10-Q 1 ofed-10q_033121.htm QUARTERLY REPORT

 

 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 March 31, 2021

 

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 May 10, 2021, the registrant had 5,598,177 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.   2
ITEM 1. FINANCIAL STATEMENTS 2
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 43
ITEM 4. CONTROLS AND PROCEDURES 43
PART II.   43
ITEM 1. LEGAL PROCEEDINGS 43
ITEM 1A. RISK FACTORS 43
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 44
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 44
ITEM 4. MINE SAFETY DISCLOSURES 44
ITEM 5. OTHER INFORMATION 44
ITEM 6. INDEX TO EXHIBITS 45
SIGNATURES 45
EXHIBITS 46

 

1

 

 

OCONEE FEDERAL FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

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

 

PART I        
ITEM 1. FINANCIAL STATEMENTS        
   March 31, 2021
(unaudited)
   June 30, 2020 
ASSETS        
Cash and due from banks  $4,607   $4,673 
Interest-earning deposits   30,274    29,843 
Fed funds sold       66 
Total cash and cash equivalents   34,881    34,582 
Securities available-for-sale   125,181    90,726 
Loans   339,538    355,667 
Allowance for loan losses   (1,339)   (1,346)
Net loans   338,199    354,321 
Loans held for sale, at fair value   352    92 
Premises and equipment, net   9,095    9,367 
Real estate owned, net       159 
Accrued interest receivable          
Loans   1,008    1,074 
Investments   392    364 
Restricted equity securities, at cost   1,058    1,249 
Bank owned life insurance   19,826    19,482 
Goodwill   2,593    2,593 
Core deposit intangible   151    211 
Loan servicing rights   386    458 
Deferred tax assets   884    365 
Other assets   466    539 
Total assets  $534,472   $515,582 
           
LIABILITIES          
Deposits          
Noninterest - bearing  $45,966   $43,995 
Interest - bearing   395,225    377,097 
Total deposits   441,191    421,092 
Federal Home Loan Bank advances   5,000    5,000 
Accrued interest payable and other liabilities   602    1,185 
Total liabilities   446,793    427,277 
           
SHAREHOLDERS’ EQUITY          
Common stock, $0.01 par value, 100,000,000 shares authorized;          
6,551,909 and 6,530,074 shares outstanding, respectively   66    65 
Treasury stock, at par, 951,932 and 924,618 shares, respectively   (10)   (9)
Additional paid-in capital   6,803    7,342 
Retained earnings   80,624    79,071 
Accumulated other comprehensive income   458    2,243 
Unearned ESOP shares   (262)   (407)
Total shareholders’ equity   87,679    88,305 
Total liabilities and shareholders’ equity  $534,472   $515,582 

 

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  Nine Months Ended
   March 31,
2021
  

March 31,
2020

  

March 31,
2021

  

March 31,
2020

 
Interest and dividend income:                    
Loans, including fees  $3,612   $4,174   $11,456   $12,436 
Securities, taxable   294    368    868    1,149 
Securities, tax-exempt   86    93    268    292 
Other interest-earning assets   25    84    84    422 
Total interest income   4,017    4,719    12,676    14,299 
                     
Interest expense:                    
Deposits   399    905    1,408    2,991 
Other borrowings   19    13    57    198 
Total interest expense   418    918    1,465    3,189 
                     
Net interest income   3,599    3,801    11,211    11,110 
                     
Provision for loan losses                
Net interest income after provision for loan losses   3,599    3,801    11,211    11,110 
                     
Noninterest income:                    
Service charges on deposit accounts   85    104    260    330 
Income on bank owned life insurance   120    121    344    348 
Mortgage servicing income   36    44    114    141 
Gain on sale of mortgage loans   76    21    177    103 
ATM & debit card income   107    82    303    255 
Change in fair value of equity securities, net   (20)   (130)   (11)   (98)
Gain on sale of securities, net       113    109    125 
Gain on payoff of purchase credit impaired loans       277    195    309 
Other   3    1    7    5 
Total noninterest income   407    633    1,498    1,518 
                     
