8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  July 26, 2007 

Cowlitz Bancorporation
(Exact Name of Registrant as specified in its charter)

Washington	0-23881	91 - 529841
(State or other jurisdiction of	(Commission File Number)	(IRS Employer Identification No.)
incorporation)

927 Commerce Ave.
Longview, Washington 98632
Address of Principal Executive Office and Zip Code

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

Not applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))

Item 2.02 Results of Operations and Financial Condition.

     On July 26, 2007, Cowlitz Bancorporation issued a press release announcing financial results for the second quarter of 2007. A copy of the press release is attached as Exhibit 99.1.

Item 9.01	Financial Statements and Exhibits.
	(a)	Not applicable.
	(b)	Not applicable.
	(c)	Exhibits.
		99.1 Press Release
		SIGNATURES

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

			COWLITZ BANCORPORATION
			(Registrant)
Date:	July 26, 2007	By:	/s/ Gerald L. Brickey
			Gerald L. Brickey, Chief Financial Officer

EX-99.1

EXHIBIT 99.1

 

July 26, 2007 1:00 p.m. Pacific Time

Company Press Release

SOURCE: CONTACTS: Cowlitz Bancorporation Richard J. Fitzpatrick, Chief Executive Officer
Gerald L. Brickey, Chief Financial Officer
(360) 423-9800

Cowlitz Bancorporation Reports Second Quarter 2007 Core Operating Earnings Up 26% Over Second Quarter 2006

LONGVIEW, Wash., July 26, 2007 /PRNewswire/ --

Cowlitz Bancorporation (NASDAQ: CWLZ - news) today reported strong second quarter 2007 core operating earnings, higher non-interest revenues and 16% year-over-year loan growth. Cowlitz Bancorporation defines core operating earnings as net income excluding certain non-core items, after tax, that fluctuate significantly or occur infrequently. These non-core items include significant infrequent gains, losses, or expenses that are not reflective of continuing operations.

In addition to results presented in accordance with generally accepted accounting principles in the United Stares of America (GAAP), this release contains certain non-GAAP financial measures. Cowlitz Bancorporation believes that non-GAAP financial measures based on “core operating earnings” provide investors with information useful in understanding the Company’s financial performance and facilitating comparisons with prior and peer performance.

GAAP net income was $673,000 or $0.13 per diluted share for the second quarter of 2007, compared with net income of $1,113,000, or $0.22 per diluted share, during the same period of 2006. GAAP net income for the first six months of 2007 was $1,951,000, or $0.38, compared with $2,173,000, or $0.43 per diluted share, for the first six months of 2006.

“We have seen continuing loan demand, with year-to-date average loans up 27% from a year ago,” said Richard J. Fitzpatrick, President and CEO of Cowlitz Bancorporation and its wholly-owned subsidiary, Cowlitz Bank. “Strong in-market loan growth in the Puget Sound and Portland/Vancouver markets demonstrates the strength of the markets we serve.”

Mr. Fitzpatrick went on to state, “Our core operating results were excellent for the second quarter of 2007. There are several items we feel are not part of our fundamental banking business, and we believe isolating these items gives a more accurate reflection of the strength of our business than the GAAP numbers.”

		Core Operating Earnings to GAAP Reconciliation(1)
										Six Months
($ in thousands)	2 Q 07			2 Q 06			Change		2007			2006			Change
GAAP Net income	$	673		$	1,113		-40	%	$	1,951		$	2,173		-10	%
Adjustments:
Interest reversed(received) on
non-performing loans		270			(157	)				270			(157	)
Securities transactions		-			164					-			164
Foreclosed asset expenses		422			(42	)				422			(36	)
Interest rate contract adjustments		505			206					632			182
Net tax effect		(315	)		(45	)				(350	)		(40	)
Core operating earnings	$	1,555		$	1,239		26	%	$	2,925		$	2,286		28	%
Earnings per diluted share:
GAAP earnings	$	0.13		$	0.22		-41	%	$	0.38		$	0.43		-12	%
Core operating earnings	$	0.30		$	0.24		23	%	$	0.56		$	0.45		24	%

(1)      Cowlitz Bancorporation defines core operating earnings as net income excluding certain non-core items that fluctuate significantly or occur infrequently. These non-core items include significant infrequent gains, losses or expenses that are not reflective of continuing operations. Core operating earnings per diluted share is calculated by dividing core operating earnings by the same diluted share total used in determining diluted earnings per share.  Core operating earnings and core operating earnings per diluted share are non-GAAP financial measures.

