-----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, T/uKuWL37Jx+D+FhCQYM+KU38VvmTkvaAw/MMQsiwnlGFgw2kdL798WufNW59cQl 9utO0tOuNVHlXc5e9WLOtQ== /in/edgar/work/20000814/0000910117-00-000082/0000910117-00-000082.txt : 20000921 0000910117-00-000082.hdr.sgml : 20000921 ACCESSION NUMBER: 0000910117-00-000082 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTENNIAL BANCORP CENTRAL INDEX KEY: 0000702430 STANDARD INDUSTRIAL CLASSIFICATION: [6022 ] IRS NUMBER: 930792841 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10489 FILM NUMBER: 698992 BUSINESS ADDRESS: STREET 1: BENJAMIN FRANKLIN PLZ STREET 2: ONE SW COLUMBIA ST SUITE 900 CITY: PORTLAND STATE: OR ZIP: 97258 BUSINESS PHONE: 5039735556 MAIL ADDRESS: STREET 1: BENJAMIN FRANKLIN PLZ STREET 2: ONE SW COLUMBIA ST SUITE 900 CITY: PORTLAND STATE: OR ZIP: 97258 FORMER COMPANY: FORMER CONFORMED NAME: VALLEY WEST BANCORP DATE OF NAME CHANGE: 19900812 10-Q 1 0001.txt PERIOD ENDED JUNE 30, 2000 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, 2000 ------------- 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) Benjamin Franklin Plaza One S.W. Columbia Street, Suite 900 Portland, Oregon 97258 (Address of principal executive offices) (Zip Code) (503) 973-5556 (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: 20,682,290 shares as of July 31, 2000. 2 CENTENNIAL BANCORP FORM 10-Q JUNE 30, 2000 INDEX ----- Page PART I - FINANCIAL INFORMATION Reference - ------------------------------ --------- Condensed Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 4 Condensed Consolidated Statements of Income for the six months and the quarter ended June 30, 2000 and 1999 5 Condensed Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 2000 and 1999 6 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999 7 Notes to Condensed Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations: Overview 13 Material Changes in Financial Condition 14 Material Changes in Results of Operations 15 Market Risk 16 Liquidity and Capital Resources 16 Effects of the Year 2000 17 PART II - OTHER INFORMATION - --------------------------- Item 4 - Submission of Matters to a Vote of Security Holders 18 Item 5 - Other Information 18 Item 6 - Exhibits and Reports on Form 8-K 19 Signatures 20 3 CENTENNIAL BANCORP CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 2000 1999 ------------ ------------ ASSETS - ------ Cash and cash equivalents: Cash and due from banks $ 40,800,148 $ 29,934,856 Federal funds sold 2,030,000 -- ------------ ------------ Total cash and cash equivalents 42,830,148 29,934,856 Securities available-for-sale 58,228,607 59,358,757 Mortgage loans held for sale 6,937,535 6,155,343 Loans, net 668,049,344 587,507,784 Federal Home Loan Bank stock 5,646,900 5,468,800 Premises and equipment, net 15,838,932 15,911,497 Other assets 24,118,100 22,400,675 ------------ ------------ $821,649,566 $726,737,712 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Liabilities: Deposits: Demand $123,734,610 $106,113,028 Interest-bearing demand 250,856,098 246,690,606 Savings 51,290,967 33,320,788 Time 241,023,169 186,917,061 ------------ ------------ Total deposits 666,904,844 573,041,483 Short-term borrowings 67,607,244 74,553,967 Accrued interest and other liabilities 6,230,438 4,813,501 ------------ ------------ Total liabilities 740,742,526 652,408,951 Shareholders' equity: Preferred stock -- -- Common stock, 20,653,092 shares issued and outstanding (19,645,891 at December 31, 1999) 30,139,554 30,390,824 Retained earnings 52,259,286 45,624,007 Accumulated other comprehensive income/(loss) (1,491,800) (1,686,070) ------------ ------------ Total shareholders' equity 80,907,040 74,328,761 ------------ ------------ $821,649,566 $726,737,712 ============ ============
