UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C.  20549
 
 
 FORM
10-Q
 
 
 (Mark
One)
 þ  QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the quarterly period ended September 30, 2009
 or
 o  TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the transition period from
__________  to  __________
 
 Commission
File Number 000-25267
 
 OCONEE
      FINANCIAL CORPORATION(Exact
      name of Registrant as specified in its
Charter)
 
 
 Georgia
              
              58-2442250(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)35
      North Main Street
                Watkinsville,
      Georgia
              
              30677(Address
      of principal executive offices)
              
              (Zip
      Code)
 
 706-769-6611(Registrant’s
      telephone number, including area
code)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
 Yes þ   No
o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files.      Yes o   No
o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.:
 
 Large
      accelerated filer:   o
              Accelerated
      filer: oNon-accelerated
      filer:   o   (Do
      not check if a smaller reporting company)
              Smaller
      reporting company: þ
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes o   No
þ
 
 The
number of shares outstanding of the issuer’s common stock as of November 16,
2009 was 899,815.
  
  
  INDEX  Page
      NoPART
      I - FINANCIAL INFORMATIONItem
      1.  Financial StatementsConsolidated
      Balance Sheets at September 30, 2009 and December 31, 2008
              1Consolidated
      Statements of Operations (unaudited) for the Three Months and the Nine
      Months Ended September 30, 2009 and 2008
              2Consolidated
      Statements of Comprehensive Income (Loss) (unaudited) for the Three Months
      and the Nine Months Ended September 30, 2009 and 2008
              3Consolidated
      Statements of Cash Flows (unaudited) for the Nine Months Ended September
      30, 2009 and 2008
              4Notes
      to Consolidated Financial Statements (unaudited)
              6Item
      2.  Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
              16Item
      3.  Quantitative and Qualitative Disclosures about Market
      Risk
              22Item
      4T. Controls and Procedures
              22PART
      II - OTHER INFORMATIONItem
      1. Legal Proceedings
              23Item
      1A. Risk Factors
              23Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
              23Item
      3. Defaults Upon Senior Securities
              23Item
      4.  Submission of Matters to a Vote of Security
    Holders
              23Item
      5.  Other Information
              23Item
      6.  Exhibits
              23
 
  
  PART
I.  FINANCIAL INFORMATION
 
 Item
1.  Financial Statements
 
 OCONEE
FINANCIAL CORPORATION AND SUBSIDIARY
  Consolidated
Balance Sheets
 September
30, 2009 and December 31, 2008
 
 September
      30, 2009
                (unaudited)
              
              
              December
      31, 2008AssetsCash
      and due from banks, including reserve requirements of
    $25,000
              
              $
              23,834,149
              
              
              
              4,353,492Federal
      funds sold
              
              
              -
              
              
              
              15,709,000Cash
      and cash equivalents
              
              
              23,834,149
              
              
              
              20,062,492Investment
      securities available for sale
              
              
              69,976,505
              
              
              
              79,761,570Other
      investments
              
              
              556,300
              
              
              
              679,229Mortgage
      loans held for sale
              
              
              1,810,471
              
              
              
              1,638,561Loans,
      net of allowance for loan losses of $4,597,659 and
    $4,215,262
              
              
              177,228,347
              
              
              
              191,557,145Premises
      and equipment, net
              
              
              6,456,789
              
              
              
              6,903,890Other
      real estate owned
              
              
              5,665,233
              
              
              
              1,776,960Accrued
      interest receivable and other assets
              
              
              5,736,741
              
              
              
              5,775,732Total
      assets
              
              $
              291,264,535
              
              
              
              308,155,549Liabilities and Stockholders’
      EquityLiabilities:DepositsNoninterest-bearing
              
              $
              28,688,748
              
              
              
              27,413,165Interest-bearing
              
              
              224,729,830
              
              
              
              247,624,987Total
      deposits
              
              
              253,418,578
              
              
              
              275,038,152Securities
      sold under repurchase agreements
              
              
              11,324,052
              
              
              
              6,453,272Accrued
      interest payable and other liabilities
              
              
              867,909
              
              
              
              866,937Total
      liabilities
              
              
              265,610,539
              
              
              
              282,358,361Stockholders’
      equity:Common
      stock, $2 par value;authorized
      1,500,000 shares;issued
      and outstanding 899,815 shares
              
              
              1,799,630
              
              
              
              1,799,630Additional
      paid-in capital
              
              
              4,243,332
              
              
              
              4,243,332Retained
      earnings
              
              
              18,885,042
              
              
              
              19,500,772Accumulated
      other comprehensive income
              
              
              725,992
              
              
              
              253,454Total
      stockholders’ equity
              
              
              25,653,996
              
              
              
              25,797,188Total
      liabilities and stockholders’ equity
              
              $
              291,264,535
              
              
              
              308,155,549
 See
accompanying notes to consolidated financial statements.
  1
  
 OCONEE
FINANCIAL CORPORATION AND SUBSIDIARY
  Consolidated
Statements of Operations
 For the
Three Months and the Nine Months Ended September 30, 2009 and 2008
 (Unaudited)
 
 Three
      Months Ended
              
              
              Nine
      Months Ended2009
              
              
              2008
              
              
              2009
              
              
              2008Interest
      Income:Loans
              
              $
              2,383,214
              
              
              
              2,751,772
              
              
              $
              7,152,619
              
              
              
              9,088,741Investment securities:Tax
      exempt
              
              
              173,934
              
              
              
              197,037
              
              
              
              557,341
              
              
              
              648,964Taxable
              
              
              660,230
              
              
              
              867,770
              
              
              
              2,144,829
              
              
              
              2,761,744Federal funds sold and other
              
              
              12,175
              
              
              
              48,431
              
              
              
              13,168
              
              
              
              277,840Total interest income
              
              
              3,229,553
              
              
              
              3,865,010
              
              
              
              9,867,957
              
              
              
              12,777,289Interest
      Expense:Deposits
              
              
              1,380,413
              
              
              
              1,728,579
              
              
              
              4,339,981
              
              
              
              6,201,210Other
              
              
              99,099
              
              
              
              72,746
              
              
              
              288,950
              
              
              
              103,385Total interest expense
              
              
              1,479,512
              
              
              
              1,801,325
              
              
              
              4,628,931
              
              
              
              6,304,595Net interest income
              
              
              1,750,041
              
              
              
              2,063,685
              
              
              
              5,239,026
              
              
              
              6,472,694Provision
      for loan losses
              
              
              240,000
              
              
              
              368,000
              
              
              
              1,340,000
              
              
              
              598,000Net
      interest income after provision for loan losses
              
              
              1,510,041
              
              
              
              1,695,685
              
              
              
              3,899,026
              
              
              
              5,874,694Other
      Income:Service charges on deposit accounts
              
              
              337,357
              
              
              
              398,774
              
              
              
              963,543
              
              
              
              1,150,663Mortgage
      origination fees
              
              
              73,464
              
              
              
              104,205
              
              
              
              357,248
              
              
              
              263,378Securities
      gains, net
              
              
              44,343
              
              
              
              -
              
              
              
              150,291
              
              
              
              197,264Income
      on other real estate owned
              
              
              171,637
              
              
              
              -
              
              
              
              439,552
              
              
              
              -Other operating income
              
              
              221,795
              
              
              
              200,904
              
              
              
              644,310
              
              
              
              670,704Total other income
              
              
              848,596
              
              
              
              703,883
              
              
              
              2,554,944
              
              
              
              2,282,009Other
      Expense:Salaries and other personnel expense
              
              
              1,208,095
              
              
              
              1,087,865
              
              
              
              3,800,094
              
              
              
              4,013,963Net occupancy and equipment expense
              
              
              340,000
              
              
              
              340,017
              
              
              
              1,042,153
              
              
              
              1,039,328Other operating expense
              
              
              782,502
              
              
              
              707,782
              
              
              
              2,569,593
              
              
              
              2,001,461Total other expense
              
              
              2,330,597
              
              
              
              2,135,664
              
              
              
              7,411,840
              
              
              
              7,054,752Earnings (loss) before income taxes
              
              
              28,040
              
              
              
              263,904
              
              
              
              (957,870
              )
              
              
              1,101,951Income
      taxes (benefit)
              
              
              11,146
              
              
              
              24,705
              
              
              
              (342,140
              )
              
              
              158,900Net earnings (loss)
              
              $
              16,894
              
              
              
              239,199
              
              
              $
              (615,730
              )
              
              
              943,051Earnings
      (loss) per common share based on averageoutstanding shares of 899,815
              
              $
              0.02
              
              
              
              0.27
              
              
              $
              (0.68
              )
              
              
              1.05
 
 See
accompanying notes to consolidated financial statements.
  2
  
 
 OCONEE
FINANCIAL CORPORATION AND SUBSIDIARY
  Consolidated
Statements of Comprehensive Income (Loss)
 For the
Three Months and the Nine Months Ended September 30, 2009 and 2008
 (Unaudited)
  
