OREGON PACIFIC BANCORP - Quarter Report: 2006 September (Form 10-Q)

Oregon Pacific Banccorp 10-Q 9-30-2006

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark one)

T	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

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

(Issuer’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 T

No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “Accelerated Filer and Large Accelerated Filer” in Rule 12b-2 of the Exchange Act. (check one): Large Accelerated Filer £ Accelerated Filer £ Non-accelerated Filer T

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £

No T

The number of shares outstanding of the issuer’s Common Stock, no par value, as of October 31, 2006, was 2,183,614.

OREGON PACIFIC BANCORP

INDEX

Part I	Financial Information

	Item 1.	Financial Statements

		Consolidated balance sheets	3
		Consolidated statements of income and comprehensive income	4-5
		Consolidated statements of changes in stockholders’ equity	6
		Consolidated statements of cash flows	7
		Notes to consolidated financial statements	8-13

	Item 2.	Management’s Discussion and Analysis of Financial Condition And Results of Operations	13-19

	Item 3.	Quantitive and Qualitive Disclosures about Market Risk	19

	Item 4.	Controls and Procedures	19-20

Part II.	Other Information

	Item 1.	Legal proceedings	20

	Item 1A.	Risk factors	20

	Item 2.	Unregistered sales of equity securities and use of proceeds	20

	Item 3.	Defaults upon senior securities	20

	Item 4.	Submission of matters to a vote of security holders	20

	Item 5.	Other information	20

	Item 6.	Exhibits and reports on form 8-K	20-21

	Signatures		22
	Certifications of Chief Executive Officer and Chief Financial Officer		23-25

Index

PART 1.

FINANCIAL INFORMATION

Item 1.

Financial statements

OREGON PACIFIC BANCORP

CONSOLIDATED BALANCE SHEETS

(Unaudited)

ASSETS	September 30, 2006		December 31, 2005

Cash and cash equivalents	$	3,584,844	$	5,018,838
Interest-bearing deposits in banks		5,219,797		5,916,224
Available-for-sale securities, at fair value		10,921,464		11,643,557
Restricted equity securities		1,023,100		1,023,100
Loans held-for-sale		879,431		1,350,810
Loans, net of allowance for loan losses and deferred fees		125,349,617		117,985,801
Premises & equipment, net		5,941,883		5,232,814
Intangible assets, net		397,900		-
Accrued interest and other assets		2,460,549		2,269,861

Total assets	$	155,778,585	$	150,441,005

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Demand deposits	$	34,823,208	$	29,668,703
Interest-bearing demand deposits		45,038,089		40,468,295
Savings deposits		16,142,455		18,433,466
Time certificate accounts:
$100,000 or more		15,100,204		15,709,566
Other time certificate accounts		15,465,518		17,049,226

Total deposits		126,569,474		121,329,256

Federal Home Loan Bank borrowings and other debt		10,493,556		11,412,806
Floating rate Junior Subordinated Deferrable Interest Debentures (Trust Preferred Securities)		4,124,000		4,124,000
Deferred compensation liability		2,096,197		1,865,781
Accrued interest and other liabilities		984,376		1,445,931

Total liabilities		144,267,603		140,177,774

Stockholders' equity
Common stock, no par value, 10,000,000 shares authorized with 2,183,614 and 2,166,006 issued and outstanding at September 30, 2006 and December 31, 2005, respectively		5,050,812		4,858,728
Undivided profits		6,445,857		5,376,065
Accumulated other comprehensive income, net of tax		14,313		28,438

Total stockholders' equity		11,510,982		10,263,231

Total liabilities and stockholders' equity	$	155,778,585	$	150,441,005

See accompanying notes

Index

OREGON PACIFIC BANCORP

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005

INTEREST INCOME
Interest and fees on loans	$	2,857,354	$	2,339,065	$	7,999,133	$	6,835,467
Interest on investment securities:
U.S. Treasuries and agencies		37,244		37,244		110,947		125,164
State and political subdivisions		71,040		80,160		220,552		241,133
Corporate and other investments		7,872		12,238		32,128		64,899
Interest on deposits in banks		112,981		63,705		347,580		110,600

Total interest income		3,086,491		2,532,412		8,710,340		7,377,263

INTEREST EXPENSE
Interest-bearing demand deposits		325,055		195,796		815,436		485,790
Savings deposits		28,572		24,554		80,851		73,357
Time deposits		304,193		224,602		865,679		533,398
Other borrowings		201,998		171,050		621,706		522,604

