NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and
Principle of Consolidation: The consolidated financial statements of Oconee Federal Financial Corp. 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”) and have been prepared in accordance
with U.S. generally accepted accounting principles (“GAAP”). Intercompany accounts and transactions are eliminated
during consolidation. The Company is majority owned (72.31%) by Oconee Federal, MHC. These consolidated financial
statements do not include the transactions and balances of Oconee Federal, MHC. The Association is a federally chartered
stock savings and loan association engaged in the business of accepting savings and demand deposits and providing mortgage, consumer
and commercial loans. Primarily, the Association’s business is in the Oconee County area of northwestern South Carolina,
the northeast area of Georgia in Stephens County and Rabun County. The following is a description of the significant accounting
policies the Company follows in preparing and presenting its consolidated financial statements.
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.
Cash Flows: Cash and
cash equivalents include cash on hand, federal funds sold, overnight interest-bearing deposits and amounts due from other depository
institutions.
Restrictions on Cash: Cash
on hand or on deposit with the Federal Reserve Bank is required to meet regulatory reserve and clearing requirements. These
balances do not earn interest.
Interest-Bearing Deposits
in Other Financial Institutions: Interest-bearing deposits in other financial institutions mature within one year and are
carried at cost.
Securities: Securities
are classified as available-for-sale when they might be sold before maturity. Non-equity securities available-for-sale are
carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Effective
July 1, 2018, the change in fair value of equity securities is recognized in the income statement in accordance with ASU 2016-01.
Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.
The Company evaluates securities for other-than-temporary impairments (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. The Company considers the length of time and the extent to which the fair value has been less than cost and the financial condition and near-term prospects of the issuer. Additionally, the Company considers its intent to sell or whether it will be more likely than not it will be required to sell the security prior to the security’s anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal Government agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.
Loans Held for Sale: Mortgage
loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined
by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged
to earnings. Loans held for sale, for which the fair value option has been elected, are recorded at fair value as of each
balance sheet date. The fair value includes the servicing value of the loans as well as any accrued interest. There were
no loans held for sale at June 30, 2019 or June 30, 2018.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans: Loans that
management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on
the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized
in interest income using the level-yield method over the contractual lives of the loans without anticipating prepayments.
Interest income on loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.
Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
Allowance for Loan Losses:
The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged
against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries,
if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience,
the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic
conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management’s judgment, should be charged-off.
The allowance consists of specific and general components. The specific component consists of the amount of impairment related to loans that have been evaluated on an individual basis, and the general component consists of the amount of impairment related to loans that have been evaluated on a collective basis. Loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts when due according to the contractual terms of the loan agreement. Loans over $250 that are considered impaired are individually evaluated to determine if a specific loss reserve is required. All other impaired loans are collectively evaluated. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”).
Loan Grading System: Management
utilizes an internal loan grading system and assigns each loan a grade of pass, special mention, substandard, or doubtful, which
are more fully explained in Note 4. Any nonresidential or residential non-owner occupied loans that meet certain size
requirements and performance characteristics are individually evaluated for impairment. The amount of impairment, if any,
is measured by a comparison of the loan’s carrying value to the net present value of future cash flows using the loan’s
effective rate at inception or at the fair value of collateral if repayment is expected to come solely from the collateral.
All loans graded pass, special mention, substandard and doubtful not specifically evaluated for impairment are collectively evaluated
for impairment by portfolio segment. To develop and document a systematic methodology for determining the portion of the
allowance for loan losses for loans evaluated collectively, the Company has divided the loan portfolio into segments, each with
different risk characteristics and methodologies for assessing risk. Those portfolio segments are discussed below:
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 80% for traditional owner-occupied homes.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
For traditional homes, the Company may originate loans with loan-to-value ratios in excess of 80% if the borrower obtains mortgage insurance or provides readily marketable collateral. The Company may make exceptions for special loan programs that we offer. The Company also originates residential mortgage loans for non-owner-occupied homes with loan-to-value ratios of up to 80%.
The Company historically originated residential mortgage loans with loan-to-value ratios of up to 75% for manufactured or modular homes. The Company no longer offers residential mortgage loans for manufactured or modular homes as of December 1, 2014. However, renewals of existing performing credits that meet the Company’s underwriting requirements will be considered. The Company requires lower loan-to-value ratios for manufactured and modular homes because such homes tend to depreciate over time. Manufactured or modular homes must be permanently affixed to a lot to make them more difficult to move without the Company’s permission. Such homes must be “de-titled” by the states of South Carolina or Georgia so that they are taxed and must be transferred as residential homes rather than vehicles. The Company also obtains a mortgage on the real estate to which such homes are affixed.
Multi-family: Multi-family real estate loans generally have a maximum term of five years with a 30 year amortization period and a final balloon payment and are secured by properties containing five or more units in the Company’s market area. These loans are generally made in amounts of up to 75% of the lesser of the appraised value or the purchase price of the property with an appropriate projected debt service coverage ratio. The Company’s underwriting analysis includes considering the borrower’s expertise and requires verification of the borrower’s credit history, income and financial statements, banking relationships, independent appraisals, references and income projections for the property. The Company generally obtains personal guarantees on these loans.
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.
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 80% loan-to-value ratio (including all prior liens). Standard residential mortgage underwriting requirements are used to evaluate these loans. The Company offers adjustable-rate and fixed-rate options for these loans with a maximum term of 10 years. The repayment terms on lines of credit are interest only monthly with principle due at maturity. Home equity loans have a more traditional repayment structure with principal and interest due monthly. The maximum term on home equity loans is 10 years with an amortization schedule not to exceed 20 years.
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 five to 20 years with amortization periods up to 20 years. The maximum loan-to-value ratio of our nonresidential real estate loans is generally 75%.
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. Our nonresidential real estate lending includes a significant amount of loans to churches. Because a church’s financial stability often depends on donations from congregation members rather than income from business operations, repayment may be affected by economic conditions that affect individuals located both in our market area and in other market areas with which we are not as familiar. In addition, due to the unique nature of church buildings and properties, the real estate securing church loans may be less marketable than other nonresidential real estate.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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). For church loans, the Company also considers the length of time the church has been in existence, the size and financial strength of the denomination with which it is affiliated, attendance figures and growth projections and current and pro forma operating budgets. 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, and in the case of church loans, guarantees from the applicable denomination may be obtained.
Agricultural: These loans are secured by farmland and related improvements in the Company’s market area. These loans generally have terms of five to 20 years with amortization periods up to 20 years. The maximum loan-to-value ratio of these loans is generally 75%. The Company is managing a small number of these loans in our portfolio. We continue to closely monitor our existing relationships.
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 twelve months, 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 80%. Residential construction loans are generally underwritten pursuant to the same guidelines used for originating permanent residential mortgage loans. Commercial construction loans are generally underwritten pursuant to the same guidelines used for originating commercial loans.
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 two such loans at a time. These loans generally have a maximum term of eight 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 85%.
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.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 18 months for unsecured loans and 18 to 60 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.
Concentration of Credit
Risk and Other: The Company’s business activity is principally with customers located in the northwest portion
of South Carolina and northeast Georgia. The Company requires its customers to provide collateral, generally in the form
of title to real estate, for substantially all loans. Certain consumer loans are made to customers without requiring collateral.
Except for loans in the Company’s market area, the Company has no other significant concentrations of credit risk.
The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) provides deposit insurance for up to $250 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits, and management believes the risk of loss is not significant.
Purchased Credit Impaired
Loans: With the acquisition of Stephens Federal Bank in 2014, the Company purchased individual loans with evidence of
credit deterioration since origination. These purchased credit impaired (“PCI”) loans were recorded at the amount
paid, such that there was no carryover of the seller’s allowance for loan losses. After acquisition, losses are recognized
by an increase in the allowance for loan losses. Purchased credit impaired loans are accounted for individually. The
Company estimates the amount and timing of expected cash flows for each loan, and the expected cash flows in excess of amount
paid is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loans’ contractual
principal and interest over expected cash flows is not recorded (nonaccretable difference).
Future expected cash flows are re-estimated periodically over the life of each purchased credit impaired loan. If the present value of expected cash flows is less than the carrying amount, a loss is recorded. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income. For the years ended and as of June 30, 2019 and 2018, the amount of accretable yield on PCI loans was immaterial.
Purchased Performing Loans:
The Company accounts for purchased performing loans at acquisition at fair value, which includes a credit discount.
The resulting fair value (premium/discount) is amortized/accreted to interest income on a level yield basis over the estimated
lives of the loans. There is no allowance for loan losses established for purchased performing loans at acquisition; however,
a provision for loan losses is recorded for any further deterioration in these loans subsequent to the acquisition.
Loan Servicing Rights:
When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income
statement effect recorded in mortgaging banking income. Fair value is based on market prices for comparable mortgage servicing
contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future
net servicing income.
Under the fair value measurement method, the Company measures servicing rights at fair value at each reporting date and reports changes in fair value of servicing assets in earnings in the period in which the changes occur, and are shown as change in loan servicing asset on the consolidated statements of income and comprehensive income. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill: Goodwill
represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination.
Management reviews goodwill for impairment annually, or more frequently if deemed necessary, as goodwill is deemed to have an
indefinite life. On the annual assessment date, May 31, management performs a qualitative assessment of whether it was more likely
than not that the fair value exceeds carrying value. Based on the most recent assessment, management determined that it was more
likely than not that the fair value exceeded its carrying value, resulting in no impairment to goodwill.
Core Deposit Intangible:
Core deposit intangible represents the estimated value of long-term deposit core deposit relationships acquired in a business
combination. This value is amortized over the weighted-average estimated useful lives of deposit accounts using a method that
management believes reasonably approximates the anticipated benefit stream from this intangible. The estimated useful lives are
periodically reviewed for reasonableness. The core deposit intangible acquired will be amortized over 10 years using the original
projections of future benefit stream of cash flows, adjusted periodically, if needed for potential impairment of the remaining
unamortized balance of the core deposit intangible.
Premises and Equipment:
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings
and related components are depreciated using the straight-line method with useful lives ranging from 5 to 39 years.
Furniture, fixtures and equipment are depreciated using the straight-line method, with useful lives ranging from 5 to 7 years.
Maintenance and repairs are charged to operations in the year incurred. Gains and losses on dispositions are included in
current year operations. The Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amounts of such assets may not be recoverable.