Total loans were $382.7 million at June 30, 2007, an increase of 16.3% from a year ago and were up 6.8% (14% on an annualized basis) from year-end 2006 and 4.6% (18% on an annualized basis) from March 31, 2007. Growth was strongest in commercial and industrial loans, with real estate secured lending down from totals reported in the earlier periods. Total deposits were up 22.1% from the second quarter of 2006 balance, 4.6% from year-end 2006 and 6.1% from March 31, 2007. Non-interest bearing demand deposits at June 30, 2007 were flat with the year ago totals, but up $9.8 million, or 11%, from March 31, 2007. A significant amount of the interest-bearing deposit growth consisted of brokered funds.

The Company’s GAAP net interest margin was 5.09% in the second quarter of 2007, compared with 5.91% in the same quarter last year and 5.64% in the first quarter of 2007. Adjusted for interest reversed or received on non-performing assets, the Company’s net interest margin was 5.34% in the second quarter of 2007, compared with 5.74% in the second quarter of 2006. No adjustments were necessary for comparability to the first quarter of 2007. The most significant factor causing the decrease in the adjusted net interest margin from a year ago, as well as on a linked-quarter basis, was the increase in the cost of funds due to a higher interest rate environment and the changing mix of funding sources. The average rate paid on interest-bearing liabilities for the second quarter of 2007 was 4.26% compared with 3.34% in the second quarter of 2006 and 4.04% in the first quarter of 2007. Mr. Fitzpatrick stated, “Credit spreads have begun to tighten due to competitive loan pricing, and the funding mix continues to shift towards higher cost deposits and other funding sources. Margin compression continues to be a challenge for the entire banking industry.”

In the second quarter of 2007, loans related to three commercial real estate relationships totaling $15.7 million were put on non-accrual, leading to the reversal of $270,000 of previously accrued interest. The balance of the non-performing loan total at June 30, 2007 related to the residual balance of the legacy government guaranteed credit acquired in connection with the Asia-Europe-Americas Bancshares merger. The Company expects none to minimal losses on three of the credits, including the government guaranteed credit, and believes it has adequately reserved for any potential loss on the fourth credit. Subsequent to June 30, 2007, one loan for $4.2 million was paid off, and interest through the date of pay-off, including $85,200 of interest income previously reversed, was collected.

In the second quarter of 2007, the Company also foreclosed on one commercial loan and repossessed the underlying collateral. Equipment repossessed was recorded at its estimated net realizable value of $618,000 and is expected to be disposed of in the third quarter of 2007.

No provision for credit losses was taken in the second quarter of 2007, compared with $285,000 in the second quarter of 2006 and $275,000 in the first quarter of 2007. Net loan loss recoveries of $87,000 and $85,000 were recorded for the three and six-month periods ended June 30, 2007, respectively, compared with net charge-offs of $12,000 and net recoveries of $9,000 for the three and six-month periods of 2006. The allowance for loan losses was 1.27% as a percentage of loans outstanding at June 30, 2007, compared with 1.53% at June 30, 2006 and 1.31% at March 31, 2007. Management believes the allowance for credit losses is at an appropriate level based upon its evaluation and analysis of portfolio credit quality and prevailing economic conditions. The allowance represented 30% of non-performing loans at quarter end. As of June 30, 2007, non-performing loans as a percentage of total loans were 4.25%, compared with .75% at June 30, 2006 and 0.31% at March 31, 2007. As a p ercentage of total assets, non-performing assets were 3.45% at June 30, 2007.

Non-interest income in the second quarter of 2007 was $909,000, compared with $601,000 in the second quarter of 2006. The second quarter of 2006 included losses on securities transactions of $164,000. Excluding the amounts related to securities transactions, the increase in the second quarter of 2007 over the comparable 2006 quarter was primarily related to revenues from the Company’s international trade department, which began operations late in the second quarter of 2006.

Non-interest expenses in the second quarter of 2007 were $5.5 million, compared with $4.2 million in the second quarter of 2006. Included in the second quarter 2007 results was $422,000 of foreclosed asset expenses related to the Company’s share of a nationally syndicated equipment lease foreclosed in the fourth quarter of 2006. In the second quarter of 2007, the Company received revised equipment appraisal valuations and recorded a write-down of $305,600 and its share of certain expenses related to the foreclosed equipment. The equipment was sold before the end of the second quarter.

Also included in the current quarter’s results was a $506,000 non-cash charge for the ineffective portion of the Company’s interest rate contracts. In light of the market’s current expectation that interest rates will not decline in the near future, the market value of the Company’s interest rate contracts has decreased substantially from the end of the first quarter of 2007. To the extent the Company’s cash flow hedges are ineffective in hedging interest income cash flows from variable rate loans, the ineffectiveness must be recognized in the income statement. To reduce potential future income statement impacts from hedge ineffectiveness, the Company de-designated its interest rate contracts and re-designated them as of June 1, 2007 with a modified hedge strategy.

