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

                                    FORM 10-K

[ X ]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
              For the fiscal year ended:    December 31, 1995
                                         ----------------------
                            or
[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
              For the transition period from            to
                                               ---------   -------

            Commission file Number:    0-10489
                                    ------------

                               CENTENNIAL BANCORP
                (Name of registrant as specified in its charter)
                                             
     Oregon                                     93-0792841
(State of incorporation)                     (I.R.S. Employer
                                             Identification No.)

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

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

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

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

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

  Indicate  by check  mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

     Yes  X    No
        ----       ----


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

 State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold,  or the average bid and asked  prices of such
stock,  as of a  specified  date  within  60 days  prior to the date of  filing.
$47,550,000  aggregate  market value as of February 29, 1996, based on the price
at which the stock was sold.

  Indicate the number of shares outstanding of each of the registrant's  classes
of common stock, as of the latest  practicable  date:  4,700,847 shares of $2.00
par value Common Stock on March 15, 1996.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part I and Part II incorporate information by reference from the issuer's Annual
Report to Shareholders  for the fiscal year ended December 31, 1995. Part III is
incorporated by reference from the issuer's  definitive  proxy statement for the
annual meeting of shareholders to be held on May 15, 1996.




<PAGE>



                               CENTENNIAL BANCORP
                                    FORM 10-K
                                  ANNUAL REPORT
                                TABLE OF CONTENTS

PART I                                                                   Page
-------                                                                  ----

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

Item 1.  DESCRIPTION OF BUSINESS                                            3
Item 2.  DESCRIPTION OF PROPERTY                                           35
Item 3.  LEGAL PROCEEDINGS                                                 35
Item 4.  SUBMISSION OF MATTERS TO A VOTE OF
            SECURITY HOLDERS                                               36

PART II

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

Item 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY
            AND RELATED STOCKHOLDER MATTERS                                37
Item 6.  SELECTED FINANCIAL DATA                                           37
Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS                              37
Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                       37
Item 9.  CHANGES IN AND DISAGREEMENTS WITH
            ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE                                           37

PART III

         (Items  10  through  13 and  portions  of Item 14 are  incorporated  by
         reference from Centennial  Bancorp's definitive proxy statement for the
         annual meeting of shareholders to be held on May 15, 1996)

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF
            THE REGISTRANT                                                 38
Item 11. EXECUTIVE COMPENSATION                                            38
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
            OWNERS AND MANAGEMENT                                          38
Item 13. CERTAIN RELATIONSHIPS AND RELATED
            TRANSACTIONS                                                   38
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
         AND REPORTS ON FORM 8-K                                           38

SIGNATURES                                                                 42

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

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

     On December 2, 1994, CG Bancorp, an Oregon corporation, was merged with and
into  Centennial  Bancorp in a stock  transaction  accounted for as a pooling of
interests.  CG Bancorp was the parent  corporation of Western  Oregon  Community
Bank, which operated a branch office in Creswell, Oregon in addition to its head
office in Cottage Grove,  Oregon. Both branches of Western Oregon Community Bank
became  branches of Centennial  Bank.  Centennial  Bank has decided to close its
Creswell office.

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

     All data in this  Annual  Report  on Form  10-K has been  restated  to give
retroactive effect to the merger with CG Bancorp. In addition, all share and per
share information has been restated to give retroactive  effect to a stock split
declared in January  1996,  and for  various  stock  splits and stock  dividends
declared in years prior to 1996.

     CENTENNIAL BANK

     Centennial  Bank is a full-service  commercial bank organized in 1977 under
the Oregon Bank Act.  Centennial  Bank provides a broad range of depository  and
lending  services  to  commercial,  industrial,  and  agricultural  enterprises,
financial  institutions,  and governmental entities and individuals.  Centennial
Bank  directs  its  deposit-taking  and  lending  activities  primarily  to  the
communities in which its branches are located. Its primary marketing focus is on
small- to medium-sized  businesses and on  professionals  in those  communities.
Centennial Bank does not provide trust services.

     At December 31, 1995,  based on total assets,  Centennial Bank was the 12th
largest  bank  of  the  50  commercial  banks  maintaining  offices  in  Oregon.
Centennial  Bank  has  seven  branches;   three  in  Eugene;   one  in  adjacent
Springfield; one in Tigard, a suburb of Portland, Oregon; and the former Western
Oregon Community Bank offices in Cottage Grove and Creswell,  Oregon. Eugene and
Springfield  are at the southern end of the  Willamette  Valley on Interstate 5,
with Creswell and Cottage Grove  located  approximately  12 and 20 miles further
south, respectively. Centennial Bank opened the Tigard office in August 1994 and
acquired the Western Oregon Community Bank offices in December 1994.

     Centennial Bank provides  personalized,  quality financial  services to its
customers and believes  this  dedication to service has enabled it to maintain a
stable  and  relatively   low-cost  retail  deposit  base,  while  generating  a
substantial  volume of loans.  Total  deposits  increased  from $216  million at
December 31, 1994 to $268 million at December 31, 1995. Net loans and loans held
for sale  increased  from $160  million at December  31, 1994 to $189 million at
December 31, 1995.

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

     CENTENNIAL MORTGAGE

     Centennial Mortgage began operations in 1987, originating  conventional and
federally insured  residential  mortgage loans for sale in the secondary market.
Centennial Bank regularly  provides  interim  financing,  generally for 30 to 60
days,  for  loans  originated  by  Centennial   Mortgage.   Centennial  Mortgage
originated $30.0 million,  $20.7 million and $44.5 million of mortgages in 1995,
1994 and 1993, respectively.  Mortgage loans generally are sold without recourse
and with no servicing rights retained.  Under certain circumstances,  Centennial
Mortgage may be  obligated to  repurchase  loans sold in the  secondary  market.
Centennial  Mortgage has one office in Eugene,  Oregon,  and opened an office in
Lake Oswego,  Oregon, a Portland  suburb,  in 1993. That office relocated to the
Centennial Bank building in Tigard, Oregon in 1995.

     Centennial Mortgage established a residential mortgage construction lending
department  during 1994 to  establish  relationships  with home  builders in the
Eugene/Springfield   and  Portland-area  markets  and  to  attempt  to  generate
additional  permanent loan activity as the  houses-under-construction  are sold.
Increases  in interest  rates could  adversely  affect  demand for  construction
lending,  as well as the ability of borrowers to sell the houses when completed,
and also could impact Centennial Mortgage's permanent mortgage lending activity.

     HARDING FLETCHER

     In July 1993,  Bancorp  formed a subsidiary  to acquire  certain  assets of
Harding  Fletcher,  a  commercial  mortgage  banker with offices in Oregon (Lake
Oswego),  Washington  (Tacoma) and California  (Sacramento and Fresno).  Bancorp
paid  $320,000  for the Harding  Fletcher  assets and an  additional  $80,000 in
consideration  for a  noncompetition  agreement  with  Wallace E.  Harding,  the
President and Chief Executive Officer of Harding Fletcher.

