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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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|FORM 10-Q
|---------
|         
|[X]      
|         
|         
|[ ]      
|         

Commission file number 0-23881

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



Washington
	
	91-1529841(State or other jurisdiction
	
	(I.R.S. Employerof 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)

Yes[ ] No [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes[ ] No [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, no par value on October 31, 2005: 4,189,146 shares

1

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|COWLITZ BANCORPORATION AND SUBSIDIARY
|-------------------------------------
|TABLE OF CONTENTS                    
|                                     
|Part I                               
|                                     
|Item 1.                              
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|Item 2.                              
|                                     
|                                     
|Item 3.                              
|                                     
|Item 4.                              
|                                     
|Part II                              
|                                     
|Item 1.                              
|                                     
|Item 2.                              
|                                     
|Item 3.                              
|                                     
|Item 4.                              
|                                     
|Item 5.                              
|                                     
|Item 6.                              
|                                     
|                                     
|                                     
|                                     

Forward-Looking Statements

Management's discussion and the information in this document and the accompanying financial statements contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by words such as "expect", "believe", "intend", "anticipate", "estimate" or similar
expressions, and are subject to risks and uncertainties that could cause actual results to differ materially from those stated. Examples of such risks and uncertainties that could have a material adverse effect on the operations and future prospects
of the Company, and could render actual results different from those expressed in the forward-looking statements, include, without limitation: those set forth in our most recent Form 10-K and other filings with the SEC, changes in general economic
conditions, competition for financial services in the market area of the Company, the level of demand for loans, quality of the loan and investment portfolio, deposit flows, legislative and regulatory initiatives, and monetary and fiscal policies of
the U.S. Government affecting interest rates. The reader is advised that this list of risks is not exhaustive and should not be construed as any prediction by the Company as to which risks would cause actual results to differ materially from those
indicated by the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.

2

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|Part I. FINANCIAL INFORMATION                                            |  |               |  |             
|------------------------------------------------------------------------ |  | ------------- |  | ------------
|                                                                        
|Item 1. Financial Statements                                             |  |               |  |             
|                                                                        
|                                                                        
|COWLITZ BANCORPORATION AND SUBSIDIARY                                   
|CONSOLIDATED STATEMENTS OF CONDITION                                    
|(dollars in thousands)                                                  
|(unaudited)                                                             
|                                                                         |  |               |  |             
|                                                                         |  | September 30, |  | December 31,
|ASSETS                                                                   |  | 2005          |  | 2004        
|                                                                         |  |               |  |             
|Cash and cash equivalents                                                |  | $ 13,045      |  | $ 8,332     
|Investment securities:                                                   |  |               |  |             
|Available-for-sale (at fair value, cost of $52,739 and $58,400 at        |  |               |  |             
|September 30, 2005 and December 31, 2004, respectively)                  |  | 52,480        |  | 60,005      
|                                                                         |  |               |  |             
|Total investment securities                                              |  | 52,480        |  | 60,005      
|                                                                        
|Federal Home Loan Bank stock, at cost                                    |  | 1,051         |  | 1,047       
|                                                                        
|Loans, net of deferred loan fees                                         |  | 227,766       |  | 189,346     
|Allowance for loan losses                                                |  | (4,054)       |  | (3,796)     
|                                                                         |  |               |  |             
|Total loans, net                                                         |  | 223,712       |  | 185,550     
|                                                                        
|Cash surrender value of bank-owned life insurance                        |  | 11,364        |  | 8,585       
|Premises and equipment, net of accumulated depreciation of $4,944 and    |  |               |  |             
|$4,703 at September 30, 2005 and December 31, 2004, respectively         |  | 3,944         |  | 4,017       
|Goodwill                                                                 |  | 852           |  | 852         
|Accrued interest receivable and other assets                             |  | 5,168         |  | 4,898       
|                                                                         |  |               |  |             
|TOTAL ASSETS                                                             |  | $ 311,616     |  | $ 273,286   
|                                                                         |  |               |  |             
|                                                                        
|LIABILITIES                                                              |  |               |  |             
|Deposits:                                                                |  |               |  |             
|Non-interest-bearing demand                                              |  | $ 64,826      |  | $ 51,982    
|Savings and interest-bearing demand                                      |  | 75,501        |  | 77,709      
|Certificates of deposit                                                  |  | 115,561       |  | 104,919     
|                                                                         |  |               |  |             
|Total deposits                                                           |  | 255,888       |  | 234,610     
|                                                                        
|Federal funds purchased                                                  |  | 2,525         |  | 475         
|Federal Home Loan Bank notes payable                                     |  | 367           |  | 473         
|Other borrowings                                                         |  | 34            |  | 38          
|Junior subordinated debentures                                           |  | 12,372        |  | -           
|Accrued interest payable and other liabilities                           |  | 2,896         |  | 1,992       
|                                                                         |  |               |  |             
|TOTAL LIABILITIES                                                        |  | 274,082       |  | 237,588     
|                                                                        
|SHAREHOLDERS' EQUITY                                                     |  |               |  |             
|Preferred stock, no par value; 5,000,000 shares authorized; no shares    |  |               |  |             
|issued and outstanding at September 30, 2005 and December 31, 2004       |  | -             |  | -           
|Common stock, no par value; 25,000,000 shares authorized; with 4,189,146 |  |               |  |             
|and 4,173,552 shares issued and outstanding at September 30, 2005 and    |  |               |  |             
|December 31, 2004, respectively                                          |  | 19,647        |  | 19,511      
|Additional paid-in capital                                               |  | 2,022         |  | 2,022       
|Retained earnings                                                        |  | 16,036        |  | 13,951      
|Accumulated other comprehensive income, net of taxes                     |  | (171)         |  | 214         
|                                                                         |  |               |  |             
|TOTAL SHAREHOLDERS' EQUITY                                               |  | 37,534        |  | 35,698      
|                                                                         |  |               |  |             
|                                                                        
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                               |  | $ 311,616     |  | $ 273,286   
|                                                                         |  |               |  |             
|                                                                        
|See accompanying notes                                                   |  |               |  |             

3

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|COWLITZ BANCORPORATION AND SUBSIDIARY                        
|-------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF INCOME                            
|(dollars in thousands, except per share amounts)             
|(unaudited)                                                  
|                                                             
|                                                             
|                                                             
|                                                             
|INTEREST INCOME                                              
|Interest and fees on loans                                   
|Interest on taxable investment securities                    
|Interest on non-taxable investment securities                
|Other interest and dividend income                           
|                                                             
|Total interest income                                        
|                                                             
|                                                             
|INTEREST EXPENSE                                             
|Savings and interest-bearing demand                          
|Certificates of deposit                                      
|Federal funds purchased                                      
|Federal Home Loan Bank notes payable                         
|Junior subordinated debt                                     
|Other borrowings                                             
|                                                             
|Total interest expense                                       
|                                                             
|                                                             
|Net interest income before provision for loan losses         
|                                                             
|PROVISION (BENEFIT) FOR LOAN LOSSES                          
|                                                             
|Net interest income after provision for loan losses          
|                                                             
|                                                             
|NON-INTEREST INCOME                                          
|Service charges on deposit accounts                          
|(Losses) gains on loans sold                                 
|Mortgage brokerage fees                                      
|Credit card income                                           
|Fiduciary income                                             
|Increase in cash surrender value of bank-owned life insurance
|Net gains (losses) on sale of available for sale securities  
|Net gains (losses) on sale of repossessed assets             
|Other income                                                 
|                                                             
|Total non-interest income                                    
|                                                             
|                                                             
|NON-INTEREST EXPENSE                                         
|Salaries and employee benefits                               
|Net occupancy and equipment expense                          
|Professional fees                                            
|Business taxes                                               
|Advertising                                                  
|FDIC insurance assessment                                    
|Credit card expense                                          
|Data processing and communications                           
|Loan expense                                                 
|Postage and freight                                          
|Travel and education                                         
|Stationery and supplies                                      
|Temporary help                                               
|Amortization of intangible assets                            
|Expenses relating to other real estate owned                 
|Net loss on sale of available for sale securities            
|Impairment Expense-Fluke LLC                                 
|Other expenses                                               
|                                                             
|Total non-interest expense                                   
|                                                             
|Income before provision for income taxes                     
|INCOME TAX PROVISION                                         
|                                                             
|NET INCOME                                                   
|                                                             
|                                                             
|BASIC EARNINGS PER SHARE OF COMMON STOCK                     
|                                                             
|DILUTED EARNINGS PER SHARE OF COMMON STOCK                   
|                                                             
|WEIGHTED-AVERAGE SHARES OUTSTANDING  BASIC                  
|                                                             
|WEIGHTED-AVERAGE SHARES OUTSTANDING  DILUTED                
|                                                             
|See accompanying notes                                       

