UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[ X ]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934
                           For the fiscal year ended:    December 31, 1997
                                                         or
[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934
                           For the transition period from _____  to ________

                         Commission file Number: 0-10489

                               CENTENNIAL BANCORP
                (Name of registrant as specified in its charter)

               Oregon                                 93-0792841
      (State of incorporation)            I.R.S. Employer Identification No.)

                                 675 Oak Street
                              Eugene, Oregon 97401
                    (Address of principal executive offices)

                  Registrant's telephone number: (541) 342-3970

      Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

                          Common Stock, $2.00 par value
                                (Title of class)

  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
          Yes  /X/    No / /

  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]

  State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.
$209,070,000 aggregate market value as of March 25, 1998, based on the price at
which the stock was sold.

  Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date: 14,543,909 shares of $2.00
par value Common Stock on March 25, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part I and Part II incorporate information by reference from the issuer's Annual
Report to Shareholders for the fiscal year ended December 31, 1997. Part III is
incorporated by reference from the issuer's definitive proxy statement for the
annual meeting of shareholders to be held on May 20, 1998.

<PAGE>

                               CENTENNIAL BANCORP
                                    FORM 10-K
                                  ANNUAL REPORT
                                TABLE OF CONTENTS

PART I                                                                     PAGE

           (Portions of Item 1 are incorporated by reference from
           Centennial Bancorp's Annual Report to Shareholders)

Item 1.    DESCRIPTION OF BUSINESS                                             4
           -----------------------
Item 2.    DESCRIPTION OF PROPERTY                                            36
           -----------------------
Item 3.    LEGAL PROCEEDINGS                                                  37
           -----------------
Item 4.    SUBMISSION OF MATTERS TO A VOTE OF
                SECURITY HOLDERS                                              39

PART II

           (Items 5, 6, 7 and 8 are incorporated by reference from
           Centennial Bancorp's Annual Report to Shareholders)

Item 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY
                AND RELATED STOCKHOLDER MATTERS                               40
Item 6.    SELECTED FINANCIAL DATA                                            40
           -----------------------
Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS                               40
           ------------------------------------
Item 7A.   QUANTITATIVE AND QUALITATIVE
                DISCLOSURES ABOUT MARKET RISK                                 40
Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                        40
Item 9.    CHANGES IN AND DISAGREEMENTS WITH
                ACCOUNTANTS ON ACCOUNTING AND
                FINANCIAL DISCLOSURE                                          40

PART III

           (Items 10 through 13 are incorporated by reference from
           Centennial Bancorp's definitive proxy statement for the annual
           meeting of shareholders to be held on May 20, 1998)

Item 10.   DIRECTORS AND EXECUTIVE OFFICERS OF
                THE REGISTRANT                                                41
Item 11.   EXECUTIVE COMPENSATION                                             41
Item 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                OWNERS AND MANAGEMENT                                         41
Item 13.   CERTAIN RELATIONSHIPS AND RELATED
                TRANSACTIONS                                                  41


PART IV


Item 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
           AND REPORTS ON FORM 8-K                                            41

SIGNATURES                                                                    46


<PAGE>


                                     PART I
                                     ------

                  THIS ANNUAL REPORT CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS, WHICH ARE MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. WHEN USED IN THIS ANNUAL REPORT, THE
WORDS "ANTICIPATE," "BELIEVE" AND "EXPECT," AND WORDS OR PHRASES OF SIMILAR
IMPORT, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE ANTICIPATED. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE: CHANGES IN GENERAL BUSINESS AND ECONOMIC
CONDITIONS, PARTICULARLY IN OREGON; CHANGES IN THE INTEREST RATE ENVIRONMENT;
COMPETITIVE FACTORS, CHANGES IN REGULATORY OR OTHER EXTERNAL FACTORS; AND OTHER
FACTORS LISTED FROM TIME TO TIME IN BANCORP'S SEC REPORTS, INCLUDING BUT NOT
LIMITED TO, EXHIBIT 99.1, FILED AS PART OF BANCORP'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996, WHICH IS INCORPORATED HEREIN BY REFERENCE.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. BANCORP DOES NOT INTEND TO
UPDATE THESE FORWARD-LOOKING STATEMENTS.

ITEM 1.  DESCRIPTION OF BUSINESS
         -----------------------

GENERAL

         Centennial Bancorp, an Oregon corporation, was organized under the name
Valley West Bancorp in 1981 to become a bank holding company. In 1982,
Centennial Bank and Valley State Bank, both Oregon state-chartered banks, merged
and continued business as Centennial Bank. Immediately following the merger,
Valley West Bancorp acquired all the common stock of Centennial Bank. In May
1990, Valley West Bancorp changed its name to Centennial Bancorp.

     At December 31, 1997, Centennial Bancorp ("Bancorp") had two wholly owned
subsidiaries: Centennial Bank and Centennial Mortgage Co. ("Centennial
Mortgage"). From July 1993 until its sale in August 1995, Bancorp also owned
Harding Fletcher Co. ("Harding Fletcher"), a mortgage banking subsidiary. Unless
the context clearly suggests otherwise, references in this Annual Report on Form
10-K to "Bancorp" include Centennial Bancorp and its subsidiaries.

         All share and per share information has been restated to give
retroactive effect to a two-for-one stock split declared in January 1998, and
for various stock splits and stock dividends declared in prior years.

<PAGE>


         CENTENNIAL BANK

         Centennial Bank is a full-service commercial bank organized under the
Oregon Bank Act. Centennial Bank provides a broad range of depository and
lending services to commercial, industrial, and agricultural enterprises,
financial institutions, governmental entities and individuals. Centennial Bank
directs its deposit-taking and lending activities primarily to the communities
in which its branches are located. Its primary marketing focus is on small- to
medium-sized businesses and on professionals in those communities. Centennial
Bank does not provide trust services.

         At December 31, 1997, based on total assets, Centennial Bank was the
10th largest bank of the 51 commercial banks maintaining offices in Oregon. At
that date, Centennial Bank had twelve branches: three in Eugene; one in adjacent
Springfield; one full-service and four limited-service branches in Portland,
Oregon; one each in Tigard and Beaverton, suburbs of Portland; and a branch in
Cottage Grove formerly owned by Western Oregon Community Bank. An additional
branch acquired from Western Oregon Community Bank, located in Creswell, Oregon,
was closed in May 1996. Eugene and Springfield are at the southern end of the
Willamette Valley on Interstate 5, with Creswell and Cottage Grove located
approximately 12 and 20 miles further south, respectively. Centennial Bank
opened the Tigard office in August 1994 and acquired the two Western Oregon
Community Bank offices in December 1994. Centennial Bank opened the Lloyd
District office in Portland in January 1997, and the Tanasbourne office in
Beaverton in December 1997.

         In July 1997, Centennial Bank announced the opening of four
limited-service branches in the Portland metropolitan area. These
limited-service branches were formerly operated by Wells Fargo in retirement
centers. Centennial Bank offers a full array of deposit services and safety
deposit boxes on a reduced hour basis to residents of the retirement centers.

         At December 31, 1997, Centennial Bank held regulatory approvals for one
additional limited service branch at a retirement center in the Portland
metropolitan area. This office opened in January 1998.

         Centennial Bank provides personalized, quality financial services to
its customers and believes this dedication to service has enabled it to maintain
a stable and relatively low-cost retail deposit base, while generating a
substantial volume of loans. Total deposits increased from $340 million at
December 31, 1996 to $419 million at December 31, 1997. Net loans and loans held
for sale increased from $226 million at December 31, 1996 to $337 million at
December 31, 1997.
<PAGE>

         Deposit accounts at Centennial Bank are insured up to applicable limits
by the Federal Deposit Insurance Corporation (the "FDIC"). Centennial Bank is
not a member of the Federal Reserve System. It is a merchant depository for
MasterCard and VISA. Centennial Bank also offers tax-deferred annuities and
mutual funds through a contract arrangement with Financial Marketing Group, Inc.
of Portland, Oregon. Its revenues from this activity are not significant.


         CENTENNIAL MORTGAGE

         Centennial Mortgage began operations in 1987, originating conventional
and federally insured residential mortgage loans for sale in the secondary
market. Centennial Bank regularly provides interim financing, generally for 30
to 60 days, for loans originated by Centennial Mortgage. Centennial Mortgage
originated $111.6 million, $67.2 million and $30.0 million of mortgages in 1997,
1996 and 1995, respectively. Mortgage loans generally are sold without recourse.
Prior to 1996, mortgage loans were generally sold with no servicing rights
retained. However, during 1996, Centennial Bank obtained Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation approval to
service federally insured mortgage loans, and Centennial Bank began retaining
servicing rights for mortgage loans originated by Centennial Mortgage. During
the third quarter of 1997, management questioned the feasibility of servicing
mortgage loans and is studying whether to continue adding mortgage loans to its
servicing portfolio. Under certain circumstances, primarily defects in loan
documentation, Centennial Mortgage may be obligated to repurchase loans sold in
the secondary market.

         Centennial Mortgage has one office in Eugene, Oregon, and opened an
office in Lake Oswego, Oregon, a Portland suburb, in 1993. That office relocated
to the Centennial Bank building in Tigard, Oregon in 1995. At December 31, 1997,
Centennial Mortgage intended to relocate to the Lake Oswego area to accommodate
the space needs of Centennial Bank at the Tigard location.

         In December 1997, Centennial Mortgage opened an office in the Sunnyside
Road area of eastern Portland in a leased facility. Although it was considered
at the time, Centennial Mortgage has concluded not to open a branch in the Lloyd
District of Portland due to a shortage of qualified mortgage lending personnel.

         Centennial Mortgage has a residential mortgage construction lending
department which establishes relationships with home builders in the
Eugene/Springfield and Portland-area markets and attempts to generate additional
permanent loan activity as the houses-under-construction are sold. 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 thus could
adversely impact Centennial Mortgage's permanent mortgage lending activity.
<PAGE>

         HARDING FLETCHER

         In July 1993, Bancorp formed a subsidiary to acquire certain assets of
Harding Fletcher, a commercial mortgage banker. Harding Fletcher arranged
commercial real estate loans, which were funded by insurance companies and other
institutional investors. In August 1995, Bancorp sold substantially all of the
assets of Harding Fletcher for $741,000. During 1997, Bancorp accepted a
negotiated payoff of the receivable balance.