     In August  1995,  Bancorp sold  substantially  all of the assets of Harding
Fletcher  for  $741,000.  Under the terms of the asset sale  agreement,  Bancorp
received  $155,131 cash for the mortgage  servicing rights and certain furniture
and  equipment.  The balance of the purchase price is to be paid over four years
from the transaction closing date from a percentage of loan servicing income the
buyer  receives from the assets sold and from a percentage  of loan  origination
fees for certain identified transactions.

     Harding Fletcher arranged  commercial real estate loans,  which were funded
by insurance  companies and other  institutional  investors.  The loans arranged
were generally  between  $500,000 and $35 million in size.  Harding Fletcher was
not a party to the loans, but was typically retained to service the loans.

BANCORP CONSOLIDATED STATISTICAL INFORMATION

     Bancorp  incorporates by reference the following  financial and statistical
information  from its Annual Report to Shareholders  for the year ended December
31, 1995:
<PAGE>

                                    Centennial Bancorp
                                       Annual Report
                                      to Shareholders
                                         Page No.
                                      --------------------
Investment securities                        15
Loans and reserve for loan losses            16
Deposits                                      7


NET INTEREST INCOME

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

     AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID

     The following  table sets forth for 1995,  1994 and 1993  information  with
regard to average  balances of assets and  liabilities,  as well as total dollar
amounts of interest income from interest-earning  assets and interest expense on
interest-bearing  liabilities,  resultant  average yields or rates, net interest
income,  net  interest  spread,  net  interest  margin  and the ratio of average
interest-earning assets to average interest-bearing liabilities for Bancorp.

<TABLE>
<CAPTION>

Year ended December 31,                             1995                           1994                           1993
                                       ------------------------------ ------------------------------  -----------------------------
                                                   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
                                       ---------- --------- --------- ---------- ---------  --------  ---------- --------- --------
ASSETS:                                                                   (Dollars in thousands)
<S>                                    <C>        <C>       <C>       <C>        <C>        <C>       <C>        <C>       <C>

Interest-earning due from banks        $  5,971   $   352    5.90%    $  2,498   $   110     4.40%    $  4,012   $   118    2.94
Securities - taxable                     40,116     2,403    5.99       36,632     1,927     5.26       25,561     1,264    4.95
Securities - tax-exempt(2)               24,159     1,827    7.56       23,040     1,866     8.10       20,844     1,816    8.71
Federal funds sold                        5,618       317    5.64        3,349       131     3.91        3,964       112    2.83
Loans and loans held for sale (3)       176,384    20,909   11.85      139,672    16,003    11.46      114,414    12,092   10.57
  Total interest-earning assets/ 
    interest income                     252,248    25,808   10.23      205,191    20,037     9.77      168,795    15,402    9.12
Reserve for loan losses                  (1,824)                        (1,652)                         (1,280)
Cash and due from banks                  16,975                         14,562                          12,323
Premises and equipment, net               8,477                          5,981                           5,815
Other real estate owned                      22                            957                             532
Other assets                              5,854                          4,236                           4,059
  Total assets                         $281,752                       $229,275                        $190,244
                                       ========                       ========                        ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and interest-bearing demand    $107,983     3,352    3.10     $101,256     2,333     2.30     $ 86,593     2,178    2.52
Time deposits                            71,912     4,146    5.77       47,258     2,106     4.46       40,335     1,611    3.99
Short-term borrowings                    13,823       861    6.23        4,259       174     4.09        1,002        38    3.79
Long-term debt                            9,200       645    7.01        7,410       559     7.54        6,434       275    4.27
  Total interest-bearing liabilities 
 /interest expense                      202,918     9,004    4.44      160,183     5,172     3.23      134,364     4,102    3.05
Demand deposits                          53,399                         47,406                          36,931
Other liabilities                         2,133                          2,984                           3,048
  Total liabilities                     258,450                        210,573                         174,343
Shareholders' equity                     23,302                         18,702                          15,901
                                       --------   -------             --------   -------              --------   -------
 Total liabilities and shareholders'
   equity                              $281,752                       $229,275                        $190,244
                                       ========                       ========                        ========
Net interest income                               $16,804                        $14,865                         $11,300
                                                  =======                        =======                         =======
Net interest spread (2)                                      5.79%                           6.54%                          6.07%
                                                             =====                          ======                         =====
Net interest margin (2)                                      6.66%                           7.24%                         6.69%
</TABLE>

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

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

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

(3)  Nonaccrual loans  ($631,100,  $783,200 and $311,500 in 1995, 1994 and 1993,
     respectively)  have been included in the  computation  of average loans and
     loans held for sale.  Loan fees  recognized,  included in interest  income,
     totalled  $2,541,800,  $2,958,600  and  $1,626,000 in 1995,  1994 and 1993,
     respectively.

  ANALYSIS OF CHANGES IN INTEREST RATE DIFFERENTIAL

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

<TABLE>
<CAPTION>
                                  1995 vs. 1994                        1994 vs. 1993
                                    Change in                            Change in
                               net interest income                net interest income
                                     due to                               due to
                          ----------------------------         ------------------------------
                          Volume      Rate        Total        Volume       Rate       Total
                          ------     ------       ------       ------      ------     -------
                                                   (In thousands)
<S>                       <C>         <C>         <C>          <C>         <C>        <C>

Interest income:
  Balances due from banks $  179      $   63      $  242       $ (56)      $   48     $   (8)
  Securities - taxable       196         280         476          565          98        663
  Securities - tax-exempt     88        (127)        (39)         185        (135)        50
  Federal funds sold         108          78         186          (21)         40         19
  Loans                    4,279         627       4,906        2,782       1,129      3,911
                          ------      ------      ------       ------      ------     ------
   Total interest income   4,850         921       5,771        3,455       1,180      4,635
                          ------      ------      ------       ------      ------     ------

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


</TABLE>

<PAGE>





MARKET AREAS

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

     Centennial  Bank also has branch  offices in  Cottage  Grove and  Creswell,
Oregon, located approximately 20 and 12 miles south, respectively, of Eugene and
Springfield.  The populations of Cottage Grove and Creswell total  approximately
10,000. Their economies similarly depend primarily upon forest products, general
manufacturing, agriculture and tourism.

     In August 1994,  Centennial Bank opened a branch office in Tigard, a suburb
of Portland,  Oregon. The Portland metropolitan area has a diverse economy and a
population  of  approximately  1.3  million.  Management  believes  the Portland
metropolitan  area offers an  opportunity to increase  Bancorp's  asset size and
business  operations,  and to  provide  diversification  of  risk  in  its  loan
portfolio through the diversity of the economic market in the metropolitan area.

