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, 1998  
                                                         or
[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934
                   For the transition period from  ________ to __________

                         Commission file Number: 0-10489

                               CENTENNIAL BANCORP
                (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 Section12(g) of the Exchange Act:

                         Common Stock, without 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.
$196,499,637 aggregate market value as of March 9, 1999, 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: 16,937,600 shares of Common
Stock on March 9, 1999.

                       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, 1998. Part III is
incorporated by reference from the issuer's definitive proxy statement for the
annual meeting of shareholders to be held on May 19, 1999.

<PAGE>
<TABLE>
<CAPTION>

                                                          CENTENNIAL BANCORP
                                                               FORM 10-K
                                                             ANNUAL REPORT
                                                           TABLE OF CONTENTS

PART I                                                                                                     PAGE  
------                                                                                                     ----  
<S>               <C>                                                                                     <C>    
                  (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 PROPERTIES                                                                 38
                  -------------------------
Item 3.           LEGAL PROCEEDINGS                                                                         40
                  -----------------
Item 4.           SUBMISSION OF MATTERS TO A VOTE OF 
                  ----------------------------------
                      SECURITY HOLDERS                                                                      40
                      ----------------

PART II

                  (Items 5 through 9 are incorporated by reference from
                  Centennial Bancorp's Annual Report to Shareholders)

Item 5.           MARKET FOR THE REGISTRANT'S COMMON STOCK
                  ----------------------------------------
                       AND RELATED SHAREHOLDER MATTERS                                                      41
                       -------------------------------                                                        
Item 6.           SELECTED FINANCIAL DATA                                                                   41
                  -----------------------
Item 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  ---------------------------------------
                       FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                        41
                       ---------------------------------------------
Item 7A.          QUANTITATIVE AND QUALITATIVE
                  ----------------------------
                       DISCLOSURES ABOUT MARKET RISK                                                        41
                       -----------------------------                                                          
Item 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                               41
                  -------------------------------------------                                                 
Item 9.           CHANGES IN AND DISAGREEMENTS WITH
                  ---------------------------------
                       ACCOUNTANTS ON ACCOUNTING AND 
                       ----------------------------- 
                       FINANCIAL DISCLOSURE                                                                 41
                       --------------------                                                                   

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 19, 1999)

Item 10.          DIRECTORS AND EXECUTIVE OFFICERS OF BANCORP                                               42
                  -------------------------------------------
Item 11.          EXECUTIVE COMPENSATION                                                                    42
                  ----------------------
Item 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  ----------------------------------------
                       OWNERS AND MANAGEMENT                                                                42
                       ---------------------                                                                  
Item 13.          CERTAIN RELATIONSHIPS AND RELATED
                  ---------------------------------
                       TRANSACTIONS                                                                         42
                       ------------                                                                           


                                                             2
<PAGE>

PART IV

Item 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
                  ----------------------------------------
                  AND REPORTS ON FORM 8-K                                                                   43
                  -----------------------                                                                     

SIGNATURES                                                                                                  47
----------
</TABLE>

                                                            3         


<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: (1) POTENTIAL DELAYS OR OTHER PROBLEMS IN
IMPLEMENTING BANCORP'S GROWTH AND EXPANSION STRATEGY; (2) THE ABILITY TO ATTRACT
NEW DEPOSITS AND LOANS; (3) INTEREST RATE FLUCTUATIONS; (4) COMPETITIVE FACTORS
AND PRICING PRESSURES; (5) GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR
REGIONALLY; (6) CHANGES IN LEGAL AND REGULATORY REQUIREMENTS; (7) CHANGES IN
TECHNOLOGY; AND (8) YEAR 2000 PROBLEMS, AS WELL AS OTHER FACTORS DESCRIBED IN
THIS AND OTHER BANCORP REPORTS AND STATEMENTS, INCLUDING, BUT NOT LIMITED TO,
EXHIBIT 99.1, FILED AS PART OF THIS ANNUAL REPORT. SHOULD ONE OR MORE OF THE
FOREGOING RISKS MATERIALIZE, OR SHOULD BANCORP'S UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS OR OUTCOMES MAY VARY MATERIALLY FROM THOSE DESCRIBED
IN THE FORWARD-LOOKING STATEMENTS. 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.

         Centennial Bancorp ("Bancorp")  has  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.


                                       4
<PAGE>

("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 100% common stock split declared in January 1998, a 5%
common stock split declared in July 1998, a 10% common stock split declared in
January 1999, and for various stock splits and stock dividends declared in prior
years.


         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, 1998, based on total assets, Centennial Bank was the
10th largest bank of the 53 commercial banks maintaining offices in Oregon. At
that date, Centennial Bank had 14 branches: three in Eugene; one in adjacent
Springfield; two full-service and five limited-service branches in Portland,
Oregon; one each in Tigard and Beaverton, suburbs of Portland; and a branch in
Cottage Grove. Eugene and Springfield are at the southern end of the Willamette
Valley on Interstate 5, with Cottage Grove located approximately 20 miles
further south. Centennial Bank opened the Tigard office in 1994, acquired the
Cottage Grove office in 1994, and opened the Lloyd District office in Portland
in January 1997. The Tanasbourne Office in Beaverton opened in December 1997 in
temporary facilities and in September 1998 moved to its permanent location. The
Airport Road Office in Portland opened in August 1998.

         In January 1999, Centennial Bank opened its fourth full- service branch
in the Eugene area, the Oakway Center Office.

         In July 1997, Centennial Bank opened four limited-service branches in
the Portland metropolitan area. These limited-service branches were formerly
operated by Wells Fargo in retirement centers. Another limited-service
retirement center branch, formerly operated by Key Bank, opened in January 1998.
Centennial Bank offers a full array of deposit services and safety deposit boxes
during reduced hours to residents of the retirement centers.

                                       5
<PAGE>

         As a result of an agreement announced in August 1998, by year end
Centennial Bank also had placed 18 automated teller machines (ATMs) in Bi-Mart
stores located in Oregon and Washington. The ATMs give Centennial customers
increased access to automated banking in the Bank's growing market area.

         In December 1998, Centennial Bank announced an agreement to purchase
Northwest National Bank's Hazel Dell branch located in Vancouver, Washington.
Centennial Bank has received regulatory approval for the transaction which is
expected to close in the Spring of 1999.

