<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
--------------
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
---------- ----------
Commission File Number 0-10489
-----------
CENTENNIAL BANCORP
(Exact name of registrant as specified in its charter)
OREGON 93-0792841
(State of Incorporation) (I.R.S. Employer
Identification Number)
675 Oak Street
Eugene, Oregon 97401
(Address of principal executive offices)
(Zip Code)
(503) 342-3970
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of latest practicable date:
4,716,302 shares as of April 28, 1996.
<PAGE>
CENTENNIAL BANCORP
FORM 10-Q
MARCH 31, 1996
INDEX
-----
Page
PART I - FINANCIAL INFORMATION Reference
- ------------------------------ ---------
Condensed Consolidated Balance Sheets as of 4
March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Income for 5
the three months ended March 31, 1996 and 1995
Condensed Consolidated Statements of Cash Flows 6
for the three months ended March 31,
1996 and 1995
Notes to Condensed Consolidated Financial Statements 7 - 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Overview 10
Material Changes in Financial Condition 10
Material Changes in Results of Operations 11 - 12
Loan Loss Provision 12
Liquidity and Capital Resources 13
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
CENTENNIAL BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents:
Cash and due from banks $ 19,206,393 $ 21,991,459
Interest-bearing balances due from banks 9,940,000 6,000,000
Federal funds sold 10,860,000 8,730,000
------------ ------------
Total cash and cash equivalents 40,006,393 36,721,459
Available-for-sale securities 87,930,955 76,964,342
Loans 199,294,678 186,517,192
Reserve for loan losses (2,076,058) (1,928,372)
------------ ------------
Loans, net 197,218,620 184,588,820
Loans held for sale 4,715,024 4,573,095
Accrued interest receivable 2,589,301 2,536,493
Premises and equipment, net 9,131,909 9,214,564
Intangible assets 518,171 539,618
Other assets 3,170,076 2,325,324
------------ ------------
$345,280,449 $317,463,715
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits:
Demand $ 81,903,399 $ 70,578,820
Interest-bearing demand 105,380,405 98,600,873
Savings 13,641,274 13,743,140
Time 85,644,654 84,957,459
------------ ------------
Total deposits 286,569,732 267,880,292
Short-term borrowings 19,789,524 11,419,123
Accrued interest and other liabilities 3,096,910 2,574,240
Long-term debt 8,905,000 9,200,000
------------ ------------
Total liabilities 318,361,166 291,073,655
Shareholders' equity:
Preferred stock, $5.00 par value; none issued
Non-voting, 5,000,000 shares authorized -- --
Voting, 5,000,000 shares authorized -- --
Common stock, $2.00 par value; 10,000,000 shares
authorized, 4,716,302 issued and outstanding
(4,651,130 at December 31, 1995) 9,432,604 9,302,260
Additional paid-in capital 6,045,065 5,829,404
Retained earnings 12,110,614 10,657,696
Net unrealized gain (loss) on securities available-
for-sale, net of deferred income taxes (669,000) 600,700
------------ ------------
Total shareholders' equity 26,919,283 26,390,060
------------ ------------
$345,280,449 $317,463,715
============ ============
</TABLE>
See accompanying notes.