4

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|COWLITZ BANCORPORATION AND SUBSIDIARY                     
|----------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
|(dollars in thousands)                                    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                          
|                                                          
|BALANCE, December 31, 2003                                
|Comprehensive income:                                     
|Net income                                                
|Net unrealized gain on investments                        
|reclassified from held-to-maturity                        
|to available-for sale, net of                             
|deferred taxes of $134                                    
|Net changes in unrealized gains on                        
|investments available-for-sale,                           
|net of deferred taxes of $140                             
|                                                          
|Comprehensive income                                      
|                                                          
|Proceeds from the exercise of                             
|stock options                                             
|Tax benefit from the exercise                             
|of stock options                                          
|                                                          
|                                                          
|BALANCE, December 31, 2004                                
|Comprehensive income:                                     
|Net income                                                
|Net unrealized gains on investments                       
|reclassified from held-to-maturity                        
|to available-for-sale, net of                             
|deferred taxes of $134                                    
|                                                          
|Comprehensive income                                      
|                                                          
|Proceeds from the exercise of                             
|stock options                                             
|Tax benefit from the exercise                             
|of stock options                                          
|                                                          
|                                                          
|BALANCE, September 30, 2005                               
|                                                          
|                                                          
|                                                          
|See accompanying notes                                    

5

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|COWLITZ BANCORPORATION AND SUBSIDIARY                                                       
|--------------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                       
|(dollars in thousands)                                                                      
|(unaudited)                                                                                 
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|CASH FLOWS FROM OPERATING ACTIVITIES                                                        
|Net income from operations                                                                  
|Adjustments to reconcile net income to net cash from operating activities:                  
|Deferred tax expense                                                                        
|Depreciation and amortization                                                               
|Provision for loan losses                                                                   
|Increase in cash surrender value of bank-owned life insurance                               
|Federal Home Loan Bank stock dividends                                                      
|Net (gains) losses on maturities and sales of investment securities available-for-sale      
|Net amortization of investment security premiums and accretion of discounts                 
|Net (gains) losses on sales of foreclosed assets                                            
|Net (gains) losses on the sale and disposal of premises and equipment                       
|Net gains on loans sold                                                                     
|Origination of loans held-for-sale                                                          
|Proceeds from loan sales                                                                    
|Decrease (increase) in accrued interest receivable and other assets                         
|Increase in accrued interest payable and other liabilities                                  
|                                                                                            
|Net cash from operating activities                                                          
|                                                                                            
|                                                                                            
|CASH FLOWS FROM INVESTING ACTIVITIES                                                        
|Proceeds from maturities of investment securities held-to-maturity                          
|Proceeds from maturities and sales of investment securities available-for-sale              
|Purchases of held-to-maturity investment securities                                         
|Purchases of available-for-sale investment securities                                       
|Proceeds from redemption of Federal Home Loan Bank stock                                    
|Purchase of Federal Home Loan Bank stock                                                    
|Net increase in loans                                                                       
|Proceeds from sale of foreclosed assets                                                     
|Purchases of premises and equipment                                                         
|Proceeds from the sale of premises and equipment                                            
|Investment in Trust                                                                         
|Purchase of bank-owned life insurance                                                       
|                                                                                            
|Net cash from investment activities                                                         
|                                                                                            
|                                                                                            
|CASH FLOWS FROM FINANCING ACTIVITIES                                                        
|Net increase (decrease) in savings, noninterest-bearing and interest-bearing demand deposits
|Net increase in certificates of deposit                                                     
|Net increase in federal funds purchased                                                     
|Proceeds from Federal Home Loan Bank notes payable                                          
|Repayment of Federal Home Loan Bank notes payable                                           
|Proceeds from other borrowings                                                              
|Repayment of other borrowings                                                               
|Proceeds from issuance of junior subordinated debentures (Trust preferred securities)       
|Proceeds from the exercise of stock options                                                 
|                                                                                            
|Net cash from financing activities                                                          
|                                                                                            
|                                                                                            
|Net decrease in cash and cash equivalents                                                   
|CASH AND CASH EQUIVALENTS, beginning of period                                              
|                                                                                            
|CASH AND CASH EQUIVALENTS, end of period                                                    
|                                                                                            

6

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| | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | ------------------------------------------

| | (unaudited)
| | -----------

|1.Nature of Operations
|----------------------

Cowlitz Bancorporation (the "Company") was organized in 1991 under Washington law to become the holding company for The Cowlitz Bank (the "Bank"), a Washington state chartered bank that commenced operations in 1978. The
principal executive offices of the Company are located in Longview, Washington. The Cowlitz Bank operates four branches in Cowlitz County in southwest Washington. Outside of Cowlitz County, the Bank does business under the name Bay Bank with
branches in Bellevue, Washington, and Portland, Oregon, a loan production office in Vancouver, Washington, and a limited service branch in a retirement center in Wilsonville, Oregon. The Cowlitz Bank also provides mortgage-banking services through
its Bay Mortgage division. During much of 2003, the Company also operated Bay Mortgage and Bay Escrow offices in Bellevue and Seattle, Washington.  As part of a strategy to consolidate resources into commercial banking, and reduce reliance on
mortgage lending activities, those offices were closed during the fourth quarter of 2003 and the first quarter of 2004.

The Company offers or makes available a broad range of financial services to its customers, primarily small and medium-sized businesses, professionals, and retail customers. The Bank's commercial and personal banking
services include commercial and real estate lending, consumer lending, and trust services. The Company's goals are to offer exceptional customer service and to invest in the markets it serves through its business practices and community service.

|2.Principles of Consolidation and Operating Segments
|----------------------------------------------------

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

In April 2005, the Company formed Cowlitz Statutory Trust I (the Trust), a wholly-owned Delaware statutory business trust, for purposes of issuing guaranteed undivided beneficial interests in junior subordinated debentures
(Trust Preferred Securities). During April 2005, the Trust issued $12 million in Trust Preferred Securities. In accordance with Financial Accounting Standards Board's Interpretation No. 46 (revised December 2003) "Consolidation of Variable
Interest Entities," the Company does not consolidate the Trust.

The interim financial statements have been prepared without an audit and in accordance with the instructions to Form 10-Q, generally accepted accounting principals, and banking industry practices. Accordingly, they do not
include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals
necessary for a 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, 2005 are not necessarily indicative of results to be anticipated for
the year ending December 31, 2005. The interim consolidated financial statements should be read in conjunction with the December 31, 2004 consolidated financial statements, including the notes thereto, included in Company's 2004 Form
10-K.