Total interest expense		859,818		616,002		2,383,672		1,615,149

Net interest income		2,226,673		1,916,410		6,326,668		5,762,114

PROVISION FOR LOAN LOSSES		-		30,000		26,000		245,000

Net interest income after provision for loan losses		2,226,673		1,886,410		6,300,668		5,517,114

NONINTEREST INCOME				-
Service charges and fees		236,491		265,000		747,905		736,603
Trust fee income		177,885		156,701		502,077		458,873
Mortgage loan sales and servicing fees		102,005		194,024		347,589		479,696
Investment sales commissions		100,530		36,486		312,347		100,399
Other income		51,083		236,714		124,463		363,425

Total noninterest income		667,994		888,925		2,034,381		2,138,996

Index

OREGON PACIFIC BANCORP

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

(continued)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2006		2005			2006			2005

NONINTEREST EXPENSE
Salaries and benefits	$	1,265,594	$	1,093,331		$	3,714,467		$	3,259,119
Occupancy		227,108		233,991			681,511			664,066
Supplies		49,557		42,958			129,826			131,790
Postage and freight		27,005		21,603			76,815			71,028
Outside services		178,482		168,615			524,778			500,554
Advertising		33,007		27,222			63,380			78,454
Loan collection expense		48,804		12,471			73,845			41,014
Securities and trust department expenses		85,123		40,424			224,725			125,356
Other expenses		175,152		181,568			554,047			505,882

Total noninterest expense		2,089,832		1,822,183			6,043,394			5,377,263

INCOME BEFORE INCOME TAXES		804,835		953,152			2,291,655			2,278,847

PROVISION FOR INCOME TAXES		280,593		370,596			808,602			900,381

NET INCOME		524,242		582,556			1,483,053			1,378,466

OTHER COMPREHENSIVE INCOME
Unrealized holding gain/(loss) arising during the period, net of tax		57,797		(67,830	)		(14,125	)		(145,850	)

COMPREHENSIVE INCOME	$	582,039	$	514,726		$	1,468,928		$	1,232,616

EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share	$	0.24	$	0.27		$	0.68		$	0.64
Diluted earnings per share	$	0.24	$	0.27		$	0.68		$	0.64

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		2,181,925		2,157,123			2,176,705			2,152,399
Diluted		2,191,395		2,166,789			2,184,979			2,158,007

See accompanying notes

Index

OREGON PACIFIC BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

								Accumulated
								Other			Total
	Common Stock				Undivided			Comprehensive			Stockholders'
	Shares		Amount		Profits			Income			Equity

Balance, December 31, 2005		2,166,006	$	4,858,728	$	5,376,065		$	28,438		$	10,263,231

Bonuses paid in stock		1,686		20,000		-			-			20,000

Exercise of stock options		4,212		22,500		-			-			22,500

Stock-based compensation		-		11,439		-			-			11,439

Cash dividends paid		-		-		(275,116	)		-			(275,116	)

Dividends reinvested in stock		11,710		138,145		(138,145	)		-			-

Net income and comprehensive income		-		-		1,483,053			(14,125	)		1,468,928

Balance, September 30, 2006		2,183,614	$	5,050,812	$	6,445,857		$	14,313		$	11,510,982

See accompanying notes

Index

OREGON PACIFIC BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2006			2005

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,483,053		$	1,378,466
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		416,485			364,563
Provision for loan losses		26,000			245,000
Federal Home Loan Bank stock dividends		-			(3,000	)
Stock-based compensation		11,439			-
Net change in mortgage loans held-for-sale		471,379			(373,858	)
Loss on disposition of premises, equipment, and other real estate		-			3,215
Net increase in accrued interest and other assets		(181,270	)		(120,130	)
Net (decrease) increase in accrued interest and other liabilities		(231,139	)		160,099

Net cash from operating activities		1,995,947			1,654,355

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of available-for-sale securities		690,000			3,158,836
Net increase in interest-bearing deposits in banks		696,427			(5,092,083	)
Loans originated, net of principal repayments		(7,389,816	)		(9,150,992	)
Purchase of premises and equipment		(1,075,604	)		(175,913	)
Purchase of brokerage firm assets		(439,300	)		-

Net cash from investing activities		(7,518,293	)		(11,260,152	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings deposit accounts		7,433,288			4,722,128
Net (decrease) increase in time deposits		(2,193,070	)		7,589,939
Proceeds from Federal Home Loan Bank borrowings		1,522,000			4,900,000
Repayment of Federal Home Loan Bank borrowings		(2,441,250	)		(6,341,250	)
Shares acquired in stock repurchase plan		-			(31,610	)
Proceeds from exercise of common stock options		22,500			-
Proceeds for issuance of common stock		-			1,003
Stock bonuses granted		20,000			-
Cash dividends paid		(275,116	)		(216,877	)

