-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AVnUvICluhRnm1WsLYIuDEtycAjyL26KiIOESthNg/dMDVVr0AgHRr+bPbGjcakX Tjsmzf6IaAUEP8JmQf4SNg== 0000910117-97-000135.txt : 19970815 0000910117-97-000135.hdr.sgml : 19970815 ACCESSION NUMBER: 0000910117-97-000135 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTENNIAL BANCORP CENTRAL INDEX KEY: 0000702430 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 930792841 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10489 FILM NUMBER: 97661526 BUSINESS ADDRESS: STREET 1: 675 OAK ST CITY: EUGENE STATE: OR ZIP: 97401 BUSINESS PHONE: 5033423970 MAIL ADDRESS: STREET 1: 675 OAK STREET CITY: EUGENE STATE: OR ZIP: 97401 FORMER COMPANY: FORMER CONFORMED NAME: VALLEY WEST BANCORP DATE OF NAME CHANGE: 19900812 10-Q 1 PERIOD ENDED JUNE 30, 1997 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q /X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1997 ------------- OR / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ---------- ---------- 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: 7,212,309 shares as of July 31, 1997. CENTENNIAL BANCORP FORM 10-Q JUNE 30, 1997 INDEX ----- Page PART I - FINANCIAL INFORMATION Reference - ------------------------------ --------- Condensed Consolidated Balance Sheets as of 3 June 30, 1997 and December 31, 1996. Condensed Consolidated Statements of Income for 4 the six months and the quarter ended June 30, 1997 and 1996. Condensed Consolidated Statements of Cash Flows 5 for the six months ended June 30, 1997 and 1996. Notes to Condensed Consolidated Financial Statements 6 - 11 Management's Discussion and Analysis of Financial Condition and Results of Operations: Overview 12 - 13 Material Changes in Financial Condition 13 - 14 Material Changes in Results of Operations 14 - 17 Loan Loss Provision 17 Liquidity and Capital Resources 187- 18 PART II - OTHER INFORMATION - --------------------------- Item 4 - Submission of Matters to a Vote 19 of Security Holders. Item 6 - Exhibits and Reports on Form 8-K. 19 Signatures 20 Exhibit Index 21 CENTENNIAL BANCORP CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1997 1996 ------------- ------------- ASSETS - ------ Cash and cash equivalents: Cash and due from banks $ 29,662,215 $ 26,827,505 Interest-bearing balances due from banks 13,653,000 11,570,000 Federal funds sold 10,330,000 -- ------------ ------------ Total cash and cash equivalents 53,645,215 38,397,505 Securities available-for-sale 74,994,042 82,654,422 Loans held for sale 3,577,737 3,537,996 Loans receivable, net 278,848,124 262,491,991 Federal Home Loan Bank stock 4,526,800 4,365,800 Accrued interest receivable 3,108,553 3,309,363 Premises and equipment, net 9,126,050 9,346,825 Other assets 3,075,222 3,081,702 ------------ ------------ $430,901,743 $407,185,604 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Liabilities: Deposits: Demand $ 86,721,845 $ 74,350,639 Interest-bearing demand 143,261,893 130,659,749 Savings 14,262,728 13,746,547 Time 124,253,577 121,198,310 ------------ ------------ Total deposits 368,500,043 339,955,245 Short-term borrowings 3,843,754 12,315,583 Accrued interest and other liabilities 2,660,190 3,568,917 Long-term debt 10,000,000 10,000,000 ------------ ------------ Total liabilities 385,003,987 365,839,745 Shareholders' equity: Preferred stock, $5.00 par value; none issued Non-voting, 5,000,000 shares authorized -- -- Voting, 5,000,000 shares authorized -- -- Common stock, $2.00 par value; 10,000,000 shares authorized, 7,212,309 issued and outstanding (6,535,447 at December 31, 1996) 14,424,618 13,070,894 Additional paid-in capital 9,923,752 11,137,171 Retained earnings 21,432,716 17,171,984 Unrealized gains (losses) on securities available-for- sale, net of related taxes 116,670 (34,190) ------------ ------------ Total shareholders' equity 45,897,756 41,345,859 ------------ ------------ $430,901,743 $407,185,604 ============ ============
See accompanying notes. CENTENNIAL BANCORP CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
