<PAGE>

                   1. U.S. SECURITIES AND EXCHANGE COMMISSION

                              Washington D.C. 20549

                                    Form 10-Q


          [X]        Quarterly report Pursuant to section 13
                     or 15(d) of the Securities and Exchange
                                   act of 1934

                    For the quarter ended September 30, 1999

          [ ] Transition report pursuant to section 13 or 15(d) of the
                       Securities and Exchange act of 1934

               For the transition period from ________ to ________

                             Commission file number
                                     0-23881
                             COWLITZ BANCORPORATION
             (Exact name of registrant as specified in its charter)

         Washington                                             91-152984
(State or other jurisdiction of                                (IRS Employer
incorporation or organization)                               Identification No.)


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

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

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

Yes  X         No
   -----         -----

Indicate 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 31, 1999:      4,092,052


<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                               Page
<S>                                                                                            <C>
Part I
Financial Statements

         Consolidated Balance Sheets -
         September 30, 1999 and December 31, 1998                                                3

         Consolidated Statements of Income -
         Three and Nine months ended September 30, 1999 and September 30, 1998                   4

         Consolidated Statements of Cash Flows
         Nine months ended September 30, 1999 and September 30, 1998                             5

         Consolidated Statements of Changes in Shareholders' Equity                              6

         Notes to Consolidated Financial Statements                                              7

         Management's Discussion and Analysis of Financial Condition
         And Results of Operations                                                               12

Part II

Other

         Changes in Securities and Use of Proceeds                                               24

         Other Information                                                                       24

         Exhibits and Reports on Form 8-K                                                        24

         Signatures                                                                              25
</TABLE>


                                       2
<PAGE>

                     COWLITZ BANCORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CONDITION
                            (in thousand of dollars)

<TABLE>
<CAPTION>
                                                                       September 30,    December 31,
                                                                           1999            1998
                                                                         (unaudited)
<S>                                                                    <C>              <C>
ASSETS
Cash and due from banks...........................................     $  15,173        $  22,705
Investment securities:
   Investments available-for-sale (at fair value, cost of $8,484
     and $6,994 at September 30, 1999 and December 31, 1998,
     respectively)................................................         8,462            7,065
   Investments held-to-maturity (at amortized cost, fair value of
     $4,370 and $4,487 at September 30, 1999 and
     December 31, 1998, respectively).............................         4,564            4,465
                                                                       ---------        ---------
     Total investment securities..................................        13,026           11,530
                                                                       ---------        ---------

Loans.............................................................       140,633          132,046
Allowance for loan losses.........................................        (2,094)          (1,814)
                                                                       ---------        ---------
   Loans, net.....................................................       138,539          130,232
                                                                       ---------        ---------
Premises and equipment, net of accumulated depreciation of $2,311
   and $1,837 at September 30, 1999 and December 31, 1998,
   respectively...................................................         6,011            5,859
Federal Home Loan Bank stock......................................         3,035            2,869
Intangible asset, net of accumulated amortization of $717 and $432
   at September 30, 1999 and December 31, 1998, respectively......         5,062            3,110
Other assets......................................................         1,900            2,040
                                                                       ---------        ---------
     Total assets.................................................     $ 182,746        $ 178,345
                                                                       =========        =========

LIABILITIES
Deposits:
   Demand.........................................................     $  28,099        $  33,062
   Savings and interest-bearing demand............................        48,520           47,367
   Certificates of deposit........................................        46,241           41,932
                                                                       ---------        ---------
     Total deposits...............................................       122,860          122,361
Short-term borrowings.............................................           600            2,275
Long-term borrowings..............................................        26,327           21,799
Other liabilities.................................................         1,120              990
                                                                       ---------        ---------
     Total liabilities............................................     $ 150,907         $147,425
                                                                       ---------        ---------

SHAREHOLDERS' EQUITY
Preferred stock, no par value; 5,000,000 as of September 30, 1999
   and December 31, 1998; no shares issued and outstanding at
   September 30, 1999 and December 31, 1998, respectively.........     $       -        $       -
Common stock, no par value; 25,000,000 authorized as of
   September 30, 1999 and December 31, 1998; 4,089,570 and 4,001,999
   shares issued and outstanding at September 30, 1999
   and December 31, 1998, respectively............................        18,887           18,251
Additional paid in capital........................................         1,538            1,538
Retained earnings.................................................        11,428           11,085
Net unrealized gains on investments available-for-sale............           (14)              46
                                                                       ---------        ---------
     Total shareholders' equity...................................        31,839           30,920
                                                                       ---------        ---------
     Total liabilities and shareholders' equity...................     $ 182,746        $ 178,345
                                                                       =========        =========
</TABLE>

The accompanying notes are an integral part of these statements.


                                       3
<PAGE>

                     COWLITZ BANCORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
     (in thousand of dollars, except number of shares and per share amounts)

<TABLE>
<CAPTION>
                                                           Three months ended             Nine months ended
                                                              September 30,                September 30,
                                                              1999       1998                1999       1998
                                                          --------   --------           ---------  ---------
                                                                             (unaudited)
<S>                                                       <C>        <C>                <C>        <C>
INTEREST INCOME
Interest and fees on loans.............................   $  4,193   $  3,504           $  11,110  $  10,292
Interest on taxable investment securities..............        220        243                 650        695
Interest on non-taxable investments securities.........          2          1                   6          2
Interest from other banks..............................        172        356                 680      1,085
                                                          --------   --------           ---------  ---------
   Total interest income...............................      4,587      4,104              12,446     12,074
                                                          --------   --------           ---------  ---------

INTEREST EXPENSE
Savings and interest-bearing demand....................        456        504               1,411      1,422
Certificates of deposit................................        521        675               1,563      2,433
Short-term borrowings..................................         16         27                  68         64
Long-term borrowings...................................        393        365               1,148      1,035
                                                          --------   --------           ---------  ---------
   Total interest expense..............................      1,386      1,571               4,190      4,954
                                                          --------   --------           ---------  ---------
   Net interest income before provision for loan losses      3,201      2,533               8,256      7,120

PROVISION FOR LOAN LOSSES..............................       (235)      (111)             (1,065)      (243)
                                                          --------   --------           ---------  ---------
   Net interest income after provision for loan losses.      2,966      2,422               7,191      6,877
                                                          --------   --------           ---------  ----------

NONINTEREST INCOME
   Service charges on deposit accounts.................        183        168                 511        487
   Gains on loans sold.................................        211          -                 294          -
   Other income........................................        155         71                 397        242
   Net gains/losses on sales of available-for-sale
     securities........................................         (5)         -                  (2)         5
                                                          --------   --------           ---------  ---------
     Total noninterest income..........................        544        239               1,200        734
                                                          --------   --------           ---------  ---------

