10-Q 1 ofed-10q_093022.htm QUARTERLY REPORT
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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 September 30, 2022

 

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)  

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class  

Trading

Symbol(s)

  Name of each exchange on which registered
Common Stock, par value $0.01 per share   OFED   The NASDAQ Stock Market, LLC

 

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 every Interactive Data File required to be submitted 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 such files).    Yes  ☒    No  ☐

 

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

             
Large accelerated filer     Accelerated filer  
             
Non-accelerated filer     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 Section 13(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  ☒

 

As of November 7, 2022, the registrant had 5,609,444 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 

 

OCONEE FEDERAL FINANCIAL CORP.

 

Form 10-Q Quarterly Report

 

Table of Contents

 

       
PART I.   1
     
ITEM 1. FINANCIAL STATEMENTS   1
       
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   31
       
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   38
       
ITEM 4. CONTROLS AND PROCEDURES   39
       
PART II.   39
     
ITEM 1. LEGAL PROCEEDINGS   39
       
ITEM 1A. RISK FACTORS   39
       
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   39
       
ITEM 3. DEFAULTS UPON SENIOR SECURITIES   39
       
ITEM 4. MINE SAFETY DISCLOSURES   39
       
ITEM 5. OTHER INFORMATION   39
       
ITEM 6. INDEX TO EXHIBITS   40
       
SIGNATURES   40
     
EXHIBITS   41

 

 

 

 

OCONEE FEDERAL FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

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

 

PART I

 

ITEM 1. FINANCIAL STATEMENTS

 

   September 30, 2022
(unaudited)
   June 30, 2022 
ASSETS        
Cash and due from banks  $3,432   $2,327 
Interest-earning deposits   4,312    7,406 
Fed funds sold   126     
Total cash and cash equivalents   7,870    9,733 
Securities available-for-sale   139,018    151,299 
Loans   361,478    345,112 
Allowance for loan losses   (1,389)   (1,339)
Net loans   360,089    343,773 
Loans held for sale, at fair value       152 
Premises and equipment, net   8,505    8,579 
Real estate owned, net   106     
Accrued interest receivable          
Loans   964    944 
Investments   373    468 
Restricted equity securities, at cost   1,564    1,189 
Bank owned life insurance   20,512    20,398 
Goodwill   2,593    2,593 
Core deposit intangible   61    74 
Loan servicing rights   347    345 
Deferred tax assets   6,489    4,678 
Other assets   527    567 
Total assets  $549,018   $544,792 
           
LIABILITIES          
Deposits          
Noninterest - bearing  $60,239   $60,697 
Interest - bearing   399,469    398,985 
Total deposits   459,708    459,682 
Federal Home Loan Bank advances   19,000    9,000 
Accrued interest payable and other liabilities   938    853 
Total liabilities   479,646    469,535 
           
SHAREHOLDERS’ EQUITY          
Common stock, $0.01 par value, 100,000,000 shares authorized; 6,606,648 and 6,605,109 shares outstanding, respectively   66    66 
Treasury stock, at par, 997,380 and 997,380 shares, respectively   (10)   (10)
Additional paid-in capital   6,049    6,055 
Retained earnings   83,568    82,790 
Accumulated other comprehensive loss   (20,274)   (13,588)
Unearned ESOP shares   (27)   (56)
Total shareholders’ equity   69,372    75,257 
Total liabilities and shareholders’ equity  $549,018   $544,792 

 

See accompanying notes to the consolidated financial statements

 

 1 

 

 

OCONEE FEDERAL FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE LOSS

(Unaudited)

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

 

         
   Three Months Ended 
   September 30,
2022
   September 30,
2021
 
Interest and dividend income:          
Loans, including fees  $3,665   $3,445 
Securities, taxable   758    352 
Securities, tax-exempt   41    86 
Other interest-earning assets   20    16 
Total interest income   4,484    3,899 
           
Interest expense:          
Deposits   218    306 
Other borrowings   66    23 
Total interest expense   284    329 
           