Noninterest expense:                    
Salaries and employee benefits   1,706    1,628    4,999    4,796 
Occupancy and equipment   444    556    1,313    1,483 
Data processing   244    230    728    667 
ATM & debit card expense   82    60    227    182 
Professional and supervisory fees   124    132    388    460 
Office expense   55    57    165    165 
Advertising   48    72    160    199 
FDIC deposit insurance   30    1    93    3 
Foreclosed assets, net   (26)   123    5    267 
Change in loan servicing asset       191    72    278 
Other   174    196    524    601 
Total noninterest expense   2,881    3,246    8,674    9,101 
                     
Income before income taxes   1,125    1,188    4,035    3,527 
Income tax expense   255    242    821    556 
                     
Net income  $870   $946   $3,214   $2,971 
                     
Other comprehensive income                    
Unrealized (losses)/gains on securities available-for-sale  $(2,064)  $1,635   $(2,152)  $2,034 
Tax effect   435    (341)   453    (426)
Reclassification adjustment for gains realized in net income       (113)   (109)   (125)
Tax effect       23    23    26 
Total other comprehensive (loss)/income   (1,629)   1,204    (1,785)   1,509 
Comprehensive (loss)/income  $(759)  $2,150   $1,429   $4,480 
                     
Basic net income per share: (Note 3)  $0.16   $0.17   $0.58   $0.52 
Diluted net income per share: (Note 3)  $0.15   $0.17   $0.57   $0.52 
Dividends declared per share:  $0.10   $0.10   $0.30   $0.30 

 

See accompanying notes to the consolidated financial statements

 

3

 

 

OCONEE FEDERAL FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

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

 

For the three months ended March 31, 2021 and March 31, 2020

 

   Common
Stock
  

Treasury
Stock

  

Additional
Paid-In
Capital

  

Retained
Earnings

  

Accumulated
Other
Comprehensive
Income (loss) 

   Unearned
ESOP
Shares
  

Total

 
Balance at December 31, 2019  $65   $(8)  $10,215   $78,392   $699   $(507)  $88,856 
Net income               946            946 
Other comprehensive income                   1,204        1,204 
Purchase of 42,981 shares of treasury stock (1)       (1)   (1,109)               (1,110)
Stock-based compensation expense           20                20 
Dividends               (593)           (593)
ESOP shares earned           66            50    116 
Balance at March 31, 2020  $65   $(9)  $9,192   $78,745   $1,903   $(457)  $89,439 
                                    
Balance at December 31, 2020  $65   $(9)  $7,272   $80,315   $2,087   $(314)  $89,416 
Net income               870            870 
Other comprehensive loss                   (1,629)       (1,629)
Purchase of 17,447 shares of treasury stock (2)       (1)   (523)               (524)
Stock-based compensation expense           17                17 
Common Stock Issued   1                        1 
Dividends               (561)           (561)
ESOP shares earned           37            52    89 
Balance at March 31, 2021  $66   $(10)  $6,803   $80,624   $458   $(262)  $87,679 

 

(1)The weighted average cost of treasury shares purchased during the three months ended was $25.81 per share. Treasury stock repurchases were accounted for using the par value method.
(2)The weighted average cost of treasury shares purchased during the three months ended was $26.69 per share. Treasury stock repurchases were accounted for using the par value method.

