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 June 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 / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of latest practicable date:
15,291,316 shares as of July 31, 1998.
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<PAGE>
CENTENNIAL BANCORP
FORM 10-Q
JUNE 30, 1998
INDEX
-----
Page
PART I - FINANCIAL INFORMATION Reference
- ------------------------------ ---------
Condensed Consolidated Balance Sheets as of 3
June 30, 1998 and December 31, 1997.
Condensed Consolidated Statements of Income for 4
the six months and the quarter ended
June 30, 1998 and 1997.
Condensed Consolidated Statements of Cash Flows 5
for the six months ended June 30, 1998 and 1997.
Notes to Condensed Consolidated Financial Statements 6 - 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Overview 11 - 12
Material Changes in Financial Condition 12
Material Changes in Results of Operations 13
Market Risk 14
Loan Loss Provision 14
Liquidity and Capital Resources 14 - 15
Effects of the Year 2000 15 - 16
PART II - OTHER INFORMATION
- ---------------------------
Item 4 - Submission of Matters to a Vote 17
of Security Holders.
Item 6 - Exhibits and Reports on Form 8-K. 18
Signatures 19
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<PAGE>
CENTENNIAL BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents:
Cash and due from banks $ 36,889,165 $ 26,269,239
Federal funds sold 16,724,000 23,800,000
------------ ------------
Total cash and cash equivalents 53,613,165 50,069,239
Securities available-for-sale 70,753,144 83,904,253
Loans held for sale 8,333,388 5,584,947
Loans receivable, net 368,331,472 331,691,399
Federal Home Loan Bank stock 4,893,800 4,711,100
Accrued interest receivable 3,838,875 3,618,596
Premises and equipment, net 11,280,374 10,486,892
Other assets 3,077,518 2,506,985
------------ ------------
$524,121,736 $492,573,411
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits:
Demand $ 96,842,101 $ 97,262,856
Interest-bearing demand 188,374,345 173,583,239
Savings 19,510,665 13,751,676
Time 143,997,506 134,684,313
------------ ------------
Total deposits 448,724,617 419,282,084
Short-term borrowings 4,627,657 7,715,783
Accrued interest and other liabilities 3,601,742 3,765,386
Long-term debt 10,000,000 10,000,000
------------ ------------
Total liabilities 466,954,016 440,763,253
Shareholders' equity:
Preferred stock -- --
Common stock, 15,291,316 issued and outstanding
(14,515,676 at December 31, 1997) 29,148,795 29,031,352
Retained earnings 27,446,685 22,082,696
Unrealized gains on securities available-for-
sale, net 572,240 696,110
------------ ------------
Total shareholders' equity 57,167,720 51,810,158
------------ ------------
$524,121,736 $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 Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $10,966,568 $8,165,583 $20,981,826 $15,803,979
Interest on investment securities 1,199,677 1,172,384 2,441,136 2,380,160
Other interest income 65,468 247,188 147,916 341,556
----------- ---------- ----------- -----------
Total interest income 12,231,713 9,585,155 23,570,878 18,525,695
INTEREST EXPENSE
Interest on deposits 3,629,420 2,975,661 7,006,488 5,677,681
Interest on short-term borrowings 93,208 145,112 180,746 345,905
Interest on long-term debt 117,522 153,080 240,126 304,334
---------- ---------- ----------- -----------
Total interest expense 3,840,150 3,273,853 7,427,360 6,327,920
---------- ---------- ----------- -----------
NET INTEREST INCOME 8,391,563 6,311,302 16,143,518 12,197,775
Loan loss provision 300,000 150,000 600,000 950,000
---------- ---------- ----------- -----------
Net interest income after
loan loss provision 8,091,563 6,161,302 15,543,518 11,247,775
NONINTEREST INCOME
Service charges 295,570 262,114 568,098 499,909
Other 137,401 122,858 319,916 920,605
Net gains on sales of loans 425,153 267,771 730,891 367,347
Net gains on sales of investment securities 262,004 -- 407,316 29,309
---------- ---------- ----------- -----------
Total noninterest income 1,120,128 652,743 2,026,221 1,817,170
NONINTEREST EXPENSE
Salaries and employee benefits 3,374,468 2,238,587 6,385,155 4,327,618
Premises and equipment 690,704 483,209 1,281,535 974,380
Legal and professional 218,966 176,262 410,138 315,579
Advertising 191,549 140,149 336,530 240,474
Printing and stationery 119,001 94,976 225,830 185,558
Other 450,075 481,900 983,962 709,104
----------- ---------- ----------- -----------
Total noninterest expense 5,044,763 3,615,083 9,623,150 6,752,713
----------- ---------- ----------- -----------
Income before income taxes 4,166,928 3,198,962 7,946,589 6,312,232
Provision for income taxes 1,354,200 1,039,700 2,582,600 2,051,500
----------- ---------- ----------- -----------
NET INCOME $ 2,812,728 $2,159,262 $ 5,363,989 $ 4,260,732
=========== ========== =========== ===========
Earnings per common share:
Basic $ .18 $ .14 $ .35 $ .28
Diluted $ .17 $ .14 $ .33 $ .27
Weighted average common shares outstanding:
Basic 15,282,141 15,141,373 15,272,488 15,129,519
Diluted 16,030,505 15,776,903 16,027,144 15,734,756
</TABLE>
See accompanying notes.
