FORM 10-Q UNITED STATES
SECURITIES 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 June 30, 2004|_|
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission 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 101
Florence, 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 July 31, 2004, was 2,183,465.  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
  9-11Item 2.
  Managements
  Discussion and Analysis of Financial Condition and Results of Operations
  11-15Item 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
  20-352

PART 1.         
FINANCIAL INFORMATION

Item 1.              Financial Statements

OREGON PACIFIC BANCORP
CONSOLIDATED BALANCE SHEETS

Unaudited
  
  AuditedJUNE 30,
  2004
  
  DECEMBER
  31,
  2003ASSETSCash and due from banks
  
  $
  6,938,471
  
  
  $
  4,916,985Interest-bearing deposits
  in banks
  
  
  4,005,499
  
  
  
  4,764,248Available-for-sale
  securities, at fair value
  
  
  14,220,151
  
  
  
  16,845,288Restricted equity
  securities
  
  
  1,013,600
  
  
  
  999,100Loans held for sale
  
  
  1,897,198
  
  
  
  4,057,664Loans, net of allowance
  for loan losses and unearned income
  
  
  96,792,200
  
  
  
  82,722,328Premises & equipment,
  net
  
  
  5,263,858
  
  
  
  4,811,107Other real estate owned
  
  
  251,926
  
  
  
  9,746Accrued interest and other
  assets
  
  
  1,940,565
  
  
  
  1,549,826Total assets
  
  $
  132,323,468
  
  
  $
  120,676,292LIABILITIES AND STOCKHOLDERS
  EQUITYDepositsDemand deposits
  
  $
  28,889,438
  
  
  $
  21,990,360Interest-bearing demand
  deposits
  
  
  39,546,317
  
  
  
  39,165,421Savings deposits
  
  
  18,656,567
  
  
  
  16,207,129Time certificate accounts:$100,000 or more
  
  
  7,644,202
  
  
  
  7,102,978Other time certificate
  accounts
  
  
  12,319,196
  
  
  
  12,998,516Total deposits
  
  
  107,055,720
  
  
  
  97,464,404Other liabilitiesFederal Home Loan Bank
  borrowings
  
  
  9,895,306
  
  
  
  7,922,806Floating rate Junior
  Subordinated Deferrable InterestDebentures (Trust Preferred Securities)
  
  
  4,124,000
  
  
  
  4,000,000Deferred compensation
  liability
  
  
  1,064,339
  
  
  
  884,235Accrued interest and other
  liabilities
  
  
  1,493,768
  
  
  
  1,769,289Total liabilities
  
  
  123,633,133
  
  
  
  112,040,734Stockholders equityCommon stock, no par
  value, 10,000,000 shares authorized with 2,183,465 and 2,173,592 issued and
  outstanding at June 30, 2004 and December 31, 2003, respectively
  
  
  4,963,908
  
  
  
  4,894,536Undivided profits
  
  
  3,521,444
  
  
  
  3,331,170Accumulated other
  comprehensive income, net of tax
  
  
  204,983
  
  
  
  409,852Total stockholders equity
  
  
  8,690,335
  
  
  
  8,635,558Total liabilities and
  stockholders equity
  
  $
  132,323,468
  
  
  $
  120,676,292See
accompanying notes
3


OREGON PACIFIC BANKING CO.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(Unaudited)


Three
        Months EndedJune 30,
    
    Six
        Months EndedJune 30,2004
    
    2003
    
    2004
    
    2003INTEREST
        INCOMEInterest
        and fees on loans
    
    $
    1,706,234
    
    $
    1,609,308
    
    $
    3,359,243
    
    $
    3,139,607Interest
        on investment securities:
    
    
    
    
    
    
    
    
    
    
    
    U.S.
        Teasuries and agencies
    
    
    69,897
    
    
    26,539
    
    
    119,259
    
    
    55,708State
        and political subdivisions
    
    
    77,507
    
    
    92,558
    
    
    156,717
    
    
    181,554Corporate
        and other investments
    
    
    10,065
    
    
    99,165
    
    
    101,835
    
    
    161,432Interest
        on deposits in banks
    
    
    26,244
    
    
    15,795
    
    
    44,386
    
    
    38,666Total
        interest income
    
    
    1,889,947
    
    
    1,843,365
    
    
    3,781,440
    
    
    3,576,967INTEREST
        EXPENSEInterest-bearing
        demand deposits
    
    
    88,088
    
    
    143,493
    
    
    174,142
    
    
    305,046Savings
        deposits
    
    
    28,358
    
    
    36,848
    
    
    59,071
    
    
    76,653Time
        deposits
    
    
    105,240
    
    
    146,358
    
    
    215,069
    
    
    292,993Other
        borrowings
    
    
    124,572
    
    
    93,850
    
    
    244,456
    
    
    186,009Total
        interest expense
    
    
    346,258
    
    
    420,549
    
    
    692,738
    
    
    860,701Net
        interest income
    
    
    1,543,689
    
    
    1,422,816
    
    
    3,088,702
    
    
    2,716,266PROVISION
        FOR LOAN LOSSES
    
    
    
