UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1995
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file Number: 0-10489
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CENTENNIAL BANCORP
(Name of registrant as specified in its charter)
Oregon 93-0792841
(State of incorporation) (I.R.S. Employer
Identification No.)
675 Oak Street
Eugene, Oregon 97401
(Address of principal executive offices)
Registrant's telephone number: (541) 342-3970
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $2.00 par value
(Title of class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ X ]
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.
$47,550,000 aggregate market value as of February 29, 1996, based on the price
at which the stock was sold.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date: 4,700,847 shares of $2.00
par value Common Stock on March 15, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Part I and Part II incorporate information by reference from the issuer's Annual
Report to Shareholders for the fiscal year ended December 31, 1995. Part III is
incorporated by reference from the issuer's definitive proxy statement for the
annual meeting of shareholders to be held on May 15, 1996.
<PAGE>
CENTENNIAL BANCORP
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
PART I Page
- ------- ----
(Portions of Item 1 are incorporated by
reference from Centennial Bancorp's Annual
Report to Shareholders)
Item 1. DESCRIPTION OF BUSINESS 3
Item 2. DESCRIPTION OF PROPERTY 35
Item 3. LEGAL PROCEEDINGS 35
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 36
PART II
(Items 5, 6, 7 and 8 are incorporated by
reference from Centennial Bancorp's Annual
Report to Shareholders)
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS 37
Item 6. SELECTED FINANCIAL DATA 37
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS 37
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 37
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 37
PART III
(Items 10 through 13 and portions of Item 14 are incorporated by
reference from Centennial Bancorp's definitive proxy statement for the
annual meeting of shareholders to be held on May 15, 1996)
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT 38
Item 11. EXECUTIVE COMPENSATION 38
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 38
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 38
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K 38
SIGNATURES 42
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Centennial Bancorp, an Oregon corporation, is successor to Valley West
Bancorp which was organized in 1981 to become a bank holding company. In 1982,
Centennial Bank and Valley State Bank, both Oregon state-chartered banks, were
merged and continued business as Centennial Bank. Immediately following the
merger, Valley West Bancorp acquired all the common stock of Centennial Bank. In
May 1990, Valley West Bancorp changed its name to Centennial Bancorp.
On December 2, 1994, CG Bancorp, an Oregon corporation, was merged with and
into Centennial Bancorp in a stock transaction accounted for as a pooling of
interests. CG Bancorp was the parent corporation of Western Oregon Community
Bank, which operated a branch office in Creswell, Oregon in addition to its head
office in Cottage Grove, Oregon. Both branches of Western Oregon Community Bank
became branches of Centennial Bank. Centennial Bank has decided to close its
Creswell office.
At December 31, 1995, Centennial Bancorp ("Bancorp") has two wholly owned
subsidiaries: Centennial Bank and Centennial Mortgage Co. ("Centennial
Mortgage"). From July 1993 until its sale in August 1995, Bancorp also owned
Harding Fletcher Co. ("Harding Fletcher"), a mortgage banking subsidiary. Unless
the context clearly suggests otherwise, references in this Annual Report on Form
10-K to "Bancorp" include Centennial Bancorp and its subsidiaries.
All data in this Annual Report on Form 10-K has been restated to give
retroactive effect to the merger with CG Bancorp. In addition, all share and per
share information has been restated to give retroactive effect to a stock split
declared in January 1996, and for various stock splits and stock dividends
declared in years prior to 1996.
CENTENNIAL BANK
Centennial Bank is a full-service commercial bank organized in 1977 under
the Oregon Bank Act. Centennial Bank provides a broad range of depository and
lending services to commercial, industrial, and agricultural enterprises,
financial institutions, and governmental entities and individuals. Centennial
Bank directs its deposit-taking and lending activities primarily to the
communities in which its branches are located. Its primary marketing focus is on
small- to medium-sized businesses and on professionals in those communities.
Centennial Bank does not provide trust services.
At December 31, 1995, based on total assets, Centennial Bank was the 12th
largest bank of the 50 commercial banks maintaining offices in Oregon.
Centennial Bank has seven branches; three in Eugene; one in adjacent
Springfield; one in Tigard, a suburb of Portland, Oregon; and the former Western
Oregon Community Bank offices in Cottage Grove and Creswell, Oregon. Eugene and
Springfield are at the southern end of the Willamette Valley on Interstate 5,
with Creswell and Cottage Grove located approximately 12 and 20 miles further
south, respectively. Centennial Bank opened the Tigard office in August 1994 and
acquired the Western Oregon Community Bank offices in December 1994.
Centennial Bank provides personalized, quality financial services to its
customers and believes this dedication to service has enabled it to maintain a
stable and relatively low-cost retail deposit base, while generating a
substantial volume of loans. Total deposits increased from $216 million at
December 31, 1994 to $268 million at December 31, 1995. Net loans and loans held
for sale increased from $160 million at December 31, 1994 to $189 million at
December 31, 1995.
Deposit accounts at Centennial Bank are insured up to applicable limits by
the Federal Deposit Insurance Corporation (the "FDIC"). Centennial Bank is not a
member of the Federal Reserve System. It is a merchant depository for MasterCard
and VISA. Centennial Bank also offers tax-deferred annuities and mutual funds
through a contract arrangement with Financial Marketing Group, Inc. of Portland,
Oregon. Its revenues from this activity are not significant.
CENTENNIAL MORTGAGE
Centennial Mortgage began operations in 1987, originating conventional and
federally insured residential mortgage loans for sale in the secondary market.
Centennial Bank regularly provides interim financing, generally for 30 to 60
days, for loans originated by Centennial Mortgage. Centennial Mortgage
originated $30.0 million, $20.7 million and $44.5 million of mortgages in 1995,
1994 and 1993, respectively. Mortgage loans generally are sold without recourse
and with no servicing rights retained. Under certain circumstances, Centennial
Mortgage may be obligated to repurchase loans sold in the secondary market.
Centennial Mortgage has one office in Eugene, Oregon, and opened an office in
Lake Oswego, Oregon, a Portland suburb, in 1993. That office relocated to the
Centennial Bank building in Tigard, Oregon in 1995.
Centennial Mortgage established a residential mortgage construction lending
department during 1994 to establish relationships with home builders in the
Eugene/Springfield and Portland-area markets and to attempt to generate
additional permanent loan activity as the houses-under-construction are sold.
Increases in interest rates could adversely affect demand for construction
lending, as well as the ability of borrowers to sell the houses when completed,
and also could impact Centennial Mortgage's permanent mortgage lending activity.
HARDING FLETCHER
In July 1993, Bancorp formed a subsidiary to acquire certain assets of
Harding Fletcher, a commercial mortgage banker with offices in Oregon (Lake
Oswego), Washington (Tacoma) and California (Sacramento and Fresno). Bancorp
paid $320,000 for the Harding Fletcher assets and an additional $80,000 in
consideration for a noncompetition agreement with Wallace E. Harding, the
President and Chief Executive Officer of Harding Fletcher.
In August 1995, Bancorp sold substantially all of the assets of Harding
Fletcher for $741,000. Under the terms of the asset sale agreement, Bancorp
received $155,131 cash for the mortgage servicing rights and certain furniture
and equipment. The balance of the purchase price is to be paid over four years
from the transaction closing date from a percentage of loan servicing income the
buyer receives from the assets sold and from a percentage of loan origination
fees for certain identified transactions.
Harding Fletcher arranged commercial real estate loans, which were funded
by insurance companies and other institutional investors. The loans arranged
were generally between $500,000 and $35 million in size. Harding Fletcher was
not a party to the loans, but was typically retained to service the loans.
BANCORP CONSOLIDATED STATISTICAL INFORMATION
Bancorp incorporates by reference the following financial and statistical
information from its Annual Report to Shareholders for the year ended December
31, 1995:
<PAGE>
Centennial Bancorp
Annual Report
to Shareholders
Page No.
--------------------
Investment securities 15
Loans and reserve for loan losses 16
Deposits 7
NET INTEREST INCOME
For most financial institutions, including Bancorp, the primary component
of earnings is net interest income. Net interest income is the difference
between interest income, principally from loans and investment securities
portfolios, and interest expense, principally on customer deposits and
borrowings. Changes in net interest income result from changes in "volume,"
"spread" and "margin." Volume refers to the dollar level of interest-earning
assets and interest-bearing liabilities. Spread refers to the difference between
the yield on interest-earning assets and the cost of interest-bearing
liabilities. Margin refers to net interest income divided by interest-earning
assets and is influenced by the level and relative mix of interest-earning
assets and interest-bearing liabilities. During 1995, 1994 and 1993, Bancorp's
average interest-earning assets were $252 million, $205 million and $169
million, respectively. During these same years, Bancorp's net interest margin
was 6.66%, 7.24% and 6.69%, respectively.
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID
The following table sets forth for 1995, 1994 and 1993 information with
regard to average balances of assets and liabilities, as well as total dollar
amounts of interest income from interest-earning assets and interest expense on
interest-bearing liabilities, resultant average yields or rates, net interest
income, net interest spread, net interest margin and the ratio of average
interest-earning assets to average interest-bearing liabilities for Bancorp.
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
------------------------------ ------------------------------ -----------------------------
Interest Average Interest Average Interest Average
Average income or yield or Average income or yield or Average income or yield or
balance(1) expense rates balance(1) expense rates balance(1) expense rates
---------- --------- --------- ---------- --------- -------- ---------- --------- --------
ASSETS: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning due from banks $ 5,971 $ 352 5.90% $ 2,498 $ 110 4.40% $ 4,012 $ 118 2.94
Securities - taxable 40,116 2,403 5.99 36,632 1,927 5.26 25,561 1,264 4.95
Securities - tax-exempt(2) 24,159 1,827 7.56 23,040 1,866 8.10 20,844 1,816 8.71
Federal funds sold 5,618 317 5.64 3,349 131 3.91 3,964 112 2.83
Loans and loans held for sale (3) 176,384 20,909 11.85 139,672 16,003 11.46 114,414 12,092 10.57
Total interest-earning assets/
interest income 252,248 25,808 10.23 205,191 20,037 9.77 168,795 15,402 9.12
Reserve for loan losses (1,824) (1,652) (1,280)
Cash and due from banks 16,975 14,562 12,323
Premises and equipment, net 8,477 5,981 5,815
Other real estate owned 22 957 532
Other assets 5,854 4,236 4,059
Total assets $281,752 $229,275 $190,244
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and interest-bearing demand $107,983 3,352 3.10 $101,256 2,333 2.30 $ 86,593 2,178 2.52
Time deposits 71,912 4,146 5.77 47,258 2,106 4.46 40,335 1,611 3.99
Short-term borrowings 13,823 861 6.23 4,259 174 4.09 1,002 38 3.79
Long-term debt 9,200 645 7.01 7,410 559 7.54 6,434 275 4.27
Total interest-bearing liabilities
/interest expense 202,918 9,004 4.44 160,183 5,172 3.23 134,364 4,102 3.05
Demand deposits 53,399 47,406 36,931
Other liabilities 2,133 2,984 3,048
Total liabilities 258,450 210,573 174,343
Shareholders' equity 23,302 18,702 15,901
-------- ------- -------- ------- -------- -------
Total liabilities and shareholders'
equity $281,752 $229,275 $190,244
======== ======== ========
Net interest income $16,804 $14,865 $11,300
======= ======= =======
Net interest spread (2) 5.79% 6.54% 6.07%
===== ====== =====
Net interest margin (2) 6.66% 7.24% 6.69%
</TABLE>
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(1) Average balances are based on daily averages and include nonaccrual loans.
(2) Average yield on nontaxable securities, net interest spread and net
interest margin have been computed on a 34% tax-equivalent basis.
(3) Nonaccrual loans ($631,100, $783,200 and $311,500 in 1995, 1994 and 1993,
respectively) have been included in the computation of average loans and
loans held for sale. Loan fees recognized, included in interest income,
totalled $2,541,800, $2,958,600 and $1,626,000 in 1995, 1994 and 1993,
respectively.
ANALYSIS OF CHANGES IN INTEREST RATE DIFFERENTIAL
The following table shows the dollar amount of the increase (decrease) in
Bancorp's interest income and interest expense for the years indicated, on a
tax-equivalent basis, and attributes such dollar amounts to changes in volume
and changes in interest rates. Changes attributable to the combined effect of
volume and interest rate changes, which were immaterial, have been allocated
equally between interest rate and volume.
<TABLE>
<CAPTION>
1995 vs. 1994 1994 vs. 1993
Change in Change in
net interest income net interest income
due to due to
---------------------------- ------------------------------
Volume Rate Total Volume Rate Total
------ ------ ------ ------ ------ -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Balances due from banks $ 179 $ 63 $ 242 $ (56) $ 48 $ (8)
Securities - taxable 196 280 476 565 98 663
Securities - tax-exempt 88 (127) (39) 185 (135) 50
Federal funds sold 108 78 186 (21) 40 19
Loans 4,279 627 4,906 2,782 1,129 3,911
------ ------ ------ ------ ------ ------
Total interest income 4,850 921 5,771 3,455 1,180 4,635
------ ------ ------ ------ ------ ------
Interest expense:
Deposits:
Savings and interest-
bearing-demand 182 837 1,019 353 (198) 155
Time 1,260 780 2,040 293 202 495
Short-term borrowings 493 194 687 128 8 136
Long-term debt 130 (44) 86 58 226 284
------ ------- ------ ------ ------ ------
Total interest expense 2,065 1,767 3,832 832 238 1,070
------ ------ ------ ------ ------ ------
Net interest income $2,785 $ (846) $1,939 $2,623 $ 942 $3,565
====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
MARKET AREAS
Centennial Bank's primary market area is the Eugene/ Springfield area at
the southern end of Oregon's Willamette Valley. The populations of Eugene and
Springfield total approximately 170,000. The area's economy depends primarily
upon educational institutions, U.S. and local government, forest products,
general manufacturing (especially small manufacturing and high-technology
industries), health care and tourism. The University of Oregon, located in
Eugene, is the area's largest employer.
Centennial Bank also has branch offices in Cottage Grove and Creswell,
Oregon, located approximately 20 and 12 miles south, respectively, of Eugene and
Springfield. The populations of Cottage Grove and Creswell total approximately
10,000. Their economies similarly depend primarily upon forest products, general
manufacturing, agriculture and tourism.
In August 1994, Centennial Bank opened a branch office in Tigard, a suburb
of Portland, Oregon. The Portland metropolitan area has a diverse economy and a
population of approximately 1.3 million. Management believes the Portland
metropolitan area offers an opportunity to increase Bancorp's asset size and
business operations, and to provide diversification of risk in its loan
portfolio through the diversity of the economic market in the metropolitan area.
LENDING ACTIVITIES
GENERAL
Bancorp provides a broad range of commercial and real estate lending
services. Currently, the primary focus of Bancorp's lending activities is to
provide commercial loans to small- to medium-sized businesses with annual
revenues typically up to $20 million, and to professionals. Most of Bancorp's
loans are made to customers in the trade areas served by branch offices.
Bancorp also makes construction loans and makes secured real estate loans,
most of which are sold in the secondary markets. Bancorp makes consumer loans,
primarily to accommodate existing customers, but does not actively pursue such
lending.
Bancorp strives to maintain sound loan underwriting standards with written
loan policies, conservative individual and branch limits and, depending on the
size of the commitment, reviews by Centennial Bank's Administrative Loan and
Asset/Liability committees. Underwriting standards are designed to achieve a
high-quality loan portfolio, compliance with lending regulations and the desired
mix of loan maturities and industry concentrations. Management further seeks to
minimize credit losses by closely monitoring the financial condition of its
borrowers and the value of collateral. In-house legal counsel assists in loan
documentation and collections.
<PAGE>
LOAN PORTFOLIO COMPOSITION
The following table sets forth information with respect to the composition
of Bancorp's loan portfolio (loans and loans held for sale) by type of loan at
December 31 for each of the last five years:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial and other $ 78,564 $ 66,845 $ 61,640 $48,496 $50,833
Real estate - mortgage 59,204 56,792 44,253 34,774 32,913
Real estate - construction 44,003 29,337 11,626 5,214 1,572
Installment 5,929 6,951 10,653 9,179 8,722
Lease financing 4,001 2,686 138 -- --
-------- --------- --------- ------- --------
Total loans and loans
held for sale 191,701 162,611 128,310 97,663 94,040
Less deferred loan fees (611) (600) (394) (155) (52)
Less reserve for loan
losses (1,928) (1,700) (1,514) (1,078) (1,116)
--------- --------- -------- -------- -------
Loans receivable, net $189,162 $160,311 $126,402 $96,430 $92,872
======== ======== ======== ======= =======
</TABLE>
<PAGE>
The following table presents the aggregate maturities of loans in each
major category of Bancorp's loan portfolio at December 31, 1995. Actual
maturities may differ from the contractual maturities shown below as a result of
renewals and prepayments.
The following table presents the aggregate maturities of loans in each
major category of Bancorp's loan portfolio at December 31, 1995. Actual
maturities may differ from the contractual maturities shown below as a result of
renewals and prepayments.
<TABLE>
<CAPTION>
Due after Total
Due within one but within Due after loans by
Loan category one year five years five years category
------------- ----------- --------------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 58,803 $14,993 $ 4,457 $ 78,253
Real estate - mortgage 19,493 22,053 13,085
Real estate - construction 39,972 4,031 -- 54,631
Installment 3,572 2,274 83 44,003
Loans held for sale -- -- 4,573 5,929
Lease financing 124 2,444 118 4,573
Other -- 311 -- 4,001
Less deferred loans fees (234) (277) (100) 311
(611)
--------- -------- -------- ---------
Total loans by maturity $121,607 $47,386 $22,097 $191,090
======== ======= ======= ========
</TABLE>
Of Bancorp's $69.5 million of loans that mature after one year, a total of
$55.4 million (79.7%) are fixed-rate loans, and a total of $14.1 million (20.3%)
are variable-rate loans.
At December 31, 1995, $79.6 million (approximately 41.7% of Bancorp's loan
portfolio) had fixed interest rates and $111.5 million (approximately 58.3%) had
variable interest rates.
COMMERCIAL LOANS
Commercial loans that are not collateralized by real estate represent the
largest category of Bancorp's loans. Bancorp's areas of emphasis include, but
are not limited to, loans to small- to medium-sized businesses and to
professionals. Bancorp provides a wide range of commercial business loans,
including lines of credit for working capital and term loans for the acquisition
of equipment and other purposes. Collateral generally includes equipment,
accounts receivable and inventory. Where warranted by the overall financial
condition of the borrower, loans may be made on an unsecured basis.
At December 31, 1995, approximately 62% of Bancorp's commercial loans had
floating or adjustable interest rates; the remaining 38% had fixed interest
rates. Operating lines of credit are payable on demand and subject to annual
renewal. Term loan maturities generally range from one to five years. Commercial
loans outstanding at December 31, 1995 were $78.3 million, compared to $66.5
million at December 31, 1994 and $60.0 million at December 31, 1993. Management
believes the increases in 1995 and 1994 were primarily a result of Centennial
Bank's business development program and the opening of the branch office in
Tigard, Oregon in August 1994. Nonaccrual loans in this category totalled
$478,000 at December 31, 1995 ($693,000 at December 31, 1994); there were no
restructured loans at December 31, 1995 or 1994.
REAL ESTATE MORTGAGE LOANS
Real estate mortgage loans represent Bancorp's second largest category of
loans. Of the $54.6 million of real estate mortgage loans outstanding at
December 31, 1995, $36.7 million were made to commercial customers where the
collateral for the loans included the real estate occupied by the customers'
businesses. Therefore, many loans characterized as real estate mortgage loans
could be characterized as commercial loans that are collateralized by real
estate. Commercial real estate loans typically involve large loan balances to
single borrowers or groups of related borrowers. These borrowers may be more
sensitive to changes in economic conditions than are residential loan customers.
Real estate mortgage loans outstanding decreased to $54.6 million at December
31, 1995 from $56.8 million at December 31, 1994. The decrease was primarily a
result of customers refinancing or otherwise paying off older mortgage loans
with higher interest rates. Real estate mortgage loans increased to $56.8
million at December 31, 1994 from $47.5 million at December 31, 1993. The
increase was primarily a result of new customers, and a change in Bancorp's
reporting category of home equity loans from installment to real estate to
conform with federal regulatory reporting requirements. At December 31, 1995 and
1994, there were no nonaccrual loans or restructured loans in this category.
At December 31, 1995, $31.6 million (or approximately 58%) of Bancorp's
real estate mortgage loans had fixed interest rates and $23.0 million (or
approximately 42%) had floating or adjustable interest rates. Maturities of real
estate mortgage loans usually range from one to ten years.
Bancorp's underwriting standards specify the following maximum
loan-to-value ratios for real estate loans: 90% for loans collateralized by
owner-occupied residences, 80% for other residential loans and for construction
loans, and 70% for commercial real estate loans. Management believes that
Bancorp's current real estate mortgage portfolio does not present a material
risk of loan losses.
Bancorp originates SBA real estate loans on owner-occupied properties where
the maturities may be up to 20 years, and the loan-to-value ratio may reach 75%
of appraised value or cost, whichever is lower. Up to 90% of the amount of these
loans is guaranteed or insured by an agency of the U.S. Government. The
guaranteed portion of these loans is typically sold to secondary-market
investors.
REAL ESTATE CONSTRUCTION LOANS
Bancorp makes construction loans to individuals and contractors to
construct single-family primary residences or second homes and, to a much lesser
extent, small multi-family residential projects. The construction loans
represent custom homes, pre-sold homes and homes that are not pre-sold. These
loans generally have maturities of six to nine months. Interest rates are
typically adjustable, although fixed-rate loans are also made under appropriate
conditions. Centennial Bank provides funding for all the construction loans
originated by Centennial Mortgage, and Centennial Mortgage provides monitoring
and reporting services on all construction loans made by Centennial Bank.
Construction financing is generally considered to involve a higher degree
of risk than long-term financing on improved, occupied real estate. The risk of
loss on construction loans depends largely upon the accuracy of the initial
estimate of the property's value at completion of construction or development
and the estimated cost (including interest) of construction. If the estimate of
construction costs proves to be inaccurate, Bancorp might have to advance funds
beyond the amount originally committed to permit completion of the development
and to protect its security position. Bancorp might also be confronted, at or
prior to maturity of the loan, with a project with insufficient value to ensure
full repayment. Bancorp's underwriting, monitoring and disbursement practices
with respect to construction financing are intended to ensure that sufficient
funds are available to complete construction projects. Bancorp endeavors to
limit its risk through its underwriting procedures by using only approved,
qualified appraisers, by dealing only with qualified builders/borrowers, and by
closely monitoring the construction projects through the process of completion
and sale.
At December 31, 1995 and 1994, there were no nonaccrual loans or
restructured loans in this category.
INSTALLMENT LOANS
Bancorp does not actively solicit consumer loans, but makes such loans
primarily as a convenience to existing customers. Bancorp includes in its
installment loan category personal lines of credit, as well as consumer
installment loans (such as for automobile purchases). Consumer loans may be
collateralized or unsecured. Collections depend principally on the borrower's
financial condition or cash flow.
Installment loans were $5.9 million at December 31, 1995 compared to $7.0
million at December 31, 1994 and $9.1 million at
<PAGE>
December 31, 1993. These decreases were primarily due to Bancorp's focus on
lending to businesses and professionals and significant competition for consumer
loans from the many credit unions, banks and finance companies in the market
areas served by Bancorp. The $2.1 million decrease at December 31, 1994 as
compared to December 31, 1993 also reflects the reclassification of home equity
loans from installment to real estate to conform with federal regulatory
reporting requirements. At December 31, 1995 and 1994, there were no nonaccrual
loans or restructured loans in this category.
COMMITMENTS AND CONTINGENT LIABILITIES
In the ordinary course of business, Bancorp enters into various types of
transactions that include commitments to extend credit and standby letters of
credit as described in Note 10 of Notes to Consolidated Financial Statements of
Bancorp, which are incorporated by reference from Bancorp's 1995 Annual Report
to Shareholders. Bancorp applies the same credit standards to these commitments
as it uses in all its lending processes and has included these commitments in
its lending risk evaluations. Collateral for these commitments may include cash,
securities and/or real estate.
CREDIT AUTHORITY AND LOAN LIMITS
All Bancorp loans and other credit facilities are subject to credit and
collateral approval procedures and loan amount limitations. Individual loan
officers and branch managers have authority to approve loans in amounts up to
established limits, generally ranging from $25,000 to $50,000. Loans in excess
of branch limits, or not in conformance with credit or collateral criteria, are
reviewed by Centennial Bank's Administrative Loan Committee. The Asset/Liability
Committee, a majority of whom are nonofficer members of Centennial Bank's Board
of Directors, reviews loan applications over established Administrative Loan
Committee limits. All loans in excess of $25,000 to executive officers and
directors of Bancorp or any of its subsidiaries must be approved by the
Asset/Liability Committee and ratified by Centennial Bank's Board of Directors.
Under Oregon law, permissible loans from a financial institution to one
borrower are generally limited to 15% of the institution's aggregate paid-up and
unimpaired capital and surplus (which includes capital debentures with a
maturity date of more than five years). At December 31, 1995, Centennial Bank's
permissible loan limit was $2.5 million (or $4.2 million if the loan is
collateralized by real estate).
Loan pricing decisions are based on an evaluation of risk, cost of funds,
operating and administrative costs, a reserve for loan losses, desired profit
margin and other factors. Loan risk is based in part on a risk rating assigned
to each loan. Bancorp uses a computerized pricing system that analyzes a
borrower's total contribution to net interest income.
