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Table      of Contents

**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**FORM      10-QSB**

**x QUARTERLY      REPORT      UNDER SECTION 13 OR 15(d)**

**OF      THE SECURITIES EXCHANGE ACT OF 1934**

**o TRANSITION      REPORT      UNDER SECTION 13 OR 15(d)**

**OF      THE EXCHANGE ACT**

| Oconee                Financial Corporation                                          |
|--------------------------------------------------------------------------------------|
| (Exact                name of registrant as specified in its                charter) |

| Georgia                                                                 |   | 58-2442250                                                        |
|-------------------------------------------------------------------------|--------|-------------------------------------------------------------------|
| (State                of Incorporation)                                 |   | (I.R.S.                EmployerIdentification                No.) |
|                                                                    |   |                                                              |
| 35                North Main StreetWatkinsville,                Georgia |   |  30677                                                       |
| (Address                of principalexecutive                offices)   |   | (Zip                Code)                                         |

| 706-769-6611                        |
|-------------------------------------|
| (Telephone                  Number) |

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**OCONEE      FINANCIAL CORPORATION AND SUBSIDIARY**

**INDEX**

|                            |                                                                                                           | Page                No. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------|-------------------------|
| PART                I                                                                                                                                        | FINANCIAL                INFORMATION                                                                           |                    |
|                                                                                                                                                         |                                                                                                           |                    |
| Item                1.                                                                                                                                  | Financial                Statements                                                                            |                    |
|                                                                                                                                                         |                                                                                                           |                    |
|                                                                                                                                                         | Consolidated                Balance Sheet (unaudited) at March 31,                2006                         | 3                       |
|                                                                                                                                                         |                                                                                                           |                    |
|                                                                                                                                                         | Consolidated                Statements of Earnings (unaudited) for the                Three Months Ended       |                    |
|                                                                                                                                                         | March                31, 2006 and 2005                                                                         | 4                       |
|                                                                                                                                                         |                                                                                                           |                    |
|                                                                                                                                                         | Consolidated                Statements of Comprehensive Income (unaudited)                for the Three Months |                    |
|                                                                                                                                                         | Ended                March 31, 2006 and 2005                                                                   | 5                       |
|                                                                                                                                                         |                                                                                                           |                    |
|                                                                                                                                                         | Consolidated                Statements of Cash Flows (unaudited) for                the Three Months           |                    |
|                                                                                                                                                         | Ended                March 31, 2006 and 2005                                                                   | 6-7                     |
|                                                                                                                                                         |                                                                                                           |                    |
|                                                                                                                                                         | Notes                to Financial Statements                (unaudited)                                        | 8-9                     |
|                                                                                                                                                         |                                                                                                           |                    |
| Item                2.                                                                                                                                  | Management's                Discussion and Analysis or Plan of Operation                                       | 10-13                   |
|                                                                                                                                                         |                                                                                                           |                    |
| Item                3.                                                                                                                                  | Controls                and Procedures                                                                         | 14                      |
|                                                                                                                                                         |                                                                                                           |                    |
| PART                II                                                                                                                                       | OTHER                INFORMATION                                                                               |                    |
|                                                                                                                                                         |                                                                                                           |                    |
| Item                1.                                                                                                                                  | Legal                Proceedings                                                                               | 15                      |
|                                                                                                                                                         |                                                                                                           |                    |
| Item                2.                                                                                                                                  | Unregistered                Sales of Equity Securities and Use of                Proceeds                      | 15                      |
|                                                                                                                                                         |                                                                                                           |                    |
| Item                3.                                                                                                                                  | Defaults                Upon Senior Securities                                                                 | 15                      |
|                                                                                                                                                         |                                                                                                           |                    |
| Item                4.                                                                                                                                  | Submission                of Matters to a Vote of Security                Holders                              | 15                      |
|                                                                                                                                                         |                                                                                                           |                    |
| Item                5.                                                                                                                                  | Other                Information                                                                               | 15                      |
|                                                                                                                                                         |                                                                                                           |                    |
| Item                6.                                                                                                                                  | Exhibits                                                                                                       | 15                      |
|                                                                                                                                                         |                                                                                                           |                    |

