UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20429

FORM 10-QSB

[X] QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

> 
For the Quarterly PeriodEnded March 31, 2001

OR

[ ] TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the TransitionPeriod from ________to ________
Commission File number000-25267

Oconee FinancialCorporation****(Exact name ofregistrant as specified in its charter)** **
Georgia ****
 58-2442250 ****
(Stateof Incorporation)
****
 (I.R.S. Employer Identification No.)
** 
 
35 North Main Street
****
 

Watkinsville, Georgia****
 30677****
(Address of principal
****
 (Zip Code)

executive offices)
****
 

706-769-6611****(Telephone Number)** **
Indicate by check mark whether theregistrant (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 forsuch shorter period that the registrant was required to file such reports), and(2) has been subjected to such filing requirements for the past 90 days.

YES     XX      NO         
** **
Common stock, par value$10 per share: 179,977 sharesoutstanding as of May 7,2001
** 

 
  **OCONEE FINANCIAL CORPORATION AND SUBSIDIARY**    **INDEX**          Page No.PART I  FINANCIAL INFORMATION       Item 1. Financial Statements         Consolidated Balance Sheet (unaudited) at March 31, 2001 3       Consolidated Statements of Earnings (unaudited) for the Three         Months  Ended March 31, 2001 and 2000 4       Consolidated Statements of Comprehensive Income (unaudited)         for the Three Months Ended March 31, 2001 and 2000 5       Consolidated Statements of Cash Flows (unaudited) for the Three         Months Ended March 31, 2001 and 2000 6       Notes to Financial Statements (unaudited) 7     Item 2. Management's Discussion and Analysis of Financial          Condition and Results of Operations 8-11     PART II OTHER INFORMATION       Item 1. Legal Proceedings 12     Item 2. Changes in Securities 12     Item 3. Defaults Upon Senior Securities 12     Item 4. Submission of Matters to a Vote of Security Holders 12     Item 5. Other Information 12     Item 6. Exhibits and Reports on Form 8-K 12
 

 
**PART I.  FINANCIAL INFORMATION**    Item 1.  Financial Statements       **OCONEE FINANCIAL CORPORATION AND SUBSIDIARY** Consolidated Balance Sheet March 31, 2001(Unaudited)    Assets    Cash and due from banks $8,435,406 Federal funds sold  14,266,000 Investment securities available for sale   
  (amortized cost  of $29,688,804)
  29,982,263     Mortgage loans held for sale  3,385,753     Loans  132,067,980 Less:  Allowance for loan losses  (1,624,908)   
         Loans, net
  130,443,072    ****Premises and equipment, net  2,309,593 Accrued interest receivable and other assets  3,825,890    ****
                     Total Assets
 $192,647,977    ****Liabilities and Stockholders’ Equity    Liabilities:   
    Deposits:
  
Noninterest-bearing
 $19,913,783 
        Interest-bearing
  141,260,228    ****
            Total Deposits
  161,174,011     
    Securities sold under repurchase agreements
  1,038,222 
    Federal Home Loan Bank Advances
  13,300,000 
    Accrued interest payable and other liabilities
  1,109,287    ****
            Total Liabilities
  176,621,520     Stockholders’ equity:   
    Common stock, $10 par value;
   
        authorized 300,000 shares;
   
        issued and outstanding179,977 shares
  1,799,770 
    Additional paid-in capital
  4,246,832 
    Retained earnings
  9,797,793 Accumulated other comprehensive income  182,062    ****
            Total stockholders’ equity
  16,026,457    ****
                    Total liabilities and stockholders’ equity
 $192,647,977  ****    See accompanying notes to financial statements.       
 

3
** 
**OCONEE FINANCIAL CORPORATION AND SUBSIDIARY**  Consolidated Statements of Earnings For Each of the Three Months Ended March 31, 2001 and 2000(Unaudited)       ** **  **2001**** ****2000******     Interest Income:    
     Loans
$3,349,236$2,378,062
     Investment securities:
    