Real Estate Owned:
Real estate acquired through loan foreclosure is initially recorded at fair value less cost to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, real estate owned is recorded at the lower of carrying amount
or fair value less estimated costs to sell. Any initial losses at the time of foreclosure are charged against the allowance
for loan losses with any subsequent losses or write-downs included in the consolidated statements of income and comprehensive
income as a component of noninterest expenses.
Restricted Equity Securities:
Restricted equity securities consist of Federal Home Loan Bank of Atlanta (“FHLB”) stock and First National Bankers
Bancshares, Inc. (“FNBB”) stock. The Company is a member of the FHLB system. Members are required to own a certain
amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. There is a very
limited market for FNBB stock. Based on the redemptive provisions of the FHLB and FNBB, the stock is carried at cost, as
restricted securities, and is periodically evaluated for impairment based on ultimate recovery of par value. Both cash and
stock dividends are reported as income.
Income Taxes: The
provision for income taxes is based on amounts reported in the consolidated statements of income and comprehensive income (after
exclusion of non-taxable income such as interest on state and municipal securities) and includes changes in deferred taxes.
Deferred taxes are computed using the asset and liability approach. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be
realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes.
The Company follows guidance issued by the FASB with respect to accounting for uncertainty in income taxes. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
The Company recognizes interest and/or penalties related to income tax matters in other noninterest expense.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income:
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income for the Company
consists solely of unrealized gains and losses on securities available-for-sale, net of tax.
Loss Contingencies:
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities
when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not
believe there now are such matters that will have a material effect on the consolidated financial statements.
Loan Commitments and Related
Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments
to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items
represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments
are recorded when they are funded.
Fair Value of Financial
Instruments: Fair values of financial instruments are estimated using relevant market information. Changes in
market conditions could significantly affect the estimates. For financial instruments where there is little or no relevant
market information due to limited or no market activity, the Company estimates the fair value of these instruments through the
use of a discounted present value of estimated cash flows technique, which includes the Company’s own assumptions as to
the amounts and timing of cash flows, adjusted for risk factors related to nonperformance and liquidity. The Company’s assumptions
are based on an exit price strategy and take into consideration the assumptions that a willing market participant would use about
nonperformance and liquidity risk.
Employee Stock Ownership
Plan (“ESOP”): The cost of shares issued to the ESOP, but not yet allocated to participants, is shown as
a reduction of shareholders’ equity. Compensation expense is based on the market price of shares as they are committed
to be released to participant accounts. Dividends, when paid, on allocated ESOP shares reduce retained earnings. Dividends,
when paid, on unearned ESOP shares reduce debt and accrued interest.
Retirement Plans:
Profit sharing plan expense is the amount of the Company’s contribution to participants of the plan. Deferred
compensation and supplemental retirement plan expense allocates the benefits over years of service.
Bank Owned Life Insurance:
The Company has purchased life insurance policies on certain directors. Accounting guidance requires bank owned
life insurance to be recorded at the amount that can be realized under the insurance contract at the balance sheet date, which
is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Reclassifications:
Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation and
had no effect on net income or shareholders’ equity.
Earnings Per Share (“EPS”): Basic EPS is based on the weighted average number of common shares outstanding and is adjusted for ESOP shares not yet committed to be released. Unvested restricted stock awards, which contain rights to non-forfeitable dividends, are considered participating securities and the two-class method of computing basic and diluted EPS is applied. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as outstanding stock options, were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable (such as stock options) or which could be converted into common stock, if dilutive, using the treasury stock method.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Segment Reporting:
While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and
financial performance is evaluated on a Company-wide basis. Operating results are not reviewed by senior management to make
resource allocation or performance decisions. Management has determined that the Company has a single operating segment,
which is to provide consumer and commercial banking services to individuals and businesses located in Oconee County, South Carolina
and to Stephens and Rabun Counties, Georgia and their surrounding counties and townships. The Company’s various products
and services are those generally offered by community banks, and the allocation of resources is based on the overall performance
of the Company versus individual regions, branches, products and services.
New Accounting Standards:
Accounting Standards Update (“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. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company is assessing the impact of ASU 2019-05 on its consolidated financial statements. On July 17, 2019, the Financial Accounting Standards Board (“FASB”) voted to issue a proposal for public comment that would potentially result in a postponement of the required implementation date for ASU 2016-13. Management will continue to monitor any new developments regarding this possible delay.
ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”. Issued in April 2019, ASU 2019-04 clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The amendments related to credit losses will be effective for the Company for reporting periods beginning after December 15, 2019. The amendments related to hedging will be effective for the Company for interim and annual periods beginning after December 15, 2018. The amendments related to recognition and measurement of financial instruments will be effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2019-01, “Leases (Topic 842): Codification Improvements”. Issued in March 2019, ASU 2019-01 aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Accounting Standards Codification (ASC) 842, Leases, with that of the existing guidance (ASC 820, Fair Value Measurement). As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply and costs incurred to acquire the asset, as per ASC 842, Leases. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in ASC 820, Fair Value Measurement) should be applied. The ASU also requires lessors within the scope of ASC 942, Financial Services—Depository and Lending, to present all principal payments received under leases within investing activities. Finally, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new lease standard. The amendment is effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those years. The Company does not expect these amendments to have a material effect on its consolidated financial statements due to the fact that the Company does not have any significant leases.
ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. Issued in August 2018, ASU 2018-13 provides guidance about fair value measurement disclosures. The amendment requires numerous removals, modifications and additions of fair value disclosure information. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years; early adoption is permitted. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date. The Company does not expect these amendments to have a material effect on its consolidated financial statements.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ASU 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. Issued in February 2018, ASU 2018-02 provides guidance with regard to the reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for certain stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years; early adoption is permitted. The Company adopted this standard effective March 31, 2018 and elected to reclassify the income tax effects of the Tax Cuts and Jobs Act from AOCI to retained earnings.
ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”. Issued in May 2017, ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments are applied prospectively to an award modified on or after the adoption date. The Company has determined that this guidance does not have a material effect on its consolidated financial statements.
ASU 2017-08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”. Issued in March 2017, ASU 2017-08 amends the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments were applied with a cumulative-effect adjustment directly to retained earnings. The Company adopted this standard on June 30, 2019 as reflected by a $245 adjustment to retained earnings.
ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. Issued in January 2017, ASU 2017-04 amendments eliminate Step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis. The Company does not believe that this new guidance will have a material effect on its consolidated financial statements.
ASU 2016-15, “Statement of Cash Flows (Topic 230)”. Issued in August 2016, ASU 2016-15 provides guidance on the classification of certain cash receipts and cash payments for presentation in the statement of cash flows. The amendment is effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those years. The amendments will be applied using a retrospective transition method to each period presented unless impracticable. The Company has determined that this guidance does not have a material effect on its consolidated financial statements.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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. ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company has determined that it will continue to prepare its credit loss allowance internally. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements. On July 17, 2019, the Financial Accounting Standards Board (“FASB”) voted to issue a proposal for public comment that would potentially result in a postponement of the required implementation date for ASU 2016-13. Management will continue to monitor any new developments regarding this possible delay.
ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. Issued in January 2016, ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The ASU affects public and private companies, not-for-profit organizations, and employee benefit plans that hold financial assets or owe financial liabilities. This ASU was effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted the guidance July 1, 2018 as reflected by a $109 adjustment to retained earnings, and as a result, measured the fair value of its loan portfolio as of June 30, 2019 using an exit price notion.
ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. Issued in May 2014, ASU 2014-09 provides a framework for revenue recognition that replaces the existing industry and transaction specific requirements under the existing standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. On July 9, 2015, the FASB approved amendments deferring the effective date by one year. ASU 2014-09 was effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. In March and April 2016, the FASB issued final amendments (ASU 2016-08 and ASU 2016-10) to clarify the implementation guidance for principal versus agent considerations, identifying performance obligations and the accounting for licenses of intellectual property. In May 2016, the FASB issued final amendments (ASU-11) to clarify guidance related to collectability, noncash considerations, presentation of sales tax, and transition. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this Update recognized at the date of initial application. The Company adopted the new guidance effective July 1, 2018 and utilized the modified retrospective method. Under the modified retrospective method the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, the guidance did not have a material impact on revenue most closely associated with financial instruments, including interest income and expense. The Company completed its overall assessment of revenue streams and review of related contracts potentially affected by the ASU, including deposit related fees, interchange fees, and merchant income. Based on this assessment, the Company concluded that ASU 2014-09 does not materially change the method in which the Company currently recognizes revenue for these revenue streams. The Company also completed its evaluation of certain costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue (i.e., gross vs. net). Based on its evaluation, the Company determined that the classification of certain debit and credit card related revenues should change (i.e., revenue previously recorded as contra-expense will be recorded as revenue). These classification changes resulted in an immaterial net increase of both revenue and expense. This change did not have a material effect to noninterest income or expense. The Company adopted ASU 2014-09 as of its required effective date of July 1, 2018 utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary. The Company did reclassify prior period amounts for the debit and credit card costs noted above.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
There
have been no other accounting standards that have been issued or proposed by the Financial Accounting Standards Board (“FASB”)
or other standards-setting bodies 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.
NOTE
2—EARNINGS PER SHARE
Basic
EPS is determined by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding
to include the effect of contracts or securities exercisable (such as stock options) or which could be converted into common stock,
if dilutive, using the treasury stock method. ESOP shares are considered outstanding for this calculation unless unearned.
