowance for Loan Losses

18

---

section, the Company increased its allowance for loan losses by $2.0 million in connection with its acquisition of NBOC. The decline in the provision between periods was due to this provision made in
the first quarter of 1999. With the acquisition of Northern Bank of Commerce in July 2000, the company booked an adjustment to provision of $1,988,000.

The
following table shows the Company's loan loss performance for the periods indicated:

|                                                             |              | Nine months Ending September 30, |         |     |    
|------------------------------------------------------------ | ------------ | -------------------------------- | ------- | --- | ---
|
|
|Loans outstanding at end of period                           |              | $                                | 232,028 |     | $  
|Average loans outstanding during the period                  |              | $                                | 191,369 |     | $  
|Allowance for loan losses, beginning of period               |              | $                                | 2,281   |     | $  
|Loans charged off:                                           |              |                                  |         |     |    
|                                                             | Commercial   |                                  |         | 579 |    
|                                                             | Real Estate  |                                  |         |    |    
|                                                             | Consumer     |                                  |         | 35  |    
|                                                             | Credit Cards |                                  |         | 39  |    
|                                                             |              |                                  |         |     |    
|                                                             |              | Total loans charged-off          |         |     | 653
|                                                             |              |                                  |         |     |    
|Recoveries:                                                  |              |                                  |         |     |    
|                                                             | Commercial   |                                  |         | 180 |    
|                                                             | Real Estate  |                                  |         |    |    
|                                                             | Consumer     |                                  |         | 8   |    
|                                                             | Credit Cards |                                  |         | 13  |    
|                                                             |              |                                  |         |     |    
|                                                             |              | Total recoveries                 |         |     | 201
|                                                             |              |                                  |         |     |    
|Adjustment: Incident to .NBOC acquisition                    |              |                                  | 1,988   |     |    
|Provision for loan losses                                    |              |                                  | 955     |     |    
|                                                             |              |                                  |         |     |    
|Allowance for loan losses, end of period                     |              | $                                | 4,772   |     | $  
|                                                             |              |                                  |         |     |    
|Ratio of net loans charged-off to average loans outstanding  |              |                                  | .24     | %   |    
|Ratio of allowance for loan losses to loans at end of period |              |                                  | 2.06    | %   |    

Loans

Total loans outstanding were $232 million and $149 million at September 30, 2000 and December 31, 1999, respectively. Loan commitments were $46.7
million at September 30, 2000 and $27.6 million at December 31, 1999.

19

---

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

September 30, 2000

December 31, 1999(unaudited)
(in thousands of dollars)

Amount

Percentage

Amount

PercentageCommercial

$
185,980

79.86
%
$
123,701

82.47
%Real estate construction


6,839

2.93


3,104

2.07Real estate commercial


15,176

6.52


9,859

6.58Real estate mortgage


17,948

7.71


8,194

5.46Consumer and other


6,935

2.98


5,134

3.42232,878

100.00
%

149,992

100.00
%Deferred loan fees


(850
)



(606
)Total loans


232,028




149,386Allowance for loan losses


(4,772
)



(2,281
)Total loans, net

$
227,256



$
147,105


Allowance for Loan Losses

The allowance for loan losses represents management's estimate of probable losses, which exist 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 allowance necessary for specific non-performing
loans and estimates losses inherent in other loan exposures. An important element in determining the adequacy of an allowance for loan losses is an analysis of loans by loan rating categories. The
risk of a credit is evaluated by the Company's management at inception of the loan using an established 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. These gradings are reviewed periodically or when indicators show that a credit may have
weakened, such as operating losses, collateral impairment or delinquency problems.

The
result is an allowance with two components:

Specific Reserves:The amount of specific reserves are established when there are significant conditions or
circumstances related to a loan that indicate that a loss may be incurred. 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:The amount of the general allowance is based on loss factors assigned to the Company's loan
exposures based on internal credit ratings and historical loss experience. These loss factors are determined on the basis of actual charge-off experience and suggested regulatory guidelines. The
general allowance is composed of two categories. The first component is calculated based upon the loan balances classified in the five higher risk loan categories (grades six through 10) of
"management attention", "special mention", "substandard", "doubtful" and "loss" in the Company's Watch List. Loss reserve factors are then applied to each of these categories of classified loan
balances. The second component is calculated by applying historical loss factors to the outstanding loan balance less any loans that are included in the Company's specific or higher risk allowances
discussed above. Three levels of charge off history are considered by management in arriving at this component of the general allowance. They are average five-year net charge-offs, the highest years'
actual net charge-offs within the past 5 years and an estimated maximum charge-off factor. Each of these amounts is combined with
the first component of the general allowance yielding a range for the total general allowance. Based upon its best estimate of probable losses, management selects a general allowance within this
calculated

