SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
------------------
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
---------- ----------
Commission File Number 0-10489
-----------
CENTENNIAL BANCORP
(Exact name of registrant as specified in its charter)
OREGON 93-0792841
(State of Incorporation) (I.R.S. Employer
Identification Number)
675 Oak Street
Eugene, Oregon 97401
(Address of principal executive offices)
(Zip Code)
(541) 342-3970
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
<PAGE>
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of latest practicable date:
15,316,869 shares as of October 31, 1998.
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<PAGE>
CENTENNIAL BANCORP
FORM 10-Q
SEPTEMBER 30, 1998
INDEX
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<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION Reference
- ------------------------------ ---------
<S> <C>
Condensed Consolidated Balance Sheets as of 4
September 30, 1998 and December 31, 1997.
Condensed Consolidated Statements of Income for 5
the three months and nine months ended
September 30, 1998 and 1997.
Condensed Consolidated Statements of Comprehensive 6
Income for the three months and nine months
ended September 30, 1998 and 1997.
Condensed Consolidated Statements of Cash Flows 6
for the nine months ended
September 30, 1998 and 1997.
Notes to Condensed Consolidated Financial Statements 7 - 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Overview 12
Material Changes in Financial Condition 13 - 14
Material Changes in Results of Operations 14 - 15
Market Risk 15
Liquidity and Capital Resources 16
Effects of the Year 2000 16 - 18
PART II - OTHER INFORMATION
- ---------------------------
Item 6 - Exhibits and Reports on Form 8-K. 19
Signatures 20
</TABLE>
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<PAGE>
CENTENNIAL BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents:
Cash and due from banks $ 29,652,721 $ 26,269,239
Interest-bearing deposits with banks 100,000 --
Federal funds sold 9,095,000 23,800,000
------------ ------------
Total cash and cash equivalents 38,847,721 50,069,239
Securities available-for-sale 84,730,442 83,904,253
Loans held for sale 11,867,675 5,584,947
Loans receivable, net 402,789,324 331,691,399
Federal Home Loan Bank stock 4,986,300 4,711,100
Accrued interest receivable 4,004,248 3,618,596
Premises and equipment, net 12,464,422 10,486,892
Other assets 2,840,653 2,506,985
------------ ------------
$562,530,785 $492,573,411
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits:
Demand $ 99,196,385 $ 97,262,856
Interest-bearing demand 202,949,905 173,583,239
Savings 26,481,592 13,751,676
Time 153,483,777 134,684,313
------------ ------------
Total deposits 482,111,659 419,282,084
Short-term borrowings 16,173,446 7,715,783
Accrued interest and other liabilities 3,658,901 3,765,386
Long-term debt -- 10,000,000
------------ ------------
Total liabilities 501,944,006 440,763,253
Shareholders' equity:
Preferred stock -- --
Common stock, 15,316,869 issued and outstanding
(14,515,676 at December 31, 1997) 29,228,372 29,031,352
Retained earnings 30,479,607 22,082,696
Unrealized gains on securities available-for-
sale, net 878,800 696,110
------------ ------------
Total shareholders' equity 60,586,779 51,810,158
------------ ------------
$562,530,785 $492,573,411
============ ============
</TABLE>
See accompanying notes.
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<PAGE>
CENTENNIAL BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September
30, --------------------------- --------------------------
1998 1997 1998 1997
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $11,494,731 $ 8,770,014 $32,476,557 $24,573,993
Interest on investment securities 1,092,436 1,164,621 3,533,572 3,544,781
Other interest income 446,038 398,980 593,954 740,536
----------- ---------- ----------- -----------
Total interest income 13,033,205 10,333,615 36,604,083 28,859,310
INTEREST EXPENSE
Interest on deposits 4,104,959 3,362,955 11,111,447 9,040,636
Interest on short-term borrowings 120,350 78,774 301,096 424,679
Interest on long-term debt 32,771 154,762 272,897 459,096
---------- ---------- ----------- -----------
Total interest expense 4,258,080 3,596,491 11,685,440 9,924,411
---------- ---------- ----------- -----------
NET INTEREST INCOME 8,775,125 6,737,124 24,918,643 18,934,899
Loan loss provision 600,000 150,000 1,200,000 1,100,000
---------- ---------- ----------- -----------
Net interest income after
loan loss provision 8,175,125 6,587,124 23,718,643 17,834,899
NONINTEREST INCOME
Service charges 310,149 266,565 878,247 766,474
Other 155,032 156,287 474,948 1,076,892
Net gains on sales of loans 389,720 265,027 1,120,611 632,374
Net gains on sales of investment securities 192,569 5,015 599,885 34,324
---------- ---------- ----------- -----------
Total noninterest income 1,047,470 692,894 3,073,691 2,510,064
NONINTEREST EXPENSE
Salaries and employee benefits 3,172,377 2,328,895 9,557,532 6,656,513
Premises and equipment 669,206 501,462 1,950,741 1,475,842
Legal and professional 229,355 216,916 639,493 532,495
Advertising 165,223 135,996 501,753 376,470
Printing and stationery 94,567 118,684 320,397 304,242
Other 361,845 367,418 1,345,807 1,076,522
----------- ---------- ----------- -----------
Total noninterest expense 4,692,573 3,669,371 14,315,723 10,422,084
----------- ---------- ----------- -----------
Income before income taxes 4,530,022 3,610,647 12,476,611 9,922,879
Provision for income taxes 1,497,100 1,173,900 4,079,700 3,225,400
----------- ---------- ----------- -----------
NET INCOME $ 3,032,922 $2,436,747 $ 8,396,911 $ 6,697,479
=========== ========== =========== ===========
Earnings per common share:
Basic $ .20 $ .16 $ .55 $ .44
Diluted $ .19 $ .15 $ .52 $ .43
Weighted average common shares outstanding:
Basic 15,292,937 15,152,869 15,279,379 15,137,388
Diluted 15,965,243 15,915,026 16,006,283 15,795,505
</TABLE>
See accompanying notes.
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<PAGE>
CENTENNIAL BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September
30, --------------------------- --------------------------
1998 1997 1998 1997
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net income $ 3,032,922 $2,436,747 $ 8,396,911 $ 6,697,479
----------- ---------- ----------- -----------
Unrealized gains on securities
available-for-sale:
Unrealized gains arising
during the period 686,999 693,475 2,017,295 910,964
Reclassification adjustment for gains
included in statement of income (192,569) (5,015) (599,885) (34,324)
----------- ---------- ----------- -----------
494,430 688,460 1,417,410 876,640
Income tax expense (187,870) (261,620) (538,610) (333,130)
---------- ---------- ----------- ------------
Net unrealized gains on
securities available for sale 305,560 426,840 878,800 543,510
----------- ---------- ----------- -----------
Comprehensive income $ 3,339,482 $2,863,587 $ 9,275,711 $ 7,240,989
=========== ========== =========== ===========
</TABLE>
CENTENNIAL BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 2,685,604 $ 5,424,653
----------- -----------
Cash flows from investing activities:
Net increase in loans (72,297,925) (65,548,676)
Purchases of investment securities (31,984,219) (14,974,773)
Proceeds from investment securities:
Maturities 20,300,918 3,152,782
Sales 11,754,232 11,020,078
Purchases of premises and equipment (3,164,386) (1,596,092)
----------- ----------
Net cash used in investing activities (75,391,380) (67,946,681)
Cash flows from financing activities:
Net increase in deposits 62,829,575 61,982,959
Net increase (decrease) in short-term borrowings 8,457,663 (4,112,040)
Payment of long-term debt (10,000,000) --
Proceeds from issuance of common stock 197,020 224,477
----------- -----------
Net cash provided by financing activities 61,484,258 58,095,396
----------- -----------
Net decrease in cash and cash equivalents (11,221,518) (4,426,632)
Cash and cash equivalents at beginning of period 50,069,239 38,397,505
----------- -----------
Cash and cash equivalents at end of period $38,847,721 $33,970,873
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE>
CENTENNIAL BANCORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The interim condensed consolidated financial statements include the
accounts of Centennial Bancorp, a bank holding company ("Bancorp"), and its
wholly owned subsidiaries, Centennial Bank ("Bank") and Centennial Mortgage
Co. ("Mortgage Co."). The Bank is an Oregon state-chartered bank which
provides commercial banking services. Mortgage Co. originates residential
mortgage loans for resale in the secondary market.