  
 Three
      Months Ended
              
              
              Nine
      Months Ended2009
              
              
              2008
              
              
              2009
              
              
              2008Net
      earnings (loss)
              
              $
              16,894
              
              
              
              239,199
              
              
              $
              (615,730
              )
              
              
              943,051Other
      comprehensive income (loss), net of tax benefit:Unrealized
      gains (losses) on securities available for sale:Holding gains (losses) arising during period, net of tax(benefit)
      of  $623,378, $358,057, $346,179 and ($106,688)
              
              
              1,018,820
              
              
              
              585,191
              
              
              
              565,779
              
              
              
              (174,365
              )Reclassification
      adjustments for gains included in netearnings
      (loss), net of tax of $16,832, $0, $57,050 and
$74,881
              
              
              (27,511
              )
              
              
              -
              
              
              
              (93,241
              )
              
              
              (122,383
              )Total other comprehensive income (loss)
              
              
              991,309
              
              
              
              585,191
              
              
              
              472,538
              
              
              
              (296,748
              )Comprehensive income (loss)
              
              $
              1,008,203
              
              
              
              824,390
              
              
              $
              (143,192
              )
              
              
              646,303
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See
accompanying notes to consolidated financial statements.
  3
  
 
 OCONEE
FINANCIAL CORPORATION AND SUBSIDIARY
  Consolidated
Statements of Cash Flows
 For the
Nine Months Ended September 30, 2009 and 2008
 (Unaudited)
  
 2009
              
              
              2008Cash
      flows from operating activities:Net
      earnings (loss)
              
              $
              (615,730
              )
              
              $
              943,051Adjustments
      to reconcile net earnings (loss) to netcash
      provided by operating activities:Provision
      for loan losses
              
              
              1,340,000
              
              
              
              598,000Depreciation,
      amortization and accretion
              
              
              441,840
              
              
              
              496,168Gains
      on sales of securities
              
              
              (150,291
              )
              
              
              (197,264
              )Loss
      on sales of other real estate owned
              
              
              184,055
              
              
              
              -Change
      in assets and liabilities:Interest
      receivable and other assets
              
              
              (250,138
              )
              
              
              (230,863
              )Interest
      payable and other liabilities
              
              
              972
              
              
              
              (547,338
              )Mortgage
      loans held for sale
              
              
              (171,910
              )
              
              
              536,987Net
      cash provided by operating activities
              
              
              778,798
              
              
              
              1,598,741Cash
      flows from investing activities:Proceeds
      from sales of investment securities available for sale
              
              
              12,937,169
              
              
              
              7,320,481Proceeds
      from calls, maturities, and paydowns ofinvestment
      securities available for sale
              
              
              141,315,102
              
              
              
              27,205,789Purchases
      of investment securities available for sale
              
              
              (143,423,909
              )
              
              
              (22,566,435
              )Proceeds
      from redemption of other investments
              
              
              22,500
              
              
              
              27,500Net
      change in loans
              
              
              8,619,687
              
              
              
              1,727,903Purchases
      of premises and equipment
              
              
              (25,649
              )
              
              
              (188,031
              )Proceeds
      from sales of other real estate
              
              
              296,753
              
              
              
              157,306Net cash provided by investing activities
              
              
              19,741,653
              
              
              
              13,684,513Cash
      flows from financing activities:Net
      change in deposits
              
              
              (21,619,574
              )
              
              
              (20,424,969
              )Net
      change in securities sold under repurchase agreements
              
              
              4,870,780
              
              
              
              8,803,785Dividends
      paid
              
              
              -
              
              
              
              (1,034,787
              )Net
      cash used by financing activities
              
              
              (16,748,794
              )
              
              
              (12,655,971
              )Net
      increase in cash and cash equivalents
              
              
              3,771,657
              
              
              
              2,627,283Cash
      and cash equivalents at beginning of period
              
              
              20,062,492
              
              
              
              20,889,937Cash
      and cash equivalents at end of period
              
              $
              23,834,149
              
              
              $
              23,517,220
 
 
  4
   OCONEE
FINANCIAL CORPORATION AND SUBSIDIARY
 
 Consolidated
Statements of Cash Flows, continued
 
 For the
Nine Months Ended September 30, 2009 and 2008
 (Unaudited)
 
 2009
                
                
                2008Supplemental
      cash flow information:Cash
      paid for interest
                
                $
                4,694,453
                
                
                $
                6,724,678Cash
      paid for taxes
                
                $
                -
                
                
                $
                281,500Noncash
      investing and financing activities:Transfer
      from loans to other real estate owned
                
                $
                4,215,782
                
                
                $
                319,770Change
      in net unrealized losses on investment securitiesavailable
      for sale, net of tax benefit
                
                $
                472,538
                
                
                $
                (296,748
                )Change
      in dividends payable
                
                $
                -
                
                
                $
                1,034,787
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See
accompanying notes to consolidated financial statements.
  5
  OCONEE
FINANCIAL CORPORATION AND SUBSIDIARY
  Notes to
Consolidated Financial Statements
 (Unaudited)
  (1)           Basis of
Presentation
  The
financial statements include the accounts of Oconee Financial Corporation (the
“Corporation”) and its wholly-owned subsidiary, Oconee State Bank (the
“Bank”).  All significant intercompany accounts and transactions have
been eliminated in consolidation.
  The
following unaudited condensed financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and
regulations.  The consolidated financial information furnished herein
reflects all adjustments which are, in the opinion of management, necessary to
present a fair statement of the results of operations and financial position for
the periods covered herein.  All such adjustments are of a normal
recurring nature.
  Operating
results for the three and nine –month periods ended September 30, 2009 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2009.  For further information, refer to the financial
statements and footnotes included in the Corporation’s annual report included on
Form 10-K for the year ended December 31, 2008.
  Critical Accounting
Policies
  The
Corporation’s accounting policies are fundamental to understanding management’s
discussion and analysis of results of operations and financial
condition.  Some of the Corporation’s accounting policies require
significant judgment regarding valuation of assets and liabilities and/or
significant interpretation of the specific accounting guidance.  A
description of the Corporation’s significant accounting policies can be found in
Note 1 of the Notes to Consolidated Financial Statements in the Company’s 10-K
for the year ended December 31, 2008.
  Many of
the Corporation’s assets and liabilities are recorded using various valuation
techniques that require significant judgment as to
recoverability.  The collectibility of loans is reflected through the
Corporation’s estimate of the allowance for loan losses.  The
Corporation performs periodic detailed reviews of its loan portfolio in order to
assess the adequacy of the allowance for loan losses in light of anticipated
risks and loan losses.  In addition, investment securities available
for sale and mortgage loans held for sale are reflected at their estimated fair
value in the consolidated financial statements.  Such amounts are
based on either quoted market prices or estimated values derived by the
Corporation using dealer quotes or market comparisons.
  (2)           Net Earnings (Loss) Per
Common Share
  Net
earnings (loss) per common share are based on the weighted average number of
common shares outstanding during the period.
  (3)           Allowance for Loan
Losses
  Changes in the allowance for loan
losses were as follows:
  Nine
      Months Ended September 30,2009
              
              
              2008Balance
      at beginning of year
              
              $
              4,215,262
              
              
              
              3,335,825Amounts
      charged off
              
              
              (985,924
              )
              
              
              (125,828
              )Recoveries
      on amounts previously charged off
              
              
              28,321
              
              
              
              24,584Provision
      for loan losses
              
              
              1,340,000
              
              
              
              598,000Balance
      at September 30
              
              $
              4,597,659
              
              
              
              3,832,581
   6
   (4)       Fair Value
Measurements
  Effective
January 1, 2008, the Company adopted FASB ASC Topic 820, Fair Value Measurements and
Disclosures, which provides a framework for measuring fair value under
generally accepted accounting principles.  FASB ASC Topic 820 applies
to all financial instruments that are being measured and reported on a fair
value basis.
 
 The
Company utilizes fair value measurements to record fair value adjustments to
certain assets and liabilities and to determine fair value
disclosures.  Securities available-for-sale, derivatives and certain
deposits are recorded at fair value on a recurring
basis.  Additionally, from time to time, the Company may be required
to record at fair value other assets on a nonrecurring basis, such as impaired
loans, foreclosed property and held-to-maturity securities.  These
nonrecurring fair value adjustments typically involve application of lower of
cost or market accounting or write-downs of individual assets.
 