Net cash from financing activities		4,088,352			10,623,333

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(1,433,994	)		1,017,536

CASH AND CASH EQUIVALENTS, beginning of period	$	5,018,838		$	4,341,385

CASH AND CASH EQUIVALENTS, end of period	$	3,584,844		$	5,358,921

SCHEDULE OF NONCASH ACTIVITIES
Stock dividends reinvested	$	138,145		$	126,292

Change in fair value of AFS securities, net of tax	$	(14,125	)	$	(145,850	)

See accompanying notes

Index

Oregon Pacific Bancorp

Notes to Consolidated Financial Statements

September 30, 2006

(Unaudited)

Note 1 - Organization and Basis of Presentation

The unaudited interim consolidated financial statements include the accounts of Oregon Pacific Bancorp (“Bancorp”), an Oregon corporation and a registered financial holding company, and its wholly-owned subsidiary Oregon Pacific Bank (the “Bank”), after elimination of intercompany transactions and balances. Substantially all activity of Bancorp is conducted through its banking subsidiary.

Oregon Pacific Bancorp, an Oregon Corporation and financial holding company, became the holding company of Oregon Pacific Bank (collectively, the “Company”) 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. In December 2003, Bancorp formed Oregon Pacific Statutory Trust I, a wholly-owned Connecticut statutory business trust, for purposes of issuing guaranteed undivided beneficial interests in Junior Subordinated Deferrable Interest Debentures. The Bank is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

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 three months ended September 30, 2006 are not necessarily indicative of results to be anticipated for the year ending December 31, 2006. The interim financial statements should be read in conjunction with the audited financial statements, including the notes thereto, contained in the Company’s 2005 Annual Report to Shareholders.

The unaudited consolidated interim financial statements have been prepared in conformity with accounting principals generally accepted in the United States of America and industry practice. Certain information in footnote disclosures normally included in financial statements prepared in accordance with accounting principals generally accepted in the United States of America and industry practice have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission.

Reclassifications - Certain reclassifications have been made to the 2005 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 or more than 12 months as of September 30, 2006.

Index

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses Less than 12 Months			Gross Unrealized Losses More than 12 Months			Estimated Fair Value
September 30, 2006:

U.S. Treasury and agencies	$	4,000,000	$	-	$	-		$	(61,875	)	$	3,938,125
State and political subdivisions		6,443,540		89,544		-			(8,609	)		6,524,475
Corporate notes		454,069		4,795		-			-			458,864

	$	10,897,609	$	94,339	$	-		$	(70,484	)	$	10,921,464

December 31, 2005:

U.S. Treasury and agencies	$	4,000,000	$	-	$	(12,500	)	$	(63,125	)	$	3,924,375
State and political subdivisions		6,884,782		123,997		(8,861	)		(6,304	)		6,993,614
Corporate notes		711,378		14,328		(138	)		-			725,568

	$	11,596,160	$	138,325	$	(21,499	)	$	(69,429	)	$	11,643,557

For the 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 - Mortgage Servicing Rights

The Company recognizes as assets the rights to service mortgage loans for others, known as MSRs. MSRs are capitalized based on the relative fair value of the servicing right and the mortgage loan on the date the mortgage loan is sold and amortized over the life of the loan. Utilizing assumptions about factors such as discount rates, mortgage loan prepayment speeds, market trends and industry demand, an estimate of the fair value of the Company’s capitalized MSRs is performed quarterly by management. Since valuation is determined using discounted cash flow models, the primary risk inherent in MSRs is the impact of prepayment speeds on the estimated life of the servicing revenue stream. The use of different estimates or assumptions could produce a different fair value. At September 30, 2006, the Company’s related loan balances serviced by the Company for others totaled $96.4 million.

The following summarizes the Company’s activity related to mortgage servicing rights for the nine months ended September 30, 2006 and 2005:

Mortgage Servicing Rights at September 30,	2006			2005

Balance at beginning of year	$	808,709		$	811,436
Additions		67,341			75,117
Amortization		(95,717	)		(91,499	)

Balance at September 30,	$	780,333		$	795,054

For the nine months ended September 30, 2006 and 2005 there were no impairment charges recorded.