         Also in December 1998, Centennial Bank announced plans to open a new
full-service branch in Salem, Oregon and has leased a site in the downtown Salem
area.

          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 $419 million at
December 31, 1997 to $484 million at December 31, 1998. Net loans and loans held
for sale increased from $337 million at December 31, 1997 to $428 million at
December 31, 1998.

         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 $213.2 million, $111.6 million and $67.2 million of mortgages in
1998, 1997 and 1996, 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


                                       6
<PAGE>

Mortgage Association and Federal Home Loan Mortgage Corporation approval to
service federally insured mortgage loans and began retaining servicing rights
for mortgage loans originated by Centennial Mortgage. During the third quarter
of 1997, management questioned the feasibility of in-house servicing of mortgage
loans and subsequently decided to contract with a third-party to perform the
servicing function for the loans in the servicing portfolio. Centennial Mortage
then again began selling mortgage loans with servicing rights released. Under
certain circumstances, Centennial Mortgage may be obligated to repurchase loans
sold in the secondary market.

         Centennial Mortgage has two offices in Eugene, Oregon, and three
offices in the Portland, Oregon area. Its first Portland area office opened in
Lake Oswego in 1993. That office relocated to the Centennial Bank building in
Tigard, Oregon in 1995 but returned to Lake Oswego in April 1998 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 southeast
Portland in a leased facility. The Tanasbourne office opened in November 1998
and shares space with Centennial Bank in a new facility at the Tanasbourne Town
Center in Beaverton, Oregon. The second Eugene office opened in January 1999 and
shares leased space with the Oakway Center Office of Centennial Bank.

         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.

         HARDING FLETCHER

         In 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 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.

                                       7
<PAGE>


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, 1998:

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

Investment securities                                                14
Loans and allowance for loan losses                                  15
Deposits                                                             16

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 1998, 1997 and 1996, Bancorp's
average interest-earning assets were $483 million, $399 million and $323
million, respectively. During these same years, Bancorp's net interest margin
was 7.22%, 6.92% and 6.70%, respectively.

         AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID

         The following table sets forth for 1998, 1997 and 1996 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.

                                       8
<PAGE>
<TABLE>
<CAPTION>

 Year ended December 31,                        1998                              1997                            1996   
                                ---------------------------------    -------------------------------  ------------------------------
                                             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                          264   $      14      5.30%      $  6,924    $    376     5.43%    $ 10,872       579     5.33%
Investment securities --
 taxable                          48,554       3,096      6.38         41,933       2,791     6.66       48,088     3,220     6.70
Investment securities --
 tax-exempt (2)                   33,508       2,574      7.68         39,097       3,083     7.89       34,877     2,786     7.99
Federal funds sold                13,253         691      5.21         10,925         573     5.24        2,265       122     5.39
Loans and loans held for
 sale (3)                        387,914      44,348     11.43        299,976      34,329    11.44      226,965    26,299    11.59
                                 -------     -------                ---------     -------             ---------   -------
  Total interest-earning
  assets/interest income         483,493      50,723     10.49        398,855      41,152    10.32      323,067    33,006    10.22
Allowance for loan losses         (3,882)                              (3,123)                           (2,237)
Cash and due from banks           28,351                               27,552                            20,274
Premises and equipment, net       11,407                                9,790                             9,339
Other assets                       5,848                                6,112                             7,201
                                --------                             --------                          --------
  Total assets                  $525,217                             $439,186                          $357,644
                                ========                             ========                          ========
LIABILITIES AND SHAREHOLDERS'
 EQUITY:
Savings and interest-bearing
 demand                          211,896       6,889      3.25       $166,800       5,156  3.09        $128,611     4,440     3.45
Time deposits                    145,387       8,185      5.63        129,756       7,299  5.63         100,549     5,208     5.18
Short-term borrowings             10,016         489      4.88          9,688         539  5.56          11,399       833     7.31
Long-term debt                     5,945         273      4.59         10,000         572  5.72          16,443       887     5.39
                                --------    --------                 --------     -------              --------    ------
  Total interest-bearing
     liabilities/
     interest expense            373,244      15,836      4.24        316,244      13,566  4.29         257,002    11,368     4.42
Demand deposits                   90,166                               75,005                            66,525
Other liabilities                  5,095                                2,001                             2,617
                                                                     --------                           --------
  Total liabilities              468,505                              393,250                           326,144
Shareholders' equity              56,712                               45,936                            31,500             
                                --------                             --------    --------              --------  --------
  Total liabilities and
  shareholders' equity          $525,217                             $439,186                          $357,644
                                ========                             ========                          ========
Net interest income                          $34,887                              $27,586                         $21,638
                                             =======                              =======                         =======

Net interest spread (2)                                   6.25%                               6.03%                           5.80%
                                                          =====                               =====                           =====
Net interest margin (2)                                   7.22%                               6.92%                           6.70%
Net interest income to
   average shareholders'
   equity                          61.52%                                           60.05%                          68.69%
Average interest-earning
  assets to average 
  interest-bearing liabilities       130%                                 126%                              126%

-----------------------------
(1) Average balances are based on daily averages and include nonaccrual loans.
(2) Interest income and average yield on tax-exempt securities, net interest spread and net interest margin
    have been computed on a 34% tax-equivalent basis.
(3) Nonaccrual loans ($2,151,200, $1,032,600, and $994,600 in 1998, 1997 and 1996, respectively) have been
    included in the computation of average loans and loans held for sale. Loan fees recognized, included in
    interest income, totaled $6,855,866, $4,769,700 and $3,745,900 in 1998, 1997 and 1996, respectively.
</TABLE>


                                                       9
<PAGE>
<TABLE>
<CAPTION>

                                    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.

