The accompanying unaudited consolidated
financial statements of Oconee Federal Financial Corp., which include the accounts of its wholly owned subsidiary Oconee Federal
Savings and Loan Association (the “Association”) (referred to herein as “the Company,” “we,”
“us,” or “our”), have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)
for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain
information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed
or omitted pursuant to such rules and regulations. Intercompany accounts and transactions are eliminated during consolidation.
The Company is majority owned (74.24%) by Oconee Federal, MHC. These financial statements do not include the transactions
and balances of Oconee Federal, MHC.
In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the Company’s financial position as of March 31, 2023 and June 30, 2022 and the results of operations and
cash flows for the interim periods ended March 31, 2023 and 2022. All interim amounts are unaudited, and the results of operations
for the interim periods herein are not necessarily indicative of the results of operations to be expected for the year ending June
30, 2023 or any other period. These consolidated financial statements should be read in conjunction with the Company’s audited
consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
June 30, 2022.
Certain amounts have been reclassified
to conform to the current period presentation. The reclassifications had no effect on net income or shareholders’ equity
as previously reported.
Cash and cash equivalents include cash
on hand, federal funds sold, overnight interest-earning deposits and amounts due from other depository institutions.
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.
Accounting Standards Update (“ASU”)
2023-01, “Leases (Topic 842): Common Control Arrangements”. Issued in March 2023, the FASB amended the Leases topic
in the Accounting Standards Codification to provide a practical expedient for private companies and not-for-profit entities that
are not conduit bond obligors to use the written terms and conditions of a common control arrangement to determine whether a lease
exists and, if so, the classification of and accounting for that lease. The amendments also change the guidance for public and
private companies to require that leasehold improvements be amortized over the useful life of those improvements to the common
control group regardless of the lease term. The amendments are effective for fiscal years beginning after December 15, 2023, including
interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a
material effect on its financial statements.
ASU 2022-06, “Reference Rate Reform
(Topic 848): Deferral of the Sunset Date of Topic 848”. Issued in December 2022, the FASB issued amendments to extend the
period of time preparers can use the reference rate reform relief guidance under Accounting Standards Codification (ASC) Topic
848 from December 31, 2022, to December 31, 2024, to address the fact that all London Interbank Offered Rate (LIBOR) tenors were
not discontinued as of December 31, 2021, and some tenors will be published until June 2023. The amendments are effective immediately
for all entities and applied prospectively. The Company does not expect these amendments to have a material effect on its financial
statements.
ASU 2022-03, “Fair Value Measurement
(Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. Issued in June 2022,
ASU 2022-03 provides guidance on the fair value measurement of an equity security that is subject to a contractual sale restriction
and require specific disclosures related to such an equity security. The amendments are effective for financial statements issued
for annual periods beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted.
The Company does not expect these amendments to have a material effect on its financial statements.
ASU 2022-02, “Financial Instruments
– Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”. Issued in March 2022, ASU 2022-02
provides guidance to improve the decision usefulness of information provided to investors about certain loan re-financings, restructurings,
and write-offs. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2022, including
interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial
statements.
ASU 2021-10, “Government Assistance
(Topic 832): Disclosures by Business Entities about Government Assistance”. Issued in November 2021, ASU 2021-10 requires
certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting
model by analogy to other accounting guidance. The guidance is effective for financial statements issued for annual periods beginning
after December 15, 2021. The Company adopted this standard on July 1, 2022. This pronouncement did not have a material effect on
the financial statements.
ASU 2020-04, “Reference Rate Reform
(Topic 848)”. Issued in March 2020, ASU 2020-04 provides temporary optional guidance to ease the potential burden in accounting
for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect
these amendments to have a material effect on its financial statements.
ASU 2019-11, “Codification to Improvements
to Topic 326, Financial Instruments – Credit Losses”. Issued in November 2019, ASU 2019-11 provides guidance that addresses
issues raised by stakeholders during the implementation of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments. The amendments affect a variety of Topics in the Accounting Standards Codification.
For the Company, the amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within
those fiscal years. Early adoption is permitted in any interim period as long as an entity has adopted the amendments in ASU 2016-13.
ASU 2019-10, “Financial Instruments
– Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)”. Issued in November 2019,
ASU 2019-10 provides guidance to defer the effective dates for private companies, not-for-profit organizations, and certain smaller
reporting companies (such as the Company) applying standards on current expected credit losses (CECL), derivatives, hedging and
leases. For the Company, the new effective date for Credit Losses (CECL) will be for fiscal years beginning after December 15,
2022, including interim periods within those fiscal years. For the Company, the effective dates for Derivatives, Hedging and Leases
were not deferred under this guidance.
ASU 2019-05, “Financial Instruments—Credit
Losses (Topic 326): Targeted Transition Relief”. Issued in May 2019, ASU 2019-05 provides entities with an option to irrevocably
elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13,
Measurement of Credit Losses on Financial Instruments. On October 16, 2019, the Financial Accounting Standards Board (“FASB”)
announced a delay in the implementation schedule allowing certain entities, including smaller reporting companies (such as the
Company) to adopt ASU 2016-13 in fiscal years beginning after December 15, 2022, and interim periods within those years.
ASU 2016-13, “Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. Issued in June 2016, ASU 2016-13 provides financial
statement users with more decision-useful information about the expected credit losses on financial instruments that are not accounted
for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables,
net investment in leases and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13
requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance
for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 eliminate the probable incurred
loss recognition in current GAAP and reflect an entity’s current estimate of all expected credit losses. The measurement
of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that
affect the collectability of the financial assets. For purchased financial assets with a more-than-insignificant amount of credit
deterioration since origination (“PCD assets”) that are measured at amortized cost, the initial allowance for credit
losses is added to the purchase price rather than being reported as a credit loss expense. Subsequent changes in the allowance
for credit losses on PCD assets are recognized through the statement of income as a credit loss expense. Credit losses relating
to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down
to the security. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2018. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements by running a parallel
loss model. In November 2019, the FASB issued guidance delaying the implementation schedule and allowing certain entities, including
smaller reporting companies (such as the Company) to adopt ASU 2016-13 in fiscal years beginning after December 15, 2022, and interim
periods within those years.
