FORM
10-Q UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWashington, D.C.  20549 |X|
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934For
  the Quarterly Period Ended September 30, 2004|_|
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934Commission
  File Number: 000-50165 OREGON PACIFIC BANCORP(Exact name of Registrant as specified in its charter) Oregon
  
  71-0918151(State or other jurisdiction of
  incorporation or organization)
  
  (I.R.S. Employer
  Identification No.)1355
  Highway 101Florence,
  Oregon  97439(Address
  of principal executive offices)(541)
  997-7121(Registrants
  telephone number) 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 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 whether the Registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_|          No |X| The
number of shares outstanding of the Registrants Common Stock, no par value, as
of October 31, 2004, was 2,189,026.    OREGON PACIFIC BANCORP
INDEX
Part I.
  Financial InformationItem 1.
  Financial
  StatementsConsolidated
  Balance Sheets
  3Consolidated
  Statements of Income and Comprehensive Income
  4-5Consolidated  Statements of Changes in Stockholders
  Equity
  6Consolidated
  Statements of Cash Flows
  7-8Notes to
  Consolidated Financial Statements
  9-12Item 2.
  Managements
  Discussion and Analysis of Financial Condition and Results of Operations
  12-15Item 3.
  Quantitive
  and Qualitive Disclosures about Market Risk
  16Item 4.
  Controls
  and Procedures
  16-17Part II.
  Other
  Information
  17-18Signatures
  19Exhibits
  and Certifications of Chief Executive Officer and Chief Financial Officer
  20-232


PART 1.
  FINANCIAL INFORMATIONItem 1.
  Financial StatementsOREGON PACIFIC BANCORP
CONSOLIDATED BALANCE SHEETS

Unaudited
  
  AuditedSEPTEMBER 30,
  2004
  
  DECEMBER 31,
  2003ASSETSCash and due from banks
  
  
  $
  5,733,130
  
  
  
  $
  4,916,985Interest-bearing deposits in banks
  
  
  
  7,742,560
  
  
  
  
  4,764,248Available-for-sale securities, at fair value
  
  
  
  14,927,744
  
  
  
  
  16,845,288Restricted equity securities
  
  
  
  1,020,100
  
  
  
  
  999,100Loans held for sale
  
  
  
  1,577,448
  
  
  
  
  4,057,664Loans, net of allowance for loan losses and unearned income
  
  
  
  100,214,270
  
  
  
  
  82,722,328Premises & equipment, net
  
  
  
  5,242,584
  
  
  
  
  4,811,107Other real estate owned
  
  
  
  234,377
  
  
  
  
  9,746Accrued interest and other assets
  
  
  
  1,771,565
  
  
  
  
  1,549,826Total assets
  
  
  $
  138,463,778
  
  
  
  $
  120,676,292LIABILITIES AND STOCKHOLDERS EQUITYDepositsDemand deposits
  
  
  $
  29,691,340
  
  
  
  $
  21,990,360Interest-bearing demand deposits
  
  
  
  41,890,756
  
  
  
  
  39,165,421Savings deposits
  
  
  
  18,275,188
  
  
  
  
  16,207,129Time certificate accounts:$100,000 or more
  
  
  
  8,781,387
  
  
  
  
  7,102,978Other time certificate accounts
  
  
  
  12,775,216
  
  
  
  
  12,998,516Total deposits
  
  
  
  111,413,887
  
  
  
  
  97,464,404Other liabilitiesFederal Home Loan Bank borrowings
  
  
  
  11,881,556
  
  
  
  
  7,922,806Floating rate Junior Subordinated Deferrable Interest Debentures
  (Trust Preferred Securities)
  
  
  
  4,124,000
  
  
  
  
  4,000,000Deferred compensation liability
  
  
  
  1,106,155
  
  
  
  
  884,235Accrued interest and other liabilities
  
  
  
  990,842
  
  
  
  
  1,769,289Total liabilities
  
  
  
  129,516,440
  
  
  
  
  112,040,734Stockholders equityCommon stock, no par value, 10,000,000 shares authorized with
  2,189,026 and 2,173,592 issued and outstanding at September 30, 2004 and
  December 31, 2003, respectively
  
  
  
  5,003,053
  
  
  
  
  4,894,536Undivided profits
  
  
  
  3,652,913
  
  
  
  
  3,331,170Accumulated other comprehensive income, net of tax
  
  
  
  291,372
  
  
  
  
  409,852Total stockholders equity
  
  
  
  8,947,338
  
  
  
  
  8,635,558Total liabilities and stockholders equity
  
  
  $
  138,463,778
  
  
  
  $
  120,676,292See
accompanying notes
3



OREGON PACIFIC BANCORP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(Unaudited)

Three Months Ended
  September 30,
  
  Nine Months Ended
  September 30,2004
  
  2003
  
  2004
  
  2003INTEREST INCOMEInterest and fees on
  loans
  
  $
  1,809,068
  
  $
  1,621,427
  
  $
  5,168,311
  
  $
  4,761,034Interest on investment
  securities:U.S. Teasuries and
  agencies
  
  
  47,566
  
  
  38,650
  
  
  166,825
  
  
  94,358State and political
  subdivisions
  
  
  84,156
  
  
  92,825
  
  
  240,873
  
  
  274,379Corporate and other
  investments
  
  
  37,951
  
  
  36,831
  
  
  139,786
  
  
  198,263Interest on deposits in
  banks
  
  
  31,697
  
  
  13,674
  
  
  76,083
  
  
  52,340Total interest income
  
  
  2,010,438
  
  
  1,803,407
  
  
  5,791,878
  
  
  5,380,374INTEREST EXPENSEInterest-bearing demand
  deposits
  
  
  88,172
  
  
  117,755
  
  
  262,314
  
  
  422,801Savings deposits
  
  
  24,345
  
  
  35,005
  
  
  83,416
  
  
  111,658Time deposits
  
  
  110,378
  
  
  128,243
  
  
  325,447
  
  
  421,236Other borrowings
  
  
  158,353
  
  
  85,774
  
  
  402,809
  
  
  271,783Total interest expense
  
  
  381,248
  
  
  366,777
  
  
  1,073,986
  
  
  1,227,478Net interest income
  
  
  1,629,190
  
  
  1,436,630
  
  
  4,717,892
  
  
  4,152,896PROVISION FOR LOAN
  LOSSES
  
  
  