                                                          1998 vs. 1997                              1997 vs. 1996
                                                            Change in                                   Change in
                                                     net interest income due to                 net interest income due to  
                                                   -------------------------------           --------------------------------  
<S>                                              <C>           <C>         <C>             <C>           <C>         <C>
                                                   Volume        Rate       Total            Volume       Rate        Total 
                                                   ------        ----       -----            ------       ----        ----- 
                                                                               (In thousands)
Interest income:
         Balances due from banks                  $ (357)      $   (5)    $ (362)          $ (212)   $      9       $ (203)
         Investment securities -- taxable            431         (126)       305             (411)        (18)        (429)
         Investment securities -- tax-exempt        (435)         (74)      (509)             335         (38)         297
         Federal funds sold                          122           (4)       118              460          (9)         451
         Loans                                    10,059          (40)    10,019            8,408        (378)       8,030
                                                  ------        -----     ------           ------       ------       ------
              Total interest income                9,820         (249)     9,571            8,580        (434)       8,146
                                                  ------        -----     -------          ------       ------       ------

Interest expense:
         Deposits:
              Savings and interest-bearing
                demand                             1,430          303      1,733            1,249        (533)         716
              Time880                                  5          885      1,578              513       2,091
         Short-term borrowings                        17          (67)       (50)            (110)       (184)        (294)
         Long-term debt                             (209)         (90)      (299)            (358)         43         (315)
                                                   ------       ------     ------           ------     ------       ------
              Total interest expense               2,118          151      2,269            2,359        (161)       2,198
                                                   ------       ------     ------           ------      -----
Net interest income                               $7,702       $ (400)    $7,302           $6,221      $ (273)      $5,948
                                                  =======       ======    ======           ======      =======      ======

</TABLE>
                                                                    10
<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
185,000. The area's economy depends primarily upon U.S., state and local
governments, educational institutions, forest products, general manufacturing
(especially small manufacturing and high-technology industries), health care and
tourism. The U.S. government is the area's largest employer, closely followed by
PeaceHealth Corporation and the University of Oregon.

         With four full-service and five limited-service offices opened since
1994, the Portland metropolitan area is an increasingly important secondary
market for Centennial Bank. The Portland metropolitan area has a diverse economy
and a population of approximately 1.25 million. The Portland area continues to
provide Centennial Bank with excellent growth opportunity and also allows
dilution of loan portfolio risk due to the economic diversity of 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. Its economy 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 up to $50 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

                                       11
<PAGE>

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.

         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,                                 
                                  --------------------------------------------------------------------------------
                                     1998             1997              1996             1995              1994   
                                  ----------       ----------         ---------       ----------        ----------
<S>                                <C>            <C>                <C>              <C>              <C>    
                                                              (Dollars in thousands)

Commercial and other                $167,092        $149,047          $119,450         $ 78,564          $ 66,845
Real estate -- construction          151,164          89,120            66,244           44,003            29,337
Real estate -- mortgage              105,731          93,216            73,665           59,204            56,792
Installment                            7,073           6,603             6,425            5,929             6,951
Lease financing                        1,897           3,649             3,775            4,001             2,686
                                   ---------       ---------         ---------        ---------          --------
     Total loans and
     loans held for sale             432,957         341,635           269,559          191,701           162,611
Less deferred loan fees                (943)          (1,010)             (929)            (611)             (600)
Less allowance for loan
     losses                          (4,451)          (3,349)           (2,600)          (1,928)           (1,700)  
                                     -------       ---------         ---------        ---------          ---------
Loans receivable, net               $427,563        $337,276          $266,030         $189,162          $160,311
                                    ========        ========          ========         ========          ========

         The following table presents the aggregate maturities of loans in each major category of Bancorp's loan
portfolio at December 31, 1998. Actual maturities may differ from the contractual maturities shown below as a result of
renewals and prepayments.

                                                                                       Total
                                   Due within     Due after one but     Due after     loans by
        Loan category                one year     within five years     five years    category
        -------------                --------     -----------------     ----------   ----------
                                                                                   (Dollars in
                                                                                    thousands)

 Commercial                          $122,586              $29,985        $11,384     $163,955
 Real estate -- construction          142,761                6,047          2,356      151,164
 Real estate --mortgage                41,122               14,496         39,074       94,692
 Installment                            5,623                1,411             39        7,073
 Loans held for sale                       --                   --         11,039       11,039
 Lease financing                          388                1,509             --        1,897
 Other                                    427                2,710             --        3,137
 Less deferred loan fees                (682)                (122)          (139)        (943)
                                        -----                -----          -----     --------
 Total loans by maturity             $312,225              $56,036        $63,753     $432,014
                                     ========              =======        =======     ========
</TABLE>

                                                               12
<PAGE>

         Of Bancorp's $119.8 million of loans that mature after one year, a
total of $112.1 million (93.6%) are fixed-rate loans, and a total of $7.7
million (6.4%) are variable-rate loans.

         At December 31, 1998, $138 million of Bancorp's loans (approximately
32% of its loan portfolio) had fixed interest rates and $294 million
(approximately 68%) had variable interest rates.

         COMMERCIAL LOANS

         Commercial loans that are not secured 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, 1998, 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, 1998 were $163.9 million, compared to $147.1
million at December 31, 1997 and $116.8 million at December 31, 1996. Management
believes the increases in 1998 and 1997 were primarily the result of Centennial
Bank's business development program, the favorable Oregon economy and the
expansion of business through additional branch offices. Non-accrual loans in
this category totaled $776,000 at December 31, 1998 ($858,000 at December 31,
1997); there were no restructured loans at December 31, 1998 or 1997.

         REAL ESTATE CONSTRUCTION LOANS

         Construction loans represent Bancorp's second largest category of
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.

                                       13
<PAGE>

         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, 1998, real estate construction loans had increased to
$151.2 million from $89.1 million at December 31, 1997 and $66.2 million at
December 31, 1996. The increases were primarily attributable to strong growth in
commercial real estate construction lending resulting from an expansion of
Centennial Mortgage's business strategy. The December 31, 1998 non-accrual total
for this category was $2.3 million and was concentrated in loans to one
borrower. The borrower filed bankruptcy, and Centennial Bank has initiated legal
action to liquidate those loans. Management is regularly monitoring the related
collateral values which are currently considered adequate to support outstanding
balances. There were no restructured loans at December 31, 1998 in this
category. At December 31, 1997, there were no non-accrual or restructured loans
in this category.