The Quarter Ended The Six Months Ended June 30, June 30, --------------------------- -------------------------- 1997 1996 1997 1996 ---------- ----------- ----------- ---------- INTEREST INCOME Interest and fees on loans $8,165,583 $6,265,594 $15,803,979 $11,982,880 Interest on investment securities 1,172,384 1,289,922 2,380,160 2,495,795 Other interest income 247,188 72,287 341,556 228,784 ---------- ---------- ----------- ----------- Total interest income 9,585,155 7,627,803 18,525,695 14,707,459 INTEREST EXPENSE Interest on deposits 2,975,661 2,203,233 5,677,681 4,264,389 Interest on short-term borrowings 145,112 275,309 345,905 495,684 Interest on long-term debt 153,080 167,054 304,334 341,871 ---------- ---------- ----------- ----------- Total interest expense 3,273,853 2,645,596 6,327,920 5,101,944 ---------- ---------- ----------- ----------- NET INTEREST INCOME 6,311,302 4,982,207 12,197,775 9,605,515 Loan loss provision 150,000 135,000 950,000 285,000 ---------- ---------- ----------- ----------- Net interest income after loan loss provision 6,161,302 4,847,207 11,247,775 9,320,515 NONINTEREST INCOME Service charges on deposit accounts 262,114 243,462 499,909 478,926 Other 122,858 116,020 920,605 242,527 Gains on sales of loans 267,771 149,748 367,347 285,529 Gains on sales of investment securities -- 6,595 29,309 6,595 --------- ---------- ----------- ----------- Total noninterest income 652,743 515,825 1,817,170 1,013,577 NONINTEREST EXPENSE Salaries and employee benefits 2,238,587 1,841,441 4,327,618 3,596,614 Premises and equipment 483,209 499,691 974,380 940,993 Legal and professional 176,262 135,031 315,579 233,229 Advertising 140,149 132,562 240,474 243,086 Printing and stationery 94,976 84,528 185,558 153,057 Other 481,900 350,087 709,104 694,903 ---------- ---------- ----------- ----------- Total noninterest expense 3,615,083 3,043,340 6,752,713 5,861,882 ---------- ---------- ----------- ----------- Income before income taxes 3,198,962 2,319,692 6,312,232 4,472,210 Provision for income taxes 1,039,700 753,800 2,051,500 1,453,400 ---------- ---------- ----------- ----------- NET INCOME $2,159,262 $1,565,892 $ 4,260,732 $ 3,018,810 ========== ========== =========== =========== Earnings per common share: Primary $ .29 $ .25 $ .57 $ .48 Fully diluted $ .29 $ .23 $ .57 $ .45 Weighted average common shares outstanding: Primary 7,512,811 6,415,851 7,492,741 6,427,951 Fully diluted 7,512,811 7,367,585 7,492,741 7,269,685
See accompanying notes. CENTENNIAL BANCORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
The Six Months Ended June 30, -------------------------- 1997 1996 ------------ ------------ Net cash provided by operating activities $ 4,769,547 $ 3,117,820 Cash flows from investing activities: Net increase in loans (17,306,133) (39,624,314) Investment security purchases (4,974,773) (14,825,926) Proceeds from investment securities: Maturities 1,889,786 3,376,914 Sales 11,020,078 6,304,169 Purchases of premises and equipment (364,069) (587,910) ----------- ----------- Net cash used by investing activities (9,735,111) (45,357,067) Cash flows from financing activities: Net increase in deposits 28,544,798 20,392,917 Net increase (decrease) in short-term borrowings (8,471,829) 7,475,548 Proceeds from issuance of common stock 140,305 168,334 ----------- ----------- Net cash provided by financing activities 20,213,274 28,036,799 ----------- ----------- Net increase (decrease) in cash and cash equivalents 15,247,710 (14,202,448) Cash and cash equivalents at beginning of period 38,397,505 36,721,459 ----------- ----------- Cash and cash equivalents at end of period $53,645,215 $22,519,011 =========== =========== Supplemental Disclosure of Cash Flow Information: Noncash investing and financing activities: Conversion of debentures to common stock $ -- $ 1,479,000 Net costs attributable to debentures converted -- (106,219) Cash paid in lieu of issuance of fractional shares -- (90) ---------- ----------- $ -- $ 1,372,691 =========== ===========
See accompanying notes. CENTENNIAL BANCORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation --------------------- The interim condensed consolidated financial statements include the accounts of Centennial Bancorp, a bank holding company ("Bancorp"), and its wholly owned subsidiaries, Centennial Bank ("Bank") and Centennial Mortgage Co. ("Mortgage Co."). The Bank is an Oregon state-chartered bank which provides commercial banking services. Mortgage Co. originates residential mortgage loans for resale in the secondary market. The interim condensed consolidated financial statements are unaudited, but include all adjustments, consisting only of normal accruals, which Bancorp considers necessary for a fair presentation of the results of operations for such interim periods. All significant intercompany balances and transactions have been eliminated in consolidation. The balance sheet data as of December 31, 1996 was derived from audited financial statements, but does not include all disclosures contained in Bancorp's 1996 Annual Report to Shareholders. The interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, including the notes thereto, included in Bancorp's 1996 Annual Report to Shareholders. Certain amounts for 1996 have been reclassified to conform with the 1997 presentation. 