Excluding the effect of the foreclosed asset expenses and non-cash interest rate contract adjustments from both periods, total non-interest expenses for the second quarter of 2007 increased $567,000 over the same quarter of 2006. The increase was primarily a reflection of the overall higher level of staffing, including hiring costs, merit increases and performance-based pay, occupancy, data processing and professional services. These expenses were primarily due to loan growth, the expansion of the Company’s international trade finance capabilities late in the second quarter of 2006 and costs associated with the Company’s compliance with Sarbanes-Oxley Act requirements for 2007. On a year-to date basis, non-interest expenses in 2007 also included $294,000 of share-based compensation expense, compared with $77,000 in the first six months of 2006. The higher amount in 2007 was primarily due to no share-based compensation awards made in 2006.

The Company’s efficiency ratio on a GAAP basis was 86.0% and 70.1% for the second quarters of 2007 and 2006, respectively, and 69.7% for the first quarter of 2007. Adjusted for the non-core items in the table above, the efficiency ratio was 68.7% and 67.4% for the second quarters of 2007 and 2006, respectively. The Company’s leverage and risk-based capital ratios continue to exceed the “well-capitalized” requirements.

Cowlitz Bancorporation is the holding company of Cowlitz Bank, which was established in 1977. In addition to its four branches in Cowlitz County Washington, Cowlitz Bank’s divisions include Bay Bank located in Bellevue, Seattle, and Vancouver, Washington; Portland and Wilsonville, Oregon; and Bay Mortgage in southwest Washington. Cowlitz specializes in commercial and international banking services for Northwest businesses, professionals, and retail customers, and offers trust services in southwest Washington and Portland, Oregon.

Forward-Looking Statements
This press release contains forward-looking statements regarding the Company’s prospects for growth, the effect of local economic conditions and the Company’s non-interest revenues. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those discussed in this press release as a result of risk factors identified in the Company's Form 10-K for the year ended December 31, 2006, and other filings with the SEC. We make forward-looking statements in this release related to the anticipated amount of losses on non-accrual loans, disposition of foreclosed collateral and the adequacy of our loan loss reserve.

INCOME STATEMENT					Quarter Ending						Six Months Ending
		June 30,			June 30,			March 31,			June 30,			June 30,
		2007			2006			2007			2007			2006
Interest income	$	9,024		$	7,559		$	8,768		$	17,792		$	13,955
Interest expense		3,484			2,182			3,016			6,500			3,815
Net interest income		5,540			5,377			5,752			11,292			10,140
Provision for credit losses		-			285			275			275			690
Net interest income after provision
for credit losses		5,540			5,092			5,477			11,017			9,450
Non-interest income
Service charges on deposit accounts		171			169			166			337			313
Fiduciary income		174			121			190			364			302
International trade fees		133			31			146			279			31
Increase in cash surrender value of bank
owned life insurance		137			138			136			273			248
Net loss on sale of investment securities		-			(164	)		-			-			(164	)
Other income		294			306			268			562			632
Total non-interest income		909			601			906			1,815			1,362
Non-interest expense
Salaries and employee benefits		2,419			2,063			2,496			4,915			4,150
Net occupancy and equipment expense		553			557			539			1,092			1,026
Data and communication		210			175			260			470			318
Professional fees		384			213			387			771			429
Foreclosed asset expense		422			(42	)		-			422			(36	)
Interest rate contracts valuation adjustment		506			182			127			633			182
Other expenses		1,050			1,042			833			1,883			1,775
Total non-interest expense		5,544			4,190			4,642			10,186			7,844
Income before provision for income taxes		905			1,503			1,741			2,646			2,968
Provision for income taxes		232			390			463			695			795
Net income	$	673		$	1,113		$	1,278		$	1,951		$	2,173
Earnings per share:
Basic	$	0.14		$	0.23		$	0.26		$	0.40		$	0.45
Diluted	$	0.13		$	0.22		$	0.25		$	0.38		$	0.43
Weighted average shares outstanding:
Basic		4,944,457			4,842,911			4,900,490			4,922,595			4,807,776
Diluted		5,191,600			5,102,201			5,176,599			5,185,684			5,033,143
Shares outstanding at period end		4,950,975			4,879,998			4,942,023			4,950,975			4,879,998
Efficiency ratio (1)		86.0	%		70.1	%		69.7	%		77.7	%		68.2	%
Number of full-time equivalent employees											142			131
(1) Non-interest expense divided by net interest income plus non-interest income.