LENDING ACTIVITIES

     GENERAL

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

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

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


<PAGE>




     LOAN PORTFOLIO COMPOSITION

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


<TABLE>
<CAPTION>
                                                              December 31,
                          ----------------------------------------------------------------------------------
                            1995               1994                1993                1992           1991
                          --------           --------            ---------           --------       --------
                                                          (Dollars in thousands)
<S>                       <C>                <C>                 <C>                 <C>            <C>

Commercial and other      $ 78,564           $ 66,845            $ 61,640            $48,496        $50,833
Real estate - mortgage      59,204             56,792              44,253             34,774         32,913
Real estate - construction  44,003             29,337              11,626              5,214          1,572
Installment                  5,929              6,951              10,653              9,179          8,722
Lease financing              4,001              2,686                 138                 --            --
                          --------           ---------           ---------           -------        --------
   Total loans and loans
       held for sale       191,701            162,611             128,310             97,663         94,040

 Less deferred loan fees      (611)              (600)               (394)              (155)           (52)
 Less reserve for loan
   losses                   (1,928)            (1,700)             (1,514)            (1,078)        (1,116)
                          ---------          ---------           --------           --------        -------

Loans receivable, net     $189,162           $160,311            $126,402            $96,430        $92,872
                          ========           ========            ========            =======        =======



</TABLE>


<PAGE>



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

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


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

Commercial                                $ 58,803                    $14,993                 $ 4,457           $ 78,253
Real estate - mortgage                      19,493                     22,053                  13,085
Real estate - construction                  39,972                      4,031                      --             54,631
Installment                                  3,572                      2,274                      83             44,003
Loans held for sale                             --                         --                   4,573              5,929
Lease financing                                124                      2,444                     118              4,573
Other                                           --                        311                      --              4,001
Less deferred loans fees                      (234)                      (277)                   (100)               311
                                                                                                                    (611)
                                          ---------                   --------                --------          ---------
Total loans by maturity                   $121,607                    $47,386                 $22,097           $191,090
                                          ========                    =======                 =======           ========
</TABLE>



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

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

     COMMERCIAL LOANS

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

     At December 31, 1995,  approximately 62% of Bancorp's  commercial loans had
floating or adjustable  interest  rates;  the  remaining 38% had fixed  interest
rates.  Operating  lines of credit are  payable on demand and  subject to annual
renewal. Term loan maturities generally range from one to five years. Commercial
loans  outstanding  at December 31, 1995 were $78.3  million,  compared to $66.5
million at December 31, 1994 and $60.0 million at December 31, 1993.  Management
believes the  increases in 1995 and 1994 were  primarily a result of  Centennial
Bank's  business  development  program and the  opening of the branch  office in
Tigard,  Oregon in  August  1994.  Nonaccrual  loans in this  category  totalled
$478,000 at December 31, 1995  ($693,000 at December  31,  1994);  there were no
restructured loans at December 31, 1995 or 1994.

     REAL ESTATE MORTGAGE LOANS

     Real estate mortgage loans represent  Bancorp's  second largest category of
loans.  Of the $54.6  million  of real  estate  mortgage  loans  outstanding  at
December 31, 1995,  $36.7  million were made to commercial  customers  where the
collateral  for the loans  included the real estate  occupied by the  customers'
businesses.  Therefore,  many loans  characterized as real estate mortgage loans
could be  characterized  as  commercial  loans that are  collateralized  by real
estate.  Commercial real estate loans  typically  involve large loan balances to
single  borrowers or groups of related  borrowers.  These  borrowers may be more
sensitive to changes in economic conditions than are residential loan customers.
Real estate  mortgage loans  outstanding  decreased to $54.6 million at December
31, 1995 from $56.8  million at December 31, 1994.  The decrease was primarily a
result of customers  refinancing  or otherwise  paying off older  mortgage loans
with higher  interest  rates.  Real estate  mortgage  loans  increased  to $56.8
million at  December  31,  1994 from $47.5  million at December  31,  1993.  The
increase  was  primarily a result of new  customers,  and a change in  Bancorp's
reporting  category  of home  equity  loans from  installment  to real estate to
conform with federal regulatory reporting requirements. At December 31, 1995 and
1994, there were no nonaccrual loans or restructured loans in this category.

     At December 31, 1995,  $31.6  million (or  approximately  58%) of Bancorp's
real  estate  mortgage  loans had fixed  interest  rates and $23.0  million  (or
approximately 42%) had floating or adjustable interest rates. Maturities of real
estate mortgage loans usually range from one to ten years.

     Bancorp's    underwriting   standards   specify   the   following   maximum
loan-to-value  ratios for real estate  loans:  90% for loans  collateralized  by
owner-occupied  residences, 80% for other residential loans and for construction
loans,  and 70% for  commercial  real estate  loans.  Management  believes  that
Bancorp's  current real estate  mortgage  portfolio  does not present a material
risk of loan losses.

     Bancorp originates SBA real estate loans on owner-occupied properties where
the maturities may be up to 20 years, and the loan-to-value  ratio may reach 75%
of appraised value or cost, whichever is lower. Up to 90% of the amount of these
loans  is  guaranteed  or  insured  by an  agency  of the U.S.  Government.  The
guaranteed  portion  of  these  loans  is  typically  sold  to  secondary-market
investors.

     REAL ESTATE CONSTRUCTION LOANS

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

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

     At  December  31,  1995  and  1994,  there  were  no  nonaccrual  loans  or
restructured loans in this category.

     INSTALLMENT LOANS

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

     Installment  loans were $5.9 million at December 31, 1995  compared to $7.0
million at December 31, 1994 and $9.1 million at


<PAGE>



December 31, 1993.  These  decreases  were  primarily due to Bancorp's  focus on
lending to businesses and professionals and significant competition for consumer
loans from the many credit  unions,  banks and finance  companies  in the market
areas  served by Bancorp.  The $2.1  million  decrease  at December  31, 1994 as
compared to December 31, 1993 also reflects the  reclassification of home equity
loans  from  installment  to real  estate to  conform  with  federal  regulatory
reporting requirements.  At December 31, 1995 and 1994, there were no nonaccrual
loans or restructured loans in this category.

     COMMITMENTS AND CONTINGENT LIABILITIES

     In the ordinary  course of business,  Bancorp  enters into various types of
transactions  that include  commitments to extend credit and standby  letters of
credit as described in Note 10 of Notes to Consolidated  Financial Statements of
Bancorp,  which are  incorporated by reference from Bancorp's 1995 Annual Report
to Shareholders.  Bancorp applies the same credit standards to these commitments
as it uses in all its lending  processes and has included  these  commitments in
its lending risk evaluations. Collateral for these commitments may include cash,
securities and/or real estate.

     CREDIT AUTHORITY AND LOAN LIMITS

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

     Under Oregon law,  permissible  loans from a financial  institution  to one
borrower are generally limited to 15% of the institution's aggregate paid-up and
unimpaired  capital  and  surplus  (which  includes  capital  debentures  with a
maturity date of more than five years). At December 31, 1995,  Centennial Bank's
permissible  loan  limit  was  $2.5  million  (or  $4.2  million  if the loan is
collateralized by real estate).