2. Loans and Reserve for Loan Losses --------------------------------- The composition of the loan portfolio was as follows: June 30, December 31, 1997 1996 ------------ ------------ Real estate -- mortgage $ 73,582,728 $ 70,126,798 Real estate -- construction 69,558,556 66,243,687 Commercial 126,839,039 116,815,814 Installment 6,471,532 6,425,215 Lease financing 3,970,189 3,774,748 Other 2,382,223 2,634,659 ------------ ------------ 282,804,267 266,020,921 Reserve for loan losses (3,119,703) (2,599,653) Less deferred loan fees (836,440) (929,277) ------------ ------------ $278,848,124 $262,491,991 ============ ============ Loans held for sale of $3,577,737 and $3,537,996 at June 30, 1997 and December 31, 1996, respectively, represent real estate mortgage loans. These loans are recorded at cost which approximates market. Transactions in the reserve for loan losses were as follows for the six months ended June 30: 1997 1996 ----------- ----------- Balance at beginning of period $2,599,653 $1,928,372 Provision charged to operations 950,000 285,000 Recoveries 13,199 4,722 Loans charged off (443,149) (9,086) ---------- ---------- Balance at end of period $3,119,703 $2,209,008 ========== ========== At June 30, 1997, Bancorp had five loans requiring a specific valuation allowance in accordance with Statement of Financial Accounting Standards ("SFAS") No. 114, as amended by SFAS No. 118 (two loans at December 31, 1996). The specific valuation allowance was $200,000 on loans with remaining principal outstanding of $1,816,000 at June 30, 1997 ($300,000 and $1,100,000, respectively, at December 31, 1996). Each loan with a current outstanding principal balance of less than $100,000 is grouped into one homogenous pool when considering the valuation allowance. It is Bancorp's policy to place loans on nonaccrual status whenever the collection of all or a part of the principal balance is in doubt. Loans placed on nonaccrual status may or may not be contractually past due at the time of such determination, and may or may not be secured by collateral. Loans on nonaccrual status at June 30, 1997 and December 31, 1996 were approximately $795,000 and $1,480,000, respectively. Loans past due 90 days or more on which Bancorp continued to accrue interest were approximately $351,000 at June 30, 1997, and approximately $420,000 at December 31, 1996. There were no loans on which the interest rate or payment schedule were modified from their original terms to accommodate a borrower's weakened financial position at June 30, 1997 or December 31, 1996. 3. Earnings Per Common Share ------------------------- Primary earnings per common share is calculated by dividing net income by the weighted average shares outstanding. Weighted average shares outstanding consists of common shares outstanding and common stock equivalents attributable to outstanding stock options. Fully diluted earnings per share for 1996 is calculated by dividing net income plus after-tax interest incurred on the 7% Convertible Debentures by common shares outstanding, common stock equivalents attributable to outstanding stock options, and shares assumed to be issued on conversion of the Convertible Debentures. The Convertible Debentures were issued in 1994 and were redeemed in December 1996. The weighted average number of shares and common share equivalents have been adjusted to give retroactive effect to an 11-for-10 stock split declared July 16, 1997, and stock splits and stock dividends declared prior to that date. 4. Financial Accounting Standards Board ------------------------------------ The Financial Accounting Standards Board ("FASB") has issued several accounting pronouncements which Bancorp will be required to adopt in future fiscal reporting periods. SFAS No. 125 ------------ On June 28, 1996, FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," as amended by SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." This Statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities based on consistent application of a financial-components approach that focuses on control. Bancorp adopted SFAS No. 125 on January 1, 1997 with no material impact on its financial statements. SFAS No. 128 ------------ In February 1997, FASB adopted SFAS No. 128, "Earnings per Share," which is effective for financial statements issued for periods ending after December 15, 1997. SFAS No. 128 establishes standards for computing and presenting earnings per share, supersedes the prior standards and makes the standards comparable to international standards for the computation of earnings per share. SFAS No. 