BANCORP CONSOLIDATED STATISTICAL INFORMATION

         Bancorp incorporates by reference the following financial and
statistical information from its Annual Report to Shareholders for the year
ended December 31, 1997:

                                                     Centennial Bancorp
                                                        Annual Report
                                                       to Shareholders
                                                           Page No.
                                                     -------------------
Investment securities                                         14
Loans and reserve for loan losses                             15
Deposits                                                       6


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 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 1997, 1996 and 1995, Bancorp's
average interest-earning assets were $399 million, $323 million and $252
million, respectively. During these same years, Bancorp's net interest margin
was 6.92%, 6.70% and 6.66%, respectively.
<PAGE>

         AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID

         The following table sets forth for 1997, 1996 and 1995 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,                    1997                                1996                                 1995
                             --------------------------------    -------------------------------    ------------------------------
                                          Interest   Average                 Interest   Average               Interest      Average
                               Average    income or  yield or      Average    income or yield or    Average   income or    yield or
                             balance(1)    expense    rates      balance(1)    expense   rates     balance(1)    expense      rates
                             ----------   ---------  --------    ----------   --------- --------   ----------   ---------    ------
<S>                         <C>          <C>         <C>       <C>           <C>        <C>       <C>         <C>           <C>
ASSETS:                                                                (Dollars in thousands)
Interest-bearing deposits
 with banks                  $   6.924    $    376     5.43%    $  10,872     $   579    5.33%    $   5,971    $    352       5.90%
Investment securities --
 taxable                        37,443       2,446     6.53        43,928       2,894    6.59        40,116       2,403       5.99
Investment securities --
 tax-exempt (2)                 43,587       3,428     7.86        39,037       3,112    7.97        24,159       1,827       7.56
Federal funds sold              10,925         573     5.24         2,265         122    5.39         5,618         317       5.64
Loans and loans held for
 sale (3)                      299,976      34,329    11.44       226,965      26,299   11.59       176,384      20,909      11.85
                             ---------     -------              ---------     -------             ---------     -------
  Total interest-earning
    assets/interest income     398,855      41,152    10.32       323,067      33,006   10.22       252,248      25,808      10.23
Reserve for loan losses         (3,123)                            (2,237)                           (1,824)
Cash and due from banks         27,552                             20,274                            16,975
Premises and equipment, net      9,790                              9,339                             8,477
Other assets                     6,112                              7,201                             5,876
                              --------                           --------                          --------
  Total assets                $439,186                           $357,644                          $281,752
                              ========                           ========                          ========
LIABILITIES AND SHAREHOLDERS'
 EQUITY:
Savings and interest-bearing
 demand                       $166,800      5,156    3.09        $128,611       4,440    3.45      $107,983       3,352       3.10
Time deposits                  129,756      7,299    5.63         100,549       5,208    5.18        71,912       4,146       5.77
Short-term borrowings            9,688        539    5.56          11,399         833    7.31        13,823         861       6.23
Long-term debt                  10,000        572    5.72          16,443         887    5.39         9,200         645       7.01
                              --------    -------                --------      ------              --------     -------
  Total interest-bearing
     liabilities/interest
     expense                   316,244     13,566    4.29         257,002      11,368    4.42       202,918       9,004       4.44
Demand deposits                 75,005                             66,525                            53,399
Other liabilities                2,001                              2,617                             2,133
                              --------                           --------                          --------
  Total liabilities            393,250                            326,144                           258,450
Shareholders' equity            45,936                             31,500                            23,302
                              --------    --------               --------     --------             --------
  Total liabilities and
    shareholders' equity      $439,186                           $357,644                          $281,752
                              ========                           ========                          ========
Net interest income                        $27,586                            $21,638                           $16,804
                                           =======                            =======                           =======
Net interest spread (2)                              6.03%                               5.80%                                 5.79%
                                                     =====                               =====                                 ====
Net interest margin (2)                              6.92%                               6.70%                                 6.66%
Net interest income to
   average shareholders'
   equity                                    60.05%                            60.50%                             72.11%
Average interest-earning
  assets to average
  interest-bearing liabilities    124%                                126%                             124%

-----------------------
<FN>
(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 ($1,032,600, $994,600 and $631,100 in 1997, 1996 and 1995,
   respectively) have been included in the computation of average loans and
   loans held for sale. Loan fees recognized, included in interest income,
   totalled $4,769,700, $3,745,900 and $2,541,800 in 1997, 1996 and 1995,
   respectively.
</FN>
</TABLE>
<PAGE>

         ANALYSIS OF CHANGES IN INTEREST RATE DIFFERENTIAL

         The following table shows the dollar amount of the increase (decrease)
in Bancorp's interest income and interest expense for the years indicated, on a
tax-equivalent basis, 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>

                                                              1997 vs. 1996                           1996 vs. 1995
                                                                Change in                              Change in
                                                        net interest income due to                net interest income due to
                                                      --------------------------------           -----------------------------
                                                      Volume        Rate         Total           Volume        Rate      Total
                                                      ------        ----         -----           ------        ----      -----
<S>                                                  <C>         <C>           <C>              <C>         <C>        <C>
                                                                                   (In thousands)
Interest income:
         Balances due from banks                      $ (212)      $   9        $ (203)          $  275      $  (48)    $  227
         Investment securities -- taxable               (425)        (23)         (448)             240         251        491
         Investment securities -- tax-exempt             360         (44)          316            1,156         129      1,285
         Federal funds sold                              460          (9)          451             (185)        (10)      (195)
         Loans                                         8,408        (378)        8,030            5,928        (538)     5,390
                                                      ------      ------        ------           ------      -------    ------
              Total interest income                    8,591        (445)        8,146            7,414        (216)     7,198
                                                      ------      ------        ------           ------      -------    ------

Interest expense:
         Deposits:
              Savings and interest-bearing
                demand                                 1,249        (533)          716              676         412      1,088
              Time1,578                                  513       2,091         1,567             (505)      1,062
         Short-term borrowings                          (110)       (184)         (294)            (164)        136        (28)
         Long-term debt                                 (358)         43          (315)             449        (207)       242
                                                      ------      ------        ------           ------      ------     ------
Total interest expense                                 2,528        (164)        2,364            2,065       1,767      3,832
                                                      ------      ------        ------           ------      ------     ------
              Total interest expense                   2,359        (161)        2,198            2,528        (164)     2,364
Net interest income                                   $6,232      $ (284)       $5,948           $4,886      $  (52)    $4,834
                                                      ======      ======        ======           ======      ======     ======

</TABLE>
<PAGE>

MARKET AREAS

         Centennial Bank's primary market area, with four well-established
branches, is the Eugene/Springfield area at the southern end of Oregon's
Willamette Valley. The populations of Eugene and Springfield total approximately
170,000. The area's economy depends primarily upon educational institutions,
U.S. and local government, forest products, general manufacturing (especially
small manufacturing and high-technology industries), health care and tourism.
The University of Oregon, located in Eugene, is the area's largest employer.

         In August 1994, Centennial Bank opened a branch office in Tigard, a
suburb of Portland, Oregon, in January 1997 a branch office in the Lloyd
District of Portland and in December 1997 a branch office in the Tanasbourne
area of Beaverton, a suburb of Portland, Oregon. Centennial Bank also opened
four limited service branches in the Portland metropolitan area in 1997 (and one
in January 1998). The Portland metropolitan area has a diverse economy and a
population of approximately 1.3 million. Management believes the Portland
metropolitan area offers an opportunity to increase Bancorp's asset size and
business operations, and to provide diversification of risk in its loan
portfolio through the diversity of the economic market in the metropolitan area.

         Centennial Bank also has a branch office in Cottage Grove, Oregon,
located approximately 20 miles south of Eugene and Springfield. The population
of Cottage Grove totals approximately 8,000. The economy similarly depends
primarily upon forest products, general manufacturing, agriculture and tourism.

LENDING ACTIVITIES

         GENERAL

         Bancorp provides a broad range of commercial and real estate lending
services. Currently, the primary focus of Bancorp's lending activities is to
provide commercial loans to small- to medium-sized businesses with annual
revenues typically up to $20 million, and to professionals. Most of Bancorp's
loans are made to customers in the trade areas served by branch offices.

         Bancorp also makes construction loans and secured real estate loans,
most of which are sold in the secondary markets. Bancorp makes consumer loans,
primarily to accommodate existing customers, but does not actively pursue such
lending.

         Bancorp strives to maintain sound loan underwriting standards with
written loan policies, conservative individual and branch limits and, depending
on the size of the commitment, reviews by Centennial Bank's Administrative Loan
and Asset/Liability committees. Underwriting standards are designed to achieve a
high-quality loan portfolio, compliance with lending regulations and the desired
mix of loan maturities and industry concentrations. Management further seeks to
minimize credit losses by closely monitoring the financial condition of its
borrowers and the value of collateral. In-house legal counsel assists in loan
documentation and collections.
<PAGE>

         LOAN PORTFOLIO COMPOSITION

         The following table sets forth information with respect to the
composition of Bancorp's loan portfolio (loans and loans held for sale) by type
of loan at December 31 for each of the last five years:

<TABLE>
<CAPTION>

                                                                    December 31,
                                     1997             1996              1995             1994              1993
                                  ----------       ----------         ---------       ----------        -------
                                                              (Dollars in thousands)
<S>                               <C>              <C>               <C>              <C>              <C>
Commercial and other               $149,047         $119,450          $ 78,564         $ 66,845          $ 61,640
Real estate -- mortgage              93,216           73,665            59,204           56,792            44,253
Real estate -- construction          89,120           66,244            44,003           29,337            11,626
Installment                           6,603            6,425             5,929            6,951            10,653
Lease financing                       3,649            3,775             4,001            2,686               138
                                  ---------        ---------         ---------         --------          --------
     Total loans and
     loans held for sale            341,635          269,559           191,701          162,611           128,310

  Less deferred loan fees            (1,010)            (929)             (611)            (600)             (394)
  Less reserve for loan
     losses                          (3,349)          (2,600)           (1,928)          (1,700)           (1,514)
                                  ---------        ---------         ---------         --------           -------

Loans receivable, net              $337,276         $266,030          $189,162         $160,311          $126,402
                                   ========         ========          ========         ========          ========

</TABLE>
<PAGE>


         The following table presents the aggregate maturities of loans in each
major category of Bancorp's loan portfolio at December 31, 1997. Actual
maturities may differ from the contractual maturities shown below as a result of
renewals and prepayments.
<TABLE>
<CAPTION>

                                                           Due after one                           Total
                                      Due within           but within              Due after       loans
        Loan category                  one year            five years             five years       by category
        -------------                  --------            ----------             ----------       -----------

                                                                  (Dollars in thousands)
<S>                                  <C>                  <C>                   <C>               <C>
 Commercial                           $ 84,548             $45,533                $16,971          $147,052
 Real estate -- mortgage                19,031              31,383                 37,217            87,631
 Real estate --construction             71,635              15,516                  1,969            89,120
 Installment                             4,872               1,561                    170             6,603
 Loans held for sale                        --                  --                  5,585             5,585
 Lease financing                           531               3,118                     --             3,649
 Other                                     543               1,364                     88             1,995
 Less deferred loan fees                  (536)               (291)                  (183)           (1,010)
                                       --------             -------                -------          --------

 Total loans by maturity              $180,624             $98,184                $61,817          $340,625
                                      ========             =======                =======          ========
</TABLE>

         Of Bancorp's $160 million of loans that mature after one year, a total
of $83.1 million (51.9%) are fixed-rate loans, and a total of $76.9 million
(48.1%) are variable-rate loans.

         At December 31, 1997, $107 million of Bancorp's loans (approximately
31.5% of its loan portfolio) had fixed interest rates and $233 million
(approximately 68.5%) had variable interest rates.

         COMMERCIAL LOANS

         Commercial loans that are not collateralized by real estate represent
the largest category of Bancorp's loans. Bancorp's areas of emphasis include,
but are not limited to, loans to small- to medium-sized businesses and to
professionals. Bancorp provides a wide range of commercial business loans,
including lines of credit for working capital and term loans for the acquisition
of equipment and other purposes. Collateral generally includes equipment,
accounts receivable and inventory. Where warranted by the overall financial
condition of the borrower, loans may be made on an unsecured basis.