There have been no accounting standards
that have been issued or proposed by the FASB or other standards-setting bodies during the quarter ended March 31, 2023 that are
expected to have a material impact on the Company’s financial position, results of operations or cash flows. The Company
continues to evaluate the impact of standards previously issued and not yet effective, and has no changes in its assessment since
filing the Annual Report on Form 10-K.
Basic EPS is based on the weighted average
number of common shares outstanding and is adjusted for ESOP shares not yet committed to be released. Unvested restricted stock
awards, which contain rights to non-forfeitable dividends, are considered participating securities and the two-class method of
computing basic and diluted EPS is applied. Diluted EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock, such as outstanding stock options, were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is calculated by adjusting the weighted
average number of shares of common stock outstanding to include the effect of contracts or securities exercisable (such as stock
options) or which could be converted into common stock, if dilutive, using the treasury stock method. The factors used in the earnings
per common share computation follow:
| |
Less than 12 Months | | |
12 Months or More | | |
Total | |
| |
Fair Value | | |
Unrealized Loss | | |
Number
in Unrealized Loss(1) | | |
Fair Value | | |
Unrealized Loss | | |
Number
in Unrealized Loss(1) | | |
Fair Value | | |
Unrealized Loss | | |
Number
in Unrealized Loss(1) | |
March 31, 2023 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Available-for-sale: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Municipal securities | |
$ | 3,367 | | |
$ | (41 | ) | |
| 7 | | |
$ | 4,965 | | |
$ | (297 | ) | |
| 14 | | |
$ | 8,332 | | |
$ | (338 | ) | |
| 21 | |
CMOs | |
| — | | |
| — | | |
| — | | |
| 11,074 | | |
| (1,655 | ) | |
| 15 | | |
| 11,074 | | |
| (1,655 | ) | |
| 15 | |
U.S. Government agency mortgage-backed securities | |
| | |
| ) | |
| | |
| | |
| ) | |
| | |
| | |
| ) | |
| |
U.S. Treasury and Government agency bonds | |
| — | | |
| — | | |
| — | | |
| 10,491 | | |
| (1,897 | ) | |
| 7 | | |
| 10,491 | | |
| (1,897 | ) | |
| 7 | |
| |
$ | 16,029 | | |
$ | (540 | ) | |
| 15 | | |
$ | 121,951 | | |
$ | (20,633 | ) | |
| 117 | | |
$ | 137,980 | | |
$ | (21,173 | ) | |
| 132 | |
| |
Less than 12 Months | | |
12 Months or More | | |
Total | |
| |
Fair Value | | |
Unrealized Loss | | |
Number
in Unrealized Loss(1) | | |
Fair Value | | |
Unrealized Loss | | |
Number
in Unrealized Loss(1) | | |
Fair Value | | |
Unrealized Loss | | |
Number
in Unrealized Loss(1) | |
June 30, 2022 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Available-for-sale: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Municipal securities | |
$ | 15,027 | | |
$ | (397 | ) | |
| 41 | | |
$ | — | | |
$ | — | | |
| — | | |
$ | 15,027 | | |
$ | (397 | ) | |
| 41 | |
CMOs | |
| 12,174 | | |
| (972 | ) | |
| 17 | | |
| 889 | | |
| (109 | ) | |
| 1 | | |
| 13,063 | | |
| (1,081 | ) | |
| 18 | |
U.S. Government agency mortgage-backed securities | |
| | |
| ) | |
| | |
| | |
| ) | |
| | |
| | |
| ) | |
| |
U.S. Treasury and Government agency bonds | |
| 3,822 | | |
| (403 | ) | |
| 2 | | |
| 6,930 | | |
| (1,277 | ) | |
| 5 | | |
| 10,752 | | |
| (1,680 | ) | |
| 7 | |
| |
$ | 111,311 | | |
$ | (10,969 | ) | |
| 129 | | |
$ | 37,007 | | |
$ | (6,237 | ) | |
| 28 | | |
$ | 148,318 | | |
$ | (17,206 | ) | |
| 157 | |
The
Company evaluates securities for other-than-temporary impairments (“OTTI”) at least on a quarterly basis, and more
frequently when economic or market concerns warrant such evaluation. The Company considers the length of time and the extent to
which the fair value has been less than amortized cost and the financial condition and near-term prospects of the issuer. Additionally,
the Company considers its intent to sell or whether it will be more likely than not it will be required to sell the security prior
to the security’s anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may
consider whether the securities are issued by federal Government agencies, whether downgrades by bond rating agencies have occurred,
and the results of reviews of the issuer’s financial condition.
None
of the unrealized losses at March 31, 2023 were recognized into net income for the three or nine months ended March 31, 2023 because
the issuers’ bonds are of high credit quality, management does not intend to sell and it is more likely than not that management
will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due
to changes in interest rates. The fair value of these securities is expected to recover as they approach their maturity date or
reset date. None of the unrealized losses at June 30, 2022 were recognized as having OTTI during the year ended June 30, 2022.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per
share data)
(4) | SECURITIES
AVAILABLE-FOR-SALE (continued) |
The
following table presents the amortized cost and fair value of debt securities classified as available-for-sale at March 31, 2023
and June 30, 2022 by contractual maturity.