  
  
  40,000
  
  
  (360,000
  )
  
  130,000Net interest income
  after provision for loan losses
  
  
  1,629,190
  
  
  1,396,630
  
  
  5,077,892
  
  
  4,022,896NONINTEREST INCOMEMortgage loan sales and
  servicing fees
  
  
  170,421
  
  
  341,732
  
  
  558,375
  
  
  1,046,659Service charges and fees
  
  
  234,251
  
  
  129,006
  
  
  587,690
  
  
  341,264Investment sales
  commissions
  
  
  24,368
  
  
  62,837
  
  
  88,307
  
  
  110,005Trust fee income
  
  
  120,985
  
  
  115,871
  
  
  388,794
  
  
  333,462Other income
  
  
  38,576
  
  
  22,572
  
  
  116,554
  
  
  71,476Total noninterest income
  
  
  588,601
  
  
  672,018
  
  
  1,739,720
  
  
  1,902,8664


OREGON PACIFIC BANCORP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(Unaudited)
(continued)

Three Months EndedSeptember 30,
  
  Nine Months EndedSeptember 30,2004
  
  2003
  
  2004
  
  2003NONINTEREST EXPENSESalaries and benefits
  
  $
  1,174,110
  
  $
  1,045,148
  
  $
  3,580,025
  
  $
  3,054,936Occupancy
  
  
  222,774
  
  
  155,973
  
  
  623,261
  
  
  468,201Supplies
  
  
  42,091
  
  
  44,654
  
  
  161,262
  
  
  143,125Postage and freight
  
  
  21,683
  
  
  21,339
  
  
  68,684
  
  
  71,536Outside services
  
  
  140,234
  
  
  141,332
  
  
  439,646
  
  
  471,237Advertising
  
  
  36,351
  
  
  23,065
  
  
  113,476
  
  
  82,584Loan collection expense
  
  
  26,679
  
  
  67,419
  
  
  94,667
  
  
  152,760Securities and trust
  department expense
  
  
  41,540
  
  
  32,339
  
  
  105,938
  
  
  96,960Other expenses
  
  
  162,504
  
  
  107,477
  
  
  723,407
  
  
  375,011Total noninterest expense
  
  
  1,867,966
  
  
  1,638,746
  
  
  5,910,366
  
  
  4,916,350INCOME BEFORE INCOME TAXES
  
  
  349,825
  
  
  429,903
  
  
  907,246
  
  
  1,009,412PROVISION FOR INCOME TAXES
  
  
  109,182
  
  
  156,492
  
  
  280,483
  
  
  293,664NET INCOME
  
  
  240,643
  
  
  273,411
  
  
  626,763
  
  
  715,748OTHER COMPREHENSIVE INCOMEUnrealized holding
  gain/(loss) arising during the period, net of tax
  
  
  86,389
  
  
  (58,249
  )
  
  (118,480
  )
  
  (4,441
  )COMPREHENSIVE INCOME
  
  $
  327,032
  
  $
  215,162
  
  $
  508,283
  
  $
  711,307EARNINGS PER SHARE OF
  COMMON STOCKBasic earnings per share
  
  $
  0.11
  
  $
  0.13
  
  $
  0.29
  
  $
  0.33Diluted earnings per share
  
  $
  0.11
  
  $
  0.13
  
  $
  0.29
  
  $
  0.33WEIGHTED AVERAGE COMMON
  SHARES OUTSTANDINGBasic earnings per share
  
  
  2,185,943
  
  
  2,166,808
  
  
  2,180,632
  
  
  2,151,496Diluted earnings per share
  
  
  2,189,087
  
  
  2,169,102
  
  
  2,182,205
  
  
  2,153,950See accompanying notes
5



OREGON PACIFIC BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Surplus
  
  Undivided
  Profits
  
  Accumulated
  Other
  Comprehensive
  Income
  
  Total
  Stockholders
  EquityCommon StockShares
  
  AmountBalance, December 31, 2002
  (Audited)
  
  
  2,135,244
  
  $
  939,507
  
  $
  3,730,019
  
  $
  2,735,032
  
  
  $
  488,364
  
  
  
  $
  7,892,922Change in capitalization as
  a result of holding company formation
  
  
  
  
  
  3,730,019
  
  
  (3,730,019
  )
  
  
  
  
  
  
  
  
  
  
  Exercise of stock options
  
  
  20,000
  
  
  100,000
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  100,000Cash dividends paid
  
  
  
  
  
  
  
  
  
  
  
  (240,691
  )
  
  
  
  
  
  
  
  (240,691
  )Dividends reinvested in
  stock
  
  
  18,348
  
  
  125,010
  
  
  
  
  
  (125,010
  )
  
  
  
  
  
  
  
  Net income and comprehensive
  income
  
  
  
  
  
  
  
  
  
  
  
  961,839
  
  
  
  (78,512
  )
  
  
  
  883,327Balance, December 31, 2003
  (Audited)
  
  
  2,173,592
  
  $
  4,894,536
  
  $
  
  
  $
  3,331,170
  
  
  $
  409,852
  
  
  
  $
  8,635,558Cash dividends paid
  
  
  
  
  
  
  
  
  
  
  
  (196,503
  )
  
  
  
  
  
  
  
  (196,503
  )Dividends reinvested in
  stock
  
  
  15,434
  
  
  108,517
  
  
  
  
  
  (108,517
  )
  
  
  