         At December 31, 1997, approximately 71% of Bancorp's commercial loans
had floating or adjustable interest rates; the remaining 29% had fixed interest
rates. Operating lines of credit are payable on demand and subject to annual
renewal. Term loan maturities generally range from one to five years. Commercial
loans outstanding at December 31, 1997 were $147.1 million, compared to $116.8
million at December 31, 1996 and $78.3 million at December 31, 1995. Management
believes the increases in 1997 and 1996 were primarily a result of Centennial

<PAGE>

Bank's business development program and the opening of the branch office in
Tigard, Oregon in August 1994 and the Lloyd District office in Portland in
January 1997. Nonaccrual loans in this category totalled $858,000 at December
31, 1997 ($1.5 million at December 31, 1996); there were no restructured loans
at December 31, 1997 or 1996.

         REAL ESTATE MORTGAGE LOANS

         Real estate mortgage loans represent Bancorp's third largest category
of loans. Of the $87.6 million of real estate mortgage loans outstanding at
December 31, 1997, $35.1 million were made to commercial customers where the
collateral for the loans included the real estate occupied by the customers'
businesses. Therefore, many loans characterized as real estate mortgage loans
could be characterized as commercial loans that are collateralized by real
estate. Commercial real estate loans typically involve large loan balances to
single borrowers or groups of related borrowers. These borrowers may be more
sensitive to changes in economic conditions than are residential loan customers.
Real estate mortgage loans outstanding increased to $87.6 million at December
31, 1997 from $70.1 million at December 31, 1996 and $54.6 million at December
31, 1995. These increases were primarily a result of the favorable real estate
mortgage interest rate market available during 1997 and 1996, the demand for
housing in the market areas served by Bancorp and the expansion of Centennial
Mortgage's residential mortgage office in the Portland area. At December 31,
1997, nonaccrual loans in this category totalled $10,000 (none at December 31,
1996). At December 31, 1997 and 1996, there were no restructured loans in this
category.

         At December 31, 1997, $56.1 million (or approximately 64%) of Bancorp's
real estate mortgage loans had fixed interest rates and $35.1 million (or
approximately 36%) had floating or adjustable interest rates. Maturities of the
real estate mortgage loans retained by Bancorp usually range from one to ten
years.

         Bancorp's underwriting standards specify the following maximum
loan-to-value ratios for real estate loans: 90% for loans collateralized by
owner-occupied residences, 85% for other residential loans and for construction
loans, and 85% for commercial real estate loans. Management believes that
Bancorp's current real estate mortgage portfolio does not present a material
risk of loan losses.

         Bancorp originates SBA real estate loans on owner-occupied properties
where the maturities may be up to 20 years, and the loan-to-value ratio may
reach 85% of appraised value or cost, whichever is lower. Up to 90% of the
amount of these loans is guaranteed or insured by an agency of the U.S.
Government. The guaranteed portion of these loans is typically sold to

<PAGE>

secondary-market investors. At December 31, 1997, the amount of the unguaranteed
portion of these loans retained by Bancorp was not material.

         REAL ESTATE CONSTRUCTION LOANS

         Bancorp makes construction loans to individuals and contractors to
construct single-family primary residences or second homes and, to a much lesser
extent, small multi-family residential projects. The construction loans
represent custom homes, pre-sold homes and homes that are not pre-sold. These
loans generally have maturities of six to nine months. Interest rates are
typically adjustable, although fixed-rate loans are also made under appropriate
conditions. Centennial Bank provides funding for all the construction loans
originated by Centennial Mortgage, and Centennial Mortgage provides monitoring
and reporting services on all construction loans made by Centennial Bank.

         Construction financing is generally considered to involve a higher
degree of risk than long-term financing on improved, occupied real estate. The
risk of loss on construction loans depends largely upon the accuracy of the
initial estimate of the property's value at completion of construction or
development and the estimated cost (including interest) of construction. If the
estimate of construction costs proves to be inaccurate, Bancorp might have to
advance funds beyond the amount originally committed to permit completion of the
project and to protect its security position. Bancorp might also be confronted,
at or prior to maturity of the loan, with a project with insufficient value to
ensure full repayment. Bancorp's underwriting, monitoring and disbursement
practices with respect to construction financing are intended to ensure that
sufficient funds are available to complete construction projects. Bancorp
endeavors to limit its risk through its underwriting procedures by using only
approved, qualified appraisers, by dealing only with qualified
builders/borrowers, and by closely monitoring the construction projects through
the process of completion and sale.

         At December 31, 1997 and 1996, there were no nonaccrual loans or
restructured loans in this category.

         INSTALLMENT LOANS

         Bancorp does not actively solicit consumer loans, but makes such loans
primarily as a convenience to existing customers. Bancorp includes in its
installment loan category personal lines of credit, as well as consumer
installment loans (such as for automobile purchases). Consumer loans may be
collateralized or unsecured. Collections depend principally on the borrower's
financial condition or cash flow.
<PAGE>

         Installment loans were $6.6 million at December 31, 1997 compared to
$6.4 million at December 31, 1996 and $5.9 million at December 31, 1995. These
modest levels of installment loans to individuals at the periods presented were
primarily due to Bancorp's focus on lending to businesses and professionals and
significant competition for consumer loans from the many credit unions, banks
and finance companies in the market areas served by Bancorp. At December 31,
1997, nonaccrual loans in this category totalled $5,000 (none at December 31,
1996). At December 31, 1997 and 1996, there were no restructured loans in this
category.

         COMMITMENTS AND CONTINGENT LIABILITIES

         In the ordinary course of business, Bancorp enters into various types
of transactions that include commitments to extend credit and standby letters of
credit as described in Note 9 of Notes to Consolidated Financial Statements of
Bancorp, which are incorporated by reference from Bancorp's 1997 Annual Report
to Shareholders. 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. Collateral for these commitments may include cash,
securities and/or real estate.

         CREDIT AUTHORITY AND LOAN LIMITS

         All Bancorp loans and other credit facilities are subject to credit and
collateral approval procedures and loan amount limitations. Individual loan
officers and branch managers have authority to approve loans in amounts up to
established limits, generally ranging from $25,000 to $50,000. Loans in excess
of branch limits, or not in conformance with credit or collateral criteria, are
reviewed by Centennial Bank's Administrative Loan Committee. The Asset/Liability
Committee, a majority of whom are nonofficer members of Centennial Bank's Board
of Directors, reviews loan applications over established Administrative Loan
Committee limits. All loans in excess of $25,000 to executive officers and
directors of Bancorp or any of its subsidiaries must be approved by the
Asset/Liability Committee and ratified by Centennial Bank's Board of Directors.

         Under Oregon law, permissible loans from a financial institution to one
borrower are generally limited to 15% of the institution's aggregate paid-up and
unimpaired capital and surplus. At December 31, 1997, Centennial Bank's
permissible loan limit was $5.3 million (or $8.7 million if the loan is
collateralized by real estate).

         Loan pricing decisions are based on an evaluation of risk, cost of
funds, operating and administrative costs, a reserve for loan losses, desired
profit margin and other factors. Loan risk is based in part on a risk rating
assigned to each loan. Bancorp uses a computerized pricing system that analyzes
a borrower's total contribution to net interest income.
<PAGE>

         Centennial Bank sells loan participations to accommodate borrowers
whose financing needs exceed Centennial Bank's lending limits, and to diversify
risk. Centennial Bank occasionally purchases participations in loans from
correspondent banks. Centennial Bank's policies prohibit aggregate purchased
participations in excess of 10% of Centennial Bank's loan portfolio.

NONPERFORMING ASSETS

         Nonperforming assets consist of loans past due 90 days or more,
nonaccrual loans, restructured loans and other real estate owned ("OREO"). The
following table sets forth information concerning Bancorp's nonperforming assets
at the end of each of the last five years:
<TABLE>
<CAPTION>

                                                                                December 31,
                                                          -------------------------------------------------------
                                                           1997        1996         1995         1994        1993
                                                          ------      ------       ------       ------      -----
                                                                             (Dollars in thousands)
<S>                                                     <C>          <C>        <C>           <C>         <C>
Nonperforming loans:
  Loans past due 90 days or more                          $  402      $  420      $  645       $  190      $  186
  Nonaccrual loans                                           873       1,480         478          693         881
  Restructured loans                                          --          --          --           --          --
                                                           -----       -----       -----        -----       -----
     Total nonperforming loans                             1,275       1,900       1,123          883       1,067
  Other real estate owned                                     --          --          --          392         221
                                                           -----       -----       -----        -----       -----
     Total nonperforming assets                           $1,275      $1,900      $1,123       $1,275      $1,288
                                                           =====       =====       =====        =====       =====

Reserve for loans losses                                  $3,349      $2,600      $1,928       $1,700      $1,514
Ratio of total nonperforming assets
  to total assets                                            .26%        .47%        .35%         .49%        .58%
Ratio of total nonperforming loans
  to total loans                                             .38%        .71%        .59%         .54%        .83%
Ratio of reserve for loan losses
  to total nonperforming loans                               263%        137%        172%         193%        142%

</TABLE>
----------


         Bancorp's total nonperforming assets decreased by $625,000 in 1997 and
increased by $777,000 during 1996. Total nonperforming assets, as a percentage
of total assets, decreased to .26% at December 31, 1997 from .47% at December
31, 1996 and increased to .47% at December 31, 1996 from .35% at December 31,
1995. Nonperforming loans, as a percentage of total loans, decreased to .38% at
December 31, 1997 from .71% at December 31, 1996, which increased from .59% at
December 31, 1995.

         The accrual of interest on a loan is discontinued when, in management's
judgment, the future collectibility of principal or interest is in doubt. Loans
placed on nonaccrual status may or may not be contractually past due at the time

<PAGE>

of such determination, and may or may not be secured. When a loan is placed on
nonaccrual status, Bancorp's policy is to reverse, and charge against current
income, interest previously accrued but uncollected. Interest subsequently
collected on such loans is credited to loan principal if, in the opinion of
management, full collectibility of principal is doubtful. If interest on
nonaccrual loans had been accrued, such income would have been $102,600 in 1997,
$117,500 in 1996 and $74,000 in 1995. No interest income was recognized on these
loans in 1997, 1996 and 1995.

         Restructured loans are those for which concessions have been granted
due to the borrower's weakened financial condition or other factors. Such
concessions may include reduction of interest rates below rates otherwise
available to that borrower or deferral of interest or principal. Interest on
restructured loans is accrued at the restructured rate when it is anticipated
that no loss of original principal will occur. Bancorp had no restructured loans
at December 31, 1997 or 1996.

         OREO consists of real estate acquired by Bancorp through foreclosure or
by a deed in lieu of foreclosure. Properties in OREO are carried at the lower of
fair market value (less anticipated selling costs) or the principal balance of
the related loan. Any excess of the loan balance over fair value of the property
is charged to the reserve for loan losses.

         At December 31, 1997 and 1996, Bancorp held no OREO. At December 31,
1994, Bancorp's OREO consisted of one single-family dwelling with acreage in
Springfield, Oregon. At that date, the book value of the property was $392,000.
The property was sold during 1995 for a loss of $25,000.


ANALYSIS OF THE RESERVE FOR LOAN LOSSES

         The reserve for loan losses represents management's estimate of the
losses inherent in the loan portfolio. The reserve is based primarily on
management's evaluation of the overall quality and risk characteristics of
Bancorp's loan portfolio, which is dependent upon numerous interrelated factors
including present nonperforming and delinquent loans, borrowers' perceived
abilities to repay, value of collateral, general and local economic conditions
and historical loan loss experience.