See accompanying notes. 4 CENTENNIAL BANCORP CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 2000 1999 2000 1999 ---------- ---------- ----------- ---------- INTEREST INCOME Interest and fees on loans $18,668,493 $12,859,313 $35,602,244 $24,514,449 Interest on investment securities 928,168 960,249 1,874,103 2,133,723 Other interest income 9,611 119,913 16,904 185,168 ----------- ----------- ----------- ----------- Total interest income 19,606,272 13,939,475 37,493,251 26,833,340 INTEREST EXPENSE Interest on deposits 5,669,030 3,987,722 10,606,362 7,650,584 Interest on short-term borrowings 1,214,593 248,808 2,407,755 419,126 ---------- ----------- ----------- ----------- Total interest expense 6,883,623 4,236,530 13,014,117 8,069,710 ---------- ----------- ----------- ----------- NET INTEREST INCOME 12,722,649 9,702,945 24,479,134 18,763,630 Loan loss provision 750,000 600,000 1,500,000 1,100,000 ---------- ----------- ----------- ----------- Net interest income after loan loss provision 11,972,649 9,102,945 22,979,134 17,663,630 NONINTEREST INCOME Service charges 366,982 363,340 745,797 685,210 Other 291,767 185,238 581,774 370,904 Net gains on sales of loans 198,909 278,427 395,229 653,783 Net gains on sales of investment securities -- 132,819 -- 298,625 ---------- ----------- ----------- ----------- Total noninterest income 857,658 959,824 1,722,800 2,008,522 NONINTEREST EXPENSE Salaries and employee benefits 4,454,597 3,343,331 8,628,112 6,620,698 Premises and equipment 1,012,261 787,367 1,991,768 1,526,553 Legal and professional 186,017 178,900 336,600 310,338 Advertising 251,843 216,085 482,961 359,114 Data Processing 219,003 148,351 396,901 268,102 Amortization of Goodwill 172,107 118,111 344,214 139,558 Other 1,084,620 526,738 1,830,739 1,109,095 ----------- ----------- ----------- ----------- Total noninterest expense 7,380,448 5,318,883 14,011,295 10,333,458 ----------- ----------- ----------- ----------- Income before income taxes 5,449,859 4,743,886 10,690,639 9,338,694 Provision for income taxes 2,069,140 1,698,860 4,055,360 3,333,910 ------------ ------------ ------------ ------------ NET INCOME $ 3,380,719 $ 3,045,026 $ 6,635,279 $ 6,004,784 =========== =========== =========== =========== Earnings per common share: Basic $ .16 $ .15 $ .32 $ .29 Diluted $ .16 $ .14 $ .31 $ .28 Weighted average common shares outstanding: Basic 20,666,028 20,579,127 20,655,500 20,551,648 Diluted 21,256,019 21,235,484 21,186,697 21,298,790
See accompanying notes. 5
CENTENNIAL BANCORP CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) Accumulated Other Total Comprehensive Number of Common Retained Comprehensive Shareholders' Income Shares Stock Earnings Income/(Loss) Equity ------ ------ ----- -------- ------------- ------ Balance at December 31, 1998 16,869,363 $29,690,949 $33,517,242 $508,950 $63,717,141 Comprehensive Income: Net Income $6,004,784 6,004,784 6,004,784 Other comprehensive income, net of tax: Unrealized gain/(Loss) on available- for sale securities (1,003,356) (1,003,356) (1,003,356) Reclassification adjustment for net gains on sales of securities included in net income (298,625) (298,625) (298,625) ---------- Comprehensive Income $4,702,803 ========== Stock split (5%) 843,468 -- Stock options exercised 120,805 295,447 295,447 Tax benefit of stock options exercised 176,619 176,619 ---------- ----------- ----------- --------- ----------- Balance at June 30, 1999 17,833,636 $30,163,015 $39,522,026 ($793,031) $68,892,010 ========== =========== =========== ========= =========== Balance at December 31, 1999 19,645,891 $30,390,824 $45,624,007 $(1,686,070) $74,328,761 Comprehensive Income: Net Income Other comprehensive income, net of tax: $6,635,279 $6,635,279 $6,635,279 Unrealized gain/(Loss) on available- for sale securities 194,270 194,270 194,270 ---------- $4,829,549 Stock split (5%) 983,480 Stock repurchases (51,700) (490,329) (490,329) Stock options exercised 75,421 158,337 158,337 Tax benefit of stock options exercised 80,722 80,722 ---------- ----------- ----------- --------- ----------- Balance at June 30, 2000 20,653,092 $30,139,554 $52,259,286 (1,491,800) $80,907,040 ========== =========== =========== ========= ===========