The interim condensed consolidated financial statements are unaudited, but
include all adjustments, consisting only of normal accruals, which Bancorp
considers necessary for a fair presentation of the results of operations for
such interim periods.
In preparing the condensed 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 sheets and income
and expenses for the periods presented. Actual results could differ from
those estimates.
All significant intercompany balances and transactions have been eliminated
in consolidation.
The balance sheet data as of December 31, 1997 was derived from audited
financial statements, but does not include all disclosures contained in
Bancorp's 1997 Annual Report to Shareholders.
The interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements, including the notes
thereto, included in Bancorp's 1997 Annual Report to Shareholders.
Certain amounts for 1997 have been reclassified to conform with the 1998
presentation.
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<PAGE>
2. Loans and Reserve for Loan Losses
---------------------------------
<TABLE>
<CAPTION>
The composition of the loan portfolio was as follows:
<S> <C> <C>
September 30, December 31,
1998 1997
------------ ------------
Real estate -- mortgage $ 89,547,628 $ 87,631,611
Real estate -- construction 142,345,048 89,119,688
Commercial 165,439,116 147,052,433
Installment 6,271,247 6,602,690
Lease financing 2,201,012 3,648,728
Other 2,107,644 1,994,689
------------ ------------
407,911,695 336,049,839
Reserve for loan losses (4,154,237) (3,348,914)
Less deferred loan fees (968,134) (1,009,526)
------------ ------------
$402,789,324 $331,691,399
============ ============
</TABLE>
Loans held for sale of $11,867,675 and $5,584,947 at September 30, 1998 and
December 31, 1997, respectively, represent real estate mortgage loans held for
sale. These loans are recorded at cost which approximates market.
Transactions in the reserve for loan losses were as follows for the nine months
ended September 30:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
----------- -----------
Balance at beginning of period $3,348,914 $2,599,653
Provision charged to operations 1,200,000 1,100,000
Recoveries 32,237 37,352
Loans charged off (426,914) (557,533)
---------- ----------
Balance at end of period $4,154,237 $3,179,472
========== ==========
</TABLE>
At September 30, 1998, Bancorp had nine loans requiring a specific valuation
allowance in accordance with SFAS No. 114, as amended by SFAS No. 118 (two loans
at December 31, 1997). The specific valuation allowance was $482,000 on loans
with remaining principal outstanding of $4,865,200 at September 30, 1998
($150,000 and $718,000, respectively, at December 31, 1997). Each loan with a
current outstanding principal balance of less than $100,000 is grouped into one
homogenous pool when considering the valuation allowance.
-8-
<PAGE>
The specific valuation allowance necessary for loans in this group of smaller
loans was $1,900 at September 30, 1998 (none at December 31, 1997). The increase
in the specific valuation allowance at September 30, 1998 was primarily
attributable to one borrower for which the specific valuation allowance was
$240,000 on nonaccrual loans with remaining principal outstanding of $2,400,500
(which loans are also included in the total of nonaccrual loans disclosed
below).
It is Bancorp's policy to place loans on nonaccrual status whenever the
collection of all or a part of the principal balance is in doubt. Loans placed
on nonaccrual status may or may not be contractually past due at the time of
such determination, and may or may not be secured by collateral. Loans on
nonaccrual status at September 30, 1998 and December 31, 1997 were approximately
$3,690,000 and $873,000, respectively.
Loans past due 90 days or more on which Bancorp continued to accrue interest
were approximately $571,000 at September 30, 1998, and approximately $402,000 at
December 31, 1997. There were no loans on which the interest rate or payment
schedule were modified from their original terms to accommodate a borrower's
weakened financial position at September 30, 1998 or December 31, 1997.
3. Earnings per Share of Common Stock
----------------------------------
The basic and diluted earnings per share computations are reconciled as follows:
Three Months Ended
September 30,
------------------------
1998 1997
---------- ----------
Net income available to common
shareholders -- basic and
diluted $3,032,922 $2,436,747
========== ==========
Reconciliation of Basic and Diluted Shares
------------------------------------------
Weighted average shares
outstanding -- basic 15,292,937 15,152,869
Incremental shares from
stock options 672,306 762,157
---------- ----------
Weighted average shares
outstanding -- diluted 15,965,243 15,915,026
========== ==========
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<PAGE>
Nine Months Ended
September 30,
------------------------
1998 1997
---------- ----------
Net income available to common
shareholders -- basic and
diluted $8,396,911 $6,697,479
========== ==========
Reconciliation of Basic and Diluted Shares
------------------------------------------
Weighted average shares
outstanding -- basic 15,279,379 15,137,388
Incremental shares from
stock options 726,904 658,117
---------- ----------
Weighted average shares
outstanding -- diluted 16,006,283 15,795,505
========== ==========
The weighted average number of common shares outstanding retroactively reflects
the effect of stock splits and stock dividends.
4. Shareholders' Equity
--------------------
Effective May 20, 1998, shareholders approved an amendment to Bancorp's
Restated Articles of Incorporation to eliminate the par value of common
stock. Additionally, shareholders also approved an amendment to Bancorp's
Restated 1995 Stock Incentive Plan increasing the number of shares issuable
under the Plan from 586,971 to 1,155,000 (as adjusted for a 21-for-20 stock
split declared in July 1998).
5. New Statements of Financial Accounting Standards
------------------------------------------------
On January 1, 1998, Bancorp adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which requires
reporting of comprehensive income in general purpose financial statements.
Comprehensive income includes such items as foreign currency translation
adjustments and unrealized gains and losses on securities available-for-sale
that are currently being included as a component of shareholders' equity. At
September 30, 1998 and 1997, Bancorp's comprehensive income consisted of net
income and unrealized gains or losses on securities available-for-sale, net
of related income taxes.
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<PAGE>
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" was issued. SFAS No. 131 requires publicly-held
companies to report financial and other information about key
revenue-producing segments of the entity for which such information is
available and is utilized by the chief operating decision maker. Specific
information to be reported for individual segments includes profit or loss,
certain revenue and expense items and total assets. A reconciliation of
segment financial information to amounts reported in the financial
statements will be required. SFAS No. 131 becomes retroactively effective
for financial statements for annual periods beginning after December 15,
1997 and it has not yet been determined whether Bancorp will be required to
make any additional disclosure.
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits - an amendment of FASB Statements No. 87, 88
and 106," was issued, which revises and standardizes employers' disclosures
about pension and other postretirement benefit plans. SFAS No. 132 is
effective for Bancorp in 1998. Management does not anticipate significant
disclosure changes as a result of adoption of SFAS No. 132.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting standards
for derivative instruments and for hedging activities was issued. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. SFAS No. 133 is effective for
Bancorp in 2000. The impact on Bancorp's financial statements has not been
determined.
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
WHEN USED IN THE FOLLOWING DISCUSSION, THE WORD "EXPECTS," "BELIEVES,"
"ANTICIPATES" AND OTHER SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS, WHICH ARE MADE PURSUANT TO THE SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. SPECIFIC
RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, GENERAL BUSINESS AND
ECONOMIC CONDITIONS, AND OTHER FACTORS LISTED FROM TIME TO TIME IN BANCORP'S SEC
REPORTS, INCLUDING BUT NOT LIMITED TO, EXHIBIT 99.1 TO BANCORP'S FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 1996, WHICH IS INCORPORATED HEREIN BY REFERENCE.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. BANCORP UNDERTAKES NO
OBLIGATION TO PUBLISH REVISED FORWARD-LOOKING STATEMENTS TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF.