20

---

range. Factors considered by management in making its best estimate include the volume and mix of the existing loan portfolio, including the volume and severity of non-performing loans and adversely
classified credits; analysis of net charge-offs experienced on previously classified loans; 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; management's subjective evaluation of general and local economic and business conditions affecting the collectibility of the Company's
loans; the relationship and trend over the past several years of recoveries in relation to charge-offs; and available outside information of a comparable nature regarding the loan portfolios of other
banks, including peer group banks. This decision also reflects management's attempt 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
the experience of peer institutions and regulatory guidance in addition to the Company's own experience.

Loans
and other extensions of credit deemed un-collectable 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. In accordance with the Company's methodology for assessing the appropriate allowance for loan losses, the general
portion of the allowance increased to $2.6 million at September 30, 2000 compared to $1.7 million at December 31, 1999. Management believes this increase is prudent given the recent
growth in commercial loans and the trend in the historical level of net charge-offs through September 30, 2000.

At
September 30, 2000, approximately $2.2 million of the allowance for loan losses was allocated based on an estimate of the amount that was necessary to provide for inherent
losses related to specific loans, compared to $551,000 at December 31, 1999. Specific reserves were increased by $1.9 million on July 3, 2000 as a result of expected losses in certain
loans acquired in the NBOC purchase. The Company is indemnified from losses on these specified NBOC loans under the terms of its purchase agreement
with NBOC up to an aggregate amount of $999,000, which is equal to that portion of the cash purchase price that has been placed in escrow. Future losses on the indemnified loans in excess of the
agreed upon thresholds will be recognized in income through a provision for loan losses in the period in which they occur. The Company will at the same time record a receivable for the cash to be
received from the escrow account with a corresponding reduction to the provision for loan losses. An escrow committee consisting of an equal number of former NBOC board members and Company
representatives will determine when the Company can recover excess losses on the specified loans. This analysis will include consideration of the same factors used by the Company to evaluate its
regular loan loss reserves. In addition to the $1.9 million of specific reserves originally established, the Company has established additional loss reserves against the specified NBOC loans, which
are in excess of the potential recovery from escrow. The Company's estimate of the allowance for loan losses related to these NBOC loans assumes recovery of all the funds held in escrow to offset
probable loan losses.

Management's
evaluation of the factors above resulted in allowances for loan losses of $4.8 million and $2.3 million at September 30, 2000 and December 31, 1999,
respectively. The allowance as a percentage of total loans was 2.06% at September 30, 2000 and 1.53% at December 31, 1999. As part of the purchase entry related to the acquisition of
NBOC $1.9 million was added to the allowance for loan loss.

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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.

Non-performing Assets

During its normal loan review procedures, the Company 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). 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 for loan losses when management believes after considering economic and business conditions,
collection efforts, and collateral position, that the borrowers' financial condition is such that collection of the principal is not probable.

Generally,
no interest is accrued on loans when factors indicate collection of the interest is doubtful or when the principal or interest payment becomes 90 days past due, unless
collection of the 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 the collection of the remaining recorded principal balance is considered probable.

The
Company manages the general risks inherent in the loan portfolio by following loan policies and underwriting practices designed to result in prudent lending activities. The
following table presents information with respect to non-performing assets:

(unaudited)
(in thousands of dollars)

