Oregon Pacific Bancorp - Quarterly Report (10-Q)

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark one)

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

For the quarterly period ended March 31, 2008

o	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 S 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 S or a Smaller reporting company £

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

Yes £ No S

The number of shares outstanding of the issuer’s Common Stock, no par value, as of May 9, 2008, was 2,170,464.

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	8-12

	Item 2.	Management’s Discussion and Analysis of Financial Condition And Results of Operations	12-17

	Item 3.	Quantitive and Qualitive Disclosures about Market Risk	17

	Item 4T.	Controls and Procedures	18

Part II.	Other Information

	Item 1.	Legal proceedings	18

	Item 1A.	Risk factors	19

	Item 2.	Unregistered sales of equity securities and use of proceeds	19

	Item 3.	Defaults upon senior securities	19

	Item 4.	Submission of matters to a vote of security holders	19

	Item 5.	Other information	19

	Item 6.	Exhibits and Reports on Form 8-K	19

	Signatures		20
	Exhibit 3.1		21-23
	Certifications of Chief Executive Officer and Chief Financial Officer		24-26

Index

PART 1.

FINANCIAL INFORMATION

Item 1.

Financial statements

OREGON PACIFIC BANCORP & SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	MARCH 31,		DECEMBER 31,
ASSETS	2008		2007

Cash and cash equivalents	$	5,888,744	$	4,065,903
Interest-bearing deposits in banks		1,657,196		5,205,115
Available-for-sale securities, at fair value		10,324,507		8,781,951
Restricted equity securities		1,023,550		1,023,550
Loans held-for-sale		306,215		703,609
Loans, net of allowance for loan losses and deferred fees		126,831,638		121,746,444
Premises & equipment, net		7,995,615		8,070,927
Other real estate owned		83,980		-
Intangible assets, net		273,700		294,400
Accrued interest and other assets		2,603,940		2,712,441

Total assets	$	156,989,085	$	152,604,340

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Demand deposits	$	30,486,784	$	32,725,916
Interest-bearing demand deposits		39,853,980		38,306,339
Savings deposits		13,123,205		13,612,313
Time certificate accounts:
$100,000 or more		17,134,980		18,038,790
Other time certificate accounts		19,105,677		18,309,056

Total deposits		119,704,626		120,992,414

Federal Home Loan Bank borrowings and other debt		16,196,389		10,717,472
Floating rate Junior Subordinated Deferrable Interest Debentures (Trust Preferred Securities)		4,124,000		4,124,000
Deferred compensation liability		2,465,145		2,448,634
Accrued interest and other liabilities		923,257		949,932

Total liabilities		143,413,417		139,232,452

Stockholders’ equity
Common stock, no par value, 10,000,000 shares authorized with 2,170,464 and 2,211,865 issued and outstanding at March 31, 2008 and December 31, 2007, respectively		5,372,600		5,323,827
Undivided profits		8,117,808		8,002,555
Accumulated other comprehensive income, net of tax		85,260		45,506

Total stockholders’ equity		13,575,668		13,371,888

Total liabilities and stockholders’ equity	$	156,989,085	$	152,604,340

See accompanying notes

Index

OREGON PACIFIC BANCORP & SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended March 31,
	2008		2007

INTEREST INCOME
Interest and fees on loans	$	2,612,669	$	2,693,995
Interest on investment securities:
U.S. Teasuries and agencies		45,406		36,798
Mortgage backed securities		15,540		-
State and political subdivisions		53,447		59,157
Corporate and other investments		7,028		8,426
Interest on deposits in banks		42,396		58,418

Total interest income		2,776,486		2,856,794

INTEREST EXPENSE
Interest-bearing demand deposits		257,990		303,608
Savings deposits		21,010		26,674
Time deposits		399,709		362,083
Other borrowings		219,625		202,027

Total interest expense		898,334		894,392

Net interest income before provision for loan losses		1,878,152		1,962,402

PROVISION FOR LOAN LOSSES		-		-

Net interest income after provision for loan losses		1,878,152		1,962,402

NONINTEREST INCOME
Service charges and fees		176,155		218,674
Trust fee income		174,590		173,393
Mortgage loan sales and servicing fees, net		70,259		106,606
Investment sales commissions		176,140		100,278
Other income		47,822		45,719

Total noninterest income		644,966		644,670

Index

OREGON PACIFIC BANCORP & SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(Unaudited)

(continued)

