Cowlitz Bancorporation (Nasdaq: CWLZ - news) today reported net income of $1,217,000 or $0.24 per diluted share for the fourth quarter of 2006, compared with net income of $872,000, or $0.18 per diluted share, during the same period of 2005. Net income for the fourth quarter of 2006 was up 40% over the same period last year, and net income for the year 2006 was up 60% from 2005. Net income for the year 2006 was $4,731,000, or $0.93 per diluted share, compared with $2,957,000, or $0.66 per diluted share, in 2005. Earnings per diluted share for the year 2006 were up 41% over last year, reflecting the issuance of common shares in conjunction with the November 2005 acquisition of Asia-Europe-Americas Bancshares, Inc. (AEA).

Richard J. Fitzpatrick, President and CEO of Cowlitz Bancorporation and its wholly-owned subsidiary, Cowlitz Bank, stated, "2006 was an excellent year for the Company, with loan growth exceeding our expectations. Loans at the end of 2006 were 33% higher than year-end 2005, reflecting the exceptional efforts of our experienced lending team throughout our market areas. The demand for business and real estate loans moderated somewhat in the fourth quarter of 2006. We expect good loan growth in 2007, but at a somewhat lower rate than the Company experienced in 2006." The Company's return on assets increased to 1.12% in 2006 from 0.96% in 2005. The Company's efficiency ratio was 60.9% and 64.1% for the fourth quarter and year 2006, respectively, compared with 71.0% and 72.8% for the same periods of 2005. The Company's leverage and risk-based capital ratios continue to exceed the "well- capitalized" requirements.

Total loans were $358.4 million at December 31, 2006, and were up 4% from September 30, 2006. Total deposits were up 29% from the year-end 2005 balance, and 3% from September 30, 2006. The Company's net interest margin was 5.97% in the fourth quarter of 2006, compared with 5.52% in the same quarter last year and 6.04% in the third quarter of 2006. The decrease in the net interest margin on a linked-quarter basis was due primarily to an increase in the cost of funds. The average cost of funds paid on interest-bearing liabilities for the fourth quarter of 2006 was 3.90%, compared with 2.66% in the fourth quarter of 2005 and 3.74% in the third quarter of 2006. The higher average cost of funds was the result of rising short-term interest rates and enhanced competition for deposits in the Company's markets. "Pressure on the funding side of the balance sheet is expected to continue, and we expect that our margins will continue to compress in 2007." Mr. Fitzpatrick stated.

The provision for credit losses was $1,150,000 in the fourth quarter of 2006, compared with $500,000 in the fourth quarter of 2005 and $800,000 in the third quarter of 2006. During the fourth quarter of 2006, the Company incurred charge-offs totaling $1,823,000. Of this total, approximately $1.1 million of the charge-offs was due to a loss on an equipment lease related to an alleged accounting fraud. In connection with this lease, the Company recorded $606,000 of foreclosed assets. Ernie D. Ballou, Executive Vice President and Chief Credit Administrator stated, "Over 90% of our loan and lease charge offs in 2006 were non-real estate related. The quality of the Bank's assets continues to be strong and reflects an effective credit review process and appropriate methodology for addressing problem exposures." During the fourth quarter, the Company sold certain substandard loans, and other loans rated performing but substandard were reduced to $809,000 at December 31, 2006. The total allowance for loan losses was 1.25% as a percentage of loans outstanding at December 31, 2006, compared with 1.63% at year-end 2005, and represents 394% of non- performing loans at year end. As of December 31, 2006, non-performing loans as a percentage of total loans were 0.32%, compared with 1.54% at December 31, 2005, following the acquisition of AEA. Non-performing loans at December 31, 2006 is represented by a single loan fully guaranteed by an agency of the U.S. government. The workout period for this loan is currently expected to continue into 2008. As a percentage of total assets, non-performing assets were 0.38% at year-end 2006.