 Under
FASB ASC Topic 820, the Company groups assets and liabilities at fair value in
three levels, based on the markets in which the assets and liabilities are
traded and the reliability of the assumptions used to determine fair
value.  These levels are:
  Level 1 –
Quoted prices in active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement date.
  Level 2 –
Significant other observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities, quoted prices in markets that are not
active, and other inputs that are observable or can be corroborated by
observable market data.
  Level 3 –
Generated from model-based techniques that use at least one significant
assumption based on unobservable inputs for the asset or liability, which are
typically based on an entity’s own assumptions, as there is little, if any,
related market activity. In instances where the determination of the fair value
measurement is based on inputs from different levels of the fair value
hierarchy, the level in the fair value hierarchy within which the entire fair
value measurement falls is based on the lowest level input that is significant
to the fair value measurement in its entirety. The Company’s assessment of the
significance of a particular input to the fair value measurement in its entirety
requires judgment, and considers factors specific to the asset or
liability.
  The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that
value:
  Securities
Available-for-Sale: Securities available-for-sale are recorded at fair
value on a recurring basis. Fair value measurement is based upon quoted prices,
if available. If quoted prices are not available, fair values are measured using
independent pricing models or other model-based valuation techniques such as the
present value of future cash flows, adjusted for the security’s credit rating,
prepayment assumptions and other factors such as credit loss assumptions. Level
1 securities include those traded on an active exchange, such as the New York
Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers
in active over-the-counter markets and money market funds. Level 2 securities
include mortgage-backed securities issued by government sponsored entities,
municipal bonds and corporate debt securities. Securities classified as Level 3
include asset-backed securities in less liquid markets.
  Loans Held for Sale:
Loans held for sale are carried at the lower of cost or fair value. The fair
value of loans held for sale is based on what secondary markets are currently
offering for portfolios with similar characteristics. As such, management
classifies loans subjected to recurring fair value adjustments as Level
2.
  Impaired Loans: Loans
for which it is probable that payment of interest and principal will not be made
in accordance with the contractual terms of the loan agreement are considered
impaired. Once a loan is identified as individually impaired, management
measures its impairment.  The fair value of impaired loans is
estimated using one of several methods, including collateral value, market value
of similar debt, enterprise value, liquidation value and discounted cash flows.
Those impaired loans not requiring an allowance represent loans for which the
fair value of the expected repayments or collateral exceed the recorded
investments in such loans. At September 30, 2009, substantially all of the
impaired loans were evaluated based on the fair value of the collateral. In
accordance with FASB ASC Topic 820, impaired loans where an allowance is
established based on the fair value of collateral require classification in the
fair value hierarchy. When the fair value of the collateral is based on an
observable market price or a current appraised value, the Company records the
impaired loan as nonrecurring Level 2. When an appraised value is not available
or management determines the fair value of the collateral is further impaired
below the appraised value and there is no observable market price, the Company
records the impaired loan as nonrecurring Level 3.
  7
   Foreclosed Assets:
Foreclosed assets are adjusted to fair value upon transfer of the loans to
foreclosed assets. Subsequently, foreclosed assets are carried at the lower of
carrying value or fair value. Fair value is based upon independent market
prices, appraised values of the collateral or management’s estimation of the
value of the collateral. When the fair value of the collateral is based on an
observable market price, the Company records the foreclosed asset as
nonrecurring Level 2. When an appraised value is not available or management
determines the fair value of the collateral is further impaired below the
appraised value and there is no observable market price, the Company records the
foreclosed asset as nonrecurring Level 3.
  The
tables below presents the Company’s assets and liabilities measured at fair
value on a recurring basis as of September 30, 2009 and December 31, 2008,
aggregated by the level in the fair value hierarchy within which those
measurements fall.
 
 Balance
      at
                  September
      30, 2009(In
      thousands)
              
              
              (Level
      1)
              
              
              (Level
      2)
              
              
              (Level
      3)AssetsSecurities
              
              $
              69,977
              
              
              $
              -
              
              
              $
              69,977
              
              
              $
              -Loans
      held for sale
              
              
              1,810
              
              
              
              -
              
              
              
              1,810
              
              
              
              -
 
 
 Balance
      at
                  December
      31, 2008(In
      thousands)
              
              
              (Level
      1)
              
              
              (Level
      2)
              
              
              (Level
      3)AssetsSecurities
              
              $
              79,762
              
              
              $
              -
              
              
              $
              79,762
              
              
              $
              -Loans
      held for sale
              
              
              1,639
              
              
              
              -
              
              
              
              1,639
              
              
              
              -
 
 The
Company may be required, from time to time, to measure certain assets at fair
value on a nonrecurring basis in accordance with U.S. Generally Accepted
Accounting Principles. These include assets that are measured at the lower of
cost or fair value. The table below presents the Company’s assets and
liabilities measured at fair value on a nonrecurring basis as of September 30,
2009 and December 31, 2008, aggregated by the level in the fair value hierarchy
within which those measurements fall.
 
 Balance
      at
                  September
      30, 2009(In
      thousands)
              
              
              (Level
      1)
              
              
              (Level
      2)
              
              
              (Level
      3)AssetsImpaired
      loans
              
              $
              8,610
              
              
              $
              -
              
              
              $
              -
              
              
              $
              8,610Foreclosed
      assets
              
              
              5,665
              
              
              
              -
              
              
              
              -
              
              
              
              5,665
  
 Balance
      at
                  December
      31, 2008(In
      thousands)
              
              
              (Level
      1)
              
              
              (Level
      2)
              
              
              (Level
      3)AssetsImpaired
      loans
              
              $
              17,531
              
              
              $
              -
              
              
              $
              -
              
              
              $
              17,531Foreclosed
      assets
              
              
              1,782
              
              
              
              -
              
              
              
              -
              
              
              
              1,782
  
 8
 
 For the
nine-month period ending September 30, 2009, the Bank recognized $654,000 in
charge-offs of impaired loans and foreclosed assets reported in the table
above.  These charge-offs were primarily due to declining appraised
value of real estate securing the impaired loan.  The Bank will
continue to update appraisals regularly and will recognize any declines in
collateral value through further charge-offs.
  Fair Value of Financial
Instruments
  The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that
value:
  
 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
Available for Sale
 Fair
values for investment securities are based on quoted market
prices.
 
 Restricted Equity
Securities
 The
carrying amount of restricted equity securities approximates fair
value.
 
 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. The fair value of impaired loans is estimated
based on discounted contractual cash flows or underlying collateral value, where
applicable.  Mortgage loans held for sale are valued based on the
current price at which these loans could be sold into the secondary
market.
 
 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
 Commitments
to extend credit and standby letters of credit are generally short-term and
carry variable interest rates.  Therefore, both the carrying value and
estimated fair value associated with these instruments are
immaterial.
  The
estimated fair values of the Company’s financial instruments as of September 30,
2009 are as follows:
 
 Carrying
              
              
              EstimatedAmount
              
              
              Fair ValueAssets:
              
              (In
      thousands)Cash and cash
      equivalents
              
              $
              23,834
              
              
              
              23,834Investment
      securities
              
              $
              69,977
              
              
              
              69,977Restricted equity
      securities
              
              $
              556
              
              
              
              556Mortgage loans held for
      sale
              
              $
              1,810
              
              
              
              1,810Loans, net
              
              $
              177,228
              
              
              
              182,595Liabilities:Deposits
      and securities sold underrepurchase
      agreement
              
              $
              264,743
              
              
              
              265,688
 
  9
  
 (5)       Investments
  Investment
securities available for sale at September 30, 2009 and December 31, 2008 are as
follows:
 
 September 30, 2009Amortized
                Cost
              
              
              Gross
                Unrealized
                Gains
              
              
              Gross
                Unrealized
                Losses
              
              
              Estimated
                Fair
                ValueGovernment
      sponsored agencies
              
              $
              29,922,926
              
              
              
              429,729
              
              
              
              60,211
              
              
              
              30,292,444State,
      county and municipal
              
              
              11,211,070
              
              
              
              250,986
              
              
              
              81,656
              
              
              
              11,380,400Mortgage-backed
      securities
              
              
              26,054,029
              
              
              
              838,767
              
              
              
              5,692
              
              
              
              26,887,104Other
      debt securities
              
              
              1,618,279
              
              
              
              -
              
              
              
              201,722
              
              
              
              1,416,557Total
              
              $
              68,806,304
              
              
              
              1,519,482
              
              
              
              349,281
              
              
              
              69,976,505
 
 December 31, 2008Amortized
                Cost
              
              
              Gross
                Unrealized
                Gains
              
              
              Gross
                Unrealized
                Losses
              
              
              Estimated
                Fair
                ValueGovernment
      sponsored agencies
              
              $
              37,171,757
              
              
              
              959,666
              
              
              
              -
              
              
              
              38,131,423State,
      county and municipal
              
              
              17,714,238
              
              
              
              84,212
              
              
              
              993,961
              
              
              
              16,804,489Mortgage-backed
      securities
              
              
              22,846,975
              
              
              
              517,867
              
              
              