 

See accompanying notes to the consolidated financial statements

 

4

 

 

OCONEE FEDERAL FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

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

 

For the nine months ended March 31, 2021 and March 31, 2020

 

   Common
Stock
  

Treasury
Stock

  

Additional
Paid-In
Capital

  

Retained
Earnings

  

Accumulated
Other
Comprehensive
Income (loss) 

   Unearned
ESOP
Shares
  

Total

 
Balance at June 30, 2019  $65   $(8)  $10,986   $77,464   $394   $(604)  $88,297 
Net income               2,971            2,971 
Other comprehensive income                   1,509        1,509 
Purchase of 83,060 shares of treasury stock (1)       (1)   (2,036)               (2,037)
Stock-based compensation expense           59                59 
Dividends (2)           29    (1,690)           (1,661)
ESOP shares earned           154            147    301 
Balance at March 31, 2020  $65   $(9)  $9,192   $78,745   $1,903   $(457)  $89,439 
                                    
Balance at June 30, 2020  $65   $(9)  $7,342   $79,071   $2,243   $(407)  $88,305 
Net income               3,214            3,214 
Other comprehensive loss                   (1,785)       (1,785)
Purchase of 27,314 shares of treasury stock (3)       (1)   (771)               (772)
Stock-based compensation expense           58                58 
Common Stock Issued   1        5                6 
Dividends (4)           21    (1,661)           (1,640)
ESOP shares earned           148            145    293 
Balance at March 31, 2021  $66   $(10)  $6,803   $80,624   $458   $(262)  $87,679 

 

(1)The weighted average cost of treasury shares purchased during the nine months ended was $24.52 per share. Treasury stock repurchases were accounted for using the par value method.
(2)Approximately $79 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 7,300 additional shares. The portion of the dividend paid on allocated shares of approximately $50 and resulting release of approximately 4,400 shares, was treated as a dividend. The portion of the dividend paid on unallocated shares of approximately $29 and resulting release of approximately 2,800 shares, and was accounted for as additional compensation expense for the nine months ended March 31, 2020.
(3)The weighted average cost of treasury shares purchased during the nine months ended was $25.59 per share. Treasury stock repurchases were accounted for using the par value method.
(4)Approximately $77 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 7,000 additional shares. The portion of the dividend paid on allocated shares of approximately $56 and resulting release of approximately 5,300 shares, was treated as a dividend. The portion of the dividend paid on unallocated shares of approximately $21 and resulting release of approximately 1,700 shares, and was accounted for as additional compensation expense for the nine months ended March 31, 2021.

 

See accompanying notes to the consolidated financial statements

 

5

 

 

OCONEE FEDERAL FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

 

   Nine Months Ended
   March 31,   March 31, 
   2021   2020 
Cash Flows From Operating Activities          
Net income  $3,214   $2,971 
Adjustments to reconcile net income to net cash provided by          
operating activities:          
Provision for real estate owned   21    117 
Depreciation and amortization, net   1,367    932 
Net accretion of purchase accounting adjustments   (160)   (50)
Deferred income tax (benefit)/expense   (54)   403 
Net (gain)/loss on sale of real estate owned   (26)   120 
Change in loan servicing asset   72    278 
Net gain on sales of securities   (109)   (125)
Mortgage loans originated for sale   (11,431)   (9,603)
Mortgage loans sold   11,348    8,623 
Gain on sales of mortgage loans   (177)   (103)
Change in fair value of equity securities   11    98 
Increase in cash surrender value of bank owned life insurance   (344)   (348)
Gain on payoff of purchased credit impaired loans   (195)   (309)
ESOP compensation expense   293    301 
Stock based compensation expense   58    59 
Net change in operating assets and liabilities:          
Accrued interest receivable and other assets   111    289 
Accrued interest payable and other liabilities   (583)   (1)
Net cash provided by operating activities   3,416    3,652 
           
Cash Flows From Investing Activities          
Purchases of premises and equipment   (217)   (1,798)
Purchases of securities available-for-sale   (64,054)   (21,627)
Proceeds from maturities, paydowns and calls of securities available-for-sale   18,706    16,708 
Proceeds from sales of securities available-for-sale   7,923    14,762 
Sales of restricted equity securities   191    818 
Purchases of restricted equity securities       (213)
Proceeds from sale of real estate owned   216    279 
Loan originations and repayments, net   16,425    7,282 
Net cash (used)/provided in investing activities   (20,810)   16,211 
           