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. SFAS No. 128 also requires dual presentation of basic and diluted earnings per share on the income statement for certain companies, and requires a reconcilement of the numerator and denominator of the basic earnings per share to the numerator and denominator of the diluted earnings per share computation. SFAS No. 128 also requires restatement of all prior period earnings-per-share data presented. Management has calculated that, if the provisions of SFAS No. 128 were adopted as of January 1, 1997, Bancorp's primary earnings per share of $.57 and $.29 for the six months and the quarter ended June 30, 1997, respectively, would change to basic earnings per share of $.59 and $.30, respectively. Bancorp's primary earnings per share of $.48 and $.25 for the six months and the quarter ended June 30, 1996, respectively, would change to basic earnings per share of $.50 and $.26, respectively. There would be no effect on diluted earnings per share as reported. SFAS No. 129 ------------ In February 1997, FASB issued SFAS No. 129, "Disclosures of Information about Capital Structure." This Statement, which establishes standards for disclosing information about an entity's capital structure, is effective for financial statements for periods ending after December 15, 1997. This statement is not expected to have a material impact on Bancorp's financial statements. SFAS No. 130 ------------ In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes requirements for disclosure of comprehensive income and becomes effective for Bancorp for the year ending December 31, 1998. Comprehensive income includes such items as foreign currency translation adjustments and unrealized gains and losses on securities available-for-sale that are currently being included as a component of shareholders' equity. Bancorp does not expect this pronouncement to materially impact Bancorp's financial condition or results of operations. SFAS No. 131 ------------ In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires publicly-held companies to report financial and other information about key revenue-producing segments of the entity for which such information is available and is utilized by the chief operation decision maker. Specific information to be reported for individual segments includes profit or loss, certain revenue and expense items and total assets. A reconciliation of segment financial information to amounts reported in the financial statements will be required. SFAS No. 131 is effective for Bancorp in 1998 and it has not been determined whether Bancorp will be required to make any additional disclosure. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS, WHICH ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WHEN USED IN THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVE" AND "EXPECT," AND WORDS OR PHRASES OF SIMILAR IMPORT, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSES ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE: CHANGES IN GENERAL BUSINESS AND ECONOMIC CONDITIONS, PARTICULARLY IN OREGON; CHANGES IN THE INTEREST RATE ENVIRONMENT; COMPETITIVE FACTORS, INCLUDING INCREASED COMPETITION AND INTEREST RATE PRESSURES; CHANGES IN REGULATORY OR OTHER EXTERNAL FACTORS; AND OTHER FACTORS LISTED FROM TIME TO TIME IN BANCORP'S SEC REPORTS, INCLUDING BUT NOT LIMITED TO, EXHIBIT 99.1 TO BANCORP'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, WHICH IS INCORPORATED HEREIN BY REFERENCE. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. BANCORP DOES NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS. OVERVIEW - -------- Centennial Bancorp reported net income of $4.3 million or $.57 per share (primary), for the six months ended June 30, 1997. This represented a 41% increase in net income and a 19% increase in earnings per share (primary), as compared to $3.0 million, or $.48 per share, for the six months ended June 30, 1996. Net income of $2.2 million, or $.29 per share, for the quarter ended June 30, 1997 similarly represented a 38% increase in net income and a 16% increase in earnings per share (primary), as compared to $1.6 million, or $.25 per share for the quarter ended June 30, 1996. The