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**PART      I. FINANCIAL INFORMATION**

Financial 

**OCONEE      FINANCIAL CORPORATION AND SUBSIDIARY**

Consolidated

| Assets                                                                                                                                                                            |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                              |   |   |   |
| Cash                and due from banks, including reserve requirements of                $2,674,000                                                                               |   | $ | 8,055,214 |   |
| Federal                funds sold                                                                                                                                                 |   |   | 19,428,000 |   |
|                                                                                                                                                                              |   |   |   |   |
|                             Cash and cash equivalents                                                                 |   |   | 27,483,214 |   |
|                                                                                                                                                                              |   |   |   |   |
| Investment                securities available for sale                                                                                                                           |   |   | 50,227,370 |   |
| Other                investments                                                                                                                                                  |   |   | 670,329 |   |
| Mortgage                loans held for sale                                                                                                                                       |   |   | 2,434,200 |   |
|                                                                                                                                                                              |   |   |   |   |
| Loans,                net of allowance for loan losses of $3,066,343                                                                                                              |   |   | 196,058,226 |   |
|                                                                                                                                                                              |   |   |   |   |
| Premises                and equipment, net                                                                                                                                        |   |   | 6,546,009 |   |
| Accrued                interest receivable and other assets                                                                                                                       |   |   | 3,235,418 |   |
|                                                                                                                                                                              |   |   |   |   |
|                    Total                assets                                     |   | $ | 286,654,766 |   |
|                                                                                                                                                                              |   |   |  |   |
| Liabilities                and Stockholders’ Equity                                                                                                                         |
|                                                                                                                                                                              |   |   |  |   |
| Liabilities:                                                                                                                                                                      |   |   |   |   |
|        Deposits                                                                                                                                |   |   |   |   |
|             Noninterest-bearing                                                                                       |   | $ | 35,293,529 |   |
|             Interest-bearing                                                                                          |   |   | 222,803,904 |   |
|                                                                                                                                                                              |   |   |   |   |
|                    Total                deposits                                   |   |   | 258,097,433 |   |
|                                                                                                                                                                              |   |   |   |   |
|        Securities                sold under repurchase agreements                                                                              |   |   | 2,682,558 |   |
|        Accrued                interest payable and other liabilities                                                                           |   |   | 1,164,612 |   |
|                                                                                                                                                                              |   |   |   |   |
|                    Total                liabilities                                |   |   | 261,944,603 |   |
|                                                                                                                                                                              |   |   |   |   |
| Stockholders’                equity:                                                                                                                                        |   |   |   |   |
| Common                    stock, $2 par value;authorized                    1,500,000 shares; issued                    and outstanding 899,815 shares                            |   |   | 1,799,630 |   |
|        Additional                paid-in capital                                                                                               |   |   | 4,243,332 |   |
|        Retained                earnings                                                                                                        |   |   | 18,946,005 |   |
|        Accumulated                other comprehensive income (loss)                                                                            |   |   | (278,804 | ) |
|                                                                                                                                                                              |   |   |   |   |
|                    Total                stockholders’ equity                 |   |   | 24,710,163 |   |
|                                                                                                                                                                              |   |   |   |   |
|                    Total                liabilities and stockholders’ equity |   | $ | 286,654,766 |   |

