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, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission file Number: 0-10489
CENTENNIAL BANCORP
(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. [ ]
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.
$83,070,000 aggregate market value as of March 14, 1997, 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: 6,553,013 shares of $2.00
par value Common Stock on March 14 1997.
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, 1996. Part III is
incorporated by reference from the issuer's definitive proxy statement for the
annual meeting of shareholders to be held on May 21, 1997.
<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 37
-----------------------
Item 3. LEGAL PROCEEDINGS 38
-----------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 39
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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 40
-----------------------------------------
Item 6. SELECTED FINANCIAL DATA 40
-----------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS 40
------------------------------------
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 40
-------------------------------------------
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 40
---------------------------------
PART III
- --------
(Items 10 through 13 are incorporated by reference from
Centennial Bancorp's definitive proxy statement for the annual
meeting of shareholders to be held on May 21, 1997)
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT 41
-----------------------------------
Item 11. EXECUTIVE COMPENSATION 41
----------------------
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 41
----------------------------------------
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 41
---------------------------------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K 41
----------------------------------------
SIGNATURES 46
- ----------
<PAGE>
PART I
------
THIS ANNUAL 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 ANNUAL 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 CAUSE 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 THIS
ANNUAL REPORT, 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.
ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
GENERAL
Centennial Bancorp, an Oregon corporation, was organized under the name
Valley West Bancorp in 1981 to become a bank holding company. In 1982,
Centennial Bank and Valley State Bank, both Oregon state-chartered banks, 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, 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. In May 1996, Centennial Bank closed its
Creswell office.
At December 31, 1996, 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.
<PAGE>
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 1997, and for various stock splits and stock dividends
declared in prior years.
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, 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, 1996, based on total assets, Centennial Bank was the 11th
largest bank of the 52 commercial banks maintaining offices in Oregon. At that
date, Centennial Bank has six branches; three in Eugene; one in adjacent
Springfield; one in Tigard, a suburb of Portland, Oregon; and the former Western
Oregon Community Bank office in Cottage Grove. An additional branch acquired
from Western Oregon Community Bank, located in Creswell, Oregon, was closed in
May 1996. 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.
At December 31, 1996, Centennial Bank held regulatory approvals for two
additional branches in the Portland metropolitan area, and was negotiating to
purchase property for one of the branches in the Tanasbourne area of Hillsboro,
a suburb of Portland, and to lease a facility for the other branch in the Lloyd
District of Portland. The Lloyd District office negotiations were finalized and
that branch opened in late January 1997. The expected opening date of the
Tanasbourne branch is not known at this time.
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 $268 million at
December 31, 1995 to $340 million at December 31, 1996. Net loans and loans held
for sale increased from $189 million at December 31, 1995 to $266 million at
December 31, 1996.
<PAGE>
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 $67.2 million, $30.0 million and $20.7 million of mortgages in 1996,
1995 and 1994, respectively. Mortgage loans generally are sold without recourse.
Prior to 1996, mortgage loans were generally sold with no servicing rights
retained. However, during 1996, Centennial Bank obtained Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation approval to
service federally insured mortgage loans, and Centennial Bank began retaining
servicing rights for mortgage loans originated by Centennial Mortgage. 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 intends
to locate an additional office in the Centennial Bank office opened in the Lloyd
District of Portland. That office is expected to open during the second quarter
of 1997.
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 thus could adversely 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.
<PAGE>
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. At December 31, 1996, Bancorp had
received $235,000 of the deferred portion of the purchase price.
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, 1996:
Centennial Bancorp
Annual Report
to Shareholders
Page No.
------------------
Investment securities 13
Loans and reserve for loan losses 14
Deposits 4
<PAGE>
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 1996, 1995 and 1994, Bancorp's
average interest-earning assets were $323 million, $252 million and $205
million, respectively. During these same years, Bancorp's net interest margin
was 6.70%, 6.66% and 7.24%, respectively.
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID
The following table sets forth for 1996, 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, 1996 1995 1994
------------------------------ ------------------------------ -----------------------------
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
---------- --------- -------- ---------- --------- -------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS: (Dollars in thousands)
Interest-bearing deposits with
banks 10,872 $ 579 5.33% $ 5,971 $ 352 5.90% $ 2,498 $ 110 4.40%
Investment securities--
taxable 43,928 2,894 6.59 40,116 2,403 5.99 36,632 1,927 5.26
Investment securities--
tax-exempt(2) 39,037 3,112 7.97 24,159 1,827 7.56 23,040 1,866 8.10
Federal funds sold 2,265 122 5.39 5,618 317 5.64 3,349 131 3.91
Loans and loans held for
sale(3) 226,965 26,299 11.59 176,384 20,909 11.85 139,672 16,003 11.46
-------- ------- --------- ------- --------- -------
Total interest-earning
assets/interest income 323,067 33,006 10.22 252,248 25,808 10.23 205,191 20,037 9.77
Reserve for loan losses (2,237) (1,824) (1,652)
Cash and due from banks 20,274 16,975 14,562
Premises and equipment, net 9,339 8,477 5,981
Other assets 7,201 5,876 5,193
-------- -------- --------
Total assets $357,644 $281,752 $229,275
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Savings and interest-bearing
demand $128,611 4,440 3.45 $107,983 3,352 3.10 $101,256 2,333 2.30
Time deposits 100,549 5,208 5.18 71,912 4,146 5.77 47,258 2,106 4.46
Short-term borrowings 11,399 833 7.31 13,823 861 6.23 4,259 174 4.09
Long-term debt 16,443 887 5.39 9,200 645 7.01 7,410 559 7.54
-------- ------- -------- ------ -------- -------
Total interest-bearing
liabilities/interest
expense 257,002 11,368 4.42 202,918 9,004 4.44 160,183 5,172 3.23
Demand deposits 66,525 53,399 47,406
Other liabilities 2,617 2,133 2,984
-------- -------- --------
Total liabilities 326,144 258,450 210,573
Shareholders' equity 31,500 23,302 18,702
-------- -------- -------- -------- --------
Total liabilities and
shareholders' equity $357,644 $281,752 $229,275
======== ======== ========
Net interest income $21,638 $16,804 $14,865
======= ======= =======
Net interest spread (2) 5.80% 5,79% 6.54%
===== ===== ====
Net interest margin (2) 6.70% 6.66% 7.24%
Average interest-earning
assets to average interest-
bearing liabilities 126% 124% 128%
<FN>
(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 ($994,600, $631,100 and $783,200 in 1996, 1995 and 1994,
respectively) have been included in the computation of average loans and
loans held for sale. Loan fees recognized, included in interest income,
totalled $3,745,900, $2,541,800 and $2,958,600 in 1996, 1995 and 1994,
respectively.
</FN>
</TABLE>
<PAGE>
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>
1996 vs. 1995 1995 vs. 1994
Change in Change in
net interest income net interest income
due to due to
---------------------------- -------------------------------
Volume Rate Total Volume Rate Total
------ ---- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Interest income:
Balances due from banks $ 275 $ (48) $ 227 $ 179 $ 63 $ 242
Investment securities -- taxable 240 251 491 196 280 476
Investment securities -- tax-exempt 1,156 129 1,285 88 (127) (39)
Federal funds sold (185) (10) (195) 108 78 186
Loans 5,928 (538) 5,390 4,279 627 4,906
------ ------ ------ ------ ------ ------
Total interest income 7,414 (216) 7,198 4,850 921 5,771
------ ------ ------ ------ ------ ------
Interest expense:
Deposits:
Savings and interest-bearing
demand 676 412 1,088 182 837 1,019
Time 1,567 (505) 1,062 1,260 780 2,040
Short-term borrowings (164) 136 (28) 493 194 687
Long-term debt 449 (207) 242 130 (44) 86
------ ------ ------ ------ ------ ------
Total interest expense 2,528 (164) 2,364 2,065 1,767 3,832
------ ------ ------ ------ ------ ------
Net interest income $4,886 $ (52) $4,834 $2,785 $ (846) $1,939
====== ====== ====== ====== ====== ======
</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.
In August 1994, Centennial Bank opened a branch office in Tigard, a suburb
of Portland, Oregon, and in January 1997, it opened a branch office in the Lloyd
District of Portland. 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.
Centennial Bank also has a branch office in Cottage Grove, Oregon,
located approximately 20 miles south of Eugene and Springfield. The population
of Cottage Grove totals approximately 8,000. The economy similarly depends
primarily upon forest products, general manufacturing, agriculture and tourism.
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.
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,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Commercial and other $119,450 $ 78,564 $ 66,845 $ 61,640 $ 48,496
Real estate -- mortgage 73,665 59,204 56,792 44,253 34,774
Real estate -- construction 66,244 44,003 29,337 11,626 5,214
Installment 6,425 5,929 6,951 10,653 9,179
Lease financing 3,775 4,001 2,686 138 --
-------- -------- -------- -------- --------
Total loans and
loans held for sale 269,559 191,701 162,611 128,310 97,663
Less deferred loan fees (929) (611) (600) (394) (155)
Less reserve for loan
losses (2,600) (1,928) (1,700) (1,514) (1,078)
-------- -------- -------- -------- --------
Loans receivable, net $266,030 $189,162 $160,311 $126,402 $ 96,430
======== ======== ======== ======== ========
</TABLE>
<PAGE>
The following table presents the aggregate maturities of loans in each
major category of Bancorp's loan portfolio at December 31, 1996. Actual
maturities may differ from the contractual maturities shown below as a result of
renewals and prepayments.
Due after one Total
Due within but within Due after loans
Loan category one year five years five years by category
------------- ---------- ------------- ---------- -----------
(Dollars in thousands)
Commercial $ 85,115 $22,367 $ 9,334 $116,816
Real estate--mortgage 30,713 13,512 25,902 70,127
Real estate--construction 58,516 5,982 1,746 66,244
Installment 4,778 1,584 63 6,425
Loans held for sale -- -- 3,538 3,538
Lease financing 113 3,662 -- 3,775
Other 1,950 582 102 2,634
Less deferred loan fees (384) (411) (134) (929)
-------- ------- ------- --------
Total loans by maturity $180,801 $47,278 $40,551 $268,630
======== ======= ======= ========
Of Bancorp's $87.8 million of loans that mature after one year, a total of
$75.8 million (86.3%) are fixed-rate loans, and a total of $12.0 million (13.7%)
are variable-rate loans.
At December 31, 1996, $95.0 million of Bancorp's loans (approximately 35.4%
of its loan portfolio) had fixed interest rates and $173.6 million
(approximately 64.6%) 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.
<PAGE>
At December 31, 1996, approximately 72% of Bancorp's commercial loans
had floating or adjustable interest rates; the remaining 28% 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, 1996 were $116.8 million, compared to $78.3
million at December 31, 1995 and $66.5 million at December 31, 1994. Management
believes the increases in 1996 and 1995 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 $1.5
million at December 31, 1996 ($478,000 at December 31, 1995); there were no
restructured loans at December 31, 1996 or 1995.
REAL ESTATE MORTGAGE LOANS
Real estate mortgage loans represent Bancorp's second largest category of
loans. Of the $70.1 million of real estate mortgage loans outstanding at
December 31, 1996, $48.6 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 increased to $70.1 million at December
31, 1996 from $54.6 million at December 31, 1995. The increase was primarily a
result of the favorable real estate mortgage interest rate market available
during 1996, the demand for housing in the market areas served by Bancorp and
the expansion of Mortgage Co.'s residential mortgage office in the Portland
area. 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 that had higher interest rates. At December 31, 1996 and 1995,
there were no nonaccrual loans or restructured loans in this category.
At December 31, 1996, $42.4 million (or approximately 60%) of Bancorp's
real estate mortgage loans had fixed interest rates and $27.7 million (or
approximately 40%) had floating or adjustable interest rates. Maturities of the
real estate mortgage loans retained by Bancorp 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, 85% for other residential loans and for construction
loans, and 85% 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 85%
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. At December 31, 1996, the amount of the unguaranteed portion of these
loans retained by Bancorp was not material.
<PAGE>
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 project 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, 1996 and 1995, 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.
<PAGE>
Installment loans were $6.4 million at December 31, 1996 compared to $5.9
million at December 31, 1995 and $7.0 million at December 31, 1994. These modest
level of installment loans to individuals at the periods presented 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. At December 31,
1996 and 1995, 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 9 of Notes to Consolidated Financial Statements of
Bancorp, which are incorporated by reference from Bancorp's 1996 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. At December 31, 1996, Centennial Bank's
permissible loan limit was $3.5 million (or $5.8 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,
-------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Nonperforming loans:
Loans past due 90 days or more $ 420 $ 645 $ 190 $ 186 $ 203
Nonaccrual loans 1,480 478 693 881 --
Restructured loans -- -- -- -- --
------- ------- ------- ------- -------
Total nonperforming loans 1,900 1,123 883 1,067 203
Other real estate owned (1) -- -- 392 221 549
------ ------- ------ ------ ------
Total nonperforming assets $1,900 $1,123 $1,275 $1,288 $ 752
====== ====== ====== ====== ======
Reserve for loans losses $2,600 $1,928 $1,700 $1,514 $1,078
Ratio of total nonperforming assets
to total assets .47% .35% .49% .58% .41%
Ratio of total nonperforming loans
to total loans .71% .59% .54% .83% .21%
Ratio of reserve for loan losses
to total nonperforming loans 137% 172% 193% 142% 531%
<FN>
(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.
</FN>
</TABLE>
<PAGE>
Bancorp's total nonperforming assets increased by $777,000 during 1996 and
decreased by $152,000 during 1995. Total nonperforming assets, as a percentage
of total assets, increased to .47% at December 31, 1996 from .35% at December
31, 1995 and .49% at December 31, 1994. Nonperforming loans, comprised of loans
past due 90 days or more, nonaccrual loans and restructured loans, increased by
$777,000 during 1996 and increased by $240,000 during 1995. Nonperforming loans,
as a percentage of total loans, increased to .71% at December 31, 1996 from .59%
at December 31, 1995 and from .54% at December 31, 1994.
The accrual of interest on a loan is discontinued when, in 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 $117,500 in 1996,
$74,000 in 1995 and $77,000 in 1994. No interest income was recognized on these
loans in 1996, 1995 and 1994.
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, 1996 or
1995.
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, 1996 and 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.
The property was sold during 1995 for a loss of $25,000.
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 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.
<PAGE>
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 50% 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 declines in real estate market values in many parts of the
United States in the late 1980's 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,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Loans and loans held for sale
at year-end $268,630 $191,090 $162,011 $127,916 $97,508
======== ======== ======== ======== =======
Average loans and
loans held for sale $226,965 $176,384 $139,672 $114,414 $98,476
======== ======== ======== ======== =======
Reserve for loan losses,
beginning of year $ 1,928 $ 1,700 $ 1,514 $ 1,078 $ 1,116
Charge-offs:
Commercial and other (89) (128) (108) (18) (112)
Real estate -- construction -- -- -- -- --
Real estate -- mortgage -- -- (17) -- (160)
Installment (20) (34) (22) (17) (32)
-------- -------- ------- ------- -------
Total charge-offs (109) (162) (147) (35) (304)
-------- -------- ------- ------- -------
Recoveries:
Commercial and other 24 10 8 7 5
Real estate -- construction -- 3 -- 149 --
Real estate -- mortgage 20 7 -- -- --
Installment 2 20 10 5 5
-------- -------- ------- ------- -------
Total recoveries 46 40 18 161 10
-------- -------- ------- ------- -------
Net loans (charged off) recovered (63) (122) (129) 126 (294)
Provision for loan losses 735 350 315 310 256
-------- -------- ------- ------- -------
Reserve for loan losses
at year-end $ 2,600 $ 1,928 $ 1,700 $ 1,514 $ 1,078
======== ======== ======= ======= =======
Ratio of net loans (charged off)
recovered to average
loans outstanding (.03)% (.07)% (.09)% .11% (.30)%
Ratio of reserve for loan losses
to loans at year-end .97% 1.01% 1.05% 1.18% 1.11%
</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:
Amount of Loans in
reserve category as a
for percentage of
loan total gross
losses loans
-------- -------------
(Dollars in thousands)
December 31, 1996
-----------------
Commercial and other $1,500 46.5%
Real estate -- mortgage 250 26.5
Real estate -- construction 750 25.0
Installment 50 2.0
Unallocated 50 --
------ -----
Total $2,600 100.0%
====== =====
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%
====== =====
<PAGE>
The following table details the carrying value of Bancorp's impaired loans,
in accordance with SFAS 114, by type of loan as of December 31, 1996 and 1995:
Net
Recorded Valuation Carrying
Amount Allowance Value
---------- --------- --------
December 31, 1996
-----------------
Commercial $1,412,000 $505,000 $907,000
========== ======== ========
December 31, 1995
-----------------
Commercial $ 424,000 $100,000 $324,000
========== ======== ========
The above impaired loans were 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, 1996 and 1995, 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, 1996 and 1995. 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.
<PAGE>
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, 1996 and 1995.
December 31,
----------------------------------
1996 1995 1994
------- ------- -------
(In thousands)
U.S. Treasury securities $ 1,405 $ 8,428 $15,162
U.S. Government agencies 32,594 29,422 8,457
States and political subdivisions 39,135 23,845 17,088
Corporate bonds 2,249 2,300 5,118
Mortgage-backed securities 7,271 8,929 8,727
------- ------- -------
Total debt securities 82,654 72,924 54,552
Federal Home Loan Bank stock 4,366 4,040 4,243
------- ------- -------
Total investment securities $87,020 $76,964 $58,795
======= ======= =======
<PAGE>
The following table provides the carrying values, principal amounts,
maturities and weighted average yields of Bancorp's investment securities at
December 31, 1996, all of which are classified as available-for-sale:
Carrying
value Weighted
(fair market Principal average
Type and maturity value) amount yield(1)
----------------- ------------ --------- ---------
(Dollars in thousands)
U.S. Treasuries
Due after 1 but within 5 years $ 1,155 $ 1,150 6.06%
Due after 5 but within 10 years 250 250 5.83
---- ---
Total U.S. Treasuries 1,405 1,400 6.01
U.S. Government Agencies
Due within 1 year 201 200 8.20
Due after 1 but within 5 years 2,503 2,500 7.03
Due after 5 but within 10 years 29,238 29,700 7.04
Due after 10 years 652 650 7.15
------- -------
Total U.S. Government Agencies 32,594 33,050 7.05
States and political subdivisions
Due within 1 year 303 300 7.27
Due after 1 but within 5 years 4,242 4,150 7.54
Due after 5 but within 10 years 10,669 10,380 8.08
Due after 10 years 23,921 24,200 8.02
------- -------
Total states and political
subdivisions 39,135 39,030 7.98
Corporate bonds
Due after 1 but within 5 years 193 200 6.30
Due after 5 but within 10 years 2,056 2,010 6.12
------- -------
Total corporate bonds 2,249 2,210 6.14
Mortgage-backed securities
(U.S. Government agencies) 7,271 7,351 5.47
------- -------
Total debt securities 82,654 83,041 7.30
Equity securities 4,366 4,366
------- -------
Total securities $87,020 $87,407
======= =======
- ------------
(1) Weighted average yield on state and political subdivisions has been
computed on a 34% tax-equivalent basis.