	Three Months Ended March 31,
	2008		2007

NONINTEREST EXPENSE
Salaries and benefits		1,297,208		1,196,149
Occupancy		239,375		235,585
Supplies		43,908		40,604
Postage and freight		26,369		23,848
Outside services		208,891		202,806
Advertising		25,989		27,546
Loan collection expense		37,713		12,540
Other expenses		214,148		198,313

Total noninterest expense		2,093,601		1,937,391

INCOME BEFORE INCOME TAXES		429,517		669,681

PROVISION FOR INCOME TAXES		140,162		241,185

NET INCOME		289,355		428,496

OTHER COMPREHENSIVE INCOME
Unrealized gain on available-for-sale securities, net of tax		39,754		6,515

COMPREHENSIVE INCOME	$	329,109	$	435,011

EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share	$	0.13	$	0.20
Diluted earnings per share	$	0.13	$	0.19

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		2,207,669		2,190,163
Diluted		2,209,660		2,198,434

See accompanying notes

Index

OREGON PACIFIC BANCORP & SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

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

BALANCE, December 31, 2006		2,187,349		$	5,100,037		$	6,795,987		$	4,809	$	11,900,833

Exercise of stock options		14,833			105,002			-			-		105,002

Stock repurchased		(6,450	)		(62,740	)		-			-		(62,740	)

Stock-based compensation		-			638			-			-		638

Cash dividends paid		-			-			(457,699	)		-		(457,699	)

Dividends reinvested in stock		16,133			180,890			(180,890	)		-		-

Net income and comprehensive income		-			-			1,845,157			40,697		1,885,854

BALANCE, December 31, 2007		2,211,865		$	5,323,827		$	8,002,555		$	45,506	$	13,371,888

Adoption of fair value option -- Board deferred compensation plan		-			-			2,848			-		2,848

Stock-based compensation		-			789			-			-		789

Cash dividends paid		-			-			(128,966	)		-		(128,966	)

Dividends reinvested in stock		4,887			47,984			(47,984	)		-		-

Cash payable for reverse stock-split fractional shares		(46,288	)		(601,744	)		-			-		(601,744	)

Net income and comprehensive income		-			-			289,355			39,754		329,109

BALANCE, March 31, 2008		2,170,464		$	4,770,856		$	8,117,808		$	85,260	$	12,973,924

See accompanying notes

Index

OREGON PACIFIC BANCORP & SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2008			2007

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	289,355		$	428,496
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		175,820			144,085
Stock-based compensation		789			433
Net change in mortgage loans held-for-sale		397,394			(136,107	)
Net decrease in accrued interest and other assets		81,998			1,395,388
Net (increase) decrease in accrued interest and other liabilities		(9,590	)		129,771
Change in fair value of Board deferred compensation plan		2,274			-

Net cash from operating activities		938,040			1,962,066

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of available-for-sale securities		1,505,371			500,000
Purchase of available-for-sale securities		(2,988,575	)		-
Net increase (decrease) in interest-bearing deposits in banks		3,547,919			(4,081,654	)
Loans originated, net of principal repayments		(5,169,174	)		(1,552,504	)
Purchase of premises and equipment		(72,903	)		(846,376	)

Net cash from investing activities		(3,177,362	)		(5,980,534	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in demand and savings deposit accounts		(1,180,599	)		1,849,790
Net (decrease) increase in time deposits		(107,189	)		2,721,029
Net increase in Federal funds purchased		1,600,000			-
Proceeds from Federal Home Loan Bank borrowings		4,000,000			-
Repayment of Federal Home Loan Bank and other borrowings		(13,749	)		(613,750	)
Repayment of debt from purchase of brokerage firm		(107,334	)		(107,334	)
Proceeds from exercise of common stock options		-			99,999
Cash dividends paid		(128,966	)		(108,445	)
Net cash from financing activities		4,062,163			3,841,289

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		1,822,841			(177,179	)

CASH AND CASH EQUIVALENTS, beginning of period	$	4,065,903		$	4,473,047

CASH AND CASH EQUIVALENTS, end of period	$	5,888,744		$	4,295,868

SCHEDULE OF NONCASH ACTIVITIES
Stock dividends reinvested	$	47,984		$	44,669

Change in fair value of AFS securities, net of tax	$	39,754		$	6,515

Additions to real estate owned	$	83,980		$	-

Stock buyback after reverse stock split payable declared	$	(601,744	)	$	-

See accompanying notes

Index

Oregon Pacific Bancorp and Subsidiary

Notes to Financial Statements

March 31, 2008

(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 Banking Co. dba 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.

