U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Commission File Number 000-25267
Oconee Financial Corporation
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(Exact name of registrant as specified in its charter)
Georgia 58-2442250
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 North Main Street, Watkinsville, Georgia 30677-0205
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (706) 769-6611
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Securities registered pursuant to Section 12(b) of the Act: None
Name of exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $10.00
par value per share.
Check whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. X -----
State issuer's revenues for its most recent fiscal year. $11,973,681
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Transitional Small Business Disclosure format. Yes No X
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State the aggregate market value of the voting stock held by non-affiliates
(which for purposes hereof are all holders other than executive officers and
directors): As of February 29, 2000: 115,971 shares of common stock $10.00 par
value (the "Common Stock"), with an aggregate value of $18,555,360 (based on
approximate market value of $160.00/share) (the last sale price known to the
Registrant for the Common Stock, for which there is no established trading
market).
State the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date: As of March 20, 2000, there were
issued and outstanding 179,979 shares of Common Stock, par value $10.00 per
share.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
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Oconee Financial Corporation ("Oconee") or (the "Company"), a
registered bank holding company, was incorporated under the laws of Georgia in
1998 and commenced operations by acquiring 100% of the outstanding shares of
Oconee State Bank (the "Bank") effective January 1, 1999. All of Oconee's
activities are currently conducted by the Bank, its wholly owned subsidiary,
which was incorporated as a bank under the laws of Georgia in 1959. At December
31, 1999, Oconee had approximately 600 holders of record of Common Stock, its
only class of equity securities.
At December 31, 1999, the Bank's total assets were $152,139,000,
compared to $130,652,000 at year-end 1998. Over the past 5 years, total assets
of the Bank have grown by $69,285,000 representing an increase of 80.7%.
SERVICES
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The Bank is a community oriented, full-service commercial bank, located
in Oconee and Clarke Counties, Georgia with three full-service banking offices,
one limited-service loan production office and five automated teller machines
(ATMs). The Bank places an emphasis on retail banking, and offers such customary
banking services as consumer and commercial checking accounts, NOW accounts,
money market accounts, savings accounts, certificates of deposits, individual
retirement accounts, safe deposit facilities, and money transfers. The Bank
finances commercial and consumer transactions, makes secured and unsecured
loans, offers lines of credit, VISA and MasterCard accounts, and provides a
variety of other banking services.
MARKETS
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The primary market for the Bank is Oconee County, Georgia. The Bank's
secondary market is defined as those counties contiguous to Oconee County, which
include Clarke, Greene, Morgan, Walton, Barrow, and Oglethorpe, as well as any
counties which are a part of the Athens Standard Metropolitan Statistical Area,
but are not contiguous to Oconee County.
DEPOSITS
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The Bank offers a full range of depository accounts and services to
both consumers and businesses. At December 31, 1999, the Bank's deposit base
totaled $136,527,000 and consisted of the following types of accounts:
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Amount Percentage
------ ----------
Non-interest bearing demand deposits $ 18,736,000 13.7%
Interest-bearing NOW accounts 25,566,000 18.7%
Money market deposit accounts 11,832,000 8.7%
Savings deposits 11,190,000 8.2%
Time deposits less than $100,000 52,425,000 38.4%
Time deposits of $100,000 or more 9,849,000 7.2%
Individual Retirement Accounts 6,929,000 5.1%
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Total Deposits $136,527,000 100.0%
============ =====
Management of the Bank is of the opinion that its time deposits of
$100,000 or more are customer relationship-oriented and represent a reasonably
stable source of funds.
LOANS
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The Bank makes both secured and unsecured loans to individuals and
businesses. At December 31, 1999, the Bank's loan portfolio totaled $93,330,000,
consisting of the following categories of loans:
Amount Percentage
------ ----------
Loans secured by real estate $68,998,000 73.9%
Agricultural production & loans to farmers 724,000 0.8%
Commercial and industrial loans 11,588,000 12.5%
Credit cards and related plans 854,000 0.9%
Consumer loans (excluding credit cards) 9,877,000 10.6%
All other loans 1,133,000 1.2%
Lease financing receivables 205,000 0.2%
LESS: Unearned income (49,000) (0.1%)
----------- -----
Total Loans Net of Unearned Income $93,330,000 100.0%
=========== =====
The following table shows the amounts and growth for loans, deposits,
capital, and total assets at December 31, for the years ended 1994-1998 (dollar
amounts are in millions).
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994 5-Year Growth
---- ---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans $ 93.3 $ 76.8 $ 72.3 $ 68.8 $ 58.6 $ 54.9 73.4%
Deposits 136.5 116.1 104.6 97.0 79.3 74.2 85.3%
Capital 13.0 12.5 11.2 10.0 9.1 8.0 61.3%
Total Assets 152.1 130.7 117.5 108.5 89.8 82.9 83.1%
</TABLE>
As of December 31, 1999, the Bank had a concentration of loans to the housing
industry. Loans secured by real estate totaled $68,998,000, which represented
73.9% of the Bank's loan portfolio at December 31, 1999. At year-end 1999, total
outstanding balances and commitments for development and construction loans were
$37,669,000, which represented 40.3% of the Bank's total loans and 275.4% of the
Bank's equity capital. The Bank's established guidelines for this concentration,
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is to be in a range of 200% - 285% of Tier 1 equity capital. Low interest rates
and the desirability of living in Oconee County have fueled demand for new
housing and therefore new subdivisions in the area. Georgia Highway 316, the
Watkinsville by-pass, and the re-routing of Highway 441 will continue to
encourage further housing growth, resulting in the Bank's continued
concentration of loans to this industry. As of December 31, 1999, the Bank has
two related borrower concentrations.
LENDING POLICY
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The current lending policy of the Bank is to offer consumer, real
estate, and commercial credit services to individuals and entities that meet the
Bank's credit standards. The Bank provides each lending officer with written
guidelines for lending activities. Lending authority is delegated by the Board
of Directors of the Bank to loan officers, each of whom is limited in the amount
of secured and unsecured loans which he can make to a single borrower or related
group of borrowers. As of December 31, 1999, the Bank had a legal lending limit
of $2,500,000.
The Board of Directors of the Bank is responsible for approving and
monitoring the loan policy, providing guidance and counsel to all lending
personnel and approving all extensions of credit over $125,000.
LOAN REVIEW AND NON-PERFORMING ASSETS
- -------------------------------------
The Bank reviews its loan portfolio to determine deficiencies and
corrective action to be taken. Senior lending officers conduct periodic reviews
of borrowers with total direct and indirect indebtedness of $150,000 or more and
ongoing review of all past due loans. Past due loans are reviewed at least
weekly by lending officers, and a summary report is reviewed monthly by the
Board of Directors of the Bank. The Board of Directors of the Bank reviews all
loans over $150,000, whether current or past due, at least once annually. In
addition, the Bank maintains internal classifications of potential problem
loans.
INVESTMENT POLICY
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The Bank's investment policy provides guidelines for determining
permissible investments in the investment portfolio, credit criteria and quality
ratings, the desired mix among those investments, and preferred maturity
distribution of the portfolio. The Bank has five objectives concerning its
investment portfolio which address asset/liability management, profitability,
liquidity, pledging, and local community support. The Bank's President and
Executive Vice President/CFO are authorized to buy and sell securities according
to the criteria set forth in the investment policy. Individual transactions,
portfolio composition and performance are reviewed by the Bank's Investment and
Asset/Liability Management Committee and the full Board of the Bank on a monthly
basis. The investment policy is reviewed annually by the Bank's Board of
Directors.
In general, the Bank's investment policy is to place securities in the
Available for Sale portfolio. As of December 31, 1999, investment securities
totaled $37,257,000.
The primary risks in the Bank's securities portfolio consist of 2 types:
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(1) Credit risk, or the risk of default of the issuer. Treasury
and Agency securities comprised 56.7% of the portfolio;
therefore the credit risk is primarily limited to the risk of
default of the U.S. Government and its agencies. State,
County, and Municipal bonds represent 43.3% of the portfolio
with the credit risk limited to the risk of default of the
issuing municipality. Substantially all of such securities
have been rated by a bond rating service and all are
investment grade and bank qualified investments.
(2) Interest rate risk, or the risk of adverse movements in
interest rates on the value of the portfolio. In general, a
rise in interest rates will cause the value of the Bank's
securities portfolio to decline. The longer the maturity of an
individual security, the greater the effect of change in
interest rate of its value. The Bank measures its interest
rate risk exposure by analyzing its rate sensitivity GAP
position. The Bank's GAP position is reviewed monthly by the
Investment and Asset/Liability Management Committee and the
Board of Directors.
COMPETITION
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The Bank competes in Oconee County with four other commercial banks.
There are seven commercial banks in Athens-Clarke County, four of which have
offices in Oconee County. As of June 30, 1999, the seven banks located in
Athens-Clarke County held deposits totaling $1,181,733,000. The Bank's physical
presence in Athens-Clarke County is limited to the loan production office and
two ATM's, located in Jimbo's Convenience Store and Quick Stop Convenience
Store. With three full-service and one limited banking office within Oconee
County, the Bank is the dominant market leader in Oconee County in terms of
assets, deposit size, facility locations, and market coverage. The following
table shows deposits by financial institution along with market share for the
period ended June 30, 1999 (Dollar amounts are in thousands):
Total Market
Deposits Share
-------- -----
Athens First Bank & Trust Company $ 65,865 34.2%
First American Bank & Trust Company 1,849 1.0%
NationsBank, N.A. 8,634 4.5%
Oconee State Bank 114,779 59.6%
SunTrust Bank, Northeast Georgia, N.A. 1,326 0.7%
-------- -----
Total Deposits $192,453 100.0%
======== =====
In addition to the Bank's competition in Oconee County, the Bank competes with
commercial banks, thrifts, and various other financial institutions and
brokerage firms located in Northeast Georgia counties outside its primary and
secondary market areas. To a lesser extent, the Bank also competes for deposits
and loans with credit unions and for loans with insurance companies, small loan
or finance companies, and certain governmental agencies. To the extent that
banks must maintain non-interest earning reserves against deposits, they may be
at a competitive disadvantage when compared with other financial service
organizations that are not required to maintain reserves against substantially
equivalent sources of funds. Further, the increased income competition from
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investment bankers and brokers and other financial service organizations may
have a significant impact upon the competitive environment in which the Bank
operates.
Set forth below are certain ratios of the Bank for the years indicated:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income to:
Average equity capital accounts 16.66% 16.61% 15.66%
Average daily total deposits 1.83% 1.93% 1.75%
Ratio of average daily loans to average daily deposits 72.06% 72.16% 74.23%
</TABLE>
For the most part, the business of the Bank is not materially seasonal.
Construction and development lending are strongest in Spring and Summer.
Building slows somewhat in Fall and Winter, but not to the degree that there is
an appreciable impact upon the Bank's Balance Sheet or Statement of Earnings.
YEAR 2000 COMPLIANCE
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The Bank did not experience any material disruptions in its operations
or activities as a result of the so-called "Year 2000" problem. Nor did the Bank
incur material expenses in correcting perceived or suspected Year 2000 problems.
In addition, the Bank is not aware that any of its suppliers or customers has
experienced any material disruptions in their operations or activities. The Bank
does not expect to encounter any such problems in the foreseeable future,
although it continues to monitor its computer operations for signs or
indications of such problems.
It is possible, however, that if Year 2000 problems are incurred by the
customers of the Bank, such problems could have a negative impact on future
operations and financial performance of the Bank, although the Bank has not been
able to specifically identify any such problems among its clients or suppliers.
Furthermore, the Year 2000 problem may impact other entities with which the Bank
transacts business and the Bank cannot predict the effect of the Year 2000
problem on such entities or the resulting effect on the Bank.
SUPERVISION AND REGULATION
- --------------------------
GENERAL. Oconee is a registered bank holding company subject to
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve") under the Bank Holding Company Act of 1956, as amended (the "Act").
Oconee is required to file financial information with the Federal Reserve
periodically and is subject to periodic examination by the Federal Reserve.
The Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before (i) it may acquire direct or indirect
ownership or control of more than 5% of the voting shares of any bank that it
does not already control; (ii) it or any of its subsidiaries, other than a bank,
may acquire all or substantially all of the assets of a bank; and (iii) it may
merge or consolidate with any other bank holding company. In addition, a bank
holding company is generally prohibited from engaging in, or acquiring, direct
or indirect control of the voting shares of any company engaged in non-banking
activities. This prohibition does not apply to activities found by the Federal
Reserve, by order or regulation, to be so closely related to banking or managing
6
<PAGE>
or controlling banks as to be a proper incident thereto. Some of the activities
that the Federal Reserve has determined by regulation or order to be closely
related to banking are: making or servicing loans and certain types of leases;
performing certain data processing services; acting as fiduciary or investment
or financial advisor; providing discount brokerage services; underwriting bank
eligible securities; underwriting debt and equity securities on a limited basis
through separately capitalized subsidiaries; and making investments in
corporations or projects designed primarily to promote community welfare.
In addition, effective March 11, 2000, bank holding companies whose
banking subsidiaries are all well capitalized and well managed may apply to
become a financial holding company. Financial holding companies have the
authority to engage in activities that are "financial in nature" that are not
permitted for other bank holding companies. Some of the activities that the Act
provides are financial in nature are:
(a) lending, exchanging, transferring, investing for others or
safeguarding money or securities;
(b) insuring, guaranteeing, or indemnifying against loss, harm,
damage, illness, disability, or death, or providing and
issuing annuities, and acting as principal, agent, or broker
with respect thereto;
(c) providing financial, investment, or economic advisory
services, including advising an investment company;
(d) issuing or selling instruments representing interests in pools
of assets permissible for a bank
to hold directly; and
(e) underwriting, dealing in or making a market in securities.
Oconee has no immediate plans to register as a financial holding
company.
Oconee must also register with the Georgia Department of Banking and
Finance (the "GDBF") and file periodic information with the GDBF. As part of
such registration, the GDBF requires information with respect to the financial
condition, operations, management and intercompany relationships of Oconee and
the Bank and related matters. The GDBF may also require such other information
as is necessary to keep itself informed as to whether the provisions of Georgia
law and the regulations and orders issued thereunder by the GDBF have been
complied with, and the GDBF may examine Oconee and the Bank.
Oconee is an "affiliate" of the Bank under the Federal Reserve Act,
which imposes certain restrictions on (i) loans by the Bank to Oconee, (ii)
investments in the stock or securities of Oconee by the Bank, (iii) the Bank's
taking the stock or securities of an "affiliate" as collateral for loans by the
Bank to a borrower, and (iv) the purchase of assets from Oconee by the Bank.
Further, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
The Bank, a subsidiary of Oconee, is regularly examined by the Federal
Deposit Insurance Corporation (the "FDIC"). The Bank, a state banking
association organized under Georgia law, is subject to the supervision of, and
is regularly examined by, the GDBF. Both the FDIC and the GDBF must grant prior
7
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approval of any merger, consolidation or other corporation reorganization
involving the Bank. A bank can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection with the default
of a commonly controlled institution.
PAYMENT OF DIVIDENDS. Oconee is a legal entity separate and distinct
from the Bank. Most of the revenues of Oconee result from dividends paid to it
by the Bank. There are statutory and regulatory requirements applicable to the
payment of dividends by the Bank, as well as by Oconee to its shareholders.
The Bank is a state chartered bank regulated by the GDBF and the FDIC.
Under the regulations of the GDBF, dividends may not be declared out of the
retained earnings of a state bank without first obtaining the written permission
of the GDBF unless such bank meets all the following requirements:
(a) total classified assets as of the most recent examination of
the bank do not exceed 80% of equity capital (as defined by
regulation);
(b) the aggregate amount of dividends declared or anticipated to
be declared in the calendar year does not exceed 50% of the
net profits after taxes but before dividends for the previous
calendar year; and
(c) the ratio of equity capital to adjusted assets is not less
than 6%.
The payment of dividends by Oconee and the Bank may also be affected or
limited by other factors, such as the requirement to maintain adequate capital
above regulatory guidelines. In addition, if, in the opinion of the applicable
regulatory authority, a bank under its jurisdiction is engaged in or is about to
engage in an unsafe or unsound practice (which, depending upon the financial
condition of the bank, could include the payment of dividends), such authority
may require, after notice and hearing, that such bank cease and desist from such
practice. The FDIC has issued a policy statement providing that insured banks
should generally only pay dividends out of current operating earnings. In
addition to the formal statutes and regulations, regulatory authorities consider
the adequacy of the Bank's total capital in relation to its assets, deposits and
other such items. Capital adequacy considerations could further limit the
availability of dividends to the Bank. At December 31, 1999, net assets
available from the Bank to pay dividends without prior approval from regulatory
authorities totaled $1,122,878. For 1999, Oconee's cash dividend payout to
stockholders was 40.8% of net income.
MONETARY POLICY. The results of operations of the Bank are affected by
credit policies of monetary authorities, particularly the Federal Reserve. The
instruments of monetary policy employed by the Federal Reserve include open
market operations in U.S. government securities, changes in the discount rate on
bank borrowings and changes in reserve requirements against bank deposits. In
view of changing conditions in the national economy and in the money markets, as
well as the effect of actions by monetary and fiscal authorities, including the
Federal Reserve, no prediction can be made as to possible future changes in
interest rates, deposit levels, loan demand or the business and earnings of the
Bank.
<PAGE>
8
CAPITAL ADEQUACY. The Federal Reserve and the FDIC have implemented
substantially identical risk-based rules for assessing bank and bank holding
company capital adequacy. These regulations establish minimum capital standards
in relation to assets and off-balance sheet exposures as adjusted for credit
risk. Banks and bank holding companies are required to have (1) a minimum level
of total capital (as defined) to risk-weighted assets of eight percent (8%); (2)
a minimum Tier One Capital (as defined) to risk-weighted assets of four percent
(4%); and (3) a minimum stockholders' equity to risk-weighted assets of four
percent (4%). In addition, the Federal Reserve and the FDIC have established a
minimum three percent (3%) leverage ratio of Tier One Capital to total assets
for the most highly rated banks and bank holding companies. "Tier One Capital"
generally consists of common equity not including unrecognized gains and losses
on securities, minority interests in equity accounts of consolidated
subsidiaries and certain perpetual preferred stock less certain intangibles. The
Federal Reserve and the FDIC will require a bank holding company and a bank,
respectively, to maintain a leverage ratio greater than four percent (4%) if
either is experiencing or anticipating significant growth or is operating with
less than well-diversified risks in the opinion of the Federal Reserve. The
Federal Reserve and the FDIC use the leverage ratio in tandem with the
risk-based ratio to assess the capital adequacy of banks and bank holding
companies. The FDIC, the Office of the Comptroller of the Currency (the "OCC")
and the Federal Reserve have amended, effective January 1, 1997, the capital
adequacy standards to provide for the consideration of interest rate risk in the
overall determination of a bank's capital ratio, requiring banks with greater
interest rate risk to maintain adequate capital for the risk. The revised
standards have not had a significant effect on Oconee's capital requirements.
In addition, effective December 19, 1992, a new Section 38 to the
Federal Deposit Insurance Act implemented the prompt corrective action
provisions that Congress enacted as a part of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (the "1991 Act"). The "prompt corrective
action" provisions set forth five regulatory zones in which all banks are placed
largely based on their capital positions. Regulators are permitted to take
increasingly harsh action as a bank's financial condition declines. Regulators
are also empowered to place in receivership or require the sale of a bank to
another depository institution when a bank's capital leverage ratio reaches 2%.
Better-capitalized institutions are generally subject to less onerous regulation
and supervision than banks with lesser amounts of capital.
The FDIC has adopted regulations implementing the prompt corrective
action provisions of the 1991 Act, which place financial institutions in the
following five categories based upon capitalization ratios: (1) a "well
capitalized" institution has a total risk-based capital ratio of at least 10%, a
Tier One risk-based ratio of at least 6% and a leverage ratio of at least 5%;
(2) an "adequately capitalized" institution has a total risk-based capital ratio
of at least 8%, a Tier One risk-based ratio of at least 4% and a leverage ratio
of at least 4%; (3) an "undercapitalized" institution has a total risk-based
capital ratio of under 8%, a Tier One risk-based ratio of under 4% or a leverage
ratio of under 4%; (4) a "significantly undercapitalized" institution has a
total risk-based capital ratio of under 6%, a Tier One risk-based ratio of under
3% or a leverage ratio of under 3%; and (5) a "critically undercapitalized"
institution has a leverage ratio of 2% or less. Institutions in any of the three
undercapitalized categories would be prohibited from declaring dividends or
making capital distributions. The FDIC regulations also establish procedures for
"downgrading" an institution to a lower capital category based on supervisory
factors other than capital. Under the FDIC's regulations, the Bank was a "well
capitalized" institution at December 31, 1998 and December 31, 1999.
9
<PAGE>
Set forth below are pertinent capital ratios for the Bank as of
December 31, 1999:
Minimum Capital The Bank
- ------- ------- --------
Requirement
- -----------
Tier One Capital to 13.3%
Risk Based
Assets: 4% <F1>
Total Capital to 14.6%
Risk Based
Assets: 8% <F2>
Leverage Ratio (Tier One 9.2%
Capital to Average Total
Assets): 3% <F3>
- --------------------------
[FN]
<F1> Minimum required ratio for "well capitalized" banks is 6%
<F2> Minimum required ratio for "well capitalized" banks is 10%
<F3> Minimum required ratio for "well capitalized" banks is 5%
</FN>
RECENT LEGISLATIVE AND REGULATORY ACTION. On November 12, 1999,
President Clinton signed the Gramm-Leach-Bliley Act, a very significant piece of
legislation intended to modernize the financial services industry. The bill
repeals the anti-affiliation provisions of the 1933 Glass-Steagall Act to allow
for the merger of banking and securities organizations and permits banking
organizations to engage in insurance activities including insurance
underwriting. The bill also allows bank holding companies to engage in financial
activities that are "financial in nature or complementary to a financial
activity." The act lists the expanded areas that are financial in nature and
includes insurance and securities underwriting and merchant banking among
others. The bill also:
(a) prohibits non-financial entities from acquiring or
establishing a thrift while grandfathering existing thrifts
owned by non-financial entities;
(b) establishes state regulators as the appropriate functional
regulators for insurance activities but provides that state
regulators cannot "prevent or significantly interfere" with
affiliations between banks and insurance firms;
(c) contains provisions designed to protect consumer privacy. The
bill requires financial institutions to disclose their policy
for collecting and protecting confidential information and
allows consumers to "opt out" of information sharing except
with unaffiliated third parties who market the institutions'
own products and services or pursuant to joint agreements
between two or more financial institutions; and
(d) provides for functional regulation of a bank's securities
activities by the Securities and
Exchange Commission.
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Various portions of the bill have different effective dates, ranging
from immediately to more than a year for implementation.
ECONOMIC CONDITIONS
- -------------------
Economic growth in the Bank's primary service area is expected to
remain steady. The counties in the Bank's market area are expected to continue
to receive revenues from their traditional sources of trade, finance, insurance,
real estate development and sales, manufacturing and the service industry. Both
employment and population growth are projected to increase steadily in Oconee
and Athens-Clarke Counties.
EMPLOYEES
- ---------
At December 31, 1999, the Bank had 56 full-time employees and 27
part-time employees. The Bank is not a party to any collective bargaining
agreement, and the Bank believes that its employee relations are good.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Bank operates three full-service banking offices and one limited
service banking office as follows:
(1) Main Office
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35 North Main Street
Watkinsville, Georgia 30677
(2) Bogart Branch
-------------
U.S. Highway 78
Bogart, Georgia 30622
(3) Friendship Branch
-----------------
8811 Macon Highway
Athens, Georgia 30606
(4) Mortgage Department/Operations Annex
------------------------------------
(Limited Service/Support Offices)
Condominium Units 10, 12, 14, 16, & 18
Durham Street
Watkinsville, Georgia 30677
(5) Athens Loan Center
------------------
(Limited Service Loan Production Office)
500 North Milledge Avenue
Athens, Georgia 30605
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The executive offices and the main office of Oconee and the Bank are
located in a 6,500 square-foot facility at 35 North Main Street in Watkinsville,
Georgia with three drive-thru windows and a walk-up ATM.