          Tax exempt
 169,014 208,092
          Taxable
 265,315 387,275
     Federal funds sold and other
 226,620 103,000
             Total interest income
 4,010,185 3,076,429  **** ****Interest Expense:    
     Deposits
 1,757,076 1,314,120
     Other
 220,172 8,515********
             Total interest expense
 1,977,248 1,322,635  **** ****
             Net interest income
 2,032,937 1,753,794     Provision for loan losses 75,000 51,900     
     Net interest income after provision for loan losses
 1,957,937 1,701,894     Other Income:         
     Service charges on deposit accounts
 233,017 185,619
     Securities gains (losses), net
 0 0
     Other operating income
 269,662 162,504********
             Total other income
 502,679 348,123  **** ****Other Expense:    
     Salaries and other personnel expense
 956,117 786,045
     Net occupancy and equipment expense
 188,068 179,312
     Other operating expense
 420,784 337,091********
             Total other expense
 1,564,969 1,302,448     
             Earnings before income taxes
 895,647 747,569     Income taxes 276,532 208,879  **** ****
             Net earnings
$619,115$538,690  **** ****Net earnings per common share based on average outstanding         shares of 179,977 in 2001 and 179,979 in 2000:$3.44$2.99  **** ****     See accompanying notes to financial statements.                   
 

4
** 
**OCONEE FINANCIAL CORPORATION AND SUBSIDIARY**     Consolidated Statements of Comprehensive Income     For the Three Months Ended March 31, 2001 and 2000(Unaudited)            **2001******** ****2000******     Net earnings$619,115 538,690     Other comprehensive income, net of tax:    
     Unrealized gains (losses) on securities available for sale:
    
          Holding gains (losses) arising during period, net of tax
    
             of $215,378 and ($116,924)
 352,006 (191,094)
          Reclassification adjustments for (gains) losses included
    
             in net earnings
 0 0  
          Total other comprehensive income (loss)
 352,006 (191,094)  **** ****
          Comprehensive income
$971,121 347,596  **** ****                              See accompanying notes to financial statements.    
5
** 
**OCONEE FINANCIAL CORPORATION AND SUBSIDIARY** Consolidated Statements of Cash Flows For Each of the Three Months Ended March 31, 2001 and 2000(Unaudited)            **2001** **2000**Cash flows from operating activities:    
     Net earnings
$619,115 $538,690 
         Adjustments to reconcile net earnings to net
    
            cash provided by operating activities:
    
                Provision for loan losses
 75,000  51,900 
                Depreciation, amortization and accretion
 89,016  68,447 
                Change in assets and liabilities:
    
                    Interest receivable and other assets
 (102,450) (133,803)
                    Interest payable and other liabilities
 (208,357) (99,629)
                    Mortgage loans held for sale
 (1,107,140) 903,919    ****
                           Net cash used by operating activities
 (634,816) 1,329,524   **** ****Cash flows from investing activities:    
     Proceeds from maturities and paydowns of
    
         investment securities available for sale
 2,289,807  634,044 
     Purchases of investment securities available for sale
 (1,645,877) (2,950,769)
     Net changes in loans
 (9,057,852) (6,011,013)
     Purchases of premises and equipment
 (181,490) (294,406)  **** ****
                           Net cash used by investing activities
 (8,595,412) (8,622,144)  **** ****Cash flows from financing activities:    
     Net change in deposits
 10,636,394  3,595,754 
     Net change in securities sold under repurchase agreements
 202,135  65,017 
     Dividends paid
 (989,873) (899,970)
     Purchase and retirement of stock
 0  (2,160)  **** ****
                            Net cash provided by financing activities
 9,848,656  2,758,641   **** ****Net increase (decrease) in cash and cash equivalents 618,428  (4,533,979)     Cash and cash equivalents at beginning of period 22,082,978  16,127,789  **** ****Cash and cash equivalents at end of period$22,701,406 $11,593,810 **** ****Supplemental cash flow information:    
     Cash paid for interest
$1,194,778 $766,718 
     Cash paid for taxes
$268,280 $74,984      Noncash investing and financing activities:    
     Transfer from loans to other real estate owned
$73,164 $-
     Change in dividends payable
$989,873 $899,970                See accompanying notes to financial statements.         
 

6
** 

OCONEE FINANCIALCORPORATION AND SUBSIDIARY**
Notes to ConsolidatedFinancial Statements(Unaudited)

 

(1)

Basisof Presentation

The financial statements include theaccounts of Oconee Financial Corporation (the “Corporation”) and itswholly-owned subsidiary, Oconee State Bank (the “Bank”). Allsignificant intercompany accounts and transactions have been eliminated inconsolidation.