              790
              
              
              
              23,364,052Other
      debt securities
              
              
              1,620,067
              
              
              
              -
              
              
              
              158,461
              
              
              
              1,461,606Total
              
              $
              79,353,037
              
              
              
              1,561,745
              
              
              
              1,153,212
              
              
              
              79,761,570
 
 Unrealized
losses and fair value, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, as of
September 30, 2009 and December 31, 2008 are summarized as follows:
 
 September
      30, 2009Less
      than 12 Months
              
              
              12
      Months or MoreEstimated
                  Fair
                  Value
              
              
              Unrealized
                Losses
              
              
              Estimated
                Fair
                Value
              
              
              Unrealized
                LossesGovernment
      sponsored agencies
              
              $
              6,217,188
              
              
              
              60,211
              
              
              
              -
              
              
              
              -State,
      county and municipal
              
              
              -
              
              
              
              -
              
              
              
              1,192,219
              
              
              
              81,656Mortgage-backed
      securities
              
              
              5,436,209
              
              
              
              5,692
              
              
              
              -
              
              
              
              -Other
      debt securities
              
              
              -
              
              
              
              -
              
              
              
              1,416,557
              
              
              
              201,722$
              11,653,397
              
              
              
              65,903
              
              
              
              2,608,776
              
              
              
              283,378
 
 December
      31, 2008Less
      than 12 Months
              
              
              12
      Months or MoreEstimated
                  Fair
                  Value
              
              
              Unrealized
                Losses
              
              
              Estimated
                Fair
                Value
              
              
              Unrealized
                LossesGovernment
      sponsored agencies
              
              $
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -State,
      county and municipal
              
              
              10,833,908
              
              
              
              907,749
              
              
              
              692,675
              
              
              
              86,212Mortgage-backed
      securities
              
              
              208,311
              
              
              
              790
              
              
              
              -
              
              
              
              -Other
      debt securities
              
              
              1,620,067
              
              
              
              158,461
              
              
              
              -
              
              
              
              -$
              12,662,286
              
              
              
              1,067,000
              
              
              
              692,675
              
              
              
              86,212
 
  10
 
 The
unrealized losses on these debt securities in a continuous loss position for
twelve months or more as of September 30, 2009 and December 31, 2008 are
considered to be temporary because they arose due to changing interest rates and
the repayment sources of principal and interest are government backed or are
securities of investment grade issuers.  Included in the table above
as of September 30, 2009 were 0 out of 25 securities issued by U.S. government
sponsored agencies, 3 out of 27 securities issued by state and political
subdivisions, 0 of 28 mortgage-backed securities, and 2 of 2 other debt
securities that contained unrealized losses.  Included in the table
above as of December 31, 2008 were 30 out of 44 securities issued by state and
political subdivisions that contained unrealized losses, 1 of 22 mortgage-backed
securities, and 2 of 2 other debt securities that contained unrealized
losses.  The entire investment portfolio is classified as available
for sale.  However, management has no specific intent to sell any
securities, and it is more likely than not that the Company will not have to
sell any security before recovery of its cost basis.
 
 Management
systematically evaluates investment securities for other-than-temporary declines
in fair value on a quarterly basis. This analysis requires management to
consider various factors, which include duration and magnitude of the decline in
value, the financial condition of the issuer or issuers, structure of the
security and Oconee’s intent to sell the security or whether it’s more likely
than not that Oconee would be required to sell the security before its
anticipated recovery in market value. At September 30, 2009, management
performed its quarterly analysis of all securities with an unrealized loss and
concluded no  individual securities were other-than-temporarily
impaired.
 
 The
amortized cost and fair value of investment securities available for sale at
September 30, 2009, 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
                Cost
              
              
              Estimated
                Fair ValueDue
      within one year
              
              $
              430,000
              
              
              
              439,821Due
      from one to five years
              
              
              910,263
              
              
              
              917,163Due
      from five to ten years
              
              
              12,877,738
              
              
              
              13,067,323Due
      after ten years
              
              
              28,534,274
              
              
              
              28,665,094Mortgage-backed
      securities
              
              
              26,054,029
              
              
              
              26,887,104$
              68,806,304
              
              
              
              69,976,505
  
 The
proceeds from the sales and gross gains and gross losses realized by Oconee from
sales of  investment securities for the three months and the nine
months ended September 30 were as follows:
 
 Three
      Months Ended
                September
      30,
              
              
              Nine
      Months Ended
                September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Proceeds
      from sales
              
              $
              5,448,403
              
              
              
              -
              
              
              
              12,937,169
              
              
              
              7,320,481Gross
      gains realized
              
              $
              52,497
              
              
              
              -
              
              
              
              258,874
              
              
              
              197,264Gross
      losses realized
              
              
              8,154
              
              
              
              -
              
              
              
              108,583
              
              
              
              -Net
      gain realized
              
              $
              44,343
              
              
              
              -
              
              
              
              150,291
              
              
              
              197,264
 
 Securities
with a carrying value of approximately $50,252,000 and $63,014,000 at September
30, 2009 and December 31, 2008, respectively, were pledged to secure public
deposits and for other purposes as required by law.
 
 
  11
  
 Restricted
equity securities consist of the following:
 
 September
      30, 2009
              
              
              December
      31, 2008Federal
      Home Loan Bank Stock
              
              $
              556,300
              
              
              
              606,300Silverton
      Financial Services, Inc. Stock
              
              
              -
              
              
              
              100,429$
              556,300
              
              
              
              706,729
 
 During
the first quarter of 2009, Oconee recognized an impairment loss of $100,429 on
an equity investment in Silverton Financial Services, the parent company of
Silverton Bank, a financial institution that failed during the quarter. The
impairment loss represents the full amount of Oconee’s investment in
Silverton.
  (6)       Subsequent
Events
   Subsequent
events have been evaluated through November 16, 2009, which is the date the
financial statements were available to be issued.  No material
subsequent events have occurred as of that date which would warrant disclosure
in the Company’s Form 10-Q for the period ending September 30,
2009.
  (7)       Recent
Accounting Pronouncements
 
 In
June 2009, the FASB issued Accounting Standards Update No. 2009-01
(“ASU 2009-01”), Topic 105 –
Generally Accepted Accounting Principles amendments based on Statement of
Financial Accounting Standards No. 168 – The FASB Accounting Standards
CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles. ASU 2009-01 amends the FASB Accounting
Standards Codification for the issuance of FASB Statement No. 168 (“SFAS
168”), The FASB Accounting
Standards CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles. ASU 2009-1 includes SFAS 168 in its
entirety, including the accounting standards update instructions contained in
Appendix B of the Statement. The FASB Accounting Standards Codification
(“Codification”) became the source of authoritative U.S. generally accepted
accounting principles (“GAAP”) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. On the effective date of this
Statement, the Codification superseded all then-existing non-SEC accounting and
reporting standards. All other non-grandfathered non-SEC accounting literature
not included in the Codification became non-authoritative. This Statement was
effective for Oconee’s financial statements beginning in the interim period
ended September 30, 2009.
 
 Following
this Statement, the FASB will not issue new standards in the form of Statements,
FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will
issue Accounting Standards Updates. The FASB does not consider Accounting
Standards Updates as authoritative in their own right. Accounting Standards
Updates serve only to update the Codification, provide background information
about the guidance, and provide the bases for conclusions on the change(s) in
the Codification. FASB Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles(“Statement 162”), which became effective on
November 13, 2008, identified the sources of accounting principles and the
framework for selecting the principles used in preparing the financial
statements of nongovernmental entities that are presented in conformity with
GAAP. Statement 162 arranged these sources of GAAP in a hierarchy for users to
apply accordingly. Upon becoming effective, all of the content of the
Codification carries the same level of authority, effectively superseding
Statement 162. In other words, the GAAP hierarchy has been modified to include
only two levels of GAAP: authoritative and non-authoritative. As a result, this
Statement replaces Statement 162 to indicate this change to the GAAP hierarchy.
The adoption of the Codification and ASU 2009-01 did not have any effect on
Oconee’s results of operations or financial position. All references to
accounting literature included in the notes to the financial statements have
been changed to reference the appropriate sections of the
Codification.
 
 In
June 2009, the FASB issued Accounting Standards Update No. 2009-02
(“ASU 2009-02”), Omnibus
Update – Amendments to Various Topics for Technical Corrections. The
adoption of ASU 2009-02 did not have any effect on Oconee’s results of
operations, financial position or disclosures.
 
 In
August 2009, the FASB issued Accounting Standards Update No. 2009-03
(“ASU 2009-03”), SEC Update –
Amendments to Various Topics Containing SEC Staff Accounting Bulletins.
ASU 2009-03 represents technical corrections to various topics containing SEC
Staff Accounting Bulletins to update cross-references to Codification text. This
ASU did not have any effect on Oconee’s results of operations, financial
position or disclosures.
 