September 30, 2000

December 31, 1999Loans on nonaccrual status

$
7,237

$
2,387Loans past due greater than 90 days but not on nonaccrual status


439


Other real estate owned


866


580Other Assets


63


18Total non-performing assets

$
8,605

$
2,985Percentage of non-performing assets to total assets


2.90
%

1.50
%


At
September 30, 2000 non-performing assets were $8.6 million or 2.90% of total assets compared to $3.0 million or 1.50% of total assets at December 31, 1999. The
increase in non-performing assets is primarily attributable to certain loans acquired from NBOC, which were placed on non-accrual status during the third quarter of 2000. Total NBOC loans acquired in
the purchase that were classified as watch, special mention, substandard or doubtful approximated $15.2 million, and the Company has established general and specific reserves for these loans as
discussed in the Allowance for Loan Loss.
Approximately $4.0 million of the NBOC classified loans have since been placed on non-accrual status. Approximately 850,000 net, of additional loans were also placed on non-accrual status in
accordance with the Company's policies during the quarter ended September 30, 2000, and are allocated a portion of the Company's specific reserves. Although the total amount of non-performing
assets has increased since December 31, 1999, management does not necessarily believe that losses are probable on all of these loans, and expects that full or partial recovery of any future
losses, which may be incurred in excess of current reserves, will be obtained from the underlying collateral or credit guarantees of the borrower.

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Approximately $5.8 million of the non-accrual loans are primarily secured by real estate and the remainder consists of commercial and consumer loans with various collateral. Since
September 30, 2000 an additional $551,000 has been added to nonaccrual status.

Other
real estate owned increased from $580,000 at December 31, 1999 to $866,000 at September 30, 2000 as properties classified as other real estate have been
reclassified from non-accruals to OREO. The company is actively marketing these assets.

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 are customers deposits, loan payments, sales of assets, advances from the FHLB (Federal Home Loan Bank) and the use of the federal funds market. As of
September 30, 2000, approximately $5.5 million of the securities portfolio matures within one year.

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 25% of assets, subject to certain collateral limitations. Advances from the FHLB have terms ranging from 1 through 15 years and at September 30, 2000 bear interest at
rates from 6.02% to 8.80%. At September 30, 2000, $18.3 million in advances were outstanding from the FHLB and the Company had additional borrowing capacity for cash advances of $48.5 million.
The Company may increase its percentage of borrowings from the FHLB in the future if circumstances warrant.

The
Company has recently increased it higher yielding certificates to help support its loan growth. Rates paid on these liabilities range from 6.65% to 7.65% with maturities between
12 and 24 months.

Capital

The Company is required to maintain minimum amounts of capital to "risk weighted" assets, as defined by banking regulators. The Company is required to have
Tier 1 and Total Capital ratios of 4.0% and 8.0%, respectively. At September 30, 2000, the Company's ratios were 10.16% and 11.42%, respectively. At December 31, 1999, the company's
ratios were 17.51% and 18.76%, respectively. The ratio of Tier 1 capital to average assets was 8.80% and 17.73% at September 30, 2000 and December 31, 1999, respectively.

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Part II. Other Information

Item 3  Quantitative and Qualitative Disclosure about Market Risk

We believe there has been no material change in quantitative and qualitative matters since December 31, 1999.

Item 5  Other Information

On July 1, 2000, the Company acquired Northern Bank of Commerce "NBOC", of Portland, Oregon. The company will account for the all cash transaction using
the purchase method. Under the terms of
the merger agreement, the shareholders of NBOC receive $2.48 in cash for each share of NBOC stock. $999,000 of the merger consideration, or $.815 per share, was deposited in an escrow account, on
behalf of NBOC's shareholders, to indemnify the Company for losses it incurs on certain specified NBOC loans in excess of established thresholds during a one year period following the merger.

Effective
October 26, 2000, the Audit Committee of the Company's Board of Directors approved a change in the Company's independent auditors for the year ended
December 31, 2000 from Arthur Andersen LLP to Moss Adams LLP.

Item 6

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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.

|                         |  | COWLITZ BANCORPORATION (Registrant)                                   
|------------------------ |  | ----------------------------------------------------------------------
|Dated: November 10, 2000 |  | /s/HARVE MENKENSHarve Menkens President                               
|Dated: November 10, 2000 |  | /s/DONNA P. GARDNERDonna P. Gardner Vice-President/Secretary-Treasurer

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Exhibit Index

|Exhibit No. |   |                                                              
|----------- | - | -------------------------------------------------------------
|3.1         | * | Restated and Amended Articles of Incorporation of the Company
|3.2         | * | Bylaws of the Company                                        
|27          |   | Financial Data Schedule                                      
|            |   |                                                              

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