OVERVIEW
- --------
Centennial Bancorp reported net income of $8.4 million, or $.55 per
share (basic), for the nine months ended September 30, 1998. This represented a
25.4% increase in net income and a 25.0% increase in earnings per share (basic),
as compared to $6.7 million, or $.44 per share (basic), for the nine months
ended September 30, 1997. Net income of $3.0 million, or $.20 per share (basic),
for the quarter ended September 30, 1998 similarly represented a 24.5% increase
in net income and a 25.0% increase in earnings per share, as compared to $2.4
million, or $.16 per share (basic) for the quarter ended September 30, 1997. The
increased earnings during the nine months and the quarter ended September 30,
1998 primarily reflect the expansion of Bancorp's interest-earning assets and
increased net interest income. At September 30, 1998, Bancorp recognized a 19.2%
increase in total assets and a 21.0% increase in interest-earning assets as
compared to September 30, 1997. At September 30, 1998, interest-earning assets
represented 92.0% of total assets.
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<PAGE>
MATERIAL CHANGES IN FINANCIAL CONDITION
- ---------------------------------------
Material changes in Bancorp's financial condition for the nine months
ended September 30, 1998 included an increase in total assets, primarily in
loans and loans held for sale, which was offset in part by a decrease in federal
funds sold. The increases in loans and loans held for sale were funded by
increases in total deposits and short-term borrowings, and earnings from
operations, and was offset in part by a reduction in long-term debt.
At September 30, 1998, total assets were $562.5 million, representing
an increase of 14.2%, or $70.0 million, over total assets at December 31, 1997.
The increase in total assets includes an increase in loans and loans held for
sale of $78.2 million, primarily due to heightened real estate construction and
commercial loan activity of the Bank and to a modest increase in real estate
mortgage lending. During the period from December 31, 1997 to September 30,
1998, Bancorp's construction lending increased, as a percentage of net loans
receivable, from 27% to 35%. 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.
Federal funds sold decreased $14.7 million (or 61.8%) at September 30,
1998 as compared to December 31, 1997. Federal funds sold represent excess funds
which are sold overnight. The amount of federal funds sold can fluctuate
significantly on a day-to-day basis due to Bancorp's cash flows.
Total deposits increased $62.8 million (or 15.0%) at September 30, 1998
as compared to December 31, 1997. The increase in total deposits was
concentrated in the interest-bearing demand deposit, savings and time deposit
categories.
Bancorp actively solicits demand and interest-bearing demand deposit
accounts due to the lower costs associated with these deposit categories.
Bancorp also solicits time deposits, when needed, to provide funds for expansion
of the loan portfolio.
Short-term borrowings increased $8.5 million (or 109.6%) at September
30, 1998 as compared to December 31, 1997. This increase resulted from increased
sales of securities under agreement to repurchase.
Long-term debt decreased $10.0 million at September 30, 1998 as
compared to December 31, 1997 due to the maturity of the Bank's advances from
the Federal Home Loan Bank of Seattle on August 6, 1998.
-13-
<PAGE>
All other changes experienced in asset and liability categories during
the first nine months of 1998 were comparatively modest.
Shareholders' equity increased $8.7 million during the nine months
ended September 30, 1998, as compared to December 31, 1997, due to net income of
$8.3 million, exercises of stock options of $200,000 and an increase of $200,000
in unrealized gains on securities available-for-sale.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
- -----------------------------------------
Total interest income increased $7.7 million (or 26.8%) for the nine
months and $2.7 million (or 26.1%) for the quarter ended September 30, 1998 as
compared to the same periods in 1997. These increases were primarily due to
increases in the volume of loans and loans held for sale during 1998 as compared
to 1997 and fee income earned by Mortgage Co. for originating residential
mortgage loans during the 1998 periods. These increases were offset in part by
modest decreases in interest income on securities available-for-sale for the
nine months and the quarter ended September 30, 1998 as compared to the same
periods in 1997.
Total interest expense increased $1.8 million (or 17.7%) for the nine
months and $662,000 (or 18.4%) for the quarter ended September 30, 1998 as
compared to comparable 1997 periods. These increases were primarily due to
increases in the volume of deposits held during 1998 as compared to 1997, which
were offset in part by a decrease in interest expense as a result of long-term
debt maturing in 1998.
The increases in interest earned, offset in part by the increases in
interest paid, served to increase Bancorp's net interest income by $6.0 million
(or 31.6%) for the nine-month period, and $2.0 million (or 30.3%) for the third
quarter of 1998, over the comparable periods in 1997.
During the nine months ended September 30, 1998, Bancorp charged a $1.2
million loan loss provision to operations, as compared to $1.1 million charged
during the nine months ended September 30, 1997. Loans charged off, net of
recoveries, during the nine months ended September 30, 1998 were $394,700, as
compared to net charge-offs of $520,200 for the 1997 nine-month period.
At September 30, 1998 and December 31, 1997, Bancorp's loan loss
reserve was $4.2 million and $3.2 million, respectively.
-14-
<PAGE>
Management believes that the reserve for loan losses is adequate for potential
loan losses, based on management's assessment of various factors, including
present delinquent and non-performing loans, past history of industry loan loss
experience, and present and anticipated future economic trends impacting the
areas and customers served by Bancorp.
Noninterest income increased $564,000 (or 22.5%) for the nine months
and $355,000 (or 51.2%) for the quarter ended September 30, 1998 as compared to
the comparable 1997 periods. The increases for the nine-month period and the
quarter were primarily attributable to gains recognized on the sale of loans and
gains on sales of investment securities available-for-sale. These increases were
offset in part by a decrease during the nine months ended September 30, 1998 as
compared to September 30, 1997 in other noninterest income, due to the 1997
settlement of a claim against former legal counsel.
Noninterest expense increased $3.9 million (or 37.4%) for the nine
months and $1.0 million (or 27.9%) for the quarter ended September 30, 1998 as
compared to the comparable 1997 periods. All categories of noninterest expense
increased during the nine months and the quarter ended September 30, 1998,
except that printing and stationery expenses and other expenses decreased
modestly during the quarter then ended.
The provision for income taxes increased for the nine months and the
quarter ended September 30, 1998, commensurate with Bancorp's increase in income
before income taxes.
MARKET RISK
- -----------
Market risk is the risk of loss from adverse changes in market prices
and rates. Bancorp's market risk arises principally from interest rate risk in
its lending, deposit and borrowing activities. Management actively monitors and
manages its interest rate risk exposure. Although Bancorp manages other risks,
as in credit quality and liquidity risk, in the normal course of business,
management considers interest rate risk to be a significant market risk which
could have the largest material effect on Bancorp's financial condition and
results of operations. Other types of market risks, such as foreign currency
exchange rate risk and commodity price risk, do not arise in the normal course
of Bancorp's business activities.
Bancorp did not experience a material change in market risk at
September 30, 1998 as compared to December 31, 1997.
-15-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Bancorp's principal subsidiary, Centennial Bank, has adopted policies
to maintain a relatively liquid position to enable it to respond to changes in
the Bank's needs and financial environment. Generally, the Bank's major sources
of liquidity are customer deposits, sales and maturities of investment
securities, the use of federal funds markets and net cash provided by operating
activities. Scheduled loan repayments are a relatively stable source of funds,
while deposit inflows and unscheduled loan prepayments, which are influenced by
general interest rate levels, interest rates available on other investments,
competition, economic conditions and other factors, are not.
Along with federal funds lines, the Bank maintains a cash management
advance with the Federal Home Loan Bank, Seattle, Washington, which allows
temporary borrowings for liquidity. At September 30, 1998, Bancorp did not have
any borrowings outstanding from the Federal Home Loan Bank of Seattle under the
cash management advance line.