         REAL ESTATE MORTGAGE LOANS

         Real estate mortgage loans represent Bancorp's third largest category
of loans. Of the $94.7 million of real estate mortgage loans outstanding at
December 31, 1998, $73.2 million consisted of income property loans and
commercial loans secured by real estate, primarily the borrowers' business
property. Income property loans and commercial loans secured by real estate
typically involve large balances to single borrowers or groups of related
borrowers. These borrowers may be more sensitive to changes in economic
conditions than residential mortgage loan customers. Real estate mortgage loans

                                       14
<PAGE>

outstanding increased to $94.7 million at December 31, 1998 from $87.6 million
at December 31, 1997 and $70.1 million at December 31, 1996. These increases
were primarily the result of favorable mortgage interest rates, the demand for
housing in the market areas served by Bancorp, the expansion of Centennial
Mortgage business through additional branch offices, as well as the factors
contributing to commercial loan growth cited above. At December 31, 1998,
non-accrual loans in this category totaled $726,000 ($10,000 at December 31,
1997). At December 31, 1998 and 1997, there were no restructured loans in this
category.

         At December 31, 1998, $52 million (or approximately 54.9%) of Bancorp's
real estate mortgage loans had fixed interest rates and $42.7 million (or
approximately 45.1%) 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 secured 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 90% of appraised value or cost, whichever is lower. Up to 75% 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
secondary-market investors. At December 31, 1998, the amount of the
non-guaranteed portion of these loans retained by Bancorp was not material.

         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
secured or unsecured. Collections depend principally on the borrower's financial
condition or cash flow.

         Installment loans were $7.1 million at December 31, 1998 compared to
$6.6 million at December 31, 1997 and $6.4 million at December 31, 1996. These
modest levels of installment loans to individuals were primarily due to
Bancorp's focus on lending to businesses and professionals and significant

                                       15
<PAGE>

competition for consumer loans from the many credit unions, banks and finance
companies in the market areas served by Bancorp. At December 31, 1998, there
were no non-accrual loans in this category ($5,000 at December 31, 1997). At
December 31, 1998 and 1997, 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 8 to Bancorp's Consolidated Financial Statements,
which are incorporated by reference from Bancorp's 1998 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,
accounts receivable, inventory, equipment, 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 non-officer directors of Centennial Bank,
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, 1998, Centennial Bank's
permissible loan limit was $5.25 million (or $8.75 million if the loan was
secured by a first lien on real estate).

         Loan pricing decisions are based on an evaluation of risk, cost of
funds, operating and administrative costs, an allowance 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.

                                       16
<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.

NON-PERFORMING ASSETS

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

                                                                               December 31,                       
                                                           --------------------------------------------------------
                                                            1998       1997         1996         1995        1994 
                                                           -----      ------       ------       ------      ------
<S>                                                      <C>         <C>         <C>          <C>         <C>
                                                                             (Dollars in thousands)
Non-performing loans:
  Loans past due 90 days or more                           $1,043     $  402      $  420       $  645      $  190
  Non-accrual loans                                         3,841        873        1,480         478         693
  Restructured loans                                          --          --          --           --          --
                                                           ------     ------      ------       ------      ------
     Total non-performing loans                             4,884      1,275       1,900        1,123         883
  Other real estate owned                                     105         --          --           --         392
                                                           ------     ------      ------       ------      ------
     Total non-performing assets                           $4,989     $1,275      $1,900       $1,123      $1,275
                                                           ======     ======      ======       ======      ======

Allowance for loans losses                                 $4,451     $3,349      $2,600       $1,928      $1,700
Ratio of total non-performing assets
  to total assets                                             .87%       .26%        .47%         .35%        .49%
Ratio of total non-performing loans
  to total loans                                             1.13%       .38%        .71%         .59%        .54%
Ratio of allowance for loan losses
  to total non-performing loans                               91%        263%        137%         172%        193%
----------
</TABLE>

         Bancorp's total non-performing assets increased by $3.7 million during
1998 and decreased by $625,000 during 1997. Total non-performing assets, as a
percentage of total assets, increased to .87% at December 31, 1998 from .26% at
December 31, 1997 and .47% at December 31, 1996. Non-performing loans, as a
percentage of total loans, increased to 1.13% at December 31, 1998 from .38% at
December 31, 1997 and .71% at December 31, 1996.

         The accrual of interest on a loan is discontinued when, in management's
judgment, the future collection of principal or interest is in doubt. Loans
placed on non-accrual status may or may not be contractually past due at the
time of such determination, and may or may not be secured. When a loan is placed

                                       17
<PAGE>

on non-accrual 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 collection of principal is doubtful. If interest on
non-accrual loans had been accrued, such income would have been $272,600 in
1998, $102,600 in 1997 and $117,500 in 1996. Total interest income of $141,600
was recognized on non-accrual loans during 1998; no such income was recognized
in 1997 and 1996.

         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, 1998, 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
net realizable value or the principal balance of the related loan. Any excess of
the loan balance over fair value of the property is charged to the allowance for
loan losses. At December 31, 1998, OREO totaled $105,400 and consisted of one
property. At December 31, 1997 and 1996, Bancorp held no OREO.

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

         The allowance for loan losses represents management's estimate of the
losses inherent in the loan portfolio. The allowance 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 non-performing 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
allowance for loan losses quarterly. Although determination of the adequacy of
the allowance 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 allowance.
Under the first method, management assigns a specific percentage to each
non-performing, substandard or doubtful loan in Bancorp's loan portfolio to
calculate a total amount of average anticipated loan losses.

                                       18
<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 non-accrual
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 allowance for loan losses in evaluating the adequacy of the
allowance.

         Management believes that Bancorp's allowance 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 allowance for loan losses or that
regulators will not require Bancorp to increase the allowance, 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
allowance.