Net interest income   4,200    3,570 
           
Provision for loan losses   50     
         
Net interest income after provision for loan losses   4,150    3,570 
           
Noninterest income:          
Service charges on deposit accounts   116    100 
Income on bank owned life insurance   114    113 
Mortgage servicing income   26    30 
Gain on sale of mortgage loans   8    106 
ATM & debit card income   109    111 
Change in fair value of equity securities, net   9    (50)
Loss on sale of securities, net   (84)    
Gain on payoff of purchase credit impaired loans   189     
Other   4    3 
Total noninterest income   491    413 
           
Noninterest expense:          
Salaries and employee benefits   1,598    1,696 
Occupancy and equipment   484    482 
Data processing   270    252 
ATM & debit card expense   91    86 
Professional and supervisory fees   127    108 
Office expense   45    35 
Advertising   68    78 
FDIC deposit insurance   35    33 
Foreclosed assets, net   1    (1)
Change in loan servicing asset   (2)   14 
Other   189    212 
Total noninterest expense   2,906    2,995 
           
Income before income taxes   1,735    988 
Income tax expense   396    217 
           
Net income  $1,339   $771 
           
Other comprehensive (loss)/income          
Unrealized losses on securities available-for-sale  $(8,541)  $(1,010)
Tax effect   1,789    213 
Reclassification adjustment for losses realized in net income   84     
Tax effect   (18)    
Total other comprehensive loss   (6,686)   (797)
Comprehensive loss  $(5,347)  $(26)
           
Basic net income per share: (Note 3)  $0.24   $0.14 
Diluted net income per share: (Note 3)  $0.24   $0.14 
Dividends declared per share:  $0.10   $0.10 

 

See accompanying notes to the consolidated financial statements

 

 2 

 

 

OCONEE FEDERAL FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

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

 

For the three months ended September 30, 2022 and September 30, 2021

 

  

Common

Stock

  

Treasury

Stock

  

Additional

Paid-In

Capital

  

Retained

Earnings

  

Accumulated

Other

Comprehensive

Income (loss)

  

Unearned

ESOP

Shares

   Total 
                             
Balance at June 30, 2021  $66   $(10)  $6,400   $80,915   $941   $(212)  $88,100 
Net income               771            771 
Other comprehensive loss                   (797)       (797)
Purchase of 2,865 shares of treasury stock (1)           (67)               (67)
Stock-based compensation expense           30                30 
Dividends               (559)           (559)
ESOP shares earned           38            51    89 
Balance at September 30, 2021  $66   $(10)  $6,401   $81,127   $144   $(161)  $87,567 
                                    
Balance at June 30, 2022  $66   $(10)  $6,055   $82,790   $(13,588)  $(56)  $75,257 
Net income               1,339            1,339 
Other comprehensive loss                   (6,686)       (6,686)
Stock-based compensation expense           20                20 
Dividends           13    (561)           (548)
ESOP shares earned           (39)           29    (10)
Balance at September 30, 2022  $66   $(10)  $6,049   $83,568   $(20,274)  $(27)  $69,372 

 

(1)The weighted average cost of treasury shares purchased during the three months ended September 30, 2021 was $23.43 per share. Treasury stock repurchases were accounted for using the par value method.

 

See accompanying notes to the consolidated financial statements

 

 3 

 

 

OCONEE FEDERAL FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

 

         
   Three Months Ended 
   September 30,
2022
   September 30,
2021
 
Cash Flows From Operating Activities          
Net income  $1,339   $771 
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for loan losses   50     
Depreciation and amortization, net   264    530 
Net amortization/(accretion) of purchase accounting adjustments   174    (56)
Deferred income tax benefit   (117)   (24)
Change in loan servicing asset   (2)   14 
Net loss on sales of securities   84     
Mortgage loans originated for sale   (661)   (5,109)
Mortgage loans sold   821    5,379 
Gain on sales of mortgage loans   (8)   (106)
Change in fair value of equity securities   (9)   50 
Increase in cash surrender value of bank owned life insurance   (114)   (113)
Gain on payoff of purchased credit impaired loans   (189)    
ESOP shares earned   29    89 
Stock based compensation expense   20    30 
Net change in operating assets and liabilities:          
Accrued interest receivable and other assets   76    33 
Accrued interest payable and other liabilities   85    (96)
Net cash provided by operating activities   1,842    1,392 
           