The factors used in the earnings per common share computation follow:
|
|
|
|
|
|
|
|
|
Years
Ended
|
|
|
|
June
30,
2019
|
|
|
June
30,
2018
|
|
Earnings per share
|
|
|
|
|
|
|
Net income
|
|
$
|
3,720
|
|
|
$
|
3,035
|
|
Less: distributed
earnings allocated to participating securities
|
|
|
(3
|
)
|
|
|
(4
|
)
|
Less: (undistributed
income) dividends in excess of earnings allocated to participating securities
|
|
|
(3
|
)
|
|
|
(4
|
)
|
Net
earnings available to common shareholders
|
|
$
|
3,714
|
|
|
$
|
3,027
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding including participating securities
|
|
|
5,763,190
|
|
|
|
5,760,227
|
|
Less: participating
securities
|
|
|
(8,800
|
)
|
|
|
(15,355
|
)
|
Less: average unearned
ESOP shares
|
|
|
(68,459
|
)
|
|
|
(83,646
|
)
|
Weighted average
common shares outstanding
|
|
|
5,685,931
|
|
|
|
5,661,226
|
|
Basic earnings
per share
|
|
$
|
0.65
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
5,685,931
|
|
|
|
5,661,226
|
|
Add: dilutive
effects of assumed exercises of stock options
|
|
|
73,969
|
|
|
|
120,490
|
|
Average shares
and dilutive potential common shares
|
|
|
5,759,900
|
|
|
|
5,781,716
|
|
Diluted earnings
per share
|
|
$
|
0.64
|
|
|
$
|
0.52
|
|
During
the years ended June 30, 2019 and 2018, there were 22,400 shares that were considered anti-dilutive as the weighted average exercise
prices of outstanding stock options were in excess of the weighted average market value for the periods presented.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
3—SECURITIES AVAILABLE-FOR-SALE
Debt,
mortgage-backed and equity securities have been classified in the consolidated balance sheets according to management’s
intent. U.S. Government agency mortgage-backed securities consist of securities issued by U.S. Government agencies and U.S.
Government sponsored enterprises. Effective July 1, 2018, the change in fair value of equity securities is recognized in
the income statement in accordance with ASU 2016-01. Investment securities at June 30, 2019 and 2018 are as follows:
June
30, 2019
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Change
in
Fair Value
Equity Securities
|
|
|
Fair
Value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
common stock
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
192
|
|
|
$
|
212
|
|
Certificates
of deposit
|
|
|
2,493
|
|
|
|
11
|
|
|
|
(5)
|
|
|
|
—
|
|
|
|
2,499
|
|
Municipal
securities
|
|
|
24,968
|
|
|
|
295
|
|
|
|
(38
|
)
|
|
|
—
|
|
|
|
25,225
|
|
SBA
loan pools
|
|
|
22
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22
|
|
CMOs
|
|
|
14,889
|
|
|
|
111
|
|
|
|
(30
|
)
|
|
|
—
|
|
|
|
14,970
|
|
U.S.
Government agency mortgage-backed securities
|
|
|
40,366
|
|
|
|
228
|
|
|
|
(52
|
)
|
|
|
—
|
|
|
|
40,542
|
|
U.S.
Government agency bonds
|
|
|
11,980
|
|
|
|
10
|
|
|
|
(31
|
)
|
|
|
—
|
|
|
|
11,959
|
|
Total
available-for-sale
|
|
$
|
94,738
|
|
|
$
|
655
|
|
|
$
|
(156
|
)
|
|
$
|
192
|
|
|
$
|
95,429
|
|
June
30, 2018
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
common stock
|
|
$
|
20
|
|
|
$
|
109
|
|
|
$
|
—
|
|
|
$
|
129
|
|
Certificates
of deposit
|
|
|
5,485
|
|
|
|
—
|
|
|
|
(94
|
)
|
|
|
5,391
|
|
Municipal
securities
|
|
|
43,393
|
|
|
|
14
|
|
|
|
(1,069
|
)
|
|
|
42,338
|
|
SBA
loan pools
|
|
|
401
|
|
|
|
2
|
|
|
|
—
|
|
|
|
403
|
|
CMOs
|
|
|
10,529
|
|
|
|
—
|
|
|
|
(445
|
)
|
|
|
10,084
|
|
U.S.
Government agency mortgage-backed securities
|
|
|
44,490
|
|
|
|
6
|
|
|
|
(1,206
|
)
|
|
|
43,290
|
|
U.S.
Government agency bonds
|
|
|
14,027
|
|
|
|
—
|
|
|
|
(516
|
)
|
|
|
13,511
|
|
Total
available-for-sale
|
|
$
|
118,345
|
|
|
$
|
131
|
|
|
$
|
(3,330
|
)
|
|
$
|
115,146
|
|
Securities
pledged at June 30, 2019 and 2018 had a fair value amount of $26,029 and $42,098, respectively, and were pledged to secure public
deposits and FHLB advances.
At
June 30, 2019 and 2018, there were no holdings of securities of any one issuer, other than the U.S. Government agencies and U.S.
Government sponsored enterprises, in an amount greater than 10% of shareholders’ equity.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
3—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 twelve months or more at June 30, 2019 and 2018. The table also shows the number of securities in an unrealized
loss position for each category of investment security as of the respective dates.
|
|
Less
than 12 Months
|
|
|
12
Months or More
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Number
in Unrealized Loss (1)
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Number
in Unrealized Loss (1)
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Number
in Unrealized Loss (1)
|
|
June
30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
991
|
|
|
$
|
(5
|
)
|
|
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
991
|
|
|
$
|
(5
|
)
|
|
|
4
|
|
Municipal securities
|
|
|
745
|
|
|
|
(10
|
)
|
|
|
2
|
|
|
|
3,750
|
|
|
|
(28
|
)
|
|
|
7
|
|
|
|
4,495
|
|
|
|
(38
|
)
|
|
|
9
|
|
CMOs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,059
|
|
|
|
(30
|
)
|
|
|
7
|
|
|
|
3,059
|
|
|
|
(30
|
)
|
|
|
7
|
|
U.S.
Government agency mortgage-backed securities
|
|
|
5,377
|
|
|
|
(9
|
)
|
|
|
5
|
|
|
|
11,198
|
|
|
|
(43
|
)
|
|
|
18
|
|
|
|
16,575
|
|
|
|
(52
|
)
|
|
|
23
|
|
U.S.
Government agency bonds
|
|
|
4,475
|
|
|
|
(23
|
)
|
|
|
4
|
|
|
|
2,013
|
|
|
|
(8
|
)
|
|
|
2
|
|
|
|
6,488
|
|
|
|
(31
|
)
|
|
|
6
|
|
|
|
$
|
11,588
|
|
|
$
|
(47
|
)
|
|
|
15
|
|
|
$
|
20,020
|
|
|
$
|
(109
|
)
|
|
|
34
|
|
|
$
|
31,608
|
|
|
$
|
(156
|
)
|
|
|
49
|
|
|
|
Less
than 12 Months
|
|
|
12
Months or More
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Number
in Unrealized Loss (1)
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Number
in Unrealized Loss (1)
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Number
in Unrealized Loss (1)
|
|
June
30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
$
|
5,391
|
|
|
$
|
(94
|
)
|
|
|
22
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
5,391
|
|
|
$
|
(94
|
)
|
|
|
22
|
|
Municipal
securities
|
|
|
28,305
|
|
|
|
(587
|
)
|
|
|
75
|
|
|
|
10,789
|
|
|
|
(482
|
)
|
|
|
25
|
|
|
|
39,094
|
|
|
|
(1,069
|
)
|
|
|
100
|
|
CMOs
|
|
|
1,334
|
|
|
|
(38
|
)
|
|
|
2
|
|
|
|
8,750
|
|
|
|
(407
|
)
|
|
|
14
|
|
|
|
10,084
|
|
|
|
(445
|
)
|
|
|
16
|
|
U.S.
Government agency mortgage-backed securities
|
|
|
30,997
|
|
|
|
(773
|
)
|
|
|
43
|
|
|
|
10,887
|
|
|
|
(433
|
)
|
|
|
13
|
|
|
|
41,884
|
|
|
|
(1,206
|
)
|
|
|
56
|
|
U.S.
Government agency bonds
|
|
|
5,789
|
|
|
|
(177
|
)
|
|
|
7
|
|
|
|
7,722
|
|
|
|
(339
|
)
|
|
|
7
|
|
|
|
13,511
|
|
|
|
(516
|
)
|
|
|
14
|
|
|
|
$
|
71,816
|
|
|
$
|
(1,669
|
)
|
|
|
149
|
|
|
$
|
38,148
|
|
|
$
|
(1,661
|
)
|
|
|
59
|
|
|
$
|
109,964
|
|
|
$
|
(3,330
|
)
|
|
|
208
|
|
(1) Actual
amounts.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
3—SECURITIES AVAILABLE-FOR-SALE (Continued)
None
of the unrealized losses at June 30, 2019 were recognized into net income for the year ended June 30, 2019 because the issuer’s
bonds are of high credit quality, management does not intend to sell and it is likely 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, 2018 were recognized as having OTTI during the year ended June 30, 2018.
The
amortized cost and fair value of debt securities classified as available-for-sale at June 30, 2019 and 2018 by contractual maturity
are summarized in the following table. Mortgage-backed securities are not scheduled since expected maturities will differ
from contractual maturities because borrowers have the right to prepay the obligations. FHLMC common stock is not scheduled because
it has no contractual maturity date.
|
|
June
30, 2019
|
|
|
June
30, 2018
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Less than
one year
|
|
$
|
2,000
|
|
|
$
|
1,994
|
|
|
$
|
1,004
|
|
|
$
|
1,003
|
|
Due from one to five
years
|
|
|
11,627
|
|
|
|
11,663
|
|
|
|
19,415
|
|
|
|
19,049
|
|
Due after five years
to ten years
|
|
|
18,817
|
|
|
|
18,955
|
|
|
|
33,186
|
|
|
|
32,230
|
|
Due after ten years
|
|
|
7,019
|
|
|
|
7,093
|
|
|
|
9,701
|
|
|
|
9,361
|
|
Mortgage-backed
securities, CMOs and FHLMC stock (1)
|
|
|
55,275
|
|
|
|
55,724
|
|
|
|
55,039
|
|
|
|
53,503
|
|
Total
available for sale
|
|
$
|
94,738
|
|
|
$
|
95,429
|
|
|
$
|
118,345
|
|
|
$
|
115,146
|
|
(1) Includes
SBA loan pools.
