REPORT OF SYMONDS, EVANS & LARSON, P.C.,
                              INDEPENDENT AUDITORS


To the Board of Directors and Shareholders of
Centennial Bancorp


We have  audited the  accompanying  consolidated  balance  sheets of  Centennial
Bancorp  and  subsidiaries  as of December  31,  1999 and 1998,  and the related
consolidated  statements of income,  changes in shareholders'  equity,  and cash
flows for the years then ended. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  based on our audits.  The
consolidated financial statements of Centennial Bancorp and subsidiaries for the
year ended December 31, 1997,  were audited by other auditors whose report dated
January 22, 1998, expressed an unqualified opinion on those statements.

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

In our opinion, the 1999 and 1998 consolidated  financial statements referred to
above  present  fairly,  in all material  respects,  the  financial  position of
Centennial  Bancorp and  subsidiaries  as of December 31, 1999 and 1998, and the
results  of their  operations  and their  cash flows for the years then ended in
conformity with generally accepted accounting principles.




Portland, Oregon
January 21, 2000


<PAGE>
<TABLE>
<CAPTION>



                                                  CONSOLIDATED BALANCE SHEETS

                                                    December 31, 1999 and 1998


                                 ASSETS                                           1999                  1998
                                 ------                                    ------------------    ------------------
<S>                                                                        <C>                  <C>
Cash and cash equivalents:
   Cash and due from banks                                                 $       29,934,856    $       40,838,367
   Federal funds sold                                                                       -             1,003,000
                                                                           ------------------    ------------------

       Total cash and cash equivalents                                             29,934,856            41,841,367

Investment securities available-for-sale                                           59,358,757            76,793,378
Loans, net                                                                        587,507,784           416,524,430
Mortgage loans held for sale                                                        6,155,343            11,039,045
Federal Home Loan Bank stock                                                        5,468,800             5,083,700
Premises and equipment, net                                                        15,911,497            12,613,321
Accrued interest and other assets                                                  22,400,675             8,154,849
                                                                           ------------------    ------------------

       Total assets                                                        $      726,737,712    $      572,050,090
                                                                           ==================    ==================

               LIABILITIES AND SHAREHOLDERS' EQUITY
               ------------------------------------

Liabilities:
   Deposits:
     Demand                                                                $      106,113,028    $      102,714,344
     Interest-bearing demand                                                      246,690,606           204,032,594
     Savings                                                                       33,320,788            18,483,765
     Time                                                                         186,917,061           158,635,593
                                                                           ------------------    ------------------
       Total deposits                                                             573,041,483           483,866,296

   Short-term borrowings                                                           74,553,967            20,600,071
   Accrued interest and other liabilities                                           4,813,501             3,866,582
                                                                           ------------------    ------------------
       Total liabilities                                                          652,408,951           508,332,949

Commitments and contingencies (Note 9)

Shareholders' equity:
   Preferred stock                                                                          -                     -
   Common stock, 19,645,891 and 16,869,363 shares
     issued and   outstanding in 1999 and 1998, respectively                       30,390,824            29,690,949
   Retained earnings                                                               45,624,007            33,517,242
   Accumulated other comprehensive income (loss)                                   (1,686,070)              508,950
                                                                           ------------------    ------------------

       Total shareholders' equity                                                  74,328,761            63,717,141
                                                                           ------------------    ------------------

       Total liabilities and shareholders' equity                          $      726,737,712    $      572,050,090
                                                                           ==================    ==================

</TABLE>
                                                                      2
<PAGE>
<TABLE>
<CAPTION>


                                     CONSOLIDATED STATEMENTS OF INCOME

                                Years ended December 31, 1999, 1998 and 1997


                                                                 1999                1998                1997
                                                            ---------------     ---------------    ----------------
<S>                                                        <C>                 <C>                <C>
Interest and dividend income:
   Interest and fees on loans                               $    54,133,662     $    44,348,206    $     34,329,126
   Taxable interest on investment securities                      2,227,213           2,723,091           2,445,547
   Nontaxable interest on investment securities                   1,433,205           1,699,128           2,034,551
   Dividends on Federal Home Loan Bank stock                        385,100             372,600             345,300
   Interest on federal funds sold                                   280,334             691,063             573,027
   Deposits with banks                                                8,303              14,401             376,499
                                                            ---------------     ---------------    ----------------
                  Total interest and dividend income             58,467,817          49,848,489          40,104,050

Interest expense:
   Deposits:
     Interest bearing demand and savings                          7,865,362           6,889,086           5,155,632
     Time                                                         8,596,805           8,184,923           7,298,741
   Short-term borrowings                                          1,405,250             489,595             538,947
   Long-term debt                                                         -             272,897             572,673
                                                            ---------------     ---------------    ----------------
                  Total interest expense                         17,867,417          15,836,501          13,565,993
                                                            ---------------     ----------------   ----------------

Net interest income                                              40,600,400          34,011,988          26,538,057
Loan loss provision                                               2,300,000           1,500,000           1,250,000
                                                            ---------------       -------------    ----------------
Net interest income after loan loss provision                    38,300,400          32,511,988          25,288,057

Noninterest income:
   Service charges on deposit accounts                            1,459,402           1,207,782           1,065,267
   Gains on sales of mortgage loans, net                            995,823           1,752,506             908,068
   Gains on sales of investment securities, net                     298,625             599,885             168,716
   Other                                                            773,432             623,343           1,053,083
                                                            ---------------     ---------------    ----------------
                  Total noninterest income                        3,527,282           4,183,516           3,195,134

Noninterest expense                                              22,801,627          19,348,558          14,851,028
                                                            ---------------     ---------------    ----------------

Income before income taxes                                       19,026,055          17,346,946          13,632,163

Provision for income taxes                                        6,919,290           5,912,400           4,328,800
                                                            ---------------     ---------------    ----------------

Net income                                                  $    12,106,765     $    11,434,546    $      9,303,363
                                                            ===============     ===============    ================

Basic earnings per common share                             $           .62     $           .59    $            .48
                                                            ===============     ===============    ================

Diluted earnings per common share                           $           .60     $           .56    $            .46
                                                            ===============     ===============    ================

Weighted average common shares outstanding:
   Basic                                                         19,603,896          19,431,440          19,255,191
   Diluted                                                       20,235,521          20,321,860          20,118,737

</TABLE>
                                                                          3
<PAGE>
<TABLE>
<CAPTION>


                            CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                Years ended December 31, 1999, 1998 and 1997

                                                                              Accumulated
                                         Number                                  other                     Additional     Total
                                          of        Common       Retained    comprehensive  Comprehensive   paid-in    shareholders'
                                         shares     stock        earnings    income (loss)  income (loss)   capital      equity
                                      ----------  -----------   ------------ -------------  ------------- ------------  ----------
<S>                                  <C>         <C>           <C>          <C>             <C>           <C>         <C>
Balance at December 31, 1996          6,535,447   $13,070,894  $17,171,984   $ (34,190)                   $11,137,171  $41,345,859

Comprehensive income:
  Net income                                  -             -    9,303,363           -      $ 9,303,363             -    9,303,363
  Other comprehensive income -
   change in  unrealized  gains on
   investment  securities of
   $845,364 (net of income taxes
   of approximately $448,000)
   net of reclassification
   adjustment for gains included in
   net income of $115,064 (net of
   income taxes of approximately $54,000)     -             -            -     730,300          730,300             -      730,300
                                                                                            -----------


Comprehensive income                          -             -            -           -     $ 10,033,663             -            -
                                                                                           ============

Stock split (10%)                       655,664     1,311,328            -           -                     (1,311,328)           -
Stock options exercised                  66,727       133,454            -           -                        267,490      400,944
Tax benefit of stock options
   exercised                                  -             -            -           -                         29,692       29,692
Stock split (100%)                    7,257,838    14,515,676   (4,392,651)          -                    (10,123,025)           -
                                    -----------   ------------  -----------  ------------                 ------------  ----------

Balance at December 31, 1997         14,515,676   $29,031,352    $22,082,696  $696,110                     $        -  $51,810,158


</TABLE>

                                                   See accompanying notes.

                                                            4



<PAGE>
<TABLE>
<CAPTION>




                                CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (continued)

                                             Years ended December 31, 1999, 1998 and 1997

                                                                              Accumulated
                                         Number                                  other                     Additional     Total
                                          of        Common       Retained    comprehensive  Comprehensive   paid-in    shareholders'
                                         shares     stock        earnings    income (loss)  income (loss)   capital      equity
                                      ----------  -----------   ------------ -------------  ------------- ------------  ----------
<S>                                   <C>        <C>           <C>          <C>             <C>           <C>        <C>
Comprehensive income:
   Net income                                 -   $      -      $11,434,546  $          -    $11,434,546   $       -  $  11,434,546
   Other comprehensive income -
     change in unrealized gains on
     investment securities of
     $208,764 (net of income taxes
     of approximately $115,000) net
     of reclassification  adjustment
     for gains included in net income
     of $395,924 (net of income
     taxes of approximately $204,000)-        -          -                       (187,160)      (187,160)          -       (187,160)
                                                                                            -------------

Comprehensive income                          -          -                -                  $11,247,386           -              -
                                                                                            =============

Stock split (5%)                        727,386          -                -             -                          -              -
Stock options exercised                  92,723    267,381                -             -                          -        267,381
Tax benefit of stock options
   exercised                                  -    392,216                -             -                          -        392,216
Stock split (10%)                     1,533,578          -                -             -                          -              -
                                     ---------- -----------  --------------   -----------                  ------------  -----------

Balance at December 31, 1998         16,869,363 $29,690,949  $  33,517,242    $   508,950                   $      -  $  63,717,141

</TABLE>

                                                                       5
<PAGE>
<TABLE>
<CAPTION>


                                CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (continued)

                                             Years ended December 31, 1999, 1998 and 1997

                                        Number                                  other                     Additional     Total
                                          of        Common       Retained    comprehensive  Comprehensive   paid-in    shareholders'
                                         shares     stock        earnings    income (loss)  income (loss)   capital      equity
                                      ----------  -----------   ------------ -------------  ------------- ------------  ----------
<S>                                   <C>         <C>          <C>          <C>             <C>            <C>        <C>
   Net income                                 -    $      -     $12,106,765  $         -     $ 12,106,765   $     -    $ 12,106,765
   Other comprehensive income -
     change in unrealized losses on
     investment securities of
     $2,005,005 (net of income taxes
     of approximately $1,345,000)
     net of reclassification adjustment
     for gains included in net income
     of $190,015 (net of income taxes
     of approximately $109,000)               -           -               -   (2,195,020)      (2,195,020)        -       2,195,020)

Comprehensive income                          -           -               -            -    $   9,911,745         -               -
                                                                                            =============

Stock split (5%)                        828,761           -               -            -                          -               -
Stock options exercised                 161,774     383,619               -            -                          -         383,619
Tax benefit of stock options
   exercised                                  -     316,256               -            -                          -         316,256
Stock split (10%)                     1,785,993           -               -            -                          -               -
                                    -----------  -----------  -------------- -----------                   ----------  ------------

Balance at December 31, 1999         19,645,891  $30,390,824  $   45,624,007 $(1,686,070)                  $       -    $74,328,761
                                    ===========  ===========  ============== ============                  ==========   ============

</TABLE>

                                                                 6

<PAGE>
<TABLE>
<CAPTION>


                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

                                      Years ended December 31, 1999, 1998 and 1997


                                                                 1999                1998                1997
                                                            ---------------     ---------------    ----------------
<S>                                                        <C>                 <C>                <C>
Cash flows from operating activities:
   Net income                                               $    12,106,765     $    11,434,546    $      9,303,363
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Net gains on sales of investment securities and
         mortgage loans                                          (1,294,448)         (2,352,391)         (1,076,784)
       Dividends on Federal Home Loan Bank stock                   (385,100)           (372,600)           (345,300)
       Loan loss provision                                        2,300,000           1,500,000           1,250,000
       Deferred income taxes                                       (935,809)           (437,882)           (113,702)
       Depreciation and amortization                              2,356,296           1,697,578           1,329,421
       Originations of mortgage loans held for sale            (152,458,419)       (213,853,812)       (111,645,075)
       Proceeds from sales of mortgage loans held for sale      158,337,944         210,152,220         110,506,192
       Changes in assets and liabilities:
         Accrued interest and other assets                      (12,391,249)         (1,335,735)            302,160
         Accrued interest and other liabilities                     946,919             101,196            (230,165)
                                                            ---------------     ---------------    ----------------
                  Net cash provided by operating activities       8,582,899           6,533,120           9,280,110
Cash flows from investing activities:
   Investment securities available-for-sale:
     Purchases                                                  (11,202,082)        (31,984,219)        (28,385,904)
     Maturities                                                   2,312,850          27,624,797           8,009,362
     Proceeds from sales                                         23,071,850          11,754,232          20,463,409
   Loan originations, net                                      (173,283,354)        (86,333,031)        (70,449,408)
   Purchases of premises and equipment, net                      (4,901,376)         (3,558,652)         (2,373,818)
                                                            ---------------     ---------------    ----------------
                  Net cash used in investing activities        (164,002,112)        (82,496,873)        (72,736,359)
Cash flows from financing activities:
   Net increase in deposits                                      89,175,187          64,584,212          79,326,839
   Increase (decrease) in short-term borrowings, net             53,953,896          12,884,288          (4,599,800)
   Payments on long-term debt                                             -         (10,000,000)                  -
   Proceeds from exercise of stock options                          383,619             267,381             400,944
                                                            ---------------     ---------------    ----------------
                  Net cash provided by financing activities     143,512,702          67,735,881          75,127,983
                                                            ---------------     ---------------    ----------------
Net increase (decrease) in cash and cash equivalents            (11,906,511)         (8,227,872)         11,671,734
Cash and cash equivalents at beginning of year                   41,841,367          50,069,239          38,397,505
                                                            ---------------     ---------------    ----------------

Cash and cash equivalents at end of year                    $    29,934,856     $    41,841,367    $     50,069,239
                                                            ===============     ===============    ================

</TABLE>

                                                   See accompanying notes.


