UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM
_______________________
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the Quarterly Period ended
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
(Exact Name of Registrant as Specified in Charter)
(State of Other Jurisdiction of Incorporation) |
(I.R.S Employer Identification Number) | |
| (Address of Principal Executive Officers) | (Zip Code) | |
Registrant’s telephone number, including area code
(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 | ||
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.
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).
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 | ☐ | |||
| ☒ | 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 ☐
As of November 9, 2021, the registrant had shares of common stock, $0.01 par value per share, outstanding.
OCONEE FEDERAL FINANCIAL CORP.
Form 10-Q Quarterly Report
Table of Contents
1
OCONEE FEDERAL FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
PART I
ITEM 1. FINANCIAL STATEMENTS
| September 30, 2021 | June 30, | |||||||
| (unaudited) | 2021 | |||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest-earning deposits | ||||||||
| Fed funds sold | ||||||||
| Total cash and cash equivalents | ||||||||
| Securities available-for-sale | ||||||||
| Loans | ||||||||
| Allowance for loan losses | ( | ) | ( | ) | ||||
| Net loans | ||||||||
| Loans held for sale, at fair value | ||||||||
| Premises and equipment, net | ||||||||
| Accrued interest receivable | ||||||||
| Loans | ||||||||
| Investments | ||||||||
| Restricted equity securities, at cost | ||||||||
| Bank owned life insurance | ||||||||
| Goodwill | ||||||||
| Core deposit intangible | ||||||||
| Loan servicing rights | ||||||||
| Deferred tax assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Deposits | ||||||||
| Noninterest - bearing | $ | $ | ||||||
| Interest - bearing | ||||||||
| Total deposits | ||||||||
| Federal Home Loan Bank advances | ||||||||
| Accrued interest payable and other liabilities | ||||||||
| Total liabilities | ||||||||
| SHAREHOLDERS' EQUITY | ||||||||
| Common stock, $ par value, shares authorized; and shares outstanding, respectively | ||||||||
| Treasury stock, at par, and shares, respectively | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income | ||||||||
| Unearned ESOP shares | ( | ) | ( | ) | ||||
| Total shareholders' equity | ||||||||
| Total liabilities and shareholders' equity | $ | $ | ||||||
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 | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Interest and dividend income: | ||||||||
| Loans, including fees | $ | $ | ||||||
| Securities, taxable | ||||||||
| Securities, tax-exempt | ||||||||
| Other interest-earning assets | ||||||||
| Total interest income | ||||||||
| Interest expense: | ||||||||
| Deposits | ||||||||
| Other borrowings | ||||||||
| Total interest expense | ||||||||
| Net interest income | ||||||||
| Provision for loan losses | ||||||||
| Net interest income after provision for loan losses | ||||||||
| Noninterest income: | ||||||||
| Service charges on deposit accounts | ||||||||
| Income on bank owned life insurance | ||||||||
| Mortgage servicing income | ||||||||
| Gain on sale of mortgage loans | ||||||||
| ATM & debit card income | ||||||||
| Change in fair value of equity securities, net | ( | ) | ( | ) | ||||
| Gain on sale of securities, net | ||||||||
| Gain on payoff of purchase credit impaired loans | ||||||||
| Other | ||||||||
| Total noninterest income | ||||||||
| Noninterest expense: | ||||||||
| Salaries and employee benefits | ||||||||
| Occupancy and equipment | ||||||||
| Data processing | ||||||||
| ATM & debit card expense | ||||||||
| Professional and supervisory fees | ||||||||
| Office expense | ||||||||
| Advertising | ||||||||
| FDIC deposit insurance | ||||||||
| Foreclosed assets, net | ( | ) | ||||||
| Change in loan servicing asset | ||||||||
| Other | ||||||||
| Total noninterest expense | ||||||||
| Income before income taxes | ||||||||
| Income tax expense | ||||||||
| Net income | $ | $ | ||||||
| Other comprehensive income | ||||||||
| Unrealized losses on securities available-for-sale | $ | ( | ) | $ | ( | ) | ||
| Tax effect | ||||||||
| Reclassification adjustment for gains realized in net income | ( | ) | ||||||
| Tax effect | ||||||||
| Total other comprehensive loss | ( | ) | ( | ) | ||||
| Comprehensive (loss)/income | $ | ( | ) | $ | ||||
| Basic net income per share: (Note 2) | $ | $ | ||||||
| Diluted net income per share: (Note 2) | $ | $ | ||||||
| Dividends declared per share: | $ | $ | ||||||
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 September 30, 2021 and September 30, 2020
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | Unearned | ||||||||||||||||||||||||||
| Common | Treasury | Paid-In | Retained | Comprehensive | ESOP | |||||||||||||||||||||||
| Stock | Stock | Capital | Earnings | Income (loss) | Shares | Total | ||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Purchase of 1,276 shares of treasury stock (1) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||
| Common Stock Issued | ||||||||||||||||||||||||||||
| Dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| ESOP shares earned | ||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance at June 30, 2021 | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Purchase of 2,865 shares of treasury stock (2) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||||||||||||||
| Dividends | ( | ) | ( | ) | ||||||||||||||||||||||||
| ESOP shares earned | ||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
_______________
| (1) |
| (2) |
See accompanying notes to the consolidated financial statements
4
OCONEE FEDERAL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts
in thousands, except share and per share data)
| Three Months Ended | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization, net | ||||||||
| Net accretion of purchase accounting adjustments | ( | ) | ( | ) | ||||
| Deferred income tax (benefit)/expense | ( | ) | ||||||
| Change in loan servicing asset | ||||||||
| Net gain on sales of securities | ( | ) | ||||||
| Mortgage loans originated for sale | ( | ) | ( | ) | ||||
| Mortgage loans sold | ||||||||
| Gain on sales of mortgage loans | ( | ) | ( | ) | ||||
| Change in fair value of equity securities | ( | ) | ||||||
| Increase in cash surrender value of bank owned life insurance | ( | ) | ( | ) | ||||
| Gain on payoff of purchased credit impaired loans | ( | ) | ||||||
| ESOP compensation expense | ||||||||
| Stock based compensation expense | ||||||||
| Net change in operating assets and liabilities: | ||||||||
| Accrued interest receivable and other assets | ( | ) | ||||||
| Accrued interest payable and other liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash Flows From Investing Activities | ||||||||
| Purchases of premises and equipment | ( | ) | ( | ) | ||||
| Purchases of securities available-for-sale | ( | ) | ( | ) | ||||
| Proceeds from maturities, paydowns and calls of securities available-for-sale | ||||||||
| Proceeds from sales of securities available-for-sale | ||||||||
| Sales of restricted equity securities | ||||||||
| Loan originations and repayments, net | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Net change in deposits | ||||||||
| Repayment of notes payable to FHLB | ( | ) | ||||||
| Dividends paid | ( | ) | ( | ) | ||||
| Purchase of treasury stock | ( | ) | ( | ) | ||||
| Proceeds from sale of common stock, net of issuance costs | ||||||||
| Net cash (used)/provided by financing activities | ( | ) | ||||||
| Change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
See accompanying notes to the consolidated financial statements
5
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
| (1) | BASIS OF PRESENTATION, 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 (
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, 2021 and June 30, 2021 and the results of operations and cash flows for the interim periods ended September 30, 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, 2022 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, 2021.
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 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.
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 |
Accounting Standards Update (“ASU”) 2021-06, “Presentation of Financial Statements (Topic 205), Financial Services – Depository and Lending (Topic 942), and Financial Services – Investment Companies (Topic 946)”. Issued in August 2021, ASU 2021-06 amends SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. The amendments are effective upon issuance. The Company does not expect these amendments to have a material effect on its 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 2019-12, “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. The Company adopted this standard on July 1, 2021. This pronouncement did not have a material effect on the 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.
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 (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. 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.