<PAGE>
Centennial Bank sells loan participations to accommodate borrowers whose
financing needs exceed Centennial Bank's lending limits, and to diversify risk.
Centennial Bank occasionally purchases participations in loans from
correspondent banks. Centennial Bank's policies prohibit aggregate purchased
participations in excess of 10% of Centennial Bank's loan portfolio.
NONPERFORMING ASSETS
Nonperforming assets consist of loans past due 90 days or more, nonaccrual
loans, restructured loans and other real estate owned ("OREO"). The following
table sets forth information concerning Bancorp's nonperforming assets at the
end of each of the last five years:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Nonperforming loans:
Loans past due 90 days or more $ 645 $ 190 $ 186 $ 203 $ 104
Nonaccrual loans 478 693 881 -- 119
Restructured loans -- -- -- -- --
------- ------- ------- ------- -------
Total nonperforming loans 1,123 883 1,067 203 223
Other real estate owned (1) -- 392 221 549 169
------ ------ ------ ------ ------
Total nonperforming assets $1,123 $1,275 $1,288 $ 752 $ 392
====== ====== ====== ====== ======
Reserve for loans losses $1,928 $1,700 $1,514 $1,078 $1,116
Ratio of total nonperforming assets
to total assets .35% .49% .58% .41% .24%
Ratio of total nonperforming loans
to total loans .59 .54 .83 .21 .23
Ratio of reserve for loan losses
to total nonperforming loans 172 193 142 531 500
</TABLE>
- ----------
(1) OREO consists of real estate acquired through foreclosure or by a deed
in lieu of foreclosure. The OREO specified above does not include
Bancorp's former head office facility, which was reclassified as OREO
in 1993 and sold in 1994.
Bancorp's total nonperforming assets decreased by $152,000 during 1995 and
decreased by $13,000 during 1994. Total nonperforming assets, as a percentage of
total assets, decreased to .35% at December 31, 1995 from .49% at December 31,
1994 and .58% at December 31, 1993. Nonperforming loans, comprised of loans past
due 90 days or more, nonaccrual loans and restructured loans, increased by
$240,000 during 1995 and increased by $56,000 during 1994. Nonperforming loans,
as a percentage of total loans, increased to .59% at December 31, 1995 from .54%
at December 31, 1994, but decreased from .83% at December 31, 1993.
The accrual of interest on a loan is discontinued when, in
<PAGE>
management's judgment, the future collectibility of principal or interest 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. When a
loan is placed on nonaccrual status, Bancorp's policy is to reverse, and charge
against current income, interest previously accrued but uncollected. Interest
subsequently collected on such loans is credited to loan principal if, in the
opinion of management, full collectibility of principal is doubtful. If interest
on nonaccrual loans had been accrued, such income would have been $74,000 in
1995, $77,000 in 1994 and $46,000 in 1993. The amount recognized as interest
income on these loans was none in 1995 and 1994 and $41,000 in 1993.
Restructured loans are those for which concessions have been granted due to
the borrower's weakened financial condition or other factors. Such concessions
may include reduction of interest rates below rates otherwise available to that
borrower or deferral of interest or principal. Interest on restructured loans is
accrued at the restructured rate when it is anticipated that no loss of original
principal will occur. Bancorp had no restructured loans at December 31, 1995 or
1994.
OREO consists of real estate acquired by Bancorp through foreclosure or by
a deed in lieu of foreclosure. Properties in OREO are carried at the lower of
fair market value (less anticipated selling costs) or the principal balance of
the related loan. Any excess of the loan balance over fair value of the property
is charged to the reserve for loan losses.
At December 31, 1995, Bancorp held no OREO. At December 31, 1994, Bancorp's
OREO consisted of one single-family dwelling with acreage in Springfield,
Oregon. At that date, the book value of the property was $392,000, which was
sold during 1995 for a loss of $25,000. At December 31, 1993, Bancorp's OREO
consisted of one single-family dwelling and one commercial building, with an
aggregate book value of $221,000, which was sold for a loss of $28,000.
ANALYSIS OF THE RESERVE FOR LOAN LOSSES
The reserve for loan losses represents management's estimate of the losses
inherent in the loan portfolio. The reserve is based primarily on management's
evaluation of the overall quality and risk characteristics of Bancorp's loan
portfolio, which is dependent upon numerous interrelated factors including
present nonperforming and delinquent loans, borrowers' perceived abilities to
repay, value of collateral, general and local economic conditions and historical
loan loss experience.
Centennial Bank's Asset/Liability Committee reviews the adequacy of the
reserve for loan losses quarterly. Although determination of the adequacy of the
reserve involves substantial subjective judgment based on the Committee's
analysis of the risk characteristics of the entire loan portfolio, the Committee
also uses three quantitative methods to analyze the adequacy of the
<PAGE>
reserve. Under the first method, management assigns a specific percentage to
each nonperforming, substandard or doubtful loan in Bancorp's loan portfolio to
calculate a total amount of average anticipated loan losses.
The second method uses the risk-weighted ratings (from one through five)
developed by the FDIC, with management assigning a percentage to the loans in
the various risk categories (using .0025% for loans in the lowest risk category
up to 25% for loans in the highest risk category) to calculate an alternative
amount of possible losses.
The third method is in accordance with the requirements of Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("SFAS 114"), which Bancorp adopted on January 1, 1995. Under SFAS
114, a loan is considered impaired based on current information and events if it
is probable that Bancorp will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. This policy is generally consistent with Bancorp's nonaccrual policy.
Bancorp also specifically examines all loans greater than $100,000 that are
identified on an internal watch list. Loans which are over 90 days contractually
delinquent and loans which have developed inherent problems prior to being 90
days delinquent may be considered impaired. An insignificant delay or shortfall
in the amount of payments is not an event that, when considered in isolation,
would automatically cause a loan to be considered impaired for purposes of SFAS
114. The measurement of impaired loans is generally based on the present value
of expected future cash flows discounted at the historical effective interest
rate, except that all collateral-dependent loans are measured for impairment
based on the fair value of the collateral.
The amounts calculated by the quantitative methods are then compared by the
Committee to the reserve for loan losses in evaluating the adequacy of the
reserve.
As a result of the decline in real estate market values in many parts of
the United States and the significant losses experienced by many financial
institutions, regulators have increasingly scrutinized loan portfolios and loss
reserves, particularly with respect to commercial and multi-family residential
real estate loans. Management believes that Bancorp's reserve for loan losses is
adequate to cover anticipated losses and is in accordance with generally
accepted accounting principles. There can be no assurance, however, that
management will not decide to increase the reserve for loan losses or that
regulators will not require Bancorp to increase the reserve, either of which
events could adversely affect Bancorp's results of operations. Further, there
can be no assurance that Bancorp's actual loan losses will not exceed its
reserve.
<PAGE>
The following table sets forth information regarding changes in Bancorp's
reserve for loan losses for each of the last five years:
<TABLE>
<CAPTION>
At or for the year ended December 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans and loans held for sale
at year-end $191,090 $162,011 $127,916 $97,508 $93,988
======== ======== ======== ======= =======
Average loans and
loans held for sale $176,384 $139,672 $114,414 $98,476 $88,385
======== ======== ======== ======= =======
Reserve for loan losses,
beginning of year $ 1,700 $ 1,514 $ 1,078 $ 1,116 $ 961
Charge-offs:
Commercial and other (128) (108) (18) (112) (54)
Real estate - construction -- -- -- -- --
Real estate - mortgage -- (17) -- (160) (63)
Installment (34) (22) (17) (32) (9)
-------- -------- ------- ------- -------
Total charge-offs (162) (147) (35) (304) (126)
-------- -------- ------- ------- -------
Recoveries:
Commercial and other 10 8 7 5 30
Real estate - construction 3 -- 149 -- --
Real estate - mortgage 7 -- -- -- 14
Installment 20 10 5 5 2
-------- -------- ------- ------- -------
Total recoveries 40 18 161 10 46
-------- -------- ------- ------- -------
Net loans (charged off) recovered (122) (129) 126 (294) (80)
Provision for loan losses 350 315 310 256 235
-------- -------- ------- ------- -------
Reserve for loan losses
at year-end $ 1,928 $ 1,700 $ 1,514 $ 1,078 $ 1,116
======== ======== ======= ======= =======
Ratio of net loans (charged off)
recovered to average
loans outstanding (.07)% (.09)% .11% (.30)% (.09)%
Ratio of reserve for loan losses
to loans at year-end 1.01 1.05 1.18 1.11 1.19
</TABLE>
Anticipated loan losses are charged against the reserve for loan losses
when, in management's opinion, ultimate recovery is unlikely or when bank
examiners require a charge-off. As the actual amount of loss with respect to
specific loans is often dependent upon future events (including liquidation of
collateral), Bancorp cannot accurately predict precisely what losses, if any,
will be sustained with respect to specific loans. Historical experience has also
shown that, at any particular time, loan losses may exist in a loan portfolio
that have not yet been identified. For these reasons, although management
analyzes specific loans in determining the adequacy of its reserve for loan
losses, it does not normally allocate the reserve to specific groups or
<PAGE>
categories of loans. Management estimates, however, that the allocation of the
reserve for loan losses by loan category at the end of each of the last five
years was as set forth below:
<TABLE>
<CAPTION>
Amount of Loans in
reserve category as a
for percentage of
loan total gross
losses loans
--------- -------------
<S> <C> <C>
(Dollars in thousands)
December 31, 1995
- ----------------------------
Commercial and other $1,200 44.1%
Real estate - mortgage 125 29.2
Real estate - construction 520 23.5
Installment 35 3.2
Unallocated 48 --
------ -----
Total $1,928 100.0%
====== =====
December 31, 1994
- ----------------------------
Commercial and other $1,000 42.8%
Real estate - mortgage 125 34.9
Real estate - construction 500 18.0
Installment 35 4.3
Unallocated 40 --
------ -----
Total $1,700 100.0%
====== =====
December 31, 1993
- ----------------------------
Commercial and other $ 550 46.8%
Real estate - mortgage 120 37.0
Real estate - construction 115 9.1
Installment 35 7.1
Unallocated 696 --
------ -----
Total $1,516 100.0%
====== =====
December 31, 1992
- ----------------------------
Commercial and other $ 550 49.7%
Real estate - mortgage 120 35.6
Real estate - construction 100 5.3
Installment 30 9.4
Unallocated 278 --
------ -----
Total $1,078 100.0%
====== =====
December 31, 1991
- ----------------------------
Commercial and other $ 552 54.1%
Real estate - mortgage 120 35.0
Real estate - construction 100 1.7
Installment 30 9.2
Unallocated 314 --
------ -----
Total $1,116 100.0%
====== =====
</TABLE>
<PAGE>
The following table details the carrying value of Bancorp's impaired loan,
in accordance with SFAS 114, by type of loan as of December 31, 1995:
<TABLE>
<CAPTION>
Net
Recorded Valuation Carrying
Amount Allowance Value
--------- --------- ---------
<S> <C> <C> <C>
Commercial $424,000 $100,000 $324,000
======== ======== ========
</TABLE>
The above impaired loan was measured based on the fair value of the loan's
collateral. The allowance for loan losses for all other loans is determined
based on the methodology discussed above.
INVESTMENT ACTIVITIES
Bancorp's investment portfolio is comprised of U.S. government securities,
municipal securities, mortgage-backed securities, corporate bonds and equity
securities.
Bancorp's primary investment objectives are to maintain liquidity and to
generate after-tax profits consistent with the risk guidelines established by
the Board of Directors. At December 31, 1995 and 1994, Blount Investment Group,
of Eugene, Oregon, advised Bancorp with respect to the investment portfolio.
Centennial Bank has extended loans to Blount Investment Group and its
affiliates. Such loans are made on terms, including interest rates and
collectibility, no more favorable to the borrowers than loans to other
borrowers.
All of the securities held in the investment portfolio were classified as
available-for-sale at December 31, 1995 and 1994. Those securities will be sold
as necessary to provide liquidity and to respond to interest rate changes.
Because these securities are carried at their market value, fluctuations in
interest rates could affect the carrying value of these securities and,
therefore, the reported shareholders' equity of Bancorp.
The following table provides the carrying values of Bancorp's investment
portfolio at the end of each of the last three years. See Note 2 of Notes to
Consolidated Financial Statements for more information about investment
securities held at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1995 1994 1993
------- ------- ------
(In thousands)
<S> <C> <C> <C>
U.S. Treasuries $ 8,428 $15,162 $13,394
U.S. Government agencies 29,422 8,457 2,460
States and political subdivisions 23,845 17,088 21,159
Bankers' acceptances -- -- 3,941
Corporate bonds 2,300 5,118 5,037
Mortgage-backed securities 8,929 8,727 9,496
------- ------- -------
Total debt securities 72,924 54,552 55,487
Equity securities 4,040 4,243 2,615
------- ------- -------
Total investment securities $76,964 $58,795 $58,102
======= ======= =======
</TABLE>
<PAGE>
The following table provides the carrying values, principal amounts,
maturities and weighted average yields of Bancorp's investment securities at
December 31, 1995, all of which are classified as available-for-sale:
<TABLE>
<CAPTION>
Carrying
value Weighted
(fair market Principal average
Type and maturity value) amount yield(1)
----------------- ----------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C>
U.S. Treasuries
Due within 1 year $ 4,003 $ 4,000 4.61%
Due after 1 but within 5 years 4,164 4,150 5.29
Due after 5 but within 10 years 261 250 5.83
------- -------
Total U.S. Treasuries 8,428 8,400 4.98
U.S. Government Agencies
Due after 1 but within 5 years 1,206 1,200 6.37
Due after 5 but within 10 years 27,564 27,200 7.01
Due after 10 years 652 650 7.15
------- -------
Total U.S. Government Agencies 29,422 29,050 6.99
States and political political
Due within 1 year 388 385 6.89
Due after 1 but within 5 years 305 300 7.27
Due after 5 but within 10 years 14,543 14,240 7.90
Due after 10 years 8,609 8,595 8.20
------- -------
Total states and political subdivisions 23,845 23,520 7.98
Corporate bonds
Due after 1 but within 5 years 200 200 6.30
Due after 5 but within 10 years 2,100 2,010 6.12
------- -------
Total corporate bonds 2,300 2,210 6.14
Mortgage-backed securities
(U.S. Government agencies) 8,929 8,935 5.45
------- -------
Total debt securities 72,924 72,115 6.86
Equity securities 4,040 4,040
------- -------
Total securities $76,964 $76,155
======= =======
</TABLE>
- ------------
(1) Weighted average yield on state and political subdivisions has been
computed on a 34% tax-equivalent basis.
DEPOSITS
Centennial Bank offers a variety of accounts for depositors designed to
attract short-term and long-term deposits. These accounts include certificates
of deposit ("CDs"), savings accounts, money market accounts, checking and
negotiable order of withdrawal ("NOW") accounts and individual retirement
accounts. These accounts generally earn interest at rates established by
management based on competitive market factors and management's desire to
increase or decrease certain types or maturities of
<PAGE>
deposits. Centennial Bank does not pay brokerage commissions to attract
deposits.
Centennial Bank has developed a special account for customers age 50 or
older (called the "50+ Account"). The 50+ Account is designed to attract
customers in this age group, who generally have higher than average deposits and
favorable ability to repay borrowings. Centennial Bank also markets to small- to
medium-sized businesses and to professionals in its commercial lending program.
These types of customers also create substantial deposits, resulting in low-cost
funds being available for Centennial Bank's lending activities. Management
believes that Centennial Bank's percentage of demand deposits (relative to total
deposits) is among the highest in Oregon.
The following table presents the average balances for each major category
of deposits and the weighted average interest rates paid for interest-bearing
deposits for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- ---------------
Average Average Average
----------------- ----------------- ----------------
Balance Rate Balance Rate Balance Rate
------- ----- -------- ------ ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $ 53,399 N/A $ 47,406 N/A $ 36,931 N/A
Interest-bearing demand 92,937 3.23% 82,916 2.45% 70,966 2.48%
Savings 15,046 2.34 18,340 2.48 15,627 2.77
CDs 71,912 5.77 47,258 4.24 40,335 3.99
-------- -------- --------
Total $233,294 4.17 $195,920 2.31 $163,859 2.32
======== ======== ========
</TABLE>
<PAGE>
The following table shows the dollar amount of CDs that had balances of
$100,000 or more at December 31, 1995 and 1994:
December 31
------------------------------
1995 1994
------ -------
(In thousands)
CDs $100,000 or over with remaining maturity:
Three months or less $ 9,788 $ 6,692
Over three months through six months 19,449 6,499
Over six months through twelve months 1,472 3,349
Over twelve months 105 101
------- -------
Total $30,814 $16,641
======= =======
SHORT-TERM BORROWINGS
At December 31, 1995, Bancorp's short-term borrowings consisted of
securities sold under agreements to repurchase totalling $3.4 million and
advances from the Federal Home Loan Bank of Seattle totalling $8.0 million.
Securities sold under agreements to repurchase generally range in duration
from one to eighty-nine days. The advances from the Federal Home Loan Bank of
Seattle are due May 1996 and bear interest of 5.87%.
The following table sets forth certain information with respect to
short-term borrowings at December 31 and during each of 1995, 1994 and 1993:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
(Dollars in thousands)
Amount outstanding at year-end $11,419 $11,840 $ 300
Weighted average interest rate at year-end 5.59% 6.23% 3.00%
Maximum amount outstanding at any
month-end during the year $16,458 $16,541 $4,580
Daily average amount outstanding
during the year $13,823 $4,259 $1,002
Average weighted interest rate
during the year 6.23% 4.09% 3.79%
</TABLE>
LONG-TERM DEBT
<PAGE>
At December 31, 1995, Bancorp's long-term debt consisted of $9.2 million of
Convertible Exchangeable Redeemable Subordinated Debentures (the "Convertible
Debentures"). Interest on the Convertible Debentures is payable semiannually at
the rate of 7% per year. The Convertible Debentures mature on May 1, 2004,
subject to prior conversion, redemption or exchange.
Holders of Convertible Debentures may convert the principal amount of the
Convertible Debentures into shares of Bancorp Common Stock at a price of $10.307
per share. Subsequent to December 31, 1995 (through March 15, 1996), holders
converted $240,000 of the Convertible Debentures into 23,279 shares of Bancorp's
Common Stock.
Bancorp has the right to require that the Convertible Debentures be
exchanged for Series A Preferred Stock if the Board of Directors of Bancorp
deems it necessary to meet regulatory capital guidelines. Any such exchange
would occur at the rate of one share of Series A Preferred Stock for each $25 in
principal amount of Convertible Debentures. Any such exchange would apply to all
outstanding Convertible Debentures.
The Convertible Debentures may be redeemed at the option of Bancorp. Any
redemption occurring prior to May 1, 1998 would involve a redemption premium.
The Convertible Debentures may not be redeemed prior to May 1, 1997, unless the
closing sale price of the Bancorp Common Stock has been at least $14.43 for at
least 20 trading days within a 30-day period prior to the date of the redemption
notice. Bancorp may redeem fewer than all the Convertible Debentures.
The Convertible Debentures are governed by an Indenture Agreement. The
Indenture Agreement restricts the ability of Bancorp to incur certain
indebtedness and limits cash dividends and other capital distributions by
Bancorp.
RETURN ON EQUITY AND ASSETS
The following table sets forth Bancorp's return on daily average assets and
equity for 1995, 1994 and 1993:
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C>
Net income $ 4,551 $ 3,502 $ 2,763
Average total assets 281,752 229,275 190,244
Return on average assets 1.62% 1.53% 1.45%
Net income $ 4,551 $ 3,502 $ 2,763
Average equity 23,302 18,702 15,901
Return on average equity 19.53% 18.72% 17.38%
Average total equity $ 23,302 $ 18,702 $ 15,901
Average total assets 281,752 229,275 190,244
Average total equity to assets ratio 8.27% 8.16% 8.36%
</TABLE>
COMPETITION
Commercial banking in Oregon is highly competitive with respect to both
loans and deposits. Centennial Bank competes principally with other commercial
banks, savings and loan associations, credit unions, mortgage companies, and
other financial institutions with respect to the scope and type of services
offered, interest rates paid on deposits and pricing of loans, among other
factors.
Many of these competitors have substantially greater resources than
Centennial Bank and have branches in more locations. Certain of these
competitors have larger lending capabilities due to their greater size, and
provide other services that Centennial Bank does not offer.
Centennial Bank competes for loans principally through the range and
quality of the services it provides. Centennial Bank believes its personal
service philosophy and its focus on small- to medium-sized businesses and on
professionals enables it to compete effectively with other financial
institutions for the loans and deposits it seeks. To serve customers whose
borrowing requirements exceed its lending limits, Centennial Bank arranges
participations with other lenders.
During the past several years, many financial institutions in Oregon have
merged or consolidated. Management believes that, in many cases, the acquiring
institutions have shifted the focus of the acquired banks away from the small-
to medium-sized businesses that are at the core of Bancorp's marketing efforts.
Bancorp intends to capitalize on this banking environment.
EMPLOYEES
Centennial Bancorp has no employees other than its executive officers, who
are also employees of Centennial Bank. At December 31, 1995, Centennial Bank and
Centennial Mortgage had 146 and 24 full-time equivalent employees, respectively.
Bancorp places a high priority on selective hiring and development of staff.
Staff development involves training in customer service, marketing and
regulatory compliance. Bancorp has adopted
<PAGE>
extensive incentive programs for employees that focus and are dependent on the
achievement of certain of Bancorp's financial, service and marketing goals.
None of Bancorp's employees is covered by collective bargaining agreements,
and management believes that Bancorp's relationship with its employees is good.
SUPERVISION AND REGULATION
Bancorp and Centennial Bank are extensively regulated under federal and
Oregon law. These laws and regulations are primarily intended to protect
depositors and the deposit insurance fund, not shareholders of Bancorp. The
following information is qualified in its entirety by reference to applicable
statutory and regulatory provisions. Any change in applicable laws, regulations
or regulatory policies may have a material effect on the business, operations
and prospects of Bancorp and its subsidiaries.
CENTENNIAL BANCORP
GENERAL
Bancorp is a bank holding company registered under the Bank Holding Company
Act of 1956, as amended (the "BHCA"), and is subject to regulation, supervision
and examination by the Board of Governors of the Federal Reserve System (the
"FRB"). Bancorp is required to file an annual report and such other reports as
the FRB may require.
ACQUISITIONS
As a bank holding company, Bancorp is required to obtain the prior approval
of the FRB before acquiring direct or indirect ownership or control of more than
5% of the voting shares of a bank or bank holding company. The FRB may not
approve any acquisition, merger or consolidation that would have a substantial
anti-competitive result, unless the anti- competitive effects of the proposed
transaction are outweighed by a greater public interest in meeting the needs and
convenience of the public. The FRB also considers managerial, capital and other
financial factors in acting on acquisition or merger applications. Bancorp also
is required to obtain the prior approval of the Director of the Oregon
Department of Consumer and Business Services (the "Oregon Director") before
acquiring direct or indirect ownership or control of 25% or more of the voting
shares of an Oregon state-chartered bank or bank holding company.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act") allows adequately capitalized and managed bank
holding companies to acquire banks in any state. Such acquisitions must comply
with any applicable state law requiring a bank to be in existence for a minimum
period of time before the acquisition. Oregon law allows such acquisitions with
respect to banks that have been providing banking services for at least three
years. Therefore, Bancorp and Centennial Bank could be acquired by a bank
holding company located outside Oregon following receipt of necessary regulatory
approvals. Under the Interstate Banking Act, Bancorp could acquire banks or bank
holding companies in other states.
PERMISSIBLE ACTIVITIES
A bank holding company may not engage in, or acquire direct or indirect
control of more than 5% of the voting shares of any company engaged in, a
nonbanking activity, unless the activity has been determined by the FRB to be
closely related to banking or managing banks. The FRB has identified certain
nonbanking activities in which a bank holding company may engage with notice to,
or prior approval by, the FRB. Management believes that all activities conducted
by Centennial Mortgage are permitted nonbanking activities.
CAPITAL ADEQUACY
The federal bank regulatory agencies monitor the capital adequacy of bank
holding companies and have adopted risk-based capital adequacy guidelines to
evaluate bank holding companies and banks. If an institution's capital falls
below the minimum levels established by these guidelines, the bank holding
company may be denied approval to acquire or establish additional banks or
nonbank businesses. The guidelines require a minimum ratio of total capital to
risk-weighted assets of 8%. At December 31, 1995, Bancorp's ratio of total
capital to risk-weighted assets was 11.22%.
The FRB also uses a leverage ratio to evaluate the capital adequacy of bank
holding companies. The leverage ratio applicable to Bancorp requires a ratio of
"Tier 1" capital (generally, tangible common stockholders' equity, perpetual
preferred stock and minority interests in consolidated subsidiaries) to adjusted
average total assets of not less than 3% and up to 5% or higher depending on
Bancorp's general capital condition. Bancorp's leverage ratio at December 31,
1995 was 8.27%.
If Bancorp fails to meet capital guidelines, the FRB may institute
appropriate supervisory or enforcement actions. As discussed below, Centennial
Bank is also subject to capital adequacy requirements. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), Bancorp could be
required to guarantee the capital restoration plan of Centennial Bank, should
Centennial Bank become undercapitalized. In addition, the Oregon Director has
the authority to require Bancorp to contribute additional capital to Centennial
Bank if its capital becomes impaired.