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**OCONEE      FINANCIAL CORPORATION AND SUBSIDIARY**

Consolidated

|                                                                                                                                       |   |      |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|
|                                                                                                                                       |   | **2006**  |   | **2005** |
| Interest                  Income:                                                                                                          |   |      |   |   |
| Loans                                                                                                                                      | $      | 3,985,152 |   | 3,224,929 |
| Investment                  securities:                                                                                                    |   |      |   |   |
| Tax                  exempt                                                                                                                |   | 218,644   |   | 193,788 |
| Taxable                                                                                                                                    |   | 370,782   |   | 284,138 |
| Federal                  funds sold and other                                                                                              |   | 186,610   |   | 48,140 |
| Total                  interest income                                                                                                     |   | 4,761,188 |   | 3,750,995 |
|                                                                                                                                       |   |      |   |   |
| Interest                  Expense:                                                                                                         |   |      |   |   |
| Deposits                                                                                                                                   |   | 1,769,192 |   | 1,065,639 |
| Other                                                                                                                                      |   | 11,447    |   | 7,715 |
| Total                  interest expense                                                                                                    |   | 1,780,639 |   | 1,073,354 |
|                                                                                                                                       |   |      |   |   |
| Net                  interest income                                                                                                       |   | 2,980,549 |   | 2,677,641 |
|                                                                                                                                       |   |      |   |   |
| Provision                  for loan losses                                                                                                 |   | 120,000   |   | 204,000 |
|                                                                                                                                       |   |      |   |   |
| Net                  interest income after provision for loan losses                                                                       |   | 2,860,549 |   | 2,473,641 |
|                                                                                                                                       |   |      |   |   |
| Other                  Income:                                                                                                             |   |      |   |   |
|                                                                                                                                       |   |      |   |   |
| Service                  charges on deposit accounts                                                                                       |   | 372,279   |   | 281,664 |
| Mortgage                  banking income                                                                                                   |   | 75,014    |   | 73,749 |
| Gains                  (losses) on sales and disposal of premises and equipment                                                            |   | 62,959    |   | (5,666) |
| Gains                  on sales of other real estate owned                                                                                 |   | 384,006   |   | - |
| Other                  operating income                                                                                                    |   | 159,603   |   | 159,529 |
| Total                  other income                                                                                                        |   | 1,053,861 |   | 509,276 |
|                                                                                                                                       |   |      |   |   |
| Other                  Expense:                                                                                                            |   |      |   |   |
| Salaries                  and other personnel expense                                                                                      |   | 1,408,921 |   | 1,311,416 |
| Net                  occupancy and equipment expense                                                                                       |   | 327,925   |   | 314,011 |
| Other                  operating expense                                                                                                   |   | 561,381   |   | 533,326 |
| Total                  other expense                                                                                                       |   | 2,298,227 |   | 2,158,753 |
|                                                                                                                                       |   |      |   |   |
| Earnings                  before income taxes                                                                                              |   | 1,616,183 |   | 824,164 |
|                                                                                                                                       |   |      |   |   |
| Income                  taxes                                                                                                              |   | 528,148   |   | 238,001 |
|                                                                                                                                       |   |      |   |   |
| Net                  earnings                                                                                                              | $      | 1,088,035 |   | 586,163 |
|                                                                                                                                       |   |      |   |   |
| Earnings                    per common share based on average outstanding shares                    of 899,815 in 2006 and 899,885 in 2005 | $      | 1.21      |   | 0.65 |

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**OCONEE      FINANCIAL CORPORATION AND SUBSIDIARY**

Consolidated

|                                                                                                               |   | **2006** |      | **2005** |   |
|--------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|
|                                                                                                               |   |     |      |     |   |
| Net                earnings                                                                                   |   | $        | 1,088,035 |     |   | 586,163 |   |
|                                                                                                               |   |     |      |     |   |   |   |
| Other                comprehensive income, net of tax:                                                             |   |     |      |     |   |   |   |
| Unrealized                losses on securities available for sale:                                                 |   |     |      |     |   |   |   |
| Holding                  losses arising during period, net of tax benefit of                  $68,517 and $193,397 |   |     | (111,978  | )        |   | (316,079 | ) |
|                                                                                                               |   |     |      |     |   |   |   |
|                          Total other comprehensive (loss) income      |   |     | (111,978  | )        |   | (316,079 | ) |
|                                                                                                               |   |     |      |     |   |   |   |
|                          Comprehensive income                         |   | $        | 976,057   |     |   | 270,084 |   |