8
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”) |
| Three Months Ended | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Earnings per share | ||||||||
| Net income | $ | $ | ||||||
| Less: distributed earnings allocated to participating securities | ( | ) | ( | ) | ||||
| Less: (undistributed income) dividends in excess of earnings allocated to participating securities | ( | ) | ||||||
| Net earnings available to common shareholders | $ | $ | ||||||
| Weighted average common shares outstanding including participating securities | ||||||||
| Less: participating securities | ( | ) | ( | ) | ||||
| Less: average unearned ESOP shares | ( | ) | ( | ) | ||||
| Weighted average common shares outstanding | ||||||||
| Basic earnings per share | $ | $ | ||||||
| Weighted average common shares outstanding | ||||||||
| Add: dilutive effects of assumed exercises of stock options | ||||||||
| Average shares and dilutive potential common shares | ||||||||
| Diluted earnings per share | $ | $ | ||||||
For the three months ended September 30, 2021, shares were considered anti-dilutive as the exercise price was in excess of the average market price, and for the three months ended September 30, 2020, shares were considered anti-dilutive as the exercise price was in excess of the average market price.
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 |
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, 2021 and June 30, 2021 are as follows:
| Gross | Gross | Change in | ||||||||||||||||||
| Amortized | Unrealized | Unrealized | Fair Value | Fair | ||||||||||||||||
| September 30, 2021 | Cost | Gains | Losses | Equity Securities | Value | |||||||||||||||
| Available-for-sale: | ||||||||||||||||||||
| FHLMC common stock | $ | $ | $ | $ | $ | |||||||||||||||
| Certificates of deposit | ||||||||||||||||||||
| Municipal securities | ||||||||||||||||||||
| CMOs | ( | ) | ||||||||||||||||||
| U.S. Government agency mortgage-backed securities | ( | ) | ||||||||||||||||||
| U.S. Treasury and Government agency bonds | ( | ) | ||||||||||||||||||
| Total available-for-sale | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
| Gross | Gross | Change in | ||||||||||||||||||
| Amortized | Unrealized | Unrealized | Fair Value | Fair | ||||||||||||||||
| June 30, 2021 | Cost | Gains | Losses | Equity Securities | Value | |||||||||||||||
| Available-for-sale: | ||||||||||||||||||||
| FHLMC common stock | $ | $ | $ | $ | $ | |||||||||||||||
| Certificates of deposit | ||||||||||||||||||||
| Municipal securities | ||||||||||||||||||||
| CMOs | ( | ) | ||||||||||||||||||
| U.S. Government agency mortgage-backed securities | ( | ) | ||||||||||||||||||
| U.S. Treasury and Government agency bonds | ( | ) | ||||||||||||||||||
| Total available-for-sale | $ | $ | $ | ( | ) | $ | $ | |||||||||||||
Securities pledged at September 30, 2021
and June 30, 2021 had fair values of $
At September 30, 2021 and June 30, 2021, 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 % of shareholders’ equity.
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 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, 2021 and June 30, 2021. 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 | ||||||||||||||||||||||||||||||||||
| September 30, 2021 | 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: | ||||||||||||||||||||||||||||||||||||
| CMOs | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||
| U.S. Government agency mortgage-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| U.S. Treasury and Government agency bonds | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| $ | | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||
| Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||
| June 30, 2021 | 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: | ||||||||||||||||||||||||||||||||||||
| CMOs | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||||||
| U.S. Government agency mortgage-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| U.S. Treasury and Government agency bonds | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||||
| (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, 2021 were recognized into net income for the three months ended September 30, 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, 2021 were recognized as having OTTI during the year ended June 30, 2021.
11
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, 2021 and June 30, 2021 by contractual maturity.
| September 30, 2021 | June 30, 2021 | |||||||||||||||
| Amortized | Fair | Amortized | Fair | |||||||||||||
| Cost | Value | Cost | Value | |||||||||||||
| Less than one year | $ | $ | $ | $ | ||||||||||||
| Due from one to five years | ||||||||||||||||
| Due after five years to ten years | ||||||||||||||||
| Due after ten years | ||||||||||||||||
| Mortgage-backed securities, CMOs and FHLMC stock(1) | ||||||||||||||||
| Total available for sale | $ | $ | $ | $ | ||||||||||||
| (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 months ended September 30, 2021 and 2020:
Schedule of proceeds from sales of securities available-for-sale and gains or losses recognized
| Three Months Ended | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Available-for-sale: | ||||||||
| Proceeds | $ | $ | ||||||
| Gross gains | ||||||||
| Gross losses | ||||||||
The tax provision related to the net realized gain for the three
months ended September 30, 2020 was $
12
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, 2021 and June 30, 2021 were as follows:
| September 30, 2021 | June 30, 2021 | |||||||
| Real estate loans: | ||||||||
| One-to-four family | $ | $ | ||||||
| Multi-family | ||||||||
| Home equity | ||||||||
| Nonresidential | ||||||||
| Agricultural | ||||||||
| Construction and land | ||||||||
| Total real estate loans | ||||||||
| Commercial and industrial(1) | ||||||||
| Consumer and other loans | ||||||||
| Total loans | $ | $ | ||||||
| (1) |
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Multi-family |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Home equity |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Nonresidential |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Agricultural |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Construction and land |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total real estate loans |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Consumer and other loans |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total loans |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at September 30, 2021:
|
|
|
|
Ending Allowance on Loans: |
|
|
|
Loans: |
|
||||||||
|
At September 30, 2021 |
|
|
Individually Evaluated for Impairment |
|
|
|
Collectively Evaluated for Impairment |
|
|
|
Individually Evaluated for Impairment |
|
|
|
Collectively Evaluated for Impairment |
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Multi-family |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Home equity |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Nonresidential |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Construction and land |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total real estate loans |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial(1) |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Consumer and other loans |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total loans |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
|
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 following tables present the activity in the allowance for loan losses for the three months ended September 30, 2020 by portfolio segment:
|
Three months ended September 30, 2020 |
|
|
Beginning Balance |
|
|
|
Provision |
|
|
|
Charge-offs |
|
|
|
Recoveries |
|
|
|
Ending Balance |
|
|
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 loans |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at June 30, 2021:
|
|
|
|
Ending Allowance on Loans: |
|
|
|
Loans: |
|
||||||||
|
At June 30, 2021 |
|
|
Individually Evaluated for Impairment |
|
|
|
Collectively Evaluated for Impairment |
|
|
|
Individually Evaluated for Impairment |
|
|
|
Collectively Evaluated for Impairment |
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Multi-family |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Home equity |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Nonresidential |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Agricultural |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Construction and land |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total real estate loans |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial(1) |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Consumer and other loans |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total loans |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
|
15
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, 2021 and June 30, 2021, including the average recorded investment balance and interest earned for the three months ended September 30, 2021 and the year ended June 30, 2021:
|
|
|
|
September 30, 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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
Multi-family |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Home equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Nonresidential |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Agricultural |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Construction and land |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total real estate loans |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Consumer and other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
Consumer and other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
16
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, 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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
Multi-family |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Home equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Nonresidential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Agricultural |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Construction and land |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total real estate loans |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Consumer and other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
Consumer and other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
17
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 days or more include both smaller balance homogenous loans and larger balance loans that are evaluated either collectively or individually for impairment.
