SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
-------------
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
(Exact name of registrant as specified in its charter)
OREGON 93-0792841
(State of Incorporation) (I.R.S. Employer
Identification Number)
675 Oak Street
Eugene, Oregon 97401
(Address of principal executive offices)
(Zip Code)
(541) 342-3970
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of latest practicable date:
7,212,309 shares as of July 31, 1997.
<PAGE>
CENTENNIAL BANCORP
FORM 10-Q
JUNE 30, 1997
INDEX
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Page
PART I - FINANCIAL INFORMATION Reference
- ------------------------------ ---------
Condensed Consolidated Balance Sheets as of 3
June 30, 1997 and December 31, 1996.
Condensed Consolidated Statements of Income for 4
the six months and the quarter ended
June 30, 1997 and 1996.
Condensed Consolidated Statements of Cash Flows 5
for the six months ended June
30, 1997 and 1996.
Notes to Condensed Consolidated Financial Statements 6 - 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Overview 12 - 13
Material Changes in Financial Condition 13 - 14
Material Changes in Results of Operations 14 - 17
Loan Loss Provision 17
Liquidity and Capital Resources 187- 18
PART II - OTHER INFORMATION
- ---------------------------
Item 4 - Submission of Matters to a Vote 19
of Security Holders.
Item 6 - Exhibits and Reports on Form 8-K. 19
Signatures 20
Exhibit Index 21
<PAGE>
CENTENNIAL BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents:
Cash and due from banks $ 29,662,215 $ 26,827,505
Interest-bearing balances due from banks 13,653,000 11,570,000
Federal funds sold 10,330,000 --
------------ ------------
Total cash and cash equivalents 53,645,215 38,397,505
Securities available-for-sale 74,994,042 82,654,422
Loans held for sale 3,577,737 3,537,996
Loans receivable, net 278,848,124 262,491,991
Federal Home Loan Bank stock 4,526,800 4,365,800
Accrued interest receivable 3,108,553 3,309,363
Premises and equipment, net 9,126,050 9,346,825
Other assets 3,075,222 3,081,702
------------ ------------
$430,901,743 $407,185,604
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits:
Demand $ 86,721,845 $ 74,350,639
Interest-bearing demand 143,261,893 130,659,749
Savings 14,262,728 13,746,547
Time 124,253,577 121,198,310
------------ ------------
Total deposits 368,500,043 339,955,245
Short-term borrowings 3,843,754 12,315,583
Accrued interest and other liabilities 2,660,190 3,568,917
Long-term debt 10,000,000 10,000,000
------------ ------------
Total liabilities 385,003,987 365,839,745
Shareholders' equity:
Preferred stock, $5.00 par value; none issued
Non-voting, 5,000,000 shares authorized -- --
Voting, 5,000,000 shares authorized -- --
Common stock, $2.00 par value; 10,000,000 shares
authorized, 7,212,309 issued and outstanding
(6,535,447 at December 31, 1996) 14,424,618 13,070,894
Additional paid-in capital 9,923,752 11,137,171
Retained earnings 21,432,716 17,171,984
Unrealized gains (losses) on securities available-for-
sale, net of related taxes 116,670 (34,190)
------------ ------------
Total shareholders' equity 45,897,756 41,345,859
------------ ------------
$430,901,743 $407,185,604
============ ============
</TABLE>
See accompanying notes.