  
  
  
  
  Net income and comprehensive
  income
  
  
  
  
  
  
  
  
  
  
  
  626,763
  
  
  
  (118,480
  )
  
  
  
  508,283Balance, September 30, 2004
  (Unaudited)
  
  
  2,189,026
  
  $
  5,003,053
  
  $
  
  
  $
  3,652,913
  
  
  $
  291,372
  
  
  
  $
  8,947,338See accompanying notes
6



OREGON PACIFIC BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,2004
  
  2003CASH FLOWS FROM OPERATING
  ACTIVITIESNet income
  
  $
  626,763
  
  $
  715,748Adjustments to reconcile
  net income to net cash from operating activities:Depreciation and
  amortization
  
  
  363,120
  
  
  258,162(Benefit) Provision for
  loan losses
  
  
  (360,000
  )
  
  130,000Federal Home Loan Bank
  stock dividends
  
  
  (21,000
  )
  
  (30,100
  )Net change in mortgage
  loans held-for-sale
  
  
  2,480,216
  
  
  395,312(Gain) loss on disposition
  of premises, equipment, and other real estate
  
  
  (22,725
  )
  
  2,286Net increase in accrued
  interest and other assets
  
  
  (142,752
  )
  
  (321,859
  )Net decrease in accrued
  interest and other liabilities
  
  
  (556,527
  )
  
  (52,145
  )Net cash from operating
  activities
  
  
  2,367,095
  
  
  1,097,404CASH FLOWS FROM INVESTING
  ACTIVITIESProceeds from sales and
  maturities of available-for-sale securities
  
  
  6,776,637
  
  
  4,045,721Purchases of
  available-for-sale-securities
  
  
  (5,084,907
  )
  
  (8,127,756
  )Purchase of restricted
  equity securities
  
  
  
  
  
  (650
  )Net (increase) decrease in
  interest-bearing deposits in banks
  
  
  (2,978,312
  )
  
  2,019,183Loans originated, net of
  principal repayments
  
  
  (17,383,870
  )
  
  (9,615,767
  )Purchase of premises and
  equipment
  
  
  (756,827
  )
  
  (1,359,298
  )Proceeds from sale of
  other real estate
  
  
  40,599
  
  
  104,949Net cash from investing
  activities
  
  
  (19,386,680
  )
  
  (12,933,618
  )CASH FLOWS FROM FINANCING
  ACTIVITIESNet increase in demand and
  savings deposit accounts
  
  
  12,494,374
  
  
  13,808,157Net increase (decrease) in
  time deposits
  
  
  1,455,109
  
  
  (798,801
  )Proceeds from Federal Home
  Loan Bank borrowings
  
  
  4,000,000
  
  
  550,000Repayment of Federal Home
  Loan Bank borrowings
  
  
  (41,250
  )
  
  (1,050,945
  )Proceeds from other bank
  borrowing
  
  
  124,000
  
  
  175,000Cash received in exercise
  of stock options
  
  
  
  
  
  100,000Cash dividends paid
  
  
  (196,503
  )
  
  (184,091
  )Net cash from financing
  activities
  
  
  17,835,730
  
  
  12,599,320NET INCREASE IN CASH AND
  CASH EQUIVALENTS
  
  
  816,145
  
  
  763,1067


OREGON PACIFIC BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(continued)



Nine Months Ended September 30,2004
  
  2003CASH AND CASH EQUIVALENTS,
  beginning of period
  
  $
  4,916,985
  
  
  $
  3,886,203CASH AND CASH EQUIVALENTS,
  end of period
  
  $
  5,733,130
  
  
  $
  4,649,309SCHEDULE OF NONCASH
  ACTIVITIESStock dividends reinvested
  
  $
  108,517
  
  
  $
  94,848Unrealized loss on
  available for sale securities, net of tax
  
  $
  (118,480
  )
  
  $
  (4,441
  )Additions to other real
  estate owned
  
  $
  251,928
  
  
  $
  513See accompanying notes
8



Oregon
Pacific Banking Co.
Notes to Financial Statements
September 30, 2004 and 2003
(Unaudited)

Note 1  Basis of
Presentation

Oregon Pacific Bancorp
(the Company), an Oregon Corporation and financial bank holding company,
became the holding company of Oregon Pacific Banking Co. (the Bank) effective
January 1, 2003 through a Plan of Share Exchange approved by Bank shareholders
on December 19, 2002.  The Bank is a
state-chartered institution authorized to provide banking services by the State
of Oregon, from its headquarters in Florence, Oregon.  Full-service banking products are offered to the Banks customers
who live primarily in Lane, Douglas, and Coos counties and on the central
Oregon coast.  The Bank is subject to
the regulations of certain federal and state agencies and undergoes periodic
examinations by those regulatory authorities.
The financial information
included in this interim report has been prepared by management without audit
by independent public accountants.  The
unaudited interim financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States
of America for interim financial information. 
All adjustments including normal recurring accruals necessary for fair
presentation of results of operations for the interim periods included herein
have been made.  However, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements.
In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts and balances for the periods presented.  Actual results could differ from those
estimated.  Additionally, the results of
operations for the nine months ended September 30, 2004 are not necessarily
indicative of results to be anticipated for the year ending December 31,
2004.  The interim financial statements
should be read in conjunction with the audited financial statements, including
the notes thereto, contained in the Banks 2003 Annual Report to Shareholders.
In the first quarter of
2004, the Company adopted Financial Accounting Standards Boards Interpretation
No. 46 (revised December 2003, FIN 46R) Consolidation of Variable Interest
Entities which provided guidance on how to identify the primary beneficiary of
a variable interest entity (VIE) and determine when the primary beneficiary
of a VIE should include the VIE within its consolidated financial statements.  As a result of adoption of FIN 46R, the
Company was required to no longer consolidate Oregon Pacific Statutory Trust I
(the Trust) within its financial statements and to recognize $4.1 million as
junior subordinated debentures due to the Trust effective March 31, 2004.
Reclassifications 
Certain reclassifications have been made to the 2003 financial statements to
conform to current year presentations.
Note 2  Securities
Available-for-Sale
The following table
presents the fair value of investments with continuous unrealized losses for
less than 12 month as of September 30, 2004. 
No investments have continuous unrealized losses for more than 12
months.
9