The Bogart Branch is located at the intersection of U.S. Highway 78 and
Mars Hill Road in Bogart, Georgia. This 5,250 square-foot facility has 2
drive-thru windows and a drive-thru ATM.
The Friendship Branch is an 800 square-foot facility at 8811 Macon
Highway, Athens, Georgia. This branch has three drive-thru windows and serves
the Friendship community. Although it has an Athens address, this branch is
located within Oconee County.
The Bank owns five office condominium units adjacent to and behind its
main office in Watkinsville. The units are numbered 10, 12, 14, 16, & 18 on
Durham Street in Watkinsville, Georgia. Each unit contains 1,180 square feet on
the ground floor and 450 square feet on the second floor, for a total of 1,630
square feet per unit or 8,150 square feet for all units owned. Unit 10 houses
the Bank's mortgage loan department, Units 12, 14, and 16 are connected by
interior hallways and house proof, bookkeeping, supplies, human resources, and
training functions. Unit 18 is occupied by the Bank's loan operations
department.
All of the properties referenced previously are owned by Oconee or the
Bank. In September 1999, the Bank entered into a lease agreement with Hardigree
Properties, LLLP to lease office condominium unit #20 on Durham Street in
Watkinsville, Georgia. This unit is next to other office condominiums owned by
the Bank. The lease is for two years with an option to renew at the end of two
years. Unit 20 houses accounting and audit personnel and allows needed space for
expansion. In addition, two parking lots adjacent to the main office are leased
which provide additional parking for employees. None of the properties owned by
Oconee or the Bank are subject to any encumbrances.
The Athens Loan Center is located at 500 North Milledge Avenue in
Athens, Georgia. The Loan Center is a 2,000 square foot building that houses one
commercial loan officer and one mortgage loan originator, along with their
support staff. The Loan Center is leased by the Bank from Henry G. Utley. The
lease was entered into in July of 1999 and is for two years.
The Bank also owns 2.3 acres of land located on Epps Bridge Road,
1331st G.M.D., Oconee County, Georgia for future branch expansion. The property
is not subject to any other encumbrances.
Management of Oconee and the Bank believe that all of its properties
are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS.
Neither Oconee nor the Bank is a party to, nor are any of their
properties the subject of, any material legal proceeding other than ordinary
routine litigation incidental to Oconee's and the Bank's business.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders of Oconee
during the fourth quarter of the fiscal year covered by the report.
13
<PAGE>
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKETS FOR CAPITAL STOCK
- -------------------------
Oconee Stock is not traded on any established public trading market.
Management is aware of 31 trades of Bank Stock in 1999, aggregating 845 shares
in blocks ranging from 1 share to 100 shares at prices ranging from $145.00 to
$155.00 per share.
Management of the Bank is aware of 34 trades of Bank Stock in 1998,
aggregating 758 shares in blocks ranging from 1 share to 150 shares at prices
ranging from $115.00 to $145.00 per share.
HOLDERS
- -------
As of December 31, 1999, there were 587 holders of record of common
stock.
DIVIDENDS
- ---------
In 1999 and 1998, the Bank declared cash dividends of $5.00 per share
and $4.00 per share respectively, payable to shareholders of record on December
31 of each year. The Bank intends to continue paying cash dividends on an annual
basis. Cash dividends for 1999 represented a payment of 40.8% of net income for
the year compared to 35.4% for 1998. The amount and frequency of dividends is
determined by the Bank's Board of Directors in light of earnings, capital
requirements and the financial condition of the Bank.
Under Section 7-1-460 of the Financial Institutions Code of Georgia,
the Board of Directors of the Bank may declare dividends payable to the
shareholders from time to time, subject to the conditions stated therein, which
include restrictions on the payment of dividends to payments made out of the
retained earnings of the Bank, and a prohibition against payments which would
render the Bank insolvent. See "Supervision and Regulation -- Payment of
Dividends."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLAN OF OPERATION FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998.
This analysis of Oconee has been prepared to provide insight into the
financial condition of the Company, and addresses the factors which have
affected the Company's results of operations. The Company's financial statements
and accompanying notes which follow are an integral part of this review and
should be read in conjunction with it.
14
<PAGE>
Selected Financial Information
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
(AMOUNTS ARE PRESENTED IN THOUSANDS.)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income 6,331 5,734 5,418 4,865 4,592
Other operating income 1,328 1,283 1,080 949 848
Provision for loan losses 116 61 166 281 100
Net income 2,203 2,032 1,705 1,506 1,350
Net income per common share 12.24 11.29 9.47 8.37 7.50
Total assets 152,139 130,652 117,482 108,506 89,779
Cash dividends declared per common share 5.00 4.00 3.30 3.00 2.50
------------- --------------- ------------ ------------ ------------
</TABLE>
FINANCIAL CONDITION - 1999 VS. 1998. During 1999, average total assets
increased $16,409,000 (14%) over 1998. Average deposits increased $15,140,000
(14%) in 1999 over 1998. Average loans increased $10,808,000 (14%) in 1999 over
1998.
Year-end balances at December 31, 1999 and 1998 show increases in total
assets of $21,487,000 (16%) from 1998 to 1999. Total deposits increased
$20,407,000 (18%) from 1998 to 1999 while total gross loans increased
$16,550,000 (22%) during 1999. Time deposits increased $16,034,000 (30%) from
1998 to 1999 while all other deposit accounts increased $4,373,000 (7%) from
1998 to 1999. Loan demand continued to increase due to a strong local economy.
These loan increases, along with the net increases in investment securities,
were funded by increases in deposits during 1999. Non-performing assets at
December 31, 1999 were $78,000 compared to $71,000 at December 31, 1998. The
majority of the increase is attributable to an increase in repossessed
collateral. There were no related party loans which were considered
non-performing at December 31, 1999.
The Bank was most recently examined by its primary regulatory authority
in October of 1999. There were no recommendations by the regulatory authority
that, in management's opinion, will have material effects on the Bank's
liquidity, capital resources, or operations.
RESULTS OF OPERATIONS - 1999 VS. 1998. The Company's earnings depend to
a large degree on net interest income, which is the difference between the
interest income received from its earning assets (such as loans, investment
securities, federal funds sold, etc.) and the interest expense which is paid on
deposit liabilities.
Net interest income in 1999, which was $6,331,000 increased by
$597,000, or 10%, over 1998. The increase is primarily attributable to the
increase in interest and fees on loans offset by increases in interest expense
on time deposits. Net yield on average interest earning assets (4.98% in 1999
and 5.08% in 1998) decreased approximately .10% in 1999 from 1998. This decrease
was associated with an $872,000 or 9% increase in interest earned and a $275,000
or 7% increase in interest paid in 1999 as compared to 1998. Although average
interest earning assets increased $14,378,000 or 13% in 1999, the resulting
$872,000 increase in interest earned did not keep pace. This was the result of
increased loan competition in the Company's market resulting in loan pricing
concessions during a period of increased loan demand, which coincided with a
period in which competition in the Company's market forced interest rates paid
15
<PAGE>
on deposits to be higher, thus explaining the Company's higher cost of funds for
1999 as compared to 1998. These competitive market pressures on both loan and
deposit pricing resulted in the decline in the Company's net yield on interest
earning assets.
The provision for loan losses in 1999 was $116,000 compared to $60,720
in 1998. The increase in the provision for loan losses was primarily
attributable to growth in the loan portfolio. The provision for loan losses
continues to reflect management's estimate of potential loan losses inherent in
the portfolio and the creation of an allowance for loan losses to absorb such
losses. The allowance for loan losses represented approximately 1.6% of total
loans outstanding at December 31, 1999 compared to 1.9% at December 31, 1998.
Net charge-offs for 1999 were $74,294 compared to net recoveries of $4,170
during 1998. A dedicated loan review function is utilized by the Company which
is supplemented by the use of an outside loan review specialist. All loans
$150,000 or more are reviewed annually and placed into various loan grading
categories which assist in developing lists of potential problem loans. These
loans are regularly monitored by the loan review process to ensure early
identification of repayment problems so that adequate allowances can be made
through the provision for loan losses. Management believes that these levels of
allowance are appropriate based upon the Company's loan portfolio and current
economic conditions.
Other operating income in 1999 of $1,328,000 increased from 1998 by
$45,000 or 4% due primarily to an increase of $19,000 in ATM service charges,
resulting from two new ATM's which were placed in service during 1999 and an
increase of $92,000 in commission income on investment sales. These increases
were offset by a decrease in fee income on mortgage loans of $79,000 from 1998
as a result of rising interest rates on mortgage loans which resulted in
decreased demand for these types of loans. Other operating expenses in 1999 of
$4,506,000 increased by $397,000 or 10% over 1998 levels. The increase in
operating expenses is attributable to an increase in salaries and employee
benefits expense of $244,000 or 10%. In addition, occupancy expense increased by
$28,000 or 5% due to increased repairs and maintenance expense and computer
upgrades. Also, other operating expenses increased by $125,000 or 11% with
$32,000 in costs attributed to Year 2000 compliance.
Income taxes expressed as a percentage of earnings before income taxes
decreased from 29% in 1998 to 27% in 1999. This decrease relates to a higher
amount of tax-free interest income from state, county and municipal investment
securities as compared to 1998.
RESULTS OF OPERATIONS - 1998 VS. 1997. Net interest income in 1998,
which was $5,734,000, increased by $316,000, or 6%, over 1997. The increase is
primarily attributable to the increase in interest and fees on loans offset by
increases in interest expense on time deposits. Net yield on interest earning
assets (5.00% in 1998 and 5.25% in 1997) decreased approximately 0.2% in 1998
from 1997. This decrease was associated with a $585,000 or 6% increase in
interest earned and a $269,000 or 7% increase in interest paid in 1998 as
compared to 1997 as well as an increase in average interest bearing liabilities
of $5,516,000 or 7% in 1998. The prime rate dropped 0.75% during 1998, which was
a contributing factor to the decrease in the Company's net interest margin
during the year.
The provision for loan losses in 1998 was $60,720 compared to $166,200
in 1997. The decrease in the provision for loan losses was primarily
attributable to an improvement in the overall quality of loans within the loan
portfolio. The provision for loan losses continues to reflect management's
estimate of potential loan losses inherent in the portfolio and the creation of
16
<PAGE>
an allowance for loan losses to absorb such losses. The allowance for loan
losses represented approximately 1.9% of total loans outstanding at December 31,
1998 and 1997. Net recoveries for 1998 were $4,170 compared to net charge-offs
of $5,871 during 1997.
Other operating income in 1998 of $1,283,000 increased from 1997 by
$203,000 or 19%, due primarily to an increase of $157,000 in fee income on
mortgage loans sold. Other operating expenses in 1998 of $4,109,000 increased by
$203,000 or 5% over 1997 levels. The increase in operating expenses is
attributable to an increase in salaries and employee benefits expense of $94,000
or 4%. In addition, occupancy expense increased by $48,000 or 10% due to
increased repairs and maintenance expense and computer upgrades. Also, other
operating expenses increased by $61,000 or 5% with $41,000 in costs attributed
to Year 2000 compliance.
Income taxes expressed as a percentage of earnings before income taxes
decreased from 30% in 1997 to 29% in 1998. This decrease relates to a higher
amount of tax-free interest income from state, county and municipal investment
securities as compared to 1997.
INVESTMENTS. The investment portfolio consists of debt securities which
provide the Company with a source of liquidity and a long-term, relatively
stable source of income. Additionally, the investment portfolio provides a
balance to interest rate and credit risk in other categories of the balance
sheet while providing a vehicle for the investment of available funds,
furnishing liquidity, and supplying securities to pledge as required collateral
for certain deposits.
LIQUIDITY. The Company must maintain, on a daily basis, sufficient
funds to cover the withdrawals from depositors' accounts and to supply new
borrowers with funds. To meet these obligations, the Company keeps cash on hand,
maintains account balances with its correspondent banks, and purchases and sells
federal funds and other short-term investments. Asset and liability maturities
are monitored in an attempt to match these to meet liquidity needs. It is the
policy of the Company to monitor its liquidity to meet regulatory requirements
and their local funding requirements.