 In
August 2009, the FASB issued Accounting Standards Update No. 2009-04
(“ASU 2009-04”), Accounting
for Redeemable Equity Instruments – Amendment to Section 480-10-S99.
ASU 2009-04 represents an update to Section 480-10-S99, Distinguishing Liabilities from
Equity, per Emerging Issues Task Force (“EITF”) Topic D-98, Classification and Measurement of
Redeemable Securities. ASU 2009-04 did not have any effect on Oconee’s
results of operations, financial position or disclosures.
  12
  
 In
August 2009, the FASB issued Accounting Standards Update No. 2009-05
(“ASU 2009-05”), Fair Value
Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair
Value. ASU 2009-05 applies to all entities that measure liabilities at
fair value within the scope of ASC Topic 820. ASU 2009-05 provides clarification
that in circumstances in which a quoted price in an active market for the
identical liability is not available, a reporting entity is required to measure
fair value using one or more of the following techniques:
  1.)
                A
      valuation technique that uses:
 a.
                The
      quoted price of the identical liability when traded as an
      asset
 b.
                Quoted
      prices for similar liabilities or similar liabilities when traded as
      assets.
 2.)
                Another
      valuation technique that is consistent with the principles of ASC Topic
      820. Two examples would be an income approach, such as a technique that is
      based on the amount at the measurement date that the reporting entity
      would pay to transfer the identical liability or would receive to enter
      into the identical liability.
  The
amendments in ASU 2009-5 also clarify that when estimating the fair value of a
liability, a reporting entity is not required to include a separate input or
adjustment to other inputs relating to the existence of a restriction that
prevents the transfer of the liability. It also clarifies that both a quoted
price in an active market for the identical liability at the measurement date
and the quoted price for the identical liability when traded as an asset in an
active market when no adjustments to the quoted price of the asset are required
are Level 1 fair value measurements. The guidance provided in ASU 2009-5 is
effective for Oconee in the fourth quarter of 2009. Because Oconee does not
currently have any liabilities that are recorded at fair value, the adoption of
this guidance will not have any impact on results of operations, financial
position or disclosures.
 
 In
September 2009, the FASB issued Accounting Standards Update
No. 2009-06 (“ASU 2009-06”), Income Taxes (Topic 740) –
Implementation Guidance on Accounting for Uncertainty in Income Taxes and
Disclosure Amendments for Nonpublic Entities. ASU 2009-06 provides
additional implementation guidance on accounting for uncertainty in income taxes
by addressing 1.) whether income taxes paid by an entity are attributable to the
entity or its owners, 2.) what constitutes a tax position for a pass-through
entity or a tax-exempt not-for-profit entity, and 3.) how accounting for
uncertainty in income taxes should be applied when a group of related entities
comprise both taxable and nontaxable entities. ASU 2009-06 also eliminates
certain disclosure requirements for nonpublic entities. The guidance and
disclosure amendments included in ASU 2009-06 were effective for Oconee in the
third quarter of 2009 and had no impact on results of operations, financial
position or disclosures.
 
 In
September 2009, the FASB issued Accounting Standards Update
No. 2009-07 (“ASU 2009-07”), Accounting for Various Topics – Technical
Corrections to SEC Paragraphs. ASU 2009-07 represents technical corrections to
various topics containing SEC guidance. This ASU did not have any effect on
Oconee’s results of operations, financial position or disclosures.
 
 In
September 2009, the FASB issued Accounting Standards Update
No. 2009-08 (“ASU 2009-08”), Earnings Per Share – Amendments to
Section 260-10-S99. ASU 2009-08 represents technical corrections to Topic
260-10-S99, Earnings per Share, based on EITF Topic D-53, Computation of
Earnings Per Share for a Period that Includes a Redemption or an Induced
Conversion of Preferred Stock. This ASU did not have any effect on Oconee’s
results of operations, financial position or disclosures.
  13
  
 In
September 2009, the FASB issued Accounting Standards Update
No. 2009-09 (“ASU 2009-09”), Accounting for Investments – Equity Method and
Joint Ventures and Accounting for Equity-Based Payments to Non-Employees –
Amendments to Sections 323-10-S99 and 505-50-S99. ASU 2009-09 represents a
correction to Section 323-10-S99-4, Accounting by an Investor for
Stock-Based Compensation Granted to Employees of an Equity Method Investee.
Section 323-10-S99-4 was originally entered into the Accounting Standards
Codification incorrectly. Additionally, it adds observer comment Accounting
Recognition for Certain Transactions Involving Equity Instruments Granted to
Other Than Employees to the Codification. This ASU did not have any effect on
Oconee’s results of operations, financial position or disclosures.
 
 In
September 2009, the FASB issued Accounting Standards Update
No. 2009-10 (“ASU 2009-10”), Financial Services – Broker and Dealers:
Investments – Other – Amendment to Subtopic 940-325. ASU 2009-10 codifies the
Observer comment in paragraph 17 of EITF 02-3, Issues Involved in Accounting for
Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy
Trading and Risk Management. This ASU did not have any effect on Oconee’s
results of operations, financial position or disclosures.
 
 In
September 2009, the FASB issued Accounting Standards Update
No. 2009-11 (“ASU 2009-11”), Extractive Activities – Oil and Gas –
Amendment to Section 932-10-S99. ASU 2009-11 represents a technical
correction to the SEC Observer comment in EITF 90-22, Accounting for
Gas-Balancing Arrangements. This ASU is not applicable to Oconee and therefore
did not have any effect on Oconee’s results of operations, financial position or
disclosures.
 
 In
September 2009, the FASB issued Accounting Standards Update
No. 2009-12 (“ASU 2009-12”), Fair Value Measurements and Disclosures (Topic
820) – Investments in Certain Entities That Calculate Net Asset Value per Share
(or Its Equivalent). ASU 2009-12 is not applicable to Oconee and therefore did
not have any effect on Oconee’s results of operations, financial position or
disclosures.
 
 In
October 2009, the FASB issued Accounting Standards Update No. 2009-13
(“ASU 2009-13”), Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue
Arrangements – a consensus of the FASB Emerging Issues Task Force. ASU 2009-13
addresses the accounting for multiple-deliverable arrangements to enable vendors
to account for products or services (deliverables) separately rather than as a
combined unit. Subtopic 605-25, Revenue Recognition – Multiple-Element
Arrangements, establishes the accounting and reporting guidance for arrangements
under which the vendor will perform multiple revenue-generating activities.
Specifically, this subtopic addresses how to separate deliverables and how to
measure and allocate arrangement consideration to one or more units of
accounting. The amendments in this ASU will be effective for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010 with early adoption permitted. This ASU is not expected to
have any effect on Oconee’s results of operations, financial position or
disclosures.
  14
   In
October 2009, the FASB issued Accounting Standards Update No. 2009-14
(“ASU 2009-14”), Software (Topic 985) – Certain Revenue Arrangements That
Include Software Elements – a consensus of the FASB Emerging Issues Task Force.
ASU 2009-14 addresses concerns raised by constituents relating to the accounting
for revenue arrangements that contain tangible products and software. The
amendments in this ASU will be effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
June 15, 2010 with early adoption permitted. This ASU is not applicable to
Oconee and therefore did not have any effect on Oconee’s results of operations,
financial position or disclosures.
  In
October 2009, the FASB issued Accounting Standards Update No. 2009-15
(“ASU 2009-15”), Accounting for Own-Share Lending Arrangements in Contemplation
of Convertible Debt Issuance or Other Financing. ASU 2009-15 provides accounting
guidance for own-share lending arrangements issued in contemplation of the
issuance of convertible debt or other financing arrangements. An entity, for
which the cost to an investment banking firm or third-party investors of
borrowing its shares is prohibitive, may enter into share-lending arrangements
that are executed separately but in connection with a convertible debt offering.
Although the convertible debt instrument is ultimately sold to investors, the
share-lending arrangement is an agreement between the entity and an investment
bank and is intended to facilitate the ability of investors to hedge the
conversion option in the entity’s convertible debt. Loaned shares are excluded
from basic and diluted earnings per share unless default of the share-lending
arrangement occurs, at which time the loaned shares would be included in the
basic and diluted earnings-per-share calculation. If dividends on the loaned
shares are not reimbursed to the entity, any amounts, including contractual
dividends and participation rights in undistributed earnings, attributable to
the loaned shares shall be deducted in computing income available to common
shareholders, in a manner consistent with the two-class method in paragraph
260-10-45-60B. This ASU did not have any effect on Oconee’s results of
operations, financial position or disclosures.
  15
  tem
2.
 
 MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
 Forward-Looking
Statements
  This discussion contains
forward-looking statements under the private Securities Litigation Reform Act of
1995 that involve risk and uncertainties.  Although the Corporation
believes that the assumptions underlying the forward-looking statements
contained in the discussion are reasonable, any of the assumptions could be
inaccurate, and therefore, no assurance can be made that any of the
forward-looking statements included in this discussion will be
accurate.  Factors that could cause actual results to differ from
results discussed in forward-looking statements include, but are not limited to:
economic conditions (both generally and in the markets where the Corporation
operates); competition from other providers of financial services offered by the
Corporation; government regulations and legislation; changes in interest rates;
material unforeseen changes in the financial stability and liquidity of the
Corporation’s credit customers, all of which are difficult to predict and which
may be beyond the control of the Corporation.  The Corporation
undertakes no obligation to revise forward-looking statements to reflect events
or changes after the date of this discussion or to reflect the occurrence of
unanticipated events.
  Financial
Condition
  Since mid-2007, and particularly during
the second half of 2008 and into 2009, the financial markets and economic
conditions generally were materially and adversely affected by significant
declines in the values of nearly all asset classes and by a serious lack of
liquidity.  This was initially triggered by declines in home prices
and the values of subprime mortgages, but spread to all commercial and
residential mortgages as property prices declined rapidly and to nearly all
asset classes.  The effect of the market and economic downturn also
spread to other areas of the credit markets and in the availability of
liquidity.  The magnitude of these declines led to a crisis of
confidence in the financial sector as a result of concerns about the capital
base and viability of certain financial institutions.  During this
period, interbank lending and commercial paper borrowing fell sharply,
precipitating a credit freeze for both institutional and individual
borrowers.  Unemployment has also increased
significantly.
  These factors have magnified the need
for careful management of the Bank going forward.  Regulatory scrutiny
within the banking industry has increased significantly, and as a result, the
Bank’s management team and Board of Directors have implemented, and will
continue to implement strategies to guide the Bank through this difficult
market.  Management has focused on strategies to increase revenues and
control expenses in an effort to return the Bank to profitability.  In
addition, loan underwriting standards have been tightened and credit risk will
continue to be closely monitored.  Balance sheet management strategies
have been developed which will, in all likelihood, result in a decline in
investment securities and deposit balances and in total assets in order to
reduce interest expense and produce a better match in the bank’s funding and its
funding needs.  In addition, the Board of Directors has engaged a
consultant to evaluate the Bank’s current capital base and develop a strategy
for capital management going forward.
  Total
assets at September 30, 2009 were $291,265,000, representing a $16,891,000
(5.48%) decrease from December 31, 2008.  Investment securities
decreased $9,785,000 as compared to December 31, 2008, primarily as a result of
the Bank’s decision to allow the maturities and calls of investment securities
to provide liquidity to replace deposits in a designed effort to shrink the
Bank’s balance sheet.  Loans decreased $18,563,000 (9.48%) at
September 30, 2009 as compared to December 31, 2008, primarily due to loan
pay-downs and the shifting of $4,216,000 from loans to other real estate owned
during the first nine months of 2009.  Deposits decreased $21,619,000
(7.86%) from December 31, 2008.  The decrease in deposits is primarily
attributable to decreases in interest-bearing checking accounts of $21,097,000
as compared to December 31, 2008 balances.  Securities sold under
repurchase agreements increased $4,871,000 at September 30, 2009 as compared to
December 31, 2008, primarily due to two significant deposit relationships
shifting their deposit relationships from interest-bearing checking and time
deposit accounts into  repurchase agreements.  The allowance
for loan losses at September 30, 2009 was $4,598,000, compared to the December
31, 2008 balance of $4,215,000, representing 2.59% of total loans at September
30, 2009, compared to 2.15% of total loans at December 31, 2008. Cash and cash
equivalents increased $3,772,000 from December 31, 2008.  Total
stockholders’ equity at September 30, 2009 of $25,687,000 decreased $110,000
(0.43%) from December 31, 2008 due to a net loss for the first nine months of
2009 of $616,000, offset by an increase in market value of investment
securities, net of tax, of $473,000.
   16
  
  The
following table presents a summary of the Bank’s loan portfolio by loan type at
September 30, 2009 (dollars are in thousands).
 
 Amount
              
              
              Percentage(In
      thousands)Commercial,
      financial and agricultural
              
              $
              28,258
              
              
              
              15.6%Real
      estate – mortgage
              
              
              107,078
              
              
              
              58.9%Real
      estate – commercial construction
              
              
              38,725
              
              
              
              21.3%Real
      estate – consumer construction
              
              
              799
              
              
              
              0.4%Consumer
              
              
              6,966
              
              
              
              3.8%Total
      loans
              
              $
              181,826
              
              
              
              100.0%
  The total amount of nonperforming
assets, which includes nonaccruing loans, other real estate owned, repossessed
collateral and loans for which payments are more than 90 days past due was
$28,442,000 at September 30, 2009, representing a decrease of $2,135,000 (6.98%)
from December 31, 2008.  This decrease is primarily attributable to a
decrease of $6,569,000 in nonaccrual loans, offset by increases of $3,888,000 in
other real estate owned and $550,000  in loans 90 days or more past
due.  The decrease in nonaccrual loans is primarily attributable to
the payoff of a $4,100,000 loan that was on nonaccrual status.  The
payoff occurred during the third quarter of 2009 and was for the full carrying
amount of the loan, so there was no charge-off associated with the reduction in
outstanding balance. Total nonperforming assets were 16.05% of total loans at
September 30, 2009, compared to 15.62% at December 31,
2008.  Nonperforming assets represented 9.76% of total assets at
September 30, 2009, compared to 9.92% of total assets at December 31,
2008.  Nonaccrual loans represented 12.53% of total loans outstanding
at September 30, 2009, compared to 14.70% of total loans outstanding at December
31, 2008.  There were no related party loans which were considered to
be nonperforming at September 30, 2009.  A summary of non-performing
assets at September 30, 2009, December 31, 2008 and September 30, 2008 is
presented in the following table (dollars are in thousands).
  September
      30, 2009
              
              
              December
      31, 2008
              
              
              September
      30, 2008Other
      real estate
              
              $
              5,665
              
              
              
              1,777
              
              
              
              150Repossessions
              
              
              -
              
              
              
              5
              
              
              
              4Non-accrual
      loans
              
              
              22,203
              
              
              
              28,772
              
              
              
              19,656Accruing
      loans 90 days or more
                past
      due
              
              
              550
              
              
              
              24
              
              
              
              6
 
  The table
below details the changes in other real estate owned for the nine months ending
September 30, 2009 and 2008 (dollars are in thousands).
  2009
              
              
              2008Balance
      at January 1
              
              
              1,777
              
              
              
              -Transfer
      from loans to other real estate
              
              
              4,216
              
              
              
              320Capital
      improvements on other real estate
              
              
              165
              
              
              
              -Sales
      of other real estate
              
              
              (297
              )
              
              
              (157
              )Write-downs
      on other real estate
              
              
              (196
              )
              
              
              (13
              )Balance
      at September 30
              
              
              5,665
              
              
              
              150
 
   17
  As of
September 30, 2009, the allowance for loan losses was allocated as follows
(dollars are in thousands).
  Allocation
      of Allowance for Loan
      Losses
              
              
              %
      of Allowance for Loan
      Losses
              
              
              %
      of Loans by Category to
                Total LoansCommercial,
      financial and agricultural
              
              $
              1,004
              
              
              
              21.8
              %
              
              
              15.6
              %Real
      Estate - Commercial Construction
              
              
              1,567
              
              
              
              34.1
              %
              
              
              21.3
              %Consumer
              
              
              278
              
              
              
              6.1
              %
              
              
              3.8
              %Real
      Estate - Mortgage
              
              
              1,738
              
              
              
              37.8
              %
              
              
              58.9
              %Unallocated
              
              
              11
              
              
              
              0.2
              %
              
              
              0.4
              %Total
              
              $
              4,598
              
              
              
              100.0
              %
              
              
              100.0
              %
 
  During the first quarter 2009, the Bank
formed Motel Holdings Georgia, Inc., a subsidiary corporation for the purpose of
holding a motel that was foreclosed upon by the Bank in January
2009.  At September 30, 2009, the carrying amount of the hotel in
other real estate owned was $2,537,000.  This subsidiary was set up to
limit the Bank’s liability on the operations of the motel and to make a more
clear separation of the income and expenses relating to the motel and the Bank’s
ordinary lines of business.  The Bank has contracted with an
independent hospitality management company to operate the motel while the Bank
markets the motel for sale.
  At
September 30, 2009, the Corporation had loan concentrations in the housing
industry and in the hotel and motel industry.  Total commitment
amounts for hotel and motel loans were $19,917,000 at September 30, 2009, of
which $19,449,000 was funded and outstanding.  The Corporation’s
primary risk relating to the hotel and motel industry is a slowdown in the
travel and tourism industry.
  As of
September 30, 2009, the Corporation had total commitments for construction and
development loans of $28,059,000, of which $24,975,000 was funded and
outstanding.  The local housing industry has slowed considerably over
the past 12 to 18 months, as has occurred at the state and national
level.  New loan requests have been down as compared to prior periods
due to this slowdown.  The immediate challenge for the Bank is to
finance builders and developers with the financial strength to deal with the
current weaker demand, while working with financially weaker builders in an
attempt to help them work through this economic downturn.
  On August
18, 2009, the Bank entered into a Stipulation and Consent to the Issuance of an
Order to Cease and Desist (the “Consent Agreement”) with the Federal Deposit
Insurance Corporation (the “FDIC”) and the Georgia Department of Banking and
Finance (the “GDBF”), whereby the Bank consented to the issuance of an Order to
Cease and Desist (the “Order”).
 