Cash Flows From Investing Activities          
Purchases of premises and equipment   (67)   (88)
Purchases of securities available-for-sale   (11,150)   (22,202)
Proceeds from maturities, paydowns and calls of securities available-for-sale   3,817    8,370 
Proceeds from sales of securities available-for-sale   11,049     
Sales of restricted equity securities   150    374 
Purchases of restricted equity securities   (525)    
Loan originations and repayments, net   (16,457)   1,254 
Net cash used in investing activities   (13,183)   (12,292)
           
Cash Flows from Financing Activities          
Net change in deposits   26    9,504 
Proceeds from notes payable to FHLB   14,000     
Repayment of notes payable to FHLB   (4,000)   (10,000)
Dividends paid   (548)   (559)
Purchase of treasury stock       (67)
Net cash provided/(used) by financing activities   9,478    (1,122)
           
Change in cash and cash equivalents   (1,863)   (12,022)
           
Cash and cash equivalents, beginning of period   9,733    30,649 
Cash and cash equivalents, end of period  $7,870   $18,627 

 

See accompanying notes to the consolidated financial statements

 

 4 

 

 

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

(1)BASIS OF PRESENTATION, RISKS AND UNCERTAINTIES

 

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 (74.24%) 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 September 30, 2022 and June 30, 2022 and the results of operations and cash flows for the interim periods ended September 30, 2022 and 2021. All interim amounts are unaudited, 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, 2023 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, 2022.

 

Reclassifications:

 

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-earning 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.

 

Risks and Uncertainties:

 

The COVID-19 pandemic has had, and may continue to have, an adverse impact on the Company, its clients and the communities it serves. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain.

 

 

 5 

 

 

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

(2) NEW ACCOUNTING STANDARDS

 

Accounting Standards Update (“ASU”) 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. Issued in June 2022, ASU 2022-03 provides guidance on the fair value measurement of an equity security that is subject to a contractual sale restriction and require specific disclosures related to such an equity security. The amendments are effective for financial statements issued for annual periods beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

 

ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”. Issued in March 2022, ASU 2022-02 provides guidance to improve the decision usefulness of information provided to investors about certain loan re-financings, restructurings, and write-offs. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.

 

ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance”. Issued in November 2021, ASU 2021-10 requires certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other accounting guidance. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2021. The Company adopted this standard on July 1, 2022. This pronouncement did not have a material effect on the financial statements.

 

ASU 2020-04, “Reference Rate Reform (Topic 848)”. Issued in March 2020, ASU 2020-04 provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its financial statements.

 

ASU 2019-11, “Codification to Improvements to Topic 326, Financial Instruments – Credit Losses”. Issued in November 2019, ASU 2019-11 provides guidance that addresses issues raised by stakeholders during the implementation of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments affect a variety of Topics in the Accounting Standards Codification. For the Company, the amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted in any interim period as long as an entity has adopted the amendments in ASU 2016-13.

 

ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)”. Issued in November 2019, ASU 2019-10 provides guidance to defer the effective dates for private companies, not-for-profit organizations, and certain smaller reporting companies (such as the Company) applying standards on current expected credit losses (CECL), derivatives, hedging and leases. For the Company, the new effective date for Credit Losses (CECL) will be for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For the Company, the effective dates for Derivatives, Hedging and Leases were not deferred under this guidance.

 

ASU 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief”. Issued in May 2019, ASU 2019-05 provides entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments. On October 16, 2019, the Financial Accounting Standards Board (“FASB”) announced a delay in the implementation schedule allowing certain entities, including smaller reporting companies (such as the Company) to adopt ASU 2016-13 in fiscal years beginning after December 15, 2022, and interim periods within those years.