The Company maintains relationships with correspondent banks that can
provide funds to it on short notice, if needed. Presently, the Company has
arrangements with a commercial bank for short term unsecured advances up to
$4,400,000. Additional liquidity is provided to the Company through available
FHLB advances up to $22,800,000.
Cash and cash equivalents increased $2,059,000 to a total of
$16,128,000 at year-end 1999 as cash provided by financing activities and
operating activities outpaced amounts used by investing activities. Cash inflows
from operations totaled $2,225,000 in 1999, while inflows from financing
activities totaled $19,994,000, most of which were net deposit increases during
1999 of $20,407,000.
Investing activities used $20,160,000 of cash and cash equivalents,
principally composed of net advances of loans to customers of $16,625,000 during
1999 and investment purchases, net of sales, calls, and paydowns of investment
securities totaling $3,673,000.
17
<PAGE>
CAPITAL RESOURCES. The Company continues to maintain adequate capital
ratios. The following tables present the Company's regulatory capital position
at December 31, 1999
<TABLE>
<CAPTION>
Risk-Based Capital Ratios
Actual as of December 31, 1999
<S> <S> <C>
Tier 1 Capital 13.3%
Tier 1 Capital minimum requirement 4.0%
-----
Excess 9.3%
====
Total Capital 14.6%
Total Capital minimum requirement 8.0%
------
Excess 6.6%
======
Leverage Ratio As of December 31, 1999
Tier 1 Capital to adjusted total assets
("Leverage Ratio") 9.2%
Minimum leverage requirement 3.0%
------
Excess 6.2%
======
</TABLE>
For a more complete discussion of the actual and required ratios of the
Company, see note 11 to the consolidated financial statements.
ASSET/LIABILITY MANAGEMENT. It is the Company's objective to manage
assets and liabilities to provide a satisfactory, consistent level of
profitability within the framework of established cash, loan, investment,
borrowing and capital policies. Certain officers are charged with the
responsibility for monitoring policies and procedures that are designed to
ensure acceptable composition of the asset/liability mix. It is the overall
philosophy of management to support asset growth primarily through growth of
core deposits, which include deposits of all categories made by local
individuals, partnerships and corporations. The objective of the policy is to
control interest sensitive assets and liabilities so as to minimize the impact
of substantial movements in interest rates on earnings.
The asset/liability mix is monitored on a regular basis. A report
reflecting the interest sensitive assets and interest sensitive liabilities is
prepared and presented to the Board of Directors of the Bank on a monthly basis.
One method to measure a bank's interest rate exposure is through its
repricing gap. The gap is calculated by citing all liabilities that reprice or
taking all assets that reprice or mature within a given time frame and
subtracting all liabilities that reprice or mature within that time frame. The
18
<PAGE>
difference between these two amounts is called the "gap", the amount of either
liabilities or assets that will reprice without a corresponding asset or
liability repricing.
A negative gap (more liabilities repricing than assets) generally
indicates that the bank's net interest income will decrease if interest rates
rise and will increase if interest rates fall. A positive gap generally
indicates that the bank's net interest income will decrease if rates fall and
will increase if rates rise.
The following table summarizes the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 1999 that are
expected to mature, prepay or reprice in each of the future time periods shown.
Except as stated below, the amount of assets or liabilities that mature or
reprice during a particular period was determined in accordance with the
contractual terms of the asset or liability. Adjustable rate loans are included
in the period in which interest rates are next scheduled to adjust rather than
in the period in which they are due, and fixed rate loans and mortgage-backed
securities are included in the periods in which they are anticipated to be
repaid based on scheduled maturities. The Company's savings accounts and
interest-bearing demand accounts (NOW and money market deposit accounts), which
are generally subject to immediate withdrawal, are included in the "Three Months
or Less" category, although historical experience has proven these deposits to
be more stable over the course of a year.
<TABLE>
<CAPTION>
At December 31, 1999
Maturing or Repricing in
------------------------
(dollars in thousands)
Three Four Months
Month to 1 to 5 Over 5
or Less 12 Months Years Years Total
------- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities $ 100 1,149 5,037 30,971 37,257
Federal funds sold 9,690 -- -- -- 9,690
Loans 46,453 16,655 30,500 121 93,729
------- -------- ------- --- -------
Total interest-bearing assets $ 56,243 17,804 35,537 31,584 140,676
------- -------- ------- ------ -------
Interest-bearing liabilities:
Deposits:
Savings and demand $ 48,589 -- -- -- 48,589
Time deposits 7,888 34,440 26,875 -- 69,203
Repurchase agreements 866 -- -- -- 866
--- ---
Total interest-bearing liabilities $ 57,343 34,440 26,875 -- 118,658
- ---------------------------------- ------- -------- ------- -- -------
Interest sensitive difference per period (1,100) (16,636) 8,662 31,092 22,018
------ ------- ------- ------ ------
Cumulative interest sensitivity difference (1,100) (17,736) (9,074) 22,018
------ ------- ------ ------
Cumulative difference to total assets (0.8%) (12.6%) (6.5%) 15.7%
----- ----- ----- ----
</TABLE>
19
<PAGE>
At December 31, 1999 the difference between the Company's liabilities
and assets repricing or maturing within one year was $17,736,000. Due to an
excess of liabilities repricing or maturing within one year, a rise in interest
rates would cause the Company's net interest income to decline.
Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees or at different points in time to changes in market interest rates.
Additionally, certain assets, such as adjustable-rate mortgages, have features
that restrict changes in interest rates, both on a short-term basis and over the
life of the asset. Changes in interest rates, prepayment rates, early withdrawal
levels and the ability of borrowers to service their debt, among other factors,
may change significantly from the assumptions made in the table.
Inflation. Inflation impacts the growth in total assets in the banking
industry and causes a need to increase equity capital at higher than normal
rates to meet capital adequacy requirements. The Company copes with the effects
of inflation through the management of its interest rate sensitivity gap
position, by periodically reviewing and adjusting its pricing of services to
consider current costs, and through managing its level of net earnings relative
to its dividend payout policy.
20
<PAGE>
SELECTED STATISTICAL INFORMATION
The following section presents statistical information for the Company
which supplements the financial data discussed elsewhere herein.
INDEX TO SELECTED STATISTICAL INFORMATION
Table 1 Average Balances and Interest Rates Table 2 Volume-Rate
Analysis Table 3 Investment Portfolio Table 4 Loan Portfolio Table 5
Allowance for Loan Losses Table 6 Deposits Table 7 Selected Ratios
Average balances contained in the following selected statistical
information generally represent average daily balances for all periods.
21
<PAGE>
TABLE 1
AVERAGE BALANCE SHEETS AND INTEREST RATES
The table below shows the month-end average balance for each category of
interest earning assets and interest-bearing liabilities for the indicated
periods and the average rate of interest earned or paid thereon.
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998
----------------------------------------------- -----------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Interest earning deposits - - - - - -
Investment securities:
Taxable 18,573,453 1,163,116 6.26% 16,607,049 1,051,887 6.33%
Non-taxable 16,219,209 808,336 4.98% 13,976,265 704,153 5.04%
Federal funds sold 5,561,260 294,214 5.28% 6,201,576 340,869 5.50%
Loans (including loan fees) 86,926,333 8,379,754 9.65% 76,117,421 7,676,432 10.09%
------------ ---------- ---- ------------ --------- -----
Total interest-earning assets 127,280,255 10,645,420 8.37% 112,902,311 9,773,341 8.66%
Allowance for loan losses (1,424,606) (1,371,765)
Cash and due from banks 5,324,326 3,516,984
Other assets 4,188,340 3,912,157
Total assets $135,368,315 $118,959,687
============ ============
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand 35,025,775 1,045,860 2.99% 26,784,495 771,894 2.88%
Savings 9,606,416 192,028 2.00% 8,741,058 203,929 2.33%
Time 57,723,166 3,041,875 5.27% 53,995,027 3,043,214 5.64%
Federal Funds Purchased 136,877 5,295 3.87% - - -
Securities sold under repurchase agreements 779,715 29,207 3.75% 510,940 20,499 4.01%
------------ --------- ---- ---------- --------- ----
Total interest bearing liabilities 103,271,949 4,314,265 4.18% 90,031,520 4,039,536 4.49%
Non-interest bearing deposits 18,275,259 15,970,054
Other liabilities 599,312 724,339
------------ ----------
Total liabilities 122,146,520 106,725,913
Stockholders' equity 13,221,795 12,233,774
------------ -----------
Total liabilities and stockholders'
equity $135,368,315 $18,959,687
============ ===========
Excess of interest-bearing assets over
interest-bearing liabilities 24,008,306 22,870,791
=========== ===========
Ratio of interest-earning assets to
interest-bearing liabilities 123.25% 125.40%
Net interest income 6,331,155 5,733,805
Net interest spread 4.19% 4.17%
Net interest yield on interest earning
assets 4.98% 5.08%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
1997
-----------------------------------------
Average Yield/
Balance Interest Rate
------- -------- ----
<S> <C> <C> <C>
Assets:
Interest earning assets:
Interest earning deposits
Investment securities:
Taxable 17,934,818 1,150,389 6.42%
Non-taxable 8,859,856 461,016 5.20%
Federal funds sold 4,215,699 245,238 5.82%
Loans (including loan fees) 72,278,399 7,331,744 10.49%
------------ --------- -----
Total interest-earning assets 103,288,772 9,188,387 8.9%
Allowance for loan losses (1,284,979)
Cash and due from banks 3,508,953
Other assets 3,838,035
Total assets $109,350,781
============
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand 26,299,721 767,773 2.92%
Savings 9,226,456 257,510 2.79%
Time 48,487,156 2,723,989 5.62%
Federal Funds Purchased - -- -
Securities sold under repurchase agreements 502,284 21,301 4.24%
------------ --------- ----
Total interest bearing liabilities 84,515,617 3,770,573 4.46%
Non-interest bearing deposits 13,362,850
Other liabilities 588,763
------------
Total liabilities 98,467,230
Stockholders' equity 10,883,551
- -------------------- -----------
Total liabilities and stockholders'
equity $109,350,781
============
Excess of interest-bearing assets over
interest-bearing liabilities 18,773,155
============
Ratio of interest-earning assets to
interest-bearing liabilities 122.21%
Net interest income 5,917,814
Net interest spread 4.44%
Net interest yield on interest earning
assets 5.25%
</TABLE>
Non-accrual loans and the interest income which was recorded on these loans, if
any, are included in the yield calculation for loans in all periods reported.
Tax-exempt income is not calculated on a tax-equivalent basis.
22
<PAGE>
TABLE 2
VOLUME-RATE ANALYSIS
The following tables show a summary of the changes in interest income and
interest expense resulting from changes in volume and changes in rates for each
major category of interest earning assets and interest-bearing liabilities for
1999 over 1998 and 1998 over 1997.
<TABLE>
<CAPTION>
1999 OVER 1998
--------------
INCREASE (DECREASE) DUE TO CHANGES IN:
--------------------------------------
VOLUME RATE TOTAL
<S> <C> <C> <C>
Interest income on:
Investment securities
Taxable 131,505 (20,276) 111,229
Non-taxable 113,687 (9,504) 104,183
Federal funds sold (32,945) (13,710) (46,655)
Loans (including loan fees) 1,050,369 (347,047) 703,322
---------- -------- --------
Total interest earning assets 1,262,616 (390,537) 872,079
---------- -------- --------
Interest expense on:
Deposits:
Interest bearing demand 238,076 35,889 273,965
Savings (17,776) (29,677) (11,901)
Time 203,301 (204,637) (1,336)
Securities sold under repurchase
agreements 10,120 (1,412) 8,708
Federal funds purchased 5,295 5,295
---------- -------- --------
0
Total interest bearing liabilities
469,273 (194,542) 274,731
---------- -------- --------
</TABLE>
Note: Rate/volume variances were allocated between rate variances and volume
variances using a weighted average allocation method.
