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EX-32 - CERTIFICATION - Oconee Federal Financial Corp.ex32.htm
EX-31.2 - CERTIFICATION OF SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER - Oconee Federal Financial Corp.ex31-2.htm
EX-31.1 - CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER - Oconee Federal Financial Corp.ex31-1.htm

 

 

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

 

For the Quarterly Period ended December 31, 2017

 

Or

 

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

 

For transition period from                 to

 

Commission File Number 001-35033

 

 

Oconee Federal Financial Corp.  

(Exact Name of Registrant as Specified in Charter)

 

 

     
Federal   32-0330122

(State of Other Jurisdiction

of Incorporation)

 

(I.R.S Employer

Identification Number) 

   
201 East North Second Street, Seneca, South Carolina   29678
(Address of Principal Executive Officers)   (Zip Code)

 

(864) 882-2765 

Registrant’s telephone number, including area code

 

Not Applicable 

(Former name or former address, if changed since last report)

 

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No  ☐.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

             
Large accelerated filer     Accelerated filer  
         
Non-accelerated filer     Smaller reporting company  
(Do not check if a smaller reporting company)        
        Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock as of the latest practicable date.

 

There were 5,750,453 shares of Common Stock, par value $0.01 per share, outstanding as of February 8, 2018.

 

 

 

 

 

 

OCONEE FEDERAL FINANCIAL CORP.

 

Form 10-Q Quarterly Report

 

Table of Contents

  

PART I.   2
     
ITEM 1. FINANCIAL STATEMENTS 2
     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 31
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 40
     
ITEM 4. CONTROLS AND PROCEDURES 40
     
PART II.   41
     
ITEM 1. LEGAL PROCEEDINGS 41
     
ITEM 1A. RISK FACTORS 41
     
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 41
     
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 41
     
ITEM 4. MINE SAFETY DISCLOSURES 41
     
ITEM 5. OTHER INFORMATION 41
     
ITEM 6. EXHIBITS 42
     
SIGNATURES 43
   
INDEX TO EXHIBITS 44

 

1 

 

 

OCONEE FEDERAL FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS 

(Amounts in thousands, except share and per share data) 

(Unaudited)

  

PART I

 

ITEM 1.FINANCIAL STATEMENTS

 

   December 31,
2017
   June 30,
2017
 
         
ASSETS          
Cash and due from banks  $4,867   $3,526 
Interest-earning deposits   1,915    17,219 
Total cash and cash equivalents   6,782    20,745 
Securities available-for-sale   122,183    118,334 
Loans   317,063    307,558 
Allowance for loan losses   (1,032)   (1,016)
Net loans   316,031    306,542 
Loans held for sale, at fair value   270    245 
Premises and equipment, net   6,761    6,574 
Real estate owned, net   850    865 
Accrued interest receivable          
Loans   990    944 
Investments   616    568 
Restricted equity securities, at cost   1,872    1,023 
Bank owned life insurance   18,310    18,071 
Goodwill   2,593    2,593 
Core deposit intangible   478    568 
Loan servicing rights   1,024    1,141 
Deferred tax assets   1,678    2,370 
Other assets   443    734 
Total assets  $480,881   $481,317 
           
LIABILITIES          
Deposits          
Noninterest bearing  $27,433   $25,900 
Interest bearing   343,865    368,605 
Total deposits   371,298    394,505 
Fed Funds Purchased   2,814     
FHLB Advances   20,000     
Accrued interest payable and other liabilities   1,462    851 
Total liabilities   395,574    395,356 
           
SHAREHOLDERS’ EQUITY          
Common stock, $0.01 par value, 100,000,000 shares authorized; 6,463,039 shares issued and outstanding   65    65 
Treasury stock, at par, 712,586 and 699,345 shares, respectively   (7)   (7)
Additional paid-in capital   11,819    11,940 
Retained earnings   74,860    75,169 
Accumulated other comprehensive loss   (530)   (202)
Unearned ESOP shares   (900)   (1,004)
Total shareholders’ equity   85,307    85,961 
Total liabilities and shareholders’ equity  $480,881   $481,317 

 

See accompanying notes to the consolidated financial statements

 

2 

 

  

OCONEE FEDERAL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Amounts in thousands, except share and per share data)

 

   Three Months Ended   Six Months Ended 
   December 31,
2017
   December 31,
2016
   December 31,
2017
   December 31,
2016
 