At September 30, 1998, Bancorp's Tier 1 and total risk-based capital
ratios under the Federal Reserve Board's ("FRB") risk-based capital guidelines
were approximately 11.1% and 11.8%, respectively. The FRB's minimum risk-based
capital ratio guidelines for Tier 1 and total capital are 4% and 8%,
respectively.
At September 30, 1998, Bancorp's capital-to-assets ratio under leverage
ratio guidelines was approximately 10.9%. The FRB's current minimum leverage
capital ratio guideline is 3%.
EFFECTS OF THE YEAR 2000
- ------------------------
The Year 2000 may pose unique challenges to all businesses due to the
inability of some computers and computer software programs to accurately
recognize, for years after 1999, dates which are often expressed as a two-digit
number. This inability to recognize date information accurately could
potentially affect computer operations and calculations, or could cause computer
systems to not operate at all.
The federal banking regulators have issued several statements providing
guidance to financial institutions on the steps the regulators expect financial
institutions to take to become Year 2000 compliant. Each of the federal banking
regulators is also examining the financial institutions under its jurisdiction
to assess each institution's compliance with the outstanding guidance. If an
institution's progress in addressing
-16-
<PAGE>
the Year 2000 problem is deemed by its primary federal regulator to be less than
satisfactory, the institution will be required to enter into a memorandum of
understanding with the regulator which will, among other things, require the
institution to promptly develop and submit an acceptable plan for becoming Year
2000 compliant and to provide periodic reports describing the institution's
progress in implementing the plan. Failure to satisfactorily address the Year
2000 problem may also expose a financial institution to other forms of
enforcement action that its primary federal regulator deems appropriate to
address the deficiencies in the institution's Year 2000 remediation program.
Bancorp is heavily reliant on computers for accounting for customer
records and transactions, as well as operating performance. Recognizing the
risks of the Year 2000 problem, management organized a task force in early 1997
to identify and address the issues related to the Year 2000. In addition,
management organized and sponsored seminars in the Eugene and Portland-area
markets to elevate customer and public awareness of the potential Year 2000
problems.
To date, Bancorp's Year 2000 task force has identified all internal
computer hardware and software utilized by Bancorp, as well as mechanical
systems which may be dependent upon computer components, and contacted vendors
seeking their certification of Year 2000 compliance (Bancorp does not utilize
any proprietary computer hardware or software). The task force has retained
computer consultants to assist with testing of all computer hardware and
software, and testing has begun. Initial testing of Bancorp's computer system
used to account for customer accounts has been successful. Management estimates
that computer hardware, software and connectivity to external processor testing
will be completed during the third quarter of 1999.
Management of Bancorp has also required that lending personnel
ascertain borrowing clients' awareness and intent to timely comply with Year
2000 requirements. In addition, management has interviewed selected significant
deposit customers to determine their Year 2000 compliance efforts and
anticipated cash requirements due to the Year 2000 because of the potential
effects on Bancorp's cash needs and liquidity. Finally, management has begun
gathering information to develop contingency plans in the event that utilities
or other business activities are interrupted due to the effects of the Year
2000.
At the present time, management has budgeted $100,000 for Year 2000
compliance expenses for the year 1998, of which $58,000 had been expended
through September 30, 1998. Management has not established a budget estimate for
Year 2000 compliance expenses for the year 1999 but will do so during the fourth
quarter of 1998 in conjunction with the regular budgeting process.
-17-
<PAGE>
Management believes that its efforts to comply with the Year 2000, and the
effects of the Year 2000, will not have a material effect on operations.
Although Bancorp believes the actions being taken at this time are suitable and
appropriate to address the Year 2000 issue, there can be no assurance that such
measures will be sufficient or that Year 2000 issues will not have an adverse
impact, at least temporarily, on operations. Specific factors which could affect
Bancorp's ability to effect the transition into the 21st century include the
ability to locate and correct all relevant systems, the ability of consultants
to complete their testing on schedule, the compliance of third-party vendors and
service providers upon whom Bancorp relies, and similar uncertainties.
-18-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- ------------------------------------------
(a) Exhibits
3.1 Registrant's Restated Articles of Incorporation, including
all amendments
27 Financial Data Schedule
(b) Reports on Form 8-K
None
-19-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTENNIAL BANCORP
Dated: November 12, 1998 /s/ Richard C. Williams
-----------------------------------
Richard C. Williams
President & Chief Executive Officer
Dated: November 12, 1998 /s/ Michael J. Nysingh
-----------------------------------
Michael J. Nysingh
Chief Financial Officer
-20-
EXHIBIT 3.1
-----------
*FILED August 20, 1998
OREGON SECRETARY OF STATE
[SEAL OF STATE OF OREGON]
Phone: (503) 986-2200 ARTICLES OF AMENDMENT
Facsimile: (503) 378-4381 - Business/Professional/Nonprofit
- --------------------------------------------------------------------------------
Secretary of State Check the appropriate box below:
Corporation Division |X| Business/Professional Corporation
255 Capitol Street NE, Suite 151 (Complete 1,2,3,4,6,7)
Salem, OR 97310-1327 |_| Nonprofit Corporation
(Complete only 1,2,3,5,6,7)
Registry Number: 150901-11
ATTACH ADDITIONAL SHEET IF NECESSARY
PLEASE TYPE OR PRINT LEGIBLY IN BLACK INK
1. NAME OF THE CORPORATION PRIOR TO AMENDMENT: Centennial Bancorp
----------------------------------
2. STATE THE ARTICLE NUMBER(S) AND SET FORTH THE ARTICLE(S) AS IT IS AMENDED TO
READ. (Attach a separate sheet, if necessary.) See Attachment A
------------------------------
3. THE AMENDMENT WAS ADOPTED ON: May 20, 1998
------------------------------------------------
(If more than one amendment was adopted, identify the date of adoption of
each amendment.)
BUSINESS/PROFESSIONAL CORPORATION ONLY
4. CHECK THE APPROPRIATE STATEMENT
<TABLE>
<CAPTION>
|X| Shareholder action was required to adopt the amendment(s). The vote was as follows:
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Class or series of Number of shares Number of votes Number of votes Number of votes
shares outstanding entitled to be cast cast FOR cast AGAINST
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
Common Stock 14,543,909 14,543,909 11,820,393 130,137
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
</TABLE>
|_| Shareholder action was not required to adopt the amendment(s). The
amendment(s) was adopted by the board of directors without shareholder action.
|_| The corporation has not issued any shares of stock. Shareholder
action was not required to adopt the amendment(s). The amendment(s) was adopted
by the incorporators or by the board of directors.
NONPROFIT CORPORATION ONLY
5. CHECK THE APPROPRIATE STATEMENT
|_| Membership approval was not required. The amendment(s) was approved
by a sufficient vote of the board of directors or incorporators.
<TABLE>
<CAPTION>
|_| Membership approval was required. The membership vote was as follows:
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Class(es) entitled Number of members Number of votes Number of votes Number of votes
to vote entitled to vote entitled to be cast cast FOR cast AGAINST
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
</TABLE>
6. EXECUTION
Printed Name Signature Title
Michael J. Nysingh /s/ Michael J. Nysingh Chief Financial Officer
------------------ ---------------------- -----------------------
7. CONTACT NAME DAYTIME PHONE NUMBER
Nancy P. Hinnen (503) 802-2046
--------------- --------------------
FEES
-------------------------------------------------------
Make check for $10 payable to "Corporation Division."
NOTE: Filing fees may be paid with VISA or MasterCard.
The card number and expiration date should be submitted
on a separate sheet for your protection
<PAGE>
ATTACHMENT A
Article III of the Restated Articles of Incorporation, as amended, is
hereby amended to read as follows:
ARTICLE III.
