Cowlitz Bancorporation Announces Third Quarter 2009 Financial Results

LONGVIEW, Wash., Oct. 29 /PRNewswire-FirstCall/ --

Flash Results
Cowlitz Bancorporation (NASDAQ: CWLZ)
(Numbers in Thousands, Except Per Share Data)

Three Months Ended Nine Months Ended
------------------ -----------------
September September June September September
30, 2009 30, 2008 30, 2009 30, 2009 30, 2008
-------- -------- -------- -------- --------
Net Interest
Income $3,669 $5,584 $3,836 $11,694 $16,721
Net Loss ($4,062) ($1,596) ($15,435) ($21,399) ($8,785)
Diluted EPS ($0.79) ($0.31) ($3.01) ($4.18) ($1.74)
Total Period
End Loans $399,211 $374,361 $436,684
Total Period
End Deposits $530,481 $535,479 $501,358

Cowlitz Bancorporation (Nasdaq: CWLZ) reported a net loss of $4,062,000, or
($0.79) per diluted share, for the quarter ended September 30, 2009 compared
with a net loss of $1,596,000, or ($0.31) per diluted share, during the same
period of 2008. The current quarter's results include a $6.4 million
provision for credit losses and a $3.1 million gain attributable to terminated
interest rate contracts. For the nine months ended September 30, 2009, the
Company reported a net loss of $21.4 million compared with a net loss of $8.8
million for the nine months ended September 30, 2008.

The second quarter 2009 results included a $12.4 million non-cash charge to
establish a 100 percent valuation allowance against the Company's net deferred
tax assets. The valuation allowance increased $1.4 million in the third
quarter of 2009 to $13.8 million, as the Company recorded no tax benefit on
its pre-tax loss. The noncash charges related to this valuation allowance
represented 64 percent of the year-to-date 2009 loss.

"Economic indicators signal that the next few quarters will still remain
challenging due to the weak economy, high levels of unemployment and downward
pressure on real estate values. The management team remains focused on
reducing problem loans, enhancing our risk management processes and
maintaining liquidity," stated Richard J. Fitzpatrick, President and CEO of
Cowlitz Bancorporation and its wholly-owned subsidiary Cowlitz Bank. "In
addition, Cowlitz Bancorporation and its financial advisor are exploring
options for raising capital to strengthen the Bank. Currently, however,
capital markets remain largely inaccessible to small and mid-size banks with
our profile. Nevertheless, we will continue to pursue all capital raising
activities."

At September 30, 2009, the Bank's capital ratios were in excess of regulatory
levels required to be designated "well- capitalized" for the FDIC's Tier 1 and
Tier 1 leverage ratios. The Bank's Total risk-based capital ratio was 9.48
percent and exceeded the FDIC benchmark of 8.00 percent for "adequately
capitalized". The table below illustrates the capital ratios for Cowlitz Bank.

To Be Well-
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
------ -------- ----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
September 30, 2009
Total risk-based
capital:
Bank $39,161 9.48% $33,040 >/=8.00% $41,301 >/=10.00%
Tier 1 risk-based
capital:
Bank $33,920 8.21% $16,520 >/=4.00% $24,780 >/=6.00%
Tier 1 (leverage)
capital:
Bank $33,920 5.80% $23,377 >/=4.00% $29,222 >/=5.00%

"Cowlitz Bank continues to have significant liquidity with approximately $115
million of available borrowing capacity with the FHLB, as well as access to a
credit line at the Federal Reserve. The Bank had $128.2 million of cash and
short-term investments at the end of the third quarter of 2009," stated Mr.
Fitzpatrick. "The Bank's current goals include reducing real estate
construction loans and altering the mix of its assets to reduce its capital
requirements."

Net loans totaled $374.4 million at September 30, 2009, compared with $436.7
million at September 30, 2008, a decrease of approximately 14 percent. On a
linked-quarter basis, loans decreased $24.9 million, or approximately 6
percent, from June 30, 2009. Average loans in the third quarter of 2009 were
$388.7 million compared with average loans of $414.5 million in the second
quarter of 2009 and $436.8 million in the third quarter of 2008.