Internal financial information is primarily recorded and aggregated in three lines of business: commercial banking, mortgage banking, and trust services. While management monitors the revenue streams of the various products
and services, the mortgage banking and trust segments are not individually material and operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, all financial service operations are considered by management
to be aggregated within one reportable operating segment.

|3.Cash and Cash Equivalents
|---------------------------

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

4.Use of Estimates in the Preparation of Financial Statements

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

7

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|5.Earnings Per Share
|--------------------

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

|                                              |  | Three Months Ended |  | Nine Months Ended
|--------------------------------------------- |  | ------------------ |  | -----------------
|                                              |  | September 30,      |  | September 30,    
|                                              |  |                    |  |                  
|                                              |  | 2005               |  | 2004             
|                                              |  |                    |  |                  
|Weighted-average shares  basic               |  | 4,186,713          |  | 4,004,149        
|Effect of assumed conversion of stock options |  | 208,458            |  | 93,095           
|                                              |  |                    |  |                  
|                                             
|Weighted-average shares  diluted             |  | 4,395,171          |  | 4,097,244        
|                                              |  |                    |  |                  
|                                             

In December 2004, the FASB issued Statement No. 123(R), "Share-Based Payment." This statement replaces existing requirements under SFAS No. 123, "Accounting for Stock-Based Compensation," and eliminates the ability to
account for share-based compensation transactions under APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123(R) requires stock-based transactions to be recognized as compensation expense in the income statement based on their
fair values at the date of grant. The fair value should be estimated using option-pricing models such as the Black-Scholes model. This statement is effective for interim and annual periods beginning after December 15, 2005. At this time, the Company
does not believe the future impact on earnings to be materially different than what has historically been reported as the pro forma effect to income in Note 7. The impact to operating and financing cash flows is not considered to be material to the
consolidated financial statements.

In September, 2005 the FASB Board decided not to provide additional guidance on the meaning of other-than-temporary impairment, but directed the FASB staff to issue a staff position (FSP), which will be re-titled FSP 115-1
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments".    The final FSP will supersede EITF Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments," and EITF
Topic No. D-44, "Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value." FSP FAS 115-1 will replace guidance in EITF Issue 03-1 on loss recognition with references to existing
other-than-temporary impairment guidance, such as FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities". FSP FAS 115-1 will clarify that an investor should recognize an impairment loss no later than when the
impairment is deemed other than temporary, even if a decision to sell has not been made.

FSP FAS 115-1 will be effective for other-than-temporary impairment analysis conducted in periods beginning after September 15, 2005. The Company has consistently followed the loss recognition guidance in SFAS No. 115, so
the adoption of FSP FAS 115-1 will not have any significant impact on the Company's financial condition or results of operation.

|7.Stock-Based Compensation
|--------------------------

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

8

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|                           |  | Three Months Ended |  | Three Months Ended |  |          |  | Nine Months Ended                                |  | Nine Months Ended 
|-------------------------- |  | ------------------ |  | ------------------ |  | -------- |  | ------------------------------------------------ |  | ------------------
|                           |  | September 30, 2005 |  | September 30, 2004 |  |          |  | September 30, 2005                               |  | September 30, 2004
|                           |  |                    |  |                    |  |          |  |                                                 
|                           |  | As                 |  |                    |  | Pro      |  | As                                               |  |                   
|                           |  | Reported           |  | Forma              |  | Reported |  | Forma                                            |  | Reported          
|                           |  |                    |  |                    |  |          |  |                                                  |  |                   
|                           |  |                    |  |                    |  |          |  | (dollars in thousands, except for share amounts) |  |                   
|Net income                 |  | $ 756              |  | $                  |  | 737      |  | $ 517                                            |  | $                 
|                           |  |                    |  |                    |  |          |  |                                                  |  |                   
|Basic earnings per share   |  | $ 0.18             |  | $                  |  | 0.18     |  | $ 0.13                                           |  | $                 
|                           |  |                    |  |                    |  |          |  |                                                  |  |                   
|Diluted earnings per share |  | $ 0.17             |  | $                  |  | 0.17     |  | $ 0.13                                           |  | $                 
|                           |  |                    |  |                    |  |          |  |                                                  |  |                   

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for the periods ended September 30, 2005 and 2004:

|                      |  | Three Months Ended |  | Nine Months Ended
|--------------------- |  | ------------------ |  | -----------------
|                      |  | September 30,      |  |                  
|                      |  |                    |  |                  
|                      |  | 2005               |  | 2004             
|                      |  |                    |  |                  
|                     
|Dividend yield        |  | -                  |  | 0.00%            
|Expected life (years) |  | -                  |  | 4.26             
|Expected volatility   |  | -                  |  | 35.81%           
|Risk-free rate        |  | -                  |  | 2.78%            
|                     
|                      |  |                    |  |                  

For the Company, comprehensive income primarily includes net income reported on the statements of income and changes in the fair value of available-for-sale investment securities. These amounts are included in "Other
Comprehensive Income" on the consolidated statement of changes in shareholders' equity.

|                                                             |  | Three Months Ended |  |               |  | Nine Months Ended
|------------------------------------------------------------ |  | ------------------ |  | ------------- |  | -----------------
|                                                             |  |                    |  | September 30, |  |                  
|                                                             |  |                    |  |              
|                                                             |  |                    |  | 2005          |  |                  
|                                                             |  |                    |  |               |  |                  
|                                                            
|                                                            
|Unrealized gain (loss) arising during the period, net of tax |  | $                  |  | (464)         |  | $                
|Reclassification adjustment for net realized (gains) losses  |  |                    |  |               |  |                  
|on securities available-for-sale included in net             |  |                    |  |               |  |                  
|income during the period, net of tax                         |  |                    |  | 68            |  |                  
|                                                             |  |                    |  |               |  |                  
|                                                            
|Net unrealized gain (loss) included in                       |  |                    |  |               |  |                  
|other comprehensive income, net of tax                       |  | $                  |  | (396)         |  | $                
|                                                             |  |                    |  |               |  |                  
|                                                            
|                                                             |  |                    |  |               |  |                  

In April 2005, the Company formed a wholly owned Delaware statutory business trust subsidiary, Cowlitz Statutory Trust I (the Trust), which issued $12,000,000 of guaranteed undivided beneficial interests in the
Company's Junior Subordinated Deferrable Interest Debentures (Trust Preferred Securities). These debentures qualify as Tier 1 capital under Federal Reserve Board guidelines. Federal Reserve guidelines limit inclusion of trust-preferred securities
and certain other preferred capital elements to 25% of Tier 1 capital. As of September 30, 2005, trust preferred accounted for 24.67% of Tier 1 capital. The Company owns all of the common securities of the Trust. The proceeds from the issuance of
the common securities and the Trust Preferred Securities were used by the Trust to purchase $12,372,000 of junior subordinated debentures of the Company. The debentures, which represent the sole asset of the Trust, accrue and pay distributions
quarterly at a variable rate of 90-day LIBOR plus 1.75% per annum of the stated liquidation

9

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value of $1,000 per capital security. The Company has entered into contractual arrangements which, taken collectively, fully and unconditionally guarantee payment of: (1) accrued and unpaid distributions required to be
paid on the Trust Preferred Securities, (2) the redemption price with respect to any Trust Preferred Securities called for redemption by the Trust, and (3) payments due upon a voluntary or involuntary dissolution, winding up or liquidation of the
Trust. The Trust Preferred Securities are mandatorily redeemable upon maturity of the debentures on April 29 2035 or upon earlier redemption as provided in the indenture. The Company has the right to redeem the debentures purchased by the Trust in
whole or in part, on or after April 29, 2010. As specified in the indenture, if the debentures are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest. For the three-month and nine month
periods ended September 30, 2005, the Company recorded interest expense related to the Trust Preferred Securities of $166,000 and $274,000, respectively.

|10. Subsequent Event
|--------------------

As of November 1, 2005, the Company and the Bank completed the merger transaction with AEA Bancshares, Inc. ("AEA") and its wholly owned subsidiary bank, Asia-Europe-Americas Bank. The former Asia-Europe-Americas bank
office in Seattle will operate as a Bay Bank branch.  Each share of AEA common stock converted into 1.9242 shares of the Company's common stock, with fractional shares paid in cash, based on a value for the Company's common stock of $11.34 per
share, which was the value established in the merger agreement dated May 3, 2005. A total of approximately 570,000 shares of the Company's common stock have been delivered to Mellon Investor Services, Inc., as the exchange agent, for distribution to
former AEA shareholders.