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<PAGE>
<TABLE>
<CAPTION>
CENTENNIAL BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1998 1997 1998 1997
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net income $ 2,812,728 $2,159,262 $ 5,363,989 $ 4,260,732
----------- ---------- ----------- -----------
Unrealized gains on securities
available for sale:
Unrealized gains arising
during the period 144,664 1,014,420 1,330,296 217,489
Reclassification adjustment for (gains)
included in statement of income (262,004) -- (407,316) (29,309)
----------- ---------- ----------- -----------
(117,340) 1,014,420 922,980 188,180
Income tax (expense)/benefit 43,230 (385,480) (350,740) (71,510)
---------- ---------- ----------- ------------
Net unrealized gains/(losses) on
securities available for sale (74,110) 628,940 572,240 116,670
----------- ---------- ----------- -----------
Comprehensive income $ 2,738,618 $2,788,202 $ 5,936,229 $ 4,377,402
=========== ========== =========== ===========
</TABLE>
CENTENNIAL BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 2,549,841 $ 4,769,547
----------- -----------
Cash flows from investing activities:
Net increase in loans (37,240,073) (17,306,133)
Purchases of investment securities (1,996,719) (4,974,773)
Proceeds from investment securities:
Maturities 9,428,809 1,889,786
Sales 5,933,057 11,020,078
Purchases of premises and equipment (1,602,839) (364,069)
----------- ----------
Net cash used in investing activities (25,477,765) (9,735,111)
Cash flows from financing activities:
Net increase in deposits 29,442,533 28,544,798
Net decrease in short-term borrowings (3,088,126) (8,471,829)
Proceeds from issuance of common stock 117,443 140,305
----------- -----------
Net cash provided by financing activities 26,471,850 20,213,274
----------- -----------
Net increase in cash and cash equivalents 3,543,926 15,247,710
Cash and cash equivalents at beginning of period 50,069,239 38,397,505
----------- -----------
Cash and cash equivalents at end of period $53,613,165 $53,645,215
=========== ===========
</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.
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
---------------------------------
The composition of the loan portfolio was as follows:
June 30, December 31,
1998 1997
------------ ------------
Real estate -- mortgage $ 89,090,971 $ 87,631,611
Real estate -- construction 116,720,461 89,119,688
Commercial 156,154,087 147,052,433
Installment 6,155,223 6,602,690
Lease financing 2,667,325 3,648,728
Other 2,400,664 1,994,689
------------ ------------
373,188,731 336,049,839
Reserve for loan losses (3,935,368) (3,348,914)
Less deferred loan fees (921,891) (1,009,526)
------------ ------------
$368,331,472 $331,691,399
============ ============
Loans held for sale of $8,333,388 and $5,584,947 at June 30, 1998 and
December 31, 1997, respectively, represent real estate mortgage loans.
These loans are recorded at cost which approximates market.
Transactions in the reserve for loan losses were as follows for the six
months ended June 30:
1998 1997
----------- -----------
Balance at beginning of period $3,348,914 $2,599,653
Provision charged to operations 600,000 950,000
Recoveries 28,271 13,199
Loans charged off (41,817) (443,149)
---------- ----------
Balance at end of period $3,935,368 $3,119,703
========== ==========
At June 30, 1998, Bancorp had eight 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 $830,000
on loans with remaining principal outstanding of $5,276,000 at June 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.
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<PAGE>
No specific valuation allowance was deemed necessary for loans in this
group of smaller loans. The increase in the specific valuation allowance at
June 30, 1998 was primarily attributable to one borrower for which the
specific valuation allowance was $241,000 on loans with remaining principal
outstanding of $2,403,700.