Index

Note 4 - Loans and Allowance for Loan Losses

The composition of the loan portfolio was as follows as of the dates presented:

	SEPT. 30, 2006			DEC. 31, 2005

Real estate	$	21,495,621		$	18,583,333
Commercial		97,748,247			94,138,523
Installment		8,367,561			7,541,900
Overdrafts		29,871			72,495
Total Loans		127,641,300			120,336,251
Less allowance for loan losses		(1,883,435	)		(1,858,185	)
Less deferred loan fees		(408,248	)		(492,265	)
Loans, net of allowance for loan losses and deferred loan fees	$	125,349,617		$	117,985,801

Changes in the allowance for loan losses were as follows for the nine-months ended:

	SEPT. 30, 2006			SEPT. 30, 2005

Balance, beginning of period	$	1,858,185		$	1,640,060
Provision for loan losses		26,000			245,000
Loans charged off		(800	)		(2,023	)
Loan recoveries		50			3,735

Balance, end of period	$	1,883,435		$	1,886,772

It 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. Loans in the amount of $159,000 and $356,000 were on nonaccrual status at September 30, 2006 and December 31, 2005.

The Bank had no loans past due 90 days or more on which it continued to accrue interest at either September 30, 2006 or December 31, 2005.

Note 5 - 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 6 - Stock-based compensation

Prior to January 1, 2006, the Company’s stock option plans were accounted for under the recognition and measurement provisions of APB Opinion No. 25 (Opinion 25), Accounting for Stock Issued to Employees, and related interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation (as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure) (collectively SFAS 123). No stock-based employee compensation cost was recognized in the Company’s Statements of Operations through December 31, 2005, as all options granted to employees under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment (SFAS 123(R)), using the modified- prospective-transition method. Under that transition method, compensation cost recognized in 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). As of January 1, 2006, 20,205 stock options were not fully vested.

Index

The fair value of each option grant on the date of grant is estimated using the Black-Scholes option pricing model based on a weighted average volatility of 15.2%, expected life of options of three to five and one-half years, weighted average risk free interest rate of 4.7%, and a dividend yield of 2% for grants in 2006. The fair value of options granted during the quarter ended March 31, 2006 ranged from $1.60 to $2.23; no grants were made in the second or third quarters.

As a result of adopting SFAS 123(R) on January 1, 2006, the Company’s earnings before income taxes for the three months ended September 30, 2006, was approximately $3,800 lower than if it had continued to be accounted for as share-based compensation under Opinion 25. As of September 30, 2006, the Company had 14,806 nonvested options outstanding and there was $24,900 of total unrecognized compensation cost related to these nonvested options. This cost is expected to be recognized on a straight-line basis, over the vesting periods, through December 31, 2012. The following table summarizes the change in the number of stock options at September 30, 2006 and the fair value of the grant on the date of grant:

Options	Shares		Average Exercise Price ($)		Weighted Avg. Grant-Date Fair Value Per Option ($)

Outstanding at January 1, 2006		25,402		6.69
Granted		13,082		11.85		1.92
Exercised		4,212		5.34
Outstanding at Sept. 30. 2006		34,272		8.45		1.54
Exercisable at Sept. 30, 2006		19,466		6.94		1.31

On March 16, 2006 the Board of Directors of the Company modified the vesting period of all incentive stock options granted after 2002 and allowed for accelerated vesting when an employee reaches retirement age and ceases continuous service. Under SFAS 123(R), grants issued subsequent to adoption of SFAS 123(R) which are subject to such an accelerated vesting upon the recipient’s attainment of retirement age, are expensed over the shorter of the time to retirement age or the vesting schedule in accordance with the grant. Thus the vesting period can be less than the plan’s five-year vesting period depending on the age of the grantee.

There were no options granted and no options exercised during the quarter ended September 30, 2006. The following table summarizes information about the stock options outstanding at September 30, 2006:

	Exercise Price		Number Outstanding		Avg. Remaining Contractual Life (years)		Options Exercisable

	$	4.81		2,597		4.3		2,597
	$	7.25		17,242		2.4		15,518
	$	7.40		1,351		1.5		1,351
	$	11.85		13,082		5.1		-
Weighted Average Per Share Price	$	8.83		34,272				19,466

The following table illustrates the effect on net income and income per share for the periods ended September 30, 2005, if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

Index

	9 Months Ended September 30, 2005

Net earnings, as reported	$	1,378,466
Deduct: Total stock-based employee compensation expense determined under the fair value-based method for all awards, net of related tax effects		(3,636	)

Pro forma net earnings	$	1,374,830

Basic earnings per common share:
As reported	$	0.64
Pro forma	$	0.64

Diluted earnings per common share:
As reported	$	0.64
Pro forma	$	0.64

The 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 grants during the period ended September 30, 2005:

	2005

Dividend yield		2.44	%
Expected life (years)		7.5
Expected volatility		14.39	%
Risk-free rate		4.50	%

Note 7 - Acquisition of Brokerage Firm Assets

On January 3, 2006, the Bank acquired all of the assets of Coast Investment Advisors, Inc., the local Florence branch of LPL Financial Services, Inc. As a result of the acquisition, the Bank recorded $460,000 in intangible assets, which consist of a customer list and a non-compete agreement, which are amortized on a straight-line basis over the estimated lives of the asset, both of which are 60 months. The amortization of the non-compete agreement will begin at the end of a three-year employment contract. This acquisition was consistent with the Bank’s strategy to grow the Trust and Investment Department and provided an opportunity to increase the customer base in this area.