 Among
other things, the Order provides that, unless otherwise agreed by the FDIC and
GDBF:
 
 ·
              the
      Board of Directors of the Bank must increase its participation in the
      affairs of the Bank and establish a Board committee responsible for
      ensuring compliance with the Order;
  ·
              the
      Bank must have and retain qualified management and notify the FDIC and the
      GDBF in writing when it proposes to add any individual to the Bank’s Board
      of Directors or employ any individual as a senior executive
      officer;
  ·
              the
      Bank must have and maintain a Tier 1 (Leverage) Capital ratio of not less
      than 8% and a Total Risk-based Capital ratio of at least
    10%;
  ·
              the
      Bank must collect or charge-off problem
loans;
  ·
              the
      Bank must formulate a written plan to reduce the Bank’s adversely
      classified assets in accordance with a defined asset reduction
      schedule;
  ·
              the
      Bank may not extend any additional credit to, or for the benefit of, any
      borrower who has a loan or other extension of credit from the Bank that
      has been charged-off or adversely classified and is
      uncollected;
   18
  ·
              the
      Bank must strengthen its lending and collection policy to provide
      effective guidance and control over the Bank’s lending
      functions;
  ·
              the
      Bank must perform a risk segmentation analysis with respect to
      concentrations of credit and reduce such
  concentrations;
  ·
              the
      Board of Directors of the Bank must review the adequacy of the allowance
      for loan and lease losses (the “ALLL”) and establish a comprehensive
      policy for determining the adequacy of the
ALLL;
  ·
              the
      Bank must revise its budget and include formal goals and strategies to
      improve the Bank’s net interest margin, increase interest income, reduce
      discretionary expenses and improve and sustain earnings of the
      Bank;
  ·
              the
      Bank may not pay a cash dividend to Oconee Financial
      Corporation;
  ·
              the
      Board of Directors of the Bank must strengthen its asset/liability
      management and interest rate risk policies and liquidity contingency
      funding plan,
  ·
              the
      Bank may not accept, renew or rollover brokered deposits without obtaining
      a brokered deposit waiver from the
FDIC.
  ·
              the
      Bank must eliminate or correct all violations of law and contraventions of
      policy;
  ·
              the
      Bank must submit quarterly reports to the FDIC and GDBF regarding
      compliance with the Order.
  The
provisions of the Order will remain effective until modified, terminated
suspended or set aside by the FDIC.  Management of the Bank has
developed a plan for compliance with the Order and has been given authority by
the Board of Directors to institute that plan.  The primary focuses of
the plan going forward will be reducing classified and non-performing assets,
maintaining adequate levels of capital and returning the Bank to profitable
operating levels.  The Bank submitted its first quarterly report to
the FDIC and GBBF on October 30.  As of that date, the Bank was in
full compliance with the Order.
 
  Results
of Operations
  Net interest income decreased
$1,234,000 (19.06%) in the first nine months of 2009 compared to the same period
for 2008 as a result of a decline in the interest rate spread and a decrease in
average interest-earning assets.  The Bank’s net interest margin for
the first nine months of 2009 was 2.54%, compared to 3.07% for the same time
period during 2008.  Yield on interest earning assets for the
nine-month period ending September 30, 2009 was 4.79%, compared to 5.91% for the
nine-month period ending September 30, 2008.  Average rate paid on
interest bearing liabilities was 2.43% for the nine months ending September 30,
2009, compared to 2.84% for the same period during 2008.  The primary
reasons for the changes in yield on interest earning assets are a significant
increase in the average balances of nonaccrual loans in the first nine months of
2009 as compared to the same time period for 2008 and a lower interest rate
environment in the first nine months of 2009 as compared 2008.  The
reduction in the average rate paid on interest bearing liabilities is a result
of the lower interest rate environment in 2009 and a reduction of $2,425,000 in
average interest-bearing deposits during the first nine months of 2009 as
compared to the same time period in 2008.
  Interest
income for the first nine months of 2009 was $9,868,000, representing a decrease
of $2,909,000 (22.77%) as compared to the same period in
2008.  Interest expense for the first nine months of 2009 decreased
$1,676,000 (26.58%) compared to the same period in 2008.  The decrease
in interest income during the first nine months of 2009 compared to the same
period in 2008 is primarily attributable to a lower average level of
interest-earning assets at lower interest rate levels in 2009 as compared to
2008.  Year-to-date average interest earning assets were $22,281,000
lower during the first nine months of 2009 as compared to 2008.  This
is primarily due to a reduction in average interest-earning loans of $3,776,000
and federal funds sold of $11,300,000.  The decrease in interest
expense is primarily attributable to a lower interest rate environment for
deposits.
  Net
interest income for the quarterly period ended September 30, 2009 was
$1,750,000, as compared to $2,064,000 for the same time period in
2008.  The reduction in net interest income in 2009 was due to a
decline in interest income of $635,000, offset by a decrease in interest expense
of $322,000.  The decline in interest income was primarily due to
lower levels of interest-earning assets in 2009 as compared to
2008.  The decrease in interest expense is due to a lower interest
rate environment in 2009 as well as lower average levels of interest-bearing
liabilities in 2009 as compared to 2008.
   19
  The Bank analyzes its allowance for
loan losses on a monthly basis.  Additions to the allowance for loan
losses are made by charges to the provision for loan losses.  Loans
deemed to be uncollectible are charged against the allowance for loan
losses.  Recoveries of previously charged off amounts are credited to
the allowance for loan losses.  For the nine months ended September
30, 2009, the provision for loan losses was $1,340,000, compared to $598,000 for
the same period in 2008.The provision for loan
losses increased in 2009 as compared to 2008 as a result of a higher level of
higher levels of historic charge-offs at September 30, 2009 as compared to
September 30, 2008.  The historic charge-offs are primarily tied to
the construction and real estate development industry, which has continued to
experience a prolonged downturn throughout 2009.  The historic
charge-offs are part of the calculation used to determine the adequacy of the
loan loss reserve.  The nature of the process by which the Corporation
determines the appropriate allowance for loan losses requires the exercise of
considerable judgment.  It is management’s belief that the allowance
for loan losses is adequate to absorb possible losses in the
portfolio.
  Other income for the first nine months
of 2009 increased $273,000 (11.96%) compared to the first nine months of
2008.  This increase is primarily attributable to increases of
$440,000 in income on other real estate and $94,000 in mortgage origination
fees, offset by a $168,000 decline in non-sufficient funds service charges and a
$47,000 reduction in net gains on sales of investment securities.  The
net gain on sales of investment securities during 2009 includes a loss of
$100,000 on Silverton Financial Services stock.  The loss on Silverton
Financial Services stock was incurred due to the failure of Silverton Bank,
N.A., a subsidiary of Silverton Financial Services.
  The
income on other real estate owned is revenue generated by the operation of a
motel that the Bank foreclosed on in February of 2009.  The motel is
owned by Motel Holdings Georgia, Inc., a wholly-owned subsidiary of the Bank,
and is operated through a management contract with a hospitality
company.  The revenues and expenses from the motel operations are
consolidated with the Bank operations for purposes of financial statement
disclosure.
  Other expenses for the first nine
months of 2009 increased $357,000 (5.06%) compared to the first nine months in
2008. The increase is primarily attributable to an increase in Federal
Deposit Insurance Corporation (FDIC) insurance assessments of $357,000 and an
increase in expenses on other real estate of $424,000, offset by reductions of
salaries and other personnel expense of $214,000 and advertising and marketing
expense of $320,000.  The increase in FDIC insurance assessments was
primarily due to a one-time assessment that the FDIC enacted as of June 30, 2009
to all of its member institutions.  The increase in expenses on other
real estate was due to operating expenses of $386,000 associated with the
foreclosed motel mentioned in the previous paragraph.
  Other
income increased during the third quarter 2009 by $145,000 as compared to 2008
due to an increase in income on other real estate owned of $172,000 from the
operation of a foreclosed motel.  Other expenses for the third quarter
of 2009 were $2,331,000, an increase of $195,000 over 2008
expenses.  The increase is primarily attributable to an increase in
other operating expenses of $75,000 and an increase in salary and personnel
expenses of $120,000.
  Effective July 31, 2009, the Bank
closed its Athens branch due to continued decline in transaction
activity.  The branch is leased until June 2010, and the Bank is
actively pursuing a sub-lease for the remainder of the lease term.
  The
Bank’s effective tax rate was 36% and 14% for the nine months ended September
30, 2009 and 2008, respectively. The increase in the effective tax rate in 2009
is due to projected tax benefits due to the Bank’s net operating loss position.
In addition, for the nine-month period ended September 30, 2008, the Bank was
showing profitable operating income.  The taxable portion of the
income was decreased by tax-free income on investment securities when
calculating income taxes.  Because the percentage of tax-free income
was considerable when compared to total income, the resulting increase in the
Bank’s effective tax rate was more significant than in past
periods.
  Interest
rate sensitivity
  Interest rate sensitivity is a function
of the repricing characteristics of the Bank’s portfolio of assets and
liabilities.  These repricing characteristics are the time frames
within which the interest earning assets and liabilities are subject to change
in interest rates either at replacement, repricing or maturity during the life
of the instruments.  One method to measure interest rate sensitivity
is through a repricing gap.  The gap is calculated by taking all
assets that reprice or mature within a given time frame and subtracting all
liabilities that reprice or mature during that time frame.  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.
   20
  The Bank also measures its short-term
exposure to interest rate risk by simulating the impact to net interest income
under several rate change levels.  Interest-earning assets and
interest-bearing liabilities are rate shocked to stress test the impact to the
Bank’s net interest income and margin.  The rate shock levels span
three 100 basis point increments up and down from current interest
rates.  This information is used to monitor interest rate exposure
risk relative to anticipated interest rate trends.  Asset/liability
management strategies are developed based on this analysis in an effort to limit
the Bank’s exposure to interest rate risk.
  The Bank tracks its interest rate
sensitivity on a monthly basis using a model, which applies betas to various
types of interest-bearing deposit accounts.  The betas represent the
Bank’s expected repricing of deposit rates based on historical data provided
from a call report driven database.  The betas are used because it is
not likely that deposit rates would change the full amount of a prime rate
increase or decrease.
  At September 30, 2009, the difference
between the Bank’s liabilities and assets repricing or maturing within one year,
after applying the betas, was $11,212,000, indicating that the Bank was
liability sensitive.  Due to a large percentage of the Bank’s floating
rate loans being currently priced at floor rates, meaning that the loans will
not reprice in a falling rate environment, rate shock data show that the Bank’s
net interest income would increase $175,000 on an annual basis if rates
decreased 100 basis points, and would increase $19,000 on an annual basis if
rates increased 100 basis points.  The primary reason for the Bank’s
shift to a liability sensitive position during the first three quarters of 2009
from an asset sensitive position at December 31, 2008 was the Bank’s decision to
shift assets from fed funds sold to a non-interest bearing account at its
primary correspondent bank, as discussed earlier.  This shift resulted
in a decrease in the Bank’s short-term interest bearing assets and an increase
in its non-interest earning assets, which resulted in the Bank’s rate
sensitivity shift.
  Certain shortcomings are inherent in
the method of analysis presented in the foregoing paragraph.  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 above.  In
addition, significant rate decreases would not likely be reflected in liability
repricing and therefore would make the Bank more sensitive in a falling rate
environment.
  Liquidity
  The Corporation 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 Corporation 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 Corporation to monitor its liquidity to meet regulatory requirements and its
local funding requirements.
  The Corporation monitors its liquidity
position weekly.  The primary tool used in this analysis is an
internal calculation of a liquidity ratio.  This ratio is calculated
by dividing the Corporation’s short-term and marketable assets, including cash,
federal funds sold, unpledged investment securities and other secondary sources
of liquidity, such as borrowing capacity from correspondent banks, by the sum of
the Corporation’s deposit liabilities.  At September 30, 2009, the
Corporation’s liquidity ratio was 21.1%.  This level of liquidity is
within the Bank’s goal of maintaining a sufficient level of liquidity in all
expected economic environments.
  The Corporation maintains relationships
with correspondent banks that can provide it with funds on short notice, if
needed through secured lines of credit and securities repurchase
agreements.  Additional liquidity is provided to the Corporation
through available Federal Home Loan Bank advances, none of which were
outstanding at September 30, 2009.
  During the first nine months of 2009,
cash and cash equivalents increased $3,772,000 to a total of $23,834,000 at
September 30, 2009.  Cash inflows from operations totaled $779,000
during the first nine months of 2009, while inflows from financing activities
totaled $16,749,000, comprised primarily of net decreases of $21,620,000 in
deposits, offset by net increases in securities sold under repurchase agreements
of $4,871,000.
   21
  