It is Bancorp's policy to place loans on nonaccrual status whenever the
collection of all or a part of the principal balance is in doubt. Loans
placed on nonaccrual status may or may not be contractually past due at the
time of such determination, and may or may not be secured by collateral.
Loans on nonaccrual status at June 30, 1998 and December 31, 1997 were
approximately $1,701,000 and $873,000, respectively.
Loans past due 90 days or more on which Bancorp continued to accrue
interest were approximately $865,000 at June 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 June 30, 1998 or
December 31, 1997.
3. Earnings per Share of Common Stock
----------------------------------
A reconcilement of the basic and diluted earnings per share computations is
as follows:
Three Months Ended
June 30,
------------------------
1998 1997
---------- ----------
Net income available to common
shareholders -- basic and
diluted $2,812,728 $2,159,262
========== ==========
Reconciliation of Basic and Diluted Shares
------------------------------------------
Weighted average shares
outstanding - basic 15,282,141 15,141,373
Incremental shares from
stock options 748,364 635,530
---------- ----------
Weighted average shares
outstanding - diluted 16,030,505 15,776,903
========== ==========
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<PAGE>
Six Months Ended
June 30,
------------------------
1998 1997
---------- ----------
Net income available to common
shareholders -- basic and
diluted $5,363,989 $4,260,732
========== ==========
Reconciliation of Basic and Diluted Shares
------------------------------------------
Weighted average shares
outstanding - basic 15,272,488 15,129,519
Incremental shares from
stock options 754,656 605,237
---------- ----------
Weighted average shares
outstanding - diluted 16,027,144 15,734,756
========== ==========
The weighted average number of common shares outstanding reflects the
effect of stock splits and stock dividends, including an 11-for-10 stock
split declared July 15, 1998.
4. 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 559,020 to 1,100,000.
5. Financial Accounting Standards Board
------------------------------------
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 is defined as the change in equity during
the period from transactions and other events and circumstances from
nonowner sources, which for Bancorp consists of net income and unrealized
gains or losses on securities available for sale, net of related income
taxes.
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<PAGE>
In February 1998, FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefit
- an amendment of FASB Statements No. 87, 88 and 106," 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, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and for hedging activities.
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.
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<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 $5.4 million, or $.35 per share
(basic), for the six months ended June 30, 1998. This represented a 25.9%
increase in net income and a 25.0% increase in earnings per share (basic), as
compared to $4.3 million, or $.28 per share, for the six months ended June 30,
1997. Net income of $2.8 million, or $.18 per share, for the quarter ended June
30, 1998 similarly represented a 30.3% increase in net income and a 28.6%
increase in earnings per share (basic), as compared to $2.2 million, or $.14 per
share for the quarter ended June 30, 1997. The increased earnings during the six
months and the quarter ended June 30, 1998 primarily reflects the expansion of
Bancorp's interest-earning assets and increased net interest income. At June 30,
1998, Bancorp recognized a 21.6% increase in both total assets and
interest-earning assets as compared to June 30, 1997.
The net income recognized during the six months and the second quarter of
1998 increases Bancorp's shareholders' equity. The increases in shareholders'
equity was offset in part by a modest decrease in the value of Bancorp's
securities available-
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<PAGE>
for-sale. This decrease in value resulted from the recognition of gains on sales
of $5.9 million of Bancorp's securities available for sale.
MATERIAL CHANGES IN FINANCIAL CONDITION
- ---------------------------------------
Material changes in financial condition for the six months ended June 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 securities available-for-sale.
This increase was funded by an increase in total deposits, maturities and sales
of securities available-for-sale, and earnings from operations, offset in part
by a reduction in short-term borrowings.
At June 30, 1998, total assets were $524.1 million, representing an
increase of 6.4%, or $31.5 million, over total assets at December 31, 1997. The
increase in total assets includes an increase in loans and loans held for sale
of $40.0 million, primarily due to heightened real estate construction and
commercial loan activity of the Bank and to an increase in real estate mortgage
lending.
Securities available-for-sale decreased $13.2 million (or 15.7%) at June
30, 1998 as compared to December 31, 1997. The decrease resulted from the
maturity or early call for redemption of $9.4 million and the sale of $5.9
million of securities available-for-sale, offset in part by purchases of $2.0
million of securities available-for-sale. Securities available-for-sale were
sold during the six months ended June 30, 1998 to fund strong loan demand during
a period of slow deposit growth.