<PAGE>
CENTENNIAL BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
The Three Months Ended
March 31,
--------------------------
1996 1995
----------- ----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $5,717,286 $4,746,165
Interest on investment securities 1,205,873 848,506
Other interest income 156,497 26,104
---------- ----------
Total interest income 7,079,656 5,620,775
INTEREST EXPENSE
Interest on deposits 2,061,156 1,527,649
Interest on short-term borrowings 220,375 210,157
Interest on long-term debt 174,817 161,725
---------- ----------
Total interest expense 2,456,348 1,899,531
---------- ----------
NET INTEREST INCOME 4,623,308 3,721,244
Loan loss provision 150,000 75,000
---------- ----------
Net interest income after loan loss provision 4,473,308 3,646,244
NONINTEREST INCOME
Service charges on deposit accounts 235,464 226,634
Other 104,631 153,522
Loan servicing fees 21,876 113,492
Gains on sales of loans 135,781 39,498
---------- ----------
Total Noninterest income 497,752 533,146
NONINTEREST EXPENSE
Salaries and employee benefits 1,755,173 1,615,083
Premises and equipment 441,302 384,268
Legal and professional 98,198 110,429
Insurance 15,340 145,060
Advertising 110,524 88,298
Printing and stationery 68,529 66,296
Communications 50,856 77,008
Other 278,620 312,213
---------- ----------
Total Noninterest expense 2,818,542 2,798,655
---------- ----------
Income before income taxes 2,152,518 1,380,735
Provision for income taxes 699,600 441,800
---------- ----------
NET INCOME $1,452,918 $ 938,935
========== ==========
Earnings per common share:
Primary $ .30 $ .20
Fully diluted $ .27 $ .19
Weighted average shares outstanding:
Primary 4,895,752 4,765,390
Fully diluted 5,759,727 5,657,956
</TABLE>
See accompanying notes.
<PAGE>
CENTENNIAL BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
The Three Months Ended
March 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 1,964,127 $ 4,776,591
Cash flows from investing activities:
Net increase in loans (12,779,800) (4,662,740)
Investment security purchases (14,825,926) (1,615,128)
Proceeds from investment securities:
Maturities 1,879,900 693,150
Sales -- --
Purchases of premises and equipment (83,917) (1,210,284)
----------- ----------
Net cash used by investing activities (25,809,743) (6,795,002)
Cash flows from financing activities:
Net increase in deposits 18,689,440 2,464,861
Net increase in short-term borrowings 8,370,401 524,564
Proceeds from issuance of common stock 70,709 23,958
----------- -----------
Net cash provided by financing activities 27,130,550 3,013,383
----------- -----------
Net increase in cash and cash equivalents 3,284,934 994,972
Cash and cash equivalents at beginning of period 36,721,459 25,358,038
----------- -----------
Cash and cash equivalents at end of period $40,006,393 $26,353,010
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
CENTENNIAL BANCORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The interim condensed consolidated financial statements
include the accounts of Centennial Bancorp, a bank
holding company ("Bancorp"), and its wholly owned
subsidiaries, Centennial Bank ("Bank") and Centennial
Mortgage Co. ("Mortgage Co."). The Bank is an Oregon state-
chartered bank which provides commercial banking services.
Mortgage Co. originates residential mortgage loans for
resale in the secondary market.
The interim condensed consolidated financial statements are unaudited, but
include all adjustments, consisting only of normal accruals, which Bancorp
considers necessary for a fair presentation of the results of operations
for such interim periods.
All significant intercompany balances and transactions have been eliminated
in consolidation.
The interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements, including the notes
thereto, included in Bancorp's 1995 Annual Report to Shareholders.
Certain amounts for 1995 have been reclassified to conform with the 1996
presentation.
2. Divestiture
-----------
In August 1995, Bancorp sold substantially all the assets of its
subsidiary, Harding Fletcher Co. ("Harding Fletcher"), for $746,000 in cash
and assets, recognizing a pretax gain of approximately $64,000. Harding
Fletcher provided commercial mortgage banking services and loan servicing.
Exclusive of the gain recognized, this transaction did not have a
significant impact on Bancorp's operating results.
<PAGE>
3. Loans and Reserve for Loan Losses
---------------------------------
The composition of the loan portfolio was as follows:
March 31, December 31,
1996 1995
------------ ------------
Real estate - mortgage $ 56,438,014 $ 54,631,309
Real estate - construction 45,489,480 44,002,950
Commercial 87,942,869 78,252,968
Installment 5,968,533 5,929,351
Lease financing 3,730,192 4,001,250
Other 232,222 310,737
------------ ------------
199,801,310 187,128,565
Less deferred loan fees (506,632) (611,373)
------------ ------------
$199,294,678 $186,517,192
============ ============
Loans held for sale of $4,715,024 and $4,573,095 at March 31, 1996 and
December 31, 1995, respectively, represent real estate mortgage loans.
These loans are recorded at cost which approximates market.