    
    
    40,000
    
    
    (360,000
    )
    
    90,000Net
        interest income after provision for loan losses
    
    
    1,543,689
    
    
    1,382,816
    
    
    3,448,702
    
    
    2,626,266NONINTEREST
        INCOMEMortgage
        loan sales and servicing fees
    
    
    246,501
    
    
    318,213
    
    
    387,954
    
    
    704,927Service
        charges and fees
    
    
    188,432
    
    
    110,203
    
    
    353,439
    
    
    212,258Investment
        sales commissions
    
    
    22,203
    
    
    21,672
    
    
    63,939
    
    
    47,168Trust
        fee income
    
    
    124,747
    
    
    115,429
    
    
    267,809
    
    
    217,591Other
        income
    
    
    58,765
    
    
    32,926
    
    
    77,978
    
    
    48,904Total
        noninterest income
    
    
    640,648
    
    
    598,443
    
    
    1,151,119
    
    
    1,230,8484

OREGON
PACIFIC BANKING CO.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(Unaudited)
(continued)

Three
  Months Ended 
  June 30,
  
  Six
  Months Ended
  June 30,2004
  
  2003
  
  2004
  
  2003NONINTEREST EXPENSESalaries and benefits
  
  $
  1,195,477
  
  $
  1,006,959
  
  $
  2,405,915
  
  $
  2,009,788Occupancy
  
  
  208,606
  
  
  155,401
  
  
  400,487
  
  
  312,228Supplies
  
  
  56,142
  
  
  48,010
  
  
  119,171
  
  
  98,471Postage and freight
  
  
  29,500
  
  
  27,306
  
  
  47,001
  
  
  50,197Outside services
  
  
  158,424
  
  
  174,583
  
  
  299,412
  
  
  329,905Advertising
  
  
  25,503
  
  
  23,483
  
  
  77,125
  
  
  59,519Loan collection expense
  
  
  36,150
  
  
  45,803
  
  
  67,988
  
  
  85,341Securities and trust department expenses
  
  
  31,303
  
  
  31,414
  
  
  64,398
  
  
  64,621Other expenses
  
  
  443,171
  
  
  150,175
  
  
  560,903
  
  
  267,533Total noninterest expense
  
  
  2,184,276
  
  
  1,663,134
  
  
  4,042,400
  
  
  3,277,603INCOME BEFORE INCOME TAXES
  
  
  61
  
  
  318,125
  
  
  557,421
  
  
  579,511PROVISION FOR INCOME TAXES
  
  
  (19,207
  )
  
  64,172
  
  
  171,301
  
  
  137,172NET INCOME
  
  
  19,268
  
  
  253,953
  
  
  386,120
  
  
  442,339OTHER COMPREHENSIVE INCOMEUnrealized holding gain/(loss) arising during the
  period, net of tax
  
  
  (150,083
  )
  
  55,763
  
  
  (204,869
  )
  
  53,808COMPREHENSIVE INCOME
  
  $
  (130,815
  )
  $
  309,716
  
  $
  181,251
  
  $
  496,147EARNINGS PER SHARE OF COMMON STOCKBasic earnings per share
  
  $
  0.01
  
  $
  0.12
  
  $
  0.18
  
  $
  0.21Diluted earnings per share
  
  $
  0.01
  
  $
  0.12
  
  $
  0.18
  
  $
  0.21WEIGHTED AVERAGE COMMON SHARES OUTSTANDINGBasic earnings per share
  
  
  2,180,006
  
  
  2,143,539
  
  
  2,177,947
  
  
  2,140,882Diluted earnings per share
  
  
  2,182,251
  
  
  2,145,883
  
  
  2,180,065
  
  
  2,143,451See accompanying notes
5


OREGON
PACIFIC BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Undivided
  Profits
  