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

Results of Operations for the Three and Nine Months Ended September 30, 2005 and 2004

The Company's net income for the third quarter of 2005 was $756,000 or $0.17 per diluted share, compared to net income of $517,000, or $0.13 per diluted share for the third quarter of 2004. Net income was
$239,000 or 46% higher during the three months ended September 30, 2005 compared to the same period of 2004. The Company's net income for nine months ended September 30, 2005 was $2,085,000 or $0.48 per diluted share, compared to net
income of $1,353,000 or $0.34 per diluted share for the same period of 2004. Net income for nine months ended September 30, 2005 was 54.1% higher compared to the same period of 2004. The Company's increase in net income was primarily a
result of an increase in commercial lending activities.

Net interest income increased $662,000 during the third quarter of 2005, compared to the same period in 2004. Average earning assets increased $53 million from $243.7 million in the third quarter of 2004 to
$296.7 million for the period ending September 30, 2005. Average interest bearing liabilities increased $35.1 million from $174.4 million to $209.5 million during the same period. Net interest income increased $1.4 million during
the nine-month period ended September 30, 2005, as compared to the same period of 2004. Average earning assets for the nine months ended September 30, 2005 increased $41.2 million from $239.4 million to $280.6 million.

The Company recorded a provision for loan losses of $370,000 for the nine months ended September 30, 2005. This provision, coupled with $243,000 in charge-offs and $131,000 in recoveries, led to an increase in
the allowance of $258,000 for the nine months ended September 30, 2005.

|Financial Condition as of September 30, 2005 and 2004
|-----------------------------------------------------

At September 30, 2005, total assets were $311.6 million, an increase of $38.3 million or 14.03% from December 31, 2004 and an increase of $43.2 million or 16.1% from September 30, 2004. Liabilities increased to
$274.1 million as of September 30, 2005 from $237.6 million as of December 31, 2004 and $233.3 million as of September 30, 2004.

The increase primarily resulted from an increase in loans of $38.4 million from December 31, 2004 to September 30, 2005. Cash and cash equivalents increased $4.7 million from December 31, 2004 to September 30, 2005.
Bank-owned life insurance increased $2.8 million from December 31, 2004 to September 30, 2005. Total deposits increased $21.3 million of which $12.8 million was in non-interest bearing demand and $8.4 million was in the savings and
interest-bearing demand deposit.

|Critical Accounting Policies
|----------------------------

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

|Quantitative factors include:
|-----------------------------

- the volume and severity of non-performing loans and adversely classified credits,
- the level of net charge-offs experienced on previously classified loans,
- the nature and value of collateral securing the loans,
- the trend in loan growth and the percentage of change,
- the level of geographic and/or industry concentration,
- the relationship and trend over the past several years of recoveries in relation to charge-offs, and
- other known factors regarding specific loans.

10

---

|Qualitative factors include:
|----------------------------

- the effectiveness of credit administration,
- the adequacy of loan review,
- the adequacy of loan operations personnel and processes,
- the effect of competitive issues that impact loan underwriting and structure,
- the impact of economic conditions, and
- the introduction of new loan products or specific marketing efforts.

Changes in the above factors could significantly affect the determination of the adequacy of the allowance for loan losses. Management performs a full analysis, no less often than quarterly, to ensure that changes in
estimated loan loss levels are adjusted on a timely basis. For further discussion of this significant management estimate, see "Allowance for Loan Losses." Another critical accounting policy for the Company is related to the carrying value of
goodwill. Goodwill was recognized as the excess of cost over the fair value of net assets acquired from the purchase of Bay Mortgage, and the Portland, Oregon branch of Bay Bank, formerly Northern Bank of Commerce. Goodwill was amortized using the
straight-line method over a 15-year period until December 31, 2001. Effective January 1, 2002, pursuant to Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," the Bank ceased amortization of goodwill
and completed its first of ongoing assessments of goodwill impairment in March 2002. The $852,000 current balance of goodwill is related entirely to the Northern Bank of Commerce purchase. Goodwill impairment will be deemed to exist in the
future if the net book value of a reporting unit, considered by the Bank to represent its operating segments, exceeds its estimated fair value.

|Analysis of Net Interest Income
|-------------------------------

The primary component of the Company's earnings is net interest income. Net interest income is the difference between interest income, principally from loans and the investment securities portfolio, and interest expense,
principally on customer deposits and borrowings. Changes in net interest income, net interest spread, and net interest margin result from changes in asset and liability volume, mix, and changes to rates earned or paid. Net interest 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 volume and relative mix of
interest-earning assets and interest-bearing liabilities. Volume refers to the dollar level of interest-earning assets and interest-bearing liabilities.

|Three and nine months ended September 30, 2005 and 2004
|-------------------------------------------------------

Interest income from certain of the Company's earning assets is non-taxable. The following tables present interest income and expense, including adjustments for non-taxable interest income, and the resulting tax adjusted
yields earned, rates paid, interest rate spread, and net interest margin for the periods indicated.

11

---

|                                          |  |   |  | Three Months Ended |  |   |  |          |  |   |  |           
|----------------------------------------- |  | - |  | ------------------ |  | - |  | -------- |  | - |  | ----------
|                                          |  |   |  | September 30,      |  |   |  | Increase |  |   |  |           
|(dollars in thousands)                    |  |   |  | 2005               |  |   |  | 2004     |  |   |  | (Decrease)
|                                          |  |   |  |                    |  |   |  |          |  |  
|Interest income                           |  | $ |  | 5,108              |  | $ |  | 3,823    |  | $ |  | 1,285     
|Tax effect of non-taxable interest income |  |   |  | 64                 |  |   |  | 44       |  |   |  | 20        
|                                          |  |   |  |                    |  |   |  |          |  |  
|Tax equivalent interest income            |  |   |  | 5,172              |  |   |  | 3,867    |  |   |  | 1,305     
|Interest expense                          |  |   |  | 1,350              |  |   |  | 727      |  |   |  | 623       
|                                          |  |   |  |                    |  |   |  |          |  |  
|Net interest income                       |  | $ |  | 3,822              |  | $ |  | 3,140    |  | $ |  | 682       
|                                          |  |   |  |                    |  |   |  |          |  |  
|                                         
|Average interest-earning assets           |  | $ |  | 296,673            |  | $ |  | 243,739  |  | $ |  | 52,934    
|Average interest-bearing liabilities      |  | $ |  | 209,540            |  | $ |  | 174,425  |  | $ |  | 35,115    
|                                         
|Average yields earned (1)                 |  |   |  | 6.97%              |  |   |  | 6.35%    |  |   |  | 62        
|Average rates paid (1)                    |  |   |  | 2.58%              |  |   |  | 1.67%    |  |   |  | 91        
|Net interest spread (1)                   |  |   |  | 4.39%              |  |   |  | 4.68%    |  |   |  | (29)      
|Net interest margin (1) (2)               |  |   |  | 5.15%              |  |   |  | 5.15%    |  |   |  | -         
|                                         
|                                          |  |   |  | Nine Months Ended  |  |   |  |          |  |   |  |           
|                                          |  |   |  | September 30,      |  |   |  | Increase |  |   |  |           
|(dollars in thousands)                    |  |   |  | 2005               |  |   |  | 2004     |  |   |  | (Decrease)
|                                          |  |   |  |                    |  |   |  |          |  |  
|Interest income                           |  | $ |  | 13,721             |  | $ |  | 11,127   |  | $ |  | 2,594     
|Tax effect of non-taxable interest income |  |   |  | 174                |  |   |  | 121      |  |   |  | 53        
|                                          |  |   |  |                    |  |   |  |          |  |  
|Tax equivalent interest income            |  |   |  | 13,895             |  |   |  | 11,248   |  |   |  | 2,647     
|Interest expense                          |  |   |  | 3,411              |  |   |  | 2,217    |  |   |  | 1,194     
|                                          |  |   |  |                    |  |   |  |          |  |  
|Net interest income                       |  | $ |  | 10,484             |  | $ |  | 9,031    |  | $ |  | 1,453     
|                                          |  |   |  |                    |  |   |  |          |  |  
|Average interest-earning assets           |  | $ |  | 280,608            |  | $ |  | 239,432  |  | $ |  | 41,176    
|Average interest-bearing liabilities      |  | $ |  | 197,967            |  | $ |  | 172,653  |  | $ |  | 25,314    
|Average yields earned (1)                 |  |   |  | 6.60%              |  |   |  | 6.26%    |  |   |  | 34        
|Average rates paid (1)                    |  |   |  | 2.30%              |  |   |  | 1.71%    |  |   |  | 59        
|Net interest spread (1)                   |  |   |  | 4.30%              |  |   |  | 4.55%    |  |   |  | (25)      
|Net interest margin (1) (2)               |  |   |  | 4.98%              |  |   |  | 5.03%    |  |   |  | (5)       