6 CENTENNIAL BANCORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, ------------------------- 2000 1999 ------------ ----------- Net cash provided/(used) by operating activities $ 7,157,536 $(12,510,800) ----------- ----------- Cash flows from investing activities: Net increase in loans (82,041,560) (87,174,322) Investment security purchases -- (6,125,598) Proceeds from investment securities: Maturities 1,955,368 1,204,502 Sales -- 23,073,906 Purchases of premises and equipment (760,698) (2,383,628) ----------- ---------- Net cash used in investing activities (80,846,890) (71,405,140) Cash flows from financing activities: Net increase in deposits 93,863,361 67,176,455 Net increase (decrease) in short-term borrowings (6,946,723) 13,749,914 Proceeds from issuance of common stock 158,337 295,447 Repurchases of common stock (490,329) -- ----------- ----------- Net cash provided by financing activities 86,584,646 81,221,816 ----------- ----------- Net increase (decrease) in cash and cash equivalents 12,895,292 (2,694,124) Cash and cash equivalents at beginning of period 29,934,856 41,841,367 ----------- ----------- Cash and cash equivalents at end of period $42,830,148 $39,147,243 =========== ===========
See accompanying notes. 7 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. The Mortgage Co. provides a variety of residential and commercial real estate financing services. 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 interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, including the notes thereto, included in Bancorp's 1999 Annual Report to Shareholders. Certain amounts for 1999 have been reclassified to conform to the 2000 presentation. 8 2. Securities Available-for-Sale ----------------------------- Securities available-for-sale consisted of the following at June 30, 2000 and December 31, 1999: Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- June 30, 2000: U.S. Treasuries $ 951,572 $ 1,635 $ 6,445 $ 946,762 U.S. Government agencies 27,989,416 -- 1,515,870 26,473,546 Obligations of states and political subdivisions 28,476,913 50,248 852,568 27,674,593 Corporate bonds 2,073,202 -- 92,950 1,980,252 Mortgage-backed securities 629,824 -- 9,330 620,494 Equity securities 513,260 20,370 670 532,960 ----------- -------- ---------- ----------- Total $60,634,187 $ 72,253 $2,477,833 $58,228,607 =========== ======== ========== =========== December 31, 1999: U.S. Treasuries $ 1,400,808 $ 4,759 $ 6,325 $ 1,399,242 U.S. Government agencies 27,988,761 -- 1,454,349 26,534,412 Obligations of states and political subdivisions 28,468,534 79,235 1,232,228 27,315,541 Corporate bonds 2,284,118 120 79,123 2,205,115 Mortgage-backed securities 1,936,017 -- 31,570 1,904,447 ----------- ---------- ---------- ----------- Total $62,078,238 $ 84,114 $2,803,595 $59,358,757 =========== ========== ========== =========== 9 3. Loans and Allowance for Loan Losses ----------------------------------- The composition of the loan portfolio was as follows: June 30, December 31, 2000 1999 ------------ ------------ Real estate -- mortgage $146,564,936 $129,220,429 Real estate -- construction 262,103,841 227,387,353 Commercial 249,052,922 219,588,355 Installment 8,922,051 8,409,380 Lease financing 4,472,517 4,867,834 Other 4,401,990 4,198,940 ------------ ------------ 675,518,257 593,672,291 Allowance for loan losses (7,468,913) (6,164,507) ------------ ------------ $668,049,344 $587,507,784 ============ ============ Transactions in the allowance for loan losses were as follows for the six months ended June 30: 2000 1999 ---------- ---------- Balance at beginning of period $6,164,507 $4,450,614 Provision charged to operations 1,500,000 1,100,000 Recoveries 27,375 32,897 Loans charged off (222,969) (76,037) ---------- ---------- Balance at end of period $7,468,913 $5,507,474 ========== ========== At June 30, 2000 and December 31, 1999, Bancorp had approximately $8,514,000 and $5,833,000, respectively, in impaired loans. The specific valuation allowance related to these loans was approximately $774,000 and $465,000 at June 30, 2000 and December 31, 1999, respectively. It is Bancorp's policy to place loans on nonaccrual status when repayment of principal and interest is in doubt. Loans placed on nonaccrual status may or may not be contractually past due at the time of such determination, and may or may not be secured by collateral. Loans on nonaccrual status at June 30, 2000 and December 31, 1999 were approximately $5,372,000 and $579,000, respectively. The increase in nonaccrual totals since year-end was concentrated in two accounts. Both are subject to well-defined repayment plans and are considered adequately secured by real-estate collateral. Loans past due 90 days or more on which Bancorp continued to 10 accrue interest were approximately $1,915,000 at June 30, 2000, and approximately $2,163,000 at December 31, 1999. Bancorp had no restructured loans at June 30, 2000 or December 31, 1999. 