<PAGE>
CENTENNIAL BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
The Quarter Ended The Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1997 1996 1997 1996
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $8,165,583 $6,265,594 $15,803,979 $11,982,880
Interest on investment securities 1,172,384 1,289,922 2,380,160 2,495,795
Other interest income 247,188 72,287 341,556 228,784
---------- ---------- ----------- -----------
Total interest income 9,585,155 7,627,803 18,525,695 14,707,459
INTEREST EXPENSE
Interest on deposits 2,975,661 2,203,233 5,677,681 4,264,389
Interest on short-term borrowings 145,112 275,309 345,905 495,684
Interest on long-term debt 153,080 167,054 304,334 341,871
---------- ---------- ----------- -----------
Total interest expense 3,273,853 2,645,596 6,327,920 5,101,944
---------- ---------- ----------- -----------
NET INTEREST INCOME 6,311,302 4,982,207 12,197,775 9,605,515
Loan loss provision 150,000 135,000 950,000 285,000
---------- ---------- ----------- -----------
Net interest income after
loan loss provision 6,161,302 4,847,207 11,247,775 9,320,515
NONINTEREST INCOME
Service charges on deposit accounts 262,114 243,462 499,909 478,926
Other 122,858 116,020 920,605 242,527
Gains on sales of loans 267,771 149,748 367,347 285,529
Gains on sales of investment securities -- 6,595 29,309 6,595
--------- ---------- ----------- -----------
Total noninterest income 652,743 515,825 1,817,170 1,013,577
NONINTEREST EXPENSE
Salaries and employee benefits 2,238,587 1,841,441 4,327,618 3,596,614
Premises and equipment 483,209 499,691 974,380 940,993
Legal and professional 176,262 135,031 315,579 233,229
Advertising 140,149 132,562 240,474 243,086
Printing and stationery 94,976 84,528 185,558 153,057
Other 481,900 350,087 709,104 694,903
---------- ---------- ----------- -----------
Total noninterest expense 3,615,083 3,043,340 6,752,713 5,861,882
---------- ---------- ----------- -----------
Income before income taxes 3,198,962 2,319,692 6,312,232 4,472,210
Provision for income taxes 1,039,700 753,800 2,051,500 1,453,400
---------- ---------- ----------- -----------
NET INCOME $2,159,262 $1,565,892 $ 4,260,732 $ 3,018,810
========== ========== =========== ===========
Earnings per common share:
Primary $ .29 $ .25 $ .57 $ .48
Fully diluted $ .29 $ .23 $ .57 $ .45
Weighted average common shares outstanding:
Primary 7,512,811 6,415,851 7,492,741 6,427,951
Fully diluted 7,512,811 7,367,585 7,492,741 7,269,685
</TABLE>
See accompanying notes.
<PAGE>
CENTENNIAL BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
The Six Months Ended
June 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 4,769,547 $ 3,117,820
Cash flows from investing activities:
Net increase in loans (17,306,133) (39,624,314)
Investment security purchases (4,974,773) (14,825,926)
Proceeds from investment securities:
Maturities 1,889,786 3,376,914
Sales 11,020,078 6,304,169
Purchases of premises and equipment (364,069) (587,910)
----------- -----------
Net cash used by investing activities (9,735,111) (45,357,067)
Cash flows from financing activities:
Net increase in deposits 28,544,798 20,392,917
Net increase (decrease) in short-term borrowings (8,471,829) 7,475,548
Proceeds from issuance of common stock 140,305 168,334
----------- -----------
Net cash provided by financing activities 20,213,274 28,036,799
----------- -----------
Net increase (decrease) in cash and cash equivalents 15,247,710 (14,202,448)
Cash and cash equivalents at beginning of period 38,397,505 36,721,459
----------- -----------
Cash and cash equivalents at end of period $53,645,215 $22,519,011
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Noncash investing and financing activities:
Conversion of debentures to common stock $ -- $ 1,479,000
Net costs attributable to debentures converted -- (106,219)
Cash paid in lieu of issuance of fractional shares -- (90)
---------- -----------
$ -- $ 1,372,691
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
CENTENNIAL BANCORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The interim condensed consolidated financial statements include the
accounts of Centennial Bancorp, a bank holding company ("Bancorp"), and its
wholly owned subsidiaries, Centennial Bank ("Bank") and Centennial Mortgage
Co. ("Mortgage Co."). The Bank is an Oregon state-chartered bank which
provides commercial banking services. Mortgage Co. originates residential
mortgage loans for resale in the secondary market.
The interim condensed consolidated financial statements are unaudited, but
include all adjustments, consisting only of normal accruals, which Bancorp
considers necessary for a fair presentation of the results of operations
for such interim periods.
All significant intercompany balances and transactions have been eliminated
in consolidation.
The balance sheet data as of December 31, 1996 was derived from audited
financial statements, but does not include all disclosures contained in
Bancorp's 1996 Annual Report to Shareholders.
The interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements, including the notes
thereto, included in Bancorp's 1996 Annual Report to Shareholders.
Certain amounts for 1996 have been reclassified to conform with the 1997
presentation.
<PAGE>
2. Loans and Reserve for Loan Losses
---------------------------------
The composition of the loan portfolio was as follows:
June 30, December 31,
1997 1996
------------ ------------
Real estate -- mortgage $ 73,582,728 $ 70,126,798
Real estate -- construction 69,558,556 66,243,687
Commercial 126,839,039 116,815,814
Installment 6,471,532 6,425,215
Lease financing 3,970,189 3,774,748
Other 2,382,223 2,634,659
------------ ------------
282,804,267 266,020,921
Reserve for loan losses (3,119,703) (2,599,653)
Less deferred loan fees (836,440) (929,277)
------------ ------------
$278,848,124 $262,491,991
============ ============
Loans held for sale of $3,577,737 and $3,537,996 at June 30, 1997 and
December 31, 1996, respectively, represent real estate mortgage loans.
These loans are recorded at cost which approximates market.
Transactions in the reserve for loan losses were as follows for the six
months ended June 30:
1997 1996
----------- -----------
Balance at beginning of period $2,599,653 $1,928,372
Provision charged to operations 950,000 285,000
Recoveries 13,199 4,722
Loans charged off (443,149) (9,086)
---------- ----------
Balance at end of period $3,119,703 $2,209,008
========== ==========
<PAGE>
At June 30, 1997, Bancorp had five loans requiring a specific valuation
allowance in accordance with Statement of Financial Accounting Standards
("SFAS") No. 114, as amended by SFAS No. 118 (two loans at December 31,
1996). The specific valuation allowance was $200,000 on loans with
remaining principal outstanding of $1,816,000 at June 30, 1997 ($300,000
and $1,100,000, respectively, at December 31, 1996). Each loan with a
current outstanding principal balance of less than $100,000 is grouped into
one homogenous pool when considering the valuation allowance.
It is Bancorp's policy to place loans on nonaccrual status whenever the
collection of all or a part of the principal balance is in doubt. Loans
placed on nonaccrual status may or may not be contractually past due at the
time of such determination, and may or may not be secured by collateral.
Loans on nonaccrual status at June 30, 1997 and December 31, 1996 were
approximately $795,000 and $1,480,000, respectively.
Loans past due 90 days or more on which Bancorp continued to accrue
interest were approximately $351,000 at June 30, 1997, and approximately
$420,000 at December 31, 1996. There were no loans on which the interest
rate or payment schedule were modified from their original terms to
accommodate a borrower's weakened financial position at June 30, 1997 or
December 31, 1996.
3. Earnings Per Common Share
-------------------------
Primary earnings per common share is calculated by dividing net income by
the weighted average shares outstanding. Weighted average shares
outstanding consists of common shares outstanding and common stock
equivalents attributable to outstanding stock options.
Fully diluted earnings per share for 1996 is calculated by dividing net
income plus after-tax interest incurred on the 7% Convertible Debentures by
common shares outstanding,
<PAGE>
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 and were redeemed in
December 1996.
The weighted average number of shares and common share equivalents have
been adjusted to give retroactive effect to an 11-for-10 stock split
declared July 16, 1997, and stock splits and stock dividends declared prior
to that date.
4. Financial Accounting Standards Board
------------------------------------
The Financial Accounting Standards Board ("FASB") has issued several
accounting pronouncements which Bancorp will be required to adopt in future
fiscal reporting periods.
SFAS No. 125
------------
On June 28, 1996, FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," as
amended by SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." This Statement provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities based on consistent application of a
financial-components approach that focuses on control. Bancorp adopted SFAS
No. 125 on January 1, 1997 with no material impact on its financial
statements.
SFAS No. 128
------------
In February 1997, FASB adopted SFAS No. 128, "Earnings per Share," which is
effective for financial statements issued for periods ending after December
15, 1997. SFAS No. 128 establishes standards for computing and presenting
earnings per share, supersedes the prior standards and makes the standards
comparable to international standards for the computation of earnings per
share.