|(1) | Ratios for the three and nine months ended September 30, 2005 and 2004 have been annualized
|--- | -------------------------------------------------------------------------------------------
|   
|(2) | Computed by dividing net-interest income by average interest-earning assets                
|   
|(3) | b.p. stands for "basis points" (100 b.p. is equal to 1.0%)                                 
|   

Comparing the quarter ended September 30, 2005 to the quarter ended September 30, 2004, tax equivalent net-interest income was $682,000, due to an increase of $52.9 million in average interest-earning assets.
Interest expense increased $623,000 as average interest-bearing liabilities increased $35.1 million. The interest margin for the three-months ended September 30, 2005 and 2004 remained at 5.15% . Prime rate has increased 150 basis points
from 5.25% at December 31, 2004 to 6.75% as of September 30, 2005. For the nine-month period ended September 30, 2005, net interest margin decreased to 4.98% compared to 5.03% for the same period of 2004.

|Provision for Loan Losses
|-------------------------

The amount of the allowance for loan losses is analyzed by management on a regular basis to ensure that it is adequate to absorb losses inherent in the loan portfolio as of the reporting date. The analysis considers past
charge-off experience, a careful analysis of the current loan portfolio, the level of non-performing and impaired loans, evaluation of future economic trends in the Bank's market area, and other factors relevant to the loan portfolio. Based on this
analysis, on a quarterly basis the Bank determines whether to record a provision for loan losses which increases the allowance to the level estimated by management to reflect probable losses in the loan portfolio. [See the "Allowance for Loan
Losses" discussion for additional detail.]

|Nine months ended September 30, 2005 and 2004
|---------------------------------------------

The Bank recorded a $370,000 provision for loan losses during the first nine months of 2005. This provision was taken to support the continued growth of the portfolio.  Of this provision $310,000 was taken during
the third quarter to support the strong loan growth that occurred during the quarter. During the first nine months of 2005 the Bank recorded $131,000 in recoveries versus $243,000 in charge-offs, for net charge-offs of $112,000.

12

---

During the first nine months of 2004 the Bank recorded a provision for loan losses of $160,000 and net charge-offs of $186,000.

|Non-Interest Income                                           |  |                    |  |                   |  |      |  |                |  |             
|------------------------------------------------------------- |  | ------------------ |  | ----------------- |  | ---- |  | -------------- |  | ------------
|Three and Nine months ended September 30, 2005 and 2004       |  |                    |  |                   |  |      |  |                |  |             
|Non-interest income consists of the following components:     |  |                    |  |                   |  |      |  |                |  |             
|                                                              |  | Three Months Ended |  | Nine Months Ended
|                                                              |  | September
 30,     |  | September 30,    
|                                                              |  |                    |  |                  
|(dollars in thousands)                                        |  | 2005               |  | 2004              |  | 2005 |  | 2004          
|                                                              |  |                    |  |                   |  |      |  |               
|Service charge on deposit accounts                            |  | $        139       |  | $                 |  | 174  |  | $          420 |  | $        535
|(Losses) gains on loans sold                                  |  | -                  |  |                   |  | (17) |  | -              |  | 122         
|Mortgage brokerage fees                                       |  | 105                |  |                   |  | 73   |  | 239            |  | 327         
|Credit card income                                            |  | 83                 |  |                   |  | 159  |  | 287            |  | 436         
|Fiduciary income                                              |  | 142                |  |                   |  | 104  |  | 439            |  | 302         
|Increase in cash surrender value of bank-owned life insurance |  | 114                |  |                   |  | 96   |  | 279            |  | 332         
|ATM income                                                    |  | 16                 |  |                   |  | 15   |  | 42             |  | 42          
|Gain on sale of available-for-sale securities                 |  | (68)               |  |                   |  | 8    |  | (68)           |  | 8           
|Gain (loss) on sale of repossessed assets                     |  | 96                 |  |                   |  | 6    |  | 117            |  | (9)         
|Other miscellaneous fees and income                           |  | 15                 |  |                   |  | 17   |  | 67             |  | 70          
|                                                              |  |                    |  |                   |  |      |  |               
|                                                             
|Total non-interest income                                     |  | $        642       |  | $                 |  | 635  |  | $       1,822  |  | $     2,165 
|                                                              |  |                    |  |                   |  |      |  |               

Total non-interest income increased $7,000 when comparing the quarters ending September 30, 2005, and 2004. An increase in mortgage activity led to an increase of $32,000 in brokerage fees for three months ended
September 30, 2005, $105,000 compared to $73,000 for the same period in 2004. In 2005 the Bank converted to a new card processor, which reduced income and expense. Credit Card income for the third quarter of 2005 was $83,000 compared to
$159,000 during the same period in 2004. Expense decreased to $56,000 for the three months ended September 30, 2005 from $154,000 for the same period in 2004. Fiduciary income increased $38,000 for the three months ended September
30, 2005, compared the same period of 2004.  This was the result of increases in trust accounts and assets under management.

Total non-interest income declined $343,000 for the nine-month period ended September 30, 2005, compared to the same period of 2004. A decline of mortgage brokerage fees of $88,000, due to a slowdown in this
business segment, accounts for 26% of the overall decline.  A decline of $115,000 in service charges on deposit accounts was the result of higher average balances maintained in customer accounts.  The decline of $122,000 in gains on loans
sold was the result of closing the mortgage company offices in Bellevue and Seattle.  Increased business development activities, which resulted in increases in trust accounts and assets under management, resulted in a $137,000 increase in
Fiduciary income for the nine month period ended September 30, 2005, compared to the same period of 2004.