Total past due loans and nonaccrual loans at September 30, 2021:
|
|
|
|
30-59 Days Past Due |
|
|
|
60-89 Days Past Due |
|
|
|
90 Days or More Past Due |
|
|
|
Total Past Due |
|
|
|
Current |
|
|
|
Total Loans |
|
|
|
Nonaccrual Loans |
|
|
|
Accruing Loans Past Due 90 Days or More |
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
COVID-19 Loan Modifications:
In light of disruptions in economic conditions caused by COVID-19, the financial regulators have issued guidance encouraging banks to work constructively with borrowers affected by the virus in our community. This guidance provides 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, provides 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 have 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 performed to date to be troubled debt restructurings. Included in the table above are $
18
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, 2021:
|
|
|
|
30-59 Days Past Due |
|
|
|
60-89 Days Past Due |
|
|
|
90 Days or More Past Due |
|
|
|
Total Past Due |
|
|
|
Current |
|
|
|
Total Loans |
|
|
|
Nonaccrual Loans |
|
|
|
Accruing Loans Past Due 90 Days or More |
|
|
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
Included in the table above are $
Troubled Debt Restructurings:
At September 30, 2021 and June 30, 2021, total loans that have been modified as troubled debt restructurings were $
Allowance for Loan Loss:
There have been no changes to our allowance for loan loss methodology during the quarter ended September 30, 2021. We have assessed the impact of the COVID-19 pandemic on the allowance for loan loss using the information that is available. We believe that the recorded allowance is adequate at this time and as a result no additional provision for loan losses has been recorded during the quarter ended September 30, 2021. However, the fluidity of this pandemic precludes any prediction as to the ultimate impact of the COVID-19 outbreak. We will continue to review and make adjustments as may be necessary. To the best of our knowledge, we have recorded all losses that are both probable and reasonably estimable for the three months ended September 30, 2021 and September 30, 2020.
19
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(5) LOANS (continued)
Loan Grades:
The Company utilizes a grading system whereby all loans are assigned a grade based on the risk profile of each loan. Loan grades are determined based on an evaluation of relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. All loans, regardless of size, are analyzed and are given a grade based upon the management’s assessment of the ability of borrowers to service their debts.
Pass: Loan assets of this grade conform to a preponderance of our underwriting criteria and are acceptable as a credit risk, based upon the current net worth and paying capacity of the obligor. Loans in this category also include loans secured by liquid assets and secured loans to borrowers with unblemished credit histories.
Pass-Watch: Loan assets of this grade represent our minimum level of acceptable credit risk. This grade may also represent obligations previously rated “Pass”, but with significantly deteriorating trends or previously rated.
Special Mention: Loan assets of this grade have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard: Loan assets of this grade are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Portfolio Segments:
One-to-four
family: One-to-four family residential loans consist primarily of loans secured by first or second deeds of trust on primary
residences, and are originated as adjustable-rate or fixed-rate loans for the construction, purchase or refinancing of a mortgage.
These loans are collateralized by owner-occupied properties located in the Company's market area. The Company currently originates
residential mortgage loans for our portfolio with loan-to-value ratios of up to
For
traditional homes, the Company may originate loans with loan-to-value ratios in excess of
Multi-family:
Multi-family real estate loans generally have a maximum term of years with a year amortization period and a final
balloon payment and are secured by properties containing or more units in the Company's market area. These loans are generally
made in amounts of up to
Multi-family real estate loans generally present a higher level of risk than loans secured by one-to-four family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income-producing properties and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family residential real estate is typically dependent upon the successful operation of the related real estate project.
20
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(5) LOANS (continued)
Home
Equity: The Company offers home equity loans and lines of credit secured by first or second deeds of trust on primary residences
in our market area. The Company’s home equity loans and lines of credit are limited to an
Nonresidential
Real Estate: Nonresidential loans include those secured by real estate mortgages on churches, owner-occupied and non-owner-occupied
commercial buildings of various types, retail and office buildings, hotels, and other business and industrial properties. The
nonresidential real estate loans that the Company originates generally have terms of to years with amortization periods
up to years. The maximum loan-to-value ratio of our nonresidential real estate loans is generally
Loans secured by nonresidential real estate generally are larger than one-to-four family residential loans and involve greater credit risk. Nonresidential real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Repayment of these loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general, including the current adverse conditions.
The Company considers a number of factors in originating nonresidential real estate loans. The Company evaluates the qualifications and financial condition of the borrower, including credit history, cash flows, the applicable business plan, the financial resources of the borrower, the borrower's experience in owning or managing similar property and the borrower's payment history with the Company and other financial institutions. In evaluating the property securing the loan, the factors the Company considers include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service). The collateral underlying all nonresidential real estate loans is appraised by outside independent appraisers approved by our board of directors. Personal guarantees may be obtained from the principals of nonresidential real estate borrowers.
Agricultural:
These loans are secured by farmland and related improvements in the Company’s market area. These loans generally have
terms of to years with amortization periods up to years. The maximum loan-to-value ratio of these loans is generally
Loans secured by agricultural real estate generally are larger than one-to-four family residential loans and involve greater credit risk. Agricultural real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Repayment of these loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general, including the current adverse conditions.
Construction
and Land: The Company makes construction loans to individuals for the construction of their primary residences and to commercial
businesses for their real estate needs. These loans generally have maximum terms of s, and upon completion of construction
convert to conventional amortizing mortgage loans. Residential construction loans have rates and terms comparable to one-to-four
family residential mortgage loans that the Company originates. Commercial construction loans have rate and terms comparable to
commercial loans that we originate. During the construction phase, the borrower generally pays interest only. Generally, the maximum
loan-to-value ratio of our owner-occupied construction loans is
The
Company also makes interim construction loans for nonresidential properties. In addition, the Company occasionally makes loans
for the construction of homes "on speculation," but the Company generally permits a borrower to have only such loans
at a time. These loans generally have a maximum term of months, and upon completion of construction convert to conventional
amortizing nonresidential real estate loans. These construction loans have rates and terms comparable to permanent loans secured
by property of the type being constructed that we originate. Generally, the maximum loan-to-value ratio of these construction
loans is
21
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(5) LOANS (continued)
Commercial and Industrial Loans: Commercial and industrial loans are offered to businesses and professionals in the Company’s market area. These loans generally have short and medium terms on both a collateralized and uncollateralized basis. The structure of these loans are largely determined by the loan purpose and collateral. Sources of collateral can include a lien on furniture, fixtures, equipment, inventory, receivables and other assets of the company. A UCC-1 is typically filed to perfect our lien on these assets.
Commercial and industrial loans and leases typically are underwritten on the basis of the borrower’s or lessee’s ability to make repayment from the cash flow of its business and generally are collateralized by business assets. As a result, such loans and leases involve additional complexities, variables and risks and require more thorough underwriting and servicing than other types of loans and leases.
Within
this category for the three months ended September 30, 2021 and the year ended June 30, 2021 are PPP loans that were authorized
under the CARES Act. PPP loans are originated by the Association, are 100% guaranteed by the SBA and qualify to be forgiven based
on certain criteria as determined by the SBA. The Association received a fee, with the percentage depending on the size of the
loan, for originating these loans and earns
Consumer and Other Loans: The Company offers installment loans for various consumer purposes, including the purchase of automobiles, boats, and for other legitimate personal purposes. The maximum terms of consumer loans is months for unsecured loans and to months for loans secured by a vehicle, depending on the age of the vehicle. The Company generally only extends consumer loans to existing customers or their immediate family members, and these loans generally have relatively low balances.
Consumer loans may entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or are secured by rapidly depreciable assets, such as automobiles. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.
22
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(5) LOANS (continued)
Based on the most recent analysis performed, the risk grade of loans by portfolio segment are presented in the following tables.