         Centennial Bank's Asset/Liability Committee reviews the adequacy of the
reserve for loan losses quarterly. Although determination of the adequacy of the
reserve involves substantial subjective judgment based on the Committee's
analysis of the risk characteristics of the entire loan portfolio, the Committee
also uses three quantitative methods to analyze the adequacy of the reserve.
Under the first method, management assigns a specific percentage to each
nonperforming, substandard or doubtful loan in Bancorp's loan portfolio to
calculate a total amount of average anticipated loan losses.
<PAGE>

         The second method uses the risk-weighted ratings (from one through
five) developed by the FDIC, with management assigning a percentage to the loans
in the various risk categories (using .0025% for loans in the lowest risk
category up to 50% for loans in the highest risk category) to calculate an
alternative amount of possible losses.

         The third method is in accordance with the requirements of Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("SFAS 114"), which Bancorp adopted on January 1, 1995. Under SFAS
114, 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. This policy is generally consistent with Bancorp's nonaccrual policy.
Bancorp also specifically examines all loans greater than $100,000 that are
identified on an internal watch list. Loans which are over 90 days contractually
delinquent and loans which have developed inherent problems prior to being 90
days delinquent may be considered impaired. An insignificant delay or shortfall
in the amount of payments is not an event that, when considered in isolation,
would automatically cause a loan to be considered impaired for purposes of SFAS
114. 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 amounts calculated by the quantitative methods are then compared by
the Committee to the reserve for loan losses in evaluating the adequacy of the
reserve.

         Management believes that Bancorp's reserve for loan losses is adequate
to cover anticipated losses and is in accordance with generally accepted
accounting principles. There can be no assurance, however, that management will
not decide to increase the reserve for loan losses or that regulators will not
require Bancorp to increase the reserve, either of which events could adversely
affect Bancorp's results of operations. Further, there can be no assurance that
Bancorp's actual loan losses will not exceed its reserve.
<PAGE>

         The following table sets forth information regarding changes in
Bancorp's reserve for loan losses for each of the last five years:
<TABLE>
<CAPTION>

                                                           At or for the year ended December 31,
                                             -------------------------------------------------------------------
                                               1997           1996            1995           1994           1993
                                             --------       --------        --------       --------       ------
                                                                   (Dollars in thousands)
<S>                                         <C>            <C>           <C>             <C>            <C>
Loans and loans held for sale
  at year-end                                $340,625       $268,630       $191,090       $162,011       $127,916
                                             ========       ========       ========       ========       ========
Average loans and
  loans held for sale                        $299,976       $226,965       $176,384       $139,672       $114,414
                                             ========       ========       ========       ========       ========
Reserve for loan losses,
  beginning of year                          $  2,600       $  1,928        $ 1,700        $ 1,514        $ 1,078
Charge-offs:
  Commercial and other                           (556)           (89)          (128)          (108)           (18)
  Real estate -- construction                      --             --             --             --             --
  Real estate -- mortgage                          --             --             --            (17)            --
  Installment                                      (2)           (20)           (34)           (22)           (17)
                                             --------       --------        -------        -------        -------
     Total charge-offs                           (558)          (109)          (162)          (147)           (35)
                                             --------       --------        -------        -------        -------
Recoveries:
  Commercial and other                             55             24             10              8              7
  Real estate -- construction                      --             --              3             --            149
  Real estate -- mortgage                          --             20              7             --             --
  Installment                                       2              2             20             10              5
                                             --------       --------        -------        -------        -------
     Total recoveries                              57             46             40             18            161
                                             --------       --------        -------        -------        -------
Net loans (charged off) recovered                (501)           (63)          (122)         (129)            126
Provision for loan losses                       1,250            735            350            315            310
                                             --------       --------        -------        -------        -------
Reserve for loan losses
  at year-end                                $  3,349       $  2,600        $ 1,928        $ 1,700        $ 1,514
                                             ========       ========        =======        =======        =======


Ratio of net loans (charged off)
  recovered to average
  loans outstanding                             (.17)%         (.03)%         (.07)%         (.09)%          .11%
Ratio of reserve for loan losses
  to loans at year-end                           .98%           .97%          1.01%          1.05%          1.18%
</TABLE>

         Anticipated loan losses are charged against the reserve for loan losses
when, in management's opinion, ultimate recovery is unlikely or when bank
examiners require a charge-off. As the actual amount of loss with respect to
specific loans is often dependent upon future events (including liquidation of
collateral), Bancorp cannot accurately predict precisely what losses, if any,
will be sustained with respect to specific loans. Historical experience has also
shown that, at any particular time, loan losses may exist in a loan portfolio
that have not yet been identified. For these reasons, although management
analyzes specific loans in determining the adequacy of its reserve for loan
losses, it does not normally allocate the reserve to specific groups or

<PAGE>

categories of loans. Management estimates, however, that the allocation of the
reserve for loan losses by loan category at the end of each of the last five
years was as set forth below:
<TABLE>
<CAPTION>

                                                                               Amount of              Loans in
                                                                                reserve             category as a
                                                                                  for               percentage of
                                                                                 loan                 total gross
                                                                                losses                  loans
                                                                              -----------          ---------------
                                                                                    (Dollars in thousands)
<S>                                                                          <C>                         <C>
    December 31, 1997
    -----------------
Commercial and other                                                            $1,999                   45.2%
Real estate -- mortgage                                                            250                   26.2
Real estate -- construction                                                      1,000                   26.6
Installment                                                                         50                    2.0
Unallocated                                                                         50                      --
                                                                                ------                  ------
 Total                                                                          $3,349                  100.0%
                                                                                ======                  ======

    December 31, 1996
    -----------------
Commercial and other                                                            $1,500                    46.5%
Real estate -- mortgage                                                            250                    26.5
Real estate -- construction                                                        750                    25.0
Installment                                                                         50                     2.0
Unallocated                                                                         50                      --
                                                                                ------                   -----
  Total                                                                         $2,600                   100.0%
                                                                                ======                   =====

    December 31, 1995
    -----------------
Commercial and other                                                            $1,200                    44.1%
Real estate -- mortgage                                                            125                    29.2
Real estate -- construction                                                        520                    23.5
Installment                                                                         35                     3.2
Unallocated                                                                         48                      --
                                                                                ------                   -----
  Total                                                                         $1,928                   100.0%
                                                                                ======                   =====

    December 31, 1994
    -----------------
Commercial and other                                                            $1,000                    42.8%
Real estate -- mortgage                                                            125                    34.9
Real estate -- construction                                                        500                    18.0
Installment                                                                         35                     4.3
Unallocated                                                                         40                      --
                                                                                ------                   -----
  Total                                                                         $1,700                   100.0%
                                                                                ======                   =====



    December 31, 1993
    -----------------
Commercial and other                                                            $  550                    46.8%
Real estate -- mortgage                                                            120                    37.0
Real estate -- construction                                                        115                     9.1
Installment                                                                         35                     7.1
Unallocated                                                                        696                      --
                                                                                ------                   -----
  Total                                                                         $1,516                   100.0%
                                                                                ======                   =====
</TABLE>
<PAGE>


         The following table details the carrying value of Bancorp's impaired
loans, in accordance with SFAS 114, by type of loan as of December 31, 1997 and
1996:
<TABLE>
<CAPTION>

                                                                                                              Net
                                                                   Recorded         Valuation            Carrying
                                                                    Amount          Allowance              Value
                                                                    ------          ---------              -----
<S>                                                             <C>                 <C>                 <C>
   December 31, 1997
   -----------------
Commercial                                                       $  718,000          $150,000            $568,000
                                                                 ==========          ========            ========


   December 31, 1996
   -----------------
Commercial                                                       $1,412,000          $505,000            $907,000
                                                                 ==========          ========            ========
</TABLE>


         The above impaired loans were measured based on the fair value of the
loan's collateral. The allowance for loan losses for all other loans is
determined based on the methodology discussed above.


INVESTMENT ACTIVITIES

         Bancorp's investment portfolio is comprised of U.S. government
securities, municipal securities, mortgage-backed securities, corporate bonds
and equity securities.

         Bancorp's primary investment objectives are to maintain liquidity and
to generate after-tax profits consistent with the risk guidelines established by
the Board of Directors. At December 31, 1997 and 1996, Blount Investment Group
of Eugene, Oregon, advised Bancorp with respect to the investment portfolio.
Centennial Bank has extended loans to Blount Investment Group and its
affiliates. Such loans are made on terms, including interest rates and
collectibility, no more favorable to the borrowers than loans to other
borrowers.

         All of the securities held in the investment portfolio were classified
as available-for-sale at December 31, 1997 and 1996. Those securities will be
sold as necessary to provide liquidity and to respond to interest rate changes.
Because these securities are carried at their market value, fluctuations in
interest rates could affect the carrying value of these securities and,
therefore, the reported shareholders' equity of Bancorp.

         The following table provides the carrying values of Bancorp's
investment portfolio at the end of each of the last three years. See Note 2 of
Notes to Consolidated Financial Statements for more information about investment
securities held at December 31, 1997 and 1996.

<TABLE>
<CAPTION>

                                                                                         December 31,
                                                                        ----------------------------------------
                                                                          1997             1996             1995
                                                                        -------          -------          ------
                                                                                     (In thousands)
<S>                                                                    <C>              <C>               <C>
U.S. Treasury securities                                                $ 1,417          $ 1,405           $ 8,428
U.S. Government agencies                                                 34,415           32,594            29,422
States and political subdivisions                                        39,434           39,135            23,845
Corporate bonds                                                           2,301            2,249             2,300
Mortgage-backed securities                                                6,337            7,271             8,929
                                                                        -------          -------           -------
  Total debt securities                                                  83,904           82,654            72,924
Federal Home Loan Bank stock                                              4,711            4,366             4,040
                                                                        -------          -------           -------
     Total investment securities                                        $88,615          $87,020           $76,964
                                                                        =======          =======           =======
</TABLE>
<PAGE>


         The following table provides the carrying values, principal amounts,
maturities and weighted average yields of Bancorp's investment securities at
December 31, 1997, all of which are classified as available-for-sale:
<TABLE>
<CAPTION>

                                                           Carrying
                                                            value                           Weighted
                                                         (fair market          Principal     average
                 Type and maturity                          value)              amount      yield(1)
                 -----------------                          ------              ------      --------
                                                                     (Dollars in thousands)
<S>                                                       <C>                <C>            <C>
U.S. Treasuries
  Due within 1 year                                         $   499            $   500        5.18%
  Due after 1 but within 5 years                                662                650        6.72
  Due after 5 but within 10 years                               256                250        5.85
                                                              -----              -----
    Total U.S. Treasuries                                     1,417              1,400        6.01

U.S. Government Agencies
  Due after 1 but within 5 years                             14,512             14,500        6.44
  Due after 5 but within 10 years                            19,903             20,000        6.74
                                                             ------             ------
    Total U.S. Government Agencies                           34,415             34,500        6.61

States and political subdivisions
  Due after 1 but within 5 years                              6,093              5,970        7.78
  Due after 5 but within 10 years                            10,021              9,665        7.97

  Due after 10 years                                         23,320             22,925        8.04
                                                             ------            -------
    Total states and political subdivisions                  39,434             38,560        7.98

Corporate bonds
  Due after 1 but within 5 years                                471                450        6.31
  Due after 5 but within 10 years                             1,830              1,760        6.15
                                                              -----              -----
    Total corporate bonds                                     2,301              2,210        6.18

Mortgage-backed securities
 (U.S. Government agencies)                                   6,337              6,388        5.65
                                                              -----              -----

        Total debt securities                                83,904             83,058        7.15

Equity securities                                             4,711              4,711
                                                              -----              -----

             Total securities                               $88,615            $87,769
                                                            =======            =======
------------
<FN>
(1) Weighted average yield on state and political subdivisions has been computed
  on a 34% tax-equivalent basis.
</FN>
</TABLE>
<PAGE>


DEPOSITS

         Centennial Bank offers a variety of accounts for depositors designed to
attract short-term and long-term deposits. These accounts include certificates
of deposit ("CDs"), savings accounts, money market accounts, checking and
negotiable order of withdrawal ("NOW") accounts and individual retirement
accounts. These accounts generally earn interest at rates established by
management based on competitive market factors and management's desire to
increase or decrease certain types or maturities of deposits. Centennial Bank
does not pay brokerage commissions to attract deposits.

