Centennial  Bancorp is a bank holding  company,  which  provides  commercial and
consumer  banking   services   through  its  subsidiary   Centennial  Bank,  and
residential  mortgage  brokering  services  through  its  subsidiary  Centennial
Mortgage Co.


SELECTED FINANCIAL DATA

The following table sets forth selected financial data of Centennial Bancorp for
the years  indicated (in thousands of dollars,  except per share  amounts).  All
data in this Annual Report to Shareholders has been restated to give retroactive
effect to the 1994 merger with CG Bancorp. In addition,  all share and per share
information  has been  restated  to give  retroactive  effect  to a stock  split
declared in January  1996,  and for  various  stock  splits and stock  dividends
declared in years prior to 1996.


<TABLE>
<CAPTION>

                                                 1995             1994              1993             1992             1991
                                              --------         --------          --------         --------          ------

<S>                                           <C>              <C>               <C>              <C>              <C>

Interest income                               $ 25,274         $ 19,474          $ 14,849         $ 13,319         $ 13,124
Interest expense                                 9,004            5,172             4,102            4,658            5,645
                                              --------         --------          --------         --------         --------
Net interest income                             16,270           14,302            10,747            8,661            7,479
Loan loss provision                                350              316               310              256              235
Net income                                       4,551            3,502             2,763            2,005            1,811
Total assets                                   317,464          257,326           220,760          181,617          161,155
Total deposits                                 267,880          216,320           192,112          156,119          144,823
Short-term borrowings                           11,419           11,840               300            1,700            2,300
Long-term debt                                   9,200            9,200             6,989            6,354              500
Shareholders' equity                            26,390           19,205            17,420           14,517           12,521

Earnings per share:
     Primary                                  $    .95         $    .74          $    .59         $    .43         $    .39
     Fully diluted                                 .88              .71               .59              .43              .39


</TABLE>



<PAGE>



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


The Board of Directors and Shareholders of
Centennial Bancorp:


We have  audited the  accompanying  consolidated  balance  sheets of  Centennial
Bancorp  and  subsidiaries  as of December  31,  1995 and 1994,  and the related
consolidated statements of income,  shareholders' equity and cash flows for each
of the three  years in the period  ended  December  31,  1995.  These  financial
statements  are the  responsibility  of  management.  Our  responsibility  is to
express an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of Centennial Bancorp
and subsidiaries as of December 31, 1995 and 1994, and the consolidated  results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.




                                COOPERS & LYBRAND L.L.P.

Eugene, Oregon
February 1, 1996


<PAGE>

<TABLE>
<CAPTION>


                                                CONSOLIDATED BALANCE SHEETS

December 31,                                                                            1995                       1994
                                                                                   -------------              ------------
<S>                                                                                <C>                        <C>

Assets Cash and cash equivalents:
     Cash and due from banks                                                       $ 21,991,459               $ 19,783,038
     Interest-bearing deposits
     with banks                                                                       6,000,000                  5,575,000
     Federal funds sold                                                               8,730,000                         --
                                                                                   ------------               ------------
           Total cash and cash
      equivalents                                                                    36,721,459                 25,358,038
Available-for-sale securities                                                        76,964,342                 58,794,836
Loans                                                                               186,517,192                160,136,068
Reserve for loan losses                                                              (1,928,372)                (1,700,130)
                                                                                   ------------               ------------
     Loans, net                                                                     184,588,820                158,435,938
Loans held for sale                                                                   4,573,095                  1,874,728
Premises and equipment, net                                                           9,214,564                  6,763,983
Other asset                                                                           5,401,435                  6,098,831
                                                                                   ------------               ------------
           Total assets                                                            $317,463,715               $257,326,354
                                                                                   ============               ============

Liabilities and Shareholders'
   Equity
Liabilities:
Deposits:
     Demand                                                                        $ 70,578,820               $ 63,699,442
     Interest-bearing demand                                                         98,600,873                 79,942,836
     Savings                                                                         13,743,140                 15,888,076
     Time                                                                            84,957,459                 56,789,446
                                                                                   ------------               ------------
           Total deposits                                                           267,880,292                216,319,800
Short-term borrowings:
     Securities sold under
    agreement to repurchase                                                           3,419,123                  2,839,608
     Advances from Federal Home
    Loan Bank ("FHLB")                                                                8,000,000                  9,000,000
                                                                                   ------------               ------------
           Total short-term borrowings                                               11,419,123                 11,839,608
Accrued interest and other
 liabilities                                                                          2,574,240                    761,615
Long-term debt                                                                        9,200,000                  9,200,000
                                                                                   ------------               ------------
           Total liabilities                                                        291,073,655                238,121,023
Commitments and contingencies
 (Notes 10 and 11) Shareholders' Equity:
Preferred stock                                                                              --                         --
Common stock, $2.00 par
 value; 10,000,000 shares
 authorized, 4,651,130 issued
 (3,974,225 at December 31, 1994)                                                     9,302,260                  7,948,450
Additional paid-in capital                                                            5,829,404                  7,067,963
Retained earnings                                                                    10,657,696                  6,106,378
Unrealized gains (losses)
 on securities available-
 for-sale, net of deferred
 income taxes                                                                           600,700                 (1,917,460)
                                                                                   ------------               ------------
           Total shareholders' equity                                                26,390,060                 19,205,331
                                                                                   ------------               ------------
           Total liabilities and
           shareholders' equity                                                    $317,463,715               $257,326,354
                                                                                   ============               ============


</TABLE>

The accompanying notes are an integral part of these financial statements.


<PAGE>
<TABLE>
<CAPTION>



                                                   CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31,                                                  1995                 1994                 1993
                                                                      -----------          -----------          --------
<S>                                                                   <C>                  <C>                  <C>

Interest income:
Loans                                                                 $20,908,425          $16,003,263          $12,091,667
Securities:
     Taxable                                                            2,403,376            1,926,971            1,263,886
     Exempt from Federal
   income taxes                                                         1,037,272            1,092,525            1,080,958
Dividends on FHLB stock                                                   255,704              210,771              181,445
Deposits with banks                                                       352,229              109,755              117,857
Federal funds sold                                                        317,162              130,772              112,712
                                                                      -----------          -----------          -----------
     Total interest income                                             25,274,168           19,474,057           14,848,525
Interest expense:
Deposits:
     Savings and interest-
  bearing demand                                                        3,352,248            2,333,354            2,177,423
     Time                                                               4,145,754            2,106,197            1,610,780
Long-term debt                                                            644,970              558,738              275,118
Short-term borrowings                                                     861,484              174,131               38,358
                                                                      -----------          -----------          -----------
     Total interest expense                                             9,004,456            5,172,420            4,101,679
                                                                      -----------          -----------          -----------

Net interest income                                                    16,269,712           14,301,637           10,746,846
Loan loss provision                                                       350,000              315,500              310,000
                                                                      -----------          -----------          -----------
Net interest income
  after loan loss provision                                            15,919,712           13,986,137           10,436,846
Noninterest income:
Service charges                                                           904,813              848,860              792,219
Loan servicing fees                                                       329,712              520,633              241,426
Other                                                                     572,929              814,751              415,032
Gains on sales of loans                                                   404,027              575,266              659,270
Gains on sales of securities                                               65,895              103,167              414,846
                                                                      -----------          -----------          -----------
     Total noninterest income                                           2,277,376            2,862,677            2,522,793

Noninterest expense                                                    11,503,970           11,809,835            8,983,912
                                                                      -----------          -----------          -----------

Income before income taxes                                              6,693,118            5,038,979            3,975,727

Provision for income taxes                                              2,141,800            1,537,400            1,212,688
                                                                      -----------          -----------          -----------

Net income                                                            $ 4,551,318          $ 3,501,579          $ 2,763,039
                                                                      ===========          ===========          ===========


Earnings per share:
     Primary                                                          $       .95          $       .74          $       .59
                                                                      ===========          ===========          ===========
     Fully diluted                                                    $       .88          $       .71          $       .59
                                                                      ===========          ===========          ===========

Weighted average shares outstanding:
     Primary                                                            4,796,285            4,751,256            4,710,545
     Fully diluted                                                      5,688,883            5,357,734            4,710,545

</TABLE>

The accompanying notes are an integral part of these financial statement.



<PAGE>
<TABLE>
<CAPTION>


                                  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                                                                             Net
                                                        Common Stock                                     Unrealized
                                                -----------------------     Additional                     Gains          Total
                                                  Number                       Paid in       Retained    (Losses)on   Shareholders'
                                                of Shares      Amount          Capital       Earnings    Securities       Equity
                                                ---------     ---------     -----------     -----------  ----------   --------------

<S>                                             <C>          <C>            <C>            <C>           <C>            <C>

Balances, January 1, 1993                       2,872,435    $5,744,870     $7,521,152     $1,251,308                   $14,517,330

5% stock dividend                                 135,264       270,528      1,099,020     (1,369,548)                           --
Stock options exercised                           127,576       255,152       (109,402)            --                       145,750
Effect of stock split (10%)                       288,205       576,410       (576,410)            --                            --
Net unrealized gain, net of
    deferred income taxes                              --            --             --             --   $    33,775          33,775
Cash dividend                                          --            --             --        (40,000)           --         (40,000)
Net income                                             --            --             --      2,763,039            --       2,763,039
                                                ---------    ----------     ----------     ----------   -----------     -----------
Balances, December 31, 1993                     3,423,480     6,846,960      7,934,360      2,604,799        33,775      17,419,894

Effect of stock split (5%)                        159,486       318,972       (318,972)            --            --              --
Stock options exercised                            29,966        59,932        (28,579)            --            --          31,353
Tax benefit of stock options
  exercised                                            --            --        203,740             --            --         203,740
Effect of stock split (10%)                       361,293       722,586       (722,586)            --            --              --
Net unrealized loss, net of
    deferred income taxes                              --            --             --             --    (1,951,235)     (1,951,235)
Net income                                             --            --             --      3,501,579            --       3,501,579
                                                ---------    ----------     ----------     ----------     ---------     -----------
Balances, December 31, 1994                     3,974,225     7,948,450      7,067,963      6,106,378    (1,917,460)     19,205,331

Effect of stock split (5%)                        200,950       401,900       (401,900)            --            --              --
Stock options exercised                            53,125       106,250        (19,333)            --            --          86,917
Tax benefit of stock options
    exercised                                          --            --         28,334             --            --          28,334
Effect of stock split (10%)                       422,830       845,660       (845,660)            --            --              --
Net unrealized gain, net of
    deferred income taxes                              --            --             --             --     2,518,160       2,518,160
Net income                                             --            --             --      4,551,318            --       4,551,318
                                                ---------    ----------     ----------     ----------    ----------     -----------
Balances, December 31, 1995                     4,651,130    $9,302,260     $5,829,404    $10,657,696    $  600,700     $26,390,060
                                                =========    ==========     ==========    ===========    ==========     ===========


</TABLE>


<PAGE>

<TABLE>
<CAPTION>


                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     Increase (Decrease) in Cash and Cash Equivalents


Years ended December 31,                                                 1995                 1994                 1993
                                                                     -----------          -----------          --------
<S>                                                                  <C>                  <C>                  <C>