Average earning assets in the third quarter of 2009 were $545.8 million,
compared with $551.5 million in the previous quarter and $496.7 million in the
third quarter of 2008. The Bank's cash and cash equivalents averaged $117.0
million in the third quarter and $90.6 million year-to-date 2009, compared
with $30.4 million in the third quarter of 2008. The Company is currently
maintaining a higher level of low-rate interest-bearing investments to provide
a prudent level of liquidity for these economic times. Total average deposits
increased to $539.2 million in the third quarter of 2009 compared with $537.8
million in the previous quarter and $474.6 million in the third quarter of
2008.

With our customers' protection and security foremost in our commitment to
customer first banking(TM), Cowlitz Bank has chosen to continue to participate
in the FDIC's Transaction Account Guarantee Program where the entire amount in
all noninterest-bearing deposit accounts for participating banks are fully
guaranteed by the FDIC through June 30, 2010. This is in addition to, and
separate from, the $250,000 coverage available under the FDIC's general
deposit insurance rules which are in effect until December 31, 2013.

Net interest margin as a percentage was 2.77 percent for the third quarter of
2009, compared with 2.89 percent in the second quarter of 2009 and 4.62
percent in the third quarter of 2008. Net interest income was $3.7 million in
the third quarter of 2009, compared with $3.8 million in the second quarter of
2009 and $5.6 million in the same quarter last year. The Company's net
interest income for the first nine months of 2009 relative to the same period
of 2008 was affected by several factors, including significant interest rate
reductions by the Federal Reserve in the second half of 2008, the amount of
interest reversals in 2009, a shift in the mix of interest-earning assets
towards lower yielding cash-equivalent investments, a higher level of
nonperforming assets and a lower level of noninterest-bearing demand and
low-cost money market deposit accounts.

The Company's yield on average earning assets in the third quarter of 2009 was
5.37 percent, compared with 5.57 percent in the second quarter of 2009 and
7.27 percent in the third quarter of 2008. The Company estimates that
interest reversals reduced the third and second quarters of 2009 net interest
margins by 14 basis points and 38 basis points, respectively. Interest
reversals in the third quarter of 2008 reduced the net interest margin 11
basis points. The average rate on interest-bearing liabilities fell to 2.82
percent in the third quarter of 2009 from 2.94 percent in the second quarter
of 2009 and 3.26 percent in the third quarter a year ago. Average funding
costs have improved as deposits issued in 2009 were issued in a lower interest
rate environment than the first nine months of 2008.

The provision for credit losses was $6.4 million in the third quarter of 2009,
compared with $3.7 million in the second quarter of 2009 and $2.3 million in
the third quarter of 2008. The allowance for loan losses was 3.07 percent of
loans at September 30, 2009 compared with 2.08 percent at June 30, 2009 and
3.17 percent at September 30, 2008. In the third quarter of 2009, the
provision exceeded net loan charge-offs by $2.9 million. For the first nine
months of 2009, the provision totaled $13.6 million and charge-offs totaled
$16.9 million. Aggressive actions to reduce credit risk has accelerated the
timing of charge-offs but has resulted in a significant decrease in the
exposure to land and real estate construction loans, the loan categories
having shown the most weakness during this prolonged recession. Since the end
of the third quarter of 2008, real estate construction loans are down 33
percent and now constitute 18 percent of total loans compared with 23 percent
at the end of the third quarter 2008.

Net loan charge-offs were $3.5 million in the third quarter of 2009, down from
$3.9 million in the second quarter of 2009 and up from $2.3 million in the
third quarter of 2008. Charge-offs in the third quarter of 2009 consisted
primarily of $2.6 million in real estate construction and related loans. The
level of charge-offs in 2009 to-date primarily reflected the rapidly declining
appraisal value of real estate collateral. The Company's term single-family
residential real estate mortgage portfolio has not experienced any charge-offs
in the last three years and only a nominal amount of past due loans. The
Company has incurred only minor amounts of charge-offs in its credit card
portfolio.

The ratio of the allowance for credit losses to total loans increased to 3.07
percent at September 30, 2009 from 2.16 percent at June 30, 2009. The Company
reviews the loans in its portfolio regularly for impaired loans. A loan is
impaired when, based on current information and events, it is probable that
the Bank will be unable to collect all interest and principal due. Impaired
loans totaled $53.1 million at September 30, 2009. The ratio of the Bank's
book balance to total appraised collateral values of impaired loans was 60
percent. Specific reserves were recorded on two loans totaling $1.1 million.
The remaining loans were charged down to their expected net realizable value.
The table below shows the ratios of the allowance to loans at September 30,
2009.