         Centennial Bank has developed a special account for customers age 50 or
older called the "50+ Account." The 50+ Account is designed to attract customers
in this age group who generally have higher than average deposits and favorable
ability to repay borrowings. Centennial Bank also markets to small- to
medium-sized businesses and to professionals in its commercial lending program.
These types of customers also create substantial deposits, resulting in low-cost
funds being available for Centennial Bank's lending activities. Management
believes that Centennial Bank's percentage of demand deposits (relative to total
deposits) is among the highest in Oregon.

         The following table presents the average balances for each major
category of deposits and the weighted average interest rates paid for
interest-bearing deposits for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>

                                                               1997                  1996                  1995
                                                        -----------------     -----------------     -----------------
                                                             Average              Average               Average
                                                             -------              -------               -------
                                                        Balance     Rate      Balance   Rate        Balance    Rate
                                                        -------     ----      -------   ----        -------    ----
                                                                           (Dollars in thousands)
<S>                                                    <C>         <C>       <C>        <C>        <C>         <C>
Noninterest-bearing demand                               $ 75,005   N/A      $ 66,525   N/A         $ 53,399    N/A
Interest-bearing demand                                   152,453   3.16%     114,445   3.61%         92,937    3.23%
Savings                                                    14,347   2.36       14,166   2.15          15,046    2.34
CDs                                                       129,756   5.63      100,549   5.18          71,912    5.77
                                                         --------            --------               --------
         Total                                           $371,561   3.35     $295,685   3.26        $233,294    4.17
                                                         ========            ========               ========
</TABLE>
<PAGE>


         The following table shows the dollar amount of CDs that had balances of
$100,000 or more at December 31, 1997 and 1996:

<TABLE>
<CAPTION>

                                                                              December 31,
                                                                       ----------------------------
                                                                         1997                1996
                                                                       -------              -------
                                                                             (In thousands)
<S>                                                                   <C>                  <C>
       CDs $100,000 or over with remaining maturity:
          Three months or less                                         $20,937              $17,451
          Over three months through twelve months                       28,145               28,220
          Over one year through three years                              4,686                3,027
          Over three years                                                 118                  111
                                                                       -------              -------
             Total                                                     $53,886              $48,809
                                                                       =======              =======
</TABLE>

SHORT-TERM BORROWINGS

         At December 31, 1997, Bancorp's short-term borrowings consisted of
securities sold under agreements to repurchase totalling $7.7 million.
Securities sold under agreements to repurchase generally range in duration from
one to eighty-nine days.

         At December 31, 1996, Bancorp's short-term borrowings consisted of
securities sold under agreements to repurchase totalling $4.3 million and
advances from the Federal Home Loan Bank of Seattle totalling $8.0 million which
matured and were repaid in May 1997.

         The following table sets forth certain information with respect to
short-term borrowings at December 31 and during each of 1997, 1996 and 1995:

<TABLE>
<CAPTION>

                                                                                       December 31,
                                                                        ----------------------------------------
                                                                          1997            1996              1995
                                                                        -------         --------          ------
                                                                                 (Dollars in thousands)
<S>                                                                  <C>               <C>               <C>
Amount outstanding at year-end                                        $  7,716          $12,316           $11,419
Weighted average interest rate at year-end                                5.03%            5.78%             5.59%
Maximum amount outstanding at any
         month-end during the year                                    $ 18,321          $15,264           $16,458
Daily average amount outstanding during the year                      $  9,688          $11,399           $13,823
Average weighted interest rate
         during the year                                                  5.56%            7.31%             6.23%
</TABLE>
<PAGE>

LONG-TERM DEBT

         At December 31, 1997 and 1996, Bancorp's long-term debt consisted of
$10.0 million of funds advanced from the Federal Home Loan Bank of Seattle to
Centennial Bank. Interest on the debt is payable monthly at the rate of 6.14%.
The debt matures on August 6, 1998, and is collateralized by Federal Home Loan
Bank of Seattle stock, funds on deposit with the Federal Home Loan Bank of
Seattle, investments and loans.

         During 1996, Bancorp's long-term debt also consisted of $9.2 million of
7.0% Convertible Redeemable Exchangeable Subordinated Debentures due May 1, 2004
(the "Debentures"). During 1996, Bancorp issued a call for redemption of the
Debentures. Holders of the Debentures voluntarily converted $9,163,000 of the
Debentures into 2,029,568 shares of Bancorp's common stock. The amount of debt
converted, net of unamortized issue costs, was credited to common stock and
additional paid-in-capital. Bancorp redeemed the remaining $37,000 of the
Debentures for cash.

RETURN ON EQUITY AND ASSETS

         The following table sets forth Bancorp's return on daily average assets
and equity for 1997, 1996 and 1995:
<TABLE>
<CAPTION>

                                                                         1997            1996             1995
                                                                       -------         --------          ------
                                                                                (Dollars in thousands)
<S>                                                                  <C>              <C>               <C>
         Net income                                                   $  9,303         $  6,514        $  4,551
         Average total assets                                          439,186          357,644         281,752
         Return on average assets                                         2.12%            1.82%           1.62%

         Net income                                                   $  9,303         $  6,514        $  4,551
         Average equity                                                 45,936           31,500          23,302
         Return on average equity                                        20.25%           20.68%          19.53%

         Average total equity                                         $ 45,936         $ 31,500        $ 23,302
         Average total assets                                          439,186          357,644         281,752
         Average total equity to assets ratio                            10.46%            8.81%           8.27%
</TABLE>


CHANGES IN ACCOUNTING PRINCIPLES

The Financial Accounting Standards Board ("FASB") has issued several accounting
pronouncements which Bancorp has recently adopted or will be required to adopt
in future fiscal reporting periods.

SFAS NO. 125

Bancorp adopted SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities," on January 1, 1997 with no
material impact on its financial statements.
<PAGE>

SFAS NO. 129

In 1997, Bancorp adopted SFAS No. 129, "Disclosures of Information about Capital
Structure," which had no material impact on its financial statements.

SFAS NO. 130

In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes requirements for disclosure of comprehensive income and
becomes effective for Bancorp for the year ending December 31, 1998.
Comprehensive income includes such items as foreign currency translation
adjustments and unrealized gains and losses on securities available-for-sale
that are currently being included as a component of shareholders' equity.
Bancorp does not expect this pronouncement to materially impact its financial
statements.

SFAS NO. 131

In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which requires information about key
revenue-producing segments of an entity. A reconciliation of segment financial
information to amounts reported in the financial statements will be required.
SFAS No. 131 is effective for Bancorp in 1998 and it has not been determined if
additional disclosure is required.


COMPETITION

         Commercial banking in Oregon is highly competitive with respect to both
loans and deposits. Centennial Bank competes principally with other commercial
banks, savings and loan associations, credit unions, mortgage companies, and
other financial institutions with respect to the scope and type of services
offered, interest rates paid on deposits and pricing of loans, among other
factors.

         Many of these competitors have substantially greater resources than
Centennial Bank and have branches in more locations. Certain of these
competitors have larger lending capabilities due to their greater size, and
provide other services that Centennial Bank does not offer.

         Centennial Bank competes for loans principally through the range and
quality of the services it provides. Centennial Bank believes its personal
service philosophy and its focus on small- to medium-sized businesses and on
professionals enables it to compete effectively with other financial
institutions for the loans and deposits it seeks. To serve customers whose

<PAGE>

borrowing requirements exceed its lending limits, Centennial Bank arranges
participations with other lenders.


         During the past several years, many financial institutions in Oregon
have merged or consolidated. Management believes that, in many cases, the
acquiring institutions have shifted the focus of the acquired banks away from
the small- to medium-sized businesses that are at the core of Bancorp's
marketing efforts.  Bancorp intends to capitalize on this banking environment.


EMPLOYEES

         Centennial Bancorp has no employees other than its executive officers,
who are also employees of Centennial Bank. At December 31, 1997, Centennial Bank
and Centennial Mortgage had 187 and 44 full-time equivalent employees,
respectively. Bancorp places a high priority on selective hiring and development
of staff. Staff development involves training in customer service, marketing and
regulatory compliance. Bancorp has adopted extensive incentive programs for
employees that focus and are dependent on the achievement of certain of
Bancorp's financial, service and marketing goals.

         None of Bancorp's employees is covered by collective bargaining
agreements, and management believes that Bancorp's relationship with its
employees is good.

                           SUPERVISION AND REGULATION

         Bancorp and Centennial Bank are extensively regulated under federal and
Oregon law. These laws and regulations are primarily intended to protect
depositors and the deposit insurance fund, not shareholders of Bancorp. The
following information is qualified in its entirety by reference to applicable
statutory and regulatory provisions. Any change in applicable laws, regulations
or regulatory policies may have a material effect on the business, operations
and prospects of Bancorp and its subsidiaries.


CENTENNIAL BANCORP

         GENERAL

         Bancorp is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
System (the "FRB"). Bancorp is required to file an annual report and such other
reports as the FRB may require.
<PAGE>

         ACQUISITIONS

         As a bank holding company, Bancorp is required to obtain the prior
approval of the FRB before acquiring direct or indirect ownership or control of
more than 5% of the voting shares of a bank or bank holding company. The FRB may
not approve any acquisition, merger or consolidation that would have a
substantial anti-competitive result, unless the anti-competitive effects of the
proposed transaction are outweighed by a greater public interest in meeting the
needs and convenience of the public. The FRB also considers managerial, capital
and other financial factors in acting on acquisition or merger applications.
Bancorp also is required to obtain the prior approval of the Director of the
Oregon Department of Consumer and Business Services (the "Oregon Director")
before acquiring direct or indirect ownership or control of 25% or more of the
voting shares of an Oregon state-chartered bank or bank holding company.

         The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act") allows adequately capitalized and managed bank
holding companies to acquire banks in any state. Such acquisitions must comply
with any applicable state law requiring a bank to be in existence for a minimum
period of time before the acquisition. Oregon law allows such acquisitions with
respect to banks that have been providing banking services for at least three
years. Therefore, Bancorp and Centennial Bank could be acquired by a bank
holding company located outside Oregon following receipt of necessary regulatory
approvals. Under the Interstate Banking Act, Bancorp could acquire banks or bank
holding companies in other states.

         PERMISSIBLE ACTIVITIES

         A bank holding company may not engage in, or acquire direct or indirect
control of more than 5% of the voting shares of any company engaged in, a
nonbanking activity, unless the activity has been determined by the FRB to be
closely related to banking or managing banks. The FRB has identified certain
nonbanking activities in which a bank holding company may engage with notice to,
or prior approval by, the FRB. Management believes that all activities conducted
by Centennial Mortgage are permitted nonbanking activities.