<PAGE>
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 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, 1996, 1995 and 1994:
1996 1995 1994
---------------- ---------------- ----------------
Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
(Dollars in thousands)
Noninterest-bearing
demand $ 66,525 N/A $ 53,399 N/A $ 47,406 N/A
Interest-bearing
demand 114,445 3.61% 92,937 3.23% 82,916 2.45%
Savings 14,166 2.15 15,046 2.34 18,340 2.48
CDs 100,549 5.18 71,912 5.77 47,258 4.24
-------- -------- --------
Total $295,685 3.26 $233,294 4.17 $195,920 2.31
======== ======== ========
<PAGE>
The following table shows the dollar amount of CDs that had balances of
$100,000 or more at December 31, 1996 and 1995:
December 31,
--------------------
1996 1995
------- -------
(In thousands)
CDs $100,000 or over with remaining maturity:
Three months or less $17,451 $ 9,788
Over three months through six months 28,220 19,449
Over six months through twelve months 3,027 1,472
Over twelve months 111 105
------- -------
Total $48,809 $30,814
======= =======
SHORT-TERM BORROWINGS
At December 31, 1996, Bancorp's short-term borrowings consisted of
securities sold under agreements to repurchase totalling $4.3 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 1997 and bear interest of 5.79%.
The following table sets forth certain information with respect to
short-term borrowings at December 31 and during each of 1996, 1995 and 1994:
December 31,
--------------------------------
1996 1995 1994
-------- -------- ------
(Dollars in thousands)
Amount outstanding at year-end $12,316 $11,419 $11,840
Weighted average interest rate
at year-end 5.78% 5.59% 6.23%
Maximum amount outstanding at any
month-end during the year $15,264 $16,458 $16,541
Daily average amount outstanding
during the year $11,399 $13,823 $ 4,259
Average weighted interest rate
during the year 7.31% 6.23% 4.09%
<PAGE>
LONG-TERM DEBT
At December 31, 1996, Bancorp's long-term debt consisted of $10.0 million
of funds advanced from the Federal Home Loan Bank of Seattle to Centennial Bank.
Interest on the debt is payable monthly at the rate of 6.14%. The debt matures
on August 6, 1998, and is collateralized by Federal Home Loan Bank of Seattle
stock, funds on deposit with the Federal Home Loan Bank of Seattle, investments
and loans.
At December 31, 1995, Bancorp's long-term debt consisted of $9.2 million of
7.0% Convertible Redeemable Exchangeable Subordinated Debentures due May 1, 2004
("Debentures"). During 1996, Bancorp issued a call for redemption of the
Debentures. Holders of the Debentures voluntarily converted $9,163,000 of the
Debentures into 922,531 shares of Bancorp's common stock. The amount of debt
converted, net of unamortized issue costs, was credited to common stock and
additional paid-in-capital. Bancorp redeemed the remaining $37,000 of the
Debentures for cash.
RETURN ON EQUITY AND ASSETS
The following table sets forth Bancorp's return on daily average assets and
equity for 1996, 1995 and 1994:
1996 1995 1994
-------- -------- --------
(Dollars in thousands)
Net income $ 6,514 $ 4,551 $ 3,502
Average total assets 357,644 281,752 229,275
Return on average assets 1.82% 1.62% 1.53%
Net income $ 6,514 $ 4,551 $ 3,502
Average equity 31,500 23,302 18,702
Return on average equity 20.68% 19.53% 18.72%
Average total equity $ 31,500 $ 23,302 $ 18,702
Average total assets 357,644 281,752 229,275
Average total equity to assets ratio 8.81% 8.27% 8.16%
<PAGE>
CHANGES IN ACCOUNTING PRINCIPLES
In February 1997, the Financial Accounting Standards Board issued FAS No.
128, Earnings per Share (EPS). This standard will revise the disclosure
requirements of EPS, simplify the computation of EPS and increase the
comparability of EPS on an international basis. FAS No. 128 will be effective in
1997. Centennial Bancorp has not determined the impact of adopting FAS No. 128
will have on the financial statements.
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.
<PAGE>
EMPLOYEES
Centennial Bancorp has no employees other than its executive officers, who
are also employees of Centennial Bank. At December 31, 1996, Centennial Bank and
Centennial Mortgage had 159 and 36 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 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.
<PAGE>
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, 1996, Bancorp's ratio of total
capital to risk-weighted assets was 13.2%.
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,
1996 was 10.2%.
<PAGE>
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.
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 and has received regulatory approval to open a
branch in the Tanasbourne area of Hillsboro.
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. Approval of the FRB and/or the FDIC is also required.
<PAGE>
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 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.
<PAGE>
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,
1996, $12.4 million was available for declaration of dividends by Centennial
Bank to Bancorp without prior regulatory approval.
EXAMINATIONS
The FDIC and the Oregon Director periodically examine and evaluate
state-chartered banks. Based upon such evaluations, 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.
<PAGE>
CAPITAL ADEQUACY
Federal regulations establish minimum requirements for the capital adequacy
of depository institutions. The regulators may establish higher 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, 1996, Centennial
Bank's leverage ratio, Tier 1 capital to risk-weighted assets ratio and total
risk-based capital to risk-weighted assets ratio were 9.0%, 10.9% and 11.7%,
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 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.
<PAGE>
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 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 paid a minimum
annual payment of $2,000 during 1996. 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.
<PAGE>
The Deposit Insurance Funds Act of 1996 ("Funds Act") eliminated the
statutorily-imposed minimum assessment amount effective January 1, 1997. The
Funds Act also authorizes assessments on Bank Insurance Fund-assessable deposits
(such as, the Centennial Bank deposits) and stipulates that the rate of
assessment must equal one-fifth the Financing Corporation assessment rate that
is applied to deposits assessable by the Savings Association Insurance Fund. The
Financing Corporation assessment rate for Bank Insurance Fund-assessable
deposits is 1.296 basis points. Management estimates that the additional
assessment authorized by the Funds Act will increase Bancorp's FDIC insurance
assessment expense in 1997 by approximately $45,000 based upon deposits held at
December 31, 1996.
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.
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. In
addition, substantial revisions to the Oregon Bank Act have been proposed.
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.
<PAGE>
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 retaining for future use 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 has a branch office. The
ground lease has an initial term of 50 years and is renewable for two additional
10-year periods. Bancorp made lease payments averaging $6,285 per month in 1996,
with payments increasing as specified in 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 floor and part of the second floor,
while Centennial Mortgage occupies the remainder of the second floor. The third
floor of the building was leased to another company effective January 1996
pursuant to a five-year lease.
At December 31, 1996, Centennial Bank deposited $25,000 earnest money for
purchase of a $1.2 million parcel of land in the Tanasbourne area of Hillsboro,
Oregon, a suburb of Portland. Centennial Bank intends to construct a branch
facility at the site. The design and cost of the building have not yet been
determined.
Effective January 1, 1997, Centennial Bank entered into a lease for
approximately 3,200 square feet of an existing building in the Lloyd District
area of Portland, Oregon. The lease has an initial term of two years and is
renewable for one additional two-year period. Lease payments of $4,305 per month
began in January 1997.
Centennial Bank owns three other branch facilities and leases two branch
facilities with annual lease payments of $149,000 in 1996. Centennial Bank also
leases certain storage facilities with annual lease payments of $19,000 in 1996.
Centennial Bank also maintains a lease for a former branch site at an
annual rental of $13,200 in 1996. 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.
<PAGE>
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.
As of the date of this report, Bancorp was not a party to any legal
proceedings it believed to be material other than the following actions:
Galen Ritchie Enterprises, Inc., et al v. Centennial Bank, Case No.
16-96-03603 (filed in April 1996 in Circuit Court for the State of Oregon). The
plaintiff, one of the Bank's borrowers, claims that, in reliance on oral
representations of a Bank employee, plaintiff terminated an existing credit
relationship and entered into a relationship with the Bank in 1994. Over the
course of the relationship, plaintiff received several increases in its credit
facility, with final borrowings totalling in excess of $750,000. The loan is
collateralized and is guaranteed by plaintiff's owners. Plaintiff alleges, among
other things, breach of contract, fraud, intentional interference with business
relationships, rescission and reformation. Plaintiff seeks to recover in excess
of $848,000 in connection with the alleged breach of contract; in excess of $2.2
million in connection with the alleged fraud; and in excess of $2.0 million in
connection with the alleged intentional interference with business relationship.
The recovery sought for each claim is based, at least in part, on the same
damages. Plaintiff has also reserved the right to allege punitive damages in
connection with each claim. Plaintiff's claim for intentional interference with
business relationship was dismissed by the trial court. The other claims are
scheduled for trial. The Bank has filed suit against the plaintiff and
guarantors seeking judgment in excess of $700,000 and foreclosure of the
security agreements. The foreclosure suit has been consolidated for trial with
the plaintiff's suit. No trial date is presently set. Discovery is ongoing.
Outside counsel will represent the Bank at trial of the plaintiff's suit.
Bancorp's insurance carrier is involved in the case and has retained local
counsel. Plaintiff's claims exceed Bancorp's maximum insurance coverage.
<PAGE>
Lisa Brumm v. Centennial Bank, Case No. 9702-01459 (filed in February 1997
in the Circuit Court for the State of Oregon). Plaintiff, who was employed by
the Bank for approximately ten weeks in the fall of 1996, alleges that she was
wrongfully discharged. Plaintiff seeks to recover $750,000 in economic and
noneconomic damages and also has reserved the right to allege punitive damages.
The Bank plans to vigorously contest this action.
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, 1996, 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 39
----------------------------------
ITEM 6. SELECTED FINANCIAL DATA 2
-----------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 26 - 39
-----------------------------------
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA 4 - 25
------------------------
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 21, 1997, 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 21, 1997, 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 21, 1997, 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 21, 1997, 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, 1996,
and are incorporated herein by reference:
<PAGE>
Annual
Report to
Shareholders
Page Number
------------
Report of Independent Accountants 3
Consolidated balance sheets at
December 31, 1996 and 1995 4
For the three years ended December 31, 1996
Consolidated statements of income 5
Consolidated statements of
shareholders' equity 6
Consolidated statements of cash flows 7 - 8
Notes to consolidated financial statements 9 - 25
(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.
3.1 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)
3.2 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)
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)
<PAGE>
10.3* Employment Agreement dated October 1, 1995, between Richard
C. Williams and registrant (filed as Exhibit 10.3 to
registrant's Form 10-K for the year ended December 31, 1995,
and incorporated herein by reference)
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 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* Restated 1995 Stock Incentive Plan
10.10* Nonstatutory (Nonqualified) Stock Option Agreement dated
November 22, 1995, between registrant and Richard C.
Williams (filed as Exhibit 10.10 to registrant's Form 10-K
for the year ended December 31, 1995, and incorporated
herein by reference)
<PAGE>
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)
10.13* Centennial Bank Deferred Compensation Plan, dated effective
January 1, 1996
10.14* Participation Agreement for use with Centennial Bank
Deferred Compensation Plan
10.15* Form of Incentive Stock Option Agreement entered into
between registrant and certain officers and employees
pursuant to registrant's Restated 1995 Stock Incentive Plan
10.16* Form of Nonstatutory Stock Option Agreement entered into
between registrant and its nonemployee directors pursuant to
registrant's Restated 1995 Stock Incentive Plan
11.1 Earnings per Share Computation
13.1 Portions of 1996 Annual Report to Shareholders (which are
incorporated by reference in this Form 10-K Annual Report)
20.1 Portions of definitive proxy statement for 1997 annual
shareholder meeting (to be filed with the Securities and
Exchange Commission within 120 days after the end of the
fiscal year covered by this Annual Report)
21.1 Subsidiaries of registrant (filed as Exhibit 21.1 to
registrant's Form 10-K for the year ended December 31, 1995,
and incorporated herein by reference)
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants
<PAGE>
27.1 Financial Data Schedule
99.1 Safe Harbor for Forward-Looking Statements under Private
Securities Litigation Reform Act of 1995: Certain Cautionary
Statements
- ---------------
* Management contract or compensatory 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, 1996.
<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, 1997 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, 1997 By: /s/Richard C. Williams
-----------------------
Richard C. Williams, President,
Chief Executive Officer and Director
CHIEF FINANCIAL OFFICER
DATED: March 19, 1997 By: /s/Michael J. Nysingh
----------------------
Michael J. Nysingh
Chief Financial Officer
DIRECTORS:
DATED: March 19, 1997 By: /s/Dan Giustina
----------------------
Dan Giustina, Director
DATED: March 19, 1997 By: /s/Cordy H. Jensen
-------------------------
Cordy H. Jensen, Director
DATED: March 19, 1997 By: /s/Robert L. Newburn
---------------------------
Robert L. Newburn, Director
DATED: March 19, 1997 By: /s/Brian B. Obie
-----------------------
Brian B. Obie, Director
<PAGE>
EXHIBIT INDEX
Exhibit*
10.9 Restated 1995 Stock Incentive Plan
10.13 Centennial Bank Deferred Compensation Plan, dated effective January
1, 1996
10.14 Participation Agreement for use with Centennial Bank Deferred
Compensation Plan
10.15 Form of Incentive Stock Option Agreement entered into between
registrant and certain officers and employees pursuant to
registrant's Restated 1995 Stock Incentive Plan
10.16 Form of Nonstatutory Stock Option Agreement entered into between
registrant and its nonemployee directors pursuant to registrant's
Restated 1995 Stock Incentive Plan
11.1 Earnings per Share Computation
13.1 Portions of 1996 Annual Report to Shareholders, which are
incorporated by reference in this Form 10-K
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants
27.1 Financial Data Schedule
99.1 Safe Harbor for Forward-Looking Statements under Private Securities
Litigation Reform Act of 1995: Certain Cautionary Statements
- -----------------
* See Item 14(a)(3) of this Annual Report for a list of all exhibits,
including those incorporated by reference.
CENTENNIAL BANCORP
RESTATED 1995 STOCK INCENTIVE PLAN
Adopted by the Board of Directors
on November 22, 1995
(Amended and Restated effective
as of August 20, 1996)
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.
<PAGE>
f. "Common Stock" means the shares of Common Stock of the Company,
with par value of $2.00 per share.
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. "Nonemployee Director" means a Nonemployee Director as defined in
Rule 16b-3(b)(3)(i).
p. "Nonstatutory Stock Option" means a stock option other than an
Incentive Stock Option.
q. "Option" means an Award described in Article VII of the Plan.
r. "Option Agreement" means a written agreement between the Company
and a Holder with respect to an Option.
s. "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
t. "Plan" means the 1995 Stock Incentive Plan of Centennial Bancorp,
as set forth herein and as may be hereafter amended from time to time.
u. "Restricted Stock Agreement" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
v. "Restricted Stock Award" means an Award described in Article VIII
of the Plan.
w. "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.
x. "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 effect until all Awards granted
under the Plan have been satisfied or expired.
<PAGE>
IV. ADMINISTRATION
A. COMPOSITION OF COMMITTEE. The Plan shall be administered by a
committee which shall (i) be appointed by the Board and (ii) consist of
Nonemployee Directors.
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. 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.
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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 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.
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.
<PAGE>
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 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.
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,
<PAGE>
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 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.
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.
<PAGE>
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.
E. RESTRICTIONS ON TRANSFER.
1. 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, which consent may be withheld in its sole discretion or
conditioned on such requirements as the Committee shall deem appropriate,
all or any portion of a Nonqualified Stock Option may be assigned or
transferred to the optionee's immediate family (i.e., children,
grandchildren, spouse, parents and siblings), to trusts for the benefit of
the optionee's immediate family members, and pursuant to qualified domestic
relations orders. No consideration may be paid for the transfer of any
Nonqualified Stock Option, and, after any permitted transfer, the
Nonqualified Stock Option shall continue to be subject to the same terms
<PAGE>
and conditions as were applicable to it immediately prior to its transfer,
except that: (i) subsequent transfers of transferred options shall be
prohibited except by will or the laws of descent and distribution; (ii) for
purposes of Section G of Article VII, the term "Holder" shall refer to the
original optionee; (iii) the events of termination of employment specified
in Section G of Article VII shall continue to be applied with respect to
the original optionee, following which the Nonqualified Stock Option shall
be exercisable by the transferee only to the extent, and for the periods
specified in Section G of Article VII; and (iv) the original optionee shall
remain subject to withholding taxes upon exercise of the Nonqualified Stock
Option by the transferee. Before permitting any transfer, the Committee may
require the transferee to agree in writing to be bound by all other terms
and conditions applicable to the Nonqualified Stock Option prior to its
transfer.
2. 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. 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.
G. HEADINGS. Headings contained in the Plan are for reference purposes
and shall not affect the meaning or interpretation of the Plan.
CENTENNIAL BANK
---------------
DEFERRED COMPENSATION PLAN
--------------------------
Effective January 1, 1996
<PAGE>
CENTENNIAL BANK
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
-----------------
ARTICLE I. NAME, OBJECT, EFFECTIVE DATE.......................... 1
1.01 Name.................................................. 1
1.02 Object................................................ 1
1.03 Effective Date........................................ 1
ARTICLE II. DEFINITIONS AND INTERPRETATIONS....................... 1
2.01 General Definitions................................... 1
2.02 Interpretation........................................ 3
2.03 Alternative Action.................................... 4
2.04 Applicable Law........................................ 4
2.05 Headings.............................................. 4
2.06 Signed Copies......................................... 4
ARTICLE III. PARTICIPATION and ELECTIONS........................... 4
3.01 Participation......................................... 4
3.02 Deferral Elections.................................... 4
3.03 Subsequent Ineligibility.............................. 4
ARTICLE IV. DISTRIBUTION OF BENEFITS.............................. 5
4.01 Eligibility for Distribution.......................... 5
4.02 Post-Retirement Death Benefit......................... 6
4.03 Pre-Retirement Death Benefit.......................... 6
4.04 Designation of Beneficiary............................ 6
4.05 Commencement of Distributions......................... 6
4.06 Administrator Discretion for Small Distributions...... 7
4.07 Qualified Domestic Relations Order.................... 7
ARTICLE V. DEFERRAL OF COMPENSATION.............................. 7
5.01 Deferral Contributions................................ 7
5.02 Minimum Deferral...................................... 8
5.03 Modifications to Amount Deferred...................... 8
5.04 Revocation of Deferral................................ 9
5.05 Company Matching Contributions........................ 9
5.06 Vesting of Marching Contributions..................... 9
<PAGE>
ARTICLE VI. FUNDING ............................................. 10
6.01 Participant Interest in Assets........................ 10
6.02 Asset Acquisition..................................... 10
6.03 Trust Agreement....................................... 10
6.04 Asset Investment...................................... 11
6.05 Insurance............................................. 11
6.06 Valuations............................................ 11
6.07 Limited Effect of Allocation.......................... 12
6.08 Report of Account Balance............................. 13
ARTICLE VII. ADMINISTRATION OF PLAN................................ 13
7.01 Plan Administrator.................................... 13
7.02 Allocation and Delegation of Administrative Functions. 13
7.03 Administrator Powers.................................. 13
7.04 Reliance on Reports................................... 15
7.05 Rules and Procedures.................................. 15
7.06 Administrative Records................................ 15
7.07 Exchange of Information............................... 15
7.08 Actions Binding....................................... 15
7.09 Company Records....................................... 15
7.10 Duties of Participant................................. 15
7.11 Administrator Expenses................................ 16
7.12 Administrator Indemnified............................. 16
7.13 Limitation of Liability............................... 16
ARTICLE VIII. CLAIMS AND REVIEW PROCEDURE........................... 16
8.01 Claims for Benefits and Inquiries..................... 16
8.02 Denial of Claims...................................... 16
8.03 Review of Denied Claims............................... 17
8.04 Decision on Review.................................... 17
8.05 Rules and Procedures on Review........................ 18
8.06 Exhaustion of Remedies................................ 18
ARTICLE IX. AMENDMENT AND TERMINATION OF THE PLAN................. 18
9.01 Future of the Plan.................................... 18
9.02 Company Right to Amend or Terminate the Plan.......... 18
9.03 Company Right to Terminate the Plan................... 19
9.04 Procedure for Plan Amendment or Termination........... 19
9.05 Reorganization........................................ 19
ARTICLE X. MISCELLANEOUS......................................... 19
10.01 Company Right to Terminate Employment................. 19
10.02 Participation in Other Plans.......................... 19
10.03 Alienability.......................................... 19
<PAGE>
CENTENNIAL BANK
---------------
DEFERRED COMPENSATION PLAN
--------------------------
Pursuant to due authorization by its Board of Directors, the
undersigned, Centennial Bancorp, an Oregon corporation ("the Company"), did
constitute, establish and adopt the following Deferred Compensation Plan
("Plan"), effective January 1, 1996.