23
<PAGE>
TABLE 2
VOLUME-RATE ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
1998 OVER 1997
--------------
INCREASE (DECREASE) DUE TO CHANGES IN:
--------------------------------------
VOLUME RATE TOTAL
<S> <C> <C> <C>
Interest income on:
Investment securities
Taxable (80,646) (17,856) (98,502)
Non-taxable 257,775 (14,638) 243,137
Federal funds sold 108,932 (13,301) 95,631
Loans (including loan fees) 490,125 (145,437) 344,688
-------- -------- --------
Total interest earning assets 776,186 (191,232) 584,954
-------- -------- --------
Interest expense on:
Deposits:
Interest bearing demand 22,370 (18,249) 4,121
Savings (11,324) (42,257) (53,581)
Time 307,807 11,418 319,225
Securities sold under repurchase
agreements (802) - (802)
-------- -------- --------
Total interest bearing liabilities 318,051 (49,088) 268,963
-------- -------- --------
</TABLE>
Note: Rate/volume variances were allocated between rate variances and volume
variances using a weighted average allocation method.
24
<PAGE>
TABLE 3
INVESTMENT PORTFOLIO
The following table presents the investments by category at December 31, 1999,
1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
HELD TO MATURITY (AT AMORTIZED COST)
State, county and municipal $ -- $15,303,990 $13,276,282
---------- ----------- -----------
AVAILABLE FOR SALE
State, county and municipal $16,113,705 -- --
United States treasuries and agencies 8,248,061 $ 6,291,116 $ 9,650,483
Mortgage-backed 12,895,247 13,764,308 7,004,215
----------- ----------- -----------
Totals $37,257,013 $20,055,424 $16,654,698
=========== =========== ===========
</TABLE>
The following table presents the maturities of all investment securities at
carrying value and the weighted average yields for each range of maturities
presented.
<TABLE>
<CAPTION>
Maturities at United States Mortgage- State, County Weighted
December 31, 1999 Treasury and Backed and Average
Agencies Securities Municipal Yields
-------- ---------- --------- ------
<S> <C> <C> <C> <C>
Within 1 year -- -- 465,043 6.09%
After 1 through 5 years 2,205,469 -- 3,028,828 5.34%
After 5 through 10 years 5,863,517 86,932 1,412,533 6.69%
After 10 years 179,075 12,808,315 11,207,301 5.77%
-- ------- ---------- ---------- ----
Totals 8,248,061 12,895,247 16,113,705
</TABLE>
Mortgage backed securities are included in the maturities categories in which
they are anticipated to be repaid based on scheduled maturities.
25
<PAGE>
Table 4
Loan Portfolio
The following table presents loans by type at the end of the last 5 years.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- ----------------
Commercial, financial and
<S> <C> <C> <C> <C> <C>
agricultural $ 12,714,342 $ 11,332,765 $ 10,570,994 $ 9,792,533 $ 8,160,215
Real estate - construction 28,310,935 16,925,962 13,824,372 16,836,092 12,583,049
Real estate - mortgage 40,222,371 38,942,845 38,748,388 34,511,657 31,534,900
Consumer 12,082,629 9,578,312 9,129,134 7,680,871 6,331,668
93,330,277 76,779,884 72,272,888 68,821,153 58,609,832
Less: Allowance for loan
losses (1,469,126) (1,427,420) (1,362,530) (1,202,201) (1,019,644)
Loans, net $ 91,861,151 $ 75,352,464 $ 70,910,358 $ 67,618,952 $ 57,590,188
</TABLE>
At December 31, 1999, maturities of loans in the indicated classifications were
as follows:
Commercial, Real
Financial and Estate
Maturity Agricultural Construction Total
- -------- ------------ ------------ -----
Within 1 year $ 6,362,761 $ 24,537,001 $ 30,899,762
1 to 5 years 5,989,526 3,773,934 9,763,460
Over 5 years 362,055 -- 362,055
Totals $12,714,342 $ 28,310,935 $ 41,025,277
=========== ============ ============
As of December 31, 1999, the interest terms of loans in the indicated
classifications for the indicated maturity ranges are as follows:
<TABLE>
<CAPTION>
Fixed Variable
Interest Interest
Rates Rates Total
----------- ------------ ------------
<S> <C> <C> <C>
Commercial, financial and agricultural
1 to 5 years $ 4,857,197 1,132,329 $ 5,989,526
Over 5 years $ 271,187 90,868 $ 362,055
Real estate construction
1 to 5 years -- $3,773,934 $ 3,773,934
</TABLE>
26
<PAGE>
TABLE 4
LOAN PORTFOLIO (CONTINUED)
The following summarizes past-due and non-accrual loans, other real estate and
repossessions and income that would have been reported on non-accrual loans as
of December 31, 1999, 1998, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Other real estate and repossessions 53,398 40,000 40,000 40,000 40,000
Accruing loans 90 days or more past due - 530 - - 238,000
Non-accrual loans 25,010 30,571 4,000 278,000 282,000
Interest on non-accrual loans which would
have been reported 200 1,500 200 19,000 18,000
</TABLE>
A loan is placed on non-accrual status when, in management's judgment, the
collection of interest appears doubtful. As a result of management's ongoing
review of the loan portfolio, loans are classified as non-accrual generally when
they are past due in principal and interest for more than 90 days or it is
otherwise not reasonable to expect collection of principal and interest under
the original terms. Exceptions are allowed for 90 day past due loans when such
loans are well secured and in process of collection. Generally, payments
received on non-accrual loans are applied directly to principal.
27
<PAGE>
TABLE 5
ALLOWANCE FOR LOAN LOSSES
The following table summarizes information concerning the allowance for loan
losses:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Amounts are presented in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $1,427 $ 1,363 $1,202 $1,020 $1,057
Charges-offs:
Commerce, financial and agricultural 29 18 4 83 40
Installment 74 74 30 47 120
Total charge-offs 103 92 34 130 160
Recoveries:
Commerce, financial and agricultural 17 73 4 5 4
Installment 12 23 25 26 19
Total recoveries 29 96 29 31 23
Net charge-offs (recoveries) 74 (4) 5 99 137
Provisions charged to operations 116 60 166 281 100
Balance at end of year $1,469 $ 1,427 $1,363 $1,202 $1,020
Ratios of net charge-offs (recoveries)
during the period to average loans
outstanding during the period .09% (.01%) .01% .15% .24%
</TABLE>
The Company has a dedicated loan review function. All loans $150,000 or more are
reviewed annually and placed into various loan grading categories which assist
in developing lists of potential problem loans. These loans are regularly
monitored by the loan review function to ensure early identification of
deterioration. The formal allowance for loan loss adequacy test is performed at
each calendar quarter end. Specific amounts of loss are estimated on problem
loans and historical loss percentages are applied to the balance of the
portfolio using certain portfolio stratifications. Additionally, the evaluation
takes into consideration such factors as changes in the nature and volume of the
loan portfolio, current economic conditions, regulatory examination results, and
the existence of loan concentrations.
28
<PAGE>
TABLE 6
DEPOSITS
The average balance of the deposits and the average rates paid on such deposits
are summarized for the periods indicated in the following table.
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
<S> <C> <C> <C>
Deposits:
Non-interest bearing demand $ 18,275,259 - $ 15,970,054 - $13,362,850 -
Interest bearing demand 35,025,775 2.99% 26,784,495 2.88% 26,299,721 2.92%
Savings 9,606,416 2.00% 8,741,058 2.33% 9,226,456 2.79%
Time 57,723,166 5.27% 53,995,027 5.64% 48,487,156 5.62%
---------- ---- ---------- ---- ---------- ----
$120,630,616 $105,490,634 $97,376,183
============ ============ ===========
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1999 are summarized as follows:
Within 3 months $ 1,355,054
After 3 through 6 months 2,125,702
After 6 through 12 months 4,440,588
After 12 months 2,260,938
-----------
$ 10,182,282
============
29
<PAGE>
TABLE 7
SELECTED RATIOS
The following table sets out certain ratios of the Company for the years
indicated.
1999 1998 1997
---- ---- ----
Net income to:
Average stockholders' equity 16.66% 16.61% 15.66%
Average assets 1.63% 1.71% 1.56%
Dividends to net income 40.85% 35.43% 34.85%
Average equity to average assets 9.77% 10.28% 9.95%
30
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
The financial statements and the report of independent accountants are
included in this report beginning at page F-1 of this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the Bank's two most recent fiscal years, the Bank did not change
accountants and had no disagreement with its accountants on any matters of
accounting principles or practices or financial statement disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information contained under the headings "Information About
Nominees For Directors," "Executive Officers," and "Compliance with Section
16(a)" in the definitive Proxy Statement to be used in connection with the
solicitation of proxies for the Company's annual meeting of shareholders to be
held on May 1, 2000, to be filed with the Securities and Exchange Commission
("SEC"), is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information contained under the heading "Executive Compensation" in
the definitive Proxy Statement to be used in connection with the solicitation of
proxies for the Bank's annual meeting of shareholders to be held on May 1, 2000,
to be filed with the SEC, is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the heading "Beneficial Ownership of
Securities and Voting Rights" in the definitive Proxy Statement to be used in
connection with the solicitation of proxies for the Company's annual meeting of
shareholders to be held on May 1, 2000, to be filed with the SEC, is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the heading "Certain Relationships and
Related Transaction" in the definitive Proxy Statement to be used in connection
with the solicitation of proxies for all the Company's annual meeting of
shareholders to be held on May 1, 2000, to be filed with the SEC, is
incorporated herein by reference.
31
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) Financial Statements.
The following financial statements and notes thereto of the Registrant
are located beginning at page F-1 of this Form 10-KSB pursuant to Item
7 of this Report:
1. Report of Independent Certified Public Accountants
2. Balance Sheets
December 31, 1999 and 1998
3. Statements of Earnings
For the Years Ended December 31, 1999, 1998, and 1997
4. Statements of Changes in Stockholders Equity
For the Years Ended December 31, 1999, 1998, and 1997
5. Statements of Cash Flows
For the Years Ended December 31, 1999, 1998, and 1997
6. Notes to Financial Statements
32
<PAGE>
EXHIBITS
The following exhibits are required to be filed with this Report on
10-KSB by Item 601 of Regulation S-B.
2. Plan of Reorganization and Agreement of Merger by and among Oconee
Interim Corporation, Oconee State Bank, and Oconee Financial
Corporation, dated August 28, 1998 (included as Exhibit 2 to the Bank's
10-KSB filed with the SEC on March 30, 1999 and incorporated hereby
reference).
3.1 Articles of Incorporation of Oconee Financial Corporation, dated August
27, 1998. (included as Exhibit 3.1 to the Bank's 10-KSB filed with the
SEC on March 30, 1999 and incorporated hereby reference).
3.2 Bylaws of Oconee Financial Corporation, dated August 27, 1998 (included
as Exhibit 3.2 to the Bank's 10-KSB filed with the SEC on March 30,
1999 and incorporated hereby reference).
4. See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation and Bylaws which define the rights of the holders of
Common Stock of the Bank.
4.1 Form of Common Stock Certificate (included as Exhibit 4.1 to the Bank's
10-KSB filed with the SEC on March 30, 1999 and incorporated hereby
reference).
10.1 Oconee State Bank 401 (k) Savings Incentive Plan (included as Exhibit 3
to the Bank's F-1 filed with the FDIC on April 30, 1997 and
incorporated hereby reference.)
10.2 Oconee State Bank Officer's Cash Incentive Plan (included as Exhibit 3
to the Bank's F-1 filed with the FDIC on April 30, 1997 and
incorporated hereby reference.)
21. Subsidiaries of Oconee Financial Corporation. (included as Exhibit 21
to the Bank's 10-KSB filed with the SEC on March 30, 1999 and
incorporated hereby reference).
24. Power of Attorney (included herein on signature page).
27. Financial Data Schedule (for SEC use only) is filed herewith.
(b) REPORTS ON FORM 8-K.
The Bank did not file any reports on Form 8-k during the fourth
quarter of 1999.