Cash flows from operating activities:
Net income                                                           $ 4,551,318          $ 3,501,579          $ 2,763,039
Adjustments to reconcile
  net income to net cash
  provided by (used in)
  operating activities:
     Gains on sales of securities,
      loans and other real estate
      owned                                                             (469,922)            (771,673)          (1,074,116)
     Stock dividends on FHLB stock                                      (255,704)            (210,771)            (181,445)
     Loan loss provision                                                 350,000              315,500              310,000
     Deferred income taxes                                               (41,473)             881,509             (584,504)
     Depreciation and amortization                                       978,755            1,000,682              603,805
     Originations of loans for sale                                  (30,039,215)         (20,664,772)         (44,477,872)
     Proceeds from sale of loans                                      27,744,875           23,116,819           44,208,056
     Changes in assets and liabilities:
           Accrued interest receivable                                  (709,087)            (590,223)             (90,366)
           Other assets                                                 (220,380)              79,700              147,213
           Other liabilities                                           1,771,352           (2,866,470)           1,021,802
                                                                     -----------          -----------          -----------
     Net cash provided by
           operating activities                                        3,660,519            3,791,880            2,645,612
                                                                     -----------          -----------          -----------
Cash flows from investing activities:
Available-for-sale securities:
           Maturities                                                 10,405,612            7,268,938                   --
           Purchases                                                 (30,410,092)         (13,032,648)                  --
           Proceeds from sales                                         6,165,340            6,782,417                   --
Held-to-maturity securities:
           Maturities                                                         --            1,849,622                   --
           Purchases                                                          --           (6,542,956)                  --
Investment securities:
     Purchases     --                                                         --          (43,799,912)
     Maturities                                                               --                   --            5,975,663
     Proceeds from sales                                                      --                   --           25,596,114
Net increase in loans                                                (26,502,882)         (36,100,972)         (29,353,425)
Purchases of premises and equipment                                   (3,387,116)          (1,486,405)          (2,038,998)
Sales of premises and equipment                                           49,985               18,600                   --
Purchase of Harding Fletcher Co.                                              --                   --             (400,000)
Sale of Harding Fletcher Co.                                             155,131                   --                   --
                                                                     -----------          -----------          -----------
     Net cash used in investing
   activities                                                        (43,524,022)         (41,243,404)         (44,020,558)
                                                                     -----------          -----------          -----------
Cash flows from financing activities:
Net increase in deposits                                              51,560,492           24,207,857           35,993,688
Cash dividend payments                                                        --                   --              (40,000)
Net increase in short-term
  borrowings                                                             579,515            2,539,608                   --
Notes payable and advances, FHLB:
     Proceeds                                                          8,000,000            9,000,000                   --
     Payments                                                         (9,000,000)                  --           (1,400,000)
Proceeds from long-term debt                                                  --            9,200,000              800,000
Payments on long-term debt                                                    --           (6,989,261)            (164,793)
Proceeds from exercise of
      stock options                                                       86,917               31,353              145,750
                                                                     -----------          -----------          -----------
     Net cash provided by financing
           activities                                                 51,226,924           37,989,557           35,334,645
                                                                     -----------          -----------          -----------
Net increase (decrease) in cash and
     cash equivalents                                                 11,363,421              538,033           (6,040,301)
Cash and cash equivalents at
     beginning of year                                                25,358,038           24,820,005           30,860,306
                                                                     -----------          -----------          -----------
Cash and cash equivalents
   at end of year                                                    $36,721,459          $25,358,038          $24,820,005
                                                                     ===========          ===========          ===========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Purchase of Harding Fletcher Co.:
     Furniture and equipment                                         $        --           $        --          $   40,000
     Loan servicing rights                                                    --                    --             270,000
     Excess of cost over fair value
           of assets acquired                                                 --                    --              90,000
                                                                     -----------           -----------          ----------
                                                                     $        --           $        --          $  400,000
                                                                     ===========           ===========          ==========

Sale of Harding Fletcher Co.:
     Cash received at closing                                        $   150,000           $        --          $       --
     Proration of expenses                                                 5,131                    --                  --
                                                                     -----------           -----------          ----------
                                                                     $   155,131           $        --          $       --
                                                                     ===========           ===========          ==========

Noncash investing and financing activities:
     Change in net unrealized gains
   (losses) on securities
    available-for-sale,
       net of deferred income tax
       liability (benefit)                                           $ 2,518,160          $(1,951,235)          $   33,775
     Transfer of held-to-maturity
       securities to available-for
       sale securities                                                        --           40,681,546                  --
     Transfer of premises to other
    assets-held for sale                                                      --                   --            1,235,097
Cash paid during the year for:
     Interest on deposits and
       other borrowings                                                8,708,000             4,975,000           4,076,000
     Income taxes                                                      1,565,000             2,412,000           1,375,000

</TABLE>

The accompanying notes are an integral part of these financial statements.


<PAGE>



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1995

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

The consolidated financial statements include the accounts of Centennial Bancorp
("Bancorp"),   a  bank  holding  company,  and  its  wholly-owned  subsidiaries,
Centennial Bank (the "Bank"),  Centennial Mortgage Co. ("Centennial  Mortgage"),
and Harding  Fletcher Co.  ("Harding  Fletcher").  The Bank provides  commercial
financing, banking and other services.  Centennial Mortgage provides residential
mortgage  brokering  services.   All  significant   intercompany   balances  and
transactions  have been  eliminated in  consolidation.  Results of operations of
entities  acquired in purchase  transactions  are  included in the  consolidated
financial statements from the date of acquisition.

DIVESTITURE

In August  1995,  Bancorp  sold  substantially  all the  assets  of its  Harding
Fletcher  subsidiary for $746,000 in cash and assets,  recognizing a pretax gain
of approximately $64,000.  Harding Fletcher provided commercial mortgage banking
services and loan servicing.  Exclusive of the gain recognized, this transaction
did not have a significant impact on Bancorp's operating results.

BASIS OF PRESENTATION

The  consolidated  financial  statements  have been prepared in accordance  with
generally  accepted  accounting  principles and prevailing  practices within the
banking industry. In preparing the consolidated financial statements, management
is required to make estimates and assumptions  that affect the reported  amounts
of assets and liabilities as of the date of the balance sheet,  and revenues and
expenses for the period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents  include cash on
hand,  amounts due from or deposited with banks,  interest  bearing balances due
from  banks,  and  federal  funds sold.  Generally,  federal  funds are sold for
one-day periods.

Bancorp is  required to maintain  an average  reserve  balance  with the Federal
Reserve Bank, or maintain such reserve  balance in the form of cash.  The amount
of this  reserve  balance  required  at  December  31,  1995  was  approximately
$5,282,000,  which was met by holding  approximately  $2,133,000  in the form of
cash and by depositing approximately $3,149,000 with the Federal Reserve Bank.


<PAGE>


SECURITIES

In 1993,  Bancorp adopted Statement of Financial  Accounting  Standards ("SFAS")
No. 115,  "Accounting  for Certain  Investments in Debt and Equity  Securities."
This  Statement  requires  that  investments  in  securities  be  classified  by
management  as  held-to-maturity,  available-for-sale,  or  trading  securities.
Management  determines the appropriate  classification of securities at the time
of purchase.

Investments in debt securities  classified as held-to-maturity are acquired with
the intent and ability to hold to maturity, are stated at cost, and are adjusted
for  amortization of discounts and accretion of premiums.  As a result of a sale
during 1994 of  $4,889,700  of securities  classified  as  held-to-maturity  for
reasons  other than those  permitted  by SFAS 115,  Bancorp has  classified  all
securities as available-for-sale.

Securities  classified  as  available-for-sale  are to be  held  for  indefinite
periods of time and may be sold in  response  to  movements  in market  interest
rates,  changes in the maturity mix of bank assets and  liabilities or demand on
liquidity.   At  December   31,  1995  and  1994,   securities   classified   as
available-for-sale  are  carried at fair value.  Unrealized  gains and losses on
these  securities  are  excluded  from  earnings  and are reported as a separate
component of shareholders' equity.

Securities  classified  as trading  are to be carried  at fair  value,  with the
unrealized gains and losses included in earnings.  During 1995 and 1994, Bancorp
had no securities classified as trading securities.

Interest  income on debt  securities is included in income using the level yield
method.  Gains and losses on sales of  securities  are  recognized on a specific
identification basis.

LOANS AND LOANS HELD FOR SALE

Loans held for investment are stated at the amount of unpaid principal  adjusted
for any deferred loan origination  fees and costs.  Bancorp has both the ability
and  intent to hold such  loans for the  foreseeable  future or until  maturity.
Certain  loans are held for sale and are carried at the lower of cost or market.
Market  value  for  loans  held  for sale is  separately  determined  using  the
aggregate loan basis for both residential and commercial loans.

Interest  income is accrued daily on the  outstanding  loan  balances  using the
simple interest method.  The accrual of interest on loans is discontinued  when,
in management's  judgment, the future collectibility of interest or principal is
in doubt.

Loan origination and commitment fees, net of certain loan origination costs, are
generally  recognized  over the life of the  related  loan as an  adjustment  of
yield.

RESERVE FOR LOAN LOSSES

Bancorp  adopted SFAS No. 114,  "Accounting  by Creditors  for  Impairment  of a
Loan," on January 1, 1995. Under the new Standard, a loan is considered impaired
based on current  information  and events if it is probable that Bancorp will be
unable to collect the  scheduled  payments  of  principal  or interest  when due
according to the  contractual  terms of the loan  agreement.  The measurement of
impaired loans is generally  based on the present value of expected  future cash
flows  discounted at the historical  effective  interest  rate,  except that all
collateral-  dependent loans are measured for impairment based on the fair value
of the collateral.

The adequacy of the reserve for loan losses is periodically evaluated by Bancorp
in order to  maintain  the  reserve  at a level  that is  sufficient  to  absorb
probable credit losses.  Management's  evaluation of the adequacy of the reserve
is based on a review of Bancorp's historical loss experience, known and inherent
risks in the loan portfolio, including adverse circumstances that may affect the
ability of the borrower to repay interest or principal,  the estimated  value of
collateral,  and an  analysis  of the  levels and  trends of  delinquencies  and
charge-offs,  and the risk ratings of the various loan categories.  Such factors
as the level and trend of interest  rates and the  condition of the national and
local economies are also considered.

The reserve for loan losses is  established  through  charges to earnings in the
form of a provision for loan losses.  Increases and decreases in the reserve due
to changes in the  measurement  of impaired  loans are included in the provision
for loan losses.  Loans  continue to be classified  as impaired  unless they are
brought fully current and the collection of scheduled  interest and principal is
considered probable.

When a loan or portion of a loan is determined to be uncollectible,  the portion
deemed  uncollectible is charged against the reserve and subsequent  recoveries,
if any, are credited to the reserve.

INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS

Loans,  including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of  principal or interest for a period of
more than 90 days, unless such loans are well- collateralized and in the process
of collection.  If a loan or a portion of a loan is classified as doubtful or is
partially charged off, the loan is classified as nonaccrual. Loans that are on a
current  payment  status or past due less that 90 days may also be classified as
nonaccrual if full repayment of principal or interest is in doubt.

Loans may be returned to accrual status when all principal and interest
<PAGE>



amounts  contractually  due (including  arrearages)  are  reasonable  assured of
repayment  within an acceptable  period of time, and there is a sustained period
of repayment performance (generally a minimum of six months) by the borrower, in
accordance with the contractual terms of interest and principal.

While a loan is classified as nonaccrual,  collections of interest and principal
are generally applied as a reduction to principal  outstanding.  When the future
collectibility of the recorded loan balance is expected,  interest income may be
recognized  on a cash  basis.  In the  case  where a  nonaccrual  loan  had been
partially  charged  off,  recognition  of interest on a cash basis is limited to
that which  would  have been  recognized  on the  recorded  loan  balance at the
contractual  interest rate. Cash interest  receipts in excess of that amount are
recorded as  recoveries  to the reserve for loan losses until prior  charge-offs
have been fully recovered.

PREMISES AND EQUIPMENT

Premises and equipment are stated at cost,  less  accumulated  depreciation  and
amortization.  Capital  leases are  included in premises  and  equipment  at the
capitalized amount less accumulated amortization.  Depreciation and amortization
are  computed  principally  using the  straight-line  method over the  estimated
useful  lives of the  assets.  Estimated  useful  lives  are 30 to 40 years  for
buildings,  3 to 10 years for furniture and equipment,  and up to the lease term
for leasehold improvements.

OTHER REAL ESTATE OWNED

Other  real  estate  owned,  acquired  through  foreclosure  or  deed in lieu of
foreclosure, is carried at the lower of cost or fair market value at the time of
foreclosure.  When the property is acquired, any excess of the loan balance over
fair  value  of  the  property  is  charged  to the  reserve  for  loan  losses.
Subsequently,  the property is valued at the lower of its carrying amount or net
realizable  value.  Write-downs to net realizable  value, if any, rental income,
and disposition gains and losses are included in noninterest expense.