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


<PAGE>




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

NONPERFORMING ASSETS

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

<TABLE>
<CAPTION>


                                                                                 DECEMBER 31,
                                                          ------------------------------------------------------
                                                           1995        1994        1993         1992        1991
                                                          ------      ------      ------       ------      -----
<S>                                                       <C>         <C>         <C>          <C>         <C>
                                                                         (Dollars in thousands)
Nonperforming loans:
  Loans past due 90 days or more                          $  645      $  190      $  186       $  203      $  104
  Nonaccrual loans                                           478         693         881           --         119
  Restructured loans                                          --          --          --           --          --
                                                         -------     -------     -------      -------     -------
     Total nonperforming loans                             1,123         883       1,067          203         223
  Other real estate owned (1)                                 --         392         221          549         169
                                                          ------      ------      ------       ------      ------
     Total nonperforming assets                           $1,123      $1,275      $1,288       $  752      $  392
                                                          ======      ======      ======       ======      ======

Reserve for loans losses                                  $1,928      $1,700      $1,514       $1,078      $1,116
Ratio of total nonperforming assets
  to total assets                                            .35%        .49%        .58%         .41%        .24%
Ratio of total nonperforming loans
  to total loans                                             .59         .54         .83          .21         .23
Ratio of reserve for loan losses
  to total nonperforming loans                               172         193         142          531         500

</TABLE>

----------

(1)      OREO consists of real estate acquired through  foreclosure or by a deed
         in lieu of  foreclosure.  The OREO  specified  above  does not  include
         Bancorp's former head office  facility,  which was reclassified as OREO
         in 1993 and sold in 1994.

     Bancorp's total nonperforming  assets decreased by $152,000 during 1995 and
decreased by $13,000 during 1994. Total nonperforming assets, as a percentage of
total  assets,  decreased to .35% at December 31, 1995 from .49% at December 31,
1994 and .58% at December 31, 1993. Nonperforming loans, comprised of loans past
due 90 days or more,  nonaccrual  loans and  restructured  loans,  increased  by
$240,000 during 1995 and increased by $56,000 during 1994.  Nonperforming loans,
as a percentage of total loans, increased to .59% at December 31, 1995 from .54%
at December 31, 1994, but decreased from .83% at December 31, 1993.

     The accrual of interest on a loan is discontinued when, in


<PAGE>



management's  judgment, the future collectibility of principal or interest is in
doubt.  Loans placed on nonaccrual  status may or may not be contractually  past
due at the time of such  determination,  and may or may not be  secured.  When a
loan is placed on nonaccrual status,  Bancorp's policy is to reverse, and charge
against current income,  interest  previously accrued but uncollected.  Interest
subsequently  collected on such loans is credited to loan  principal  if, in the
opinion of management, full collectibility of principal is doubtful. If interest
on  nonaccrual  loans had been  accrued,  such income would have been $74,000 in
1995,  $77,000 in 1994 and $46,000 in 1993.  The amount  recognized  as interest
income on these loans was none in 1995 and 1994 and $41,000 in 1993.

     Restructured loans are those for which concessions have been granted due to
the borrower's weakened financial  condition or other factors.  Such concessions
may include reduction of interest rates below rates otherwise  available to that
borrower or deferral of interest or principal. Interest on restructured loans is
accrued at the restructured rate when it is anticipated that no loss of original
principal will occur.  Bancorp had no restructured loans at December 31, 1995 or
1994.

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

     At December 31, 1995, Bancorp held no OREO. At December 31, 1994, Bancorp's
OREO  consisted  of one  single-family  dwelling  with  acreage in  Springfield,
Oregon.  At that date,  the book value of the property was  $392,000,  which was
sold during 1995 for a loss of $25,000.  At December  31, 1993,  Bancorp's  OREO
consisted of one  single-family  dwelling and one commercial  building,  with an
aggregate book value of $221,000, which was sold for a loss of $28,000.

ANALYSIS OF THE RESERVE FOR LOAN LOSSES

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

     Centennial  Bank's  Asset/Liability  Committee  reviews the adequacy of the
reserve for loan losses quarterly. Although determination of the adequacy of the
reserve  involves  substantial  subjective  judgment  based  on the  Committee's
analysis of the risk characteristics of the entire loan portfolio, the Committee
also uses three quantitative methods to analyze the adequacy of the


<PAGE>



reserve.  Under the first method,  management  assigns a specific  percentage to
each nonperforming,  substandard or doubtful loan in Bancorp's loan portfolio to
calculate a total amount of average anticipated loan losses.

     The second  method uses the  risk-weighted  ratings (from one through five)
developed by the FDIC,  with  management  assigning a percentage to the loans in
the various risk categories  (using .0025% for loans in the lowest risk category
up to 25% for loans in the highest risk  category)  to calculate an  alternative
amount of possible losses.

     The third method is in  accordance  with the  requirements  of Statement of
Financial  Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("SFAS 114"),  which Bancorp  adopted on January 1, 1995.  Under SFAS
114, a loan is considered impaired based on current information and events if it
is probable  that  Bancorp will be unable to collect the  scheduled  payments of
principal or interest  when due according to the  contractual  terms of the loan
agreement. This policy is generally consistent with Bancorp's nonaccrual policy.
Bancorp also  specifically  examines all loans  greater than  $100,000  that are
identified on an internal watch list. Loans which are over 90 days contractually
delinquent  and loans which have developed  inherent  problems prior to being 90
days delinquent may be considered impaired.  An insignificant delay or shortfall
in the amount of payments is not an event that,  when  considered  in isolation,
would  automatically cause a loan to be considered impaired for purposes of SFAS
114. The  measurement of impaired loans is generally  based on the present value
of expected future cash flows  discounted at the historical  effective  interest
rate,  except that all  collateral-dependent  loans are measured for  impairment
based on the fair value of the collateral.

     The amounts calculated by the quantitative methods are then compared by the
Committee  to the  reserve  for loan losses in  evaluating  the  adequacy of the
reserve.

     As a result of the  decline in real estate  market  values in many parts of
the United  States and the  significant  losses  experienced  by many  financial
institutions,  regulators have increasingly scrutinized loan portfolios and loss
reserves,  particularly with respect to commercial and multi-family  residential
real estate loans. Management believes that Bancorp's reserve for loan losses is
adequate  to  cover  anticipated  losses  and is in  accordance  with  generally
accepted  accounting  principles.  There  can  be no  assurance,  however,  that
management  will not decide to  increase  the  reserve  for loan  losses or that
regulators  will not require  Bancorp to increase the  reserve,  either of which
events could adversely affect Bancorp's  results of operations.  Further,  there
can be no  assurance  that  Bancorp's  actual  loan  losses  will not exceed its
reserve.
<PAGE>

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

<TABLE>
<CAPTION>

                                                              At or for the year ended December 31,
                                             -------------------------------------------------------------------
                                               1995           1994            1993           1992           1991
                                             --------       --------        --------       --------       ------
                                                                   (Dollars in thousands)