                                       19

<PAGE>
<TABLE>
<CAPTION>

         The following table sets forth information regarding changes in Bancorp's allowance for loan losses
for each of the last five years:

                                                             At or for the year ended December 31, 
                                             ---------------------------------------------------------------------
                                               1998           1997            1996           1995           1994  
                                             --------       --------        --------       --------       --------
<S>                                          <C>            <C>            <C>           <C>             <C>    
                                                                   (Dollars in thousands)
Loans and loans held for sale
  at year-end                                 $432,015      $340,625       $268,630       $191,090        $162,011
                                              ========      ========       ========       ========        ========
Average loans and
  loans held for sale                         $387,914      $299,976       $226,965       $176,384        $139,672
                                              ========      ========       ========       ========        ========
Allowance for loan losses,
  beginning of year                          $   3,349      $  2,600       $  1,928        $ 1,700         $ 1,514
Charge-offs:
  Commercial and other                            (370)         (556)           (89)          (128)           (108)
  Real estate -- construction                       --            --             --             --              --
  Real estate -- mortgage                           --            --             --             --             (17)
  Installment                                      (82)           (2)           (20)           (34)            (22)
                                              --------       --------       --------        -------        -------
     Total charge-offs                            (452)         (558)          (109)          (162)           (147)
                                              --------       --------       --------        -------        -------
Recoveries:
  Commercial and other                              43            55             24             10               8
  Real estate -- construction                       --            --              --             3              --
  Real estate -- mortgage                           --            --             20              7              --
  Installment                                       11             2              2             20              10
                                             ---------     ---------       --------        -------         -------
     Total recoveries                               54            57             46             40              18
                                             ---------     ---------       --------        -------         -------
Net loans charged off                             (398)         (501)           (63)          (122)           (129)
Provision for loan losses                        1,500         1,250            735            350             315
                                             ---------      --------       --------        -------         -------
Allowance for loan losses
  at year-end                                 $  4,451      $  3,349       $  2,600        $ 1,928         $ 1,700
                                              ========      ========       ========        =======         =======


Ratio of net loans charged off to average
  loans outstanding                              (.10)%       (.17)%          (.03)%         (.07)%          (.09)%
Ratio of allowance for loan losses
  to loans at year-end                            1.04%        .98%            .97%           1.01%           1.05%
</TABLE>

         Anticipated loan losses are charged against the allowance 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 allowance for loan
losses, it does not normally allocate the allowance to specific groups or
categories of loans. Management estimates, however, that the allocation of the

                                       20
<PAGE>

allowance 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
                                                                               allowance            category as a
                                                                                  for               percentage of
                                                                                 loan                 total gross
                                                                                losses                  loans    
                                                                              ----------            ------------- 
<S>                                                                           <C>                        <C>    
                                                                                     (Dollars in thousands)
December 31, 1998
Commercial and other                                                           $2,701                     39.1%
Real estate -- construction                                                     1,350                     34.9
Real estate -- mortgage                                                           275                     24.4
Installment                                                                        75                      1.6
Unallocated                                                                        50                       --
                                                                               ------                    ------
 Total                                                                         $4,451                    100.0%
                                                                               ======                    ======

    December 31, 1997   
Commercial and other                                                           $1,999                     45.2%
Real estate -- construction                                                     1,000                     26.6
Real estate -- mortgage                                                           250                     26.2
Installment                                                                        50                      2.0
Unallocated                                                                        50                       --
                                                                              -------                   ------
 Total                                                                         $3,349                    100.0%
                                                                               ======                   ======

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

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

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

                                                                21
<PAGE>

     The following table details the carrying value of Bancorp's impaired loans,
 in accordance with SFAS 114, by type of loan at December 31, 1998 and 1997:
<TABLE>
<CAPTION>

                                                                                                           Net
                                                                   Recorded         Valuation            Carrying
                                                                   Amount           Allowance             Value  
                                                                   ------           ---------             -----  
<S>                                                            <C>                 <C>                <C>   
   December 31, 1998   
   -----------------   
Commercial                                                       $1,853,500          $187,100          $1,666,400
Real Estate -- construction                                       2,791,000           290,000           2,501,000
Real Estate -- mortgage                                             762,600            87,900             674,700
Consumer    23,200                                                      200            23,000
         ---------                                                  -------         ---------          ----------
     Total                                                       $5,430,300          $565,200          $4,865,100
                                                                 ==========          ========          ==========

   December 31, 1997   
   -----------------   
Commercial                                                       $  718,000          $150,000            $568,000
                                                                 ==========          ========            ========

         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.
</TABLE>

                                                              22
<PAGE>

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, 1998 and 1997, 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, 1998 and 1997. 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 to
Bancorp's Consolidated Financial Statements for more information about
investment securities held at December 31, 1998, 1997 and 1996.

                                                         December 31,        
                                         -------------------------------------
                                           1998             1997        1996  
                                         -------          -------     --------
                                                      (In thousands)
U.S. Treasury securities                $  1,435          $ 1,417      $ 1,405
U.S. Government agencies                  39,263           34,415       32,594
States and political subdivisions         29,578           39,434       39,135
Corporate bonds                            2,311            2,301        2,249
Mortgage-backed securities                 4,206            6,337        7,271  
                                         -------          -------      --------
  Total debt securities                   76,793           83,904       82,654
Federal Home Loan Bank stock               5,084            4,711        4,366  
                                         -------          -------      --------
     Total investment securities         $81,877          $88,615      $87,020
                                         =======          =======      ========

                                       23
<PAGE>


         The following table provides the carrying values, principal amounts,
maturities and weighted average yields of Bancorp's investment securities at
December 31, 1998, all of which are classified as available-for-sale:

<TABLE>
<CAPTION>
                                                                                            Weighted
                                                          Carrying value     Principal      average
                  Type and maturity                    (fair market value)     amount       yield(1)
                  -----------------                    -------------------     ------       --------
<S>                                                         <C>              <C>            <C> 
                                                                     (Dollars in thousands)
U.S. Treasuries
  Due within 1 year                                                --              --
  Due after 1 but within 5 years                              $ 1,435         $ 1,399         6.17%
  Due after 5 but within 10 years                                  --              --
                                                              -------          -------       ------
    Total U.S. Treasuries                                       1,435           1,399         6.17


U.S. Government agencies
  Due after 1 but within 5 years                               21,501          21,495         5.98
  Due after 5 but within 10 years                              17,762          17,985         6.12
                                                               ------          ------
    Total U.S. Government agencies                             39,263          39,480         6.04

States and political subdivisions
  Due after 1 but within 5 years                                7,013           6,774         7.65
  Due after 5 but within 10 years                               7,098           6,810         7.88
  Due after 10 years                                           15,467          14,988         7.69
                                                               ------          ------
    Total states and political subdivisions                    29,578          28,572         7.72

Corporate bonds
  Due after 1 but within 5 years                                2,050           2,046         6.20
  Due after 5 but within 10 years                                 261             259         6.08
                                                               ------           -----        -----
    Total corporate bonds                                       2,311           2,305         6.18

Mortgage-backed securities                                      4,206           4,217         5.65
                                                                -----           -----
 (U.S. Government agencies)