4. Short-Term Borrowings --------------------- Short-term borrowings consisted of the following: June 30, 2000 December 31, 1999 ------------- ----------------- Securities sold under agreement to repurchase $ 1,762,244 $ 8,213,967 Federal funds purchased 12,900,000 19,600,000 FHLB cash management advance program 29,045,000 25,740,000 FHLB borrowings under promissory notes 23,900,000 21,000,000 ------------ ----------- $67,607,244 $74,553,967 =========== =========== 5. Earnings per Share of Common Stock ---------------------------------- A reconciliation of the weighted average shares used to compute basic and diluted earnings per share is as follows: Three Months Ended June 30 -------------------------- 2000 1999 ---------- ---------- Weighted average shares outstanding - basic 20,666,028 20,579,127 Additional shares from stock options 589,991 656,357 ---------- ---------- Weighted average shares outstanding - diluted 21,256,019 21,235,484 ========== ========== Six Months Ended June 30 ------------------------ 2000 1999 ---------- ---------- Weighted average shares outstanding - basic 20,655,500 20,551,648 Additional shares from stock options 531,197 747,142 ---------- ---------- Weighted average shares outstanding - diluted 21,186,697 21,298,790 ========== ========== 11 The weighted average number of common shares outstanding used to calculate earnings per share of common stock and the number of shares outstanding in the accompanying condensed consolidated statements of changes in shareholders' equity reflects the retroactive effect of stock splits and stock dividends, including a 5% split declared July 19, 2000 for shareholders of record as of July 31, 2000. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS QUARTERLY REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS, WHICH ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. STATEMENTS THAT EXPRESSLY OR IMPLICITLY PREDICT FUTURE RESULTS, PERFORMANCE OR EVENTS ARE FORWARD-LOOKING. IN ADDITION, THE WORDS "ANTICIPATE," "BELIEVE," "INTEND," "EXPECT" AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING: (1) POTENTIAL DELAYS OR OTHER PROBLEMS IN IMPLEMENTING BANCORP'S GROWTH AND EXPANSION STRATEGY; (2) THE ABILITY TO ATTRACT NEW DEPOSITS AND LOANS; (3) INTEREST RATE FLUCTUATIONS; (4) COMPETITIVE FACTORS AND PRICING PRESSURES; (5) GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR REGIONALLY, THAT COULD RESULT IN INCREASED LOAN LOSSES; (6) CHANGES IN LEGAL AND REGULATORY REQUIREMENTS; AND (7) CHANGES IN TECHNOLOGY, AS WELL AS OTHER FACTORS DESCRIBED IN THIS AND OTHER BANCORP REPORTS AND STATEMENTS, INCLUDING, BUT NOT LIMITED TO, EXHIBIT 99.1 TO BANCORP'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, 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 ITS FORWARD-LOOKING STATEMENTS. OVERVIEW - -------- Centennial Bancorp, an Oregon corporation, was organized in 1981 as a bank holding company and has two wholly owned subsidiaries: Centennial Bank and Centennial Mortgage Co. Bancorp primarily serves the Portland, Oregon and Eugene, Oregon metropolitan markets. Unless the context clearly suggests otherwise, references in this Quarterly Report to "Bancorp" include Centennial Bancorp and its subsidiaries. At June 30, 2000, Centennial Bank operated 15 full-service and five limited-service branches, including the new full-service Mill Plain Office in Vancouver, Washington, which opened in February 2000. At March 31, 2000, Centennial Mortgage had two Eugene and two Portland-area offices. 