33
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Oconee Financial Corporation:
We have audited the accompanying consolidated balance sheets of Oconee Financial
Corporation and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of earnings, comprehensive income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Oconee Financial
Corporation and subsidiary as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
Atlanta, Georgia
March 10, 2000
F-1
<PAGE>
OCONEE FINANCIAL CORPORATION
Consolidated Balance Sheets
December 31, 1999 and 1998
Assets
------
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
Cash and due from banks, including reserve
requirements of $1,453,000 and $1,124,000 $ 6,437,789 4,428,512
Federal funds sold 9,690,000 9,640,000
------------- -----------
Cash and cash equivalents 16,127,789 14,068,512
Investment securities available for sale 37,257,013 20,055,424
Investment securities held to maturity -- 15,303,990
Mortgage loans held for sale 1,867,390 1,835,300
Loans, net 91,861,151 75,352,464
Premises and equipment, net 1,625,990 1,494,656
Accrued interest receivable and other assets 3,399,235 2,542,037
------------- -----------
$ 152,138,568 130,652,383
============= ===========
Liabilities and Stockholders' Equity
Deposits:
Demand $ 18,735,537 17,733,931
Interest-bearing demand 37,398,067 36,341,561
Savings 11,190,553 8,875,677
Time 69,203,052 53,169,019
------------- -----------
Total deposits 136,527,209 116,120,188
Securities sold under repurchase agreements 865,908 558,169
Accrued interest payable and other liabilities 1,730,832 1,475,842
------------- -----------
Total liabilities 139,123,949 118,154,199
------------- -----------
Stockholders' equity:
Common stock, par value $10, authorized 300,000 shares,
issued and outstanding 179,994 in 1999 and 180,000 in 1998 1,799,940 1,800,000
Additional paid-in capital 4,249,160 4,250,000
Retained earnings 7,701,769 6,398,412
Accumulated other comprehensive income (loss) (736,250) 49,772
------------- -----------
Total stockholders' equity 13,014,619 12,498,184
$ 152,138,568 130,652,383
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
OCONEE FINANCIAL CORPORATION
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- --------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 8,379,754 7,676,432 7,331,744
Interest on federal funds sold 294,214 340,869 245,238
Interest on investment securities:
U. S. Treasuries 116,719 204,356 272,193
U. S. Government agencies 1,046,397 847,531 878,196
State, county and municipal 808,336 704,153 461,016
----------- --------- ----------
Total interest income 10,645,420 9,773,341 9,188,387
----------- --------- ----------
Interest expense:
Interest-bearing demand deposits 1,045,860 771,894 767,773
Savings deposits 192,028 203,929 257,510
Time deposits 3,041,875 3,043,214 2,723,989
Other 34,502 20,499 21,301
----------- --------- ----------
Total interest expense 4,314,265 4,039,536 3,770,573
----------- --------- ----------
Net interest income 6,331,155 5,733,805 5,417,814
Provision for loan losses 116,000 60,720 166,200
----------- --------- ----------
Net interest income after provision for loan losses 6,215,155 5,673,085 5,251,614
----------- --------- ----------
Other income:
Service charges 664,279 659,014 659,239
Gain (loss) on sale of securities 9,171 14,250 (10,727)
Miscellaneous 654,811 610,030 431,710
----------- --------- ----------
Total other income 1,328,261 1,283,294 1,080,222
----------- --------- ----------
Other expenses:
Salaries and employee benefits 2,663,419 2,418,512 2,324,232
Occupancy 543,808 516,428 468,764
Other operating 1,299,133 1,174,378 1,113,638
----------- --------- ----------
Total other expenses 4,506,360 4,109,318 3,906,634
----------- --------- ----------
Earnings before income taxes 3,037,056 2,847,061 2,425,202
Income tax expense 833,729 815,167 720,674
----------- --------- ----------
Net earnings $ 2,203,327 2,031,894 1,704,528
=========== ========= ==========
Net earnings per share $ 12.24 $ 11.29 $ 9.47
=========== ========= ==========
Weighted average shares outstanding $ 179,998 180,000 180,000
=========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
OCONEE FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- ---------- ---------
<S> <C> <C> <C>
Net earnings $ 2,203,327 2,031,894 1,704,528
----------- ---------- ---------
Other comprehensive income, net of income taxes:
Unrealized gains on securities
available for sale:
Holding gains (losses) arising during period,
net of tax of $(484,420), $(14,332) and $39,415 (791,712) (23,424) 64,419
Reclassification adjustment for gains (losses) included in net
earnings, net of tax of $3,481, $5,410 and $(4,072) 5,690 8,840 (6,655)
----------- ---------- ---------
Total other comprehensive income (loss) (786,022) (14,584) 57,764
----------- ---------- ---------
Comprehensive income $ 1,417,305 2,017,310 1,762,292
=========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
OCONEE FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1999, 1998 and 1997
Accumulated
Additional Other
Common Paid-In Retained Comprehensive
Stock Capital Earnings Income Total
--------- --------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 1,800,000 3,250,000 4,975,990 6,592 10,032,582
Transfers -- 1,000,000 (1,000,000) -- --
Cash dividends declared
($3.30) per share -- -- (594,000) -- (594,000)
Net earnings -- -- 1,704,528 -- 1,704,528
Change in net unrealized gain (loss)
on investment securities available
for sale, net of tax -- -- -- 57,764 57,764
--------- --------- --------- ------ ----------
Balance, December 31, 1997 1,800,000 4,250,000 5,086,518 64,356 11,200,874
Cash dividends declare
($4.00) per share -- -- (720,000) -- (720,000)
Net earnings -- -- 2,031,894 -- 2,031,894
Change in net unrealized gain (loss)
on investment securities available
for sale, net of tax -- -- -- (14,584) (14,584)
--------- --------- --------- ------ ----------
Balance, December 31, 1998 1,800,000 4,250,000 6,398,412 49,772 12,498,184
January 1, 2000 conversion of
1 share of Oconee State Bank
stock for 1 share of Oconee-
Financial Corporation stock -- -- -- -- --
Purchase and retirement of common
stock (60) (840) -- -- (900)
Cash dividends declared
($5.00) per share -- -- (899,970) -- (899,970)
Change in net unrealized gain (loss)
on investment securities available
for sale, net of tax -- -- -- (786,022) (786,022)
Net earnings -- -- 2,203,327 -- 2,203,327
--------- --------- --------- ------ ----------
Balance, December 31, 1999 $ 1,799,940 4,249,160 7,701,769 (736,250) 13,014,619
=========== ========== ========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
OCONEE FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------ --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,203,327 2,031,894 1,704,528
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization and accretion 248,192 214,733 250,457
Provision for loan losses 116,000 60,720 166,200
Provision for deferred taxes (24,203) (11,509) (51,666)
Loss (gain) on sale of investment securities (9,171) (14,250) 10,727
Loss (gain) on sale of premises and equipment -- 21,428 --
Change in:
Accrued interest receivable (256,152) (178,321) 25,415
Accrued interest payable 138,876 (33,326) 98,055
Other assets (95,904) (41,890) (150,254)
Other liabilities (63,856) 50,353 88,672
Mortgage loans held for sale (32,090) (1,173,453) (378,227)
------------ ----------- ---------
Net cash provided by operating activities 2,225,019 926,379 1,763,907
------------ ----------- ---------
Cash flows from investing activities:
Purchase of investment securities available for sale (10,236,926) (13,590,609) (5,692,077)
Purchase of investment securities held to maturity (1,854,069) (2,602,423) (6,729,454)
Proceeds from calls and maturities of investment securities
available for sale 4,788,162 7,683,927 4,039,880
Proceeds from calls and maturities of investment securities
held to maturity 500,000 575,900 310,000
Proceeds from sales of investment securities available
for sale 3,130,054 2,503,305 5,014,688
Proceeds from sales of investment securities
held to maturity 505,000 -- --
Net change in loans (16,624,687) (4,502,826) (3,893,658)
Purchases of premises and equipment (367,136) (241,276) (70,058)
Proceeds from sales of other real estate -- -- 447,058
Improvements to other real estate -- -- (11,006)
------------ ----------- ---------
Net cash used by investing activities (20,159,602) (10,174,002) (6,584,627)
------------ ----------- ---------
Cash flows from financing activities:
Net change in deposits 20,407,021 11,530,281 7,624,413
Net change in securities sold under repurchase agreements 307,739 199,333 (56,740)
Dividends paid (720,000) (594,000) (540,000)
Purchase and retirement of stock (900) -- --
------------ ----------- ---------
Net cash provided by financing activities 19,993,860 11,135,614 7,027,673
------------ ----------- ---------
Net increase in cash and cash equivalents 2,059,277 1,887,991 2,206,953
Cash and cash equivalents at beginning of year 14,068,512 12,180,521 9,973,568
------------ ----------- ---------
Cash and cash equivalents at end of year $ 16,127,789 14,068,512 12,180,521
============ =========== ==========
</TABLE>
F-6
<PAGE>
OCONEE FINANCIAL CORPORATION
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year
for:
Interest $ 4,175,389 4,072,862 3,674,518
Income taxes $ 629,000 773,000 819,000
Noncash investing and financing activities:
Change in net unrealized loss on investment
securities available for sale, net of tax $ 786,022 (14,584) 57,764
Transfer of loans to other real estate $ -- -- 436,052
Change in dividends payable $ 179,970 126,000 54,000
Transfer of investment securities held to maturity to
available for sale $16,159,794 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
OCONEE FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Oconee Financial Corporation ("OFC") received regulatory approval to
operate as a bank holding company on October 13, 1998, and began
operations effective January 1, 1999. OFC is primarily regulated by the
Federal Reserve Bank, and serves as the one-bank holding company for
Oconee State Bank.
Oconee State Bank (the "Bank") commenced business in 1960 upon receipt of
its banking charter from the Georgia Department of Banking and Finance
(the "DBF"). The Bank is primarily regulated by the DBF and the Federal
Deposit Insurance Corporation and undergoes periodic examinations by these
regulatory agencies. The Bank provides a full range of commercial and
consumer banking services primarily in Oconee and Clarke counties in
Georgia.
Principles of Consolidation
---------------------------
The consolidated financial statements include the financial statements of
Oconee Financial Corporation and its wholly owned subsidiary, Oconee State
Bank (collectively called the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation for 1999.
Basis of Presentation
---------------------
The accounting principles followed by the Company, and the methods of
applying these principles, conform with generally accepted accounting
principles ("GAAP") and with general practices in the banking industry. In
preparing the financial statements in conformity with GAAP, management is
required to make estimates and assumptions that affect the reported
amounts in the financial statements. Actual results could differ
significantly from these estimates. Material estimates common to the
banking industry that are particularly susceptible to significant change
in the near term include, but are not limited to, the determination of the
allowance for loan losses and valuation of real estate acquired in
connection with or in lieu of foreclosure on loans.
Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks and federal funds sold.
Investment Securities
---------------------
The Company classifies its securities in one of three categories: trading,
available for sale, or held to maturity. Trading securities are bought and
held principally for sale in the near term. Held to maturity securities
are those securities for which the Company has the ability and intent to
hold the security until maturity. All other securities not included in
trading or held to maturity are classified as available for sale.
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized holding gains and losses,
net of the related tax effect, on securities available for sale are
excluded from earnings and are reported as a separate component of
stockholders' equity until realized. Transfers of securities between
categories are recorded at fair value at the date of transfer. Unrealized
holding gains or losses associated with transfers of securities from held
to maturity to available for sale are recorded as a separate component of
stockholders' equity. The unrealized holding gains or losses included in
the separate component of stockholders' equity for securities transferred
from available for sale to held to maturity are maintained and amortized
into income over the remaining life of the security as an adjustment to
the yield in a manner consistent with the amortization or accretion of
premium or discount on the associated security.
A decline in the market value of any available for sale or held to
maturity security below cost that is deemed other than temporary is
charged to earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and losses
for securities classified as available for sale and held to maturity are
included in earnings and are derived using the specific identification
method for determining the cost of securities sold.
F-8
<PAGE>
OCONEE FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Mortgage Loans Held for Sale
----------------------------
Mortgage loans held for sale are carried at the lower of aggregate cost or
market value. At December 31, 1999 and 1998, the cost of mortgage loans
held for sale approximates the market value.
Loans and Allowance for Loan Losses
-----------------------------------
Loans are stated at the principal amount outstanding, net of the allowance
for loan losses. Interest on loans is calculated by using the simple
interest method on daily balances of the principal amount outstanding.