September 30, 2009
------------------
Allowance for
Credit Losses Loan Balances %
-------------- ------------- --
Impaired loans:
With reserves $1,061 $11,061 9.59%
Without reserves - 41,990 -%
All other loans 10,429 321,310 3.25%
------ -------
$11,490 $374,361 3.07%
======= ========

"Credit quality continues to be our primary area of focus, particularly in the
residential land and construction portfolio. While we have seen a rise in
other categories of non-performing loans, the inflow is still driven by
continued weakness in the housing and construction markets," stated Ernie
Ballou, Vice President and Chief Credit Administrator. "Though we may see some
negative migration in commercial loans, we are cautiously optimistic because
the portfolio is diversified, cash flow sources are varied and a large
percentage of the loans are owner-occupied."

Nonaccrual loans at September 30, 2009 totaled $56.3 million, essentially
unchanged from $56.2 million at June 30, 2009. Nonaccrual loans totaled $9.3
million at September 30, 2008. The largest loan segment of nonaccrual loans
continues to be real estate construction. Nonperforming real estate
construction loans represented 50 percent of total non-accruing loans at
September 30, 2009, compared with 56 percent at December 31, 2008. Loans
placed on nonaccrual during the quarter totaled $12.9 million. Of these loans,
$6.4 million were real estate construction and development loans and $1.9
million were commercial real estate loans. Commercial and industrial loans
placed on nonaccrual in the third quarter of 2009 totaled $4.5 million and
related to several borrowers. One commercial loan relationship placed on
nonaccrual during the quarter totaling $3.5 million was paid off in full prior
to the end of the quarter. During the third quarter of 2009, nonaccrual loans
were reduced by pay-offs of $9.1 million and charge-offs of $3.4 million.
Loans totaling $0.6 million were foreclosed and transferred to other real
estate owned and repossessed assets.

There can be no assurance the Company will not incur significant additional
loan loss provisions or expenses in connection with the ultimate collection of
nonaccrual loans or in carrying and developing of foreclosed real estate.
Although the Company has never originated or acquired subprime loans nor
invested in securities collateralized by subprime loans, the prolonged
economic downturn has affected the Company through reduction in overall real
estate values, reduced home sales and construction, increased unemployment and
a weakening of national and local economic conditions, including the Company's
primary markets of Washington and Oregon.

Total nonperforming assets (defined as loans on nonaccrual and repossessed
assets) were $61.4 million at September 30, 2009, compared with $61.2 million
at June 30, 2009 and $11.8 million at September 30, 2008. At September 30,
2009, there were no loans 90 days past due and accruing. As a percentage of
total assets, nonperforming assets were 10.62 percent at September 30, 2009,
compared with 10.54 percent at June 30, 2009 and 2.09 percent at September 30,
2008.

Noninterest income was $3.9 million for the third quarter of 2009, compared
with $758,000 in the second quarter of 2009 and $(520,000) for the third
quarter of 2008. The increase in non-interest income in the third quarter of
2009 was primarily attributable to a $3.1 million gain recognized on
terminated interest rate contracts with a notional value of $125 million
entered into to hedge interest rate payments on variable rate loans. The
Company terminated its interest rate floor contract in the third quarter of
2009 and terminated two swap contracts in prior periods. The Company
recognized deferred gains in the current quarter as the result of reductions
in the loan pools originally hedged by the contracts. The third quarter of
2008 included an other-than-temporary impairment charge of $1.4 million
related to the Company's investment in FNMA preferred stock. Excluding this
charge, noninterest income for the second quarter of 2008 was $892,000. In
the 2009 periods, the Company experienced increases in fiduciary income
related to the Bank's trust business over 2008 levels. International trade
fees decreased in 2009 primarily due to the planned reduction in the number of
nonresident relationships serviced by our Seattle-based international trade
department and wire room that took place early in the first quarter of 2009.