13 Bancorp reported net income of $6.6 million, or $.32 per common share (basic), for the six months ended June 30, 2000. This represented a 10.5% increase in net income as compared to $6.0 million, or $.29 per common share, for the six months ended June 30, 1999. Net income of $3.4 million, or $.16 per common share, for the quarter ended June 30, 2000 represented an 11.0% increase in net income as compared to $3.0 million, or $.15 per common share, for the quarter ended June 30, 1999. The increased earnings during the six months and the quarter ended June 30, 2000 primarily reflect the expansion of Bancorp's interest-earning assets and increased net interest income. At June 30, 2000, Bancorp recognized a 25.2% increase in total assets and a 25.9% increase in interest-earning assets as compared to June 30, 1999. MATERIAL CHANGES IN FINANCIAL CONDITION - --------------------------------------- Material changes in financial condition for the six months ended June 30, 2000 included continuing strong loan and deposit growth, increased cash balances and a decrease in short-term borrowings. At June 30, 2000, total assets of $821.6 million represented a 13.1% increase from the $726.7 million total at December 31, 1999. Loans and loans held for sale of $675.0 million at June 30, 2000 increased $81.3 million, or 13.7%, as compared to $593.7 million at December 31, 1999, mainly due to commercial and real estate loan growth. Cash and cash equivalents, including cash and due from banks and federal funds sold, increased $12.9 million to $42.8 million at June 30, 2000 as compared to $29.9 million at December 31, 1999. Cash and due from banks can fluctuate significantly on a daily basis due to normal loan and deposit activity, funds transfers and inter-bank clearing of cash items. Federal funds sold represent excess funds, which are sold overnight to other financial institutions, and their levels can also fluctuate significantly on a daily basis. Total deposits increased $93.9 million, or 16.4%, to $666.9 million at June 30, 2000 as compared to December 31, 1999. The majority of the increase occurred in time deposits and was primarily due to more aggressive pricing and marketing. Savings and demand deposit totals also increased significantly during the period. The new "Ultra Rate Fund" savings account was introduced during the second quarter, and the rapid growth of those deposit totals accounted for most of the increase in the savings category. Bancorp's deposit growth during the first six months of 2000 not only funded continued substantial loan growth but also allowed a $7.0 million decrease in short-term borrowings to $67.6 million 14 at June 30, 2000 as compared to $74.6 million at December 31, 1999. All other changes in asset and liability categories during the first six months of 2000 were comparatively modest. As a result of Bancorp's strong earnings performance for the six months ended June 30, 2000, shareholders' equity grew to $80.9 million, a $6.6 million increase over December 31, 1999. MATERIAL CHANGES IN RESULTS OF OPERATIONS - ----------------------------------------- Primarily due to continuing loan growth, total interest income increased $10.7 million (or 39.7%) for the six months and $5.7 million (or 40.6%) for the quarter ended June 30, 2000 as compared to the same periods in 1999. Total interest expense increased $4.9 million (or 61.3%) for the six months and $2.6 million (or 62.5%) for the quarter ended June 30, 2000 as compared to the same 1999 periods. These increases were mainly due to the growth of interest-bearing deposits and substantially higher levels of short-term borrowings. The increase in interest earned, partially offset by the increase in interest paid, allowed Bancorp's net interest income to increase by $5.7 million (or 30.5%) for the six-month period, and $3.0 million (or 31.1%) for the second quarter of 2000, over the comparable periods in 1999. For the six- and three-month periods ended June 30, 2000, Bancorp charged loan loss provisions of $1.5 million and $750,000, respectively, as compared to $1.1 million and $600,000 for the same periods in 1999. The increase in the loss provisions were primarily due to the assumed or "inherent" risk of Bancorp's growing loan totals. At June 30, 2000, Bancorp's allowance for loan losses was $7.5 million, as compared to $6.2 million and $5.5 million at December 31, 1999 and June 30, 1999, respectively. Management believes that the allowance 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 economic trends impacting the areas and customers served