Other real estate owned at December  31, 1994 has been  included in other assets
in the consolidated  balance sheets.  Bancorp did not hold any other real estate
owned at December 31, 1995.

DEBT ISSUANCE COSTS

Costs associated with the issuance of Convertible Debentures are
deferred and amortized using the effective interest method.  Debt
issuance costs are included in other assets.

INTANGIBLE ASSETS


 
<PAGE>



During 1982, Bancorp acquired Centennial Bank in a transaction  accounted for as
a  purchase.  The  resulting  excess  ($1,715,751)  of  purchase  cost  over the
estimated  fair  value  of  net  assets  acquired  is  being  amortized  on  the
straight-line  method over 20 years.  Accumulated  amortization  at December 31,
1995 and 1994 was $1,176,133 and $1,090,345, respectively.

When factors  indicate  goodwill  should be evaluated  for possible  impairment,
Bancorp uses an estimate of the related  business  undiscounted  net income over
the  remaining  life of the  goodwill  in  measuring  whether  the  goodwill  is
recoverable.  At  December  31,  1995 and 1994,  management  estimates  that all
goodwill is recoverable.

INCOME TAXES

Bancorp  files  consolidated  federal  and State of Oregon  income tax  returns.
Subsidiaries  of Bancorp are  allocated a share of the  consolidated  income tax
provision  by use of the  separate  return  method.  Bancorp  uses an asset  and
liability  approach for financial  accounting and reporting for income taxes. If
it is more likely than not that some portion or all of a deferred tax asset will
not be realized, a valuation allowance is recognized.

EARNINGS PER COMMON SHARE

Primary  earnings per common share is  calculated  by dividing net income by the
weighted average shares outstanding. Weighted average shares outstanding consist
of common  shares  outstanding  and common  stock  equivalents  attributable  to
outstanding stock options.

Fully  diluted  earnings  per share is  calculated  by dividing  net income plus
after-tax  interest  incurred on the 7% Convertible  Debentures by common shares
outstanding, common stock equivalents attributable to outstanding stock options,
and shares assumed to be issued on conversion of the Convertible Debentures. The
Convertible Debentures were issued in 1994.

The weighted  average  number of shares and common share  equivalents  have been
adjusted to give retroactive  effect to a stock split declared January 16, 1996,
and various  stock  splits and stock  dividends  declared  prior to December 31,
1995.

MORTGAGE BANKING ACTIVITIES

Centennial   Mortgage's  activities  include  origination  of  conventional  and
federally insured residential mortgage loans for resale in the secondary market.
Mortgage loans are sold without  recourse and with no servicing rights retained.
Mortgage  loans held for sale are carried at the lower of cost or market.  Gains
on the sale of loans are  recognized  at the time funds are  received in closing
from the third-party secondary market investor.

 
<PAGE>




Harding Fletcher  originated and serviced  commercial real estate mortgage loans
as agent for third party  investors.  Fee income was  recognized  when the loans
closed.  Mortgage servicing income was recognized as serviced loan payments were
received.

FINANCIAL ACCOUNTING STANDARDS BOARD

Effective  October  1995,  the Financial  Accounting  Standards  Board  ("FASB")
adopted  SFAS No.  123,  "Accounting  for  Stock-Based  Compensation,"  which is
effective for fiscal years  beginning  after  December 15, 1995,  although early
implementation  is  acceptable.  The Standard  requires  either  adopting a fair
market  based  method of  accounting  for  compensation  costs  related to stock
options in the income statement,  or continuing to use the accounting  treatment
prescribed by Accounting  Principles Board Opinion No. 25. However,  if SFAS No.
123 is not  adopted,  proforma  disclosures  will  need  to be  reported  in the
footnotes of the annual report to shareholders.  Bancorp will not adopt the fair
value  method  of  accounting  provisions  of  SFAS  No.  123 but  will  include
appropriate proforma disclosures in its 1996 annual report to shareholders.

RECLASSIFICATIONS

Certain amounts for 1994 and 1993 in the consolidated  financial statements have
been  reclassified  to conform  with the 1995  presentation.  Net income was not
affected by these reclassifications.



 

<PAGE>



2.      SECURITIES

The  amortized  cost and estimated  fair values of securities  are as follows at
December 31:

<TABLE>
<CAPTION>


                                                                      Gross                  Gross
                                                 Amortized          Unrealized            Unrealized             Fair
Available-for-Sale                                Cost                Gains                 Losses              Value
                                               ------------         ----------            ----------          ----------

<S>                                            <C>                  <C>                   <C>                <C>

1995:
U.S. Treasury
   securities                                  $ 8,400,771          $   44,978            $   17,983        $ 8,427,766
U.S. Government
   agencies                                     28,832,546             589,753                   467         29,421,832
States and political
   subdivisions                                 23,350,735             583,554                89,614         23,844,675
Corporate bonds                                  2,360,454                 100                60,528          2,300,026
Mortgage-backed
   securities                                    9,010,556               2,947                83,860          8,929,643
FHLB stock                                       4,040,400                  --                    --          4,040,400
                                               -----------          ----------            ----------        -----------
   Total                                       $75,995,462          $1,221,332            $  252,452        $76,964,342
                                               ===========          ==========            ==========        ===========

1994:
U.S. Treasury
   securities                                  $15,688,037          $    8,406            $  534,197        $15,162,246
U.S. Government
   agencies                                      8,729,462               1,463               274,356          8,456,569
States and political
   subdivisions                                 18,106,445              61,738             1,079,671         17,088,512
Corporate bonds                                  5,593,934                 170               476,032          5,118,072
Mortgage-backed
   securities                                    9,530,662                  --               804,000          8,726,662
FHLB stock and other                             4,239,005               3,770                    --          4,242,775
                                               -----------          ----------            ----------        -----------
   Total                                       $61,887,545          $   75,547            $3,168,256        $58,794,836
                                               ===========          ==========            ==========        ===========

</TABLE>

The amortized cost and fair value of investments in debt  securities at December
31, 1995, by  contractual  maturity,  are shown below.  Expected  maturities may
differ from contractual  maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.


                                         Amortized            Approximate
                                            Cost              Fair Value
                                        -----------           -----------

Due in 1 year or less                   $ 5,396,667           $ 5,386,148
Due after 1 through 5 years              13,836,545            13,809,031
Due after 5 through 10 years             43,612,865            44,467,400
Due after 10 years                        9,108,985             9,261,363
                                        -----------           -----------

   Total                                $71,955,062           $72,923,942
                                        ===========           ===========


At December 31, 1995, securities with a market value of approximately $3,425,000
were pledged to  collateralize  public deposits as required or permitted by law.
In addition, at December 31, 1995, securities with a fair value of approximately
$4,000,000 were pledged to collateralize short-term borrowings.

Proceeds from sales of investment securities and gross realized gains and losses
on those sales were as follows:

<TABLE>
<CAPTION>

                                                  Proceeds             Gross                 Gross            Net Gains
                                               from Sales of          Realized              Realized         on Sales of
                                                Securities             Gains                 Losses          Securities
                                               -------------          --------             ----------        -----------
<S>                                             <C>                   <C>                  <C>                 <C>


        1995                                    $6,165,340            $ 78,348             $(12,453)           $ 65,895
        1994                                     6,782,417             153,786              (50,619)            103,167
        1993                                    25,596,114             439,050              (24,204)            414,846

</TABLE>


3.      LOANS AND RESERVE FOR LOAN LOSSES

Loans consist of the following at December 31:

                                         1995                  1994
                                      ------------          ------------
Real estate - mortgage                $ 54,631,309          $ 54,916,880
Real estate - construction              44,002,950            29,337,387
Commercial                              78,252,968            66,514,955
Installment loans to individuals         5,929,351             6,950,813
Lease financing                          4,001,250             2,686,227
Other                                      310,737               329,899
                                      ------------          ------------
                                       187,128,565           160,736,161
Less deferred loan fees                   (611,373)             (600,093)
                                      ------------          ------------
                                      $186,517,192          $160,136,068
                                      ============          ============


Transactions in the reserve for loan losses were as follows:

<TABLE>
<CAPTION>





                                                               1995                      1994                    1993
                                                            ----------                ----------             -----------
<S>                                                         <C>                       <C>                    <C>

Balance at beginning of year                                $1,700,130                $1,514,314             $1,077,813
Provision charged to operations                                350,000                   315,500                310,000
Recoveries                                                      40,133                    17,635                160,982
Loans charged off                                             (161,891)                 (147,319)               (34,481)
                                                            ----------                ----------             ----------
Balance at end of year                                      $1,928,372                $1,700,130             $1,514,314
                                                            ==========                ==========             ==========

</TABLE>


At December 31, 1995, Bancorp had only one loan requiring a specific
valuation allowance in accordance with SFAS No. 114.  It was the only
loan classified as impaired under the guidelines of SFAS No. 114 during



<PAGE>



1995.  The specific  valuation  allowance  is $100,000 on a loan with  remaining
principal outstanding of $424,000 at December 31, 1995.

Loans on  nonaccrual  status at December  31, 1995 were  approximately  $478,000
($693,000 at December 31, 1994).  Interest income which would have been realized
on  nonaccrual  loans if they had remained  current was  approximately  $74,000,
$77,000  and  $46,000   during  1995,   1994  and  1993,   respectively.   Loans
contractually  past due 90 days or more on which  Bancorp  continued  to  accrue
interest at December 31, 1995 were approximately  $645,000 ($190,000 at December
31, 1994).

Bancorp is located and conducts  substantially  all of its business  within Lane
County,  Oregon, and the greater Portland  metropolitan  area.  Bancorp's credit
policies  require  an  evaluation  of  each  borrower's  creditworthiness  on  a
case-by-case basis.  Collateral  consists of real and personal property.  At the
discretion of management, personal guarantees of the borrower may be obtained in
addition to the collateral. The ultimate collectibility of a substantial portion
of Bancorp's loan  portfolio is  susceptible to adverse  changes in local market
conditions. The loan portfolio is diversified among industry groups and does not
contain a direct  concentration  of loans to a single industry which exceeds 10%
of the portfolio. It is management's opinion that the reserve for loan losses is
adequate to absorb known and inherent risks in the loan portfolio.



<PAGE>



4.      MORTGAGE BANKING ACTIVITIES:

   The following table summarizes  Bancorp's  financial data with respect to its
   mortgage banking activities for the years ended December 31:


<TABLE>
<CAPTION>
                                                               1995                      1994                    1993
                                                            ----------                ----------              -------
<S>                                                         <C>                       <C>                     <C>

   Revenues                                                 $2,080,243                $2,970,783              $1,973,165
   Expenses                                                  2,077,086                 3,034,518               1,559,211
                                                            ----------                ----------              ----------

   Income (loss) before
        income taxes                                        $    3,157                $  (63,735)             $  413,954
                                                            ==========                ==========              ==========

   Total assets                                             $1,022,537                $1,530,985              $1,517,077
                                                            ==========                ==========              ==========

</TABLE>

   Commercial  real estate  loans  serviced  for others are not  included in the
   accompanying  consolidated  balance sheets.  The unpaid principal balances of
   serviced  loans at  December  31,  1995 and 1994 were none and  $353,740,000,
   respectively. Custodial balances maintained in connection with loan servicing
   were none and $780,100 at December 31, 1995 and 1994,  respectively,  and are
   included in demand deposits.


5.      PREMISES AND EQUIPMENT

The composition of premises and equipment at December 31 was as follows:

                                               1995                   1994
                                            -----------            -----------
Land                                        $   569,388            $   569,388
Buildings and improvements                    7,876,785              4,888,434
Furniture and equipment                       4,328,421              3,439,619
Construction in process                              --                755,606
                                            -----------            -----------
                                             12,774,594              9,653,047
Less accumulated depreciation
   and amortization                          (3,560,030)            (2,889,064)
                                             -----------            ----------
   Net premises and equipment               $ 9,214,564            $ 6,763,983
                                            ===========            ===========


Construction  in process at December 31, 1994 was for a new branch  facility for
the Bank in Tigard,  Oregon which was completed  during the summer of 1995.  All
monies  expended  for  the  construction  project  were  provided  by  Bancorp's
Convertible Debenture offering.