The
following table presents the gross proceeds from sales of securities available-for-sale and gains or losses recognized for the
years ended June 30, 2019 and 2018:
|
|
Year
Ended
|
|
Available-for-sale:
|
|
June
30,
2019
|
|
|
June
30,
2018
|
|
Proceeds
|
|
$
|
23,928
|
|
|
$
|
3,980
|
|
Gross
gains
|
|
|
35
|
|
|
|
11
|
|
Gross
losses
|
|
|
(75
|
)
|
|
|
(18)
|
|
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
4—LOANS
The
components of loans at June 30, 2019 and 2018 were as follows:
|
|
June
30,
2019
|
|
|
June
30,
2018
|
|
Real
estate loans:
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
289,077
|
|
|
$
|
269,868
|
|
Multi-family
|
|
|
1,605
|
|
|
|
1,735
|
|
Home
equity
|
|
|
5,191
|
|
|
|
3,914
|
|
Nonresidential
|
|
|
19,350
|
|
|
|
17,591
|
|
Agricultural
|
|
|
1,510
|
|
|
|
1,272
|
|
Construction
and land
|
|
|
33,651
|
|
|
|
27,513
|
|
Total
real estate loans
|
|
|
350,384
|
|
|
|
321,893
|
|
Commercial
and industrial
|
|
|
4,390
|
|
|
|
326
|
|
Consumer
and other loans
|
|
|
5,314
|
|
|
|
5,539
|
|
Total
loans
|
|
$
|
360,088
|
|
|
$
|
327,758
|
|
The
following table presents the activity in the allowance for loan losses for the year ended June 30, 2019 by portfolio segment:
Year
ended June 30, 2019
|
|
Beginning
Balance
|
|
|
Provision
|
|
|
Charge-offs
|
|
|
Recoveries
|
|
|
Ending
Balance
|
|
Real
estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
939
|
|
|
$
|
74
|
|
|
$
|
(18)
|
|
|
$
|
—
|
|
|
$
|
995
|
|
Multi-family
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
Home
equity
|
|
|
8
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
Nonresidential
|
|
|
66
|
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87
|
|
Agricultural
|
|
|
1
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
Construction
and land
|
|
|
74
|
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
94
|
|
Total
real estate loans
|
|
|
1,092
|
|
|
|
133
|
|
|
|
(18)
|
|
|
|
—
|
|
|
|
1,207
|
|
Commercial
and industrial
|
|
|
4
|
|
|
|
63
|
|
|
|
—
|
|
|
|
—
|
|
|
|
67
|
|
Consumer
and other loans
|
|
|
1
|
|
|
|
22
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
Total
loans
|
|
$
|
1,097
|
|
|
$
|
218
|
|
|
|
(18)
|
|
|
$
|
—
|
|
|
$
|
1,297
|
|
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
4—LOANS (Continued)
The
following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio
segment at June 30, 2019:
|
|
Ending Allowance on Loans:
|
|
|
Loans:
|
|
At June 30, 2019
|
|
Individually
Evaluated for
Impairment
|
|
|
Collectively
Evaluated for
Impairment
|
|
|
Individually
Evaluated for
Impairment
|
|
|
Collectively
Evaluated for
Impairment
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
—
|
|
|
$
|
995
|
|
|
$
|
2,291
|
|
|
$
|
286,786
|
|
Multi-family
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
1,605
|
|
Home equity
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
|
5,191
|
|
Nonresidential
|
|
|
—
|
|
|
|
87
|
|
|
|
613
|
|
|
|
18,737
|
|
Agricultural
|
|
|
—
|
|
|
|
3
|
|
|
|
356
|
|
|
|
1,154
|
|
Construction and land
|
|
|
—
|
|
|
|
94
|
|
|
|
—
|
|
|
|
33,651
|
|
Total real estate loans
|
|
|
—
|
|
|
|
1,207
|
|
|
|
3,260
|
|
|
|
347,124
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
67
|
|
|
|
—
|
|
|
|
4,390
|
|
Consumer and other loans
|
|
|
—
|
|
|
|
23
|
|
|
|
—
|
|
|
|
5,314
|
|
Total loans
|
|
$
|
—
|
|
|
$
|
1,297
|
|
|
$
|
3,260
|
|
|
$
|
356,828
|
|
The
following table presents the activity in the allowance for loan losses for the year ended June 30, 2018 by portfolio segment:
Year ended June 30, 2018
|
|
Beginning
Balance
|
|
|
Provision
|
|
|
Charge-offs
|
|
|
Recoveries
|
|
|
Ending Balance
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
900
|
|
|
$
|
39
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
939
|
|
Multi-family
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
Home equity
|
|
|
2
|
|
|
|
6
|
|
|
|
(13
|
)
|
|
|
13
|
|
|
|
8
|
|
Nonresidential
|
|
|
63
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
66
|
|
Agricultural
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
Construction and land
|
|
|
35
|
|
|
|
65
|
|
|
|
(26
|
)
|
|
|
—
|
|
|
|
74
|
|
Total real estate loans
|
|
|
1,005
|
|
|
|
113
|
|
|
|
(39
|
)
|
|
|
13
|
|
|
|
1,092
|
|
Commercial and industrial
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
Consumer and other loans
|
|
|
7
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
1
|
|
Total loans
|
|
$
|
1,016
|
|
|
$
|
108
|
|
|
$
|
(40
|
)
|
|
$
|
13
|
|
|
$
|
1,097
|
|
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
4—LOANS (Continued)
The
following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio
segment at June 30, 2018:
|
|
Ending Allowance on Loans:
|
|
|
Loans:
|
|
At June 30, 2018
|
|
Individually Evaluated for Impairment
|
|
|
Collectively Evaluated for Impairment
|
|
|
Individually Evaluated for Impairment
|
|
|
Collectively Evaluated for Impairment
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
—
|
|
|
$
|
939
|
|
|
$
|
2,434
|
|
|
$
|
267,434
|
|
Multi-family
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
1,735
|
|
Home equity
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
3,914
|
|
Nonresidential
|
|
|
—
|
|
|
|
66
|
|
|
|
671
|
|
|
|
16,920
|
|
Agricultural
|
|
|
—
|
|
|
|
1
|
|
|
|
424
|
|
|
|
848
|
|
Construction and land
|
|
|
—
|
|
|
|
74
|
|
|
|
—
|
|
|
|
27,513
|
|
Total real estate loans
|
|
|
—
|
|
|
|
1,092
|
|
|
|
3,529
|
|
|
|
318,364
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
326
|
|
Consumer and other loans
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
5,539
|
|
Total loans
|
|
$
|
—
|
|
|
$
|
1,097
|
|
|
$
|
3,529
|
|
|
$
|
324,229
|
|
OCONEE
FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
4—LOANS (Continued)
The
tables below present loans that were individually evaluated for impairment by portfolio segment at June 30, 2019 and 2018, including
the average recorded investment balance and interest earned for the years ended June 30, 2019 and 2018:
|
|
June 30, 2019
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no recorded allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
2,375
|
|
|
$
|
2,291
|
|
|
$
|
—
|
|
|
$
|
2,363
|
|
|
$
|
53
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Nonresidential
|
|
|
648
|
|
|
|
613
|
|
|
|
—
|
|
|
|
642
|
|
|
|
—
|
|
Agricultural
|
|
|
905
|
|
|
|
356
|
|
|
|
—
|
|
|
|
390
|
|
|
|
—
|
|
Construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total real estate loans
|
|
|
3,928
|
|
|
|
3,260
|
|
|
|
—
|
|
|
|
3,395
|
|
|
|
53
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer and other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
3,928
|
|
|
$
|
3,260
|
|
|
$
|
—
|
|
|
$
|
3,395
|
|
|
$
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
3,928
|
|
|
$
|
3,260
|
|
|
$
|
—
|
|
|
$
|
3,395
|
|
|
$
|
53
|
|
Consumer and other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
3,928
|
|
|
$
|
3,260
|
|
|
$
|
—
|
|
|
$
|
3,395
|
|
|
$
|
53
|
|
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
4—LOANS (Continued)
|
|
June 30, 2018
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no recorded allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
2,516
|
|
|
$
|
2,434
|
|
|
$
|
—
|
|
|
$
|
2,251
|
|
|
$
|
67
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Nonresidential
|
|
|
707
|
|
|
|
671
|
|
|
|
—
|
|
|
|
336
|
|
|
|
3
|
|
Agricultural
|
|
|
972
|
|
|
|
424
|
|
|
|
—
|
|
|
|
436
|
|
|
|
7
|
|
Construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
131
|
|
|
|
—
|
|
Total real estate loans
|
|
|
4,195
|
|
|
|
3,529
|
|
|
|
—
|
|
|
|
3,154
|
|
|
|
77
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer and other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
4,195
|
|
|
$
|
3,529
|
|
|
$
|
—
|
|
|
$
|
3,154
|
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With recorded allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
484
|
|
|
$
|
—
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Nonresidential
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Agricultural
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Construction and land
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total real estate loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
484
|
|
|
|
—
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer and other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
484
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
$
|
4,195
|
|
|
$
|
3,529
|
|
|
$
|
—
|
|
|
$
|
3,638
|
|
|
$
|
77
|
|
Consumer and other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
4,195
|
|
|
$
|
3,529
|
|
|
$
|
—
|
|
|
$
|
3,638
|
|
|
$
|
77
|
|
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
4—LOANS (Continued)
The
following tables present the aging of past due loans as well as nonaccrual loans. Nonaccrual loans and accruing loans past
due 90 days or more include both smaller balance homogenous loans and larger balance loans that are evaluated either collectively
or individually for impairment. PCI loans for which the Company cannot reasonably estimate the amount and timing of future cash
flows are classified as nonaccrual.