Total deposits increased $29.4 million (or 7.0%) at June 30, 1998 as
compared to December 31, 1997. The increase in total deposits was concentrated
in the interest-bearing demand deposits, savings and time deposit categories,
primarily occurring towards the end of the quarter ended June 30, 1998.
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 decreased $3.1 million (or 40.0%) at June 30, 1998 as
compared to December 31, 1997. This decrease resulted from decreased sales of
securities under agreement to repurchase
All other changes experienced in asset and liability categories during the
first six months of 1997 were comparatively modest.
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<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS
- -----------------------------------------
Total interest income increased $5.0 million (or 27.2%) for the six months
and $2.7 million (or 27.6%) for the quarter ended June 30, 1998 as compared to
the same periods in 1997. These increases were primarily due to increases in
loans and loans held for sale during 1998 as compared to 1997 and fee income
earned for origination of residential mortgage loans by Mortgage Co. during the
1998 periods. These increases were offset in part by modest decreases in other
interest income for the six months and the quarter ended June 30, 1998 as
compared to the same periods in 1997.
Total interest expense increased $1.1 million (or 17.4%) for the six months
and $566,000 (or 17.3%) for the quarter ended June 30, 1998 as compared to
comparable 1997 periods. These increases were primarily due to increases in
deposits held during 1998 as compared to 1997, which were offset in part by
decreases in interest expense on short-term borrowings and long-term debt during
the 1998 periods.
The increases in interest earned, offset in part by the increases in
interest paid, served to increase Bancorp's net interest income by $3.9 million
(or 32.3%) for the six-month period, and $2.1 million (or 33.0%) for the second
quarter of 1998, over the comparable periods in 1997.
Noninterest income increased $209,000 (or 11.5%) for the six months and
$467,000 (or 71.6%) for the quarter ended June 30, 1998 as compared to the
comparable 1997 periods. The increases for the six-month period and the quarter
were primarily attributable to gains recognized on the sale of loans and gains
on sales of securities available-for-sale. These increases were offset in part
by a decrease during the six months ended June 30, 1998 as compared to June 30,
1997 in other noninterest income, due to the nonrecurring settlement receipt for
a claim against former legal counsel.
Noninterest expense increased $2.9 million (or 42.5%) for the six months
and $1.4 million (or 39.6%) for the quarter ended June 30, 1998 as compared to
the comparable 1997 periods. These increases were primarily attributable to
increases in salaries and employee benefits and premises and equipment expenses
due to the operation of additional branch sites.
The provision for income taxes increased for the six months and the quarter
ended June 30, 1998, commensurate with Bancorp's increase in income before
income taxes. Bancorp's effective tax rate remained at approximately 32.5%.
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<PAGE>
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 June 30,
1998 as compared to December 31, 1997.
LOAN LOSS PROVISION
- -------------------
During the six months ended June 30, 1998, Bancorp charged a $600,000 loan
loss provision to operations, as compared to $950,000 charged during the six
months ended June 30, 1997. Loans charged off, net of recoveries, during the six
months ended June 30, 1998 were $13,500, as compared to net charge-offs of
$429,950 for the 1997 six-month period.
Management believes that the reserve for loan losses is adequate for
potential loan losses, based on management's assessment of various factors,
including present delinquent and non-performing loans, past history of industry
loan loss experience, and present and anticipated future economic trends
impacting the areas and customers served by Bancorp.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Bancorp's principal subsidiary, Centennial Bank, has adopted policies to
maintain a relatively liquid position to enable it to respond to changes in the
Bank's needs and financial environment. Generally, the Bank's major sources of
liquidity are customer deposits, sales and maturities of investment securities,
the use of federal funds markets and net cash provided by operating 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.
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<PAGE>
Along with federal funds lines, the Bank maintains a cash management
advance with the Federal Home Loan Bank, Seattle, Washington, which allows
temporary borrowings for liquidity. At June 30, 1998, Bancorp did not have any
borrowings outstanding from the Federal Home Loan Bank of Seattle under the cash
management advance line.
At June 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 11.5% and 12.3%, respectively. The FRB's minimum risk-based
capital ratio guidelines for Tier 1 and total capital are 4% and 8%,
respectively.
At June 30, 1998, Bancorp's capital-to-assets ratio under leverage ratio
guidelines was approximately 11.1%. The FRB's current minimum leverage capital
ratio guideline is 3%.
Bancorp's $10.0 million bank advance from the FHLB matures August 6, 1998.
Currently, it is management's intent to repay the loan in full and not to incur
additional or new debt. However, if customer loan demand continues to remain as
robust as that demand experienced during the six months ended June 30, 1998,
management may reconsider use of long-term borrowings to ensure liquidity.