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 60 million shares divided
into three classes, as follows:
Five million shares of voting preferred stock,
without par value (hereinafter sometimes referred to as "Voting
Preferred Stock");
Five million shares of preferred stock, without par
value, without voting rights, except with respect to voting rights in
the event of a default in the payment of any dividend or with respect
to any provisions granting the right to consent to the issuance of a
different series of Preferred Stock which would materially or adversely
affect the rights, preferences or powers of such issuance (hereinafter
sometimes referred to as "Non-voting Preferred Stock"); and
Fifty million shares of common stock, without par value (hereinafter
sometimes referred to as "Common Stock").
<PAGE>
*FILED November 10, 1997
OREGON SECRETARY OF STATE
[SEAL OF STATE OF OREGON]
Phone: (503) 986-2200 ARTICLES OF AMENDMENT -
Facsimile: (503) 378-4381 Business/Professional/Nonprofit
- --------------------------------------------------------------------------------
Secretary of State Check the appropriate box below:
Corporation Division |X| Business/Professional Corporation
255 Capitol Street NE, Suite 151 (Complete 1,2,3,4,6,7
Salem, OR 97310-1327 |_| Nonprofit Corporation
(Complete only 1,2,3,5,6,7)
Registry Number: 150901-11
ATTACH ADDITIONAL SHEET IF NECESSARY
PLEASE TYPE OR PRINT LEGIBLY IN BLACK INK
1. NAME OF THE CORPORATION PRIOR TO AMENDMENT: Centennial Bancorp
----------------------------------
2. STATE THE ARTICLE NUMBER(S) AND SET FORTH THE ARTICLE(S) AS IT IS AMENDED TO
READ. (Attach a separate sheet, if necessary.) See attached Exhibit A.
-------------------------------
3. THE AMENDMENT WAS ADOPTED ON: October 29, 1997 .
--------------------------------------------
(If more than one amendment was adopted, identify the date of adoption of
each amendment.)
BUSINESS/PROFESSIONAL CORPORATION ONLY
4. CHECK THE APPROPRIATE STATEMENT
<TABLE>
<CAPTION>
|X| Shareholder action was required to adopt the amendment(s). The vote was as follows:
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Class or series of Number of shares Number of votes Number of votes Number of votes
shares outstanding entitled to be cast cast FOR cast AGAINST
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
Common Stock 7,224,355 7,224,355 5,467,969 306,226
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
</TABLE>
|_| Shareholder action was not required to adopt the amendment(s). The
amendment(s) was adopted by the board of directors without shareholder action.
|_| The corporation has not issued any shares of stock. Shareholder
action was not required to adopt the amendment(s). The amendment(s) was adopted
by the incorporators or by the board of directors.
NONPROFIT CORPORATION ONLY
5. CHECK THE APPROPRIATE STATEMENT
|_| Membership approval was not required. The amendment(s) was approved
by a sufficient vote of the board of directors or incorporators.
<TABLE>
<CAPTION>
|_| Membership approval was required. The membership vote was as follows:
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Class or series of Number of shares Number of votes Number of votes Number of votes
shares outstanding entitled to be cast cast FOR cast AGAINST
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
</TABLE>
6. EXECUTION
Printed Name Signature Title
Richard C. Williams /s/ Richard D. Williams President and
Chief Executive Officer
------------------- ----------------------- -----------------------
7. CONTACT NAME DAYTIME PHONE NUMBER
Carol Dey Hibbs (503) 802-2016
--------------- --------------------
FEES
-------------------------------------------------------
Make check for $10 payable to "Corporation Division."
NOTE: Filing fees may be paid with VISA or MasterCard.
The card number and expiration date should be submitted
on a separate sheet for your protection.
Exhibit A to Articles of Amendment
of
CENTENNIAL BANCORP
ARTICLE III.
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 60 million divided into
three classes, as follows:
Five million shares of voting preferred stock, with a
par value of $5.00 per share (hereinafter sometimes referred to as
"Voting Preferred Stock");
Five million shares of preferred stock, with a par
value of $5.00 per share, without voting rights, except with respect to
voting rights in the event of a default in the payment of any dividend
or with respect to any provision granting the right to consent to the
issuance of a different series of Preferred Stock which would
materially or adversely affect the rights, preferences or powers of
such issuance (hereinafter sometimes referred to as "Non-voting
Preferred Stock"); and
Fifty million shares of common stock, with par value
of $2.00 per share (hereinafter sometimes referred to as "Common
Stock").
<PAGE>
THIS SPACE FOR OFFICE USE ONLY
*FILED
IN THE OFFICE OF THE SECRETARY
OF STATE IN THE STATE OF OREGON
May 25, 1990
CORPORATION DIVISION
Submit the Original
And One True Copy
(831.115) $10.00
STATE OF OREGON
CORPORATION DIVISION
158 12th Street NE
Salem, OR 97310
Registry Number:
150901-11
(If known)
ARTICLES OF AMENDMENT
By Directors or Shareholders
PLEASE TYPE OR PRINT LEGIBLY IN BLACK INK
1. Name of the corporation prior to amendment:
Valley West Bancorp
---------------------------------------------------------------------------
2. State the article number(s) and set forth t he article(s) as it is amended
to read. (Attach additional sheets, if necessary.)
ARTICLE I
CORPORATE NAME
The name of the Corporation is Centennial Bancorp and its duration
shall be perpetual.
3. The amendment was adopted on May 24, 1990. (If more than one amendment was
adopted, identify the date of adoption of each amendment.)
4. Shareholder action was required to adopt the amendment(s). The shareholder
vote was as follows:
<TABLE>
<CAPTION>
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Class or Series of Number of Shares Number of votes Number of Votes Number of Votes
Shares Outstanding Entitled to be Cast Cast For Cast Against
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
Common Stock 1,534,344 1,534,344 1,134,660 8,598
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
</TABLE>
5. |_| Shareholder action was not required to adopt the amendment(s). The
amendment was adopted by the board of directors without shareholder action.
6. Other provisions, if applicable (Attach additional sheets, if necessary).
Execution: /s/ Michael J. Nysingh Michael J. Nysingh Chief Financial Officer
--------------------------------------------------------------------
Signature Printed Name Title
Person to contact about this filing: Michael J. Nysingh (503) 741-1737
------------------------------------------
Name Daytime phone number
Make checks payable to the Corporation Division. Submit the completed form and
fees to: Corporation Division, 158 12th Street NE, Salem, Oregon 97310-0210. If
you have any questions, please call (503) 378-4166.
<PAGE>
*FILED
IN THE OFFICE OF THE SECRETARY
OF STATE IN THE STATE OF OREGON
September 30, 1988
CORPORATION DIVISION
Submit the Original
And One True Copy
No Fee Required
STATE OF OREGON
CORPORATION DIVISION
158 12th Street NE
Salem, OR 97310
Registry Number:
150901-11
- ----------------
(If known)
RESTATED ARTICLES OF INCORPORATION
Business Corporation
PLEASE TYPE OR PRINT LEGIBLY IN BLACK INK
1. Name of the corporation (prior to amendment): VALLEY WEST BANCORP
--------------------------------
2. New name of the corporation (if changed):
-----------------------------------
3. A copy of the restated articles is attached.
4. Check the appropriate statement(s):
|X| The restated articles contain amendments which do not require
shareholder approval. These amendments were duly adopted by the Board
of Directors.
|_| The restated articles contain amendments which require shareholder
approval. The date of adoption of the restated articles was___________
, 19____ which is the date of adoption of amendments included in the
restated articles. The vote of the shareholders was as follows:
<TABLE>
<CAPTION>
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Class or Series of Number of Shares Number of Votes Number of Votes Number of Votes
Shares Outstanding Entitled to be Cast Cast For Cast Against
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
- ----------------------- ---------------------- ---------------------- ---------------------- ---------------------
</TABLE>
5. Other provisions, if applicable:
Execution: /s/ Michael J. Nysingh Michael J. Nysingh Chief Financial Officer
--------------------------------------------------------------------
Signature Printed Name Title
Person to contact about this filing: Michael J. Nysingh (503) 741-1737
------------------------------------------
Name Daytime phone number
Submit the original and a true copy to the Corporation Division, 158 12th Street
NE, Salem, Oregon 97310. There is no fee required. If you have questions, please
call (503) 378-4166.