<PAGE>
SFAS No. 128 replaces the presentation of primary earnings per share with a
presentation of basic earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding
for the period. SFAS No. 128 also requires dual presentation of basic and
diluted earnings per share on the income statement for certain companies,
and requires a reconcilement of the numerator and denominator of the basic
earnings per share to the numerator and denominator of the diluted earnings
per share computation. SFAS No. 128 also requires restatement of all prior
period earnings-per-share data presented.
Management has calculated that, if the provisions of SFAS No. 128 were
adopted as of January 1, 1997, Bancorp's primary earnings per share of $.57
and $.29 for the six months and the quarter ended June 30, 1997,
respectively, would change to basic earnings per share of $.59 and $.30,
respectively. Bancorp's primary earnings per share of $.48 and $.25 for the
six months and the quarter ended June 30, 1996, respectively, would change
to basic earnings per share of $.50 and $.26, respectively. There would be
no effect on diluted earnings per share as reported.
SFAS No. 129
------------
In February 1997, FASB issued SFAS No. 129, "Disclosures of Information
about Capital Structure." This Statement, which establishes standards for
disclosing information about an entity's capital structure, is effective
for financial statements for periods ending after December 15, 1997. This
statement is not expected to have a material impact on Bancorp's financial
statements.
SFAS No. 130
------------
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes requirements for disclosure of comprehensive
income and becomes effective for Bancorp for the year ending December
<PAGE>
31, 1998. Comprehensive income includes such items as foreign currency
translation adjustments and unrealized gains and losses on securities
available-for-sale that are currently being included as a component of
shareholders' equity. Bancorp does not expect this pronouncement to
materially impact Bancorp's financial condition or results of operations.
SFAS No. 131
------------
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 requires publicly-held
companies to report financial and other information about key
revenue-producing segments of the entity for which such information is
available and is utilized by the chief operation decision maker. Specific
information to be reported for individual segments includes profit or loss,
certain revenue and expense items and total assets. A reconciliation of
segment financial information to amounts reported in the financial
statements will be required. SFAS No. 131 is effective for Bancorp in 1998
and it has not been determined whether Bancorp will be required to make any
additional disclosure.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS, WHICH ARE MADE
PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. WHEN USED IN THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVE"
AND "EXPECT," AND WORDS OR PHRASES OF SIMILAR IMPORT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSES ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
ANTICIPATED. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE:
CHANGES IN GENERAL BUSINESS AND ECONOMIC CONDITIONS, PARTICULARLY IN OREGON;
CHANGES IN THE INTEREST RATE ENVIRONMENT; COMPETITIVE FACTORS, INCLUDING
INCREASED COMPETITION AND INTEREST RATE PRESSURES; CHANGES IN REGULATORY OR
OTHER EXTERNAL FACTORS; AND OTHER FACTORS LISTED FROM TIME TO TIME IN BANCORP'S
SEC REPORTS, INCLUDING BUT NOT LIMITED TO, EXHIBIT 99.1 TO BANCORP'S FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996, WHICH IS INCORPORATED HEREIN BY REFERENCE.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. BANCORP DOES NOT INTEND TO
UPDATE THESE FORWARD-LOOKING STATEMENTS.
OVERVIEW
- --------
Centennial Bancorp reported net income of $4.3 million or $.57 per share
(primary), for the six months ended June 30, 1997. This represented a 41%
increase in net income and a 19% increase in earnings per share (primary), as
compared to $3.0 million, or $.48 per share, for the six months ended June 30,
1996. Net income of $2.2 million, or $.29 per share, for the quarter ended June
30, 1997 similarly represented a 38% increase in net income and a 16% increase
in earnings per share (primary), as compared to $1.6 million, or $.25 per share
for the quarter ended June 30, 1996. The increased earnings during the six
months and the quarter ended June 30, 1997 reflected primarily the expansion of
Bancorp's interest-earning assets and increased net interest income. At June 30,
1997, Bancorp recognized a 24% increase in both total assets and
interest-earning assets as compared to June 30, 1996.