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 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
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<PAGE>
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 all issues related to the Year 2000. In addition, management
organized and sponsored seminars for commuinity attendance in the Eugene and
Portland-area markets to elevate public awareness of the potential Year 2000
problems.
To date, Bancorp's Year 2000 task force has identified all computer
hardware and software utilized, 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
already begun. Initial testing of Bancorp's computer system used to account for
customer accounts have 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 the Year 2000.
At the present time, management has budgeted $100,000 for Year 2000
compliance expenses for the year 1998, of which $27,800 has been expended thus
far. Management has not established a budget estimate for Year 2000 compliance
expenses for the year 1999. 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 the Year 2000 effect
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.
-17-
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
Centennial Bancorp held its annual meeting of shareholders on May 20, 1998.
At the meeting, Dan Giustina, Cordy H. Jensen, Robert L. Newburn, Brian B. Obie,
Ted Winnowski and Richard C. Williams were reelected to the Board of Directors
for one-year terms. Voting on the election of directors was as follows:
Votes Votes Broker
For Withheld Non-Votes
---------- -------- ---------
Dan Giustina 12,206,770 30,402 -0-
Cordy H. Jensen 12,205,634 31,538 -0-
Robert L. Newburn 12,206,687 30,485 -0-
Brian B. Obie 12,202,586 34,586 -0-
Ted Winnowski 12,208,620 28,552 -0-
Richard C. Williams 12,206,937 30,235 -0-
In addition to the election of the Board of Directors, shareholders also
approved an amendment to Bancorp's Restated Articles of Incorporation to
eliminate the par value of Bancorp's authorized capital stock. A reconcilement
of the shares voted for the amendment is as follows:
For 11,820,393
Against 130,137
Abstain 162,290
Broker non-votes 124,352
At the meeting, shareholders also approved an amendment to Bancorp's
Restated 1995 Stock Incentive Plan increasing the number of shares issuable
under the Plan from 559,020 to 1,100,000. A reconcilement of the shares voted
for the amendment to the Plan is as follows:
For 11,534,163
Against 567,719
Abstain 135,290
Broker non-votes -0-
-18-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
(a) Exhibits
10.9 Amended and Restated 1995 Stock Incentive Plan, as amended on
March 18, 1998.
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: August 13, 1998 /s/ Richard C. Williams
-----------------------------------
Richard C. Williams
President & Chief Executive Officer
Dated: August 13, 1998 /s/ Michael J. Nysingh
-----------------------------------
Michael J. Nysingh
Chief Financial Officer
-20-
CENTENNIAL BANCORP
RESTATED 1995 STOCK INCENTIVE PLAN
Adopted by the Board of Directors
on November 22, 1995
(Amended and Restated effective
as of March 18, 1998)
I. PURPOSE
The purpose of the Plan is to provide a means by which
selected Employees, Directors and Consultants may be given an opportunity to
acquire stock of the Company. The Company, by means of the Plan, seeks to retain
the services of persons who are currently Employees, Directors or Consultants,
to secure and retain the services of new Employees, Directors and Consultants,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company. Accordingly, the Plan provides for granting Incentive
Stock Options, Nonstatutory Stock Options and Restricted Stock Awards, or any
combination of the foregoing, as is best suited to the circumstances of the
particular person as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the
Plan unless specifically modified by any paragraph:
a. "1934 ACT" means the Securities Exchange Act of 1934, as
amended and in effect from time to time, or any successor statute.
b. "AWARD" means, individually or collectively, any Option
or Restricted Stock Award.
c. "BOARD" means the Board of Directors of Centennial
Bancorp.
d. "CODE" means the Internal Revenue Code of 1986, as
amended and in effect from time to time, or any successor statute.
Reference in the Plan to any section of the Code shall be deemed to
include any amendments or successor provisions to any such section.
e. "COMMITTEE" means not less than two members of the Board
who are selected by the Board as provided in Paragraph A of Article
IV.
f. "COMMON STOCK" means the shares of Common Stock of the
Company, without par value.
g. "COMPANY" means Centennial Bancorp and any Parent and
Subsidiary of Centennial Bancorp.
<PAGE>
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.
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.
<PAGE>
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.
IV. ADMINISTRATION
A. Composition of CommitteeComposition 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 CommitteeAuthority 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.
<PAGE>
C. Liability of Committee MembersLiability 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 PlanCosts 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.