<PAGE>
RESTATED ARTICLES OF INCORPORATION
VALLEY WEST BANCORP
ARTICLE I.
----------
The name of the Corporation is Valley West Bancorp and its duration
shall be perpetual.
ARTICLE II.
-----------
The purposes for which the Corporation is organized are:
(1) To own and hold the capital stocks of state or
federally-chartered banks.
(2) To engage in any lawful activity for which a corporation may
be organized under ORS Chapter 60.
(3) To invest and reinvest all or part of its assets, to the
extent permitted by applicable law, now or hereafter existing,
in any and all: obligations, loans, notes, bonds, debentures,
warrants, certificates or other evidences of indebtedness of
any person, firm, partnership, association, corporation,
cooperative, trust, business or investment trust, the United
States, any foreign country, or of any other state, territory,
governmental district agency or municipality thereof; real
property, improved or unimproved, of every kind and
description and all interests and estates therein of
whatsoever nature; personal property, or any interest therein,
including but not limited to, contracts, choses in action,
rights and powers, all of which may be either negotiable or
non-negotiable; securities, common or preferred stocks or
certificates (participating, voting or non-voting), of
corporations, cooperatives, trusts or business or investment
trusts; oil and mineral rights, leases and interests of every
kind and description; and every other matter or thing, real,
personal or mixed, tangible or intangible, of every kind and
description, without limitation except as may be imposed by
applicable laws.
(4) To manage, sell, convey, transfer, lease, mortgage, divide or
subdivide, exchange or otherwise dispose of or deal with, or
<PAGE>
to improve any and all of its investments and other real and
personal property, or any interest therein, and to exercise
all rights, privileges and powers with respect to all of such
investment, real and personal property, including, but not
limited to, voting shares, securities, stocks and certificates
and entering into pooling and trust agreements with respect
thereto.
(5) To purchase, take, receive, lease or otherwise acquire, own,
hold, improve, use and deal with personal property, or any
interest therein, which it deems necessary or convenient to
operate its business, including, but not limited to,
mechanical, electrical and electronic computers and equipment,
and data processing and accounting systems, and to mortgage,
pledge, sell, convey or otherwise transfer or dispose of such
personal property or any interest therein.
(6) To acquire by purchase, occupation, lease, gift, exchange, or
otherwise, and to hold, occupy, improve, develop, subdivide or
partition, lay out, plat, dedicate to public use, use and
enjoy, rent, lease, convey, contract to sell, or otherwise
dispose of and deal in real property, improved or unimproved,
of every kind and description and all interests and estates
therein of whatsoever kind or nature, and to erect, occupy,
alter, manage, maintain or tear down buildings and structures
of every kind and description.
(7) To carry on all or any of its operations and business and to
exercise all or any of its powers in any of the states,
districts, territories or possessions of the United States and
in any and all foreign countries, subject to the laws of such
states, districts, territories, possessions or countries, and
to have one or more offices therein.
(8) To make contracts with individuals, partnerships,
associations, corporations, other business or commercial
entities, governments and governmental agencies, incur
liabilities and obligations, borrow or raise moneys at such
rates of interest as it may determine, and to draw, discount,
<PAGE>
make, accept, endorse, execute, issue, transfer and deliver
promissory notes, drafts, bills of exchange, warrants, bonds,
debentures and other negotiable or non-negotiable instruments
and evidences of indebtedness for any of the objects or
purposes of the Corporation from time to time, without
limitation as to amount, and to secure the payment or
performance thereof and of the interest thereon by mortgage
upon or pledge, conveyance or assignment in trust of the whole
or any part of the property or income of this Corporation and
to sell, pledge or otherwise dispose of such bonds or other
obligations of this Corporation for its corporate purposes,
and to make gifts of its property and assets for educational,
scientific, charitable, religious, civic and public welfare
purposes.
(9) To lend money, assets or credit for its corporate purposes
and, at its option, to take and hold real and personal
property, tangible or intangible, and choses in action, as
security for the payment of assets and credit so loaned.
(10) To assume, give assurances, and guarantee the obligations and
liabilities, contractual or otherwise, of other persons, for
its corporate purposes.
(11) To acquire and pay for in cash, shares or other securities, or
property of this Corporation or otherwise, the good will,
rights, assets, and property, and to undertake or assume the
whole or any part of the obligations or liabilities of any
person, firm, trust, association or corporation.
(12) To take, receive or acquire by way of purchase, gift,
compromise or discharge of claims or indebtedness or
otherwise, hold, own, pledge, transfer or otherwise dispose of
its own shares and its other securities as long as it shall
not purchase, either directly or indirectly, its own shares in
violation of the laws of the State of Oregon.
(13) To enter joint enterprises and to become a member of any
lawful associations or organizations for the conduct,
proposition and pursuit of any of the purposes herein
enumerated and to promote corporations and other organizations
to be organized for any legal purpose.
<PAGE>
(14) In addition to the business, objects and purposes herein set
forth, to do anything necessary, suitable, useful, expedient
or convenient for the carrying on of any said businesses, or
purposes, or for the exercise of any power, herein set forth,
or which at any time shall appear to be beneficial to this
corporation in connection therewith, or for the performance of
any or all acts expressly or impliedly authorized or required
under applicable laws; and to do any and all of the things
herein set forth either alone or jointly with others, and
either as principal for its own account, or as agent, trustee,
contractor, broker, factor or otherwise, and to the same
extent as fully as a natural person might or could do in the
State of Oregon, or elsewhere.
The several clauses contained in the statement of purposes shall be
construed both as purposes and powers, and the statements contained in each
clause, except where otherwise expressed, shall in no way be limited or
restricted by reference to, or inference from, the terms of any other clauses,
but shall be regarded as independent purposes and powers. This Corporation shall
have all the powers now or hereafter conferred by the laws of the State of
Oregon and of any other state or country in which it may be operating, whether
or not such powers be enumerated in these Articles of Incorporation. The
business or purpose of this Corporation is from time to time to do any one or
more of the acts and things herein set forth. The enumeration of specific powers
and purposes shall not be held to limit or restrict in any manner any powers or
purposes of this Corporation. In the event that a court of competent
jurisdiction should determine that any portion of any Article or part thereof is
unlawful or unenforceable, such portion shall be deemed severable from the
remainder of such Article or part thereof, and the remainder shall remain in
full force and effect.
ARTICLE III.
------------
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twenty million (20,000,000) divided
into three classes, as follows:
<PAGE>
Five million (5,000,000) shares of voting preferred stock, with a par
value of five dollars ($5.00) per share (hereinafter sometimes referred to as
"Voting Preferred Stock");
Five million (5,000,000) shares of preferred stock, with a par value of
five dollars ($5.00) per share, without voting rights except with respect to
voting rights in the event of a default in the payment of any dividend or with
respect to any provision granting the right to consent to the issuance of a
different series of Preferred Stock which would materially or adversely affect
the rights, preferences or powers of such issuance (hereinafter sometimes
referred to as "Non-voting Preferred Stock"); and
Ten million (10,000,000) shares of common stock, with a par value of
two dollars ($2.00) per share (hereinafter sometimes referred to as "Common
Stock").
ARTICLE IV.
-----------
The Board of Directors is expressly authorized to adopt, from time to
time by resolution, the designation of one or more series of Voting Preferred
Stock, or one or more series of Non-voting Preferred Stock, fixing and
determining the relative rights and preferences thereof. The authority of the
Board of Directors to designate the relative rights and preferences between
series of Voting or Non-voting Preferred Stock shall include the following:
(1) The rate of dividend.