On January 3, 2008 the Company announced the intent to deregister the Company’s common stock under the Securities and Exchange Act of 1934 by reducing the total number of common stock holders below the 300 threshold set by the Act. This was accomplished, following a vote of stockholders, by a reverse stock split that was effective March 18, 2008 for stockholders of record on January 4, 2008 by a one-for-500 split. Shares of stockholders with less than one share following the split were cashed out at a pre-split rate of $13.00 per share. The number of fractional shares resulting from the reverse stock split was 46,288 and a $601,744 payable was recorded as of March 31, 2008 for April or May payment. On the following day there was a forward split of 500-for-one.

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 March 31, 2008 are not necessarily indicative of results to be anticipated for the year ending December 31, 2007. The interim financial statements should be read in conjunction with the audited financial statements, including the notes thereto, contained in the Company’s 2007 Annual Form 10-K to the Securities and Exchange Commission.

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 2007 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 March 31, 2008.

Index

					Gross			Gross
					Unrealized			Unrealized
			Gross		Losses			Losses			Estimated
	Amortized		Unrealized		Less than			More than			Fair
	Cost		Gains		12 Months			12 Months			Value
March 31, 2008:

U.S. Treasury and agencies	$	3,010,286	$	65,006	$	-		$	-		$	3,075,292
State and political subdivisions		5,469,919		103,352		(7	)		(16,996	)		5,556,268
Corporate notes		-		-		-			-			-
Mortgage-backed securities		1,702,201		-		(9,254	)		-			1,692,947

	$	10,182,406	$	168,358	$	(9,261	)	$	(16,996	)	$	10,324,507


December 31, 2007:
U.S. Treasury and agencies	$	4,010,910	$	18,750	$	-		$	(2,813	)	$	4,026,847
State and political subdivisions		4,253,537		63,487		(3,913	)		(261	)		4,312,850
Corporate notes		441,660		594		-			-			442,254
Mortgage-backed securities		-		-		-			-			-

	$	8,706,107	$	82,831	$	(3,913	)	$	(3,074	)	$	8,781,951

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 – Loans and Allowance for Loan Losses

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

	MAR. 31, 2008			DEC. 31, 2007

Real estate	$	19,657,574		$	19,804,208
Commercial		102,572,874			97,381,490
Installment		6,865,551			6,814,836
Overdrafts		41,350			28,459

Total Loans		129,137,349			124,028,993
Less allowance for loan losses		(1,966,350	)		(1,965,102	)
Less deferred loan fees		(339,361	)		(317,447	)
Loans, net of allowance for loan losses and deferred loan fees	$	126,831,638		$	121,746,444

Index

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

	MAR. 31, 2008		MAR. 31, 2007

Balance, beginning of period	$	1,965,102	$	1,861,221
Provision for loan losses		-		-
Loans charged off		-		-
Loan recoveries		1,248		-

Balance, end of period	$	1,966,350	$	1,861,221

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 $1.29 million and $1.71 million were on nonaccrual status at March 31, 2008 and December 31, 2007.

The Bank had no loans past due 90 days or more on which it continued to accrue interest at either March 31, 2008 or December 31, 2007.

Note 4 – Earnings per Share of Common Stock

Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average common shares outstanding for the period. Diluted earnings per share reflects 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-based compensation

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 2007 and 2006 included: (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 December 31, 2007, 6,204 stock options were not fully vested.

The Company’s recognized expenses of $789 and $433 before income taxes for the three months ended March 31, 2008 and 2007, respectively. As of March 31, 2008, the Company had 4,432 nonvested options outstanding and there was $12,420 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, 2011.

There were no options granted or options exercised during the quarter ended March 31, 2008. The following table summarizes information about the stock options outstanding at March 31, 2008 and changes during the three months then ended:

Index

				Weighted		Weighted Avg.
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
Options	Shares			Price ($)		Term ( in yrs.)		Value

Outstanding at January 1, 2008		17,329			9.95
Granted		-
Expired		(1,351	)		7.40
Outstanding at March 31, 2008		15,978			10.17		2.89		15,063
Vested at March 31, 2008		11,546			9.27		1.72		15,063
Exercisable at March 31, 2008		8,888			8.83		1.64		15,063

Note 6 – Intangible Assets

On January 03, 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 and annual installments, with the final payment due in February 2009. No liabilities or obligations were assumed in the transaction.