         CAPITAL ADEQUACY

         The federal bank regulatory agencies monitor the capital adequacy of
bank holding companies and have adopted risk-based capital adequacy guidelines
to evaluate bank holding companies and banks. If an institution's capital falls
below the minimum levels established by these guidelines, the bank holding

<PAGE>

company may be denied approval to acquire or establish additional banks or
nonbank businesses. The guidelines require a minimum ratio of total capital to
risk-weighted assets of 8%. At December 31, 1997, Bancorp's ratio of total
capital to risk-weighted assets was 12.9%.

         The FRB also uses a leverage ratio to evaluate the capital adequacy of
bank holding companies. The leverage ratio applicable to Bancorp requires the
ratio of "Tier 1" capital (generally, tangible common stockholders' equity,
perpetual preferred stock and minority interests in consolidated subsidiaries)
to adjusted average total assets to be not less than 3% and up to 5% or higher
depending on Bancorp's general capital condition. Bancorp's leverage ratio at
December 31, 1997 was 10.6%.

         If Bancorp fails to meet capital guidelines, the FRB may institute
appropriate supervisory or enforcement actions. As discussed below, Centennial
Bank is also subject to capital adequacy requirements. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), Bancorp could be
required to guarantee the capital restoration plan of Centennial Bank, should
Centennial Bank become undercapitalized. In addition, the Oregon Director has
the authority to require Bancorp to contribute additional capital to Centennial
Bank if its capital becomes impaired.


CENTENNIAL BANK

         GENERAL

         Centennial Bank is an Oregon state-chartered bank, the deposits of
which are insured by the FDIC. Accordingly, Centennial Bank files financial and
other reports periodically with, and is regularly examined by, both the Oregon
Director and the FDIC. Centennial Bank is not a member of the Federal Reserve
System.

         PERMISSIBLE ACTIVITIES

         Under FDICIA, no state bank may engage in any activity not permitted
for national banks, unless the institution complies with applicable capital
requirements and the FDIC determines that the activity poses no significant risk
to the insurance fund. This limitation should not affect Centennial Bank, since
management believes that Centennial Bank is not presently involved in any such
activities.
<PAGE>

         BRANCHING AND ACQUISITIONS

         Banks are permitted to conduct business through branches after
application to and approval of the FDIC and the Oregon Director, if they make
certain findings regarding the financial history and condition of the bank and
the appropriateness of the branch in the community to be served. Centennial Bank
currently has thirteen branches, the most recent of which opened in January
1998.

         Acquisitions of Oregon banks and bank holding companies by out-of-state
banks, holding companies and other financial institutions are permitted if the
bank being acquired has been providing banking services for a period of at least
three years prior to the effective date of the acquisition and upon receipt of
the approval of the Oregon Director. Other conditions set forth in Oregon law
also must be satisfied. Approval of the FRB and/or the FDIC is also required.

         The Interstate Banking Act permits banks to merge with banks across
state lines, thereby creating out-of-state branches, without regard to whether
such transactions are prohibited under the law of any state. Oregon permits
interstate bank mergers. Banks are able to establish branches in other states
only through interstate mergers, as described above, unless the state where the
branch is proposed to be opened has opted in to DE NOVO interstate branching.
Oregon has not opted in to DE NOVO branching.

         COMMUNITY REINVESTMENT ACT

         Enacted in 1977, the federal Community Reinvestment Act (the "CRA") has
become increasingly important to financial institutions, including their holding
companies. The CRA allows regulators to reject an application to make an
acquisition or establish a branch unless the applicant has performed
satisfactorily under the CRA. Citizens and interest groups have standing before
the FRB to assert noncompliance with the CRA. Satisfactory performance means
adequately meeting the credit needs of the communities the applicant serves,
including low- and moderate-income neighborhoods, consistent with the safe and
sound operation of the institution. The applicable federal regulators now
regularly conduct CRA examinations to assess the performance of financial
institutions. Centennial Bank has received satisfactory ratings in its most
recent CRA examinations.

         TRANSACTIONS WITH AFFILIATES

         Centennial Bank is subject to certain FRB restrictions on transactions
among related parties. Section 23A of the Federal Reserve Act limits the amount
of certain transactions, including loans to and investments in affiliates of
Centennial Bank, requires certain levels of collateral for such loans, and

<PAGE>

limits the amount of advances to third parties that may be collateralized by the
securities of Bancorp or its subsidiaries.

         Section 23B of the Federal Reserve Act requires that certain
transactions between Centennial Bank and its affiliates must be on terms
substantially the same, or at least as favorable to Centennial Bank, as those
prevailing at the time for comparable transactions with or involving
nonaffiliated companies or, in the absence of comparable transactions, on terms
and under circumstances, including credit standards, that in good faith would be
offered to or would apply to nonaffiliated companies.

         In addition, Section 22(h) of the Federal Reserve Act requires that the
aggregate amount of an institution's loans to officers, directors and principal
shareholders (and their affiliates) is limited to the amount of its unimpaired
capital and surplus, unless the FDIC determines that a lesser amount is
appropriate.

         A violation of any of the foregoing restrictions may result in the
assessment of civil fines on a bank or a person participating in the conduct of
the affairs of such bank or the imposition of a cease and desist order.

         DIVIDEND RESTRICTIONS

         Dividends paid by Centennial Bank provide substantially all Bancorp's
cash flow. Under federal law, prior to the declaration of any dividend by
Centennial Bank, the approval of the principal regulator is required if the
total of all dividends declared in any calendar year exceeds the total of
Centennial Bank's net profits for that year combined with its retained net
profits for the preceding two years. In addition, FDICIA provides that a bank
cannot pay a dividend if it will cause the bank to be "undercapitalized." Oregon
law imposes the following limitations on the payment of dividends by Oregon
state-chartered banks: (i) no dividends may be paid that would impair capital;
(ii) until the surplus fund of a bank is equal to 50% of its paid-in capital, no
dividends may be declared unless there has been carried to the surplus account
at least 20% of the bank's net profits for the dividend period; (iii) dividends
cannot be greater than net undivided profits minus losses, certain bad debts,
certain charged-off assets or depreciation and accrued expenses, interest and
taxes; and (iv) if the surplus fund does not exceed 50% of paid-up capital and a
further reduction in the surplus occurs due to losses, dividends cannot be
declared or paid in excess of 50% of net earnings until the surplus fund is
restored to at least the amount from which the surplus was originally reduced.
At December 31, 1997, $10.1 million was available for declaration of dividends
by Centennial Bank to Bancorp without prior regulatory approval.
<PAGE>

         EXAMINATIONS

         The FDIC and the Oregon Director periodically examine and evaluate
state-chartered banks. Based upon such evaluations, the examining regulator may
revalue the assets of an insured institution and require that it charge off or
reduce the carrying value of specific assets or establish specific reserves to
compensate for the difference between the value determined by the regulator and
the book value of such assets.

         CAPITAL ADEQUACY

         Federal regulations establish minimum requirements for the capital
adequacy of depository institutions. The regulators may establish higher minimum
requirements if, for example, a bank has previously received special attention
or has a high susceptibility to interest rate risk. Banks with capital ratios
below the required minimums are subject to certain administrative actions,
including prompt corrective action, the termination of deposit insurance upon
notice and hearing, or a temporary suspension of insurance without a hearing.

         The federal risk-based capital guidelines for banks require a ratio of
Tier 1 or core capital to total risk-weighted assets of 4% and a ratio of total
capital to total risk-weighted assets of 8%. The leverage capital guidelines
require that banks maintain Tier 1 capital of no less than 5% of total adjusted
assets, except in the case of certain highly rated banks for which the minimum
requirement is 3% of total adjusted assets. At December 31, 1997, Centennial
Bank's leverage ratio, Tier 1 capital to risk-weighted assets ratio and total
risk-based capital to risk-weighted assets ratio were 9.5%, 10.8% and 11.7%,
respectively.

         FDICIA requires federal banking regulators to take "prompt corrective
action" with respect to a capital-deficient institution, including requiring a
capital restoration plan and restricting certain growth activities of the
institution. Bancorp could be required to guarantee any such capital restoration
plan required of Centennial Bank. Bancorp's maximum liability under such
guarantee would be the lesser of 5% of Centennial Bank's total assets at the
time it became undercapitalized or the amount necessary to bring Centennial Bank
into compliance with the capital plan.

         Under Oregon law, the Oregon Director has the authority to require the
shareholders of an Oregon state-chartered bank (Bancorp, in the case of
Centennial Bank) to contribute additional capital to the bank if its capital
becomes impaired. The capital of a bank is impaired under Oregon law when the
value of the bank's assets is insufficient to pay its liabilities plus the
amount of its paid-up capital stock.

         As an institution's capital decreases, the powers of the federal
regulators increase, which can include mandated capital-raising activities,
restrictions on interest rates paid, restrictions on transactions with
affiliates, and removal of management. In addition, an institution generally is
prohibited from paying dividends or management fees to control persons if the
institution would be undercapitalized after any such payment.
<PAGE>

     Pursuant to FDICIA, regulations were adopted defining five capital levels:
well capitalized, adequately capitalized, undercapitalized, severely
undercapitalized and critically undercapitalized. Under the regulations,
Centennial Bank is considered "well capitalized."

         INTERNAL OPERATING REQUIREMENTS

         In 1993, federal regulators adopted regulations addressing, among other
things: (i) internal controls, information systems and internal audit systems;
(ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure;
(v) asset growth; (vi) ratio of classified assets to capital; (vii) minimum
earnings; and (viii) compensation and benefit standards for management
officials. These regulations add further to the cost of compliance and impose
record-keeping requirements on Centennial Bank and Bancorp.

         The consumer lending activities of Centennial Bank are also regulated
by numerous laws and regulations which impose disclosure requirements, prohibit
discrimination based on race, sex, age, marital status and other specified
classifications and impose other restrictions on credit and collection
practices.

         REAL ESTATE LENDING EVALUATIONS

         Federal regulators have adopted uniform standards for evaluating loans
secured by real estate or made to finance improvements to real estate. Banks are
required to establish and maintain written internal real estate lending policies
consistent with safe and sound banking practices and appropriate to the size of
the institution and the nature and scope of its operations. The regulations
establish loan-to-value ratio limitations on real estate loans, which are equal
to or higher than the loan-to-value limitations established by Centennial Bank
and Centennial Mortgage.

         DEPOSIT INSURANCE PREMIUMS

         The FDIC has adopted regulations establishing a risk-based deposit
insurance premium schedule. In July 1995, Centennial Bank's assigned risk
assessment classification was reduced from $.23 to $.04 per $100 of insured
deposits. Effective January 1, 1996, Centennial Bank's risk assessment
classification was further reduced to $.00, so Centennial Bank paid a minimum
annual payment of $2,000 during 1996. Each of these risk assessment
classifications was the lowest possible classification at the time.
Classifications are reviewed semiannually. In addition, the FDIC has the power
to impose special assessments to cover the cost of borrowings from the U.S.
Treasury, the Federal Financing Bank, and Bank Insurance Fund member banks.