Interest and dividend income:                    
Loans, including fees  $3,621   $3,639   $7,176   $7,376 
Securities, taxable   398    388    768    831 
Securities, tax-exempt   214    180    420    358 
Interest-earning deposits and other   7    36    42    77 
Total interest income   4,240    4,243    8,406    8,642 
                     
Interest expense:                    
Deposits   363    323    725    643 
Other Borrowings   51        62     
Total interest expense   414    323    787    643 
Net interest income   3,826    3,920    7,619    7,999 
Provision for loan losses   9    24    56    89 
Net interest income after provision for loan losses   3,817    3,896    7,563    7,910 
                     
Noninterest income:                    
Service charges on deposit accounts   112    107    220    211 
Income on bank owned life insurance   118    127    239    253 
Mortgage banking income   67    82    135    175 
Gain on sales of securities, net       57    10    125 
Gain on disposition of purchase credit impaired loans       120        196 
Other   26    2    56    3 
  Total noninterest income   323    495    660    963 
                     
Noninterest expense:                    
Salaries and employee benefits   1,653    1,548    3,209    2,972 
Occupancy and equipment   443    370    840    738 
Data processing   226    140    432    270 
Professional and supervisory fees   250    249    457    456 
Office expense   66    44    108    96 
Advertising   83    46    128    77 
FDIC deposit insurance   34    35    68    91 
Foreclosed assets, net   (22)   2    28    37 
Change in loan servicing asset   65    (196)   117    (173)
Other   216    217    427    485 
  Total noninterest expense   3,014    2,455    5,814    5,049 
Income before income taxes   1,126    1,936    2,409    3,824 
Income tax expense   1,185    618    1,611    1,233 
                     
         Net income/(loss)  $(59)  $1,318   $798   $2,591 
                     
Other comprehensive income                    
Unrealized losses on securities available-for-sale  $(723)  $(3,524)  $(587)  $(4,043)
Tax effect   210    1,268    125    1,455 
Reclassification adjustment for gains realized in net income       (57)   (10)   (125)
Tax effect   (1)   21    2    45 
Total other comprehensive loss   (514)   (2,292)   (470)   (2,668)
Comprehensive income/(loss)  $(573)  $(974)  $328   $(77)
                     
                     
Basic net income/(loss) per share: (Note 3)  $(0.01)  $0.23   $0.14   $0.46 
Diluted net income/(loss) per share: (Note 3)  $(0.01)  $0.23   $0.14   $0.45 
Dividends declared per share:  $0.10   $0.10   $0.20   $0.20 

 

See accompanying notes to the consolidated financial statements

 

3 

 

 

OCONEE FEDERAL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(Amounts in thousands, except share and per share data)

  

                    Accumulated         
            Additional       Other   Unearned     
    Common   Treasury   Paid-In   Retained   Comprehensive   ESOP     
    Stock   Stock   Capital   Earnings   Income (loss)   Shares   Total 
                              
Balance at June 30, 2016   $65   $(6)  $12,882   $71,909   $1,808   $(1,257)  $85,401 
Net income                2,591            2,591 
Other comprehensive loss                    (2,668)       (2,668)
Purchase of 37,943 shares of treasury stock (1)        (1)   (777)               (778)
Stock-based compensation expense            151                151 
Dividends (2)            44    (1,107)           (1,063)
ESOP Shares earned            123            150    273 
Balance at December 31, 2016   $65   $(7)  $12,423   $73,393   $(860)  $(1,107)  $83,907 
                                     
Balance at June 30, 2017   $65   $(7)  $11,940   $75,169   $(202)  $(1,004)  $85,961 
Net income                798            798 
Other comprehensive income                    (328)       (328)
Purchase of 13,241 shares of treasury stock (3)            (377)               (377)
Stock-based compensation expense            13                13 
Dividends (4)            44    (1,107)           (1,063)
ESOP Shares earned            199            104    303 
Balance at December 31, 2017   $65   $(7)  $11,819   $74,860   $(530)  $(900)  $85,307 

 

(1)The weighted average cost of treasury shares purchased during the six months ended was $20.48 per share. Treasury stock repurchases were accounted for using the par value method.