 

 6 

 

 

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

(2) NEW ACCOUNTING STANDARDS (continued)

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. 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 by running parallel loss models. In November 2019, the FASB issued guidance delaying the implementation schedule and allowing certain entities, including smaller reporting companies (such as the Company) to adopt ASU 2016-13 in fiscal years beginning after December 15, 2022, and interim periods within those years.

 

There have been no accounting standards that have been issued or proposed by the FASB or other standards-setting bodies during the quarter ended September 30, 2022 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 has no changes in its assessment since filing the Annual Report on Form 10-K.

 

 7 

 

 

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

(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:

 

         
   Three Months Ended 
   September 30,
2022
   September 30,
2021
 
Earnings per share        
Net income  $1,339   $771 
Less:  distributed earnings allocated to participating securities   (1)   (1)
Less:  (undistributed income) dividends in excess of earnings allocated to participating securities   (1)   (1)
Net earnings available to common shareholders  $1,337   $769 
           
Weighted average common shares outstanding including participating securities   5,608,331    5,592,583 
Less:  participating securities   (9,700)   (14,300)
Less: average unearned ESOP shares   (2,176)   (6,855)
Weighted average common shares outstanding   5,596,455    5,571,428 
           
Basic earnings per share  $0.24   $0.14 
           
Weighted average common shares outstanding   5,596,455    5,571,428 
Add:  dilutive effects of assumed exercises of stock options   3,502    44,960 
Average shares and dilutive potential common shares   5,599,957    5,616,388 
           
Diluted earnings per share  $0.24   $0.14 

 

For each of the three months ended September 30, 2022 and 2021, 21,200 options were considered anti-dilutive as the exercise price was in excess of the average market price.

 

 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 consists of securities issued by U.S. Government agencies and U.S. Government sponsored enterprises. Investment securities at September 30, 2022 and June 30, 2022 are as follows:

 

September 30, 2022  Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Change in
Fair Value
Equity Securities
   Fair
Value
 
Available-for-sale:                    
FHLMC common stock  $20   $   $   $23   $43 
Certificates of deposit                    
Municipal securities   8,696        (758)       7,938 
CMOs   13,255        (1,664)       11,591 
U.S. Government agency mortgage-backed securities   130,270        (20,967)       109,303 
U.S. Treasury and Government agency bonds   12,417        (2,274)       10,143 
Total available-for-sale  $164,658   $   $(25,663)  $23   $139,018 

 

June 30, 2022  Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Change in
Fair Value
Equity Securities
   Fair
Value
 
Available-for-sale:                    
FHLMC common stock  $20   $   $   $14   $34 
Certificates of deposit   1,247    2            1,249 
Municipal securities   16,991    3    (397)       16,597 
CMOs   14,145        (1,081)       13,064 
U.S. Government agency mortgage-backed securities   123,652        (14,048)       109,604 
U.S. Treasury and Government agency bonds   12,431        (1,680)       10,751 
Total available-for-sale  $168,486   $5   $(17,206)  $14   $151,299 

 

Securities pledged at September 30, 2022 and June 30, 2022 had fair values of $38,337 and $19,322, respectively. These securities were pledged to secure public deposits and Federal Home Loan Bank (“FHLB”) advances.

 

At September 30, 2022 and June 30, 2022, 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)

 

(4)SECURITIES AVAILABLE-FOR-SALE (continued)

 

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 September 30, 2022 and June 30, 2022. 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 
   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) 
September 30, 2022                                    
Available-for-sale:                                    
Municipal securities  $7,938   $(758)   21   $   $       $7,938   $(758)   21 
CMOs   7,469    (880)   13    4,122    (784)   2    11,591    (1,664)   15 
U.S. Government agency mortgage-backed securities   47,410    (5,847)   50    61,893    (15,120)   39    109,303    (20,967)   89 
U.S. Treasury and Government agency bonds   1,725    (269)   1    8,418    (2,005)   6    10,143    (2,274)   7 
   $64,542   $(7,754)   85   $74,433   $(17,909)   47   $138,975   $(25,663)   132 

 