Note 7 – Other Liabilities

Since the beginning of 2004, the Federal Home Loan Mortgage Corporation (“Freddie Mac”) has completed quality control reviews of a random sampling of loans closed by the Bank. Freddie Mac identified $2.9 million in loans that do not meet their underwriting standards. If any of the borrowers default on their loans, Freddie Mac will require the bank to repurchase the loan in default. In accordance with the Statement of Financial Accounting Standards (“SFAS”) No. 114, the Bank has provided $20,000 of allowance for probable losses of such loans.

Note 8 – Fair Value

Effective January 1, 2008, the Company prospectively implemented the provisions of SFAS No. 157, “Fair Value Measures”. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The adoption of this statement did not have a material impact on the consolidated financial statements. The disclosures focus on the inputs used to measure fair value. SFAS 157 establishes the following hierarchy for categorizing these inputs:

Level 1 -

Quoted market prices in active markets for identical assets or liabilities

Level 2 -

Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs)

Level 3 -

Significant unobservable inputs that reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The table below shows liabilities at fair value on a recurring basis as of March 31, 2008.

Index

	March 31,		Fair Value Measurements at March 31, 2008 Using
	2008		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Assets:
Available-for-sale securities	$	10,324,507	$	—	$	10,324,507	$	—
Liabilities :
Board Deferred Compensation Plan	$	21,376	$	—	$	21,376	$	—

For the three months ended March 31, 2008, the increase in fair value of securities available-for-sale was $66,000, which is included in other comprehensive income (net of taxes of $26,000) and the increase in fair value of Board Deferred Compensation is included in noninterest expense.

Certain assets were measured at fair value on a non-recurring basis at March 31, 2008. In accordance with the provisions of FASB Statement No. 114, loans held for investment are written down to the lower of the carrying value or the fair value of the underlying collateral securing these loans less cost to sell.. These loans had a carrying value of $1.3 million and a net value of $1.9 million, resulting in no loss and therefore no impairment charge was recorded during the period. The fair value of collateral used by the Company represents that amount expected to be received from the sale of the property as determined by an independent, licensed appraiser, using observable market data (Level 3).

Note 9 – Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised), “Business Combinations.” SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. Accordingly, the Company will apply SFAS No. 141(R) to business combinations occurring on or after January 1, 2009.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS No. 161). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 with the intent to provide users of financial statements with an enhanced understanding of: (i) How and why an entity uses derivative instruments; (ii) How derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations and (iii) How derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is in the process of evaluating the impact of SFAS No. 161 on its Consolidated Financial Statements.

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, economic conditions, and loan collateral value. 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.

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 to assess potential impairment. 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 March 31, 2008, the Company’s mortgage servicing asset was $685,000 and the related loan balances serviced by the Company for others totaled $88.2 million.

Overview

Oregon Pacific Bancorp ("Bancorp"), an Oregon corporation and financial 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 that 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.

Index

The Company reported net income of $289,000, or $.13 per basic share, for the three months ended March 31, 2008. This compares to Bank income of $428,000, or $.20 per basic share, for the same three month period in the prior year. The swift decrease in the fed funds target rate by 3.00% since September 2007, actions of the Federal Reserve, has reduced interest earned in spite of the growth of loans by more than $5 million. This, along with non-interest bearing expenses increasing from three additional employees and annual cost-of-living increases of payroll and other costs, are the primary causes of the drop in earnings.

Financial Condition

Total assets at March 31, 2008 were $157.0 million compared to $152.6 million at December 31, 2007, an increase of $4.4 million (2.9%). The increase was due primarily to increased loans ($5.1 million) funded by increases in FHLB borrowings ($5.5 million).

March 31, 2008 stockholders’ equity was $13.6 million, an increase of $204,000 from December 31, 2007. This change resulted from consolidated net income partially offset by cash dividends paid ($129,000).

The net loan portfolio at March 31, 2008 increased $5.1 million to $126.8 million compared to $121.7 million at December 31, 2007 and increased $4.2 million from March 31, 2007 when the portfolio was $122.6 million. See Note 3 of the financial statements for a breakdown of the type of loans.