ARTICLE I. NAME, OBJECT, EFFECTIVE DATE
1.01 NAME. This Plan shall be known as the "Centennial Bank Deferred
Compensation Plan," herein called the "Plan."
1.02 OBJECT. The primary object of the Plan is to provide a select
group of management or highly compensation personnel of the Company and its
Affiliates with an appropriate level of retirement income by supplementing the
retirement benefits otherwise provided under any qualified retirement programs
the Company may, from time to time, provide to its eligible employees. The Plan
and any related Trust are intended to be unfunded and nonqualified for purposes
of the Internal Revenue Code of 1986, as amended ("Code"), and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
1.03 EFFECTIVE DATE. The effective date of the Plan is January 1,
1996, except where an earlier or later effective date is expressly stated.
ARTICLE II. DEFINITIONS AND INTERPRETATIONS
2.01 GENERAL DEFINITIONS. The following words and phrases shall have
the following meanings, unless the context requires otherwise:
(a) "ADMINISTRATOR" means the Administrator appointed under
Article VII.
(b) "AFFILIATE" means any other Employer entity in any of the
following aggregation groups which include the Company: a controlled
group of corporations under Code ss. 414(b); a controlled group of
trades or businesses (whether or not incorporated) under Code ss.
414(c); and an affiliated service group under Code ss. 414(m). As of
the Effective Date of the Plan, the following two entities are
Affiliates of the Company:
Centennial Bank
Centennial Mortgage Co.
<PAGE>
(c) "BENEFICIARY" means each person, or the estate of a deceased
Participant, entitled to benefits, if any, upon the death of a
Participant determined pursuant to 4.04.
(d) "COMPANY" means Centennial Bancorp, an Oregon corporation,
the corporation which sponsors and maintains this Plan.
(e) "DIRECTORS" means the Board of Directors of the Company as
from time to time constituted.
(f) "ELIGIBLE EMPLOYEE" means each active Employee of the Company
or an Affiliate who, on or after the Effective Date, (i) is a member
of a "select group of management or highly compensated employees" of
the Company within the meaning of Sections 201(2), 301(a)(3) and
401(a)(4) or ERISA, and (ii) is selected by the Administrator to
participate in this Plan.
(g) "EMPLOYEE" means any individual who is employed by the
Company or an Affiliate, whether compensated by a salary or hourly
wage, unless the term is limited to employment by a particular entity
by the phrase "Employee of the Company," "Employee of an Affiliate,"
or words of similar import.
(h) "EMPLOYER" means the Company or an Affiliate, as applicable.
(i) "FISCAL YEAR" means the fiscal year of the Company, currently
the twelve (12) month period from January 1 to December 31.
(j) "DEFERRED COMPENSATION ACCOUNT" means the bookkeeping account
established by the Company to account for the benefit payable under
the terms of the Plan in conjunction with the elections by the
Participant as set forth in the Participation Agreement.
(k) "PARTICIPANT" means any Eligible Employee of the Company or
an Affiliate who is selected as eligible to participate in the Plan
and elects to participate in the Plan as provided under 3.01.
(l) "PARTICIPATION AGREEMENT" means the agreement between a
Participant and the Company or an Affiliate for deferred compensation
benefits under this Plan.
(m) "PLAN YEAR" means the twelve (12) month period from January 1
to December 31.
<PAGE>
(n) "RETIREMENT DATE" means the date of Participant's age for
retirement or such other date for receiving benefits as set forth in
the Participation Agreement.
(o) "TERMINATION OF EMPLOYMENT" means the date on which such
Participant (i) retires, resigns or ceases to be an Eligible Employee;
(ii) dies or becomes disabled while a Participant; or (iii) departs
from the service of the Company and its affiliates or subsidiaries for
any reason; provided, that a Participant will not be deemed to have
terminated his employment solely by reason of a leave of absence duly
approved by the Administrator.
(p) "TRUST" means any trust established by a separate Trust
Agreement for this Plan, if any. "Trust Fund" means the corpus of the
Trust.
(q) "DEFERRED COMPENSATION AGREEMENT" means that portion of the
Participation Agreement between the Participant and the Company to
defer receipt by the Participant of compensation not yet earned. Such
agreement shall state the deferral amount to be withheld from a
Participant's pay or bonus and shall become effective no earlier than
the first day of the month following the execution of such agreement.
(r) "UNFORESEEABLE EMERGENCY" means a severe financial hardship
to the Participant resulting from a sudden and unexpected illness or
accident of the Participant or of a dependent of the Participant, loss
of the Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant. The circumstances that
will constitute an "Unforeseeable Emergency" would depend upon the
facts of each case, but, in any case, payment may not be made in the
event that such hardship is or may be relieved:
(1) Through reimbursement or compensation by insurance or otherwise,
(2) by liquidation of the Participant's assets, to the extent that
liquidation of such assets would not itself cause sever financial hardship,
or
(3) by cessation of Deferrals under the Plan.
The need to send a Participant's child to college or the desire to
purchase a home shall not be an Unforeseeable Emergency.
2.02 INTERPRETATION. Wherever the fulfillment of the intent and
purpose of this Plan requires, and the context will permit, the use of the
masculine gender includes the feminine and use of the singular includes the
plural.
<PAGE>
2.03 ALTERNATIVE ACTION. In the event it shall become impossible for
the Company or the Administrator to perform any act required by this Plan, the
Company or Administrator may perform such alternative act as most nearly carries
out the intent and purpose of this Plan.
2.04 APPLICABLE LAW. All legal questions pertaining to the Plan shall
be determined in accordance with applicable federal law, and to the extent not
preempted by federal law, the laws of the state of Oregon. All contributions and
benefit payments made hereunder shall be deemed to have been made in Oregon.
2.05 HEADINGS. Article and section headings are for convenient
reference only and shall not be deemed to be part of the substance of this
instrument or in any way to enlarge or limit the contents of any Article or
section.
2.06 SIGNED COPIES. This Plan may be executed in any number of
counterparts, each of which shall be deemed to be an original, and such
counterparts taken together shall constitute one (1) and the same instrument.
ARTICLE III. PARTICIPATION and ELECTIONS
3.01 PARTICIPATION. Subject to the provisions of the Plan, all
Eligible Employees covered by the Plan will be eligible to defer compensation
and receive benefits at the time and in the manner provided hereunder, upon
execution of a Participation Agreement and approval by the Administrator.
3.02 DEFERRAL ELECTIONS. All compensation deferral elections by a
Participant must be made in writing on the forms prescribed by the Administrator
(constituting a Deferred Compensation Agreement) prior to the commencement of
the Plan Year, except that:
3.02-1 INITIAL PLAN YEAR. In the case of deferrals for the
initial Plan Year, a Participant may make an effective deferral election not
later than thirty (30) days after the first day of the Plan Year with respect to
compensation earned in periods beginning after the election is made; and
3.02-2 INITIAL ELIGIBILITY. In the case of an Employee who first
becomes eligible to participate after the Plan's effective date, the Participant
may make a deferral election within thirty (30) days after first becoming
eligible, provided such election is made only with respect to compensation to be
earned in periods beginning after the date of the election.
3.03 SUBSEQUENT INELIGIBILITY. If, prior to a Participant's Retirement
Date, the Administrator determines, based on a judicial or administrative
determination or an opinion of counsel, that the Participant ceases to be a
member of a "selected group of management or highly compensated employees" of
the Company within the meaning of Sections 201(2), 301(a)(3) and 401(a)(4) of
ERISA, such Participant shall cease participating in this Plan with respect to
all periods for which such Participant is not a member of such select group.
<PAGE>
ARTICLE IV. DISTRIBUTION OF BENEFITS
4.01 ELIGIBILITY FOR DISTRIBUTION. Participants shall be eligible for
a distribution of benefits from the Plan upon (a) the earlier of the
Participant's Termination of Employment or Retirement Date, (b) the event of an
approved financial hardship due to an Unforeseeable Emergency, (c) a scheduled
in-service withdrawal, or (d) an accelerated distribution.
4.01-1 DISTRIBUTION DUE TO TERMINATION OR REACHING RETIREMENT
DATE. On the date the Participant shall have reached Retirement Date as set
forth in the Participation Agreement, or otherwise terminates employment with
the Company, the Corporation shall distribute an amount equal to the deemed fair
market value of the assets in the Participant's Deferred Compensation Account in
the form and in the manner elected by Participant and provided in the
Participation Agreement.
4.01-2 DISTRIBUTION DUE TO UNFORESEEABLE EMERGENCY. A Participant
may request a distribution due to Unforeseeable Emergency by submitting a
written request to the Administrator accompanied by evidence to demonstrate that
the circumstances being experienced qualify as an Unforeseeable Emergency. The
Administrator shall have the authority to require such evidence as it deems
necessary to determine if a distribution is warranted. If an application for a
hardship distribution due to an Unforeseeable Emergency is approved, the
distribution is limited to an amount sufficient to meet the emergency. The
allowed distribution shall be payable in a method determined by the
Administrator as soon as possible after approval of such distribution. A
Participant who has commenced receiving installment payments under the Plan may
request acceleration of such payments in the event of an Unforeseeable
Emergency. The Administrator may permit accelerated payments to the extent such
accelerated payment does not exceed the amount necessary to meet the emergency.
4.01-3 IN-SERVICE WITHDRAWAL. A Participant may schedule an
in-service withdrawal of deferred compensation if, at the time a deferral is
made, the Participant indicates in the Participation Agreement (a) that the
deferral will be paid as an in-service withdrawal, and (b) the distribution
dates applicable to such deferral. Provided, however, that a distribution of an
in-service withdrawal may not be made within five (5) Plan Years of the original
date of deferral.
4.01-4 ACCELERATED DISTRIBUTION. A Participant may request to
receive the full value of his or her account balance at any time after
commencing participation in the Plan by submitting a written request to the plan
administrator; provided, however, that Participants exercising this accelerated
distribution provision will immediately forfeit an amount equal to ten percent
(10%) of the value of the account and will thereafter be ineligible to
participate under the Plan for all future periods of employment with the Company
or its Affiliates. Distribution of such Participant's accelerated distribution
shall be made as soon as administratively practicable after such Participant's
request is received. Any accelerated distributions made within one year of the
Company's bankruptcy may be required to be returned to the Company.
<PAGE>
4.02 POST-RETIREMENT DEATH BENEFIT. If the Participant dies after
benefits commence under 4.01 above, but before receiving the balance of such
Deferred Compensation Account, Participant's Beneficiary (designated pursuant to
4.04) shall be entitled to the balance of Participant's Deferred Compensation
Account, paid as provided in the Participation Agreement, commencing on the
first day of the month following the month of death and continuing for the
period specified therein.
4.03 PRE-RETIREMENT DEATH BENEFIT. In the event the Participant should
die after becoming a participant, but prior to the commencement of benefits
under 4.01, Participant's Beneficiary (designated pursuant to 4.04) shall be
entitled to the balance of Participant's Deferred Compensation Account, paid as
provided in the Participation Agreement, commencing on the first day of the
month following the month of death and continuing for the period specified
therein.
4.04 DESIGNATION OF BENEFICIARY. Payment of death benefits under 4.02
or 4.03, above, will be made to such individual or individuals as (i) the
Participant may have designated in a written instrument filed with the Company
prior to Participant's death, and (ii) the Company shall have approved (whether
before or after the Participant's death) by resolution of its Board of
Directors.
4.04-1 NO DESIGNATION. In the absence of any effective
designation of beneficiary any such amounts becoming due and payable upon the
death of the Participant shall be payable to his duly qualified executor or
administrator.
4.04-2 DIVORCE REVOKES PRIOR SPOUSAL DESIGNATION. Except as
provided in a valid "qualified domestic relations order," the divorce or
annulment of the marriage of a Participant after the execution of a beneficiary
designation revokes all provisions in such designation in favor of the former
spouse of the Participant and any provisions therein naming such former spouse,
and the effect of such designation is the same as though the former spouse did
not survive the Participant.
4.05 COMMENCEMENT OF DISTRIBUTIONS. Distribution of benefits to a
Participant or beneficiary under the Plan (for reasons other than an unforeseen
emergency or Accelerated Distribution) shall commence within 30 days after such
Participant's reaching Retirement Date or Termination of Employment.
<PAGE>
4.06 ADMINISTRATOR DISCRETION FOR SMALL DISTRIBUTIONS. Notwithstanding
anything in this Article IV to the contrary, if the total amounts held under
this Plan for a Participant total $5,000 or less and the Participant has
Terminated Employment, the Administrator may at any time elect a lump sum
distribution, which distribution shall occur no later than 30 days after the
Participant suffers a Termination of Employment.
4.07 QUALIFIED DOMESTIC RELATIONS ORDER. The rights of prior spouse or
other family member to any share of a Participant's account balance shall take
precedence over any claims of the Participant and spouse at the time of
retirement or death only as provided in a qualified domestic relations order.
See 10.03.
ARTICLE V. DEFERRAL OF COMPENSATION
5.01 DEFERRAL CONTRIBUTIONS.
5.01-1 AMOUNT. The Company shall credit to a book reserve (the
"Deferred Compensation Account") established for this purpose, the Participant's
Salary and Bonus Deferral Contributions as set forth in the Participant's
Deferred Compensation Agreement for each fiscal year, subject to the limitations
set forth herein and to all rules applicable to contributions under the Plan:
(a) SALARY DEFERRAL CONTRIBUTIONS. Beginning after January 1,
1996, and each pay period thereafter, the Company shall withhold and credit
to the Company's bookkeeping reserve for the Plan the total amount of all
salary deferral elections made by Participants. Any such contribution shall
be:
(1) Known as the Participant's salary deferral contribution;
(2) Made pursuant to a written election filed by the
Participant with the Company prior to the period of service to which
such compensation applies, at such times as determined by the
Administrator, directing the Company to withhold from direct
compensation payments the amount specified by the Participant, which
shall be stated in any whole percentage from one percent (1%) to a
maximum of one-hundred percent (100%) of current compensation, or such
other maximum percentage as the Administrator may set;
(3) Allocated to the bookkeeping reserve Deferred
Compensation Account of each electing Participant;
(4) One hundred percent (100%) vested and nonforfeitable at
all times; and
(5) Subject to the limitations and conditions herein set
forth.
(b) BONUS DEFERRAL. Beginning January 1, 1996, the Company shall
withhold and credit to the Company's bookkeeping reserve for the Plan the
total amount of all bonus deferral elections made by Participants. Any such
contribution shall be:
(1) Known as the Participant's bonus deferral election;
(2) Made pursuant to a written election filed by the
Participant with the Company prior to the period of service to which
such bonus applies, at such times as determined by the Administrator,
directing the Company to withhold from direct bonus payments the
amount specified by the Participant, which shall be stated in any
whole percentage from one percent (1%) to a maximum of one-hundred
percent (100%) of current bonus, or such other maximum percentage as
the Administrator may set;
(3) Allocated annually to the Deferred Compensation Account
of the Participant at the time such bonus payment would have been
otherwise payable;
<PAGE>
(4) One hundred percent (100%) vested and nonforfeitable at
all times; and
(5) Subject to the limitations and conditions herein set
forth.
5.01-2 INVESTMENT AND DISTRIBUTION. Amounts credited to a
Participant's Deferred Compensation Account shall be invested by the Company and
periodically valued as provided in Article VI.
5.02 MINIMUM DEFERRAL. Each Employee who becomes a Participant must
agree to defer a minimum of one thousand dollars two hundred ($1,200.00) per
Plan Year.
5.03 MODIFICATIONS TO AMOUNT DEFERRED. A Participant may change
Deferrals with respect to Compensation not yet earned by submitting a new
properly executed Deferred Compensation Agreement to the Administrator. Such
change shall take effect as soon as administratively practicable but not earlier
than the first pay period commencing with or during the first month following
receipt by the Administrator of such Deferred Compensation Agreement.
Modifications (other than a revocation of participation as provided in Article
5.04) may only be made prior to the beginning of a Plan Year and subject to the
limitations specified in the Adoption Agreement.
<PAGE>
5.04 REVOCATION OF DEFERRAL. Any Participant may revoke his or her
election to have Compensation deferred by so notifying the Administrator in
writing. The Participant's full Compensation on a nondeferred basis will then be
restored as soon as administratively practicable, but no earlier than the first
pay period commencing with or during the first month following receipt of
written notice of such revocation by the Administrator.
5.04-1 PAYMENT OF ACCOUNT. Notwithstanding this Article 5.04, the
Participant's Deferred Compensation Account shall be paid only as provided in
Article IV of this Plan.
5.04-2 REINSTATEMENT OF PARTICIPATION. In the event a Participant
revokes his or her deferral election, such Participant will cease participating
in the Plan for the balance of the Plan Year, but may again elect to defer
compensation under the Plan for the Plan Year next following such revocation.
5.05 COMPANY MARCHING CONTRIBUTION. For all eligible Participants who
make Deferral Elections for the Plan Year under 3.02, the Company or an
Affiliate may contribute an amount or percentage as the Directors of the Company
or Affiliate, in their discretion, shall determine. Any such contribution shall
be:
5.05-1 Known as the Company's matching contribution;
5.05-2 Allocated to the matching account of each Eligible
Participant (based on the total amount of such Participant's deferral for the
Plan Year);
5.05-3 Invested by the Company and periodically valued as
provided in Article VI;
5.05-4 Subject to forfeiture under the vesting schedule set forth
in 5.06;
5.05-5 Distributed in the form and in the manner elected by the
Participants and provided in the Participation Agreements; and
5.05-6 Subject to the limitations and conditions herein set
forth.
5.06 VESTING OF MATCHING CONTRIBUTIONS. If a Participant's employment
terminates prior to his or her Retirement Date for reasons other than the
Participant's death or total and permanent disability, the Participant's accrued
benefit in the Company's Matching contribution shall vest as follows:
<PAGE>
5.06-1 VESTING SCHEDULE.
Number of Years of Percentage of Percentage
Cumulative Service Under Plan Account Vested Forfeited
- ----------------------------- -------------- ----------
Less than 2 years 0% 100%
2 but less than 3 years 20% 80%
3 but less than 4 years 40% 60%
4 but less than 5 years 60% 40%
5 but less than 6 years 80% 20%
6 or more years 100% 0%
5.06-2 "Years of Service" Defined. For this 5.06, "years of
service" for vesting purposes shall have the same meaning, and be interpreted in
the same manner, as a vesting year of service under the 401(k) plan sponsored by
the Company and its Affiliates, currently known as the Centennial Bank
Employees' Savings and Profit Sharing Plan.
ARTICLE VI. FUNDING
6.01 PARTICIPANT INTEREST IN ASSETs. Amounts credited to a
Participant's Deferred Compensation Account and any payments to the Participant,
his duly designated Beneficiary, or any other beneficiary hereunder shall be
made from assets which shall continue, for all purposes, to be a part of the
general, unrestricted assets of the Company; no person shall have nor acquire
any interest in any such assets by virtue of the provisions of this Plan or the
Participation Agreement. The Company's obligation hereunder shall be an unfunded
and unsecured promise to pay money in the future. To the extent that the
Participant or any person acquires a right to receive payments from the Company
under the provisions hereof, such right shall be no greater than the right of
any unsecured general creditor of the Company; no such person shall have nor
require any legal or equitable right, interest or claim in or to any property or
assets of the Company.