<PAGE>
The net income added to shareholders' equity during the six months and the
second quarter of 1997 was augmented by a modest increase in the value of
Bancorp's securities available-for-sale. This increase in value resulted from a
decrease in interest rates which caused bond prices to increase.
MATERIAL CHANGES IN FINANCIAL CONDITION
- ---------------------------------------
Material changes in financial condition for the six months ended June 30,
1997 include an increase in total assets, primarily in cash and cash equivalents
and loans and loans held for sale, which was offset in part by a decrease in
securities available-for-sale. Funds were provided for these increases by an
increase in total deposits, maturities and sales of securities
available-for-sale, and earnings. The funds provided for the increases in assets
were offset in part by a reduction in short-term borrowings.
At June 30, 1997, total assets were $430.9 million, representing an
increase of 5.8%, or $23.7 million, over total assets at December 31, 1996. The
increase in total assets includes an increase in loans and loans held for sale
of $16.4 million, primarily due to commercial loan activity of the Bank, and
also due to an increase in real estate construction and real estate mortgage
lending.
Cash and cash equivalents increased $15.2 million (or 40%) at June 30,
1997 as compared to December 31, 1996. Cash and cash equivalents can fluctuate
significantly on a day-to-day basis and are subject to disbursements of loans
proceeds to borrowers, payment of loans by borrowers, submission of checks
deposited by customers to other banks for payment and payment to other banks by
Bancorp for checks drawn against customer accounts.
Total deposits increased $28.5 million (or 8%) at June 30, 1997 as compared
to December 31, 1996. The majority of the increase in total deposits was
experienced in demand deposits and
<PAGE>
interest-bearing demand deposits. Bancorp actively solicits demand and
interest-bearing demand deposit accounts due to the lower costs associated with
those deposit categories. Bancorp will also solicit time deposits when needed to
provide funds for expansion of the loan portfolio. However, time deposits are
the most costly category of deposits for Bancorp to maintain due to interest
rate competition.
In most prior years, Bancorp has experienced a decrease in deposits during
all or part of the first quarter of the year, with deposit activity increasing
significantly the remainder of each year. During the first quarter of 1997,
Bancorp experienced a modest increase of $249,000 in total deposits. Because of
its limited growth in deposits, management liquidated $11.0 million of
securities available-for-sale during the first quarter of 1997 to accommodate
the increase in loans being experienced at that time.
Short-term borrowings decreased $8.5 million (or 69%) at June 30, 1997 as
compared to December 31, 1996. This decrease resulted from the maturity and
repayment of borrowings from the Federal Home Loan Bank of Seattle. Management
elected to repay this loan due to Bancorp's increase in total deposits
experienced during the second quarter, which provided ample liquidity to satisfy
the obligation and provide funds for the growth experienced in loans.
All other changes experienced in asset and liability categories during the
first six months of 1996 were comparatively modest.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
- -----------------------------------------
Total interest income increased $3.8 million (or 26%) for the six months
and $2.0 million (also 26%) for the quarter ended June 30, 1997 as compared to
the same periods in 1996. These increases were primarily due to increases in
loans and loans held for sale during 1997 as compared to 1996. Bancorp also
recognized modest increases in other interest income for the six
<PAGE>
months and the quarter ended June 30, 1997 as compared to the same periods in
1996, but these increases were primarily offset by decreases in interest on
securities available-for-sale.
Total interest expense similarly increased $1.2 million (or 24%) for the
six months and $628,000 (also 24%) for the quarter ended June 30, 1997 as
compared to the comparable 1996 periods. These increases were primarily due to
the increase in deposits held during 1997 as compared to 1996, which were offset
in part by decreases in interest expense on short-term borrowings and long-term
debt during the 1997 periods.
The increases in interest earned, offset in part by the increases in
interest paid, served to increase Bancorp's net interest income by $2.6 million
(or 27%) for the six-month period, and $1.3 million (also 27%) for the second
quarter of 1997, over the comparable periods in 1996.