Cash Flows from Financing Activities          
Net change in deposits   20,099    (12,743)
Proceeds from notes payable to FHLB       5,000 
Repayment of notes payable to FHLB       (19,000)
Dividends paid   (1,640)   (1,661)
Purchase of treasury stock   (772)   (2,037)
Proceeds from sale of common stock, net of issuance costs   6     
Net cash provided/(used) by financing activities   17,693    (30,441)
           
Change in cash and cash equivalents   299    (10,578)
           
Cash and cash equivalents, beginning of period   34,582    36,690 
Cash and cash equivalents, end of period  $34,881   $26,112 

 

See accompanying notes to the consolidated financial statements

 

6

 

 

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 (74.36%) 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 March 31, 2021 and June 30, 2020 and the results of operations and cash flows for the interim periods ended March 31, 2021 and 2020. 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, 2021 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, 2020.

 

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 novel coronavirus (“COVID-19”) pandemic has adversely impacted global commercial activity and contributed to significant declines and volatility in financial markets. The COVID-19 pandemic and government responses continue to disrupt global supply chains and adversely impact many industries. The pandemic may continue to have a material adverse impact on economic and market conditions. The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and legislation has been passed to provide relief from reporting loan classifications due to modifications related to the COVID-19 pandemic. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. The spread of the coronavirus has caused us to modify our business practices with regard to interactions of employees and customers. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

 

The rapid development and fluidity of this situation precludes any prediction as to the ultimate impact of the COVID-19 pandemic with regard to capital, liquidity, loan loss reserves, etc. Nevertheless, the pandemic presents uncertainty and risk with respect to the Company, its performance, and its financial results.

 

7

 

 

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”) 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 2019-12, “Income Taxes (Topic 740)”. Issued in December 2019, ASU 2019-12 provides guidance to simplify accounting for income taxes by removing specific technical exceptions that often produce information difficult for investors to understand. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For the Company, the amendments are effective for fiscal years beginning after December 15, 2020, 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 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.

 

ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”. Issued in April 2019, ASU 2019-04 clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The amendments related to credit losses will be effective for the Company for reporting periods beginning after December 15, 2019. The amendments related to hedging will be effective for the Company for interim and annual periods beginning after December 15, 2018. The amendments related to recognition and measurement of financial instruments will be effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted this standard on July 1, 2020. This pronouncement did not have a material effect on the financial statements.

 

ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. Issued in August 2018, ASU 2018-13 provides guidance about fair value measurement disclosures. The amendment requires numerous removals, modifications and additions of fair value disclosure information. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted this standard on July 1, 2020. This pronouncement did not have a material effect on the financial statements.

 

ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. Issued in January 2017, ASU 2017-04 amendments eliminate Step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company adopted this standard on July 1, 2020. This pronouncement did not have a material effect on the financial statements.

 

8

 

 

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. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company has determined that it will continue to prepare its credit loss allowance internally. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements. 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 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 has no changes in its assessment since filing the Annual Report on Form 10-K.

 

9

 

 

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   Nine Months Ended  
    March 31,
2021
  March 31,
2020
  March 31,
2021
  March 31,
2020
 
Earnings per share                          
Net income   $ 870   $ 946   $ 3,214   $ 2,971  
Less:  distributed earnings allocated to participating securities         (1 )   (1 )   (3 )
Less:  (undistributed income) dividends in excess of earnings allocated to participating securities             (1 )   (2 )
Net earnings available to common shareholders   $ 870   $ 945   $ 3,212   $ 2,966  
                           
Weighted average common shares outstanding including participating securities     5,603,199     5,705,937     5,604,002     5,721,903  
Less:  participating securities     (2,800 )   (8,800 )   (2,800 )   (8,800 )
Less: average unearned ESOP shares     (25,927 )   (51,990 )   (32,181 )   (54,778 )
Weighted average common shares outstanding     5,574,472     5,645,147     5,569,021     5,658,325  
                           