6.02 ASSET ACQUISITION. The Company reserves the absolute right in its
sole and exclusive discretion to acquire assets to fund the obligations of the
Plan, or refrain from funding the same, and to determine the extent, nature and
method of such funding, provided that no such asset acquisition, trust agreement
or other arrangement entered into by the Company shall affect the status of the
Plan as unfunded for purposes of Title I of ERISA or the Code.
6.03 TRUST AGREEMENT. Any trust created by the Company, and any assets
held by such trust to assist the Company in meeting its obligations under this
Plan, shall conform its terms to the requirements of the model trust described
in Internal Revenue Procedure 92-64, 1992-2 C.B. 422.
<PAGE>
6.04 ASSET INVESTMENT. Any funds credited to a Participant's Deferred
Compensation Account may be kept in cash or invested and reinvested in mutual
funds, stocks,kl bonds, securities or any other assets as may be selected by the
Administrator in its discretion.
6.04-1 INVESTMENT ADVICE. In the exercise of the foregoing
discretionary investment powers, the Administrator may engage investment counsel
and, if it so desires, may delegate to such counsel full or limited authority to
select the assets in which the funds are to be invested.
6.04-2 PARTICIPANT DIRECTION. The Administrator may designate a
group of investments in which each Participant's Deferred Compensation Accounts
may be deemed to be invested, and each participant may select from time to time
the investments in which such bookkeeping account will be deemed invested;
provided, however, that Administrator is under no obligation to acquire or
provide any of the investments designated by Participant and any investments
actually made will be made solely in the name of the Company and will remain the
Company's property.
6.05 INSURANCE. In the event that, in its discretion, the Company
purchases an insurance policy or policies insuring the life of the Participant
(or any other property) to allow the Company to recover the cost of providing
the benefits, in whole, or in part, hereunder, neither the Participant, his
designated beneficiary, any other beneficiary nor any other person shall have
nor acquire any rights whatsoever therein or in the proceeds therefrom.
6.05-1 COMPANY AS OWNER. The Company shall be the sole owner and
beneficiary of any such policy or policies and, as such, shall possess and may
exercise all incidents of ownership therein. No such policy, policies, or other
property shall be held in any trust for the Participant or any other person nor
as collateral security for any obligation of the Company hereunder.
<PAGE>
6.05-2 PARTICIPANT COOPERATION. If the Company elects to purchase
a life insurance or annuity policy on the life of the Participant, Participant
shall sign any papers that may be required for that purpose and shall undergo
any medical examination or tests that may be necessary.
6.06 Valuations.
6.06-1 ANNUAL VALUATION. Every Plan Year (the "valuation
period"), as of December 31, the amounts credited to the Participants' Deferred
Compensation Accounts shall be valued at their deemed fair market value based on
the investment preferences expressed in the Participation Agreements, and the
deemed net increase or decrease from the fair market value as of the end of the
valuation period shall be determined.
6.06-2 INTERIM VALUATION. The Administrator may arrange for other
periodic valuations of the accounts, and, following the method under this 6.06,
may make entries to the accounts entitled to share therein.
6.06-3 VALUATION FOR TERMINATION. Any Participant who for any
reason terminates employment with the Company and is due an immediate
distribution, shall have his interest under the Plan determined on the basis of
the interim or annual valuation preceding or coincident with such distribution.
6.06-4 ASSET VALUATION. The Administrator may rely on valuations
furnished by any trustees or investment manager for the Plan, published or
quoted market prices, opinions of persons believed to be skilled in such
matters, or any other valuation method which is reasonable under the
circumstances.
6.06-5 ALLOCATION. Allocations of investment gain or loss shall
be made in accordance with the type of investment account each Participant is
deemed to maintain as provided in (a), (b) and (c).
(a) TYPE OF ACCOUNTS. The types of investment accounts under the
Plan are pooled investment fund(s) which the Administrator may from time to
time make available, subject to the Participant's election to specify and
change amount deemed invested in any particular investment fund.
(b) GENERAL ALLOCATION. Subject to (c), the accounts of each
Participant as of the valuation date, shall be credited or debited to take
into account any deemed earnings or losses during the previous valuation
period. Allocation will be time weighted to take into account the date of
deferrals, contributions, distributions, and transfer among funds.
(c) ALLOCATION LIMITED TO INVESTMENT FUND. The investment gain or
loss of each type of investment fund under (a) shall be separately
determined and allocated. Each Participant's account shall share only in
the investment experience of the fund(s) in which such account is deemed
invested, and shall not share in the investment experience of any other
fund, regardless of the results achieved.
6.07 LIMITED EFFECT OF ALLOCATION. The fact that any allocation shall
be made and credited to an account shall not vest in a Participant any right,
title or interest in or to any assets of the Company, or any right to payment,
except at the time(s) and upon the condition(s) elsewhere set forth in the Plan.
<PAGE>
6.08 REPORT OF ACCOUNT BALANCE. A Participant shall be entitled to
find out the balance in his account within a reasonable time after making a
request therefor to the Administrator or its administrative office. The
Administrator shall furnish each Participant a statement showing his annual
account balance as soon as administratively practicable after the Plan Year end
allocations have been completed. The Administrator may, in its discretion,
arrange to provide Participants with account balance statements more frequently
so long as such statements are provided on a non-discriminatory basis.
ARTICLE VII. ADMINISTRATION OF PLAN
7.01 PLAN ADMINISTRATOR. The Plan shall be administered by the
Company, acting collectively through its Board of Directors, who together shall
be the "Plan Administrator" for purposes of ERISA ss. 3(16), herein called the
"Administrator." The Administrator has, in its sole discretion, the power and
authority to delegate and implement all functions necessary or desirable for the
proper administration of the Plan as described in this Article VII. In addition
to other duties and powers hereunder, the Company shall have the following
duties and powers as Administrator:
7.01-1 To ensure that all records necessary for proper operation
of the Plan are kept;
7.01-2 To ensure compliance with all reporting and disclosure
requirements imposed on the Plan "administrator" by ERISA and any other
applicable law;
7.01-3 To allocate and delegate to any Company Employee or other
person any powers and duties relating to administration of the Plan as the
Administrator in its discretion, deems advisable, necessary or appropriate.
7.02 ALLOCATION AND DELEGATION OF ADMINISTRATIVE FUNCTIONS. By action
of the Administrator, duly reflected in Plan records, the Administrator may
allocate and delegate its duties and powers under the Plan to one (1) or more
agents, who need not be employees of the Administrator, to assist in the
performance of its duties. The Company shall carry out its duties and
responsibilities under the Plan through its directors, officers and Employees,
acting on behalf of and in the name of the Company in their capacities as
directors, officers, and Employees and not as individual fiduciaries.
7.03 ADMINISTRATOR POWERS. The Administrator shall have full power and
authority to control and manage the operation and administration of the Plan and
to construe and apply all of its provisions including the specific power and
authority to interpret the Plan and Trust, remedy or resolve ambiguities,
inconsistencies or omissions and to decide any questions about the rights of
Participants and their beneficiaries. Any action taken in good faith by the
Administrator in the exercise of authority conferred by this Plan shall be
conclusive and binding upon the Participants and their beneficiaries. All
discretionary powers conferred upon the Administrator shall be absolute, final
and binding. The authority of the Administrator shall include, but not by way of
limitation, the following:
<PAGE>
7.03-1 Authority to decide all questions relating to the
eligibility of Employees to become Participants, the amount of service of any
Employee or Participant, and the amount of benefits to which any Participant may
be entitled by reason of his service prior to or after the effective date
hereof;
7.03-2 Authority to approve the payment of all benefits as they
become payable under the Plan, which payments, except to the extent that they
may be made from any Trust, shall be made by the Company upon written
instructions from the Administrator;
7.03-3 Authority to determine to whom any payments shall be made
for the benefit of any retired Participant of the Plan who is, in the judgment
of the Administrator, mentally incompetent;
7.03-4 Authority to direct the Company to apply for, purchase,
hold or transfer, any contract or contracts issued by an insurance company for
the purpose of providing for the benefits under the Plan and to make payments to
the insurance company under any such contract;
7.03-5 Authority to engage such professional consultants and
assistants as the Administrator, in its discretion, deems advisable, necessary
or appropriate, including (but not limited to) accountants, actuaries,
consultants, legal counsel, medical practitioners and clerical assistants to
perform services with regard to any of its responsibilities under the Plan,
including authority to employ one (1) or more persons to render advice with
regard to any responsibility any person designated under 7.04 may have under the
Plan;
7.03-6 Authority to designate one (1) or more Company Employees
as the "Plan Administrator" for purposes of all reports required to be filed
with applicable governmental agencies, and to confer upon such Plan
Administrator such powers and duties as the Administrator, in its discretion,
shall determine from time to time;
7.03-7 Authority to designate an agent for service of legal
process in any suit or action involving the Plan;
7.03-8 Authority to perform or cause to be performed such further
acts as it may deem necessary, appropriate or convenient in the efficient
administration of the Plan;
<PAGE>
7.04 RELIANCE ON REPORTS. The Administrator, any person delegated
under the provisions hereof to carry out any responsibilities under the Plan,
shall be entitled to rely upon tables, valuations, certificates, and reports
furnished by actuaries designated by the administrator and upon certificates,
reports, and opinions made or given by any accountant, legal counsel or other
expert or other advisor (who may be employed or retained by the Company)
selected or approved by the Administrator; and the Administrator and any
delegate thereof shall not be liable, except to the extent provided by law, for
any action taken, suffered or omitted in good faith or for any such action in
reliance upon any such actuary, accountant, legal counsel or other expert or
advisor.
7.05 RULES AND PROCEDURES. The Administrator may adopt such rules to
govern its Plan administration procedure as it may deem advisable, provided such
rules are not inconsistent with the provisions and purposes of this Plan, and
such actuarial methods and tables as it may deem necessary.
7.06 ADMINISTRATIVE RECORDS. Each party having responsibility for any
Plan administration function under the Plan shall keep such records as shall be
appropriate for the orderly and efficient performance of such functions, and
shall permit any other party having Plan administration responsibility to
examine any of such records which are appropriate to the latter's functions.
7.07 EXCHANGE OF INFORMATION. The Administrator shall furnish the
Company all facts necessary or pertinent to the proper administration of the
Plan, including the names of all Participants and beneficiaries who shall, from
time to time, be entitled to benefits under the Plan, the amounts payable to
each, and the dates of payment.
7.08 ACTIONS BINDING. Any and all rules, interpretations, decisions,
determinations, computations and other such actions of the Administration shall
be binding and conclusive on all interested persons.
7.09 COMPANY RECORDs. The records of the Company shall be conclusive
evidence as to all matters forming the basis for participation in the Plan and
for the calculation of benefits thereunder. The Administrator shall be entitled
to rely upon a certificate of an officer of the Company as to the number of
years of service rendered by any Employee, as to the age of such Employee, as to
his average earnings, as to cause for the termination of his services, and as to
any other information pertinent to the calculation or determination of his
interest under the Plan.
7.10 DUTIES OF PARTICIPANT. The Administrator may require a
Participant to furnish to it such information and instruments or documents as it
may deem necessary in the administration of the Plan. Compliance with such
requirements shall be a condition of a Participant's receipt of benefits.
<PAGE>
7.11 ADMINISTRATOR EXPENSes. The Administrator, and any person
delegated under the provisions hereof to carry out any responsibilities under
the Plan, shall serve without compensation but shall be entitled to
reimbursement from the Company for any reasonable expenses actually and properly
incurred by them in the performance of its duties.
7.12 ADMINISTRATOR INDEMNIFIED. The Company shall indemnify the
Administrator, and any person delegated under the provisions hereof to carry out
any fiduciary or other responsibilities under the Plan, and hold them harmless
from the effects, consequences, expenses, attorneys' fees and damages of their
acts or conduct in their capacity as Administrator members, except to the extent
that such consequences are the result of their own willful misconduct or breach
of good faith. Such indemnification shall be in addition to any other rights
each may have as a matter of law, or by reason of any insurance or other
indemnification.
7.13 LIMITATION OF LIABILITY. No Company Employee, or person acting
under authority of the Company or Administrator, shall be liable personally,
either individually or jointly:
7.13-1 For any debts, obligations, undertakings or benefit
payments authorized by him in performing Plan functions, but the same shall be
paid solely and exclusively by the Company;
7.13-2 For acts or omissions of any other person or entity having
responsibility for administrative functions hereunder, except to the extent he
may be liable for the selection and supervision of such person or entity.
ARTICLE VIII. CLAIMS AND REVIEW PROCEDURE
8.01 CLAIMS FOR BENEFITS AND INQUIRIES. Any Participant or beneficiary
may file a written claim for benefits or inquiry concerning the Plan, or
concerning present or future rights to benefits under the Plan, with the
Administrator. Applications for benefits must be made on the forms prescribed by
the Administrator, signed by the Participant or beneficiary, as applicable, and
submitted to the Administrator.
8.02 DENIAL OF CLAIMS. In the event any claim for benefits is denied,
in whole or in part, the Administrator shall notify the applicant of such denial
in writing and shall advise the applicant of the right to a review thereof.
8.02-1 CONTENT OF NOTICE. Such notice shall be written in a
manner calculated to be understood by the applicant and set forth the following:
(a) The specific reason for denial.
<PAGE>
(b) The specific reference to the Plan provisions upon which the
denial is based.
(c) A description of any additional information which is
necessary to perfect the claim and why this information is necessary.
(d) An explanation of the review procedure described in 8.03
below.
8.02-2 TIMING OF NOTICE. Such written notice shall be given to
the applicant within 90 days after the Administrator receives the application,
unless special circumstances require an extension of time of up to an additional
90 days for processing the application. If such an extension is required,
written notice of the extension shall be furnished to the applicant prior to the
termination of the initial 90-day period. This notice of extension shall
indicate the special circumstances requiring the extension of time and the date
by which the Administrator expects to render its decision on the application for
benefits. If written notice of denial of the application for benefits is not
furnished within the time specified in this paragraph 8.02(b), the application
shall be deemed denied.
8.03 REVIEW OF DENIED CLAIMS. Any applicant whose claim for
benefits is denied (or deemed denied) in whole or in part, or such applicant's
authorized representative, may appeal from such denial by submitting to the
Administrator a written requires for a review of the application within sixty
(60) days after receipt of denial of the notice (or, in the case of a deemed
denial, 60 days after the application is deemed denied). The Administrator shall
give the applicant or such representative an opportunity to review pertinent
documents (other than legally privileged documents) in preparing the request for
review. The request for review shall be in writing and shall be addressed as
follows:
Administrator for the Centennial Bank Deferred Compensation Plan
675 Oak Street, P. O. Box 1560
Eugene, OR 97440
The request for a review shall set forth all grounds on which it is based, all
facts and documents in support of the request and any other matters which the
applicant deems pertinent. The Administrator may require the applicant to submit
such additional facts, documents or other material as it may deem necessary or
appropriate in making its decision on review.
8.04 DECISION ON REVIEW. After receiving the application for review,
the Administrator will review the claim and decide the final disposition of the
claim. The decision of the Administrator shall be binding on all parties.
<PAGE>
8.04-1 TIMING OF REVIEW. The decision should be reached within
sixty (60) days after receipt of the application for review, although special
circumstances may delay the review decision up to one hundred twenty (120) days.
If such an extension is required, written notice of the extension shall be
furnished to the applicant prior to the end of the initial 60-day period.
8.04-2 NOTICE OF DECISION. In the event the Administrator
confirms the denial of the application for benefits in whole or in part, such
notice shall set forth, in a manner calculated to be understood by the
applicant, the specific reasons for such denial and specific references to the
Plan provisions on which the decision is based. In the event that the
Administrator determines that the application for benefits should not have been
denied in whole or in part, the Administrator shall direct the Company to take
appropriate remedial action as soon as reasonably practicable. If written notice
of the Administrator's decision is not given to the applicant within the time
period prescribed in 8.04-1, the application will be deemed denied on review.
8.05 RULES AND PROCEDURES ON REVIEW. The Administration shall
establish such rules and procedures, consistent with the Plan and with ERISA, as
it may deem necessary or appropriate in carrying out its responsibilities in
reviewing a denied claim. The Administrator may require an applicant who wishes
to submit additional information in connection with an appeal to do so at the
applicant's own expense. The Administrator may convene a hearing if it
determines that sufficient cause is shown.
8.06 EXHAUSTION OF REMEDIES. No legal action for benefits under the
Plan shall be brought unless and until the applicant has (i) submitted a written
claim for benefits in accordance with 8.01; (ii) been notified by the
Administrator that the application is denied (or the application is deemed
denied) as provided in 8.02; (iii) filed a written request for a review of the
application in accordance with 8.03; and (iv) been notified in writing that the
Administrator has affirmed the denial of the application (or the application is
deemed denied) on review as provided in 8.04.
ARTICLE IX. AMENDMENT AND TERMINATION OF THE PLAN
9.01 FUTURE OF THE PLAN. The Company expects to continue the Plan
indefinitely. Future conditions, however, cannot be foreseen, and the Company
reserves the right to amend or terminate the Plan at any time.
9.02 COMPANY RIGHT TO AMEND OR TERMINATE THE PLAN. The Company
reserves the right, from time to time, to modify, alter or amend this Plan, as
well as any Trust herein provided for; provided, however, that no such action
shall be taken without the affected participant's consent which will reduce the
benefit payable under the Plan prior to such Plan amendment, nor shall any Plan
amendment reduce the benefit to be paid with respect to a person who is a
Participant on the date of such Plan amendment below the amount which such
Participation would have received if his employment had terminated on the day
before such Plan amendment.
<PAGE>
9.03 COMPANY RIGHT TO TERMINATE THE PLAN. Subject to 9.02, the Company
may terminate this Plan at any time, and the Plan shall in any case be
considered o have terminated if the Company shall go out of existence, unless
prior to such event the Plan shall be adopted and continued by a successor.
9.04 PROCEDURE FOR PLAN AMENDMENT OR TERMINATION. The amendment and
termination powers reserved in this Article IX shall be executed by the Company
pursuant to due authorization as expressed in a written resolution adopted by
its Board of Directors.
9.05 REORGANIZATION. The Company shall not merge or consolidate into
or with another corporation, or reorganize, or sell substantially all of its
assets to another corporation, firm, or person unless and until such succeeding
or continuing corporation, firm, or person agrees to assume and discharge the
obligations of the Company under this Agreement. Upon the occurrence of such
event, the term "Company" as used in this Agreement shall be deemed to refer to
such succeeding or continuing company, firm or person.
ARTICLE X. MISCELLANEOUS
10.01 COMPANY RIGHT TO TERMINATE EMPLOYMENT. Nothing herein contained
shall be construed as giving any Employee of the Company the right to be
retained as an Employee or as impairing the right of the Company to terminate
his service.
10.02 PARTICIPATION IN OTHER PLANS. Nothing herein contained shall be
construed to alter, abridge, or in any manner affect the rights and privileges
of the Participant to participate in and be covered by any pension, profit
sharing, group insurance, bonus or similar employee plans which the Company may
now or hereafter maintain; provided, however, that this Plan shall be the sole
and exclusive means of providing nonqualified deferred compensation and, as set
forth in each Participation Agreement, supersedes and replaces all other
promises or arrangements of the Company for such deferred compensation.
10.03 ALIENABILITY. Neither the Participant nor any Beneficiary under
this Agreement shall have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of
the benefits payable hereunder, nor shall any of said benefits be subject to
seizure for the payment of any debts, judgments, alimony, or separate
maintenance owed by the Employee or his beneficiary or any of them, to be
transferable by operation of law in the event of bankruptcy, insolvency, or
otherwise. In the event the Participant or any beneficiary attempts assignment,
commutation, hypothecation, transfer, or disposal of the benefit hereunder, the
Company's liabilities shall forthwith cease and terminate. Notwithstanding the
foregoing, the Plan will comply with the terms of any "Qualified Domestic
Relations Order" (as that term is defined in the Code and ERISA), but only to
the extent such order meets the requirements of Code ss. 206(d)(3).
