OCONEE FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
(1) | BASIS
OF PRESENTATION, RISKS AND UNCERTAINTIES |
Basis
of Presentation:
The
accompanying unaudited consolidated financial statements of Oconee Federal Financial Corp., which include the accounts of its
wholly owned subsidiary Oconee Federal Savings and Loan Association (the “Association”) (referred to herein as “the
Company,” “we,” “us,” or “our”), have been prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Intercompany accounts
and transactions are eliminated during consolidation. The Company is majority owned (74.24%) by Oconee Federal, MHC. These financial
statements do not include the transactions and balances of Oconee Federal, MHC.
In
the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the Company’s financial position as of September 30, 2022 and
June 30, 2022 and the results of operations and cash flows for the interim periods ended September 30, 2022 and 2021. All interim
amounts are unaudited, and the results of operations for the interim periods herein are not necessarily indicative of the results
of operations to be expected for the year ending June 30, 2023 or any other period. These consolidated financial statements should
be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K for the year ended June 30, 2022.
Reclassifications:
Certain
amounts have been reclassified to conform to the current period presentation. The reclassifications had no effect on net income
or shareholders’ equity as previously reported.
Cash
Flows:
Cash
and cash equivalents include cash on hand, federal funds sold, overnight interest-earning deposits and amounts due from other
depository institutions.
Use
of Estimates:
To
prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information.
These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided,
and actual results could differ.
Risks
and Uncertainties:
The
COVID-19 pandemic has had, and may continue to have, an adverse impact on the Company, its clients and the communities it serves.
Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The
extent of such impact will depend on future developments, which are highly uncertain.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
(2) |
NEW ACCOUNTING
STANDARDS |
Accounting
Standards Update (“ASU”) 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities
Subject to Contractual Sale Restrictions”. Issued in June 2022, ASU 2022-03 provides guidance on the fair value measurement
of an equity security that is subject to a contractual sale restriction and require specific disclosures related to such an equity
security. The amendments are effective for financial statements issued for annual periods beginning after December 15, 2023, including
interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a
material effect on its financial statements.
ASU
2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”.
Issued in March 2022, ASU 2022-02 provides guidance to improve the decision usefulness of information provided to investors about
certain loan re-financings, restructurings, and write-offs. The guidance is effective for financial statements issued for fiscal
years beginning after December 15, 2022, including interim periods within those fiscal years. The Company does not expect these
amendments to have a material effect on its financial statements.
ASU
2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance”. Issued
in November 2021, ASU 2021-10 requires certain annual disclosures about transactions with a government that are accounted for
by applying a grant or contribution accounting model by analogy to other accounting guidance. The guidance is effective for financial
statements issued for annual periods beginning after December 15, 2021. The Company adopted this standard on July 1, 2022. This
pronouncement did not have a material effect on the financial statements.
ASU
2020-04, “Reference Rate Reform (Topic 848)”. Issued in March 2020, ASU 2020-04 provides temporary optional guidance
to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through
December 31, 2022. The Company does not expect these amendments to have a material effect on its financial statements.
ASU
2019-11, “Codification to Improvements to Topic 326, Financial Instruments – Credit Losses”. Issued in November
2019, ASU 2019-11 provides guidance that addresses issues raised by stakeholders during the implementation of ASU 2016-13, Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments affect a variety
of Topics in the Accounting Standards Codification. For the Company, the amendments are effective for fiscal years beginning after
December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted in any interim period as long
as an entity has adopted the amendments in ASU 2016-13.
ASU
2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic
842)”. Issued in November 2019, ASU 2019-10 provides guidance to defer the effective dates for private companies, not-for-profit
organizations, and certain smaller reporting companies (such as the Company) applying standards on current expected credit losses
(CECL), derivatives, hedging and leases. For the Company, the new effective date for Credit Losses (CECL) will be for fiscal years
beginning after December 15, 2022, including interim periods within those fiscal years. For the Company, the effective dates for
Derivatives, Hedging and Leases were not deferred under this guidance.
ASU
2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief”. Issued in May 2019,
ASU 2019-05 provides entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument
basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments. On October
16, 2019, the Financial Accounting Standards Board (“FASB”) announced a delay in the implementation schedule allowing
certain entities, including smaller reporting companies (such as the Company) to adopt ASU 2016-13 in fiscal years beginning after
December 15, 2022, and interim periods within those years.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
(2) |
NEW ACCOUNTING
STANDARDS (continued) |
ASU
2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”.
Issued in June 2016, ASU 2016-13 provides financial statement users with more decision-useful information about the expected credit
losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment,
held-to-maturity debt securities, trade and other receivables, net investment in leases and other commitments to extend credit
held by a reporting entity at each reporting date. ASU 2016-13 requires that financial assets measured at amortized cost be presented
at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis.
The amendments in ASU 2016-13 eliminate the probable incurred loss recognition in current GAAP and reflect an entity’s current
estimate of all expected credit losses. The measurement of expected credit losses is based upon historical experience, current
conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets. For purchased financial
assets with a more-than-insignificant amount of credit deterioration since origination (“PCD assets”) that are measured
at amortized cost, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit
loss expense. Subsequent changes in the allowance for credit losses on PCD assets are recognized through the statement of income
as a credit loss expense. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for
credit losses rather than as a direct write-down to the security. Early adoption is permitted for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact of ASU 2016-13 on
its consolidated financial statements by running parallel loss models. In November 2019, the FASB issued guidance delaying the
implementation schedule and allowing certain entities, including smaller reporting companies (such as the Company) to adopt ASU
2016-13 in fiscal years beginning after December 15, 2022, and interim periods within those years.
There
have been no accounting standards that have been issued or proposed by the FASB or other standards-setting bodies during the quarter
ended September 30, 2022 that are expected to have a material impact on the Company’s financial position, results of operations
or cash flows. The Company continues to evaluate the impact of standards previously issued and not yet effective, and has no changes
in its assessment since filing the Annual Report on Form 10-K.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
(3) |
EARNINGS PER
SHARE (“EPS”) |
Basic
EPS is based on the weighted average number of common shares outstanding and is adjusted for ESOP shares not yet committed to
be released. Unvested restricted stock awards, which contain rights to non-forfeitable dividends, are considered participating
securities and the two-class method of computing basic and diluted EPS is applied. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock, such as outstanding stock options, were exercised or
converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted
EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts
or securities exercisable (such as stock options) or which could be converted into common stock, if dilutive, using the treasury
stock method. The factors used in the earnings per common share computation follow:
| |
| | |
| |
| |
Three Months Ended | |
| |
September 30, 2022 | | |
September 30, 2021 | |
Earnings per share | |
| | |
| |
Net income | |
$ | 1,339 | | |
$ | 771 | |
Less: distributed earnings allocated to participating securities | |
| (1 | ) | |
| (1 | ) |
Less: (undistributed
income) dividends in excess of earnings allocated to participating securities | |
| (1 | ) | |
| (1 | ) |
Net earnings available to common shareholders | |
$ | 1,337 | | |
$ | 769 | |
| |
| | | |
| | |
Weighted average common shares outstanding
including participating securities | |
| 5,608,331 | | |
| 5,592,583 | |
Less: participating securities | |
| (9,700 | ) | |
| (14,300 | ) |
Less: average unearned ESOP shares | |
| (2,176 | ) | |
| (6,855 | ) |
Weighted average common shares outstanding | |
| 5,596,455 | | |
| 5,571,428 | |
| |
| | | |
| | |
Basic earnings per share | |
$ | 0.24 | | |
$ | 0.14 | |
| |
| | | |
| | |
Weighted average common shares outstanding | |
| 5,596,455 | | |
| 5,571,428 | |
Add: dilutive effects of assumed exercises of stock options | |
| 3,502 | | |
| 44,960 | |
Average shares and dilutive potential common shares | |
| 5,599,957 | | |
| 5,616,388 | |
| |
| | | |
| | |
Diluted earnings per share | |
$ | 0.24 | | |
$ | 0.14 | |
For
each of the three months ended September 30, 2022 and 2021, 21,200 options were considered anti-dilutive as the exercise price
was in excess of the average market price.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
| (4) | SECURITIES
AVAILABLE-FOR-SALE |
Debt,
mortgage-backed and equity securities have been classified in the consolidated balance sheets according to management’s
intent. U.S. Government agency mortgage-backed securities consists of securities issued by U.S. Government agencies and U.S. Government
sponsored enterprises. Investment securities at September 30, 2022 and June 30, 2022 are as follows:
September 30, 2022 | |
Amortized
Cost | | |
Gross
Unrealized Gains | | |
Gross
Unrealized Losses | | |
Change
in Fair Value
Equity Securities | | |
Fair
Value | |
Available-for-sale: | |
| | |
| | |
| | |
| | |
| |
FHLMC common stock | |
$ | 20 | | |
$ | — | | |
$ | — | | |
$ | 23 | | |
$ | 43 | |
Certificates of deposit | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Municipal securities | |
| 8,696 | | |
| — | | |
| (758 | ) | |
| — | | |
| 7,938 | |
CMOs | |
| 13,255 | | |
| — | | |
| (1,664 | ) | |
| — | | |
| 11,591 | |
U.S. Government agency mortgage-backed securities | |
| | |
| — | | |
| ) | |
| — | | |
| |
U.S. Treasury and Government agency bonds | |
| 12,417 | | |
| — | | |
| (2,274 | ) | |
| — | | |
| 10,143 | |
Total available-for-sale | |
$ | 164,658 | | |
$ | — | | |
$ | (25,663 | ) | |
$ | 23 | | |
$ | 139,018 | |
June 30, 2022 | |
Amortized
Cost | | |
Gross
Unrealized Gains | | |
Gross
Unrealized Losses | | |
Change
in Fair Value
Equity Securities | | |
Fair
Value | |
Available-for-sale: | |
| | |
| | |
| | |
| | |
| |
FHLMC common stock | |
$ | 20 | | |
$ | — | | |
$ | — | | |
$ | 14 | | |
$ | 34 | |
Certificates of deposit | |
| 1,247 | | |
| 2 | | |
| — | | |
| — | | |
| 1,249 | |
Municipal securities | |
| 16,991 | | |
| 3 | | |
| (397 | ) | |
| — | | |
| 16,597 | |
CMOs | |
| 14,145 | | |
| — | | |
| (1,081 | ) | |
| — | | |
| 13,064 | |
U.S. Government agency mortgage-backed securities | |
| | |
| — | | |
| ) | |
| — | | |
| |
U.S. Treasury and Government agency bonds | |
| 12,431 | | |
| — | | |
| (1,680 | ) | |
| — | | |
| 10,751 | |
Total available-for-sale | |
$ | 168,486 | | |
$ | 5 | | |
$ | (17,206 | ) | |
$ | 14 | | |
$ | 151,299 | |
Securities
pledged at September 30, 2022 and June 30, 2022 had fair values of $38,337 and $19,322, respectively. These securities were pledged
to secure public deposits and Federal Home Loan Bank (“FHLB”) advances.
At
September 30, 2022 and June 30, 2022, there were no holdings of securities of any one issuer, other than U.S. Government agencies
and U.S. Government sponsored enterprises, in an amount greater than 10% of shareholders’ equity.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
| (4) | SECURITIES
AVAILABLE-FOR-SALE (continued) |
The
following tables show the fair value and unrealized loss of securities that have been in unrealized loss positions for less than
twelve months and for twelve months or more at September 30, 2022 and June 30, 2022. The tables also show the number of securities
in an unrealized loss position for each category of investment security as of the respective dates.
| |
Less than 12 Months | | |
12 Months or More | | |
Total | |
| |
Fair Value | | |
Unrealized Loss | | |
Number
in Unrealized Loss (1) | | |
Fair Value | | |
Unrealized Loss | | |
Number
in Unrealized Loss (1) | | |
Fair Value | | |
Unrealized Loss | | |
Number
in Unrealized Loss (1) | |
September 30, 2022 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Available-for-sale: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Municipal securities | |
$ | 7,938 | | |
$ | (758 | ) | |
| 21 | | |
$ | — | | |
$ | — | | |
| — | | |
$ | 7,938 | | |
$ | (758 | ) | |
| 21 | |
CMOs | |
| 7,469 | | |
| (880 | ) | |
| 13 | | |
| 4,122 | | |
| (784 | ) | |
| 2 | | |
| 11,591 | | |
| (1,664 | ) | |
| 15 | |
U.S. Government agency mortgage-backed securities | |
| | |
| ) | |
| | |
| | |
| ) | |
| | |
| | |
| ) | |
| |
U.S. Treasury and Government agency bonds | |
| 1,725 | | |
| (269 | ) | |
| 1 | | |
| 8,418 | | |
| (2,005 | ) | |
| 6 | | |
| 10,143 | | |
| (2,274 | ) | |
| 7 | |
| |
$ | 64,542 | | |
$ | (7,754 | ) | |
| 85 | | |
$ | 74,433 | | |
$ | (17,909 | ) | |
| 47 | | |
$ | 138,975 | | |
$ | (25,663 | ) | |
| 132 | |
| |
Less than 12 Months | | |
12 Months or More | | |
Total | |
| |
Fair Value | | |
Unrealized Loss | | |
Number
in Unrealized Loss (1) | | |
Fair Value | | |
Unrealized Loss | | |
Number
in Unrealized Loss (1) | | |
Fair Value | | |
Unrealized Loss | | |
Number
in Unrealized Loss (1) | |
June 30, 2022 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Available-for-sale: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Municipal securities | |
$ | 15,027 | | |
$ | (397 | ) | |
| 41 | | |
$ | — | | |
$ | — | | |
| — | | |
$ | 15,027 | | |
$ | (397 | ) | |
| 41 | |
CMOs | |
| 12,174 | | |
| (972 | ) | |
| 17 | | |
| 889 | | |
| (109 | ) | |
| 1 | | |
| 13,063 | | |
| (1,081 | ) | |
| 18 | |
U.S. Government agency mortgage-backed securities | |
| | |
| ) | |
| | |
| | |
| ) | |
| | |
| | |
| ) | |
| |
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 September 30, 2022 were recognized into net income for the three months ended September 30, 2022 because
the issuers’ bonds are of high credit quality, management does not intend to sell and it is more likely than not that management
will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due
to changes in interest rates. The fair value of these securities is expected to recover as they approach their maturity date or
reset date. None of the unrealized losses at June 30, 2022 were recognized as having OTTI during the year ended June 30, 2022.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
| (4) | SECURITIES
AVAILABLE-FOR-SALE (continued) |
The
following table presents the amortized cost and fair value of debt securities classified as available-for-sale at September 30,
2022 and June 30, 2022 by contractual maturity.
| |
September 30, 2022 | | |
June 30, 2022 | |
| |
Amortized | | |
Fair | | |
Amortized | | |
Fair | |
| |
Cost | | |
Value | | |
Cost | | |
Value | |
Less than one year | |
$ | — | | |
$ | — | | |
$ | 1,247 | | |
$ | 1,249 | |
Due from one to five years | |
| 1,448 | | |
| 1,377 | | |
| 4,756 | | |
| 4,727 | |
Due after five years to ten years | |
| 17,974 | | |
| 15,296 | | |
| 22,244 | | |
| 20,391 | |
Due after ten years | |
| 1,691 | | |
| 1,408 | | |
| 2,422 | | |
| 2,230 | |
Mortgage-backed securities, CMOs
and FHLMC stock(1) | |
| 143,545 | | |
| 120,937 | | |
| 137,817 | | |
| 122,702 | |
Total available for sale | |
$ | 164,658 | | |
$ | 139,018 | | |
$ | 168,486 | | |
$ | 151,299 | |
| (1) | Actual
cash flows may differ from contractual maturities as borrowers may prepay obligations
without prepayment penalty. Federal Home Loan Mortgage Corporation (“FHLMC”)
common stock is not scheduled because it has no contractual maturity date. |
The
following table presents the gross proceeds from sales of securities available-for-sale and gains or losses recognized for the
three months ended September 30, 2022 and 2021:
| |
| | |
| |
| |
Three Months Ended | |
Available-for-sale: | |
September 30, 2022 | | |
September 30, 2021 | |
Proceeds | |
$ | 11,049 | | |
$ | — | |
Gross gains | |
| — | | |
| — | |
Gross losses | |
| (84 | ) | |
| — | |
The
tax benefit related to the net realized loss for the three months ended September 30, 2022 was $18.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
The
components of loans at September 30, 2022 and June 30, 2022 were as follows:
| |
September 30, 2022 | | |
June 30, 2022 | |
Real estate loans: | |
| | | |
| | |
One-to-four family | |
$ | 285,045 | | |
$ | 276,410 | |
Multi-family | |
| 356 | | |
| 368 | |
Home equity | |
| 6,324 | | |
| 4,803 | |
Nonresidential | |
| 24,250 | | |
| 24,629 | |
Agricultural | |
| 2,542 | | |
| 2,573 | |
Construction and land | |
| 38,678 | | |
| 32,836 | |
Total real estate loans | |
| 357,195 | | |
| 341,619 | |
Commercial and industrial | |
| 3,128 | | |
| 2,313 | |
Consumer and other loans | |
| 1,155 | | |
| 1,180 | |
Total loans | |
$ | 361,478 | | |
$ | 345,112 | |
The
table above includes net deferred loan fees of $2,263 and $2,157 at September 30, 2022 and June 30, 2022, respectively.
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and
per share data)
(5) LOANS
(continued)
The following table presents the activity
in the allowance for loan losses for the three months ended September 30, 2022 by portfolio segment:
Three months ended September 30, 2022 | |
Beginning
Balance | | |
Provision | | |
Charge-offs | | |
Recoveries | | |
Ending
Balance | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | 965 | | |
$ | 11 | | |
$ | — | | |
$ | — | | |
$ | 976 | |
Multi-family | |
| 9 | | |
| (6 | ) | |
| — | | |
| — | | |
| 3 | |
Home equity | |
| 34 | | |
| 10 | | |
| — | | |
| — | | |
| 44 | |
Nonresidential | |
| 158 | | |
| — | | |
| — | | |
| — | | |
| 158 | |
Agricultural | |
| 15 | | |
| — | | |
| — | | |
| — | | |
| 15 | |
Construction and land | |
| 132 | | |
| 24 | | |
| — | | |
| — | | |
| 156 | |
Total real estate loans | |
| 1,313 | | |
| 39 | | |
| — | | |
| — | | |
| 1,352 | |
Commercial and industrial | |
| 24 | | |
| 11 | | |
| — | | |
| — | | |
| 35 | |
Consumer and other loans | |
| 2 | | |
| — | | |
| — | | |
| — | | |
| 2 | |
Total loans | |
$ | 1,339 | | |
$ | 50 | | |
$ | — | | |
$ | — | | |
$ | 1,389 | |
The following table presents the recorded
balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at September 30, 2022:
| |
Ending Allowance on Loans: | | |
Loans: | |
At September 30, 2022 | |
Individually Evaluated for
Impairment | | |
Collectively
Evaluated for
Impairment | | |
Individually Evaluated for
Impairment | | |
Collectively
Evaluated for
Impairment | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | — | | |
$ | 976 | | |
$ | 582 | | |
$ | 284,463 | |
Multi-family | |
| — | | |
| 3 | | |
| — | | |
| 356 | |
Home equity | |
| — | | |
| 44 | | |
| — | | |
| 6,324 | |
Nonresidential | |
| — | | |
| 158 | | |
| 467 | | |
| 23,783 | |
Agricultural | |
| — | | |
| 15 | | |
| — | | |
| 2,542 | |
Construction and land | |
| — | | |
| 156 | | |
| — | | |
| 38,678 | |
Total real estate loans | |
| — | | |
| 1,352 | | |
| 1,049 | | |
| 356,146 | |
Commercial and industrial | |
| — | | |
| 35 | | |
| — | | |
| 3,128 | |
Consumer and other loans | |
| — | | |
| 2 | | |
| — | | |
| 1,155 | |
Total loans | |
$ | — | | |
$ | 1,389 | | |
$ | 1,049 | | |
$ | 360,429 | |
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and
per share data)
(5) LOANS
(continued)
The following table presents the activity
in the allowance for loan losses for the three months ended September 30, 2021 by portfolio segment:
Three months ended September 30, 2021 | |
Beginning
Balance | | |
Provision | | |
Charge-offs | | |
Recoveries | | |
Ending
Balance | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | 992 | | |
$ | 10 | | |
$ | — | | |
$ | — | | |
$ | 1,002 | |
Multi-family | |
| 4 | | |
| — | | |
| — | | |
| — | | |
| 4 | |
Home equity | |
| 41 | | |
| — | | |
| — | | |
| — | | |
| 41 | |
Nonresidential | |
| 133 | | |
| 2 | | |
| — | | |
| — | | |
| 135 | |
Agricultural | |
| 15 | | |
| — | | |
| — | | |
| — | | |
| 15 | |
Construction and land | |
| 103 | | |
| (13 | ) | |
| — | | |
| — | | |
| 90 | |
Total real estate loans | |
| 1,288 | | |
| (1 | ) | |
| — | | |
| — | | |
| 1,287 | |
Commercial and industrial | |
| 22 | | |
| 1 | | |
| — | | |
| — | | |
| 23 | |
Consumer and other loans | |
| 29 | | |
| — | | |
| — | | |
| — | | |
| 29 | |
Total loans | |
$ | 1,339 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 1,339 | |
The following table presents the recorded
balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at June 30, 2022:
| |
Ending Allowance on Loans: | | |
Loans: | |
At June 30, 2022 | |
Individually Evaluated for
Impairment | | |
Collectively
Evaluated for
Impairment | | |
Individually Evaluated for
Impairment | | |
Collectively
Evaluated for
Impairment | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | — | | |
$ | 965 | | |
$ | 948 | | |
$ | 275,462 | |
Multi-family | |
| — | | |
| 9 | | |
| — | | |
| 368 | |
Home equity | |
| — | | |
| 34 | | |
| — | | |
| 4,803 | |
Nonresidential | |
| — | | |
| 158 | | |
| 478 | | |
| 24,151 | |
Agricultural | |
| — | | |
| 15 | | |
| — | | |
| 2,573 | |
Construction and land | |
| — | | |
| 132 | | |
| — | | |
| 32,836 | |
Total real estate loans | |
| — | | |
| 1,313 | | |
| 1,426 | | |
| 340,193 | |
Commercial and industrial | |
| — | | |
| 24 | | |
| — | | |
| 2,313 | |
Consumer and other loans | |
| — | | |
| 2 | | |
| — | | |
| 1,180 | |
Total loans | |
$ | — | | |
$ | 1,339 | | |
$ | 1,426 | | |
$ | 343,686 | |
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and
per share data)
(5) LOANS
(continued)
The tables below present loans that were
individually evaluated for impairment by portfolio segment at September 30, 2022 and June 30, 2022, including the average recorded
investment balance and interest earned for the three months ended September 30, 2022 and the year ended June 30, 2022:
|
|
September 30, 2022 |
|
|
|
Unpaid Principal Balance |
|
|
Recorded Investment |
|
|
Related Allowance |
|
|
Average Recorded Investment |
|
|
Interest Income Recognized |
|
With no recorded allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
584 |
|
|
$ |
582 |
|
|
$ |
— |
|
|
$ |
765 |
|
|
$ |
8 |
|
Multi-family |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Home equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Nonresidential |
|
|
495 |
|
|
|
467 |
|
|
|
— |
|
|
|
473 |
|
|
|
— |
|
Agricultural |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Construction and land |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total real estate loans |
|
|
1,079 |
|
|
|
1,049 |
|
|
|
— |
|
|
|
1,238 |
|
|
|
8 |
|
Commercial and industrial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consumer and other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
1,079 |
|
|
$ |
1,049 |
|
|
$ |
— |
|
|
$ |
1,238 |
|
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With recorded allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Multi-family |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Home equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Nonresidential |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Agricultural |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Construction and land |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total real estate loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Commercial and industrial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consumer and other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans |
|
$ |
1,079 |
|
|
$ |
1,049 |
|
|
$ |
— |
|
|
$ |
1,238 |
|
|
$ |
8 |
|
Consumer and other loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
1,079 |
|
|
$ |
1,049 |
|
|
$ |
— |
|
|
$ |
1,238 |
|
|
$ |
8 |
|
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)
(5) LOANS
(continued)
The following tables present the aging
of past due loans as well as nonaccrual loans. Nonaccrual loans and accruing loans past due 90 days or more include both smaller
balance homogenous loans and larger balance loans that are evaluated either collectively or, if over $250, individually for impairment.
Total past due loans and nonaccrual loans
at September 30, 2022:
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Accruing | |
| |
30-59 | | |
60-89 | | |
90 Days | | |
| | |
| | |
| | |
| | |
Loans | |
| |
Days | | |
Days | | |
or More | | |
Total | | |
| | |
Total | | |
Nonaccrual | | |
Past Due 90 | |
| |
Past Due | | |
Past Due | | |
Past Due | | |
Past Due | | |
Current | | |
Loans | | |
Loans | | |
Days or More | |
Real estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four family | |
$ | 2,160 | | |
$ | 946 | | |
$ | 403 | | |
$ | 3,509 | | |
$ | 281,536 | | |
$ | 285,045 | | |
$ | 843 | | |
$ | — | |
Multi-family | |
| 202 | | |
| — | | |
| — | | |
| 202 | | |
| 154 | | |
| 356 | | |
| — | | |
| — | |
Home equity | |
| 86 | | |
| — | | |
| — | | |
| 86 | | |
| 6,238 | | |
| 6,324 | | |
| — | | |
| — | |
Nonresidential | |
| 151 | | |
| — | | |
| — | | |
| 151 | | |
| 24,099 | | |
| 24,250 | | |
| 467 | | |
| — | |
Agricultural | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,542 | | |
| 2,542 | | |
| — | | |
| — | |
Construction and land | |
| 883 | | |
| — | | |
| — | | |
| 883 | | |
| 37,795 | | |
| 38,678 | | |
| — | | |
| — | |
Total real estate loans | |
| 3,482 | | |
| 946 | | |
| 403 | | |
| 4,831 | | |
| 352,364 | | |
| 357,195 | | |
| 1,310 | | |
| — | |
Commercial and industrial | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3,128 | | |
| 3,128 | | |
| — | | |
| — | |
Consumer and other loans | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,155 | | |
| 1,155 | | |
| — | | |
| — | |
Total | |
$ | 3,482 | | |
$ | 946 | | |
$ | 403 | | |
$ | 4,831 | | |
$ | 356,647 | | |
$ | 361,478 | | |
$ | 1,310 | | |
$ | — | |
COVID-19 Loan Modifications:
As
a result of disruptions in economic conditions caused by COVID-19, the financial regulators issued guidance encouraging banks to
work constructively with borrowers affected by the virus in our community. This guidance provided that the agencies will not criticize
financial institutions that mitigate credit risk through prudent actions consistent with safe and sound practices. Section 4013
of the CARES Act, “Temporary Relief from Troubled Debt Restructurings,” which was extended by the Consolidated Appropriations
Act for the fiscal year ending September 30, 2021, provided banks the option to temporarily suspend certain requirements under
ASC 340-10 troubled debt restructuring classifications for a limited period of time to account for the effects of COVID-19. The
Federal Reserve and the other banking agencies and regulators also issued a joint statement encouraging banks to work prudently
with borrowers and to describe the agencies’ interpretations of how accounting rules under ASC 310-40 apply to certain COVID-19
related modifications. We have not considered any of the COVID-19 related modifications we performed to be troubled debt restructurings.
Included in the table above are $5,227 in loans still remaining that were modified to defer principal payments or principal and
interest payments from three to six months based on the affected borrower’s request and need for COVID-19 financial relief.
All loans modified for COVID-19 financial relief were current at the time of modification. Of this amount, there were $3,615 in
one-to-four family loans, $1,256 in non-residential loans and $356 in multi-family loans. As of September 30, 2022, $4,763 of such
loans were current and $464 were 30 days or more past due. As of September 30, 2022, all of the COVID-19 related modifications
had returned to regular payment status.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
Total
past due and nonaccrual loans by portfolio segment at June 30, 2022:
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
Accruing | |
| |
30-59 | | |
60-89 | | |
90
Days | | |
| | |
| | |
| | |
| | |
Loans | |
| |
Days | | |
Days | | |
or
More | | |
Total | | |
| | |
Total | | |
Nonaccrual | | |
Past
Due 90 | |
| |
Past
Due | | |
Past
Due | | |
Past
Due | | |
Past
Due | | |
Current | | |
Loans | | |
Loans | | |
Days
or More | |
Real
estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four
family | |
$ | 2,632 | | |
$ | 891 | | |
$ | 696 | | |
$ | 4,219 | | |
$ | 272,191 | | |
$ | 276,410 | | |
$ | 1,401 | | |
$ | — | |
Multi-family | |
| — | | |
| — | | |
| 208 | | |
| 208 | | |
| 160 | | |
| 368 | | |
| 208 | | |
| — | |
Home
equity | |
| 17 | | |
| — | | |
| — | | |
| 17 | | |
| 4,786 | | |
| 4,803 | | |
| — | | |
| — | |
Nonresidential | |
| 82 | | |
| 156 | | |
| — | | |
| 238 | | |
| 24,391 | | |
| 24,629 | | |
| 478 | | |
| — | |
Agricultural | |
| — | | |
| — | | |
| — | | |
| — | | |
| 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 | | |
$ | — | |
Included
in the table above are $7,459 in loans still remaining that were modified to defer principal payments or principal and interest
payments from three to six months based on the affected borrower’s request and need for COVID-19 financial relief. All loans
modified for COVID-19 financial relief were current at the time of modification. Of this amount, there were $4,846 in one-to-four
family loans, $2,246 in non-residential loans and $367 in multi-family loans. As of June 30, 2022, $6,984 were current and $475
were 30 days or more past due.
Troubled
Debt Restructurings:
At
September 30, 2022 and June 30, 2022, total loans that have been modified as troubled debt restructurings were $496 and $869,
respectively, which consisted of one non-residential real estate loan and one one-to-four family first lien loans at September
30, 2022 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 months ended September 30, 2022. No loans modified as troubled debt restructurings have defaulted
since restructuring. All of these loans are on nonaccrual at September 30, 2022 and June 30, 2022. At September 30, 2022 and June
30, 2022, $467 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 September 30, 2022. We have assessed
the impact of the COVID-19 pandemic on the allowance for loan loss using the information that is available. However, the
fluidity of this pandemic precludes any prediction as to its ultimate impact. Due to the increase in the size of the loan portfolio,
a $50 provision for loan losses was recorded during the quarter ended September 30, 2022. We believe the recorded allowance is
adequate as of September 30, 2022. We will continue to review and make adjustments as may be necessary. To the best of our knowledge,
we have recorded all losses that are both probable and reasonably estimable for the three months ended September 30, 2022 and
September 30, 2021.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
Loan
Grades:
The
Company utilizes a grading system whereby all loans are assigned a grade based on the risk profile of each loan. Loan grades are
determined based on an evaluation of relevant information about the ability of borrowers to service their debt such as current
financial information, historical payment experience, credit documentation, public information, and current economic trends, among
other factors. All loans, regardless of size, are analyzed and are given a grade based upon the management’s assessment
of the ability of borrowers to service their debts.
Pass:
Loan assets of this grade conform to a preponderance of our underwriting criteria and are acceptable as a credit risk, based upon
the current net worth and paying capacity of the obligor. Loans in this category also include loans secured by liquid assets and
secured loans to borrowers with unblemished credit histories.
Pass-Watch:
Loan assets of this grade represent our minimum level of acceptable credit risk. This grade may also represent obligations previously
rated “Pass”, but with significantly deteriorating trends or previously rated.
Special
Mention: Loan assets of this grade have a potential weakness that deserves management’s close attention. If left uncorrected,
these potential weaknesses may result in deterioration of repayment prospects for the loan or of the institution’s credit
position at some future date.
Substandard:
Loan assets of this grade are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They
are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful:
Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic
that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values,
highly questionable and improbable.
Portfolio
Segments:
One-to-four
family: One-to-four family residential loans consist primarily of loans secured by first or second deeds of trust on primary
residences, and are originated as adjustable-rate or fixed-rate loans for the construction, purchase or refinancing of a mortgage.
These loans are collateralized by owner-occupied properties located in the Company's market area. The Company currently originates
residential mortgage loans for our portfolio with loan-to-value ratios of up to 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.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
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.
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%.
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
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.
Based
on the most recent analysis performed, the risk grade of loans by portfolio segment are presented in the following tables.
Total
loans by risk grade and portfolio segment at September 30, 2022:
| |
Pass | | |
Pass-Watch | | |
Special
Mention | | |
Substandard | | |
Doubtful | | |
Total | |
Real
estate loans: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
One-to-four
family | |
$ | 281,341 | | |
$ | 1,417 | | |
$ | 737 | | |
$ | 1,550 | | |
$ | — | | |
$ | 285,045 | |
Multi-family | |
| 356 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 356 | |
Home
equity | |
| 6,263 | | |
| 61 | | |
| — | | |
| — | | |
| — | | |
| 6,324 | |
Nonresidential | |
| 23,654 | | |
| — | | |
| — | | |
| 596 | | |
| — | | |
| 24,250 | |
Agricultural | |
| 2,542 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,542 | |
Construction
and land | |
| 38,491 | | |
| 156 | | |
| 31 | | |
| — | | |
| — | | |
| 38,678 | |
Total
real estate loans | |
| 352,647 | | |
| 1,634 | | |
| 768 | | |
| 2,146 | | |
| — | | |
| 357,195 | |
Commercial
and industrial | |
| 3,128 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3,128 | |
Consumer
and other loans | |
| 1,155 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,155 | |
Total | |
$ | 356,930 | | |
$ | 1,634 | | |
$ | 768 | | |
$ | 2,146 | | |
$ | — | | |
$ | 361,478 | |
OCONEE
FEDERAL FINANCIAL CORP.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
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 | |
At
September 30, 2022 and June 30, 2022, advances from the Federal Home Loan Bank were as follows:
| |
September
30,
2022 |
| |
Balance | | |
Stated
Interest
Rate |
FHLB
advances due January 2023 through January 2025 | |
$ | 19,000 | | |
1.40%
- 3.34% |
Total | |
$ | 19,000 | | |
|
| |
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 years are as follows:
2023 |
$16,500 |
2025 |
$ 2,500 |
The
weighted average interest rate of all outstanding FHLB advances was 2.75% and 1.74% on September 30, 2022 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
$26,014 and $14,779 of investment securities at September 30, 2022 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 $136,707 at September 30, 2022.
There
were no overnight borrowings at September 30, 2022 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 |
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.
Impaired
Loans:
The
fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate
appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales
and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between
the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification
of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the
borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge,
changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and
client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for
additional impairment and adjusted accordingly. There were no impaired loans with specific allocations at September 30, 2022 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 2 classification.
Loan
Servicing Rights:
Fair
value is determined based on a valuation model that calculates the present value of estimated future net servicing income. The
valuation model utilizes assumptions that market participants would use in estimating future net servicing income and that can
be validated against available market data and results in a Level 3 classification.
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) |
Real
Estate Owned:
Assets
acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing
a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair
value is commonly based on recent real estate appraisals, which are updated no less frequently than annually. These appraisals
may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments
are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales
and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs
for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted
accordingly.
Appraisals
for both collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial
properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed
and verified by the Company. Once received, management reviews the assumptions and approaches utilized in the appraisal as well
as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.
On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised
value to determine what additional adjustment should be made to the appraisal value to arrive at fair value.
Deposits:
The
fair values disclosed for demand deposit, money market and savings accounts are equal to the amount payable on demand at the reporting
date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being offered on certificates of deposit to a schedule of aggregated
expected monthly maturities on time deposits resulting in a Level 2 classification.
FHLB
Advances:
The
fair values of the Company’s FHLB advances are estimated using discounted cash flow analysis based on the current borrowing
rates for similar types of borrowing arrangements resulting in a Level 2 classification.
Assets
measured at fair value on a recurring basis at September 30, 2022 and June 30, 2022 are summarized below:
| |
Fair
Value Measurements | |
| |
September
30, 2022 | | |
June
30, 2022 | |
| |
(Level
2) | | |
(Level
3) | | |
(Level
2) | | |
(Level
3) | |
Financial
assets: | |
| | | |
| | | |
| | | |
| | |
Securities
available-for-sale: | |
| | | |
| | | |
| | | |
| | |
FHLMC
common stock | |
$ | 43 | | |
$ | — | | |
$ | 34 | | |
$ | — | |
Certificates
of deposit | |
| — | | |
| — | | |
| 1,249 | | |
| — | |
Municipal
securities | |
| 7,938 | | |
| — | | |
| 16,597 | | |
| — | |
CMOs | |
| 11,591 | | |
| — | | |
| 13,064 | | |
| — | |
U.S.
Government agency mortgage-backed securities | |
| | |
| — | | |
| | |
| — | |
U.S.
Treasury and Government agency bonds | |
| 10,143 | | |
| — | | |
| 10,751 | | |
| — | |
Total
securities available-for-sale | |
| 139,018 | | |
| — | | |
| 151,299 | | |
| — | |
Loan
servicing rights | |
| — | | |
| 347 | | |
| — | | |
| 345 | |
Total
financial assets | |
$ | 139,018 | | |
$ | 347 | | |
$ | 151,299 | | |
$ | 345 | |
There
are no liabilities measured at fair value on a recurring basis.
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)
The
table below presents a reconciliation of all Level 3 assets measured at fair value on a recurring basis using significant unobservable
inputs for the three months ended September 30, 2022 and 2021:
| |
Fair Value Measurements | |
| |
(Level 3) | |
| |
Three Months Ended | |
| |
September 30, 2022 | | |
September 30, 2021 | |
| |
Loan
Servicing Rights | | |
Loan
Servicing Rights | |
Balance at beginning of period: | |
$ | 345 | | |
$ | 305 | |
Unrealized net gains/(losses) included in net income | |
| 2 | | |
| (14 | ) |
Balance at end of period: | |
$ | 347 | | |
$ | 291 | |
The
table below presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value at September
30, 2022 and June 30, 2022.
| |
Level
3 Quantitative Information | |
| |
September
30, 2022
Fair Value | | |
June
30, 2022 Fair Value | |
Valuation
Technique |
|
Unobservable
Inputs | |
| Range | |
Loan servicing
rights | |
$ | 347 | | |
$ | 345 | |
Discounted
cash flows |
|
Discount
rate, estimated timing of cash flows | |
| 10.88% to 11.88% | |
Presented
in the table below are assets measured at fair value on a nonrecurring basis using level 3 inputs at September 30, 2022 and June
30, 2022:
| |
Fair Value Measurements | |
| |
September 30,
2022 | | |
June 30,
2022 | |
| |
(Level 3) | | |
(Level 3) | |
Non-financial assets: | |
| | | |
| | |
Real estate owned, net: | |
| | | |
| | |
Nonresidential | |
$ | 106 | | |
$ | — | |
Total non-financial assets | |
| 106 | | |
| — | |
Total assets measured at fair value on a non-recurring basis | |
$ | 106 | | |
$ | — | |
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
at September 30, 2022 was $106. There were no valuation allowances associated with these properties at September 30, 2022. There
was no real estate owned at 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 September 30, 2022 and June 30, 2022 are summarized
below:
| |
| | |
| | |
| | |
| | |
| |
| |
September 30, 2022 | |
| |
Carrying | | |
Fair Value | |
| |
Amount | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
Total | |
Financial assets | |
| | | |
| | | |
| | | |
| | | |
| | |
Securities available-for-sale | |
$ | 139,018 | | |
$ | — | | |
$ | 139,018 | | |
$ | — | | |
$ | 139,018 | |
Loans, net (1) | |
| 360,089 | | |
| — | | |
| — | | |
| 345,808 | | |
| 345,808 | |
Loan servicing rights | |
| 347 | | |
| — | | |
| — | | |
| 347 | | |
| 347 | |
Restricted equity securities | |
| 1,564 | | |
| N/A | | |
| N/A | | |
| N/A | | |
| N/A | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Financial liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
Deposits | |
$ | 459,708 | | |
$ | — | | |
$ | 453,738 | | |
$ | — | | |
$ | 453,738 | |
FHLB Advances | |
| 19,000 | | |
| — | | |
| 18,750 | | |
| — | | |
| 18,750 | |
| |
| | |
| | |
| | |
| | |
| |
| |
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 September 30, 2022 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. Total ESOP compensation expense for the three months ended
September 30, 2022 was $2 and for the three months ended September 30, 2021 was $89.
Shares
held by the ESOP at September 30, 2022 and June 30, 2022 were as follows:
| |
September 30,
2022 | | |
June 30,
2022 | |
Committed to be released to participants | |
| 8,032 | | |
| 5,355 | |
Allocated to participants | |
| 165,060 | | |
| 165,060 | |
Unearned | |
| 837 | | |
| 3,514 | |
Total ESOP shares | |
| 173,929 | | |
| 173,929 | |
| |
| | | |
| | |
Fair value of unearned shares | |
$ | 20 | | |
$ | 76 | |
(9)
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 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 three months ended September 30, 2022:
| |
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 - September 30, 2022 | |
| 43,900 | | |
$ | 22.90 | | |
$ | 54 | |
Fully vested and exercisable at September 30, 2022 | |
| | |
$ | 21.92 | | |
$ | 66 | |
Expected to vest in future periods | |
| 13,800 | | |
| | | |
| | |
Fully vested and expected to vest - September 30, 2022 | |
| 43,900 | | |
$ | 22.90 | | |
$ | 54 | |
(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 $24.12 per share on September 30, 2022. |
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 three months ended September 30, 2021:
| |
Options | | |
Weighted-
Average Exercise Price/Share | | |
Aggregate
Intrinsic Value (1) | |
Outstanding
- June 30, 2021 | |
| 131,901 | | |
$ | 15.70 | | |
| | |
Granted | |
| — | | |
| — | | |
| | |
Exercised | |
| — | | |
| — | | |
| | |
Forfeited | |
| — | | |
| — | | |
| | |
Outstanding
- September 30, 2021 | |
| 131,901 | | |
$ | 15.70 | | |
$ | 1,036 | |
Fully
vested and exercisable at September 30, 2021 | |
| 112,401 | | |
$ | 14.15 | | |
$ | 1,057 | |
Expected
to vest in future periods | |
| 19,500 | | |
| | | |
| | |
Fully
vested and expected to vest - September 30, 2021 | |
| 131,901 | | |
$ | 15.70 | | |
$ | 1,036 | |
(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 $23.56 per share on September 30, 2021. |
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 1,159 and 1,437 options that were earned
during the three months ended September 30, 2022 and 2021, respectively. Stock-based compensation expense for stock options for
the three months ended September 30, 2022 was $5 and for the three months ended September 30, 2021 was $5. Total unrecognized
compensation cost related to stock options was $45 at September 30, 2022 and is expected to be recognized over a weighted-average
period of 3.0 years.
The
following table summarizes non-vested restricted stock activity for the three months ended September 30, 2022 and September 30,
2021:
| |
September
30, 2022 | | |
September
30, 2021 | |
Balance
- beginning of year | |
| 9,700 | | |
| 14,300 | |
Granted | |
| — | | |
| — | |
Forfeited | |
| — | | |
| — | |
Vested | |
| — | | |
| — | |
Balance - end
of period | |
| 9,700 | | |
| 14,300 | |
Weighted average
grant date fair value | |
$ | 22.97 | | |
$ | 22.50 | |
The
fair value of the restricted stock awards is amortized to compensation expense over their respective vesting periods and is based
on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted that are
expected to vest. Stock-based compensation expense for restricted stock included in noninterest expense for the three months ended
September 30, 2022 was $16 and for the three months ended September 30, 2021 was $25. Unrecognized compensation expense for non-vested
restricted stock awards was $199 at September 30, 2022 and is expected to be recognized over a weighted-average period of 3.6
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 September 30, 2022 and June 30, 2022 are as follows:
| |
September
30, 2022 | | |
June
30, 2022 | |
Mortgage loan portfolio
serviced for: | |
| | | |
| | |
FHLMC | |
$ | 38,117 | | |
$ | 39,476 | |
Custodial
escrow balances maintained in connection with serviced loans were $598 and $453 at September 30, 2022 and June 30, 2022.
Activity
for loan servicing rights for the three months ended September 30, 2022 and 2021 is as follows:
| |
| | |
| |
| |
Three
Months Ended | |
| |
September
30, 2022 | | |
September
30, 2021 | |
Loan servicing rights: | |
| | | |
| | |
Beginning
of period: | |
$ | 345 | | |
$ | 305 | |
Change
in fair value | |
| 2 | | |
| (14 | ) |
End
of period: | |
$ | 347 | | |
$ | 291 | |
Fair
value at September 30, 2022 was determined using a discount rate of 11.88%, prepayment speed assumptions ranging from 6.40% to
16.30% Conditional Prepayment Rate (“CPR”) depending on the loans’ coupon, term and seasoning, and a weighted
average default rate of 3.0%. Fair value at September 30, 2021 was determined using a discount rate of 8.63%, prepayment
speed assumptions ranging from 10.36% to 19.69% Conditional Prepayment Rate (“CPR”) depending on the loans’
coupon, term and seasoning, and a weighted average default rate of 10.0%.
(11)
SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental
cash flow information for the three months ended September 30, 2022 and 2021 is as follows:
| |
September 30, 2022 | | |
September 30, 2021 | |
Cash paid during the period for: | |
| | | |
| | |
Interest paid | |
$ | 282 | | |
$ | 327 | |
Income taxes paid | |
$ | 250 | | |
$ | 310 | |
Supplemental noncash disclosures: | |
| | | |
| | |
Transfers from loans to real estate owned | |
$ | 106 | | |
$ | — | |
Change in unrealized gain/loss on securities available-for-sale | |
$ | (8,462 | ) | |
$ | (1,010 | ) |
OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts
in thousands, except share and per share data)
(12)
SUBSEQUENT EVENTS
Dividend
Declared
On
October 27, 2022, 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 November 10, 2022,
and will be paid on or about November 23, 2022.