Basic earnings per share   $ 0.16   $ 0.17   $ 0.58   $ 0.52  
                           
Weighted average common shares outstanding     5,574,472     5,645,147     5,569,021     5,658,325  
Add:  dilutive effects of assumed exercises of stock options     71,769     71,002     71,593     67,598  
Average shares and dilutive potential common shares     5,646,241     5,716,149     5,640,614     5,725,923  
                           
Diluted earnings per share   $ 0.15   $ 0.17   $ 0.57   $ 0.52  

 

For the three and nine months ended March 31, 2021, 11,200 shares were considered anti-dilutive as the exercise price was in excess of the average market price, and for the three and nine months ended March 31, 2020, 11,200 shares were considered anti-dilutive as the exercise price was in excess of the average market price.

 

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

 

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 March 31, 2021 and June 30, 2020 are as follows:

 

March 31, 2021   Amortized
Cost
  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
  Change in
Fair Value
Equity Securities
  Fair
Value
 
Available-for-sale:                                
FHLMC common stock   $ 20   $   $   $ 147   $ 167  
Certificates of deposit     2,493     65             2,558  
Municipal securities     18,767     721     (14 )       19,474  
CMOs     8,204     269     (11 )       8,462  
U.S. Government agency mortgage-backed securities     83,453     975     (975 )       83,453  
U.S. Treasury and Government agency bonds     11,518     13     (464 )       11,067  
Total available-for-sale   $ 124,455   $ 2,043   $ (1,464 ) $ 147   $ 125,181  

 

June 30, 2020   Amortized
Cost
  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
  Change in
Fair Value
Equity Securities
  Fair
Value
 
Available-for-sale:                                
FHLMC common stock   $ 20   $   $   $ 158   $ 178  
Certificates of deposit     2,493     99             2,592  
Municipal securities     20,821     822             21,643  
CMOs     9,723     383             10,106  
U.S. Government agency mortgage-backed securities     53,660     1,538     (25 )       55,173  
U.S. Treasury and Government agency bonds     1,011     23             1,034  
Total available-for-sale   $ 87,728   $ 2,865   $ (25 ) $ 158   $ 90,726  

 

Securities pledged at March 31, 2021 and June 30, 2020 had fair values of $15,073 and $12,524, respectively. These securities were pledged to secure public deposits and Federal Home Loan Bank (“FHLB”) advances.

 

At March 31, 2021 and June 30, 2020, 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.

 

11

 

 

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 March 31, 2021 and June 30, 2020. 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)  
March 31, 2021                                                        
Available-for-sale:                                                        
Municipal securities   $ 1,263   $ (14 )   4   $   $       $ 1,263   $ (14 )   4  
CMOs     994     (11 )   1                 994     (11 )   1  
U.S. Government agency mortgage-backed securities     56,677     (975 )   28                 56,677     (975 )   28  
U.S. Treasury and Government agency bonds     10,049     (464 )   6                 10,049     (464 )   6  
    $ 68,983   $ (1,464 )   39   $   $       $ 68,983   $ (1,464 )   39  

 

    Less than 12 Months   12 Months or More   Total  
June 30, 2020   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:                                                        
U.S. Government agency mortgage-backed securities   $ 6,342   $ (25 )   4   $   $       $ 6,342   $ (25 )   4  
    $ 6,342   $ (25 )   4   $   $       $ 6,342   $ (25 )   4  

 

(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 March 31, 2021 were recognized into net income for the three or nine months ended March 31, 2021 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, 2020 were recognized as having OTTI during the year ended June 30, 2020.

 

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 amortized cost and fair value of debt securities classified as available-for-sale at March 31, 2021 and June 30, 2020 by contractual maturity.