                                                              7

<PAGE>


                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999


1.     Description of business and summary of significant accounting policies
       ----------------------------------------------------------------------

       Principles of consolidation
       ---------------------------

       The accompanying  consolidated  financial statements include the accounts
       of  Centennial  Bancorp,  a bank holding  company,  and its  wholly-owned
       subsidiaries,  Centennial  Bank (the Bank) and  Centennial  Mortgage  Co.
       (Centennial  Mortgage).  Unless the context clearly  suggests  otherwise,
       references in this annual report to "Bancorp" include  Centennial Bancorp
       and its subsidiaries. The Bank provides commercial financing, banking and
       other services, and Centennial Mortgage provides a variety of residential
       and  commercial   real  estate   financing   services.   All  significant
       intercompany   accounts  and   transactions   have  been   eliminated  in
       consolidation.

       Method of accounting
       --------------------

       Bancorp prepares its consolidated financial statements in conformity with
       generally accepted accounting  principles and prevailing practices within
       the banking  industry.  Bancorp utilizes the accrual method of accounting
       that  recognizes  income  when earned and  expenses  when  incurred.  The
       preparation  of  consolidated  financial  statements in  conformity  with
       generally  accepted  accounting  principles  requires  management to make
       estimates and assumptions  that affect the reported amounts of assets and
       liabilities,  the disclosure of contingent  assets and liabilities at the
       date of the consolidated  financial statements,  and the reported amounts
       of income and expenses during the reporting periods. Actual results could
       differ from those estimates.

       Cash and cash equivalents
       -------------------------

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

       Supplemental disclosures of cash flow information
       -------------------------------------------------

       During 1999, 1998 and 1997, noncash transactions resulted from unrealized
       gains (losses) on investment securities available-for-sale, net of income
       taxes,  and the  income  tax  benefit  of  stock  options  exercised,  as
       disclosed  in the  accompanying  consolidated  statements  of  changes in
       shareholders' equity.

       During  1999,  1998 and 1997,  Bancorp  paid  approximately  $17,647,000,
       $15,754,000 and $13,423,000, respectively, in interest expense.




                                       8
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



1.     Description of business and summary of significant accounting policies
       (continued)
       -------------------------------------------------------------------------

       Investment securities available-for-sale
       ----------------------------------------

       Investment securities  available-for-sale are reported at fair value with
       unrealized  gains and losses excluded from earnings and reported as other
       comprehensive income or loss, net of income taxes.

       Gains and losses on sales of investment  securities  are  recognized on a
       specific  identification  basis.  Premiums and  discounts  on  investment
       securities  are recognized in interest  income using the interest  method
       over the period to maturity.

       Declines  (unless  they are  considered  temporary)  in the fair value of
       investment  securities  available-for-sale  below  cost  would  result in
       write-downs of the individual securities to their fair value.

       Loans
       -----

       Loans  are  reported  at their  outstanding  principal  balance  less the
       allowance for loan losses and deferred loan fees.

       The allowance for loan losses represents management's  recognition of the
       assumed  risks of extending  credit and the quality of the existing  loan
       portfolio.  The allowance is maintained at a level considered adequate to
       provide for  potential  loan losses based on  management's  assessment of
       various factors affecting the portfolio. Management's periodic evaluation
       of the  adequacy of the  allowance  is based on the Bank's past loan loss
       experience, known and inherent risks in the portfolio, adverse situations
       that may affect a borrower's ability to repay, the estimated value of any
       underlying collateral, and current economic conditions.

       The allowance is based on estimates and ultimate losses may vary from the
       current  estimates.  These  estimates are reviewed  periodically,  and as
       adjustments  become  necessary,  they are  reported  in  earnings  in the
       periods in which they  become  known.  The  allowance  for loan losses is
       increased  by charges  to income and  decreased  by  charge-offs,  net of
       recoveries.

       Bancorp's  credit  policies  require  an  evaluation  of each  borrower's
       creditworthiness  prior to extending  credit. In the course of evaluating
       the  creditworthiness,   management  determines  a  requisite  amount  of
       collateral  support.  The type of collateral held varies, but may include
       real estate,  equipment,  accounts  receivable  and  inventories.  At the
       discretion of management, personal guarantees of the borrower may also be
       obtained in addition to the


                                       9
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



1.     Description of business and summary of significant accounting policies
       (continued)
       -------------------------------------------------------------------------

       collateral.   Management   believes  that  Bancorp's  loan  portfolio  is
       diversified   among  industry  groups  and  does  not  contain  a  direct
       concentration  of loans in a single industry (other than the construction
       industry) which exceeds 10% of the portfolio.  It is management's opinion
       that the  allowance  for loan  losses is  adequate  to  absorb  known and
       inherent risks in the loan portfolio.  However, actual results may differ
       from estimates.

       Bancorp  considers loans to be impaired when management  believes that it
       is probable  that all amounts due will not be collected  according to the
       contractual  terms.  An  impaired  loan must be valued  using the present
       value of expected  future cash flows  discounted at the loan's  effective
       interest rate, the loan's  observable  market price or the estimated fair
       value of the loan's underlying  collateral or related  guaranty.  Bancorp
       primarily  measures  impairment  on all  large-balance  nonaccrual  loans
       (typically  commercial  and  commercial  real estate  loans) based on the
       estimated fair value of the underlying collateral or related guaranty. In
       certain other cases, impairment is measured based on the present value of
       expected future cash flows  discounted at the loan's  effective  interest
       rate.  Amounts deemed impaired are either  specifically  allocated for in
       the allowance for loan losses or reflected as a partial charge-off of the
       loan balance.  Smaller-balance  homogeneous loans (typically  installment
       loans) are collectively evaluated for impairment.  Accordingly,  the Bank
       does not separately identify individual  installment loans for impairment
       disclosures.

       The accrual of interest on impaired loans is discontinued  when repayment
       of  principal  and  interest  is  doubtful.   When  interest  accrual  is
       discontinued, all unpaid accrued interest is reversed and charged against
       current  income.  The  interest  on these loans is  accounted  for on the
       cash-basis  or  cost-recovery  method  until  qualifying  for  return  to
       accrual.  Loans are returned to accrual status when all the principal and
       interest  amounts  contractually  due  are  brought  current  and  future
       payments are reasonably assured.

       Loan  origination  fees,  net of  origination  costs,  are  deferred  and
       recognized as an adjustment of the yield of the related loan.

       Interest  income on all loans is accrued as earned on the simple interest
       method.

       Various  regulatory  agencies,  as an integral part of their  examination
       process,  periodically  review the  Bancorp's  allowance for loan losses.
       Such  agencies  may  require the Bancorp to  recognize  additions  to the
       allowance based on their judgment of information available to them at the
       time of their examination.



                                       10
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999


1.  Description of business and summary of significant accounting policies
    (continued)
    ----------------------------------------------------------------------------

       Mortgage loans
       --------------

       Centennial  Mortgage's activities include origination of conventional and
       federally insured residential  mortgage loans for resale in the secondary
       market.  Mortgage loans are sold without recourse;  however, the sales of
       these mortgage loans are subject to technical underwriting exceptions and
       related  repurchase risks. Such risks are considered in the determination
       of the allowance for loan losses.

       Mortgage loans  originated and intended for sale in the secondary  market
       are carried at the lower of cost or estimated market value.  Market value
       is determined on an aggregate loan basis.

       At December 31, 1999,  1998 and 1997,  Bancorp held  servicing  rights to
       approximately $36,842,000, $38,611,000 and $32,274,000,  respectively, of
       mortgage  loans  that  had been  sold  into the  secondary  market.  Such
       mortgage loans are not included in the accompanying  consolidated balance
       sheets.  Beginning in July 1998,  Bancorp began using  another  financial
       institution to service these mortgage loans. Previously, Bancorp serviced
       these mortgage  loans  in-house.  The net amount of capitalized  mortgage
       servicing  rights  (approximately  $366,000  and $392,000 at December 31,
       1999  and  1998,  respectively)  is  included  in  other  assets  in  the
       accompanying consolidated balance sheets.

       Federal Home Loan Bank stock
       ----------------------------

       Bancorp's investment in Federal Home Loan Bank (FHLB) stock is carried at
       par value, which approximates fair value. As a member of the FHLB system,
       Bancorp must  maintain a minimum  level of investment in FHLB stock based
       on specific  percentages of its  outstanding  mortgages,  total assets or
       FHLB  advances.   At  December  31,  1999,   Bancorp's  minimum  required
       investment was approximately  $2,337,000.  Bancorp may request redemption
       at par  value  of any  FHLB  stock  in  excess  of the  minimum  required
       investment. Stock redemptions are at the discretion of FHLB.




                                      11


<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



1.     Description of business and summary of significant accounting policies
       (continued)
       -------------------------------------------------------------------------

       Premises and equipment
       ----------------------

       Premises and equipment are stated at cost, less accumulated  depreciation
       and amortization.  Depreciation and amortization are computed principally
       using the  straight-line  method over the shorter of the estimated useful
       lives of the assets or terms of the  leases.  Amortization  of  leasehold
       improvements is included in depreciation and amortization  expense in the
       accompanying consolidated financial statements.

       Goodwill
       --------

       Goodwill is the excess of the cost over fair value of net assets acquired
       in business  combinations.  It is amortized on the  straight-line  method
       over  periods  ranging  from 15 to 20 years.  It is  Bancorp's  policy to
       review   goodwill   for   impairment   whenever   events  or  changes  in
       circumstances  indicate that its investment in the underlying  businesses
       that gave rise to such  goodwill may not be  recoverable.  Should such an
       evaluation  of  impairment  become  necessary,  Bancorp will evaluate the
       performance  of such acquired  businesses on an  undiscounted  basis.  At
       December 31, 1999 and 1998,  accrued  interest  and other assets  include
       goodwill of approximately $8,834,000 and $283,000,  respectively,  net of
       accumulated amortization.  Additional goodwill was recorded in April 1999
       when  Bancorp  acquired  a  branch  located  in the  Hazel  Dell  area of
       Vancouver,  Washington  from  another  financial  institution.   Goodwill
       amortization for 1999 was approximately  $487,000.  Goodwill amortization
       for 1998 and 1997 was insignificant.

       Advertising
       -----------

       Advertising  costs are  generally  charged to expense  during the year in
       which they are incurred.

       Income taxes
       ------------

       Deferred tax assets and  liabilities  are reflected at currently  enacted
       income  tax rates  applicable  to the  period in which the  deferred  tax
       assets or liabilities are expected to be realized or settled.  As changes
       in tax laws or rates are enacted, deferred tax assets and liabilities are
       adjusted through the provision for income taxes.


                                       12

<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



1.     Description of business and summary of significant accounting policies
       (continued)
       -------------------------------------------------------------------------

       Stock splits
       ------------

       During the years ended  December  31,  1999,  1998 and 1997,  Bancorp had
       various  stock  splits  as  reflected  in the  accompanying  consolidated
       statements of changes in shareholders'  equity.  In addition,  on January
       19,  2000,  Bancorp's  Board of  Directors  declared a 10% stock split --
       payable March 3, 2000 -- for Bancorp  shareholders of record at the close
       of  business on February  11,  2000.  This stock split will result in the
       issuance of 1,785,993  additional  shares of common stock. All issued and
       outstanding,  weighted  average  number  of  common  shares  outstanding,
       per-share  data and stock  option plan  information  in the  accompanying
       consolidated financial statements and footnotes has been adjusted to give
       retroactive effect to all stock splits.