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be duly
executed by its President and its Corporate seal affixed at Eugene, Oregon the
day and year first above written.
CENTENNIAL BANCORP
By: /s/ Richard C. Williams
------------------------
Richard C. Williams
(President)
ATTEST
By: /s/Cordy H. Jensen
-------------------
(Secretary)
PARTICIPATION AGREEMENT
FOR THE
CENTENNIAL BANCORP
DEFERRED COMPENSATION PLAN
THIS AGREEMENT, made and entered into this _____ day of ___________, 19____, by
and between CENTENNIAL BANCORP, a Company organized and existing under the laws
of the State of Oregon, hereinafter called the Company, and __________________,
hereinafter called the Employee.
W I T N E S S E T H:
WHEREAS, the Employee has been in the employ of the Company or an Affiliate for
Several years, and is now, and for years past has been serving as an employee,
and,
WHEREAS, it is the consensus of the Company's Board of Directors that (I) the
Employee's services in the past have been of merit and have constituted a
valuable contribution to the general welfare of the Company and its Affiliates
and (ii) continuing and enhanced operating efficiency and profitability can be
expected from Employee on an ongoing basis; and,
WHEREAS, it is the desire of the Company that Employee's services be retained as
herein provided; and,
WHEREAS, it is the desire of the Company that Employee's services be retained as
herein provided; and,
WHEREAS, the Employee is willing to continue tin the employ of the Company or an
Affiliate;
WHEREAS, the Company has established the CENTENNIAL BANK Deferred Compensation
Plan (the "Plan"), an unfunded deferred compensation arrangement to provide
supplemental retirement benefits for a select group of management and highly
compensated employees of the Company and/or its Affiliates;
WHEREAS, in consideration of services performed in the past and to be performed
in the future as well as of the mutual promises and covenants herein contained,
it is the desire of the Company that Employee participate in the Plan;
NOW, THEREFORE, it is agreed as follows:
1. COMPANY DESIGNATION OF ELIGIBILITY. Pursuant to Section 2.01(f) of the
Plan, the Company has designated Employee as an employee eligible to participate
in the Plan effective _________________, 19____ (the "Participation Date").
<PAGE>
2. EMPLOYEE ELECTION TO PARTICIPATE. Employee hereby elects to participate
in the Plan and to receive the benefits provided for under the Plan as described
below. Employee acknowledges that he or she has read and understands the Plan,
including provisions that describe the circumstances under which Employee may
lose the right to participate in the Plan and to receive benefits under the
Plan.
3. SALARY REDUCTION AMOUNT. In accordance with and subject to the
provisions of the Plan, as the same may be amended from time to time, Employee
is eligible and voluntarily elects to reduce his or her 1996 salary as follows:
a. Employee hereby agrees to a reduction in salary by $____________ or
_____% each pay period for services performed subsequent to this Agreement;
b. Employee understands that this Salary Reduction Agreement applies
only to salary earned after this Agreement is in effect and is binding with
respect to salary earned while it is in effect;
c. Employee further; understands that changes in the amount of salary
reduction may be made only prior to the beginning of Employee's taxable year for
which the salary is payable; and
d. Employee further understands that he or she may terminate this
Agreement at any time, with respect to salary not yet earned, by filing a
written notice of termination with the Plan Administrator.
4. BONUS DEFERRAL AMOUNT. In accordance with and subject to the provisions
of the Plan, as the same may be amended from time to time, Employee is eligible
and voluntarily elects to reduce his or her 1996 bonus as follows:
a. Employee hereby agrees to a reduction in bonus by $______________ or
______% for services performed subsequent to this Agreement;
b. Employee understands that this Bonus Deferral applies only to bonus
earned after this Agreement is in effect and is binding with respect to bonus
earned while it is in effect;
c. Employee further understands that changes in the amount of bonus
deferred may be made only prior to the beginning of Employee's taxable year for
which the bonus is payable; and
<PAGE>
d. Employee further understands that he or she may terminate this
Agreement at any time, with respect to bonus not yet earned, by filing a written
notice of termination with the Plan Administrator.
5. DEFERRAL ACCOUNT. Company shall maintain a bookkeeping reserve account
to which Employee's deferrals under the Plan will be credited (Employee's
Deferred Compensation Account) and shall credit investment return accrued
thereon for each Plan Year (as determined by the Company in its sole
discretion). Company is under no obligation to acquire or provide any specific
investments for Employee, and any investments actually made by Company will be
made solely in the name of Company and will remain Company's property.
6. RETIREMENT DATE. For purposes of the Plan, Employee's Retirement Date
shall be the later of the Employee's sixty-fifth (65th) birthday, or fifth (5th)
anniversary of participation in the Plan.
7. BENEFIT DISTRIBUTION. Employee, or Employee's designated beneficiary
shall commence a distribution of benefits under the terms of the Plan upon the
Employee's Retirement Date or earlier Termination of Employment. Employee agrees
that payments of the Employee's Deferred Compensation Account balance shall be
made as follows:
a. [______________] In lump sum; or
b. [______________] Payable for a period of five (5) years on a monthly
basis, for a total of sixty (60) payments, in accordance with and subject to the
terms of the Plan; or
c. [______________] Payable for a period of ten (10) years on a monthly
basis, for a total of one-hundred twenty (120) payments, in accordance with and
subject to the terms of the Plan; or
d. [______________] Payable as an In-Service Distribution (as that term
is defined in Section 4.01-3 of the Plan) commencing on ______________, and paid
in ______________ lump-sum or ______________ annual installments over a period
of ______________ years.
8. ENTIRE BENEFIT. This Agreement, when executed by the Company and
Employee shall create and constitute the Employee's total Deferred Compensation
Benefit. The terms of the Plan, and any amendments thereto, are expressly
incorporated herein and shall form a part hereof as fully as if set forth
herein. The terms of the Plan as incorporated with this Agreement shall
constitute the entire agreement and sole terms of the Plan with respect to
Employee. Any other promises or agreements for deferred compensation, written or
oral, are superseded and replaced by the provisions of this Agreement, and are
no longer effective unless they are contained in this document.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by
its President and its Corporate seal affixed, duly attested by its Secretary,
and the Employee has hereunto set his hand and seal at Eugene, Oregon the day
and year first above written.
CENTENNIAL BANCORP
By:
-------------------------------
(Chief Financial Officer)
ATTEST
By:
-----------------------------
(Secretary)
----------------------------------
(Employee)
DESIGNATION OF BENEFICIARY
Pursuant to the terms of the CENTENNIAL BANCORP Deferred Compensation Plan, I
hereby designate the following beneficiary(ies) to receive any payments which
may be due under such Agreement after my death.
Primary Beneficiary Relationship
------------------------ ----------------------
<PAGE>
Second Beneficiary Relationship
------------------------ ----------------------
Relationship
- ------------------------------------------- ----------------------
The Primary Beneficiary named above shall be the designated Beneficiary referred
to in Article ______________ of the Plan, if he or she is living at the time a
death benefit payment thereunder becomes due and payable, and the Secondary
Beneficiary named above shall be the designated beneficiary referred to in 4.04
of the Plan only if he or she is living at the time a death benefit payment
becomes payable and the Primary Beneficiary is not then living.
This designation hereby revokes any prior designation which may have been in
effect.
Date:
-----------------------------
- ------------------------------------------ ------------------------------
(Witness) (Employee)
Acknowledged By:
------------------------------
(Corporate Officer)
------------------------------
(Title)
CENTENNIAL BANCORP
INCENTIVE STOCK OPTION AGREEMENT
EFFECTIVE DATE: ____________, ____
BETWEEN: Centennial Bancorp, an Oregon corporation (the "Company")
AND: _______________________________ (the "Optionee")
--------------------------------------------------------------
Street Address City State Zip Code
Number of Option Shares: ______________________.
Option Price per Share: $_____________________.
Vesting Schedule: Percentage of Number of Years After
Shares Vested Date of Agreement
------------- ---------------------
_____________ 1
_____________ 2
_____________ 3
_____________ 4
_____________ 5
The Company has adopted a 1995 Stock Incentive Stock Plan, as amended
and restated (the "Plan") that provides for the grant of options meeting the
requirements of ss.422 of the Internal Revenue Code ("IRC") to purchase shares
of the Company's Common Stock with a par value of $2.00 per share ("Stock").
Optionee is now employed by the Company, and the Company desires to afford
Optionee the opportunity to obtain stock ownership in the Company so that
Optionee may have a proprietary interest in the Company's success. The committee
established pursuant to the Plan (the "Committee") has granted to the Optionee
an option to purchase shares of the Stock, upon and subject to the terms and
conditions of the Plan and of this Agreement.
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 number of shares of the
Company's authorized but unissued Stock stated in the caption of this Agreement
at the price per share stated in the caption of this Agreement, 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 qualify as an "incentive stock option" under the tax laws. The Option is
granted upon the following terms and conditions:
<PAGE>
(a) TERM OF OPTION. Subject to reductions in the Option term provided in
subparagraphs (c) and (e) below, the Option shall continue in effect
through the tenth anniversary of the date of this Agreement.
(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 in the amounts specified in the vesting schedule set forth
in the caption of this Agreement. 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. 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, the Option may be exercised by the Optionee 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 Optionee was
entitled to exercise the Option at the date of such termination. 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 applicable period, all
further rights to purchase shares pursuant to the Option shall cease
and terminate at the expiration of such period.
<PAGE>
(d) 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. Upon notification of the amount due and prior to or
concurrently with delivery of the certificate representing the shares,
the Optionee shall pay to the Company any amounts necessary to satisfy
applicable federal, state, and local withholding tax requirements. (e)
Changes in Capital Structure. Except as provided in the final sentence
of this subparagraph ----------------------------- (e), if the
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.
<PAGE>
2. CONDITIONS. The obligations of the Company under this Agreement
shall be subject to the approval of such state or federal authorities or
agencies as may have jurisdiction in the matter. 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.
3. NONTRANSFERABILITY.
(a) RESTRICTION. The Option is not transferable by Optionee other than by
testamentary disposition or the laws of descent and distribution and,
during Optionee's lifetime, may be exercised only by Optionee.
(b) EXERCISE BY LEGAL REPRESENTATIVE OR SUCCESSOR. Whenever the word
"Optionee" is used in any provision of this Agreement under
circumstances when the provision should logically be construed to
apply to the Optionee's guardian, legal representative, executor,
administrator, or the person or persons to whom the Option may be
transferred by testamentary disposition or by the laws of descent and
distribution, the word "Optionee" shall be deemed to include such
person or persons.
4. 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.
5. 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.
6. 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.
<PAGE>
7. 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.
8. 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: Chief Financial Officer
If to Optionee: at Optionee's address stated in the caption
of this Agreement, or such other address as
Optionee, by notice to the Company, may
designate in writing from time to time.
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.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date stated above.
CENTENNIAL BANCORP
By:
----------------------------------------
Richard C. Williams
President and Chief Executive Officer
OPTIONEE
-------------------------------------------
CENTENNIAL BANCORP
NONSTATUTORY STOCK OPTION AGREEMENT
(FOR NONEMPLOYEE DIRECTORS)
(RESTATED 1995 STOCK INCENTIVE PLAN)
EFFECTIVE DATE: ____________, ____
BETWEEN: Centennial Bancorp, an Oregon corporation (the "Company")
AND: _____________________________________ (the "Optionee")
--------------------------------------------------------------
Street Address City State Zip Code
Number of Option Shares: ____________________
Option Price per Share: $___________________
Vesting Schedule: Percentage of Number of Years After
Shares Vested Date of Agreement
------------- ---------------------
33-1/3% 1
33-1/3% 2
33-1/3% 3
The Company has adopted a 1995 Stock Incentive Plan, as amended and
restated (the "Plan"), that provides for the grant of nonstatutory options to
purchase shares of the Company's Common Stock with a par value of $2.00 per
share (the "Stock"). The Optionee now serves as a director of the Company or a
parent or subsidiary corporation of the Company, and the Company desires to
afford the Optionee the opportunity to obtain stock ownership in the Company so
that the Optionee may have a proprietary interest in the Company's success. The
committee established pursuant to the Plan (the "Committee") has granted to the
Optionee an option to purchase shares of Stock, upon and subject to the terms
and conditions of the Plan and of this Agreement.
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 number of shares of the Company's
authorized but unissued Stock stated in the caption of this Agreement at the
price per share stated in the caption of this Agreement, 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 is
a nonstatutory stock option and is not an "incentive stock option," as defined
in Section 422 of the Internal Revenue Code of 1986, as amended. The Option is
granted upon the following terms and conditions:
<PAGE>
(a) TERM OF OPTION. Subject to reductions in the Option term provided in
subparagraphs (c) and (e) below, the Option shall continue in effect
through the tenth anniversary of the date of this Agreement.
(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
in the amounts specified in the vesting schedule set forth in the caption
of this Agreement. If the Optionee does not purchase in any one year the
full number of shares that the Optionee 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 serving as a director, or 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. If the service or employment of the Optionee with the Company or
a parent or subsidiary corporation of the Company terminates for any
reason, the Option may be exercised by the Optionee 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 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 applicable period, all further rights to purchase
shares pursuant to the Option shall cease and terminate at the expiration
of such period.
(d) 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.
Upon notification of the amount due and prior to or concurrently with
delivery of the certificate representing the shares, the Optionee shall pay
to the Company any amounts necessary to satisfy applicable federal, state
and local withholding tax requirements.
<PAGE>
(e) CHANGES IN CAPITAL STRUCTURE. Except as provided in the final sentence of
this subparagraph (e), if the 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, the exercise price
of the Option and all other matters deemed appropriate by the Committee, so
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 or lieu of having the Option
continue unchanged, 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 and upon the expiration of such 30-day period
any unexercised portion of the Option shall immediately terminate.
<PAGE>
2. CONDITIONS. The obligations of the Company under this Agreement shall be
subject to the approval of such state or federal authorities or agencies as may
have jurisdiction in the matter. 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 any transfer of the
Option or 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.
3. PROVISIONS RELATING TO TRANSFERABILITY.
(a) RESTRICTIONS ON TRANSFER. With the consent of the Board, which consent may
be withheld in its sole discretion, all or any portion of the Option may be
assigned or transferred to the Optionee's immediate family (i.e., children,
grandchildren, spouse, parents and siblings), to trusts for the benefit of
the Optionee's immediate family members, and pursuant to qualified domestic
relations orders. No consideration may be paid for any permitted transfer
of the Option and, after any permitted transfer, the Option shall continue
to be subject to the same terms and conditions as were applicable to it
immediately prior to its transfer, except that: (i) subsequent transfers of
the portion of the Option that has been transferred shall be prohibited
except by will or the laws of descent and distribution; (ii) for purposes
of subparagraph 1(c), the term "Optionee" shall refer to the original
Optionee and not the transferee; (iii) the events of termination of
employment specified in subparagraph 1(c) shall continue to be applied with
respect to the original Optionee, following which the Option shall be
exercisable by the transferee only to the extent, and for the period
specified in subparagraph 1(c); (iv) in the event of the Optionee's breach
of any provision of paragraph 2, the penalties specified therein shall
apply to the transferee; and (v) the original Optionee shall remain subject
to withholding taxes upon exercise of the Option by the transferee. Before
permitting any transfer, the Board may require the transferee to agree in
writing to be bound by all other terms and conditions applicable to the
Option prior to its transfer. Except with the consent of the Board, the
Option shall not be transferable otherwise than by will or the laws of
descent and distribution.
<PAGE>
(b) EXERCISE BY LEGAL REPRESENTATIVE OR SUCCESSOR. Whenever the word "Optionee"
is used in any provision of this Agreement under circumstances when the
provision should logically be construed to apply to the Optionee's
guardian, legal representative, executor, administrator, or the person or
persons to whom the Option may be transferred by testamentary disposition
or by the laws of descent and distribution, the word "Optionee" shall be
deemed to include such person or persons.
4. LEGENDS. Certificates representing the shares subject to this Agreement shall
bear such legends as the Committee shall deem appropriate to reflect any
restrictions on transfer imposed by federal or applicable state securities laws.
5. CONTINUING RELATIONSHIP. Nothing in the Plan or in this Agreement shall
confer upon the Optionee any right to continue as a director or 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 service as a director in accordance with applicable law, the
Company's Restated Articles of Incorporation and the Company's Restated Bylaws,
or to terminate the Optionee's employment at any time for any reason, with or
without cause.
6. 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.
7. 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.
8. 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
P.O. Box 1560
675 Oak Street
Eugene, Oregon 97440
Attention: Chief Financial Officer
If to Optionee: at Optionee's address stated in the caption
of this Agreement, or such other address as
Optionee, by notice to the Company, may
designate in writing from time to time.
<PAGE>
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.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first stated above.
CENTENNIAL BANCORP
By:
-----------------------------------------
Richard C. Williams
President and Chief Executive Officer
OPTIONEE
--------------------------------------------
EXHIBIT 11.1
CENTENNIAL BANCORP
COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31,
-------------------------------------
1996 1995 1994
---------- ---------- ----------
Income:
Net income (primary) $6,514,288 $4,551,318 $3,501,579
Add Convertible Debenture
interest expense, net of tax (1) 363,358 430,603 310,830
---------- ---------- ----------
Net income (fully diluted) $6,877,646 $4,981,921 $3,812,409
========== ========== ==========
Weighted average shares outstanding:
Weighted average shares outstanding
(primary) 5,869,720 5,539,709 5,487,700
Weighted average shares issuable upon
conversion of all debentures (1) 832,286 1,030,950 700,482
--------- --------- ---------
Weighted average shares outstanding
(fully diluted) 6,702,006 6,570,659 6,188,182
========= ========= =========
Net income per share:
Primary $ 1.11 $ .82 $ .64
Fully diluted $ 1.03 $ .76 $ .61
- --------------------------
(1) The Convertible Debentures were issued in April 1994 and were called
for redemption in November 1996. Prior to the redemption call date,
holders of $9,163,000 of the Debentures voluntarily converted their
Debentures to Bancorp common stock. A total of $37,000 of the
Debentures were redeemed for cash.