  Accumulated
  Other
  Comprehensive
  Income
  
  Total
  Stockholders
  EquityCommon
  StockShares
  
  Amount
  
  SurplusBalance, 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
  
  
  
  
  
  
  
  
  
  
  
  
  (126,474
  )
  
  
  
  
  
  
  (126,474
  )Dividends reinvested in stock
  
  
  9,873
  
  
  
  69,372
  
  
  
  
  
  (69,372
  )
  
  
  
  
  
  
  Net income and comprehensive income
  
  
  
  
  
  
  
  
  
  
  
  
  386,120
  
  
  
  (204,869
  )
  
  
  181,251Balance, June 30, 2004 (Unaudited)
  
  
  2,183,465
  
  
  $
  4,963,908
  
  $
  
  
  $
  3,521,444
  
  
  $
  204,983
  
  
  $
  8,690,335See accompanying notes
6


OREGON PACIFIC
BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six
  Months Ended June 30,2004
  
  2003CASH FLOWS FROM OPERATING ACTIVITIESNet income
  
  $
  386,120
  
  $
  442,339Adjustments to reconcile net income to net cash from
  operating activities:Depreciation and amortization
  
  
  221,494
  
  
  172,381(Benefit) Provision for loan losses
  
  
  (360,000
  )
  
  90,000Federal Home Loan Bank stock dividends
  
  
  (14,500
  )
  
  (20,700
  )Net change in mortgage loans held-for-sale
  
  
  2,160,466
  
  
  351,970(Gain) loss on disposition of premises, equipment,
  and other real estate
  
  
  (22,725
  )
  
  2,286Increase in trading securities
  
  
  
  
  
  (6,004,513
  )Net increase in accrued interest and other assets
  
  
  (254,160
  )
  
  (443,826
  )Net decrease in accrued interest and other
  liabilities
  
  
  (95,417
  )
  
  (308,509
  )Net cash from operating activities
  
  
  2,021,278
  
  
  (5,718,572
  )CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sales and maturities of
  available-for-sale securities
  
  
  6,451,637
  
  
  2,502,713Purchases of available-for-sale-securities
  
  
  (4,185,643
  )
  
  (4,233,145
  )Proceeds from purchase of restricted equity
  securities
  
  
  
  
  
  (650
  )Net increase in interest-bearing deposits in banks
  
  
  758,749
  
  
  6,835,738Loans originated, net of principal repayments
  
  
  (13,961,799
  )
  
  (7,486,731
  )Purchase of premises and equipment
  
  
  (647,127
  )
  
  (510,220
  )Proceeds from sale of other real estate
  
  
  23,049
  
  
  104,949Net cash from investing activities
  
  
  (11,561,134
  )
  
  (2,787,346
  )CASH FLOWS FROM FINANCING ACTIVITIESNet increase in demand and savings deposit accounts
  
  
  9,729,412
  
  
  8,546,060Net (decrease) increase in time deposits
  
  
  (138,096
  )
  
  326,424Proceeds from Federal Home Loan Bank borrowings
  
  
  2,000,000
  
  
  550,000Repayment of Federal Home Loan Bank borrowings
  
  
  (27,500
  )
  
  (825,000
  )Proceeds from other bank borrowing
  
  
  124,000
  
  
  250,000Cash received in exercise of stock options
  
  
  
  
  
  100,000Cash dividends paid
  
  
  (126,474
  )
  
  (56,534
  )Net cash from financing activities
  
  
  11,561,342
  
  
  8,890,950NET INCREASE IN CASH AND CASH EQUIVALENTS
  
  
  2,021,486
  
  
  385,0327

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

Six
  Months Ended June 30,2004
  
  2003CASH AND CASH EQUIVALENTS, beginning of period
  
  $
  4,916,985
  
  $
  3,886,203CASH AND CASH EQUIVALENTS, end of period
  
  $
  6,938,471
  
  $
  4,271,235SCHEDULE OF NONCASH ACTIVITIESStock dividends reinvested
  
  $
  69,372
  
  $
  30,409Unrealized (loss) gain on available for sale
  securities, net of tax
  
  $
  (204,869
  )
  $
  53,808Additions to other real estate owned
  
  $
  251,927
  
  $
  See accompanying notes
8


Oregon Pacific
Banking Co.
Notes to Financial Statements 
June 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 six months ended June 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.
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 June 30, 2004. 
No investments have continuous unrealized losses for more than 12
months.