by Bancorp. The allowance is based on estimates, and actual losses may vary from those currently estimated. Noninterest income decreased $286,000 (or 14.2%) for the six months and $102,000 (or 10.6%) for the quarter ended June 30, 2000 as compared to the same 1999 periods. The decreases partly resulted from lower gains on sales of loans. In addition, the 15 1999 periods included gains on investment securities sales. No investment securities were sold during the first six months of 2000. Noninterest expense increased $3.7 million (or 35.6%) for the six months and $2.1 million (or 38.8%) for the quarter ended June 30, 2000 as compared to the same 1999 periods. The increases, mainly in salaries and benefits, premises and equipment costs, goodwill amortization and other expenses, were primarily the result of Bancorp's growth and expansion. The provision for income taxes increased $721,000 and $370,000, respectively, for the six months and the quarter ended June 30, 2000, commensurate with Bancorp's increased pre-tax income. MARKET RISK - ----------- Market risk is the risk of loss from adverse changes in market prices and rates. Bancorp's primary market risk is the interest rate risk associated with its investing, lending, deposit and borrowing activities. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, are not part of Bancorp's normal business activities. Management actively monitors and manages Bancorp's interest rate risk with the overall objective of achieving satisfactory and consistent profitability while maintaining interest rate sensitivity within formal policy guidelines established by the Board of Directors. Bancorp did not experience a material change in market risk at June 30, 2000 as compared to December 31, 1999. 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. Currently, the Bank's main sources of liquidity are customer deposits, short-term borrowings, loan repayments, sales of loans and net cash provided by operating activities. Although sales of investment securities were a significant funding source in 1999, the investment portfolio is currently a less effective source of immediate liquidity due to unrealized losses resulting from recent interest rate increases. 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. 16 The Bank maintains, on an unsecured basis, federal funds lines with correspondent banks as a back-up source of temporary liquidity. At June 30, 2000 the Bank had federal funds lines totaling $58 million with $12.9 million outstanding. The Bank also maintains a cash management advance line of credit with the Federal Home Loan Bank of Seattle which allows temporary borrowings for liquidity. At June 30, 2000, the line was fully utilized with $29.0 million outstanding. At June 30, 2000, Bancorp's Tier 1 and total risk-based capital ratios under the Federal Reserve Board's ("FRB") risk-based capital guidelines were 9.02% and 9.93%, respectively. The FRB's minimum risk-based capital ratio guidelines for Tier 1 and total capital are 4% and 8%, respectively. At June 30, 2000, Bancorp's capital-to-assets ratio under leverage ratio guidelines was 9.39%. The FRB's current minimum leverage capital ratio guideline is 3%. During the first quarter of 2000, Bancorp's Board of Directors approved a stock repurchase program authorizing the repurchase of up to 5% of outstanding shares over a two-year period. At June 30, 2000, a total of 51,700 shares had been purchased at a cost of approximately $490,000. EFFECTS OF THE YEAR 2000 - ------------------------ Some computers and computer software programs are unable 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. Bancorp is heavily reliant on computers to account for customer records and transactions, as well as operating performance. To date, Bancorp has not, nor to management's knowledge has any third party vendor or service provider on which Bancorp relies, experienced any material problems related to the Year 2000. However, Bancorp cannot determine if it will be subject to Year 2000 compliance problems in the future, or if Year 2000 problems have arisen that management has failed to detect. Bancorp will continue to monitor its business applications and maintain contact with significant third parties to resolve any Year 2000 problems that may arise in the future. Management believes that its efforts to achieve Year 2000 compliance and the impact of the Year 2000 problem will not have a material effect on Bancorp's operations. 