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 1997, and for various stock splits and stock dividends
declared in prior years. Bancorp has never declared or paid cash dividends to
shareholders.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Interest income $ 32,058 $ 25,274 $ 19,474 $ 14,849 $ 13,319
Interest expense 11,368 9,004 5,172 4,102 4,658
-------- -------- -------- -------- --------
Net interest income 20,690 16,270 14,302 10,747 8,661
Loan loss provision 735 350 316 310 256
Net income 6,514 4,551 3,502 2,763 2,005
Total assets 407,186 317,464 257,326 220,760 181,617
Total deposits 339,955 267,880 216,320 192,112 156,119
Short-term borrowings 12,316 11,419 11,840 300 1,700
Long-term debt 10,000 9,200 9,200 6,989 6,354
Shareholders' equity 41,346 26,390 19,205 17,420 14,517
Earnings per common share:
Primary $ 1.11 $ .82 $ .64 $ .51 $ .37
Fully diluted 1.03 .76 .61 .51 .37
</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, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Eugene, Oregon
January 29, 1997
<PAGE>
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and 1995
1996 1995
------------ ------------
ASSETS Cash and cash equivalents:
Cash and due from banks $ 26,827,505 $ 21,991,459
Interest-bearing deposits with banks 11,570,000 6,000,000
Federal funds sold -- 8,730,000
------------ ------------
Total cash and cash equivalents 38,397,505 36,721,459
Securities available-for-sale 82,654,422 72,923,942
Loans held for sale 3,537,996 4,573,095
Loans receivable, net 262,491,991 184,588,820
Federal Home Loan Bank stock 4,365,800 4,040,400
Premises and equipment, net 9,346,825 9,214,564
Other assets 6,391,065 5,401,435
------------ ------------
Total assets $407,185,604 $317,463,715
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand $ 74,350,639 $ 70,578,820
Interest-bearing demand 130,659,749 98,600,873
Savings 13,746,547 13,743,140
Time 121,198,310 84,957,459
------------ ------------
Total deposits 339,955,245 267,880,292
Short-term borrowings 12,315,583 11,419,123
Accrued interest and other liabilities 3,568,917 2,574,240
Long-term debt 10,000,000 9,200,000
------------ ------------
Total liabilities 365,839,745 291,073,655
------------ ------------
Commitments and contingencies (Notes 9 and 10)
Shareholders' Equity:
Preferred stock -- --
Common stock, $2.00 par value;
10,000,000 shares authorized,
6,535,447 and 4,651,130 issued
in 1996 and 1995, respectively 13,070,894 9,302,260
Additional paid-in capital 11,137,171 5,829,404
Retained earnings 17,171,984 10,657,696
Unrealized gains (losses) on securities
available-for-sale, net of related taxes (34,190) 600,700
------------ ------------
Total shareholders' equity 41,345,859 26,390,060
------------ ------------
Total liabilities and shareholders'
equity $407,185,604 $317,463,715
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 1996, 1995
and 1994
1996 1995 1994
------------ ------------ ------------
Interest income:
Loans, including fees $ 26,298,655 $ 20,908,425 $ 16,003,263
Securities:
Taxable 2,894,436 2,403,376 1,926,971
Exempt from Federal income taxes 1,838,858 1,037,272 1,092,525
Dividends on FHLB stock 325,593 255,704 210,771
Deposits with banks 578,948 352,229 109,755
Federal funds sold 121,804 317,162 130,772
------------ ------------ ------------
Total interest income 32,058,294 25,274,168 19,474,057
------------ ------------ ------------
Interest expense:
Deposits:
Savings and interest-bearing
demand 4,440,175 3,352,248 2,333,354
Time 5,207,755 4,145,754 2,106,197
Long-term debt 832,666 644,970 558,738
Short-term borrowings 887,641 861,484 174,131
------------ ------------ ------------
Total interest expense 11,368,237 9,004,456 5,172,420
------------ ------------ ------------
Net interest income 20,690,057 16,269,712 14,301,637
Loan loss provision 735,000 350,000 315,500
------------ ------------ ------------
Net interest income after loan
loss provision 19,955,057 15,919,712 13,986,137
------------ ------------ ------------
Noninterest income:
Service charges 959,333 904,813 848,860
Loan servicing fees 89,444 329,712 520,633
Other 417,678 572,929 814,751
Net gains on sale of loans 623,240 404,027 575,266
Net gains on sale of securities 6,595 65,895 103,167
------------ ------------ ------------
Total noninterest income 2,096,290 2,277,376 2,862,677
------------ ------------ ------------
Noninterest expenses 12,400,159 11,503,970 11,809,835
------------ ------------ ------------
Income before income taxes 9,651,188 6,693,118 5,038,979
Provision for income taxes 3,136,900 2,141,800 1,537,400
------------ ------------ ------------
Net income $ 6,514,288 $ 4,551,318 $ 3,501,579
============ ============ ============
Earnings per share of common stock:
Primary $ 1.11 $ .82 $ .64
============ ============ ============
Fully diluted $ 1.03 $ .76 $ .61
============ ============ ============
Weighted average common shares
outstanding:
Primary 5,869,720 5,539,709 5,487,700
Fully diluted 6,702,006 6,570,659 6,188,182
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
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, 1994 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) -- -- --
Change in unrealized loss,
net of 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) -- -- --
Change in unrealized gain,
net of 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
Effect of stock split (5%) 249,087 498,174 (498,174) -- -- --
Stock options exercised 118,568 237,136 109,261 -- -- 346,397
Tax benefit of stock options
exercised -- -- 229,743 -- -- 229,743
Conversion of convertible
debentures 922,531 1,845,062 6,655,199 -- -- 8,500,261
Effect of stock split (10%) 594,131 1,188,262 (1,188,262) -- -- --
Change in unrealized gain,
net of taxes -- -- -- -- (634,890) (634,890)
Net income -- -- -- 6,514,288 -- 6,514,288
--------- ----------- ----------- ----------- ---------- -----------
Balances, December 31, 1996 6,535,447 $13,070,894 $11,137,171 $17,171,984 $ (34,190) $41,345,859
========= =========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,514,288 $ 4,551,318 $ 3,501,579
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gains on sales of securities
and loans (629,835) (469,922) (771,673)
Stock dividends on FHLB stock (325,400) (255,704) (210,771)
Loan loss provision 735,000 350,000 315,500
Deferred income taxes (310,024) (41,473) 881,509
Depreciation and amortization 1,167,936 978,755 1,000,682
Originations of loans for sale (67,195,180) (30,039,215) (20,664,772)
Proceeds from sale of loans 68,853,519 27,744,875 23,116,819
Changes in assets and liabilities:
Accrued interest receivable (772,870) (709,087) (590,223)
Other assets (557,129) (220,380) 79,700
Other liabilities 1,454,091 1,771,352 (2,866,470)
----------- ----------- -----------
Net cash provided by
operating activities 8,934,396 3,660,519 3,791,880
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale securities:
Maturities 4,968,520 10,405,612 7,268,938
Purchases (22,037,443) (30,410,092) (13,032,648)
Proceeds from sales 6,302,328 6,165,340 6,782,417
Held-to-maturity securities:
Maturities -- -- 1,849,622
Purchases -- -- (6,542,956)
Net increase in loans (78,638,171) (26,502,882) (36,100,972)
Purchases of premises and equipment (1,165,309) (3,387,116) (1,486,405)
Sales of premises and equipment 30,915 49,985 18,600
Sale of Harding Fletcher Co. -- 155,131 --
----------- ----------- -----------
Net cash used in
investing activities (90,539,160) (43,524,022) (41,243,404)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 72,074,953 51,560,492 24,207,857
Net change in short-term borrowings 896,460 (420,485) 11,539,608
Proceeds from long-term debt 10,000,000 -- 9,200,000
Payments on long-term debt (37,000) -- (6,989,261)
Proceeds from exercise of stock options 346,397 86,917 31,353
----------- ----------- -----------
Net cash provided by financing
activities 83,280,810 51,226,924 37,989,557
----------- ----------- -----------
Net increase in cash and
cash equivalents 1,676,046 11,363,421 538,033
Cash and cash equivalents at
beginning of year 36,721,459 25,358,038 24,820,005
----------- ----------- -----------
Cash and cash equivalents at
end of year $38,397,505 $36,721,459 $25,358,038
=========== =========== ===========
<PAGE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Sale of Harding Fletcher Co.:
Cash received at closing $ -- $ 150,000 $ --
Proration of expenses -- 5,131 --
----------- ----------- -----------
$ -- $ 155,131 $ --
=========== =========== ===========
Noncash investing and financing activities:
Conversion of debentures to
common stock $ 9,163,000 $ -- $ --
Net costs attributable to
debentures converted (662,301) -- --
Cash paid in lieu of issuance of
fractional shares (438) -- --
----------- ----------- -----------
$ 8,500,261 $ -- $ --
=========== =========== ===========
Change in net unrealized gains (losses)
on securities available-for-sale,
net of related taxes $ (634,890) $ 2,518,160 $(1,951,235)
Transfer of held-to-maturity
securities to available-for
sale securities -- -- 40,681,546
Cash paid during the year for:
Interest on deposits and
other borrowings 11,316,000 8,708,000 4,975,000
Income taxes 3,413,000 1,565,000 2,412,000
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, prior to August 1995, Harding Fletcher Co. ("Harding Fletcher"). The Bank
provides commercial financing, banking and other services, and Centennial
Mortgage provides residential mortgage brokering services. All significant
intercompany balances and transactions have been eliminated in consolidation.
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 material 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. Bancorp's
required reserve balance at December 31, 1996 was approximately $6,307,000,
which was met by holding approximately $2,063,000 in the form of cash and by
depositing approximately $4,244,000 with the Federal Reserve Bank.
Securities Available For Sale
- -----------------------------
Securities available-for-sale are 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. During 1996 and 1995
Bancorp classified all investment securities as available-for-sale, which are
stated at fair value. Unrealized gains and losses on these securities are
excluded from earnings and are reported as a separate component of shareholders'
equity, net of related taxes.
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 Held For Sale
- -------------------
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.
<PAGE>
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
Loans Receivable
- ----------------
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments when due. When interest
accrual is discontinued, all unpaid accrued interest is reversed. Interest
income on nonaccrual loans is recognized only to the extent cash payments are
received.
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
Federal Home Loan Bank Stock
- ----------------------------
The Bank's investment in Federal Home Loan Bank ("FHLB") stock is carried at par
value, which reasonably approximates its fair value. As a member of the FHLB
system, Bancorp is required to maintain a minimum level of investment in FHLB
stock based on specific percentages of its outstanding mortgages, total assets
or FHLB advances. At December 31, 1996, Bancorp's minimum required investment
was approximately $2,571,500. Bancorp may request redemption at par value of any
stock in excess of the amount Bancorp is required to hold. Stock redemptions are
at the descretion of the FHLB.
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is 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.
Goodwill
- --------
Goodwill is the excess of the cost over fair value of net assets acquired in
business combinations. It is amortized on the straight-line method over 20
years. When factors indicate goodwill should be evaluated for possible
impairment, Bancorp uses an estimate of the related business's undiscounted cash
flow over the remaining life of the goodwill in measuring whether the carrying
amount of goodwill is impaired.
Income Taxes
- ------------
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
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
<PAGE>
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 and
were called for redemption in December 1996. The weighted average number of
common shares outstanding is adjusted retroactively for the effect of stock
splits and stock dividends.
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 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.
SECURITIES AVAILABLE-FOR-SALE. For securities, the fair value is based on quoted
market prices.
LOANS HELD FOR SALE. For loans held for sale, the fair value represents the
anticipated proceeds from sale of the loans.
LOANS RECEIVABLE. 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 is based on quoted market
prices or estimated by discounting the future cash outflows using current rates
at which similar debt would be made available to Bancorp with similar repayment
characteristics.
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.
Financial Accounting Standards Board
- ------------------------------------
Effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, the Financial Accounting
Standards Board adopted Statement of Financial Accounting Standards No. 125
("SFAS No. 125"), Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. Management believes the adoption of this new standard
will not have a material effect on Bancorp's financial statements.
<PAGE>
Reclassifications
- -----------------
Certain amounts for 1995 and 1994 in the consolidated financial statements have
been reclassified to conform with the 1996 presentation. Net income was not
affected by these reclassifications.
<PAGE>
2. Securities Available-for-Sale
-----------------------------
The amortized cost and estimated fair values of securities available-for-sale
were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1996:
U.S. Treasury securities $ 1,399,011 $ 19,068 $ 13,098 $ 1,404,981
U.S. Government agencies 32,841,843 48,510 296,620 32,593,733
States and subdivisions 38,730,588 736,885 332,135 39,135,338
Corporate bonds 2,343,083 -- 93,930 2,249,153
Mortgage-backed securities 7,395,017 759 124,559 7,271,217
----------- ----------- ---------- -----------
Total $82,709,542 $ 805,222 $ 860,342 $82,654,422
=========== =========== ========== ===========
December 31, 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
----------- ----------- ---------- -----------
Total $71,955,062 $ 1,221,332 $ 252,452 $72,923,942
=========== =========== ========== ===========
</TABLE>
The amortized cost and fair value of investments in debt securities at December
31, 1996, 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 $ 1,024,878 $ 1,026,960
Due after 1 through 5 years 10,029,487 10,079,109
Due after 5 through 10 years 44,481,242 44,436,205
Due after 10 years 27,173,935 27,112,148
----------- -----------
Total $82,709,542 $82,654,422
=========== ===========
At December 31, 1996, securities with a market value of approximately $2,508,000
were pledged to collateralize public deposits as required or permitted by law.
In addition, at December 31, 1996, securities with a fair value of approximately
$3,984,000 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:
Proceeds
from Gross Gross Net Gains
Sales of Realized Realized on Sales of
Securities Gains Losses Securities
---------- -------- -------- -----------
1996 $6,302,328 $ 23,100 $(16,505) $ 6,595
1995 6,165,340 78,348 (12,453) 65,895
1994 6,782,417 153,786 (50,619) 103,167
<PAGE>
3. Loans Receivable, Net
---------------------
December 31,
-----------------------------------
1996 1995
------------ ------------
Real estate--mortgage $ 70,126,798 $ 54,631,309
Real estate--construction 66,243,687 44,002,950
Commercial 116,815,814 78,252,968
Installment loans to individuals 6,425,215 5,929,351
Lease financing 3,774,748 4,001,250
Other 2,634,659 310,737
------------ ------------
266,020,921 187,128,565
Allowance for loan losses (2,599,653) (1,928,372)
Less deferred loan fees (929,277) (611,373)
------------ ------------
$262,491,991 $184,588,820
============ ============
An analysis of the changes in the allowance for loan losses follows:
1996 1995 1994
---------- ---------- ----------
Balance at beginning of year $1,928,372 $1,700,130 $1,514,314
Provision for losses 735,000 350,000 315,500
Recoveries 46,060 40,133 17,635
Loans charged off (109,779) (161,891) (147,319)
---------- ---------- ----------
Balance at end of year $2,599,653 $1,928,372 $1,700,130
========== ========== ==========
At December 31, 1996, Bancorp had two loans requiring a specific valuation
allowance in accordance with SFAS No. 114, as amended by SFAS No. 118 (one loan
at December 31, 1995). The specific valuation allowance is $300,000 on loans
with remaining principal outstanding of $1,100,000 at December 31, 1996
($100,000 and $424,000, respectively, at December 31, 1995). Each loan with a
current principal outstanding of less than $100,000 is grouped into one
homogenous pool when considering the valuation allowance. No specific valuation
allowance was deemed necessary for loans in this group.
Loans on nonaccrual status at December 31, 1996 were approximately $1,480,000
($478,000 at December 31, 1995). Interest income which would have been realized
on nonaccrual loans if they had remained current was approximately $117,500,
$74,000 and $77,000 during 1996, 1995 and 1994, respectively. Loans
contractually past due 90 days or more on which Bancorp continued to accrue
interest at December 31, 1996 were approximately $420,000 ($645,000 at December
31, 1995).
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 allowance for loan losses
is adequate to absorb known and inherent risks in the loan portfolio.
<PAGE>
4. Premises and Equipment
----------------------
December 31,
----------------------------------
1996 1995
----------- -----------
Land $ 594,388 $ 569,388
Buildings and improvements 8,142,570 7,876,785
Furniture and equipment 5,124,224 4,328,421
----------- -----------
13,861,181 12,774,594
Less accumulated depreciation
and amortization (4,514,356) (3,560,030)
----------- -----------
Net premises and equipment $ 9,346,825 $ 9,214,564
=========== ===========
<PAGE>
5. Other Assets
------------
December 31,
---------------------------------
1996 1995
---------- ----------
Accrued interest receivable $3,309,363 $2,536,493
Goodwill, net 453,830 539,618
Deferred tax asset, net 607,900 --
Other 2,019,972 2,325,324
---------- ----------
$6,391,065 $5,401,435
========== ==========
<PAGE>
6. Deposits
--------
At December 31, the scheduled maturities of time deposits with a minimum
denomination of $100,000 were as follows:
1996 1995
----------- -----------
Less than 3 months $17,450,681 $ 9,788,292
Over 3 months but less than 1 year 28,220,184 19,448,646
Over 1 year but less than 5 years 3,026,905 1,471,626
More than 5 years 111,371 105,100
----------- -----------
$48,809,141 $30,813,664
=========== ===========
<PAGE>
7. Short-term Borrowings
---------------------
December 31,
---------------------------------
1996 1995
----------- -----------
Advances from FHLB, collateralized by
FHLB stock, funds on deposit with the
FHLB, investments and loans:
Interest at 5.79%, due May 1997 $ 8,000,000 $ --
Interest at 5.87%, due May 1996 -- 8,000,000
Securities sold under agreement
to repurchase 4,315,583 3,419,123
----------- -----------
$12,315,583 $11,419,123
=========== ===========
Bancorp had available a credit facility from the FHLB in the amount of
$39,512,800 at December 31, 1996 ($23,471,500 at December 31, 1995) at
prevailing market interest rates. In addition, Bancorp maintains federal funds
lines with correspondent banks as a backup source of liquidity. At December 31,
1996 and 1995, Bancorp had $16,000,000 of federal funds lines available to draw
against on an uncollateralized basis.
Securities sold under agreement to repurchase are due on demand, but generally
range in duration from one to eighty-nine days. The interest payable on such
borrowings was 5.75% and 4.70% at December 31, 1996 and 1995, respectively.
<PAGE>
8. Long-term Debt
--------------
December 31,
---------------------------------
1996 1995
----------- -----------
Bancorp:
7% Convertible Debentures, semi-annual
interest payments, without collateral, $ -- $ 9,200,000
Bank:
6.14% advance from FHLB, maturing August 6,
1998, monthly interest payments,
collateralized by FHLB stock, funds on
deposit with the FHLB, investments
and loans 10,000,000 --
----------- -----------
$10,000,000 $ 9,200,000
=========== ===========
The Bancorp 7.0% Convertible Debentures were convertible into Bancorp's common
stock at the conversion rate of 101 shares of Bancorp common stock for each
$1,000 principal amount of the debentures (equivalent to a conversion price of
approximately $9.816 per share).
During 1996, Bancorp issued a call for redemption of the Debentures. Holders of
the Debentures voluntarily converted $9,163,000 of the Debentures into 922,531
shares of Bancorp's common stock. The amount of debt converted, net of
unamortized issue costs, was credited to common stock and additional
paid-in-capital. Bancorp redeemed the remaining $37,000 of the Debentures for
cash.
<PAGE>
9. Financial Instruments
---------------------
In the ordinary course of business, Bancorp enters into various 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 includes these commitments in its lending risk evaluations. Bancorp has no
commitments to extend credit at below-market interest rates.
COMMITMENTS TO EXTEND CREDIT AND FINANCIAL GUARANTEES
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.
Financial commitments at December 31 were as follows:
1996 1995
----------- -----------
Commitments to extend credit $84,263,000 $57,543,000
Standby letters of credit 3,111,000 4,016,000
Estimated Fair Value of Financial Instruments:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1996 1995
---------------------------------- --------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 38,397,505 $ 38,398,000 $ 36,721,459 $ 36,722,000
Available-for-sale
securities 82,654,422 82,654,000 72,923,942 72,924,000
Loans held for sale 3,537,996 3,538,000 4,573,095 4,573,000
Loans 265,091,644 266,158,000 186,517,192 186,372,000
Financial liabilities:
Deposits $339,955,245 $340,856,000 $267,880,292 $269,156,000
Short-term borrowings 12,315,583 12,316,000 11,419,123 11,419,000
Long-term debt 10,000,000 10,000,000 9,200,000 10,080,000
Off-balance sheet financial instruments:
Commitments -- -- -- --
</TABLE>
<PAGE>
10. Commitments and Contingencies
-----------------------------
Leases:
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
$292,900, $393,600 and $313,400 in 1996, 1995 and 1994, respectively. Future
minimum lease payments under these noncancelable operating leases as of December
31, 1996 are as follows:
1997 $ 316,300
1998 290,700
1999 211,200
2000 166,900
2001 170,200
Later years 5,796,300
----------
Total minimum lease payments $6,951,600
Legal Matters
Bancorp previously filed suit against former legal counsel for negligence
relating to prior litigation, and is currently negotiating a settlement of the
dispute. Although management believes the outcome will be favorable, claim
contingencies are not recognized as revenue until settled.