(2)Approximately $99 of cash dividends paid on shares in the ESOP was used as an additional principal reduction on the ESOP debt, resulting in the release of approximately 8,938 additional shares. The portion of the dividend paid on allocated shares of approximately $44 was treated as a dividend. The remaining portion of the dividend payment and resulting release of approximately 8,938 shares was accounted for as additional compensation expense of approximately $55 for the six months ended December 31, 2016.

(3)The weighted average cost of treasury shares purchased during the six months ended was $28.52 per share. Treasury stock repurchases were accounted for using the par value method.

(4)Approximately $93 of cash dividends paid on shares in the ESOP was used as an additional principal reduction on the ESOP debt, resulting in the release of approximately 8,300 additional shares. The portion of the dividend paid on allocated shares of approximately $44 was treated as a dividend. The remaining portion of the dividend payment and resulting release of approximately 8,300 shares was accounted for as additional compensation expense of approximately $44 for the six months ended December 31, 2017.

 

See accompanying notes to the consolidated financial statements

 

4 

 

 

OCONEE FEDERAL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands, except share and per share data)

 

    Six Months Ended 
    December 31,
2017
    December 31,
2016
 
Cash Flows From Operating Activities          
Net income  $798   $2,591 
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for loan losses   56    89 
Provision for real estate owned   26    103 
Depreciation and amortization, net   669    745 
Net accretion of purchase accounting adjustments   102    119 
Deferred income tax expense   961    44 
Net gain on sale of real estate owned   (62)   (86)
Change in loan servicing asset   117    (173)
Net gain on sales of securities   (10)   (125)
Mortgage loans originated for sale   (1,831)   (1,543)
Mortgage loans sold   1,820    1,707 
Gain on sales of mortgage loans   (14)   (35)
Increase in cash surrender value of bank owned life insurance   (239)   (253)
Gain on disposition of purchased credit impaired loans       (196)
ESOP compensation expense   303    273 
Stock based compensation expense   13    151 
Net change in operating assets and liabilities:          
Accrued interest receivable and other assets   197    460 
Accrued interest payable and other liabilities   611    1,153 
Net cash provided by operating activities   3,517    5,024 
Cash Flows From Investing Activities          
Purchases of premises and equipment   (383)   (71)
Purchases of securities available-for-sale   (16,359)   (19,779)
Proceeds from maturities, paydowns and calls of securities available-for-sale   7,543    11,069 
Proceeds from sales of securities available-for-sale   3,997    15,648 
Purchases of restricted equity securities   (849)    
Proceeds from sale of real estate owned   281    739 
Dispositions of purchased credit impaired loans       566 
Loan originations and repayments, net   (9,877)   (10,132)
Net cash used in investing activities   (15,647)   (1,960)
Cash Flows from Financing Activities          
Net change in deposits   (23,207)   (3,221)
Net increase in short term borrowings   2,814     
Proceeds from notes payable to FHLB   28,000     
Repayment of notes payable to FHLB   (8,000)    
Dividends paid   (1,063)   (1,063)
Purchase of treasury stock   (377)   (778)
Net cash used in provided by financing activities   (1,833)   (5,062)
Change in cash and cash equivalents   (13,963)   (1,998)
Cash and cash equivalents, beginning of period   20,745    27,676 
Cash and cash equivalents, end of period  $6,782   $25,678 

 

See accompanying notes to the consolidated financial statements

 

5 

 

 

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

 

(1)BASIS OF PRESENTATION

 

The accompanying unaudited consolidated financial statements of Oconee Federal Financial Corp., which include the accounts of its wholly owned subsidiary Oconee Federal Savings and Loan Association (the “Association”) (referred to herein as “the Company,” “we,” “us,” or “our”), have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Intercompany accounts and transactions are eliminated during consolidation. The Company is majority owned (72.42%) by Oconee Federal, MHC. These financial statements do not include the transactions and balances of Oconee Federal, MHC.

 

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company’s financial position as of December 31, 2017 and June 30, 2017 and the results of operations and cash flows for the interim periods ended December 31, 2017 and 2016. All interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the year ending June 30, 2018 or any other period. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2017.

 

Certain amounts have been reclassified to conform to the current period presentation. The reclassifications had no effect on net income or shareholders’ equity as previously reported.

 

Cash Flows: Cash and cash equivalents include cash on hand, federal funds sold, overnight interest-bearing deposits and amounts due from other depository institutions.