Transactions in the reserve for loan losses were as follows for the three
months ended March 31:
1996 1995
----------- -----------
Balance at beginning of period $1,928,372 $1,700,130
Provision charged to operations 150,000 75,000
Recoveries 2,894 8,573
Loans charged off (5,208) (5,127)
---------- ----------
Balance at end of period $2,076,058 $1,778,576
========== ==========
It is Bancorp's policy to place loans on nonaccrual status whenever the
collection of all or a part of the principal balance is in doubt. Loans
placed on nonaccrual status may or may not be contractually past due at the
time of such determination, and may or may not be secured by collateral.
Loans on nonaccrual status at March 31, 1996 and December 31, 1995 were
approximately $454,000 and $478,000, respectively.
<PAGE>
Loans past due 90 days or more on which Bancorp continued to accrue
interest were approximately $1,174,000 at March 31, 1996, and approximately
$645,000 at December 31, 1995. There were no loans on which the interest
rate or payment schedule were modified from their original terms to
accommodate a borrower's weakened financial position at March 31, 1996 or
December 31, 1995.
4. Earnings per Common Share
-------------------------
Primary earnings per common share is calculated by dividing net income by
the weighted average shares outstanding. Weighted average shares
outstanding consists of common shares outstanding and common stock
equivalents attributable to outstanding stock options.
Fully diluted earnings per share is calculated by dividing net income plus
after-tax interest incurred on the 7% Convertible Debentures by common
shares outstanding, common stock equivalents attributable to outstanding
stock options, and shares assumed to be issued on conversion of the
Convertible Debentures.
The weighted average number of shares and common share equivalents have
been adjusted to give retroactive effect to stock splits and stock
dividends declared prior to March 31, 1996.
5. Financial Accounting Standards Board
------------------------------------
Effective October 1995, the Financial Accounting Standards Board adopted
SFAS No. 123, "Accounting for Stock-Based Compensation," which is effective
for fiscal years beginning after December 15, 1995. SFAS No. 123 requires
either adopting a fair market based method of accounting for compensation
costs related to stock options, which would be reflected in the income
statement, or continuing to use the accounting treatment prescribed by
Accounting Principles Board Opinion No. 25. However, if SFAS No. 123 is not
adopted, proforma disclosures will need to be reported in the footnotes to
Bancorp's financial statements, which are included in the annual report to
shareholders. Bancorp will not adopt the fair value method of accounting
provisions of SFAS No. 123 but will include appropriate proforma
disclosures in its 1996 annual report to shareholders.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
- --------
Centennial Bancorp reported net income of $1,452,918, or $.30 per share
(primary), for the three months ended March 31, 1996. This represented a 55%
increase in net income, as compared to $938,935, or $.20 per share, for the
three months ended March 31, 1995. The increased earnings reflected primarily
the expansion of Bancorp's interest-earning assets and increased net interest
income. At March 31, 1996, Bancorp recognized a 31% increase in assets and a 33%
increase in interest-earning assets as compared to assets and interest-earning
assets at March 31, 1995, while incurring only a $20,000 increase in noninterest
expense.
The net income added to shareholders' equity during the first quarter of
1996 was offset in part by a decrease in the valuation of Bancorp's
available-for-sale securities. This decrease in the value of the
available-for-sale securities resulted from an increase in interest rates which
caused bond prices to decrease. Management believes that the net unrealized loss
on available-for-sale securities, net of deferred income taxes, will be reduced
during the remainder of 1996 as interest rates and the bond market stabilize.
MATERIAL CHANGES IN FINANCIAL CONDITION
- ---------------------------------------
Material changes in Bancorp's financial condition for the three months
ended March 31, 1996 include an increase in loans and available- for-sale
securities. Funds were provided for these changes primarily by an increase in
total deposits, short-term borrowings, and net income.
During the quarter ended March 31, 1996, Bancorp borrowed $10.4 million
dollars at a favorable interest rate from the Federal Home Loan Bank of Seattle
and reinvested those funds in municipal securities.
Bancorp experienced an increase in loans of $12.8 million at March 31, 1996
as compared to December 31, 1995. This increase was primarily due to commercial
loan activity of the Bank.