In the ordinary course of business, litigation arises 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>
11. Noninterest Expense
-------------------
For the Years Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Salaries and employee benefits $ 7,688,182 $ 6,457,661 $ 6,453,635
Premises and equipment 1,825,632 1,643,309 1,309,452
Data processing 171,691 166,328 212,212
Legal and professional 571,907 550,756 837,757
Insurance 64,840 324,086 519,489
Communications 288,763 295,408 288,070
Advertising 486,313 353,430 352,455
Printing and stationery 315,399 291,111 286,830
Litigation reserve or settlement -- -- 342,052
Write-down of assets to net
realizable value -- 275,000 --
Other 987,432 1,146,881 1,207,883
----------- ----------- -----------
Total noninterest expense $12,400,159 $11,503,970 $11,809,835
=========== =========== ===========
<PAGE>
12. Income Taxes
------------
The provision for income taxes was comprised of the following at December 31:
1996 1995 1994
---------- ---------- -----------
Currently payable:
Federal $2,756,513 $1,963,173 $ 462,091
State 690,411 220,100 193,800
Deferred provision (benefit) (310,024) (41,473) 881,509
---------- ---------- ----------
$3,136,900 $2,141,800 $1,537,400
========== ========== ==========
The effective tax rate of the provision for income taxes varies from the federal
income tax statutory rate for the following reasons:
1996 1995 1994
---------- ---------- ----------
Expected federal income tax
provision at 34% $3,281,407 $2,275,700 $1,713,300
State income tax, net of
federal income tax effect 420,406 291,600 221,000
Interest income on obligations
of states and political
subdivisions exempt from
federal taxation (609,604) (343,400) (379,400)
Other, net 44,691 (82,100) (17,500)
---------- ---------- ----------
$3,136,900 $2,141,800 $1,537,400
========== ========== ==========
The components of the net deferred tax asset and liability at December 31 were
as follows:
1995 1994
---------- ----------
Deferred tax assets:
Nonqualified benefit plans $ 474,628 $ 439,250
Allowance for loan losses 631,826 374,300
Net unrealized losses on securities
available-for-sale 20,930 --
Leases 68,298 --
Other, net 64,878 104,100
---------- ----------
Total deferred tax assets 1,260,560 917,650
Deferred tax liabilities:
FHLB stock 419,758 294,800
Excess tax over book depreciation 60,946 56,800
Purchased companies 31,179 34,100
Deferred loan fees 67,128 208,200
Net unrealized gains on securities
available-for-sale -- 368,180
Other, net 73,649 46,804
---------- ----------
Total deferred tax liabilities 652,660 1,008,884
---------- ----------
Net deferred tax asset (liability) $ 607,900 $ (91,234)
========== ==========
Bancorp's provision for income taxes for 1996, 1995 and 1994 included $2,200,
$21,600 and $39,200, respectively, related to gains on sales of investment
securities.
<PAGE>
13. Transactions with Related Parties
---------------------------------
Activity with respect to loans receivable from directors and their affiliates
and executive officers of Bancorp and subsidiaries was as follows:
1995 1994
---------- -----------
Balance at January 1 $ 4,930,420 $ 5,663,376
Additions or renewals 5,200,304 13,364,339
Amounts collected or renewed (4,059,282) (14,097,295)
----------- -----------
Balance at December 31 $ 6,071,441 $ 4,930,420
=========== ===========
In addition, approximately $1,801,600 of commitments to extend credit to
directors and officers were outstanding at December 31, 1996 ($2,722,000 at
December 31, 1995), and are included as part of commitments in Note 9.
<PAGE>
14. Stock Options
-------------
Bancorp has two Nonemployee Director Stock Option Plans ("Director Plans") -
1988 and 1993, and two Incentive Stock Option Plans ("Incentive Plans") - 1983
and 1993, and a 1995 Stock Incentive Plan ("Option Plan").
Director Plans
- --------------
Under the Director Plans, shares of common stock are reserved for issuance at
their fair market value at the date of grant to nonemployee directors of Bancorp
and its subsidiaries. Options become exercisable based on various plan criteria.
Options expire ten years after the date of grant and are subject to earlier
expiration in the event an optionee ceases to be a director. At December 31,
1996, options covering 112,764 shares were outstanding under the Director Plans,
85,180 being exercisable at December 31, 1996. At December 31, 1996, 150,235
shares were reserved under the Director Plans, including 37,471 shares available
for future grant under the 1993 Director Plan. Options granted to directors have
been under the 1993 Director Plan or the 1995 Option Plan since June 1994 when
the 1988 Director Plan was discontinued.
Incentive Plans
- ---------------
Under the Incentive Plans 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
expiration in the event an optionee ceases to be an employee. Options vest in
accordance with the vesting schedule set at the time the options are granted. At
December 31, 1996, 240,294 options were outstanding and 240,632 shares were
reserved under the 1993 Incentive Plan, including 338 shares available for
future grant. Options covering 169,146 shares outstanding under the 1993
Incentive Plan were exercisable at December 31, 1996. At December 31, 1996, all
options granted under the 1983 Incentive Plan had been exercised or had expired
and no shares were available for future grant.
Option Plan
- -----------
Under the Option Plan, 254,100 shares are reserved for issuance to employees,
directors or consultants as either incentive stock options, nonstatutory stock
options or restricted stock awards with 134,970 shares available for future
grant. 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, 1996,
46,200 of the 119,130 options outstanding under the Option Plan were
exercisable.
<PAGE>
Transactions involving the plans are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------- --------------------------- ---------------------------
Number Option Number Option Number Option
Option Shares: of Shares Price of Shares Price of Shares Price
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1 534,440 $ .52-$ 9.15 527,868 $ .52-$ 6.63 550,156 $ .52-$ 6.45
Granted 74,249 $11.36-$11.53 102,592 $ 7.90-$ 9.15 23,107 $ 7.10-$ 7.55
Expired -- (25,416) --
Exercised (136,501) $ .52-$ 7.45 (70,604) $ .52-$ 6.45 (45,395) $ .52-$ 1.14
-------- --------- --------
Outstanding, December 31 472,188 $ 1.21-$11.82 534,440 $ .52-$ 9.15 527,868 $ .52-$ 6.63
======== ========= ========
</TABLE>
No compensation cost has been recognized for the options issued under the stock
option plans. Bancorp adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." Had compensation cost been determined
based on the fair value of the options at the date of grant consistent with the
provisions of SFAS No. 123, Bancorp's proforma net income and proforma earnings
per share would have been as follows:
1996 1995
---------- ----------
Net income -- as reported $6,514,288 $4,551,318
Net income -- pro forma $6,457,978 $4,551,318
Earnings per share -- as reported $ 1.11 $ .82
Earnings per share -- pro forma $ 1.10 $ .82
The proforma effect on net income for 1996 and 1995 is not representative of the
proforma effect in future years because compensation expense related to grants
made prior to 1995 and which vest in subsequent years is not considered. For
purposes of the above proforma information, the fair value of each option grant
was estimated at the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
1996 1995
------- ------
Risk-free interest rate 6.65% 7.70%
Expected life (in years) 7.25 7.25
Expected volatility 29.35% 29.71%
Expected dividend yield 7.50% 7.50%
<PAGE>
15. Shareholders' Equity
--------------------
Preferred Stock
At December 31, 1996 and 1995, Bancorp had 10,000,000 shares of authorized but
unissued $5.00 par value preferred stock, which is comprised of 5,000,000 shares
each of voting and nonvoting stock.
Stock Splits
On January 14, 1997, the Board of Directors declared a 10% stock split, payable
February 21, 1997, 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, 1997. Par value remained at $2 per share.
The stock split resulted in the issuance of 594,131 additional shares of common
stock from authorized but unissued shares. The issuance of authorized but
unissued shares resulted in the transfer of $1,188,262 from additional paid-in
capital to common stock, representing the par value of the shares issued.
<PAGE>
16. 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 1996, 1995 and 1994, 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 $300,000 for 1996 ($200,000 for
1995 and $150,000 for 1994).
<PAGE>
17. Regulatory Matters
------------------
Dividends:
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, 1996,
$12,381,600 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.
Regulatory Capital:
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 11, 1996, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The Bank's capital amounts and ratios are presented in the table below:
To Be Well
Capitalized
For Under Prompt
Capital Corrective
Adequacy Action
Actual Purposes Provisions
Amount Ratio Ratio Ratio
------ ------ -------- ------------
As of December 31, 1996:
Total Capital
(to Risk-Weighted Assets) $43,444,600 13.2% 8.0% 10.0%
Tier I Capital
(to Risk-Weighted Assets) $40,844,900 12.4% 4.0% 6.0%
Tier I Capital
(to Average Assets) $40,844,900 10.2% 4.0% 5.0%
<PAGE>
18. Parent Company Financial Information
------------------------------------
Condensed financial information for Centennial Bancorp (Parent Company only) is
presented below:
Condensed Balance Sheets (Unconsolidated)
December 31, 1996 1995
----------- -----------
Assets
- ------
Cash, deposited with the Bank $ 3,795,814 $ 4,220,201
Equipment, net 59,652 75,231
Deferred tax asset 422,181 274,292
Other assets 1,443,343 2,181,420
Investment in subsidiaries at cost plus
equity in earnings 36,881,427 30,203,182
----------- -----------
Total assets $42,602,417 $36,954,326
=========== ===========
Liabilities and Shareholders' Equity
Liabilities:
Accrued interest and other liabilities $ 1,256,558 $ 1,364,266
Long-term debt -- 9,200,000
----------- -----------
Total liabilities 1,256,558 10,564,266
Shareholders' equity 41,345,859 26,390,060
----------- -----------
Total liabilities and shareholders' equity $42,602,417 $36,954,326
=========== ===========
Condensed Statements of Income (Unconsolidated)
Years ended December 31, 1996 1995 1994
----------- ----------- -----------
Cash dividends from the Bank $ -- $ -- $ 120,000
Other income 3,829 385,809 14,286
Gain on sale of investments -- 44,272 38,665
Other interest income from
the subsidiaries 232,648 543,259 181,736
---------- ---------- ----------
236,477 973,340 354,687
---------- ---------- ----------
Expense:
Salaries and employee benefits 459,420 1,078,378 502,108
Interest expense 586,059 694,643 520,660
Other 298,995 631,105 345,269
---------- ---------- ----------
1,344,474 2,404,126 1,368,037
---------- ---------- ----------
Loss before income tax benefit and
equity in undistributed earnings
of subsidiaries (1,107,997) (1,430,786) (1,013,350)
Income tax benefit 393,954 542,605 267,224
---------- ---------- ----------
Loss before equity in undistributed
earnings of subsidiaries (714,043) (888,181) (746,126)
Equity in undistributed earnings
of subsidiaries 7,228,331 5,439,499 4,247,705
---------- ---------- ----------
Net income $6,514,288 $4,551,318 $3,501,579
========== ========== ==========
<PAGE>
Condensed Statements of Cash Flows (Unconsolidated)
Increase (Decrease) in Cash
Years ended December 31, 1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,514,288 $ 4,551,318 $ 3,501,579
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH USED BY
OPERATING ACTIVITIES:
Gain on sale of securities -- (44,272) (38,665)
Depreciation and amortization 99,168 99,168 99,646
Undistributed earnings
of subsidiaries (7,228,331) (5,439,499) (4,247,705)
Deferred tax benefit (147,889) (51,636) (78,956)
Changes in assets and liabilities:
Decrease (increase) in other assets 126,869 (387,457) (1,118,760)
Increase (decrease) in accrued
interest and other liabilities (107,708) 412,261 (52,655)
----------- ----------- -----------
Net cash used in
operating activities (743,603) (860,117) (1,935,516)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities -- 498,377 425,160
Proceeds from sale of Harding Fletcher -- 155,131 --
Proceeds from sale of assets 9,819 -- --
Payments made from (to)
subsidiaries, net -- 398,676 (2,991,358)
----------- ----------- -----------
Net cash provided by (used in)
investing activities 9,819 1,052,184 (2,566,198)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- -- 9,200,000
Payments on long-term debt (37,000) -- (959,375)
Proceeds from exercise of
stock options 346,397 86,917 31,353
----------- ----------- -----------
Net cash provided by
financing activities 309,397 86,917 8,271,978
----------- ----------- -----------
Net increase (decrease) in cash (424,387) 278,984 3,770,264
Cash at beginning of year 4,220,201 3,941,217 170,953
----------- ----------- -----------
Cash at end of year $ 3,795,814 $ 4,220,201 $ 3,941,217
=========== =========== ===========
Noncash investing activity:
Conversion of debentures to
common stock $ 9,163,000 $ -- $ --
Net costs attributable to
debentures converted (662,301) -- --
Cash paid in lieu of issuance of
fractional shares (438) -- --
----------- ----------- -----------
$ 8,500,261 $ -- $ --
=========== =========== ===========
Change in net unrealized holding
gain (loss) on securities
available-for-sale:
Bancorp $ -- $ 3,770 $ 2,340
The Bank (634,890) 2,514,390 (1,953,575)
For purposes of reporting cash flows, cash represents amounts due from banks.
Bancorp paid approximately $641,500, $652,900 and $358,200 in interest on
borrowings in 1996, 1995 and 1994, respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS ANNUAL 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 ANNUAL REPORT, THE WORDS "ANTICIPATE,"
"BELIEVE" AND "EXPECT," AND WORDS OR PHRASES OF SIMILAR IMPORT, ARE INTENDED TO
INDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE 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 ANNUAL REPORT ON 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.
HIGHLIGHTS
Centennial Bancorp reported net income of $6.5 million, or $1.11 per share,
in the year ended December 31, 1996. This represented a 43.1% increase in net
income, as compared to $4.6 million, or $.82 per share, in 1995. Net income in
1995 represented a 30.0% increase from 1994's net income of $3.5 million, or
$.64 per share. The return on average assets was 1.82% in 1996 compared to 1.62%
in 1995 and 1.53% in 1994. The increased earnings for 1996 and 1995 primarily
reflected increased net interest income due to the expansion of Bancorp's
interest-earning assets each year.
At December 31, 1996, total assets increased $89.7 million to $407.2
million. This increase represented a 28.3% increase over total assets at
December 31, 1995. Earning assets at December 31, 1996 represented 90.2% of
total assets, which represented an increase over December 31, 1995 when earning
assets were 89.1% of total assets.
In November 1996, Bancorp called for redemption its 7.0% Convertible
Debentures. Bancorp originally issued $9.2 million of the 7.0% Convertible
Debentures in April 1994. Prior to the redemption call date, holders of
$9,163,000 of the 7.0% Convertible Debentures voluntarily converted their
debentures to Bancorp common stock. A total of $37,000 of the 7.0% Convertible
Debentures were redeemed for cash. Elimination of the 7.0% Convertible
Debentures will reduce interest expense approximately $580,000 in 1997 and
subsequent years.
Subsequent to December 31, 1996, the Bank announced the receipt of
regulatory approvals for two additional branches in the Portland metropolitan
area. A branch office opened in January 1997 in the Lloyd Center District in a
leased facility. The Bank is in the process of finalizing the purchase of
property for a branch in the Tanasbourne area of Hillsboro. The Bank intends to
house that branch in a temporary office at the property site during construction
of the permanent facility. Mortgage Co. expects to open a residential mortgage
origination office in the Bank's Lloyd Center District branch, and is reviewing
other sites in the Portland area.
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 1996, 1995 and 1994, Bancorp's
average interest-earning assets were $323 million, $252 million and $205
million, respectively. During these same years, Bancorp's net interest margin
was 6.70%, 6.66% and 7.24%, respectively.
<PAGE>
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID
The following table sets forth for 1996, 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.
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
-------------------------------- -------------------------------- ---------------------------------
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
---------- --------- -------- ---------- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS: (Dollars in thousands)
Interest-bearing deposits
with banks $ 10,872 $ 579 5.33% $ 5,971 $ 352 5.90% $ 2,498 $ 110 4.40%
Investment securities
-- taxable 43,928 2,894 6.59 40,116 2,403 5.99 36,632 1,927 5.26
Investment securities
-- tax-exempt(2) 39,037 3,112 7.97 24,159 1,827 7.56 23,040 1,866 8.10
Federal funds sold 2,265 122 5.39 5,618 317 5.64 3,349 131 3.91
Loans and loans held for
sale(3) 226,965 26,299 11.59 176,384 20,909 11.85 139,672 16,003 11.46
-------- ------- --------- ------- -------- -------
Total interest-earning
assets/interest income 323,067 33,006 10.22 252,248 25,808 10.23 205,191 20,037 9.77
Reserve for loan losses (2,237) (1,824) (1,652)
Cash and due from banks 20,274 16,975 14,562
Premises and equipment, net 9,339 8,477 5,981
Other assets 7,201 5,876 5,193
-------- -------- --------
Total assets $357,644 $281,752 $229,275
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Savings and interest-bearing
demand deposits $128,611 4,440 3.45 $107,983 3,352 3.10 $101,256 2,333 2.30
Time deposits 100,549 5,208 5.18 71,912 4,146 5.77 47,258 2,106 4.46
Short-term borrowings 11,399 833 7.31 13,823 861 6.23 4,259 174 4.09
Long-term debt 16,443 887 5.39 9,200 645 7.01 7,410 559 7.54
-------- ------- -------- ------ -------- -------
Total interest-bearing
liabilities/interest
expense 257,002 11,368 4.42 202,918 9,004 4.44 160,183 5,172 3.23
Demand deposits 66,525 53,399 47,406
Other liabilities 2,617 2,133 2,984
-------- -------- --------
Total liabilities 326,144 258,450 210,573
Shareholders' equity 31,500 23,302 18,702
-------- -------- --------
Total liabilities and
shareholders' equity $357,644 $281,752 $229,275
======== ------- ======== ------- ========
Net interest income(2) $21,638 $16,804 $14,865
======= ======= =======
Net interest spread(2) 5.80% 5.79% 6.54%
===== ===== =====
Net interest margin(2) 6.70% 6.66% 7.24%
Average interest-earning
assets to average interest-
bearing liabilities 126% 124% 128%
<FN>
(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 ($994,600 in 1996 and $631,100 in 1995) 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
$3,745,900 in 1996 and $2,541,800 in 1995.
</FN>
</TABLE>
<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>
1996 vs. 1995 1995 vs. 1994
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 $ 275 $ (48) $ 227 $ 179 $ 63 $ 242
Investment securities - taxable 240 251 491 196 280 476
Investment securities - tax-exempt 1,156 129 1,285 88 (127) (39)
Federal funds sold (185) (10) (195) 108 78 186
Loans and loans held for sale 5,928 (538) 5,390 4,279 627 4,906
------ ------ ------ ------ ------ ------
Total interest income 7,414 (216) 7,198 4,850 921 5,771
------ ------ ------ ------ ------ ------
Interest expense:
Deposits:
Savings and interest-bearing
demand 676 412 1,088 182 837 1,019
Time 1,567 (505) 1,062 1,260 780 2,040
Short-term borrowings (164) 136 (28) 493 194 687
Long-term debt 449 (207) 242 130 (44) 86
------ ------ ------ ------ ------ ------
Total interest expense 2,528 (164) 2,364 2,065 1,767 3,832
------ ------ ------ ------ ------ ------
Net interest income $4,886 $ (52) $4,834 $2,785 $ (846) $1,939
====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NET INTEREST INCOME
Bancorp's net interest income increased to $21.6 million, on a
tax-equivalent basis, in 1996 as compared to $16.8 million in 1995 and $14.9
million in 1994. During 1996, average interest-earning assets increased to $323
million as compared to average interest-earning assets of $252 million in 1995
and $205 million in 1994. At the same time, average interest-bearing liabilities
increased to $257 million in 1996 from $203 million in 1995 and $160 million in
1994.