 

Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and actual results could differ.

 

(2) NEW ACCOUNTING STANDARDS

 

Accounting Standards Update (“ASU”) 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”. Issued in May 2017, ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments should be applied prospectively to an award modified on or after the adoption date. The Company is assessing the impact of ASU 2017-09 on its consolidated financial statements.

 

ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”. Issued in March 2017, ASU 2017-08 amends the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is assessing the impact of ASU 2017-08 on its consolidated financial statements.

 

6

 

 

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

 

ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. Issued in June 2016, ASU 2016-13 provides financial statement users with more decision-useful information about the expected credit losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 eliminate the probable incurred loss recognition in current GAAP and reflect an entity’s current estimate of all expected credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets. For purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (“PCD assets”) that are measured at amortized cost, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Subsequent changes in the allowance for credit losses on PCD assets are recognized through the statement of income as a credit loss expense. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements.

 

There have been no accounting standards that have been issued or proposed by the Financial Accounting Standards Board (“FASB”) or other standards-setting bodies during this quarter that are expected to have a material impact on the Company’s financial position, results of operations or cash flows. The Company continues to evaluate the impact of standards previously issued and not yet effective, and have no changes in our assessment to disclose since filing of the Form 10-K.

 

(3) EARNINGS PER SHARE (“EPS”)

 

Basic EPS is based on the weighted average number of common shares outstanding and is adjusted for ESOP shares not yet committed to be released. Unvested restricted stock awards, which contain rights to non-forfeitable dividends, are considered participating securities and the two-class method of computing basic and diluted EPS is applied. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as outstanding stock options, were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable (such as stock options) or which could be converted into common stock, if dilutive, using the treasury stock method. The factors used in the earnings per common share computation follow:

 

7

 

 

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

 

   Three Months Ended   Six Months Ended 
   December 31,
2017
   December 31,
2016
   December 31,
2017
   December 31,
2016
 
Earnings per share                
Net income/(loss)  $(59)  $1,318   $798   $2,591 
Less:  distributed earnings allocated to participating securities   (2)   (3)   (4)   (7)
Less:  (undistributed income) dividends in excess of earnings allocated to participating securities   2    (6)   1    (11)
Net earnings/(loss) available to common shareholders  $(59)  $1,309   $795   $2,573 
                     
Weighted average common shares outstanding including participating securities   5,786,109    5,793,350    5,797,217    5,802,651 
Less:  participating securities   (21,910)   (40,905)   (21,910)   (40,905)
Less: average unearned ESOP shares   (70,950)   (111,218)   (77,480)   (115,104)
Weighted average common shares outstanding   5,693,249    5,641,227    5,697,827    5,646,642 
                     
Basic earnings/(loss) per share  $(0.01)  $0.23   $0.14   $0.46 
                     
Weighted average common shares outstanding   5,693,249    5,641,227    5,697,827    5,646,642 
Add:  dilutive effects of assumed exercises of stock options   130,658    96,097    127,844    89,680 
Average shares and dilutive potential common shares   5,823,907    5,737,324    5,825,671    5,736,322 
                     
Diluted earnings/(loss) per share  $(0.01)  $0.23   $0.14   $0.45 

 

During the three and six months ended December 31, 2017, 22,400 shares were considered anti-dilutive as the exercise price was in excess of the average market price for the respective periods. During the three months ended December 31, 2016 no shares were considered anti-dilutive. During the six months ended December 31, 2016, 28,700 shares were considered anti-dilutive as the exercise price was in excess of the average market price for the respective periods.

 

8

 

 

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

 

(4)SECURITIES AVAILABLE-FOR-SALE

 

Debt, mortgage-backed and equity securities have been classified in the consolidated balance sheets according to management’s intent. U.S. Government agency mortgage-backed securities consist of securities issued by U.S. Government agencies and U.S. Government sponsored enterprises. Investment securities at December 31, 2017 and June 30, 2017 are as follows:

 

December 31, 2017 

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

Fair

Value

 
Available-for-sale:                
FHLMC common stock  $20   $185   $   $205 
Certificates of deposit   5,483    4    (31)   5,456 
Municipal securities   43,404    169    (417)   43,156 
SBA loan pools   454            454 
CMOs   11,646        (300)   11,346 
U.S. Government agency mortgage-backed securities   48,053    103    (376)   47,780 
U.S. Government agency bonds   14,036        (250)   13,786 
Total available-for-sale  $123,096   $461   $(1,374)  $122,183 