 

    March 31, 2021   June 30, 2020  
    Amortized
Cost
  Fair
Value
  Amortized
Cost
  Fair
Value
 
Less than one year   $ 2,755   $ 2,797   $ 499   $ 503  
Due from one to five years     6,296     6,528     7,759     8,044  
Due after five years to ten years     19,676     19,599     10,707     11,152  
Due after ten years     4,051     4,175     5,360     5,570  
Mortgage-backed securities, CMOs and FHLMC stock (1)     91,677     92,082     63,403     65,457  
Total available for sale   $ 124,455   $ 125,181   $ 87,728   $ 90,726  

  

(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 nine months ended March 31, 2021 and 2020:

 

    Three Months Ended   Nine Months Ended  
Available-for-sale:   March 31,
2021
  March 31,
2020
  March 31,
2021
  March 31,
2020
 
Proceeds   $   $ 9,494   $ 7,923   $ 14,762  
Gross gains         122     109     137  
Gross losses         (9 )       (12 )

 

The tax provision related to the net realized gain for the three months ended March 31, 2020 was $23. The tax provision related to the net realized gain for the nine months ended March 31, 2021 and March 31, 2020 was $23 and $26, respectively.

 

13

 

 

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 March 31, 2021 and June 30, 2020 were as follows:

 

    March 31,
2021
  June 30,
2020
 
Real estate loans:              
One-to-four family   $ 273,276   $ 283,931  
Multi-family     665     704  
Home equity     6,233     5,763  
Nonresidential     21,228     20,083  
Agricultural     1,073     1,187  
Construction and land     24,793     29,096  
Total real estate loans     327,268     340,764  
Commercial and industrial (1)     6,176     8,135  
Consumer and other loans     6,094     6,768  
Total loans   $ 339,538   $ 355,667  

 

(1)Includes $2,823 and $4,094 of 100% Small Business Administration (“SBA”) guaranteed Paycheck Protection Program (“PPP”) loans as of March 31, 2021 and June 30, 2020, respectively.

 

14

 

 

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 nine months ended March 31, 2021 by portfolio segment:

 

Three months ended March 31, 2021     Beginning
Balance
    Provision     Charge-offs     Recoveries     Ending
Balance
 
Real estate loans:                                
One-to-four family   $ 1,027   $ (3 ) $   $   $ 1,024  
Multi-family     4                 4  
Home equity     36     5             41  
Nonresidential     117     6             123  
Agricultural     4                 4  
Construction and land     94     (3 )           91  
Total real estate loans     1,282     5             1,287  
Commercial and industrial     28     (5 )           23  
Consumer and other loans     29                 29  
Total loans   $ 1,339   $   $   $   $ 1,339  
                                 

 

Nine months ended March 31, 2021     Beginning
Balance
    Provision     Charge-offs     Recoveries     Ending
Balance
 
Real estate loans:                                
One-to-four family   $ 1,032   $ (6 ) $ (2 ) $   $ 1,024  
Multi-family     4                 4  
Home equity     34     12     (5 )       41  
Nonresidential     75     48             123  
Agricultural     4                 4  
Construction and land     105     (14 )           91  
Total real estate loans     1,254     40     (7 )       1,287  
Commercial and industrial     65     (42 )           23  
Consumer and other loans     27     2             29  
Total loans   $ 1,346       $ (7 ) $   $ 1,339  

 

15

 

 

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 March 31, 2021:

 

   Ending Allowance on Loans:   Loans: 
At March 31, 2021  Individually
Evaluated for
Impairment
  

Collectively

Evaluated for

Impairment

  

Individually
Evaluated for

Impairment

  

Collectively

Evaluated for

Impairment

 
Real estate loans:                    
One-to-four family  $   $1,024   $1,748   $271,528 
Multi-family       4        665 
Home equity       41        6,233 
Nonresidential       123        21,228 
Agricultural       4        1,073 
Construction and land       91        24,793 
Total real estate loans       1,287    1,748    325,520 
Commercial and industrial (1)       23        6,176 
Consumer and other loans       29        6,094 
Total loans  $   $1,339   $1,748   $337,790 

 

(1) Includes $2,823 of PPP loans for which no loan loss reserve was allocated due to 100% SBA guarantee.