VI. SHARES SUBJECT TO THE PLAN
A. Aggregate Number of SharesAggregate 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 1,100,000 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 OfferedStock 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 PeriodOption 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 OptionLimitations 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 OptionsSpecial
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 CertificatesSeparate 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 AgreementOption 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 PaymentExercise 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 ServiceTermination 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.
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.
<PAGE>
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 ShareholderRights 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
CorporationsOptions 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 PeriodRestriction Period. At the time a
Restricted Stock Award is granted, the Committee shall establish a period of
time (the "Restriction Period") applicable to such Award. Each Restricted Stock
Award may have a different Restriction Period, in the discretion of the
Committee. The Restriction Period applicable to a particular Restricted Stock
Award shall not be changed except as permitted by Paragraph B of this Article
VIII or by Article IX.
B. Other Terms and ConditionsOther 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,
<PAGE>
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 PaymentPurchase 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 AgreementRestricted Stock Agreement. At
the time any Award is granted under this Article VIII, the Company and the
Holder shall enter into a Restricted Stock Agreement setting forth each of the
matters contemplated hereby and such other matters as the Committee may
determine to be appropriate. The terms and provisions of the respective
Restricted Stock Agreements need not be identical.
IX. CHANGES IN CAPITAL STRUCTURE
A. If the outstanding Common Stock is hereafter increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, plan of exchange, recapitalization,
reclassification, stock split-up, combination of shares or dividend payable in
shares, appropriate adjustment shall be made by the Committee in the number and
kind of shares available for Awards. In addition, the Committee shall make
appropriate adjustment in the number and kind of shares as to which outstanding
Options, or portions thereof then unexercised, shall be exercisable, so that the
Holder's proportionate interest before and after the occurrence of the event is
maintained. Notwithstanding the foregoing, the Committee shall have no
obligation to effect any adjustment that would or might result in the issuance
of fractional shares, and any fractional shares resulting from any adjustment
may be disregarded or provided for in any manner determined by the Committee.
Any such adjustments made by the Committee shall be conclusive. Any adjustment
provided for in this Paragraph A of Article IX shall be subject to any required
shareholder action. In the event of dissolution of the Company or a merger,
consolidation, plan of exchange or similar transaction affecting the Company, in
lieu of providing for Options as provided above in this Paragraph A of Article
IX or in lieu of having the Options continue unchanged, the Committee may, in
its sole discretion, provide a 30-day period prior to such event during which
Holders shall have the right to 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
<PAGE>
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.
XI. MISCELLANEOUS
A. No Right To An AwardNo 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 ConferredNo 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; WithholdingOther 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 ActionNo 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 TransferRestrictions 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
<PAGE>
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 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 LawGoverning 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. HeadingsHeadings. Headings contained in the Plan are
for reference purposes and shall not affect the meaning or interpretation of the
Plan.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTENNIAL
BANCORP'S CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY REPORT ON
FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CAPTION>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 36,889,165
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,724,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70,753,144
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 368,331,472
<ALLOWANCE> 3,935,368
<TOTAL-ASSETS> 524,121,736
<DEPOSITS> 448,724,617
<SHORT-TERM> 4,627,657
<LIABILITIES-OTHER> 3,601,742
<LONG-TERM> 10,000,000
0
0
<COMMON> 29,148,795
<OTHER-SE> 28,018,925
<TOTAL-LIABILITIES-AND-EQUITY> 524,121,736
<INTEREST-LOAN> 20,981,826
<INTEREST-INVEST> 2,441,136
<INTEREST-OTHER> 147,916
<INTEREST-TOTAL> 23,570,878
<INTEREST-DEPOSIT> 7,006,488
<INTEREST-EXPENSE> 7,427,360
<INTEREST-INCOME-NET> 16,143,518
<LOAN-LOSSES> 600,000
<SECURITIES-GAINS> 407,316
<EXPENSE-OTHER> 9,623,150
<INCOME-PRETAX> 7,946,589
<INCOME-PRE-EXTRAORDINARY> 5,363,989
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,363,989
<EPS-PRIMARY> .35
<EPS-DILUTED> .33
<YIELD-ACTUAL> 0<F1>
<LOANS-NON> 1,701,000
<LOANS-PAST> 865,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,348,914
<CHARGE-OFFS> 41,817
<RECOVERIES> 28,271
<ALLOWANCE-CLOSE> 3,935,368
<ALLOWANCE-DOMESTIC> 3,935,368
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> INFORMATION NOT CALCULATED FOR INTERIM REPORTS.
</FN>
</TABLE>