Noninterest expenses in the third quarter of 2009 were $5.3 million, compared
with $5.7 million in the second quarter of 2009 and $4.7 million in the third
quarter of 2008. Salaries and employee benefits decreased $352,000, or 15
percent, in the third quarter of 2009 compared with the third quarter of 2008.
The number of full-time equivalent employees at September 30, 2009 was 14
percent less than the same time a year ago, and reflects management's efforts
to streamline operations and reduce overall employee-related costs, while
maintaining or improving customer service. Offsetting the decrease in
salaries and employee benefits were higher levels of professional fees and
loan expenses related to problem assets and significantly higher FDIC deposit
insurance premiums. This increase primarily resulted from an industry-wide
increase in assessments as the FDIC replenishes the deposit insurance fund,
including an industry-wide special assessment in the second quarter of 2009.

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 Washington and Oregon.

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of
the "Safe-Harbor" provisions of the Private Securities Litigation Reform Act
of 1995, which management believes are a benefit to shareholders. You should
not place undue reliance on forward-looking statements and we undertake no
obligation to update any such 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, 2008, and other filings with the
SEC. We make forward-looking statements in this release related to the
Company's liquidity and ability to manage through the current economic cycle.

INCOME STATEMENT Quarter Ended Nine Months Ended
---------------- ------------- -----------------
September September June September September
30, 2009 30, 2008 30, 2009 30, 2009 30, 2008
--------- --------- --------- --------- ---------
Interest
income $7,243 $8,892 $7,510 $22,518 $26,971
Interest
expense 3,574 3,308 3,674 10,824 10,250
----- ----- ----- ------ ------
Net
interest
income 3,669 5,584 3,836 11,694 16,721
Provision
for
credit
losses 6,368 2,300 3,695 13,568 15,895
----- ----- ----- ------ ------
Net
interest
income
after
provision
for
credit
losses (2,699) 3,284 141 (1,874) 826
Non-interest
income
Service
charges on
deposit
accounts 222 221 228 680 564
Fiduciary income 189 143 187 602 479
International
trade fees 14 126 20 97 461
Increase in cash
surrender value
of bank
owned life
insurance 154 154 155 459 460
Securities gains
(losses) 2 (1,412) (76) (85) (1,844)
Gains on
termination of
interest rate
contracts 3,110 - - 3,110 -
Other income 216 248 244 665 769
--- --- --- --- ---
Total non-
interest
income 3,907 (520) 758 5,528 889
Non-interest
expense
Salaries and
employee benefits 1,981 2,333 1,942 6,108 7,340
Net occupancy
and equipment
expense 654 641 618 1,912 1,888
Data processing
and
communication 273 264 382 966 710
Professional
fees 415 390 547 1,532 861
Federal deposit
insurance 586 94 504 1,505 281
Foreclosed asset
expense, net 181 373 224 465 2,247
Loan expense 215 131 399 666 270
Equity in
limited
partnerships
losses 43 50 277 368 142
Interest rate
contracts
valuation
adjustment 78 (242) 128 320 75
Other expenses 844 693 705 2,290 2,447
--- --- --- ----- -----
Total non-
interest
expense 5,270 4,727 5,726 16,132 16,261
----- ----- ----- ------ ------

Loss before
income taxes (4,062) (1,963) (4,827) (12,478) (14,546)
Income tax
expense
(benefit) - (367) 10,608 8,921 (5,761)
--- ---- ------ ----- ------
Net loss $(4,062) $(1,596) $(15,435) $(21,399) $(8,785)
======= ======= ======== ======== =======

Loss per
share:
Basic and
diluted $(0.79) $(0.31) $(3.01) $(4.18) $(1.74)
====== ====== ====== ====== ======
Weighted
average
shares
outstanding:
Basic and
diluted 5,133,945 5,067,379 5,122,733 5,124,109 5,059,188
Shares
outstanding at
period end 5,133,945 5,067,379 5,133,945 5,133,945 5,067,379
Number of
full-time
equivalent
employees 112 130

Quarter Ended Nine Months Ended
------------- -----------------
SELECTED September September June September September
AVERAGES 30, 2009 30, 2008 30, 2009 30, 2009 30, 2008
--------- --------- ---------- -------- ---------- ----------
Average
loans $388,696 $436,770 $414,497 $411,289 $425,177
Average
interest-
earning
assets 545,783 496,690 551,549 547,258 487,229
Total
average
assets 586,238 539,965 599,510 591,325 533,712
Average
deposits 539,241 474,562 537,822 533,317 461,551
Average
interest-
bearing
liabilities 501,940 403,849 500,427 492,718 387,025
Average
equity 29,681 47,877 44,301 40,786 53,739