17 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ Centennial Bancorp commenced its annual meeting of shareholders on April 26, 2000; the meeting was adjourned to May 17, 2000 when the vote was tallied. At the meeting, Dan Giustina, Cordy H. Jensen, Robert L. Newburn, Brian B. Obie, Richard C. Williams and Ted R. Winnowski were reelected to the Board of Directors for one-year terms. Voting on the election of directors was as follows: Votes Votes For Withheld ---------- -------- Dan Giustina 11,487,832 67,519 Cordy H. Jensen 11,480,999 74,352 Robert L. Newburn 11,485,051 70,300 Brian B. Obie 11,479,482 75,869 Richard C. Williams 11,016,030 539,321 Ted R. Winnowski 11,014,933 540,418 Item 5. Other Information - -------------------------- In May 2000, Richard C. Williams, who had served as Bancorp's President and Chief Executive Officer since its formation in 1981, became the Chairman of Bancorp's Board of Directors. At that time, Ted R. Winnowski, the current President and Chief Executive Officer of Bank, assumed the additional role of President and Chief Executive Officer of Bancorp. Mr. Williams succeeded Brian B. Obie, President and Chief Executive Officer of Obie Media Corporation, who had served as the Chairman of Bancorp's Board since 1981. Mr. Obie will continue to serve on the Boards of Directors of both Bancorp and Bank. Also in May 2000, Bancorp and Mr. Williams amended his Employment Agreement, to increase the amount of deferred compensation payable to him, so his total deferred compensation is 14 times his base salary (or approximately $4.5 million), an increase from 8.4 times his base salary (or approximately $2.7 million). Because the amendment also increased the period during which the deferred compensation will be paid (from 12 years to 20 years), the annual payments pursuant to the amended agreement (initially, $175,000 per year) are essentially the same as before the amendment. However, the amendment also requires Bancorp, on an annual basis, to increase (but not decrease) all remaining, unpaid deferred compensation to reflect any cost-of-living increase during the prior year. Bancorp pays no interest on the deferred compensation. Bancorp began making payments of deferred 18 compensation to Mr. Williams under the amended agreement in July 2000. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits 10 Second Amendment to Employment Agreement, dated May 5, 2000, amending the Employment Agreement, dated October 1, 1995, between Bancorp and Richard C. Williams 27 Financial Data Schedule (b) Reports on Form 8-K None 19 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 10, 2000 /s/ Ted R. Winnowski ----------------------------------- Ted R. Winnowski President & Chief Executive Officer Dated: August 10, 2000 /s/ Michael J. Nysingh ----------------------------------- Michael J. Nysingh Chief Financial Officer 20 EX-10 2 0002.txt SECOND AMENDMENT TO EMPLOYMENT AGREEMENT - -------------------------------------------------------------------------------- SECOND AMENDMENT TO EMPLOYMENT AGREEMENT - -------------------------------------------------------------------------------- PARTIES: CENTENNIAL BANCORP ("Company") RICHARD C. WILLIAMS ("Executive"). EFFECTIVE DATE: MAY 5, 2000 - -------------------------------------------------------------------------------- This Second Amendment is made in respect of the following facts: A. The parties entered into an Employment Agreement dated October 1, 1995, and a First Amendment to Employment Agreement dated December 1, 1997 (collectively the "Agreement") respecting Executive's employment by Company for a term ending December 31, 2001. B. The parties have agreed further to amend the Agreement as provided in and subject to the conditions stated in this Second Amendment. AGREEMENT: Section 9.1 of the Agreement is amended to provide as follows: 9.1. AMOUNT OF DEFERRED COMPENSATION. The total amount of Deferred Compensation