13

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|Non-Interest Expense                                       |  |   |  |                    |  |                   |  |               |  |         |  |   |  |       | 
|---------------------------------------------------------- |  | - |  | ------------------ |  | ----------------- |  | ------------- |  | ------- |  | - |  | ----- | 
|Three and Nine months ended September 30, 2005 and 2004    |  |   |  |                    |  |                   |  |               |  |         |  |   |  |       | 
|Non-interest expense consists of the following components: |  |   |  |                    |  |                   |  |               |  |         |  |   |  |       | 
|                                                           |  |   |  | Three Months Ended |  | Nine Months Ended | 
|                                                           |  |   |  | September 30,      |  |                   |  | September 30, |  |         | 
|                                                           |  |   |  |                    | 
|(dollars in thousands)                                     |  |   |  | 2005               |  | 2004              |  | 2005          |  | 2004    | 
|                                                           |  |   |  |                    |  |                   |  |               | 
|Salaries and employee benefits                             |  | $ |  | 1,675              |  | $                 |  | 1,499         |  | $ 5,039 |  | $ |  | 4,732 | 
|Net occupancy and equipment expense                        |  |   |  | 336                |  |                   |  | 353           |  | 1,030   |  |   |  | 1,165 | 
|Professional fees                                          |  |   |  | 212                |  |                   |  | 187           |  | 596     |  |   |  | 528   | 
|Business taxes                                             |  |   |  | 57                 |  |                   |  | 69            |  | 163     |  |   |  | 173   | 
|Advertising                                                |  |   |  | 86                 |  |                   |  | 45            |  | 219     |  |   |  | 97    | 
|FDIC insurance                                             |  |   |  | 8                  |  |                   |  | 8             |  | 24      |  |   |  | 215   | 
|Credit card expense                                        |  |   |  | 56                 |  |                   |  | 154           |  | 249     |  |   |  | 420   | 
|Data processing and communications                         |  |   |  | 72                 |  |                   |  | 73            |  | 210     |  |   |  | 227   | 
|Loan expense                                               |  |   |  | 32                 |  |                   |  | -             |  | 50      |  |   |  | 27    | 
|Postage and freight                                        |  |   |  | 68                 |  |                   |  | 55            |  | 195     |  |   |  | 176   | 
|Travel and education                                       |  |   |  | 59                 |  |                   |  | 45            |  | 162     |  |   |  | 125   | 
|Stationery and supplies                                    |  |   |  | 46                 |  |                   |  | 29            |  | 120     |  |   |  | 96    | 
|Temporary help                                             |  |   |  | -                  |  |                   |  | 53            |  | 13      |  |   |  | 59    | 
|Amortization of intangible assets                          |  |   |  | -                  |  |                   |  | 66            |  | -       |  |   |  | 199   | 
|Insurance premiums                                         |  |   |  | 38                 |  |                   |  | 60            |  | 124     |  |   |  | 149   | 
|Placement fees and other employee hiring expenses          |  |   |  | 3                  |  |                   |  | 86            |  | 8       |  |   |  | 174   | 
|Expenses relating to other real estate owned               |  |   |  | 10                 |  |                   |  | 29            |  | 44      |  |   |  | 71    | 
|Impairment Expense-Fluke LLC                               |  |   |  | 136                |  |                   |  |               |  | 136     |  |   |  | -     | 
|Other miscellaneous expenses                               |  |   |  | 162                |  |                   |  | 159           |  | 548     |  |   |  | 527   | 
|                                                           |  |   |  |                    |  |                   |  |               | 
|                                                          
|Total non-interest expense                                 |  | $ |  | 3,056              |  | $                 |  | 2,970         |  | $ 8,930 |  | $ |  | 9,160 | 
|                                                           |  |   |  |                    |  |                   |  |               | 
|                                                          

Increases in salary and employee benefit expenses
resulted from an increase in full-time equivalent employees from 105 at
September 30, 2004 to 107 at September 30, 2005 as well as annual wage increases
for existing employees.

Net occupancy and equipment expenses consist of depreciation on premises and equipment, lease costs, parking, maintenance and repair expenses, utilities and related expenses. In comparing the quarters ending September 30,
2004 and 2005, there was a decrease of $17,000 due to less repair expenses.

The FDIC has regulations establishing a system for setting deposit insurance premiums based upon the risks a particular bank or savings association poses to the deposit insurance funds. This system bases an institution's
risk category partly upon whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. Each insured depository institution is also assigned to one of three "supervisory" categories based on reviews by
regulators, statistical analysis of financial statements and other relevant information. An institution's assessment rate depends upon the capital category and supervisory category to which it is assigned. Annual assessment rates currently range
from zero per $100 of domestic deposits for the highest rated institution to $0.27 per $100 of domestic deposits for an institution in the lowest category. During the first six months of 2004, the Bank paid an assessment rate of
$0.17 per $100 of domestic deposits. The Bank was not required to pay an assessment rate during the last six months of 2004 and the first nine months of 2005, resulting in the lower expense during that period. In addition, under legislation
enacted in 1996 to recapitalize the Savings Association Insurance Fund, the FDIC is authorized to collect assessments against insured deposits to be paid to the Financing Corporation ("FICO") to service FICO debt incurred in the 1980's. The current
FICO assessment rate for insured deposits is $0.0134 per $100 of deposits per year. Any increase in deposit insurance premiums or FICO assessments could have an adverse effect on Cowlitz Bank's earnings.

The Bank increased advertising to attract new business in its market areas, resulting in increased advertising expense of $122,000 for the nine months ended September 30, 2005, compared to the same period of 2004.

The full amortization in 2004 of the deposits purchased from Wells Fargo in 1997 resulted in the decrease in amortization of intangible assets expense of $199,000 during the nine-month period ended September 30, 2005,
compared to the same period of 2004.

Costs related to the operation and disposition of other real estate owned has declined as the number and value of properties has decreased.

14

---

From time to time the Company may invest in programs to support small business development through limited partnerships. These investments may provide tax credits, credit for Community Reinvestment Act (CRA) activity or
other benefits.  In 2004 the Company made a commitment to provide $1,000,000 to Fluke LLC, a Small Business Investment Company. Through the period ending September 30, 2005, the Company has invested $270,000 in Fluke LLC. After reviewing
June 30, 2005 financials for Fluke LLC, management decreased the value of the investment by $136,000 so that it is currently carried at $134,000. This write down is a result the Company's share of the startup costs incurred by Fluke LLC from
inception through September 30, 2005.

|Income Taxes
|------------

|Three and Nine months ended September 30, 2005 and 2004
|-------------------------------------------------------

During the third quarter of 2005 the provision for income taxes was $278,000 compared to $171,000 for the third quarter of 2004. The effective tax rate for the three months ended September 30, 2005 was 26.89%
compared to 24.85% during the same period in 2004.

For the nine month period ended September 30, 2005 the provision for income taxes was $747,000 compared to $402,000 for the same period of 2004. The average effective tax rate for the nine months of 2005 was 26.38%
compared to 22.91% for the same period in 2004. The increase in the effective rate is a result of overall stronger performance by the Company.

|Loans
|-----

Total loans outstanding were $227.8 million and $189.3 million at September 30, 2005 and December 31, 2004, respectively. Unfunded loan commitments, such as home equity and other lines of credit, unused available
credit on credit cards, and letters of credit, were $72.7 million at September 30, 2005 and $53.6 million at December 31, 2004.

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

|                          |  |   |  | September 30, 2005 |  |         |  | December 31, 2004
|------------------------- |  | - |  | ------------------ |  | ------- |  | -----------------
|                          |  |   |  |                   
|(dollars in thousands)    |  |   |  | Amount             |  | Percent |  |                  
|                          |  |   |  |                    |  |         |  |                  
|Commercial                |  | $ |  | 64,471             |  | 28.22%  |  | $                
|Real estate construction  |  |   |  | 30,622             |  | 13.40%  |  |                  
|Real estate commercial    |  |   |  | 102,127            |  | 44.69%  |  |                  
|Real estate mortgage      |  |   |  | 28,597             |  | 12.52%  |  |                  
|Consumer and other        |  |   |  | 2,669              |  | 1.17%   |  |                  
|                          |  |   |  |                    |  |         |  |                  
|                          |  |   |  | 228,486            |  | 100.00% |  |                  
|                          |  |   |  |                    |  |         |  |                  
|Deferred loan fees        |  |   |  | (720)              |  |         |  |                  
|                          |  |   |  |                    |  |         |  |                  
|Total loans               |  |   |  | 227,766            |  |         |  |                  
|Allowance for loan losses |  |   |  | (4,054)            |  |         |  |                  
|                          |  |   |  |                    |  |         |  |                  
|Total loan, net           |  | $ |  | 223,712            |  |         |  | $                
|                          |  |   |  |                    |  |         |  |                  

|Allowance for Loan Losses
|-------------------------

The allowance for loan losses represents management's estimate of potential loan losses 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 Bank evaluates the amount necessary for specific non-performing loans and estimates losses inherent in other loans. An important element in determining the adequacy of the allowance for loan
losses is an analysis of loans by loan risk-rating categories. At a loan's inception, management evaluates the credit risk by using a risk-rating system. This grading system currently includes eleven levels of risk. Risk ratings range from "1" for
the strongest credits to "10" for the weakest. A "10" rated loan would normally represent a loss. All loans rated 7-10 are collectively the Bank's "Watch List". The specific grades from 7-10 are "watch list" (risk-rating 7), "special mention"
(risk-rating 7.5), "substandard" (risk-rating 8), "doubtful" (risk-rating 9), and "loss" (risk-rating 10). When indicators such as operating losses, collateral impairment or delinquency problems show that a credit may have weakened, the credit will
be downgraded as appropriate. Similarly, as borrowers bring loans current, show improved cash flows, or improves the collateral position of a loan, the credits may be upgraded. Management reviews all credits periodically for changes in such factors.
The result is an allowance with four components:  specific allowance, general allowance, special allowance, and an unallocated allowance.