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

Loans and loans held for sale
  at year-end                                $191,090       $162,011       $127,916        $97,508        $93,988
                                             ========       ========       ========        =======        =======
Average loans and
  loans held for sale                        $176,384       $139,672       $114,414        $98,476        $88,385
                                             ========       ========       ========        =======        =======
Reserve for loan losses,
  beginning of year                          $  1,700       $  1,514        $ 1,078        $ 1,116        $   961
Charge-offs:
  Commercial and other                           (128)          (108)           (18)          (112)           (54)
  Real estate - construction                       --             --             --             --             --
  Real estate - mortgage                           --            (17)            --           (160)           (63)
  Installment                                     (34)           (22)           (17)           (32)            (9)
                                             --------       --------        -------        -------        -------
     Total charge-offs                           (162)          (147)           (35)          (304)          (126)
                                             --------       --------        -------        -------        -------
Recoveries:
  Commercial and other                             10              8              7              5             30
  Real estate - construction                        3             --            149             --             --
  Real estate - mortgage                            7             --             --             --             14
  Installment                                      20             10              5              5              2
                                             --------       --------        -------        -------        -------
     Total recoveries                              40             18            161             10             46
                                             --------       --------        -------        -------        -------
Net loans (charged off) recovered                (122)          (129)           126           (294)           (80)
Provision for loan losses                         350            315            310            256            235
                                             --------       --------        -------        -------        -------
Reserve for loan losses
  at year-end                                $  1,928       $  1,700        $ 1,514        $ 1,078        $ 1,116
                                             ========       ========        =======        =======        =======

Ratio of net loans (charged off)
  recovered to average
  loans outstanding                             (.07)%         (.09)%           .11%          (.30)%         (.09)%
Ratio of reserve for loan losses
  to loans at year-end                          1.01           1.05            1.18           1.11           1.19


</TABLE>

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

<PAGE>

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


<TABLE>
<CAPTION>
                                                                                Amount of             Loans in
                                                                                reserve             category as a
                                                                                  for               percentage of
                                                                                 loan                 total gross
                                                                                 losses                  loans
                                                                                ---------           -------------
<S>                                                                             <C>                      <C>

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

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

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

    December 31, 1992
----------------------------
Commercial and other                                                            $  550                    49.7%
Real estate - mortgage                                                             120                    35.6
Real estate - construction                                                         100                     5.3
Installment                                                                         30                     9.4
Unallocated                                                                        278                      --
                                                                                ------                   -----
  Total                                                                         $1,078                   100.0%
                                                                                ======                   =====

    December 31, 1991
----------------------------
Commercial and other                                                            $  552                    54.1%
Real estate - mortgage                                                             120                    35.0
Real estate - construction                                                         100                     1.7
Installment                                                                         30                     9.2
Unallocated                                                                        314                      --
                                                                                ------                   -----
  Total                                                                         $1,116                   100.0%
                                                                                ======                   =====

</TABLE>


<PAGE>



     The following table details the carrying value of Bancorp's impaired loan,
in accordance with SFAS 114, by type of loan as of December 31, 1995:

<TABLE>
<CAPTION>
                                                                                                            Net
                                                                   Recorded         Valuation            Carrying
                                                                    Amount          Allowance              Value
                                                                   ---------        ---------            ---------
<S>                                                                <C>              <C>                   <C>

Commercial                                                         $424,000         $100,000              $324,000
                                                                   ========         ========              ========
</TABLE>

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


INVESTMENT ACTIVITIES

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

     Bancorp's primary  investment  objectives are to maintain  liquidity and to
generate  after-tax profits  consistent with the risk guidelines  established by
the Board of Directors.  At December 31, 1995 and 1994, Blount Investment Group,
of Eugene,  Oregon,  advised  Bancorp with respect to the investment  portfolio.
Centennial  Bank  has  extended  loans  to  Blount   Investment  Group  and  its
affiliates.  Such  loans  are  made  on  terms,  including  interest  rates  and
collectibility,  no  more  favorable  to  the  borrowers  than  loans  to  other
borrowers.

     All of the securities  held in the investment  portfolio were classified as
available-for-sale  at December 31, 1995 and 1994. Those securities will be sold
as  necessary  to provide  liquidity  and to respond to interest  rate  changes.
Because  these  securities  are carried at their market value,  fluctuations  in
interest  rates  could  affect  the  carrying  value  of these  securities  and,
therefore, the reported shareholders' equity of Bancorp.

     The following  table provides the carrying  values of Bancorp's  investment
portfolio  at the end of each of the last  three  years.  See Note 2 of Notes to
Consolidated   Financial   Statements  for  more  information  about  investment
securities held at December 31, 1995 and 1994.

<TABLE>
<CAPTION>

                                                                                       December 31,
                                                                        -------------------------------------------
                                                                          1995             1994             1993
                                                                        -------          -------           ------
                                                                                    (In thousands)
<S>                                                                     <C>              <C>               <C>

U.S. Treasuries                                                         $ 8,428          $15,162           $13,394
U.S. Government agencies                                                 29,422            8,457             2,460
States and political subdivisions                                        23,845           17,088            21,159
Bankers' acceptances                                                         --               --             3,941
Corporate bonds                                                           2,300            5,118             5,037
Mortgage-backed securities                                                8,929            8,727             9,496
                                                                        -------          -------           -------
  Total debt securities                                                  72,924           54,552            55,487
Equity securities                                                         4,040            4,243             2,615
                                                                        -------          -------           -------
     Total investment securities                                        $76,964          $58,795           $58,102
                                                                        =======          =======           =======


</TABLE>

<PAGE>

     The  following  table  provides the  carrying  values,  principal  amounts,
maturities  and weighted  average yields of Bancorp's  investment  securities at
December 31, 1995, all of which are classified as available-for-sale:

<TABLE>
<CAPTION>


                                                                  Carrying         
                                                                   value                                        Weighted
                                                                 (fair market            Principal               average
         Type and maturity                                         value)                  amount               yield(1)
         -----------------                                        -----------            ---------              --------
                                                                                (Dollars in thousands)

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

U.S. Treasuries
  Due within 1 year                                                $ 4,003                $ 4,000               4.61%
  Due after 1 but within 5 years                                     4,164                  4,150               5.29
  Due after 5 but within 10 years                                      261                    250               5.83
                                                                   -------                -------                         
   Total U.S. Treasuries                                             8,428                  8,400               4.98

U.S. Government Agencies
  Due after 1 but within 5 years                                     1,206                  1,200               6.37
  Due after 5 but within 10 years                                   27,564                 27,200               7.01
  Due after 10 years                                                   652                    650               7.15
                                                                   -------                -------                
    Total U.S. Government Agencies                                  29,422                 29,050               6.99    

States and political political
  Due within 1 year                                                    388                    385               6.89
  Due after 1 but within 5 years                                       305                    300               7.27
  Due after 5 but within 10 years                                   14,543                 14,240               7.90
  Due after 10 years                                                 8,609                  8,595               8.20
                                                                   -------                -------               
    Total states and political subdivisions                         23,845                 23,520               7.98

Corporate bonds
  Due after 1 but within 5 years                                       200                    200               6.30
  Due after 5 but within 10 years                                    2,100                  2,010               6.12
                                                                   -------                -------               
    Total corporate bonds                                            2,300                  2,210               6.14

Mortgage-backed securities
 (U.S. Government agencies)                                          8,929                  8,935               5.45
                                                                   -------                -------

        Total debt securities                                       72,924                 72,115               6.86

Equity securities                                                    4,040                  4,040
                                                                   -------                -------

             Total securities                                      $76,964                $76,155
                                                                   =======                =======
</TABLE>

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

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

DEPOSITS

     Centennial  Bank offers a variety of accounts  for  depositors  designed to
attract short-term and long-term deposits.  These accounts include  certificates
of deposit  ("CDs"),  savings  accounts,  money  market  accounts,  checking and
negotiable  order of  withdrawal  ("NOW")  accounts  and  individual  retirement
accounts.  These  accounts  generally  earn  interest  at rates  established  by
management  based on  competitive  market  factors  and  management's  desire to
increase or decrease certain types or maturities of


<PAGE>



deposits.  Centennial Bank does not pay brokerage commissions to attract
deposits.