Total
past due and nonaccrual loans by portfolio segment at June 30, 2019:
|
|
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
|
|
$
|
5,879
|
|
|
$
|
1,486
|
|
|
$
|
229
|
|
|
$
|
7,594
|
|
|
$
|
281,483
|
|
|
$
|
289,077
|
|
|
$
|
2,674
|
|
|
$
|
—
|
|
Multi-family
|
|
|
228
|
|
|
|
—
|
|
|
|
—
|
|
|
|
228
|
|
|
|
1,377
|
|
|
|
1,605
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
64
|
|
|
|
—
|
|
|
|
40
|
|
|
|
104
|
|
|
|
5,087
|
|
|
|
5,191
|
|
|
|
40
|
|
|
|
—
|
|
Nonresidential
|
|
|
458
|
|
|
|
—
|
|
|
|
—
|
|
|
|
458
|
|
|
|
18,892
|
|
|
|
19,350
|
|
|
|
816
|
|
|
|
—
|
|
Agricultural
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,510
|
|
|
|
1,510
|
|
|
|
356
|
|
|
|
—
|
|
Construction and land
|
|
|
308
|
|
|
|
31
|
|
|
|
—
|
|
|
|
339
|
|
|
|
33,312
|
|
|
|
33,651
|
|
|
|
31
|
|
|
|
—
|
|
Total real estate loans
|
|
|
6,937
|
|
|
|
1,517
|
|
|
|
269
|
|
|
|
8,723
|
|
|
|
341,661
|
|
|
|
350,384
|
|
|
|
3,917
|
|
|
|
—
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,390
|
|
|
|
4,390
|
|
|
|
—
|
|
|
|
—
|
|
Consumer and other loans
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
5,306
|
|
|
|
5,314
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
6,945
|
|
|
$
|
1,517
|
|
|
$
|
269
|
|
|
$
|
8,731
|
|
|
$
|
351,357
|
|
|
$
|
360,088
|
|
|
$
|
3,917
|
|
|
$
|
—
|
|
Total
past due and nonaccrual loans by portfolio segment at June 30, 2018:
|
|
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
|
|
$
|
5,180
|
|
|
$
|
1,787
|
|
|
$
|
879
|
|
|
$
|
7,864
|
|
|
$
|
262,004
|
|
|
$
|
269,868
|
|
|
$
|
3,969
|
|
|
$
|
—
|
|
Multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,735
|
|
|
|
1,735
|
|
|
|
—
|
|
|
|
—
|
|
Home equity
|
|
|
106
|
|
|
|
84
|
|
|
|
40
|
|
|
|
230
|
|
|
|
3,684
|
|
|
|
3,914
|
|
|
|
40
|
|
|
|
—
|
|
Nonresidential
|
|
|
376
|
|
|
|
179
|
|
|
|
—
|
|
|
|
555
|
|
|
|
17,036
|
|
|
|
17,591
|
|
|
|
908
|
|
|
|
—
|
|
Agricultural
|
|
|
—
|
|
|
|
424
|
|
|
|
—
|
|
|
|
424
|
|
|
|
848
|
|
|
|
1,272
|
|
|
|
445
|
|
|
|
—
|
|
Construction and land
|
|
|
50
|
|
|
|
34
|
|
|
|
—
|
|
|
|
84
|
|
|
|
27,429
|
|
|
|
27,513
|
|
|
|
19
|
|
|
|
—
|
|
Total real estate loans
|
|
|
5,712
|
|
|
|
2,508
|
|
|
|
937
|
|
|
|
9,157
|
|
|
|
312,736
|
|
|
|
321,893
|
|
|
|
5,381
|
|
|
|
—
|
|
Commercial and industrial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
326
|
|
|
|
326
|
|
|
|
—
|
|
|
|
—
|
|
Consumer and other loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,539
|
|
|
|
5,539
|
|
|
|
1
|
|
|
|
—
|
|
Total
|
|
$
|
5,712
|
|
|
$
|
2,508
|
|
|
$
|
937
|
|
|
$
|
9,157
|
|
|
$
|
318,601
|
|
|
$
|
327,758
|
|
|
$
|
5,382
|
|
|
$
|
—
|
|
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 4—LOANS (Continued)
Troubled Debt Restructurings:
At June 30, 2019 and June 30, 2018, total loans that have been modified as troubled debt restructurings were $2,675 and $3,016, respectively, which consisted of one agricultural loan, two nonresidential real estate and four one-to-four family first lien loans at June 30, 2019 and one construction loan, two agricultural loans, two non-residential real estate loans and four one-to-four family first lien loans at June 30, 2018. There was no specific allowance for loss established for these loans at June 30, 2019 or June 30, 2018. Additionally, there were no commitments to lend any additional amounts on any loan after the modification. The one-to-four family first lien troubled debt restructured during the year ended June 30, 2019 involved renewing an existing loan with a term concession. No loans modified as troubled debt restructurings during the twelve months ended June 30, 2019 have defaulted since restructuring. All of these loans are on nonaccrual at June 30, 2019 and June 30, 2018. At June 30, 2019 and June 30, 2018, $2,291 and $2,521, respectively, were individually evaluated for impairment.
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.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 4—LOANS (Continued)
Total loans by risk grade and portfolio segment at June 30, 2019:
|
|
Pass
|
|
|
Pass- Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
276,141
|
|
|
$
|
5,316
|
|
|
$
|
3,217
|
|
|
$
|
4,403
|
|
|
$
|
—
|
|
|
$
|
289,077
|
|
Multi-family
|
|
|
1,605
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,605
|
|
Home equity
|
|
|
4,733
|
|
|
|
313
|
|
|
|
69
|
|
|
|
76
|
|
|
|
—
|
|
|
|
5,191
|
|
Nonresidential
|
|
|
17,951
|
|
|
|
491
|
|
|
|
—
|
|
|
|
908
|
|
|
|
—
|
|
|
|
19,350
|
|
Agricultural
|
|
|
1,154
|
|
|
|
—
|
|
|
|
—
|
|
|
|
356
|
|
|
|
—
|
|
|
|
1,510
|
|
Construction and land
|
|
|
33,130
|
|
|
|
446
|
|
|
|
—
|
|
|
|
75
|
|
|
|
—
|
|
|
|
33,651
|
|
Total real estate loans
|
|
|
334,714
|
|
|
|
6,566
|
|
|
|
3,286
|
|
|
|
5,818
|
|
|
|
—
|
|
|
|
350,384
|
|
Commercial and industrial
|
|
|
4,390
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,390
|
|
Consumer and other loans
|
|
|
5,314
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,314
|
|
Total
|
|
$
|
344,418
|
|
|
$
|
6,566
|
|
|
$
|
3,286
|
|
|
$
|
5,818
|
|
|
$
|
—
|
|
|
$
|
360,088
|
|
Total loans by risk grade and portfolio segment at June 30, 2018:
|
|
Pass
|
|
|
Pass-Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
254,721
|
|
|
$
|
5,051
|
|
|
$
|
3,350
|
|
|
$
|
6,746
|
|
|
$
|
—
|
|
|
$
|
269,868
|
|
Multi-family
|
|
|
1,735
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,735
|
|
Home equity
|
|
|
3,298
|
|
|
|
311
|
|
|
|
129
|
|
|
|
176
|
|
|
|
—
|
|
|
|
3,914
|
|
Nonresidential
|
|
|
13,462
|
|
|
|
1,802
|
|
|
|
1,143
|
|
|
|
1,184
|
|
|
|
—
|
|
|
|
17,591
|
|
Agricultural
|
|
|
217
|
|
|
|
349
|
|
|
|
261
|
|
|
|
445
|
|
|
|
—
|
|
|
|
1,272
|
|
Construction and land
|
|
|
26,551
|
|
|
|
771
|
|
|
|
115
|
|
|
|
76
|
|
|
|
—
|
|
|
|
27,513
|
|
Total real estate loans
|
|
|
299,984
|
|
|
|
8,284
|
|
|
|
4,998
|
|
|
|
8,627
|
|
|
|
—
|
|
|
|
321,893
|
|
Commercial and industrial
|
|
|
326
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
326
|
|
Consumer and other loans
|
|
|
5,539
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,539
|
|
Total
|
|
$
|
305,849
|
|
|
$
|
8,284
|
|
|
$
|
4,998
|
|
|
$
|
8,627
|
|
|
$
|
—
|
|
|
$
|
327,758
|
|
At June 30, 2019 and 2018, consumer mortgage loans secured by residential real estate properties totaling $194 and $243 respectively, were in formal foreclosure proceedings and are included in one-to-four family loans.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 4—LOANS (Continued)
Loans to principal officers, directors, and their affiliates during the years ended June 30, 2019 and 2018 were as follows:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Beginning balance
|
|
$
|
1,134
|
|
|
$
|
1,241
|
|
New loans
|
|
|
—
|
|
|
|
—
|
|
Repayments
|
|
|
(32
|
)
|
|
|
(30
|
)
|
Other
|
|
|
—
|
|
|
|
(77
|
)
|
Ending balance
|
|
$
|
1,102
|
|
|
$
|
1,134
|
|
Directors and officers of the Company are customers of the institution in the ordinary course of business. In the opinion of management, these loans do not involve more than normal risk of collectability nor do they present other unfavorable features.
NOTE 5—PREMISES AND EQUIPMENT
Premises and equipment at June 30, 2019 and 2018 were as follows:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Land
|
|
$
|
2,225
|
|
|
$
|
1,425
|
|
Buildings and improvements
|
|
|
8,134
|
|
|
|
7,962
|
|
Furniture, fixtures and equipment
|
|
|
2,781
|
|
|
|
2,132
|
|
Computer software
|
|
|
182
|
|
|
|
90
|
|
|
|
|
13,322
|
|
|
|
11,609
|
|
Less: accumulated depreciation
|
|
|
(5,188
|
)
|
|
|
(4,792
|
)
|
|
|
$
|
8,134
|
|
|
$
|
6,817
|
|
Depreciation expense was $494 and $426 for the years ended June 30, 2019 and 2018, respectively.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 6—GOODWILL AND INTANGIBLE ASSETS
The carrying value of goodwill was $2,593 at June 30, 2019 and 2018, respectively. The carrying value of the core deposit intangible was $305 and $417 at June 30, 2019 and 2018, respectively.
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangible gross
|
|
$
|
959
|
|
|
$
|
959
|
|
Accumulated amortization
|
|
|
(654
|
)
|
|
|
(542
|
)
|
Core deposit intangible net
|
|
$
|
305
|
|
|
$
|
417
|
|
Amortization expense for the core deposit intangible for the years ended June 30, 2019 and 2018 was $112 and $151, respectively.
Estimated amortization expense for each of the next five years is as follows:
2020
|
|
$
|
94
|
|
2021
|
|
|
77
|
|
2022
|
|
|
60
|
|
2023
|
|
|
42
|
|
2024 and thereafter
|
|
|
32
|
|
Total
|
|
$
|
305
|
|
NOTE 7—DEPOSITS
At June 30, 2019 and 2018, certificate of deposit accounts with balances over $250 totaled approximately $24,777 and $24,079, respectively. Scheduled maturities of certificates of deposit at June 30, 2019 are as follows for each fiscal year:
2020
|
|
$
|
158,772
|
|
2021
|
|
|
29,987
|
|
2022
|
|
|
20,547
|
|
2023
|
|
|
10,130
|
|
2024
|
|
|
3,204
|
|
|
|
$
|
222,640
|
|
There are no certificates of deposit scheduled to mature after 2024. The Company does not accept brokered certificates of deposit.