Specific Allowance.Loans on the Bank's Watch List, as described above, are specifically reviewed and analyzed. 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. When significant conditions or circumstances exist on an individual loan indicating greater risk, specific reserves may be allocated in addition to the general
reserve percentage for that particular risk-rating.

15

---

General Allowance.All loans that do not require a specific allocation are subject to a general allocation based upon historic loss factors. Management determines these factors by
analyzing the volume and mix of the existing loan portfolio, in addition to other factors. Management also analyzes the following:

- the volume and severity of non-performing loans and adversely classified credits;
- the level of net charge-offs experienced on previously classified loans;
- the nature and value of collateral securing the loans; and
- the relationship and trend over the past several years of recoveries in relation to charge-offs.

Special Allowance.From time to time, special reserves will be established to facilitate a change in the Bank's strategy and other factors. Special allocations are to take into
consideration various factors that include, but are not limited to:

- Effectiveness of credit administration;
- Adequacy of loan review;
- Loan operations;
- The trend in loan growth and the percentage of change;
- Concentrations both geographic and industry-specific;
- Competitive issues that impact loan underwriting/structure;
- Economic conditions; and
- Any special marketing or introduction of various loan products.

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

The quarterly analysis of specific, general, and special allocations 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, the general, and special allocations of the allowance, management also considers 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 when and if they occur. The related provision for loan losses that is charged to income is the amount necessary to adjust the allowance to the level determined through the
above process.

Management's evaluation of the loan portfolio resulted in total allowance for loan losses of $4.1 million at September 30, 2005 and $3.8 million December 31, 2004. The allowance, as a percentage of total loans,
declined from 2.00% on December 31, 2004 to 1.78% on September 30, 2005. Management believes the allowance for loan losses at September 30, 2005 is adequate to absorb current potential or anticipated losses.

The following table shows the components of the allowance for loan loss for the periods indicated:

|                       |  |   |  | September 30, 2005 |  | December 31, 2004
|---------------------- |  | - |  | ------------------ |  | -----------------
|                       |  |   |  |                   
|(dollars in thousands) |  |   |  | Amount             |  | Percent          
|                       |  |   |  |                    |  |                  
|General                |  | $ |  | 2,181              |  | 53.80%           
|Specific               |  |   |  | 132                |  | 3.26%            
|Special                |  |   |  | 1,674              |  | 41.29%           
|Unallocated            |  |   |  | 67                 |  | 1.65%            
|                       |  |   |  |                    |  |                  
|                       |  | $ |  | 4,054              |  | 100.00%          
|                       |  |   |  |                    |  |                  

Based on Management's assessment of the loan portfolio, the unallocated amount of reserves has been decreased by $569,000 from December 31, 2004 to September 30, 2005 and reallocated to specific and special reserves.
The reserve for specific loans was increased from 0.00% to 3.26% of total reserves.  Management believes the local economic conditions, excluding new housing construction segments, is lagging the national trend.  Coupled with the anticipation of an
increasing interest rate environment, additional special reserves have been allocated against potential cash flow strains of the Bank's borrowers.

16

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

|                                                             |  | Nine Months Ended |  |             
|------------------------------------------------------------ |  | ----------------- |  | ------------
|                                                             |  | September 30,     |  | Year Ended  
|                                                             |  |                   |  | December 31,
|(dollars in thousands)                                       |  | 2005              |  |             
|                                                             |  |                   |  |             
|Loans outstanding at end of period, net of deferred fees (1) |  | $ 227,766         |  | $           
|Average loans outstanding during the period (1)              |  | $ 206,086         |  | $           
|Allowance for loan losses, beginning of period               |  | $ 3,796           |  | $           
|Loans charged off:                                           |  |                   |  |             
|Commercial                                                   |  | 181               |  |             
|Real Estate                                                  |  | -                 |  |             
|Consumer                                                     |  | 32                |  |             
|Credit Cards                                                 |  | 30                |  |             
|                                                             |  |                   |  |             
|Total loans charged-off                                      |  | 243               |  |             
|                                                             |  |                   |  |             
|                                                            
|Recoveries:                                                  |  |                   |  |             
|Commercial                                                   |  | 70                |  |             
|Real Estate                                                  |  | 38                |  |             
|Consumer                                                     |  | 14                |  |             
|Credit Cards                                                 |  | 9                 |  |             
|                                                             |  |                   |  |             
|Total recoveries                                             |  | 131               |  |             
|Provision for loan losses                                    |  | 370               |  |             
|                                                             |  |                   |  |             
|Allowance for loan losses, end of period                     |  | $ 4,054           |  | $           
|                                                             |  |                   |  |             
|                                                            
|Net loans charged-off during the period                      |  | 112               |  |             
|Ratio of net loans charged-off to average loans outstanding  |  | 0.05%             |  |             
|Ratio of allowance for loan losses to loans at end of period |  | 1.78%             |  |             
|                                                            
|(1) Excludes loans held-for-sale                             |  |                   |  |             

|Impaired Loans
|--------------

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

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

17

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|Non-Performing Assets
|---------------------

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

|                                                                  |  |   |  | September 30, |  |   |  | December 31,
|----------------------------------------------------------------- |  | - |  | ------------- |  | - |  | ------------
|(dollars in thousands)                                            |  |   |  | 2005          |  |   |  | 2004        
|                                                                  |  |   |  |              
|Loans on non-accrual status                                       |  | $ |  | 993           |  | $ |  | 84          
|Loans past due greater than 90 days but not on non-accrual status |  |   |  | -             |  |   |  | 1           
|Other real estate owned                                           |  |   |  | 11            |  |   |  | 733         
|Other repossessed assets                                          |  |   |  | -             |  |   |  | -           
|                                                                  |  |   |  |              
|Total non-performing assets                                       |  | $ |  | 1,004         |  | $ |  | 818         
|                                                                  |  |   |  |              
|                                                                 
|Total assets                                                      |  | $ |  | 311,616       |  | $ |  | 273,286     
|                                                                  |  |   |  |              
|                                                                 
|Percentage of non-performing assets to total assets               |  |   |  | 0.32%         |  |   |  | 0.30%       
|                                                                  |  |   |  |              

Total non-performing assets at September 30, 2005 increased to $1.0 million from $818,000 as of December 31, 2004. Other real estate owned was reduced through property sales. Non-accruing loans increased largely as
a result of one loan moving to non-accrual status, which should be resolved in the fourth quarter of 2005.

|Liquidity
|---------

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

Brokered certificates of deposit are a funding source the Bank utilizes to provide additional liquidity as necessary. At September 30, 2005, the Bank's brokered certificate of deposit balance was $42.3 million compared
to $41.3 million at December 31, 2004. Overnight federal funds borrowing lines with correspondent banks provide access to an additional $32.5 million for short-term liquidity needs. A fed fund line has also been established at FTN Financial
Group for $10 million. In addition, the Bank has an established borrowing line with the Federal Home Loan Bank (the "FHLB") that permits it to borrow up to 20% of the Bank's assets, or $62.3 million as of September 30, 2005, subject to
collateral limitations. With the collateral available on September 30, 2005, the Bank could borrow up to $32.4 million, subject to purchase of additional FHLB stock. The line is available for overnight federal funds, or notes with other terms
and maturities. At September 30, 2005, notes payable to the FHLB were $367,221 compared to $472,900 at December 31, 2004. The notes payable at September 30, 2005 have original maturity period of 15 years, bear interest at rates ranging from
6.11% to 8.62%, and mature from 2006 to 2009.