Bancorp leases certain facilities under noncancelable  lease  arrangements.  The
major  facilities  leases are for terms of 5 to 50 years and  generally  provide
renewal  options.  Rent expense  under all  operating  leases was  approximately
$393,600,  $313,400 and $174,600 in 1995,  1994 and 1993,  respectively.  Future
minimum lease payments under these noncancelable operating leases as of December
31, 1995 are as follows:

<PAGE>




   1996                                                     $  302,500
   1997                                                        301,300
   1998                                                        287,000
   1999                                                        193,700
   2000                                                        166,900
   Later years                                               5,966,400
                                                            ----------
        Total minimum lease payments                        $7,217,800
                                                            ==========



<PAGE>



6.      OTHER ASSETS

At December 31, other assets consisted of the following:

                                         1995                      1994
                                      ----------                ----------
   Accrued interest receivable        $2,536,493                $1,827,406
   Intangible assets, net                539,618                   876,655
   Deferred tax asset                         --                 1,410,722
   Other                               2,325,324                 1,984,048
                                      ----------                ----------
                                      $5,401,435                $6,098,831
                                      ==========                ==========


7.      SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE

Borrowings  related  to  securities  sold under  agreement  to  repurchase  were
$3,419,123  and  $2,839,608  at December  31, 1995 and 1994,  respectively.  The
agreements  are due on  demand,  but  generally  range in  duration  from one to
eighty-nine  days.  The interest rate payable on such  borrowings  was 4.70% and
4.50% at December 31, 1995 and 1994, respectively.


8.      ADVANCES FROM FEDERAL HOME LOAN BANK

At December 31, advances consisted of the following:

                                                1995                  1994
                                           ----------             ---------
Advances  from FHLB,  collateralized 
by FHLB stock,  funds on deposit  with the
FHLB, investments and loans:
   Interest at 5.86719%, due May 1996      $8,000,000             $       --
   Interest at 6.4958%, due May 1995               --              4,500,000
   Interest at 7.05%, due November 1995            --              4,500,000
                                           ----------             ----------
                                           $8,000,000             $9,000,000
                                           ==========             ==========


Bancorp  has  available  a  credit  facility  from  the  FHLB in the  amount  of
$23,471,500 at December 31, 1995 ($16,606,400 at December 31, 1994) at
prevailing market interest rates.

9.      LONG-TERM DEBT

At December 31, long-term debt consisted of the following:

                                             1995                   1994
                                           ----------             ----------
Bancorp 7% Convertible Debentures,
  semi-annual interest payments,
  without collateral,
   maturing May 1, 2004                    $9,200,000             $9,200,000
                                           ==========             ==========


The Debentures  are  convertible  into Bancorp's  common stock at the conversion
rate of 97 shares of Bancorp common stock for each $1,000

<PAGE>



principal amount of the debentures (equivalent to a conversion price of
approximately $10.307 per share).

Subsequent to December 31, 1995 (through  January 31, 1996),  holders  converted
$240,000 of the Convertible  Debentures  into 23,279 shares of Bancorp's  common
stock.  The amount of debt converted,  net of unamortized  issue costs,  will be
credited to common stock and additional paid-in-capital.


10.     OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

In the  ordinary  course of  business,  Bancorp  enters  into  various  types of
transactions  which include  commitments to extend credit and standby letters of
credit that are not included in the accompanying balance sheets. Bancorp applies
the same credit  standards  to these  commitments  as it uses in all its lending
processes and has included these  commitments  in its lending risk  evaluations.
Bancorp has no  commitments  to extend credit at  below-market  interest  rates.
Financial commitments at December 31 were as follows:

                                            1995                   1994
                                         -----------            -----------
   Commitments to extend credit          $57,543,000            $44,805,000
   Standby letters of credit               4,016,000              3,705,000

Commitments  to  extend  credit  are  agreements  to  lend to  customers.  These
commitments  have specified  interest rates and generally have fixed  expiration
dates but may be terminated by Bancorp if certain conditions of the contract are
violated.  Although currently subject to drawdown, many of these commitments are
expected to expire or terminate without funding. Therefore, the total commitment
amounts  do not  necessarily  represent  future  cash  requirements.  Collateral
relating to these commitments varies, but may include cash,  securities and real
estate.

Standby  letters  of credit  are  conditional  commitments  issued by Bancorp to
guarantee the performance of a customer to a third party.  Credit risk arises in
these transactions from the possibility that a customer may not be able to repay
Bancorp upon default of performance. Collateral for standby letters of credit is
based on an individual evaluation of each customer's  creditworthiness,  but may
include cash, securities and real estate.


11.     CONTINGENCIES

In the ordinary course of business,  litigation has occurred from normal banking
activities,  the ultimate  outcome of which, in the opinion of management,  will
not have a material adverse effect on Bancorp's consolidated financial position,
results of operations or cash flows.

<PAGE>




12.     TRANSACTIONS WITH RELATED PARTIES

Activity with respect to loans  receivable  from directors and their  affiliates
and executive officers of Bancorp and subsidiaries is as follows:

                                                 1995                  1994
                                             ------------          -------------
   Balance at January 1                      $  5,663,376          $  4,644,528
   Additions or renewals                       13,364,339            12,180,160
   Amounts collected or renewed               (14,097,295)          (11,161,312)
                                             ------------          ------------
   Balance at December 31                    $  4,930,420          $  5,663,376
                                             ============           ============

In  addition,  approximately  $2,722,000  of  commitments  to  extend  credit to
directors  and officers were  outstanding  at December 31, 1995  ($3,106,000  at
December 31, 1994), and are included as part of commitments in Note 10.



<PAGE>



13.     NONINTEREST EXPENSE

Noninterest expense consisted of the following for the years ended December 31:

<TABLE>
<CAPTION>


                                        1995                      1994                    1993
                                     -----------               -----------             --------
<S>                                  <C>                       <C>                     <C>

Salaries and employee benefits       $ 6,457,661               $ 6,453,635             $4,759,294
Premises and equipment                 1,643,309                 1,309,452                919,539
Data processing                          166,328                   212,212                131,686
Legal and professional                   550,756                   837,757                629,258
Insurance                                324,086                   519,489                430,761
Communications                           295,408                   288,070                225,206
Advertising                              353,430                   352,455                259,774
Printing and stationery                  291,111                   286,830                205,802
Litigation reserve or settlement              --                   342,052                788,427
Write-down of assets to net
   realizable value                      275,000                        --                     --
Other                                  1,146,881                 1,207,883                634,165
                                     -----------               -----------             ----------
   Total noninterest expense         $11,503,970               $11,809,835             $8,983,912
                                     ===========               ===========             ==========

</TABLE>


14.     INCOME TAXES

The provision for income taxes is comprised of the following at December 31:

<TABLE>
<CAPTION>


                                                               1995                      1994                   1993
                                                            ----------                ----------             -------
<S>                                                         <C>                       <C>                    <C>

   Currently payable:
        Federal                                             $1,963,173                $  462,091             $1,443,992
        State                                                  220,100                   193,800                353,200
   Deferred provision (benefit)                                (41,473)                  881,509               (584,504)
                                                            ----------                ----------             ----------
                                                            $2,141,800                $1,537,400             $1,212,688
                                                            ==========                ==========             ==========

</TABLE>


The effective tax rate of the provision for income taxes varies from the federal
income tax statutory rate for the following reasons:

<TABLE>
<CAPTION>


                                                               1995                      1994                   1993
                                                            ----------                ----------             -------
<S>                                                         <C>                       <C>                    <C>

Expected federal income
  tax provision at 34%                                      $2,275,700                $1,713,300             $1,351,757
State income tax, net of
  federal income tax effect                                    291,600                   221,000                173,147
Interest income on obligations
  of states and political
  subdivisions exempt from
  federal taxation                                            (343,400)                 (379,400)              (338,015)
Other, net                                                     (82,100)                  (17,500)                25,799
                                                            ----------                ----------             ----------
                                                            $2,141,800                $1,537,400             $1,212,688
                                                            ==========                ==========             ==========

</TABLE>
<PAGE>



The components of the net deferred tax asset at December 31 are as follows:

                                              1995                   1994
                                            ----------             ----------
Assets:
   Nonqualified benefit plans               $  439,250             $  337,800
   Reserve for loan losses                     374,300                284,000
   Net unrealized losses on securities
        available-for-sale                          --              1,175,249
   Other, net                                  104,100                  2,800
                                            -----------            ----------
        Total deferred tax assets              917,650              1,799,849
Liabilities:
   FHLB stock                                  294,800                196,900
   Excess tax over book depreciation            56,800                 33,300
   Purchased companies                          34,100                 37,000
   Deferred loan fees                          208,200                100,907
   Net unrealized gains on securities
        available-for-sale                     368,180                     --
   Other, net                                   46,804                 21,020
                                            ----------             ----------
        Total deferred tax liabilities       1,008,884                389,127
                                            ----------             ----------
        Net deferred tax asset
         (liability)                        $  (91,234)            $1,410,722
                                            ==========             ==========


Bancorp's  provision for income taxes for 1995, 1994 and 1993 includes  $21,600,
$39,200  and  $160,973,  respectively,  related to gains on sales of  investment
securities.



<PAGE>



15.     NONEMPLOYEE DIRECTOR STOCK OPTION PLANS

Under the 1988  Nonemployee  Director's  Stock Option Plan (the "1988 Director's
Plan"),  for nonemployee  directors of Bancorp and its  subsidiaries,  shares of
common stock are reserved for issuance at their fair market value at the date of
grant.  All options  outstanding  under the 1988 Director's Plan at December 31,
1995 were exercisable.  Options expire ten years after the date of grant and are
subject  to  earlier  cancellation  in the  event  an  optionee  ceases  to be a
director.  At December 31, 1995, options covering 55,497 shares were outstanding
under the 1988 Director's  Plan. The 1988  Director's  Plan was  discontinued in
June 1994 when the 1993 Stock Option Plan for  Nonemployee  Directors (the "1993
Director's Plan") was approved by shareholders.

Under the 1993 Director's Plan, shares of common stock are reserved for issuance
to nonemployee  directors of Bancorp and its  subsidiaries  at their fair market
value at the date of grant and become  exercisable to the extent of one-third of
the  optioned  shares per year,  with credit  given for prior  service.  Options
expire ten years after the date of grant and are subject to earlier cancellation
in the event an optionee ceases to be a director.

At December 31, 1995,  139,383  shares were reserved  under the 1993  Director's
Plan,  including  37,205 shares  available for future  grant.  Options  covering
70,461 shares  outstanding  under the 1993 Director's  Plan were  exercisable at
December 31, 1995.

<TABLE>
<CAPTION>

                                                                    1988 Director's Plan            1993 Director's Plan
                                                                    --------------------            --------------------
                                                                                  Average                           Average
                                                                                   Price                             Price
                                                                    Options         Per            Options            Per
                                                                  Outstanding      Share         Outstanding         Share
                                                                  -----------     --------       -----------        -------
<S>                                                                <C>             <C>             <C>               <C>

Balance at January 1, 1993                                          97,683         $1.64

     Granted                                                            --                           66,014          $7.45
     Exercised                                                     (21,094)        $1.32                 --
                                                                   -------                         --------

Balance at December 31, 1993                                        76,589         $1.69             66,014          $7.45

     Granted                                                            --                           13,339          $8.72
     Exercised                                                     (10,546)        $1.32                 --
                                                                   -------                         --------

Balance at December 31, 1994                                        66,043         $1.74             79,353          $7.66

     Granted                                                            --                           22,825          $9.12
     Exercised                                                     (10,546)        $1.53                 --
                                                                   -------                          -------

Balance at December 31, 1995                                        55,497         $1.78            102,178          $7.99
                                                                   =======                          =======
</TABLE>

<PAGE>







16.         INCENTIVE STOCK OPTION PLANS

Under the 1983 Incentive Stock Option Plan (the "1983 Incentive Plan"),  for key
management  officers,  shares of common stock are reserved for issuance at their
fair market value at the date of grant.  Options expire ten years after the date
of grant and are subject to earlier cancellation in the event an optionee ceases
to be an employee.  At December 31, 1995,  options  covering  47,512 shares were
outstanding  under the 1983  Incentive  Plan. No shares are available for future
grant. All 1983 Incentive Plan options outstanding are exercisable.

In June 1994,  shareholders  approved the 1993 Incentive  Stock Option Plan (the
"1993 Incentive  Plan").  Under the 1993 Incentive Plan,  shares of common stock
are  reserved  for  issuance  at their fair  market  value at the date of grant.
Options vest in accordance with the vesting schedule set at the time the options
are granted. Options expire ten years after the date of grant and are subject to
earlier  cancellation  in the event an  optionee  ceases to be an  employee.  At
December 31, 1995,  214,219 shares were reserved under the 1993 Incentive  Plan,
including  18,274 shares  available for future grant.  Options  covering 104,778
shares  outstanding  under the 1993 Incentive Plan were  exercisable at December
31, 1995.

<TABLE>
<CAPTION>


                                                                      1983 Incentive                  1993 Incentive
                                                                    Stock Option Plan               Stock Option Plan
                                                                -------------------------       ----------------------------
                                                                                 Average                           Average
                                                                                  Price                             Price
                                                                  Options          Per            Options            Per
                                                                Outstanding        Share        Outstanding          Share
                                                                -----------       ------        -----------         -------
<S>                                                               <C>              <C>            <C>                <C>

Balance at January 1, 1993                                         287,093         $ .67

     Granted                                                            --                         212,748           $7.45
     Exercised                                                    (166,105)        $ .71                --
                                                                  --------                        --------

Balance at December 31, 1993                                       120,988         $ .60           212,748           $7.45

     Granted                                                            --                           6,669           $8.20
     Exercised                                                     (28,759)        $ .60                --
                                                                  --------                        --------

Balance at December 31, 1994                                        92,229         $ .60           219,417           $7.48

     Exercised                                                     (44,717)        $ .60            (5,868)          $7.45
     Cancelled and returned to Plan                                     --                         (17,604)
                                                                  --------                        --------

Balance at December 31, 1995                                        47,512         $ .60           195,945           $7.48
                                                                  ========                         =======


</TABLE>


In November 1995, the Board of Directors approved the 1995 Stock Incentive Plan,
subject to its adoption by shareholders at the 1996

<PAGE>



annual meeting. Under the 1995 Stock Incentive Plan, 220,000 shares are reserved
for issuance to employees,  directors or consultants as either  incentive  stock
options,  nonstatutory  stock options or restricted  stock awards.  The exercise
price for incentive  stock options must be no less than the fair market value of
the underlying  shares on the date of grant.  The exercise price of nonstatutory
stock options and the price to be paid for restricted  stock will be established
by a committee of the Board of  Directors.  Incentive  stock options may only be
granted to employees.  The duration of options  granted will be established by a
committee  of the Board of  Directors;  however,  the maximum  term of incentive
stock options is ten years. At December 31, 1995,  options for 66,000 shares had
been  granted  under the 1995  Stock  Incentive  Plan,  subject  to  shareholder
approval of the Plan.


<PAGE>


17.      SHAREHOLDERS' EQUITY

Preferred Stock

At December 31, 1995 and 1994,  Bancorp had 5,000,000  shares of authorized  but
unissued $5.00 par value  non-voting  preferred  stock,  and 5,000,000 shares of
authorized but unissued $5.00 par value voting preferred stock.

Stock Splits

On January 16, 1996, the Board of Directors declared a 10% stock split,  payable
February 21, 1996, in the form of a distribution of one additional  share of the
Bancorp's  common stock for each ten shares owned by  shareholders  of record at
the close of business on January 31, 1996.  Par value  remained at $2 per share.
The stock split resulted in the issuance of 422,830  additional shares of common
stock from  authorized  but  unissued  shares.  The issuance of  authorized  but
unissued  shares  resulted in the transfer of $845,660 from  additional  paid-in
capital  to  common  stock,  representing  the par value of the  shares  issued.
Additionally,  in 1995,  1994 and 1993,  Bancorp has  distributed  various stock
splits.

Stock Dividends

On July 12,  1993,  the Board of  Directors  authorized  a 5% stock  dividend to
shareholders of record on July 26, 1993.  Additionally,  in 1992 and prior years
Bancorp has distributed various stock dividends.


18.      EMPLOYEE BENEFIT PLAN

The Bank has an employee  savings plan  (401(k))  and profit  sharing plan which
covers  all  full-time  employees  over  age 21 with one  year of  service.  The
employee savings plan allows employees to contribute  between 2% to 15% of their
salary on a tax deferred basis. For 1995, 1994 and 1993, the Bank matched 75% of
employee contributions up to 6% of their salary. The Bank matching contributions
are determined  annually by the Board of Directors.  In addition to the matching
contributions,  the Bank also makes  discretionary  contributions  to the profit
sharing plan. The Bank's policy is to fund contributions as accrued.  The Bank's
contributions  to the employee  savings plan was $200,000 in 1995  ($150,000 for
1994 and $125,000 for 1993).


19.      FAIR VALUE OF FINANCIAL INSTRUMENTS

The following  methods and  assumptions  were used by management to estimate the
fair value of each class of financial  instrument for which it is practicable to
estimate that value. The resulting estimates of

<PAGE>



fair value  require  subjective  judgments and are  approximate.  Changes in the
following   methodologies  and  assumptions  could   significantly   affect  the
estimates:

CASH AND CASH EQUIVALENTS.  For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.

AVAILABLE-FOR-SALE SECURITIES. For securities, the fair value is based on quoted
market  prices.  If a  quoted  market  price  is not  available,  fair  value is
estimated using quoted market prices for similar securities.

LOANS HELD FOR SALE.  For loans held for sale, the fair value represents
the anticipated proceeds from sale of the loans.

LOANS. The fair value of fixed-rate loans is estimated by discounting the future
cash flows  using the  current  rates at which  similar  loans  would be made to
borrowers with similar  credit  ratings and for the same  remaining  maturities.
Variable rate loans with quarterly rate  adjustments have carrying amounts which
are a reasonable estimate of fair value.

DEPOSITS. The fair value of demand, interest-bearing demand and savings deposits
is the amount  payable on demand at the reporting  date.  The fair value of time
deposits  is  estimated  using the  interest  rates  currently  offered  for the
deposits of similar remaining maturities.

SHORT-TERM  BORROWINGS.  The  carrying  amount  of  short-term  borrowings  is a
reasonable estimate of fair value.

LONG-TERM  DEBT.  The fair value of long-term debt at December 31, 1995 and 1994
is based on quoted market prices for the Convertible Debentures.

OFF-BALANCE-SHEET  FINANCIAL  INSTRUMENTS.  Commitments  to  extend  credit  and
letters of credit  represent the  principal  categories  of  off-balance-  sheet
financial  instruments.  The  fair  value of  these  commitments,  based on fees
currently charged for similar commitments is not material.

The estimated fair values of Bancorp's  financial  instruments are as follows at
December 31:

<TABLE>
<CAPTION>

                                                              1995                                      1994
                                               -----------------------------------         ---------------------------------
                                                 Carrying                 Fair               Carrying              Fair
                                                   Value                 Value                 Value              Value
                                               -------------         -------------         ------------        -------------
<S>                                            <C>                   <C>                   <C>                 <C>

Financial assets:
   Cash and cash
   equivalents                                 $ 36,721,459          $ 36,721,500          $ 25,358,038        $ 25,358,000
   Available-for-sale
        securities                               76,964,342            76,964,300            58,794,836          58,795,000

   Loans held for sale                            4,573,095             4,573,100             1,874,728           1,874,700
   Loans                                        186,517,192           186,372,000           160,136,068         159,066,200

Financial liabilities:
   Deposits                                    $267,880,292          $269,156,000          $216,319,800        $216,175,000
   Short-term borrowings                         11,419,123            11,419,100            11,839,608          11,840,000
   Long-term debt                                 9,200,000            10,079,500             9,200,000           9,108,000

</TABLE>


<PAGE>



20.     PARENT COMPANY FINANCIAL INFORMATION

Condensed financial  information for Centennial Bancorp (Parent Company only) is
presented below:

<TABLE>
<CAPTION>


                                         Condensed Balance Sheets (Unconsolidated)

December 31,                                                                                 1995                  1994
                                                                                         -----------           -----------
<S>                                                                                      <C>                   <C>
Assets
------
Cash, deposited with the Bank                                                            $ 4,220,201           $ 3,941,217
Available-for-sale securities                                                                     --               457,875
Due from the Bank                                                                                 --               629,900
Due from Harding Fletcher                                                                         --               240,000
Equipment, net                                                                                75,231                15,595
Deferred tax asset                                                                           274,292               222,656
Other assets                                                                               1,552,902             1,258,853
Investment in subsidiaries at cost
  plus equity in earnings of subsidiaries                                                 30,831,700            22,591,236
                                                                                         -----------           -----------
     Total assets                                                                        $36,954,326           $29,357,332
                                                                                         ===========           ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
     Accrued interest and other liabilities                                              $ 1,364,266           $   952,001
     Long-term debt                                                                        9,200,000             9,200,000
                                                                                         -----------           -----------
        Total liabilities                                                                 10,564,266            10,152,001
Shareholders' equity                                                                      26,390,060            19,205,331
                                                                                         -----------           -----------
     Total liabilities and shareholders' equity                                          $36,954,326           $29,357,332


</TABLE>

<TABLE>
<CAPTION>

                                      Condensed Statements of Income (Unconsolidated)

Years ended December 31,                                              1995                   1994                  1993
                                                                   ----------             ----------            -------
<S>                                                                <C>                    <C>                   <C>

Income:
Cash dividends from the Bank                                       $       --             $  120,000            $  665,000
Other income                                                          385,809                 14,286                   600
Gain on sale of investments                                            44,272                 38,665                    --
Other interest income from
     the subsidiaries                                                 543,259                181,736                78,136
                                                                   ----------             ----------            ----------
                                                                      973,340                354,687               743,736
                                                                   ----------             ----------            ----------
Expense:
Salaries and employee benefits                                      1,078,378                502,108               324,445
Interest expense                                                      694,643                520,660                28,550
Other                                                                                       631,105                345,269
                                                                                         ----------             ----------
 134,681
                                                                    2,404,126              1,368,037               487,676
                                                                   ----------             ----------            ----------
Income (loss) before income
  taxes and equity in undistributed
  earnings of subsidiaries                                         (1,430,786)           (1,013,350)               256,060

Income tax benefit                                                    542,605                267,224               150,210
                                                                   ----------             ----------            ----------
Income (loss) before equity in
  undistributed earnings of
  subsidiaries                                                       (888,181)             (746,126)               406,270
Equity in undistributed earnings
  of subsidiaries                                                   5,439,499              4,247,705             2,356,769
                                                                   ----------             ----------            ----------
Net income                                                         $4,551,318             $3,501,579            $2,763,039
                                                                   ==========             ==========            ==========


</TABLE>



<TABLE>
<CAPTION>


                                    Condensed Statements of Cash Flows (Unconsolidated)
                                                Increase (Decrease) in Cash

Years ended December 31,                                              1995                  1994                  1993
                                                                  -----------           -----------           --------
<S>                                                               <C>                   <C>                   <C>