Amortized
  Cost
  
  Gross
  Unrealized
  Gains
  
  Gross
  Unrealized
  Losses
  Less than
  12 Months
  
  Estimated
  Fair
  ValueSeptember 30, 2004:U.S. Treasury and agencies
  
  $
  4,773,900
  
  
  $
  10,888
  
  
  
  $
  (452
  )
  
  $
  4,784,336State and political subdivisions
  
  
  7,740,412
  
  
  
  389,461
  
  
  
  
  (844
  )
  
  $
  8,129,029Corporate notes
  
  
  1,927,812
  
  
  
  86,567
  
  
  
  
  
  
  
  
  2,014,379.0$
  14,442,124
  
  
  $
  486,916
  
  
  
  $
  (1,296
  )
  
  $
  14,927,744For the two securities
exhibiting unrealized losses, that is they currently have fair values less than
amortized costs, the Bank has evaluated these securities and has determined
that the decline in value is temporary and is related to the change in market
interest rates since purchase. The following information was also considered in
determining that the impairments are not other-than-temporary.  U.S. Government agencies securities have
minimal credit risk as they play a vital role in the nations financial
markets.  State and political
subdivisions and corporate securities have a credit rating of at least
investment grade by one of the nationally recognized rating agencies.  The decline in value is not related to any
company or industry-specific event and the Bank anticipates full recovery of
amortized costs with respect to these securities at maturity or sooner in the
event of a more favorable market interest rate environment.
Note 3  Loans and
Allowance for Loan Losses

The composition of the
loan portfolio was as follows as of the dates presented:
SEPT. 30, 2004
  
  DEC. 31, 2003Real
  estate
  
  
  $
  18,461,048
  
  
  
  $
  14,660,603Commercial
  
  
  
  80,981,982
  
  
  
  
  63,422,739Installment
  
  
  
  2,830,051
  
  
  
  
  6,352,442Overdrafts
  
  
  
  56,338
  
  
  
  
  36,717102,329,419
  
  
  
  
  84,472,501Allowance
  for loan losses
  
  
  
  (1,635,300
  )
  
  
  
  (1,315,955
  )Unearned
  loan fees
  
  
  
  (479,849
  )
  
  
  
  (434,218
  )$
  100,214,270
  
  
  
  $
  82,722,328Changes in the allowance for loan losses
were as follows for the nine-months ended:


SEPT. 30, 2004
  
  SEPT. 30, 2003Balance, beginning of the
  period
  
  
  $
  1,315,955
  
  
  
  $
  1,173,025Provision for losses
  
  
  
  (360,000
  )
  
  
  
  130,000Losses
  
  
  
  (40,730
  )
  
  
  
  (33,765
  )Recoveries
  
  
  
  720,075
  
  
  
  
  6,695Balance, end of period
  
  
  $
  1,635,300
  
  
  
  $
  1,275,955It is the policy of the
Bank to place loans on nonaccrual status whenever the collection of all or a
part of the principal 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 by
collateral.  There were $148,000 of
loans on nonaccrual status at September 30, 2004 compared to no loans at December
31, 2003.
The Bank had no loans
past due 90 days or more on which it continued to accrue interest at either
September 30, 2004 or December 31, 2003.

10


Note 4  Earnings per
Share of Common Stock
Basic earnings per share
exclude dilution and are computed by dividing net income by the weighted
average common shares outstanding for the period.  Diluted earnings per share reflect the potential dilution that
could occur if common shares were issued pursuant to the exercise of options
under stock option plans.  Weighted
average shares outstanding consist of common shares outstanding and common
stock equivalents attributable to outstanding stock options.
Note 5  Stock Option
Plans
The Company accounts for
its stock option plan under the intrinsic value method in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees,and related interpretations.  As such, compensation cost is computed as
the difference between a companys stock price and the option price at the
grant date.  No compensation cost has
been recognized for the Companys stock option plans and no options were
granted during the quarter ended September 30, 2004.  Had compensation cost for the Companys grants for stock-based compensation
plans been determined consistent with Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, its net
income and earnings per common share for September 30, 2004 and 2003 would
approximate the pro forma amounts below.
Three Months EndedSeptember 30,
  
  Nine Months EndedSeptember 30,2004
  
  2003
  
  2004
  
  2003Net earnings, as reported
  
  $
  240,643
  
  $
  273,411
  
  $
  626,763
  
  $
  715,748Deduct: Total stock-based
  employee compensation expense determined under the fair value-based method
  for all awards, net of related tax effects
  
  
  (120
  )
  
  (121
  )
  
  (359
  )
  
  (363
  )Pro forma net earnings
  
  $
  240,523
  
  $
  273,290
  
  $
  626,404
  
  $
  715,385Basic earnings per common
  share:As reported
  
  $
  0.11
  
  $
  0.13
  
  $
  0.29
  
  $
  0.33Pro forma
  
  $
  0.11
  
  $
  0.13
  
  $
  0.29
  
  $
  0.33Diluted earnings per
  common share:As reported
  
  $
  0.11
  
  $
  0.13
  
  $
  0.29
  
  $
  0.33Pro forma
  
  $
  0.11
  
  $
  0.13
  
  $
  0.29
  
  $
  0.33The fair value of each
option granted is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions for September 30, 2004 and 2003:
2004
  
  2003Dividend yield
  
  
  2.25
  %
  
  0.05
  %Expected life (years)
  
  
  7.5
  
  
  7Expected volatility
  
  
  19
  .72
  %
  
  0.01
  %Risk -free rate
  
  
  3.75
  %
  
  4.84  5.04
  %Note 6  Subsequent
Events
On September 21, 2004 the
Board of Directors adopted a corporate resolution allowing a stock repurchase
program in order to increase the liquidity and marketability of the Companys
stock.  The program was approved by the
Oregon State Division of Finance and Corporate Securities.  The Company initiated purchases in October
2004.