 

June 30, 2017 

Amortized

Cost

  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  

Fair

Value

 
Available-for-sale:                
FHLMC common stock  $20   $162   $   $182 
Certificates of deposit   6,230    16    (18)   6,228 
Municipal securities   39,847    296    (344)   39,799 
SBA loan pools   563    2        565 
CMOs   13,024        (239)   12,785 
U.S. Government agency mortgage-backed securities   44,884    185    (244)   44,825 
U.S. Government agency bonds   14,082    15    (147)   13,950 
Total available-for-sale  $118,650   $676   $(992)  $118,334 

 

Securities pledged at December 31, 2017 and June 30, 2017 had fair values of $29,047 and $6,069, respectively. These securities were pledged to secure public deposits and FHLB advances.

 

At December 31, 2017 and June 30, 2017, there were no holdings of securities of any one issuer, other than U.S. Government agencies and U.S. Government sponsored enterprises, in an amount greater than 10% of shareholders’ equity.

 

9

 

 

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

 

The following tables show the fair value and unrealized loss of securities that have been in unrealized loss positions for less than twelve months and for twelve months or more at December 31, 2017 and June 30, 2017. The tables also show the number of securities in an unrealized loss position for each category of investment security as of the respective dates.

 

   Less than 12 Months  

12 Months or More

  

Total

 
December 31, 2017  Fair Value   Unrealized
Loss
   Number in Unrealized Loss (1)   Fair Value   Unrealized
Loss
   Number in Unrealized Loss (1)   Fair Value   Unrealized
Loss
   Number in Unrealized Loss (1) 
Available-for-sale:                                    
Certificates of deposit  $4,456   $(31)   18   $   $       $4,456   $(31)   18 
Municipal securities   17,805    (182)   43    8,321    (235)   19    26,126    (417)   62 
CMOs   2,492    (56)   3    8,854    (244)   13    11,346    (300)   16 
U.S. Government agency mortgage-backed securities   30,216    (224)   34    8,143    (152)   10    38,359    (376)   44 
U.S. Government agency bonds   6,891    (77)   8    6,894    (173)   6    13,785    (250)   14 
   $61,860   $(570)   106   $32,212   $(804)   48   $94,072   $(1,374)   154 

 

   Less than 12 Months   12 Months or More   Total
June 30, 2017  Fair Value   Unrealized
Loss
   Number in Unrealized Loss (1)   Fair Value   Unrealized
Loss
   Number in Unrealized Loss (1)   Fair Value   Unrealized
Loss
   Number in Unrealized Loss (1) 
Available-for-sale:                                    
Certificates of deposit  $2,227   $(18)   9   $   $       $2,227   $(18)   9 
Municipal securities   18,331    (276)   41    2,221    (68)   5    20,552    (344)   46 
CMOs   7,833    (136)   9    4,952    (103)   7    12,785    (239)   16 
U.S. Government agency mortgage-backed securities   29,057    (244)   31                29,057    (244)   31 
U.S. Government agency bonds   8,027    (78)   8    1,931    (69)   1    9,958    (147)   9 
   $65,475   $(752)   98   $9,104   $(240)   13   $74,579   $(992)   111 

 

 

(1)Actual amounts.

 

The Company evaluates securities for other-than-temporary impairments (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. The Company considers the length of time and the extent to which the fair value has been less than cost and the financial condition and near-term prospects of the issuer. Additionally, the Company considers its intent to sell or whether it will be more likely than not it will be required to sell the security prior to the security’s anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by federal Government agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.

 

None of the unrealized losses at December 31, 2017 were recognized into net income for the three or six months ended December 31, 2017 because the issuers’ bonds are of high credit quality, management does not intend to sell and it is more likely than not that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair value of these securities is expected to recover as they approach their maturity date or reset date. None of the unrealized losses at June 30, 2017 were recognized as having OTTI during the year ended June 30, 2017.

 

 

10

 

 

OCONEE FEDERAL FINANCIAL CORP. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited) 

(Amounts in thousands, except share and per share data)

 

The following table presents the amortized cost and fair value of debt securities classified as available-for-sale at December 31, 2017 and June 30, 2017 by contractual maturity.