        Total debt securities                                  76,794          75,973         6.66

Federal Home Loan Bank Stock                                    5,084           5,084
                                                                -----           -----

             Total securities                                 $81,877         $81,057
                                                              =======         =======
------------

(1)  Weighted average yield on state and political subdivisions has been computed on a 34% tax-equivalent basis.
</TABLE>

                                                      24
<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
interest checking 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, 1998, 1997 and 1996:
<TABLE>
<CAPTION>

                                                            1998                  1997                 1996         
                                                      ------------------------------------------------------------
                                                           Average               Average             Average       
                                                           -------               -------             -------       
                                                      Balance      Rate        Balance   Rate     Balance    Rate 
                                                      -------      ----        -------   ----     -------    ---- 
<S>                                                  <C>          <C>        <C>        <C>     <C>         <C>
                                                                          (Dollars in thousands)
Noninterest-bearing demand                            $  90,166      N/A      $ 75,005   N/A     $ 66,525    N/A
Interest-bearing demand                                 192,356     3.30%      152,453   3.16%    114,445    3.61%
Savings                                                  19,540     2.79        14,347   2.36      14,166    2.15
CDs                                                     145,387     5.63       129,756   5.63     100,549    5.18
                                                        -------               --------           --------
         Total                                         $447,449     3.37      $371,561   3.35    $295,685    3.26
                                                       ========               ========           ========

</TABLE>

                                                                25


<PAGE>

         The following table shows the dollar amount of CDs that had balances of
$100,000 or more at December 31, 1998 and 1997:
<TABLE>
<CAPTION>

                                                                          December 31,
                                                                  ----------- ------ ----------
                                                                     1998              1997
                                                                  -----------        ----------
     <S>                                                           <C>                <C>    
                                                                            (In thousands)
     CDs $100,000 or over with remaining maturity:
        Three months or less                                         $15,985           $20,937
        Over three months through twelve months                       39,437            28,145
        Over one year through three years                              5,161             4,686
        Over three years                                                                   118
                                                                     -------           -------
                                                                         125
           Total                                                     $60,708           $53,886
                                                                     =======           =======

</TABLE>

SHORT-TERM BORROWINGS

         At December 31, 1998, Bancorp's short-term borrowings consisted of
securities sold under agreements to repurchase totaling $16.1 million and
federal funds purchased totaling $4.5 million. Securities sold under agreement
to repurchase are due on demand, but generally range in duration from one to
eighty-nine days.

         At December 31, 1997, Bancorp's short-term borrowings consisted of
securities sold under agreements to repurchase totaling $7.7 million.

         At December 31, 1996, Bancorp's short-term borrowings consisted of
securities sold under agreements to repurchase totaling $4.3 million and
advances from the Federal Home Loan Bank of Seattle totaling $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 1998, 1997 and 1996:
<TABLE>
<CAPTION>

                                                                                         December  31,                  
                                                                        ------------------------------------------
                                                                          1998            1997              1996  
                                                                        -------         --------          --------
<S>                                                                   <C>              <C>               <C>  
                                                                                  (Dollars in thousands)

Amount outstanding at year-end                                          $20,600        $  7,716           $12,316
Weighted average interest rate at year-end                                 4.55%           5.03%             5.78%
Maximum amount outstanding at any month-end during the year             $20,500         $18,321           $15,264
Daily average amount outstanding during the year                        $10,016        $  9,688           $11,399
Average weighted interest rate during the year                             4.88%           5.56%             7.31%
</TABLE>

                                                                 26
<PAGE>

LONG-TERM DEBT
         At December 31, 1998, Bancorp had no 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 was payable monthly at the rate of 6.14%.
The debt matured and was paid August 6, 1998. The loan was secured 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 1998, 1997 and 1996:
<TABLE>
<CAPTION>

                                                                         1998            1997              1996  
                                                                       -------         --------          --------
        <S>                                                         <C>              <C>               <C>   

                                                                              (Dollars in  thousands)

         Net income                                                   $  11,435       $   9,303         $   6,514
         Average total assets                                           525,217         439,186           357,644
         Return on average assets                                          2.18%           2.12%             1.82%

         Net income                                                   $  11,435       $   9,303          $  6,514
         Average equity                                                  56,712          45,936            31,500
         Return on average equity                                         20.16%          20.25%            20.68%

         Average total equity                                          $ 56,712        $ 45,936          $ 31,500
         Average total assets                                           525,217         439,186           357,644
         Average total equity to assets ratio                             10.80%          10.46%             8.81%

</TABLE>

                                                               27
<PAGE>


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. 130

         Beginning in the year ended December 31, 1998, Bancorp retroactively
adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income" (SFAS
130). SFAS 130 established standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. Accordingly, any unrealized gains or
losses on available-for-sale securities are recognized as a component of
comprehensive income.

SFAS NO. 131

         Beginning in the year ended December 31, 1998, Bancorp retroactively
adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 131, in general, requires that a public business
enterprise report financial and descriptive information about its material
reportable operating segments and also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by key management
personnel in deciding how to allocate resources and in assessing performance.

         Management believes that, based on the materiality standards of SFAS
131, Bancorp primarily operates in one business segment. In addition, the
related disclosures of SFAS 131 are included within Bancorp's Consolidated
Financial Statements and Notes as applicable.

SFAS NO. 132

         Beginning in the year ended December 31, 1998, Bancorp retroactively
adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits - an amendment of SFAS Nos. 87, 88 and 106" (SFAS 132).
SFAS 132 revises and standardizes employers' disclosures about pension and other
postretirement benefit plans. SFAS 132 did not materially affect the disclosures
in Bancorp's Consolidated Financial Statements and Notes.

                                       28
<PAGE>

SFAS NO. 133

         In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS 133), was issued. SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. At December 31,
1998, Bancorp had no derivative instruments or hedging activities.

SFAS NO. 134

         In October 1998, SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained After the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise" (SFAS 134), was issued. SFAS 134 is effective for
the first fiscal quarter beginning after December 15, 1998. At December 31,
1998, Bancorp had not entered into any transaction to which SFAS 134 would
apply.

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
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.

                                       29
<PAGE>

EMPLOYEES

         Centennial Bancorp has no employees other than its executive officers,
who are also employees of Centennial Bank. At December 31, 1998, Centennial Bank
and Centennial Mortgage had 188 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.