The aggregate purchase price was $462,000, which included cash of $140,000 and an unsecured Note Payable of $322,000. Interest on the note payable is 7% and paid monthly, while principal payments are made in three equal annual installments, with the final payment due in February 2009. No liabilities or obligations were assumed in the transaction.

Note 8 - Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 155, Accounting for Certain Hybrid Instruments. The Statement provides entities with relief from having to separately determine the fair value of an embedded derivative that would otherwise be required to be bifurcated from its host contract in accordance with Statement 133. Statement 155 allows an entity to make an irrevocable election to measure such a hybrid financial instrument at fair value in its entirety, with changes in fair value recognized in earnings. The Statement also (1) clarifies which interest-only strips and principal-only strips are not subject to Statement 133; (2) establishes a requirement for holders of securitized financial assets to evaluate whether the interest is a freestanding derivative or a hybrid financial instrument that contains an embedded derivative requiring bifurcation; (3) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and (4) eliminates the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The Statement is effective for all financial instruments acquired, issued or subject to a re-measurement event occurring after the beginning of an entity’s first fiscal year that begins after September 15, 2006, and is not expected to have any significant impact on the Bank’s financial condition or results of operations.

Index

In March 2006, the Financial Accounting Standards Board issued FAS No. 156, Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140, which changes the accounting for all loan servicing rights which are recorded as the result of selling a loan where the seller undertakes an obligation to service the loan, usually in exchange for compensation. The statement amends current accounting guidance by permitting the servicing right to be recorded initially at fair value and also permits the subsequent reporting of these assets at fair value. It is effective beginning January 1, 2007. Management does not expect the adoption of this standard to have a material impact on the Company’s financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109. FIN 48 clarifies Statement 109, Accounting for Income Taxes, to indicate a criterion that an individual tax position would have to meet for some or all of the benefit of that position to be recognized in an entity’s financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006 and is not expected to have a significant impact on the Company’s consolidated financial condition or results of operations.

In September 2006, the FASB issued SFAS No. 157, FairValue Measurements. The Statement provides enhanced guidance for measuring assets and liabilities using fair value and applies whenever other standards require or permit assets or liabilities to be measured at fair value. Statement 157 also requires expanded disclosure of items that are measured at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and is not expected to have a significant impact on the Company’s consolidated financial condition or results of operations.

In October 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. The Statement is an amendment of Statements No. 87, 88, 106, and 132(R). Statement 158 requires most public companies, as defined in the Statement, to fully recognize an asset or liability for the overfunded or underfunded status of their post retirement benefit plans in financial statements. The Statement is effective for entities with publicly traded equity securities for fiscal years ending after December 15, 2006 and is not expected to have a significant impact on the Company’s consolidated financial condition or results of operations.

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.

Index

Critical Accounting Policies and Estimates

On an ongoing basis, management evaluates the estimates used, including the adequacy of the allowance for loan losses and the recorded value of 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.

The allowance for loan losses is an amount that management believes will be adequate to absorb possible losses on existing loans that may become uncollectible based upon evaluations of the collectibility of loans and prior loan loss experience. Management also attempts to ensure that the overall allowance appropriately reflects a margin for the imprecision in an estimation process and evaluates factors such as the trend in the loan growth and the percentage of change, the level of geographic and/or industry concentrations, competitive issues that impact the loan underwriting or structure, and economic conditions. While management believes that the allowance for loan losses is sufficient to absorb losses inherent in the loan portfolio and credit commitments outstanding based on the best information available, the assessment cannot be determined with precision and may not necessarily be indicative of future losses.

Overview

Oregon Pacific Bancorp ("Bancorp"), an Oregon corporation and financial bank holding company, is the holding company of Oregon Pacific Bank (the "Bank") (collectively, the “Company”). 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. Full-service banking products are offered to the Bank’s customers from its four branches who live primarily in Lane, Douglas, and Coos counties and on the central Oregon coast. Additional financial services provided by the Bank include trust and asset management services and investment and brokerage services. The Bank is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

The Company has a two-tiered corporate structure. At the holding company level the affairs of Bancorp, the sole owner of the Bank, are overseen by a Board of Directors elected by the shareholders of the Company. The business of the Bank is overseen by the Bank’s Board of Directors selected by Bancorp’s Board. Currently the respective members of the Board of Directors of the Bank and of Bancorp are identical.