Noninterest income increased $804,000 (or 79%) for the six months and
$137,000 (or 27%) for the quarter ended June 30, 1997 as compared to the
comparable 1996 periods. The increase for the six-month period was primarily
attributable to receipt of a settlement payment for a claim the Bank brought
against former legal counsel. The increase for the quarter ended June 30, 1997
was primarily attributable to an increase in gains recognized on sales of
residential mortgage loans due to the more stable interest rate environment
experienced during the second quarter of 1997 which resulted in an increase in
residential mortgage loan activity.
Noninterest expense increased $891,000 (or 15%) for the six months ended
June 30, 1997 as compared to the comparable 1996 periods. Approximately $572,000
of the increase in noninterest expense was incurred during the quarter ended
June 30, 1997. The increases for the six-month and the quarterly periods were
primarily attributable to increases in salaries and employee benefits, legal and
professional fees and other noninterest expense.
Salaries and employee benefits increased $731,000 during the six months and
$397,000 during the quarter ended June 30, 1997 as compared to the 1996 periods.
These increases were due to
<PAGE>
additions to the Bank's and Mortgage Co.'s staffs to accommodate their increased
business activities and to operate the additional branch office of the Bank that
opened in the Portland area in January 1997. The increases were also due to the
addition of staff to manage a future branch office of the Bank located in the
Tanasbourne area of Portland. Management intends to open the branch in a
temporary facility during the third quarter of 1997 during construction of the
permanent building.
Subsequent to June 30, 1997, the Bank opened four branch offices located in
Portland area retirement centers. These four branches offer a full range of
deposit services to the residents of the retirement facilities, but are operated
on a limited-hour basis. Management does not anticipate that overhead expenses
of operating these retirement center branches will materially impact Bancorp's
salary and employee benefit or premises and equipment expense categories.
Premises and equipment expense increased $33,000 during the six months
ended June 30, 1997 as compared to the 1996 period, but decreased $17,000 during
the 1997 quarter as compared to the 1996 quarter. The increase was primarily the
result of opening the additional full-service branch in Portland and additional
depreciation for data processing equipment.
Legal and professional expenses increased $82,000 for the six months and
$41,000 for the quarter ended June 30, 1997 as compared to the 1996 periods.
These increases were due to legal expenses associated with ongoing litigation in
the normal course of Bancorp's business, and to fees charged for personnel
acquisition services.
Other noninterest expense increased $14,000 during the six months and
$132,000 during the quarter ended June 30, 1997 as compared to the comparable
1996 periods. The increase for the second quarter of 1997 was primarily
attributable to Bancorp's increased operating levels. The increase for the 1997
six-month period was offset in part by the recapture of a contingency reserve
during the first quarter of 1997, which management deemed no longer necessary.
<PAGE>
The provision for income taxes increased for the six months and the quarter
ended June 30, 1997 by 41%, commensurate with Bancorp's increase in income
before income taxes. Bancorp's effective tax rate remained at approximately
32.5%, primarily due to the amount of nontaxable interest income earned on
securities issued by states and political subdivisions.
LOAN LOSS PROVISION
- -------------------
During the six months ended June 30, 1997, Bancorp charged a $950,000 loan
loss provision to operations, as compared to $285,000 charged during the six
months ended June 30, 1996. Loans charged off, net of recoveries, during the six
months ended June 30, 1997 were $429,950, as compared to net charge-offs of
$4,364 for the 1996 six-month period. The increase in the amount of loans
charged off, net of recoveries, during the six months ended June 30, 1997 was
primarily attributable to management's determination that portions of two loans
on which a specific valuation allowance in accordance with SFAS No. 114 had
previously been established were uncollectible.
The loan loss provision was increased to provide coverage for the
significant increase in loans. Management believes that the reserve for loan
losses is adequate for potential loan losses, based on management's assessment
of various factors, including present delinquent and non-performing loans, past
history of industry loan loss experience, and present and anticipated future
economic trends impacting the areas and customers served by Bancorp.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Bancorp's principal subsidiary, Centennial Bank, has adopted policies to
maintain a relatively liquid position to enable it to respond to changes in the
Bank's needs and financial environment. Generally, the Bank's major sources of
liquidity are customer deposits, sales and maturities of investment securities,
the use of federal funds markets and net cash provided by operating
<PAGE>
activities. Scheduled loan repayments are a relatively stable source of funds,
while deposit inflows and unscheduled loan prepayments, which are influenced by
general interest rate levels, interest rates available on other investments,
competition, economic conditions and other factors, are not.