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**OCONEE      FINANCIAL CORPORATION AND SUBSIDIARY**

Consolidated

|                                                                                                                                                                                                                              |   | **2006** |       | **2005** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|
| Cash                flows from operating activities:                                                                                                                                                                              |   |     |       |     |   |   |   |
|      Net                earnings                                                                                                                                                                         |   | $        | 1,088,035  |     |   | 586,163 |   |
|          Adjustments                to reconcile net earnings to net                                                                                                                 |   |     |       |     |   |   |   |
|             cash                provided by operating activities:                                                                                                     |   |     |       |     |   |   |   |
|                 Provision                for loan losses                                                                                          |   |     | 120,000    |     |   | 204,000 |   |
|                 Provision                for deferred taxes                                                                                       |   |     | 170,611    |     |   | - |   |
|                 Depreciation,                amortization and accretion                                                                           |   |     | 149,257    |     |   | 169,056 |   |
|                 Loss                (gain) on sales and disposals of fixed assets                                                                 |   |     | (62,959    | )        |   | 5,666 |   |
|                 Gain                on sale of other real estate owned                                                                            |   |     | (384,006   | )        |   | (19,485 | ) |
|                 Change                in assets and liabilities:                                                                                  |   |     |       |     |   |   |   |
|                     Interest                receivable and other assets                                                       |   |     | (199,450   | )        |   | (263,921 | ) |
|                     Interest                payable and other liabilities                                                     |   |     | (133,417   | )        |   | 134,381 |   |
|                     Mortgage                loans held for sale                                                               |   |     | (1,149,200 | )        |   | (1,707,639 | ) |
|                                                                                                                                                                                                                              |   |     |       |     |   |   |   |
|                            Net                cash used by operating activities            |   |     | (401,129   | )        |   | (891,779 | ) |
|                                                                                                                                                                                                                              |   |     |       |     |   |   |   |
| Cash                flows from investing activities:                                                                                                                                                                              |   |     |       |     |   |   |   |
|      Proceeds                from sale of investment securities                                                                                                                                          |   |     | -          |     |   | 4,978,891 |   |
|      Proceeds                from calls, maturities, and paydowns of                                                                                                                                     |   |     |       |     |   |   |   |
|          investment                securities available for sale                                                                                                                     |   |     | 1,646,631  |     |   | - |   |
|      Purchases                of investment securities available for sale                                                                                                                                |   |     | (700,000   | )        |   | - |   |
|                     Purchases of other securities                                                                                                                                                             |   |     | (55,900    | )        |   | (10,100 | ) |
|      Net                change in loans                                                                                                                                                                  |   |     | 7,350,115  |     |   | (1,217,789 | ) |
|      Purchases                of premises and equipment                                                                                                                                                  |   |     | (972,781   | )        |   | (85,311 | ) |
|                     Proceeds from sale of premises and equipment                                                                                                                                              |   |     | 139,184    |     |   | - |   |
|                     Proceeds from sale of other real estate owned                                                                                                                                                  |   |     | 665,497    |     |   | 539,123 |   |
|                                                                                                                                                                                                                              |   |     |       |     |   |   |   |
|                                            Net cash provided by investing activities       |   |     | 8,072,746  |     |   | 4,204,814 |   |
|                                                                                                                                                                                                                              |   |     |       |     |   |   |   |
| Cash                flows from financing activities:                                                                                                                                                                              |   |     |       |     |   |   |   |
|      Net                change in deposits                                                                                                                                                               |   |     | 1,298,409  |     |   | (2,073,724 | ) |
|      Net                change in securities sold under repurchase agreements                                                                                                                            |   |     | 438,326    |     |   | 701,852 |   |
|      Dividends                paid                                                                                                                                                                       |   |     | (989,797   | )        |   | (899,885 | ) |
|                                                                                                                                                                                                                              |   |     |       |     |   |   |   |
|                            Net                cash provided (used) by financing activities |   |     | 746,938    |     |   | (2,271,757 | ) |
|                                                                                                                                                                                                                              |   |     |       |     |   |   |   |
| Net                increase in cash and cash equivalents                                                                                                                                                                          |   |     | 8,418,555  |     |   | 1,041,278 |   |
|                                                                                                                                                                                                                              |   |     |       |     |   |   |   |
| Cash                and cash equivalents at beginning of period                                                                                                                                                                   |   |     | 19,064,659 |     |   | 15,753,366 |   |
|                                                                                                                                                                                                                              |   |     |       |     |   |   |   |
| Cash                and cash equivalents at end of period                                                                                                                                                                         |   | $        | 27,483,214 |     |   | 16,794,644 |   |