The Federal Reserve Board
approved the Banks request to close the Sutherlin branch effective December
31, 2004.  The branch, located in a
local supermarket, has not met the Banks deposit growth goals and the Board of
Directors has approved the redeployment of Bank resources to more profitable
venues.
11


Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
This report contains a
number of forward looking statements about our anticipated business,
operations, financial performance and cash flows.  Statements in this report that relate to future plans, events and
circumstances are provided to describe managements intentions and expectations
based on currently available information, and readers should not construe these
statements as assurances or guarantees. 
As with any predictions, these statements are inherently difficult to
make with any degree of assurance, and actual results may differ materially and
adversely from managements expectations described herein.  Likewise, managements plans described in
this report may not come to pass because unforeseen events may force management
to deviate from its expressed intentions. 
Forward-looking statements often can be identified by the use of predictive
or prospective terms such as expect, anticipate, believe, plan,
intend, and words of similar construction or meaning.  Some of the events or circumstances that may
cause our actual results to deviate from managements expectations include the
impact of competition and local and regional economic factors upon our customer
base, our deposits and our loan portfolio; economic and regulatory limits on
our ability to grow our assets and manage our business; customer acceptance of
our products; interest rate fluctuations that may adversely impact our revenues
and expenses; and the impact of impairment charges upon our intangible and
other assets.  Other factors that may
adversely impact our performance are discussed in this report as well as other
disclosures we make from time to time in our filings with the Securities and
Exchange Commission or other federal agencies. 
Readers also should note that forward-looking statements expressed in
this report are made as of the date of this report, and management cannot
undertake to update those statements to reflect future events or circumstances.
Critical Accounting Policies and Estimates

On an ongoing basis,
management evaluates the estimates used, including the adequacy of the
allowance for loan losses and contingencies and the mortgage servicing
asset.  Estimates are based upon
historical experience, current economic conditions, and other factors that
management considers reasonable under the circumstances.  These estimates result in judgments
regarding the carrying values of assets and liabilities when these values are
not readily available from other sources as well as assessing and identifying
the accounting treatments of commitments and contingencies.  Actual results may differ from these
estimates under different assumptions or conditions.

Overview
Oregon Pacific Bancorp
(the Company), an Oregon Corporation and financial bank holding company,
is  the holding company of Oregon
Pacific Banking Co. (the Bank).  The
Company is headquartered in Florence, Oregon.
The Bank is an Oregon
banking corporation organized under the Oregon Bank Act on December 17,
1979.  The Bank is a full-service
commercial bank that provides a broad range of depository and lending services
to commercial enterprises, governmental entities and individuals.  In 2003, the Bank expanded from its main
office and a full-service Safeway store branch, both located in Florence to
three additional Oregon locations including Roseburg, Coos Bay and
Sutherlin.  Additional financial
services provided by the Bank include trust and asset management services and
investment and brokerage services.  Such
services are provided at the main office in Florence and at offices in Roseburg
and Coos Bay, Oregon.
The Company has a
two-tiered corporate structure.  At the
holding company level the affairs of the Company are overseen by a Board of
Directors elected by the shareholders of the Company.  The business of the Bank is overseen by a Board of Directors
selected by the Company, the sole owner of the Bank.  Currently the respective members of the Board of Directors of the
Bank and the Company are identical.
12


The Company reported net
income of $241,000 or $.11 per basic share and $627,000 or $.29 per basic share
for the three months and nine months ended September 30, 2004.  This compares to income of $273,000 or $.13
per basic share and $716,000 or $.33 per basic share for the same periods in
the prior year.  The primary reason for
the decrease for the third quarter and year-to-date is the interest paid on the
Trust Preferred Securities obtained as part of the Companys capital plan in
December 2003.  The earnings by the Bank
have remained fairly even although mortgage loan sales have decreased
significantly with rates on the rise, commercial loan interest and fees have
increased as commercial loan balances have grown.
Financial Condition

Total assets at September
2004 were $138,464,000 compared to $120,676,000 at December 31, 2003, an
increase of $17,788,000 (14.7%).  The
increase was due to an increase in net loans of $17,492,000 (21.1%) funded by
an increase in customer deposits which increased $13,949,000 (14.3%), sale of
available-for-sale securities and a decrease of loans held for sale.  Much of the deposit increase was in
interest-free demand deposits helping the Bank maintain its net interest
spread.

Premises and equipment
increased by $431,000 as facilities were completed and furnished at the two
branches located in Roseburg and Coos Bay.
September 30, 2004
shareholders equity was $8,947,000, an increase of $312,000 from December 31,
2003.  This change resulted from net
income, partially offset by cash dividends paid ($197,000) and a decrease in
unrealized gains on available-for-sale securities ($118,000).
Results of Operations
Net interest income
Net interest income is
the Banks primary source of revenue. 
Net interest income is the difference between interest income earned
from loans and the investment portfolio, and interest expense paid on customer
deposits and debt.  Changes in net
interest income result from changes in volume and changes in rate.  Volume refers to the dollar level of
interest-earning assets and interest-bearing liabilities.  Rate refers to the underlying yields on
assets and costs of liabilities.
Net interest income on a
tax-equivalent basis was $4,960,000 for the nine months ended September 30,
2004 compared to $4,290,000 for the same period in 2003 (see Table 1).  The $670,000 increase was due to an increase
in average loans and was partially offset a decrease in the rates earned on
loans. The decrease in the rates paid on deposits also increased net interest
that was only somewhat offset from the increase in interest-bearing
liabilities. Average loans were up $13,803,000, while average rates on loans
were down 0.55%. Average interest-bearing liability balances were up $5,693,000
while average rates on deposits and borrowed funds were down 0.53%.  The net interest spread, which is the
difference between the average yield of interest-earning assets less the cost
of interest-bearing liabilities, increased 0.17% during the first nine months
of 2004 compared with the first nine months of 2003.  As a consequence of increased interest-free deposits and lower
deposit rates, the net interest margin increased to 5.50% compared to 5.38% for
the nine month period in the prior year. 
The increase is due to strong asset-liability management during this
ongoing low interest rate climate causing a decline in loan yields that
compress against an already low cost of funds.