The Company reported net income of $524,000, or $.24 per diluted share, for the three months ended September 30, 2006. This compares to Bank income of $582,000, or $.27 per diluted share, for the same three month period in the prior year for a decrease of 10.0%. Income for the nine month period ended September 30, 2006 was $1,483,000 or $.68 per diluted share compared to $1,378,000 or $.64 per diluted share in the prior year, an increase of 7.6%. 2005 third quarter income includes an insurance reimbursement for a lawsuit settlement paid in 2004 that increased 2005 earnings by $0.06 per share. 2005 first quarter income includes an interest payment for a 2004 principal recovery of a previously charged off loan and a repayment of certain Bank costs that increased earnings per share by $.07. Without the two one-time events in 2005, the current year income would have grown by $0.17. The increase in income is primarily due to increased net interest income which has been affected by climbing interest rates and higher loan portfolio balances; see Table on page 16.

Financial Condition

Total assets at September 30, 2006 were $155,779,000 compared to $150,441,000 at December 31, 2005, an increase of $5,338,000 (3.5%). The increase was due primarily to increased loan balances ($7.36 million) and was funded by increases in deposits, primarily demand deposits ($5.15 million).

Stockholders’ equity at September 30, 2006 was $11,511,000, an increase of $1,248,000 from December 31, 2005. This change resulted from consolidated net income partially offset by cash dividends paid ($275,000).

Index

The net loan portfolio at September 30, 2006 increased $7.3 million to $125.3 million compared to $118.0 million at December 31, 2005 with growth in both Commercial and Real Estate Loans. See Note 4 of the financial statements.

Borrowings from the Federal Home Loan Bank at September 30, 2006 were $10.5 million compared to $11.4 million at December 31, 2005. In addition to a note associated with the asset purchase mentioned in Note 7 above, the Bank borrowed $1.2 million during the first quarter of 2006 to match-fund a fixed rate loan and paid off $1.9 million of matured loans in the second quarter and a $0.5 million matured loan in the third quarter. The new borrowings averaged 5.08% and the average rate on all borrowings at September 30, 2006 is 4.36%. The Company also has an obligation to pay interest and, at maturity, principal on the floating rate Junior Subordinated Deferrable Interest Debentures held by Oregon Pacific Statutory Trust I.

The Bank is building a new financial services center on its property behind the current main office in Florence. It will house the commercial and real estate mortgage lending activities, loan servicing, the Trust and Asset Management Department, and the brokerage or Investment Department. Occupancy is expected in spring of 2007.

As a result of the acquisition of the local LPL Financial Services brokerage office in January 2006, the Company recorded $460,000 of intangible assets. The Company had no such intangible assets at December 31, 2005.

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 $6,441,000 for the three quarters ended September 30, 2006 compared to $5,617,000 which excludes the one-time interest payment (discussed above) for the same period in 2005 (see Table below). The $824,000 increase was due to increases in both the volume and rates of loans partially offset by an increase in the cost of funds and total deposits. An increase in interest income of $1.59 million was primarily due to increases in loans and interest-earning balances in banks from the same period one year ago. Rates on interest-earning assets rose to 8.15% for the first nine months of 2006 compared to 7.16% in 2005. The $769,000 increase in interest expense was a result of the effective rate on interest-bearing liabilities rising to 3.20% compared to 2.09% for the same period in 2005 which reflect both rising interest rates and more interest-sensitive depositors shifting to more time certificates.

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:

Index

	Nine Months Ended Sept. 30, 2006								Nine Months Ended Sept. 30, 2005								Increase (Decrease)
				Interest		Average						Interest		Average
	Average			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			Change
Interest-earning assets:
Loans (2), (3)	$	122,657		$	7,999		8.70	%	$	116,404		$	6,568		7.52	%	$	353		$	1,078		$	1431
Investment securities
Taxable securities		5,599			143		3.41	%		6,230			195		4.17	%		(20	)		(32	)		(52	)
Nontaxable securities (1)		6,597			335		6.77	%		7,211			358		6.62	%		(30	)		7			(23	)
Interest-earning balances due from banks		9,575			348		4.85	%		4,769			111		3.10	%		112			125			237
Total interest-earning assets		144,428			8,825		8.15	%		134,614			7,232		7.16	%		415			1178			1,593