Amortized
  Cost
  
  Gross
  Unrealized
  Gains
  
  Unrealized
  
  Losses
  Less than
  12 Months
  
  Estimated
  Fair
  ValueJune 30, 2004:U.S. Treasury and agencies
  
  $
  4,780,407
  
  $
  6,406
  
  $
  (43,743
  )
  $
  4,743,070State and political subdivisions
  
  
  6,915,566
  
  
  299,091
  
  
  (7,270
  )
  
  7,207,387Corporate notes
  
  
  2,182,538
  
  
  87,156
  
  
  
  
  
  2,269,694$
  13,878,511
  
  $
  392,653
  
  $
  (51,013
  )
  $
  14,220,151For the seven 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.
9


Note 3  Loans and Allowance for Loan Losses

The composition of the loan portfolio was as follows as of the dates
presented:
JUN. 30,
  2004
  
  DEC. 31,
  2003Real estate
  
  $
  18,000,044
  
  $
  14,660,603Commercial
  
  
  77,592,805
  
  
  63,422,739Installment
  
  
  3,075,173
  
  
  6,352,442Overdrafts
  
  
  243,679
  
  
  36,71798,911,701
  
  
  84,472,501Allowance
  for loan losses
  
  
  (1,641,755
  )
  
  (1,315,955
  )Unearned
  loan fees
  
  
  (477,746
  )
  
  (434,218
  )$
  96,792,200
  
  $
  82,722,328Changes in the allowance for
loan losses were as follows for the six-months ended:
JUN. 30, 2004
  
  JUN. 30, 2003Balance,
  beginning of the period
  
  $
  1,315,955
  
  $
  1,173,025Provision
  for losses
  
  
  (360,000
  )
  
  90,000Losses
  
  
  (34,275
  )
  
  (2,446
  )Recoveries
  
  
  720,075
  
  
  5,063Balance, end
  of period
  
  $
  1,641,755
  
  $
  1,265,642It 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 no loans on nonaccrual status at either June 30, 2004 or December 31,
2003.
The Bank had no loans past due 90 days or more on which it continued to
accrue interest at either June 30, 2004 or December 31, 2003.

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 June 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 June 30, 2004 and 2003 would
approximate the pro forma amounts below.
10

Three
  Months Ended
  June 30,
  
  Six Months
  Ended
  June 30,2004
  
  2003
  
  2004
  
  2003Net
  earnings, as reported
  
  $
  19,268
  
  $
  253,953
  
  $
  386,120
  
  $
  442,339Deduct:
  Total stock-based employee compensation expense determined under the fair
  value-based method for all awards, net of related tax effects
  
  
  (121
  )
  
  (121
  )
  
  (242
  )
  
  (242
  )Pro forma
  net earnings
  
  $
  19,147
  
  $
  253,832
  
  $
  385,878
  
  $
  442,097Basic
  earnings per common share:As reported
  
  $
  0.01
  
  $
  0.12
  
  $
  0.18
  
  $
  0.21Pro forma
  
  $
  0.01
  
  $
  0.12
  
  $
  0.18
  
  $
  0.21Diluted
  earnings per common share:As reported
  
  $
  0.01
  
  $
  0.12
  
  $
  0.18
  
  $
  0.21Pro forma
  
  $
  0.01
  
  $
  0.12
  
  $
  0.18
  
  $
  0.21The 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
June 30, 2004 and 2003:
Dividend 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
  %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.

11

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.
The Company reported net income of $19,000 or $.01 per basic share and
$386,000 or $.18 per basic share for the three months and six months ended June
30, 2004.  This compares to income of
$254,000 or $.12 per basic share and $442,000 or $.21 per basic share for the
same periods in the prior year.  The
primary reason for the decrease is the result of a payment for litigation
settlement.  The amount of insurance
reimbursement for a litigation settlement is unknown as of the financial
statement date and has not been recorded although the costs of the settlement
have been.
Financial Condition
Total assets at June 2004 were $132,323,000 compared to $120,676,000 at
December 31, 2003, an increase of $11,647,000 (9.7%).  The increase was due to an increase in net loans of $14,070,000
(17.0%) funded by an increase in customer deposits which increased $9,591,000
(9.8%), sale of available-for-sale securities and loans held for sale.  The deposit increase was primarily in
interest-free demand deposits which has helped maintain the Banks net interest
margin.
Premises and equipment increased by $453,000 as facilities were
completed and furnished at the two branches located in Roseburg and Coos Bay.