         ACQUISITIONS

         As a bank holding company, Bancorp is required to obtain the prior
approval of the FRB before: (1) acquiring direct or indirect ownership or
control of any voting shares of any bank or bank holding company, if after such
acquisition, Bancorp would own or control, directly or indirectly, more than 5%
of the voting shares of the bank or bank holding company; (2) merging or

                                       30
<PAGE>

consolidating with another bank holding company; or (3) acquiring substantially
all of the assets of any other bank. 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
non-banking activity, unless the activity has been determined by the FRB to be
closely related to banking or managing banks. The FRB has identified certain
non-banking 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 non-banking 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

                                       31
<PAGE>

company may be denied approval to acquire or establish additional banks or
non-bank businesses. The guidelines require a minimum ratio of total capital to
risk-weighted assets of 8%. At December 31, 1998, Bancorp's ratio of total
capital to risk-weighted assets was 12.02%.

         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, 1998 was 10.9%.

         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.

                                       32
<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 15 branches, the most recent of which opened in February 1999.
Centennial Bank has received regulatory approval to open a branch in Salem,
Oregon and to acquire Northwest National Bank's Hazel Dell branch, which will be
Centennial Bank's first branch in the state of Washington.

         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.

                                       33
<PAGE>

         TRANSACTIONS WITH AFFILIATES

         Centennial Bank is subject to certain FRB restrictions on transactions
among related parties. 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 limits the
amount of advances to third parties that may be collateralized by the securities
of Bancorp or its subsidiaries.

         The Federal Reserve Act also requires that certain transactions between
Centennial Bank and its affiliates to 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, 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." Under
Oregon law, Centennial Bank is subject to restrictions on the payment of cash
dividends to its shareholders (i.e., to Bancorp). An Oregon state-chartered bank
may not pay a cash dividend in an amount greater than the bank's net unreserved
retained earnings, after first deducting (1) to the extent not already charged
against earnings or reflected in a reserve, all bad debts, which are debts on

                                       34
<PAGE>

which interest is unpaid and past due at least six months; (2) all other assets
charged off as required by the Oregon Director or a state or federal examiner;
and (3) all accrued expenses, interest and taxes of the bank. At December 31,
1998, $21.1 million was available for declaration of dividends by Centennial
Bank to Bancorp without prior regulatory approval.

         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 a specific allowance
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, 1998, Centennial
Bank's leverage ratio, Tier 1 capital to risk-weighted assets ratio and total
risk-based capital to risk-weighted assets ratio were 9.8%, 10.1% and 10.9%,
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

                                       35
<PAGE>

time it became undercapitalized or the amount necessary to bring Centennial Bank
into compliance with the capital plan.

         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.

          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: (1) internal controls, information systems and internal audit systems;
(2) loan documentation; (3) credit underwriting; (4) interest rate exposure; (5)
asset growth; (6) ratio of classified assets to capital; (7) minimum earnings;
and (8) 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 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.

                                       36
<PAGE>

         DEPOSIT INSURANCE PREMIUMS

         The FDIC has adopted regulations establishing a risk-based deposit
insurance premium schedule. Effective January 1, 1996, Centennial Bank's risk
assessment classification was reduced to $.00, so Centennial Bank paid a minimum
annual payment of $2,000 during 1996. This risk assessment classification 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 to $50,000 and
$45,000 in 1998 and 1997, respectively.

CENTENNIAL MORTGAGE

         Centennial Mortgage is, by definition of the Housing and Urban
Development, a non-supervised 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

                                       37
<PAGE>

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.

         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.


ITEM 2.      DESCRIPTION OF PROPERTIES
             -------------------------

         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 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.

                                       38
<PAGE>

Centennial Bank is retaining for future use the remaining approximate 2,500
square feet of available space on the third floor.

         In 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 1998.
Construction of a three-story office building was completed in 1995 at a cost of
$2.9 million. Centennial Bank occupies the first and second floors of the
building. The third floor was leased to another company effective January 1996
pursuant to a five-year lease.

         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. A temporary branch facility opened at the site during construction of
the permanent facility which was completed August 1998 at a cost of $2.3
million. Centennial Bank also owns three other full-service branch facilities.

         In March 1998, Centennial Bank entered into a lease for approximately
8,000 square feet of space in the Oakway Center Office building for the new
Oakway Center branch. The lease has a ten-year term with initial base payments
of $13,180 per month increasing by $400 per month annually thereafter.

         In August 1998, Centennial Bank entered into a lease for approximately
3,500 square feet of the One Airport Center building for the new Airport Road
Office in Portland, Oregon. The lease has an initial term of five years and is
renewable for two additional three-year periods. Lease payments were $5,808 per
month in 1998.

         Centennial Bank leases facilities for two other full-service branch
offices with lease payments totaling $10,328 per month in 1998. In addition, the
Bank leases space for five limited-service retirement center offices with lease
payments totaling $3,125 per month in 1998. Centennial Bank also has storage and
parking leases with payments totaling $1,906 per month in 1998.

         In January 1998, Centennial Mortgage entered into a lease for
approximately 6,650 square feet of space in the Kruse Woods III office building
for its Portland Office. The building is located in Lake Oswego, Oregon, a
Portland suburb. The lease has a six-year term and initial base payments of
$13,581 per month with scheduled increases to a maximum of $15,521 per month

                                       39
<PAGE>

beginning in year five. Centennial Mortgage also has leases for its Eugene and
Sunnyside (Clackamas, Oregon) offices with lease payments totaling $8,986 per
month 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, clams involving the making and servicing of real property loans, and
other issues incident to Bancorp's business.

         As of the date of this Annual Report, Bancorp was not a party to any
legal proceedings management believes are material.


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

         None.