 

The following tables present the activity in the allowance for loan losses for the three and nine months ended March 31, 2020 by portfolio segment:

 

Three months ended March 31, 2020 

Beginning

Balance

   Provision   Charge-offs   Recoveries  

Ending

Balance

 
Real estate loans:                         
One-to-four family  $993   $6   $   $   $999 
Multi-family   4                4 
Home equity   33    3            36 
Nonresidential   77    (14)           63 
Agricultural   4                4 
Construction and land   94    10            104 
Total real estate loans   1,205    5            1,210 
Commercial and industrial   66    (7)           59 
Consumer and other loans   25    2            27 
Total loans  $1,296   $   $   $   $1,296 

 

Nine months ended March 31, 2020 

Beginning

Balance

  

Ending

Provision

   Charge-offs   Recoveries  

Ending

Balance

 
Real estate loans:                         
One-to-four family  $995   $4   $   $   $999 
Multi-family   4                4 
Home equity   24    12            36 
Nonresidential   87    (24)           63 
Agricultural   3    1            4 
Construction and land   94    10            104 
Total real estate loans   1,207    3            1,210 
Commercial and industrial   67    (8)           59 
Consumer and other loans   23    5    (1)       27 
Total loans  $1,297   $   $(1)  $   $1,296 

  

16

 

 

 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 June 30, 2020:

 

   Ending Allowance on Loans:   Loans: 
At June 30, 2020  Individually
Evaluated for
Impairment
   Collectively
Evaluated for
Impairment
   Individually
Evaluated for
Impairment
  

Collectively

Evaluated for

Impairment

 
Real estate loans:                    
One-to-four family  $   $1,032   $1,832   $282,099 
Multi-family       4        704 
Home equity       34        5,763 
Nonresidential       75    562    19,521 
Agricultural       4        1,187 
Construction and land       105        29,096 
Total real estate loans       1,254    2,394    338,370 
Commercial and industrial (1)       65        8,135 
Consumer and other loans       27        6,768 
Total loans  $   $1,346   $2,394   $353,273 

 

(1)Includes $4,094 of PPP loans for which no loan loss reserve was allocated due to 100% SBA guarantee.

 

17

 

 

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 March 31, 2021 and June 30, 2020, including the average recorded investment balance and interest earned for the nine months ended March 31, 2021 and the year ended June 30, 2020:

 

   March 31, 2021 
   Unpaid
Principal
Balance
   Recorded
Investment
   Related
Allowance
   Average
Recorded
Investment
   Interest
Income
Recognized
 
With no recorded allowance:                         
Real estate loans:                         
One-to-four family  $1,771   $1,748   $   $1,790   $26 
Multi-family                    
Home equity                    
Nonresidential               281     
Agricultural                    
Construction and land                    
Total real estate loans   1,771    1,748        2,071    26 
Commercial and industrial                    
Consumer and other loans                    
Total  $1,771   $1,748   $   $2,071   $26 
                          
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  $1,771   $1,748   $   $2,071   $26 
Consumer and other loans                    
Total  $1,771   $1,748   $   $2,071   $26 

 

18

 

 

OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

 

   June 30, 2020 
   Unpaid
Principal
Balance
   Recorded
Investment
   Related
Allowance
   Average
Recorded
Investment
   Interest
Income
Recognized
 
With no recorded allowance:                         
Real estate loans:                         
One-to-four family  $1,863   $1,832   $   $2,062   $36 
Multi-family                    
Home equity                    
Nonresidential   596    562        588     
Agricultural               178     
Construction and land                    
Total real estate loans   2,459    2,394        2,828    36 
Commercial and industrial                    
Consumer and other loans                    
Total  $2,459   $2,394   $   $2,828