increased earnings during the six months and the quarter ended June 30, 1997 reflected primarily the expansion of Bancorp's interest-earning assets and increased net interest income. At June 30, 1997, Bancorp recognized a 24% increase in both total assets and interest-earning assets as compared to June 30, 1996. The net income added to shareholders' equity during the six months and the second quarter of 1997 was augmented by a modest increase in the value of Bancorp's securities available-for-sale. This increase in value resulted from a decrease in interest rates which caused bond prices to increase. MATERIAL CHANGES IN FINANCIAL CONDITION - --------------------------------------- Material changes in financial condition for the six months ended June 30, 1997 include an increase in total assets, primarily in cash and cash equivalents and loans and loans held for sale, which was offset in part by a decrease in securities available-for-sale. Funds were provided for these increases by an increase in total deposits, maturities and sales of securities available-for-sale, and earnings. The funds provided for the increases in assets were offset in part by a reduction in short-term borrowings. At June 30, 1997, total assets were $430.9 million, representing an increase of 5.8%, or $23.7 million, over total assets at December 31, 1996. The increase in total assets includes an increase in loans and loans held for sale of $16.4 million, primarily due to commercial loan activity of the Bank, and also due to an increase in real estate construction and real estate mortgage lending. Cash and cash equivalents increased $15.2 million (or 40%) at June 30, 1997 as compared to December 31, 1996. Cash and cash equivalents can fluctuate significantly on a day-to-day basis and are subject to disbursements of loans proceeds to borrowers, payment of loans by borrowers, submission of checks deposited by customers to other banks for payment and payment to other banks by Bancorp for checks drawn against customer accounts. Total deposits increased $28.5 million (or 8%) at June 30, 1997 as compared to December 31, 1996. The majority of the increase in total deposits was experienced in demand deposits and interest-bearing demand deposits. Bancorp actively solicits demand and interest-bearing demand deposit accounts due to the lower costs associated with those deposit categories. Bancorp will also solicit time deposits when needed to provide funds for expansion of the loan portfolio. However, time deposits are the most costly category of deposits for Bancorp to maintain due to interest rate competition. In most prior years, Bancorp has experienced a decrease in deposits during all or part of the first quarter of the year, with deposit activity increasing significantly the remainder of each year. During the first quarter of 1997, Bancorp experienced a modest increase of $249,000 in total deposits. Because of its limited growth in deposits, management liquidated $11.0 million of securities available-for-sale during the first quarter of 1997 to accommodate the increase in loans being experienced at that time. Short-term borrowings decreased $8.5 million (or 69%) at June 30, 1997 as compared to December 31, 1996. This decrease resulted from the maturity and repayment of borrowings from the Federal Home Loan Bank of Seattle. Management elected to repay this loan due to Bancorp's increase in total deposits experienced during the second quarter, which provided ample liquidity to satisfy the obligation and provide funds for the growth experienced in loans. All other changes experienced in asset and liability categories during the first six months of 1996 were comparatively modest. MATERIAL CHANGES IN RESULTS OF OPERATIONS - ----------------------------------------- Total interest income increased $3.8 million (or 26%) for the six months and $2.0 million (also 26%) for the quarter ended June 30, 1997 as compared to the same periods in 1996. These increases were primarily due to increases in loans and loans held for sale during 1997 as compared to 1996. Bancorp also recognized modest increases in other interest income for the six months and the quarter ended June 30, 1997 as compared to the same periods in 1996, but these increases were primarily offset by decreases in interest on securities available-for-sale. Total interest expense similarly increased $1.2 million (or 24%) for the six months and $628,000 (also 24%) for the quarter ended June 30, 1997 as compared to the comparable 1996 periods. These increases were