CENTENNIAL BANK
GENERAL
Centennial Bank is an Oregon state-chartered bank, the deposits of which
are insured by the FDIC. Accordingly, Centennial Bank files financial and other
reports periodically with, and is regularly examined by, both the Oregon
Director and the FDIC. Centennial Bank is not a member of the Federal Reserve
System.
<PAGE>
PERMISSIBLE ACTIVITIES
Under FDICIA, no state bank may engage in any activity not permitted for
national banks, unless the institution complies with applicable capital
requirements and the FDIC determines that the activity poses no significant risk
to the insurance fund. This limitation should not affect Centennial Bank, since
management believes that Centennial Bank is not presently involved in any such
activities.
BRANCHING AND ACQUISITIONS
Banks are permitted to conduct business through branches after application
to and approval of the FDIC and the Oregon Director, if they make certain
findings regarding the financial history and condition of the bank and the
appropriateness of the branch in the community to be served. Centennial Bank
currently has seven branches.
Acquisitions of Oregon banks and bank holding companies by out-of-state
banks, holding companies and other financial institutions are permitted if the
bank being acquired has been providing banking services for a period of at least
three years prior to the effective date of the acquisition and upon receipt of
the approval of the Oregon Director. Other conditions set forth in Oregon law
also must be satisfied.
Beginning June 1, 1997, the Interstate Banking Act will permit banks to
merge with banks across state lines, thereby creating out-of-state branches,
without regard to whether such transactions are prohibited under the law of any
state. States can opt-in to interstate branching earlier, or opt-out before
January 1, 1997. In 1995, Oregon opted-in to permit interstate bank mergers.
Banks are able to establish branches in other states only through interstate
mergers, as described above, unless the state where the branch is proposed to be
opened has opted-in to DE NOVO interstate branching. Oregon has not opted-in to
DE NOVO branching.
COMMUNITY REINVESTMENT ACT
Enacted in 1977, the federal Community Reinvestment Act (the "CRA") has
become increasingly important to financial institutions, including their holding
companies. The CRA allows regulators to reject an application to make an
acquisition or establish a branch unless the applicant has performed
satisfactorily under the CRA. Citizens and interest groups have standing before
the FRB to assert noncompliance with the CRA. Satisfactory performance means
adequately meeting the credit needs of the communities the applicant serves,
including low- and moderate-income neighborhoods, consistent with the safe and
sound operation of the institution. The applicable federal regulators now
regularly conduct CRA examinations to assess the performance of financial
institutions. Centennial Bank has received satisfactory ratings in its most
recent CRA examinations. TRANSACTIONS WITH AFFILIATES
Centennial Bank is subject to certain FRB restrictions on transactions
among related parties. Section 23A of the Federal Reserve Act limits the amount
of certain transactions, including loans to and investments in affiliates of
Centennial Bank, requires certain levels of collateral for such loans, and
limits the amount of advances to third parties that may be collateralized by the
securities of Bancorp or its subsidiaries.
Section 23B of the Federal Reserve Act requires that certain transactions
between Centennial Bank and its affiliates must be on terms substantially the
same, or at least as favorable to Centennial Bank, as those prevailing at the
time for comparable transactions with or involving
<PAGE>
nonaffiliated companies or, in the absence of comparable transactions, on terms
and under circumstances, including credit standards, that in good faith would be
offered to or would apply to nonaffiliated companies.
In addition, Section 22(h) of the Federal Reserve Act requires that the
aggregate amount of an institution's loans to officers, directors and principal
shareholders (and their affiliates) is limited to the amount of its unimpaired
capital and surplus, unless the FDIC determines that a lesser amount is
appropriate.
A violation of any of the foregoing restrictions may result in the
assessment of civil fines on a bank or a person participating in the conduct of
the affairs of such bank or the imposition of a cease and desist order.
DIVIDEND RESTRICTIONS
Dividends paid by Centennial Bank provide substantially all Bancorp's cash
flow. Under federal law, prior to the declaration of any dividend by Centennial
Bank, the approval of the principal regulator is required if the total of all
dividends declared in any calendar year exceeds the total of Centennial Bank's
net profits for that year combined with its retained net profits for the
preceding two years. In addition, FDICIA provides that a bank cannot pay a
dividend if it will cause the bank to be "undercapitalized." Oregon law imposes
the following limitations on the payment of dividends by Oregon state-chartered
banks: (i) no dividends may be paid that would impair capital; (ii) until the
surplus fund of a bank is equal to 50% of its paid-in capital, no dividends may
be declared unless there has been carried to the surplus account at least 20% of
the bank's net profits for the dividend period; (iii) dividends cannot be
greater than net undivided profits minus losses, certain bad debts, certain
charged-off assets or depreciation and accrued expenses, interest and taxes; and
(iv) if the surplus fund does not exceed 50% of paid-up capital and a further
reduction in the surplus occurs due to losses, dividends cannot be declared or
paid in excess of 50% of net earnings until the surplus fund is restored to at
least the amount from which the surplus was originally reduced. At December 31,
1995, $11.2 million was available for declaration of dividends by Centennial
Bank to Bancorp without prior regulatory approval.
EXAMINATIONS
The FDIC periodically examines and evaluates state-chartered banks. Based
upon such an evaluation, the examining regulator may revalue the assets of an
insured institution and require that it charge off or reduce the carrying value
of specific assets or establish specific reserves to compensate for the
difference between the value determined by the regulator and the book value of
such assets. The Oregon Director also conducts examinations of Centennial Bank.
CAPITAL ADEQUACY
Federal regulations establish minimum requirements for the capital adequacy
of depository institutions. The regulators may establish higher
<PAGE>
minimum requirements if, for example, a bank has previously received special
attention or has a high susceptibility to interest rate risk. Banks with capital
ratios below the required minimums are subject to certain administrative
actions, including prompt corrective action, the termination of deposit
insurance upon notice and hearing, or a temporary suspension of insurance
without a hearing.
The federal risk-based capital guidelines for banks require a ratio of Tier
1 or core capital to total risk-weighted assets of 4% and a ratio of total
capital to total risk-weighted assets of 8%. The leverage capital guidelines
require that banks maintain Tier 1 capital of no less than 5% of total adjusted
assets, except in the case of certain highly rated banks for which the minimum
requirement is 3% of total adjusted assets. At December 31, 1995, Centennial
Bank's leverage ratio, Tier 1 capital to risk-weighted assets ratio and total
risk-based capital to risk- weighted assets ratio were 9.37, 11.99% and 12.80%,
respectively.
FDICIA requires federal banking regulators to take "prompt corrective
action" with respect to a capital-deficient institution, including requiring a
capital restoration plan and restricting certain growth activities of the
institution. Bancorp could be required to guarantee any such capital restoration
plan required of Centennial Bank. Bancorp's maximum liability under such
guarantee would be the lesser of 5% of Centennial Bank's total assets at the
time it became undercapitalized or the amount necessary to bring Centennial Bank
into compliance with the capital plan.
Under Oregon law, the Oregon Director has the authority to require the
shareholders of an Oregon state-chartered bank (Bancorp, in the case of
Centennial Bank) to contribute additional capital to the bank if its capital
becomes impaired. The capital of a bank is impaired under Oregon law when the
value of the bank's assets is insufficient to pay its liabilities (excluding any
liability on outstanding capital debentures) plus the amount of its paid-up
capital stock.
As an institution's capital decreases, the powers of the federal regulators
increase, which can include mandated capital-raising activities, restrictions on
interest rates paid, restrictions on transactions with affiliates, and removal
of management. In addition, an institution generally is prohibited from paying
dividends or management fees to control persons if the institution would be
undercapitalized after any such payment.
Pursuant to FDICIA, regulations were adopted defining five capital levels:
well capitalized, adequately capitalized, undercapitalized, severely
undercapitalized and critically undercapitalized. Under the regulations,
Centennial Bank is considered "well capitalized."
INTERNAL OPERATING REQUIREMENTS
In 1993, federal regulators adopted regulations addressing, among other
things: (i) internal controls, information systems and internal audit systems;
(ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure;
(v) asset growth; (vi) ratio of classified
<PAGE>
assets to capital; (vii) minimum earnings; and (viii) compensation and benefit
standards for management officials. These regulations add further to the cost of
compliance and impose record-keeping requirements on Centennial Bank and
Bancorp.
The consumer lending activities of Centennial Bank are also regulated by
numerous laws and regulations which impose disclosure requirements, prohibit
discrimination based on race, sex, age, marital status and other specified
classifications and impose other restrictions on credit and collection
practices.
REAL ESTATE LENDING EVALUATIONS
Federal regulators have adopted uniform standards for evaluating loans
secured by real estate or made to finance improvements to real estate. Banks are
required to establish and maintain written internal real estate lending policies
consistent with safe and sound banking practices and appropriate to the size of
the institution and the nature and scope of its operations. The regulations
establish loan-to-value ratio limitations on real estate loans, which are equal
to or higher than the loan-to-value limitations established by Centennial Bank
and Centennial Mortgage.
DEPOSIT INSURANCE PREMIUMS
The FDIC has adopted regulations establishing a risk-based deposit
insurance premium schedule. In July 1995, Centennial Bank's assigned risk
assessment classification was reduced from $.23 to $.04 per $100 of insured
deposits. Effective January 1, 1996, Centennial Bank's risk assessment
classification was further reduced to $.00, so Centennial Bank now pays only a
minimum annual payment of $2,000. Each of these risk assessment classifications
was the lowest possible classification at the time. Classifications are reviewed
semiannually. In addition, the FDIC has the power to impose special assessments
to cover the cost of borrowings from the U.S. Treasury, the Federal Financing
Bank, and Bank Insurance Fund member banks.
CENTENNIAL MORTGAGE
Centennial Mortgage is, by definition of the Department of Housing and
Urban Development, a nonsupervised lender. Because Centennial Mortgage is a
member of Bancorp's consolidated group, its accounts and activities are reviewed
by the FRB in conjunction with its periodic examinations of Bancorp. Centennial
Mortgage, like Centennial Bank, is indirectly affected by the monetary policies
of the FRB, which may have a material adverse effect on its business and
earnings.
Oregon law requires the licensing of certain persons engaging in mortgage
brokering transactions. Centennial Mortgage is exempt from these requirements as
a wholly owned subsidiary of a regulated bank holding company.
<PAGE>
CHANGING REGULATORY STRUCTURE
The laws and regulations affecting banks and bank holding companies are in
a state of flux. The rules and the regulatory agencies in this area have changed
significantly over recent years, and there is reason to expect that similar
changes will occur in the future. It is difficult to predict the outcome of
these changes. The Clinton Administration has announced a program to reduce the
regulatory burden on banks and to streamline and consolidate regulatory
oversight. However, the scope and effect of this program are not yet known.
One of the major additional burdens imposed on the banking industry by
FDICIA is the increased authority of federal agencies to regulate the activities
of federal and state banks and their holding companies. The FRB, the FDIC and
the Oregon Director have extensive enforcement authority to police unsafe or
unsound practices by depository institutions and their holding companies and to
penalize them for violating applicable laws and regulations. FDICIA and other
laws have expanded the agencies' authority in recent years, and the agencies
have not yet fully tested the limits of their powers.
EFFECT OF ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policies of
the FRB, have a significant effect on the operating results of bank holding
companies and their subsidiaries. Among the means available to the FRB to affect
the money supply are open-market operations in U.S. Government securities,
changes in the discount rate on member bank borrowings, and changes in reserve
requirements against member bank deposits. These means are used in varying
combinations to influence overall growth and distribution of bank loans,
investments and deposits, and their use may affect interest rates charged on
loans or paid for deposits.
FRB monetary policies have materially affected the operating results of
commercial banks in the past and are expected to continue to do so in the
future. The nature of future monetary policies and the effect of such policies
on the business and earnings of Bancorp and its subsidiaries cannot be
predicted.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
Bancorp's main offices are located at 675 Oak Street, Eugene, Oregon, in a
four-floor facility (approximately 35,000 square feet), owned by Centennial
Bank. Construction of the office building was completed in June 1993. Bancorp
and Centennial Bank occupy the lower two floors and the fourth floor of the
building. Centennial Bank has entered into five-year leases with two tenants for
a total of approximately 6,250 square feet of the building's third floor.
Centennial Bank is seeking a tenant for the remaining approximate 2,500 square
feet of available space on the third floor.
In February 1994, Bancorp entered into a long-term ground lease in Tigard,
Oregon, a suburb of Portland, where Centennial Bank located a new branch. The
ground lease has an initial term of 50 years and is renewable for two additional
10-year periods. Lease payments of $5,834 per month began in November 1994, with
increases thereafter scheduled in accordance with the lease agreement.
Construction of a three-story office building was completed in June 1995 at a
cost of $2.9 million. Centennial Bank occupies the first and part of the second
floors, while Centennial Mortgage occupies the remainder of the second floor.
The third floor of the building was leased to another company effective January
1996.
Centennial Bank owns three other branch facilities and leases two branch
facilities with annual lease payments of $101,700 in 1995. Centennial Bank also
leases certain storage facilities with annual lease payments of $18,000 in 1995.
Centennial Bank also maintains a lease for a former branch site at an
annual rental of $13,200 in 1995. The lease expires in May 1997. Centennial Bank
has sublet the property through April 1997 for an annual rental of $16,600.
Centennial Mortgage's offices are located in leased facilities. Centennial
Mortgage's Eugene office is located in a building formerly owned by Centennial
Bank which was sold to a third party in August 1994. Centennial Mortgage paid
lease payments of $71,200 to the new building owner in 1995. Centennial Mortgage
leases office space for its Portland- area office from Centennial Bank.
ITEM 3. LEGAL PROCEEDINGS
Periodically, and in the ordinary course of business, various claims and
lawsuits are brought by and against Bancorp, such as claims to enforce liens,
condemnation proceedings on properties in which Bancorp holds security
interests, claims involving the making and servicing of real property loans and
other issues incident to Bancorp's business. In management's opinion, the
ultimate liability, if any, resulting from the routine claims and lawsuits that
currently exist will not have a material adverse effect on the financial
position or results of operations of Bancorp.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
The information called for by Items 5, 6, 7 and 8 of Part II is included in
Centennial Bancorp's Annual Report to Shareholders for the year ended December
31, 1995, and is incorporated herein by reference as follows:
Centennial Bancorp
Annual Report
to Shareholders
Page No.
----------------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER
MATTERS 37
ITEM 6. SELECTED FINANCIAL DATA 5
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 28 - 36
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA 7 - 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item will be contained in
Centennial Bancorp's definitive proxy statement for the annual
meeting of shareholders to be held on May 15, 1996, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item will be contained in
Centennial Bancorp's definitive proxy statement for the annual
meeting of shareholders to be held on May 15, 1996, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information called for by this item will be contained in
Centennial Bancorp's definitive proxy statement for the annual
meeting of shareholders to be held on May 15, 1996, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item will be contained in
Centennial Bancorp's definitive proxy statement for the annual
meeting of shareholders to be held on May 15, 1996, and is
incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) The following documents are filed as part of this Annual
Report on Form 10-K.
(1) Financial Statements.
The financial statements required in this Annual Report are
listed below and are included in Centennial Bancorp's Annual
Report to Shareholders for the year ended December 31, 1995, and
are incorporated herein by reference:
<PAGE>
Annual
Report to
Shareholders
Page Number
------------
Report of Independent Accountants 6
Consolidated balance sheets at
December 31, 1995 and 1994 7
For the three years ended December 31, 1995
Consolidated statements of income 8
Consolidated statements of
shareholders' equity 9
Consolidated statements of cash flows 10-11
Notes to consolidated financial statements 12-27
(2) Financial Statement Schedules.
All financial statement schedules are omitted since the
required information is not present or not present in
amounts sufficient to require submission of the
schedule or because the information required is
included in the consolidated financial statements or
notes thereto.
(3) Exhibits.
(3) Exhibits.
3.1 Articles of Incorporation, as restated and amended (filed
as Exhibit 3.1 to registrant's Form 10-Q Report for the
quarter ended June 30, 1990, and incorporated herein by
reference)
3.1(a) Proposed Articles of Amendment (included as part of
Exhibit 4.1 to registrant's Registration Statement on
Form SB-2, filed March 28, 1994, and incorporated herein
by reference)
3.2 Bylaws, as restated (filed as Exhibit 3.2 to registrant's
Form 10-K Report for the year ended December 31, 1992,
and incorporated herein by reference)
4.1 Indenture dated April 27, 1994 governing registrant's 7%
Convertible Exchangeable Redeemable Subordinated
Debentures due May 1, 2004 (filed as Exhibit 4 to
registrant's Registration Statement on Form S-4, filed
August 26, 1994, and incorporated herein by reference)
10.1* Registrant's 1993 Incentive Stock Option Plan, restated
as of April 13, 1994 (filed as Exhibit B to registrant's
Proxy Statement for the 1994 annual shareholder meeting,
filed April 29, 1994, and incorporated herein by
reference)
10.2* Form of Stock Option Agreement entered into between
registrant and certain employees pursuant to registrant's
1993 Incentive Stock Option Plan (filed as Exhibit 10.2
to registrant's Registration Statement on SB-2, filed
March 28, 1994, and incorporated herein by reference)
10.3* Employment Agreement dated October 1, 1995,
between Richard C. Williams and registrant
10.4* Registrant's Nonemployee Director's Stock Option Plan
(filed as Exhibit 10.2 to registrant's Form 10-K Report
for the year ended December 31, 1991, and incorporated
herein by reference)
10.5* Form of Stock Option Agreement entered into
<PAGE>
between registrant and certain nonemployee directors
pursuant to registrant's Nonemployee Director's Stock
Option Plan (filed as Exhibit 10.5 to registrant's
Registration Statement on SB-2, filed March 28, 1994, and
incorporated herein by reference)
10.6* Registrant's 1993 Stock Option Plan for Nonemployee
Directors, restated as of April 13, 1994 (filed as
Exhibit A to registrant's Proxy Statement for the 1994
annual shareholder meeting, filed April 29, 1994, and
incorporated herein by reference)
10.7* Form of Stock Option Agreement entered into between
registrant and certain nonemployee directors pursuant to
registrant's 1993 Stock Option Plan for Nonemployee
Directors (filed as Exhibit 10.7 to registrant's
Registration Statement on SB-2, filed March 28, 1994, and
incorporated herein by reference)
10.8* Deferred Compensation Agreement between
Centennial Bank and Ron R. Peery (filed as
Exhibit 10.3 to registrant's Form 10-Q Report
for the quarter ended June 30, 1989, and
incorporated herein by reference)
10.9* 1995 Stock Incentive Plan
10.10* Nonstatutory (Nonqualified) Stock Option
Agreement dated November 22, 1995, between
registrant and Richard C. Williams
10.11 Ground Lease, dated as of February 10, 1994, between
registrant and Pacific Realty Associates, L.P. (filed as
Exhibit 10.10 to registrant's Registration Statement on
SB-2, filed March 28, 1994, and incorporated herein by
reference)
10.12 Advances, Security and Deposit Agreement, dated May 28,
1991, between Centennial Bank and the Federal Home Loan
Bank of Seattle (filed as Exhibit 10.11 to registrant's
Registration Statement on SB-2, filed March 28, 1994, and
incorporated herein by reference)
11.1 Earnings per Share Computation
13.1 Portions of 1995 Annual Report to Shareholders
<PAGE>
(which are incorporated by reference in this
Form 10-K Annual Report)
21.1 Subsidiaries of registrant
23.1 Consent of Coopers & Lybrand L.L.P.,
Independent Accountants
27.1 Financial Data Schedule
- ---------------
* Management contract or compensation plan or arrangement.
Upon written request to Michael J. Nysingh, Chief Financial Officer,
Centennial Bancorp, Post Office Box 1560, Eugene, Oregon, 97440, shareholders
will be furnished a copy of any exhibit, upon payment of $.25 per page, which
represents Centennial Bancorp's reasonable expenses in furnishing the exhibit
requested.
(b) Reports on Form 8-K. Centennial Bancorp did not file any
reports on Form 8-K during the last quarter of the fiscal
year ended December 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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: March 19 , 1996 By: /s/Richard C. Williams
--- -------------------------------
Richard C. Williams, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR
DATED: March 19 , 1996 By /s/Richard C. Williams
--- -------------------------------
Richard C. Williams, President,
Chief Executive Officer and Director
CHIEF FINANCIAL OFFICER
DATED: March 19 , 1996 By /s/Michael J. Nysingh
--- -------------------------------
Michael J. Nysingh
Chief Financial Officer
DIRECTORS:
DATED: March 19 , 1996 By /s/Dan Giustina
--- -------------------------------
Dan Giustina, Director
DATED: March 19 , 1996 By /s/Cordy H. Jensen
--- -------------------------------
Cordy H. Jensen, Director
DATED: March 19 , 1996 By /s/Robert L. Newburn
--- -------------------------------
Robert L. Newburn, Director
DATED: March 19 , 1996 By /s/Brian B. Obie
--- -------------------------------
Brian B. Obie, Director
<PAGE>
EXHIBIT INDEX
EXHIBIT
10.3 Employment Agreement dated October 1, 1995, between
Richard C. Williams and registrant
10.9 1995 Stock Incentive Plan
10.10 Nonstatutory (Nonqualified) Stock Option Agreement
dated November 22, 1995, between registrant and
Richard C. Williams
11.1 Earnings per Share Computation
13.1 Portions of 1995 Annual Report to Shareholders,
which are incorporated by reference in this Form
10-K
21.1 Subsidiaries of registrant
23.1 Consent of Coopers & Lybrand L.L.P., Independent
Accountants
27.1 Financial Data Schedule
- -----------------------------------------------------------------
EMPLOYMENT AGREEMENT
- -----------------------------------------------------------------
PARTIES: CENTENNIAL BANCORP ("Company")
RICHARD C. WILLIAMS ("Executive")
EFFECTIVE DATE: OCTOBER 1, 1995
- -----------------------------------------------------------------
RECITALS:
A. Company is an Oregon corporation.
B. Executive is an executive officer of Company and has contributed
substantially to the successful development and expansion of the
business of Company.
C. Company desires to assure the continued employment of Executive
and to assist him in providing for his financial security.
D. The parties entered into an Employment Agreement dated October 1,
1991 respecting Executive's employment by Company for a term
ending September 30, 1996, and have agreed to extend the term of
such employment to end on December 31, 2001 as provided in and
subject to the conditions stated in this Agreement.
AGREEMENT:
1. POSITIONS, DUTIES AND TERM
1.1 Company shall employ Executive as President and Chief Executive
Officer of Company, and Executive shall serve Company in such
capacity, during the Employment Period.
1.2 The Employment Period under this Agreement shall commence effective at
October 1, 1995, and shall end on December 31, 2001, unless it is
earlier terminated in accordance with other provisions of this
Agreement.
1.3 Executive shall perform such duties as may be assigned to him from
time to time by the board of directors of Company. Such assignments
shall not unduly diminish the relative importance and responsibility
of Executive's position, and the title of his position
<PAGE>
shall not be changed without his consent, except
pursuant to this Agreement.
1.4 Without limiting the generality of the other provisions of this
Section, Executive shall:
1.4.1 Be responsible to Company's board of directors for the
operation of Company and its subsidiaries (currently
Centennial Bank and Centennial Mortgage Co.);
1.4.2 Serve as the vice chairman and chief executive officer of
Centennial Bank (the "Bank") until a new chief executive
officer of the Bank is employed by the Bank;
1.4.3 Identify and select for approval by the board of directors of
the Bank a new chief executive officer for the Bank no later
than December 31, 1997;
1.4.4 Implement a new regional organizational structure for the Bank
prior to the hiring of the new chief executive officer of the
Bank;
1.4.5 Serve, if requested by Company's board of directors, as
chairman of the Bank's board of directors after the new chief
executive officer of the Bank has been hired; and
1.4.6 Serve as a member of Company's board of directors, and, if
requested by Company's board of directors, also serve on the
Bank's board of directors, Centennial Mortgage Co.'s board of
directors, the Bank's asset/liability committee, and on the
board of directors of any significant subsidiary Company may
form or acquire during the Employment Period.
2. EXTENT OF SERVICES
2.1 Except as permitted by Section or 2.4 or as approved by Company's
board of directors, which approval it may withhold in its reasonable
discretion, Executive shall devote his full time and attention
exclusively to the performance of the work and duties assigned to
him for and on behalf of Company and shall not, during the
Employment Period, either directly or indirectly, engage in, or
enter into any business or perform any services for any other
person, firm, association, or corporation.
<PAGE>
2.2 Executive shall perform his duties with fidelity and to the best of
his ability during the Employment Period, and shall at all times
during the Employment Period and thereafter respect the confidential
nature of the information received by him in the course of
performing his duties.
2.3 Nothing contained in this Section shall prohibit Executive from
serving on the board of directors of any other corporation that does
not compete with Company or any of its subsidiaries (subject to the
approval of Company's board of directors, which will not be
unreasonably withheld), or from owning or controlling stock or other
equity securities of any other company, whether or not the
securities are publicly traded (including a company that operates a
business that is competitive with Company or its subsidiaries, if
such securities are publicly traded and Executive does not
beneficially own more than 5% of the outstanding securities);
provided, however, that Executive shall not own or control more than
25% of the stock or other equity securities of any company without
first obtaining the approval of Company's board of directors, which
will not be unreasonably withheld.
2.4 For periods after September 30, 1997 or the date on which a new
chief executive officer of the Bank is hired, whichever occurs
later, Executive shall be deemed to have fulfilled his obligation to
render full time service to Company if he devotes time to Company
and its subsidiaries in the performance of his duties under this
Agreement that is equivalent to three-fourths of a full-time work
schedule. The reduced work schedule shall be applied both on an
annual basis and, subject to vacations and other permitted leaves
taken by Executive, on a monthly basis. During any period of reduced
work schedule under this section, Executive may take sick leave,
vacations and other permitted leaves of absence in accordance with
Company's policies applicable to other executive officers.