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

     The following  table presents the average  balances for each major category
of deposits and the weighted  average  interest rates paid for  interest-bearing
deposits for the years ended December 31, 1995, 1994 and 1993:

<TABLE>
<CAPTION>


                                                                       1995                1994             1993
                                                                -----------------   -----------------   ---------------
                                                                     Average             Average             Average
                                                                -----------------   -----------------   ----------------
                                                                Balance     Rate    Balance    Rate     Balance    Rate
                                                                -------     -----   --------   ------   -------    -----
                                                                                    (Dollars in thousands)
<S>                                                             <C>         <C>     <C>         <C>     <C>        <C>

Noninterest-bearing demand                                      $ 53,399    N/A     $ 47,406    N/A     $ 36,931   N/A
Interest-bearing demand                                           92,937    3.23%     82,916    2.45%     70,966   2.48%
Savings                                                           15,046    2.34      18,340    2.48      15,627   2.77
CDs                                                               71,912    5.77      47,258    4.24      40,335   3.99
                                                                --------            --------            --------
                Total                                           $233,294    4.17    $195,920    2.31    $163,859   2.32
                                                                ========            ========            ========
</TABLE>





<PAGE>



     The  following  table shows the dollar  amount of CDs that had  balances of
$100,000 or more at December 31, 1995 and 1994:



                                                       December 31
                                               ------------------------------
                                                1995                   1994
                                               ------                -------
                                                         (In thousands)

CDs $100,000 or over with remaining maturity:
   Three months or less                         $ 9,788              $ 6,692
   Over three months through six months          19,449                6,499
   Over six months through twelve months          1,472                3,349
   Over twelve months                               105                  101
                                                -------              -------
      Total                                     $30,814              $16,641
                                                =======              =======




SHORT-TERM BORROWINGS

     At  December  31,  1995,  Bancorp's  short-term   borrowings  consisted  of
securities  sold under  agreements  to  repurchase  totalling  $3.4  million and
advances from the Federal Home Loan Bank of Seattle totalling $8.0 million.

     Securities sold under agreements to repurchase  generally range in duration
from one to  eighty-nine  days.  The advances from the Federal Home Loan Bank of
Seattle are due May 1996 and bear interest of 5.87%.

     The  following  table  sets  forth  certain  information  with  respect  to
short-term borrowings at December 31 and during each of 1995, 1994 and 1993:

<TABLE>
<CAPTION>


                                                                                             December 31,
                                                                              ----------------------------------------
                                                                                1995            1994              1993
                                                                              --------        --------          ------
<S>                                                                           <C>             <C>                <C>
                                                                                       (Dollars in thousands)
Amount outstanding at year-end                                                $11,419         $11,840            $  300
Weighted average interest rate at year-end                                      5.59%           6.23%             3.00%
Maximum amount outstanding at any
                month-end during the year                                     $16,458         $16,541            $4,580
Daily average amount outstanding
                during the year                                               $13,823          $4,259            $1,002
Average weighted interest rate
                during the year                                                 6.23%           4.09%             3.79%


</TABLE>


LONG-TERM DEBT


<PAGE>




     At December 31, 1995, Bancorp's long-term debt consisted of $9.2 million of
Convertible  Exchangeable  Redeemable  Subordinated Debentures (the "Convertible
Debentures").  Interest on the Convertible Debentures is payable semiannually at
the rate of 7% per year.  The  Convertible  Debentures  mature  on May 1,  2004,
subject to prior conversion, redemption or exchange.

     Holders of Convertible  Debentures may convert the principal  amount of the
Convertible Debentures into shares of Bancorp Common Stock at a price of $10.307
per share.  Subsequent  to December 31, 1995 (through  March 15, 1996),  holders
converted $240,000 of the Convertible Debentures into 23,279 shares of Bancorp's
Common Stock.

     Bancorp  has the  right to  require  that  the  Convertible  Debentures  be
exchanged  for Series A  Preferred  Stock if the Board of  Directors  of Bancorp
deems it necessary to meet  regulatory  capital  guidelines.  Any such  exchange
would occur at the rate of one share of Series A Preferred Stock for each $25 in
principal amount of Convertible Debentures. Any such exchange would apply to all
outstanding Convertible Debentures.

     The  Convertible  Debentures may be redeemed at the option of Bancorp.  Any
redemption  occurring  prior to May 1, 1998 would involve a redemption  premium.
The Convertible  Debentures may not be redeemed prior to May 1, 1997, unless the
closing  sale price of the Bancorp  Common Stock has been at least $14.43 for at
least 20 trading days within a 30-day period prior to the date of the redemption
notice. Bancorp may redeem fewer than all the Convertible Debentures.

     The  Convertible  Debentures  are governed by an Indenture  Agreement.  The
Indenture   Agreement   restricts  the  ability  of  Bancorp  to  incur  certain
indebtedness  and limits  cash  dividends  and other  capital  distributions  by
Bancorp.

RETURN ON EQUITY AND ASSETS

     The following table sets forth Bancorp's return on daily average assets and
equity for 1995, 1994 and 1993:



<PAGE>

<TABLE>
<CAPTION>

                                                                              1995           1994              1993
                                                                             -------        --------          ------
                                                                                        (Dollars in thousands)
<S>                                                                          <C>             <C>               <C>

                Net income                                                   $  4,551        $  3,502          $  2,763
                Average total assets                                          281,752         229,275           190,244
                Return on average assets                                        1.62%           1.53%             1.45%

                Net income                                                   $  4,551        $  3,502          $  2,763
                Average equity                                                 23,302          18,702            15,901
                Return on average equity                                       19.53%          18.72%            17.38%

                Average total equity                                         $ 23,302        $ 18,702          $ 15,901
                Average total assets                                          281,752         229,275           190,244
                Average total equity to assets ratio                            8.27%           8.16%             8.36%

</TABLE>

COMPETITION

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

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

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

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

EMPLOYEES

     Centennial Bancorp has no employees other than its executive officers,  who
are also employees of Centennial Bank. At December 31, 1995, Centennial Bank and
Centennial Mortgage had 146 and 24 full-time equivalent employees, respectively.
Bancorp  places a high priority on selective  hiring and  development  of staff.
Staff  development   involves  training  in  customer  service,   marketing  and
regulatory compliance. Bancorp has adopted


<PAGE>



extensive  incentive  programs for employees that focus and are dependent on the
achievement of certain of Bancorp's financial, service and marketing goals.