       Recently issued accounting standards
       ------------------------------------

       In June 1999,  the  Financial  Accounting  Standards  Board (FASB) issued
       Statement  of  Financial   Accounting   Standards  137,  "Accounting  for
       Derivative Instruments and Hedging  Activities--Deferral of the Effective
       Date of FASB  Statement  133" (SFAS 137), an amendment of SFAS 133, which
       establishes accounting and reporting standards for derivative instruments
       and  hedging  activities  and  requires  that  an  entity  recognize  all
       derivatives  as either  assets or  liabilities  in the balance  sheet and
       measure  those  instruments  at fair value.  SFAS 133, as amended by SFAS
       137, is effective for all quarterly  and annual  financial  statements of
       fiscal years  beginning  after June 15, 2000.  Bancorp had no significant
       derivatives  as of December  31,  1999,  nor does  Bancorp  engage in any
       hedging  activities.  Accordingly,  Bancorp does not anticipate  that the
       adoption of SFAS 133, as amended by SFAS 137, will have a material effect
       on its consolidated financial position or results of operations.

       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 was
       effective  in 1999 and had no  effect  on the  accompanying  consolidated
       financial statements.

       Reclassifications
       -----------------

       Certain  amounts in 1998 and 1997 have been  reclassified to conform with
       the  1999   presentation.   Net   income  was  not   affected   by  these
       reclassifications.


                                       13

<PAGE>
<TABLE>
<CAPTION>

                                           CENTENNIAL BANCORP AND SUBSIDIARIES
                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                     December 31, 1999


2.     Investment securities available-for-sale
       ----------------------------------------

       Investment  securities  available-for-sale  consisted of the following at
       December 31, 1999 and 1998:


                                                                    Gross             Gross            Estimated
                                               Amortized         unrealized        unrealized            fair
                1999                             cost               gains            losses              value
                ----                      -----------------  ----------------   ----------------  ------------------
      <S>                                 <C>               <C>                <C>               <C>
       U.S. Treasury securities           $       1,400,808  $          4,759   $          6,325  $       1,399,242
       U.S. Government and
         agency securities                       27,988,761                 -          1,454,349         26,534,412
       Obligations of state and
         political subdivisions                  28,468,534            79,235          1,232,228         27,315,541
       Corporate bonds                            2,284,118               120             79,123          2,205,115
       Mortgage-backed securities                 1,936,017                 -             31,570          1,904,447
                                          -----------------  ----------------   ----------------  -----------------

         Total                            $      62,078,238  $         84,114   $      2,803,595  $      59,358,757
                                          =================  ================   ================  =================

                1998
                ----
       U.S. Treasury securities           $       1,398,726  $         36,190   $              -  $       1,434,916
       U.S. Government and
         agency securities                       39,479,940           116,050            333,250         39,262,740
       Obligations of state and
         political subdivisions                  28,571,672         1,006,580                  -         29,578,252
       Corporate bonds                            2,304,968            13,059              6,749          2,311,278
       Mortgage-backed securities                 4,217,462             1,330             12,600          4,206,192
                                          -----------------  ----------------   ----------------  -----------------

           Total                          $      75,972,768  $      1,173,209   $        352,599  $      76,793,378
                                          =================  ================   ================  =================

</TABLE>
                                                                  14
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999


2.     Investment securities available-for-sale (continued)
       ----------------------------------------------------

       The  amortized  cost and estimated  fair value of  investment  securities
       available-for-sale  at December 31, 1999, by  contractual  maturity,  are
       shown below. Expected maturities will differ from contractual  maturities
       because  borrowers may have the right to call or prepay  obligations with
       or without call or prepayment  penalties.  In addition,  the  contractual
       maturities for  mortgage-backed  securities  were  allocated  assuming no
       prepayments.

                                                Amortized         Estimated
                                                  cost            fair value
                                            ----------------  -----------------
       Due in 1 year or less                $      1,318,710  $       1,305,105
       Due after 1 through 5 years                22,923,785         22,447,699
       Due after 5 through 10 years               19,427,389         18,407,642
       Due after 10 years                         18,408,354         17,198,311
                                            ----------------  -----------------

           Total                            $     62,078,238  $      59,358,757
                                            ================  =================

       At December 31, 1999,  investment securities  available-for-sale  with an
       estimated  fair  value  of   approximately   $12,329,000   (approximately
       $12,266,000  at December 31, 1998) were pledged to  collateralize  public
       deposits, and investment securities  available-for-sale with an estimated
       fair value of  approximately  $10,061,000  (approximately  $10,562,000 at
       December 31, 1998) were pledged to  collateralize  short-term  borrowings
       (see Note 6).

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

                                    Gross         Gross
                                  realized       realized        Net gains
                   Proceeds         gains         losses         on sales
               --------------  ------------    ----------      ------------
       1999    $   23,071,850  $    298,025     $       -      $   298,025
       1998        11,754,232       599,885             -          599,885
       1997        20,463,409       191,291        22,575          168,716




                                       15


<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999


3. Loans
--------

       Loans consisted of the following at December 31, 1999 and 1998:

                                                  1999               1998
                                            ----------------  ------------------
       Real estate - mortgage               $    129,220,429  $      94,474,773
       Real estate - construction                227,387,353        150,815,834
       Commercial                                219,588,355        163,577,415
       Installment                                 8,409,380          7,073,011
       Lease financing                             4,867,834          1,896,609
       Other                                       4,198,940          3,137,402
                                            ----------------  -----------------
                                                 593,672,291        420,975,044
       Less allowance for loan losses             (6,164,507)        (4,450,614)
                                            ----------------  -----------------

           Loans, net                       $    587,507,784  $     416,524,430
                                            ================  =================

       Bancorp is located  and  conducts  its  business  primarily  within  Lane
       County, Oregon, the greater Portland metropolitan area, and Clark County,
       Washington.  These  geographic  areas have  experienced  growth which has
       resulted in increasing  loan demand.  A substantial  portion of Bancorp's
       loans are  collateralized  by real estate in these  geographic areas and,
       accordingly,  the ultimate  collectability  of a  substantial  portion of
       Bancorp's  loan  portfolio  is  susceptible  to changes  in local  market
       conditions.

       Transactions in the allowance for loan losses for the years ended
       December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>

                                                                    1999              1998               1997
                                                             ----------------   ----------------  -----------------
      <S>                                                   <C>                <C>               <C>
       Balance at beginning of year                          $      4,450,614   $      3,348,914  $       2,599,653
       Loan loss provision                                          2,300,000          1,500,000          1,250,000
       Loans charged-off                                             (671,827)          (452,100)          (557,949)
       Recoveries of loans previously charged-off                      85,720             53,800             57,210
                                                             ----------------   ----------------  -----------------
       Balance at end of year                                $      6,164,507   $      4,450,614  $       3,348,914
                                                             ================   ================  =================
</TABLE>

       At December 31, 1999 and 1998,  Bancorp had approximately  $5,833,000 and
       $5,218,000,  respectively,  in impaired  loans.  The  specific  valuation
       allowance related to these impaired loans totaled approximately  $465,000
       and  $563,000 at December  31, 1999 and 1998,  respectively.  The average
       recorded  investment  in  impaired  loans  for  1999,  1998  and 1997 was
       approximately $5,525,000, $2,968,000 and $909,000, respectively. Interest
       income


                                       16
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999


3.     Loans (continued)
       -----------------

       recognized on impaired loans in 1999 was approximately $417,000. Interest
       income recognized on impaired loans in 1998 and 1997 was insignificant.

       Loans on  nonaccrual  status at  December  31,  1999  were  approximately
       $579,000  ($3,841,000 at December 31, 1998).  Interest income which would
       have been realized on such nonaccrual loans  outstanding at year-end,  if
       they had  remained  current,  was  approximately  $97,000,  $273,000  and
       $103,000 during 1999, 1998 and 1997,  respectively.  Loans  contractually
       past due 90 days or more on which Bancorp continued to accrue interest at
       December 31, 1999 were approximately  $2,163,000  ($1,043,000 at December
       31, 1998).

4.     Premises and equipment
       ----------------------

       Premises and  equipment  consisted of the  following at December 31, 1999
       and 1998:
<TABLE>
<CAPTION>

                                                                   1999               1998
                                                             ----------------  -------------
      <S>                                                   <C>               <C>
       Land                                                  $      2,375,046  $   1,769,388
       Buildings and leasehold improvements                        13,278,013     10,728,522
       Furniture and equipment                                      9,185,477      7,288,122
                                                             ----------------  -------------
                                                                   24,838,536     19,786,032
       Less accumulated depreciation and amortization              (8,927,039)    (7,172,711)
                                                             ----------------  -------------
         Premises and equipment, net                           $   15,911,497  $  12,613,321
                                                             ================  =============
</TABLE>

5.     Time certificates of deposit
       ----------------------------

       Time   certificates   of  deposits  in  excess  of  $100,000   aggregated
       approximately  $79,425,000 and $60,708,000 at December 31, 1999 and 1998,
       respectively.  At December 31, 1999, the scheduled  annual  maturities of
       all time certificates of deposit were approximately as follows:

               2000                                 $    150,615,000
               2001                                       34,141,000
               2002                                          926,000
               2003                                          896,000
               2004                                          104,000
               Thereafter                                    235,000
                                                     ---------------
                 Total                                  $186,917,000
                                                     ===============


                                       17
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999


6.     Short-term borrowings
       ---------------------

       Short-term borrowings consisted of the following at December 31, 1999 and
       1998:
<TABLE>
<CAPTION>

                                                                  1999               1998
                                                             ------------       ------------

      <S>                                                   <C>                <C>
       Securities sold under agreement to repurchase         $  8,213,967       $ 16,100,071
       Federal funds purchased                                 19,600,000          1,000,000
       FHLB cash management advance program                    25,740,000          3,500,000
       FHLB borrowings under promissory note agreements        21,000,000                  -
                                                             ------------       -------------

                                                             $ 74,553,967       $ 20,600,071
                                                             ============       =============
</TABLE>

       Securities  sold under  agreement to  repurchase  are due on demand.  The
       weighted  average interest rate on such borrowings was 5.42% and 4.42% at
       December 31, 1999 and 1998, respectively.

       Federal funds purchased are due on demand.  The weighted average interest
       rate on such  borrowings  was 4.65% and 5.00% at  December  31,  1999 and
       1998, respectively.

       Amounts  owed  under the FHLB cash  management  advance  program  are due
       within one year and bear interest at 5.70% and 5.15% at December 31, 1999
       and 1998, respectively.

       FHLB borrowings  under promissory note agreements are due in January 2000
       and bear interest at 5.90% at December 31, 1999.

       As of December 31, 1999, Bancorp has remaining available  borrowings from
       the FHLB of  approximately  $4,960,000.  In addition,  Bancorp  maintains
       federal  funds  lines  with  correspondent  banks as a backup  source  of
       liquidity.  At December 31, 1999,  Bancorp had approximately  $10,400,000
       (approximately  $32,000,000  at December 31, 1998) of federal funds lines
       available to draw against on an uncollateralized basis.

7.     Off-balance-sheet financial instruments
       ---------------------------------------

       In  the  ordinary  course  of  business,   Bancorp  enters  into  various
       transactions  which  include  commitments  to extend  credit and  standby
       letters of credit that are not included in the accompanying  consolidated
       balance  sheets.  Bancorp  applies  the same  credit  standards  to these
       commitments as it uses in all of its lending processes and includes these
       commitments  in its lending  risk  evaluations.  At December 31, 1999 and
       1998,  Bancorp  had no  commitments  to  extend  credit  at  below-market
       interest rates and held no derivative financial instruments.



                                       18
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999


7.     Off-balance-sheet financial instruments (continued)
       ---------------------------------------------------

       Bancorp's  exposure to credit loss in the event of  nonperformance by the
       other party to the financial  instrument for commitments to extend credit
       and standby letters of credit,  is represented by the contractual  amount
       of those  instruments.  Bancorp  uses the same credit  policies in making
       commitments and conditional  obligations as it does for  on-balance-sheet
       instruments.

       Bancorp's off-balance-sheet financial instruments at December 31, 1999
       and 1998 were as follows:
                                                         1999           1998
                                                     -----------   -------------
       Commitments to extend credit               $  276,852,000   $ 198,583,000
       Standby and commercial letters of credit       11,108,000       6,982,000

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

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

8.     Estimated fair value of financial instruments
       ---------------------------------------------

       Bancorp  primarily uses quoted market prices or present value  techniques
       to estimate the fair values of its fixed-rate financial instruments.  The
       carrying amounts of variable- and adjustable-rate  financial  instruments
       are  considered  reasonable  estimates of fair value.  Valuation  methods
       require considerable  judgment, and the resulting estimates of fair value
       can be  significantly  affected by the assumptions made and methods used.
       Accordingly,  the estimates  provided herein do not necessarily  indicate
       amounts which could be realized in a current market exchange.