The consolidatedfinancial information furnished herein reflects all adjustments which are, inthe opinion of management, necessary to present a fair statement of the resultsof operations and financial position for the periods covered herein. All suchadjustments are of a normal recurring nature.

(2)

 Cashand Cash Equivalents

For presentation in the financialstatements, cash and cash equivalents include cash on hand and amounts due frombanks.

(3) 

  NetEarnings Per Common Share

Net earnings per common share are basedon the weighted average number of common shares outstanding during the periodwhile the effects of potential common shares outstanding during the period areincluded in diluted earnings per share. The Corporation had no potential commonshares outstanding during 2001 and 2000.

(4) 

  SubsequentEvent

On April 16, 2001, the Board ofDirectors of the Corporation declared a 5 for 1 stock split payable toshareholders of record on May 8, 2001. This stock split will be reflected insubsequent reports.

 

7

Item 2.
**MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OFOPERATIONS**
 
**Forward-Looking Statement

This discussioncontains forward-looking statements under the private Securities LitigationReform Act of 1995 that involve risk and uncertainties. Although the Corporationbelieves that the assumptions underlying the forward-looking statementscontained in the discussion are reasonable, any of the assumptions could beinaccurate, and therefore, no assurance can be made that any of theforward-looking statements included in this discussion will be accurate. Factorsthat could cause actual results to differ from results discussed inforward-looking statements include, but are not limited to: economic conditions(both generally and in the markets where the Corporation operates); competitionfrom other providers of financial services offered by the Corporation;government regulations and legislation; changes in interest rates; materialunforeseen changes in the financial stability and liquidity of the Corporation’scredit customers, all of which are difficult to predict and which may be beyondthe control of the Corporation. The Corporation undertakes no obligation torevise forward-looking statements to reflect events or changes after the date ofthis discussion or to reflect the occurrence of unanticipated events.
**Financial Condition**
Total assets at March31, 2001 were $192,647,977, representing a $10,722,818 (5.89%) increase fromDecember 31, 2000. Deposits increased $10,636,394 (7.07%) from December 31,2000. Loans increased $8,726,925 (7.08%). The increase in loan volume is dueprimarily to an increase in loans to finance commercial real estate. Theallowance for loan losses at March 31, 2001 totaled $1,624,908, compared to theDecember 31, 2000 total of $1,807,671, representing 1.23% of total loans atMarch 31, 2001, compared to 1.47% at December 31, 2000. Cash and cashequivalents increased $618,428 from December 31, 2000.

The total ofnonperforming assets, which includes nonaccruing loans, other real estate owned,repossessed collateral and loans for which payments are more than 90 days pastdue were $669,459 at March 31, 2001, representing an increase of $413,689(161.74%) from December 31, 2000. This increase is primarily attributable to a$310,641 increase in nonaccruing loans and a $73,164 increase in other realestate loans. Nonaccrual loans represented 0.40% of total loans outstanding atMarch 31, 2001, compared to 0.18% of total loans outstanding at December 31,2000. There were no related party loans which were considered nonperforming atMarch 31, 2001.

The Corporation’ssubsidiary bank was most recently examined by its primary regulatory authorityin October of 1999. There were no recommendations by the regulatory authoritythat in management’s opinion will have material effects on the Company’sliquidity, capital resources or operations.

 

8

 

Item 2.
**MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OFOPERATIONS, continued

 ****Results of Operations**
Net interest incomeincreased $279,143(15.92%) in the first threemonths of 2001 compared to the same period for 2000. Interest income for thefirst three months of 2001 was $4,010,185,representing an increase of $933,756 (30.35%) overthe same period in 2000. Interest expense for the first three months of 2001increased $654,613 (49.49%) compared to the same period in 2000. The increase innet interest income during the first three months of 2001 compared to the sameperiod in 2000 is primarily attributable to the increase in the volume of loans.The increase in interest expense is primarily attributable to interest in theamount of $210,805 on a Federal Home Loan Bank advance that the Bank securedduring 2000, as well as growth in the Bank’s deposits.

The Bank’s netinterest margin for the first three months of 2001 was 4.88%, compared to 5.23%for the same time period during 2000. This decrease is primarily attributable toa 200 basis point decrease in the prime rate during the first three months of2001.