					Quarter Ending						Six Months Ending
		June 30,			June 30,			March 31,			June 30,		June 30,
SELECTED AVERAGES		2007			2006			2007			2007		2006
Average loans	$	382,440		$	306,319		$	356,763		$	369,672	$	290,878
Average interest-earning assets		442,845			368,861			419,939			431,455		355,021
Total average assets		485,801			405,724			460,272			473,109		391,000
Average deposits		412,573			340,404			389,665			401,183		327,027
Average interest-bearing liabilities		327,728			261,126			302,502			315,185		248,350
Average equity		53,201			46,331			51,241			52,227		45,795
		June 30,			June 30,			March 31,
SELECTED BALANCE SHEET ACCOUNTS		2007			2006			2007
Total assets	$	489,954		$	423,777		$	465,050
Securities available for sale		53,454			54,955			56,298
Loans:
Real estate secured:
One to four family residential		27,127			34,364			26,521
Multifamily		15,502			13,293			15,577
Construction		48,452			65,849			77,003
Commercial real estate		123,584			118,687			108,616
Total real estate		214,665			232,193			227,717
Commercial and industrial		165,358			94,768			135,985
Consumer and other		3,494			3,099			3,207
		383,517			330,060			366,909
Deferred loan fees		(806	)		(937	)		(880	)
Loans, net of deferred loan fees		382,711			329,123			366,029
Goodwill and other intangibles		1,885			1,896			1,911
Deposits:
Non-interest-bearing demand		100,084			99,203			90,310
Savings and interest-bearing demand		101,372			93,814			86,375
Certificates of deposits		216,554			149,236			217,362
Total deposits		418,010			342,253			394,047
Borrowings		1,051			16,132			1,106
Junior subordinated debentures		12,372			12,372			12,372
Stockholders' equity		52,601			47,481			53,096
Book value per share	$	10.62		$	9.73		$	10.74
Tangible book value per share	$	10.24		$	9.34		$	10.36
Tier 1 leverage capital ratio (Q2-07 estimated)		13.27	%		14.47	%		13.82	%

			Quarter Ending				Six Months Ending
	June 30,		June 30,		March 31,		June 30,		June 30,
RATIOS ANNUALIZED	2007		2006		2007		2007		2006
Return on average assets	0.56	%	1.10	%	1.13	%	0.83	%	1.11	%
Return on average equity	5.07	%	9.61	%	10.11	%	7.53	%	9.49	%
Return on average tangible equity	5.26	%	10.08	%	10.51	%	7.82	%	9.96	%
Average equity/average assets	10.95	%	11.42	%	11.13	%	11.04	%	11.71	%
Yield on interest-earning assets (TE)	8.25	%	8.28	%	8.55	%	8.39	%	7.95	%
Rate on interest-bearing liabilities	4.26	%	3.34	%	4.04	%	4.16	%	3.07	%
Net interest spread (TE)	3.99	%	4.94	%	4.51	%	4.23	%	4.88	%
Net interest margin (TE)	5.09	%	5.91	%	5.64	%	5.36	%	5.80	%

TE - Tax exempt interest income has been adjusted to a taxable equivalent basis using a 34% tax rate.

		Quarter Ending						Six Months Ending
		June 30,			June 30,			June 30,			June 30,
ALLOWANCE FOR CREDIT LOSSES		2007			2006			2007			2006
Balance at beginning of period	$	5,098		$	5,094		$	4,825		$	4,668
Provision for credit losses		-			285			275			690
Recoveries		148			26			172			59
Charge-offs		(61	)		(38	)		(87	)		(50	)
Balance at end of period	$	5,185		$	5,367		$	5,185		$	5,367
Components
Allowance for loan losses							$	4,875		$	5,039
Liability for unfunded credit commitments								310			328
Total allowance for credit losses							$	5,185		$	5,367
Allowance for loan losses/total loans								1.27	%		1.53	%
Allowance for credit losses/total loans								1.35	%		1.63	%
Allowance for loan losses/non-performing loans								30	%		205	%
Allowance for credit losses/non-performing loans								32	%		218	%
					June 30,			June 30,			March 31,
NON-PERFORMING ASSETS					2007			2006			2007
Non-accrual loans				$	16,278		$	2,459		$	1,137
Other real estate owned and other foreclosed assets					618			-			605
Total non-performing assets				$	16,896		$	2,459		$	1,742
Total non-performing loans to total loans					4.25	%		0.75	%		0.31	%
Total non-performing assets/total assets					3.45	%		0.58	%		0.37	%