Total loans by risk grade and portfolio segment at September 30, 2021:
| Pass | Pass-Watch | Special
Mention | Substandard | Doubtful | Total | |||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | — | $ | |||||||||||||||||
Total loans by risk grade and portfolio segment at June 30, 2021:
| Pass | Pass-Watch | Special Mention |
Substandard | Doubtful | Total | |||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | — | $ | |||||||||||||||||
At
September 30, 2021, three loans for $
23
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(6) BORROWINGS
At September 30, 2021 and June 30, 2021, advances from the Federal Home Loan Bank were as follows:
|
|
|
September 30, 2021 |
|
|||||
|
|
|
|
Balance |
|
|
|
Stated Interest Rate |
|
|
FHLB advances due February 2023 through January 2025 |
|
$ |
|
|
|
|
|
|
|
Total |
|
$ |
5,000 |
|
|
|
|
|
|
|
|
June 30, 2021 |
|
|||||
|
|
|
|
Balance |
|
|
|
Stated Interest Rate |
|
|
FHLB advances due September 2021 through January 2025 |
|
$ |
|
|
|
|
|
|
|
Total |
|
$ |
15,000 |
|
|
|
|
|
Payments over the next five years are as follows:
2023 |
$ |
|
|
2025 |
$ |
|
The average interest rate of all outstanding FHLB advances was
Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances are collateralized by $
There were no overnight borrowings at September 30, 2021 or June 30, 2021.
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Investment Securities:
The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
Impaired Loans:
The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. There were no impaired loans with specific allocations at September 30, 2021 or June 30, 2021.
24
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Loans Held for Sale:
Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a pool-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors and result in a Level 2 classification.
Loan Servicing Rights:
Fair value is determined based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data and results in a Level 3 classification.
Real Estate Owned:
Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals, which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Appraisals for both collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value.
Deposits:
The fair values disclosed for demand deposit, money market and savings accounts are equal to the amount payable on demand at the reporting date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of deposit to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.
FHLB Advances:
The fair values of the Company’s FHLB advances are estimated using discounted cash flow analysis based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.
25
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Assets measured at fair value on a recurring basis at September 30, 2021 and June 30, 2021 are summarized below:
|
|
|
Fair Value Measurements |
|
|||||||||||||
|
|
|
September 30, 2021 |
|
|
June 30, 2021 |
|
||||||||||
|
|
|
(Level 2) |
|
|
(Level 3) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC common stock |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
Certificates of deposit |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Municipal securities |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
CMOs |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
U.S. Government agency mortgage-backed securities |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
U.S. Treasury and Government agency bonds |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Total securities available-for-sale |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Loan servicing rights |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total financial assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
There are no liabilities measured at fair value on a recurring basis.
The table below presents a reconciliation of all Level 3 assets measured at fair value on a recurring basis using significant unobservable inputs for the three months ended September 30, 2021 and 2020:
|
|
|
Fair Value Measurements |
|
|||||
|
|
|
(Level 3) |
|
|||||
|
|
|
Three Months Ended |
|
|||||
|
|
|
September 30, |
|
|
September 30, |
|
||
|
|
|
Loan |
|
|
Loan |
|
||
|
Balance at beginning of period: |
|
$ |
|
|
|
$ |
|
|
|
Unrealized net losses included in net income |
|
|
( |
) |
|
|
( |
) |
|
Balance at end of period: |
|
$ |
|
|
|
$ |
|
|
There are no assets or liabilities measured at fair value on a non-recurring basis at September 30, 2021 or June 30, 2021.
The table below presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value at September 30, 2021 and June 30, 2021.
|
|
|
Level 3 Quantitative Information |
|
|||||||||||||
|
|
|
September 30, |
|
June 30,2021 |
|
Valuation Technique |
|
Unobservable Inputs |
|
Range |
|
|||||
|
Loan servicing rights |
|
$ |
|
|
$ |
|
|
|
Discounted cash |
|
|
Discount rate, estimated |
|
|
|
|
26
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Many of the Company’s assets and liabilities are short-term financial instruments whose carrying amounts reported in the consolidated balance sheets approximate fair value. These items include cash and cash equivalents, bank owned life insurance, accrued interest receivable and payable balances, variable rate loan and deposits that re-price frequently and fully. The estimated fair values of the Company’s remaining on-balance sheet financial instruments at September 30, 2021 and June 30, 2021 are summarized below:
|
|
|
September 30, 2021 |
|
|||||||||||||||||
|
|
|
Carrying |
|
|
Fair Value |
|
||||||||||||||
|
|
|
Amount |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
|||||
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Loans, net(1) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Loan servicing rights |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Restricted equity securities |
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
FHLB Advances |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
June 30, 2021 |
|
|||||||||||||||||
|
|
|
Carrying |
|
|
Fair Value |
|
||||||||||||||
|
|
|
Amount |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
|||||
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Loans, net(1) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Loans held for sale(2) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Loan servicing rights |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Restricted equity securities |
|
|
|
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
FHLB Advances |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
(1) |
|
|
(2) |
|
27
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(8) EMPLOYEE STOCK OWNERSHIP PLAN
Employees participate in an Employee Stock Ownership Plan (“ESOP”). The ESOP borrowed from the Company to purchase shares of the Company’s common stock at $ per share during 2011. The Company makes discretionary contributions to the ESOP and pays dividends on unallocated shares to the ESOP, and the ESOP uses funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation and expense is recorded. Dividends on allocated shares increase participant accounts.
Participants receive the shares at the end of employment. The Company makes contributions to the ESOP each December. There were no discretionary contributions made to the ESOP for debt retirement in 2021 or 2020. Total ESOP compensation expense for the three months ended September 30, 2021 was $
Shares held by the ESOP at September 30, 2021 and June 30, 2021 were as follows:
|
|
|
September 30, |
|
|
June 30, |
|
||
|
Committed to be released to participants |
|
|
|
|
|
|
|
|
|
Allocated to participants |
|
|
|
|
|
|
|
|
|
Unearned |
|
|
|
|
|
|
|
|
|
Total ESOP shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of unearned shares |
|
$ |
|
|
|
$ |
|
|
On April 5, 2012, the shareholders of Oconee Federal Financial Corp. approved the Oconee Federal Financial Corp. 2012 Equity Incentive Plan (the “Plan”) for employees and directors of the Company. The Plan authorizes the issuance of up to shares of the Company’s common stock, with no more than of shares as restricted stock awards and as stock options, either incentive stock options or non-qualified stock options. The exercise price of options granted under the Plan may not be less than the fair market value on the date the stock option is granted. The compensation committee of the board of directors has sole discretion to determine the amount and to whom equity incentive awards are granted.
There have been no stock options or restricted stock issued in fiscal 2022.
The following table summarizes stock option activity for the three months ended September 30, 2021:
|
|
|
Options |
|
|
Weighted- |
|
|
Aggregate |
|
|||
|
Outstanding - June 30, 2021 |
|
|
|
|
$ |
|
|
|
|
|
||
|
Granted |
|
|
|
|
|
|
|
|
|
|
||
|
Exercised |
|
|
|
|
|
|
|
|
|
|
||
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
||
|
Outstanding - September 30, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|||
|
Fully vested and exercisable at September 30, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|||
|
Expected to vest in future periods |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully vested and expected to vest - September 30, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|||
|
(1) |
|
28
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(9) STOCK BASED COMPENSATION (continued)
|
|
|
Options |
|
|
Weighted- |
|
|
Aggregate |
|
|||
|
Outstanding - June 30, 2020 |
|
|
|
|
$ |
|
|
|
|
|
||
|
Granted |
|
|
|
|
|
|
|
|
|
|
||
|
Exercised |
|
|
|
|
|
|
|
|
|
|
||
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
||
|
Outstanding - September 30, 2020 |
|
|
|
|
$ |
|
|
$ |
|
|||
|
Fully vested and exercisable at September 30, 2020 |
|
|
|
|
$ |
|
|
$ |
|
|||
|
Expected to vest in future periods |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully vested and expected to vest - September 30, 2020 |
|
|
|
|
$ |
|
|
$ |
|
|||
|
(1) |
|
Stock options are assumed to be earned ratably over their respective vesting periods and charged to compensation expense based upon their grant date fair value and the number of options assumed to be earned. There were and options that were earned during the three months ended September 30, 2021 and 2020, respectively. Stock-based compensation expense for stock options for the three months ended September 30, 2021 was $ and for the three months ended September 30, 2020 was $. Total unrecognized compensation cost related to stock options was $ at September 30, 2021 and is expected to be recognized over a weighted-average period of years.
|
|
|
September 30, |
|
|
September 30, |
|
||
|
Balance - beginning of year |
|
|
|
|
|
|
||
|
Granted |
|
|
|
|
|
|
||
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
Vested |
|
|
— |
|
|
|
) |
|
|
Balance - end of period |
|
|
|
|
|
|
||
|
Weighted average grant date fair value |
|
$ |
|
|
$ |
|
||
The fair value of the restricted stock awards is amortized to compensation expense over their respective vesting periods and is based on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted that are expected to vest. Stock-based compensation expense for restricted stock included in noninterest expense for the three months ended September 30, 2021 was $ and for the three months ended September 30, 2020 was $. Unrecognized compensation expense for non-vested restricted stock awards was $ at September 30, 2021 and is expected to be recognized over a weighted-average period of years.