         The Deposit Insurance Funds Act of 1996 ("Funds Act") eliminated the
statutorily-imposed minimum assessment amount effective January 1, 1997. The
Funds Act also authorizes assessments on Bank Insurance Fund-assessable deposits
(such as the Centennial Bank deposits) and stipulates that the rate of
assessment must equal one-fifth the Financing Corporation assessment rate that
is applied to deposits assessable by the Savings Association Insurance Fund. The
Financing Corporation assessment rate for Bank Insurance Fund-assessable
deposits is 1.296 basis points. The additional assessment authorized by the
Funds Act increased Bancorp's FDIC insurance assessment expense in 1997 by
$45,000.
<PAGE>

CENTENNIAL MORTGAGE

         Centennial Mortgage is, by definition of the Department of Housing and
Urban Development, a nonsupervised lender. Because Centennial Mortgage is a
member of Bancorp's consolidated group, its accounts and activities are reviewed
by the FRB in conjunction with its periodic examinations of Bancorp. Centennial
Mortgage, like Centennial Bank, is indirectly affected by the monetary policies
of the FRB, which may have a material adverse effect on its business and
earnings.

         Oregon law requires the licensing of certain persons engaging in
mortgage brokering transactions. Centennial Mortgage is exempt from these
requirements as a wholly owned subsidiary of a regulated bank holding company.

CHANGING REGULATORY STRUCTURE

         The laws and regulations affecting banks and bank holding companies are
in a state of flux. The rules and the regulatory agencies in this area have
changed significantly over recent years, and there is reason to expect that
similar changes will occur in the future. It is difficult to predict the outcome
of these changes. The Clinton Administration has announced a program to reduce
the regulatory burden on banks and to streamline and consolidate regulatory
oversight. However, the scope and effect of this program are not yet known. In
addition, substantial revisions to the Oregon Bank Act have been proposed.

         One of the major additional burdens imposed on the banking industry by
FDICIA is the increased authority of federal agencies to regulate the activities
of federal and state banks and their holding companies. The FRB, the FDIC and
the Oregon Director have extensive enforcement authority to police unsafe or
unsound practices by depository institutions and their holding companies and to
penalize them for violating applicable laws and regulations. FDICIA and other
laws have expanded the agencies' authority in recent years, and the agencies
have not yet fully tested the limits of their powers.

EFFECT OF ECONOMIC ENVIRONMENT

         The policies of regulatory authorities, including the monetary policies
of the FRB, have a significant effect on the operating results of bank holding
companies and their subsidiaries. Among the means available to the FRB to affect
the money supply are open-market operations in U.S. Government securities,
changes in the discount rate on member bank borrowings, and changes in reserve
requirements against member bank deposits. These means are used in varying
combinations to influence overall growth and distribution of bank loans,
investments and deposits, and their use may affect interest rates charged on
loans or paid for deposits.

         FRB monetary policies have materially affected the operating results of
commercial banks in the past and are expected to continue to do so in the
future. The nature of future monetary policies and the effect of such policies
on the business and earnings of Bancorp and its subsidiaries cannot be
predicted.
<PAGE>

ITEM 2.      DESCRIPTION OF PROPERTY
             -----------------------

         Bancorp's main offices are located at 675 Oak Street, Eugene, Oregon,
in a four-floor facility (approximately 35,000 square feet) owned by Centennial
Bank. Construction of the office building was completed in June 1993. Bancorp
and Centennial Bank occupy the lower two floors and the fourth floor of the
building. Centennial Bank has entered into five-year leases with two tenants for
a total of approximately 6,250 square feet of the building's third floor.
Centennial Bank is retaining for future use the remaining approximate 2,500
square feet of available space on the third floor.

         In February 1994, Bancorp entered into a long-term ground lease in
Tigard, Oregon, a suburb of Portland, where Centennial Bank has a branch office.
The ground lease has an initial term of 50 years and is renewable for two
additional 10-year periods. Bancorp made lease payments of $6,667 per month in
1997. Construction of a three-story office building was completed in June 1995
at a cost of $2.9 million. Centennial Bank occupies the first floor and part of
the second floor, while Centennial Mortgage occupies the remainder of the second
floor. The third floor of the building was leased to another company effective
January 1996 pursuant to a five-year lease. At December 31, 1997, Centennial
Mortgage was seeking other space to lease to accommodate Centennial Bank's space
needs.

         In July 1997, Centennial Bank completed its purchase of a $1.2 million
parcel of land in the Tanasbourne area of Hillsboro, Oregon, a suburb of
Portland. Centennial Bank opened a branch facility in temporary quarters at the
site during construction of the permanent facility, which is projected to cost
$2,2 million. At December 31, 1997, Centennial Bank had expended $316,000 of the
projected building cost. The permanent facility is currently under construction
and is scheduled for completion in July 1998.

         Effective January 1, 1997, Centennial Bank entered into a lease for
approximately 3,200 square feet of an existing building in the Lloyd District
area of Portland, Oregon. The lease has an initial term of two years and is
renewable for one additional two-year period. Lease payments of $4,305 per month
began in January 1997.

         Centennial Bank owns three other branch facilities and leases one
branch facility with annual lease payments of $75,500 in 1997. In addition,
Centennial Bank also entered into leases for the four limited-service facilities
with total lease payments of $14,250 in 1997, which will total $37,500 in 1998.
Centennial Bank also leases certain storage facilities with annual lease
payments of $10,100 in 1997.
<PAGE>

         Centennial Mortgage's offices are located in leased facilities.
Centennial Mortgage's Eugene office is located in a building formerly owned by
Centennial Bank which was sold to a third party in August 1994. Centennial
Mortgage paid lease payments of $74,900 to the new building owner in 1997.
Centennial Mortgage also leases office space for its Portland-area office from
Centennial Bank. Centennial Mortgage entered into a lease during 1997 for its
Sunnyside Road office and paid $5,300 in lease payments during 1997. Mortgage
Co. will pay $32,000 for the Sunnyside Road office lease in 1998.


ITEM 3.     LEGAL PROCEEDINGS
            -----------------

         Periodically, and in the ordinary course of business, various claims
and lawsuits are brought by and against Bancorp, such as claims to enforce
liens, condemnation proceedings on properties in which Bancorp holds security
interests, claims involving the making and servicing of real property loans and
other issues incident to Bancorp's business.

         As of the date of this report, Bancorp was not a party to any legal
proceedings it believed to be material other than the following actions:

         Galen Ritchie Enterprises, Inc., et al v. Centennial Bank, Case No.
16-96-03603, and Centennial Bank v. Galen Ritchie Enterprises, Inc., et al, Case
No. 16-96-04958. On March 9, 1998, a verdict was rendered in favor of Centennial
Bank in both cases involving Galen Ritchie Enterprises, Inc. ("GRE"), directing
that (I) GRE take nothing on their claim of damages in excess of $2,000,000 on
theories of breach of contract, fraud, rescission and reformation of loan
agreements and (ii) Centennial Bank collect judgment against GRE and individual
guarantors under a promissory note and collateral given thereunder in an amount
exceeding $710,000. As of the date of this report, the judgment is not final and
is subject to appeal.

     Centennial Bank v. Laughing Cavalier, Inc., et al., Washington County
Circuit Court Case No. C970863CV. In August 1997, Centennial Bank commenced an
action against the Laughing Cavalier, Inc. on a Promissory Note and seeking
possession and foreclosure of the collateral for the Loan, which consisted of
the business assets of the Laughing Cavalier, a restaurant and bar in Gresham,
Oregon. The loan is subject to a 75% SBA guarantee.

         Following repossession of the collateral, those assets were sold at a
net price, including expenses, of $11,524 which was applied to the loan. The
loan is also secured by a second Trust Deed on the personal residence of Stephen
and Nancy Bateman, two of the Guarantors for the Loan. Default Orders were
entered against the Borrower and all other Defendants, except Stephen and Nancy

<PAGE>

Bateman. The Batemans filed an Answer and Counterclaim seeking recovery of
damages against Centennial Bank of $200,000 under theories of breach of implied
covenant of good faith and fair dealing, and misrepresentation by Centennial
Bank. Centennial Bank gave notice of those claims under its Lender Liability
Policy its insurer. Centennial Bank has demanded arbitration of those disputes
pursuant to the Loan agreements, and an order referring those claims to
arbitration has been entered in the case. Centennial Bank has retained legal
counsel. Centennial Bank's insurer is actively involved in the defense of the
Bateman claims, operating under a full reservation of rights.

         Given the size and nature of the claims brought by the Batemans,
management of Centennial Bank believes that it is unlikely that Centennial Bank
has any material exposure for uninsured loss on the Bateman claim in excess of
the $40,000 retention payable on its insurance policy, which also applies to
out-of-pocket expenses for attorney fees and defense costs incurred by
Centennial Bank. In addition, any award in favor of the Batemans, either by
settlement or trial, would probably be first offset against the deficiency on
the guarantee liability payable by the Batemans to Centennial Bank.

         Employee Claim. On January 9, 1998, Centennial Bank received a letter
from an attorney on behalf of a terminated employee. In that letter, the
employee asserts claims against Centennial Bank and two employees for unjust
enrichment and age discrimination. The indicated damage request with respect to
Centennial Bank is a total of $1,600,000 consisting of $100,000 economic loss,
$500,000 emotional distress and $1,000,000 punitive damages. The claim is under
investigation. Centennial Bank has given notice of the claim to its insurer and
retained legal counsel to defend the claim. No litigation has been filed. A
mediation session has been scheduled for April 28, 1998, the outcome of which is
not expected to have a material effect on the financial position of the Company.





<PAGE>


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         ---------------------------------------------------

         Centennial Bancorp held a special meeting of shareholders on October
29, 1997. At the meeting, a proposal to amend Bancorp's Restated Articles of
Incorporation to increase the number of authorized shares of Common Stock from
10 million to 50 million shares was approved. Out of 7,224,355 shares of Common
Stock entitled to vote at the meeting, 5,825,412 shares of Common Stock were
represented at the meeting, either in person by the holders of such shares or by
proxy. Voting on the proposal was as follows:

                                 For              Against           Abstain
                                 ---              -------           -------

      Number of shares         5,467,969          306,226            51,217


<PAGE>


                                     PART II
                                     -------

         The information called for by Items 5, 6, 7 and 8 of Part II is
included in Centennial Bancorp's Annual Report to Shareholders for the year
ended December 31, 1997, and is incorporated herein by reference as follows:

                                                           Centennial Bancorp
                                                             Annual Report
                                                            to Shareholders
                                                                Page No.
                                                            -----------------

ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON
                      EQUITY AND RELATED STOCKHOLDER
                      MATTERS                                      42
                  ----------------------------------

ITEM 6.           SELECTED FINANCIAL DATA                           4
                  ----------------------------------

ITEM 7.           MANAGEMENT'S DISCUSSION AND
                      ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS               30 - 41
                  -----------------------------------

ITEM 7A.          QUANTITATIVE AND QUALITATIVE
                      DISCLOSURES ABOUT MARKET RISK           36 - 40
                  -----------------------------------

ITEM 8.           FINANCIAL STATEMENTS AND
                      SUPPLEMENTARY DATA                       6 - 29
                  -----------------------------------

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH
                      ACCOUNTANTS ON ACCOUNTING AND
                      FINANCIAL DISCLOSURE
                  -----------------------------------

                      None.


<PAGE>


                                    PART III
                                    --------


ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
                  --------------------------------------------------

                  The information called for by this item will be contained in
                  Centennial Bancorp's definitive proxy statement for the annual
                  meeting of shareholders to be held on May 20, 1998, and is
                  incorporated herein by reference.


ITEM 11.          EXECUTIVE COMPENSATION
                  ----------------------

                  The information called for by this item will be contained in
                  Centennial Bancorp's definitive proxy statement for the annual
                  meeting of shareholders to be held on May 20, 1998, and is
                  incorporated herein by reference.