2.5 In addition to all other permitted leaves of absence under the
employee benefit plans and policies of Company, Executive shall have
the elective right to take a single leave of absence for a period
not exceeding 180 days, during which time Executive shall not be
required to perform any services for Company. During this leave of
absence, which shall not commence until after the new chief
executive officer of the Bank is hired, Executive shall be entitled
to receive all compensation and benefits provided in other sections
of this Agreement. It is contemplated that this leave of
<PAGE>
absence shall be completed by December 31, 1998. However, the timing of
this leave shall be subject to the approval of Company's board of
directors.
3. COMPENSATION AND BENEFIT PLANS
During the Employment Period, the Executive shall be compensated as
follows:
3.1 BASE SALARY. Executive shall receive an annual salary ("Base
Salary"), payable in semimonthly installments on the first and 15th
days of each month. The Base Salary shall be:
3.1.1 $225,000 for the year beginning October 1, 1995 and ending
September 30, 1996.
3.1.2 $250,000 for the year beginning October 1, 1996 and ending
September 30, 1997.
3.1.3 Amounts approved by Company's board of directors for periods
after September 30, 1997, but not less than $250,000 for each
12-month period.
3.2 CASH BONUS. In addition to the Base Salary specified above, if
Company and/or Executive reach the objectives for each calendar year
that are determined by Company's board of directors prior to the
beginning of such year, Executive shall be paid an annual cash bonus
for that year (the "Cash Bonus"). Any Cash Bonus earned shall be
paid on the following schedule: 20% on the fifteenth day of each
April, July, and October and 40% on the fifteenth day of January,
with the first payment being due on April 15, 1996. The Cash Bonus
payable hereunder shall be:
3.2.1 $100,000 for the year beginning January 1, 1996 and ending
December 31, 1996.
3.2.2 $100,000 for the year beginning January 1, 1997 and ending
December 31, 1997.
3.2.3 Amounts approved by Company's board of directors for periods
after December 31, 1997, but not less than $25,000 per
calendar quarter.
3.3 STOCK OPTIONS AND INCENTIVE COMPENSATION
3.3.1 On November 22, 1995, Company granted to Executive an option
(the "Stock Option") to purchase 60,000 shares of Company's
common
<PAGE>
stock under the 1995 Stock Incentive Plan, which was approved
by Company's board of directors on November 22, 1995. The
grant of the Stock Option was conditioned upon the approval of
the 1995 Stock Incentive Plan by Company's shareholders and to
the execution of this Agreement. The Stock Option is governed
by a separate stock option agreement.
4. TERMINATION FOR DISABILITY
4.1 For purposes of this Agreement, the term "disability" shall mean
Executive's inability because of sickness or injury to perform the
material duties of his occupation, as determined by a physician
acceptable to Company.
4.2 If, during the Employment Period, because of disability Executive
becomes unable to perform his duties for six months in the aggregate
in any 12-month period, or for any consecutive three months in
circumstances where Executive's medical prognosis is that he will be
unable to resume performance of his duties within an additional
three months, then Company may thereafter terminate the Employment
Period upon 30 days' written notice to Executive. At Company's
request and expense, Executive shall submit to annual physical
examinations by a physician mutually approved by Company and
Executive, and Executive will execute such written consents for
release of information as will permit the physician's report on each
examination to be delivered to Company's board of directors.
4.3 Beginning with the date of any termination of the Employment Period
because of Executive's disability, Company shall provide:
4.3.1 Disability income benefits comparable to the benefits payable
under the insurance policies currently held by Company, issued
by Standard Insurance Company. Company shall at its expense
continue to maintain in effect those policies or a
substantially comparable policy or policies throughout the
Employment Period.
4.3.2 Employee Group Benefits (as defined in Section 6.1) to
Executive for so long as Executive meets the eligibility
requirements for participation in the insurance, plans and
programs maintained or provided by Company for its employees
or executive officers generally. Company shall be obligated to
use
<PAGE>
its best efforts to maintain Employee's
eligibility to participate in such insurance,
plans and programs.
4.3.3 Post-Retirement Medical Coverage to Executive as provided in
Section .
4.4 Upon any termination of the Employment Period because of Executive's
disability, Company's only other obligations to Executive shall be the
payment of: (a) Base Salary, Cash Bonus, and benefits accrued to the date
of termination; and (b) Deferred Compensation (as defined in Section 9).
5. DEATH OF EXECUTIVE
In the event of Executive's death before any other termination of the
Employment Period, the Employment Period shall terminate effective at the
date of his death. Upon termination of the Employment Period because of
Executive's death, Company's only obligations to Executive shall be the
payment of: (a) Base Salary, Cash Bonus, and benefits accrued to the date
of termination; and (b) Deferred Compensation.
6. EMPLOYEE GROUP BENEFITS
6.1 This Agreement shall not operate to reduce or otherwise adversely
affect Executive's continuing or future participation in, or his
vested rights or accrued benefits under any plan, program or policy
of Company or any of its subsidiaries providing Employee Group
benefits. The term "Employee Group Benefits" shall mean medical,
dental, vision, group life, accidental death, and similar insurance,
plans and programs maintained or provided by Company for its
employees or executive officers generally, but shall not include any
group disability insurance plans or programs so long as Company
provides disability coverage for Executive in accordance with
Section 4.3.1.
6.2 Following termination of the Employment Period (other than any
termination by Company for cause or any termination by Executive
without good reason), Company shall at its expense provide Executive
with coverage ("Post-Retirement Medical Coverage") for payment or
reimbursement of medical expenses incurred by him, on the following
terms and conditions:
6.2.1 The Post-Retirement Medical Coverage shall be provided by
Company either pursuant to an indemnity or capitation contract
with a medical insurance company or health
<PAGE>
maintenance organization, or by self-
insurance and direct reimbursement by Company
from its general funds.
6.2.2 The Post-Retirement Medical Coverage shall include such
coverages, deductibles, and co-payment benefits and
obligations as are then being provided by Company for its
executive employees generally, but shall not require Executive
to pay insurance premiums.
6.2.3 The Post-Retirement Medical Coverage shall terminate as to
Executive at the end of the month following the earliest of
the following dates: (a) the date Executive becomes eligible
for Medicare; or (b) the date at which Executive attains age
65.
6.3 This Agreement shall not operate or reduce or otherwise adversely
affect Executive's continuing or future participation in, or his
vested rights or accrued benefits under, the Bank's Employee Savings
and Profit Sharing Plan or any similar successor plan.
7. TERMINATION OTHER THAN UPON DEATH OR DISABILITY
7.1 BY COMPANY. Company may relieve Executive of his duties and
terminate the Employment Period at any time in its sole discretion
upon written notice to Executive, in which event Executive shall
have no further authority to act on behalf of Company or any of its
affiliates.
7.1.1 TERMINATION FOR CAUSE. If Company terminates the Employment
Period for "cause" (as defined in Section 7.1.3), Company's
only obligations to Executive shall be the payment of: (a)
Base Salary, Cash Bonus, and benefits accrued to the date of
termination; and (b) Deferred Compensation.
7.1.2 TERMINATION WITHOUT CAUSE. If Company terminates the
Employment Period without cause, Company's only obligations to
Executive shall be the payment of: (a) Base Salary, Cash
Bonus, and benefits accrued to the date of termination; (b)
Deferred Compensation; (c) Post-Retirement Medical Coverage as
provided in Section 6.2; and (d) Base Salary, Cash Bonus, and
Employee Group benefits until December 31, 2001; provided,
however, Company's obligation to provide Employee Group
Benefits to Executive
<PAGE>
shall exist only so long as Executive meets the eligibility
requirements for participation in the insurance, plans and
programs maintained or provided by Company for its employees
or executive officers generally. Company shall be obligated to
use its best efforts to maintain Executive's eligibility to
participate in such insurance, plans and programs.
7.1.3 DEFINITION OF CAUSE. As used in this Agreement, "cause" shall
mean any one of the following:
7.1.3.1 Dishonesty, gross negligence, or deliberate misconduct
by Executive in performance of his duties to Company or
its subsidiaries or Executive's conviction of or entry
of a plea of guilty or nolo contendere to a felony or
other crime that has or may have a material adverse
effect on Executive's ability to carry out his duties
under this Agreement or upon the reputation of Company
or its subsidiaries.
7.1.3.2 Willful and material breach of this Agreement by
Executive (other than acts covered by Section 7.1.3.1),
which breach continues uncorrected for 30 days following
written notice thereof by Company to Executive.
7.1.3.3 Executive's removal from office because of the
requirement or recommendation of a regulatory agency
having jurisdiction over Company or its subsidiary.
7.1.3.4 Uncorrected failure of Executive to perform his duties
in a manner consistent with past performance or
consistent with standards respecting either Company's or
Executive's performance established by Company's board
of directors in discussion with Executive during the
course of regular review of Executive's performance. Any
such failure of performance shall be
<PAGE>
deemed uncorrected if it continues
substantially unrectified for a
period of 90 days or more.
7.2 BY EXECUTIVE. Executive may terminate the Employment Period at any
time in his sole discretion upon written notice to Company.
7.2.1 TERMINATION FOR GOOD REASON. If Executive terminates the Employment
Period for "good reason" (as defined in Section 7.2.3), Company's
only obligations to Executive shall be the payment of: (a) Base
Salary, Cash Bonus, and benefits accrued to the date of termination;
(b) Deferred Compensation; (c) Post-Retirement Medical Coverage as
provided in Section 6.2; and (d) Base Salary, Cash Bonus, and
Employment Group Benefits until December 31, 2001; provided,
however, Company's obligation to provide Employee Group Benefits to
Executive shall exist only so long as Executive meets the
eligibility requirements for participation in the insurance, plans
and programs maintained or provided by Company for its employees or
executive officers generally. Company shall be obligated to use its
best efforts to maintain Executive's eligibility to participate in
such insurance, plans and programs.
7.2.2 TERMINATION WITHOUT GOOD REASON. If Executive terminates the
Employment Period without good reason, Company's only obligations to
Executive shall be the payment of: (a) Base Salary, Cash Bonus, and
benefits accrued to the date of termination; and (b) Deferred
Compensation.
7.2.3 DEFINITION OF GOOD REASON. As used in this Agreement, "good reason"
shall mean (a) the assignment to Executive of any significant duties
inconsistent with his status as the Chief Executive Officer of
Company or any material and adverse change in his responsibilities
or authority hereunder; (b) the relocation of the Executive without
his consent to any place other than Eugene, Oregon or, on a
temporary basis comparable to the arrangement currently in
existence, to Portland, Oregon; or (c) any other willful and
material breach of this Agreement by Company which continues
uncorrected for
<PAGE>
30 days following written notice thereof by
Executive to Company.
8. OTHER EMPLOYMENT AFTER TERMINATION
Without the consent of Company's board of directors, which it may withhold
in its reasonable discretion, during the three-year period following
termination of the Employment Period, Executive shall not, either directly
or indirectly, engage in, or enter into any business or perform any
services for any other person, firm, association or corporation that is
engaged in any direct, substantial competition with Company or any of its
subsidiaries; provided, however, that this restriction shall not apply
following any termination by Company without cause, any termination by
Executive with good reason, or any termination by Executive following the
acquisition by any person (including any corporation, partnership, joint
venture, trust, association, or individual) of more than 50% of Company's
then outstanding stock (whether by exchange of stock or securities,
purchase, redemption or any combination thereof) or the acquisition by any
person of all or substantially all of Company's operating assets. Except
as limited by the foregoing sentence, Executive's becoming self-employed
or accepting other employment following termination of the Employment
Period shall not operate to reduce or impair any amount payable, any
benefit, any service credit for benefits, or any other right, privilege or
interest of Executive under this Agreement.
9. DEFERRED COMPENSATION
In addition to all other payments to be made in accordance with this
Agreement, Company shall pay to Executive, or to Executive's personal
representative in the event of Executive's death prior to satisfaction of
Company's obligations hereunder, the deferred compensation specified in
this Section 9 ("Deferred Compensation").
9.1 AMOUNT OF DEFERRED COMPENSATION. The total amount of Deferred
Compensation shall be equal to eight and four tenths (8.4) times
Executive's Base Salary as specified in Section 3.1.2.
9.2 VESTED PERCENTAGE. The Deferred Compensation shall be 100% vested
upon execution of this Agreement, unless the Employment Period is
terminated by Company for cause or is terminated by Executive
without good reason, in either of which cases the Deferred
Compensation shall be vested 95% until October 1, 1996, on which
date the Deferred Compensation shall become 100% vested. Except for
this vesting schedule, the Deferred Compensation shall not be
subject to reduction
<PAGE>
for any reason (including but not limited to early
termination of the Employment Period).
9.3 INSTALLMENT PAYMENTS. The Deferred Compensation shall be payable by
Company in 288 equal semimonthly payments, without interest, payable
on the fifteenth day and the last day of each calendar month after
commencement of payments.
9.4 COMMENCEMENT OF PAYMENTS. The first semimonthly payment of Deferred
Compensation shall be paid on the fifteenth day of the month next
following the month in which occurs the earliest of the following
dates:
9.4.1 December 31, 2001.
9.4.2 The date of Executive's death.
9.4.3 The date of termination of the Employment Period, unless
Executive's employment shall have terminated by reason of his
disability.
9.4.4 The date of the last payment to be made under the disability
income insurance policy referenced in Section 4.3.1, if
Executive's employment shall have terminated by reason of his
disability.
9.5 NO PREPAYMENT. Deferred Compensation shall not be prepaid or accelerated
by Company without the written approval of Executive or his personal
representative.
10. AUTOMOBILE
Company agrees to provide for Executive's use an automobile during the
Employment Period on terms substantially comparable to Company's current
arrangements with Executive.
11. PAYROLL WITHHOLDINGS
All payments of Base Salary, Cash Bonus, Deferred Compensation, and other
compensation payable by Company pursuant to this Agreement shall be
subject to the customary withholding of income taxes and shall be subject
to other withholdings required with respect to compensation paid by a
corporation to an employee.
12. EXECUTIVE'S COVENANT AND INDEMNITY
Executive covenants and agrees that all information supplied by him
incident to Company's or his application for any life, disability income
or other insurance to fund (directly or indirectly) Company's obligations
hereunder will be true,
<PAGE>
accurate and complete. Executive agrees to indemnify and hold Company
harmless from any loss or reduction of life, disability income or other
insurance benefits or proceeds resulting from breach of this covenant.
Company shall have the right to set off any such loss or reduction in
insurance benefits or proceeds against amounts Company would otherwise be
obligated to pay to Executive in accordance with this Agreement.
13. ARBITRATION
Any controversy, claim, dispute or difference arising out of the
interpretation, construction or performance of this Agreement shall be
settled by arbitration in the state of Oregon under the rules and auspices
of the American Arbitration Association, and judgment upon the award
entered in such arbitration may be entered in any court having
jurisdiction thereof.
14. JURISDICTION
This Agreement has been made in and shall be governed by the laws of the
state of Oregon.
15. SUCCESSORS AND ASSIGNS
All rights and duties of Company under this Agreement shall be binding on
and inure to the benefit of its successors, assigns or any company which
purchases or otherwise acquires all or substantially all of its operating
assets or outstanding shares by any method. This Agreement shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's estate or personal representative. References
in this Agreement to Executive's personal representative or estate shall
also mean and include Executive's heirs and devisees.
16. LEGAL COUNSEL AND EXPENSES
The parties acknowledge and agree that: (a) the law firm of Gleaves
Swearingen Larsen Potter Scott & Smith ("GSLPSS") has acted as legal
counsel to Company, Bank, and Executive, respectively, on various matters
in the past; (b) that GSLPSS represents Executive only, and not Company or
Bank, in connection with this Agreement; (c) neither Company nor Bank has
sought or relied on any advice from GSLPSS in connection with this
Agreement; (d) prior to executing this Agreement, Company and Bank have
obtained and relied upon review by, and advice from their general legal
counsel, Tonkon, Torp, Galen, Marmaduke & Booth, concerning Company's and
Bank's rights and obligations under this Agreement. Company shall
reimburse Executive the amount of legal fees
<PAGE>
incurred by Executive in having this Agreement prepared by
GSLPSS.
17. ATTORNEY FEES
If any action, suit or arbitration is instituted to enforce or interpret
this Agreement, the prevailing party shall be entitled to recover from the
other party, in addition to all other rights and remedies, the prevailing
party's reasonable attorney fees in the arbitration or at trial and on
appeal.
18. INTEGRATION
Effective at October 1, 1995, this Agreement entirely superseded the
Employment Agreement dated October 1, 1991, and the 1991 Employment
Agreement shall be deemed terminated, and no further payments shall be
made under that Agreement, except for the January 15, 1996 payment with
respect to Executive's cash bonus for 1995. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof, and
may not be amended except by an instrument in writing signed by the
parties.
19. NOTICES
All notices required or permitted under this Agreement shall be in writing
and may be personally served or mailed by registered or certified U.S.
mail, postage prepaid and addressed as follows, or sent to such other
address as a party shall specify by notice to the other party:
If to Company: Centennial Bancorp
675 Oak Street
Eugene, Oregon 97401
Attention: Secretary
If to Executive: Richard C. Williams
2060 Graham Drive
Eugene, Oregon 97405
20. SEVERABILITY
If any provision of this Agreement shall be found, in any action, suit,
arbitration or other proceeding, to be invalid or ineffective, the
validity and effect of the remaining provisions shall not be affected.
21. PERFORMANCE BY COMPANY OR BANK
All compensation and benefits to be provided to Executive pursuant to this
Agreement shall be provided either by Company or by Bank, or partly by
each.
<PAGE>
22. EXECUTION
The parties have executed this Agreement on the dates specified below,
with this Agreement to be effective at the date appearing in the caption
of this Agreement.
COMPANY: EXECUTIVE:
CENTENNIAL BANCORP
By /s/Cordy H. Jensen /s/Richard C. Williams
----------------------- --------------------------
Cordy H. Jensen Richard C. Williams
Director and Secretary
Date: November 22, 1995 Date: November 22, 1995
---- ----
CENTENNIAL BANCORP
1995 STOCK INCENTIVE PLAN
Adopted by the Board of Directors
on November 22, 1995
I. PURPOSE
The purpose of the Plan is to provide a means by which
selected Employees, Directors and Consultants may be given an opportunity to
acquire stock of the Company. The Company, by means of the Plan, seeks to retain
the services of persons who are currently Employees, Directors or Consultants,
to secure and retain the services of new Employees, Directors and Consultants,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company. Accordingly, the Plan provides for granting Incentive
Stock Options, Nonstatutory Stock Options and Restricted Stock Awards, or any
combination of the foregoing, as is best suited to the circumstances of the
particular person as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
a. "1934 ACT" means the Securities Exchange Act of 1934, as amended
and in effect from time to time, or any successor statute.
b. "AWARD" means, individually or collectively, any Option or
Restricted Stock Award.
c. "BOARD" means the Board of Directors of Centennial Bancorp.
d. "CODE" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, or any successor statute. Reference in the Plan
to any section of the Code shall be deemed to include any amendments or
successor provisions to any such section.
e. "COMMITTEE" means not less than two members of the Board who are
selected by the Board as provided in Paragraph A of Article IV.
f. "COMMON STOCK" means the shares of Common Stock of the Company,
with par value of $2.00 per share.
<PAGE>
g. "COMPANY" means Centennial Bancorp and any Parent and Subsidiary of
Centennial Bancorp.
h. "CONSULTANT" means any person, including an adviser, engaged by the
Company to render services and who does not render such services as an
Employee or Director.
i. "DIRECTOR" means an individual elected to the Board by the
shareholders of the Company or by the Board under applicable corporate law
who is serving on the Board on the date the Plan is adopted by the Board or
is elected to the Board after such date.
j. "DISABILITY" means the condition of being permanently "disabled"
within the meaning of Section 22(e)(3) of the Code, namely being unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or which has lasted or can be expected to last for a continuous
period of not less than 12 months.
k. "EMPLOYEE" means any person (including a Director) in an employment
relationship with the Company.
l. "FAIR MARKET VALUE" means, as of any specified date:
(i) If the Common Stock is listed on any established stock
exchange, its fair market value shall be the closing sale price
of the Common Stock (or the average of the closing bid and asked
prices, if no sales were reported), as quoted on such exchange
(or the exchange with the greatest volume of trading in Common
Stock) on the business day preceding the date of such
determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable; or
(ii) If the Common Stock is quoted on the National Market
System of the National Association of Securities Dealers, Inc.
Automated Quotation (Nasdaq) System, its fair market value shall
be the average of the closing bid and asked prices for the Common
Stock on the business day preceding the date of such
determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the fair market value thereof shall be determined in good
faith by the Committee.
<PAGE>
m. "HOLDER" means an Employee, Consultant or a Director who has been
granted an Award, and any assignee or transferee of such person as
permitted under the Plan.
n. "INCENTIVE STOCK OPTION" means an incentive stock option within the
meaning of Section 422 of the Code.
o. "NONSTATUTORY STOCK OPTION" means a stock option other than an
Incentive Stock Option.
p. "OPTION" means an Award described in Article VII of the Plan.
q. "OPTION AGREEMENT" means a written agreement between the Company
and a Holder with respect to an Option.
r. "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
s. "PLAN" means the 1995 Stock Incentive Plan of Centennial Bancorp,
as set forth herein and as may be hereafter amended from time to time.
t. "RESTRICTED STOCK AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
u. "RESTRICTED STOCK AWARD" means an Award described in Article VIII
of the Plan.
v. "RULE 16B-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the 1934 Act, as such may be amended from time to
time, and any successor rule, regulation or statute fulfilling the same or
similar function.
w. "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code; namely, any
corporation in which the Company directly or indirectly controls 50 percent
or more of the total combined voting power of all classes of stock having
voting power.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective as of November 22, 1995, the date of its
adoption by the Board, subject to its ratification and approval by the
shareholders of Centennial Bancorp on or before November 21, 1996. Until the
Plan has been approved by shareholders, any Awards made under the Plan shall be
conditioned upon such approval. No Awards may be granted under the Plan after
November 21, 2005. The Plan shall remain in
<PAGE>
effect until all Awards granted under the Plan have been satisfied or expired.
IV. ADMINISTRATION
A. COMPOSITION OF COMMITTEE. The Plan shall be administered by a committee
which shall be (i) appointed by the Board and (ii) constituted so as to permit
the Plan to comply with Rule 16b-3. Except as may be permitted without causing
the Plan to lose its qualification under Rule 16b-3, no member of the Committee
shall be eligible to receive an Award under the Plan and no person who has
received an Award in the preceding year shall be eligible to serve on the
Committee.
B. AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have sole authority, in its discretion, to determine: (i) which
Employees, Directors and Consultants shall receive Awards; (ii) the time or
times when Awards shall be granted; (iii) the type or types of Awards to be
granted; and (iv) the number of shares of Common Stock which may be issued under
each Award. In making such determinations, the Committee may take into account
the nature of the services rendered by the respective individuals, their present
and potential contribution to the success of the Company, and such other factors
as the Committee in its discretion shall deem relevant. The Committee shall also
have such additional powers as are delegated to it by the Plan. Subject to the
express provisions of the Plan, the Committee is authorized to construe the Plan
and the respective agreements executed hereunder, to prescribe such rules and
regulations relating to the Plan as it may deem advisable to carry out the Plan,
and to determine the terms, restrictions and provisions of each Award, including
such terms, restrictions and provisions as shall be requisite in the judgment of
the Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in any agreement relating to an Award in the manner
and to the extent it shall deem expedient to carry the Award into effect. The
determinations of the Committee on the matters referred to in this Article IV
shall be conclusive.
C. LIABILITY OF COMMITTEE MEMBERS. No member of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Award.
D. COSTS OF PLAN. The costs and expenses of administering the Plan shall be
borne by the Company.
V. ELIGIBILITY
Employees, Directors and Consultants are eligible to receive Options and
Restricted Stock Awards; provided, however, only Employees are eligible to
receive Incentive Stock Options.
<PAGE>
Members of the Committee shall be eligible to receive Awards only to the extent
provided in Paragraph A of Article IV. Any Award may be granted on more than one
occasion to the same person, and may include an Incentive Stock Option, a
Nonstatutory Stock Option, a Restricted Stock Award, or any combination thereof.
VI. SHARES SUBJECT TO THE PLAN
A. AGGREGATE NUMBER OF SHARES. Subject to Article IX, the aggregate number
of shares of Common Stock that may be issued under the Plan shall not exceed
200,000 shares. Shares shall be deemed to have been issued under the Plan only
(i) to the extent actually issued and delivered pursuant to an Award, or (ii) to
the extent an Award is settled in cash. To the extent that an Award lapses or
the rights of its Holder terminate, any shares of Common Stock subject to such
Award shall again be available for the grant of an Award under the Plan.
B. STOCK OFFERED. The stock to be offered pursuant to the grant of any
Award may be authorized but unissued Common Stock or Common Stock previously
issued and outstanding and reacquired by the Company.
VII. OPTIONS
A. OPTION PERIOD. The term of each Option shall be as specified by the
Committee at the date of grant, except that no Incentive Stock Option shall be
exercisable after the expiration of ten years from the date of grant of such
Incentive Stock Option.
B. LIMITATIONS ON EXERCISE OF OPTION. An Option shall be exercisable in
whole or in such installments and at such times as determined by the Committee.
C. SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. To the extent that the
aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Common Stock with respect to which Incentive Stock
Options granted are exercisable for the first time by an individual during any
calendar year under all incentive stock option plans of the Company exceeds
$100,000, such Incentive Stock Options shall be treated as options which do not
constitute Incentive Stock Options. The Committee shall determine, in accordance
with applicable provisions of the Code, Treasury Regulations and other
administrative pronouncements, which of a Holder's Options will not constitute
Incentive Stock Options because of such limitation and shall notify the Holder
of such determination as soon as practicable after such determination. No
Incentive Stock Option shall be granted to an individual if, at the time the
Option is granted, such individual owns stock possessing more than 10 percent of
the total combined voting power of all classes of stock of the Company, unless
(i) at the time such Option is granted the exercise price is at least 110
percent of the Fair
<PAGE>
Market Value of the Common Stock subject to the Option and (ii) such Option by
its terms is not exercisable after the expiration of five years from the date of
grant.
D. SEPARATE STOCK CERTIFICATES. Separate stock certificates shall be issued
by the Company for those shares acquired pursuant to the exercise of an
Incentive Stock Option and for those shares acquired pursuant to the exercise of
a Nonstatutory Stock Option.
E. OPTION AGREEMENT. Each Option shall be evidenced by an Option Agreement
in such form and containing such provisions not inconsistent with the provisions
of the Plan as the Committee from time to time shall approve, including, without
limitation, provisions to qualify an Incentive Stock Option under Section 422 of
the Code. An Option Agreement may provide for the payment of the exercise price,
in whole or in part, by the delivery of a number of shares of Common Stock (plus
cash if necessary) having a Fair Market Value (as of the exercise date of the
Option) equal to such exercise price. Moreover, an Option Agreement may provide
for a "cashless exercise" of the Option by establishing procedures whereby the
Holder, by a properly executed written notice, directs: (i) an immediate market
sale or margin loan respecting all or a part of the shares of Common Stock to
which the Holder is entitled upon exercise of the Option; (ii) the delivery of
the shares of Common Stock from the Company directly to a brokerage firm; and
(iii) the delivery of the exercise price from sale or margin loan proceeds from
the brokerage firm directly to the Company. Such Option Agreement may also
include, without limitation, provisions relating to: (a) vesting of Options; (b)
tax matters (including provisions covering any applicable employee wage
withholding requirements); and (c) any other matters not inconsistent with the
terms and provisions of this Plan that the Committee shall in its sole
discretion determine. The terms and conditions of the respective Option
Agreements need not be identical.
F. EXERCISE PRICE AND PAYMENT. The price at which a share of Common Stock
may be purchased upon exercise of an Option shall be determined by the
Committee, but such exercise price (i) shall not be less than the Fair Market
Value of a share of Common Stock on the date such Option is granted if the
Option is an Incentive Stock Option and (ii) shall be subject to adjustment as
provided in Article IX. An Option or portion thereof may be exercised by
delivery of an irrevocable notice of exercise to the Company. The exercise price
of an Option or portion thereof shall be paid in full in the manner prescribed
by the Committee.
G. TERMINATION OF EMPLOYMENT OR SERVICE.
1. In the event the employment or service of a Holder of an Option by
the Company terminates for any reason other than because of Disability or
death, such Option may be exercised at any time prior to the expiration
date of the
<PAGE>
Option or the expiration of three months after the date of such
termination, whichever is the shorter period, but only if and to the
extent the Holder was entitled to exercise the Option at the date of
such termination.
2. In the event the employment or service of a Holder of an Option by
the Company terminates because of Disability, such Option may be exercised
at any time prior to the expiration date of the Option or the expiration of
one year after the date of such termination, whichever is the shorter
period, but only if and to the extent the Holder was entitled to exercise
the Option at the date of such termination.
3. In the event of the death of a Holder of an Option while employed
by or providing service to the Company, such Option may be exercised at any
time prior to the expiration date of the Option or the expiration of one
year after the date of such death, whichever is the shorter period, but
only if and to the extent the Holder was entitled to exercise the Option on
the date of death. An Incentive Stock Option may be exercised only by the
person or persons to whom such Holder's rights under the Option shall pass
by the Holder's will or by the laws of descent and distribution of the
state or country of domicile at the time of death.
4. The Committee, at the time of grant or at any time thereafter, may
extend the three-month and one-year post-termination exercise periods any
length of time not later than the original expiration date of the Option,
and may increase the portion of the Option that is exercisable, subject to
such terms and conditions as the Committee may determine.
5. To the extent that the Option of any deceased Holder or of any
Holder whose employment or service terminates is not exercised within the
applicable period, all further rights to purchase Common Stock pursuant to
such Option shall cease and terminate.
H. RIGHTS AS A SHAREHOLDER. The Holder of an Option under the Plan shall
have no rights as a shareholder with respect to the Common Stock subject to such
Option until the date of issue to the Holder of a stock certificate for such
shares. Except as otherwise expressly provided in the Plan, no adjustment shall
be made for dividends or other rights for which the record date occurs prior to
the date such stock certificate is issued.
I. OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER CORPORATIONS.
Options may be granted under the Plan from time to time in substitution for
stock options held by individuals employed by corporations who become Employees
as a result of a merger or consolidation of the employing corporation with the
Company, or the acquisition by the Company of the assets
<PAGE>
of the employing corporation, or the acquisition by the Company of stock of the
employing corporation with the result that such employing corporation becomes a
Subsidiary.
J. RESTRICTION ON SALE. Unless otherwise permitted by the Committee, if an
officer subject to Section 16 of the 1934 Act or a Director exercises an Option
within six months of the grant of the Option to such person, the shares acquired
upon exercise of the Option may not be sold until six months after the date of
grant of the Option; provided, however, that, with respect to Options granted
subject to shareholder approval of the Plan, the six-month period shall commence
upon such shareholder approval.
VIII. RESTRICTED STOCK AWARDS
A. RESTRICTION PERIOD. At the time a Restricted Stock Award is granted, the
Committee shall establish a period of time (the "Restriction Period") applicable
to such Award. Each Restricted Stock Award may have a different Restriction
Period, in the discretion of the Committee. The Restriction Period applicable to
a particular Restricted Stock Award shall not be changed except as permitted by
Paragraph B of this Article VIII or by Article IX.
B. OTHER TERMS AND CONDITIONS. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. The Holder shall have the
right to receive dividends during the Restriction Period, to vote Common Stock
subject thereto and to enjoy all other shareholder rights, except that: (i) the
Holder shall not be entitled to delivery of the stock certificate until the
Restriction Period shall have expired; (ii) the Company shall retain custody of
the stock certificate during the Restriction Period; (iii) the Holder may not
sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the stock
during the Restriction Period; and (iv) a breach of the terms and conditions
established by the Committee pursuant to the Restricted Stock Agreement shall
cause a forfeiture of the Restricted Stock Award. Stock dividends issued with
respect to Common Stock awarded pursuant to a Restricted Stock Award shall be
treated as additional Common Stock covered by the Restricted Stock Award. At the
time of such Award, the Committee may, in its sole discretion, prescribe
additional terms, conditions or restrictions relating to Restricted Stock
Awards, including, but not limited to, rules pertaining to the termination of
employment or service (by retirement, Disability, death or otherwise) of a
Holder prior to expiration of the Restriction Period. Such additional terms,
conditions or restrictions shall be set forth in a Restricted Stock Agreement
entered into in conjunction with the Award. Such Restricted Stock Agreement may
also include, without limitation, provisions relating to: (i) vesting of Awards;
(ii) tax matters (including provisions (x) covering any applicable employee wage
withholding
<PAGE>
requirements and (y) prohibiting an election by the Holder under Section 83(b)
of the Code); and (iii) any other matters not inconsistent with the terms and
provisions of this Plan that the Committee shall in its sole discretion
determine. Unless otherwise permitted by the Committee, if an officer subject to
Section 16 of the 1934 Act or a Director receives a Restricted Stock Award,
shares issued pursuant to such Award may not be sold until six months after the
date of the Award.
C. PURCHASE PRICE AND PAYMENT. The Committee shall determine the amount and
form of any payment for Common Stock received pursuant to a Restricted Stock
Award, provided that, in the absence of such a determination, a Holder shall not
be required to make any payment for Common Stock received pursuant to a
Restricted Stock Award, except to the extent otherwise required by law.
D. RESTRICTED STOCK AGREEMENT. At the time any Award is granted under this
Article VIII, the Company and the Holder shall enter into a Restricted Stock
Agreement setting forth each of the matters contemplated hereby and such other
matters as the Committee may determine to be appropriate. The terms and
provisions of the respective Restricted Stock Agreements need not be identical.
IX. CHANGES IN CAPITAL STRUCTURE
A. If the outstanding Common Stock is hereafter increased or decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, plan of exchange, recapitalization,
reclassification, stock split-up, combination of shares or dividend payable in
shares, appropriate adjustment shall be made by the Committee in the number and
kind of shares available for Awards. In addition, the Committee shall make
appropriate adjustment in the number and kind of shares as to which outstanding
Options, or portions thereof then unexercised, shall be exercisable, so that the
Holder's proportionate interest before and after the occurrence of the event is
maintained. Notwithstanding the foregoing, the Committee shall have no
obligation to effect any adjustment that would or might result in the issuance
of fractional shares, and any fractional shares resulting from any adjustment
may be disregarded or provided for in any manner determined by the Committee.
Any such adjustments made by the Committee shall be conclusive. Any adjustment
provided for in this Paragraph A of Article IX shall be subject to any required
shareholder action. In the event of dissolution of the Company or a merger,
consolidation, plan of exchange or similar transaction affecting the Company, in
lieu of providing for Options as provided above in this Paragraph A of Article
IX or in lieu of having the Options continue unchanged, the Committee may, in
its sole discretion, provide a 30-day period prior to such event during which
Holders shall have the right to
<PAGE>
exercise Options in whole or in part without any limitation on exercisability
and upon the expiration of such 30-day period all unexercised Options shall
immediately terminate. Notwithstanding the foregoing, if the Holder of an Option
is subject to Section 16(b) of the 1934 Act and if such event occurs less than
six months after the date the Option is granted, the exercise of the Option
shall not be accelerated, unless such acceleration is approved by both the
Committee and the Holder, if such acceleration would cause the grant or the
exercise of the Option to be deemed a purchase subject to Section 16(b) of the
1934 Act and the regulations promulgated thereunder.
B. The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities senior to
or affecting Common Stock or the rights thereof, the dissolution or liquidation
of the Company, or any sale, lease, exchange or other disposition of all or any
part of its assets or business or any other corporate act or proceeding.
C. Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Common Stock subject to Awards previously granted or the exercise
price per share, if applicable.
X. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Awards have not previously been granted. The Board shall
have the right to alter or amend the Plan or any part thereof from time to time;
provided, that no change in any Award previously granted may be made which would
impair the rights of the Holder without the consent of the Holder; provided
further, that the Board may not, without approval of the shareholders, amend the
Plan:
(a) to increase the maximum number of shares which may be issued on
grant or exercise of an Award, except as provided in Article IX;
(b) to change the price at which an Award may be granted or exercised;
<PAGE>
(c) to change the class of individuals eligible to receive Awards;
(d) to extend the maximum period during which Awards may be granted
under the Plan; or
(e) to decrease any authority granted to the Committee hereunder if
such change would cause the Plan to lose its qualification under Rule
16b-3.
XI. MISCELLANEOUS
A. NO RIGHT TO AN AWARD. Neither the adoption of the Plan by the Company
nor any action of the Board or the Committee shall be deemed to give an
Employee, a Consultant or a Director any right to be granted an Award or any of
the rights hereunder except as may be evidenced by an Award or by an Option
Agreement or Restricted Stock Agreement duly executed on behalf of the Company,
and then only to the extent and on the terms and conditions expressly set forth
therein.
B. NO EMPLOYMENT RIGHTS CONFERRED. Nothing in the Plan shall (i) confer
upon any Employee any right with respect to continuation of employment with the
Company or (ii) interfere in any way with the right of the Company to terminate
the Employee's employment (or service as a Director, in accordance with
applicable corporate law, or service as a Consultant) at any time for any
reason, with or without cause.
C. OTHER LAWS; WITHHOLDING. The Company shall not be obligated to issue any
Common Stock pursuant to any Award granted under the Plan at any time when the
shares covered by such Award have not been registered under the Securities Act
of 1933, as amended, and such other state and federal laws, rules or regulations
as the Company or the Committee deems applicable and, in the opinion of legal
counsel for the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance and
sale of such shares. No fractional shares of Common Stock shall be delivered,
nor shall any cash in lieu of fractional shares be paid. The Company shall have
the right to deduct in connection with all Awards any taxes required by law to
be withheld and to require any payments required to enable it to satisfy its
withholding obligations.
D. NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan shall
be construed to prevent the Company from taking any corporate action which is
deemed by the Company to be appropriate or in its best interest, whether or not
such action would have an adverse effect on the Plan or any Award granted under
the Plan. No Employee, Consultant, Director, beneficiary or other person shall
have any claim against the Company as a result of any such action.
<PAGE>
E. RESTRICTIONS ON TRANSFER. An Award shall not be transferable otherwise
than by will or the laws of descent and distribution; provided, however, that,
with the consent of the Committee, Nonstatutory Stock Options may be assigned or
transferred, if such assignment or transfer does not cause the Plan to lose its
qualification under Rule 16b-3. (At the date the Plan was approved by the Board,
the following additional transfers of Nonstatutory Stock Options could be made
without causing the Plan to lose its qualification under Rule 16b-3: (i)
transfers pursuant to qualified domestic relations orders; (ii) transfers to
members of the Optionee's immediate family (i.e., children, grandchildren and
spouses); (iii) transfers to trusts for the benefit of such family members; and
(iv) transfers to partnerships whose only partners are such family members.) No
consideration may be paid for the transfer of any Nonstatutory Stock Option,
and, after any permitted transfer, the Nonstatutory Stock Option shall continue
to be subject to the same terms and conditions as were applicable to it
immediately prior to its transfer. Before permitting any transfer, the Committee
may require the transferee to agree in writing to be so bound. Unless otherwise
permitted by the Committee, an officer subject to Section 16 of the 1934 Act or
a Director may not transfer a Nonstatutory Stock Option within six months of the
date of grant; provided, however, that, with respect to Nonstatutory Stock
Options made subject to shareholder approval of the Plan, the six-month period
shall commence upon such shareholder approval. Incentive Stock Options may be
exercisable during the lifetime of the optionee only by the optionee, or by the
optionee's guardian or legal representative.
F. RULE 16B-3. It is intended that the Plan and, except as otherwise
determined by the Committee, any grant of an Award made to a person subject to
Section 16 of the 1934 Act meet all of the requirements of Rule 16b-3, as
modified or amended from time to time. If any provision of the Plan or any such
Award would disqualify the Plan or such Award under, or would otherwise not
comply with, Rule 16b-3, such provision or Award shall be construed or deemed
amended to conform to Rule 16b-3, except as the Committee shall otherwise
determine with respect to any particular Award.
G. GOVERNING LAW. To the extent that federal laws (such as the Code and the
federal securities laws) do not otherwise control, the Plan shall be construed
in accordance with the laws of the state of Oregon.
H. HEADINGS. Headings contained in the Plan are for reference purposes and
shall not affect the meaning or interpretation of the Plan.
/s/Cordy H. Jensen
---------------------------------
Cordy H. Jensen, Secretary
CENTENNIAL BANCORP
NONSTATUTORY (NONQUALIFIED) STOCK OPTION AGREEMENT
EFFECTIVE DATE: November 22, 1995
BETWEEN: Centennial Bancorp, an Oregon
corporation (the "Company")
AND: Richard C. Williams (the "Optionee")
Pursuant to the Company's 1995 Stock Incentive Plan (the "Plan"), the
Compensation Committee of the Board of Directors (the "Committee") has granted
to the Optionee an option to purchase shares of the Company's Common Stock, $2
par value (the "Stock"), in the amount indicated below.
NOW, THEREFORE, the parties agree as follows:
1. GRANT; TERMS OF OPTION. Subject to the terms and conditions of this
Agreement and the Plan, the Company grants to the Optionee the right and option
(the "Option") to purchase any part of an aggregate of 60,000 shares of the
Company's authorized but unissued Stock at a purchase price of $11.625 per
share, this price being the fair market value of the shares as determined
pursuant to the Plan on the date of the grant of the Option. It is the intent of
the Committee that the Option be a nonstatutory (nonqualified) stock option and,
therefore, not qualify as an "incentive stock option" under the tax laws. The
Option is granted upon the following terms and conditions:
(a) TERM OF OPTION. Subject to reductions in the Option term provided in
subparagraphs (c) and (g) below, the Option shall continue in effect
through November 21, 2015.
(b) TIMING OF RIGHT TO EXERCISE. Except as provided in subparagraph (c)
hereof, the Option may be exercised from time to time over the term of
the Option by the purchase of shares in the following amounts:
Prior to September 30, 1996: None
On September 30, 1996: 20,000 shares
On September 30, 1997: An additional 20,000 shares
<PAGE>
On September 30, 1998: The remaining 20,000
shares subject to the
Option
If the Optionee does not purchase in any one year the full number of
shares that he is then entitled to purchase, the Optionee's rights
shall be cumulative, and, subject to the other provisions of this
Agreement, the Optionee may purchase those shares thereafter during the
term of the Option.
(c) TERMINATION OF EMPLOYMENT. Except as provided in this subparagraph
(c), the Option shall not be exercised unless at the time of such
exercise the Optionee is in the employ of the Company or a parent or
subsidiary corporation of the Company and shall have so served
continuously since the effective date of this Agreement. Vesting of
the Option shall continue during approved absences or leaves
(including an extended illness). If the employment of the Optionee
with the Company or a parent or subsidiary corporation of the Company
terminates by reason of the Optionee's death or disability, or is
terminated by the Company without "cause" (as defined in the
Employment Agreement between the Optionee and the Company, dated
effective October 1, 1996 (the "Employment Agreement")), or is
terminated by the Optionee with "good reason" (as defined in the
Employment Agreement), or terminates at the end of the "Employment
Period" (as defined in the Employment Agreement), the Option shall
become fully exercisable as of the date of such termination, and the
Option shall continue to be exercisable during the remainder of its
term (subject to subparagraph (g) below). If the employment of the
Optionee by the Company or a parent or subsidiary corporation of the
Company terminates for any other reason, the Option may be exercised
by the Optionee at any time prior to the expiration date of the Option
or the expiration of three months after the date of such termination,
whichever is the shorter period, but only if and to the extent the
Optionee was entitled to exercise the Option at the date of such
termination. In such event, to the extent that the Option is not
exercised within the three-month period, all further rights to
purchase shares pursuant to the Option shall cease and terminate at
the expiration of such period.
(d) CERTAIN TRANSFERS PERMITTED. The Option shall not be assignable or
transferable by the Optionee, either voluntarily or by operation of
law, except as follows: (i) by will or by the laws of descent and
distribution of the state or country of the Optionee's domicile at the
time of death; (ii) pursuant to a qualified
<PAGE>
domestic relations order; (iii) to members of the Optionee's immediate
family (i.e., children, grandchildren and spouse); (iv) to trusts for
the benefit of such family members; and (v) to partnerships whose only
partners are such family members. The Optionee understands and agrees
that: (i) no consideration may be paid for the transfer of the Option;
and (ii) the Option, after any permitted transfer, shall continue to be
subject to the same terms and conditions as were applicable to the
Option immediately prior to its transfer and, upon the request of the
Committee, the Optionee will obtain from the transferee the
transferee's agreement in writing to be so bound. Once such conditions
are satisfied, the Optionee may, at any time, effect a permitted
transfer. After any permitted transfer, whenever the word "Optionee" is
used in this Agreement under circumstances where the provision should
logically be construed to apply to the transferee, the word "Optionee"
shall be deemed to include such transferee.
(e) MANNER OF EXERCISE. Shares may be purchased pursuant to the Option
only upon receipt by the Company of written notice from the Optionee
of the Optionee's desire to purchase, specifying the number of shares
the Optionee desires to purchase and the date on which the Optionee
desires to complete the purchase. The Option may not be exercised for
a fraction of a share. If required to comply with any applicable
federal or state securities laws, the notice also shall contain a
representation that it is the Optionee's intention to acquire the
shares for investment and not for resale. On the date specified for
completion of the purchase of the shares, the Optionee shall pay the
Company the full purchase price of the shares in cash or by such other
method of payment as shall be approved by the Committee. No shares
shall be issued until full payment has been made, and the Optionee
shall have none of the rights of a shareholder until shares are
issued.
(f) WITHHOLDING OBLIGATIONS. The Optionee shall, upon notification of the
amount due and prior to or concurrently with delivery of the
certificate representing the shares, pay to the Company any amounts
necessary to satisfy applicable federal, state and local tax
withholding requirements. If additional withholding is or becomes
required beyond any amount deposited before delivery of the
certificates, the Optionee shall pay such amount to the Company on
demand.
(g) CHANGES IN CAPITAL STRUCTURE. Except as provided in the final sentence
of this subparagraph (g), if the
<PAGE>
outstanding shares of Stock are increased or decreased or changed into
or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, plan of exchange,
recapitalization, reclassification, stock split-up, combination of
shares or dividend payable in shares, the Committee shall make
appropriate adjustment in the number and kind of shares as to which the
Option, or portion thereof then unexercised, shall be exercisable, in
order that the Optionee's proportionate interest shall be maintained as
before the occurrence of such event. Such adjustment in the Option
shall be made without change in the total price applicable to the
unexercised portion of the Option and with a corresponding adjustment
in the option price per share. Any such adjustment made by the
Committee shall be conclusive. In the event of the dissolution of the
Company or a merger, consolidation, plan of exchange or similar
transaction affecting the Company, in lieu of adjusting the Option as
described above, the Committee may, in its sole discretion, provide a
30-day period immediately prior to such event during which the Optionee
shall have the right to exercise the Option in whole or in part without
any limitation on exercisability.
2. CONDITIONS. The obligations of the Company under this Agreement shall be
subject to: (i) the approval of such state or federal authorities or agencies as
may have jurisdiction in the matter; and (ii) the approval of the Plan by the
Company's shareholders. The Company shall use its best efforts to take such
steps as may be required by state or federal law or applicable regulations,
including rules and regulations of the Securities and Exchange Commission, any
quotation system on which the Stock may then be traded and any stock exchange on
which the Stock may then be listed, in connection with the issuance or sale of
any shares acquired pursuant to this Agreement or the trading or listing of such
shares on any such system or exchange. The Company shall not be obligated to
issue or deliver shares under this Agreement if, upon advice of its legal
counsel, such issuance or delivery would violate state or federal securities
laws. The Option shall not be exercisable until the Plan has been approved by
the Company's shareholders; and, if the Plan terminates as a result of failure
to receive shareholder approval, the Option shall be null and void.
3. LEGENDS. Certificates representing the shares subject to this Agreement
shall bear such legends as the Company shall deem appropriate to reflect any
restrictions on transfer imposed by federal or applicable state securities laws.
<PAGE>
4. CONTINUING RELATIONSHIP. Nothing in the Plan or in this Agreement shall
confer upon the Optionee any right to continue as an employee of the Company or
any parent or subsidiary corporation of the Company or interfere in any way with
the right of the Company or parent or subsidiary to terminate the Optionee's
employment at any time for any reason.
5. BINDING EFFECT. This Agreement shall be binding upon and shall inure to
the benefit of any successor of the Company, but except as provided above, the
Option shall not be assigned or otherwise disposed of by the Optionee.
6. THE PLAN. The Option is subject to the terms and conditions of the Plan.
In the event of a conflict between the Plan and this Agreement, the terms of the
Plan shall control. The Optionee agrees to be bound by the rules and regulations
for the administration of the Plan, as presently prescribed or hereafter
amended, and by any amendment, construction or interpretation of the Plan
properly adopted by the Company's Board of Directors or by the Committee.
7. NOTICES. Parties to this Agreement shall give all notices to the other
parties concerning this Agreement by personal delivery, by telecopier or by
registered or certified mail, return receipt requested, addressed as follows:
If to the Company: Centennial Bancorp
675 Oak Street
Eugene, Oregon 97440
Attention: Chairman
If to Optionee: Richard C. Williams
2060 Graham Drive
Eugene, Oregon 97405
Any party may, by written notice to the other parties, designate a new address
to which notices shall thereafter be delivered. Notice hereunder shall be deemed
effective upon the earlier of actual receipt or three days after being sent by
registered or certified mail.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date stated above.
CENTENNIAL BANCORP
By /s/Cordy H. Jensen
---------------------------------
Cordy H. Jensen
Director and Secretary
/s/Richard C. Williams
---------------------------------
Richard C. Williams
Address: 2060 Graham Drive
Eugene, Oregon 97405
Exhibit 11.1
Centennial Bancorp
Computation of Earnings Per Share
Year Ended December 31,
1995 1994 1993
---------- ----------- -----------
INCOME:
Net income (primary) $4,551,318 $3,501,579 $2,763,039
Add Convertible Debenture interest
expense, net of tax (1) 430,603 310,830 --
---------- ---------- ---------
Net income (fully diluted) $4,981,921 $3,812,409 $2,763,039
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Weighted average shares outstanding
(primary) 4,796,285 4,751,256 4,710,545
Weighted average shares issuable upon
conversion of all debentures (1) 892,598 606,478 --
--------- --------- ---------
Weighted average shares outstanding
(fully diluted) 5,688,883 5,357,734 4,710,545
========= ========= =========
NET INCOME PER SHARE:
Primary $ .95 $ .74 $ .59
Fully diluted $ .88 $ .71 $ .59
(1) The Convertible Debentures were issued April 27, 1994.