Impaired loans are measured based on the present value of expected future
cash flows, discounted at the loan's effective interest rate, or at the
loan's observable market price, or the fair value of the collateral if the
loan is collateral dependent. A loan is impaired when, based on current
information and events, it is probable that all amounts due according to
the contractual terms of the loan will not be collected.
Accrual of interest is discontinued on a loan when management believes,
after considering economic conditions and collection efforts, that the
borrower's financial condition is such that collection of interest is
doubtful. Interest previously accrued but not collected is reversed
against current period earnings when such loans are placed on non-accrual
status.
The allowance for loan losses is established through a provision for loan
losses charged to earnings. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the
principal is unlikely. The allowance represents an amount which, in
management's judgment, will be adequate to absorb probable losses on
existing loans that may become uncollectible.
Management's judgment in determining the adequacy of the allowance is
based on evaluations of the collectibility of loans. These evaluations
take into consideration such factors as changes in the nature and volume
of the loan portfolio, current economic conditions that may affect the
borrower's ability to pay, overall portfolio quality and review of
specific problem loans. In determining the adequacy of the allowance for
loan losses, management uses a loan grading system that rates loans in
seven different categories. Grades four through seven are assigned
allocations of loss based on standard regulatory loss percentages. All
other loans are assigned loss allocations based on historical credit loss
percentages. The combination of these results are compared quarterly to
the recorded allowance for loan losses. Management uses an external loan
review program to challenge and corroborate the internal grading system
and provide additional analysis in determining the adequacy of the
allowance and the future provisions for estimated loan losses.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the Company
to recognize additions to the allowance based on judgments different than
those of management.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed primarily using the straight-line method over the
estimated useful lives of the assets. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed
from the accounts, and any gain or loss is reflected in earnings for the
period. The cost of maintenance and repairs which do not improve or extend
the useful life of the respective asset is charged to income as incurred,
whereas significant renewals and improvements are capitalized. The range
of estimated useful lives for premises and equipment are generally as
follows:
Buildings and improvements 5 - 40 years
Furniture and equipment 3 - 10 years
Securities Sold Under Repurchase Agreements
-------------------------------------------
Securities sold under repurchase agreements are treated as financing
activities, and are carried at the amounts at which the securities will be
repurchased as specified in the respective agreements.
F-9
<PAGE>
OCONEE FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Income Taxes
------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Additionally, the recognition of future tax benefits, such as
net operating loss carryforwards, is required to the extent that
realization of such benefits is more likely than not. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the assets and liabilities are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income tax expense
in the period that includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities result in deferred tax assets, an evaluation of the
probability of being able to realize the future benefits indicated by such
assets is required. A valuation allowance is provided for the portion of
the deferred tax asset when it is more likely than not that some portion
or all of the deferred tax asset will not be realized. In assessing the
realizability of the deferred tax assets, management considers the
scheduled reversals of deferred tax liabilities, projected future taxable
income, and tax planning strategies.
Profit Sharing Plan
-------------------
The Company has a contributory profit sharing plan which is available to
substantially all employees subject to certain age and service
requirements. Contributions to the plan are determined annually by the
Board of Directors. The total contribution by the Company for 1999, 1998
and 1997 was approximately $127,100, $203,200 and $170,500, respectively.
Net Earnings Per Common Share
-----------------------------
Earnings per common share are based on the weighted average number of
common shares outstanding during the period while the effects of potential
common shares outstanding during the period are included in diluted
earnings per share. The Company had no potential common shares outstanding
during 1999, 1998 and 1997.
Reclassification
----------------
Reclassifications of certain amounts in the 1998 and 1997 financial
statements have been made to conform with the financial statement
presentation for 1999. The reclassifications have no effect on net
earnings or shareholders' equity as previously reported.
Derivative Instruments and Hedging Activities
---------------------------------------------
Effective July 1, 1999, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and
reporting standards for hedging activities and for derivative instruments
including derivative instruments embedded in other contracts. It requires
the fair value recognition of derivatives as assets or liabilities in the
financial statements. At the date of initial application, an entity may
transfer any held to maturity security into the available for sale or
trading categories without calling into question the entity's intent to
hold other securities to maturity in the future. In 1999, the Company
transferred all held to maturity investment securities to available for
sale under this provision of SFAS No. 133. The held to maturity securities
had amortized costs of approximately $16,160,000 and net unrealized loss
of approximately $41,000. The result of the transfer was to decrease
stockholders' equity by $25,000, which represented the net of tax effect
of the unrealized losses associated with the held to maturity investments
transferred.
F-10
<PAGE>
OCONEE FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(2) CORPORATE REORGANIZATION
Effective January 1, 1999, the Bank completed the process of converting to
the holding company form of operation. Oconee Financial Corporation has
become the parent of the Bank. OFC is a Georgia, one-bank holding company,
headquartered in Watkinsville, Georgia.
The Bank's shareholders approved the holding company reorganization on
December 15, 1998. Regulatory approval was received on October 13, 1998.
The holding company conversion was completed successfully on January 1,
1999. As a result of the conversion, each share of Bank $10 par value
common stock was converted into one share of OFC $10 par value stock. OFC
is now the sole shareholder of the Bank.
(3) INVESTMENT SECURITIES
Investment securities at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
SECURITIES AVAILABLE FOR SALE: Cost Gains Losses Value
------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasuries and
Government agencies $ 8,377,169 35,759 164,867 8,248,061
State, county and municipal 16,698,398 48,493 633,186 16,113,705
Mortgage-backed securities 13,368,181 2,665 475,599 12,895,247
---------- ------ ---------- ----------
Total $ 38,443,748 86,917 1,273,652 37,257,013
========== ====== ========= ==========
<CAPTION>
December 31, 1998
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ---------- ---------
U.S. Treasuries and
Government agencies $ 6,226,438 64,678 - 6,291,116
Mortgage-backed securities 13,748,760 70,612 55,064 13,764,308
---------- ------ ------ ----------
Total $ 19,975,198 135,290 55,064 20,055,424
========== ======= ====== ==========
<CAPTION>
December 31, 1998
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
SECURITIES HELD TO MATURITY: Cost Gains Losses Value
------------ ---------- ---------- ---------
State, county and municipal $ 15,303,990 788,399 674 16,091,715
========== ======= === ==========
</TABLE>
F-11
<PAGE>
OCONEE FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(3) INVESTMENT SECURITIES, CONTINUED
The amortized cost and fair value of investment securities available for
sale at December 31, 1999, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers have the right to call or prepay obligations with or without
call or prepayment penalties.
Amortized Estimated
Cost Fair Value
Due within one year $ 460,000 465,043
Due from one to five years 5,276,105 5,234,296
Due from five to ten years 7,360,240 7,276,050
Due after ten years 11,979,222 11,386,377
Mortgage-backed securities 13,368,181 12,895,247
---------- ----------
$ 38,443,748 37,257,013
========== ==========
Proceeds from sales of securities available for sale during 1999 were
$3,130,054. Gross gains of $7,895 along with gross losses of $7,546 were
realized on 1999 sales. Proceeds from sales of securities available for
sale during 1998 were $2,503,305. Gross gains of $14,695 and gross losses
of $445 were realized on 1998 sales. Proceeds from sales of securities
available for sale during 1997 were $5,014,688. Gross gains of $20,266
and gross losses of $30,993 were realized on 1997 sales.
During 1999, the Company determined that a municipal bond classified as
held to maturity was deemed an unacceptable investment security for banks
by the DBF. The bond was sold during 1999 for $505,000. A gain of $8,822
was realized on the sale.
Securities with a carrying value of approximately $14,747,000 and
$14,966,000 at December 31, 1999 and 1998, respectively, were pledged to
secure public deposits and for other purposes as required by law.
(4) LOANS
Major classifications of loans at December 31, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Commercial, financial and agricultural $ 12,714,342 11,332,765
Real estate - mortgage 40,222,371 38,942,845
Real estate - construction 28,310,935 16,925,962
Consumer 12,082,629 9,578,312
---------- ---------
Total loans 93,330,277 76,779,884
Less allowance for loan losses 1,469,126 1,427,420
--------- ---------
Total net loans $ 91,861,151 75,352,464
========== ==========
</TABLE>
The Bank grants loans and extensions of credit primarily to individuals
and a variety of firms and corporations located in certain Georgia
counties including Oconee and Clarke. Although the Bank has a diversified
loan portfolio, a substantial portion of the loan portfolio is
collateralized by improved and unimproved real estate and is dependent
upon the real estate market.
F-12
<PAGE>
OCONEE FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(4) LOANS, CONTINUED
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 1,427,420 1,362,530 1,202,201
Amounts charged off (102,981) (91,925) (34,524)
Recoveries on amounts previously charged off 28,687 96,095 28,653
Provision for loan losses 116,000 60,720 166,200
--------- --------- ---------
Balance at end of year $ 1,469,126 1,427,420 1,362,530
========= ========= =========
</TABLE>
(5) PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Land $ 459,928 459,928
Buildings and improvements 1,721,022 1,704,111
Furniture and equipment 1,502,881 2,049,703
--------- ---------
3,683,831 4,213,742
Less accumulated depreciation 2,057,841 2,719,086
--------- ---------
$ 1,625,990 1,494,656
========= =========
</TABLE>
Depreciation expense was $235,802, $222,525 and $231,827 for the years
ended December 31, 1999, 1998 and 1997, respectively.
(6) DEPOSITS
The aggregate amounts of certificates of deposit, each with a minimum
denomination of $100,000, were approximately $10,182,000 and $5,542,000 at
December 31, 1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities of certificates of deposits
are as follows:
2000 $ 43,897,408
2001 23,987,433
2002 550,070
2003 416,907
2004 and thereafter 351,234
------------
$ 69,203,052
(7) INCOME TAXES
The components of income tax expense in the statements of earnings are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current $ 857,932 826,676 772,340
Deferred (24,203) (11,509) (51,666)
------- ------- -------
Total income tax expense $ 833,729 815,167 720,674
======= ======= =======
</TABLE>
F-13
<PAGE>
OCONEE FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(7) INCOME TAXES, CONTINUED
The differences between income tax expense and the amount computed by
applying the statutory federal income tax rate to earnings before income
taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pretax income at statutory rates $ 1,032,599 968,000 824,569
Add (deduct):
Tax exempt interest income (279,293) (243,794) (167,078)
Non-deductible interest expense 34,719 37,162 26,844
Other 45,704 53,799 36,339
--------- -------- -------
$ 833,729 815,167 720,674
========= ======= =======
</TABLE>
The following summarizes the sources and expected tax consequences of
future taxable deductions (income) which comprise the net deferred tax
asset. The net deferred tax asset is a component of other assets at
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred income tax assets:
Allowance for loan losses $ 471,478 454,064
Other real estate 25,952 26,142
Unrealized losses on investment securities available for sale 450,484 -
Other 13,283 -
------- -------
Total gross deferred income tax assets 961,197 480,206
------- -------
Deferred income tax liabilities:
Unrealized gains on investment securities available for sale - (30,454)
Premises and equipment (44,773) (38,469)
------- -------
Total gross deferred income tax liabilities (44,773) (68,923)
------- -------
Net deferred income tax asset $ 916,424 411,283
======= =======
</TABLE>
(8) FEDERAL HOME LOAN BANK ADVANCES
The Bank has an agreement with the Federal Home Loan Bank ("FHLB") whereby
the FHLB agreed to provide the Bank credit facilities under an Agreement
for Advances and Security Agreement. Any amounts advanced by the FHLB are
secured under a Blanket Floating Lien covered by all of the Bank's 1-4
family first mortgage loans. The Bank may draw advances up to 75% of the
outstanding balance of these loans based on the agreement with the FHLB.
The Bank has no borrowings from the FHLB as of December 31, 1999 or 1998.
(9) RELATED PARTY TRANSACTIONS
The Company conducts transactions with directors and executive officers,
including companies in which they have beneficial interests, in the normal
course of business. It is the policy of the Company that loan transactions
with directors and officers be made on substantially the same terms as
those prevailing at the time made for comparable loans to other persons.