<PAGE>
Bancorp experienced an increase of $18.7 million in deposits during the
first quarter of 1996. This increase primarily resulted from an increase in
interest-bearing demand deposits ($6.8 million). Bancorp also experienced an
increase in demand deposits at March 31, 1996; however, this increase was due to
the deposit of proceeds from an initial stock offering of one customer which
were subsequently withdrawn from the Bank.
All other changes experienced in asset and liability categories during the
first quarter of 1996 were comparatively modest.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
- -----------------------------------------
Total interest income increased approximately $1.5 million for the three
months ended March 31, 1996 as compared to the same period in 1995. This
increase was due in part to the increases in the amount of available-for-sale
securities and loans held during the first quarter of 1996 as compared to the
first quarter of 1995, but was also due to higher interest rates payable on
available-for-sale securities and loans. Interest earned on available-for-sale
securities increased 42% during the three months ending March 31, 1996 as
compared to the same period in 1995. Interest earned on loans increased 20% over
the same period.
Total interest expense increased $556,800 for the three months ended March
31, 1996 as compared to the 1995 period. This increase was due to the increase
in interest-bearing deposits held during the first quarter of 1996 as compared
to the first quarter of 1995.
The increase in interest earned, offset in part by the increase in interest
paid, served to increase Bancorp's net interest income by approximately $514,000
(or 55%) over the first quarter of 1995. Net income per common share (primary)
increased to $.30 for first quarter 1996 from $.20 for first quarter 1995.
<PAGE>
Noninterest income decreased approximately $35,400 for the three months
ended March 31, 1996 as compared to the 1995 period. This decrease was primarily
attributable to the decrease in loan servicing fees due to the August 1995 sale
of Harding Fletcher. This decrease was partially offset by an increase in gains
on sales of residential mortgage loans to investors, a result of a more
favorable mortgage interest rate market during the first quarter of 1996 as
compared to the same quarter of 1995.
Noninterest expense increased approximately $19,900 or less than 1% for the
three months ended March 31, 1996 as compared to the 1995 period. This increase
is primarily attributable to increases in salaries and employee benefits and
premises and equipment which were offset in part by a decrease in insurance, a
direct result of the decreased assessment rate for Federal Deposit Insurance
coverage.
Salaries and employee benefits increased approximately $140,090 during the
1996 period as compared to the 1995 period, which was primarily due to additions
to the Bank's staff to manage the 31% increase in assets despite the sale of
Harding Fletcher.
The increase of $57,000 in premises and equipment in the first quarter of
1996 is the result of the Pacific Corporate Center office in Tigard, Oregon
moving to permanent facilities in June 1995.
LOAN LOSS PROVISION
- -------------------
During the three months ended March 31, 1996, Bancorp charged a $150,000
loan loss provision to operations, as compared to $75,000 charged during the
three months ended March 31, 1995. Loans charged off, net of recoveries, during
the three months ended March 31, 1996 equalled net charge offs of $2,314, as
compared to net recoveries of $3,446 for the 1995 three-month period.
The $75,000 increase in the loan loss provision has been established to
provide coverage for the significant increase in loans and the anticipated
continued growth. Management believes that the reserve for loan losses is
adequate for potential loan losses, based on management's assessment of various
factors, including present delinquent and nonperforming loans, past history of
industry loan loss experience, and present and anticipated future economic
trends impacting the area and customers served by Bancorp.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Bancorp's principal subsidiary, Centennial Bank, has adopted policies to
maintain a relatively liquid position to enable it to respond to changes in the
Bank's needs and financial environment. Generally, the Bank's major sources of
liquidity are customer deposits, sales and maturities of available-for-sale
securities, the use of federal funds markets and net cash provided by operating
activities. Scheduled loan repayments are a relatively stable source of funds,
while deposit inflows and unscheduled loan prepayments, which are influenced by
general interest rate levels, interest rates available on other investments,
competition, economic conditions and other factors, are not.
Along with federal funds lines, the Bank maintains a cash management
advance with Federal Home Loan Bank, Seattle, Washington, which allows temporary
borrowings for liquidity.