13


Table I

Average
Balances and Average Rates Earned and Paid.The following table shows average balances and
interest income or interest expense, with the resulting average yield or rates
by category of average earning asset or interest-bearing liability:

Nine Months Ended Sept. 30, 2004
  
  Nine Months Ended Sept. 30, 2003
  
  Increase (Decrease)Interest
  
  Average
  
  
  
  Interest
  
  AverageAverage
  
  Income or
  
  Yield or
  
  Average
  
  Income or
  
  Yield or
  
  Due to change in
  
  Net(dollars in thousands)
  
  Balance
  
  Expense
  
  Rates
  
  Balance
  
  Expense
  
  Rates
  
  Volume
  
  Rate
  
  ChangeInterest-earning
  assets:Loans
  (2)
  
  $
  95,623
  
  
  $
  5,168
  
  
  
  7.21
  %
  
  $
  81,820
  
  
  $
  4,761
  
  
  
  7.76
  %
  
  
  $
  804
  
  
  $
  (394
  )
  $
  410Investment
  securitiesTaxable
  securities
  
  
  8,139
  
  
  
  324
  
  
  
  5.31
  %
  
  
  10,442
  
  
  
  310
  
  
  
  3.96
  %
  
  
  
  (68
  )
  
  
  82
  
  
  14Nontaxable securities (1)
  
  
  6,524
  
  
  
  338
  
  
  
  6.91
  %
  
  
  7,185
  
  
  
  389
  
  
  
  7.23
  %
  
  
  
  (35
  )
  
  
  (16
  )
  
  (51
  )Interest-earning
  balances due from banks
  
  
  9,614
  
  
  
  76
  
  
  
  1.05
  %
  
  
  6,576
  
  
  
  52
  
  
  
  1.05
  %
  
  
  
  24
  
  
  
  
  
  
  24Total
  interest-earning assets
  
  
  119,900
  
  
  
  5,906
  
  
  
  6.57
  %
  
  
  106,023
  
  
  
  5,512
  
  
  
  6.93
  %
  
  
  
  725
  
  
  
  (328
  )
  
  397Cash
  and due from banks
  
  
  5,230
  
  
  
  
  
  
  
  
  
  
  
  3,679Premises
  and equipment, net
  
  
  5,162
  
  
  
  
  
  
  
  
  
  
  
  3,122Other
  real estate
  
  
  114
  
  
  
  
  
  
  
  
  
  
  
  33Loan
  loss allowance
  
  
  (1,528
  )
  
  
  
  
  
  
  
  
  
  
  (1,232
  )Other
  assets
  
  
  2,127
  
  
  
  
  
  
  
  
  
  
  
  2,301Total
  assets
  
  $
  131,005
  
  
  
  
  
  
  
  
  
  
  $
  113,926Interest-bearing
  liabilities:Interest-bearing
  checking and savings accounts
  
  $
  59,463
  
  
  $
  346
  
  
  
  0.78
  %
  
  $
  53,542
  
  
  $
  535
  
  
  
  1.33
  %
  
  
  $
  58
  
  
  $
  (245
  )
  $
  (187
  )Time
  deposit and IRA accounts
  
  
  20,359
  
  
  
  325
  
  
  
  2.13
  %
  
  
  21,558
  
  
  
  421
  
  
  
  2.60
  %
  
  
  
  (24
  )
  
  
  (72
  )
  
  (96
  )Borrowed
  funds
  
  
  9,679
  
  
  
  275
  
  
  
  3.79
  %
  
  
  8,708
  
  
  
  266
  
  
  
  4.07
  %
  
  
  
  29
  
  
  
  (20
  )
  
  9Total
  interest-bearing liabilities
  
  
  89,501
  
  
  
  946
  
  
  
  1.41
  %
  
  
  83,808
  
  
  
  1,222
  
  
  
  1.94
  %
  
  
  
  63
  
  
  
  (337
  )
  
  (274
  )Noninterest-bearing
  deposits
  
  
  26,751
  
  
  
  
  
  
  
  
  
  
  
  20,050Other
  liabilities
  
  
  2,032
  
  
  
  
  
  
  
  
  
  
  
  1,706Total
  liabilities
  
  
  118,284
  
  
  
  
  
  
  
  
  
  
  
  105,564Shareholders
  equity
  
  
  12,721
  
  
  
  
  
  
  
  
  
  
  
  8,362Total
  liabilities and share-holders equity
  
  $
  131,005
  
  
  
  
  
  
  
  
  
  
  $
  113,926Net
  interest income
  
  
  
  
  
  $
  4,960
  
  
  
  
  
  
  
  
  
  
  $
  4,290
  
  
  
  
  
  
  
  $
  662
  
  
  $
  9
  
  $
  671Net
  interest spread
  
  
  
  
  
  
  
  
  
  
  5.16
  %
  
  
  
  
  
  
  
  
  
  
  4.99
  %Net
  interest expense to average earning assets
  
  
  
  
  
  
  
  
  
  
  1.05
  %
  
  
  
  
  
  
  
  
  
  
  1.53
  %Net
  interest margin
  
  
  
  
  
  
  
  
  
  
  5.50
  %
  
  
  
  
  
  
  