June 30, 2004 shareholders equity was $8,690,000, an increase of
$55,000 from December 31, 2003.  This
change resulted from net income, partially offset by cash dividends paid
($126,000) and a decrease in unrealized gains on available-for-sale securities
($205,000).
12

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 $3,252,000 for the
six months ended June 30, 2004 compared to $2,808,000 for the same period in
2003 (see Table 1).  The $444,000
increase primarily 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 $12,067,000,
while average rates on loans were down 0.55%. Average interest-bearing
liability balances were up $4,936,000 while average rates on deposits and
borrowed funds were down 0.68%.  The net
interest spread, which is the difference between the average yield of
interest-earning assets less the cost of interest-bearing liabilities,
increased 0.28% during the first half of 2004 compared with the first half of
2003.  As a consequence of increased
interest-free deposits and lower deposit rates, the net interest margin
increased to 5.55% compared to 5.35% for the six 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.



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:

13


Six Months Ended June 30, 2004
    
    Six Months Ended June 30, 2003
    
    Increase (Decrease)(dollars
        in thousands)
    
    Average
        Balance
    
    Interest
        Income or
        Expense
    
    Average
         Yield or
        Rates
    
    Average
        Balance
    
    Interest
        Income or
        Expense
    
    Average
        Yield or
        Rates
    
    Due to change in
    
    Net
        ChangeVolume
    
    RateInterest-earning assets:Loans
        (2)
    
    $
    92,349
    
    
    $
    3,359
    
    
    
    7.27
    %
    
    $
    80,282
    
    
    $
    3,140
    
    
    
    7.82
    %
    
    
    $
    472
    
    
    $
    (253
    )
    $
    219Investment
        securitiesTaxable
        securities
    
    
    8,290
    
    
    
    233
    
    
    
    5.62
    %
    
    
    10,769
    
    
    
    229
    
    
    
    4.25
    %
    
    
    
    (53
    )
    
    
    57
    
    
    4Nontaxable
        securities (1)
    
    
    6,698
    
    
    
    220
    
    
    
    6.56
    %
    
    
    7,106
    
    
    
    258
    
    
    
    7.26
    %
    
    
    
    (15
    )
    
    
    (23
    )
    
    (38
    )Interest-earning
        balances due from banks
    
    
    9,786
    
    
    
    44
    
    
    
    0.90
    %
    
    
    6,798
    
    
    
    39
    
    
    
    1.15
    %
    
    
    
    17
    
    
    
    (12
    )
    
    5Total
        interest-earning assets
    
    
    117,123
    
    
    
    3,856
    
    
    
    6.58
    %
    
    
    104,955
    
    
    
    3,666
    
    
    
    6.99
    %
    
    
    
    422
    
    
    
    (232
    )
    
    190Cash
        and due from banks
    
    
    4,849
    
    
    
    
    
    
    
    
    
    
    
    3,494Premises
        and equipment, net
    
    
    4,992
    
    
    
    
    
    
    
    
    
    
    
    2,881Other
        real estate
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    45Loan
        loss allowance
    
    
    (1,471
    )
    
    
    
    
    
    
    
    
    
    
    (1,216
    )Other
        assets
    
    
    1,665
    
    
    
    
    
    
    
    
    
    
    
    1,469Total
        assets
    
    $
    127,207
    
    
    
    
    
    
    
    
    
    
    $
    111,628Interest-bearing liabilities:Interest-bearing
        checking and savings accounts
    
    $
    58,981
    
    
    $
    233
    
    
    
    0.79
    %
    
    $
    52,145
    
    
    $
    382
    
    
    
    1.47
    %
    
    
    $
    50
    
    
    $
    (199
    )
    $
    (149
    )Time
        deposit and IRA accounts
    
    
    20,141
    
    
    
    215
    
    
    
    2.13
    %
    
    
    21,816
    
    
    
    293
    
    
    
    2.69
    %
    
    
    
    (22
    )
    
    
    (56
    )
    
    (78
    )Borrowed
        funds
    
    
    8,555
    
    
    
    162
    
    
    
    3.79
    %
    
    
    8,780
    
    
    
    183
    
    
    
    4.17
    %
    
    
    
    (5
    )
    
    
    (16
    )
    
    (21
    )Total
        interest-bearing liabilities
    
    
    87,677
    
    
    
    610
    
    
    
    1.39
    %
    
    
    82,741
    
    
    
    858
    
    
    
    2.07
    %
    
    
    
    23
    
    
    
    (271
    )
    
    (248
    )Noninterest-bearing
        deposits
    
    
    24,937
    
    
    
    
    
    
    
    
    
    
    