Because the increases in average interest-earning assets were greater than
the increases in average interest-bearing liabilities in 1996 and 1995, Bancorp
recognized an increase in net interest income.
The average yield earned on interest-earning assets decreased by .01% (1
basis point) in 1996, while the average rate paid on interest-bearing
liabilities decreased by .02% (2 basis points). Because the decrease in the
average yield earned on interest-earning assets was less than the decrease in
the average rate paid on interest-bearing liabilities, Bancorp experienced an
increase in net interest margin in 1996 as compared to 1995. The increase in net
interest margin in 1996 served to increase Bancorp's net interest income.
During 1996 and 1995, Bancorp increased its interest-bearing deposits and
long-term debt 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 certain deposits. The increase in long-term debt
occurred when the Bank borrowed $10 million from the Federal Home Loan Bank of
Seattle. The increase in long-term debt was offset in part when Bancorp called
its Convertible Debt for redemption.
During 1996, Bancorp experienced a relatively stable interest rate
environment with rates declining modestly from the rates experienced during
1995. 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 (65% and 58% of
outstanding loans at December 31, 1996 and 1995, respectively). This 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 the negative effects of a falling
interest rate market.
<PAGE>
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
1996, Bancorp charged a $735,000 loan loss provision to income, as compared to
$350,000 in 1995 and $316,000 in 1994. In 1996, loan charge-offs, net of
recoveries were $64,000, as compared to loan charge-offs, net of recoveries of
$122,000 in 1995 and $130,000 in 1994.
Bancorp's reserve for loan losses was $2.6 million at December 31, 1996, as
compared to $1.9 million at December 31, 1995 and $1.7 million at December 31,
1994. The ratio of the reserve for loan losses to total nonperforming loans was
137%, 172% and 192% at December 31, 1996, 1995 and 1994, respectively.
Management attributes the relatively low levels of loans charged off, net
of recoveries, during 1996, 1995 and 1994 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 $181,000 to $2.1 million in 1996 as compared
to 1995, and decreased $585,000 in 1995 as compared to 1994. The decrease in
noninterest income in 1996 was primarily attributable to decreases in loan
servicing fees, other noninterest income and gains recognized on sales of
investment securities, which were offset in part by an increase in gains
recognized on sales of residential mortgage loans. The decrease in 1995 was
primarily attributable to a decrease in activities of and the sale of Harding
Fletcher in August 1995, but was also attributable to a decrease in gains
recognized on sales of residential mortgage loans originated by Centennial
Mortgage.
<PAGE>
In August 1995, Bancorp sold the principal assets of Harding Fletcher,
which eliminated during 1996 the loan servicing fees generated by Harding
Fletcher. During 1996, Bancorp received Federal National Mortgage Association
and Federal Home Loan Mortgage Corporation approval to service residential
mortgage loans. During the third quarter of 1996, Bancorp began retaining the
servicing rights on residential mortgage loans originated by Mortgage Co. which
are sold to third-party investors. Bancorp anticipates an increase in loan
servicing fees in 1997 and subsequent years as it continues to originate
residential mortgage loans and retain the servicing rights. However, Bancorp
anticipates that this will offset in part the reduced gains Mortgage Co. is able
to recognize on sales of the residential mortgage loans due to the lower value
of such loans when sold with servicing rights retained.
Bancorp experienced a decrease of $240,000 in loan servicing fees in 1996
as compared to 1995, and a decrease of $191,000 in loan servicing fees in 1995
as compared to 1994. Loan servicing fees were primarily collected through
Harding Fletcher, which was sold in August 1995. 1994 represented the only full
year of Bancorp's ownership of Harding Fletcher.
Bancorp experienced an increase of $219,000 in gains on sales of loans in
1996 as compared to 1995, but experienced a decrease of $171,000 in gains on
sales of loans in 1995 as compared to 1994. The increase experienced in 1996 was
primarily due to an increase in residential mortgage loans originated through
Mortgage Co., while the decrease in 1995 was primarily due to a decrease in
residential mortgage refinance lending activity, and competitive factors which
increasingly limited the gain Bancorp was able to recognize on the sale of loans
to third-party investors.
Bancorp experienced decreases of $160,000 in other noninterest income in
1996 as compared to 1995 and $223,000 in 1995 as compared to 1994. The largest
components of the decrease in 1996 were the non-recurrence of a $40,000 gain
recognized on the sale of a Bank department in 1995 and the $64,000 gain
recognized on the sale of Harding Fletcher in 1995. The decrease in other
noninterest income in 1995 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. The former head office
building was sold in September 1994 for a gain of $93,000. Other noninterest
income also decreased in 1995 due to a decrease in insurance sales commissions
received.
NONINTEREST EXPENSE
Noninterest expense increased $896,000 to $12.4 million in 1996 as compared
to 1995. This increase was primiarly attributable to increases in salaries and
employee benefits, premises and equipment and advertising, which were offset in
part by decreases in insurance expenses and other noninterest expenses.
<PAGE>
Noninterest expense decreased $307,000 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.
Salaries and employee benefits increased $1.2 million to $7.7 million in
1996 as compared to 1995. This increase was primarily due to additions to staff
to accommodate Bancorp's increased operations. Salaries and employee benefits
remained relatively constant in 1995 as compared to 1994.
Premises and equipment expense increased to $1.8 million in 1996 as
compared to $1.6 million in 1995 and $1.3 million in 1994. The increases in 1996
and 1995 were primarily due to the additional expenses incurred in the Bank's
occupancy of the Pacific Corporate Center Office permanent facility in Tigard,
Oregon.
Data processing expense was $172,000 in 1996, $166,000 in 1995, and
$212,000 in 1994. The increased expense in 1994 was primarily due to data
processing equipment and software upgrade expenses incurred to accommodate
Centennial Bank's Tigard branch location 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 decreases in 1996 and
1995 resulted from efficiencies of operations after the merger as compared to
operating the banks separately.
Legal and professional fees increased by $21,000 in 1996 as compared to
1995. 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.
Insurance expenses decreased $259,000 to $65,000 in 1996 as compared to
$324,000 in 1995 and $520,000 in 1994. This decrease was due to an assessment
rate reductions on Federal Deposit Insurance coverage.
Advertising expenses increased $133,000 to $486,000 in 1996 as compared to
$353,000 in 1995 and $352,000 in 1994. The 1996 increase was due to an increase
in Bancorp's advertising budget, primarily to promote its expanding presence in
the Portland-area market.
Other noninterest expense decreased $434,000 to $987,000 in 1996 as
compared to $1.4 million in 1995. This decrease was due to an insurance recovery
during 1996. Other noninterest expense remained relatively constant in 1995 as
compared to 1994.
<PAGE>
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 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.
<PAGE>
The following table sets forth the dollar amount of maturing
interest-earning assets and interest-bearing liabilities at December 31, 1996,
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. Such factors 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.
<TABLE>
<CAPTION>
December 31, 1996
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 $ 6,586 $ 12,626 $38,809 $ 36,984 $ 95,005
Variable-rate loans 156,802 4,787 8,469 3,567 173,625
Investment securities -- 1,129 10,294 71,231 82,654
Federal Home Loan Bank stock 4,366 -- -- -- 4,366
Other interest-earning assets 11,570 -- -- -- 11,570
-------- -------- ------- -------- --------
Total interest-earning assets 179,324 18,542 57,572 111,782 367,220
Cash and due from banks 26,828
Other noninterest-earning assets 13,138
Total assets $407,186
Interest-bearing liabilities:
Savings and interest-bearing
demand deposits 144,406 -- -- -- $144,406
Certificates of deposit of
$100,000 or more 17,451 28,220 3,027 111 48,809
Other time accounts 12,814 53,258 6,317 -- 72,389
Short-term borrowings 4,316 8,000 -- -- 12,316
Long-term debt -- -- 10,000 -- 10,000
-------- -------- ------- ------- --------
Total interest-bearing liabilities 178,987 89,478 19,344 111 287,920
Other noninterest-bearing liabilities 77,920
Shareholders' equity 41,346
Total liabilities and shareholders'
equity $407,186
Interest rate GAP $ 337 $(70,936) $ 38,228 $111,671
======== ======== ======== ========
Cumulative interest rate GAP $ 337 $(70,599) $(32,371) $ 79,300
======== ======== ======== ========
GAP ratio (GAP/total assets) .08% (17.42)% 9.39% 27.43%
Cumulative GAP ratio .08% (17.34)% (7.95)% 19.48%
</TABLE>
The following table presents the aggregate maturities of loans in each major
category of Bancorp's loan portfolio at December 31, 1996. Actual maturities may
differ from the contractual maturities shown below as a result of renewals and
prepayments.
Due
-----------------------------------
After one Total
Within but within After loans by
Loan category one year five years five years category
-------- ---------- ---------- --------
(Dollars in thousands)
Commercial $ 85,115 $22,367 $ 9,334 $116,816
Real estate -- mortgage 30,713 13,512 25,902 70,127
Real estate -- construction 58,516 5,982 1,746 66,244
Installment 4,778 1,584 63 6,425
Loans held for sale -- -- 3,538 3,538
Lease financing 113 3,662 -- 3,775
Other 1,950 582 102 2,634
Less deferred loan fees (384) (411) (134) (929)
-------- ------- ------- --------
Total loans by maturity $180,801 $47,278 $40,551 $268,630
======== ======= ======= ========
Of Bancorp's $87.8 million of loans that mature after one year, a total of
$75.8 million (86.3%) are fixed-rate loans, and a total of $12.0 million (13.7%)
are variable-rate loans.
At December 31, 1996, $95.0 million (approximately 35.4% of Bancorp's loan
portfolio) had fixed interest rates and $173.6 million (approximately 64.6%) had
variable interest rates.
<PAGE>
PROVISION FOR INCOME TAXES
Bancorp's provision for income taxes was $3.1 million in 1996, $2.1 million
in 1995 and $1.5 million in 1994. Bancorp's effective tax rates for financial
reporting were 32.5% in 1996, 32.0% in 1995 and 30.5% in 1994. The effective tax
rate varies from the federal statutory rate of 34% primarily because of
nontaxable interest income and state income taxes. See Note 12 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 $340 million at December 31, 1996 from
$268 million at December 31, 1995 and $216 million at December 31, 1994,
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 $266 million at December
31, 1996 from $189 million at December 31, 1995 and $160 million at December 31,
1994. 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, 1996 and 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 those dates.
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, 1996, the Bank had $39.5 million of credit available from the FHLB
($23.5 million at December 31, 1995). 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 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.
<PAGE>
CAPITAL RESOURCES
Total shareholders' equity increased to $41.3 million at December 31, 1996
from $26.4 million at December 31, 1995 and $19.2 million at December 31, 1994.
Total shareholders' equity was increased during 1996 not only by net income, but
also by the effects of stock options exercised ($576,100) and the conversion of
Convertible Debentures ($8.5 million). Shareholders' equity (Tier I Capital) was
10.2% of average assets in 1996 as compared to 8.3% in 1995 and 8.2% in 1994.
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.
<PAGE>
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, 1996:
First quarter $11.04 $ 9.96
Second quarter 12.99 10.39
Third quarter 11.82 11.26
Fourth quarter 14.55 12.05
Year ended December 31, 1995:
First quarter $ 8.43 $ 6.30
Second quarter 7.68 7.13
Third quarter 8.46 7.13
Fourth quarter 11.02 7.67
At February 28, 1997, Bancorp had 6,553,013 shares of Common Stock
outstanding held by 1,206 shareholders of record.
Bancorp has never declared or paid cash dividends to shareholders and has
no intention to do so in the forseeable future.
<PAGE>
QUARTERLY FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
1996
- --------------------
Interest income $7,079 $7,628 $8,361 $8,990 $32,058
Interest expense 2,456 2,646 3,014 3,252 11,368
------ ------ ------ ------ -------
Net interest income 4,623 4,982 5,347 5,738 20,690
Loan loss provision 150 135 300 150 735
Income before income
taxes 2,153 2,320 2,459 2,719 9,651
Net income 1,453 1,566 1,660 1,835 6,514
Earnings per share:
Primary $ .26 $ .27 $ .28 $ .30 $ 1.11
Fully diluted $ .24 $ .25 $ .26 $ .28 $ 1.03
1995
- --------------------
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 $ .17 $ .19 $ .23 $ .23 $ .82
Fully diluted $ .16 $ .17 $ .21 $ .22 $ .76
</TABLE>
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 Ownership Plan on Form S-8 of
our report dated January 29, 1997, on our audits of the consolidated financial
statements of Centennial Bancorp and subsidiaries as of December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996,
which report is incorporated by reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Eugene, Oregon
March 21, 1997
<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, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 26,827,505
<INT-BEARING-DEPOSITS> 11,570,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,654,422
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 265,091,644
<ALLOWANCE> (2,599,653)
<TOTAL-ASSETS> 407,185,604
<DEPOSITS> 339,955,245
<SHORT-TERM> 12,315,583
<LIABILITIES-OTHER> 3,568,917
<LONG-TERM> 10,000,000
0
0
<COMMON> 13,070,894
<OTHER-SE> 28,274,965
<TOTAL-LIABILITIES-AND-EQUITY> 407,185,604
<INTEREST-LOAN> 26,298,655
<INTEREST-INVEST> 5,058,887
<INTEREST-OTHER> 700,752
<INTEREST-TOTAL> 32,058,294
<INTEREST-DEPOSIT> 9,647,930
<INTEREST-EXPENSE> 11,368,237
<INTEREST-INCOME-NET> 20,690,057
<LOAN-LOSSES> 735,000
<SECURITIES-GAINS> 6,595
<EXPENSE-OTHER> 12,400,159
<INCOME-PRETAX> 9,651,188
<INCOME-PRE-EXTRAORDINARY> 6,514,288
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,514,288
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 0
<LOANS-NON> 1,480,000
<LOANS-PAST> 420,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,928,372
<CHARGE-OFFS> 109,779
<RECOVERIES> 46,060
<ALLOWANCE-CLOSE> 2,599,653
<ALLOWANCE-DOMESTIC> 2,599,653
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 99.1
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
UNDER PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS
Centennial Bancorp ("Bancorp") and its representatives may make
forward-looking statements (as such term is defined in the Private Securities
Litigation Reform Act) from time-to-time. Bancorp wants to invoke to the fullest
extent possible the protection of the Private Securities Litigation Reform act
and the judicially created "bespeaks caution" doctrine with respect to such
statements. Accordingly, Bancorp is filing this Exhibit 99.1, which lists
certain factors that may cause actual results to differ materially from those in
such forward-looking statements.
This list is not necessarily exhaustive. Bancorp and its subsidiaries,
Centennial Bank and Centennial Mortgage Co., operate in a rapidly changing
environment, and new risk factors emerge periodically. There can be no assurance
that this Exhibit lists all material risks to Bancorp at any specific point in
time.
Readers are cautioned not to rely on any such forward-looking
statements in making investment decisions. Bancorp does not intend to update its
forward-looking statements.
IMPACT OF INTEREST RATES AND ECONOMIC CONDITIONS
The results of operations for financial institutions, including
Bancorp and its subsidiaries, may be materially and adversely affected by
changes in prevailing economic conditions, including declines in real estate
market values, rapid changes in interest rates or changes in the monetary and
fiscal policies of the federal government. Accordingly, there can be no
assurance that Bancorp's positive financial trends will continue or that
negative trends or developments will not have a material adverse effect on
Bancorp's results of operations. Most of the loans originated by Centennial Bank
are made to borrowers within the Eugene/Springfield and Portland, Oregon areas.
Consequently, adverse changes in economic conditions in those market areas could
impair Bancorp's ability to collect loans and could otherwise have a negative
effect on Bancorp's financial condition.
UNCERTAIN ABILITY TO MANAGE GROWTH
Bancorp intends to continue to pursue an aggressive growth strategy
focused primarily upon Bancorp's ability to develop new account relationships,
to establish new Centennial Bank branches in Oregon, particularly outside the
Eugene/Springfield area, to make acquisitions, and to generate loans and
deposits at acceptable risk levels and on acceptable terms.
<PAGE>
Bancorp's growth strategy requires, among other things, expanded
operational systems, the implementation of new control procedures, and success
in hiring and retaining skilled employees. Bancorp believes that its capital,
borrowings, and expected earnings will be sufficient to support its operations
and anticipated expansion and to meet all regulatory requirements for the
foreseeable future.
There can be no assurance that Bancorp will be successful in
implementing, or will have the necessary regulatory capital to implement, its
growth strategy.
COMPOSITION OF LOAN PORTFOLIO
At December 31, 1996, commercial loans (not collateralized by real
estate), real estate loans (including commercial loans collateralized by real
estate) and construction loans represented approximately 44%, 28% and 25%,
respectively, of Bancorp's total loan portfolio. Commercial loans that are not
collateralized by real estate generally are considered to involve a higher
degree of risk than loans collateralized by real estate, primarily because the
collateral may be difficult to obtain or liquidate. Construction lending is
subject to substantial risks, such as construction delays, cost overruns,
insufficient collateral and an inability to obtain permanent financing in a
timely manner.
RESERVE FOR LOAN LOSSES
Bancorp's reserve for loan losses is maintained at a level considered
adequate by management to absorb anticipated losses. The amount of future
losses, however, may be affected by changes in economic, operating and other
conditions, including changes in interest rates, that may be beyond Bancorp's
control, and future losses may exceed current estimates. At December 31, 1996,
Bancorp had total nonperforming loans of $1.9 million. At the same date,
Bancorp's reserve for loan losses was $2.6 million, or .91% of total loans and
137% of total nonperforming loans. There can be no assurance that Bancorp's
reserve will be adequate to cover actual losses.
POTENTIAL LIABILITY FOR UNDERCAPITALIZED BANK SUBSIDIARY
Under federal law, a bank holding company may be required to guarantee
a capital plan filed by an undercapitalized bank subsidiary with its primary
regulator. If the bank defaults under the plan, the holding company may be
required to contribute to the capital of the bank an amount equal to the lesser
of 5% of the bank's assets at the time it became undercapitalized or the amount
necessary to bring the bank into compliance with applicable standards. Under
Oregon law, the Director of the Department of Consumer and Business Services has
the authority to require the shareholders of an Oregon state-chartered bank to
contribute additional capital to the bank if its capital becomes impaired.
Bancorp is the sole shareholder of Centennial Bank.
<PAGE>
COMPETITIVE BANKING ENVIRONMENT
The banking and mortgage lending businesses in Oregon are highly
competitive. Bancorp competes for loans and deposits with other commercial
banks, savings banks, savings and loan associations, finance companies, money
market funds, brokerage firms, credit unions and other nonfinancial
institutions. Many of these competitors have substantially greater resources
than Bancorp. Bancorp also competes with other community banks operating in
Oregon. Several banks, which focus on the same types of customers as Bancorp,
have been formed in Oregon during the last few years. In addition, out-of-state
banks and bank holding companies headquartered anywhere in the United States are
permitted to acquire Oregon state-chartered banks that have been operating for
three or more years. Statewide branch banking also is permitted in Oregon. As a
result of such interstate banking and branch banking, Centennial Bank and
Centennial Mortgage may experience increased competition in their respective
market areas.
GOVERNMENT REGULATION
Bancorp and its subsidiaries, particularly Centennial Bank, are
subject to extensive federal and state legislation, regulation and supervision.
Legislation and regulations have had and will continue to have a significant
impact on the banking industry. Although some legislative and regulatory changes
may benefit Bancorp, others may increase its costs of doing business, assist
competitors or otherwise adversely affect Bancorp's operations.
LEGAL PROCEEDINGS
Periodically, and in the ordinary course of business, various claims
and lawsuits are brought by and against Bancorp and its subsidiaries, such as
claims to enforce liens, condemnation proceedings on properties in which Bancorp
holds security interests, claims involving the making and servicing of real
estate loans and other issues incident to Bancorp's business.