   Less than 12 Months   12 Months or More   Total 
   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) 
June 30, 2022                                    
Available-for-sale:                                    
Municipal securities  $15,027   $(397)   41   $   $       $15,027   $(397)   41 
CMOs   12,174    (972)   17    889    (109)   1    13,063    (1,081)   18 
U.S. Government agency mortgage-backed securities   80,288    (9,197)   69    29,188    (4,851)   22    109,476    (14,048)   91 
U.S. Treasury and Government agency bonds   3,822    (403)   2    6,930    (1,277)   5    10,752    (1,680)   7 
   $111,311   $(10,969)   129   $37,007   $(6,237)   28   $148,318   $(17,206)   157 

 

 
(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 amortized 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 September 30, 2022 were recognized into net income for the three months ended September 30, 2022 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, 2022 were recognized as having OTTI during the year ended June 30, 2022.

 

 10 

 

 

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 (continued)

 

The following table presents the amortized cost and fair value of debt securities classified as available-for-sale at September 30, 2022 and June 30, 2022 by contractual maturity.

 

   September 30, 2022   June 30, 2022 
   Amortized   Fair   Amortized   Fair 
   Cost   Value   Cost   Value 
Less than one year  $   $   $1,247   $1,249 
Due from one to five years   1,448    1,377    4,756    4,727 
Due after five years to ten years   17,974    15,296    22,244    20,391 
Due after ten years   1,691    1,408    2,422    2,230 
Mortgage-backed securities, CMOs and FHLMC stock(1)   143,545    120,937    137,817    122,702 
Total available for sale  $164,658   $139,018   $168,486   $151,299 

 

 
(1)Actual cash flows may differ from contractual maturities as borrowers may prepay obligations without prepayment penalty. Federal Home Loan Mortgage Corporation (“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 months ended September 30, 2022 and 2021:

 

         
   Three Months Ended 
Available-for-sale:  September 30,
2022
   September 30,
2021
 
Proceeds  $11,049   $ 
Gross gains        
Gross losses   (84)    

 

The tax benefit related to the net realized loss for the three months ended September 30, 2022 was $18.

 

 11 

 

 

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

(5)LOANS

 

The components of loans at September 30, 2022 and June 30, 2022 were as follows:

 

   September 30,
2022
   June 30,
2022
 
Real estate loans:          
One-to-four family  $285,045   $276,410 
Multi-family   356    368 
Home equity   6,324    4,803 
Nonresidential   24,250    24,629 
Agricultural   2,542    2,573 
Construction and land   38,678    32,836 
Total real estate loans   357,195    341,619 
Commercial and industrial   3,128    2,313 
Consumer and other loans   1,155    1,180 
Total loans  $361,478   $345,112 

 

The table above includes net deferred loan fees of $2,263 and $2,157 at September 30, 2022 and June 30, 2022, respectively.

 

 12 

 

 

OCONEE FEDERAL FINANCIAL CORP. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited) 

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

 

(5)       LOANS (continued)

 

The following table presents the activity in the allowance for loan losses for the three months ended September 30, 2022 by portfolio segment:

 

Three months ended September 30, 2022  Beginning
Balance
   Provision   Charge-offs   Recoveries   Ending 
Balance
 
Real estate loans:                         
One-to-four family  $965   $11   $   $   $976 
Multi-family   9    (6)           3 
Home equity   34    10            44 
Nonresidential   158                158 
Agricultural   15                15 
Construction and land   132    24            156 
Total real estate loans   1,313    39            1,352 
Commercial and industrial   24    11            35 
Consumer and other loans   2                2 
Total loans  $1,339   $50   $   $   $1,389 

 

 

The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at September 30, 2022:

 

   Ending Allowance on Loans:   Loans: 
At September 30, 2022  Individually Evaluated for
Impairment
   Collectively
Evaluated for
Impairment
   Individually Evaluated for
Impairment
   Collectively
Evaluated for
Impairment
 