                                       19

<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



8.     Estimated fair value of financial instruments (continued)
       ---------------------------------------------------------

       In  addition,  as Bancorp  normally  intends to hold the  majority of its
       financial  instruments until maturity, it does not expect to realize many
       of the estimated amounts  disclosed.  The disclosures also do not include
       estimated  fair value amounts for items that are not defined as financial
       instruments  but  which  have  significant   value.  These  include  such
       off-balance-sheet  items as core  deposit  intangibles.  Bancorp does not
       believe that it would be practicable to estimate a representational  fair
       value for these types of items at December 31, 1999 and 1998.

       Because the estimated fair value  disclosures  exclude certain  financial
       instruments and all nonfinancial instruments, any aggregation of the fair
       value  amounts  presented  would not represent  the  underlying  value of
       Bancorp.

       Bancorp used the following  methods and  assumptions to estimate the fair
       value of its financial instruments:

           Cash and cash  equivalents:  The  carrying  amount  approximates  the
           --------------------------
           estimated fair value.

           Investment Securities available-for-sale: The estimated fair value is
           ----------------------------------------
           based on quoted  market  prices or the market  values for  comparable
           securities.

           Loans:  The estimated fair value of fixed-rate  loans is estimated by
           -----
           discounting  the  contractual  cash flows of the loans using December
           31,  1999 and 1998  origination  rates.  The  resulting  amounts  are
           adjusted  to  estimate  the  effects of changes in credit  quality of
           borrowers since the loans were originated.

           Mortgage loans held for sale: The estimated fair value represents the
           ----------------------------
           anticipated proceeds from sale of the loans.

           FHLB stock:  The carrying  amount  approximates  the  estimated  fair
           ----------
           value.



                                       20
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



8.     Estimated fair value of financial instruments (continued)
       ---------------------------------------------------------

           Deposits: The estimated fair value of demand deposits,  consisting of
           --------
           checking,   savings  and  certain   interest-bearing  demand  deposit
           accounts,  is  represented  by the  amounts  payable on  demand.  The
           estimated  fair value of time deposits is  calculated by  discounting
           the  scheduled  cash flows using the December 31, 1999 and 1998 rates
           offered on these instruments.

           Short-term borrowings: The carrying amount approximates the estimated
           ---------------------
           fair value.

           Off-balance-sheet financial instruments:  The estimated fair value of
           ---------------------------------------
           off-balance-sheet  financial  instruments  (primarily  commitments to
           extend credit and standby  letters of credit) is determined  based on
           fees currently charged for similar commitments.  Management estimates
           that these fees approximate $1,440,000 and $1,028,000 at December 31,
           1999 and 1998, respectively.

       The  estimated  fair  value  of  Bancorp's  significant  on-balance-sheet
       financial instruments at December 31, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>

                                                          1999                                 1998
                                          -----------------------------------   -----------------------------------
                                                                  Estimated                            Estimated
                                               Carrying             fair            Carrying             fair
                                                 value              value             value              value
                                          -----------------  ----------------   ----------------  -----------------
      <S>                                <C>                <C>                <C>               <C>
       Financial assets:
         Cash and cash equivalents        $      29,935,000  $     29,935,000   $     41,841,000  $      41,841,000
         Investment securities
           available-for-sale                    59,359,000        59,359,000         76,793,000         76,793,000
         Loans and mortgage loans
           held for sale                        593,663,000       589,213,000        427,564,000        421,343,000
         FHLB stock                               5,469,000         5,469,000          5,084,000          5,084,000
       Financial liabilities:
         Deposits                         $     573,041,000  $    572,746,000   $    483,866,000  $     485,283,000
         Short-term borrowings                   74,554,000        74,554,000         20,600,000         20,600,000

</TABLE>

                                       21
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



9.     Commitments and contingencies
       -----------------------------

       Bancorp leases certain land and facilities under noncancelable  operating
       leases,  generally  for  terms of 5 to 50  years,  some of which  include
       renewal  options and  escalation  clauses.  At  December  31,  1999,  the
       aggregate  minimum rental  commitments  under operating  leases that have
       initial or remaining noncancelable lease terms in excess of one year were
       approximately as follows:

                 2000                                 $      1,170,000
                 2001                                        1,140,000
                 2002                                        1,035,000
                 2003                                          827,000
                 2004                                          774,000
                 Later years                                 9,889,000
                                                      ----------------
                 Total minimum lease payments         $     14,835,000
                                                      ================

       Total rent expense was approximately $1,213,000, $750,000 and $343,000 in
       1999, 1998 and 1997, respectively.

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

10.    Noninterest expense
---    -------------------

       Noninterest  expense  consisted  of the  following  for the  years  ended
       December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>

                                                                    1999              1998               1997
                                                             -------------      -------------     ------------
      <S>                                                   <C>                <C>               <C>
       Salaries and employee benefits                        $  14,293,013      $  12,834,456     $  9,552,513
       Premises and equipment                                    3,315,826          2,644,173        2,049,771
       Advertising                                                 830,097            801,135          489,315
       Data processing                                             665,704            252,570          251,077
       Legal and professional                                      657,816            843,890          742,165
       Other                                                     3,039,171          1,972,334        1,766,187
                                                             -------------      -------------     ------------
           Total noninterest expense                         $  22,801,627      $  19,348,558     $ 14,851,028
                                                             =============      =============     ============
</TABLE>



                                       22

<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



11.    Income taxes
       ------------

       The  provision  (credit) for income taxes  consisted of the following for
       the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>

                                                       1999              1998               1997
                                                ----------------   -------------     -------------
      <S>                                     <C>                 <C>               <C>
       Current:
         Federal                                $      6,482,551   $   5,098,082     $   3,903,417
         State                                         1,372,548       1,252,200           539,085
       Deferred                                         (935,809)       (437,882)         (113,702)
                                                ----------------   -------------     -------------

           Provision for income taxes           $      6,919,290   $   5,912,400     $   4,328,800
                                                ================   =============     =============
</TABLE>

       The  provision  (credit) for income taxes  results in effective tax rates
       that are different than the federal income tax statutory rate. The nature
       of the  differences  for the years ended December 31, 1999, 1998 and 1997
       were as follows:
<TABLE>
<CAPTION>

                                                              1999              1998               1997
                                                       ----------------   ----------------  --------------
      <S>                                             <C>                <C>               <C>
       Expected federal income tax provision
         at 34%                                        $      6,659,004   $      6,041,839  $    4,634,935
       State income tax, net of federal effect                  843,341            763,479         342,880
       Tax-exempt interest income                              (478,504)          (577,312)       (679,305)
       Other, net                                              (104,551)          (315,606)         30,290
                                                       ----------------   ----------------  --------------

           Provision for income taxes                  $      6,919,290   $      5,912,400  $    4,328,800
                                                       ================   ================  ==============
</TABLE>

       The components of the net deferred tax assets and liabilities at December
       31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>

                                                                          1999               1998
                                                                    ----------------  -------------
        <S>                                                        <C>               <C>
         Deferred tax assets:
         Nonqualified benefit plans                                 $        745,362  $     661,632
         Allowance for loan losses                                         2,001,389      1,342,735
         Net unrealized losses on investment securities                    1,033,402              -
         Other, net                                                          659,516        208,679
                                                                    ----------------  -------------
              Total deferred tax assets                                    4,439,669      2,213,046

</TABLE>


                                       23
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



11.    Income taxes (continued)
       ------------------------
<TABLE>
<CAPTION>

                                                                                      1999               1998
                                                                                ----------------  -----------------
      <S>                                                                       <C>              <C>
       Deferred tax liabilities:

         Mortgage servicing rights                                                       140,392            150,559
         FHLB stock dividends                                                            843,966            695,734
         Net unrealized gains on investment securities                                         -            311,832
         Other, net                                                                      347,546            228,199
                                                                                ----------------  -----------------
              Total deferred tax liabilities                                           1,331,904          1,386,324
                                                                                ----------------  -----------------

              Net deferred tax assets                                           $      3,107,765  $         826,722
                                                                                ================  =================
</TABLE>

       Management believes,  based upon Bancorp's historical  performance,  that
       the net deferred tax assets will be  recognized  in the normal  course of
       operations and, accordingly,  management has not reduced net deferred tax
       assets by a valuation allowance.

       The exercise of nonstatutory  stock options which have been granted under
       Bancorp's stock option plans give rise to compensation  which is included
       in the taxable  income of the  applicable  directors or employees  and is
       deductible  by Bancorp for federal and state  income tax  purposes.  Such
       compensation results from increases in the fair market value of Bancorp's
       common  stock  subsequent  to the date of grant of the  applicable  stock
       options.  In accordance with generally  accepted  accounting  principles,
       such   compensation  is  not  recognized  as  an  expense  for  financial
       accounting  purposes  and the related  tax  benefits  are  recorded as an
       increase to common stock.

       Bancorp's  provision  for income taxes for 1999,  1998 and 1997  included
       approximately $109,000,  $204,000 and $57,000,  respectively,  related to
       gains on sales of investment securities.

       During  1999,  1998 and  1997,  Bancorp  paid  approximately  $8,443,000,
       $6,056,000 and $4,414,000, respectively, in income taxes.


                                       24
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



12.    Transactions with related parties
       ---------------------------------

       Activity  with respect to loans to  directors  and their  affiliates  and
       executive  officers  of  Bancorp  and  subsidiaries  for the  year  ended
       December 31, 1999 was as follows:

       Balance at January 1, 1999                         $  7,298,571
       Additions or renewals                                 6,794,122
       Amounts collected or renewed                         (6,470,302)
                                                          ------------

       Balance at December 31, 1999                       $  7,622,391
                                                          ============

       In  addition,  included  in  commitments  in  Note  9  are  approximately
       $1,887,000  of  commitments  to  extend  credit  to  directors  and their
       affiliates  and executive  officers at December 31, 1999  ($2,399,000  at
       December 31, 1998).

13.    Stock options
       -------------

       Bancorp has two Non-employee Director Stock Option Plans (Director Plans)
       - 1988 and 1993,  two Incentive  Stock Option Plans  (Incentive  Plans) -
       1983 and 1993, and a 1995 Stock Incentive Plan (Option Plan).

       Director Plans
       --------------

       Under  the  Director  Plans,  shares of common  stock  are  reserved  for
       issuance at their fair market value at the date of grant to  non-employee
       directors  of Bancorp and its  subsidiaries.  Generally,  options  become
       exercisable  over a period  of three  years of  subsequent  service.  The
       options  expire in a  maximum  of ten  years  from the date of grant.  At
       December  31,  1999,  201,401 of the  211,647  options  outstanding  were
       exercisable, with 127,540 shares reserved for future grant.

       Incentive Plans
       ---------------

       Under the Incentive  Plans,  officers of Bancorp and its subsidiaries may
       be granted options to purchase  shares of common stock.  The option price
       is the fair market value at the date of grant. Generally,  options become
       exercisable  over a period  of five  years  of  subsequent  service.  The
       options  expire in a  maximum  of ten  years  from the date of grant.  At
       December  31,  1999,  324,839 of the  348,212  options  outstanding  were
       exercisable, and 988 shares were reserved for future grant.



                                       25
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



13.    Stock options (continued)
       ------------------------

       Option Plan
       -----------

       Under the Option Plan, Bancorp  employees,  directors and consultants may
       be granted  nonstatutory  stock options or restricted  stock awards,  and
       Bancorp  employees may be granted  incentive stock options.  The exercise
       prices  of  nonstatutory  stock  options  and the  price  to be paid  for
       restricted stock is established by a committee of the Board of Directors.
       The exercise  price of incentive  stock  options must be no less than the
       fair market value of the underlying shares on the date of grant.  Options
       granted  under the Option  Plan expire on such date as  established  by a
       committee of the Board of  Directors.  However,  incentive  stock options
       expire in a maximum of ten years from the date of grant.  During the year
       ended  December  31,  1998,  the  shareholders  of  Bancorp  approved  an
       amendment to the Option Plan, which resulted in Bancorp reserving 721,681
       additional shares for future grant. At December 31, 1999, 861,286 options
       were outstanding  under the Option Plan,  consisting of 528,052 incentive
       stock options and 333,234  nonstatutory  stock  options.  At December 31,
       1999, a total of 412,296 of the options outstanding were exercisable, and
       594,727  shares were reserved for future  grant.  Bancorp has not granted
       any restricted stock awards under the Option Plan.