29
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(10) LOAN SERVICING RIGHTS
Mortgage loans serviced for others are not reported as assets; however, the underlying mortgage servicing rights associated with servicing these mortgage loans serviced for others is recorded as an asset in the consolidated balance sheet.
The principal balances of those loans at September 30, 2021 and June 30, 2021 are as follows:
|
|
September 30, |
|
|
June 30, |
|
|||
|
Mortgage loan portfolio serviced for: |
|
|
|
|
|
|
|
|
|
FHLMC |
|
$ |
|
|
|
$ |
|
|
Custodial escrow balances maintained in connection with serviced loans were $
Activity for loan servicing rights for the three months ended September 30, 2021 and 2020 is as follows:
| Three Months Ended | ||||||||
September 30, 2021 | September 30, 2020 | |||||||
| Loan servicing rights: | ||||||||
| Beginning of period: | $ | $ | ||||||
| Change in fair value | ( | ) | ( | ) | ||||
| End of period: | $ | $ | ||||||
Fair value at September 30, 2021 was determined using a discount rate of
(11) SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the three months ended September 30, 2021 and 2020 is as follows:
|
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
|
|
|
$ |
|
|
|
Income taxes paid |
|
$ |
|
|
|
$ |
|
|
|
Supplemental noncash disclosures: |
|
|
|
|
|
|
|
|
|
Transfers from loans to real estate owned |
|
$ |
|
|
|
$ |
|
|
|
Change in unrealized gain/loss on securities available-for-sale |
|
$ |
( |
) |
|
$ |
( |
) |
30
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(12) SUBSEQUENT EVENTS
Dividend Declared
On October 28, 2021, the Board of Directors of Oconee Federal Financial Corp. declared a quarterly cash dividend of $ per share of Oconee Federal Financial Corp.’s common stock. The dividend is payable to stockholders of record as of
31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements include:
|
|
• |
statements of our goals, intentions and expectations; |
|
|
• |
statements regarding our business plans and prospects and growth and operating strategies; |
|
|
• |
statements regarding the asset quality of our loan and investment portfolios; and |
|
|
• |
estimates of our risks and future costs and benefits. |
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report on Form 10-Q.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
|
|
• |
our ability to manage our operations in response to changes in economic conditions (including real estate values, loan demand, inflation, commodity prices and employment levels) nationally and in our market areas; |
|
|
• |
the social and economic effects of the COVID-19 or any other pandemic; |
|
|
• |
adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values); |
|
|
• |
significant increases in our delinquencies and loan losses, including as a result of our inability to resolve classified assets, changes in the underlying cash flows of our borrowers, and management’s assumptions in determining the adequacy of the allowance for loan losses; |
|
|
• |
credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance and provision for loan losses; |
|
|
• |
use of estimates for determining the fair value of certain of our assets, which may prove to be incorrect and result in significant declines in valuations; |
|
|
• |
increased competition among depository and other financial institutions; |
|
|
• |
our ability to attract and maintain deposits, including introducing new deposit products; |
|
|
• |
inflation and changes in interest rates generally, including changes in the relative differences between short term and long term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources; |
|
|
• |
fluctuations in the demand for loans, which may be affected by the number of unsold homes, land and other properties in our market areas and by declines in the value of real estate in our market area; |
|
|
• |
declines in the yield on our assets resulting from the current low interest rate environment; |
|
|
• |
our ability to successfully implement our business strategies, including attracting and maintaining deposits and introducing new financial products; |
|
|
• |
risks related to high concentration of loans secured by real estate located in our market areas; |
|
|
• |
changes in the level of government support of housing finance; |
|
|
• |
the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings; |
|
|
• |
our ability to enter new markets successfully and capitalize on growth opportunities; |
|
|
• |
changes in laws or government regulations or policies affecting financial institutions, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements (particularly the new capital regulations), regulatory fees and compliance costs and the resources we have available to address such changes; |
|
|
• |
changes in the ability of third-party providers to perform their obligations to us; |
|
|
• |
technological changes that may be more difficult or expensive than expected; |
|
|
• |
cyber-attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data or disable our systems; |
|
|
• |
our reliance on a small executive staff; |
|
|
• |
changes in our compensation and benefit plans, and our ability to retain key members of our senior management team and to address staffing needs to implement our strategic plan; |
|
|
• |
changes in consumer spending, borrowing and savings habits; |
32
|
|
• |
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; |
|
|
• |
our ability to control costs and expenses, particularly those related to operating as a publicly traded company; |
|
|
• |
the effects of actual government shutdowns; |
|
|
• |
the ability of the U.S. government to manage federal debt limits; |
|
|
• |
other changes in our financial condition or results of operations that reduce capital available to pay dividends; |
|
|
• |
other changes in the financial condition or future prospects of issuers of securities that we own, including our stock in the FHLB of Atlanta; and |
|
|
• |
other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services. |
Novel Coronavirus Pandemic (COVID-19)
The COVID-19 pandemic has adversely impacted global commercial activity and contributed to 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 fluidity of this situation precludes any prediction as to the ultimate material adverse impact of the COVID-19 pandemic. Nevertheless, the pandemic presents uncertainty and risk with respect to Oconee Federal Financial Corp., its performance, and its financial results. As a result we could be subject to any of the following additional risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:
|
|
• |
demand for our products and services may decline, making it difficult to grow assets and income; |
|
|
• |
if the economy is unable to substantially and successfully stay open, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; |
|
|
• |
collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; |
|
|
• |
our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income; |
|
|
• |
the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us. |
|
|
• |
as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; |
|
|
• |
a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend, |
|
|
• |
limitations may be placed on our ability to foreclose on properties; |
|
|
• |
the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause management to perform impairment testing on our goodwill or core deposit and customer relationships intangibles that could result in an impairment charge being recorded for that period, that would adversely impact our results of operations and the ability of the Association to pay dividends to us; |
|
|
• |
our cyber security risks are increased as the result of an increase in the number of employees working remotely; |
|
|
• |
we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and |
|
|
• |
Federal Deposit Insurance Corporation premiums may increase if the agency experience additional resolution costs. |
Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.
Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.
33
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
Critical Accounting Policies
There were no material changes to the critical accounting policies as disclosed in the Annual Report on Form 10-K for Oconee Federal Financial Corp. for the year ended June 30, 2021, as filed with the Securities and Exchange Commission.
Comparison of Financial Condition at September 30, 2021 and June 30, 2021
Our total assets decreased by $1.1 million, or 0.2%, to $542.6 million at September 30, 2021 from $543.7 million at June 30, 2021.
Total cash and cash equivalents decreased $12.0 million, or 39.2%, to $18.6 million at September 30, 2021 from $30.6 million at June 30, 2021. The decrease in cash and cash equivalents was primarily due to funds being used to reduce FHLB advances during the three month period.