Centennial Bancorp is a bank holding company, which provides commercial and
consumer banking services through its subsidiary Centennial Bank, and
residential mortgage brokering services through its subsidiary Centennial
Mortgage Co.
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of Centennial Bancorp for
the years indicated (in thousands of dollars, except per share amounts). All
data in this Annual Report to Shareholders has been restated to give retroactive
effect to the 1994 merger with CG Bancorp. In addition, all share and per share
information has been restated to give retroactive effect to a stock split
declared in January 1996, and for various stock splits and stock dividends
declared in years prior to 1996.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Interest income $ 25,274 $ 19,474 $ 14,849 $ 13,319 $ 13,124
Interest expense 9,004 5,172 4,102 4,658 5,645
-------- -------- -------- -------- --------
Net interest income 16,270 14,302 10,747 8,661 7,479
Loan loss provision 350 316 310 256 235
Net income 4,551 3,502 2,763 2,005 1,811
Total assets 317,464 257,326 220,760 181,617 161,155
Total deposits 267,880 216,320 192,112 156,119 144,823
Short-term borrowings 11,419 11,840 300 1,700 2,300
Long-term debt 9,200 9,200 6,989 6,354 500
Shareholders' equity 26,390 19,205 17,420 14,517 12,521
Earnings per share:
Primary $ .95 $ .74 $ .59 $ .43 $ .39
Fully diluted .88 .71 .59 .43 .39
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Centennial Bancorp:
We have audited the accompanying consolidated balance sheets of Centennial
Bancorp and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Centennial Bancorp
and subsidiaries as of December 31, 1995 and 1994, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Eugene, Oregon
February 1, 1996
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, 1995 1994
------------- ------------
<S> <C> <C>
Assets Cash and cash equivalents:
Cash and due from banks $ 21,991,459 $ 19,783,038
Interest-bearing deposits
with banks 6,000,000 5,575,000
Federal funds sold 8,730,000 --
------------ ------------
Total cash and cash
equivalents 36,721,459 25,358,038
Available-for-sale securities 76,964,342 58,794,836
Loans 186,517,192 160,136,068
Reserve for loan losses (1,928,372) (1,700,130)
------------ ------------
Loans, net 184,588,820 158,435,938
Loans held for sale 4,573,095 1,874,728
Premises and equipment, net 9,214,564 6,763,983
Other asset 5,401,435 6,098,831
------------ ------------
Total assets $317,463,715 $257,326,354
============ ============
Liabilities and Shareholders'
Equity
Liabilities:
Deposits:
Demand $ 70,578,820 $ 63,699,442
Interest-bearing demand 98,600,873 79,942,836
Savings 13,743,140 15,888,076
Time 84,957,459 56,789,446
------------ ------------
Total deposits 267,880,292 216,319,800
Short-term borrowings:
Securities sold under
agreement to repurchase 3,419,123 2,839,608
Advances from Federal Home
Loan Bank ("FHLB") 8,000,000 9,000,000
------------ ------------
Total short-term borrowings 11,419,123 11,839,608
Accrued interest and other
liabilities 2,574,240 761,615
Long-term debt 9,200,000 9,200,000
------------ ------------
Total liabilities 291,073,655 238,121,023
Commitments and contingencies
(Notes 10 and 11) Shareholders' Equity:
Preferred stock -- --
Common stock, $2.00 par
value; 10,000,000 shares
authorized, 4,651,130 issued
(3,974,225 at December 31, 1994) 9,302,260 7,948,450
Additional paid-in capital 5,829,404 7,067,963
Retained earnings 10,657,696 6,106,378
Unrealized gains (losses)
on securities available-
for-sale, net of deferred
income taxes 600,700 (1,917,460)
------------ ------------
Total shareholders' equity 26,390,060 19,205,331
------------ ------------
Total liabilities and
shareholders' equity $317,463,715 $257,326,354
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1995 1994 1993
----------- ----------- --------
<S> <C> <C> <C>
Interest income:
Loans $20,908,425 $16,003,263 $12,091,667
Securities:
Taxable 2,403,376 1,926,971 1,263,886
Exempt from Federal
income taxes 1,037,272 1,092,525 1,080,958
Dividends on FHLB stock 255,704 210,771 181,445
Deposits with banks 352,229 109,755 117,857
Federal funds sold 317,162 130,772 112,712
----------- ----------- -----------
Total interest income 25,274,168 19,474,057 14,848,525
Interest expense:
Deposits:
Savings and interest-
bearing demand 3,352,248 2,333,354 2,177,423
Time 4,145,754 2,106,197 1,610,780
Long-term debt 644,970 558,738 275,118
Short-term borrowings 861,484 174,131 38,358
----------- ----------- -----------
Total interest expense 9,004,456 5,172,420 4,101,679
----------- ----------- -----------
Net interest income 16,269,712 14,301,637 10,746,846
Loan loss provision 350,000 315,500 310,000
----------- ----------- -----------
Net interest income
after loan loss provision 15,919,712 13,986,137 10,436,846
Noninterest income:
Service charges 904,813 848,860 792,219
Loan servicing fees 329,712 520,633 241,426
Other 572,929 814,751 415,032
Gains on sales of loans 404,027 575,266 659,270
Gains on sales of securities 65,895 103,167 414,846
----------- ----------- -----------
Total noninterest income 2,277,376 2,862,677 2,522,793
Noninterest expense 11,503,970 11,809,835 8,983,912
----------- ----------- -----------
Income before income taxes 6,693,118 5,038,979 3,975,727
Provision for income taxes 2,141,800 1,537,400 1,212,688
----------- ----------- -----------
Net income $ 4,551,318 $ 3,501,579 $ 2,763,039
=========== =========== ===========
Earnings per share:
Primary $ .95 $ .74 $ .59
=========== =========== ===========
Fully diluted $ .88 $ .71 $ .59
=========== =========== ===========
Weighted average shares outstanding:
Primary 4,796,285 4,751,256 4,710,545
Fully diluted 5,688,883 5,357,734 4,710,545
</TABLE>
The accompanying notes are an integral part of these financial statement.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Net
Common Stock Unrealized
----------------------- Additional Gains Total
Number Paid in Retained (Losses)on Shareholders'
of Shares Amount Capital Earnings Securities Equity
--------- --------- ----------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1993 2,872,435 $5,744,870 $7,521,152 $1,251,308 $14,517,330
5% stock dividend 135,264 270,528 1,099,020 (1,369,548) --
Stock options exercised 127,576 255,152 (109,402) -- 145,750
Effect of stock split (10%) 288,205 576,410 (576,410) -- --
Net unrealized gain, net of
deferred income taxes -- -- -- -- $ 33,775 33,775
Cash dividend -- -- -- (40,000) -- (40,000)
Net income -- -- -- 2,763,039 -- 2,763,039
--------- ---------- ---------- ---------- ----------- -----------
Balances, December 31, 1993 3,423,480 6,846,960 7,934,360 2,604,799 33,775 17,419,894
Effect of stock split (5%) 159,486 318,972 (318,972) -- -- --
Stock options exercised 29,966 59,932 (28,579) -- -- 31,353
Tax benefit of stock options
exercised -- -- 203,740 -- -- 203,740
Effect of stock split (10%) 361,293 722,586 (722,586) -- -- --
Net unrealized loss, net of
deferred income taxes -- -- -- -- (1,951,235) (1,951,235)
Net income -- -- -- 3,501,579 -- 3,501,579
--------- ---------- ---------- ---------- --------- -----------
Balances, December 31, 1994 3,974,225 7,948,450 7,067,963 6,106,378 (1,917,460) 19,205,331
Effect of stock split (5%) 200,950 401,900 (401,900) -- -- --
Stock options exercised 53,125 106,250 (19,333) -- -- 86,917
Tax benefit of stock options
exercised -- -- 28,334 -- -- 28,334
Effect of stock split (10%) 422,830 845,660 (845,660) -- -- --
Net unrealized gain, net of
deferred income taxes -- -- -- -- 2,518,160 2,518,160
Net income -- -- -- 4,551,318 -- 4,551,318
--------- ---------- ---------- ---------- ---------- -----------
Balances, December 31, 1995 4,651,130 $9,302,260 $5,829,404 $10,657,696 $ 600,700 $26,390,060
========= ========== ========== =========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Years ended December 31, 1995 1994 1993
----------- ----------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,551,318 $ 3,501,579 $ 2,763,039
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Gains on sales of securities,
loans and other real estate
owned (469,922) (771,673) (1,074,116)
Stock dividends on FHLB stock (255,704) (210,771) (181,445)
Loan loss provision 350,000 315,500 310,000
Deferred income taxes (41,473) 881,509 (584,504)
Depreciation and amortization 978,755 1,000,682 603,805
Originations of loans for sale (30,039,215) (20,664,772) (44,477,872)
Proceeds from sale of loans 27,744,875 23,116,819 44,208,056
Changes in assets and liabilities:
Accrued interest receivable (709,087) (590,223) (90,366)
Other assets (220,380) 79,700 147,213
Other liabilities 1,771,352 (2,866,470) 1,021,802
----------- ----------- -----------
Net cash provided by
operating activities 3,660,519 3,791,880 2,645,612
----------- ----------- -----------
Cash flows from investing activities:
Available-for-sale securities:
Maturities 10,405,612 7,268,938 --
Purchases (30,410,092) (13,032,648) --
Proceeds from sales 6,165,340 6,782,417 --
Held-to-maturity securities:
Maturities -- 1,849,622 --
Purchases -- (6,542,956) --
Investment securities:
Purchases -- -- (43,799,912)
Maturities -- -- 5,975,663
Proceeds from sales -- -- 25,596,114
Net increase in loans (26,502,882) (36,100,972) (29,353,425)
Purchases of premises and equipment (3,387,116) (1,486,405) (2,038,998)
Sales of premises and equipment 49,985 18,600 --
Purchase of Harding Fletcher Co. -- -- (400,000)
Sale of Harding Fletcher Co. 155,131 -- --
----------- ----------- -----------
Net cash used in investing
activities (43,524,022) (41,243,404) (44,020,558)
----------- ----------- -----------
Cash flows from financing activities:
Net increase in deposits 51,560,492 24,207,857 35,993,688
Cash dividend payments -- -- (40,000)
Net increase in short-term
borrowings 579,515 2,539,608 --
Notes payable and advances, FHLB:
Proceeds 8,000,000 9,000,000 --
Payments (9,000,000) -- (1,400,000)
Proceeds from long-term debt -- 9,200,000 800,000
Payments on long-term debt -- (6,989,261) (164,793)
Proceeds from exercise of
stock options 86,917 31,353 145,750
----------- ----------- -----------
Net cash provided by financing
activities 51,226,924 37,989,557 35,334,645
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 11,363,421 538,033 (6,040,301)
Cash and cash equivalents at
beginning of year 25,358,038 24,820,005 30,860,306
----------- ----------- -----------
Cash and cash equivalents
at end of year $36,721,459 $25,358,038 $24,820,005
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Purchase of Harding Fletcher Co.:
Furniture and equipment $ -- $ -- $ 40,000
Loan servicing rights -- -- 270,000
Excess of cost over fair value
of assets acquired -- -- 90,000
----------- ----------- ----------
$ -- $ -- $ 400,000
=========== =========== ==========
Sale of Harding Fletcher Co.:
Cash received at closing $ 150,000 $ -- $ --
Proration of expenses 5,131 -- --
----------- ----------- ----------
$ 155,131 $ -- $ --
=========== =========== ==========
Noncash investing and financing activities:
Change in net unrealized gains
(losses) on securities
available-for-sale,
net of deferred income tax
liability (benefit) $ 2,518,160 $(1,951,235) $ 33,775
Transfer of held-to-maturity
securities to available-for
sale securities -- 40,681,546 --
Transfer of premises to other
assets-held for sale -- -- 1,235,097
Cash paid during the year for:
Interest on deposits and
other borrowings 8,708,000 4,975,000 4,076,000
Income taxes 1,565,000 2,412,000 1,375,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Centennial Bancorp
("Bancorp"), a bank holding company, and its wholly-owned subsidiaries,
Centennial Bank (the "Bank"), Centennial Mortgage Co. ("Centennial Mortgage"),
and Harding Fletcher Co. ("Harding Fletcher"). The Bank provides commercial
financing, banking and other services. Centennial Mortgage provides residential
mortgage brokering services. All significant intercompany balances and
transactions have been eliminated in consolidation. Results of operations of
entities acquired in purchase transactions are included in the consolidated
financial statements from the date of acquisition.
DIVESTITURE
In August 1995, Bancorp sold substantially all the assets of its Harding
Fletcher subsidiary 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.
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and prevailing practices within the
banking industry. In preparing the consolidated financial statements, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheet, and revenues and
expenses for the period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from or deposited with banks, interest bearing balances due
from banks, and federal funds sold. Generally, federal funds are sold for
one-day periods.
Bancorp is required to maintain an average reserve balance with the Federal
Reserve Bank, or maintain such reserve balance in the form of cash. The amount
of this reserve balance required at December 31, 1995 was approximately
$5,282,000, which was met by holding approximately $2,133,000 in the form of
cash and by depositing approximately $3,149,000 with the Federal Reserve Bank.
<PAGE>
SECURITIES
In 1993, Bancorp adopted Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
This Statement requires that investments in securities be classified by
management as held-to-maturity, available-for-sale, or trading securities.
Management determines the appropriate classification of securities at the time
of purchase.
Investments in debt securities classified as held-to-maturity are acquired with
the intent and ability to hold to maturity, are stated at cost, and are adjusted
for amortization of discounts and accretion of premiums. As a result of a sale
during 1994 of $4,889,700 of securities classified as held-to-maturity for
reasons other than those permitted by SFAS 115, Bancorp has classified all
securities as available-for-sale.
Securities classified as available-for-sale are to be held for indefinite
periods of time and may be sold in response to movements in market interest
rates, changes in the maturity mix of bank assets and liabilities or demand on
liquidity. At December 31, 1995 and 1994, securities classified as
available-for-sale are carried at fair value. Unrealized gains and losses on
these securities are excluded from earnings and are reported as a separate
component of shareholders' equity.
Securities classified as trading are to be carried at fair value, with the
unrealized gains and losses included in earnings. During 1995 and 1994, Bancorp
had no securities classified as trading securities.
Interest income on debt securities is included in income using the level yield
method. Gains and losses on sales of securities are recognized on a specific
identification basis.
LOANS AND LOANS HELD FOR SALE
Loans held for investment are stated at the amount of unpaid principal adjusted
for any deferred loan origination fees and costs. Bancorp has both the ability
and intent to hold such loans for the foreseeable future or until maturity.
Certain loans are held for sale and are carried at the lower of cost or market.
Market value for loans held for sale is separately determined using the
aggregate loan basis for both residential and commercial loans.
Interest income is accrued daily on the outstanding loan balances using the
simple interest method. The accrual of interest on loans is discontinued when,
in management's judgment, the future collectibility of interest or principal is
in doubt.
Loan origination and commitment fees, net of certain loan origination costs, are
generally recognized over the life of the related loan as an adjustment of
yield.
RESERVE FOR LOAN LOSSES
Bancorp adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," on January 1, 1995. Under the new Standard, a loan is considered impaired
based on current information and events if it is probable that Bancorp will be
unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. The measurement of
impaired loans is generally based on the present value of expected future cash
flows discounted at the historical effective interest rate, except that all
collateral- dependent loans are measured for impairment based on the fair value
of the collateral.
The adequacy of the reserve for loan losses is periodically evaluated by Bancorp
in order to maintain the reserve at a level that is sufficient to absorb
probable credit losses. Management's evaluation of the adequacy of the reserve
is based on a review of Bancorp's historical loss experience, known and inherent
risks in the loan portfolio, including adverse circumstances that may affect the
ability of the borrower to repay interest or principal, the estimated value of
collateral, and an analysis of the levels and trends of delinquencies and
charge-offs, and the risk ratings of the various loan categories. Such factors
as the level and trend of interest rates and the condition of the national and
local economies are also considered.
The reserve for loan losses is established through charges to earnings in the
form of a provision for loan losses. Increases and decreases in the reserve due
to changes in the measurement of impaired loans are included in the provision
for loan losses. Loans continue to be classified as impaired unless they are
brought fully current and the collection of scheduled interest and principal is
considered probable.
When a loan or portion of a loan is determined to be uncollectible, the portion
deemed uncollectible is charged against the reserve and subsequent recoveries,
if any, are credited to the reserve.
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS
Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well- collateralized and in the process
of collection. If a loan or a portion of a loan is classified as doubtful or is
partially charged off, the loan is classified as nonaccrual. Loans that are on a
current payment status or past due less that 90 days may also be classified as
nonaccrual if full repayment of principal or interest is in doubt.
Loans may be returned to accrual status when all principal and interest
<PAGE>
amounts contractually due (including arrearages) are reasonable assured of
repayment within an acceptable period of time, and there is a sustained period
of repayment performance (generally a minimum of six months) by the borrower, in
accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual, collections of interest and principal
are generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash interest receipts in excess of that amount are
recorded as recoveries to the reserve for loan losses until prior charge-offs
have been fully recovered.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Capital leases are included in premises and equipment at the
capitalized amount less accumulated amortization. Depreciation and amortization
are computed principally using the straight-line method over the estimated
useful lives of the assets. Estimated useful lives are 30 to 40 years for
buildings, 3 to 10 years for furniture and equipment, and up to the lease term
for leasehold improvements.
OTHER REAL ESTATE OWNED
Other real estate owned, acquired through foreclosure or deed in lieu of
foreclosure, is carried at the lower of cost or fair market value at the time of
foreclosure. When the property is acquired, any excess of the loan balance over
fair value of the property is charged to the reserve for loan losses.
Subsequently, the property is valued at the lower of its carrying amount or net
realizable value. Write-downs to net realizable value, if any, rental income,
and disposition gains and losses are included in noninterest expense.
Other real estate owned at December 31, 1994 has been included in other assets
in the consolidated balance sheets. Bancorp did not hold any other real estate
owned at December 31, 1995.
DEBT ISSUANCE COSTS
Costs associated with the issuance of Convertible Debentures are
deferred and amortized using the effective interest method. Debt
issuance costs are included in other assets.
INTANGIBLE ASSETS
<PAGE>
During 1982, Bancorp acquired Centennial Bank in a transaction accounted for as
a purchase. The resulting excess ($1,715,751) of purchase cost over the
estimated fair value of net assets acquired is being amortized on the
straight-line method over 20 years. Accumulated amortization at December 31,
1995 and 1994 was $1,176,133 and $1,090,345, respectively.
When factors indicate goodwill should be evaluated for possible impairment,
Bancorp uses an estimate of the related business undiscounted net income over
the remaining life of the goodwill in measuring whether the goodwill is
recoverable. At December 31, 1995 and 1994, management estimates that all
goodwill is recoverable.
INCOME TAXES
Bancorp files consolidated federal and State of Oregon income tax returns.
Subsidiaries of Bancorp are allocated a share of the consolidated income tax
provision by use of the separate return method. Bancorp uses an asset and
liability approach for financial accounting and reporting for income taxes. If
it is more likely than not that some portion or all of a deferred tax asset will
not be realized, a valuation allowance is recognized.
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 consist
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
Convertible Debentures were issued in 1994.
The weighted average number of shares and common share equivalents have been
adjusted to give retroactive effect to a stock split declared January 16, 1996,
and various stock splits and stock dividends declared prior to December 31,
1995.
MORTGAGE BANKING ACTIVITIES
Centennial Mortgage's activities include origination of conventional and
federally insured residential mortgage loans for resale in the secondary market.
Mortgage loans are sold without recourse and with no servicing rights retained.
Mortgage loans held for sale are carried at the lower of cost or market. Gains
on the sale of loans are recognized at the time funds are received in closing
from the third-party secondary market investor.
<PAGE>
Harding Fletcher originated and serviced commercial real estate mortgage loans
as agent for third party investors. Fee income was recognized when the loans
closed. Mortgage servicing income was recognized as serviced loan payments were
received.
FINANCIAL ACCOUNTING STANDARDS BOARD
Effective October 1995, the Financial Accounting Standards Board ("FASB")
adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which is
effective for fiscal years beginning after December 15, 1995, although early
implementation is acceptable. The Standard requires either adopting a fair
market based method of accounting for compensation costs related to stock
options 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 of 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.
RECLASSIFICATIONS
Certain amounts for 1994 and 1993 in the consolidated financial statements have
been reclassified to conform with the 1995 presentation. Net income was not
affected by these reclassifications.
<PAGE>
2. SECURITIES
The amortized cost and estimated fair values of securities are as follows at
December 31:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available-for-Sale Cost Gains Losses Value
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
1995:
U.S. Treasury
securities $ 8,400,771 $ 44,978 $ 17,983 $ 8,427,766
U.S. Government
agencies 28,832,546 589,753 467 29,421,832
States and political
subdivisions 23,350,735 583,554 89,614 23,844,675
Corporate bonds 2,360,454 100 60,528 2,300,026
Mortgage-backed
securities 9,010,556 2,947 83,860 8,929,643
FHLB stock 4,040,400 -- -- 4,040,400
----------- ---------- ---------- -----------
Total $75,995,462 $1,221,332 $ 252,452 $76,964,342
=========== ========== ========== ===========
1994:
U.S. Treasury
securities $15,688,037 $ 8,406 $ 534,197 $15,162,246
U.S. Government
agencies 8,729,462 1,463 274,356 8,456,569
States and political
subdivisions 18,106,445 61,738 1,079,671 17,088,512
Corporate bonds 5,593,934 170 476,032 5,118,072
Mortgage-backed
securities 9,530,662 -- 804,000 8,726,662
FHLB stock and other 4,239,005 3,770 -- 4,242,775
----------- ---------- ---------- -----------
Total $61,887,545 $ 75,547 $3,168,256 $58,794,836
=========== ========== ========== ===========
</TABLE>
The amortized cost and fair value of investments in debt securities at December
31, 1995, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Amortized Approximate
Cost Fair Value
----------- -----------
Due in 1 year or less $ 5,396,667 $ 5,386,148
Due after 1 through 5 years 13,836,545 13,809,031
Due after 5 through 10 years 43,612,865 44,467,400
Due after 10 years 9,108,985 9,261,363
----------- -----------
Total $71,955,062 $72,923,942
=========== ===========
At December 31, 1995, securities with a market value of approximately $3,425,000
were pledged to collateralize public deposits as required or permitted by law.
In addition, at December 31, 1995, securities with a fair value of approximately
$4,000,000 were pledged to collateralize short-term borrowings.
Proceeds from sales of investment securities and gross realized gains and losses
on those sales were as follows:
<TABLE>
<CAPTION>
Proceeds Gross Gross Net Gains
from Sales of Realized Realized on Sales of
Securities Gains Losses Securities
------------- -------- ---------- -----------
<S> <C> <C> <C> <C>
1995 $6,165,340 $ 78,348 $(12,453) $ 65,895
1994 6,782,417 153,786 (50,619) 103,167
1993 25,596,114 439,050 (24,204) 414,846
</TABLE>
3. LOANS AND RESERVE FOR LOAN LOSSES
Loans consist of the following at December 31:
1995 1994
------------ ------------
Real estate - mortgage $ 54,631,309 $ 54,916,880
Real estate - construction 44,002,950 29,337,387
Commercial 78,252,968 66,514,955
Installment loans to individuals 5,929,351 6,950,813
Lease financing 4,001,250 2,686,227
Other 310,737 329,899
------------ ------------
187,128,565 160,736,161
Less deferred loan fees (611,373) (600,093)
------------ ------------
$186,517,192 $160,136,068
============ ============
Transactions in the reserve for loan losses were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Balance at beginning of year $1,700,130 $1,514,314 $1,077,813
Provision charged to operations 350,000 315,500 310,000
Recoveries 40,133 17,635 160,982
Loans charged off (161,891) (147,319) (34,481)
---------- ---------- ----------
Balance at end of year $1,928,372 $1,700,130 $1,514,314
========== ========== ==========
</TABLE>
At December 31, 1995, Bancorp had only one loan requiring a specific
valuation allowance in accordance with SFAS No. 114. It was the only
loan classified as impaired under the guidelines of SFAS No. 114 during
<PAGE>
1995. The specific valuation allowance is $100,000 on a loan with remaining
principal outstanding of $424,000 at December 31, 1995.
Loans on nonaccrual status at December 31, 1995 were approximately $478,000
($693,000 at December 31, 1994). Interest income which would have been realized
on nonaccrual loans if they had remained current was approximately $74,000,
$77,000 and $46,000 during 1995, 1994 and 1993, respectively. Loans
contractually past due 90 days or more on which Bancorp continued to accrue
interest at December 31, 1995 were approximately $645,000 ($190,000 at December
31, 1994).
Bancorp is located and conducts substantially all of its business within Lane
County, Oregon, and the greater Portland metropolitan area. Bancorp's credit
policies require an evaluation of each borrower's creditworthiness on a
case-by-case basis. Collateral consists of real and personal property. At the
discretion of management, personal guarantees of the borrower may be obtained in
addition to the collateral. The ultimate collectibility of a substantial portion
of Bancorp's loan portfolio is susceptible to adverse changes in local market
conditions. The loan portfolio is diversified among industry groups and does not
contain a direct concentration of loans to a single industry which exceeds 10%
of the portfolio. It is management's opinion that the reserve for loan losses is
adequate to absorb known and inherent risks in the loan portfolio.