       Transactions  involving  option activity for the years ended December 31,
       1999, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>

                                                1999                      1998                       1997
                                      ------------------------  ------------------------  -------------------------
                                                    Weighted-                  Weighted-                 Weighted-
                                                     average                    average                   average
                                        Options     exercise       Options     exercise      Options     exercise
                                      outstanding     price      outstanding     price     outstanding     price
                                      -----------  -----------  ------------ -----------  ------------  -----------
      <S>                              <C>            <C>        <C>            <C>        <C>            <C>
       Balance at beginning of year     1,377,176      $  4.64    1,238,999      $  2.84    1,385,386      $  2.59

       Granted                            212,176        11.66      290,531        11.61       58,402         5.15
       Forfeited                           (6,433)       13.96      (32,520)        7.36      (21,109)        3.16
       Exercised                         (161,774)        2.37     (119,834)        2.24     (183,680)        2.18
                                       ----------                ----------                ----------

       Balance at end of year           1,421,145      $  5.90    1,377,176      $  4.64    1,238,999      $  2.84
                                        =========      =======    =========      =======    =========      =======
</TABLE>

                                       26

<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



13.    Stock options (continued)
       ------------------------

       Information  regarding the number,  weighted-average  exercise  price and
       weighted-average  remaining  contractual  life of  options  by  range  of
       exercise price at December 31, 1999 is as follows:
<TABLE>
<CAPTION>

                                                             Options outstanding              Options exercisable
                                                   -------------------------------------  ---------------------------
                                                                  Weighted-
                                                                   average     Weighted-                   Weighted-
              Range of                                          remaining       average                     average
              exercise                               Number         life       exercise      Number         exercise
                price                              of options      (years)       price     of options         price
          ---------------                          ----------   -----------  -----------  -----------      ---------
         <S>                                      <C>               <C>       <C>          <C>             <C>
          Under $5.00                                909,286          7.4      $  2.79      850,273         $  2.71
          $5.01-$10.00                               121,253          9.4         9.22       30,120            9.16
          $10.01-$15.00                              390,606         11.7        12.11       58,143           11.48
                                                   ----------                               -------

                                                   1,421,145          8.8      $  5.90      938,536         $  5.24
                                                   ==========         ===      =======      =======         =======
</TABLE>

       Exercisable  options as of December 31, 1998 and 1997 totaled 950,981 and
       874,184, respectively.

       No compensation cost has been recognized for the options issued under the
       stock option plans as Bancorp adopted the  disclosure-only  provisions of
       SFAS No. 123 "Accounting for Stock-Based  Compensation." Had compensation
       cost been  determined  based on the fair value of the options at the date
       of grant  consistent  with the provisions of SFAS No. 123,  Bancorp's pro
       forma net income and pro forma  earnings per common share would have been
       as follows for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>

                                                                    1999              1998               1997
                                                             ----------------   ----------------  ----------------
        <S>                                                 <C>                <C>               <C>
         Net income     - as reported                        $     12,106,765   $    11,434,546    $    9,303,363
                        - pro forma                                11,753,038        11,360,952         9,205,469

         Basic earnings per common share:
                        - as reported                                   $ .62             $ .59             $ .48
                        - pro forma                                       .60               .59               .47

         Diluted earnings per common share:
                        - as reported                                   $ .60             $ .56             $ .46
                        - pro forma                                       .58               .56               .46

</TABLE>

                                       27
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



13.    Stock options (continued)
       ------------------------

       The pro  forma  effect  on net  income  for  1999,  1998  and 1997 is not
       representative   of  the  pro  forma  effect  in  future  years   because
       compensation expense related to grants made prior to December 31, 1994 --
       and which vest in subsequent years -- is not considered.  For purposes of
       the above pro forma information,  the fair value of each option grant was
       estimated  at the date of grant using the  Black-Scholes  option  pricing
       model with the following weighted average assumptions:

                                            1999         1998         1997
                                       -----------   -----------   ----------
         Risk-free interest rate           6.3%          5.6%         6.3%
         Expected life (in years)          7.3           7.3          7.3
         Expected volatility              32.6%         31.0%        29.4%
         Expected dividend yield             0%            0%           0%

       The  effect of  applying  the  fair-value-based  method to stock  options
       granted in the years ended December 31, 1999, 1998 and 1997 resulted in a
       weighted-average  grant  date  fair  value of  $5.83,  $5.31  and  $4.42,
       respectively.

14.    Shareholders' equity
       --------------------

       At  December  31,  1999  and  1998,  Bancorp  had  10,000,000  shares  of
       authorized  but unissued  preferred  stock,  which  consists of 5,000,000
       shares each of voting and nonvoting  stock. In May 1998,  shareholders of
       Bancorp  authorized  an  amendment to the  Articles of  Incorporation  to
       change the preferred stock from $5 par value to no par value.

       At  December  31,  1999  and  1998,  Bancorp  had  50,000,000  shares  of
       authorized common stock. In May 1998,  shareholders of Bancorp authorized
       an amendment to the Articles of  Incorporation to change the common stock
       from $2 par value to no par value.

       Dividends  paid  by the  Bank to  Bancorp  provide  substantially  all of
       Bancorp's  cash flow.  Those  dividends  are subject to prior  regulatory
       approval if in excess of certain regulatory limits. At December 31, 1999,
       approximately $11.8 million was available from the Bank for  the  payment
       of dividends to Bancorp without prior regulatory approval.

       In January 2000,  Bancorp authorized the repurchase of up to an aggregate
       of 5% of its currently outstanding common stock over a two-year period.


                                       28
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



15.    Basic and diluted earnings per common share
       -------------------------------------------

       Bancorp's  basic  earnings  per common  share is computed by dividing net
       income by the weighted-average number of common shares outstanding during
       the period.  Bancorp's  diluted  earnings per common share is computed by
       dividing  net  income by the  weighted-average  number  of common  shares
       outstanding plus dilutive common shares related to stock options.

       The  numerators  and  denominators  used in  computing  basic and diluted
       earnings per common share for the years ended December 31, 1999, 1998 and
       1997 can be reconciled as follows:
<TABLE>
<CAPTION>

                                                                        Net
                                                                      income           Shares           Per-share
                                                                    (numerator)     (denominator)        amount
                                                                  --------------    -------------    --------------
       1999
       ----

      <S>                                                        <C>                 <C>                     <C>
       Basic earnings per common share -
         Income available to common shareholders                  $   12,106,765       19,603,896             $ .62
                                                                                                              =====
       Effect of assumed exercise of stock options                             -          631,625
                                                                  --------------     ------------

       Diluted earnings per common share                          $   12,106,765       20,235,521             $ .60
                                                                  ==============       ==========             =====

       1998
       ----

       Basic earnings per common share -
         Income available to common shareholders                  $   11,434,546       19,431,440             $ .59
                                                                                                              =====
       Effect of assumed exercise of stock options                             -          890,420
                                                                  --------------     ------------

       Diluted earnings per common share                          $   11,434,546       20,321,860             $ .56
                                                                  ==============       ==========             =====

       1997
       ----

       Basic earnings per common share -
         Income available to common shareholders                  $    9,303,363       19,255,191             $ .48
                                                                                                              =====
       Effect of assumed exercise of stock options                             -          863,546
                                                                  --------------     ------------

       Diluted earnings per common share                          $    9,303,363       20,118,737             $ .46
                                                                  ==============       ==========             =====

</TABLE>

                                       29
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



16.    Employee benefit plan
       ---------------------

       Bancorp has an employee  savings plan and profit  sharing plan (the Plan)
       which  covers  all  full-time  employees  over  age 21 with  one  year of
       service.  The Plan allows  employees to  contribute  between 2% to 15% of
       their salary on a tax-deferred  basis.  Bancorp's matching  contributions
       are determined annually by the Board of Directors, up to 6% of individual
       employee salaries. In addition to the matching contributions, Bancorp may
       also   make   discretionary   contributions   to  the   Plan.   Bancorp's
       contributions   charged  to  operations   related  to  the  Plan  totaled
       approximately  $400,000  for 1999  ($400,000  for 1998 and  $350,000  for
       1997).

17.    Regulatory matters
       ------------------

       Bancorp and the Bank are subject to the  regulations  of certain  federal
       and state agencies, and receive periodic examinations by those regulatory
       authorities.  In  addition,  Bancorp  and the Bank are subject to various
       regulatory  capital  requirements  administered  by the  federal  banking
       agencies.  Failure to meet  minimum  capital  requirements  can  initiate
       certain mandatory -- and possibly additional  discretionary -- actions by
       regulators  that, if undertaken,  could have a direct  material effect on
       Bancorp's or the Bank's  financial  statements.  Under  capital  adequacy
       guidelines and the  regulatory  framework for prompt  corrective  action,
       Bancorp and the Bank must meet specific  capital  guidelines that involve
       quantitative    measures    of   assets,    liabilities,    and   certain
       off-balance-sheet   items  as  calculated  under  regulatory   accounting
       practices.  Bancorp's and the Bank's capital  amounts and  classification
       are  also  subject  to  qualitative  judgments  by the  regulators  about
       components, risk weightings, and other factors.

       Quantitative   measures  established  by  regulation  to  ensure  capital
       adequacy  require  Bancorp and the Bank to maintain  minimum  amounts and
       ratios  (set  forth in the  tables  below) of total and Tier I capital to
       risk-weighted  assets,  and of Tier I capital to average  assets  (all as
       defined in the regulation). Management believes, as of December 31, 1999,
       that Bancorp and the Bank meet all capital adequacy requirements to which
       they are subject.

       As of December 31, 1999, Bancorp and the Bank were adequately capitalized
       under  the  regulatory   framework.   To  be  categorized  as  adequately
       capitalized, Bancorp and the Bank must maintain minimum total risk-based,
       Tier 1  risk-based  and  Tier 1  leverage  ratios  as  set  forth  in the
       following  tables.  There are no  conditions  or events  that  management
       believes  would  change  Bancorp's  or  the  Bank's  regulatory   capital
       categorization.


                                       30
<PAGE>

                                         CENTENNIAL BANCORP AND SUBSIDIARIES
                                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                              December 31, 1999



17.    Regulatory matters (continued)
       -----------------------------

       Bancorp's actual and required capital amounts and ratios are presented in
       the table below:
<TABLE>
<CAPTION>

                                                                Regulatory minimum to be   Regulatory minimum to be
                                               Actual           "adequately capitalized"     "well capitalized"
                                      ------------------------  ------------------------   -----------------------
                                        Amount        Ratio        Amount        Ratio       Amount        Ratio
                                      -----------  -----------  -----------  -----------  -----------   ----------
       December 31, 1999:

      <S>                            <C>              <C>      <C>              <C>      <C>              <C>
       Total capital
         (to risk-weighted assets)    $73,308,000      9.9%     $59,239,000       8.0%    $74,048,000      10.0%
       Tier 1 capital
         (to risk-weighted assets)     67,143,000      9.0       29,619,000       4.0      44,429,000       6.0
       Tier 1 capital
         (to average assets)           67,143,000      9.7       27,688,000       4.0      34,610,000       5.0

       December 31, 1998:

       Total capital
         (to risk-weighted assets)     66,127,000     12.0       44,085,000       8.0      55,106,000      10.0
       Tier 1 capital
         (to risk-weighted assets)     61,676,000     11.2       22,042,000       4.0      33,064,000       6.0
       Tier 1 capital
         (to average assets)           61,676,000     10.9       22,633,000       4.0      28,292,000       5.0
</TABLE>

       The Bank's actual and required  capital  amounts and ratios are presented
       in the table below:
<TABLE>
<CAPTION>

                                                                Regulatory minimum to be   Regulatory minimum to be
                                               Actual           "adequately capitalized"      "well capitalized"
                                      ------------------------  ------------------------   -------------------------
                                        Amount        Ratio        Amount        Ratio       Amount        Ratio
                                      -----------  -----------  -----------  -----------   -----------   -----------
       December 31, 1999:

      <S>                            <C>              <C>      <C>               <C>     <C>              <C>
       Total capital
         (to risk-weighted assets)    $65,969,000      9.0%     $58,969,000       8.0%    $73,712,000      10.0%
       Tier 1 capital
         (to risk-weighted assets)     59,804,000      8.1       29,485,000       4.0      44,227,000       6.0
       Tier 1 capital
         (to average assets)           59,804,000      8.7       27,613,000       4.0      34,516,000       5.0

       December 31, 1998:

       Total capital
         (to risk-weighted assets)     59,658,000     10.9       43,843,000       8.0      54,804,000      10.0
       Tier 1 capital
         (to risk-weighted assets)     55,207,000     10.1       21,922,000       4.0      32,882,000       6.0
       Tier 1 capital
         (to average assets)           55,207,000      9.8       22,524,000       4.0      28,155,000       5.0
</TABLE>