Our available-for-sale securities portfolio increased by $12.4 million from $139.1 million at June 30, 2021 to $151.5 million at September 30, 2021. The increase in securities classified as available-for-sale was primarily a result of our efforts in fiscal 2022 to invest in higher yielding assets.
Gross loans decreased $1.2 million, or 0.4%, to $337.9 million at September 30, 2021 from $339.1 million at June 30, 2021. This decrease was primarily a result of loan originations generally not matching loan repayments during the three months ended September 30, 2021.
Deposits increased $9.5 million, or 2.2%, to $449.4 million at September 30, 2021 from $439.9 million at June 30, 2021. The increase in our deposits reflected an increase of $2.4 million in interest bearing demand deposit accounts, $3.8 million in money market accounts, $3.5 million in savings deposits and $3.7 million in non-interest bearing deposits, partially offset by a decrease of $3.9 million in certificates of deposit. Oconee Federal, MHC’s cash is held on deposit with the Association. We generally do not accept brokered deposits and no brokered deposits were accepted during the three months ended September 30, 2021.
FHLB advances decreased $10.0 million, or 66.7%, to $5.0 million at September 30, 2021 from $15.0 million at June 30, 2021. The decrease was due to the repayment and non-renewal of short term advances that no longer had advantageous rates. We have credit available under a loan agreement with the Federal Home Loan Bank of Atlanta in the amount of 25% of our total assets as of September 30, 2021, or approximately $136.4 million. We had no federal funds purchased as of September 30, 2021 or as of June 30, 2021.
Total shareholders’ equity decreased $533 thousand, or 0.6%, to $87.6 million at September 30, 2021 compared to $88.1 million at June 30, 2021. The decrease was primarily the result of net income for the three months ended September 30, 2021 of $771 thousand being offset by $797 thousand in other comprehensive loss, $67 thousand of stock repurchases and $559 thousand in dividends distributed. The Association exceeded all regulatory capital requirements at September 30, 2021 and June 30, 2021.
34
Nonperforming Assets
The table below sets forth the amounts and categories of our nonperforming assets at the dates indicated.
|
|
|
September 30, 2021 |
|
|
June 30, 2021 |
|
||
|
|
|
(Dollars in thousands) |
|
|||||
|
Nonaccrual loans: |
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
2,033 |
|
|
$ |
2,260 |
|
|
Multi-family |
|
|
— |
|
|
|
— |
|
|
Home equity |
|
|
— |
|
|
|
— |
|
|
Nonresidential |
|
|
509 |
|
|
|
521 |
|
|
Agricultural |
|
|
— |
|
|
|
— |
|
|
Construction and landa |
|
|
— |
|
|
|
— |
|
|
Total real estate loans |
|
|
2,542 |
|
|
|
2,781 |
|
|
Commercial and industrial |
|
|
— |
|
|
|
— |
|
|
Consumer and other loans |
|
|
— |
|
|
|
— |
|
|
Total nonaccrual loans(1) |
|
$ |
2,542 |
|
|
$ |
2,781 |
|
|
Accruing loans past due 90 days or more: |
|
|
|
|
|
|
|
|
|
Real estate loans |
|
$ |
— |
|
|
$ |
— |
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
Consumer and other loans |
|
|
— |
|
|
|
— |
|
|
Total accruing loans past due 90 days or more |
|
|
— |
|
|
|
— |
|
|
Total of nonaccrual and 90 days or more past due loans(2) |
|
$ |
2,542 |
|
|
$ |
2,781 |
|
|
Real estate owned, net: |
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
— |
|
|
$ |
— |
|
|
Nonresidential |
|
|
— |
|
|
|
— |
|
|
Construction and land |
|
|
|
|
|
|
|
|
|
Other nonperforming assets |
|
|
— |
|
|
|
— |
|
|
Total nonperforming assets |
|
$ |
2,542 |
|
|
$ |
2,781 |
|
|
Accruing troubled debt restructurings |
|
$ |
— |
|
|
$ |
— |
|
|
Troubled debt restructurings and total nonperforming assets |
|
$ |
2,542 |
|
|
$ |
2,781 |
|
|
Total nonperforming loans to total loans |
|
|
0.75 |
% |
|
|
0.82 |
% |
|
Total nonperforming assets to total assets |
|
|
0.47 |
% |
|
|
0.51 |
% |
|
Total nonperforming assets to loans and real estate owned |
|
|
0.75 |
% |
|
|
0.82 |
% |
|
(1) |
Nonaccrual troubled debt restructurings included in the totals above were $1.6 million and $1.7 million, at September 30, 2021 and June 30, 2021, respectively. |
|
(2) |
There were no loans past due 90 days or more and still accruing at September 30, 2021 or June 30, 2021. |
Nonperforming assets, which comprised of nonaccrual loans only, decreased $239 thousand from $2.78 million as of June 30, 2021 to $2.54 million as of September 30, 2021. There were no accruing loans past due 90 days or more at either date. The decrease in nonaccrual loans primarily related to normal monthly fluctuations. Nonperforming assets to total assets and nonperforming assets to loans and real estate owned were 0.47% and 0.75%, respectively, at September 30, 2021 compared to 0.51% and 0.82%, respectively at June 30, 2021.
35
Analysis of Net Interest Margin
The following table sets forth average balance sheets, average annualized yields and rates, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of net deferred costs, discounts and premiums that are amortized or accreted to income.
|
|
|
For the Three Months Ended |
|
|||||||||||||||||||||
|
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||||||||||||||||
|
|
|
Average Balance |
|
|
Interest and Dividends |
|
|
Yield/ Cost |
|
|
Average Balance |
|
|
Interest and Dividends |
|
|
Yield/ Cost |
|
||||||
|
|
|
(Dollars in Thousands) |
|
|||||||||||||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
337,626 |
|
|
$ |
3,445 |
|
|
|
4.08 |
% |
|
$ |
357,195 |
|
|
$ |
4,027 |
|
|
|
4.51 |
% |
|
Investment securities |
|
|
130,286 |
|
|
|
352 |
|
|
|
1.08 |
|
|
|
71,633 |
|
|
|
291 |
|
|
|
1.62 |
|
|
Investment securities, tax-free |
|
|
15,057 |
|
|
|
86 |
|
|
|
2.28 |
|
|
|
16,178 |
|
|
|
91 |
|
|
|
2.25 |
|
|
Other interest-earning assets |
|
|
22,347 |
|
|
|
16 |
|
|
|
0.28 |
|
|
|
32,127 |
|
|
|
27 |
|
|
|
0.33 |
|
|
Total interest-earning assets |
|
|
505,316 |
|
|
|
3,899 |
|
|
|
3.09 |
|
|
|
477,133 |
|
|
|
4,436 |
|
|
|
3.72 |
|
|
Noninterest-earning assets |
|
|
39,331 |
|
|
|
|
|
|
|
|
|
|
|
41,392 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
544,647 |
|
|
|
|
|
|
|
|
|
|
$ |
518,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and demand deposits |
|
$ |
77,066 |
|
|
$ |
27 |
|
|
|
0.14 |
% |
|
$ |
68,050 |
|
|
$ |
33 |
|
|
|
0.19 |
% |
|
Money market deposits |
|
|
82,359 |
|
|
|
32 |
|
|
|
0.15 |
|
|
|
80,623 |
|
|
|
46 |
|
|
|
0.23 |
|
|
Regular savings and other deposits |
|
|
44,456 |
|
|
|
10 |
|
|
|
0.09 |
|
|
|
35,119 |
|
|
|
14 |
|
|
|
0.16 |
|
|
Certificates of deposit |
|
|
184,377 |
|
|
|
237 |
|
|
|
0.51 |
|
|
|
196,445 |
|
|
|
457 |
|
|
|
0.92 |
|
|
Total interest-bearing deposits |
|
|
388,258 |
|
|
|
306 |
|
|
|
0.31 |
|
|
|
380,237 |
|
|
|
550 |
|
|
|
0.57 |
|
|
Other Borrowings |
|
|
14,167 |
|
|
|
23 |
|
|
|
0.64 |
|
|
|
5,000 |
|
|
|
19 |
|
|
|
1.51 |
|
|
Total interest-bearing liabilities |
|
|
402,425 |
|
|
|
329 |
|
|
|
0.32 |
|
|
|
385,237 |
|
|
|
569 |
|
|
|
0.59 |
|
|
Noninterest bearing deposits |
|
|
52,791 |
|
|
|
|
|
|
|
|
|
|
|
42,686 |
|
|
|
|
|
|
|
|
|
|
Other noninterest-bearing liabilities |
|
|
842 |
|
|
|
|
|
|
|
|
|
|
|
1,461 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
456,058 |
|
|
|
|
|
|
|
|
|
|
|
429,384 |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
88,589 |
|
|
|
|
|
|
|
|
|
|
|
89,141 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
544,647 |
|
|
|
|
|
|
|
|
|
|
$ |
518,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
3,570 |
|
|
|
|
|
|
|
|
|
|
$ |
3,867 |
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
|
|
|
|
|
2.77 |
% |
|
|
|
|
|
|
|
|
|
|
3.13 |
% |
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
2.83 |
% |
|
|
|
|
|
|
|
|
|
|
3.24 |
% |
|
Average interest-earning assets to average interest-bearing liabilities |
|
|
1.26 |
x |
|
|
|
|
|
|
|
|
|
|
1.24 |
x |
|
|
|
|
|
|
|
|
36
Comparison of Operating Results for the Three Months Ended September 30, 2021 and September 30, 2020
General. We reported net income of $771 thousand for the three months ended September 30, 2021 as compared to net income of $1.3 million for the three months ended September 30, 2020. Interest income decreased $537 thousand for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and interest expense decreased $240 thousand, resulting in a net decrease to net interest income of $297 thousand. Noninterest income decreased $190 thousand for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Total noninterest expense increased $148 thousand. Tax expense decreased $133 thousand.