Borrowings from the Federal Home Loan Bank and other debt at March 31, 2008 were $16.2 million compared to $10.7 million at December 31, 2007 and $10.8 million at March 31, 2007. Overnight borrowings from the Federal Home Loan Bank were $1.6 million. The average rate on all FHLB long-term borrowings is 3.98%. The Company also has an obligation to pay interest and, at maturity, $4.1 million of principal on the “trust preferred securities” issued by Oregon Pacific Statutory Trust I and $107,000 on a note payable from its 2007 acquisition.

As a result of the acquisition of the local LPL Financial Services brokerage in January 2006, the Company has $274,000 of net intangible assets at March 31, 2008 compared to $294,000 at December 31, 2007.

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 $1,904,000 for the quarter ended March 31, 2008 compared to $1,987,000 for the same period in 2007 (see Table below). The $84,000 decrease was primarily due to decreases in the rates earned on loans and interest-earning balances in banks partially offset by an increase in loan volume and a decrease in rates paid on deposits other than time deposits. The decrease in interest income of $79,000 was primarily due to a $144,000 decrease in rates earned from outstanding loans from the same period one year ago resulting from the quick fall of the interest rate environment beginning late last year. The effective rate on interest-earning assets for the quarter was 7.84% compared to 8.27% for the same period in 2007 which reflect falling interest rates resulting from the current interest rate environment.

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

	Three Months Ended Mar 31, 2008								Three Months Ended Mar 31, 2007								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)	$	127,139		$	2,613		8.22	%	$	124,023		$	2,689		8.67	%	$	68		$	(144	)	$	(76	)
Investment securities
Taxable securities		6,212			69		4.44	%		5,573			48		3.45	%		6			15			21
Nontaxable securities (1)		5,116			79		6.16	%		5,437			86		6.35	%		(5	)		(2	)		(7	)
Interest-earning balances due from banks		4,481			42		3.75	%		4,381			58		5.30	%		1			(17	)		(16	)
Total interest-earning assets		142,948			2,803		7.84	%		139,414			2,881		8.27	%		70			(148	)		(78	)

Cash and due from banks		3,487								3,932
Premises and equipment, net		8,044								7,472
Other real estate		6								0
Loan loss allowance		(1,965	)							(1,861	)
Other assets		2,972								2,870

Total assets	$	155,492							$	151,827

Interest-bearing liabilities:
Interest-bearing checking and savings accounts	$	52,567		$	279		2.12	%	$	55,486		$	330		2.38	%	$	(17	)	$	(34	)	$	(51	)
Time deposit and IRA accounts		36,729			400		4.36	%		33,741			362		4.29	%		32			6			38
Borrowed funds		18,417			220		4.78	%		15,148			202		5.33	%		44			(26	)		18
Total interest-bearing liabilities		107,713			899		3.34	%		104,375			894		3.43	%		58			(53	)		5
Noninterest-bearing deposits		30,858								31,945
Other liabilities		3,473								3,488
Total liabilities		142,044								139,808
Shareholders’ equity		13,448								12,019

Total liabilities and share-holders’ equity	$	155,492							$	151,827

Net interest income				$	1,904							$	1,987				$	11		$	(95	)	$	(83	)

Net interest spread							4.50	%							4.84	%

Net interest expense to average earning assets							2.52	%							2.57	%

Net interest margin							5.33	%							5.70	%

___________

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

(2) Loans held for sale are excluded and non-accrual loans are included in the average balance.

Index

Provision for Loan Losses

No provision was recorded for the three months ended March 31, 2008 and 2007. The allowance for loan losses at March 31, 2008 was 1.52% of gross loans compared to 1.58% at December 31, 2007. Management is satisfied that the reserve is adequate for probable loan losses in the loan portfolio at March 31, 2008. 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, collateral, 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 $5,000 or 0.7% for the three months ended March 31, 2008 as compared to the same period in 2007.

	Three months ended
	March 31,
	2008		2007		$ Change			% Change

Service charges and fees	$	176,155	$	218,674	$	(42,519	)		-19.4	%
Investment sales commissions		176,140		100,278	$	75,862			75.7	%
Trust fee income		174,590		173,393	$	1,197			0.7	%
Mortgage loan sales and servicing fees, net		70,259		106,606	$	(36,347	)		-34.1	%
Other income		47,822		45,719	$	2,103			4.6	%

	$	644,966	$	644,670	$	296			0.0	%

The decrease primarily was the result of the a decrease of service charges and fees ($43,000) due to the removal of two ATM machines in a local casino and decreased mortgage loan sales ($41,000) partially offset by an increase in Investment sales commissions ($76,000).