Non-interest income in the fourth quarter of 2006 was $806,000 compared with $629,000 in the fourth quarter of 2005 and $657,000 in the third quarter of 2006. Excluding losses on securities transactions of $164,000 and $184,000 in the fourth quarter of 2005 and third quarter of 2006, respectively, non- interest income was $793,000 and $841,000 in the fourth quarter of 2005 and third quarter of 2006, respectively. The lower level of non-interest revenue in the fourth quarter of 2006 compared with the immediately preceding quarter was primarily due to lower service charges on deposit accounts.

Non-interest expenses in the fourth quarter of 2006 were significantly higher compared with the fourth quarter of 2005, primarily a reflection of the overall higher level of staffing, occupancy, data processing and branch activities due to loan growth, two additional branches and the expansion of the Company's international trade finance capabilities. The fourth quarter of 2005 included only two months of operations of the Seattle branch acquired from AEA. Non-interest expenses in the fourth quarter 2006 included a higher level of performance-based compensation and higher costs of professional services related to outsourced internal audit activities and the initiation of the Company's compliance with Sarbanes-Oxley Act requirements for 2007.

In March 2006, the Company entered into an interest rate floor agreement to hedge the variability of expected interest income related to loans priced with a floating rate index. In November 2006, the Company entered into interest rate swap agreements to hedge additional amounts of its floating rate loan portfolio. The Company recorded mark-to-market adjustments for these instruments until December 2006, when the Company achieved hedge accounting treatment for its derivative financial instruments. A net positive adjustment to earnings of $120,000 related to interest rate contracts was recorded in the fourth quarter of 2006. The Company does not anticipate future mark-to-market adjustments to earnings related to these instruments and will recognize any hedge ineffectiveness in the period that ineffectiveness is determined.

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. 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, 2005, and other filings with the SEC. Specific risks in this release relate to the Company's ability to continue loan growth in 2007.

INCOME STATEMENT Quarter Ending

December December September

31, 31, 30,

2006 2005 2006

Interest income $9,080 $5,977 $8,603

Interest expense 2,824 1,491 2,624

Net interest income 6,256 4,486 5,979

Provision for credit losses 1,150 500 800

Net interest income after provision

for credit losses 5,106 3,986 5,179

Non-interest income 806 629 657

Non-interest expense 4,303 3,631 3,994

Income before provision for income

taxes 1,609 984 1,842

Provision for income taxes 392 112 501

Net income $1,217 $872 $1,341

Earnings per share:

Basic $0.25 $0.19 $0.27

Diluted $0.24 $0.18 $0.26

Weighted average shares outstanding:

Basic 4,885,247 4,526,561 4,881,525

Diluted 5,141,564 4,774,247 5,131,368

Shares outstanding at period end 4,889,323 4,772,251 4,884,748

Efficiency ratio (1) 60.9% 71.0% 60.2%

Number of full-time equivalent

employees

(1) Non-interest expense divided by net interest income plus non-interest

income.

INCOME STATEMENT Twelve Months Ending

December December

31, 2006 31, 2005

Interest income $31,638 $19,698

Interest expense 9,263 4,902

Net interest income 22,375 14,796

Provision for credit losses 2,640 870

Net interest income after provision

for credit losses 19,735 13,926

Non-interest income 2,866 2,451

Non-interest expense 16,182 12,561

Income before provision for income

taxes 6,419 3,816

Provision for income taxes 1,688 859

Net income $4,731 $2,957

Earnings per share:

$0.98 $0.69

$0.93 $0.66

Weighted average shares outstanding:

4,845,892 4,266,783

5,098,334 4,451,466

Shares outstanding at period end 4,889,323 4,772,251

Efficiency ratio (1) 64.1% 72.8%

Number of full-time equivalent

employees 135 119

(1) Non-interest expense divided by net interest income plus non-interest

income.