  
  
  
  5.38
  %(1)
  Tax-exempt
  income has been adjusted to a tax-equivalent basis at 34%.(2)
  Includes
  loan fees.14


Provision for Loan Loss

No provision for loan
loss was recorded in the three months ended September 30, 2004 compared to
$40,000 in the same period in 2003. A benefit was recorded in the amount of
$360,000 for the nine months ended September 30, 2004 compared to a provision
of $130,000 in 2003.  The allowance for
loan losses at September 30, 2004 was 1.6% of gross loans, the same as December
31, 2003.  There were only $72,000 of
non-performing loans at September 30, 2004. 
Management is satisfied that the reserve is adequate for potential loan
losses in the loan portfolio at September 30, 2004.  Managements assessment of the adequacy of the allowance for loan
loss is based on a number of factors including current delinquent and
non-performing loans, past loan loss experience, evaluation of customers
financial strength, and economic trends impacting areas and customers served by
the Bank.  The allowance is based on
estimates, and actual losses may vary from those currently estimated.
Noninterest Income
Noninterest income
decreased $163,000 or 12.5% and $83,000 or 12.4% for the nine and three months
ended September 2004 as compared to the same period in 2003.  These smaller changes were after the
significant mortgage fee increases in 2003 of 44.8% and 61.0%, respectively,
during a period of the lowest mortgage interest rates in forty years.  Other than mortgage loan related accounts,
noninterest income increased 38.0% and 26.6% for the nine months and three
months ended September 2004 as compared to the same period in 2003.  This was a result of increased accounts at
the new locations earning service charges and fees for Check Protector, a
service covering account overdrafts.
Noninterest Expense
Noninterest expense
increased $994,000 or 20.2% for the nine months and $229,000 or 14.0% for the
three months ended September 30, 2004 over the same periods one year ago.  The increase is attributable primarily to an
increase in salaries and benefits and occupancy expenses as expected with the
Banks opening of the new facilities in Roseburg and Coos Bay.  Other expenses increased primarily as a
result of a litigation settlement in second quarter.
The provision for income
taxes at both September 30, 2004 and 2003 remained consistent with expected
statutory rates adjusted for anticipated permanent differences arising
primarily from nontaxable income earned on municipal security investments
except for the adjustment discussed above.
Liquidity and Capital Resources
Liquidity management
involves the ability to meet cash flow requirements.  The Banks major sources of liquidity are customer deposits,
maturities or calls of investment securities, the use of borrowing arrangements
with the Federal Home Loan Bank of Seattle, and net cash provided by operating
activities.  The Banks investment
portfolio is another source of funds, if needed.  The investment portfolio is of good quality and is highly
marketable although a gain or loss would be realized if the market value of
securities sold were not equal to their adjusted book value at date of
sale.
The Bank maintains
liquidity levels adequate to fund loan commitments, investment opportunities,
deposit withdrawals, and other financial commitments.  Management is satisfied that liquidity is sufficient at September
30, 2004.  There are no known trends,
events, regulatory authority recommendations, or uncertainties that management
is aware of that will have or that are likely to have a material adverse effect
on the Banks liquidity, capital resources, or operations.
For purposes of
determining a banks deposit insurance assessment, the FDIC has issued
regulations that define a well capitalized bank as one with a leverage ratio
of 5% or more and a total risk-based ratio of 10% or more.  At September 30, 2004, the Banks leverage and
total risk-based ratios were 9.05% and 12.37% respectively, which exceed the
well-capitalized threshold.
15


Item
3.     Quantitive and Qualitive
Disclosures about Market Risk
Market risk is the risk
of loss from adverse changes in market prices and rates.  The Banks market risk arises principally
from interest rate risk in its lending, deposit and borrowing activities.  Management actively monitors and manages its
interest rate risk exposure.  Although
the Bank manages other risks, such as credit quality and liquidity risk, in the
normal course of business, management considers interest rate risk to be a
significant market risk which could have the largest material effect on the
Banks financial condition and results of operations.
Through the Banks
Asset/Liability Management Committee (ALCO), which is comprised of senior
management, the Bank monitors the level and general mix of earning assets and
interest-bearing liabilities, with special attention to those assets and
liabilities which are rate-sensitive. 
The primary objective of ALCO is managing the Companys assets and
liabilities in a manner that balances profitability, interest rate risk, and
various other risks including liquidity.  ALCO operates under policies and
within risk limits prescribed by, reviewed and approved by the Board of
Directors.  The Banks strategy has
included the funding of certain fixed rate loans with medium term borrowed
funds in order to mitigate a margin squeeze should interest rates rise.
In an effort to assess
market risk, an asset/liabilty model to determine the effect of immediate
incremental increases and decreases in interest rates on net income was
provided by an independent party. Certain assumptions were made regarding loan
prepayments and decay rates of demand deposit accounts. Because it is difficult
to accurately project the market reaction of depositors and borrowers, the
effects of actual changes in interest on these assumptions may differ from
simulated results.
The Board of Directors
has set limits given a parallel shift of 2% in interest rates--the estimated
net interest margin may not decrease by more than 25% within a one-year
period.  The following table illustrates
the simulated impact of a 1% or 2% upward or downward movement in interest
rates on net income.  The impact of the
rate movements was computed by simulating the effect of an immediate and
sustained shift in interest rates over a twelve month period from the September
30, 2004 levels.