    18,982Other
        liabilities
    
    
    1,882
    
    
    
    
    
    
    
    
    
    
    
    1,667Total
        liabilities
    
    
    114,496
    
    
    
    
    
    
    
    
    
    
    
    103,390Shareholders
        equity
    
    
    12,711
    
    
    
    
    
    
    
    
    
    
    
    8,238Total
        liabilities and shareholders equity
    
    $
    127,207
    
    
    
    
    
    
    
    
    
    
    $
    111,628Net interest income
    
    
    
    
    
    $
    3,246
    
    
    
    
    
    
    
    
    
    
    $
    2,808
    
    
    
    
    
    
    
    $
    399
    
    
    $
    39
    
    $
    438Net interest spread
    
    
    
    
    
    
    
    
    
    
    5.19
    %
    
    
    
    
    
    
    
    
    
    
    4.92
    %Net interest expense to average earning assets
    
    
    
    
    
    
    
    
    
    
    1.04
    %
    
    
    
    
    
    
    
    
    
    
    1.63
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    5.54
    %
    
    
    
    
    
    
    
    
    
    
    5.35
    %(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 June 30, 2004 compared to $40,000
in the same period in 2003. A benefit was recorded in the amount of $360,000
for the six months ended June 30, 2004 compared to a provision of $90,000 in
2003.  The allowance for loan losses at
June 30, 2004 was 1.7% of gross loans compared to 1.6% at December 31,
2003.  There were no non-performing
loans at June 30, 2004.  Management is
satisfied that the reserve is adequate for potential loan losses in the loan
portfolio at June 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 $80,000 or 6.5% for the six months ended June 2004 as compared to the
same period in 2003, and increased $42,000 or 7.1% for the second quarter of
2004.  These smaller changes were after
the significant mortgage fee increases in 2003 of 32.6% and 41.5%, respectively,
during a period of the lowest mortgage interest rates in forty years.  Other than mortgage loan sales and servicing
fees, noninterest income increased 45.1% and 40.7% for the six months and three
months ended June 2004 as compared to the same period in 2003.
Noninterest Expense
Noninterest expense
increased $765,000 or 23.3% for the six months and $521,000 or 31.3% for the
three months ended June 30, 2004 over the same periods one year ago.  The increase is attributable primarily to an
increase in salaries and benefits and occupancy expense 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 as mentioned above.
The provision for income
taxes at both June 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 June 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 June 30, 2004, the Banks leverage and
total risk-based ratios were 9.46% and 12.60% 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, the Bank utilizes a simulation model to determine the effect of
immediate incremental increases and decreases in interest rates on net income.
Certain assumptions are 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.
Using net income
simulation and 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 June 30,
2004 levels.



INCREASE OR
  DECREASE IN
  INTEREST RATES
  
  
  ESTIMATED FINANCIAL
  IMPACT ON NET
  INTEREST MARGIN2.0
  %
  
  
  
  $
  501,0001.0
  %
  
  
  
  $
  191,000-1.0
  %
  
  
  
  $
  (244,000
  )-2.0
  %
  
  
  
  $
  (215,000
  )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 June 30, 2004.
  Based on this evaluation, the Chief Executive Officer and the Chief Financial
  Officer each concludes that as of June 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
  June 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.  The
  compensation and employment claims lawsuit filed by a former Bank employee,
  reported in previous Company filings, has been settled and dismissed.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.The Annual Meeting of Stockholders was held on April
  29, 2004.  There were 2,177,870 shares
  of common stock that could be voted, and 1,734,437 shares present at the
  meeting by holders thereof by proxy, which constituted a quorum.  The following is a summary of the results
  of the vote:Vote for the election of Directors:Nominees
  
  Term
  
  Votes:
  
  For
  
  Withheld
  
  AgainstThomas K. Grove
  
  Three Years
  
  
  
  
  
  1,732,960
  
  
  1,477
  
  
  0Robert King
  
  Three Years
  
  
  
  
  
  1,723,676
  
  
  10,761
  
  
  0Jon Thompson
  
  Three Years
  
  
  
  
  
  1,726,427
  
  
  8,010
  
  
  0Item 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 23, 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 August 13, 2004.
OREGON PACIFIC BANCORPBy:
  /s/ Thomas K. GroveThomas K. GrovePresident, Chief Executive OfficerAnd Director (Chief
  Executive Officer)By:
  /s/ Joanne ForsbergJoanne ForsbergSecretary and Chief Financial Officer(Principal
  Financial Officer)19