<PAGE>
4. MORTGAGE BANKING ACTIVITIES:
The following table summarizes Bancorp's financial data with respect to its
mortgage banking activities for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -------
<S> <C> <C> <C>
Revenues $2,080,243 $2,970,783 $1,973,165
Expenses 2,077,086 3,034,518 1,559,211
---------- ---------- ----------
Income (loss) before
income taxes $ 3,157 $ (63,735) $ 413,954
========== ========== ==========
Total assets $1,022,537 $1,530,985 $1,517,077
========== ========== ==========
</TABLE>
Commercial real estate loans serviced for others are not included in the
accompanying consolidated balance sheets. The unpaid principal balances of
serviced loans at December 31, 1995 and 1994 were none and $353,740,000,
respectively. Custodial balances maintained in connection with loan servicing
were none and $780,100 at December 31, 1995 and 1994, respectively, and are
included in demand deposits.
5. PREMISES AND EQUIPMENT
The composition of premises and equipment at December 31 was as follows:
1995 1994
----------- -----------
Land $ 569,388 $ 569,388
Buildings and improvements 7,876,785 4,888,434
Furniture and equipment 4,328,421 3,439,619
Construction in process -- 755,606
----------- -----------
12,774,594 9,653,047
Less accumulated depreciation
and amortization (3,560,030) (2,889,064)
----------- ----------
Net premises and equipment $ 9,214,564 $ 6,763,983
=========== ===========
Construction in process at December 31, 1994 was for a new branch facility for
the Bank in Tigard, Oregon which was completed during the summer of 1995. All
monies expended for the construction project were provided by Bancorp's
Convertible Debenture offering.
Bancorp leases certain facilities under noncancelable lease arrangements. The
major facilities leases are for terms of 5 to 50 years and generally provide
renewal options. Rent expense under all operating leases was approximately
$393,600, $313,400 and $174,600 in 1995, 1994 and 1993, respectively. Future
minimum lease payments under these noncancelable operating leases as of December
31, 1995 are as follows:
<PAGE>
1996 $ 302,500
1997 301,300
1998 287,000
1999 193,700
2000 166,900
Later years 5,966,400
----------
Total minimum lease payments $7,217,800
==========
<PAGE>
6. OTHER ASSETS
At December 31, other assets consisted of the following:
1995 1994
---------- ----------
Accrued interest receivable $2,536,493 $1,827,406
Intangible assets, net 539,618 876,655
Deferred tax asset -- 1,410,722
Other 2,325,324 1,984,048
---------- ----------
$5,401,435 $6,098,831
========== ==========
7. SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
Borrowings related to securities sold under agreement to repurchase were
$3,419,123 and $2,839,608 at December 31, 1995 and 1994, respectively. The
agreements are due on demand, but generally range in duration from one to
eighty-nine days. The interest rate payable on such borrowings was 4.70% and
4.50% at December 31, 1995 and 1994, respectively.
8. ADVANCES FROM FEDERAL HOME LOAN BANK
At December 31, advances consisted of the following:
1995 1994
---------- ---------
Advances from FHLB, collateralized
by FHLB stock, funds on deposit with the
FHLB, investments and loans:
Interest at 5.86719%, due May 1996 $8,000,000 $ --
Interest at 6.4958%, due May 1995 -- 4,500,000
Interest at 7.05%, due November 1995 -- 4,500,000
---------- ----------
$8,000,000 $9,000,000
========== ==========
Bancorp has available a credit facility from the FHLB in the amount of
$23,471,500 at December 31, 1995 ($16,606,400 at December 31, 1994) at
prevailing market interest rates.
9. LONG-TERM DEBT
At December 31, long-term debt consisted of the following:
1995 1994
---------- ----------
Bancorp 7% Convertible Debentures,
semi-annual interest payments,
without collateral,
maturing May 1, 2004 $9,200,000 $9,200,000
========== ==========
The Debentures are convertible into Bancorp's common stock at the conversion
rate of 97 shares of Bancorp common stock for each $1,000
<PAGE>
principal amount of the debentures (equivalent to a conversion price of
approximately $10.307 per share).
Subsequent to December 31, 1995 (through January 31, 1996), holders converted
$240,000 of the Convertible Debentures into 23,279 shares of Bancorp's common
stock. The amount of debt converted, net of unamortized issue costs, will be
credited to common stock and additional paid-in-capital.
10. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, Bancorp enters into various types of
transactions which include commitments to extend credit and standby letters of
credit that are not included in the accompanying balance sheets. Bancorp applies
the same credit standards to these commitments as it uses in all its lending
processes and has included these commitments in its lending risk evaluations.
Bancorp has no commitments to extend credit at below-market interest rates.
Financial commitments at December 31 were as follows:
1995 1994
----------- -----------
Commitments to extend credit $57,543,000 $44,805,000
Standby letters of credit 4,016,000 3,705,000
Commitments to extend credit are agreements to lend to customers. These
commitments have specified interest rates and generally have fixed expiration
dates but may be terminated by Bancorp if certain conditions of the contract are
violated. Although currently subject to drawdown, many of these commitments are
expected to expire or terminate without funding. Therefore, the total commitment
amounts do not necessarily represent future cash requirements. Collateral
relating to these commitments varies, but may include cash, securities and real
estate.
Standby letters of credit are conditional commitments issued by Bancorp to
guarantee the performance of a customer to a third party. Credit risk arises in
these transactions from the possibility that a customer may not be able to repay
Bancorp upon default of performance. Collateral for standby letters of credit is
based on an individual evaluation of each customer's creditworthiness, but may
include cash, securities and real estate.
11. CONTINGENCIES
In the ordinary course of business, litigation has occurred from normal banking
activities, the ultimate outcome of which, in the opinion of management, will
not have a material adverse effect on Bancorp's consolidated financial position,
results of operations or cash flows.
<PAGE>
12. TRANSACTIONS WITH RELATED PARTIES
Activity with respect to loans receivable from directors and their affiliates
and executive officers of Bancorp and subsidiaries is as follows:
1995 1994
------------ -------------
Balance at January 1 $ 5,663,376 $ 4,644,528
Additions or renewals 13,364,339 12,180,160
Amounts collected or renewed (14,097,295) (11,161,312)
------------ ------------
Balance at December 31 $ 4,930,420 $ 5,663,376
============ ============
In addition, approximately $2,722,000 of commitments to extend credit to
directors and officers were outstanding at December 31, 1995 ($3,106,000 at
December 31, 1994), and are included as part of commitments in Note 10.
<PAGE>
13. NONINTEREST EXPENSE
Noninterest expense consisted of the following for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- --------
<S> <C> <C> <C>
Salaries and employee benefits $ 6,457,661 $ 6,453,635 $4,759,294
Premises and equipment 1,643,309 1,309,452 919,539
Data processing 166,328 212,212 131,686
Legal and professional 550,756 837,757 629,258
Insurance 324,086 519,489 430,761
Communications 295,408 288,070 225,206
Advertising 353,430 352,455 259,774
Printing and stationery 291,111 286,830 205,802
Litigation reserve or settlement -- 342,052 788,427
Write-down of assets to net
realizable value 275,000 -- --
Other 1,146,881 1,207,883 634,165
----------- ----------- ----------
Total noninterest expense $11,503,970 $11,809,835 $8,983,912
=========== =========== ==========
</TABLE>
14. INCOME TAXES
The provision for income taxes is comprised of the following at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -------
<S> <C> <C> <C>
Currently payable:
Federal $1,963,173 $ 462,091 $1,443,992
State 220,100 193,800 353,200
Deferred provision (benefit) (41,473) 881,509 (584,504)
---------- ---------- ----------
$2,141,800 $1,537,400 $1,212,688
========== ========== ==========
</TABLE>
The effective tax rate of the provision for income taxes varies from the federal
income tax statutory rate for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -------
<S> <C> <C> <C>
Expected federal income
tax provision at 34% $2,275,700 $1,713,300 $1,351,757
State income tax, net of
federal income tax effect 291,600 221,000 173,147
Interest income on obligations
of states and political
subdivisions exempt from
federal taxation (343,400) (379,400) (338,015)
Other, net (82,100) (17,500) 25,799
---------- ---------- ----------
$2,141,800 $1,537,400 $1,212,688
========== ========== ==========
</TABLE>
<PAGE>
The components of the net deferred tax asset at December 31 are as follows:
1995 1994
---------- ----------
Assets:
Nonqualified benefit plans $ 439,250 $ 337,800
Reserve for loan losses 374,300 284,000
Net unrealized losses on securities
available-for-sale -- 1,175,249
Other, net 104,100 2,800
----------- ----------
Total deferred tax assets 917,650 1,799,849
Liabilities:
FHLB stock 294,800 196,900
Excess tax over book depreciation 56,800 33,300
Purchased companies 34,100 37,000
Deferred loan fees 208,200 100,907
Net unrealized gains on securities
available-for-sale 368,180 --
Other, net 46,804 21,020
---------- ----------
Total deferred tax liabilities 1,008,884 389,127
---------- ----------
Net deferred tax asset
(liability) $ (91,234) $1,410,722
========== ==========
Bancorp's provision for income taxes for 1995, 1994 and 1993 includes $21,600,
$39,200 and $160,973, respectively, related to gains on sales of investment
securities.
<PAGE>
15. NONEMPLOYEE DIRECTOR STOCK OPTION PLANS
Under the 1988 Nonemployee Director's Stock Option Plan (the "1988 Director's
Plan"), for nonemployee directors of Bancorp and its subsidiaries, shares of
common stock are reserved for issuance at their fair market value at the date of
grant. All options outstanding under the 1988 Director's Plan at December 31,
1995 were exercisable. Options expire ten years after the date of grant and are
subject to earlier cancellation in the event an optionee ceases to be a
director. At December 31, 1995, options covering 55,497 shares were outstanding
under the 1988 Director's Plan. The 1988 Director's Plan was discontinued in
June 1994 when the 1993 Stock Option Plan for Nonemployee Directors (the "1993
Director's Plan") was approved by shareholders.
Under the 1993 Director's Plan, shares of common stock are reserved for issuance
to nonemployee directors of Bancorp and its subsidiaries at their fair market
value at the date of grant and become exercisable to the extent of one-third of
the optioned shares per year, with credit given for prior service. Options
expire ten years after the date of grant and are subject to earlier cancellation
in the event an optionee ceases to be a director.
At December 31, 1995, 139,383 shares were reserved under the 1993 Director's
Plan, including 37,205 shares available for future grant. Options covering
70,461 shares outstanding under the 1993 Director's Plan were exercisable at
December 31, 1995.
<TABLE>
<CAPTION>
1988 Director's Plan 1993 Director's Plan
-------------------- --------------------
Average Average
Price Price
Options Per Options Per
Outstanding Share Outstanding Share
----------- -------- ----------- -------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 97,683 $1.64
Granted -- 66,014 $7.45
Exercised (21,094) $1.32 --
------- --------
Balance at December 31, 1993 76,589 $1.69 66,014 $7.45
Granted -- 13,339 $8.72
Exercised (10,546) $1.32 --
------- --------
Balance at December 31, 1994 66,043 $1.74 79,353 $7.66
Granted -- 22,825 $9.12
Exercised (10,546) $1.53 --
------- -------
Balance at December 31, 1995 55,497 $1.78 102,178 $7.99
======= =======
</TABLE>
<PAGE>
16. INCENTIVE STOCK OPTION PLANS
Under the 1983 Incentive Stock Option Plan (the "1983 Incentive Plan"), for key
management officers, shares of common stock are reserved for issuance at their
fair market value at the date of grant. Options expire ten years after the date
of grant and are subject to earlier cancellation in the event an optionee ceases
to be an employee. At December 31, 1995, options covering 47,512 shares were
outstanding under the 1983 Incentive Plan. No shares are available for future
grant. All 1983 Incentive Plan options outstanding are exercisable.
In June 1994, shareholders approved the 1993 Incentive Stock Option Plan (the
"1993 Incentive Plan"). Under the 1993 Incentive Plan, shares of common stock
are reserved for issuance at their fair market value at the date of grant.
Options vest in accordance with the vesting schedule set at the time the options
are granted. Options expire ten years after the date of grant and are subject to
earlier cancellation in the event an optionee ceases to be an employee. At
December 31, 1995, 214,219 shares were reserved under the 1993 Incentive Plan,
including 18,274 shares available for future grant. Options covering 104,778
shares outstanding under the 1993 Incentive Plan were exercisable at December
31, 1995.
<TABLE>
<CAPTION>
1983 Incentive 1993 Incentive
Stock Option Plan Stock Option Plan
------------------------- ----------------------------
Average Average
Price Price
Options Per Options Per
Outstanding Share Outstanding Share
----------- ------ ----------- -------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 287,093 $ .67
Granted -- 212,748 $7.45
Exercised (166,105) $ .71 --
-------- --------
Balance at December 31, 1993 120,988 $ .60 212,748 $7.45
Granted -- 6,669 $8.20
Exercised (28,759) $ .60 --
-------- --------
Balance at December 31, 1994 92,229 $ .60 219,417 $7.48
Exercised (44,717) $ .60 (5,868) $7.45
Cancelled and returned to Plan -- (17,604)
-------- --------
Balance at December 31, 1995 47,512 $ .60 195,945 $7.48
======== =======
</TABLE>
In November 1995, the Board of Directors approved the 1995 Stock Incentive Plan,
subject to its adoption by shareholders at the 1996
<PAGE>
annual meeting. Under the 1995 Stock Incentive Plan, 220,000 shares are reserved
for issuance to employees, directors or consultants as either incentive stock
options, nonstatutory stock options or restricted stock awards. The exercise
price for incentive stock options must be no less than the fair market value of
the underlying shares on the date of grant. The exercise price of nonstatutory
stock options and the price to be paid for restricted stock will be established
by a committee of the Board of Directors. Incentive stock options may only be
granted to employees. The duration of options granted will be established by a
committee of the Board of Directors; however, the maximum term of incentive
stock options is ten years. At December 31, 1995, options for 66,000 shares had
been granted under the 1995 Stock Incentive Plan, subject to shareholder
approval of the Plan.
<PAGE>
17. SHAREHOLDERS' EQUITY
Preferred Stock
At December 31, 1995 and 1994, Bancorp had 5,000,000 shares of authorized but
unissued $5.00 par value non-voting preferred stock, and 5,000,000 shares of
authorized but unissued $5.00 par value voting preferred stock.
Stock Splits
On January 16, 1996, the Board of Directors declared a 10% stock split, payable
February 21, 1996, in the form of a distribution of one additional share of the
Bancorp's common stock for each ten shares owned by shareholders of record at
the close of business on January 31, 1996. Par value remained at $2 per share.
The stock split resulted in the issuance of 422,830 additional shares of common
stock from authorized but unissued shares. The issuance of authorized but
unissued shares resulted in the transfer of $845,660 from additional paid-in
capital to common stock, representing the par value of the shares issued.
Additionally, in 1995, 1994 and 1993, Bancorp has distributed various stock
splits.
Stock Dividends
On July 12, 1993, the Board of Directors authorized a 5% stock dividend to
shareholders of record on July 26, 1993. Additionally, in 1992 and prior years
Bancorp has distributed various stock dividends.
18. EMPLOYEE BENEFIT PLAN
The Bank has an employee savings plan (401(k)) and profit sharing plan which
covers all full-time employees over age 21 with one year of service. The
employee savings plan allows employees to contribute between 2% to 15% of their
salary on a tax deferred basis. For 1995, 1994 and 1993, the Bank matched 75% of
employee contributions up to 6% of their salary. The Bank matching contributions
are determined annually by the Board of Directors. In addition to the matching
contributions, the Bank also makes discretionary contributions to the profit
sharing plan. The Bank's policy is to fund contributions as accrued. The Bank's
contributions to the employee savings plan was $200,000 in 1995 ($150,000 for
1994 and $125,000 for 1993).
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by management to estimate the
fair value of each class of financial instrument for which it is practicable to
estimate that value. The resulting estimates of
<PAGE>
fair value require subjective judgments and are approximate. Changes in the
following methodologies and assumptions could significantly affect the
estimates:
CASH AND CASH EQUIVALENTS. For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
AVAILABLE-FOR-SALE SECURITIES. For securities, the fair value is based on quoted
market prices. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
LOANS HELD FOR SALE. For loans held for sale, the fair value represents
the anticipated proceeds from sale of the loans.
LOANS. The fair value of fixed-rate loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Variable rate loans with quarterly rate adjustments have carrying amounts which
are a reasonable estimate of fair value.
DEPOSITS. The fair value of demand, interest-bearing demand and savings deposits
is the amount payable on demand at the reporting date. The fair value of time
deposits is estimated using the interest rates currently offered for the
deposits of similar remaining maturities.
SHORT-TERM BORROWINGS. The carrying amount of short-term borrowings is a
reasonable estimate of fair value.
LONG-TERM DEBT. The fair value of long-term debt at December 31, 1995 and 1994
is based on quoted market prices for the Convertible Debentures.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS. Commitments to extend credit and
letters of credit represent the principal categories of off-balance- sheet
financial instruments. The fair value of these commitments, based on fees
currently charged for similar commitments is not material.
The estimated fair values of Bancorp's financial instruments are as follows at
December 31:
<TABLE>
<CAPTION>
1995 1994
----------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents $ 36,721,459 $ 36,721,500 $ 25,358,038 $ 25,358,000
Available-for-sale
securities 76,964,342 76,964,300 58,794,836 58,795,000
Loans held for sale 4,573,095 4,573,100 1,874,728 1,874,700
Loans 186,517,192 186,372,000 160,136,068 159,066,200
Financial liabilities:
Deposits $267,880,292 $269,156,000 $216,319,800 $216,175,000
Short-term borrowings 11,419,123 11,419,100 11,839,608 11,840,000
Long-term debt 9,200,000 10,079,500 9,200,000 9,108,000
</TABLE>
<PAGE>
20. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for Centennial Bancorp (Parent Company only) is
presented below:
<TABLE>
<CAPTION>
Condensed Balance Sheets (Unconsolidated)
December 31, 1995 1994
----------- -----------
<S> <C> <C>
Assets
- ------
Cash, deposited with the Bank $ 4,220,201 $ 3,941,217
Available-for-sale securities -- 457,875
Due from the Bank -- 629,900
Due from Harding Fletcher -- 240,000
Equipment, net 75,231 15,595
Deferred tax asset 274,292 222,656
Other assets 1,552,902 1,258,853
Investment in subsidiaries at cost
plus equity in earnings of subsidiaries 30,831,700 22,591,236
----------- -----------
Total assets $36,954,326 $29,357,332
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accrued interest and other liabilities $ 1,364,266 $ 952,001
Long-term debt 9,200,000 9,200,000
----------- -----------
Total liabilities 10,564,266 10,152,001
Shareholders' equity 26,390,060 19,205,331
----------- -----------
Total liabilities and shareholders' equity $36,954,326 $29,357,332
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income (Unconsolidated)
Years ended December 31, 1995 1994 1993
---------- ---------- -------
<S> <C> <C> <C>
Income:
Cash dividends from the Bank $ -- $ 120,000 $ 665,000
Other income 385,809 14,286 600
Gain on sale of investments 44,272 38,665 --
Other interest income from
the subsidiaries 543,259 181,736 78,136
---------- ---------- ----------
973,340 354,687 743,736
---------- ---------- ----------
Expense:
Salaries and employee benefits 1,078,378 502,108 324,445
Interest expense 694,643 520,660 28,550
Other 631,105 345,269
---------- ----------
134,681
2,404,126 1,368,037 487,676
---------- ---------- ----------
Income (loss) before income
taxes and equity in undistributed
earnings of subsidiaries (1,430,786) (1,013,350) 256,060
Income tax benefit 542,605 267,224 150,210
---------- ---------- ----------
Income (loss) before equity in
undistributed earnings of
subsidiaries (888,181) (746,126) 406,270
Equity in undistributed earnings
of subsidiaries 5,439,499 4,247,705 2,356,769
---------- ---------- ----------
Net income $4,551,318 $3,501,579 $2,763,039
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows (Unconsolidated)
Increase (Decrease) in Cash
Years ended December 31, 1995 1994 1993
----------- ----------- --------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 4,551,318 $ 3,501,579 $ 2,763,039
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities:
Gain on sale of securities (44,272) (38,665) --
Depreciation of equipment 5,760 6,238 6,281
Undistributed earnings
of subsidiaries (5,439,499) (4,247,705) (2,356,769)
Deferred tax benefit (51,636) (78,956) (67,412)
Changes in assets and liabilities:
Increase in other assets (294,049) (1,025,352) (89,920)
Increase (decrease) in accrued
interest and other liabilities 412,261 (52,655) 434,647
----------- ----------- -----------
Net cash provided by (used in)
operating activities (860,117) (1,935,516) 689,866
----------- ----------- -----------
Cash flows from investing activities:
Purchase of securities -- -- (840,600)
Proceeds from sale of securities 498,377 425,160 --
Purchase of Harding Fletcher stock -- -- (500,000)
Proceeds from sale of Harding
Fletcher 155,131 -- --
Payments made to (from)
subsidiaries, net 398,676 (2,991,358) (111,355)
----------- ----------- -----------
Net cash used in
operating activities 1,052,184 (2,566,198) (1,451,955)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt -- 9,200,000 800,000
Payments on long-term debt -- (959,375) (117,043)
Proceeds from issuance of
common stock 86,917 31,353 145,750
Cash dividends -- -- (40,000)
----------- ----------- -----------
Net cash provided by
financing activities 86,917 8,271,978 788,707
----------- ----------- -----------
Net increase in cash 278,984 3,770,264 26,618
Cash at beginning of year 3,941,217 170,953 144,335
----------- ----------- -----------
Cash at end of year $ 4,220,201 $ 3,941,217 $ 170,953
=========== =========== ===========
Noncash investing activity:
Change in net unrealized holding
gain (loss) on securities
available-for-sale:
Bancorp $ 3,770 $ 2,340 $ (57,576)
The Bank 2,514,390 (1,953,575) 91,351
</TABLE>
<PAGE>
For purposes of reporting cash flows, cash represents amounts due from banks.
Bancorp paid approximately $652,900, $358,200 and $28,500 in interest on
borrowings in 1995, 1994 and 1993, respectively.
The Bank, as a state-chartered bank, is prohibited from declaring or paying any
dividend in an amount greater than undivided profits. At December 31, 1995,
$11,201,200 was available from the Bank for the payment of dividends to Bancorp
without prior regulatory approval.
Bancorp and the Bank are subject to the regulations of certain federal and state
agencies, and receive periodic examinations by those regulatory authorities.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HIGHLIGHTS
Centennial Bancorp reported net income of $4.6 million, or $.95 per share,
in the year ended December 31, 1995. This represented a 30.0% increase in net
income, as compared to $3.5 million, or $.74 per share, in 1994. Net income in
1994 represented a 26.7% increase from 1993's net income of $2.8 million, or
$.59 per share. The return on average assets was 1.62% in 1995 compared to 1.53%
in 1994 and 1.45% in 1993. The increased earnings for 1995 and 1994 primarily
reflected increased net interest income due to the expansion of Bancorp's
interest-earning assets each year.
In late April 1994, Bancorp completed a $9.2 million Convertible Debenture
offering, which provided net proceeds of $8.4 million after payment of
underwriting discounts, commissions and expenses. Bancorp used a portion of the
net proceeds to repay $2.9 million of then existing debt. The remaining $5.5
million of net proceeds was invested in the Bank to fund its liquidity and to
construct a new branch office in Tigard, a suburb of Portland, Oregon.
Centennial Bank opened a branch office in Tigard, a suburb of Portland,
Oregon, in August 1994 and began construction of a permanent facility which was
completed and occupied in June 1995. Customer response to the services offered
was greater than expected and by year-end 1994 total loans at the office were
$27.7 million, making the five-month old branch the second largest lending
facility of the Bank's branch system at that time.
In December 1994, Bancorp completed the merger of CG Bancorp with Bancorp
through a stock transaction which was accounted for as a pooling of interests.
Accordingly, the financial condition and results of operations discussed herein
include the combined results of Bancorp and CG Bancorp for all periods
discussed.
Subsequent to December 31, 1995, the Bank announced the decision to close
the Creswell Office, which was one of the offices acquired through the merger of
CG Bancorp. Regulatory approvals for the closure have been received, and the
office is scheduled to be closed in May 1996. Customer accounts of the Creswell
Office will be relocated to other offices of the Bank.
NET INTEREST INCOME
For most financial institutions, including Bancorp, the primary component
of earnings is net interest income. Net interest income is the difference
between interest income, principally from loans and investment securities
portfolios, and interest expense, principally on
<PAGE>
customer deposits and borrowings. Changes in net interest income result from
changes in "volume," "spread" and "margin." Volume refers to the dollar level of
interest-earning assets and interest-bearing liabilities. Spread refers to the
difference between the yield on interest-earning assets and the cost of
interest-bearing liabilities. Margin refers to net interest income divided by
interest-earning assets and is influenced by the level and relative mix of
interest-earning assets and interest-bearing liabilities. During 1995, 1994 and
1993, Bancorp's average interest-earning assets were $252 million, $205 million
and $169 million, respectively. During these same years, Bancorp's net interest
margin was 6.66%, 7.24% and 6.69%, respectively.
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID
The following table sets forth for 1995 and 1994 information with regard to
average balances of assets and liabilities, as well as total dollar amounts of
interest income from interest-earning assets and interest expense on
interest-bearing liabilities, resultant average yields or rates, net interest
income, net interest spread, net interest margin and the ratio of average
interest-earning assets to average interest-bearing liabilities for Bancorp.