                                       40

<PAGE>


                                     PART II

         The information called for by Items 5, 6, 7, 7A, 8 and 9 of Part II is
included in Centennial Bancorp's Annual Report to Shareholders for the year
ended December 31, 1998, and is incorporated herein by reference as follows:
<TABLE>
<CAPTION>

                                                                                           Centennial Bancorp
                                                                                              Annual Report
                                                                                             to Shareholders
                                                                                                 Page No.     
                                                                                            -----------------
<S>              <C>                                                                               <C>       
ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON
                  ----------------------------------
                      STOCK AND RELATED SHAREHOLDER
                      -----------------------------
                      MATTERS                                                                        47
                      -------                                                                        

ITEM 6.           SELECTED FINANCIAL DATA                                                             2
                  -----------------------                                                             

ITEM 7.           MANAGEMENT'S DISCUSSION AND
                  ---------------------------
                      ANALYSIS OF FINANCIAL CONDITION
                      -------------------------------
                      AND RESULTS OF OPERATIONS                                                   32 - 45
                      -------------------------                    

ITEM 7A.          QUANTITATIVE AND QUALITATIVE 
                  -----------------------------
                      DISCLOSURES ABOUT MARKET RISK                                               40 - 41
                      ------------------------------               

ITEM 8.           FINANCIAL STATEMENTS AND
                      SUPPLEMENTARY DATA                                                           3 - 31
                      ------------------                           

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH
                  ---------------------------------
                      ACCOUNTANTS ON ACCOUNTING AND
                      -----------------------------
                      FINANCIAL DISCLOSURE                                                            46
                      --------------------

</TABLE>


                                                                41
<PAGE>


                                    PART III


ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF BANCORP
                  -------------------------------------------

                  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 19, 1999, 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 19, 1999, 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 19, 1999, 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 19, 1999, and is
                  incorporated herein by reference.



                                       42
<PAGE>


                                     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, 1998,
                  and are incorporated herein by reference:
<TABLE>
<CAPTION>

                                                                                                     Annual
                                                                                                    Report to
                                                                                                  Shareholders
                                                                                                   Page Number 
                                                                                                   ----------- 
                 <S>                                                                                 <C>    
                  Report of Independent Accountants                                                    3

                  Consolidated balance sheets at
                           December 31, 1998 and 1997                                                  4

                  For the three years ended December 31, 1998
                           Consolidated statements of income                                           5
                           Consolidated statements of
                                    shareholders' equity                                             6 - 7
                           Consolidated statements of cash flows                                     8 - 9

                  Notes to consolidated financial statements                                        10 - 31
</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         Restated Articles of Incorporation

                  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)

                                       43
<PAGE>

                  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)

                  10.2*       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)

                  10.3*       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)

                  10.4*       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)

                  10.5*       Restated 1995 Stock Incentive Plan (filed as 
                              Exhibit 10.9 to registrant's Form 10-K for the
                              year ended December 31, 1996, and incorporated
                              herein by reference)

                  10.6*       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)

                  10.7        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)

                                       44
<PAGE>
 
                  10.8        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)

                  10.9*       Centennial Bank Deferred Compensation Plan, dated
                              effective January 1, 1996 (filed as Exhibit 10.13 
                              to registrant's Form 10-K for the year ended 
                              December 31, 1996, and incorporated herein
                              by reference)

                  10.10*      Participation Agreement for use with
                              Centennial Bank Deferred Compensation Plan
                              (filed as Exhibit 10.14 to registrant's Form
                              10-K for the year ended December 31, 1996,
                              and incorporated herein by reference)

                  10.11*      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)

                  10.12*      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)

                  10.13*      First Amendment to Employment Agreement
                              dated December 1, 1997, between Richard C.
                              Williams and registrant (filed as Exhibit
                              10.18 to registrant's Form 10-K for the year
                              ended December 31, 1997, and incorporated
                              herein by reference)

                  11.1        Earnings per Share Computation

                  13.1        Portions of 1998 Annual Report to Shareholders
                              (which are incorporated by reference in this
                              Form 10-K Annual Report)

                  16.1        Letter dated November 5, 1998 from 
                              PricewaterhouseCoopers LLP to the Securities and
                              Exchange Commission (filed as Exhibit 16 to 
                              registrant's Form 8-K Report filed November 5,
                              1998 and incorporated herein by reference)

                                       45
<PAGE>

                  20.1        Portions of definitive proxy statement for 1999
                              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 Symonds, Evans & Larson, P.C., 
                              Independent Accountants

                  23.2        Consent of PricewaterhouseCoopers LLP, 
                              Independent Accountants

                  27.1        Financial Data Schedule as of December 31, 1998

                  99.1        Safe Harbor for Forward-Looking Statements under
                              Private Securities Litigation Reform Act of
                              1995:  Certain Cautionary Statements

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

*    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) On November 5, 1998 Bancorp filed Form 8-K to report a change of
         independent accountant effective October 30, 1998.


                                       46
<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, 1999             By /s/ 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,  1999             By /s/ Richard C. Williams            
                 ----                     ------------------------------------
                                          Richard C. Williams, President,
                                          Chief Executive Officer and Director


                                        CHIEF FINANCIAL OFFICER

DATED:     March  26 , 1999             By /s/ Michael J. Nysingh           
                 ----                     ------------------------------------
                                          Michael J. Nysingh
                                          Chief Financial Officer

                                        DIRECTORS:


DATED:     March  26 , 1999             By /s/ Dan Giustina                   
                 ----                     ------------------------------------
                                          Dan Giustina, Director

DATED:     March  19 , 1999             By /s/ Cordy H. Jensen                
                 ----                     ------------------------------------
                                          Cordy H. Jensen, Director

DATED:     March  24  , 1999            By /s/ Robert L. Newburn              
                 -----                    ------------------------------------
                                          Robert L. Newburn, Director

DATED:     March  30 , 1999             By /s/ Brian B. Obie                  
                 ----                     ------------------------------------
                                          Brian B. Obie, Director

DATED:     March  25, 1999              By /s/ Ted Winnowski                  
                 ----                     ------------------------------------
                                          Ted Winnowski, Director


                                       47
<PAGE>


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


Exhibit*
--------

3.1            Restated Articles of Incorporation

11.1           Earnings per Share Computation

13.1           Portions of 1998 Annual Report to Shareholders
               (which are incorporated by reference into this Form
               10-K Annual Report)

23.1           Consent of Symonds, Evans & Larson, P.C., Independent Accountants

23.2           Consent of PricewaterhouseCoopers LLP, Independent
               Accountants

27.1           Financial Data Schedule as of December 31, 1998

99.1           Safe Harbor for Forward-Looking Statements under Private 
               Securities Litigation Reform Act of 1995:Certain Cautionary
               Statements

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

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




                                       48