Cash flows from operating
  activities:
Net income                                                        $ 4,551,318           $ 3,501,579           $ 2,763,039
Adjustments to reconcile net
  income to net cash provided
  by (used in) operating activities:
     Gain on sale of securities                                       (44,272)              (38,665)                   --
     Depreciation of equipment                                          5,760                 6,238                 6,281
     Undistributed earnings
         of subsidiaries                                           (5,439,499)           (4,247,705)           (2,356,769)
     Deferred tax benefit                                             (51,636)              (78,956)              (67,412)
     Changes in assets and liabilities:
       Increase in other assets                                      (294,049)           (1,025,352)              (89,920)
       Increase (decrease) in accrued
           interest and other liabilities                             412,261               (52,655)              434,647
                                                                  -----------           -----------           -----------
         Net cash provided by (used in)
         operating activities                                        (860,117)           (1,935,516)              689,866
                                                                  -----------           -----------           -----------
Cash flows from investing activities:
     Purchase of securities                                                --                    --              (840,600)
     Proceeds from sale of securities                                 498,377               425,160                    --
     Purchase of Harding Fletcher stock                                    --                    --              (500,000)
     Proceeds from sale of Harding
   Fletcher                                                           155,131                    --                    --
     Payments made to (from)
         subsidiaries, net                                            398,676            (2,991,358)             (111,355)
                                                                  -----------           -----------           -----------
         Net cash used in
         operating activities                                       1,052,184            (2,566,198)           (1,451,955)
                                                                  -----------           -----------           -----------
Cash flows from financing activities:
     Proceeds from long-term debt                                          --             9,200,000               800,000
     Payments on long-term debt                                            --              (959,375)             (117,043)
     Proceeds from issuance of
   common stock                                                        86,917                31,353               145,750
     Cash dividends                                                        --                    --               (40,000)
                                                                  -----------           -----------           -----------
         Net cash provided by
         financing activities                                          86,917             8,271,978               788,707
                                                                  -----------           -----------           -----------
Net increase in cash                                                  278,984             3,770,264                26,618
Cash at beginning of year                                           3,941,217               170,953               144,335
                                                                  -----------           -----------           -----------
Cash at end of year                                               $ 4,220,201           $ 3,941,217           $   170,953
                                                                  ===========           ===========           ===========


Noncash investing activity:
Change in net unrealized holding
     gain (loss) on securities
     available-for-sale:
         Bancorp                                                  $     3,770           $     2,340            $  (57,576)
         The Bank                                                   2,514,390            (1,953,575)               91,351
</TABLE>

<PAGE>




For purposes of reporting cash flows,  cash  represents  amounts due from banks.
Bancorp  paid  approximately  $652,900,  $358,200  and  $28,500 in  interest  on
borrowings in 1995, 1994 and 1993, respectively.

The Bank, as a state-chartered  bank, is prohibited from declaring or paying any
dividend in an amount  greater  than  undivided  profits.  At December 31, 1995,
$11,201,200  was available from the Bank for the payment of dividends to Bancorp
without prior regulatory approval.

Bancorp and the Bank are subject to the regulations of certain federal and state
agencies, and receive periodic examinations by those regulatory authorities.

<PAGE>



                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

HIGHLIGHTS

     Centennial Bancorp reported net income of $4.6 million,  or $.95 per share,
in the year ended  December 31, 1995.  This  represented a 30.0% increase in net
income,  as compared to $3.5 million,  or $.74 per share, in 1994. Net income in
1994  represented a 26.7%  increase  from 1993's net income of $2.8 million,  or
$.59 per share. The return on average assets was 1.62% in 1995 compared to 1.53%
in 1994 and 1.45% in 1993.  The increased  earnings for 1995 and 1994  primarily
reflected  increased  net  interest  income due to the  expansion  of  Bancorp's
interest-earning assets each year.

     In late April 1994, Bancorp completed a $9.2 million Convertible  Debenture
offering,  which  provided  net  proceeds  of  $8.4  million  after  payment  of
underwriting discounts,  commissions and expenses. Bancorp used a portion of the
net proceeds to repay $2.9 million of then existing  debt.  The  remaining  $5.5
million of net proceeds was  invested in the Bank to fund its  liquidity  and to
construct a new branch office in Tigard, a suburb of Portland, Oregon.

     Centennial  Bank opened a branch  office in Tigard,  a suburb of  Portland,
Oregon, in August 1994 and began  construction of a permanent facility which was
completed and occupied in June 1995.  Customer  response to the services offered
was greater than  expected  and by year-end  1994 total loans at the office were
$27.7  million,  making the  five-month  old branch the second  largest  lending
facility of the Bank's branch system at that time.

     In December 1994,  Bancorp  completed the merger of CG Bancorp with Bancorp
through a stock  transaction  which was accounted for as a pooling of interests.
Accordingly,  the financial condition and results of operations discussed herein
include  the  combined  results  of  Bancorp  and CG  Bancorp  for  all  periods
discussed.

     Subsequent to December 31, 1995,  the Bank  announced the decision to close
the Creswell Office, which was one of the offices acquired through the merger of
CG Bancorp.  Regulatory  approvals for the closure have been  received,  and the
office is scheduled to be closed in May 1996.  Customer accounts of the Creswell
Office will be relocated to other offices of the Bank.

NET INTEREST INCOME

     For most financial  institutions,  including Bancorp, the primary component
of  earnings is net  interest  income.  Net  interest  income is the  difference
between  interest  income,  principally  from  loans and  investment  securities
portfolios, and interest expense, principally on

<PAGE>



customer  deposits and  borrowings.  Changes in net interest  income result from
changes in "volume," "spread" and "margin." Volume refers to the dollar level of
interest-earning assets and interest-bearing  liabilities.  Spread refers to the
difference  between  the  yield  on  interest-earning  assets  and  the  cost of
interest-bearing  liabilities.  Margin refers to net interest  income divided by
interest-earning  assets  and is  influenced  by the level and  relative  mix of
interest-earning assets and interest-bearing liabilities.  During 1995, 1994 and
1993, Bancorp's average  interest-earning assets were $252 million, $205 million
and $169 million, respectively.  During these same years, Bancorp's net interest
margin was 6.66%, 7.24% and 6.69%, respectively.

     AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID

     The following table sets forth for 1995 and 1994 information with regard to
average balances of assets and  liabilities,  as well as total dollar amounts of
interest   income  from   interest-earning   assets  and  interest   expense  on
interest-bearing  liabilities,  resultant  average yields or rates, net interest
income,  net  interest  spread,  net  interest  margin  and the ratio of average
interest-earning assets to average interest-bearing liabilities for Bancorp.

<PAGE>

<TABLE>
<CAPTION>

Year ended December 31,                                    1995                                      1994
                                                 ----------------------------------  ------------------------------------
                                                               Interest     Average                 Interest     Average
                                                   Average    income or    yield or     Average    income or    yield or
                                                 Balance(1)    Expense       Rates    Balance(1)    Expense       Rates
                                                 ----------    --------    --------   ----------    --------    --------
<S>                                               <C>           <C>          <C>       <C>           <C>          <C>
ASSETS:                                                                          (Dollars in thousands)
Interest-earning due from banks                   $  5,971      $   352       5.90%    $  2,498      $   110       4.40%
Investment securities - taxable                     40,116        2,403       5.99       36,632        1,927       5.26
Investment securities - tax-exempt(2)               24,159        1,827       7.56       23,040        1,866       8.10
Federal funds sold                                   5,618          317       5.64        3,349          131       3.91
Loans and loans held for sale(3)                   176,384       20,909      11.85      139,672       16,003      11.46
                                                  --------      -------               ---------      -------
    Total interest-earning
        assets/interest income                     252,248       25,808      10.23      205,191       20,037       9.77
Reserve for loan losses                             (1,824)                              (1,652)
Cash and due from banks                             16,975                               14,562
Premises and equipment, net                          8,477                                5,981
Other real estate owned                                 22                                  957
Other assets                                         5,854                                4,236
                                                  --------                             --------
    Total assets                                  $281,752                             $229,275
                                                  ========                             ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and interest-bearing
    demand deposits                               $107,983        3,352       3.10     $101,256        2,333       2.30
Time deposits                                       71,912        4,146       5.77       47,258        2,106       4.46
Short-term borrowings                               13,823          861       6.23        4,259          174       4.09
Long-term debt                                       9,200          645       7.01        7,410          559       7.54
                                                  --------      -------                --------       ------
    Total interest-bearing
        liabilities/interest expense               202,918        9,004       4.44      160,183        5,172       3.23
Demand deposits                                     53,399                               47,406
Other liabilities                                    2,133                                2,984
                                                  --------                             --------
    Total liabilities                              258,450                              210,573
Shareholders' equity                                23,302                               18,702
                                                  --------                             --------
    Total liabilities and
        shareholders' equity                      $281,752                             $229,275
                                                  ========                             ========
Net interest income(2)                                          $16,804                              $14,865
                                                                =======                              =======
Net interest spread(2)                                                        5.79%                                6.54%
                                                                             =====                                =====
Net interest margin(2)                                                        6.66%                                7.24%
Average interest-earning assets to
    average interest-bearing liabilities               124%                                 128%


</TABLE>


(1)  Average balances are based on daily averages and include nonaccrual loans.

(2)  Average  yield  on  nontaxable  securities,  net  interest  spread  and net
     interest  margin have been  computed on a 34% tax-equivalent  basis.

(3)  Nonaccrual loans ($631,100 in 1995 and $783,200 in 1994) have been included
     in the  computation  of average  loans and loans  held for sale.  Loan fees
     recognized during the period and included in the yield calculation totalled
     $2,541,800 in 1995 and $2,958,600 in 1994.



<PAGE>


    ANALYSIS OF CHANGES IN INTEREST RATE DIFFERENTIAL

    The following table shows the dollar amount,  on a tax-equivalent  basis, of
the increase  (decrease) in the Company's  interest income and interest  expense
for the years ended December 31, and  attributes  such dollar amounts to changes
in volume and changes in interest  rates.  Changes  attributable to the combined
effect of volume and interest rate  changes,  which were  immaterial,  have been
allocated equally between interest rate and volume.


<TABLE>
<CAPTION>

                                                           1995 vs. 1994                       1994 vs. 1993
                                                              Change in                           Change in
                                                        net interest income                 net interest income
                                                                 due to                            due to
                                                     -----------------------------      -----------------------------
                                                     Volume       Rate       Total      Volume       Rate       Total
                                                     ------       ----       -----      ------       ----       -----
                                                                                   (In thousands)
<S>                                                  <C>         <C>         <C>         <C>         <C>         <C>
Interest income:
    Balances due from banks                          $  179      $   63      $  242      $  (56)     $   48      $   (8)
    Investment securities - taxable                     196         280         476         565          98         663
    Investment securities - tax-exempt                   88        (127)        (39)        185        (135)         50
    Federal funds sold                                  108          78         186         (21)         40          19
    Loans                                             4,279         627       4,906       2,782       1,129       3,911
                                                     ------      ------      ------      ------      ------      ------
        Total interest income                         4,850         921       5,771       3,455       1,180       4,635
                                                     ------      ------      ------      ------      ------      ------

Interest expense:
    Deposits:
        Savings and interest-bearing
          demand                                        182         837       1,019         353        (198)        155
        Time                                          1,260         780       2,040         293         202         495
    Short-term borrowings                               493         194         687         128           8         136
    Long-term debt                                      130         (44)         86          58         226         284
                                                     ------      ------      ------      ------      ------      ------
        Total interest expense                        2,065       1,767       3,832         832         238       1,070
                                                     ------      ------      ------      ------      ------      ------
Net interest income                                  $2,785      $ (846)     $1,939      $2,623      $  942      $3,565
                                                     ======      ======      ======      ======      ======      ======


</TABLE>

<PAGE>



RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993

      NET INTEREST INCOME

      Bancorp's  net  interest   income   increased  to  $16.8  million,   on  a
tax-equivalent  basis,  in 1995 as compared  to $14.9  million in 1994 and $11.3
million in 1993. During 1995, average  interest-earning assets increased to $252
million as compared to average  interest-earning  assets of $205 million in 1994
and $169 million in 1993. At the same time, average interest-bearing liabilities
increased  to $203 million in 1995 from $160 million in 1994 and $134 million in
1993.