Cash and due from banks		4,542								4,609
Premises and equipment, net		5,483								5,117
Loan loss allowance		(1,880	)							(1,806	)
Other assets		4,316								3,436

Total assets	$	156,889								145,970

Interest-bearing liabilities:
Interest-bearing checking and savings accounts	$	51,810		$	896		2.31	%	$	61,881		$	559		1.20	%	$	(91	)	$	428		$	337
Time deposit and IRA accounts		31,643			866		3.65	%		25,884			533		2.75	%		118			215			333
Borrowed funds		15,987			622		5.19	%		15,376			523		4.54	%		21			78			99
Total interest-bearing liabilities		99,440			2,384		3.20	%		103,141			1,615		2.09	%		48			721			769
Noninterest-bearing deposits		43,384								30,768
Other liabilities		3,263								2,693
Total liabilities		146,087								136,602
Shareholders’ equity		10,802								9,368

Total liabilities and share-holders’ equity	$	156,889							$	145,970

Net interest income				$	6,441							$	5,617				$	367		$	457		$	824

Net interest spread							4.95	%							5.07	%

Net interest expense to average earning assets							2.20	%							1.60	%

Net interest margin							5.95	%							5.56	%

(1)

Tax-exempt income has been adjusted to a tax-equivalent basis at 34%.

(2)

Nonaccrual loans are included in the average balance.

(3)

2005 excludes one-time interest repayment of $377,000 for a loan charged off in 1998 and recovered in 2004.

Index

Provision for Loan Losses

A provision of $26,000 was recorded for the nine months ended September 30, 2006 compared to $245,000 in the same period in 2005. The allowance for loan losses at September 30, 2006 was 1.47% of gross loans, compared to 1.54% at December 31, 2005. Management believes the reserve is adequate for probable loan losses in the loan portfolio at September 30, 2006. 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 for both the three and nine month periods ending September 30, 2006 compared to the same periods one year earlier.

	Three months ended September 30,
	2006		2005		$ Change			% Change

Service charges and fees	$	236,491	$	265,000	$	(28,509	)		-10.8	%
Trust fee income		177,885		156,701		21,184			13.5	%
Mortgage loan sales and servicing fees		102,005		194,024		(92,019	)		-47.4	%
Investment sales commissions		100,530		36,486		64,044			175.5	%
Other income		51,083		236,714		(185,631	)		-78.4	%
	$	667,994	$	888,925	$	(220,931	)		-24.9	%

	Nine months ended September 30,
	2006		2005		$ Change			% Change

Service charges and fees	$	747,905	$	736,603	$	11,302			1.5	%
Trust fee income		502,077		458,873		43,204			9.4	%
Mortgage loan sales and servicing fees		347,589		479,696		(132,107	)		-27.5	%
Investment sales commissions		312,347		100,399		211,948			211.1	%
Other income		124,463		363,425		(238,962	)		-65.8	%
	$	2,034,381	$	2,138,996	$	(104,615	)		-4.9	%

In the nine months ended September 30, 2005 the Bank received repayment for expenses resulting from a charged-off loan and a reimbursement of insurance from a claim paid in 2004; no such payments were received in 2006 causing the decrease in “other income” from the prior year. Mortgage activity has also slowed in 2006 due to the real estate market and higher interest rates. Slightly offsetting those decreases was an increase of Investment Department commissions subsequent to the acquisition of the brokerage firm in January as discussed in Note 7.

Noninterest Expense

Noninterest expense increased $268,000 or 14.7% for the three months and $666,000 or 12.4% for the nine months ended September 30, 2006 from the same periods one year ago.

Index

	Three months ended September 30,
	2006		2005		$ Change			% Change

Salaries and benefits	$	1,265,594	$	1,093,331	$	172,263			15.8	%
Occupancy expense		227,108		233,991		(6,883	)		-2.9	%
Outside services		178,482		168,615		9,867			5.9	%
Securities and trust department expenses		85,123		40,424		44,699			110.6	%
Other expenses		333,525		285,822		47,703			16.7	%
	$	2,089,832	$	1,822,183	$	267,649			14.7	%

	Nine months ended September 30,
	2006		2005		$ Change		% Change

Salaries and benefits	$	3,714,467	$	3,259,119	$	455,348		14.0	%
Occupancy expense		681,511		664,066		17,445		2.6	%
Outside services		524,778		500,554		24,224		4.8	%
Securities and trust department expenses		224,725		125,356		99,369		79.3	%
Other expenses		897,913		828,168		69,745		8.4	%
	$	6,043,394	$	5,377,263	$	666,131		12.4	%

Most of the increase is attributable to six new full-time equivalent staff, three of whom were a part of the local brokerage firm acquisition plus the resulting additional expenses for the Securities Department including amortization of intangible assets associated with the acquisition.