| |
March 31, 2023 | | |
June 30, 2022 | |
| |
Amortized | | |
Fair | | |
Amortized | | |
Fair | |
| |
Cost | | |
Value | | |
Cost | | |
Value | |
Less than one year | |
$ | — | | |
$ | — | | |
$ | 1,247 | | |
$ | 1,249 | |
Due from one to five years | |
| 1,447 | | |
| 1,407 | | |
| 4,756 | | |
| 4,727 | |
Due after five years to ten years | |
| 18,584 | | |
| 16,556 | | |
| 22,244 | | |
| 20,391 | |
Due after ten years | |
| 1,027 | | |
| 860 | | |
| 2,422 | | |
| 2,230 | |
Mortgage-backed securities, CMOs and FHLMC stock(1) | |
| 138,115 | | |
| 119,190 | | |
| 137,817 | | |
| 122,702 | |
Total available for sale | |
$ | 159,173 | | |
$ | 138,013 | | |
$ | 168,486 | | |
$ | 151,299 | |
| (1) | Actual
cash flows may differ from contractual maturities as borrowers may prepay obligations
without prepayment penalty. Federal Home Loan Mortgage Corporation (“FHLMC”)
common stock is not scheduled because it has no contractual maturity date. |
The
following table presents the gross proceeds from sales of securities available-for-sale and gains or losses recognized for the
three and nine months ended March 31, 2023 and 2022:
| |
| | |
| | |
| | |
| |
| |
Three Months Ended | | |
Nine Months Ended | |
Available-for-sale: | |
March 31, 2023 | | |
March 31, 2022 | | |
March 31, 2023 | | |
March 31, 2022 | |
Proceeds | |
$ | — | | |
$ | — | | |
$ | 11,049 | | |
$ | — | |
Gross gains | |
| — | | |
| — | | |
| — | | |
| — | |
Gross losses | |
| — | | |
| — | | |
| (84 | ) | |
| — | |
The
tax benefit related to the net realized loss for the nine months ended March 31, 2023 was $18.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(5) LOANS
The components of loans at March 31, 2023
and June 30, 2022 were as follows:
| |
March 31, 2023 | | |
June 30, 2022 | |
Real estate loans: | |
| | | |
| | |
One-to-four family | |
$ | 310,347 | | |
$ | 276,410 | |
Multi-family | |
| 341 | | |
| 368 | |
Home equity | |
| 7,978 | | |
| 4,803 | |
Nonresidential | |
| 25,783 | | |
| 24,629 | |
Agricultural | |
| 2,485 | | |
| 2,573 | |
Construction and land | |
| 50,261 | | |
| 32,836 | |
Total real estate loans | |
| 397,195 | | |
| 341,619 | |
Commercial and industrial | |
| 3,326 | | |
| 2,313 | |
Consumer and other loans | |
| 1,206 | | |
| 1,180 | |
Total loans | |
$ | 401,727 | | |
$ | 345,112 | |
The table above includes net deferred loan
fees of $2,291 and $2,157 at March 31, 2023 and June 30, 2022, respectively.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(5) LOANS
(continued)
The following table presents the activity
in the allowance for loan losses for the three and nine months ended March 31, 2023 by portfolio segment:
Three months March 31, 2023 | |
Beginning Balance | | |
Provision | | |
Charge-offs | | |
Recoveries | | |
Ending Balance | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | 1,016 | | |
$ | (15 | ) | |
$ | — | | |
$ | — | | |
$ | 1,001 | |
Multi-family | |
| 3 | | |
| — | | |
| — | | |
| — | | |
| 3 | |
Home equity | |
| 49 | | |
| 8 | | |
| — | | |
| — | | |
| 57 | |
Nonresidential | |
| 152 | | |
| 16 | | |
| — | | |
| — | | |
| 168 | |
Agricultural | |
| 15 | | |
| — | | |
| — | | |
| — | | |
| 15 | |
Construction and land | |
| 172 | | |
| 32 | | |
| — | | |
| — | | |
| 204 | |
Total real estate loans | |
| 1,407 | | |
| 41 | | |
| — | | |
| — | | |
| 1,448 | |
Commercial and industrial | |
| 30 | | |
| 9 | | |
| — | | |
| — | | |
| 39 | |
Consumer and other loans | |
| 2 | | |
| — | | |
| — | | |
| — | | |
| 2 | |
Total loans | |
$ | 1,439 | | |
$ | 50 | | |
$ | — | | |
$ | — | | |
$ | 1,489 | |
Nine months ended March 31, 2023 | |
Beginning Balance | | |
Provision | | |
Charge-offs | | |
Recoveries | | |
Ending Balance | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | 965 | | |
$ | 36 | | |
$ | — | | |
$ | — | | |
$ | 1,001 | |
Multi-family | |
| 9 | | |
| (6 | ) | |
| — | | |
| — | | |
| 3 | |
Home equity | |
| 34 | | |
| 23 | | |
| — | | |
| — | | |
| 57 | |
Nonresidential | |
| 158 | | |
| 10 | | |
| — | | |
| — | | |
| 168 | |
Agricultural | |
| 15 | | |
| — | | |
| — | | |
| — | | |
| 15 | |
Construction and land | |
| 132 | | |
| 72 | | |
| — | | |
| — | | |
| 204 | |
Total real estate loans | |
| 1,313 | | |
| 135 | | |
| — | | |
| — | | |
| 1,448 | |
Commercial and industrial | |
| 24 | | |
| 15 | | |
| — | | |
| — | | |
| 39 | |
Consumer and other loans | |
| 2 | | |
| — | | |
| — | | |
| — | | |
| 2 | |
Total loans | |
$ | 1,339 | | |
$ | 150 | | |
$ | — | | |
$ | — | | |
$ | 1,489 | |
The following table presents the recorded
balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at March 31, 2023:
| |
Ending Allowance on Loans: | | |
Loans: | |
At March 31, 2023 | |
Individually Evaluated for Impairment | | |
Collectively Evaluated for Impairment | | |
Individually Evaluated for Impairment | | |
Collectively Evaluated for Impairment | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | — | | |
$ | 1,001 | | |
$ | — | | |
$ | 310,347 | |
Multi-family | |
| — | | |
| 3 | | |
| — | | |
| 341 | |
Home equity | |
| — | | |
| 57 | | |
| — | | |
| 7,978 | |
Nonresidential | |
| — | | |
| 168 | | |
| 445 | | |
| 25,338 | |
Agricultural | |
| — | | |
| 15 | | |
| — | | |
| 2,485 | |
Construction and land | |
| — | | |
| 204 | | |
| — | | |
| 50,261 | |
Total real estate loans | |
| — | | |
| 1,448 | | |
| 445 | | |
| 396,750 | |
Commercial and industrial | |
| — | | |
| 39 | | |
| — | | |
| 3,326 | |
Consumer and other loans | |
| — | | |
| 2 | | |
| — | | |
| 1,206 | |
Total loans | |
$ | — | | |
$ | 1,489 | | |
$ | 445 | | |
$ | 401,282 | |
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(5) LOANS
(continued)
The following table presents the activity
in the allowance for loan losses for the three and nine months ended March 31, 2022 by portfolio segment:
Three months ended March 31, 2022 | |
Beginning Balance | | |
Provision | | |
Charge-offs | | |
Recoveries | | |
Ending Balance | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | 989 | | |
$ | 14 | | |
$ | — | | |
$ | — | | |
$ | 1,003 | |
Multi-family | |
| 4 | | |
| — | | |
| — | | |
| — | | |
| 4 | |
Home equity | |
| 41 | | |
| (2 | ) | |
| — | | |
| — | | |
| 39 | |
Nonresidential | |
| 139 | | |
| 18 | | |
| — | | |
| — | | |
| 157 | |
Agricultural | |
| 15 | | |
| — | | |
| — | | |
| — | | |
| 15 | |
Construction and land | |
| 95 | | |
| (2 | ) | |
| — | | |
| — | | |
| 93 | |
Total real estate loans | |
| 1,283 | | |