(2) Whether the shares can be redeemed and, if so, the redemption
price and the terms and conditions of redemption. (3) The amount
payable upon the shares in the event of voluntary or involuntary
liquidation. (4) Sinking fund provisions, if any, for the redemption
or purchase of the shares.
(5) The terms and conditions, if any, on which the shares may be
converted.
ARTICLE V.
----------
Subject to any rights to receive dividends to which the holders of the
shares of Voting or Non-voting Preferred Stock may be entitled, the holders of
shares of Common Stock shall be entitled to receive dividends, if and when
declared, payable from time to time by the Board of Directors, from any funds
legally available therefor.
<PAGE>
Except as provided by law or these Articles of Incorporation with
respect to voting by class, each outstanding share of Common Stock and each
outstanding share of Voting Preferred Stock of the Corporation shall entitle the
holder thereof to one vote on each matter submitted to a vote at a meeting of
the shareholders.
ARTICLE VI.
-----------
The shareholders of the Corporation shall have no preemptive right to
acquire shares of the Corporation which would otherwise be available to the
shareholders pursuant to ORS 60.
ARTICLE VII.
------------
In furtherance and addition to, and not in limitation of the powers
conferred on directors by law, the Board of Directors is expressly authorized:
(1) To manage the business and affairs of this Corporation and to
appoint and remove all officers, agents, fiduciaries,
employees, contractors, counsel, auditors and others and to
fix their compensation.
(2) To exercise all powers conferred on this Corporation and all
powers necessary or proper to carry out the purposes of this
Corporation which are not expressly reserved to shareholders
by statute or these Articles of Incorporation and Amendments
thereto.
(3) To adopt, alter, amend or repeal the By-Laws of this
Corporation except as the By-Laws may otherwise provide.
(4) To fix the compensation of Directors.
(5) To authorize or cause to be executed mortgages, liens and
encumbrances upon the real and personal property of this
Corporation.
(6) To set apart out of any of the net profits arising from the
business of this Corporation a reserve or reserves for any
proper purpose or to abolish any such reserve in the manner in
which it was created.
<PAGE>
(7) To fill any vacancy on the Board of Directors occurring by
reason of death, removal, inability to serve or resignation of
a Director, or by reason of an increase in the number of
Directors, by the affirmative vote of a majority of the
remaining Directors.
(8) To provide generally or specifically for the designation of
two or more Directors to constitute an Executive Committee,
which committee may have and may exercise all the authority of
the Board of Directors in the management of this Corporation,
excepting only the authority to amend the Articles of
Incorporation, adopt a plan of merger or consolidation;
recommend to the shareholders the sale, lease, exchange,
mortgage, pledge or other disposition of all or substantially
all the property and assets of this Corporation other than in
the usual course of business; recommend to the shareholders a
voluntary dissolution of the Corporation or a revocation
thereof; or amending the By-Laws of this Corporation.
(9) To distribute assets of this Corporation to the shareholders
in partial liquidation out of stated capital or capital
surplus, in cash or property, in its discretion, if such
distribution is otherwise consistent with laws of the State of
Oregon.
(10) To create and issue (whether or not in connection with the
issuance and sale of any of this Corporation's shares or other
securities or obligations) warrants, rights, options or other
obligations convertible into, exchangeable for or entitling
the holder thereof to purchase from this Corporation, shares
of any class or classes of stock. Such warrants, rights,
options or other obligations shall be evidenced in such manner
as the Board of Directors shall approve and shall set forth
the terms on which, the time or times within which, and the
price or prices at which such shares may be purchased from the
Corporation upon the exercise of any such warrants, rights,
options or other obligations. The price or prices to be
received for any shares, to be issued upon the exercise of
such warrants, rights, options or other obligations shall not
be less than the par value thereof. In the absence of fraud in
<PAGE>
the transaction, the judgment of the Board of Directors as to
the value of the consideration received for such warrants,
rights, options or other obligations or the shares underlying
them shall be conclusive.
(11) To issue authorized, but unissued, shares of this Corporation
at such times, on such terms and for such type and amount of
consideration, not less than the par value thereof if such
shares have a par value, as the Board of Directors may
determine, and the judgment of the Board of Directors as to
the judgment of the consideration received shall be conclusive
in the absence of fraud in the transaction.
(12) To purchase, take, receive or otherwise acquire, hold, own,
pledge, sell, transfer or otherwise assign shares, securities
or other obligations of this Corporation (whether issued,
unissued, or treasury shares or securities, and whether in
connection with the issuance and sale of any stock,
obligations or other securities of this Corporation or
otherwise) at such times, on such terms, and for such
consideration, whether less than the par value thereof or not,
as the Board of Directors shall deem adequate.
(13) To purchase shares or other securities of this Corporation
without limitation for the purpose of eliminating fractional
shares, collecting or compromising indebtedness of this
Corporation, paying dissenting shareholders entitled to
payment for their shares under the laws of the State of
Oregon, or for effecting, subject to the laws of the State of
Oregon, the retirement of redeemable shares of this
Corporation by redemption or by purchase.
ARTICLE VIII.
-------------
(1) Non-Derivative Actions.
-----------------------
Subject to the provisions of Sections (3) and (6) below, the
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative,
(including all appeals) (other than an action by or in the right of the
corporation) by reason of or arising from the fact that the person is or was a
<PAGE>
director or officer of the corporation or one of its subsidiaries, or is or was
serving at the request of the corporation as a director, officer, partner, or
trustee of another foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against reasonable expenses
(including attorney's fees), judgments, fines, penalties, excise taxes assessed
with respect to any employee benefit plan and amounts paid in settlement
actually and reasonably incurred by the person to be indemnified in connection
with such action, suit or proceeding if the person acted in good faith, did not
engage in intentional misconduct, and, with respect to any criminal action or
proceeding, did not know the conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith or, with respect to any
criminal action or proceeding, that the person knew that the conduct was
unlawful.
(2) Derivative Actions.
-------------------
Subject to the provisions of Sections (3) and (6) below, the
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit
(including all appeals) by or in the right of the corporation to procure a
judgment in its favor by reason of or arising from the fact that the person is
or was a director or officer of the corporation or one of its subsidiaries, or
is or was serving at the request of the corporation as a director, officer,
partner, or trustee of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
reasonable expenses (including attorneys' fees) actually incurred by the person
to be indemnified in connection with the defense or settlement of such action or
suit if the person acted in good faith; provided, however, that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for deliberate
misconduct in the performance of that person's duty to the corporation, for any
transaction in which the person received an improper personal benefit, for any
breach of the duty of loyalty to the Corporation, or for any distribution to
shareholders which is unlawful under applicable Oregon law, unless and only to
the extent that the court in which such action or suit was brought shall
<PAGE>
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
(3) Determination of Right To Indemnification in Certain Cases.
-----------------------------------------------------------
Subject to the provisions of Section (5) and (6) below, indemnification
under Sections (1) and (2) of this Article shall not be made by the corporation
unless it is expressly determined that indemnification of the person who is or
was an officer or director, or is or was serving at the request of the
corporation as a director, officer, partner, or trustee of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, is proper in the circumstances because the person has met
the applicable standard of conduct set forth in Sections (1) or (2) That
determination may be made by any of the following:
(a) By the Board of Directors by majority vote of a quorum
consisting of directors who are not or were not parties to the action,
suit or proceeding;
(b) If a quorum cannot be obtained under paragraph (a) of this
subsection, by majority vote of a committee duly designated by the
Board of Directors consisting solely of two or more directors not at
the time parties to the proceeding (directors who are parties to the
proceeding may participate in designation of the committee);
(c) By special legal counsel selected by the Board of
Directors or its committee in the manner prescribed in (a) or (b) or,
if a quorum of the Board of Directors cannot be obtained under (a) and
a committee cannot be designated under (b) the special legal counsel
shall be selected by majority vote of the full Board of Directors,
including directors who are parties to the proceeding;
(d) By the shareholders; or
(e) By a court of competent jurisdiction.