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                  --------------------------------------------------------------

                  The information called for by this item will be contained in
                  Centennial Bancorp's definitive proxy statement for the annual
                  meeting of shareholders to be held on May 20, 1998, and is
                  incorporated herein by reference.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
                  ----------------------------------------------

                  The information called for by this item will be contained in
                  Centennial Bancorp's definitive proxy statement for the annual
                  meeting of shareholders to be held on May 20, 1998, and is
                  incorporated herein by reference.

                                     PART IV
                                     -------

ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
                  FORM 8-K
                  --------------------------------------------------------

     (a) The following documents are filed as part of this Annual Report on Form
10-K.

         (1)      Financial Statements.

                  The financial statements required in this Annual Report are
                  listed below and are included in Centennial Bancorp's Annual
                  Report to Shareholders for the year ended December 31, 1997,
                  and are incorporated herein by reference:

<PAGE>
<TABLE>
<CAPTION>

                                                                                 Annual
                                                                                Report to
                                                                              Shareholders
                                                                              Page Number
                                                                              -----------
<S>                                                                           <C>
                  Report of Independent Accountants                                5

                  Consolidated balance sheets at
                           December 31, 1997 and 1996                              6

                  For the three years ended December 31, 1997
                           Consolidated statements of income                       7
                           Consolidated statements of
                                    shareholders' equity                           8
                           Consolidated statements of cash flows                 9 - 10

                  Notes to consolidated financial statements                    11 - 29
</TABLE>

         (2)      Financial Statement Schedules.

                  All financial statement schedules are omitted since the
                  required information is not present or not present in amounts
                  sufficient to require submission of the schedule or because
                  the information required is included in the consolidated
                  financial statements or notes thereto.

         (3)      Exhibits.

                  3.1       Articles of Incorporation, as restated and amended
                            (filed as Exhibit 3.1 to registrant's Form 10-Q
                            Report for the quarter ended June 30, 1990, and
                            incorporated herein by reference)

                  3.2       Bylaws, as restated (filed as Exhibit 3.2 to
                            registrant's Form 10-K Report for the year ended
                            December 31, 1992, and incorporated herein by
                            reference)

                  10.1*     Registrant's 1993 Incentive Stock Option Plan,
                            restated as of April 13, 1994 (filed as Exhibit B to
                            registrant's Proxy Statement for the 1994 annual
                            shareholder meeting, filed April 29, 1994, and
                            incorporated herein by reference)
<PAGE>

                  10.2*     Form of Stock Option Agreement entered into between
                            registrant and certain employees pursuant to
                            registrant's 1993 Incentive Stock Option Plan (filed
                            as Exhibit 10.2 to registrant's Registration
                            Statement on SB-2, filed March 28, 1994, and
                            incorporated herein by reference)

                  10.3*     Employment Agreement dated October 1, 1995, between
                            Richard C. Williams and registrant (filed as Exhibit
                            10.3 to registrant's Form 10-K for the year ended
                            December 31, 1995, and incorporated herein by
                            reference)

                  10.4*     Registrant's Nonemployee Director's Stock Option
                            Plan (filed as Exhibit 10.2 to registrant's Form
                            10-K Report for the year ended December 31, 1991,
                            and incorporated herein by reference)

                  10.5*     Form of Stock Option Agreement entered into between
                            registrant and certain nonemployee directors
                            pursuant to registrant's Nonemployee Director's
                            Stock Option Plan (filed as Exhibit 10.5 to
                            registrant's Registration Statement on SB-2, filed
                            March 28, 1994, and incorporated herein by
                            reference)

                  10.6*     Registrant's 1993 Stock Option Plan for Nonemployee
                            Directors, restated as of April 13, 1994 (filed as
                            Exhibit A to registrant's Proxy Statement for the
                            1994 annual shareholder meeting, filed April 29,
                            1994, and incorporated herein by reference)

                  10.7*     Form of Stock Option Agreement entered into between
                            registrant and certain nonemployee directors
                            pursuant to registrant's 1993 Stock Option Plan for
                            Nonemployee Directors (filed as Exhibit 10.7 to
                            registrant's Registration Statement on SB-2, filed
                            March 28, 1994, and incorporated herein by
                            reference)

                  10.8*     Deferred Compensation Agreement between Centennial
                            Bank and Ron R. Peery (filed as Exhibit 10.3 to
                            registrant's Form 10-Q Report for the quarter ended
                            June 30, 1989, and incorporated herein by reference)
<PAGE>

                  10.9*     Restated 1995 Stock Incentive Plan

                  10.10*    Nonstatutory (Nonqualified) Stock Option Agreement
                            dated November 22, 1995, between registrant and
                            Richard C. Williams (filed as Exhibit 10.10 to
                            registrant's Form 10-K for the year ended December
                            31, 1995, and incorporated herein by reference)

                  10.11     Ground Lease, dated as of February 10, 1994, between
                            registrant and Pacific Realty Associates, L.P.
                            (filed as Exhibit 10.10 to registrant's Registration
                            Statement on SB-2, filed March 28, 1994, and
                            incorporated herein by reference)

                  10.12     Advances, Security and Deposit Agreement, dated May
                            28, 1991, between Centennial Bank and the Federal
                            Home Loan Bank of Seattle (filed as Exhibit 10.11 to
                            registrant's Registration Statement on SB-2, filed
                            March 28, 1994, and incorporated herein by
                            reference)

                  10.13*    Centennial Bank Deferred Compensation Plan, dated
                            effective January 1, 1996

                  10.14*    Participation Agreement for use with Centennial Bank
                            Deferred Compensation Plan

                  10.15*    Form of Incentive Stock Option Agreement entered
                            into between registrant and certain officers and
                            employees pursuant to registrant's Restated 1995
                            Stock Incentive Plan

                  10.16*    Form of Nonstatutory Stock Option Agreement entered
                            into between registrant and its nonemployee
                            directors pursuant to registrant's Restated 1995
                            Stock Incentive Plan

                  10.17*    Employment Agreement dated July 29, 1997 between
                            Thaddeus (Ted) Winnowski and Centennial Bank (filed
                            as Exhibit 10.17 to registrant's Form 10-Q Report
                            for the quarter ended September 30, 1997, and
                            incorporated herein by reference)

                  10.18*    First Amendment to Employment Agreement dated
                            December 1, 1997, between Richard C. Williams and
                            registrant

                  11.1      Earnings per Share Computation
<PAGE>

                  13.1      Portions of 1996 Annual Report to Shareholders
                            (which are incorporated by reference in this Form
                            10-K Annual Report)

                  20.1      Portions of definitive proxy statement for 1997
                            annual shareholder meeting (to be filed with the
                            Securities and Exchange Commission within 120 days
                            after the end of the fiscal year covered by this
                            Annual Report)

                  21.1      Subsidiaries of registrant (filed as Exhibit 21.1 to
                            registrant's Form 10-K for the year ended December
                            31, 1995, and incorporated herein by reference)

                  23.1      Consent of Coopers & Lybrand L.L.P., Independent
                            Accountants

                  24.1      Power of Attorney dated March 4, 1998 appointing
                            Thaddeus (Ted) R. Winnowski and Michael J. Nysingh,
                            individually, attorneys-in-fact for Richard C.
                            Williams

                  27.1      Financial Data Schedule

                  27.2      Restated Financial Data Schedule for
                            September 30, 1997

                  27.3      Restated Financial Data Schedule for
                            June 30, 1997

                  27.4      Restated Financial Data Schedule for
                            March 31, 1997

                  27.5      Restated Financial Data Schedule for
                            December 31, 1996

                  27.6      Restated Financial Data Schedule for
                            September 30, 1996

                  27.7      Restated Financial Data Schedule for
                            June 30, 1996

                  27.8      Restated Financial Data Schedule for
                            March 31, 1996

                  27.9      Restated Financial Data Schedule for
                            December 31, 1995

                  99.1      Safe Harbor for Forward-Looking Statements under
                            Private Securities Litigation Reform Act of 1995:
                            Certain Cautionary Statements (filed as Exhibit 99.1
                            of registrant's Form 10-K Report for the year ended
                            December 31, 1996, and incorporated herein by
                            reference)

---------------

*    Management contract or compensatory plan or arrangement.

         Upon written request to Michael J. Nysingh, Chief Financial Officer,
Centennial Bancorp, Post Office Box 1560, Eugene, Oregon, 97440, shareholders
will be furnished a copy of any exhibit, upon payment of $.25 per page, which
represents Centennial Bancorp's reasonable expenses in furnishing the exhibit
requested.

     (b)          Reports on Form 8-K. Centennial Bancorp did not file any
                  reports on Form 8-K during the last quarter of the fiscal year
                  ended December 31, 1997.
<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          CENTENNIAL BANCORP

DATED:        March  25 , 1998            By   Richard C.Williams*
                                          -------------------------
                                            Richard C. Williams,
                                              President


      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


                                           PRINCIPAL EXECUTIVE OFFICER AND
                                           DIRECTOR

DATED:        March  25 , 1998             By    Richard C. Williams*
                                           --------------------------
                                            Richard C. Williams, President,
                                            Chief Executive Officer and Director


                                           CHIEF FINANCIAL OFFICER

DATED:        March  25 , 1998             By /s/ Michael J. Nysingh
                                           -------------------------
                                             Michael J. Nysingh
                                             Chief Financial Officer

                                           DIRECTORS:


DATED:        March  27 , 1998              By  /s/ Dan Giustina
                                            ---------------------------
                                              Dan Giustina, Director

DATED:        March     , 1998              By
                    ----                    ---------------------------
                                              Cordy H. Jensen, Director

DATED:        March  25  , 1998             By /s/ Robert L. Newburn
                                            -----------------------------
                                              Robert L. Newburn, Director

DATED:        March  26 , 1998              By /s/ Brian B. Obie
                                            ------------------------------
                                              Brian B. Obie, Director

DATED:        March  25, 1998               By /s/ Ted Winnowski
                                            ------------------------------
                                               Ted Winnowski, Director


DATED:        March  25, 1998              *By /s/ Ted Winnowski
                                            -------------------------------
                                              Ted Winnowski, Attorney-in-fact
                                              for Richard C. Williams


<PAGE>


                                  EXHIBIT INDEX
                                  -------------


Exhibit*
--------

10.18       First Amendment to Employment Agreement dated December 1, 1997
            between Richard C. Williams and the registrant

11.1        Earnings per Share Computation

13.1        Portions of 1997 Annual Report to Shareholders, which are
            incorporated by reference in this Form 10-K

23.1        Consent of Coopers & Lybrand L.L.P., Independent Accountants

24.1        Power of Attorney dated March 4, 1998 appointing Thaddeus (Ted) R.
            Winnowski and Michael J. Nysingh, individually, attorneys-in-fact
            for Richard C. Williams

27.1        Financial Data Schedule

27.2        Restated Financial Data Schedule for September 30, 1997

27.3        Restated Financial Data Schedule for June 30, 1997

27.4        Restated Financial Data Schedule for March 31, 1997

27.5        Restated Financial Data Schedule for December 31, 1996

27.6        Restated Financial Data Schedule for September 30, 1996

27.7        Restated Financial Data Schedule for June 30, 1996

27.8        Restated Financial Data Schedule for March 31, 1996

27.9        Restated Financial Data Schedule for December 31, 1995
------------------------------------

* See Item 14(a)(3) of this Annual Report for a list of all exhibits, including
those incorporated by reference.