      Because the increases in average interest-earning assets were greater than
the increases in average interest-bearing  liabilities in 1995 and 1994, Bancorp
recognized an increase in net interest income.

      The average yield earned on interest-earning  assets increased by .46% (46
basis  points)  in  1995,  while  the  average  rate  paid  on  interest-bearing
liabilities  increased by 1.21% (121 basis points).  Because the increase in the
average rate paid on interest-bearing  liabilities was greater than the increase
in average  yield  earned on  interest-earning  assets,  Bancorp  experienced  a
decrease in net interest margin in 1995 as compared to 1994. The decrease in net
interest  margin in 1995  served to limit  Bancorp's  increase  in net  interest
income.

      During  1995,   Bancorp   increased  its   interest-bearing   deposits  in
anticipation of strong loan demand expected in Bancorp's  markets.  The increase
in  interest-bearing  deposits was brought  about by offering  more  competitive
rates for those deposits.

      The average yield earned on interest-earning  assets increased by 65 basis
points in 1994 over the average  yield  earned in 1993,  while the average  rate
paid on  interest-bearing  liabilities  increased by only 18 basis points.  This
increase  in the  average  yield  earned  over  the  average  rate  paid in 1994
contributed to the increase in net interest income in 1994 as compared to 1993.

      During 1995,  Bancorp  experienced a declining  interest rate environment,
caused  primarily by the Federal  Reserve Bank's  decreases in its discount rate
and the market reactions thereto.  A significant  portion of Bancorp's loans are
immediately  repricable  upon  a  change  in  interest  rates  (58%  and  52% of
outstanding loans at December 31, 1995 and 1994, respectively), which provides a
benefit to Bancorp in a rising  interest  rate  market,  but is a  detriment  to
earnings in a falling  interest  rate  market  until the market  stabilizes.  An
increase in the volume of loans can mitigate

<PAGE>



the negative effects of a falling interest rate market.

      During 1994, Bancorp  experienced a rising interest rate environment,  and
recognized  the  favorable  impact on its net  interest  income and net interest
margin.

      Centennial  Mortgage  established  a  residential  mortgage   construction
lending department during 1994 to establish  relationships with home builders in
the  Eugene/Springfield  and  Portland-area  markets  and to attempt to generate
additional  permanent loan activity as the  houses-under-construction  are sold.
Management recognizes the lending risks associated with construction lending and
has established a detailed  approval process for builder lines of credit and has
implemented  a  continuing   review  of  construction  in  progress  to  monitor
construction  loan activity.  Increases in interest rates could adversely affect
demand for construction lending, as well as the ability of borrowers to sell the
houses when completed,  and also could impact  Centennial  Mortgage's  permanent
mortgage lending activity.

      PROVISION FOR LOAN LOSSES

      Management's policy is to maintain an adequate reserve for loan losses. In
1995,  Bancorp charged a $350,000 loan loss provision to income,  as compared to
$315,500  in 1994 and  $310,000  in  1993.  In 1995,  loan  charge-offs,  net of
recoveries were $121,800, as compared to loan charge-offs,  net of recoveries of
$129,700 in 1994 and loan  recoveries,  net of loans  charged off of $126,500 in
1993.

      Bancorp's  reserve for loan losses was $1.9  million at December 31, 1995,
as compared to $1.7  million at December  31, 1994 and $1.5  million at December
31, 1993. The ratio of the reserve for loan losses to total  nonperforming loans
was 172%, 192% and 142% at December 31, 1995, 1994 and 1993, respectively.

      Management  attributes the relatively low levels of loans charged off, net
of  recoveries,  during 1995,  1994 and 1993 to the loan approval  processes and
monitoring systems implemented in prior years.  Management continues its efforts
to collect  amounts  previously  charged off and to originate  new loans of high
quality.

      NONINTEREST INCOME

      Noninterest income decreased $585,300 in 1995 as compared to
1994, but increased $340,000 in 1994 as compared to 1993.  The
decrease in 1995 was primarily attributable to a decrease in
activities of and eventual sale of Harding Fletcher, but was also
attributable to a decrease in gains recognized on sales of
residential mortgage loans  originated by Centennial Mortgage.  The

<PAGE>



increase in 1994 was  primarily  attributable  to an increase in loan  servicing
fees and to a gain  recognized  on the  sale of other  real  estate  owned.  The
increase in 1994 was offset in part by decreases in gains recognized on sales of
loans and sales of securities.

      Bancorp  experienced a decrease of $190,900 in loan servicing fees in 1995
as compared to 1994.  Loan servicing  fees were  collected by Bancorp  primarily
through Harding Fletcher,  which was sold in August 1995. Loan servicing fees in
1994 increased $279,200 as compared to 1993. 1994 represented the only full year
of Bancorp's ownership of Harding Fletcher.

     Bancorp  experienced  decreases  of  $171,200 in gains on sales of loans in
1995 as  compared  to 1994  and  $84,000  in 1994 as  compared  to  1993.  These
decreases  were  primarily due to decreases in  residential  mortgage  refinance
lending  activity through  Centennial  Mortgage,  and competitive  factors which
increasingly limited the gain Bancorp was able to recognize on the sale of loans
to third-party investors.

      Bancorp  experienced a decrease of $241,800 in other noninterest income in
1995 as compared to 1994. This decrease was  attributable in part to a reduction
in lease income  received  (approximately  $110,000 was  collected  for the nine
months ended  September  30, 1994) from the former  Bancorp and Bank head office
facility which was reclassified as an other asset in 1994, after Bancorp and the
Bank vacated the building to occupy a new head office  facility.  This  building
was sold in September 1994 for a gain of $93,200.  Other noninterest income also
decreased in 1995 due to a decrease in insurance sales commissions received.

      Bancorp experienced a decrease of $311,700 in gains on sales of securities
in 1994 as  compared to 1993.  This  decrease  was  primarily  due to  Bancorp's
ability to satisfy liquidity needs during the year from borrowings and retention
of deposits rather than from liquidation of investment securities. This decrease
was also due to the rising  interest rate market  experienced  during 1994 which
reduced  Bancorp's  ability to profitably  realign the  securities  portfolio to
improve its interest rate risk exposure.

      NONINTEREST EXPENSE

      Noninterest expense decreased $305,900 to $11.5 million in 1995 from $11.8
million in 1994.  This  decrease was primarily due to the decreases in legal and
professional expenses, insurance expenses and other noninterest expense, and was
due in part to the sale of Harding  Fletcher in August 1995.  This  decrease was
offset in part by an increase in premises and equipment expense and a write-down
of an asset to its net realizable value.


<PAGE>



      Noninterest  expense  increased  $2.8 million in 1994 as compared to 1993.
This  increase  was  primarily  due to the full year of  operations  of  Harding
Fletcher,  which was  acquired  in July 1993,  and to the  opening of the Tigard
branch of the Bank in August 1994.

      Salaries and employee  benefits  remained  constant in 1995 as compared to
1994, but increased $1.7 million to $6.5 million during 1994 as compared to $4.8
million in 1993. The increase in 1994 was primarily due to the Harding  Fletcher
acquisition and the Tigard branch  opening,  but was also impacted by a deferred
compensation agreement for the former President of CG Bancorp.

      Premises  and  equipment  expense  increased  to $1.7  million  in 1995 as
compared to $1.3 million in 1994 and $920,000 in 1993.  The increase in 1995 was
primarily due to the additional expenses incurred in the Bank's occupancy of the
Pacific  Corporate  Center  Office  permanent  facility in Tigard,  Oregon.  The
increase  in 1994 was  also due to the full  year  occupancy  of  Bancorp's  and
Centennial  Bank's head office facility which opened in June 1993, and to a full
year of owning Harding Fletcher.

      Data  processing  expense  was  $166,300 in 1995,  $212,200  in 1994,  and
$132,000 in 1993.  The  increase in 1994 was  primarily  due to data  processing
equipment and software upgrade  expenses  incurred to accommodate the additional
Tigard branch location of Centennial Bank and the two branches  acquired through
the merger of CG Bancorp into Bancorp. In addition, CG Bancorp incurred contract
data  processing  expenses  in 1994 prior to the  merger.  The  decrease in 1995
resulted  from  efficiencies  of  operations  after the  merger as  compared  to
operating the banks separately.

      Legal and  professional  fees decreased by $287,000 in 1995 as compared to
1994,  due to the resolution of litigation  outstanding  against the Bank during
the latter part of 1994. This decrease was offset in part by legal fees incurred
in 1995  due to the  sale of  Harding  Fletcher.  Legal  and  professional  fees
increased  $209,000  in 1994 as  compared  to  1993,  due in part to the  Bank's
expenses  associated  with its appeal of certain  litigation  and  resolution of
other litigation, and in part to legal and professional fees associated with the
merger of CG Bancorp.

      Insurance  expenses  decreased $195,400 to $324,100 in 1995 as compared to
$519,500 in 1994.  This  decrease  was due to an  assessment  rate  reduction on
Federal Deposit Insurance coverage. Deposit growth and assessment rate increases
through 1994 contributed to an $89,000 increase in insurance expenses in 1994 as
compared to 1993.

      Communications,  advertising and printing and stationery expenses remained
constant in 1995 as compared to 1994, but each of these

<PAGE>



expenses  increased in 1994 as compared to 1993  ($63,000,  $93,000 and $81,000,
respectively), primarily due to Bancorp's increased business activities.

      Other  noninterest  expense remained constant in 1995 as compared to 1994,
but  increased  $574,000 to $1.2  million as  compared to $634,000 in 1993.  The
increase  was  primarily  due to Bancorp's  increased  business  activities  and
included  approximately  $80,000 of expenses  associated with the merger with CG
Bancorp.

ASSET/LIABILITY MANAGEMENT

      Bancorp's results of operations  depend  substantially on its net interest
income.  Interest income and interest  expense are affected by general  economic
conditions and by competition in the marketplace.

      The purpose of Bancorp's asset/liability  management program is to provide
stable net interest  income growth by protecting  Bancorp's  earnings from undue
interest rate risk. Exposure to interest rate risk arises from volatile interest
rates,  changes in the mix of assets (principally loans and investment portfolio
securities) and liabilities  (principally deposits) and maturities and repricing
schedules of assets and  liabilities.  Assets and  liabilities  are described as
rate sensitive when they can be repriced (i.e.,  changed in rate) within a given
time period. The difference between the amount of interest-rate-sensitive assets
and  interest-rate-sensitive   liabilities  is  referred  to  as  the  interest-
rate-sensitive  "GAP" for any given period of time. If an equal amount of assets
and  liabilities can be repriced during a specific period of time, the financial
institution is said to be in a balanced  rate-sensitivity  position.  A balanced
position  generally  may be  expected to result in less  volatile  swings in net
interest income.

      Rising and falling interest rate  environments can have various effects on
a lender's net interest income, depending on the interest rate GAP, the relative
changes in interest rates that occur when assets and  liabilities  are repriced,
unscheduled  repayments  of  loans,  early  withdrawals  of  deposits  and other
factors.  As a general rule, in periods of falling interest rates,  lenders with
positive  interest  rate GAPs (i.e.,  those having more  interest-rate-sensitive
assets  than  liabilities)  are more  susceptible  to a decline in net  interest
income. In periods of rising interest rates, lenders with negative interest rate
GAPs (i.e., those having more  interest-rate-sensitive  liabilities than assets)
are more likely to experience declines in net interest income.

      Management's objectives are to control interest rate risk and to

<PAGE>



achieve  predictable and consistent  growth in net interest  income.  Management
meets  regularly  to monitor the  composition  of the balance  sheet,  to assess
current  and  projected  interest  rate  trends  and  to  formulate   strategies
consistent with established objectives. Management attempts to limit exposure to
interest  rate risk by  maintaining a balance sheet posture such that annual net
interest income is not significantly affected by market fluctuations in interest
rates.  Bancorp  uses  simulation  modeling  to measure  the  effects of varying
interest rate scenarios and balance sheet strategies on net interest income.