                                       31

<PAGE>

                                         CENTENNIAL BANCORP AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                 December 31, 1999



18.    Parent company financial information
       ------------------------------------

       Condensed  financial  information for Centennial  Bancorp (Parent Company
       only) is presented as follows:
<TABLE>
<CAPTION>

                                     CONDENSED BALANCE SHEETS (Unconsolidated)

                                                                                             December 31,
                                                                                        1999              1998
                                                                                    -------------    --------------
      <S>                                                                          <C>              <C>
       Assets:
         Cash and cash equivalents, deposited with the Bank                         $   1,972,516    $    3,264,923
         Equipment, net                                                                    69,209            84,911
         Deferred tax asset                                                             1,357,495           484,246
         Investment in subsidiaries at cost plus equity in earnings                    69,883,713        59,394,795
         Other assets                                                                   2,411,998         1,798,918
                                                                                    -------------    --------------
              Total assets                                                          $  75,694,931    $   65,027,793
                                                                                    =============    ==============
       Liabilities and shareholders' equity:
         Accrued liabilities                                                        $   1,366,170    $    1,310,652
         Shareholders' equity                                                          74,328,761        63,717,141
                                                                                    -------------    --------------

              Total liabilities and shareholders' equity                            $  75,694,931    $   65,027,793
                                                                                    =============    ==============
</TABLE>
<TABLE>
<CAPTION>

                                     CONDENSED STATEMENTS OF INCOME (Unconsolidated)


                                                                              Years ended December 31,
                                                                  -------------------------------------------------
                                                                       1999             1998              1997
                                                                  --------------    -------------    --------------
        <S>                                                      <C>               <C>              <C>
         Income:
         Interest income from subsidiaries                        $      103,815    $     135,862    $      149,995
         Other income                                                          -           24,725             8,007
                                                                  --------------    -------------    --------------
               Total income                                              103,815          160,587           158,002
       Expense:
         Salaries and employee benefits                                  702,931          704,256           567,313
         Other                                                           343,936          317,866           366,259
                                                                  --------------    -------------    --------------
              Total expenses                                           1,046,867        1,022,122           933,572
       Loss before income tax benefit and equity in
         undistributed earnings of subsidiaries                         (943,052)        (861,535)         (775,570)
       Income tax benefit                                                366,030          237,601           157,399
                                                                  --------------    -------------    --------------
       Loss before equity in undistributed earnings
         of subsidiaries                                                (577,022)        (623,934)         (618,171)
       Equity in undistributed net earnings of subsidiaries           12,683,787       12,058,480         9,921,534
                                                                  --------------    -------------    --------------

           Net income                                             $   12,106,765    $  11,434,546    $    9,303,363
                                                                  ==============    =============    ==============
</TABLE>


                                       32
<PAGE>

                      CENTENNIAL BANCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               December 31, 1999



18.    Parent company financial information
       ------------------------------------
<TABLE>
<CAPTION>

                                     CONDENSED STATEMENTS OF CASH FLOWS (Unconsolidated)

                                                                              Years ended December 31,
                                                                  -------------------------------------------------
                                                                       1999             1998              1997
                                                                  --------------    -------------    --------------
      <S>                                                        <C>               <C>              <C>
       Cash flows from operating activities:
         Net income                                               $   12,106,765    $  11,434,546    $    9,303,363
       Adjustments to reconcile net income to net cash
         used by operating activities:
           Depreciation and amortization                                 101,490          100,238            98,570
           Undistributed earnings of subsidiaries                    (12,683,787)     (12,058,480)       (9,921,534)
           Deferred tax benefit                                         (873,249)         (43,442)          (18,623)
           Changes in assets and liabilities:
              Other assets                                              (382,763)        (831,450)          710,290
              Accrued liabilities                                         55,518          315,389          (261,295)
                                                                  --------------    -------------    --------------
                  Net cash used by operating activities               (1,676,026)      (1,083,199)          (89,229)
       Cash flows used by investing activities -
         purchases of equipment                                                -          (18,789)           (7,999)
       Cash flows from financing activities -
         proceeds from exercise of stock options                         383,619          267,381           400,944
                                                                  --------------    -------------    --------------
       Net increase (decrease) in cash and cash equivalents           (1,292,407)        (834,607)          303,716
       Cash and cash equivalents at beginning of year                  3,264,923        4,099,530         3,795,814
                                                                  --------------    -------------    --------------
       Cash and cash equivalents at end of year                   $    1,972,516    $   3,264,923    $    4,099,530
                                                                  ==============    =============    ==============

</TABLE>

                                       33

<PAGE>


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

     THE  FOLLOWING  DISCUSSION  SHOULD BE READ IN  CONJUNCTION  WITH  BANCORP'S
AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES AT DECEMBER 31, 1999
AND FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999 WHICH ARE INCLUDED
ELSEWHERE IN THIS ANNUAL REPORT.

     THIS DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS, WHICH ARE MADE
PURSUANT TO THE SAFE HARBOR  PROVISIONS  OF THE  PRIVATE  SECURITIES  LITIGATION
REFORM ACT OF 1995.  STATEMENTS  THAT  EXPRESSLY OR  IMPLICITLY  PREDICT  FUTURE
RESULTS,  PERFORMANCE  OR EVENTS ARE  FORWARD-LOOKING.  IN  ADDITION,  THE WORDS
"ANTICIPATE,"  "BELIEVE,"  "INTEND," "EXPECT" AND SIMILAR  EXPRESSIONS  IDENTIFY
FORWARD-LOOKING  STATEMENTS.  SUCH  STATEMENTS  ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES  THAT COULD CAUSE ACTUAL RESULTS TO DIFFER  MATERIALLY  FROM THOSE
ANTICIPATED. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THE FOLLOWING: (1) POTENTIAL DELAYS OR OTHER PROBLEMS IN
IMPLEMENTING BANCORP'S GROWTH AND EXPANSION STRATEGY; (2) THE ABILITY TO ATTRACT
NEW DEPOSITS AND LOANS; (3) INTEREST RATE FLUCTUATIONS;  (4) COMPETITIVE FACTORS
AND PRICING  PRESSURES;  (5) GENERAL ECONOMIC  CONDITIONS,  EITHER NATIONALLY OR
REGIONALLY THAT COULD RESULT IN INCREASED LOAN LOSSES;  (6) CHANGES IN LEGAL AND
REGULATORY REQUIREMENTS; AND (7) CHANGES IN TECHNOLOGY, AS WELL AS OTHER FACTORS
DESCRIBED  IN THIS  AND  OTHER  BANCORP  REPORTS  AND  STATEMENTS.  READERS  ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON BANCORP'S  FORWARD-LOOKING  STATEMENTS,
WHICH SPEAK ONLY AS OF THE DATE  HEREOF.  BANCORP  DOES NOT INTEND TO UPDATE ITS
FORWARD-LOOKING STATEMENTS.


HIGHLIGHTS

     Centennial Bancorp reported net income of $12.1 million, or $.62 per share,
for the year ended  December 31, 1999.  This  represented a 5.9% increase in net
income, as compared to $11.4 million,  or $.59 per share, in 1998. Net income in
1998 represented a 22.9% increase from 1997 net income of $9.3 million,  or $.48
per share.  The return on average  assets was 1.91% in 1999 compared to 2.18% in
1998 and  2.12% in 1997.  The  increased  earnings  for 1999 and 1998  primarily
reflect  increased  net  interest  income  due to  the  expansion  of  Bancorp's
interest-earning assets each year.

     At December  31,  1999,  total assets  increased  $154.7  million to $726.7
million.  This  increase  represented  a 27.0%  increase  over  total  assets at
December 31, 1998.  Earning  assets at December  31, 1999  represented  90.6% of
total assets,  which was an increase from December 31, 1998 when earning  assets
were 90.0% of total assets.

     1999 was a year of significant  change and continued growth for Bancorp.  A
new  corporate  headquarters  office was  established  in  downtown  Portland to
provide a more central  location  and better  support for  Bancorp's  growth and
expansion northward along the I-5 corridor. During the first quarter, Centennial
Bank (the "Bank") completed a major reorganization along functional (rather than
geographical) lines, also to facilitate continuing growth and expansion.  During
the year, the Bank added five new  full-service  branches.  In January 1999, the
Oakway  Center office  opened as the Bank's  fourth  full-service  branch in the
Eugene  area.  The Hazel Dell office in  Vancouver,  Washington,  acquired  from
Northwest National Bank, opened on May 3, 1999 as the Bank's first branch in the
State of Washington. The new downtown Portland and

                                       34
<PAGE>

downtown Salem offices  opened in July with the Salem office  operating out of a
temporary  facility  while a new  building is being  constructed.  Finally,  the
Clackamas  office  opened in  November  to serve the  southeast  Portland  area.
Another  full-service  branch in  Vancouver,  the Mill Plain  office,  opened in
February 2000.

     As part of the Bank's reorganization, during January 1999, the Bank created
two  commercial  banking  centers,  one in  downtown  Eugene  and the  other  in
southwest  Portland.  A third center in downtown  Portland  opened  during July.
Bancorp has also announced plans to open commercial banking centers in Clackamas
and Vancouver.

     In January 1999,  Centennial  Mortgage Co. ("Mortgage Co.") opened a second
Eugene  office in the Oakway  Center next to the new Bank branch and in November
moved its Sunnyside office to the new Bank branch location in Clackamas. Bancorp
has also  announced  plans to open a Mortgage Co. office in downtown Salem to be
located  in  the  new  Bank  branch  building  upon  its  completion,  currently
anticipated early in the second quarter of 2000.


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,  and
interest  expense,  principally  on  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  amount  and  relative  mix of  interest-earning  assets  and
interest-bearing  liabilities.  During 1999,  1998 and 1997,  Bancorp's  average
interest-earning  assets  were $578  million,  $483  million  and $399  million,
respectively.  During these same years, Bancorp's net interest margin was 7.15%,
7.22% and 6.92%, respectively.


                                       35
<PAGE>
<TABLE>
<CAPTION>


     AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID

     The following  table sets forth for 1999, 1998 and 1997 information with regard to average  balances of assets and liabilities,
as well  a  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.

Year ended December 31,                             1999                              1998                          1997
                                       ------------------------------  ------------------------------  ----------------------------
                                                  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
                                       ---------- ---------  --------  ---------- ---------  --------  ---------- ---------  -------
                                                                 (Dollars in thousands)
<S>                                    <C>        <C>       <C>       <C>          <C>       <C>      <C>          <C>        <C>
ASSETS:
Interest-bearing deposits with banks    $    104   $    8     7.69%    $     264   $    14    5.30%    $   6,924    $    376   5.43%
Investment securities - taxable           41,954    2,612     6.23        48,554     3,096    6.38        41,933       2,791   6.66
Investment securities - non-taxable(2)    28,155    2,172     7.71        33,508     2,574    7.68        39,097       3,083   7.89
Federal funds sold                         5,937      280     4.72        13,253       691    5.21        10,925         573   5.24
Loans and loans held for sale(3)         502,272   54,134    10.78       387,914    44,348   11.43       299,976      34,329  11.44
                                        --------  -------              ---------   -------               -------      ------
      Total interest-earning
           assets/interest income (2)    578,422   59,206    10.24       483,493    50,723   10.49       398,855      41,152  10.32
Allowance for loan losses                 (5,399)                         (3,882)                         (3,123)
Cash and due from banks                   31,440                          28,351                          27,552
Premises and equipment, net               13,993                          11,407                           9,790
Other assets                              16,547                           5,848                           6,112
                                        --------                        --------                        --------
      Total assets                      $635,003                        $525,217                        $439,186
                                        ========                        ========                        ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and interest-bearing demand
 deposits                               $260,240    7,865     3.02      $211,896     6,889    3.25      $166,800       5,156   3.09
Time deposits                            167,702    8,597     5.13       145,387     8,185    5.63       129,756       7,299   5.63
Short-term borrowings                     26,356    1,405     5.33        10,016       489    4.88         9,688         539   5.56
Long-term debt                                                             5,945       273    4.59        10,000         572   5.72
                                        --------  -------              ----------   ------              --------     -------
      Total interest-bearing
           liabilities/interest expense  454,298   17,867     3.93       373,244    15,836    4.24       316,244      13,566   4.29
Demand deposits                          106,317                          90,166                          75,005
Other liabilities                          4,948                           5,095                           2,001
                                        --------                        --------                        --------
      Total liabilities                  565,563                         468,505                         393,250
Shareholders' equity                      69,440                          56,712                          45,936
                                        --------                        --------                        --------
      Total liabilities and
           shareholders' equity         $635,003                        $525,217                        $439,186
                                        ========                        ========                        ========
Net interest income(2)                            $41,339                          $34,887                           $27,586
                                                  =======                          =======                           =======
Net interest spread(2)                                        6.31%                           6.25%                            6.03%
                                                              =====                           =====                            =====
Net interest margin(2)                                        7.15%                           7.22%                            6.92%
Net interest income to average
 shareholders' equity (2)                           59.53%                           61.52%                            60.05%
Average interest-earning assets to
      average interest-bearing
      liabilities                            127%                            130%                            126%


------------------------------
(1)   Average balances are based on daily averages.
(2) Average  yield on  non-taxable  securities, interest income, net interest income, net interest spread, net interest  margin  and
net interest  income to average  shareholders' equity have been computed on a 34% tax-equivalent  basis.
(3) Nonaccrual  loans have been included in the computation of  average  loans and loans held for sale. Loan fees recognized  during
the period and included in the yield calculation totaled $7,282,948 in 1999,  $6,855,866 in 1998 and $4,769,700 in 1997.