Directors and executive officers were customers of, and had transactions with, the Company in the ordinary course of business. Included in such transactions are deposit accounts, all of which were made under normal terms. The aggregate amount of these deposit accounts was $1,925 and $1,787 at June 30, 2019 and 2018, respectively.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 8 – BORROWINGS
At June 30, 2019 and 2018, advances from the Federal Home Loan Bank were as follows:
|
|
June 30, 2019
|
|
|
|
|
Balance
|
|
|
|
Stated Interest Rate
|
|
FHLB advances due September 2019 through December 2019
|
|
$
|
19,000
|
|
|
|
2.62% - 2.78%
|
|
Total
|
|
$
|
19,000
|
|
|
|
|
|
|
|
June 30, 2018
|
|
|
|
|
Balance
|
|
|
|
Stated Interest Rate
|
|
FHLB advances due September 2018 through November 2018
|
|
$
|
14,500
|
|
|
|
2.09% - 2.23%
|
|
Total
|
|
$
|
14,500
|
|
|
|
|
|
The average interest rate of all outstanding FHLB advances was 2.75% and 2.14% on June 30, 2019 and June 30, 2018, respectively.
Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances were collateralized by $22,632 of investment securities at June 30, 2019. The Association has also pledged as collateral FHLB stock and has entered into a blanket collateral agreement whereby qualifying mortgages, free of other encumbrances and at various discounted values as determined by the FHLB, will be maintained. Based on this collateral, the Association is eligible to borrow up to a total of $128,085 at June 30, 2019.
Payments over the next five fiscal years are as follows:
There were no overnight borrowings at June 30, 2019 or June 30, 2018.
NOTE 9—INCOME TAXES
Income tax expense for the years ended June 30, 2019 and 2018 was as follows:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Current federal expense
|
|
$
|
585
|
|
|
$
|
561
|
|
Current state expense
|
|
|
269
|
|
|
|
230
|
|
Deferred federal expense
|
|
|
64
|
|
|
|
48
|
|
Deferred state benefit
|
|
|
(44
|
)
|
|
|
(51
|
)
|
Deferred tax liability remeasurement
|
|
|
—
|
|
|
|
917
|
|
Total
|
|
$
|
874
|
|
|
$
|
1,705
|
|
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 9—INCOME TAXES (Continued)
Temporary differences between tax and financial reporting that result in net deferred tax assets are as follows at June 30, 2019 and 2018:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
$
|
—
|
|
|
$
|
672
|
|
Fair value adjustments from acquisition
|
|
|
399
|
|
|
|
447
|
|
Allowance for loan losses
|
|
|
334
|
|
|
|
282
|
|
Deferred loan fees, net
|
|
|
269
|
|
|
|
240
|
|
Deferred compensation
|
|
|
143
|
|
|
|
158
|
|
Basis difference in premises and equipment
|
|
|
—
|
|
|
|
98
|
|
Acquired net operating loss (“NOL”)
|
|
|
79
|
|
|
|
79
|
|
Equity compensation plans
|
|
|
32
|
|
|
|
29
|
|
Prepaid expenses
|
|
|
48
|
|
|
|
—
|
|
Real estate owned
|
|
|
10
|
|
|
|
—
|
|
Other
|
|
|
75
|
|
|
|
72
|
|
Total deferred tax assets
|
|
|
1,389
|
|
|
|
2,077
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
|
(154
|
)
|
|
|
—
|
|
Prepaid expenses
|
|
|
—
|
|
|
|
(47
|
)
|
FHLB stock dividends
|
|
|
(48
|
)
|
|
|
(48
|
)
|
Total deferred tax liabilities
|
|
|
(202
|
)
|
|
|
(95
|
)
|
Net deferred tax asset
|
|
$
|
1,187
|
|
|
$
|
1,982
|
|
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 9—INCOME TAXES (Continued)
A net operating loss (“NOL”) of $403 was acquired in the Stephens Federal Bank acquisition in 2014. At June 30, 2019 and 2018, the NOL remaining totaled $309 and $329, respectively, with a deferred tax asset of $79 and $79, respectively. The NOL will expire in 2034. The realization of the deferred tax asset resulting from the NOL is dependent upon generating sufficient taxable income prior to the NOL’s expiration. In assessing the realizability of the deferred tax asset, management considered whether it is more likely than not that some portion or all of the deferred tax asset would not be realized. Based on the Company’s current and expected future financial performance as well as strong asset quality, management determined that no valuation allowance was necessary at June 30, 2019.
Retained earnings as of June 30, 2019 and 2018 includes approximately $5,284 representing reserve method bad debt reserves originating prior to December 31, 1987 for which no deferred income taxes are required to be provided. These reserves may be included in taxable income if the Company pays dividends in excess of its accumulated earnings and profits (as defined by the Internal Revenue Code) or in the event of a distribution in partial or complete liquidation of the Company.
A reconciliation of the amount computed by applying the federal statutory rate to pretax income with income tax expense for the years ended June 30, 2019 and 2018 is as follows:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Tax at statutory federal income tax rate
|
|
$
|
965
|
|
|
|
21.00
|
%
|
|
$
|
1,306
|
|
|
|
27.55
|
%
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income tax expense
|
|
|
225
|
|
|
|
4.90
|
|
|
|
114
|
|
|
|
2.41
|
|
Life insurance benefits
|
|
|
(98
|
)
|
|
|
(2.13
|
)
|
|
|
(133
|
)
|
|
|
(2.81
|
)
|
Tax exempt interest income
|
|
|
(153
|
)
|
|
|
(3.33
|
)
|
|
|
(234
|
)
|
|
|
(4.94
|
)
|
Deferred tax liability remeasurement
|
|
|
—
|
|
|
|
—
|
|
|
|
917
|
|
|
|
19.35
|
|
Other—net
|
|
|
(65
|
)
|
|
|
(1.41
|
)
|
|
|
(265
|
)
|
|
|
(5.59
|
)
|
Total
|
|
$
|
874
|
|
|
|
19.03
|
%
|
|
$
|
1,705
|
|
|
|
35.97
|
%
|
The Company has no current uncertain tax positions in place. No amounts were accrued for penalties or interest as of June 30, 2019 and 2018. The Company is subject to U.S. federal income tax as well as income tax of the states of South Carolina and Georgia. The Company is no longer subject to examination by taxing authorities for years before 2016.
On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”), resulting in significant modifications to existing law. As a result of the changes under the Tax Act, the Company recorded incremental income tax expense of $917 during the fiscal year ended June 30, 2018, which consisted of the remeasurement of deferred tax assets and liabilities at the new federal statutory rate of 21%. As a result of the Tax Act and under guidance of Federal Regulations 1.15-1, the Company used a blended rate of 27.55% to record current Federal income tax expense in 2018.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per
share data)
NOTE 10—COMMITMENTS
Loan commitments and related
activities: Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection,
are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others,
as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without
being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses
are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining
collateral at exercise of the commitment.
The contractual amount of financial instruments with off-balance-sheet risk at June 30, 2019 and 2018 was as follows:
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
|
Fixed
|
|
|
Variable
|
|
|
Fixed
|
|
|
Variable
|
|
Loan commitments
|
|
$
|
7,131
|
|
|
$
|
583
|
|
|
$
|
19,545
|
|
|
$
|
3,568
|
|
Unused lines of credit
|
|
$
|
22,810
|
|
|
$
|
13,361
|
|
|
$
|
24,040
|
|
|
$
|
6,599
|
|
Commitments to make loans are generally made for periods of 60 days or less. The fixed rate loan commitments are primarily for the purpose of financing the purchase, the refinance, or the construction of residential real estate. At June 30, 2019, these commitments have interest rates ranging from 2.15% to 18.00% and maturities ranging from one to 30 years.
Financial instruments with
off-balance-sheet risk: The Company has no additional financial instruments with off-balance-sheet risk.
NOTE 11—REGULATORY CAPITAL REQUIREMENTS
Savings and loan associations are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes that as of June 30, 2019, the Association met all capital adequacy requirements to which it is subject. Savings and loan holding companies became subject to capital requirements on January 1, 2015. However, such capital requirements do not apply to savings and loan holding companies with consolidated assets of less than $3,000,000.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At June 30, 2019 and 2018, the Association was categorized as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Association’s category.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Association to maintain minimum amounts and ratios of total, Tier 1 capital and Common Equity Tier 1 capital, as defined by the regulations, to risk-weighted assets, as defined, and of Tier 1 capital to average assets, as defined. The final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (the “Basel III rules”) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel III rules, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer was phased in from 0.0% for 2015 to 2.50% by 2019. The net realized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes that, as of June 30, 2019 and 2018, the Company and the Bank met all capital adequacy requirements to which they are subject.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 11—REGULATORY CAPITAL REQUIREMENTS (Continued)
The Association’s actual and minimum capital requirements to be well-capitalized under prompt corrective action provisions are as follows:
|
|
Actual
|
|
|
For Capital Adequacy Purposes
|
|
|
To Be Well Capitalized
Under Prompt Corrective Action Provisions
|
|
June 30, 2019
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
$
|
80,824
|
|
|
|
29.03
|
%
|
|
$
|
29,238
|
|
|
|
10.50
|
%
|
|
$
|
27,846
|
|
|
|
10.00
|
%
|
Common equity tier 1 capital to risk weighted assets
|
|
|
79,527
|
|
|
|
28.56
|
|
|
|
19,492
|
|
|
|
7.00
|
|
|
|
18,100
|
|
|
|
6.50
|
|
Tier 1 (core) capital to risk weighted assets
|
|
|
79,527
|
|
|
|
28.56
|
|
|
|
23,669
|
|
|
|
8.50
|
|
|
|
22,276
|
|
|
|
8.00
|
|
Tier 1 (core) capital to average assets
|
|
|
79,527
|
|
|
|
15.46
|
|
|
|
20,571
|
|
|
|
4.00
|
|
|
|
25,714
|
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For Capital Adequacy Purposes
|
|
|
To Be Well Capitalized
Under Prompt Corrective Action Provisions
|
|
June 30, 2018
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
$
|
76,018
|
|
|
|
29.75
|
%
|
|
$
|
25,237
|
|
|
|
9.875
|
%
|
|
$
|
25,556
|
|
|
|
10.00
|
%
|
Common equity tier 1 capital to risk weighted assets
|
|
|
74,872
|
|
|
|
29.30
|
|
|
|
16,292
|
|
|
|
6.375
|
|
|
|
16,611
|
|
|
|
6.50
|
|
Tier 1 (core) capital to tangible assets
|
|
|
74,872
|
|
|
|
29.30
|
|
|
|
20,125
|
|
|
|
7.875
|
|
|
|
20,445
|
|
|
|
8.00
|
|
Tier 1 (core) capital to average assets
|
|
|
74,872
|
|
|
|
15.53
|
|
|
|
19,287
|
|
|
|
4.000
|
|
|
|
24,108
|
|
|
|
5.00
|
|
The June 30, 2019 and 2018 Common Equity Tier 1 Ratios, The Tier 1 to Risk Weighted Assets Capital Ratios, and the Total Risk Weighted Assets Capital Ratios displayed above under the heading “For Capital Adequacy Purposes” include conservation buffers of 2.50% and 1.875%, respectively.