  Investing activities provided
$19,742,000 of cash and cash equivalents, consisting primarily of proceeds from
calls, maturities and paydowns of investment securities of $141,315,000,
proceeds from the sales of investment securities of $12,937,000 and net
decreases in loans of $8,620,000, offset by purchases of investment securities
of $143,424,000.  At September 30, 2009, the Bank had $69,977,000 of
investment securities available for sale.
  Contractual
Obligations and Commitments
  The Corporation is 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.  These instruments involve, to varying degrees, elements
of credit risk in excess of the amount recognized on the balance
sheet.  The contract amounts of these instruments reflect the extent
of the involvement of the Corporation in particular classes of financial
instruments.  At September 30, 2009, the contractual amounts of the
Corporation’s commitments to extend credit and standby letters of credit were
$27,826,000 and $447,000, respectively.
  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 and because they may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash
requirements.  Standby letters of credit and financial guarantees
written are conditional commitments issued by the Corporation to guarantee the
performance of a customer to a third party.
  Capital
  The following tables present the Bank’s
regulatory capital position at September 30, 2009, based on the regulatory
capital requirements of federal banking agencies.  The capital ratios
of the Corporation are essentially the same as those of the Bank at September
30, 2009 and therefore only the Bank’s ratios are presented.
  Risk-Based Capital
RatiosTier
      1 Capital, Actual
              
              12.3%Tier
      1 Capital minimum requirement
              
              4.0%Excess
              
              8.3%Total
      Capital, Actual
              
              13.5%Total
      Capital minimum requirement
              
              8.0%Excess
              
              5.5%Leverage RatioTier
      1 Capital to adjusted total assets
              
              8.2%Minimum
      leverage requirement
              
              4.0%Excess
              
              4.2%
 
 
 Item
3.     Qualitative and Quantitative
Disclosures about Market Risk.
 
 Not applicable because the registrant
is a smaller reporting company.
 
  Item
4T.  Controls and
Procedures.
  Our management, including our principal
executive officer and principal financial officer, supervised and participated
in an evaluation of our disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934) and pursuant to such evaluation, concluded that
our disclosure controls and procedures were effective as of September 30,
2009.  Disclosure controls and procedures are those controls and
procedures which ensure that information required to be disclosed in this filing
is accumulated and communicated to management and is recorded, processed,
summarized and reported in a timely manner and in accordance with Securities and
Exchange Commission rules and regulations.
   22
   
  There were no significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
  PART
II.  OTHER INFORMATION
 
  Item
1.     Legal
Proceedings
  None
  Item
1A.  Risk
Factors
  Not
applicable because the registrant is a smaller reporting company.
   Item
2.     Unregistered Sales of Equity
Securities and Use of Proceeds
  None
   Item 3.    Defaults Upon Senior
Securities
  None
  Item 4.  Submission of Matters
to a Vote of Security Holders
  None
  Item
5.    Other
Information
  None
  Item 6.    Exhibits
  (a)
              Exhibits10.1
              Order
      to Cease and Desist, dated August 18, 2009, and Stipulation and Consent
      thereto.31.1
              Certification
      by B. Amrey Harden, CEO and President of the Corporation, as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002.31.2
              Certification
      by Steven A. Rogers, Vice President and Chief Financial Officer of the
      Corporation, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002.32
              Certification
      of the Chief Executive Officer and the Chief Financial Officer pursuant to
      Section 906 of the Sarbanes-Oxley Act of
2002.
 
  23
  
 SIGNATURES
  
 
 In accordance with the requirements of
the Exchange Act, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
 
 
 OCONEE
      FINANCIAL CORPORATION
                
                
                By: /s/ B.
      Amrey
      Harden
                B.
      Amrey Harden, President and CEO
                (Principal
      Executive Officer)
                
                Date:
      November 16,
      2009
                
                
                By:  /s/ Steven A. Rogers
                Steven
      A. Rogers, Vice President and CFO
                (Principal
      Financial Officer)
                
                Date:
      November 16,
      2009
 
 
 
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