The Bank analyzes itsallowance for loan losses on a monthly basis. As of March 31, 2001, theprovision for loan losses was $75,000, compared to $51,900 for the same periodin 2000. The increase in the provision for loan losses is primarily attributableto growth in the loan portfolio. It is management’s belief that the allowancefor loan losses is adequate to absorb possible losses in the portfolio.

Other income for thefirst three months of 2001 increased $154,556 (44.40%) compared to the firstthree months of 2000. This increase is attributable to a $78,463 increase in feeincome on mortgage loans held for sale, as well as a $47,398 increase in servicecharges on deposit accounts. The increase in fee income on mortgage loans heldfor sale is due to an increase in the number of mortgage loans that the Bankoriginated during 2001 as a result of mortgage interest rates being lower during2001. The increase in service charge income is due to an increase in fees ondeposit accounts that the Bank implemented during the third quarter of 2000.

Other expenses for thethree months of 2001 increased $262,521 (20.16%) compared to the first threemonths in 2000. The net increase is primarily attributable a 22% increase insalaries and benefits expense due to the addition of new employees in responseto the growth of the Bank and to merit increases based on employee performance.

 

 

9

 

Item 2.
**MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OFOPERATIONS, continued

 

Liquidity**
The Corporation mustmaintain, on a daily basis, sufficient funds to cover the withdrawals fromdepositors’ accounts and to supply new borrowers with funds. To meet theseobligations, the Corporation keeps cash on hand, maintains account balances withits correspondent banks, and purchases and sells federal funds and othershort-term investments. Asset and liability maturities are monitored in anattempt to match these to meet liquidity needs. It is the policy of theCorporation to monitor its liquidity to meet regulatory requirements and theirlocal funding requirements.

The Corporationmaintains relationships with correspondent banks that can provide funds to it onshort notice, if needed. Presently, the Corporation has arrangements with acommercial bank for short term unsecured advances up to $4,400,000. Additionalliquidity is provided to the Corporation through available Federal Home LoanBank advances up to $27,280,000. As of March 31, 2001, the Corporation had$13,300,000 in advances outstanding from the Federal Home Loan Bank. Thisadvance matures August 25, 2003, and carries a fixed interest rate of 6.34%. Itis secured by the Bank’s loans on 1 to 4 family residential properties.

 
** **
10
** 

 ****Item 2.
MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OFOPERATIONS, continued

 
**Capital**
The following tables present OconeeState Bank’s regulatory capital position at March 31, 2001, based on the regulatorycapital requirements of federal banking agencies.

Risk-Based Capital Ratios

 

Tier 1 Capital, Actual

 11.4%

Tier 1 Capital minimum requirement

4.0%

Excess

7.4%

Total Capital, Actual

 12.6%

Total Capital minimum requirement

8.0%

Excess

4.6%
    
Leverage Ratio

 

Tier 1 Capital to adjusted total assets

  

(Leverage Ratio)

 8.5%

Minimum leverage requirement

3.0%

Excess

5.5%

 

11
******PART II. OTHERINFORMATION****OCONEE FINANCIALCORPORATION AND SUBSIDIARY**
Item 1.

LegalProceedings

  

None

Item 2. 

  Changesin Securities and Use of Proceeds

  

 None

Item 3. 

  DefaultsUpon Senior Securities

  

None

Item 4. 

  Submissionof Matters to a Vote of Security Holders

  

None

Item 5. 

  OtherInformation

  

None
Item 6.Exhibitsand Reports on Form 8-K(a)ExhibitsNone(b)Reportson Form 8-KThere were no 8-K filings during thequarter.** **
12
** 

OCONEE FINANCIALCORPORATION AND SUBSIDIARY

SIGNATURES

 **
Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this Report tobe signed on its behalf by the undersigned thereunto duly authorized.

  

**OCONEE FINANCIAL CORPORATION**

 

  

By:  */s/B. Amrey Harden*
  

      B. Amrey Harden, President andC.E.O.      (Principal Executive Officer)

  

  

 

  

Date:     May10, 2001 
  
 
  

By:  */s/Jerry K. Wages*
  

      Jerry K. Wages

  

      Executive Vice-President and C.F.O.

  

      (Principal Accounting Officer)

  

 

  

 

  

Date:     May10, 2001
 **************