The Qualified Thrift Lender test requires at least 65% of assets be maintained in housing-related finance and other specified areas. If this test is not met, limits are placed on growth, branching, new investments, FHLB advances and dividends, or the Association must convert to a commercial bank charter. Management believes this test is met.
Dividend Restrictions—The
Company’s principal source of funds for dividend payments is dividends received from the Association. Banking regulations
limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the
amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained
net profits of the preceding two years, subject to the capital requirements described above. Due to previously declared
dividends in 2017 and 2018, the Association could not, without prior regulatory approval, declare dividends during 2019.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 12—FAIR VALUE MEASUREMENTS
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) 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).
Loans:
The fair values of loans, excluding loans held for sale and impaired loans, are estimated based on the loan’s interest rate structure. Fair values for variable rate loans that reprice frequently and with no significant change in credit risk are based on the carrying values resulting in a Level 3 classification. Fair values for fixed rate loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality along with an exit price notion resulting in a Level 3 classification.
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 June 30, 2019 or 2018.
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.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 12—FAIR VALUE MEASUREMENTS (Continued)
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 1 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.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
12—FAIR VALUE MEASUREMENTS (Continued)
Assets
and liabilities measured at fair value on a recurring basis at June 30, 2019 and 2018 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements
|
|
|
|
June
30, 2019
|
|
|
June
30, 2018
|
|
|
|
|
(Level
2)
|
|
|
|
(Level
3)
|
|
|
|
(Level
2)
|
|
|
|
(Level
3)
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLMC
common stock
|
|
$
|
212
|
|
|
$
|
—
|
|
|
$
|
129
|
|
|
$
|
—
|
|
Certificates
of deposit
|
|
|
2,499
|
|
|
|
—
|
|
|
|
5,391
|
|
|
|
—
|
|
Municipal
securities
|
|
|
25,225
|
|
|
|
—
|
|
|
|
42,338
|
|
|
|
—
|
|
SBA
loan pools
|
|
|
22
|
|
|
|
—
|
|
|
|
403
|
|
|
|
—
|
|
CMOs
|
|
|
14,970
|
|
|
|
—
|
|
|
|
10,084
|
|
|
|
—
|
|
U.S.
Government agency mortgage-backed securities
|
|
|
40,542
|
|
|
|
—
|
|
|
|
43,290
|
|
|
|
—
|
|
U.S.
Government agency bonds
|
|
|
11,959
|
|
|
|
—
|
|
|
|
13,511
|
|
|
|
—
|
|
Total
securities available-for-sale
|
|
|
95,429
|
|
|
|
—
|
|
|
|
115,146
|
|
|
|
—
|
|
Loan
servicing rights
|
|
|
—
|
|
|
|
868
|
|
|
|
—
|
|
|
|
1,093
|
|
Total
financial assets
|
|
$
|
95,429
|
|
|
$
|
868
|
|
|
$
|
115,146
|
|
|
$
|
1,093
|
|
The
table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable
inputs Level 3 for the years ended June 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
Fair
Value Measurements (Level 3)
|
|
|
|
Year
Ended
|
|
|
|
June
30
2019
|
|
|
June
30,
2018
|
|
|
|
|
Loan
Servicing Rights
|
|
|
|
Loan
Servicing Rights
|
|
Balance
at beginning of period:
|
|
$
|
1,093
|
|
|
$
|
1,141
|
|
Purchases
|
|
|
—
|
|
|
|
—
|
|
Unrealized
net losses included in net income
|
|
|
(225
|
)
|
|
|
(48
|
)
|
Balance
at end of period:
|
|
$
|
868
|
|
|
$
|
1,093
|
|
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
12—FAIR VALUE MEASUREMENTS (Continued)
The
table below presents assets measured at fair value on a non-recurring basis by level at June 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
Fair
Value Measurements
|
|
|
|
June
30,
2019
|
|
|
June
30,
2018
|
|
|
|
(Level
3)
|
|
|
(Level
3)
|
|
Non-financial
assets:
|
|
|
|
|
|
|
Real
estate owned, net:
|
|
|
|
|
|
|
One-to-four
family
|
|
$
|
226
|
|
|
$
|
91
|
|
Nonresidential
|
|
|
585
|
|
|
|
983
|
|
Construction
and land
|
|
|
—
|
|
|
|
—
|
|
Total
non-financial assets
|
|
|
811
|
|
|
|
1,074
|
|
Total
assets measured at fair value on a non-recurring basis
|
|
$
|
811
|
|
|
$
|
1,074
|
|
Real
estate owned is carried at the lower of carrying value or fair value less costs to sell. The carrying value of real estate
owned and their respective valuation allowances at June 30, 2019 and 2018 were $811 and $1,074 and $38 and $0, respectively.
The resulting write-downs for measuring real estate owned at the lower of carrying or fair value less costs to sell for the years
ended June 30, 2019 and 2018 were $38 and $0, respectively.
The
table below presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value at June 30, 2019
and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Quantitative Information
|
|
|
|
|
June 30,
2019
|
|
|
|
June 30,
2018
|
|
|
Valuation
Technique
|
|
Unobservable Inputs
|
|
|
Range
|
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
Loan servicing rights
|
|
$
|
868
|
|
|
$
|
1,093
|
|
|
Discounted cash flows
|
|
Discount rate, estimated timing of cash flows
|
|
|
10.13% to 9.75%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
226
|
|
|
$
|
91
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
|
0% to 20%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonresidential
|
|
$
|
585
|
|
|
$
|
983
|
|
|
Sales comparison approach
|
|
Adjustment for differences between the comparable sales
|
|
|
0% to 20%
|
|
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
12—FAIR VALUE MEASUREMENTS (Continued)
The
carrying amounts and estimated fair values of the Company’s on-balance sheet financial instruments at June 30, 2019 and 2018 are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2019
|
|
|
|
Carrying
|
|
|
Fair
Value
|
|
|
|
Amount
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
Total
|
|
Financial
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available-for-sale
|
|
$
|
95,429
|
|
|
$
|
—
|
|
|
$
|
95,429
|
|
|
$
|
—
|
|
|
$
|
95,429
|
|
Loans,
net(1)
|
|
|
358,791
|
|
|
|
—
|
|
|
|
—
|
|
|
|
358,473
|
|
|
|
358,473
|
|
Loan
servicing rights
|
|
|
868
|
|
|
|
—
|
|
|
|
—
|
|
|
|
868
|
|
|
|
868
|
|
Restricted
equity securities
|
|
|
1,854
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
419,106
|
|
|
$
|
196,466
|
|
|
$
|
218,985
|
|
|
$
|
—
|
|
|
$
|
415,451
|
|
FHLB
Advances
|
|
|
19,000
|
|
|
|
—
|
|
|
|
19,000
|
|
|
|
—
|
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2018
|
|
|
|
Carrying
|
|
|
Fair
Value
|
|
|
|
Amount
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
Total
|
|
Financial
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available-for-sale
|
|
$
|
115,146
|
|
|
$
|
—
|
|
|
$
|
115,146
|
|
|
$
|
—
|
|
|
$
|
115,146
|
|
Loans,
net(1)
|
|
|
326,661
|
|
|
|
—
|
|
|
|
—
|
|
|
|
319,958
|
|
|
|
319,958
|
|
Loan
servicing rights
|
|
|
1,093
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,093
|
|
|
|
1,093
|
|
Restricted
equity securities
|
|
|
1,639
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
387,588
|
|
|
$
|
174,192
|
|
|
$
|
208,967
|
|
|
$
|
—
|
|
|
$
|
383,159
|
|
FHLB
Advances
|
|
|
14,500
|
|
|
|
—
|
|
|
|
14,494
|
|
|
|
—
|
|
|
|
14,494
|
|
(1)
|
Carrying
amount of loans is net of unearned income and the allowance. In accordance with the adoption of ASU No. 2016-01, the fair value
of loans as of June 30, 2019 was measured using an exit price notion. The fair value of loans as of June 30, 2018 was measured
using an entry price notion.
|
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
13—EMPLOYEE BENEFIT PLANS
The
Company has deferred compensation agreements with certain of its directors whereby director fees are withheld to fund insurance
contracts from which the funds will ultimately be disbursed. These agreements require the Company to make payments to such
directors beginning at the age set forth in the agreement or upon death of the director if prior to the minimum age requirement.
The directors vest ratably over periods established in the agreements. Interest on the liabilities is charged to earnings
based on imputed interest rates established at the beginning of each agreement, which range from 6.69% to 8.50% at both June 30,
2019 and 2018, respectively. The total expense incurred under these plans for the years ended June 30, 2019 and 2018 was
$47 and $49, respectively. The recorded liability for these agreements was $555 and $613 at June 30, 2019 and 2018, respectively,
and is included in other accrued liabilities in the consolidated balance sheet.
To
provide funds for the payments under these deferred compensation agreements, the Company has purchased insurance policies on the
lives of the directors covered by these plans.
The
Company has the option of making an annual contribution to a profit-sharing plan for all full-time employees over the age of 21
having completed one year of service. The Company has exercised this option in 2019 and 2018, and as such, total expense
under the profit sharing plan for each of the years ended June 30, 2019 and 2018 was $147 and $132, respectively.
NOTE
14—EMPLOYEE STOCK OWNERSHIP PLAN
Employees
participate in an Employee Stock Ownership Plan. The ESOP borrowed from the Company to purchase 248,842 shares of the Company’s
common stock at $10 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 2018 or 2017. ESOP compensation expense recognized for the years ended
June 30, 2019 and 2018 was $421 and $508, respectively.