Interest Income. Interest income decreased by $537 thousand to $3.9 million from $4.4 million for the three months ended September 30, 2021 and September 30, 2020, respectively. The yield on interest-earning assets decreased 63 basis points from 3.72% for the three months ended September 30, 2020 to 3.09% for the three months ended September 30, 2021. Total average interest-earning assets increased by $28.2 million to $505.3 million for the three months ended September 30, 2021 from $477.1 million for the three months ended September 30, 2020.
Interest income on loans decreased by $582 thousand to $3.4 million from $4.0 million for the three months ended September 30, 2021 and September 30, 2020, respectively. The yield on loans decreased 43 basis points from 4.51% for the three months ended September 30, 2020 to 4.08% for the three months ended September 30, 2021. The average balance of loans decreased by $19.6 million, or 5.5%, to $337.6 million for the three months ended September 30, 2021 from $357.2 million for the three months ended September 30, 2020. The decrease in the average balance of our loans is reflective of reduced originations and normal loan repayments.
Interest income on investment securities increased $56 thousand, or 14.7%, to $438 thousand for the three months ended September 30, 2021 from $382 thousand for the three months ended September 30, 2020, reflecting an increase of $57.5 million, or 65.5%, in the average balances of securities to $145.3 million from $87.8 million for the three months ended September 30, 2021 and 2020, respectively, offset by a decrease in the total average yield of our investment securities of 53 basis points to 1.21% from 1.74%. The increase in average balances of our investment securities is reflective of our efforts during the past twelve months to invest in higher yielding assets. Our decreased yields are reflective of a decrease of higher yielding investments due to maturities, paydowns, sales and calls in the past twelve months along with overall lower investment rates that were available on purchases made in during the prior twelve months.
Income on other interest earning assets decreased by $11 thousand, or 40.7%, to $16 thousand for the three months ended September 30, 2021 from $27 thousand for the three months ended September 30, 2020. The average balance of other interest-earning assets decreased $9.8 million to $22.3 million for the three months ended September 30, 2021 from $32.1 million for the three months ended September 30, 2020 and the yield decreased five basis points over the same period. The decrease in average balance was primarily due to funds being used to reduce FHLB advances during the three month period ended September 30, 2021. The decrease in yield was primarily a result of decreased rates on money market accounts and our Federal Reserve excess balance account, the balance of which comprised 91.5% of this category during the three months ended September 30, 2021.
Interest Expense. Interest expense decreased $240 thousand, or 42.2%, to $329 thousand for the three months ended September 30, 2021 from $569 thousand for the three months ended September 30, 2020. The average rate paid on interest bearing liabilities decreased 27 basis points from 0.59% for the three months ended September 30, 2020 to 0.32% for the three months ended September 30, 2021. This decrease was primarily due to a general decrease in retail and wholesale borrowing rates due to overall market decreases.
Interest expense on deposits decreased $244 thousand, or 44.4%, to $306 thousand for the three months ended September 30, 2021 from $550 thousand for the three months ended September 30, 2020. The average rate paid on interest bearing liabilities decreased 26 basis points from 0.57% for the three months ended September 30, 2020 to 0.31% for the three months ended September 30, 2021. The decrease in the average rate paid on deposits was partially offset by an increase in the average balance of interest bearing deposits of $8.0 million, or 2.1%, to $388.3 million for the three months ended September 30, 2021 from $380.2 million for the three months ended September 30, 2020.
37
The largest decrease in deposit interest expense was related to expense on certificates of deposit, which decreased by $220 thousand, or 48.1% to $237 thousand for the three months ended September 30, 2021 from $457 thousand for the three months ended September 30, 2020. The average cost on these deposits decreased from 0.92% for the three months ended September 30, 2020 to 0.51% for the three months ended September 30, 2021. The decrease in interest rate on these deposits is reflective of an overall decline in market rates. The average balance on these deposits decreased $12.1 million, from $196.4 million for the three months ended September 30, 2020 to $184.4 million for the three months ended September 30, 2021. The decrease in the average balance of certificates of deposit is reflective of normal deposit fluctuation.
Interest expense on NOW and demand deposits and regular savings and other deposits decreased by $10 thousand to $37 thousand for the three months ended September 30, 2021 from $47 thousand for the three months ended September 30, 2020. The decrease in interest expense on these deposits was attributable to a decrease in the average cost on these deposits to 0.12% from 0.18% offset by a $18.4 million increase in average balances. The decrease in interest expense on these deposits is reflective of an overall decline in market rates. The increase in the average balance of these deposits is reflective of normal deposit fluctuation.
Interest expense on money market deposits decreased $14 thousand as the cost of these deposits decreased eight basis points from 0.23% for the three months ended September 30, 2020 to 0.15% for the three months ended September 30, 2021. The average balance of money market deposits increased from $80.6 million to $82.4 million for the same period. The decrease in interest rate on these deposits is reflective of an overall decline in market rates. The increase in the average balance of these deposits is reflective of normal deposit fluctuation.
Interest expense for other borrowings increased by $4 thousand, or 21.1%, to $23 thousand for the three months ended September 30, 2021 from $19 thousand for the three months ended September 30, 2020. Other borrowings include both FHLB advances as well as any overnight federal funds purchased. Average other borrowings were $14.2 million for the three months ended September 30, 2021 compared to $5.0 million for the three months ended September 30, 2020. The average rate decreased 87 basis points from 1.51% for the three months ended September 30, 2020 to 0.64% for the three months ended September 30, 2021 due to a decrease in market interest rates and use of shorter term advances in the period ended September 30, 2021.
Net Interest Income. Net interest income before the provision for loan losses decreased by $297 thousand, or 7.7%, to $3.6 million for the three months ended September 30, 2021. Our interest rate spread and net interest margin decreased to 2.77% and 2.83%, from 3.13% and 3.24%, for the three months ended September 30, 2021 and September 30, 2020, respectively. The decrease in yield on earning assets was larger than the decrease in cost of interest bearing liabilities which contributed to the decrease in net interest margin for the three months ended September 30, 2021.