Provision for Income Taxes

The provision for income taxes at September 30, 2006 and 2005 remained consistent with expected statutory rates adjusted for anticipated permanent differences arising primarily from nontaxable income earned on municipal security investments and timing differences associated with the tax treatment of bad debt.

Liquidity and Capital Resources

Liquidity management involves the ability to meet cash flow requirements. The Bank’s major sources of liquidity are customer deposits, calls and maturities of investment securities, the use of borrowing arrangements through the Federal Home Loan Bank of Seattle, and net cash provided by operating activities. Sales of the Bank’s investment portfolio are another source of funds, if needed. The investment portfolio is of high 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 the date of sale.

The Bank maintains liquidity levels adequate to fund loan commitments, investment opportunities, deposit withdrawals and other financial commitments. The Bank's liquidity position decreased during the quarter ended September 30, 2006 as the loan portfolio grew but deposits remained flat. For the nine months of 2006 loans grew at a faster rate than deposits so at September 30 the loan-to-deposit ratio is 99% compared to 97% at December 31, 2006. Liquidity that is deemed to be temporary excess cash may be invested as interest-earning deposits with the FHLB or time certificates at other financial institutions. As of September 30, 2006, the Bank had $5.2 million in such funds compared to $5.9 million at December 31, 2005. Management believes its liquidity planning will adequately provide the funds necessary to enable the Bank to fund loan commitments and meet customer withdrawals of deposits in the normal course of business.

Index

As disclosed in the Consolidated Statements of Cash Flows, net cash provided by operating activities was $2.0 million during the nine months ended September 30, 2006. The principal source of cash provided by operating activities was net income. Net cash of $7.5 million used in investing activities consisted principally of $7.4 million of net loan growth, $1.1 million of purchases of premises and equipment, and $460,000 for the purchase of the assets of the local LPL Financial Services brokerage office. The $4.1 million of cash provided by financing activities primarily consisted of $7.4 million demand deposit accounts, partly offset by $2.2 million decreases in time deposits and $275,000 payment of dividends.

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, 2006, the Bank’s leverage and total risk-based ratios were 9.55% and 12.51%, respectively, which exceed the well-capitalized threshold.

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 taking, and borrowing activities. A sudden and substantial increase in interest rates could adversely impact the Company’s earnings, to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis.

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. There have been no significant changes in the Company’s market risk exposure since December 31, 2005.

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, 2006. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer each concludes that as of September 30, 2006, 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, 2006, 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.

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.

Index

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 II.

OTHER INFORMATION

Item 1.

Legal proceedings.

As of the date of filing this Form 10-Q neither Bancorp nor the Bank was a party to any material legal proceedings. Further, management is not aware of any threatened or pending lawsuits or other proceedings against the Company which, if determined adversely, would have a material effect on the business or its financial position. Bancorp or the Bank may from time to time become a party to litigation in the ordinary course of business, such as debt collection litigation or through an appearance as a creditor in a bankruptcy case.

Item 1A.

Risk factors.

There has not been any material change in the risk factors disclosure from that contained in the Company’s Form 10-K for the fiscal year ended December 31, 2005.

Item 2.

Unregistered sales of equity securities and use of proceeds.

In August 2005 the Board of Directors approved the Bancorp Amended Dividend Reinvestment Plan that permits the direct purchase of additional shares of Bancorp Common Stock for cash in addition to the automatic reinvestment of cash dividends. During 2005, 1,081 shares were purchased by existing shareholders at an average price of $10.18 per share as part of the new Plan. No such purchases were made in the first three quarters of 2006.

Item 3.

Defaults upon senior securities.

None.

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.

Index

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 September 30, 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 September 30, 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 Bank Deferred Compensation and Incentive Plan (incorporated herein by reference to Exhibit 10.2 to Oregon Pacific Bancorp’s Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission on March 30, 2004).

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 rule 13a-14(a) or Rule 15d-14(a) and Section 302(a) of the Sarbanes-Oxley Act of 2002.**

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **

_________________

** Filed herewith.

Index

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 14, 2006.

	OREGON PACIFIC BANCORP



	By:	/s/ Thomas K. Grove

		Thomas K. Grove
		President, Chief Executive Officer And Director (Chief Executive Officer)


	By:	/s/ Joanne Forsberg

		Joanne Forsberg
		Chief Financial Officer and Secretary (Principal Financial Officer)