INCREASE ORDECREASE IN 
  INTEREST RATES
  
  ESTIMATED FINANCIALIMPACT ON NET
  INTEREST MARGIN2.0%
  
  $
  650,0001.0%
  
  $
  369,000-1.0%
  
  $
  (530,000
  )-2.0%
  
  $
  (1,120,000
  )There has not been a
material change in the quantitative and qualitative market risks faced by the
Bank from the risk disclosures reported in Banks form 10-K covering the fiscal
year ended December 31, 2003.
Item 4. Controls and Procedures

(a)
  The Companys management, including the Companys
  Chief Executive Officer and Chief Financial Officer, evaluated the
  effectiveness of its disclosure controls and procedures as of September 30,
  2004. Based on this evaluation, the Chief Executive Officer and the Chief
  Financial Officer each concludes that as of September 30, 2004, the Company
  maintained effective disclosure controls and procedures in all material
  respects, including those to ensure that information required to be disclosed
  in reports filed or submitted with the SEC is recorded, processed, and
  reported within the time periods specified by the SEC, and is accumulated and
  communicated to management, including the Chief Executive Officer and the
  Chief Financial Officer, as appropriate to allow for timely decision
  regarding required disclosure.(b)
  Changes in Internal Controls: In the quarter ended
  September 30, 2004, the Company did not make any significant changes in, nor
  take any corrective actions regarding, its internal controls or other factors
  that could significantly affect these controls.16


Disclosure
  Controls and Internal Controls. Disclosure controls are procedures that are designed with the
  objective of ensuring that information required to be disclosed in the
  Companys reports filed under the Securities Exchange Act of 1934 (Exchange
  Act) is recorded, processed, summarized and reported within the time periods
  specified in the Securities and Exchange Commissions (SEC) rules and
  forms.  Disclosure controls are also
  designed with the objective of ensuring that such information is accumulated
  and communicated to our management, as appropriate to allow timely decisions
  regarding required disclosure. Internal Controls are procedures which are
  designed with the objective of providing reasonable assurance that (1)
  transactions are properly authorized; (2) assets are safeguarded against
  unauthorized or improper use; and (3) transactions are properly recorded and
  reported, all to permit the preparation of financial statement in conformity
  with accounting principles generally accepted in the United States of
  America.Limitations
  on the Effectiveness of Controls. The Companys management
  does not expect that our disclosure controls or our internal controls will
  prevent all errors and all fraud.  A
  control system, no matter how well conceived and operated, can provide only
  reasonable, not absolute, assurance that the objectives of the control system
  are met. Further, the design of control system must reflect the fact that
  there are resource constraints, and the benefits of controls must be
  considered relative to their costs. Because of the inherent limitations in
  all control systems, no evaluation of controls can provide absolute assurance
  that all control issues and instances of fraud, if any, within the Company
  have been detected. These inherent limitations include the realities that
  judgments in decision-making can be faulty, and that breakdowns can occur
  because of simple error or mistake. Additionally, controls can be
  circumvented by the individual acts of some persons, by collusion of two or
  more people, or by management override of the control. The design of any system
  of controls also is based in part upon certain assumptions about the
  likelihood of future events, and there can be no assurance that any design
  will succeed in achieving its stated goals under all potential future
  conditions; over time, controls may become inadequate because of changes in
  conditions, or the degree of compliance with the policies or procedures may
  deteriorate. Because of the inherent limitations in a cost-effective control
  system, misstatements due to error or fraud may occur and not be detected.PART 2.
  OTHER INFORMATIONItem 1.
  Legal proceedings.In the normal course of its
  business, the Bank is a party to various debtor-creditor legal actions, none
  of which, individually or in the aggregate, are presently material to the
  Banks business, operations or financial condition.  These include cases
  filed as a plaintiff in collection and foreclosure cases, and the enforcement
  of creditors rights in bankruptcy proceedings.The Company is not currently involved in any
  material litigation or legal proceeding, and is not aware of any potential
  material litigation or proceeding threatened against it, other than as
  follows: The Bank has filed a lawsuit against an insurer, BancInsure, Inc.,
  arising from a policy coverage dispute, specifically, the insurers refusal
  to afford coverage for amounts paid by the Company to settle claims filed by
  a former employee of the Bank.Item 2.
  Changes in securities and use of
  proceeds.None.Item 3.
  Defaults upon senior securities.None.17


Item 4.
  Submission of matters to a vote of
  security holders.None.Item 5.
  Other information.None.Item 6.
  Exhibits and reports on Form 8-K.(a)
  Exhibits.The following documents are filed as part of this
  Form 10-Q as required by Item 601 of Regulation S-K:3.1
  Articles of Incorporation of Oregon Pacific Bancorp
  (incorporated herein by reference to Exhibit 3(i) to Oregon Pacific Bancorps
  Form 10-K for the year ended December 31, 2002 filed with the Securities and
  Exchange Commission on March 31, 2003).3.2
  Bylaws of Oregon Pacific Bancorp (incorporated
  herein by reference to Exhibit 3(i) to Oregon Pacific Bancorps Form 10-K for
  the year ended December 31, 2002 filed with the Securities and Exchange
  Commission on March 31, 2003).10.1
  2003 Stock Incentive Plan (incorporated by reference
  to Exhibit 1 to Oregon Pacific Bancorps Form DEF 14A filed with the
  Securities and Exchange Commission on March 25, 2003).10.2
  Oregon Pacific Banking Co. Amended and Restated
  Deferred Compensation Plan.**31.1
  Certification of Chief Executive Officer pursuant to
  rule 13a-14(a) or Rule 15d-14(a) and Section 302(a) of the Sarbanes-Oxley Act
  of 2002.**31.2
  Certification of Chief Financial Officer Pursuant to
  Section 302(a) of the Sarbanes-Oxley Act of 2002.**32.1
  Certification of Chief Executive Officer pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002.**32.2
  Certification of Chief Executive Officer pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002.****  Filed herewith.18



SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto, duly authorized, in the City of Florence, State of
Oregon, on November 12, 2004.

OREGON
  PACIFIC BANCORPBy:
  
  /s/ Thomas
  K. GroveThomas K.
  Grove 
  President, Chief Executive Officer 
  And Director (Chief Executive Officer)By:
  
  /s/ Joanne
  ForsbergJoanne
  Forsberg 
  Secretary and Chief Financial Officer 
  (Principal Financial Officer)19