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

                           SUPERVISION AND REGULATION

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


CENTENNIAL BANCORP

                GENERAL

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

                ACQUISITIONS

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

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

     PERMISSIBLE ACTIVITIES

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

     CAPITAL ADEQUACY

     The federal bank regulatory  agencies  monitor the capital adequacy of bank
holding  companies and have adopted  risk-based  capital adequacy  guidelines to
evaluate bank holding  companies and banks.  If an  institution's  capital falls
below the minimum  levels  established  by these  guidelines,  the bank  holding
company  may be denied  approval  to acquire or  establish  additional  banks or
nonbank  businesses.  The guidelines require a minimum ratio of total capital to
risk-weighted  assets of 8%. At  December  31,  1995,  Bancorp's  ratio of total
capital to risk-weighted assets was 11.22%.

     The FRB also uses a leverage ratio to evaluate the capital adequacy of bank
holding companies.  The leverage ratio applicable to Bancorp requires a ratio of
"Tier 1" capital (generally,  tangible common  stockholders'  equity,  perpetual
preferred stock and minority interests in consolidated subsidiaries) to adjusted
average  total  assets of not less than 3% and up to 5% or higher  depending  on
Bancorp's general capital  condition.  Bancorp's  leverage ratio at December 31,
1995 was 8.27%.

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

CENTENNIAL BANK

     GENERAL

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


<PAGE>




     PERMISSIBLE ACTIVITIES

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

     BRANCHING AND ACQUISITIONS

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

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

     Beginning  June 1, 1997,  the  Interstate  Banking Act will permit banks to
merge with banks across state lines,  thereby  creating  out-of-state  branches,
without regard to whether such  transactions are prohibited under the law of any
state.  States can opt-in to interstate  branching  earlier,  or opt-out  before
January 1, 1997. In 1995,  Oregon  opted-in to permit  interstate  bank mergers.
Banks are able to establish  branches in other  states only  through  interstate
mergers, as described above, unless the state where the branch is proposed to be
opened has opted-in to DE NOVO interstate branching.  Oregon has not opted-in to
DE NOVO branching.


     COMMUNITY   REINVESTMENT  ACT

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

     Centennial  Bank is subject to certain  FRB  restrictions  on  transactions
among related parties.  Section 23A of the Federal Reserve Act limits the amount
of certain  transactions,  including  loans to and  investments in affiliates of
Centennial  Bank,  requires  certain  levels of collateral  for such loans,  and
limits the amount of advances to third parties that may be collateralized by the
securities of Bancorp or its subsidiaries.

     Section 23B of the Federal  Reserve Act requires that certain  transactions
between  Centennial Bank and its affiliates must be on terms  substantially  the
same,  or at least as favorable to Centennial  Bank, as those  prevailing at the
time for comparable transactions with or involving


<PAGE>



nonaffiliated companies or, in the absence of comparable transactions,  on terms
and under circumstances, including credit standards, that in good faith would be
offered to or would apply to nonaffiliated companies.

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

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

     DIVIDEND RESTRICTIONS

     Dividends paid by Centennial Bank provide  substantially all Bancorp's cash
flow.  Under federal law, prior to the declaration of any dividend by Centennial
Bank,  the approval of the  principal  regulator is required if the total of all
dividends  declared in any calendar year exceeds the total of Centennial  Bank's
net  profits  for that year  combined  with its  retained  net  profits  for the
preceding  two years.  In  addition,  FDICIA  provides  that a bank cannot pay a
dividend if it will cause the bank to be "undercapitalized."  Oregon law imposes
the following limitations on the payment of dividends by Oregon  state-chartered
banks:  (i) no dividends may be paid that would impair  capital;  (ii) until the
surplus fund of a bank is equal to 50% of its paid-in capital,  no dividends may
be declared unless there has been carried to the surplus account at least 20% of
the bank's net  profits  for the  dividend  period;  (iii)  dividends  cannot be
greater than net  undivided  profits minus  losses,  certain bad debts,  certain
charged-off assets or depreciation and accrued expenses, interest and taxes; and
(iv) if the  surplus  fund does not exceed 50% of paid-up  capital and a further
reduction in the surplus occurs due to losses,  dividends  cannot be declared or
paid in excess of 50% of net  earnings  until the surplus fund is restored to at
least the amount from which the surplus was originally  reduced. At December 31,
1995,  $11.2 million was available  for  declaration  of dividends by Centennial
Bank to Bancorp without prior regulatory approval.

     EXAMINATIONS

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

     CAPITAL ADEQUACY

     Federal regulations establish minimum requirements for the capital adequacy
of depository institutions. The regulators may establish higher


<PAGE>



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

     The federal risk-based capital guidelines for banks require a ratio of Tier
1 or core  capital  to  total  risk-weighted  assets  of 4% and a ratio of total
capital to total  risk-weighted  assets of 8%. The leverage  capital  guidelines
require that banks  maintain Tier 1 capital of no less than 5% of total adjusted
assets,  except in the case of certain  highly rated banks for which the minimum
requirement is 3% of total  adjusted  assets.  At December 31, 1995,  Centennial
Bank's leverage ratio,  Tier 1 capital to  risk-weighted  assets ratio and total
risk-based  capital to risk- weighted assets ratio were 9.37, 11.99% and 12.80%,
respectively.

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

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

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

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

     INTERNAL OPERATING REQUIREMENTS

     In 1993,  federal regulators adopted  regulations  addressing,  among other
things: (i) internal controls,  information  systems and internal audit systems;
(ii) loan documentation; (iii) credit underwriting; (iv) interest rate exposure;
(v) asset growth; (vi) ratio of classified


<PAGE>



assets to capital;  (vii) minimum earnings;  and (viii) compensation and benefit
standards for management officials. These regulations add further to the cost of
compliance  and  impose  record-keeping  requirements  on  Centennial  Bank  and
Bancorp.

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

     REAL ESTATE LENDING EVALUATIONS

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

     DEPOSIT INSURANCE PREMIUMS

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

CENTENNIAL MORTGAGE

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

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



<PAGE>



CHANGING REGULATORY STRUCTURE

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

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

EFFECT OF ECONOMIC ENVIRONMENT

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

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



<PAGE>



ITEM 2.      DESCRIPTION OF PROPERTY

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

     In February 1994,  Bancorp entered into a long-term ground lease in Tigard,
Oregon, a suburb of Portland,  where  Centennial Bank located a new branch.  The
ground lease has an initial term of 50 years and is renewable for two additional
10-year periods. Lease payments of $5,834 per month began in November 1994, with
increases   thereafter   scheduled  in  accordance  with  the  lease  agreement.
Construction  of a three-story  office  building was completed in June 1995 at a
cost of $2.9 million.  Centennial Bank occupies the first and part of the second
floors,  while Centennial  Mortgage  occupies the remainder of the second floor.
The third floor of the building was leased to another company  effective January
1996.

     Centennial  Bank owns three other branch  facilities  and leases two branch
facilities with annual lease payments of $101,700 in 1995.  Centennial Bank also
leases certain storage facilities with annual lease payments of $18,000 in 1995.

     Centennial  Bank  also  maintains  a lease for a former  branch  site at an
annual rental of $13,200 in 1995. The lease expires in May 1997. Centennial Bank
has sublet the property through April 1997 for an annual rental of $16,600.