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994
---------------------------------- ------------------------------------
Interest Average Interest Average
Average income or yield or Average income or yield or
Balance(1) Expense Rates Balance(1) Expense Rates
---------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS: (Dollars in thousands)
Interest-earning due from banks $ 5,971 $ 352 5.90% $ 2,498 $ 110 4.40%
Investment securities - taxable 40,116 2,403 5.99 36,632 1,927 5.26
Investment securities - tax-exempt(2) 24,159 1,827 7.56 23,040 1,866 8.10
Federal funds sold 5,618 317 5.64 3,349 131 3.91
Loans and loans held for sale(3) 176,384 20,909 11.85 139,672 16,003 11.46
-------- ------- --------- -------
Total interest-earning
assets/interest income 252,248 25,808 10.23 205,191 20,037 9.77
Reserve for loan losses (1,824) (1,652)
Cash and due from banks 16,975 14,562
Premises and equipment, net 8,477 5,981
Other real estate owned 22 957
Other assets 5,854 4,236
-------- --------
Total assets $281,752 $229,275
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and interest-bearing
demand deposits $107,983 3,352 3.10 $101,256 2,333 2.30
Time deposits 71,912 4,146 5.77 47,258 2,106 4.46
Short-term borrowings 13,823 861 6.23 4,259 174 4.09
Long-term debt 9,200 645 7.01 7,410 559 7.54
-------- ------- -------- ------
Total interest-bearing
liabilities/interest expense 202,918 9,004 4.44 160,183 5,172 3.23
Demand deposits 53,399 47,406
Other liabilities 2,133 2,984
-------- --------
Total liabilities 258,450 210,573
Shareholders' equity 23,302 18,702
-------- --------
Total liabilities and
shareholders' equity $281,752 $229,275
======== ========
Net interest income(2) $16,804 $14,865
======= =======
Net interest spread(2) 5.79% 6.54%
===== =====
Net interest margin(2) 6.66% 7.24%
Average interest-earning assets to
average interest-bearing liabilities 124% 128%
</TABLE>
(1) Average balances are based on daily averages and include nonaccrual loans.
(2) Average yield on nontaxable securities, net interest spread and net
interest margin have been computed on a 34% tax-equivalent basis.
(3) Nonaccrual loans ($631,100 in 1995 and $783,200 in 1994) have been included
in the computation of average loans and loans held for sale. Loan fees
recognized during the period and included in the yield calculation totalled
$2,541,800 in 1995 and $2,958,600 in 1994.
<PAGE>
ANALYSIS OF CHANGES IN INTEREST RATE DIFFERENTIAL
The following table shows the dollar amount, on a tax-equivalent basis, of
the increase (decrease) in the Company's interest income and interest expense
for the years ended December 31, and attributes such dollar amounts to changes
in volume and changes in interest rates. Changes attributable to the combined
effect of volume and interest rate changes, which were immaterial, have been
allocated equally between interest rate and volume.
<TABLE>
<CAPTION>
1995 vs. 1994 1994 vs. 1993
Change in Change in
net interest income net interest income
due to due to
----------------------------- -----------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Balances due from banks $ 179 $ 63 $ 242 $ (56) $ 48 $ (8)
Investment securities - taxable 196 280 476 565 98 663
Investment securities - tax-exempt 88 (127) (39) 185 (135) 50
Federal funds sold 108 78 186 (21) 40 19
Loans 4,279 627 4,906 2,782 1,129 3,911
------ ------ ------ ------ ------ ------
Total interest income 4,850 921 5,771 3,455 1,180 4,635
------ ------ ------ ------ ------ ------
Interest expense:
Deposits:
Savings and interest-bearing
demand 182 837 1,019 353 (198) 155
Time 1,260 780 2,040 293 202 495
Short-term borrowings 493 194 687 128 8 136
Long-term debt 130 (44) 86 58 226 284
------ ------ ------ ------ ------ ------
Total interest expense 2,065 1,767 3,832 832 238 1,070
------ ------ ------ ------ ------ ------
Net interest income $2,785 $ (846) $1,939 $2,623 $ 942 $3,565
====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993
NET INTEREST INCOME
Bancorp's net interest income increased to $16.8 million, on a
tax-equivalent basis, in 1995 as compared to $14.9 million in 1994 and $11.3
million in 1993. During 1995, average interest-earning assets increased to $252
million as compared to average interest-earning assets of $205 million in 1994
and $169 million in 1993. At the same time, average interest-bearing liabilities
increased to $203 million in 1995 from $160 million in 1994 and $134 million in
1993.
Because the increases in average interest-earning assets were greater than
the increases in average interest-bearing liabilities in 1995 and 1994, Bancorp
recognized an increase in net interest income.
The average yield earned on interest-earning assets increased by .46% (46
basis points) in 1995, while the average rate paid on interest-bearing
liabilities increased by 1.21% (121 basis points). Because the increase in the
average rate paid on interest-bearing liabilities was greater than the increase
in average yield earned on interest-earning assets, Bancorp experienced a
decrease in net interest margin in 1995 as compared to 1994. The decrease in net
interest margin in 1995 served to limit Bancorp's increase in net interest
income.
During 1995, Bancorp increased its interest-bearing deposits in
anticipation of strong loan demand expected in Bancorp's markets. The increase
in interest-bearing deposits was brought about by offering more competitive
rates for those deposits.
The average yield earned on interest-earning assets increased by 65 basis
points in 1994 over the average yield earned in 1993, while the average rate
paid on interest-bearing liabilities increased by only 18 basis points. This
increase in the average yield earned over the average rate paid in 1994
contributed to the increase in net interest income in 1994 as compared to 1993.
During 1995, Bancorp experienced a declining interest rate environment,
caused primarily by the Federal Reserve Bank's decreases in its discount rate
and the market reactions thereto. A significant portion of Bancorp's loans are
immediately repricable upon a change in interest rates (58% and 52% of
outstanding loans at December 31, 1995 and 1994, respectively), which provides a
benefit to Bancorp in a rising interest rate market, but is a detriment to
earnings in a falling interest rate market until the market stabilizes. An
increase in the volume of loans can mitigate
<PAGE>
the negative effects of a falling interest rate market.
During 1994, Bancorp experienced a rising interest rate environment, and
recognized the favorable impact on its net interest income and net interest
margin.
Centennial Mortgage established a residential mortgage construction
lending department during 1994 to establish relationships with home builders in
the Eugene/Springfield and Portland-area markets and to attempt to generate
additional permanent loan activity as the houses-under-construction are sold.
Management recognizes the lending risks associated with construction lending and
has established a detailed approval process for builder lines of credit and has
implemented a continuing review of construction in progress to monitor
construction loan activity. Increases in interest rates could adversely affect
demand for construction lending, as well as the ability of borrowers to sell the
houses when completed, and also could impact Centennial Mortgage's permanent
mortgage lending activity.
PROVISION FOR LOAN LOSSES
Management's policy is to maintain an adequate reserve for loan losses. In
1995, Bancorp charged a $350,000 loan loss provision to income, as compared to
$315,500 in 1994 and $310,000 in 1993. In 1995, loan charge-offs, net of
recoveries were $121,800, as compared to loan charge-offs, net of recoveries of
$129,700 in 1994 and loan recoveries, net of loans charged off of $126,500 in
1993.
Bancorp's reserve for loan losses was $1.9 million at December 31, 1995,
as compared to $1.7 million at December 31, 1994 and $1.5 million at December
31, 1993. The ratio of the reserve for loan losses to total nonperforming loans
was 172%, 192% and 142% at December 31, 1995, 1994 and 1993, respectively.
Management attributes the relatively low levels of loans charged off, net
of recoveries, during 1995, 1994 and 1993 to the loan approval processes and
monitoring systems implemented in prior years. Management continues its efforts
to collect amounts previously charged off and to originate new loans of high
quality.
NONINTEREST INCOME
Noninterest income decreased $585,300 in 1995 as compared to
1994, but increased $340,000 in 1994 as compared to 1993. The
decrease in 1995 was primarily attributable to a decrease in
activities of and eventual sale of Harding Fletcher, but was also
attributable to a decrease in gains recognized on sales of
residential mortgage loans originated by Centennial Mortgage. The
<PAGE>
increase in 1994 was primarily attributable to an increase in loan servicing
fees and to a gain recognized on the sale of other real estate owned. The
increase in 1994 was offset in part by decreases in gains recognized on sales of
loans and sales of securities.
Bancorp experienced a decrease of $190,900 in loan servicing fees in 1995
as compared to 1994. Loan servicing fees were collected by Bancorp primarily
through Harding Fletcher, which was sold in August 1995. Loan servicing fees in
1994 increased $279,200 as compared to 1993. 1994 represented the only full year
of Bancorp's ownership of Harding Fletcher.
Bancorp experienced decreases of $171,200 in gains on sales of loans in
1995 as compared to 1994 and $84,000 in 1994 as compared to 1993. These
decreases were primarily due to decreases in residential mortgage refinance
lending activity through Centennial Mortgage, and competitive factors which
increasingly limited the gain Bancorp was able to recognize on the sale of loans
to third-party investors.
Bancorp experienced a decrease of $241,800 in other noninterest income in
1995 as compared to 1994. This decrease was attributable in part to a reduction
in lease income received (approximately $110,000 was collected for the nine
months ended September 30, 1994) from the former Bancorp and Bank head office
facility which was reclassified as an other asset in 1994, after Bancorp and the
Bank vacated the building to occupy a new head office facility. This building
was sold in September 1994 for a gain of $93,200. Other noninterest income also
decreased in 1995 due to a decrease in insurance sales commissions received.
Bancorp experienced a decrease of $311,700 in gains on sales of securities
in 1994 as compared to 1993. This decrease was primarily due to Bancorp's
ability to satisfy liquidity needs during the year from borrowings and retention
of deposits rather than from liquidation of investment securities. This decrease
was also due to the rising interest rate market experienced during 1994 which
reduced Bancorp's ability to profitably realign the securities portfolio to
improve its interest rate risk exposure.
NONINTEREST EXPENSE
Noninterest expense decreased $305,900 to $11.5 million in 1995 from $11.8
million in 1994. This decrease was primarily due to the decreases in legal and
professional expenses, insurance expenses and other noninterest expense, and was
due in part to the sale of Harding Fletcher in August 1995. This decrease was
offset in part by an increase in premises and equipment expense and a write-down
of an asset to its net realizable value.
<PAGE>
Noninterest expense increased $2.8 million in 1994 as compared to 1993.
This increase was primarily due to the full year of operations of Harding
Fletcher, which was acquired in July 1993, and to the opening of the Tigard
branch of the Bank in August 1994.
Salaries and employee benefits remained constant in 1995 as compared to
1994, but increased $1.7 million to $6.5 million during 1994 as compared to $4.8
million in 1993. The increase in 1994 was primarily due to the Harding Fletcher
acquisition and the Tigard branch opening, but was also impacted by a deferred
compensation agreement for the former President of CG Bancorp.
Premises and equipment expense increased to $1.7 million in 1995 as
compared to $1.3 million in 1994 and $920,000 in 1993. The increase in 1995 was
primarily due to the additional expenses incurred in the Bank's occupancy of the
Pacific Corporate Center Office permanent facility in Tigard, Oregon. The
increase in 1994 was also due to the full year occupancy of Bancorp's and
Centennial Bank's head office facility which opened in June 1993, and to a full
year of owning Harding Fletcher.
Data processing expense was $166,300 in 1995, $212,200 in 1994, and
$132,000 in 1993. The increase in 1994 was primarily due to data processing
equipment and software upgrade expenses incurred to accommodate the additional
Tigard branch location of Centennial Bank and the two branches acquired through
the merger of CG Bancorp into Bancorp. In addition, CG Bancorp incurred contract
data processing expenses in 1994 prior to the merger. The decrease in 1995
resulted from efficiencies of operations after the merger as compared to
operating the banks separately.
Legal and professional fees decreased by $287,000 in 1995 as compared to
1994, due to the resolution of litigation outstanding against the Bank during
the latter part of 1994. This decrease was offset in part by legal fees incurred
in 1995 due to the sale of Harding Fletcher. Legal and professional fees
increased $209,000 in 1994 as compared to 1993, due in part to the Bank's
expenses associated with its appeal of certain litigation and resolution of
other litigation, and in part to legal and professional fees associated with the
merger of CG Bancorp.
Insurance expenses decreased $195,400 to $324,100 in 1995 as compared to
$519,500 in 1994. This decrease was due to an assessment rate reduction on
Federal Deposit Insurance coverage. Deposit growth and assessment rate increases
through 1994 contributed to an $89,000 increase in insurance expenses in 1994 as
compared to 1993.
Communications, advertising and printing and stationery expenses remained
constant in 1995 as compared to 1994, but each of these
<PAGE>
expenses increased in 1994 as compared to 1993 ($63,000, $93,000 and $81,000,
respectively), primarily due to Bancorp's increased business activities.
Other noninterest expense remained constant in 1995 as compared to 1994,
but increased $574,000 to $1.2 million as compared to $634,000 in 1993. The
increase was primarily due to Bancorp's increased business activities and
included approximately $80,000 of expenses associated with the merger with CG
Bancorp.
ASSET/LIABILITY MANAGEMENT
Bancorp's results of operations depend substantially on its net interest
income. Interest income and interest expense are affected by general economic
conditions and by competition in the marketplace.
The purpose of Bancorp's asset/liability management program is to provide
stable net interest income growth by protecting Bancorp's earnings from undue
interest rate risk. Exposure to interest rate risk arises from volatile interest
rates, changes in the mix of assets (principally loans and investment portfolio
securities) and liabilities (principally deposits) and maturities and repricing
schedules of assets and liabilities. Assets and liabilities are described as
rate sensitive when they can be repriced (i.e., changed in rate) within a given
time period. The difference between the amount of interest-rate-sensitive assets
and interest-rate-sensitive liabilities is referred to as the interest-
rate-sensitive "GAP" for any given period of time. If an equal amount of assets
and liabilities can be repriced during a specific period of time, the financial
institution is said to be in a balanced rate-sensitivity position. A balanced
position generally may be expected to result in less volatile swings in net
interest income.
Rising and falling interest rate environments can have various effects on
a lender's net interest income, depending on the interest rate GAP, the relative
changes in interest rates that occur when assets and liabilities are repriced,
unscheduled repayments of loans, early withdrawals of deposits and other
factors. As a general rule, in periods of falling interest rates, lenders with
positive interest rate GAPs (i.e., those having more interest-rate-sensitive
assets than liabilities) are more susceptible to a decline in net interest
income. In periods of rising interest rates, lenders with negative interest rate
GAPs (i.e., those having more interest-rate-sensitive liabilities than assets)
are more likely to experience declines in net interest income.
Management's objectives are to control interest rate risk and to
<PAGE>
achieve predictable and consistent growth in net interest income. Management
meets regularly to monitor the composition of the balance sheet, to assess
current and projected interest rate trends and to formulate strategies
consistent with established objectives. Management attempts to limit exposure to
interest rate risk by maintaining a balance sheet posture such that annual net
interest income is not significantly affected by market fluctuations in interest
rates. Bancorp uses simulation modeling to measure the effects of varying
interest rate scenarios and balance sheet strategies on net interest income.
The following table sets forth the dollar amount of maturing
interest-earning assets and interest-bearing liabilities at December 31, 1995,
and the difference between them for the maturing or repricing periods indicated.
The amounts in the table are derived from Bancorp's internal data and, although
the information may be useful as a general measure of interest rate risk, the
data could be significantly affected by external factors such as prepayments of
loans or early withdrawals of deposits. Each of these may greatly influence the
timing and extent of actual repricing of interest-earning assets and
interest-bearing liabilities. Management does not consider savings and
negotiable order of withdrawal ("NOW") accounts to be interest-rate-sensitive.
Excluding those accounts, Bancorp's variable-rate assets exceed variable-rate
liabilities, and its fixed-rate assets exceed fixed-rate liabilities.
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
Amount maturing or repricing within:
----------------------------------------------------------
Three
Less than months to
three less than One to Over five
months one year five years years Total
--------- --------- ---------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed-rate loans $ 7,875 $ 16,311 $38,620 $16,756 $ 79,562
Variable-rate loans 99,846 1,725 8,766 1,191 111,528
Investment securities 5,386 13,809 44,468 9,261 72,924
Other interest-earning assets 14,730 -- -- -- 14,730
-------- -------- ------- ------- --------
Total interest-earning assets 127,837 31,845 91,854 27,208 278,744
Cash and due from banks 21,991
Other noninterest-earning assets 16,729
Total assets $317,464
Interest-bearing liabilities:
Savings and interest-bearing demand deposits 112,344 -- -- -- $112,344
Certificates of deposit of
$100,000 or more 6,253 19,449 1,472 -- 27,174
Other time accounts 13,792 36,235 7,736 21 57,784
Short-term borrowings 3,419 8,000 -- -- 11,419
Long-term debt -- -- -- 9,200 9,200
-------- -------- ------- ------- --------
Total interest-bearing liabilities 135,808 63,684 9,208 9,221 217,921
Other noninterest-bearing liabilities 73,153
Shareholders' equity 26,390
Total liabilities and shareholders'
equity $317,464
========
Interest rate GAP $ (7,971) $(31,839) $82,646 $17,987
========= ========= ======= =======
Cumulative interest rate GAP $ (7,971) $(39,810) $42,836 $60,823
========= ======== ======= =======
GAP ratio (GAP/total assets) (2.51)% (10.03)% 26.03% 5.67%
Cumulative GAP ratio (2.51)% (12.54)% 13.49% 19.16%
</TABLE>
<PAGE>
The following table presents the aggregate maturities of loans in each major
category of Bancorp's loan portfolio at December 31, 1995. Actual maturities may
differ from the contractual maturities shown below as a result of renewals and
prepayments.
<TABLE>
<CAPTION>
Due
----------------------------------------
After one Total
Within but within After loans by
Loan category one year five years five years category
- ------------- --------- ---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 58,803 $14,993 $ 4,457 $ 78,253
Real estate - mortgage 19,493 22,053 13,085 54,631
Real estate - construction 39,972 4,031 -- 44,003
Installment 3,572 2,274 83 5,929
Loans held for sale -- -- 4,573 4,573
Lease financing 124 2,444 118 4,001
Other -- 311 -- 311
Less deferred loan fees (234) (277) (100) (611)
------- ------- ------- --------
Total loans by maturity $121,607 $47,386 $22,097 $191,090
======== ======= ======= ========
</TABLE>
Of Bancorp's $69.5 million of loans that mature after one year, a total of
$55.4 million (79.7%) are fixed-rate loans, and a total of $14.1 million (20.3%)
are variable-rate loans.
At December 31, 1995, $79.6 million (approximately 41.7% of Bancorp's loan
portfolio) had fixed interest rates and $111.5 million (approximately 58.3%) had
variable interest rates.
<PAGE>
PROVISION FOR INCOME TAXES
Bancorp's provision for income taxes was $2.1 million in 1995, $1.5
million in 1994 and $1.2 million in 1993. Bancorp's effective tax rates for
financial reporting were 32.0% in 1995, and 30.5% in 1994 and 1993. The
effective tax rate varies from the federal statutory rate of 34% primarily
because of nontaxable interest income and state income taxes. See Note 14 of
Notes to Consolidated Financial Statements.
LIQUIDITY AND SOURCES OF FUNDS
Bancorp's primary sources of funds are customer deposits, sales and
maturities of investment securities, loan sales, loan repayments, net income and
the use of federal funds markets. 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. The Bank's deposits increased to $268 million at December 31, 1995 from
$216 million at December 31, 1994 and $192 million at December 31, 1993,
primarily because of an ongoing business development program, and expansion of
the Bank's presence in the Portland-area through operation of the Pacific
Corporate Center Office in Tigard.
Net loans and loans held for sale increased to $189 million at December
31, 1995 from $160 million at December 31, 1994 and $126 million at December 31,
1993. These increases were primarily due to the Bank's business development
activities and the real estate construction program initiated by Centennial
Mortgage in 1994.
The Bank maintains federal funds lines with correspondent banks as a
backup source of temporary liquidity. At December 31, 1995, the Bank had $16
million of federal funds lines available to draw against on an uncollateralized
basis. No borrowings were outstanding under the federal funds lines at that
date.
During 1994, the Bank obtained a cash management credit facility from the
FHLB in the amount of $9.8 million. The credit facility increased and, at
December 31, 1995, the Bank had $23.5 million of credit available from the FHLB.
The credit facility is limited to 10% of the Bank's assets, measured on a
quarterly basis, and is collateralized by the FHLB stock owned by the Bank and
by all its other assets.
Management anticipates that Bancorp will continue to rely on customer
deposits, sales and maturities of investment securities, loan sales, loan
repayments, retained earnings and federal funds markets to provide liquidity.
Although deposit balances have shown
<PAGE>
historical growth, such balances may be influenced by changes in the banking
industry, interest rates available on other investments, general economic
conditions, competition and other factors. Borrowings may be used on a
short-term basis to compensate for reductions in other sources of funds.
Borrowings may also be used on a longer-term basis to support expanded lending
activities and to match the maturity or repricing intervals of assets. The
sources of such funds would be federal funds purchased and borrowings from the
FHLB, as discussed above.
CAPITAL RESOURCES
Total shareholders' equity increased to $26.4 million at December 31, 1995
from $19.2 million at December 31, 1994 and $17.4 million at December 31, 1993.
Average shareholders' equity was 8.27% of average assets in 1995 as compared to
8.16% in 1994 and 8.36% in 1993.
EFFECTS OF INFLATION AND CHANGING PRICES
The primary impact of inflation on Bancorp's operations is increased
operating overhead. Unlike most industrial companies, virtually all of the
assets and liabilities of a financial institution are monetary in nature. As a
result, interest rates generally have a more significant impact on a financial
institution's performance than the effects of general inflation. Interest rates
are affected by inflation, but neither the timing nor the magnitude of interest
rate fluctuations coincides with changes in an inflation index.
For these reasons, management believes that references to other
information regarding interest rates earned and paid, interest-earning assets
and interest-bearing liabilities will be of greater assistance than
inflation-adjusted presentations in understanding Bancorp's ability to react to
changing interest rates and inflationary trends.
FORM 10-K
Copies of Bancorp's annual report on Form 10-K required to be filed with
the Securities and Exchange Commission under the Securities Exchange Act of 1934
are available to shareholders at no charge upon written request to: Michael J.
Nysingh, Chief Financial Officer, Centennial Bancorp, P.O. Box 1560, Eugene,
Oregon 97440.
MARKET FOR COMMON STOCK
Bancorp's Common Stock has been quoted on the Nasdaq National Market since
1989. From 1986 to 1989, Bancorp's Common Stock was traded through the
over-the-counter Nasdaq market.
The following table sets forth the high and low bid prices for the Common
Stock on the Nasdaq National Market for the last two years.
HIGH LOW
---- ----
Year ended December 31, 1995:
First quarter $ 9.74 $7.28
Second quarter 8.87 8.23
Third quarter 9.77 8.23
Fourth quarter 12.73 8.86
Year ended December 31, 1994:
First quarter $ 9.00 $7.15
Second quarter 9.37 7.87
Third quarter 9.05 8.07
Fourth quarter 8.46 7.28
At February 28, 1995, Bancorp had 4,684,742 shares of Common Stock
outstanding held by 1,300 shareholders of record.
QUARTERLY FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter Total
- --------------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Interest income $5,621 $6,225 $6,468 $6,960 $25,274
Interest expense 1,900 2,181 2,389 2,534 9,004
------ ------ ------ ------ -------
Net interest income 3,721 4,044 4,079 4,426 16,270
Loan loss provision 75 75 125 75 350
Income before income
taxes 1,381 1,532 1,803 1,977 6,693
Net income 939 1,037 1,236 1,339 4,551
Earnings per share:
Primary $ .20 $ .22 $ .26 $ .27 $ .95
Fully diluted $ .19 $ .20 $ .24 $ .25 $ .88
1994
Interest income $3,967 $4,801 $5,044 $5,662 $19,474
Interest expense 1,042 1,217 1,354 1,559 5,172
------ ------ ------ ------ -------
Net interest income 2,925 3,584 3,690 4,103 14,302
Loan loss provision 83 87 79 67 316
Income before income
taxes 1,039 1,195 1,475 1,330 5,039
Net income 708 812 993 989 3,502
Earnings per share:
Primary $ .15 $ .17 $ .21 $ .21 $ .74
Fully diluted (1) $ .15 $ .16 $ .19 $ .17 $ .71
</TABLE>
(1) Convertible Debentures were issued in the first quarter of 1994.
Exhibit 21.1
Centennial Bancorp
List of Subsidiaries
Names Under
State of Which
Name Incorporation Does Business
--------- ------------- --------------
Centennial Bank Oregon N/A
Centennial Mortgage Co. Oregon N/A
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in each of the Registration
Statements of Centennial Bancorp's Incentive Stock Option Plan on Form S-8 and
Centennial Bancorp's Nonemployee Directors Stock Option Plan on Form S-8 of our
report dated February 1, 1996, on our audits of the consolidated financial
statements of Centennial Bancorp and subsidiaries as of December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
which report is incorporated by reference in this Annual Report on Form 10-K.
Coopers & Lybrand, L.L.P.
Eugene, Oregon
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM CENTENNIAL BANCORP'S CONSOLIDATED FINANCIAL STATEMENTS
INCORPORATED INTO ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
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0
0
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