Real estate loans:                    
One-to-four family  $   $976   $582   $284,463 
Multi-family       3        356 
Home equity       44        6,324 
Nonresidential       158    467    23,783 
Agricultural       15        2,542 
Construction and land       156        38,678 
Total real estate loans       1,352    1,049    356,146 
Commercial and industrial       35        3,128 
Consumer and other loans       2        1,155 
Total loans  $   $1,389   $1,049   $360,429 

 

 

 13 

 

 

OCONEE FEDERAL FINANCIAL CORP. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited) 

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

 

(5)       LOANS (continued)

 

The following table presents the activity in the allowance for loan losses for the three months ended September 30, 2021 by portfolio segment:

 

Three months ended September 30, 2021  Beginning
Balance
   Provision   Charge-offs   Recoveries   Ending
Balance
 
Real estate loans:                         
One-to-four family  $992   $10   $   $   $1,002 
Multi-family   4                4 
Home equity   41                41 
Nonresidential   133    2            135 
Agricultural   15                15 
Construction and land   103    (13)           90 
Total real estate loans   1,288    (1)           1,287 
Commercial and industrial   22    1            23 
Consumer and other loans   29                29 
Total loans  $1,339   $   $   $   $1,339 

 

The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at June 30, 2022:

 

   Ending Allowance on Loans:   Loans: 
At June 30, 2022  Individually Evaluated for
Impairment
   Collectively
Evaluated for
Impairment
   Individually Evaluated for
Impairment
   Collectively
Evaluated for
Impairment
 
Real estate loans:                    
One-to-four family  $   $965   $948   $275,462 
Multi-family       9        368 
Home equity       34        4,803 
Nonresidential       158    478    24,151 
Agricultural       15        2,573 
Construction and land       132        32,836 
Total real estate loans       1,313    1,426    340,193 
Commercial and industrial       24        2,313 
Consumer and other loans       2        1,180 
Total loans  $   $1,339   $1,426   $343,686 

 

 14 

 

 

OCONEE FEDERAL FINANCIAL CORP. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited) 

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

 

(5)       LOANS (continued)

 

The tables below present loans that were individually evaluated for impairment by portfolio segment at September 30, 2022 and June 30, 2022, including the average recorded investment balance and interest earned for the three months ended September 30, 2022 and the year ended June 30, 2022: 

 

    September 30, 2022  
    Unpaid
Principal
Balance
    Recorded
Investment
    Related
Allowance
    Average
Recorded
Investment
    Interest
Income
Recognized
 
With no recorded allowance:                                        
Real estate loans:                                        
One-to-four family   $ 584     $ 582     $     $ 765     $ 8  
Multi-family                              
Home equity                              
Nonresidential     495       467             473        
Agricultural                              
Construction and land                              
Total real estate loans     1,079       1,049             1,238       8  
Commercial and industrial                              
Consumer and other loans                              
Total   $ 1,079     $ 1,049     $     $ 1,238     $ 8  
                                         
With recorded allowance:                                        
Real estate loans:                                        
One-to-four family   $     $     $     $     $  
Multi-family                              
Home equity                              
Nonresidential                              
Agricultural                              
Construction and land                              
Total real estate loans                              
Commercial and industrial                              
Consumer and other loans                              
Total   $     $     $     $     $  
                                         
Totals:                                        
Real estate loans   $ 1,079     $ 1,049     $     $ 1,238     $ 8  
Consumer and other loans                              
Total   $ 1,079     $ 1,049     $     $ 1,238     $ 8  

  

 15 

 

 

OCONEE FEDERAL FINANCIAL CORP. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited) 

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

 

(5)       LOANS (continued)

 

   June 30, 2022 
   Unpaid
Principal
Balance
   Recorded
Investment
   Related
Allowance
   Average
Recorded
Investment
   Interest
Income
Recognized
 
With no recorded allowance:                         
Real estate loans:                         
One-to-four family  $952   $948   $   $474   $38 
Multi-family                    
Home equity                    
Nonresidential   507    478        239     
Agricultural                    
Construction and land                    
Total real estate loans   1,459    1,426        713    38 
Commercial and industrial                    
Consumer and other loans                    
Total  $1,459   $1,426   $   $713   $38 
                          