primarily due to the increase in deposits held during 1997 as compared to 1996, which were offset in part by decreases in interest expense on short-term borrowings and long-term debt during the 1997 periods. The increases in interest earned, offset in part by the increases in interest paid, served to increase Bancorp's net interest income by $2.6 million (or 27%) for the six-month period, and $1.3 million (also 27%) for the second quarter of 1997, over the comparable periods in 1996. Noninterest income increased $804,000 (or 79%) for the six months and $137,000 (or 27%) for the quarter ended June 30, 1997 as compared to the comparable 1996 periods. The increase for the six-month period was primarily attributable to receipt of a settlement payment for a claim the Bank brought against former legal counsel. The increase for the quarter ended June 30, 1997 was primarily attributable to an increase in gains recognized on sales of residential mortgage loans due to the more stable interest rate environment experienced during the second quarter of 1997 which resulted in an increase in residential mortgage loan activity. Noninterest expense increased $891,000 (or 15%) for the six months ended June 30, 1997 as compared to the comparable 1996 periods. Approximately $572,000 of the increase in noninterest expense was incurred during the quarter ended June 30, 1997. The increases for the six-month and the quarterly periods were primarily attributable to increases in salaries and employee benefits, legal and professional fees and other noninterest expense. Salaries and employee benefits increased $731,000 during the six months and $397,000 during the quarter ended June 30, 1997 as compared to the 1996 periods. These increases were due to additions to the Bank's and Mortgage Co.'s staffs to accommodate their increased business activities and to operate the additional branch office of the Bank that opened in the Portland area in January 1997. The increases were also due to the addition of staff to manage a future branch office of the Bank located in the Tanasbourne area of Portland. Management intends to open the branch in a temporary facility during the third quarter of 1997 during construction of the permanent building. Subsequent to June 30, 1997, the Bank opened four branch offices located in Portland area retirement centers. These four branches offer a full range of deposit services to the residents of the retirement facilities, but are operated on a limited-hour basis. Management does not anticipate that overhead expenses of operating these retirement center branches will materially impact Bancorp's salary and employee benefit or premises and equipment expense categories. Premises and equipment expense increased $33,000 during the six months ended June 30, 1997 as compared to the 1996 period, but decreased $17,000 during the 1997 quarter as compared to the 1996 quarter. The increase was primarily the result of opening the additional full-service branch in Portland and additional depreciation for data processing equipment. Legal and professional expenses increased $82,000 for the six months and $41,000 for the quarter ended June 30, 1997 as compared to the 1996 periods. These increases were due to legal expenses associated with ongoing litigation in the normal course of Bancorp's business, and to fees charged for personnel acquisition services. Other noninterest expense increased $14,000 during the six months and $132,000 during the quarter ended June 30, 1997 as compared to the comparable 1996 periods. The increase for the second quarter of 1997 was primarily attributable to Bancorp's increased operating levels. The increase for the 1997 six-month period was offset in part by the recapture of a contingency reserve during the first quarter of 1997, which management deemed no longer necessary. The provision for income taxes increased for the six months and the quarter ended June 30, 1997 by 41%, commensurate with Bancorp's increase in income before income taxes. Bancorp's effective tax rate remained at approximately 32.5%, primarily due to the amount of nontaxable interest income earned on securities issued by states and political subdivisions. LOAN LOSS PROVISION - ------------------- During the six months ended June 30, 1997, Bancorp charged a $950,000 loan loss provision to operations, as compared to $285,000 charged during the six months ended June 30, 1996. Loans charged off, net of recoveries, during the six months ended June 30, 1997 were $429,950, as compared to net charge-offs