Quarter Ending Twelve Months Ending

December December September December December

SELECTED AVERAGES 31, 2006 31, 2005 30, 2006 31, 2006 31, 2005

Average loans $357,696 $260,817 $337,942 $319,582 $219,881

Average interest-

earning assets 424,505 324,873 401,529 384,257 284,080

Total average assets 465,119 347,382 440,278 422,127 308,542

Average deposits 394,604 293,964 370,263 354,958 258,835

Average interest-

bearing liabilities 289,777 224,282 280,545 266,891 204,600

Average equity 50,533 41,874 48,381 47,641 36,483

December December September

SELECTED BALANCE SHEET ACCOUNTS 31, 2006 31, 2005 30, 2006

Total assets $468,410 $370,095 $456,615

Securities available for sale 57,688 52,462 54,158

Loans:

Real estate secured:

One to four family residential 29,805 25,361 31,918

Multifamily 12,821 11,999 13,631

Construction 80,692 46,281 73,138

Commercial real estate 111,480 108,041 118,517

Total real estate 234,798 191,682 237,204

Commercial and industrial 121,332 75,974 104,610

Consumer and other 3,338 3,194 3,565

359,468 270,850 345,379

Deferred loan fees (1,078) (603) (1,106)

Loans, net of deferred loan fees 358,390 270,247 344,273

Goodwill and other intangibles 1,873 2,135 1,899

Deposits:

Non-interest-bearing demand 107,943 97,327 118,765

Savings and interest-bearing demand 95,861 98,360 93,198

Certificates of deposits 195,646 113,508 174,846

Total deposits 399,450 309,195 386,809

Borrowings 500 817 694

Junior subordinated debentures 12,372 12,372 12,372

Stockholders' equity 50,698 44,941 49,940

Book value per share $10.37 $9.42 $10.22

Tangible book value per share $9.99 $8.98 $9.83

Tier 1 leverage capital ratio

(Q4-06 estimated) 13.23% 15.92% 13.66%

Twelve Months

Quarter Ending Ending

Dec. Dec. Sept. Dec. Dec.

31, 31, 30, 31, 31,

RATIOS ANNUALIZED 2006 2005 2006 2006 2005

Return on average assets 1.05% 1.00% 1.22% 1.12% 0.96%

Return on average equity 9.63% 8.33% 11.09% 9.93% 8.11%

Return on average tangible equity 10.01% 8.64% 11.55% 10.34% 8.34%

Average equity/average assets 10.86% 12.05% 10.99% 11.29% 11.82%

Yield on interest-earning assets

(TE) 8.63% 7.36% 8.65% 8.31% 7.01%

Rate on interest-bearing

liabilities 3.90% 2.66% 3.74% 3.47% 2.40%

Net interest spread (TE) 4.73% 4.70% 4.91% 4.84% 4.61%

Net interest margin (TE) 5.97% 5.52% 6.04% 5.90% 5.28%

TE - Tax exempt interest income has been adjusted to a taxable equivalent

basis using a 34% tax rate.

Twelve Months

Quarter Ending Ending

December December December December

ALLOWANCE FOR CREDIT LOSSES 31, 2006 31, 2005 31, 2006 31, 2005

Balance at beginning of period $5,483 $4,054 $4,668 $3,796

Provision for credit losses 1,150 500 2,640 870

Acquired allowance for credit losses - 1,651 - 1,651

Recoveries 15 37 308 168

Charge-offs (1,823) (1,574) (2,791) (1,817)

Balance at end of period $4,825 $4,668 $4,825 $4,668

Components

Allowance for loan losses $4,481 $4,417

Liability for unfunded credit

commitments (1) 344 251

Total allowance for credit losses $4,825 $4,668

Allowance for loan losses/total loans 1.25% 1.63%

Allowance for credit losses/total

loans 1.35% 1.73%

Allowance for loan losses/non-

performing loans 394% 106%

Allowance for credit losses/non-

performing loans 424% 112%

(1) In the first quarter of 2006, the Company reclassified a portion of the allowance for loan losses related to unfunded credit commitments to other liabilities on the balance sheet in accordance with GAAP and bank regulatory requirements. Amounts for 2005 were reclassified for comparability.

December December September

NON-PERFORMING ASSETS 31, 2006 31, 2005 30, 2006

Nonaccrual loans $1,137 $4,156 $2,021

Other real estate owned and other

foreclosed assets 623 - -

Total non-performing assets $1,760 $4,156 $2,021

Total non-performing loans to total

loans 0.32% 1.54% 0.59%

Total non-performing assets/total

assets 0.38% 1.12% 0.44%

Source: prnewswire