With recorded allowance:                         
Real estate loans:                         
One-to-four family  $   $   $   $   $ 
Multi-family                    
Home equity                    
Nonresidential                    
Agricultural                    
Construction and land                    
Total real estate loans                    
Commercial and industrial                    
Consumer and other loans                    
Total  $   $   $   $   $ 
                          
Totals:                         
Real estate loans  $1,459   $1,426   $   $713   $38 
Consumer and other loans                    
Total  $1,459   $1,426   $   $713   $38 

  

 16 

 

 

OCONEE FEDERAL FINANCIAL CORP. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited) 

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

 

(5)       LOANS (continued)

 

The following tables present the aging of past due loans as well as nonaccrual loans. Nonaccrual loans and accruing loans past due 90 days or more include both smaller balance homogenous loans and larger balance loans that are evaluated either collectively or, if over $250, individually for impairment.

 

Total past due loans and nonaccrual loans at September 30, 2022:

 

                               Accruing 
   30-59   60-89   90 Days                   Loans 
   Days   Days   or More   Total       Total   Nonaccrual   Past Due 90 
   Past Due   Past Due   Past Due   Past Due   Current   Loans   Loans   Days or More 
Real estate loans:                                        
One-to-four family  $2,160   $946   $403   $3,509   $281,536   $285,045   $843   $ 
Multi-family   202            202    154    356         
Home equity   86            86    6,238    6,324         
Nonresidential   151            151    24,099    24,250    467     
Agricultural                   2,542    2,542         
Construction and land   883            883    37,795    38,678         
Total real estate loans   3,482    946    403    4,831    352,364    357,195    1,310     
Commercial and industrial                   3,128    3,128         
Consumer and other loans                   1,155    1,155         
Total  $3,482   $946   $403   $4,831   $356,647   $361,478   $1,310   $ 

 

 

COVID-19 Loan Modifications:

 

As a result of disruptions in economic conditions caused by COVID-19, the financial regulators issued guidance encouraging banks to work constructively with borrowers affected by the virus in our community. This guidance provided that the agencies will not criticize financial institutions that mitigate credit risk through prudent actions consistent with safe and sound practices. Section 4013 of the CARES Act, “Temporary Relief from Troubled Debt Restructurings,” which was extended by the Consolidated Appropriations Act for the fiscal year ending September 30, 2021, provided banks the option to temporarily suspend certain requirements under ASC 340-10 troubled debt restructuring classifications for a limited period of time to account for the effects of COVID-19. The Federal Reserve and the other banking agencies and regulators also issued a joint statement encouraging banks to work prudently with borrowers and to describe the agencies’ interpretations of how accounting rules under ASC 310-40 apply to certain COVID-19 related modifications. We have not considered any of the COVID-19 related modifications we performed to be troubled debt restructurings. Included in the table above are $5,227 in loans still remaining that were modified to defer principal payments or principal and interest payments from three to six months based on the affected borrower’s request and need for COVID-19 financial relief. All loans modified for COVID-19 financial relief were current at the time of modification. Of this amount, there were $3,615 in one-to-four family loans, $1,256 in non-residential loans and $356 in multi-family loans. As of September 30, 2022, $4,763 of such loans were current and $464 were 30 days or more past due. As of September 30, 2022, all of the COVID-19 related modifications had returned to regular payment status.

 

 17 

 

 

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

 

(5)LOANS (continued)

 

Total past due and nonaccrual loans by portfolio segment at June 30, 2022:

 

                               Accruing 
   30-59   60-89   90 Days                   Loans 
   Days   Days   or More   Total       Total   Nonaccrual   Past Due 90 
   Past Due   Past Due   Past Due   Past Due   Current   Loans   Loans   Days or More 
Real estate loans:                                        
One-to-four family  $2,632   $891   $696   $4,219   $272,191   $276,410   $1,401   $ 
Multi-family           208    208    160    368    208     
Home equity   17            17    4,786    4,803         
Nonresidential   82    156        238    24,391    24,629    478     
Agricultural