NONINTEREST EXPENSE
   Salaries and employee benefits......................      1,914        922               4,228      2,772
   Net occupancy and equipment expense.................        424        231                 980        655
   Business tax expense................................         78         61                 207        184
   Amortization of intangibles.........................        117         76                 285        215
   Other operating expense.............................        755        444               1,799      1,208
                                                          --------   --------           ---------  ---------
     Total noninterest expense.........................      3,288      1,734               7,499      5,034
                                                          --------   --------           ---------  ---------
     Income before income tax expense..................        222        927                 892      2,577

INCOME TAX EXPENSE.....................................         88        315                 341        876
                                                          --------   --------           ---------  ---------
     Net income........................................   $    134   $    612           $     551  $   1,701
                                                          ========   ========           =========  =========

BASIC EARNINGS PER SHARE...............................   $   0.03   $   0.15           $     .14  $     .47
DILUTED EARNINGS PER SHARE.............................   $   0.03   $   0.15           $     .13  $     .44
</TABLE>

The accompanying notes are an integral part of these statements.


                                       4
<PAGE>

                     COWLITZ BANCORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (in thousands of dollars)
<TABLE>
<CAPTION>
                                                                            Nine months ended
                                                                               September 30,
                                                                            1999             1998
                                                                       ---------        ---------
                                                                              (unaudited)
<S>                                                                    <C>              <C>
 CASH FLOWS FROM OPERATING ACTIVITIES
   Net income.....................................................     $     551        $   1,701
   Adjustments to reconcile net income to net cash provided by
     Operating activities:
     Depreciation and amortization................................           759              601
     Provisions for loan losses...................................         1,065              243
     Net losses/gains on sales of investment securities
      available-for-sale..........................................             2               (5)
     Net amortization of investment security premiums and
      accretion of discounts......................................            (1)              (4)
     (Increase) decrease in other assets..........................           278             (582)
     Increase (Decrease) in other liabilities.....................          (325)             168
     Federal Home Loan Bank stock dividends.......................          (166)            (158)
                                                                       ---------        ---------
         Net cash provided by operating activities................         2,163            1,964
                                                                       ---------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from maturities of investment securities
     held-to-maturity.............................................         3,267            1,387
   Proceeds from maturities of investment securities
     available-for-sale...........................................         2,000            1,000
   Purchases of investment securities:
     Held-to-maturity.............................................        (3,365)          (3,565)
     Available-for-sale...........................................        (3,492)          (3,996)
   Net (increase) decrease in loans...............................        (4,600)            (145)
   Purchases of premises and equipment............................          (510)            (631)
   Acquisition of business, net of cash acquired..................        (1,504)          (1,575)
                                                                       ---------        ----------
       Net cash provided by (used in) investment activities.......        (8,204)          (7,525)
                                                                       ---------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase (decrease) in demand, savings, and interest-bearing
     demand deposits..............................................        (3,810)             229
   Net increase (decrease) in certificates of deposit.............         4,309          (17,719)
   Dividends paid.................................................          (208)            (153)
   Net increase (decrease) in short-term borrowings...............        (1,675)           1,225
   Proceeds from long-term borrowings.............................         5,000                -
   Repayment of long-term borrowings..............................        (4,766)          (1,213)
   Repurchase of common stock.....................................          (363)            (494)
   Issuance of common stock for cash, net of amount paid for
       fractional shares..........................................            22           15,019
                                                                       ---------        ---------
       Net cash provided by shares financing activities...........        (1,491)          (3,106)
                                                                       ---------        ---------
       Net increase (decrease) in cash and due from banks.........        (7,532)          (8,667)

CASH AND DUE FROM BANKS AT BEGINNING OF YEAR......................        22,705           23,109
                                                                       ---------        ---------
CASH AND DUE FROM BANKS AT END OF PERIOD..........................     $  15,173        $  14,442
                                                                       =========        =========
</TABLE>

The accompanying notes are an integral part of these statements.


                                       5
<PAGE>

                     COWLITZ BANCORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
               (in thousands of dollars, except number of shares)

<TABLE>
<CAPTION>
                                                                                         Accumulated
                                              Common Stock       Additional                  Other        Total
                                              ------------        Paid-in    Retained   Comprehensive  Shareholders'   Comprehensive
                                            Shares     Amount     Capital    Earnings       Income        Equity           Income
                                            ------     ------    ----------  --------   -------------  -------------   -------------
<S>                                       <C>         <C>        <C>        <C>         <C>            <C>             <C>
BALANCE AT DECEMBER 31, 1997              2,604,543   $  3,262   $  1,538   $  9,071        $   16      $  13,887
Comprehensive Income:
  Net income...........................           -          -          -      2,226             -          2,226         $  2,226
  Net change in unrealized gains on
     investments available-for-sale, net
     of deferred taxes of $16..........           -          -          -          -            30             30               30
                                                                                                                          --------
  Other comprehensive income, net of tax          -          -          -          -            -               -               30
                                                                                                                          --------
  Comprehensive Income.................           -          -          -          -             -              -         $  2,256
                                                                                                                          ========
  Issuance of common stock for cash....   1,396,251     15,019          -          -             -         15,019
  Purchase of treasury stock...........     (50,000)      (494)         -          -             -           (494)
  Issuance of common stock for
  acquisition..........................      51,282        465          -          -             -            465
  Cash dividends paid ($.06 per share).           -          -          -       (212)            -           (212)
Cash paid for fractional shares........         (77)        (1)         -          -             -             (1)
                                          ---------   --------   --------   --------        ------      ---------

BALANCE AT DECEMBER 31, 1998              4,001,999   $ 18,251   $  1,538  $   11,085       $   46      $  30,920
Comprehensive Income:
  Net income (unaudited)...............           -          -          -        551             -            551         $    551
  Net change in unrealized gains on
     investments available-for-sale, net
     of deferred taxes of $33 (unaudited)         -          -          -          -           (60)           (60)             (60)
                                                                                                                          --------
  Other comprehensive income, net of tax
     (unaudited).......................           -          -          -          -             -              -              (60)
                                                                                                                          --------
  Comprehensive Income (unaudited).....           -          -          -          -             -              -         $    491
                                                                                                                          ========
  Issuance of common stock for cash
     (unaudited).......................       3,261         22          -          -             -             22
  Purchase of treasury stock (unaudited)    (64,500)      (363)         -          -             -           (363)
  Issuance of common stock for
  Acquisition (unaudited)..............     148,810        977          -          -             -            977
  Cash dividends paid ($.05 per share)
     (unaudited).......................           -          -          -       (208)            -           (208)
                                          ---------   --------   --------   --------        ------      ---------

BALANCE AT SEPTEMBER 30, 1999             4,089,570   $ 18,887   $  1,538   $ 11,428        $  (14)     $  31,839
                                          =========   ========   ========   ========        ======      =========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       6
<PAGE>

                     COWLITZ BANCORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Nature of Operations

     Cowlitz Bancorporation (the Company) is a one-bank holding company
headquartered in southwest Washington. The Company's principal subsidiary,
Cowlitz Bank (the Bank), a Washington state-chartered commercial 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. In the third quarter of 1999, 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
addition to these acquisitions in 1999, the Bank opened a mortgage and trust
office in Vancouver, Washington and a new branch in Bellevue, Washington that
will operate under the name Bay Bank. During the third quarter of 1998, the
Company acquired Business Finance Corporation (BFC) of Bellevue, Washington.
Business Finance Corporation provides asset based financing to companies
throughout the western United States.

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, 1999 are not necessarily indicative of results to be
anticipated for the year ending December 31, 1999.

3.   Acquisitions

     On July 1, 1999, the Company acquired Bay Mortgage, of Bellevue,
Washington. The acquisition was accounted for using the purchase method,
including a cash payment of $1 million and issuance of common stock with a value
of $977,000. Remaining payments of approximately $1.26 million in cash and
common stock may be issued under the terms of a three-year performance earn-out
agreement. Bay Mortgage specializes in all facets of residential lending from
single family homes to small multi-plexes, including FHA and VA loans,
construction loans and bridge loans. Bay Mortgage will operate as a division of
Cowlitz Bank and serves customers throughout the greater Bellevue/Seattle market
area.

     On August 1, 1999, the Company acquired Bay Mortgage, of Seattle,
Washington. The acquisition was accounted for using the purchase method,
including a cash payment of $675,000. Remaining payments of approximately
$180,000 in cash may be paid under the terms of a three-year performance
earn-out agreement. Bay Mortgage of Seattle and Bay Mortgage of Bellevue will
join together as a division of Cowlitz Bank and serve customers throughout the
greater Bellevue/Seattle market area.

     On September 1, 1999, the Company acquired Bay Escrow, of Seattle,
Washington. The acquisition was accounted for using the purchase method,
including a cash payment of $125,000. Bay Escrow will operate as a division of
Cowlitz Bank and will complete escrow transactions for Bay Mortgage.


                                       7
<PAGE>

     The following table reconciles the acquisition of Bay Mortgage of Bellevue,
Washington, Bay Mortgage of Seattle, Washington, and Bay Escrow of Seattle,
Washington. As part of these transactions, $2.3 million was recorded in goodwill
and will be amortized on a straight-line basis over a fifteen year period:

<TABLE>
<CAPTION>
                                             Bay Mortgage    Bay Mortgage    Bay Escrow
                                               Bellevue         Seattle        Seattle
                                           ---------------  --------------  ------------
<S>                                        <C>              <C>             <C>
     Fair value of assets acquired,
       Including goodwill................. $         6,623  $          771  $        132
     Less liabilities assumed.............           4,646              96             7
     Less stock issued....................             977               -             -
                                           ---------------  --------------  ------------
     Cash paid for acquisition............           1,000             675           125
     Less cash acquired...................              89             146            61
                                           ---------------  --------------  ------------
     Net cash paid in acquisition......... $           911  $          529  $         64
                                           ===============  ==============  ============
</TABLE>

     On September 14, 1999, the Company announced a definitive agreement to
acquire Northern Bank of Commerce "NBOC". The acquisition will be accounted for
using the purchase method, including cash and stock. Under the terms of the
definitive agreement the shareholders of NBOC will receive up to .82584 shares
of the Company's stock and $1.63 in cash for each share of NBOC stock. The
amount of stock merger consideration may be reduced if NBOC's shareholders'
equity does not meet specified thresholds immediately prior to closing. The cash
portion of the merger consideration will be 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 two
year period following the merger. NBOC will operate as a branch of the Bank
under the name Northern Bank of Commerce. The transaction is expected to close
during the first quarter of 2000.

4.   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.

5.   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.


                                       8
<PAGE>

6.   Earnings Per Share

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

<TABLE>
<CAPTION>
                                                                       Weighted       Per Share
                                                    Net Income        Avg Shares        Amount

                                                      For the three months ended September 30, 1999
<S>                                                 <C>               <C>             <C>
                  Basic earnings per share           $   134           4,132,932        $ .03
                  Stock Options                                           19,218
                  Diluted earnings per share         $   134           4,152,150        $ .03

<CAPTION>

                                                     For the three months ended September 30, 1998
<S>                                                 <C>               <C>             <C>
                  Basic earnings per share           $   612           4,001,066        $ .15
                  Stock Options                                          176,139
                  Diluted earnings per share         $   612           4,177,205        $ .15

<CAPTION>

                                                     For the nine months ended September 30, 1999
<S>                                                 <C>               <C>             <C>
                  Basic earnings per share           $   551           4,046,872        $ .14
                  Stock Options                                           57,377
                  Diluted earnings per share         $   551           4,104,249        $ .13

<CAPTION>

                                                     For the nine months ended September 30, 1998
<S>                                                 <C>               <C>             <C>
                  Basic earnings per share           $ 1,701           3,619,488        $ .47
                  Stock Options                                          203,119
                  Diluted earnings per share         $ 1,701           3,822,607        $ .44
</TABLE>

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

7.   Recently Issued Accounting Standards

SFAS No. 133

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

     SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. 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).

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


                                       9
<PAGE>

8.   Comprehensive Income

     The Company has adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income," effective January 1, 1998. This statement
establishes standards for the reporting and display of comprehensive income and
it's components in the financial statements. 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,
1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                                 Three months ended Nine months ended
                                                                 September 30,            September 30,
                                                                1999       1998         1999       1998
                                                                ----       ----         ----       ----
<S>                                                          <C>         <C>          <C>        <C>
            Unrealized gain (loss) arising during
              the period, net of tax .................        $    (7)   $    55      $   (61)   $    50
            Reclassification adjustment for net
              realized gains (losses) on securities
              available-for-sale included in net
              income during the year net of tax of $(2),
               $0, $(1), and $2.......................             (3)         -           (1)         3
                                                              -------    -------      -------    -------
            Net unrealized gain (loss) included in
              Other comprehensive income..............        $    (4)   $    55      $   (60)   $    47
                                                              =======    =======      =======    =======
</TABLE>

9.   Segments of an Enterprise and Related Information:

     The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information" as of
January 1, 1998. This statement establishes standards for the reporting and
display of information about operating segments in financial statements and
related disclosures.

     The Company is principally engaged in community banking activities through
its six Bank 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, 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.

     The community banking, asset based financing activities, and mortgage
banking are monitored and reported by Company management as separate operating
segments. As permitted under the Statement, the six separate banking offices
have been aggregated into a single reportable segment, Community Banking. The
asset based financing and the mortgage banking segments do not meet the
prescribed aggregation or materiality criteria and therefore are 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 1998 annual
report, except that some operating expenses are not allocated to segments.


                                       10
<PAGE>

     Summarized financial information for the three and nine month periods
ending September 30, 1999 and September 1998 concerning the Company's reportable
segments are shown in the following tables.

<TABLE>
<CAPTION>
                                                     Three months ended September 30, 1999

                                        Banking           Other            Intersegment           Consolidated
                                        -------           -----            ------------           ------------
<S>                                   <C>              <C>                 <C>                    <C>
Interest income                       $    3,588       $  1,071            $       (72)           $       4,587
Interest expense                           1,386             72                    (72)                   1,386
                                      ----------       --------            -----------            -------------
   Net interest income                     2,202            999                      -                    3,201
Provision for loan loss                      235              -                      -                      235
Noninterest income                           313            231                      -                      544
Noninterest expense                        2,112          1,176                      -                    3,288
                                      ----------       --------            -----------            -------------
   Income before taxes                       168             54                      -                      222
Provision for income taxes                    61             27                      -                       88
                                      ----------       --------            -----------            -------------
   Net income                         $      107       $     27            $         -            $         134
                                      ==========       ========            ===========            =============

<CAPTION>

                                                     Three months ended September 30, 1998

                                        Banking           Other            Intersegment           Consolidated
                                        -------           -----            ------------           ------------
<S>                                   <C>              <C>                 <C>                    <C>
Interest income                       $    3,979       $    139            $       (14)           $       4,104
Interest expense                           1,571             14                    (14)                   1,571
                                      ----------       --------            -----------            -------------
   Net interest income                     2,408            125                      -                    2,533
Provision for loan loss                      111              -                      -                      111
Noninterest income                           239              -                      -                      239
Noninterest expense                        1,692             42                      -                    1,734
                                      ----------       --------            -----------            -------------
   Income before taxes                       844             83                      -                      927
Provision for income taxes                   287             28                      -                      315
                                      ----------       --------            -----------            -------------
   Net income                         $      557       $     55            $         -            $         612
                                      ==========       ========            ===========            =============

                                                     Nine months ended September 30, 1999

<CAPTION>

                                        Banking           Other            Intersegment           Consolidated
                                        -------           -----            ------------           ------------
<S>                                   <C>              <C>                 <C>                    <C>
Interest income                       $   10,927       $  1,679            $      (160)           $      12,446
Interest expense                           4,190            160                   (160)                   4,190
                                      ----------       --------            -----------            -------------
   Net interest income                     6,737          1,519                      -                    8,256
Provision for loan loss                      717            348                      -                    1,065
Noninterest income                           969            231                      -                    1,200
Noninterest expense                        5,960          1,539                      -                    7,499
                                      ----------       --------            -----------            -------------
   Income before taxes                     1,029           (137)                     -                      892
Provision for income taxes                   362            (21)                     -                      341
                                      ----------       --------            -----------            -------------
   Net income                         $      667       $   (116)           $         -            $         551
                                      ==========       ========            ===========            =============


                                       11
<PAGE>

<CAPTION>

                                                     Nine months ended September 30, 1999

                                        Banking           Other            Intersegment           Consolidated
                                        -------           -----            ------------           ------------
<S>                                   <C>              <C>                 <C>                    <C>

Interest income                       $   11,949       $    139            $       (14)           $      12,074
Interest expense                           4,954             14                    (14)                   4,954
                                      ----------       --------            -----------            -------------
   Net interest income                     6,995            125                      -                    7,120
Provision for loan loss                      243              -                      -                      243
Noninterest income                           734              -                      -                      734
Noninterest expense                        4,992             42                      -                    5,034
                                      ----------       --------            -----------            -------------
   Income before taxes                     2,494             83                      -                    2,577
Provision for income taxes                   848             28                      -                      876
                                      ----------       --------            -----------            -------------
   Net income                         $    1,646       $     55            $         -            $       1,701
                                      ==========       ========            ===========            =============
</TABLE>


10.  Reclassifications

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


                                       12
<PAGE>

                      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

     The Company's subsidiary Cowlitz Bank (the Bank) is the largest community
bank headquartered in Cowlitz County. During the third quarter of 1999, the Bank
has expanded its mortgage operations with the acquisitions of Bay Mortgage of
Bellevue, Washington and Bay Mortgage of Seattle, Washington. Also during this
period the Bank acquired Bay Escrow of Seattle, Washington and opened a new
branch in Bellevue, Washington that will operate under the name of Bay Bank. The
addition of these new divisions has increased the Company's interest yields on
earning assets, although this increase in income has been temporarily offset by
the cost of this expansion.

     On September 1, 1998, the Company acquired Business Finance Corporation
(BFC) of Bellevue, Washington. BFC provides asset based lending services to
companies throughout the western United States. Reflecting the more aggressive
lending mix of its portfolio, loans generated at BFC typically yield a higher
rate of interest than those loans generated at the Bank.

Net Income

     THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

     The Company's net income of $134,000, or $.03 per diluted share, at
September 30, 1999, reflects a decrease as compared to net income of $612,000,
or $.15 per diluted share, at September 30, 1998. The decrease in third quarter
earnings is primarily a result of the increased operating expenses related to
the company's expansion activities as well as the increase in the provision for
loan losses. Non-interest expense increased to $3.3 million for the three months
ended September 30,1999 compared to $1.7 million for the corresponding period in
1998. The provision for loan losses increased to $235,000 for the three months
ended September 30, 1999 compared to $111,000 during the same period in 1998.

     NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

     Net income for the first nine months of 1999 was $551,000 compared to $1.7
million for the comparable period in 1998. Net income for 1999 has decreased as
a result of an increase in non-interest expense of $2.5 million from the nine
month period ended September 30, 1999 compared to the same period in 1998, as
the Company has continued its strategy of growth. The increase in the provision
for loan losses during the first nine months of 1999 has also contributed to the
decline in net income. In the first nine months of 1999, the Company has:

     -    Opened a loan office in Vancouver, Washington
     -    Acquired Bay Mortgage of Bellevue, Washington
     -    Acquired Bay Mortgage of Seattle, Washington
     -    Acquired Bay Escrow of Seattle, Washington
     -    Opened a new Branch in Bellevue, Washington to operate under the name
          Bay Bank


                                       13
<PAGE>

Net Interest Income

     THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

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

     Net interest income for the quarter ended September 30, 1999 was $3.2
million, compared to $2.5 million at September 30, 1998. The overall
tax-equivalent earning asset yield was 11.96% at September 30, 1999 compared to
10.18% at September 30, 1998. The average earning assets have decreased to
$153.4 million at September 30, 1999 from $161.3 million at September 30, 1998.
Average earning assets have declined as the excess funds invested at the FHLB
have decreased, due to the Company's decision to reduce its higher rate, out of
state certificates of deposit in the first two months of the third quarter and
to use its cash to pay for acquisitions during the three month period ending
September 30, 1999. In September 1999, the Company implemented a local marketing
campaign that has increased certificates of deposit, but at generally lower
rates than the out of state certificates of deposit. The funds brought in
through this process have been invested in new loans. Since this initiative
occurred late in the third quarter, average earning assets do not fully reflect
these changes. The increase in interest income was attributable primarily to
interest and fees on loans, which have increased as a result of the addition of
BFC and the two mortgage companies. While average assets have declined, yields
have increased, reflecting the investment of the Company's funds in higher
yielding loans. The mortgage divisions primarily fund loans through
correspondent relationships, in which the loans remain on the Company's balance
sheet for a short period of time, usually under 30 days, until they are sold.
The Company earns interest and fees associated with these loans until they are
sold and uses the sales proceeds to fund new loans, increasing yields.

     The average cost of interest-bearing liabilities was 4.99% at September 30,
1999 compared to 5.31% at September 30, 1998. Average interest-bearing
liabilities decreased to $111.2 million at September 30, 1999 as compared to
$118.3 million for the corresponding period in 1998. Interest paid on
certificates of deposit was reduced to $521,000 for the three-month period
ending September 30, 1999 compared to $675,000 during the corresponding period
in 1998. In accordance with its strategy, the Company has not aggressively
priced certain of its higher yielding certificates of deposits, resulting in
these certificates of deposit generally not renewing at maturity. The Bank has
completed this program and has implemented a marketing campaign in its market
areas, which will provide additional liquidity for continued growth and Year
2000 cash management.


                                       14
<PAGE>

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.

<TABLE>
<CAPTION>
                                        Three Months Ended
(unaudited)                                 September 30,            Increase
(in thousands of dollars)                1999         1998          (Decrease)            Change
                                      --------     ---------        ----------            ------
<S>                                   <C>          <C>              <C>                   <C>
Interest  income(1)................   $  4,588     $   4,104        $      484             11.8%
Interest expense...................      1,386         1,571              (185)           (11.8)%
                                      --------     ---------        ----------

Net interest income................   $  3,202     $   2,533        $      669             26.4%
                                      ========     =========        ==========

Average interest earning assets....   $153,447     $ 161,337            (7,890)            (4.9)%
Average interest bearing liabilities  $111,172     $ 118,265            (7,093)            (6.0)%

Average yields earned (2)..........    11.96%       10.18%               1.78
Average rates paid (2).............     4.99%        5.31%               (.32)
Net interest spread (2)............     6.97%        4.87%               2.51
Net interest margin (2)............     8.35%        6.28%               2.07
</TABLE>

(1)  Interest earned on nontaxable securities has been computed on a 34% tax
     equivalent basis.

(2)  Ratios for the three months ended September 30, 1999 and 1998 have been
     annualized.

     NINE MONTHS ENDED SEPTEMBER 30,1999 AND 1998

     Net interest income for the nine months ended September 30, 1999 was $8.3
million compared to $7.1 million at September 30, 1998. Total interest earning
assets averaged $154.4 million for the nine months ended September 30, 1999,
compared to $163.6 million for the corresponding period in 1998. The average
yield on interest earning assets increased to 10.75% during the first nine
months of 1999 compared to 9.84% for the corresponding period in 1998. This
increase is a result of investing funds in higher yielding loans at BFC, the
Bank's mortgage division, and the new branch in Bellevue, Washington. The loans
at BFC typically yield a higher rate of interest than those loans generated by
the Bank. As shown in the table below, the Bank's average yields have also
increased slightly during the period as a result of the addition of the two
mortgage companies in the third quarter of 1999. The Company has decreased its
interest earning assets, as excess funds at FHLB have declined due to the
Company's decision to reduce its higher rate, out of state certificates of
deposit in the first eight months of the year and to use its cash to pay for
acquisitions during the three month period ending September 30, 1999.

<TABLE>
<CAPTION>
                   COWLITZ BANK
                                                        Nine months ended
                                                           September 30,
                                                      1999               1998
                                                      ----               ----
<S>                                                <C>                <C>
          Interest earned......................     10,987             11,591
          Average interest earning assets......    152,482            163,365
          Average yields earned................       9.61%             9.46%
</TABLE>


                                       15
<PAGE>

     Interest bearing liabilities averaged $111.8 million and $125.6 million
during the first nine months of 1999 and 1998, respectively. The average cost of
these liabilities decreased in the first nine months of 1999 to 5.00% from 5.26%
in the first nine months of 1998. As discussed above, the Company has allowed
certain higher rate certificates of deposit to mature and not be renewed.

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.

<TABLE>
<CAPTION>
                                        Nine Months Ended
(unaudited)                                 September 30,            Increase
(in thousands of dollars)               1999          1998          (Decrease)             Change
                                      --------     ---------        ----------             ------
<S>                                   <C>          <C>              <C>                    <C>
Interest  income(1)................   $ 12,448     $  12,075        $      373               3.1%
Interest expense...................      4,190         4,954              (764)            (15.4)%
                                      --------     ---------        ----------
Net interest income................   $  8,258     $   7,121        $    1,137              16.0%
                                      ========     =========        ==========

Average interest earning assets....   $154,422     $ 163,630            (9,208)             (5.6)%
Average interest bearing liabilities  $111,751     $ 125,623           (13,377)            (10.7)%

Average yields earned (2)..........      10.75%         9.84%              .91
Average rates paid (2).............       5.00%         5.26%             (.26)
Net interest spread (2)............       5.75%         4.58%             1.17
Net interest margin (2)............       7.13%         5.80%             1.33
</TABLE>

(1)  Interest earned on nontaxable securities has been computed on a 34% tax
     equivalent basis.
(2)  Ratios for the nine months ended September 30, 1999 and 1998 have been
     annualized.

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 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, 1998.

Non-Interest Income

     THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

     Non-interest income was $544,000 for the three months ended September 30,
1999 and $239,000 in the corresponding period in 1998. The expansion of the
Bank's mortgage operations and trust services has added to non-interest income,
in addition to a slight increase in service charges on deposit accounts.


                                       16
<PAGE>

     NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

     Total non-interest income increased to $1.2 million for the first nine
months of 1999 compared to $734,000 during the same period in 1998.

     Non-interest income consists of the following components:

<TABLE>
<CAPTION>
                                                                 NINE MONTH ENDED
                                                                   SEPTEMBER  30,
                                                          ----------------------------
                                                          1999                    1998
                                                          ----                    ----
<S>                                                     <C>                     <C>
          Service charge on deposit accounts............$   511                 $   487
          Net gains on sales of securities..............     (2)                      5
          Credit Card income............................    101                      85
          Fiduciary income..............................    105                      39
          ATM income....................................     41                      29
          Safe deposit box fees.........................     32                      30
          Gains on mortgage loans sold..................    294                       -
          Underwriting fees.............................     39                       -
          Other miscellaneous fees and income...........     79                      59
                                                        -------                 -------

          Total non-interest income.....................$ 1,200                 $   734
                                                        =======                 =======
</TABLE>

     The increase in non-interest income is primarily a result of the expansion
in of the Bank's mortgage operations as well as the continued growth of the
trust department. Gains on mortgage loans sold consist of the gains realized
from the sale of mortgage loans and related servicing rights from loans
originated by the Company. The mortgage division established this correspondent
lending program and has expanded this program into the greater Bellevue/Seattle
area with the acquisitions of the two mortgage companies.

Non-Interest Expense

     THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

     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 89.6% to $3.3
million for the quarter ended September 30, 1999 compared to $1.7 million for
the quarter ended September 30, 1998, primarily due to increased staffing costs
and occupancy expenses related to the Company's continued growth during 1999.
Also contributing to this increase are other operating expenses such as
communications expenses, advertising, and other office expenses that have
increased as the Company has expanded into new markets.

     NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

     For the nine months ended September 30, 1999, non-interest expense was $7.5
million as compared to $5.0 million for the nine months ended September 30,
1998. Salaries and benefits expense of $4.2 million for the first nine months of
1999 represents an increase of $1.4 million from $2.8 million for the comparable
period in 1998. At September 30, 1999, the Company had 162 full-time equivalent
employees compared to 104 at September 30, 1998. The increase between the
nine-month period in 1999 compared to the corresponding period in 1998 was due
to the addition of employees through acquisitions, as well as salary increases
for existing employees generally ranging from three to six percent annually.
Other operating expenses consisting of communication expenses, advertising, and
other office expenses have increased 48.9% from $1.2 million at September 30,
1999 to $1.8 million at September 30, 1999 as the Company has expanded its
mortgage operations into Vancouver, Washington and the greater Bellevue/Seattle
area.


                                       17
<PAGE>

     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, 1999 was $980,000
or 49.6% higher than $655,000 at September 30, 1998. The increase in occupancy
expense in 1999 was due to the amortization of leasehold improvements completed
at branch locations and at the new Vancouver loan office in 1998 and the first
quarter of 1999. Also contributing to this increase are lease payments for the
companies acquired and the branch opened in the third quarter of 1999.

Income Taxes

     The provision for income taxes amounts to $341,000 and $876,000 at
September 30, 1999 and 1998, respectively. The provision resulted in an
effective tax rate of 38.2% and 34.0%, respectively. This increase was due to
the amortization of goodwill associated with the BFC acquisition that is not
deductible for income tax purposes.

Loan Losses and Recoveries

     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 annually 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 would
indicate that a loss would 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 the internal credit ratings.
These loss factors are determined on the basis of historical 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 of "management
attention", "special mention", "substandard", "doubtful" and "loss" on the
Company's Watch List. Suggested regulatory loss reserve factors are then applied
to each of these categories of classified loan balances, net of the balances of
the loans already considered in management's determination of its specific
reserves. 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 previous
year's actual net charge-offs 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. Management selects a general
allowance somewhere within this calculated range. Factors considered by
management in making this decision include the volume and mix of the existing
loan portfolio, including the volume and severity of nonperforming 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.


                                       18
<PAGE>

     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 uncollectable 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
$1.5 million at September 30, 1999 compared to $1.1 million at December 31,
1998. Management believes this increase is prudent given the increase in
non-accrual loans and the level of net charge-offs during the first nine months
of 1999.

     At September 30, 1999 approximately $600,000 of the allowance for loan
losses was allocated based on an estimate of the amount that was necessary to
provide for potential losses related to specific loans, compared to
approximately $700,000 at December 31, 1998. Specific reserves declined as those
loans requiring specific reserves have been reduced by either principal payments
or have been charged off.

     Management's evaluation of the factors above resulted in allowances for
loan losses of $2.1 million and $1.8 million at September 30, 1999 and December
31, 1998, respectively. The increase in the level of charge offs in 1998, which
were considered by management in its determination of the adequacy of the
allowance for loan losses, is primarily the reason for the increase in the
allowance from December 31, 1998 to September 30, 1999. The allowance as a
percentage of total loans increased to 1.49% at September 30, 1999 from 1.37% at
year-end 1998.

     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.

Provision for Loan Losses

     THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

     The amount of the allowance for loan losses is analyzed by management on a
regular basis to ensure that it is sufficient to cover potential and future
losses. 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 future economic trends
in the Company's market area, and other relevant factors related to the loan
portfolio. See Loan Losses and Recoveries and Loans disclosures for a more
detailed discussion.

     The Company's provision for loan losses was $235,000 and $111,000 for the
three months ended September 30, 1999 and 1998, respectively. The Company has
increased its provision as non-performing loans have increased from $2.7 million
at September 30, 1998 to $3.0 million at September 30, 1999. Also contributing
is the growth in loans late in the third quarter of 1999. Net charge-offs for
the three months ended September 30, 1999 were $47,000, compared to net
charge-offs of $104,000 for the same period in 1998. Total charge-offs were
$82,000 in the third quarter of 1999 compared to $113,000 in the third quarter
of 1998. Management continues to closely monitor the loan quality and existing
relationships. For a more detailed disclosures please see Loans and Loan Losses
and Recoveries.


                                       19
<PAGE>

     NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

     Provisions for loan losses recorded for the nine months ended September 30,
1999 were $1.1 million as compared to $243,000 at September 30, 1998. Net
charge-offs were $785,000 and $283,000 at September 30, 1999 and 1998,
respectively. Total charges offs were $895,000 at September 30, 1999 and
$305,000 at September 30, 1998. During the first quarter of 1999, the Company
determined that approximately $348,000 in receivables purchased by its
subsidiary BFC may not be collectible. These receivables were charged off during
the first quarter and the Company has increased its provision for loan losses
accordingly. The increase in the provision also reflects the increase in
nonaccrual loans and the level of net charge-offs during the period.

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

<TABLE>
<CAPTION>
                                                                       Nine months
                                                                       ending
(unaudited)                                                            Sept. 30,      December 31,
(in thousands of dollars)                                              1999           1998
                                                                       ---------      ---------
<S>                                                                    <C>            <C>
Loans outstanding at end of period................................     $ 140,633      $ 132,046
Average loans outstanding during the period.......................     $ 129,167      $ 131,495

Allowance for loan losses, beginning of period....................     $   1,814      $   1,970
Loans charged off:
   Commercial.....................................................           767            618
   Real Estate....................................................            42              -
   Consumer.......................................................            32             22
   Credit Cards...................................................            54             87
                                                                       ---------      ---------
     Total loans charged-off......................................           895            727
                                                                       ---------      ---------

Recoveries:
   Commercial.....................................................            94              -
   Real Estate....................................................             -              3
   Consumer.......................................................            16              4
   Credit Cards...................................................             -             10
                                                                       ---------      ---------
     Total recoveries.............................................           110             17
                                                                       ---------      ---------
Provision for loan losses.........................................         1,065            509
                                                                       ---------      ---------

Allowance for loan losses, end of period..........................     $   2,094      $   1,814
                                                                       =========      =========

Ratio of net loans charged-off to average loans outstanding.......          .61%            .54%
Ratio of allowance for loan losses to loans at end of period......         1.49%           1.37%
</TABLE>

     Loans

     Total loans outstanding were $140.6 million and $132.0 at September 30,
1999 and December 31, 1998, respectively. Loan commitments were $19.8 million at
September 30, 1999 and $24.7 million at December 31, 1998.


                                       20
<PAGE>

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

<TABLE>
<CAPTION>
(unaudited)                                           September 30, 1999                 December 31, 1998
(in thousands of dollars)                          Amount         Percentage           Amount      Percentage
                                                   -------------------------           ----------------------
<S>                                                <C>            <C>                  <C>         <C>
Commercial .................................       $  109,414            77.5%         $ 103,473          78.1%
Real estate construction....................            3,401             2.4              3,206           2.4
Real estate commercial......................            8,714             6.2              7,026           5.3
Real estate mortgage........................           14,691            10.4             13,774          10.4
Consumer and other..........................            5,007             3.5              5,063           3.8
Contracts purchased.........................                -              -                  45           *
                                                   ----------     -----------          ---------   ------------
                                                      141,227           100.0%           132,587         100.0%
                                                                  ===========                      ============
Deferred loan fees..........................             (594)                              (541)
                                                   ----------                          ---------
     Total loans............................          140,633                            132,046
Allowance for loan losses...................           (2,094)                            (1,814)
                                                   ----------                          ---------
     Total loans, net.......................         $138,539                          $ 130,232
                                                   ==========                          =========
</TABLE>

*Less than .1%

     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
nonperforming assets:

<TABLE>
<CAPTION>
(unaudited)                                                            September 30,    December 31,
(in thousands of dollars)                                              1999             1998
                                                                       ---------        ---------
<S>                                                                    <C>              <C>
Loans on nonaccrual status                                                 3,003            2,737
Loans past due greater than 90 days but not on nonaccrual status               -                9
Other real estate owned                                                       55              573
Troubled debt restructuring                                                    -                -
                                                                       ---------        ---------
   Total nonperforming assets                                              3,058            3,319
                                                                       =========        =========
Percentage of nonperforming assets to total assets                          1.67%            1.86%
</TABLE>


                                       21
<PAGE>

     At September 30, 1999 nonperforming assets were $3.1 million or 1.7% of
total assets compared to $3.3 million at September 30, 1998. Nonaccrual loans
were $3.0 million at September 30, 1999 and $2.7 million at September 30, 1998.
From September 30, 1998 to September 30, 1999, nonaccrual loans increased
primarily in commercial loans secured by real estate. BFC accounted for
approximately $178,000 of the total nonaccrual loans, reflecting the more
aggressive lending mix of its portfolio. It is not unusual in the normal course
of business for BFC to have loans that become more than 90 days past due and are
therefore placed on nonaccrual status, although management does not necessarily
believe that losses are probable on these loans. Approximately $2.0 million of
the remaining non-accrual loans reflect loans primarily secured by real estate.
Any losses on non-accrual loans that are considered probable have been estimated
by management in its regular quarterly assessment of the allowance for loan
losses as discussed in the Loan Losses and Recoveries disclosure. The increase
in the provision for loan losses each year is largely reflective of the
increases in nonaccrual loans and the level of net charge-offs during the
periods. Also contributing is the growth in loans late in the third quarter of
1999. For a more detailed discussion see Loan Losses and Recoveries disclosure.

     Other real estate owned decreased to $55,000 as of September 30, 1999
compared to $573,000 at September 30, 1998, as a result of the sale of
properties classified as other real estate owned.

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, 1999, approximately
$5.0 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 the Bank's
assets. Advances from the FHLB have terms ranging from 1 through 15 years and at
September 30, 1999 bear interest at rates from 5.67% to 8.80%. At September 30,
1999, $26.3 million in advances were outstanding from the FHLB and the Company
had additional borrowing capacity for cash advances of $18.1 million. The
Company may increase its percentage of borrowings from the FHLB in the future if
circumstances warrant.

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, 1999, the Company's ratios were 19.62% and 20.87%, respectively.
At December 31, 1998, the company's ratios were 22.21% and 23.46%, respectively.
The ratio of Tier 1 capital to average assets was 16.00% and 15.81% at September
30, 1999 and December 31, 1998, respectively.

Year 2000

     This section constitutes a Year 2000 readiness statement and contains
forward-looking statements that have been prepared on the basis of the Company's
best judgments and currently available information. These forward-looking
statements are inherently subject to significant business, third party and
regulatory uncertainties and contingencies, many of which are beyond the control
of the Company. In addition, these forward-looking statements are based on the
Company's current assessments and remediation plans, which are based on certain
representations of third party service providers and are subject to change.
Accordingly, there can be no assurance that the Company's results of operations
will not be adversely affected by difficulties or delays in the Company's or
third parties' Year 2000 readiness efforts. See "Risks" below for a discussion
of factors that may cause such forward-looking statements to differ from actual
results.

     The Company has an active Y2K plan and committee addressing all systems
affected by the millennium issue. The plan includes five phases Awareness,
Assessment, Renovation, Validation, and Implementation.


                                       22
<PAGE>

AWARENESS

     The Company's senior management participates on the committee as well as a
representative from each critical area of the Bank. The board of directors is
updated on the progress of the plan on a monthly basis. The awareness phase has
been completed but will continue to be an on going effort in regards to
educating customers and keeping abreast of all new Y2K issues. The Bank has
implemented several awareness programs for customers and has sponsored Year 2000
seminars for its larger business customers.

ASSESSMENT

     Assessment of the Company's systems has been completed and all
hardware/software as well as non-hardware/software systems have been identified.
The committee has developed a list of products and systems that could be
affected by the Year 2000 date change. All vendors and suppliers have been
contacted and have been individually assessed for both their criticality to the
operation of the Company and if they are satisfactory in their Year 2000
efforts.

RENOVATION AND VALIDATION

     The Company has completed the renovation and validation phases of the
project. All mission critical systems and minor systems have been validated for
Y2K compliance.

IMPLEMENTATION

     Any system found to be not in compliance with the Year 2000 date change has
been brought to the attention of senior management and has been upgraded or
replaced. The systems that have been identified are included in the Company's
Year 2000 budget. A budget has been approved and the costs to address the Year
2000 issues at this time are estimated to be $268,000. The Year 2000 related
costs incurred by the Company to date are approximately $226,000.

CONTINGENCY PLAN

     A contingency plan has been established that would be carried out in the
event that the preventative measures put in place do not prove successful. Each
area of the Company has completed a mission critical operating plan that would
be initiated using manual processing. In the event that this plan would need to
be implemented, there would be a substantial increase in staffing and related
expenses. This plan addresses business operations to be carried out assuming the
telephone and electrical systems are in working order. The contingency plan will
continue to be updated throughout 1999.

RISKS

     The Company has attempted to assess the Year 2000 readiness of its loan and
deposit customers. If these customers were adversely affected by the Year 2000,
no assurance can be given that their ability to repay debt would not be
affected.

     Based on its current assessments and remediation plans, the Company does
not expect that it will suffer any material disruption of its business as a
result of Year 2000 issues. Although the Company has no reason to believe that a
material disruption will occur, the most likely worst case scenario would result
from a Y2K failure in the power supply, voice and data transmission systems or
the federal government. If such a failure were to occur, the Company would
implement its contingency plan. In such event, it is likely that there would be
a temporary disruption of customer service, customer inconvenience and
additional costs from the implementation of the contingency plan. It is not
possible to quantify those costs at the present time. Although the Company
believes its contingency plan will satisfactorily address these issues, there
can be no assurance that the Company's contingency plan will function as
anticipated or that the results of operations of the Company will not be
adversely affected in the event of a prolonged disruption of service.


                                       23
<PAGE>

                           Part II. Other Information
Item 2

Changes in Securities and Use of Proceeds

     On March 12, 1998, the Company completed an initial public offering issuing
a total of 1,380,000 shares of common stock at $12.00 per share. After
underwriting discounts of $1.2 million and other offering expenses of $472,000
net proceeds were $14.9 million. Of these proceeds $1.1 million has been used to
repay long-term debt and a subordinated note and $1.8 million was used to
acquire BFC as described below. In addition, $1.8 million was used to acquire
Bay Mortgage of Bellevue, Washington, Bay Mortgage of Seattle, Washington, and
Bay Escrow of Seattle, Washington as described below and the remainder is being
used for working capital. The managing underwriters were Black & Company, Inc.
and Pacific Crest Securities, Inc.

     Effective August 31, 1998, the Company acquired Business Finance
Corporation (BFC) of Bellevue, Washington. BFC provides factoring, leasing, and
inventory financing services in Washington, Oregon, California, Nevada, and
Hawaii. The acquisition was accounted for using the purchase method and included
an initial issuance of common stock with a value of $465,000 and a cash payment
in the amount of $1.8 million.

     On July 1, 1999, the Company acquired Bay Mortgage, of Bellevue,
Washington. The acquisition was accounted for using the purchase method,
including a cash payment of $1 million and issuance of common stock with a value
of $977,000. Remaining payments of approximately $1.26 million in cash and
common stock may be issued under the terms of a three-year performance earn-out
agreement. Bay Mortgage specializes in all facets of residential lending from
single family homes to small multi-plexes, including FHA and VA loans,
construction loans and bridge loans. Bay Mortgage will operate as a division of
Cowlitz Bank and serves customers throughout the greater Bellevue/Seattle market
area.

     On August 1, 1999, the Company acquired Bay Mortgage, of Seattle,
Washington. The acquisition was accounted for using the purchase method,
including a cash payment of $675,000. Remaining payments of approximately
$180,000 in cash may be paid under the terms of a three-year performance
earn-out agreement. Bay Mortgage of Seattle and Bay Mortgage of Bellevue will
join together as a division of Cowlitz Bank and serve customers throughout the
greater Bellevue/Seattle market area.

     On September 1, 1999, the Company acquired Bay Escrow, of Seattle,
Washington. The acquisition was accounted for using the purchase method,
including a cash payment of $125,000. Bay Escrow will operate as a division of
Cowlitz Bank and will complete escrow transactions for Bay Mortgage.

Item 5

Other Information

     On September 14, 1999, the Company announced a definitive agreement to
acquire Northern Bank of Commerce "NBOC". The acquisition will be accounted for
using the purchase method, including cash and stock. Under the terms of the
definitive agreement the shareholders of NBOC will receive up to .82584 shares
of the Company's stock and $1.63 in cash for each share of NBOC stock. The
amount of stock merger consideration may be reduced if NBOC's shareholders'
equity does not meet specified thresholds immediately prior to closing. The cash
portion of the merger consideration will be 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 two
year period following the merger. NBOC will operate as a branch of the Bank
under the name Northern Bank of Commerce. The transaction is expected to close
during the first quarter of 2000.

Item 6

(a)  Exhibits. The list of exhibits is set forth on the Exhibit Index attached
     hereto.

(b)  On September 17, 1999, the Company filed form 8-K containing item 7
     (Exhibits).


                                       24
<PAGE>

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)


                                 /s/ Charles W. Jarrett
Dated:                          -------------------------------------
                                Charles W. Jarrett
                                President and Chief Operating Officer

                                 /s/ Donna P. Gardner
Dated:                          ----------------------------------
                                Donna P. Gardner
                                Vice-President/Secretary-Treasurer


                                       25
<PAGE>

                                  Exhibit Index

Exhibit No.


2        Agreement and Plan of Merger by and among the Registrant, Cowlitz Bank
         and Northern Bank of Commerce, dated September 14, 1999

3.1*     Restated and Amended Articles of Incorporation of the Company

3.2*     Bylaws of the Company

27       Financial Data Schedule

99       Stock Option Agreement between the Registrant and Northern Bank, dated
         September 14,1999

         *Incorporated by reference to the Company's Registration Statement on
         Form S-1, File No. 333-44355


                                       26