Along with federal funds lines, the Bank maintains a cash management
advance with the Federal Home Loan Bank, Seattle, Washington, which allows
temporary borrowings for liquidity.
At June 30, 1997, Bancorp's Tier 1 and total risk-based capital ratios
under the Federal Reserve Board's ("FRB") risk-based capital guidelines were
approximately 11.0% and 11.8%, respectively. The FRB's minimum risk-based
capital ratio guidelines for Tier 1 and total capital are 4% and 8%,
respectively.
At June 30, 1997, Bancorp's capital-to-assets ratio under leverage ratio
guidelines was approximately 8.6%. The FRB's current minimum leverage capital
ratio guideline is 3%.
Subsequent to June 30, 1997, the Bank received regulatory approval to open
a full service office in the Tanasbourne area of Portland, and spent $1.2
million to acquire land at that site. The Bank intends to construct a 14,000
square foot facility at the site. Management has projected the cost of the
facility to be $1.5 million, and anticipates that furniture and equipment will
cost between $200,000 and $300,000. Management intends to fund the construction
of the facility and the furniture and equipment costs through internal cash
flow.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
Centennial Bancorp held its annual meeting of shareholders on May 21, 1997.
At the meeting, Dan Giustina, Cordy H. Jensen, Robert L. Newburn, Brian B. Obie
and Richard C. Williams were reelected to the Board of Directors for one-year
terms. Voting on the election of directors was as follows:
Votes Votes Broker
For Withheld Non-Votes
--------- -------- ---------
Dan Giustina 4,988,912 25,331 -0-
Cordy H. Jensen 4,987,129 27,114 -0-
Robert L. Newburn 4,989,548 24,695 -0-
Brian B. Obie 4,984,776 29,467 -0-
Richard C. Williams 4,988,842 25,401 -0-
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits
27 Financial Statement Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTENNIAL BANCORP
Dated: August 13, 1997 /s/ Richard C. Williams
-----------------------------------
Richard C. Williams
President & Chief Executive Officer
Dated: August 13, 1997 /s/ Michael J. Nysingh
-----------------------------------
Michael J. Nysingh
Chief Financial Officer
<PAGE>
FORM 10-Q
EXHIBIT INDEX
-------------
EXHIBIT PAGE
- ------- ----
(27) Financial Data Schedule 21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTENNIAL
BANCORP'S CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY REPORT ON
FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 29,662,215
<INT-BEARING-DEPOSITS> 13,653,000
<FED-FUNDS-SOLD> 10,330,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,994,042
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 281,967,827
<ALLOWANCE> 3,119,703
<TOTAL-ASSETS> 430,901,743
<DEPOSITS> 368,500,043
<SHORT-TERM> 3,843,754
<LIABILITIES-OTHER> 2,660,190
<LONG-TERM> 10,000,000
0
0
<COMMON> 14,424,618
<OTHER-SE> 31,473,138
<TOTAL-LIABILITIES-AND-EQUITY> 430,901,743
<INTEREST-LOAN> 15,803,979
<INTEREST-INVEST> 2,380,160
<INTEREST-OTHER> 341,556
<INTEREST-TOTAL> 18,525,695
<INTEREST-DEPOSIT> 5,677,681
<INTEREST-EXPENSE> 6,327,920
<INTEREST-INCOME-NET> 12,197,775
<LOAN-LOSSES> 950,000
<SECURITIES-GAINS> 29,309
<EXPENSE-OTHER> 6,752,713
<INCOME-PRETAX> 6,312,232
<INCOME-PRE-EXTRAORDINARY> 4,260,732
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,260,732
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 795,000
<LOANS-PAST> 351,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,599,653
<CHARGE-OFFS> 443,149
<RECOVERIES> 13,199
<ALLOWANCE-CLOSE> 3,119,703
<ALLOWANCE-DOMESTIC> 3,119,703
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> INFORMATION NOT CALCULATED FOR INTERIM REPORTS.
</FN>
</TABLE>