Noninterest Expense

Noninterest expense increased $156,000 or 8.1% for the three months ended March 31, 2008 from the same period one year ago.

	Three months ended
	March 31,
	2008		2007		$ Change		% Change

Salaries and benefits	$	1,297,208	$	1,196,149	$	101,059		8.4	%
Occupancy expense		239,375		235,585	$	3,790		1.6	%
Outside services		208,891		202,806	$	6,085		3.0	%
Other expenses		348,127		302,851	$	45,276		14.9	%

	$	2,093,601	$	1,937,391	$	156,210		8.1	%

The largest dollar change in salaries and benefits was a result of two filled positions from the prior year plus one additional employee. At March 31, 2007, candidates for the positions of Chief Credit Officer and Director of Marketing were open and not filled until the summer of 2007. “Other” expenses included a $20,000 loan loss provision for off-balance sheet liabilities and $16,000 for recruitment fees.

Provision for Income Taxes

The provision for income taxes at both March 31, 2008 and 2007 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.

Index

The adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes , (“FIN 48”) on January 1, 2007 has had no material adverse impact on the Company's financial condition, results of operations, or cash flow. As of March 31, 2008, the Company had no uncertain tax positions.

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 somewhat during the quarter ended March 31, 2008 as loan growth exceeded the deposit growth volume. As a result, during the quarter, the loan-to-deposit ratio rose to 106% at March 31, 2008. 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 increased during the quarter. As of March 31, 2008, the Bank had $1.7 million in such funds compared to $5.2 million at December 31, 2007. 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.

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 March 31, 2008, the Bank’s leverage and total risk-based ratios were 11.06% and 13.91% 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 executive 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, 2007.

Index

Item 4T.

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 March 31, 2008. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer each concludes that as of March 31, 2008, 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 March 31, 2008, 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.

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.

Index

Item 1A.

Risk factors .

There are no material changes to the risk factors disclosure from that contained in the Company’s 2007 10-K for the fiscal year ended December 31, 2007.

Item 2.

Unregistered sales of equity securities and use of proceeds.

None.

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.

The following documents are filed as part of this Form 10-Q as required by Item 601 of Regulation S-K:

3.1

Amended Articles of Incorporation of Oregon Pacific Bancorp amended March 17, 2008.

3.2

Bylaws of Oregon Pacific Bancorp (incorporated herein by reference to Exhibit 3(i) to Oregon Pacific Bancorp’s Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission on March 31, 2003).

10.1

2003 Stock Incentive Plan (incorporated by reference to Exhibit 1 to Oregon Pacific Bancorp’s Form DEF 14A filed with the Securities and Exchange Commission on March 25, 2003).

10.2

Oregon Pacific Banking Co. 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.

(b)	On February 14, 2008 a Form 8-K was filed under items 2.02 and 9.01 announcing 2007 fourth quarter and year end earnings.

On March 19, 2008 a Form 8-K was filed under item 8.01 announcing the filing of a Form 15 effectively terminating its obligations to file reports with the SEC.

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 May 14, 2008.

	OREGON PACIFIC BANCORP


	By:	/s/ James P. Clark

		James P. Clark
		President, Chief Executive Officer and Director ( Chief Executive Officer)


	By:	/s/ Joanne Forsberg

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

Oregon Pacific Bancorp (PK) (USOTC:ORPB)
Gráfico Histórico do Ativo
De Mai 2024 até Jun 2024

Click aqui para mais gráficos Oregon Pacific Bancorp (PK).

Oregon Pacific Bancorp (PK) (USOTC:ORPB)
Gráfico Histórico do Ativo
De Jun 2023 até Jun 2024

Dados

Notícias

Ferramentas

Mercados

Comunidade

Hot Features

Follow Feed

Fluxo de Opções

Monitor

ORPB Oregon Pacific Bancorp (PK)

Notícias Oregon Pacific Bancorp

Seu Histórico Recente

Empresa

Negócios

Popular

Obter o aplicativo

Tendências Agora

Rankings

Dados

Notícias

Ferramentas

Mercados

Comunidade

Hot Features

Follow Feed

Fluxo de Opções

Monitor

ORPB Oregon Pacific Bancorp (PK)

Notícias Oregon Pacific Bancorp

Seu Histórico Recente

Empresa

Negócios

Popular

Obter o aplicativo