| 28 | | |
| — | | |
| — | | |
| 1,311 | |
Commercial and industrial | |
| 26 | | |
| — | | |
| — | | |
| — | | |
| 26 | |
Consumer and other loans | |
| 30 | | |
| (28 | ) | |
| — | | |
| — | | |
| 2 | |
Total loans | |
$ | 1,339 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 1,339 | |
Nine months ended March 31, 2022 | |
Beginning Balance | | |
Provision | | |
Charge-offs | | |
Recoveries | | |
Ending Balance | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | 992 | | |
$ | 11 | | |
$ | — | | |
$ | — | | |
$ | 1,003 | |
Multi-family | |
| 4 | | |
| — | | |
| — | | |
| — | | |
| 4 | |
Home equity | |
| 41 | | |
| (2 | ) | |
| — | | |
| — | | |
| 39 | |
Nonresidential | |
| 133 | | |
| 24 | | |
| — | | |
| — | | |
| 157 | |
Agricultural | |
| 15 | | |
| — | | |
| — | | |
| — | | |
| 15 | |
Construction and land | |
| 103 | | |
| (10 | ) | |
| — | | |
| — | | |
| 93 | |
Total real estate loans | |
| 1,288 | | |
| 23 | | |
| — | | |
| — | | |
| 1,311 | |
Commercial and industrial | |
| 22 | | |
| 4 | | |
| — | | |
| — | | |
| 26 | |
Consumer and other loans | |
| 29 | | |
| (27 | ) | |
| — | | |
| — | | |
| 2 | |
Total loans | |
$ | 1,339 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 1,339 | |
The following table presents the recorded
balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at June 30, 2022:
| |
Ending Allowance on Loans: | | |
Loans: | |
At June 30, 2022 | |
Individually Evaluated for Impairment | | |
Collectively Evaluated for Impairment | | |
Individually Evaluated for Impairment | | |
Collectively Evaluated for Impairment | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | — | | |
$ | 965 | | |
$ | 948 | | |
$ | 275,462 | |
Multi-family | |
| — | | |
| 9 | | |
| — | | |
| 368 | |
Home equity | |
| — | | |
| 34 | | |
| — | | |
| 4,803 | |
Nonresidential | |
| — | | |
| 158 | | |
| 478 | | |
| 24,151 | |
Agricultural | |
| — | | |
| 15 | | |
| — | | |
| 2,573 | |
Construction and land | |
| — | | |
| 132 | | |
| — | | |
| 32,836 | |
Total real estate loans | |
| — | | |
| 1,313 | | |
| 1,426 | | |
| 340,193 | |
Commercial and industrial | |
| — | | |
| 24 | | |
| — | | |
| 2,313 | |
Consumer and other loans | |
| — | | |
| 2 | | |
| — | | |
| 1,180 | |
Total loans | |
$ | — | | |
$ | 1,339 | | |
$ | 1,426 | | |
$ | 343,686 | |
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(5) LOANS
(continued)
The tables below present loans that were
individually evaluated for impairment by portfolio segment at March 31, 2023 and June 30, 2022, including the average recorded
investment balance and interest earned for the nine months ended March 31, 2023 and the year ended June 30, 2022:
| |
March 31, 2023 | |
| |
Unpaid
Principal
Balance | | |
Recorded Investment | | |
Related Allowance | | |
Average
Recorded
Investment | | |
Interest
Income
Recognized | |
With no recorded allowance: | |
| | | |
| | | |
| | | |
| | | |
| | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 474 | | |
$ | — | |
Multi-family | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Home equity | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Nonresidential | |
| 472 | | |
| 445 | | |
| — | | |
| 462 | | |
| — | |
Agricultural | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Construction and land | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total real estate loans | |
| 472 | | |
| 445 | | |
| — | | |
| 936 | | |
| — | |
Commercial and industrial | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Consumer and other loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total | |
$ | 472 | | |
$ | 445 | | |
$ | — | | |
$ | 936 | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
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 | |
$ | 472 | | |
$ | 445 | | |
$ | — | | |
$ | 936 | | |
$ | — | |
Consumer and other loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total | |
$ | 472 | | |
$ | 445 | | |
$ | — | | |
$ | 936 | | |
$ | — | |
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)
(5) LOANS (continued)
| |
June 30, 2022 | |
| |
Unpaid
Principal
Balance | | |
Recorded
Investment | | |
Related Allowance | | |
Average
Recorded
Investment | | |
Interest
Income
Recognized | |
With no recorded allowance: | |
| | | |
| | | |
| | | |
| | | |
| | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | 952 | | |
$ | 948 | | |
$ | — | | |
$ | 474 | | |
$ | 38 | |
Multi-family | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Home equity | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Nonresidential | |
| 507 | | |
| 478 | | |
| — | | |
| 239 | | |
| — | |
Agricultural | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Construction and land | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total real estate loans | |
| 1,459 | | |
| 1,426 | | |
| — | | |
| 713 | | |
| 38 | |
Commercial and industrial | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Consumer and other loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total | |
$ | 1,459 | | |
$ | 1,426 | | |
$ | — | | |
$ | 713 | | |
$ | 38 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
With recorded allowance: | |
| | | |
| | | |
| | | |
| | | |
| | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Multi-family | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Home equity | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Nonresidential | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Agricultural | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Construction and land | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total real estate loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Commercial and industrial | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Consumer and other loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Totals: | |
| | | |
| | | |
| | | |
| | | |
| | |
Real estate loans | |
$ | 1,459 | | |
$ | 1,426 | | |
$ | — | | |
$ | 713 | | |
$ | 38 | |
Consumer and other loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total | |
$ | 1,459 | | |
$ | 1,426 | | |
$ | — | | |
$ | 713 | | |
$ | 38 | |
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
The
following tables present the aging of past due loans as well as nonaccrual loans. Nonaccrual loans and accruing loans past due
90 days or more include both smaller balance homogenous loans and larger balance loans that are evaluated either collectively
or, if over $250, individually for impairment.
Total
past due loans and nonaccrual loans at March 31, 2023:
| |
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 | |
$ | 2,372 | | |
$ | 560 | | |
$ | 173 | | |
$ | 3,105 | | |
$ | 307,242 | | |
$ | 310,347 | | |
$ | 416 | | |
$ | — | |
Multi-family | |
| — | | |
| — | | |
| — | | |
| — | | |
| 341 | | |
| 341 | | |
| — | | |
| — | |
Home equity | |
| 42 | | |
| — | | |
| 46 | | |
| 88 | | |
| 7,890 | | |
| 7,978 | | |
| 46 | | |
| — | |
Nonresidential | |
| 320 | | |
| 78 | | |
| — | | |
| 398 | | |
| 25,385 | | |
| 25,783 | | |
| 523 | | |
| — | |
Agricultural | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,485 | | |
| 2,485 | | |
| — | | |
| — | |
Construction and land | |
| — | | |
| — | | |
| — | | |
| — | | |
| 50,261 | | |
| 50,261 | | |
| — | | |
| — | |
Total real estate loans | |
| 2,734 | | |
| 638 | | |
| 219 | | |
| 3,591 | | |
| 393,604 | | |
| 397,195 | | |
| 985 | | |
| — | |
Commercial and industrial | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3,326 | | |
| 3,326 | | |
| — | | |
| — | |
Consumer and other loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,206 | | |
| 1,206 | | |
| — | | |
| — | |
Total | |
$ | 2,734 | | |
$ | 638 | | |
$ | 219 | | |
$ | 3,591 | | |
$ | 398,136 | | |
$ | 401,727 | | |
$ | 985 | | |
$ | — | |
Total
past due and nonaccrual loans by portfolio segment at June 30, 2022:
| |
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 | |
$ | 2,632 | | |
$ | 891 | | |
$ | 696 | | |
$ | 4,219 | | |
$ | 272,191 | | |
$ | 276,410 | | |
$ | 1,401 | | |
$ | — | |
Multi-family | |
| — | | |
| — | | |
| 208 | | |
| 208 | | |
| 160 | | |
| 368 | | |
| 208 | | |
| — | |
Home equity | |
| 17 | | |
| — | | |
| — | | |
| 17 | | |
| 4,786 | | |
| 4,803 | | |
| — | | |
| — | |
Nonresidential | |
| 82 | | |
| 156 | | |
| — | | |
| 238 | | |
| 24,391 | | |
| 24,629 | | |
| 478 | | |
| — | |
Agricultural | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,573 | | |
| 2,573 | | |
| — | | |
| — | |
Construction and land | |
| 436 | | |
| — | | |
| — | | |
| 436 | | |
| 32,400 | | |
| 32,836 | | |
| — | | |
| — | |
Total real estate loans | |
| 3,167 | | |
| 1,047 | | |
| 904 | | |
| 5,118 | | |
| 336,501 | | |
| 341,619 | | |
| 2,087 | | |
| — | |
Commercial and industrial | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,313 | | |
| 2,313 | | |
| — | | |
| — | |
Consumer and other loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,180 | | |
| 1,180 | | |
| — | | |
| — | |
Total | |
$ | 3,167 | | |
$ | 1,047 | | |
$ | 904 | | |
$ | 5,118 | | |
$ | 339,994 | | |
$ | 345,112 | | |
$ | 2,087 | | |
$ | — | |
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
Troubled
Debt Restructurings:
At
March 31, 2023 and June 30, 2022, total loans that have been modified as troubled debt restructurings were $472 and $869, respectively,
which consisted of one non-residential real estate loan and one one-to-four family first lien loan at March 31, 2023 and one non-residential
real estate loan and two one-to-four family first lien loans at June 30, 2022. Additionally, there were no commitments to lend
any additional amounts on any loan after the modification. No loans have been modified as troubled debt restructurings during
the three and nine months ended March 31, 2023. No loans modified as troubled debt restructurings have defaulted since restructuring.
All of these loans are on nonaccrual at March 31, 2023 and June 30, 2022. At March 31, 2023 and June 30, 2022, $445 and $839,
respectively, were individually evaluated for impairment.
Allowance
for Loan Loss:
There
have been no changes to our allowance for loan loss methodology during the quarter ended March 31, 2023. Due to the increase in
the size of the loan portfolio, a $50 provision for loan losses was recorded during the quarter ended March 31, 2023. We believe
the recorded allowance is adequate as of March 31, 2023. We will continue to review and make adjustments as may be necessary.
To the best of our knowledge, we have recorded all losses that are both probable and reasonably estimable for the three and nine
months ended March 31, 2023 and March 31, 2022.
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
(Unaudited)
(Amounts
in thousands, except share and per share data)
Portfolio
Segments:
One-to-four
family: One-to-four family residential loans consist primarily of loans secured by first or second deeds of trust on primary
residences, and are originated as adjustable-rate or fixed-rate loans for the construction, purchase or refinancing of a mortgage.
These loans are collateralized by owner-occupied properties located in the Company’s market area. The Company currently originates
residential mortgage loans for our portfolio with loan-to-value ratios of up to 80% for traditional owner-occupied homes.
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%.
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 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.
The
Company considers a number of factors in originating nonresidential real estate loans. The Company evaluates the qualifications
and financial condition of the borrower, including credit history, cash flows, the applicable business plan, the financial resources
of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with the
Company and other financial institutions. In evaluating the property securing the loan, the factors the Company considers include
the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised
value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service). The collateral
underlying all nonresidential real estate loans is appraised by outside independent appraisers approved by our board of directors.
Personal guarantees may be obtained from the principals of nonresidential real estate borrowers.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
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.
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.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
Based
on the most recent analysis performed, the risk grade of loans by portfolio segment are presented in the following tables.
Total
loans by risk grade and portfolio segment at March 31, 2023:
| |
Pass | | |
Pass-Watch | | |
Special Mention | | |
Substandard | | |
Doubtful | | |
Total | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | 307,326 | | |
$ | 1,567 | | |
$ | 713 | | |
$ | 741 | | |
$ | — | | |
$ | 310,347 | |
Multi-family | |
| 341 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 341 | |
Home equity | |
| 7,871 | | |
| 61 | | |
| — | | |
| 46 | | |
| — | | |
| 7,978 | |
Nonresidential | |
| 25,213 | | |
| — | | |
| — | | |
| 570 | | |
| — | | |
| 25,783 | |
Agricultural | |
| 2,485 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,485 | |
Construction and land | |
| 50,069 | | |
| 162 | | |
| 30 | | |
| — | | |
| — | | |
| 50,261 | |
Total real estate loans | |
| 393,305 | | |
| 1,790 | | |
| 743 | | |
| 1,357 | | |
| — | | |
| 397,195 | |
Commercial and industrial | |
| 3,326 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3,326 | |
Consumer and other loans | |
| 1,206 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,206 | |
Total | |
$ | 397,837 | | |
$ | 1,790 | | |
$ | 743 | | |
$ | 1,357 | | |
$ | — | | |
$ | 401,727 | |
Total
loans by risk grade and portfolio segment at June 30, 2022:
| |
Pass | | |
Pass-Watch | | |
Special Mention | | |
Substandard | | |
Doubtful | | |
Total | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | 268,631 | | |
$ | 2,806 | | |
$ | 2,412 | | |
$ | 2,561 | | |
$ | — | | |
$ | 276,410 | |
Multi-family | |
| 160 | | |
| — | | |
| — | | |
| 208 | | |
| — | | |
| 368 | |
Home equity | |
| 4,603 | | |
| 193 | | |
| — | | |
| 7 | | |
| — | | |
| 4,803 | |
Nonresidential | |
| 23,763 | | |
| — | | |
| 188 | | |
| 678 | | |
| — | | |
| 24,629 | |
Agricultural | |
| 2,573 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,573 | |
Construction and land | |
| 32,637 | | |
| 166 | | |
| — | | |
| 33 | | |
| — | | |
| 32,836 | |
Total real estate loans | |
| 332,367 | | |
| 3,165 | | |
| 2,600 | | |
| 3,487 | | |
| — | | |
| 341,619 | |
Commercial and industrial | |
| 2,313 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,313 | |
Consumer and other loans | |
| 1,180 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,180 | |
Total | |
$ | 335,860 | | |
$ | 3,165 | | |
$ | 2,600 | | |
$ | 3,487 | | |
$ | — | | |
$ | 345,112 | |
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
At
March 31, 2023 and June 30, 2022, advances from the Federal Home Loan Bank were as follows:
| |
March 31, 2023 |
| |
Balance | | |
Stated Interest Rate |
FHLB advances due April 2023 through January 2025 | |
$ | 42,000 | | |
1.59% - 5.37% |
Total | |
$ | 42,000 | | |
|
| |
June 30, 2022 |
| |
Balance | | |
Stated Interest Rate |
FHLB advances due September 2021 through January 2025 | |
$ | 9,000 | | |
1.40% - 2.05% |
Total | |
$ | 9,000 | | |
|
Payments
over the next five fiscal years are as follows:
The
weighted average interest rate of all outstanding FHLB advances was 4.87% and 1.74% on March 31, 2023 and June 30, 2022, respectively.
Each
advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances are collateralized by
$51,469 and $14,779 of investment securities at March 31, 2023 and June 30, 2022, respectively. 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 $141,640 at March 31, 2023.
There
were no overnight borrowings at March 31, 2023 or June 30, 2022.
(7) | FAIR
VALUE OF FINANCIAL INSTRUMENTS |
Fair
value is the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three
levels of inputs that may be used to measure fair values:
Level
1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access
as of the measurement date.
Level
2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level
3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants
would use in pricing an asset or liability.
Investment
Securities:
The
fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted
prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where
quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows
or other market indicators (Level 3). We invest in the common stock of the Federal Home Loan Bank of Atlanta and in preferred
and common stock of First National Bankers Bancshares, Inc. The stock is classified as restricted equity securities and is carried
at cost.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
(7) | FAIR
VALUE OF FINANCIAL INSTRUMENTS (continued) |
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 March 31, 2023 or June
30, 2022.
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 3 classification.
Loan
Servicing Rights:
Fair
value is determined based on a valuation model that calculates the present value of estimated future net servicing income. The
valuation model utilizes assumptions that market participants would use in estimating future net servicing income and that can
be validated against available market data and results in a Level 3 classification.
Deposits:
The
fair values disclosed for demand deposit, money market and savings accounts are equal to the amount payable on demand at the reporting
date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being offered on certificates of deposit to a schedule of aggregated
expected monthly maturities on time deposits resulting in a Level 2 classification.
FHLB
Advances:
The
fair values of the Company’s FHLB advances are estimated using discounted cash flow analysis based on the current borrowing
rates for similar types of borrowing arrangements resulting in a Level 2 classification.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per
share data)
(7) | FAIR
VALUE OF FINANCIAL INSTRUMENTS (continued) |
Assets
measured at fair value on a recurring basis at March 31, 2023 and June 30, 2022 are summarized below:
| |
Fair Value Measurements | |
| |
March 31, 2023 | | |
June 30, 2022 | |
| |
(Level 2) | | |
(Level 3) | | |
(Level 2) | | |
(Level 3) | |
Financial assets: | |
| | | |
| | | |
| | | |
| | |
Securities available-for-sale: | |
| | | |
| | | |
| | | |
| | |
FHLMC common stock | |
$ | 33 | | |
$ | — | | |
$ | 34 | | |
$ | — | |
Certificates of deposit | |
| — | | |
| — | | |
| 1,249 | | |
| — | |
Municipal securities | |
| 8,332 | | |
| — | | |
| 16,597 | | |
| — | |
CMOs | |
| 11,074 | | |
| — | | |
| 13,064 | | |
| — | |
U.S. Government agency mortgage-backed securities | |
| | |
| — | | |
| | |
| — | |
U.S. Treasury and Government agency bonds | |
| 10,491 | | |
| — | | |
| 10,751 | | |
| — | |
Total securities available-for-sale | |
| 138,013 | | |
| — | | |
| 151,299 | | |
| — | |
Loan servicing rights | |
| — | | |
| 386 | | |
| — | | |
| 345 | |
Total financial assets | |
$ | 138,013 | | |
$ | 386 | | |
$ | 151,299 | | |
$ | 345 | |
There
are no liabilities measured at fair value on a recurring basis.
The
table below presents a reconciliation of all Level 3 assets measured at fair value on a recurring basis using significant unobservable
inputs for the three and nine months ended March 31, 2023 and 2022:
| |
Fair Value Measurements | |
| |
(Level 3) | |
| |
Three Months Ended | | |
Nine Months Ended | |
| |
March 31, 2023 | | |
March 31, 2022 | | |
March 31, 2023 | | |
March 31, 2022 | |
| |
Loan
Servicing
Rights | | |
Loan
Servicing
Rights | | |
Loan
Servicing
Rights | | |
Loan
Servicing
Rights | |
Balance at beginning of period: | |
$ | 364 | | |
$ | 302 | | |
$ | 345 | | |
$ | 305 | |
Unrealized net gains included in net income | |
| 22 | | |
| 42 | | |
| 41 | | |
| 39 | |
Balance at end of period: | |
$ | 386 | | |
$ | 344 | | |
$ | 386 | | |
$ | 344 | |
The
table below presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value at March 31,
2023 and June 30, 2022.
| |
Level 3 Quantitative Information | |
| |
| March
31, 2023 | | |
| June 30, 2022 | | |
Valuation | |
Unobservable | |
| | |
| |
| Fair Value | | |
| Fair Value | | |
Technique | |
Inputs | |
| Range | |
Loan servicing rights | |
$ | 386 | | |
$ | 345 | | |
Discounted cash
flows | |
Discount rate, estimated
timing of cash flows | |
| 10.88% to 11.38% | |
There
are no assets or liabilities measured at fair value on a non-recurring basis at March 31, 2023 or June 30, 2022.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per
share data)
(7) | FAIR
VALUE OF FINANCIAL INSTRUMENTS (continued) |
Many
of the Company’s assets and liabilities are short-term financial instruments whose carrying amounts reported in the consolidated
balance sheets approximate fair value. These items include cash and cash equivalents, bank owned life insurance, accrued interest
receivable and payable balances, variable rate loan and deposits that re-price frequently and fully. The estimated fair values
of the Company’s remaining on-balance sheet financial instruments at March 31, 2023 and June 30, 2022 are summarized below:
| |
March 31, 2023 | |
| |
Carrying | | |
Fair Value | |
| |
Amount | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
Total | |
Financial assets | |
| | | |
| | | |
| | | |
| | | |
| | |
Securities available-for-sale | |
$ | 138,013 | | |
$ | — | | |
$ | 138,013 | | |
$ | — | | |
$ | 138,013 | |
Loans, net (1) | |
| 400,238 | | |
| — | | |
| — | | |
| 376,420 | | |
| 376,420 | |
Loan servicing rights | |
| 386 | | |
| — | | |
| — | | |
| 386 | | |
| 386 | |
Restricted equity securities | |
| 2,651 | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Financial liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Deposits | |
$ | 470,955 | | |
$ | — | | |
$ | 465,168 | | |
$ | — | | |
$ | 465,168 | |
FHLB Advances | |
| 42,000 | | |
| — | | |
| 41,863 | | |
| — | | |
| 41,863 | |
| |
June 30, 2022 | |
| |
Carrying | | |
Fair Value | |
| |
Amount | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
Total | |
Financial assets | |
| | | |
| | | |
| | | |
| | | |
| | |
Securities available-for-sale | |
$ | 151,299 | | |
$ | — | | |
$ | 151,299 | | |
$ | — | | |
$ | 151,299 | |
Loans, net (1) | |
| 343,773 | | |
| — | | |
| — | | |
| 325,859 | | |
| 325,859 | |
Loans held for sale(2) | |
| 152 | | |
| — | | |
| — | | |
| 152 | | |
| 152 | |
Loan servicing rights | |
| 345 | | |
| — | | |
| — | | |
| 345 | | |
| 345 | |
Restricted equity securities | |
| 1,189 | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Financial liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Deposits | |
$ | 459,682 | | |
$ | — | | |
$ | 454,970 | | |
$ | — | | |
$ | 454,970 | |
FHLB Advances | |
| 9,000 | | |
| — | | |
| 8,868 | | |
| — | | |
| 8,868 | |
| (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 March 31, 2023 and June 30, 2022 was
measured using an exit price notion. |
| (2) | 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 3 classification. |
(8) | EMPLOYEE
STOCK OWNERSHIP PLAN |
Employees
participate in an Employee Stock Ownership Plan (“ESOP”). The ESOP borrowed from the Company to purchase 248,842 shares
of the Company’s common stock at $10.00 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.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per
share data)
(8) | EMPLOYEE
STOCK OWNERSHIP PLAN (continued) |
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 2022 or 2021. There was no ESOP compensation expense for the three months
ended March 31, 2023. Total ESOP compensation expense for the nine months ended March 31, 2023 was $3. Total ESOP compensation
for the three and nine months ended March 31, 2022 was $62 and $252, respectively. The ESOP loan was repaid in full in December
2022.
Shares
held by the ESOP at March 31, 2023 and June 30, 2022 were as follows:
| |
March 31, 2023 | | |
June 30, 2022 | |
Committed to be released to participants | |
| — | | |
| 5,355 | |
Allocated to participants | |
| 168,630 | | |
| 163,220 | |
Unearned | |
| — | | |
| 5,354 | |
Total ESOP shares | |
| 168,630 | | |
| 173,929 | |
| |
| | | |
| | |
Fair value of unearned shares | |
$ | — | | |
$ | 76 | |
(9) | STOCK
BASED COMPENSATION |
In
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 could not
be less than the fair market value on the date the stock option was granted. The compensation committee of the board of directors
had sole discretion to determine the amount and to whom equity incentive awards were granted. The Plan remains in effect as long
as any awards or options are outstanding. However, the ability to grant awards or options ceased as of April 5, 2022.
The
following table summarizes stock option activity for the nine months ended March 31, 2023:
| |
Options | | |
Weighted-
Average
Exercise
Price/Share | | |
Aggregate
Intrinsic Value(1) | |
Outstanding - June 30, 2022 | |
| 49,900 | | |
$ | 22.48 | | |
| | |
Granted | |
| — | | |
| — | | |
| | |
Exercised | |
| (6,000 | ) | |
| 19.40 | | |
| | |
Forfeited | |
| — | | |
| — | | |
| | |
Outstanding - March 31, 2023 | |
| 43,900 | | |
$ | 22.90 | | |
$ | — | |
Fully vested and exercisable at March 31, 2023 | |
| 32,700 | | |
$ | 22.20 | | |
$ | — | |
Expected to vest in future periods | |
| 11,200 | | |
| | | |
| | |
Fully vested and expected to vest - March 31, 2023 | |
| 43,900 | | |
$ | 22.90 | | |
$ | — | |
| (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 $18.50 per share on March 31, 2023. |
OCONEE
FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per
share data)
(9) | STOCK
BASED COMPENSATION (continued) |
The
following table summarizes stock option activity for the nine months ended March 31, 2022:
| |
Options | | |
Weighted-
Average
Exercise
Price/Share | | |
Aggregate
Intrinsic Value(1) | |
Outstanding - June 30, 2021 | |
| 131,901 | | |
$ | 15.70 | | |
| | |
Granted | |
| — | | |
| — | | |
| | |
Exercised | |
| (82,001 | ) | |
| 11.58 | | |
| | |
Forfeited | |
| — | | |
| — | | |
| | |
Outstanding - March 31, 2022 | |
| 49,900 | | |
$ | 22.48 | | |
$ | 126 | |
Fully vested and exercisable at March 31, 2022 | |
| 34,100 | | |
$ | 21.40 | | |
$ | 123 | |
Expected to vest in future periods | |
| 15,800 | | |
| | | |
| | |
Fully vested and expected to vest - March 31, 2022 | |
| 49,900 | | |
$ | 22.48 | | |
$ | 126 | |
| (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 $25.00 per share on March 31, 2022. |
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 3,302 and 4,071 options that were earned
during the nine months ended March 31, 2023 and 2022, respectively. Stock-based compensation expense for stock options for the
three and nine months ended March 31, 2023 was $4 and $13, respectively, and for the three and nine months ended March 31, 2022
was $5 and $15, respectively. Total unrecognized compensation cost related to stock options was $37 at March 31, 2023 and is expected
to be recognized over a weighted-average period of 2.8 years.
The
following table summarizes non-vested restricted stock activity for the nine months ended March 31, 2023 and March 31, 2022.
| |
March 31, 2023 | | |
March 31, 2022 | |
Balance - beginning of year | |
| 9,700 | | |
| 14,300 | |
Granted | |
| — | | |
| — | |
Forfeited | |
| — | | |
| — | |
Vested | |
| (500 | ) | |
| (2,300 | ) |
Balance - end of period | |
| 9,200 | | |
| 12,000 | |
Weighted average grant date fair value | |
$ | 23.16 | | |
$ | 23.00 | |
The
fair value of the restricted stock awards is amortized to compensation expense over their respective vesting periods and is based
on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted that are
expected to vest. Stock-based compensation expense for restricted stock included in noninterest expense for the three and nine
months ended March 31, 2023 was $14 and $46, respectively, and for the three and nine months ended March 31, 2022 was $18 and
$67, respectively. Unrecognized compensation expense for non-vested restricted stock awards was $172 at March 31, 2023 and is
expected to be recognized over a weighted-average period of 3.2 years.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per
share data)
| (10) | LOAN
SERVICING RIGHTS |
Mortgage
loans serviced for others are not reported as assets; however, the underlying mortgage servicing rights associated with servicing
these mortgage loans serviced for others is recorded as an asset in the consolidated balance sheet.
The
principal balances of those loans at March 31, 2023 and June 30, 2022 are as follows:
| |
March 31, 2023 | | |
June 30, 2022 | |
Mortgage loan portfolio serviced for: | |
| | | |
| | |
FHLMC | |
$ | 35,669 | | |
$ | 39,476 | |
Custodial
escrow balances maintained in connection with serviced loans were $341 and $453 at March 31, 2023 and June 30, 2022.
Activity
for loan servicing rights for the three and nine months ended March 31, 2023 and 2022 is as follows:
| |
|
|
|
|
| | |
|
|
|
|
| |
| |
Three Months Ended | | |
Nine Months Ended | |
| |
March 31, 2023 | | |
March 31, 2022 | | |
March 31, 2023 | | |
March 31, 2022 | |
Loan servicing rights: | |
| | | |
| | | |
| | | |
| | |
Beginning of period: | |
$ | 364 | | |
$ | 302 | | |
$ | 345 | | |
$ | 305 | |
Change in fair value | |
| 22 | | |
| 42 | | |
| 41 | | |
| 39 | |
End of period: | |
$ | 386 | | |
$ | 344 | | |
$ | 386 | | |
$ | 344 | |
Fair
value at March 31, 2023 was determined using a discount rate of 11.38%, prepayment speed assumptions ranging from 3.57% to 12.49%
Conditional Prepayment Rate (“CPR”) depending on the loans’ coupon, term and seasoning, and a weighted average
default rate of 3.0%. Fair value at March 31, 2022 was determined using a discount rate of 9.75%, prepayment speed assumptions
ranging from 7.09% to 11.30% Conditional Prepayment Rate (“CPR”) depending on the loans’ coupon, term and seasoning,
and a weighted average default rate of 4.0%.
| (11) | SUPPLEMENTAL
CASH FLOW INFORMATION |
Supplemental
cash flow information for the nine months ended March 31, 2023 and 2022 is as follows:
| |
March 31, 2023 | | |
March 31, 2022 | |
Cash paid during the period for: | |
| | | |
| | |
Interest paid | |
$ | 2,488 | | |
$ | 861 | |
Income taxes paid | |
$ | 1,095 | | |
$ | 580 | |
Supplemental noncash disclosures: | |
| | | |
| | |
Transfers from loans to real estate owned | |
$ | 106 | | |
$ | — | |
Change in unrealized gain/loss on securities available-for-sale | |
$ | (4,056 | ) | |
$ | (11,715 | ) |
OCONEE
FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per
share data)
Dividend
Declared
On
April 27, 2023, the Board of Directors of Oconee Federal Financial Corp. declared a quarterly cash dividend of $0.10 per share
of Oconee Federal Financial Corp.’s common stock. The dividend is payable to stockholders of record as of May 11, 2023,
and will be paid on or about May 25, 2023.