      The   following   table  sets  forth  the   dollar   amount  of   maturing
interest-earning  assets and interest-bearing  liabilities at December 31, 1995,
and the difference between them for the maturing or repricing periods indicated.
The amounts in the table are derived from Bancorp's  internal data and, although
the  information  may be useful as a general  measure of interest rate risk, the
data could be significantly  affected by external factors such as prepayments of
loans or early withdrawals of deposits.  Each of these may greatly influence the
timing  and  extent  of  actual   repricing  of   interest-earning   assets  and
interest-bearing   liabilities.   Management  does  not  consider   savings  and
negotiable order of withdrawal  ("NOW") accounts to be  interest-rate-sensitive.
Excluding those accounts,  Bancorp's  variable-rate  assets exceed variable-rate
liabilities, and its fixed-rate assets exceed fixed-rate liabilities.

<PAGE>

<TABLE>
<CAPTION>

                                                                               December 31, 1995
                                                                   Amount maturing or repricing within:
                                                              ----------------------------------------------------------
                                                                            Three
                                                              Less than   months to
                                                                three     less than      One to     Over five
                                                                months     one year     five years    years       Total
                                                              ---------   ---------     ----------  ---------    --------
                                                                                 (Dollars in thousands)
<S>                                                           <C>         <C>           <C>          <C>        <C>

Interest-earning assets:
    Fixed-rate loans                                          $  7,875    $ 16,311      $38,620      $16,756    $ 79,562
    Variable-rate loans                                         99,846       1,725        8,766        1,191     111,528
    Investment securities                                        5,386      13,809       44,468        9,261      72,924
    Other interest-earning assets                               14,730          --           --           --      14,730
                                                              --------    --------      -------      -------    --------
        Total interest-earning assets                          127,837      31,845       91,854       27,208     278,744

Cash and due from banks                                                                                           21,991
Other noninterest-earning assets                                                                                  16,729

        Total assets                                                                                            $317,464
Interest-bearing liabilities:
    Savings and interest-bearing demand deposits               112,344          --           --           --    $112,344
    Certificates of deposit of
        $100,000 or more                                         6,253      19,449        1,472           --      27,174
    Other time accounts                                         13,792      36,235        7,736           21      57,784
    Short-term borrowings                                        3,419       8,000           --           --      11,419
    Long-term debt                                                  --          --           --        9,200       9,200
                                                              --------    --------      -------      -------    --------
        Total interest-bearing liabilities                     135,808      63,684        9,208        9,221     217,921

Other noninterest-bearing liabilities                                                                             73,153
Shareholders' equity                                                                                              26,390
        Total liabilities and shareholders'
          equity                                                                                                $317,464
                                                                                                                ========
Interest rate GAP                                             $ (7,971)   $(31,839)     $82,646      $17,987
                                                              =========   =========     =======      =======
Cumulative interest rate GAP                                  $ (7,971)   $(39,810)     $42,836      $60,823
                                                              =========   ========      =======      =======
GAP ratio (GAP/total assets)                                    (2.51)%    (10.03)%       26.03%       5.67%
Cumulative GAP ratio                                            (2.51)%    (12.54)%       13.49%      19.16%

</TABLE>

<PAGE>


The following  table  presents the  aggregate  maturities of loans in each major
category of Bancorp's loan portfolio at December 31, 1995. Actual maturities may
differ from the contractual  maturities  shown below as a result of renewals and
prepayments.

<TABLE>
<CAPTION>

                                                                                     Due
                                                                   ----------------------------------------
                                                                                   After one                      Total
                                                                      Within      but within       After        loans by
Loan category                                                        one year     five years    five years      category
-------------                                                       ---------     ----------    ----------      --------
                                                                                  (Dollars in thousands)
<S>                                                                 <C>             <C>           <C>          <C>

Commercial                                                          $ 58,803        $14,993       $ 4,457      $ 78,253
Real estate - mortgage                                                19,493         22,053        13,085        54,631
Real estate - construction                                            39,972          4,031            --        44,003
Installment                                                            3,572          2,274            83         5,929
Loans held for sale                                                       --             --         4,573         4,573
Lease financing                                                          124          2,444           118         4,001
Other                                                                     --            311            --           311
Less deferred loan fees                                                 (234)          (277)         (100)         (611)
                                                                     -------        -------       -------      --------

    Total loans by maturity                                         $121,607        $47,386       $22,097      $191,090
                                                                    ========        =======       =======      ========

</TABLE>


      Of Bancorp's $69.5 million of loans that mature after one year, a total of
$55.4 million (79.7%) are fixed-rate loans, and a total of $14.1 million (20.3%)
are variable-rate loans.

      At December 31, 1995, $79.6 million (approximately 41.7% of Bancorp's loan
portfolio) had fixed interest rates and $111.5 million (approximately 58.3%) had
variable interest rates.

<PAGE>



PROVISION FOR INCOME TAXES

      Bancorp's  provision  for  income  taxes was $2.1  million  in 1995,  $1.5
million in 1994 and $1.2  million  in 1993.  Bancorp's  effective  tax rates for
financial  reporting  were  32.0% in 1995,  and  30.5%  in 1994  and  1993.  The
effective  tax rate  varies  from the federal  statutory  rate of 34%  primarily
because of nontaxable  interest  income and state income  taxes.  See Note 14 of
Notes to Consolidated Financial Statements.

LIQUIDITY AND SOURCES OF FUNDS

      Bancorp's  primary  sources  of funds  are  customer  deposits,  sales and
maturities of investment securities, loan sales, loan repayments, net income and
the use of federal funds  markets.  Scheduled  loan  repayments are a relatively
stable source of funds,  while deposit inflows and unscheduled loan prepayments,
which are influenced by general  interest rate levels,  interest rates available
on other investments,  competition,  economic conditions and other factors,  are
not.  The Bank's  deposits  increased  to $268 million at December 31, 1995 from
$216  million at  December  31,  1994 and $192  million at  December  31,  1993,
primarily because of an ongoing business  development  program, and expansion of
the Bank's  presence  in the  Portland-area  through  operation  of the  Pacific
Corporate Center Office in Tigard.

      Net loans and loans held for sale  increased  to $189  million at December
31, 1995 from $160 million at December 31, 1994 and $126 million at December 31,
1993.  These  increases  were primarily due to the Bank's  business  development
activities  and the real estate  construction  program  initiated by  Centennial
Mortgage in 1994.

      The Bank  maintains  federal  funds  lines with  correspondent  banks as a
backup  source of temporary  liquidity.  At December 31, 1995,  the Bank had $16
million of federal funds lines available to draw against on an  uncollateralized
basis.  No  borrowings  were  outstanding  under the federal funds lines at that
date.

      During 1994, the Bank obtained a cash management  credit facility from the
FHLB in the  amount of $9.8  million.  The credit  facility  increased  and,  at
December 31, 1995, the Bank had $23.5 million of credit available from the FHLB.
The  credit  facility  is limited to 10% of the  Bank's  assets,  measured  on a
quarterly basis, and is  collateralized  by the FHLB stock owned by the Bank and
by all its other assets.

      Management  anticipates  that  Bancorp  will  continue to rely on customer
deposits,  sales and  maturities  of  investment  securities,  loan sales,  loan
repayments,  retained  earnings and federal funds markets to provide  liquidity.
Although deposit balances have shown

<PAGE>



historical  growth,  such  balances may be  influenced by changes in the banking
industry,  interest  rates  available  on other  investments,  general  economic
conditions,  competition  and  other  factors.  Borrowings  may  be  used  on  a
short-term  basis to  compensate  for  reductions  in other  sources  of  funds.
Borrowings may also be used on a longer-term  basis to support  expanded lending
activities  and to match the  maturity or  repricing  intervals  of assets.  The
sources of such funds would be federal funds  purchased and borrowings  from the
FHLB, as discussed above.

CAPITAL RESOURCES

      Total shareholders' equity increased to $26.4 million at December 31, 1995
from $19.2  million at December 31, 1994 and $17.4 million at December 31, 1993.
Average  shareholders' equity was 8.27% of average assets in 1995 as compared to
8.16% in 1994 and 8.36% in 1993.

EFFECTS OF INFLATION AND CHANGING PRICES

      The primary  impact of  inflation  on  Bancorp's  operations  is increased
operating  overhead.  Unlike most  industrial  companies,  virtually  all of the
assets and liabilities of a financial  institution are monetary in nature.  As a
result,  interest rates generally have a more significant  impact on a financial
institution's performance than the effects of general inflation.  Interest rates
are affected by inflation,  but neither the timing nor the magnitude of interest
rate fluctuations coincides with changes in an inflation index.

      For  these  reasons,   management   believes  that   references  to  other
information  regarding interest rates earned and paid,  interest-earning  assets
and   interest-bearing   liabilities   will  be  of  greater   assistance   than
inflation-adjusted  presentations in understanding Bancorp's ability to react to
changing interest rates and inflationary trends.

FORM 10-K

      Copies of Bancorp's  annual  report on Form 10-K required to be filed with
the Securities and Exchange Commission under the Securities Exchange Act of 1934
are available to  shareholders  at no charge upon written request to: Michael J.
Nysingh,  Chief Financial Officer,  Centennial  Bancorp,  P.O. Box 1560, Eugene,
Oregon 97440.

MARKET FOR COMMON STOCK

      Bancorp's Common Stock has been quoted on the Nasdaq National Market since
1989.  From  1986 to  1989,  Bancorp's  Common  Stock  was  traded  through  the
over-the-counter Nasdaq market.

      The following  table sets forth the high and low bid prices for the Common
Stock on the Nasdaq National Market for the last two years.

                                               HIGH                     LOW
                                               ----                     ----
      Year ended December 31, 1995:
           First quarter                      $ 9.74                    $7.28
           Second quarter                       8.87                     8.23
           Third quarter                        9.77                     8.23
           Fourth quarter                      12.73                     8.86

      Year ended December 31, 1994:
           First quarter                      $ 9.00                    $7.15
           Second quarter                       9.37                     7.87
           Third quarter                        9.05                     8.07
           Fourth quarter                       8.46                     7.28

      At  February  28,  1995,  Bancorp  had  4,684,742  shares of Common  Stock
outstanding held by 1,300 shareholders of record.


QUARTERLY FINANCIAL DATA
(In thousands, except per share amounts)

<TABLE>
<CAPTION>

                                            First             Second              Third               Fourth
    1995                                   Quarter            Quarter            Quarter             Quarter             Total
---------------                            -------            -------            -------             -------            ------
<S>                                        <C>                <C>                <C>                 <C>                <C>

Interest income                            $5,621             $6,225             $6,468              $6,960             $25,274
Interest expense                            1,900              2,181              2,389               2,534               9,004
                                           ------             ------             ------              ------             -------
Net interest income                         3,721              4,044              4,079               4,426              16,270

Loan loss provision                            75                 75                125                  75                350
Income before income
  taxes                                     1,381              1,532              1,803               1,977              6,693
Net income                                    939              1,037              1,236               1,339              4,551
Earnings per share:
      Primary                              $  .20             $  .22             $  .26              $  .27             $   .95
      Fully diluted                        $  .19             $  .20             $  .24              $  .25             $   .88


     1994
Interest income                            $3,967             $4,801             $5,044              $5,662             $19,474
Interest expense                            1,042              1,217              1,354               1,559               5,172
                                           ------             ------             ------              ------             -------
Net interest income                         2,925              3,584              3,690               4,103              14,302

Loan loss provision                            83                 87                 79                  67                316
Income before income
  taxes                                     1,039              1,195              1,475               1,330              5,039
Net income                                    708                812                993                 989              3,502

Earnings per share:
      Primary                              $  .15             $  .17             $  .21              $  .21             $   .74
      Fully diluted (1)                    $  .15             $  .16             $  .19              $  .17             $   .71


</TABLE>

(1)        Convertible Debentures were issued in the first quarter of 1994.