 

   December 31, 2017   June 30, 2017 
   Amortized
Cost
   Fair
Value
   Amortized
Cost
   Fair
Value
 
Less than one year  $1,948   $1,948   $2,989   $2,990 
Due from one to five years   17,197    17,031    17,196    17,183 
Due after five years to ten years   32,751    32,477    30,084    30,045 
Due after ten years   11,481    11,396    10,453    10,324 
Mortgage-backed securities, CMOs and FHLMC stock (1)   59,719    59,331    57,928    57,792 
Total available for sale  $123,096   $122,183   $118,650   $118,334 

 

 

(1)Actual cash flows may differ from contractual maturities as borrowers may prepay obligations without prepayment penalty. FHLMC common stock is not scheduled because it has no contractual maturity date.

 

The following table presents the gross proceeds from sales of securities available-for-sale and gains or losses recognized for the three and six months ended December 31, 2017 and 2016:

 

   Three Months Ended   Six Months Ended 
Available-for-sale:  December 31,
2017
   December 31,
2016
   December 31,
2017
   December 31,
2016
 
Proceeds  $   $12,495   $3,997   $15,648 
Gross gains       57    11    125 
Gross losses           (1)    

 

The tax provision related to these net realized gains for the six months ended December 31, 2017 was $3, and for the three and six months ended December 31, 2016 was $21 and $45, respectively.

 

(5)       LOANS

 

The components of loans at December 31, 2017 and June 30, 2017 were as follows:

 

   December 31,
2017
   June 30,
2017
 
Real estate loans:          
One-to-four family  $258,088   $260,114 
Multi-family   1,799    1,864 
Home equity   4,057    4,900 
Nonresidential   17,663    18,916 
Agricultural   1,358    1,441 
Construction and land   28,419    15,254 
Total real estate loans   311,384    302,489 
Commercial and industrial   426    51 
Consumer and other loans   5,253    5,018 
     Total loans  $317,063   $307,558 

 

 11

 

 

OCONEE FEDERAL FINANCIAL CORP. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited) 

(Amounts in thousands, except share and per share data)

 

The following tables present the activity in the allowance for loan losses for the three and six months ended December 31, 2017 by portfolio segment:

 

Three Months Ended December 31, 2017  Beginning
Balance
   Provision   Charge-offs   Recoveries   Ending
 Balance
 
Real estate loans:                         
One-to-four family  $889   $(1)  $   $   $888 
Multi-family   4                4 
Home equity   3    1            4 
Nonresidential   60    (1)           59 
Agricultural   1    (1)            
Construction and land   55    19    (1)       73 
         Total real estate loans   1,012    17    (1)       1,028 
Commercial and industrial   6    (2)           4 
Consumer and other loans   6    (6)            
Total loans  $1,024   $9   $(1)  $   $1,032 

 

Six Months Ended December 31, 2017  Beginning
Balance
   Provision   Charge-offs   Recoveries   Ending
Balance
 
Real estate loans:                         
One-to-four family  $900   $(12)  $   $   $888 
Multi-family   4                4 
Home equity   2    15    (13)       4 
Nonresidential   63    (4)           59 
Agricultural   1    (1)            
Construction and land   35    64    (26)       73 
         Total real estate loans   1,005    62    (39)       1,028 
Commercial and industrial   4                4 
Consumer and other loans   7    (6)   (1)        
Total loans  $1,016   $56   $(40)  $   $1,032 

 

 12

 

 

OCONEE FEDERAL FINANCIAL CORP. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited) 

(Amounts in thousands, except share and per share data)

 

The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at December 31, 2017:

 

   Ending Allowance on Loans:   Loans: 
At December 31, 2017  Individually Evaluated for Impairment   Collectively Evaluated for Impairment   Individually Evaluated for Impairment   Collectively Evaluated for Impairment 
Real estate loans:                    
One-to-four family  $   $888   $2,852   $255,236 
Multi-family       4        1,799 
Home equity       4        4,057 
Nonresidential       59    690    16,973 
Agricultural           438    920 
Construction and land       73    270    28,149 
Total real estate loans       1,028    4,250    307,134 
Commercial and industrial   4            426 
Consumer and other loans               5,253 
Total loans  $   $1,032   $4,250   $312,813 

 

The following tables present the activity in the allowance for loan losses for the three and six months ended December 31, 2016 by portfolio segment:

 

Three Months ended December 31, 2016  Beginning
Balance
   Provision   Charge-offs   Recoveries   Ending
Balance
 
Real estate loans:                         
One-to-four family  $785   $10   $   $   $795 
Multi-family   4                4 
Home equity   2                2 
Nonresidential   132    (8)           124 
Agricultural   5    (3)           2 
Construction and land   35    4            39 
         Total real estate loans   963    3            966 
Commercial and industrial   6    (1)           5 
Consumer and other loans   3    22            25 
Total loans  $972   $24   $   $   $996 

 

 13

 

 

OCONEE FEDERAL FINANCIAL CORP. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited) 

(Amounts in thousands, except share and per share data)

 

Six Months ended December 31, 2016  Beginning
Balance
   Provision   Charge-offs   Recoveries   Ending
Balance
 
Real estate loans:                         
One-to-four family  $733   $62   $   $   $795 
Multi-family   4                4 
Home equity   2                2 
Nonresidential   130    9    (15)       124 
Agricultural   5    (3)           2 
Construction and land   39                39 
         Total real estate loans   913    68    (15)       966 
Commercial and industrial   6    (1)           5 
Consumer and other loans   3    22            25 
Total loans  $922   $89   $(15)  $   $996 

 

The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at June 30, 2017:

 

   Ending Allowance on Loans:   Loans: 
At June 30, 2017  Individually Evaluated for Impairment   Collectively Evaluated for Impairment   Individually Evaluated for Impairment   Collectively Evaluated for Impairment 
Real estate loans:                    
One-to-four family  $8   $892   $3,034   $257,080 
Multi-family       4        1,864 
Home equity       2        4,900 
Nonresidential       63        18,916 
Agricultural       1    448    993 
Construction and land       35    262    14,992 
Total real estate loans   8    997    3,744    298,745 
Commercial and industrial       4        51 
Consumer and other loans       7        5,018 
Total loans  $8   $1,008   $3,744   $303,814 

 

 14

 

 

OCONEE FEDERAL FINANCIAL CORP. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited) 

(Amounts in thousands, except share and per share data)

 

The tables below present loans that were individually evaluated for impairment by portfolio segment at December 31, 2017 and June 30, 2017, including the average recorded investment balance and interest earned for the six months ended December 31, 2017 and the year ended June 30, 2017:

 

   December 31, 2017 
   Unpaid
Principal
Balance
   Recorded
Investment
   Related
Allowance
   Average
Recorded
Investment
   Interest
Income
Recognized
 
With no recorded allowance:                         
Real estate loans:                         
One-to-four family  $2,948   $2,852   $   $2,460   $22 
Multi-family                    
Home equity                    
Nonresidential   726    690        345    3 
Agricultural   987    438        443    7 
Construction and land   454    270        266    7 
Total real estate loans   5,115    4,250        3,514    39 
Commercial and industrial                    
Consumer and other loans                    
Total  $5,115   $4,250   $   $3,514   $39 
                          
With recorded allowance:                         
Real estate loans:                         
One-to-four family  $   $   $   $484   $ 
Multi-family                    
Home equity                    
Nonresidential                    
Agricultural                    
Construction and land                    
Total real estate loans               484     
Commercial and industrial                    
Consumer and other loans                    
Total  $   $   $   $484   $ 
                          
Totals:                         
Real estate loans  $5,115   $4,250   $   $3,998   $39 
Consumer and other loans                    
Total  $5,115   $4,250   $   $3,998   $39 

 

 15

 

 

OCONEE FEDERAL FINANCIAL CORP. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited) 

(Amounts in thousands, except share and per share data) 

 

   June 30, 2017 
   Unpaid
Principal
Balance
   Recorded
Investment
   Related
Allowance
   Average
Recorded
Investment
   Interest
Income
Recognized
 
With no recorded allowance:                         
Real estate loans:                         
One-to-four family  $2,539   $2,067   $   $1,534   $225 
Multi-family                    
Home equity                    
Nonresidential               555     
Agricultural   997    448        448    34 
Construction and land   457    262        220    13 
Total real estate loans   3,993    2,777        2,757    272 
Commercial and industrial                    
Consumer and other loans                    
Total  $3,993   $2,777   $   $2,757   $272 
                          
With recorded allowance:                         
Real estate loans: