UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20429
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File number 000-25267
Oconee Financial Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2442250
- ----------------------- ----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
35 North Main Street
Watkinsville, Georgia 30677
- --------------------- ----------
(Address of principal (Zip Code)
executive offices)
706-769-6611
------------------
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subjected to
such filing requirements for the past 90 days.
YES [ XX ] NO [ ]
Common stock, par value $10 per share: 180,000 shares
outstanding as of August 12, 1999
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<CAPTION>
OCONEE FINANCIAL CORPORATION AND SUBSIDIARY
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
<S> <S> <S> <C>
Item 1. Financial Statements
Balance Sheet (unaudited) at June 30, 1999 3
Statements of Earnings (unaudited) for the Six
Months Ended June 30, 1999 and 1998 4
Statements of Comprehensive Income (unaudited)
for the Six Months Ended June 30, 1999 and 1998 5
Statements of Cash Flows (unaudited) for the Six
Months Ended June 30, 1999 and 1998 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
OCONEE FINANCIAL CORPORATION AND SUBSIDIARY
Balance Sheet
June 30, 1999
(Unaudited)
Assets
------
<S> <C>
Cash and due from banks $ 5,619,025
Federal funds sold 0
Investment securities held to maturity
(approximate market value of $16,695,286) 16,659,794
Investment securities available for sale
(amortized cost of $18,426,847) 17,926,407
Mortgage loans held for sale 2,150,911
Loans 86,086,746
Less: Allowance for loan losses (1,447,277)
---------------
Loans, net 84,639,469
---------------
Premises and equipment, net 1,537,877
Accrued interest receivable and other assets 3,098,824
---------------
Total Assets $ 131,632,307
===============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Noninterest-bearing $ 18,076,139
Interest-bearing 96,702,437
---------------
Total Deposits 114,778,576
Securities sold under repurchase agreements 916,493
Federal funds purchased 2,150,000
Accrued interest payable and other liabilities 609,145
---------------
Total Liabilities 118,454,214
Stockholders' equity:
Common stock, $10 par value;
authorized 300,000 shares;
issued and outstanding 180,000 shares 1,800,000
Additional paid-in capital 4,250,000
Retained earnings 7,438,566
Unrealized gain (loss) on investment securities, net of tax (310,473)
---------------
Total stockholders' equity 13,178,093
---------------
Total liabilities and stockholders' equity $ 131,632,307
===============
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
OCONEE FINANCIAL CORPORATION AND SUBSIDIARY
Statements of Earnings
For the Three Months and the Six Months Ended June 30, 1999 and 1998
(Unaudited)
Three Months Six Months
Ended Ended
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest Income:
Loans $ 2,035,831 $ 1,905,463 $ 3,900,742 $ 3,804,234
Investment securities:
Tax exempt 202,652 170,344 405,650 340,141
Taxable 287,237 229,583 579,026 487,065
Federal funds sold and other 37,166 114,143 122,187 176,654
-------------- -------------- -------------- --------------
Total interest income 2,562,886 2,419,533 5,007,605 4,808,094
-------------- -------------- -------------- --------------
Interest Expense:
Deposits 962,838 994,157 1,947,797 1,976,510
Other 11,628 4,112 17,437 7,648
-------------- -------------- -------------- --------------
Total interest expense 974,466 998,269 1,965,234 1,984,158
-------------- -------------- -------------- --------------
Net interest income 1,588,420 1,421,264 3,042,371 2,823,936
Provision for loan losses 12,600 15,180 25,200 30,360
-------------- -------------- -------------- --------------
Net interest income after provision for loan losses 1,575,820 1,406,084 3,017,171 2,793,576
-------------- -------------- -------------- --------------
Other Income:
Service charges on deposit accounts 182,440 168,238 356,071 334,698
Securities gains (losses), net (16) 0 8,822 1,900
Other operating income 133,169 108,401 301,995 272,649
-------------- -------------- -------------- --------------
Total other income 315,593 276,639 666,888 609,247
-------------- -------------- -------------- --------------
Other Expense:
Salaries and other personnel expense 696,207 591,007 1,299,110 1,235,311
Net occupancy and equipment expense 132,714 120,858 272,395 246,748
Other operating expense 316,825 295,668 675,092 538,737
-------------- -------------- -------------- --------------
Total other expense 1,145,746 1,007,533 2,246,597 2,020,796
-------------- -------------- -------------- --------------
Earnings before income taxes 745,667 675,190 1,437,462 1,382,027
Income taxes 189,076 193,430 397,308 398,255
-------------- -------------- -------------- --------------
Net earnings $ 556,591 $ 481,760 $ 1,040,154 $ 983,772
============== ============== ============== ==============
Earnings per common share based on average outstanding
shares of 180,000 in 1999 and 1998: $ 3.09 $ 2.68 $ 5.78 $ 5.47
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
OCONEE FINANCIAL CORPORATION AND SUBSIDIARY
Statements of Comprehensive Income
For the Six Months Ended June 30, 1999 and 1998
(Unaudited)
1999 1998
----------------- -----------------
<S> <C> <C>
Net earnings $ 1,040,154 983,772
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities availble for sale:
Holding gains (losses) arising during period, net of tax
of ($220,421) and ($2,958) (360,245) (4,834)
Reclassification adjustments for (gains) losses included
in net earnings, net of tax of $3,358 and $722 (3,352) (1,178)
----------------- -----------------
Total other comprensive income (loss) (363,597) (6,012)
----------------- -----------------
Comprehensive income $ 676,557 977,760
================= =================
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE>
<TABLE>
<CAPTION>
OCONEE FINANCIAL CORPORATION AND SUBSIDIARY
Statements of Cash Flows
For Each of the Six Months Ended June 30, 1999 and 1998
(Unaudited)
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,040,154 $ 983,772
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for loan losses 25,200 30,360
Depreciation, amortization and accretion 119,876 104,737
Change in assets and liabilities:
Interest receivable and other assets (543,239) 259,633
Interest payable and other liabilities 1,375,849 (612,136)
Mortgage loans held for sale (438,611) (342,432)
---------------- ----------------
Net cash used by operating activities 1,579,229 423,934
---------------- ----------------
Cash flows from investing activities:
Proceeds from maturities and paydowns of
investment securities held to maturity 496,179 354,000
Proceeds from maturities and paydowns of
investment securities available for sale 2,498,213 4,820,194
Purchases of investment securities held to maturity (1,854,069) (762,078)
Purchases of investment securities available for sale (953,978) (4,195,949)
Net changes in loans (9,312,202) (3,176,975)
Purchases of premises and equipment (156,894) (191,526)
---------------- ----------------
Net cash used by investing activities (9,282,751) (3,152,334)
---------------- ----------------
Cash flows from financing activities:
Net change in deposits (1,341,617) 727,501
Repayments of long-term debt 358,324 100,756
---------------- ----------------
Net cash provided by financing activities (983,293) 828,257
---------------- ----------------
Net increase (decrease) in cash and cash equivalents (8,686,815) (1,900,143)
Cash and cash equivalents at beginning of period 14,305,840 12,180,521
---------------- ----------------
Cash and cash equivalents at end of period $ 5,619,025 $ 10,280,378
================ ================
Supplemental cash flow information:
Cash paid for interest $ 1,643,219 $ 1,593,710
</TABLE>
See accompanying notes to financial statements.
-6-
<PAGE>
OCONEE FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
---------------------
The financial statements include the accounts of Oconee Financial
Corporation (the Corporation) and its wholly-owned subsidiary, Oconee
State Bank. All significant intercompany accounts and transactions have
been eliminated in consolidation.
The consolidated financial information furnished herein reflects all
adjustments which are, in the opinion of management, necessary to
present a fair statement of the results of operations and financial
position for the periods covered herein. All such adjustments are of a
normal recurring nature.
(2) Cash and Cash Equivalents
-------------------------
For presentation in the financial statements, cash and cash equivalents
include cash on hand, amounts due from banks and federal funds sold.
(3) Comprehensive Income
--------------------
In 1997, the Financial Accounting and Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130"). SFAS 130 established standards for the reporting
and display of comprehensive income and its components in a full set of
general-purpose financial statements. The Bank has elected to present
comprehensive income in a separate statement of comprehensive income.
Accumulated other comprehensive income is solely related to the net of
tax effect of unrealized gains on securities available for sale.
(4) Holding Company Formation
-------------------------
On December 15, 1998, the Bank's shareholders approved a Plan of
Reorganization and Agreement of Merger (the "Plan"), providing for the
merger of Oconee Interim Corporation, a wholly-owned subsidiary of
Oconee Financial Corporation, with and into the Bank. The Plan called
for stockholders to exchange each share of Bank stock for one share of
Oconee Financial Corporation stock. The effective date of the Plan was
January 1, 1999, and is being accounted for in a manner similar to a
pooling of interest.
-7-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For Each of the Six Months in the Periods Ended
June 30, 1999 and 1998
FORWARD-LOOKING STATEMENT
This discussion contains forward-looking statements under the private
Securities Litigation Reform Act of 1995 that involve risk and uncertainties.
Although the Corporation believes that the assumptions underlying the
forward-looking statements contained in the discussion are reasonable, any of
the assumptions could be inaccurate, and therefore, no assurance can be made
that any of the forward-looking statements included in this discussion will be
accurate. Factors that could cause actual results to differ from results
discussed in forward-looking statements include, but are not limited to:
economic conditions (both generally and in the markets where the Corporation
operates); competition from other providers of financial services offered by the
Corporation; government regulations and legislation; changes in interest rates;
material unforeseen changes in the financial stability and liquidity of the
Corporation's credit customers; material unforeseen complications related to the
Year 2000 issues for the Corporation, its suppliers, customers and governmental
agencies, all of which are difficult to predict and which may be beyond the
control of the Corporation. The Corporation undertakes no obligation to revise
forward-looking statements to reflect events or changes after the date of this
discussion or to reflect the occurrence of unanticipated events.
FINANCIAL CONDITION
Total assets at June 30, 1999 were $131,632,307, representing a
$1,072,465 (0.82%) increase from December 31, 1998. Deposits decreased
$1,341,613 (1.16%) from December 31, 1998. Loans increased $9,306,862 (12.12%).
The allowance for loan losses at June 30, 1999 totaled $1,447,277 compared to
the December 31, 1998 total of $1,427,420, representing 1.68% of total loans at
March 31, 1999, compared to 1.86% at December 31, 1998. Cash and cash
equivalents decreased $8,692,858 from December 31, 1998.
The total of nonperforming assets, which includes nonaccruing loans,
other real estate owned, repossessed collateral and loans for which payments are
more than 90 days past due were $190,267 at June 30, 1999, representing a
decrease of $2,315 (1.20%) from December 31, 1998. There were no related party
loans which were considered nonperforming at June 30, 1999.
The Corporation's subsidiary bank was most recently examined by its
primary regulatory authority in March 1998. There were no recommendations by the
regulatory authority that in management's opinion will have material effects on
the Company's liquidity, capital resources or operations.
-8-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
For the Six Months in the Period Ended
June 30, 1999 and 1998
RESULTS OF OPERATIONS
Net interest income increased $218,435 (7.74%) in the first six months
of 1999 compared to the same period for 1998. Interest income for the first six
months of 1999 was $5,007,605, representing an increase of $199,511 (4.15%) over
the same period in 1998. Interest expense for the first six months of 1999
decreased $18,924 (0.95%) compared to the same period in 1998. The increase in
net interest income during the first six months of 1999 compared to the same
period in 1998 is primarily attributable to the increase in the volume of loans.
The provision for loan losses for the first six months of 1999
decreased $5,160 compared to the same period for 1998. It is management's belief
that the allowance for loan losses is adequate to absorb possible losses in the
portfolio.
Other expenses for the six months of 1999 increased $225,801 (8.65%)
compared to the first six months in 1998. The net increase is primarily
attributable to additional salary and benefits expense and other operating
expense comprised of organizational and other expenses at the holding company
level.
YEAR 2000 PREPAREDNESS
Generally, the year 2000 risk involves computer programs and computer
hardware that are not able to perform without interruption into the year 2000.
The arrival of the year 2000 poses a unique worldwide challenge to the ability
of all systems to correctly recognize the date change from December 31, 1999 to
January 1, 2000. If Oconee's systems do not correctly recognize such a date
change, computer applications that rely on the date field could fail or create
erroneous results. Such erroneous results could affect interest, payment or due
dates or could cause the temporary inability to process transactions, send
invoices or engage in similar normal business activities. If it is not
adequately addressed by Oconee or its suppliers and borrowers, the year 2000
issue could result in a material adverse impact on Oconee's financial condition,
liquidity and results of operations.
Oconee's State of Readiness - The Bank began its Year 2000 project in
-----------------------------
1996. The Bank established a Year 2000 Task Force comprised of executive and
senior management of the Bank. The chairman of the committee is the Bank's
President and CEO. The Year 2000 Task Force continues to communicate the Year
2000 issue and the Bank's status to the Board, employees, and the customers of
the Bank. The Bank has made a complete assessment of its information technology
systems and non-information technology systems and has contacted its system
vendors requesting information as to their Year 2000 preparedness.
-9-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
For the Six Months in the Period Ended
June 30, 1999 and 1998
The Bank has developed a year 2000 plan with the following phases:
awareness, assessment, renovation, validation and implementation. The Bank
developed a specific timeline to follow through each of these processes. The
bank is currently in the implementation phase. Testing of all computer systems
was completed during the second quarter of 1999, and non-compliant systems have
been upgraded or replaced in accordance with the Bank's overall contingency
plan.
Costs to Address Year 2000 Issues - The Bank currently estimates that
---------------------------------
the total cost of such modifications for Year 2000 compliance issues will be
approximately $230,500 expensed over the course of five years from 1998 through
2002 (including hardware/software expenses which are permitted to be
capitalized). Year 2000 expenditures for 1999 have been budgeted and are not
expected to have a significantly negative impact on results of operations,
liquidity, or capital resources. However, there can be no assurance that all
necessary modifications will be identified and corrected or that unforeseen
difficulties or additional costs will not arise.
Risks of Third Party Year 2000 Issues - The impact of year 2000
------------------------------------------
non-compliance by outside parties with whom Oconee transacts business cannot be
accurately gauged. Oconee has surveyed its major vendors and suppliers to
ascertain their year 2000 readiness. Although all are not year 2000 compliant at
this date, Oconee has received certain assurances that such third parties will
be ready for the year 2000 date change by the end of 1999, including any
additional certification from its major software provider.
The Bank will continue to monitor the progress of third party vendors
regarding their Year 2000 readiness focusing on mission critical applications
including, but not limited to, The Federal Reserve Bank, Intercept, The Bankers
Bank, telecommunications providers, and power companies. The Year 2000 Task
Force reviews progress reports from third party vendors. Third party progress
reports may include, but are not limited to, updates from the company website,
written status reports from the third party vendor, and verbal communication
regarding the current status of the vendor. The Bank is currently requesting the
results from the testing and validation of its mission critical third party
vendors regarding business contingency plans.
Oconee's Contingency Plan - The Bank has established an overall
---------------------------
contingency plan, a liquidity plan, as well as a business resumption contingency
plan for implementation in the event of system or operational failures. The Bank
has developed business resumption contingency plans that contain the following
elements: (1) evaluates options and selects the most reasonable contingency
strategy; (2) identifies contingency plans and implementation for each core
business process; (3) establishes trigger dates to activate the contingency
-10-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
For the Six Months in the Period Ended
June 30, 1999 and 1998
plans; (4) assigns responsibility for resumption of core business processes; (5)
implements an independent review of the feasibility of the contingency plan; and
(6) develops an implementation strategy for the century date change as well as
other critical dates. In general, the overall contingency plan is designed to
minimize the disruption of service to the Bank and its customers in the event of
a Year 2000 disruption.
The Bank's Year 2000 Liquidity Contingency Plan provides a framework
for meeting liquidity needs on an expedited basis. The Plan identifies and
assesses liquidity needs in connection with Year 2000, further identifies and
updates both primary and secondary sources of liquidity, and provides policy and
procedures for the use of liquidity should the need for additional liquidity
arise.
-11-
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, continued
For the Six Months Ended June 30, 1999
Capital
The following tables present Oconee State Bank's regulatory capital position at
June 30, 1999:
Risk-Based Capital Ratios
-------------------------
Tier 1 Tangible Capital, Actual 13.2%
Tier 1 Tangible Capital minimum requirement 4.0%
----
Excess 9.2%
===
Total Capital, Actual 14.4%
Total Capital minimum requirement 8.0%
----
Excess 6.4%
===
Leverage Ratio
--------------
Tier 1 Tangible Capital to adjusted total assets
(Leverage Ratio) 10.5%
Minimum leverage requirement 3.0%
----
Excess 7.5%
===
-12-
<PAGE>
PART II. OTHER INFORMATION
OCONEE FINANCIAL CORPORATION AND SUBSIDIARY
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Oconee Financial Corporation's annual meeting of stockholders
was held on May 3, 1999.
(b) The following is a summary of matters submitted to a vote of
security holders:
1. The election * of the following directors to serve
the current year term:
G. Robert Bishop Henry C. Maxey
Steve W. Denman Carl R. Nichols
Douglas D. Dickens Ann B. Powers
Walter T. Evans, Sr. Jerry K. Wages
John A. Hale Virginia S. Wells
B. Amrey Harden
A tabulation of votes concerning the above issues is as
follows:
Shares voted by proxy in favor 126,232
Shares voted in person in favor 16,914
Shares voted in person against 0
Shares abstained from voting 0
Total shares represented 143,146
Total shares outstanding 180,000
* Directors were elected by slate, not individually.
Vote tabulation is therefore by slate.
-13-
<PAGE>
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit 27 - Financial Data Schedule (for SEC use only)
-14-
<PAGE>
OCONEE FINANCIAL CORPORATION AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
OCONEE FINANCIAL CORPORATION
By: /s/ B. Amrey Harden
B. Amrey Harden, President and C.E.O.
(Principal Executive Officer)
Date: August 12, 1999
By: /s/ Jerry K. Wages
Jerry K. Wages
Executive Vice-President and C.F.O.
(Principal Accounting Officer)
Date: August 12, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001076691
<NAME> OCONEE FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,619,025
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,926,407
<INVESTMENTS-CARRYING> 16,659,794
<INVESTMENTS-MARKET> 16,695,286
<LOANS> 88,237,657
<ALLOWANCE> 1,447,277
<TOTAL-ASSETS> 131,632,307
<DEPOSITS> 114,778,576
<SHORT-TERM> 3,006,493
<LIABILITIES-OTHER> 609,145
<LONG-TERM> 0
0
0
<COMMON> 1,800,000
<OTHER-SE> 11,378,093
<TOTAL-LIABILITIES-AND-EQUITY> 131,632,307
<INTEREST-LOAN> 3,900,742
<INTEREST-INVEST> 984,676
<INTEREST-OTHER> 122,187
<INTEREST-TOTAL> 5,007,605
<INTEREST-DEPOSIT> 1,947,797
<INTEREST-EXPENSE> 1,965,234
<INTEREST-INCOME-NET> 3,042,371
<LOAN-LOSSES> 25,200
<SECURITIES-GAINS> 8,822
<EXPENSE-OTHER> 2,246,597
<INCOME-PRETAX> 1,437,462
<INCOME-PRE-EXTRAORDINARY> 1,437,462
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,040,154
<EPS-BASIC> 5.78
<EPS-DILUTED> 5.78
<YIELD-ACTUAL> 5.39
<LOANS-NON> 150,266
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,427,420
<CHARGE-OFFS> 19,632
<RECOVERIES> 14,289
<ALLOWANCE-CLOSE> 1,447,277
<ALLOWANCE-DOMESTIC> 1,447,277
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