of $4,364 for the 1996 six-month period. The increase in the amount of loans charged off, net of recoveries, during the six months ended June 30, 1997 was primarily attributable to management's determination that portions of two loans on which a specific valuation allowance in accordance with SFAS No. 114 had previously been established were uncollectible. The loan loss provision was increased to provide coverage for the significant increase in loans. Management believes that the reserve for loan losses is adequate for potential loan losses, based on management's assessment of various factors, including present delinquent and non-performing loans, past history of industry loan loss experience, and present and anticipated future economic trends impacting the areas and customers served by Bancorp. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Bancorp's principal subsidiary, Centennial Bank, has adopted policies to maintain a relatively liquid position to enable it to respond to changes in the Bank's needs and financial environment. Generally, the Bank's major sources of liquidity are customer deposits, sales and maturities of investment securities, the use of federal funds markets and net cash provided by operating activities. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and unscheduled loan prepayments, which are influenced by general interest rate levels, interest rates available on other investments, competition, economic conditions and other factors, are not. Along with federal funds lines, the Bank maintains a cash management advance with the Federal Home Loan Bank, Seattle, Washington, which allows temporary borrowings for liquidity. At June 30, 1997, Bancorp's Tier 1 and total risk-based capital ratios under the Federal Reserve Board's ("FRB") risk-based capital guidelines were approximately 11.0% and 11.8%, respectively. The FRB's minimum risk-based capital ratio guidelines for Tier 1 and total capital are 4% and 8%, respectively. At June 30, 1997, Bancorp's capital-to-assets ratio under leverage ratio guidelines was approximately 8.6%. The FRB's current minimum leverage capital ratio guideline is 3%. Subsequent to June 30, 1997, the Bank received regulatory approval to open a full service office in the Tanasbourne area of Portland, and spent $1.2 million to acquire land at that site. The Bank intends to construct a 14,000 square foot facility at the site. Management has projected the cost of the facility to be $1.5 million, and anticipates that furniture and equipment will cost between $200,000 and $300,000. Management intends to fund the construction of the facility and the furniture and equipment costs through internal cash flow. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- Centennial Bancorp held its annual meeting of shareholders on May 21, 1997. At the meeting, Dan Giustina, Cordy H. Jensen, Robert L. Newburn, Brian B. Obie and Richard C. Williams were reelected to the Board of Directors for one-year terms. Voting on the election of directors was as follows: Votes Votes Broker For Withheld Non-Votes --------- -------- --------- Dan Giustina 4,988,912 25,331 -0- Cordy H. Jensen 4,987,129 27,114 -0- Robert L. Newburn 4,989,548 24,695 -0- Brian B. Obie 4,984,776 29,467 -0- Richard C. Williams 4,988,842 25,401 -0- Item 6. Exhibits and Reports on Form 8-K. - ------------------------------------------ (a) Exhibits 27 Financial Statement Schedule (b) Reports on Form 8-K None SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTENNIAL BANCORP Dated: August 13, 1997 /s/ Richard C. Williams ----------------------------------- Richard C. Williams President & Chief Executive Officer Dated: August 13, 1997 /s/ Michael J. Nysingh ----------------------------------- Michael J. Nysingh Chief Financial Officer FORM 10-Q EXHIBIT INDEX ------------- EXHIBIT PAGE - ------- ---- (27) Financial Data Schedule 21 EX-27 2 ART. 9 FDS FOR 2ND QUARTER 10-Q
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CENTENNIAL BANCORP'S CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1996 JUN-30-1997 29,662,215 13,653,000 10,330,000 0 74,994,042 0 0 281,967,827 3,119,703 430,901,743 368,500,043 3,843,754 2,660,190 10,000,000 0 0 14,424,618 31,473,138 430,901,743 15,803,979 2,380,160 341,556 18,525,695 5,677,681 6,327,920 12,197,775 950,000 29,309 6,752,713 6,312,232 4,260,732 0 0 4,260,732 .57 .57 0 795,000 351,000 0 0 2,599,653 443,149 13,199 3,119,703 3,119,703 0 0 INFORMATION NOT CALCULATED FOR INTERIM REPORTS.
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