At March 31, 1996, Bancorp's Tier 1 and total risk-based capital ratios
under the Federal Reserve Board's ("FRB") risk- based capital guidelines were
approximately 11.1% and 11.9%, respectively. The FRB's minimum risk-based
capital ratio guidelines for Tier 1 and total capital are 4% and 8%,
respectively.
At March 31, 1996, Bancorp's capital-to-assets ratio under leverage ratio
guidelines was approximately 8.4%. The FRB's current minimum leverage capital
ratio guideline is 3%.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
From time to time, Bancorp or its subsidiaries are named in actions arising out
of the normal course of their businesses. As of the date of this report, Bancorp
was not a party to any legal proceedings it believed to be material other than
the following suit filed by one of the Bank's borrowers: Galen Ritchie
Enterprises, Inc., et al v. Centennial Bank, Case No. 16-96-03603 (filed in
April 1996 in Circuit Court for the State of Oregon). The plaintiff claims that,
in reliance on oral representations of a Bank employee, plaintiff terminated an
existing credit relationship and entered into a relationship with the Bank in
1994. Over the course of the relationship, plaintiff received several increases
in its credit facility, with final borrowings totalling in excess of $750,000.
The loan is collateralized and is guaranteed by plaintiff's owners. Plaintiff
alleges, among other things, breach of contract, fraud, intentional interference
with business relationships, rescission and reformation. Plaintiff seeks to
recover in excess of $848,000 in connection with the alleged breach of contract;
in excess of $2.2 million in connection with the alleged fraud; and in excess of
$2 million in connection with the alleged intentional interference with business
relationship. The recovery sought for each claim is based, at least in part, on
the same damages. Plaintiff has also reserved the right to allege punitive
damages in connection with each claim. Bancorp filed a motion for summary
judgment on May 10, 1996 and plans to vigorously contest this action. Bancorp
has notified its insurance carrier of the action; however, the damages sought
exceed Bancorp's maximum insurance coverage.
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
(a) Exhibits
27 Financial Statement Schedule
(b) Reports on Form 8-K. None
<PAGE>
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 thereunto duly authorized.
CENTENNIAL BANCORP
Dated: May 13, 1996 /s/ Richard C. Williams
-----------------------------------
Richard C. Williams
President & Chief Executive Officer
Dated: May 13, 1996 /s/ Michael J. Nysingh
-----------------------------------
Michael J. Nysingh
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM CENTENNIAL BANCORP'S CONSOLIDATED FINANCIAL STATEMENTS
CONTAINED IN ITS QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 19,206,393
<INT-BEARING-DEPOSITS> 9,940,000
<FED-FUNDS-SOLD> 10,860,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 87,930,955
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 199,294,678
<ALLOWANCE> (2,076,058)
<TOTAL-ASSETS> 345,280,449
<DEPOSITS> 286,569,732
<SHORT-TERM> 19,789,524
<LIABILITIES-OTHER> 3,096,910
<LONG-TERM> 8,905,000
0
0
<COMMON> 9,432,604
<OTHER-SE> 17,486,679
<TOTAL-LIABILITIES-AND-EQUITY> 345,280,449
<INTEREST-LOAN> 5,717,286
<INTEREST-INVEST> 1,205,873
<INTEREST-OTHER> 156,497
<INTEREST-TOTAL> 7,079,656
<INTEREST-DEPOSIT> 2,061,156
<INTEREST-EXPENSE> 2,456,348
<INTEREST-INCOME-NET> 4,623,308
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,818,542
<INCOME-PRETAX> 2,152,518
<INCOME-PRE-EXTRAORDINARY> 2,152,518
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,452,918
<EPS-PRIMARY> .30
<EPS-DILUTED> .27
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 454,000
<LOANS-PAST> 1,174,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,928,372
<CHARGE-OFFS> 5,208
<RECOVERIES> 2,894
<ALLOWANCE-CLOSE> 2,076,058
<ALLOWANCE-DOMESTIC> 2,076,058
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> INFORMATION NOT CALCULATED FOR INTERIM REPORTS.
</FN>
</TABLE>