The following is a summary of activity for related party loans for 1999:
Beginning balance $1,573,920
New loans, including loans for new director 3,080,369
Repayments (2,151,582)
---------
Ending balance $2,502,707
=========
Deposits with related parties totaled approximately $5,142,000 as of
December 31, 1999.
F-14
<PAGE>
OCONEE FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(10) COMMITMENTS
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit, standby letters of credit and financial guarantees. Those
instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the balance sheet. The contract amounts of
those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written is represented
by the contractual amount of those instruments. The Company uses the same
credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
In most cases, the Company does require collateral or other security to
support financial instruments with credit risk.
<TABLE>
<CAPTION>
Contractual Amount
------------------
1999 1998
---- ----
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $ 18,516,000 21,703,000
Standby letters of credit and
financial guarantees written $ 609,000 269,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank, upon extension of
credit is based on management's credit evaluation. Collateral held varies
but may include unimproved and improved real estate, certificates of
deposit, or personal property.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to
businesses in the Company's delineated trade area. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Company holds real
estate, equipment, automobiles and customer deposits as collateral
supporting those commitments for which collateral is deemed necessary.
(11) REGULATORY MATTERS
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier 1 capital (as defined)
to average assets (as defined). Management believes, as of December 31,
1999, that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1999, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the
Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
F-15
<PAGE>
OCONEE FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(11) Regulatory Matters, continued
The capital ratios for the Company are essentially the same as those of
the Bank. Therefore, only the Bank's capital ratios are presented in the
following table (in thousands):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital
(to Risk-Weighted Assets)
Bank $ 14,966 14.6% 8,226 8.0% 10,283 10.0%
Tier 1 Capital
(to Risk-Weighted Assets)
Bank $ 13,678 13.3% 4,113 4.0% 6,170 6.0%
Tier 1 Capital
(to Average Assets)
Bank $ 13,678 9.2% 5,962 4.0% 7,452 5.0%
As of December 31, 1998
Total Capital
(to Risk-Weighted Assets)
Bank $ 13,483 16.3% 6,607 8.0% 8,258 10.0%
Tier 1 Capital
(to Risk-Weighted Assets)
Bank $ 12,448 15.1% 3,303 4.0% 4,955 6.0%
Tier 1 Capital
(to Average Assets)
Bank $ 12,448 10.5% 4,758 4.0% 5,947 5.0%
</TABLE>
(12) DIVIDEND LIMITATIONS
Dividends paid by the Bank are the primary source of funds available to
the Company for payment of dividends to its shareholders and for other
working capital needs. Banking regulations limit the amount of dividends
that may be paid without prior approval of the regulatory authorities.
These restrictions are based on the level of regulatory classified assets,
the prior year's net earnings, and the ratio of equity capital to total
assets. Approximately $1,123,000 is available for payment of dividends
from the Bank to the Company in 2000.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose fair value information about financial
instruments, whether or not recognized on the face of the balance sheet,
for which it is practicable to estimate that value. The assumptions used
in the estimation of the fair value of the Company's financial instruments
are detailed below. Where quoted prices are not available, fair values are
based on estimates using discounted cash flows and other valuation
techniques. The use of discounted cash flows can be significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. The following disclosures should not be considered a
surrogate of the liquidation value of the Company, but rather a good faith
estimate of the increase or decrease in value of financial instruments
held by the Company since purchase, origination, or issuance.
Cash and Cash Equivalents
-------------------------
For cash, due from banks and federal funds sold, the carrying amount is
a reasonable estimate of fair value.
Investment Securities
---------------------
Fair values for investment securities are based on quoted market
prices.
F-16
<PAGE>
OCONEE FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Loans and Mortgage Loans Held for Sale
--------------------------------------
The fair value of fixed rate loans is estimated by discounting the
future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings. For variable rate
loans, the carrying amount is a reasonable estimate of fair value.
Deposits and Securities Sold Under Repurchase Agreements
--------------------------------------------------------
The fair value of demand deposits, interest-bearing demand deposits,
savings, and securities sold under repurchase agreements is the amount
payable on demand at the reporting date. The fair value of fixed
maturity certificates of deposit is estimated by discounting the future
cash flows using the rates currently offered for deposits of similar
remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit
----------------------------------------------------------
Because commitments to extend credit and standby letters of credit are
made using variable rates, the contract value is a reasonable estimate
of fair value.
Limitations
-----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on many judgments. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Significant assets and
liabilities that are not considered financial instruments include the
deferred income taxes and premises and equipment. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
The carrying amount and estimated fair values of the Company's financial
instruments at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 16,128 16,128 14,069 14,069
Investment securities available for sale $ 37,257 37,257 20,055 20,055
Investment securities held to maturity $ - - 15,304 16,092
Loans and mortgage loans held for sale $ 93,729 95,232 77,188 77,156
Liabilities:
Deposits and securities sold under
repurchase agreement $137,393 137,409 116,678 117,074
Unrecognized financial instruments:
Commitments to extend credit $ 18,516 18,516 21,703 21,703
Standby letters of credit $ 609 609 269 269
</TABLE>
F-17
<PAGE>
OCONEE FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(14) OTHER OPERATING EXPENSES
Components of other operating expenses which are greater than 1% of
interest income and other income are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Postage expense $ 130,345 118,154 110,071
Other service fees $ 88,891 75,298 121,185
</TABLE>
F-18
<PAGE>
OCONEE FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(15) OCONEE FINANCIAL CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Balance Sheet
December 31, 1999
Assets
------
<TABLE>
<CAPTION>
<S> <C>
Cash $ 970,959
Investment in subsidiary 12,941,972
Other assets 10,959
-----------
$13,923,890
===========
Liabilities and Stockholders' Equity
------------------------------------
Other liabilities $ 909,271
Stockholders' equity 13,014,619
-----------
$13,923,890
===========
Statement of Earnings
For the Year Ended December 31, 1999
Dividends from subsidiary $ 1,015,947
Other expenses 68,392
-----------
Earnings before income taxes and equity in
undistributed earnings of subsidiary 947,555
Income tax benefit 25,962
-----------
Earnings before equity in undistributed earnings
of subsidiary 973,517
Equity in undistributed earnings of subsidiary 1,229,810
-----------
Net earnings $ 2,203,327
===========
</TABLE>
F-19
<PAGE>
OCONEE FINANCIAL CORPORATION
Notes to Consolidated Financial Statements, continued
(15) OCONEE FINANCIAL CORPORATION (PARENT COMPANY ONLY) FINANCIAL
INFORMATION, CONTINUED
Statement of Cash Flows
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net earnings $ 2,203,327
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Equity in undistributed earnings of subsidiary (1,229,810)
Change in:
Other assets (10,959)
Other liabilities 9,301
-----------
Net cash provided by operating activities 971,859
Cash flows from financing activities:
Purchase and retirement of common stock (900)
-----------
Net cash used in financing activities (900)
-----------
Change in cash 970,959
Cash at beginning of year --
-----------
Cash at end of year $ 970,959
===========
Supplemental disclosure of cash flow information: Noncash investing
activities:
Change in unrealized gain on securities
available for sale $ 786,022
Change in dividends payable $ 899,970
</TABLE>
F-20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-KSB
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Watkinsville, State of Georgia, on the 29th of March, 2000.
OCONEE STATE BANK
(REGISTRANT)
By: /s/ B. Amrey Harden
-------------------------------------
B. Amrey Harden
Title: President
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints B. Amrey Harden or Douglas D. Dickens and either
of them (with full power in each to act alone), as true and lawful
attorneys-in-fact, with full power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any amendments to this
Report on Form 10-KSB and to file the same, with all exhibits thereto and other
documents in connection therewith, with the SEC, hereby ratifying and confirming
all that said attorney-in-fact, or their substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1934, this Report on
Form 10-KSB has been signed by the following persons in the capacities indicated
on the 29th day of March, 2000.
<PAGE>
SIGNATURE TITLE
- --------- -----
/s/ G. Robert Bishop Director
- -----------------------------
G. Robert Bishop
/s/ Steve W. Denman Director
- -----------------------------
Steve W. Denman
/s/ Douglas D. Dickens Chairman of the Board of Directors
- -----------------------------
Douglas D. Dickens
/s/ Walter T. Evans, Sr. Director
- -----------------------------
Walter T. Evans, Sr.
Vice Chairman of the Board, Director
- -----------------------------
John A. Hale
/s/ B. Amrey Harden President and Chief Executive Officer,
- ----------------------------- Director
B. Amrey Harden
/s/ Donald L. Jesweak Senior Vice President and Senior Lending
- ----------------------------- Officer
Donald L. Jesweak
Director
- -----------------------------
Henry C. Maxey
/s/ Carl R. Nichols Director
- -----------------------------
Carl R. Nichols
Director
- -----------------------------
Ann Breedlove Powers
/s/ Jerry K. Wages Executive Vice President and Chief Financial
- -----------------------------
Jerry K. Wages Officer, Corporate Secretary, and Director
/s/ Virginia S. Wells Director
- -----------------------------
Virginia S. Wells
<PAGE>
EXHIBIT INDEX
-------------
The following exhibits are required to be filed with this Report on
10-KSB by Item 601 of Regulation S-B.
2. Plan of Reorganization and Agreement of Merger by and among Oconee
Interim Corporation, Oconee State Bank, and Oconee Financial
Corporation, dated August 28, 1998 (included as Exhibit 2 to the Bank's
10-KSB filed with the SEC on March 30, 1999 and incorporated hereby
reference).
3.1 Articles of Incorporation of Oconee Financial Corporation, dated August
27, 1998. (included as Exhibit 3.1 to the Bank's 10-KSB filed with the
SEC on March 30, 1999 and incorporated hereby reference).
3.2 Bylaws of Oconee Financial Corporation, dated August 27, 1998 (included
as Exhibit 3.2 to the Bank's 10-KSB filed with the SEC on March 30,
1999 and incorporated hereby reference).
4. See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation and Bylaws which define the rights of the holders of
Common Stock of the Bank.
4.1 Form of Common Stock Certificate (included as Exhibit 4.1 to the Bank's
10-KSB filed with the SEC on March 30, 1999 and incorporated hereby
reference).
10.1 Oconee State Bank 401 (k) Savings Incentive Plan (included as Exhibit 3
to the Bank's F-1 filed with the FDIC on April 30, 1997 and
incorporated hereby reference).
10.2 Oconee State Bank Officer's Cash Incentive Plan (included as Exhibit 3
to the Bank's F-1 filed with the FDIC on April 30, 1997 and
incorporated hereby reference).
21. Subsidiaries of Oconee Financial Corporation. (included as Exhibit 21
to the Bank's 10-KSB filed with the SEC on March 30, 1999 and
incorporated hereby reference).
24. Power of Attorney (included herein on signature page).
27. Financial Data Schedule (for SEC use only) is filed herewith.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,437,789
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,690,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,257,013
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 93,330,277
<ALLOWANCE> 1,469,126
<TOTAL-ASSETS> 152,138,568
<DEPOSITS> 136,527,209
<SHORT-TERM> 865,908
<LIABILITIES-OTHER> 1,730,832
<LONG-TERM> 0
0
0
<COMMON> 1,799,940
<OTHER-SE> 11,214,679
<TOTAL-LIABILITIES-AND-EQUITY> 152,138,568
<INTEREST-LOAN> 8,379,754
<INTEREST-INVEST> 1,971,452
<INTEREST-OTHER> 294,214
<INTEREST-TOTAL> 10,645,420
<INTEREST-DEPOSIT> 4,279,763
<INTEREST-EXPENSE> 4,314,265
<INTEREST-INCOME-NET> 6,331,155
<LOAN-LOSSES> 116,000
<SECURITIES-GAINS> 9,171
<EXPENSE-OTHER> 4,506,360
<INCOME-PRETAX> 3,037,056
<INCOME-PRE-EXTRAORDINARY> 3,037,056
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,203,327
<EPS-BASIC> 12.24
<EPS-DILUTED> 12.24
<YIELD-ACTUAL> 4.98
<LOANS-NON> 25,010
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,427,420
<CHARGE-OFFS> 102,981
<RECOVERIES> 28,687
<ALLOWANCE-CLOSE> 1,469,126
<ALLOWANCE-DOMESTIC> 1,469,126
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
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