shall be equal to fourteen (14) times Executive's Base Salary as specified in Section 3.1.2, subject to adjustment in accordance with the provisions of Section 9.3. Section 9.3 of the Agreement is amended to provide as follows: 9.3. INSTALLMENT PAYMENTS. The Deferred Compensation shall be payable by Company in 480 equal semimonthly installment payments, without interest, payable on the fifteenth and the last day of each calendar month after commencement of payments. The amount of each installment payment, and the total balance of Deferred Compensation remaining payable, shall be subject to adjustment as provided in this Section 9.3. 9.3.1. CPI ADJUSTMENT. Beginning with the thirteenth (13th) month of the Deferred Compensation payment period, and at every twelfth (12th) month thereafter during the payment period, the amount of each installment payment thereafter payable, and the total balance of Deferred Compensation then remaining payable, shall be increased by the percentage of increase, if any, in the CPI from the fifteenth (15th) month preceding the month of adjustment to the third (3rd) month preceding the month of adjustment. 9.3.2. CPI DEFINED. The term "CPI" means the Consumer Price Index for All Urban Consumers, All Items, U.S. City Average, 1982-84 = 100, as published by the United States Department of Labor Statistics. In no event shall the amount or number of installment payments remaining payable, or the total balance of Deferred Compensation remaining payable, at any time be decreased by reason of this CPI provision. If publication of the CPI shall be discontinued, then another comparable, generally recognized index shall - -------------------------------------------------------------------------------- SECOND AMENDMENT TO EMPLOYMENT AGREEMENT Page 1 be selected by the parties for the purpose of calculating increases in the amounts payable hereunder, so as to reflect the general rate of price inflation in the United States. EFFECT OF AMENDMENT Except as expressly modified by this Second Amendment, all terms, conditions, and provisions of the Agreement (including the First Amendment), and all rights and obligations of the parties thereunder, shall continue in full force and effect. LEGAL COUNSEL AND EXPENSES The parties acknowledge and agree that: (a) the law firm of Gleaves Swearingen Larsen Potter Scott & Smith LLP ("GSLPSS") has acted as legal counsel to Company, Bank, and Executive, respectively, on various matters in the past; (b) GSLPSS represents Executive only, and not Company or Bank, in connection with this Second Amendment; (c) neither Company nor Bank has sought or relied on any advice from GSLPSS in connection with the Agreement or this Second Amendment; (d) prior to executing this Second Amendment, Company and Bank have obtained and relied upon review by, and advice from their general legal counsel, the law firm of Tonkon Torp, concerning Company's and Bank's rights and obligations under the Agreement as modified by this Second Amendment. Company shall reimburse Executive the amount of legal fees incurred by Executive in having this Second Amendment prepared by GSLPSS. EXECUTION The parties have executed this Second Amendment to be effective at the date appearing in the caption on page 1. COMPANY EXECUTIVE CENTENNIAL BANCORP By /s/ Cordy H. Jensen /s/ Richard C. Williams --------------------------------- --------------------------------- Cordy H. Jensen Richard C. Williams Director and Secretary - -------------------------------------------------------------------------------- SECOND AMENDMENT TO EMPLOYMENT AGREEMENT Page 2 EX-27 3 0003.txt 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, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-2000 JUN-30-2000 40,800,148 0 2,030,000 0 58,228,607 0 0 675,518,257 7,468,913 821,649,566 666,904,844 67,607,244 6,230,438 0 0 0 30,139,554 50,767,486 821,649,566 35,602,244 1,874,103 16,904 37,493,251 10,606,362 13,014,117 24,479,134 1,500,000 0 14,011,295 10,690,639 6,635,279 0 0 6,635,279 .32 .31 0 5,372,000 1,915,000 0 0 6,164,507 222,969 27,375 7,468,913 7,468,913 0 0 INFORMATION NOT CALCULATED FOR INTERIM REPORTS.
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