     Centennial Mortgage's offices are located in leased facilities.  Centennial
Mortgage's  Eugene office is located in a building  formerly owned by Centennial
Bank which was sold to a third party in August 1994.  Centennial  Mortgage  paid
lease payments of $71,200 to the new building owner in 1995. Centennial Mortgage
leases office space for its Portland- area office from Centennial Bank.


ITEM 3.     LEGAL PROCEEDINGS

     Periodically,  and in the ordinary  course of business,  various claims and
lawsuits are brought by and against  Bancorp,  such as claims to enforce  liens,
condemnation   proceedings   on  properties  in  which  Bancorp  holds  security
interests,  claims involving the making and servicing of real property loans and
other issues  incident to  Bancorp's  business.  In  management's  opinion,  the
ultimate liability,  if any, resulting from the routine claims and lawsuits that
currently  exist  will not  have a  material  adverse  effect  on the  financial
position or results of operations of Bancorp.




<PAGE>



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

                None.


<PAGE>



                                     PART II

     The information called for by Items 5, 6, 7 and 8 of Part II is included in
Centennial  Bancorp's  Annual Report to Shareholders for the year ended December
31, 1995, and is incorporated herein by reference as follows:

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

ITEM 5.       MARKET FOR THE REGISTRANT'S COMMON
                   EQUITY AND RELATED STOCKHOLDER
                   MATTERS                                             37

ITEM 6.       SELECTED FINANCIAL DATA                                   5

ITEM 7.       MANAGEMENT'S DISCUSSION AND
                   ANALYSIS OF FINANCIAL CONDITION
                   AND RESULTS OF OPERATIONS                           28 - 36

ITEM 8.       FINANCIAL STATEMENTS AND
                   SUPPLEMENTARY DATA                                   7 - 27
  
ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH
                   ACCOUNTANTS ON ACCOUNTING AND
                   FINANCIAL DISCLOSURE

                   None.



<PAGE>



                                    PART III


ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

               The  information  called  for by this item will be  contained  in
               Centennial  Bancorp's  definitive  proxy statement for the annual
               meeting  of  shareholders  to be  held on May  15,  1996,  and is
               incorporated herein by reference.


ITEM 11.       EXECUTIVE COMPENSATION

               The  information  called  for by this item will be  contained  in
               Centennial  Bancorp's  definitive  proxy statement for the annual
               meeting  of  shareholders  to be  held on May  15,  1996,  and is
               incorporated herein by reference.


ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT

               The  information  called  for by this item will be  contained  in
               Centennial  Bancorp's  definitive  proxy statement for the annual
               meeting  of  shareholders  to be  held on May  15,  1996,  and is
               incorporated herein by reference.

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

               The  information  called  for by this item will be  contained  in
               Centennial  Bancorp's  definitive  proxy statement for the annual
               meeting  of  shareholders  to be  held on May  15,  1996,  and is
               incorporated herein by reference.


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

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

    (1)        Financial Statements.

               The  financial  statements  required  in this  Annual  Report are
               listed  below and are  included in  Centennial  Bancorp's  Annual
               Report to Shareholders  for the year ended December 31, 1995, and
               are incorporated herein by reference:

<PAGE>
                                                                      Annual
                                                                    Report to
                                                                   Shareholders
                                                                    Page Number
                                                                   ------------
               Report of Independent Accountants                        6
    
               Consolidated balance sheets at
                    December 31, 1995 and 1994                          7

               For the  three  years ended December 31, 1995
                     Consolidated statements of income                  8
                     Consolidated statements of
                          shareholders' equity                          9
                     Consolidated statements of cash flows             10-11

               Notes to consolidated financial statements              12-27

                (2)      Financial Statement Schedules.

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

                (3)      Exhibits.

         (3)  Exhibits.

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

              3.1(a)   Proposed  Articles  of  Amendment  (included  as  part of
                       Exhibit 4.1 to  registrant's  Registration  Statement  on
                       Form SB-2, filed March 28, 1994, and incorporated  herein
                       by reference)

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

              4.1      Indenture dated April 27, 1994 governing  registrant's 7%
                       Convertible    Exchangeable    Redeemable    Subordinated
                       Debentures  due  May  1,  2004  (filed  as  Exhibit  4 to
                       registrant's  Registration  Statement on Form S-4,  filed
                       August 26, 1994, and incorporated herein by reference)

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

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

              10.3*    Employment Agreement dated October 1, 1995,
                       between Richard C. Williams and registrant

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

              10.5*    Form of Stock Option Agreement entered into


<PAGE>



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

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

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

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

              10.9*    1995 Stock Incentive Plan

              10.10*   Nonstatutory (Nonqualified) Stock Option
                       Agreement dated November 22, 1995, between
                       registrant and Richard C. Williams

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

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

              11.1     Earnings per Share Computation

              13.1     Portions of 1995 Annual Report to Shareholders


<PAGE>



                       (which are incorporated by reference  in this
                       Form 10-K Annual Report)

              21.1     Subsidiaries of registrant

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

              27.1     Financial Data Schedule



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

*    Management contract or compensation plan or arrangement.




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

     (b)      Reports on Form 8-K.  Centennial Bancorp did not file any
              reports on Form 8-K during the last quarter of the fiscal
              year ended December 31, 1995.


<PAGE>



                          SIGNATURES

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

                              CENTENNIAL BANCORP


DATED:   March 19 , 1996     By:    /s/Richard C. Williams
               ---                -------------------------------
                                Richard C. Williams, President


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


                              PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR

DATED:   March 19 , 1996      By     /s/Richard C. Williams
               ---                -------------------------------
                                  Richard C. Williams, President,
                                  Chief Executive Officer and Director


                              CHIEF FINANCIAL OFFICER


DATED:   March 19  , 1996     By    /s/Michael J. Nysingh
               ---                -------------------------------
                                  Michael J. Nysingh
                                  Chief Financial Officer


                                   DIRECTORS:


DATED:   March 19  , 1996     By    /s/Dan Giustina
               ---                -------------------------------
                                  Dan Giustina, Director


DATED:   March 19  , 1996     By    /s/Cordy H. Jensen
               ---                -------------------------------
                                  Cordy H. Jensen, Director


DATED:   March 19  , 1996     By    /s/Robert L. Newburn
               ---                -------------------------------
                                  Robert L. Newburn, Director


DATED:   March 19  , 1996     By   /s/Brian B. Obie
               ---                -------------------------------
                                  Brian B. Obie, Director



<PAGE>

                                            EXHIBIT INDEX


EXHIBIT

10.3                         Employment Agreement dated October 1, 1995, between
                             Richard C. Williams and registrant

10.9                         1995 Stock Incentive Plan

10.10                        Nonstatutory (Nonqualified) Stock Option Agreement
                             dated November 22, 1995, between registrant and
                               Richard C. Williams

11.1                         Earnings per Share Computation

13.1                         Portions of 1995 Annual Report to Shareholders,
                             which are incorporated by reference in this Form
                             10-K

21.1                         Subsidiaries of registrant

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

27.1                         Financial Data Schedule