Investment in securities available-for-sale was $52.5 million at September 30, 2005 compared to $60.0 million at December 31, 2004.

|Regulatory Capital
|------------------

The Company and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory or
discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company
and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

18

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The following table presents selected capital information for the Company and the Bank as of September 30, 2005 and December 31, 2004:

|                           |  |          |  |          |  |                      |  |                   |  | To Be Well-Capitalized
|-------------------------- |  | -------- |  | -------- |  | -------------------- |  | ----------------- |  | ----------------------
|                           |  |          |  |          |  |                      |  |                   |  | Under Prompt          
|                           |  |          |  |          |  | For Capital Adequacy |  | Corrective Action
|                           |  | Actual   |  | Purposes |  | Provision           
|                           |  |          |  |          |  |                     
|                           |  | Amount   |  | Ratio    |  | Amount               |  | Ratio             |  | Amount                
|                           |  |          |  |          |  |                      |  |                   |  |                       
|                          
|September 30, 2005         |  |          |  |          |  |                      |  |                   |  |                       
|Total risk-based capital:  |  |          |  |          |  |                      |  |                   |  |                       
|Consolidated               |  | $ 51,905 |  | 19.91%   |  | $ 20,851             |  | >8.00%            |  | N/A                   
|Bank                       |  | $ 47,326 |  | 18.21%   |  | $ 20,783             |  | >8.00%            |  | $ 25,979              
|Tier 1 risk-based capital: |  |          |  |          |  |                      |  |                   |  |                       
|Consolidated               |  | $ 48,637 |  | 18.66%   |  | $ 10,426             |  | >4.00%            |  | N/A                   
|Bank                       |  | $ 44,068 |  | 16.96%   |  | $ 10,392             |  | >4.00%            |  | $ 15,587              
|Tier 1 (leverage) capital: |  |          |  |          |  |                      |  |                   |  |                       
|Consolidated               |  | $ 48,637 |  | 15.63%   |  | $ 12,450             |  | >4.00%            |  | N/A                   
|Bank                       |  | $ 44,068 |  | 14.19%   |  | $ 12,421             |  | >4.00%            |  | $ 15,526              
|                          
|December 31, 2004          |  |          |  |          |  |                      |  |                   |  |                       
|Total risk-based capital:  |  |          |  |          |  |                      |  |                   |  |                       
|Consolidated               |  | $ 37,068 |  | 17.26%   |  | $ 17,182             |  | >8.00%            |  | N/A                   
|Bank                       |  | $ 36,297 |  | 16.95%   |  | $ 17,136             |  | >8.00%            |  | $ 21,419              
|Tier 1 risk-based capital: |  |          |  |          |  |                      |  |                   |  |                       
|Consolidated               |  | $ 34,370 |  | 16.00%   |  | $ 8,591              |  | >4.00%            |  | N/A                   
|Bank                       |  | $ 33,606 |  | 15.69%   |  | $ 8,568              |  | >4.00%            |  | $ 12,852              
|Tier 1 (leverage) capital: |  |          |  |          |  |                      |  |                   |  |                       
|Consolidated               |  | $ 34,370 |  | 12.64%   |  | $ 10,879             |  | >4.00%            |  | N/A                   
|Bank                       |  | $ 33,606 |  | 12.38%   |  | $ 10,858             |  | >4.00%            |  | $ 13,572              

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the tables above) of Tier 1 capital to average assets, and
Tier 1 and total risk-based capital to risk-weighted assets (all as defined in the regulations). As of September 30, 2005 and December 31, 2004, the Company and the Bank substantially exceeded all relevant capital adequacy requirements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

|Credit Risk
|-----------

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

|Interest Rate Risk
|------------------

The Bank's earnings are largely derived from net interest income, which is interest income and fees earned on loans and investment income, less interest expense paid on deposits and other borrowings. Interest rates are
highly sensitive to many factors that are beyond the control of the Bank's management, including general economic conditions, and the policies of various governmental and regulatory authorities. As interest rates change, net interest income is
affected. With fixed rate assets (such as fixed rate loans) and liabilities (such as certificates of deposit), the effect on net interest income depends on the maturities of the assets and liabilities. The Bank's primary objective in managing
interest rate risk is to minimize the adverse impact of changes in interest rates on the Bank's net interest income and capital, while structuring the Bank's asset/liability position to obtain the maximum yield-cost spread on that structure.
Interest rate risk is managed through the monitoring of the Bank's gap position and sensitivity to interest rate risk by subjecting the Bank's balance sheet to hypothetical interest rate shocks using a computer based model. In a falling rate
environment, the spread between interest yields earned and interest rates paid, may narrow, depending on the relative level of fixed and variable

19

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rate assets and liabilities. In a stable or increasing rate environment the Bank's variable rate loans will remain steady or increase immediately with changes in interest rates, while fixed rate liabilities, particularly
certificates of deposit will only re-price as the liability matures. For the period ended September 30, 2005 the Bank is slightly asset sensitive.

|Item 4. Controls and Procedures
|-------------------------------

As of September 30, 2005, the Company evaluated, under the supervision and the participation of Management, including the Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of
disclosure controls and procedures. Based on that evaluation, Management, including the Chief Executive Officer and Chief Financial Officer, concluded that disclosure controls and procedures were effective.

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

|Part II. OTHER INFORMATIONItem 1. Legal Proceedings
|---------------------------------------------------

The Company from time to time enters into routine litigation resulting from the collection of secured and unsecured indebtedness as part of its business of providing financial services. In some cases, such litigation will
involve counterclaims or other claims against the Company. Such proceedings against financial institutions sometimes also involve claims for punitive damages in addition to other specific relief. The Company is not a party to any litigation other
than in the ordinary course of business. In the opinion of management, the ultimate outcome of all pending legal proceedings will not individually or in the aggregate have a material adverse effect on the financial condition or the results of
operations of the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

| | Not applicable
| | --------------

|Item 3. Defaults upon Senior Securities
|---------------------------------------

| | Not applicable
| | --------------

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

| | None
| | ----

|Item 5. Other Information
|-------------------------

| | None
| | ----

Item 6. Exhibits and Reports on Form 8-K

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



|2                                                                            | Agreement and Plan of Reorganization by and among the Company, Cowlitz Bank, AEA Bancshares, Inc. and Asia-Europe-Americas Bank dated May 3, 2005 (incorporated by reference
to Exhibit 2 to the Company's Form 8-K filed May 4,
2005)
|---------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                            
|                                                                            
|3.1                                                                          | Restated and Amended Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed June 9, 2005)                                                                                                
|                                                                            
|3.2                                                                          | Bylaws (incorporated by reference from the Company's Registration Statement on Form S-1, Reg. No. 333-44355)                                                                                                                          
|                                                                            
|31.1     
Certification of Chief Executive Officer                          
|                                                                            
|31.2     
Certification of Chief Financial Officer                          
|                                                                            
|32     
Certification of Chief Executive Officer and Chief Financial Officer
|                                                                            

20

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SIGNATURES

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

| | 
| | 

|    |                                                                   
|--- | ------------------------------------------------------------------
|    | Cowlitz Bancorporation(Registrant)                                
|By: |                                                                   
|    | /s/ Richard J. Fitzpatrick                 Date: November 10, 2005
|    | Richard J. Fitzpatrick, President and Chief Executive Officer     
|    |                                                                   
|By: |                                                                   
|    | /s/ Donna P Gardner                   Date: November 14, 2005     
|    | Donna P Gardner, Vice-President, Chief Financial Officer          
|    |                                                                   
|    |                                                                   

21



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