</TABLE>

                                                                      36

<PAGE>
<TABLE>
<CAPTION>

     ANALYSIS OF CHANGES IN INTEREST RATE DIFFERENTIAL

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

                                                                      1999 vs. 1998                        1998 vs. 1997
                                                                        Change in                              Change in
                                                                 net interest income due to             net interest income due to
                                                              --------------------------------      --------------------------------

                                                               Volume        Rate       Total        Volume       Rate       Total
                                                              --------     -------     -------      --------     ------     -------
                                                                             (In thousands)
<S>                                                           <C>       <C>            <C>          <C>       <C>         <C>
Interest income:
         Balances due from banks                               $  (10)    $    4        $  (6)       $ (357)    $   (5)     $  (362)
         Investment securities - taxable                         (416)       (68)        (484)          431       (126)         305
         Investment securities - non-taxable                     (412)        10         (402)         (435)       (74)        (509)
         Federal funds sold                                      (363)       (48)        (411)          122         (4)         118
         Loans and loans held for sale                         12,700     (2,914)       9,786        10,059        (40)      10,019
                                                               ------     ------        -----       -------      ------     -------

               Total interest income                           11,499     (3,016)       8,483         9,820       (249)       9,571


Interest expense:
         Deposits:
               Savings and interest-bearing demand              1,516       (540)         976         1,430        303        1,733

               Time                                             1,200       (788)         412           880          5          885
         Short-term borrowings                                    834         82          916            17        (67)         (50)
         Long-term debt                                          (273)                   (273)         (209)       (90)        (299)
                                                               ------     ------        -----         -----     ------       ------
               Total interest expense                           3,277     (1,246)       2,031         2,118        151        2,269
                                                               ------     ------        -----         -----     ------       ------


Net interest income                                            $8,222    $(1,770)      $6,452        $7,702     $ (400)      $7,302
                                                               ======    =======       ======        ======     =======      ======

</TABLE>

                                                                     37
<PAGE>


RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

     NET INTEREST INCOME

     As a result of volume increases and improved interest spread, Bancorp's net
interest income increased to $41.5 million,  on a tax-equivalent  basis, in 1999
as compared to $34.9  million in 1998 and $27.6  million in 1997.  During  1999,
average interest-earning assets increased to $578 million as compared to average
interest-earning assets of $483 million in 1998 and $399 million in 1997. At the
same time,  average  interest-bearing  liabilities  increased to $454 million in
1999 from $373 million in 1998 and $316 million in 1997.

     The average yield earned on  interest-earning  assets decreased by .25% (25
basis points) in 1999 and increased by .17% in 1998, while the average rate paid
on  interest-bearing  liabilities  decreased  by .31% in 1999  and .05% in 1998.
Although  net  interest  spread for 1999  increased to 6.31% from 6.25% in 1998,
lower loan yields caused a modest  decrease in 1999 net interest margin to 7.15%
from 7.22% in 1998.  Primarily due to higher loan volumes,  net interest  spread
for 1998 increased to 6.25% from 6.03% in 1997, and net interest margin for 1998
increased to 7.22% from 6.92% in 1997.

     During 1999 and 1998,  Bancorp  primarily  supported its strong loan growth
with  increased  deposits,   which  mainly  resulted  from  continuing  business
expansion.  Borrowing was also a major source of funding during 1999.  Decreased
cash balances, partial investment portfolio liquidation, and operating cash flow
were substantial funding sources both years. Purchases of premises and equipment
required a significant use of cash in both 1999 and 1998.

     Bancorp  experienced  rising  interest  rates  during  1999 as  compared to
declining rates in 1998 and relative rate stability in 1997.  Bancorp's  current
rate-sensitive  asset and liability  portfolio mix has an interest-rate  profile
that  should  enhance  earnings  in a rising  rate  environment  but  would be a
detriment to earnings if interest rates fall. See  "Quantitative and Qualitative
Disclosures about Market Risk" below.

     The  Mortgage  Co.  has  a  residential   mortgage   construction   lending
department,   which   develops   relationships   with  home   builders   in  the
Eugene/Springfield  and Portland-area  markets and produces additional permanent
loan activity as the houses under  construction are sold.  Recognizing the risks
associated  with  construction  lending,  management has  established a detailed
approval  process for builder  lines of credit and has  implemented a continuing
review of  construction  in  progress  to monitor  construction  loan  activity.
Interest rate increases could adversely affect the demand for construction loans
and the  repayment  of those loans from the sale of completed  properties.  Rate
increases  could also  adversely  impact the Mortgage Co.'s  permanent  mortgage
lending activity.

     PROVISION FOR LOAN LOSSES

     Management's  policy is to maintain an adequate  allowance for loan losses.
In 1999, Bancorp charged a $2,300,000 loan loss provision to income, as compared
to $1,500,000 in 1998 and $1,250,000 in 1997. The larger loan loss provisions in
1999 and 1998  primarily  reflect the larger amounts of loans  outstanding  each
year. In


                                       38
<PAGE>

1999, loan charge-offs,  net of recoveries,  were $586,000,  as compared to loan
charge-offs, net of recoveries, of $398,000 in 1998 and $501,000 in 1997.

     Bancorp's  allowance for loan losses was $6.2 million at December 31, 1999,
as compared to $4.5  million and $3.3  million at December 31, 1998 and December
31,  1997,  respectively.  The ratio of the  allowance  for loan losses to total
nonperforming  loans was 195%, 89% and 263% at December 31, 1999, 1998 and 1997,
respectively.  The  significant  decrease in the allowance ratio at December 31,
1998 was primarily due to one borrower whose loans were substantially liquidated
during 1999.

     Management  attributes  the relatively low levels of loans charged off, net
of recoveries,  during 1999, 1998 and 1997 to favorable economic  conditions and
effective credit risk management policies, procedures and practices.  Management
continues its efforts to collect amounts previously charged off.

     NONINTEREST INCOME

     Noninterest  income decreased  $657,000 to $3.5 million in 1999 as compared
to 1998, and increased $1.0 million to $4.2 million in 1998 as compared to 1997.
The  decrease  in 1999 was due to lower gains  recognized  on sales of loans and
securities.  The 1998 increase was primarily  attributable to increased gains on
loan and securities sales,  which were partially offset by the decrease in other
noninterest income that returned to more normal levels after spiking in 1997 due
to the receipt of a $650,000 litigation settlement.

     Gains on sales of loans decreased $757,000 in 1999 as compared to 1998, and
increased  $844,000 in 1998 as compared to 1997.  The 1999 decrease was due to a
decrease in the volume of  residential  mortgage  loans  originated  through the
Mortgage  Co.  that  are  subsequently  sold to  third-party  investors  without
retention of servicing rights. The decrease in the volume of loans was primarily
the result of increasing  interest rates in 1999.  Gains on loan sales increased
during 1998 due to increasing mortgage loan volumes in a favorable interest-rate
environment. The fee income and sale gains from the origination and refinance of
mortgage loans sold to third-party investors is interest-rate  sensitive and can
vary significantly.  Therefore,  there can be no assurance that such income will
contribute to Bancorp's future earnings.

     Bancorp  recognized  decreased  gains on sales of  securities  of  $301,000
during 1999 as compared to 1998 and increased  gains on sales of $432,000 during
1998 as compared to 1997.  Although  the volume of  securities  sold in 1999 was
substantially  higher  than in  1998,  1999  gains  on  sales  were  limited  by
unfavorable  interest rate trends.  Decreasing market rates during 1998 resulted
in increased gains from sales of securities that year.

     NONINTEREST EXPENSE

     Noninterest  expense  increased  $3.5  million to $22.8  million in 1999 as
compared  to 1998,  and  increased  $4.5  million  to $19.3  million  in 1998 as
compared  to 1997.  The  increases  both years were  primarily  attributable  to
increased  staffing and facilities  expenses.  Increased spending on advertising
was also a significant factor in 1998.

                                       39
<PAGE>

     Salaries and employee  benefits  expenses  increased  $1.5 million to $14.3
million in 1999 as compared to 1998, and increased $3.2 million to $12.8 million
in 1998 as compared to 1997.  These increases were primarily the result of staff
additions to accommodate Bancorp's expanding operations.

     Premises and equipment expense  increased  $672,000 to $3.3 million in 1999
as compared to 1998, and increased  $594,000 to $2.6 million in 1998 as compared
to 1997.  The increases in 1999 and 1998 were  primarily  due to the  increasing
number of Bank and Mortgage Co. offices each year.

     Advertising  expenses  increased $29,000 to $830,000 in 1999 as compared to
1998 and $312,000 to $801,000 in 1998 as compared to 1997. During 1999,  Bancorp
maintained 1998 spending  levels,  which had increased  substantially  from 1997
levels as Bancorp  adopted a more formal  advertising  strategy with emphasis on
developing name recognition in the markets served.

     Although data processing expenses increased $413,000 to $665,000 in 1999 as
compared  to 1998,  the  majority  of the  increase  resulted  from the costs of
outsourcing  the Bank's  item  processing.  These costs were more than offset by
internal staffing and equipment expense savings.

     Other  noninterest  expense  increases in 1999 and 1998 were  primarily the
result of business expansion.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Market  risk  is the  risk of loss to  future  earnings  ("earnings")  and
current shareholders' equity ("equity"), which may result from changes in market
prices and rates.  Bancorp's  primary  market risk exposure is the interest rate
risk associated with its investing,  lending,  deposit and borrowing activities.
Other types of market  risk,  such as foreign  currency  exchange  rate risk and
commodity  price risk,  do not  materially  affect or are not part of  Bancorp's
normal  business  activities.  Interest  rate risk is the risk that  changes  in
interest rates will adversely  affect  earnings and equity.  The risk of loss to
earnings in a given period  develops  when the degree and timing of rate changes
varies among rate-sensitive  assets and liabilities.  The risk of loss to equity
develops  when rate  changes  affect the  current  fair value of  rate-sensitive
assets and liabilities by differing amounts.

      Management actively monitors and manages Bancorp's interest rate risk with
the overall  objective of achieving  satisfactory  and consistent  profitability
while  maintaining  interest rate  sensitivity  within formal policy  guidelines
established by the Board of Directors.  The Asset and Liability Committee of the
Board of  Directors  reviews  interest-sensitivity  reports and related  matters
quarterly or more often if needed.  All  significant  interest  rate risk issues
including policy exceptions are presented to the Board of Directors for review.

      Bancorp's  interest rate risk is currently measured using a computer-based
system developed and implemented  during 1999. Bancorp uses an income simulation
model to measure  earnings  sensitivity by applying +/-1% and +/-2% rate changes
(annualized)  to  six-month  earnings  projections.  Like all income  simulation
models,  Bancorp's model is very assumption dependent.  The earnings projections
involve  numerous  assumptions

                                       40
<PAGE>

including, but not limited to, those concerning future portfolio growth and mix,
interest  rates,  market  and  economic  trends,  and  customer  behavior.   The
application  of rate  changes also  involves  many  assumptions  about the basic
components of interest rate risk.  Fair value  sensitivity is measured using the
computer model in conjunction  with investment  portfolio  reports which include
the relevant information about investment security fair values and interest rate
sensitivity.  The computer model determines the fair value of selected loans and
deposits by  calculating  the present value of future cash flows using  discount
rates that are reflective of current market rates. +/-1% and +/-2% instantaneous
interest  rate  "shocks"  are then applied to  determine  sensitivity.  The fair
valuation  process is also very  dependent  on  numerous  assumptions.  Although
Management  believes all assumptions  and estimates used are reasonable,  actual
results may vary substantially.

      The following table summarizes Bancorp's six-month earnings sensitivity as
of December 31, 1999:

         INTEREST RATE CHANGE                 CHANGE IN NET INCOME
                  -2%                               $-513,000
                  -1%                                -261,000
                  +1%                                +194,000
                  +2%                                +390,000

      Comparable  information  for 1998 was not available  since Bancorp was not
using the current  measurement  system at that time.  Bancorp's  annual earnings
sensitivity as of December 31, 1998 using different methodology was as follows:

        INTEREST RATE CHANGE                  CHANGE IN NET INCOME
                 -1%                                $-179,000
                 -2%                                 -659,000

      Bancorp's fair value sensitivity as of December 31, 1999 was as follows:

       INTEREST RATE CHANGE                   CHANGE IN FAIR VALUES
                -2%                               $+15,305,000
                -1%                                 +7,341,000
                +1%                                 -7,603,000
                +2%                                -14,486,000

      Because of  uncertainties  about customer  behavior,  refinance  activity,
absolute and relative loan and deposit  pricing levels,  competitor  pricing and
market  behavior,  product  volumes  and mix,  and other  unexpected  changes in
economic events affecting movements and volatility in market rates, there can be
no assurance that simulation and fair valuation results are reliable  indicators
of interest rate risk under such conditions.


PROVISION FOR INCOME TAXES

      Bancorp's  provision  for  income  taxes was $6.9  million  in 1999,  $5.9
million in 1998 and $4.3  million  in 1997.  Bancorp's  effective  tax rates for
financial  reporting  were 36.4% in 1999,  34.1% in 1998 and 31.8% in 1997.  The
effective  tax rate varies

                                       41
<PAGE>

from federal statutory rates primarily because of nontaxable interest income and
state income taxes. See Note 11 to the Consolidated Financial Statements.


LIQUIDITY AND SOURCES OF FUNDS

      Bancorp's  primary  sources  of funds are  customer  deposits,  short-term
borrowings,  loan repayments,  net income and sales of loans.  Although sales of
investment  securities  were a significant  funding source in 1999 and 1998, the
investment portfolio is currently a less effective source of immediate liquidity
due to unrealized  losses  resulting  from recent  increases in interest  rates.
Scheduled loan repayments are a relatively stable source of funds, while deposit
inflows  and  unscheduled  loan  prepayments,  which are  influenced  by general
interest  rate  levels,   interest   rates   available  on  other   investments,
competition, economic conditions and other factors, are not. The Bank's deposits
increased to $573 million at December 31, 1999 from $484 million at December 31,
1998 and $419  million  at  December  31,  1997,  primarily  because  of ongoing
business expansion and development programs.

      Net loans and loans held for sale  increased  to $594  million at December
31, 1999 from $428 million at December 31, 1998 and $337 million at December 31,
1997.  These  increases were primarily due to the Bank's  expansion and business
development activities,  and the Mortgage Co.'s real estate construction lending
activities.

      The Bank  maintains,  on an  unsecured  basis,  federal  funds  lines with
correspondent banks as a backup source of temporary  liquidity.  At December 31,
1999,  the Bank had federal  funds lines  totaling  $30 million  ($33 million at
December 31, 1998) with $19.6 million  outstanding  ($1 million  outstanding  at
December 31, 1998).

      The Bank also maintains a cash management credit facility with the Federal
Home Loan Bank of Seattle  ("FHLB").  The credit facility is based on the Bank's
holdings of specified  housing finance related assets,  and is limited to 10% of
the Bank's total assets,  measured on a quarterly  basis.  At December 31, 1999,
the Bank had a $51.7 million  credit  facility  with the FHLB ($26.1  million at
December 31, 1998) with $46.7 million  outstanding at December 31, 1999 and $3.5
million  outstanding  at December  31, 1998.  The increase in the Bank's  credit
facility at December 31, 1999 from the level at December 31, 1998 was due to the
Bank's  increase in specified  housing  finance  related assets during 1999. The
credit  facility  is secured by the FHLB stock  owned by the Bank and by all its
other assets.

      Management  anticipates  that Bancorp will continue to rely on the primary
liquidity  sources  previously  discussed.  Although deposit balances have shown
historical  growth,  such  balances may be  influenced by changes in the banking
industry,  interest  rates  available  on other  investments,  general  economic
conditions,  competition  and  other  factors.  Borrowings  may  be  used  on  a
short-term  basis to  compensate  for  reductions  in other  sources  of  funds.
Borrowings may also be used on a longer-term  basis to support  expanded lending
activities and to match the maturity or repricing  intervals of assets.  Federal
funds  purchased  and FHLB advances  will  probably  continue as Bancorp's  main
sources of  borrowed  funds,  and Bancorp is  actively  seeking to expand  these
liquidity sources.  Bancorp is also actively seeking to diversify its sources of
funding overall.


                                       42
<PAGE>

CAPITAL RESOURCES

      Total shareholders' equity increased to $74.3 million at December 31, 1999
from  $63.7   million  and  $51.8   million  at  December  31,  1998  and  1997,
respectively.  Total shareholders'  equity was increased during 1999 not only by
net  income,  but also by the  effects of stock  options  exercised  ($700,000).
Bancorp shareholders' equity (Tier 1 capital) was 9.7% of average assets in 1999
as compared to 10.9% in 1998. The Bank's shareholder equity (Tier 1 capital) was
8.7% of average assets in 1999 as compared to 9.8% in 1998.


EFFECTS OF INFLATION AND CHANGING PRICES

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

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


EFFECTS OF YEAR 2000

      Some  computers  and computer  software  programs are unable to accurately
recognize,  for years after 1999, dates which are often expressed as a two digit
number.   This  inability  to  recognize  date   information   accurately  could
potentially affect computer operations and calculations, or could cause computer
systems to not operate at all.

      Bancorp is heavily  reliant  on  computers  for  accounting  for  customer
records and transactions,  as well as operating  performance.  Prior to December
31,  1999,  Bancorp  initiated  and  completed a  comprehensive  Year 2000 audit
program,  primarily  directed by a task force  organized by  management in early
1997.  Bancorp also prepared  contingency  plans to minimize  disruptions to its
operations due to Year 2000 issues.  Among other  criteria,  Bancorp's Year 2000
programs  were  designed to comply  with  guidance  provided by federal  banking
regulators  to  financial  institutions  with  respect  to  becoming  Year  2000
compliant.

      To date,  Bancorp has not,  nor to  management's  knowledge  has any third
party  vendor or service  provider  on which  Bancorp  relies,  experienced  any
material problems related to the Year 2000. However, Bancorp cannot determine if
it will be subject to Year 2000  compliance  problems in the future,  or if Year
2000 problems have arisen that management has failed to detect.

      Bancorp will  continue to monitor its business  applications  and maintain
contact with  significant  third  parties to resolve any Year 2000 problems that
may arise in

                                       43
<PAGE>

the future. Management believes that its efforts to achieve Year 2000 compliance
and the  impact  of the Year 2000  problem  will not have a  material  effect on
Bancorp's operations.


FORM 10-K

      Copies of Bancorp's  annual  report on Form 10-K required to be filed with
the SEC under the Securities  Exchange Act of 1934 are available to shareholders
at no charge  upon  written  request to:  Michael J.  Nysingh,  Chief  Financial
Officer,  Centennial  Bancorp,  P.O. Box 1560, Eugene,  Oregon 97440.  Copies of
Bancorp's  material  filed with the SEC can also be accessed via the Internet at
"www.sec.gov."


CHANGE OF ACCOUNTANTS

      Effective  October  30,  1998,  Bancorp  dismissed  its prior  independent
accountant,  PricewaterhouseCoopers  ("PwC"). The decision to change accountants
was approved by Bancorp's Board of Directors.

      PwC's  reports on  Bancorp's  financial  statements  for the 1997 and 1996
fiscal years did not contain an adverse  opinion or disclaimer  of opinion,  nor
were they  qualified or modified as to  uncertainty,  audit scope or  accounting
principles.

      During the audits for 1997 and 1996 and  through  the  subsequent  interim
period to the date of the change of  accountants,  there  were no  disagreements
between  Bancorp and PwC on any matters of  accounting  principles or practices,
financial  statement   disclosure,   or  auditing  scope  or  procedure,   which
disagreements,  if not resolved to the satisfaction of PwC, would have caused it
to make a reference to the subject  matter of the  disagreements  in  connection
with its reports.

      Bancorp  requested that PwC furnish it with a letter  addressed to the SEC
stating  whether  or not it  agreed  with the above  statements.  A copy of such
letter was filed as Exhibit 16 to Form 8-K filed November 5, 1998.

      Effective October 30, 1998, Bancorp engaged Symonds,  Evans & Larson, P.C.
as its principal independent accountant. During 1997 and 1996 and the subsequent
interim period to the date of the change of accountants, Bancorp did not consult
Symonds,  Evans & Larson,  P.C. regarding any of the matters or events set forth
in Item 304(a)(2)(i) and (ii) of the SEC's Regulation S-K.





                                       44

<PAGE>

MARKET FOR COMMON STOCK

      Bancorp's  Common Stock is quoted on the Nasdaq  National Market under the
symbol "CEBC."

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

                                                  High                 Low
                                                  ----                 ---

      Year ended December 31, 1999:
           First quarter                         $15.15               $10.82
           Second quarter                         12.39                 8.87
           Third quarter                          12.88                 9.89
           Fourth quarter                         10.80                 8.86

      Year ended December 31, 1998:
           First quarter                         $14.38               $10.59
           Second quarter                         14.52                10.96
           Third quarter                          13.49                 9.65
           Fourth quarter                         14.95                10.82

      At February  29,  2000,  Bancorp  had  19,649,231  shares of Common  Stock
outstanding held by 1,246 shareholders of record.

      Bancorp has never declared or paid cash dividends to shareholders  and has
no intention to do so in the foreseeable future.


                                       45
<PAGE>
<TABLE>
<CAPTION>


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

                                     First             Second              Third              Fourth
    1999                            Quarter            Quarter            Quarter             Quarter             Total
---------------                     -------            -------            -------             -------            ------
<S>                                 <C>                <C>                <C>                 <C>                <C>
Interest income                     $12,894            $13,939            $15,274             $16,361            $58,468
Interest expense                      3,833              4,237              4,670               5,128             17,868
                                    -------            -------            -------             -------            -------
Net interest income                   9,061              9,702             10,604              11,233             40,600

Loan loss provision                     500                600                600                 600              2,300
Net gains on sales of
    securities                          166                133                  -                   -                299
Income before income taxes            4,595              4,744              4,981               4,706             19,026
Net income                            2,960              3,045              3,102               3,000             12,107
Earnings per share:
    Basic                           $   .16            $   .15             $  .15             $   .16            $   .62
    Diluted                         $   .15            $   .15             $  .15             $   .15            $   .60

     1998
---------------
Interest income                     $11,339            $12,232            $13,033             $13,244            $49,848
Interest expense                      3,587              3,840              4,258               4,151             15,836
                                    -------            -------            -------             -------            -------
Net interest income                   7,752              8,392              8,775               9,093             34,012

Loan loss provision                     300                300                600                 300              1,500
Net gains on sales of
    securities                          145                262                193                   -                600
Income before income taxes            3,780              4,167              4,530               4,870             17,347
Net income                            2,551              2,813              3,033               3,038             11,435
Earnings per share:
     Basic                          $   .13            $   .14            $   .16             $   .16            $   .59
     Diluted                        $   .12            $   .13            $   .15             $   .16            $   .56



</TABLE>

                                                                   46
<PAGE>

                            SELECTED FINANCIAL DATA

The following table sets forth selected  financial data of Bancorp (in thousands
of dollars,  except per-share amounts).  All share and per-share information has
been restated to give  retroactive  effect to a stock split  declared in January
2000, and for various stock splits and stock dividends  declared in prior years.
Bancorp has never declared or paid cash dividends to shareholders.
<TABLE>
<CAPTION>


                                                 1999             1998              1997             1996             1995
                                              --------         --------          --------         --------         -------

<S>                                          <C>              <C>               <C>              <C>              <C>
Interest income                               $ 58,468         $ 49,849          $ 40,104         $ 32,058         $ 25,274
Interest expense                                17,867           15,837            13,566           11,368            9,004
                                              --------         --------          --------         --------         --------
Net interest income                             40,600           34,012            26,538           20,690           16,270
Loan loss provision                              2,300            1,500             1,250              735              350
Net income                                      12,107           11,435             9,303            6,514            4,551
Total assets                                   726,738          572,050           492,573          407,186          317,464
Total deposits                                 573,041          483,866           419,282          339,955          267,880
Short-term borrowings                           74,554           20,600             7,716           12,316           11,419
Long-term debt                                      --               --            10,000           10,000            9,200
Shareholders' equity                            74,329           63,717            51,810           41,346           26,390

Earnings per common share:
     Basic                                     $   .62         $    .59          $    .48          $   .39         $    .29
     Diluted                                       .60              .56               .46              .35              .23

</TABLE>

                                                                  47