SELECTED BALANCE September September June
SHEET ACCOUNTS 30, 2009 30, 2008 30, 2009
---------------- --------- --------- --------
Total assets $578,287 $565,335 $580,363
Securities
available for
sale 52,867 40,812 56,705
Loans
(bank regulatory
classification):
Real estate
secured:
One to four
family
residential 41,465 35,014 41,222
Multifamily 8,193 3,325 4,726
Construction 68,120 101,420 80,620
Commercial real
estate 174,756 170,954 178,191
------- ------- -------
Total real
estate 292,534 310,713 304,759
------- ------- -------
Commercial and
industrial 79,663 123,582 92,339
Consumer and
other 2,711 3,595 2,835
----- ----- -----
374,908 437,890 399,933
Deferred loan
fees (547) (1,206) (722)
---- ------ ----
Loans, net of
deferred loan
fees 374,361 436,684 399,211
Goodwill 1,798 1,798 1,798
Deposits:
Non-interest-
bearing demand 49,283 82,096 48,834
Savings and
interest-bearing
demand 57,043 31,768 57,358
Money market 32,980 75,574 40,932
Certificates of
deposits 396,173 311,920 383,357
------- ------- -------
Total
deposits 535,479 501,358 530,481
Junior
subordinated
debentures 12,372 12,372 12,372
Stockholders'
equity 25,954 46,372 32,504

Book value per
share $5.06 $9.15 $6.33
Tangible book
value per share $4.71 $8.80 $5.98

Quarter Ended Nine Months Ended
------------- -----------------
RATIOS September September June September September
ANNUALIZED 30, 2009 30, 2008 30, 2009 30, 2009 30, 2008
----------- -------- -------- --------- -------- --------
Return on
average
assets -2.75% -1.18% -10.33% -4.84% -2.20%
Return on
average
equity -54.30% -13.26% -139.75% -70.15% -21.84%
Return on
average
tangible
equity -57.80% -13.78% -145.66% -73.38% -22.60%
Average
equity/
average
assets 5.06% 8.87% 7.39% 6.90% 10.07%
Yield on
interest-
earning
assets
(TE) 5.37% 7.27% 5.57% 5.61% 7.53%
Rate on
interest-
bearing
liabil-
ities 2.82% 3.26% 2.94% 2.94% 3.54%
Net interest
spread
(TE) 2.55% 4.01% 2.63% 2.67% 3.99%
Net interest
margin
(TE) 2.77% 4.62% 2.89% 2.96% 4.71%

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

Quarter Ended Nine Months Ended
------------- -----------------
ALLOWANCE FOR September September September September
CREDIT LOSSES 30, 2009 30, 2008 30, 2009 30, 2008
-------------- --------- --------- --------- ---------
Balance at
beginning of
period $8,614 $14,247 $13,994 $5,990
Provision for
credit losses 6,368 2,300 13,568 15,895
Recoveries 301 35 863 62
Charge-offs (3,793) (2,314) (16,935) (7,679)
------ ------ ------- ------
Balance at
end of period $11,490 $14,268 $11,490 $14,268
======= ======= ======= =======
Components
Allowance for
loan losses $11,227 $13,859
Liability for
unfunded credit
commitments 263 409
--- ---
Total allowance
for credit
losses $11,490 $14,268
======= =======
Allowance for loan
losses/total loans 3.00% 3.17%
Allowance for credit
losses/total loans 3.07% 3.27%

September September June 30,
NON-PERFORMING ASSETS 30, 2009 30, 2008 2009
--------------------- --------- --------- -----------
Loans on non-accrual status $56,297 $9,286 $56,248
Other real estate owned 5,086 2,425 4,822
Other foreclosed assets 58 100 99
--- --- ---
Total non-performing assets $61,441 $11,811 $61,169
======= ======= =======
Total non-performing loans
to total loans 15.04% 2.13% 14.09%
===== ==== =====
Total non-performing assets/
total assets 10.62% 2.09% 10.54%
===== ==== =====
Loans past due greater than
90 days and accruing $- $3,733 $-
=== ====== ===

SOURCE Cowlitz Bancorporation

Richard J. Fitzpatrick, President and CEO, or Gerald L. Brickey, CFO, both of
Cowlitz Bancorporation, +1-360-423-9800