(4) Indemnification of Persons other than Officers or Directors.
------------------------------------------------------------
Subject to the provisions of Section (6), in the event any person not
included with the group of persons referred to or in Sections (1) and (2) of
this Article was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding of a type referred
<PAGE>
to in Sections (1) or (2) of this Article by reason of or arising from the fact
that such person is or was an employee or agent (including an attorney) of the
corporation or one of its subsidiaries, or is or was serving at the request of
the corporation as an employee or agent (including an attorney) of another
foreign or domestic corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, the Board of Directors of the corporation by a
majority vote of a quorum (whether or not such quorum consists in whole or in
part of directors who were parties to such action, suit or proceeding) or the
stockholders of the corporation by a majority vote of the outstanding shares,
may, but shall not be required to, grant to such person a right of
indemnification to the extent described in Sections (1) or (2) of this Article
as if the person were an officer or director referred to therein, provided that
such person meets the applicable standard of conduct set forth in such Sections.
Furthermore, the Board of Directors may designate by resolution in advance of
any action, suit or proceeding, those employees or agents (including attorneys)
who shall have all rights of indemnification granted to officers and directors
under this Article.
(5) Successful Defense.
-------------------
Notwithstanding any other provision of Sections (1), (2), (3) or (4) of
this Article, but subject to the provisions of Section (6), to the extent a
director, officer, employee or agent (including an attorney) is successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections (1), (2) or (4) of this Article, or in defense of any claim, issue
or matter therein, that person shall be indemnified against expenses (including
attorneys fees) actually and reasonably incurred by him in connection therewith.
(6) Condition Precedent to Indemnification
--------------------------------------
Under Sections (1), (2) or (4).
-------------------------------
Any person who desires to receive the benefits otherwise conferred by
Sections (1), (2) or (4) of this Article shall promptly notify the corporation
that the person has been named a defendant to an action, suit or proceeding of a
type referred to in Sections (1), (2) or (4) and intends to rely upon the right
of indemnification described in Sections (1), (2) or (4) of this Article. The
notice shall be in writing and mailed, via registered or certified mail, return
receipt requested, to the President of the corporation at the executive offices
<PAGE>
of the corporation or, in the event the notice is from the President, to the
registered agent of the corporation. Failure to give the notice required hereby
shall entitle the Board of Directors of the corporation by a majority vote of a
quorum (consisting of directors who, insofar as indemnity of officers or
directors is concerned, were not parties to such action, suit or proceeding, but
who, insofar as indemnity of employees or agents is concerned, may or may not
have been parties) or the stockholders of the corporation by a majority of the
votes entitled to be cast by holders of shares of the corporation's stock which
have unlimited voting rights of the corporation to make a determination that
such a failure was prejudicial to the corporation in the circumstances and that,
therefore, the right to indemnification referred to in Sections (1), (2) or (4)
of this Article shall be denied in its entirety or reduced in amount.
(7) Advances for Expenses.
----------------------
Expenses incurred by a person indemnified hereunder in defending a
civil, criminal, administrative or investigative action, suit or proceeding
(including all appeals) or threat thereof, may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such person to repay such expenses if it
shall ultimately be determined that the person is not entitled to be indemnified
by the corporation and a written affirmation of the person's good faith belief
that he or she has met the applicable standard of conduct. The undertaking must
be a general personal obligation of the party receiving the advances but need
not be secured and may be accepted without reference to financial ability to
make repayment.
(8) Insurance.
----------
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation
or one of its subsidiaries or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability asserted against
and incurred by that person in any such capacity, or arising out of his status
as such, whether or not the corporation would have the power to indemnify that
person against such liability under the provisions of this Article or under
applicable Oregon law.
(9) Purpose and Exclusivity.
------------------------
The indemnification referred to in the various Sections of this Article
shall be deemed to be in addition to and not in lieu of any other rights to
which those indemnified may be entitled under any statute, rule of law or
equity, agreement, vote of the stockholders or Board of Directors or otherwise.
The corporation is authorized to enter into agreements of indemnification. The
purpose of this Article is to augment the provisions of applicable Oregon law
dealing with indemnification.
(10) Severability.
-------------
If any of the provisions of this Article are found, in any action, suit
or proceeding, to be invalid or ineffective, the validity and the effect of the
remaining provisions shall not be affected.
ARTICLE IX.
-----------
The initial registered office of the corporation shall be at 1377
Mohawk Boulevard, Springfield, Oregon 97477, and its initial registered agent at
such address is Richard C. Williams.
ARTICLE X.
----------
The number of directors constituting the initial Board of Directors
shall be six (6). The names and addresses of the persons who are to serve as
directors until the first annual meeting of shareholders and until their
successors shall be elected and qualified are as follows:
Brian B. Obie Robert S. Cochran
2560 West 27th Street 3275 Chevy Chase
Eugene, OR 97402 Eugene, OR 97401
Richard C. Williams J. Douglas McKay
515 Dartmoor Drive 450 Stonegate Street
Eugene, OR 97401 Eugene, OR 97401
Robert L. Newburn Clifton G. Christian
420 Spyglass 39147 Camp Creek Road
Eugene, OR 97402 P.O. Box 118
Walterville, OR 97489
<PAGE>
ARTICLE XI.
-----------
In construing these Articles, it is understood that if the context so
requires, the masculine pronoun shall be taken to mean and include the feminine.
ARTICLE XII.
------------
The name and address of the incorporator is as follows:
Kenneth E. Roberts, Jr.
1100 S.W. Sixth Avenue
Portland, Oregon 97204
ARTICLE XIII.
-------------
No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for conduct as a director,
except that this provision shall not eliminate or limit the liability of a
director for any act or omission occurring prior to the date of adoption of this
Article and that this provision shall not eliminate or limit the liability of a
director for (a) any breach of the director's duty of loyalty to the corporation
or its stockholders; (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (c) any distribution to
shareholders which is unlawful under Oregon law; or (d) any transaction from
which the director derived an improper personal benefit. No amendment to or
repeal of this Article shall apply to or have any effect on the liability or
alleged liability of any director of the corporation for or with respect to any
acts or omissions prior to such amendment or repeal.
If Oregon law is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the corporation shall be eliminated or limited to the fullest extent permitted
by Oregon law, as so amended.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTENNIAL
BANCORP'S CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY REPORT ON
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 29,652,721
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 9,095,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 84,730,442
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 402,789,324
<ALLOWANCE> 4,154,237
<TOTAL-ASSETS> 562,530,785
<DEPOSITS> 482,111,659
<SHORT-TERM> 16,173,446
<LIABILITIES-OTHER> 3,658,901
<LONG-TERM> 0
0
0
<COMMON> 29,228,372
<OTHER-SE> 31,358,407
<TOTAL-LIABILITIES-AND-EQUITY> 562,530,785
<INTEREST-LOAN> 32,476,557
<INTEREST-INVEST> 3,533,572
<INTEREST-OTHER> 593,954
<INTEREST-TOTAL> 36,604,083
<INTEREST-DEPOSIT> 11,111,447
<INTEREST-EXPENSE> 11,685,440
<INTEREST-INCOME-NET> 24,918,643
<LOAN-LOSSES> 1,200,000
<SECURITIES-GAINS> 599,885
<EXPENSE-OTHER> 14,315,723
<INCOME-PRETAX> 12,476,611
<INCOME-PRE-EXTRAORDINARY> 8,396,911
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,396,911
<EPS-PRIMARY> .55
<EPS-DILUTED> .52
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 3,690,000
<LOANS-PAST> 571,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,348,914
<CHARGE-OFFS> 426,914
<RECOVERIES> 32,237
<ALLOWANCE-CLOSE> 4,154,237
<ALLOWANCE-DOMESTIC> 4,154,237
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> INFORMATION NOT CALCULATED FOR INTERIM REPORTS.
</FN>
</TABLE>