Provision for Loan Losses. We recorded no provision for loan losses for the three months ended September 30, 2021 or for the three months ended September 30, 2020. There were no charge-offs for the three months ended September 30, 2021. There were $2 thousand in charge-offs for the three months ended September 30, 2020. The lack of provision for the three months ended September 30, 2021 is primarily due to a decrease in the loan portfolio balance.
Our total allowance for loan losses was $1.3 million, or 0.40% of total gross loans as of September 30, 2021 and $1.3 million, or 0.39% of total gross loans as of June 30, 2021. Our total allowance for loan losses was 0.40% of total gross loans, net of PPP loans, as of September 30, 2021 and June 30, 2021. PPP loans are not allocated any allowance due to the 100% SBA guarantee. There were no specifically identified impaired loans at September 30, 2021 or June 30, 2021. Total loans individually evaluated for impairment increased $481 thousand, or 28.1%, to $2.2 million at September 30, 2021 compared to $1.7 million at June 30, 2021.
To the best of our knowledge, we have recorded all losses that are both probable and reasonably estimable for the three months ended September 30, 2021 and 2020. There have been no changes to our allowance for loan loss methodology during three months ended September 30, 2021.
Noninterest Income. Noninterest income decreased $190 thousand, or 31.5%, to $413 thousand for the three months ended September 30, 2021 from $603 thousand for the three months ended September 30, 2020. Mortgage servicing income decreased $10 thousand due to a decline in the servicing portfolio balance. Gain on sale of mortgage loans was $106 thousand and $35 thousand for the three months ended September 30, 2021 and 2020, respectively. The change in fair value of equity securities was a loss of $50 thousand for the three months ended September 30, 2021 compared to a loss of $23 thousand for the three months ended September 30, 2020. Gains or losses on the fair value of equity securities are market driven. There were no sales of securities for the three months ended September 30, 2021. There were $62 thousand in gains on the sale of securities for the three months ended September 30, 2020. Gains or losses on the sale of securities are largely market driven. Securities were sold during the quarter ended September 30, 2020 to realize market gains and adjust the investment portfolio so that funds could be more beneficially used to yield higher net earnings going forward. There were no payoffs of purchase credit impaired loans for the three months ended September 30, 2021. The net gain on payoff of purchase credit impaired loans was $195 thousand for the three months ended September 30, 2020 due to the liquidation of two loans. Changes in all other noninterest income items were due to normal periodic fluctuations.
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Noninterest Expense. Noninterest expense for the three months ended September 30, 2021 increased by $148 thousand, or 5.2%, to $3.0 million for three months ended September 30, 2021. Salaries and employee benefits increased $91 thousand due to routine increases. Occupancy and equipment increased $23 thousand due to normal periodic fluctuations. Data processing increased $5 thousand due to routine upgrades and volume increases in the current period. Professional and supervisory fees decreased $13 thousand due to normal periodic fluctuations. Advertising increased $27 thousand due to normal periodic fluctuations. FDIC deposit insurance increased $2 thousand due to the increased Association asset size. Foreclosed asset expenses decreased $8 thousand due to normal periodic fluctuations. The change in the value of the loan servicing portfolio decreased $14 thousand due to market conditions. For the three months ended September 30, 2021, we recognized an expense for the decrease in value of the loan servicing asset of $14 thousand compared to $43 thousand for the three months ended September 30, 2020. The fair value of our loan servicing asset is subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses. Changes in all other noninterest expense items were due to normal periodic fluctuations.
Income Tax Expense. Tax expense decreased $133 thousand, or 38.0%, to $217 thousand for the three months ended September 30, 2021 from $350 thousand for the three months ended September 30, 2020. This was primarily due to a decrease in pre-tax income during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. Our effective income tax rate was 22.0% and 21.6% for the three months ended September 30, 2021 and 2020, respectively.
Liquidity and Capital Resources
Our primary sources of funds are deposits and the proceeds from principal and interest payments on loans and investment securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. We generally manage the pricing of our deposits to be competitive within our market and to increase core deposit relationships.
Liquidity management is both a daily and long-term responsibility of management. Our liquidity monitoring process is designed to contend with changing economic situations, which would include the current COVID-19 pandemic. We have therefore not changed our daily or long-term liquidity management procedures. We adjust our investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and investment securities, and (iv) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning overnight deposits, federal funds sold, and short and intermediate-term U.S. Treasury and Government sponsored agencies and mortgage-backed securities of short duration. If we require funds beyond our ability to generate them internally, we have credit available under a loan agreement with the Federal Home Loan Bank of Atlanta in the amount of 25% of total assets, as of September 30, 2021, or approximately $136.4 million as of that date, with a remaining availability of $131.5 million as of September 30, 2021.
Common Stock Dividends. On July 22, 2021 the Company paid a $0.10 per share cash dividend on its common stock for a total of $559 thousand.
Equity Compensation Plans. During the three months ended September 30, 2021, no shares of restricted stock or common stock were issued.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Disclosures of quantitative and qualitative market risk are not required by smaller reporting companies, such as the Company.
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ITEM 4. CONTROLS AND PROCEDURES |
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2021. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
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During the quarter ended September 30, 2021, there have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, amended) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II
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ITEM 1. LEGAL PROCEEDINGS |
There are various claims and lawsuits in which the Company is periodically involved incidental to the Company’s business. In the opinion of management, no material loss is expected from any of such pending claims or lawsuits.
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ITEM 1A. RISK FACTORS |
Disclosures of risk factors are not required of smaller reporting companies, such as the Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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(a) |
None. |
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(b) |
Not applicable. |
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(c) |
Issuer Repurchases. On May 14, 2021, the Board of Directors authorized the repurchase of up to 100,000 shares of the Company’s common stock, terminating the previous authorization on May 28, 2020 to repurchase 100,000 shares. The repurchase authorization expires on March 31, 2022. In connection with these repurchase authorizations, the Company has purchased a total of 2,865 shares of its common stock during the three months ended September 30, 2021. |
The following table sets forth information in connection with repurchases of the Company’s common stock for the quarter ended September 30, 2021:
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|
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Total |
|
|
Average Price |
|
|
Total Number of |
|
|
Approximate Maximum |
|
||||
|
July 1 - July 31, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
– |
|
|
|
83,458 |
|
|
August 1 - August 31, 2021 |
|
|
263 |
|
|
$ |
22.05 |
|
|
|
263 |
|
|
|
83,195 |
|
|
September 1 - September 30, 2021 |
|
|
2,602 |
|
|
$ |
23.56 |
|
|
|
2,602 |
|
|
|
80,593 |
(2) |
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Total |
|
|
2,865 |
|
|
$ |
23.42 |
|
|
|
2,865 |
(1) |
|
|
|
|
|
(1) |
All shares were purchased pursuant to the publicly announced repurchase program that was approved by the Board of Directors on May 14, 2021. The repurchase program expires on March 31, 2022. |
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(2) |
Represents the maximum number of shares available for repurchase under the May 14, 2021 plan at September 30, 2021. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed below.
Exhibit |
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Description |
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||
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|
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||
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||
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|
|
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101 |
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The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets (ii) Consolidated Statements of Income and Comprehensive Income (iii) Consolidated Statements of Changes In Shareholders’ Equity (iv) Consolidated Statements of Cash Flows, and (v) Notes to The Consolidated Financial Statements |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Oconee Federal Financial Corp. |
Date: November 12, 2021
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/s/ Curtis T. Evatt |
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Curtis T. Evatt |
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President and Chief Executive Officer |
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|
|
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/s/ John W. Hobbs |
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|
John W. Hobbs |
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|
Executive Vice President and Chief Financial Officer |
41