Shares
held by the ESOP at June 30, 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
June
30,
2019
|
|
|
June
30,
2018
|
|
Committed
to be released to participants
|
|
|
11,983
|
|
|
|
10,095
|
|
Allocated
to participants
|
|
|
127,257
|
|
|
|
127,985
|
|
Unearned
|
|
|
59,245
|
|
|
|
80,609
|
|
Total
ESOP shares
|
|
|
198,485
|
|
|
|
218,689
|
|
|
|
|
|
|
|
|
|
|
Fair
value of unearned shares
|
|
$
|
1,360
|
|
|
$
|
2,333
|
|
NOTE
15—STOCK BASED COMPENSATION
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 435,472 shares of the Company’s common stock, with no more than 124,420 of shares as restricted stock awards and 311,052
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.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the Years Ended June 30, 2019 and 2018
(Amounts
in thousands, except share and per share data)
NOTE
15—STOCK BASED COMPENSATION (Continued)
There
have been no stock options or restricted stock issued in fiscal 2019. In fiscal 2018, on December 22, 2017, the compensation committee
of the board of directors approved the issuance of 22,400 stock options to purchase Company stock to officers. Stock options and
restricted stock have vesting periods of five years or seven years, a percentage of which vests annually on each anniversary of
the grant date. The weighted average vesting period of stock options granted in fiscal 2018 was seven years. Apart from
the vesting schedule for both stock options and restricted stock, there are no performance-based conditions or any other material
conditions applicable to the awards issued.
The
following table summarizes stock option activity for the year ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted- Average Exercise Price/Share
|
|
|
Aggregate Intrinsic
Value (1)
|
|
Outstanding - June 30, 2018
|
|
|
241,209
|
|
|
$
|
14.18
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
|
(65,690
|
)
|
|
|
11.58
|
|
|
|
|
|
Forfeited
|
|
|
(6,000
|
)
|
|
|
29.33
|
|
|
|
|
|
Outstanding - June 30, 2019
|
|
|
169,519
|
|
|
$
|
14.65
|
|
|
$
|
1,407
|
|
Fully vested and exercisable at June 30, 2019
|
|
|
143,419
|
|
|
$
|
12.86
|
|
|
$
|
1,448
|
|
Expected to vest in future periods
|
|
|
26,100
|
|
|
|
|
|
|
|
|
|
Fully vested and expected to vest - June 30, 2019
|
|
|
169,519
|
|
|
$
|
14.65
|
|
|
$
|
1,407
|
|
(1)
|
|
The intrinsic value for stock
options is defined as the difference between the current market value and the exercise price. The current market price was
based on the closing price of common stock of $22.95 per share on June 30, 2019.
|
The
fair value for each option grant is estimated on the date of grant using the Black-Scholes-Merton option pricing model that uses
the following assumptions. The Company uses the U.S. Treasury yield curve in effect at the time of the grant to determine
the risk-free interest rate. The expected dividend yield is estimated using the projected annual dividend level and recent
stock price of the Company’s common stock at the date of grant. Expected stock volatility is based on historical volatilities
of the SNL Financial Index of Thrift MHCs. The expected life of the options is calculated based on the “simplified”
method as provided for under generally accepted accounting principles.
The
fiscal weighted-average fair value of options granted and assumptions used in the Black-Scholes-Merton option pricing model in
the fiscal years granted are listed below. There have been no stock options granted in fiscal 2019.
|
|
|
Fiscal
Years Granted
|
|
|
|
|
2018
|
|
|
Risk-free
interest rate
|
|
|
2.43
|
%
|
|
Expected
dividend yield
|
|
|
1.36
|
%
|
|
Expected
stock volatility
|
|
|
15.03
|
%
|
|
Expected
life (years)
|
|
|
8
|
|
|
Fair
value
|
|
$
|
5.41
|
|
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 15—STOCK BASED COMPENSATION (Continued)
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 13,095 and 16,009 options that were earned during the years ended June 30, 2019 and 2018, respectively. Stock-based compensation expense for stock options for the years ended June 30, 2019 and 2018 was $36 and $34, respectively. Total unrecognized compensation cost related to stock options was $96 at June 30, 2019 and is expected to be recognized over a weighted-average period of 4.3 years.
The following table summarizes non-vested restricted stock activity for the year ended June 30, 2019:
|
|
June 30,
2019
|
|
Balance - beginning of year
|
|
|
15,355
|
|
Granted
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
Vested
|
|
|
(6,555
|
)
|
Balance - end of period
|
|
|
8,800
|
|
Weighted average grant date fair value
|
|
$
|
19.77
|
|
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. There was no restricted stock granted during 2019 or 2018. Total shares of restricted stock granted under the Plan is 119,294 of which 8,800 remain unvested at June 30, 2019. The weighted-average grant date fair value of all shares granted is $19.77 per share. Stock-based compensation expense for restricted stock included in noninterest expense for the years ended June 30, 2019 and 2018 was $90 and $100, respectively. Unrecognized compensation expense for nonvested restricted stock awards was $149 and is expected to be recognized over 2.7 years.
NOTE 16—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 were $83,938 and $94,779 at June 30, 2019 and 2018, respectively.
Custodial escrow balances maintained in connection with serviced loans were $771 and $799 at June 30, 2019 and 2018, respectively.
Activity for loan servicing rights for the year ended June 30, 2019 and 2018 is as follows:
|
|
Year Ended
|
|
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Loan servicing rights:
|
|
|
|
|
|
|
|
|
Beginning of period:
|
|
$
|
1,093
|
|
|
$
|
1,141
|
|
Additions
|
|
|
—
|
|
|
|
—
|
|
Change in fair value
|
|
|
(225
|
)
|
|
|
(48
|
)
|
End of period:
|
|
$
|
868
|
|
|
$
|
1,093
|
|
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 16—LOAN SERVICING RIGHTS (continued)
Fair value at June 30, 2019 was determined using a discount rate of 9.75%, prepayment speed assumptions ranging from 5.13% to 13.62% Conditional Prepayment Rate (“CPR”) depending on the loans coupon, term and seasoning, and a weighted average default rate of 0.37%. Fair value at June 30, 2018 was determined using a discount rate of 10.13%, prepayment speed assumptions ranging from 4.59% to 13.69% CPR depending on the loans coupon, term and seasoning, and a weighted average default rate of 0.45%.
NOTE 17—SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the years ended June 30, 2019 and 2018 is as follows:
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
3,591
|
|
|
$
|
1,808
|
|
Income taxes paid
|
|
$
|
543
|
|
|
$
|
408
|
|
Supplemental noncash disclosures:
|
|
|
|
|
|
|
|
|
Transfers from loans to real estate owned
|
|
$
|
432
|
|
|
$
|
612
|
|
Change in unrealized gain/loss on securities available-for-sale
|
|
$
|
6,657
|
|
|
$
|
124
|
|
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 18—PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
JUNE 30, 2019 AND 2018
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,909
|
|
|
$
|
8,873
|
|
ESOP loan receivable
|
|
|
709
|
|
|
|
901
|
|
Other
|
|
|
41
|
|
|
|
41
|
|
Investment in banking subsidiary
|
|
|
82,899
|
|
|
|
75,434
|
|
Total assets
|
|
$
|
88,558
|
|
|
$
|
85,249
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Accounts payable and other liabilities
|
|
$
|
261
|
|
|
$
|
384
|
|
Shareholders’ equity
|
|
|
88,297
|
|
|
|
84,865
|
|
Total liabilities and shareholders’ equity
|
|
$
|
88,558
|
|
|
$
|
85,249
|
|
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
40
|
|
|
$
|
41
|
|
Dividend from banking subsidiary
|
|
|
—
|
|
|
|
5,690
|
|
Other expenses
|
|
|
(447
|
)
|
|
|
(456
|
)
|
Income (loss) before equity in undistributed income of
subsidiary
|
|
|
(407
|
)
|
|
|
5,275
|
|
Equity in undistributed income (losses) of subsidiary
|
|
|
4,042
|
|
|
|
(2,354
|
)
|
Income before income taxes
|
|
|
3,635
|
|
|
|
2,921
|
|
Income tax benefit
|
|
|
(85
|
)
|
|
|
(114
|
)
|
Net income
|
|
$
|
3,720
|
|
|
$
|
3,035
|
|
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended June 30, 2019 and 2018
(Amounts in thousands, except share and per share data)
NOTE 18—PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2019 AND 2018
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,720
|
|
|
$
|
3,035
|
|
Adjustments to reconcile net income to net cash provided by provided by operating activities:
|
|
|
|
|
|
|
|
|
Change in other assets
|
|
|
—
|
|
|
|
(4
|
)
|
Change in accounts payable and other liabilities
|
|
|
(123
|
)
|
|
|
(121
|
)
|
Undistributed (income) losses of subsidiary
|
|
|
(4,042
|
)
|
|
|
2,354
|
|
Net cash provided by (used in) operations
|
|
|
(445
|
)
|
|
|
5,264
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Payments received on ESOP loans
|
|
|
102
|
|
|
|
106
|
|
Net cash provided by investing activities
|
|
|
102
|
|
|
|
106
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Purchases of treasury shares
|
|
|
(1,587
|
)
|
|
|
(428
|
)
|
Proceeds from sale of common stock
|
|
|
180
|
|
|
|
—
|
|
Dividends paid
|
|
|
(2,214
|
)
|
|
|
(2,211
|
)
|
Net cash used in financing activities
|
|
|
(3,621
|
)
|
|
|
(2,639
|
)
|
Change in cash and cash equivalents
|
|
|
(3,964
|
)
|
|
|
2,731
|
|
Cash and cash equivalents, beginning of year
|
|
|
8,873
|
|
|
|
6,142
|
|
Cash and cash equivalents, end of year
|
|
$
|
4,909
|
|
|
$
|
8,873
|
|
NOTE 19—SUBSEQUENT EVENTS
On July 23, 2019, the Board of Directors of the Company declared a quarterly cash dividend of $0.10 per share of the Company’s common stock payable to stockholders of record as of August 8, 2019, which was paid on August 22, 2019.
Management has reviewed events occurring through September 23, 2019, the date the financial statements were available to be issued and has identified no subsequent events that have occurred requiring disclosure other than the dividend discussed above.