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**OCONEE      FINANCIAL CORPORATION AND SUBSIDIARY**

|                                                                                                |   | **2006** |      | **2005** |   |
|-----------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|
|                                                                                                |   |     |      |     |   |
|                                                                                                |   |     |      |     |   |
| Supplemental                cash flow information:                                                  |   |     |           |     |   |  |   |
|      Cash                paid for interest                                 |   | $        | 1,620,612 |     | $      | 1,029,254 |   |
|      Cash                paid for taxes                                    |   | $        | 222,000   |     | $      | 20,000 |   |
|                                                                                                |   |     |      |     |   |   |   |
| Noncash                investing and financing activities:                                          |   |     |      |     |   |   |   |
|      Change                in dividends payable                            |   | $        | 989,797   |     | $      | 899,885 |   |
|      Change                in net unrealized gain on investment securities |   |     |      |     |   |   |   |
|         available                for sale, net of tax       |   | $        | (111,978  | )        | $      | (316,079 | ) |
|                                                                                                |   |     |      |     |   |   |   |
|                                                                                                |   |     |      |     |   |   |   |
|                                                                                                |   |     |      |     |   |   |   |

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**OCONEE      FINANCIAL CORPORATION AND SUBSIDIARY**

Notes

| (1) | Basis                of Presentation |
|-----|--------------------------------------|

| (2) | Net                Earnings Per Common Share |
|-----|----------------------------------------------|

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**OCONEE      FINANCIAL CORPORATION AND SUBSIDIARY**

| (3) | Allowance                for Loan Losses |
|-----|------------------------------------------|

|                                                        |   | **2006** |      | **2005** |   |
|-------------------------------------------------------------|--------|----------|-----------|----------|--------|
|                                                        |   |     |      |     |   |
| Balance                at beginning of year                 |   | $        | 2,945,256 |     |   | 2,531,330 |   |
| Amounts                charged off                          |   |     | (18,914   | )        |   | (16,436 | ) |
| Recoveries                on amounts previously charged off |   |     | 20,001    |     |   | 11,438 |   |
| Provision                for loan losses                    |   |     | 120,000   |     |   | 204,000 |   |
|                                                        |   |     |      |     |   |   |   |
| Balance                at March 31                          |   | $        | 3,066,343 |     |   | 2,730,332 |   |

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**MANAGEMENT’SDISCUSSION      AND ANALYSIS OR PLAN OF      OPERATION**

**Forward-Looking      Statements**

**Financial      Condition**

----

**Results      of Operations**

** **

**Interest      rate sensitivity**

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**Liquidity**

----

**Contractual      Obligations and Commitments**

**Capital**

| Risk-Based                Capital Ratios               |   |       |
|--------------------------------------------------------|--------|------------|
|                                                   |   |       |
| Tier                1 Capital, Actual                  |   | 11.9%      |
| Tier                1 Capital minimum requirement      |   | 4.0%       |
|                                                   |   |       |
| Excess                                                 |   | 7.9%       |
|                                                   |   |       |
| Total                Capital, Actual                   |   | 13.1%      |
| Total                Capital minimum requirement       |   | 8.0%       |
|                                                   |   |       |
| Excess                                                 |   | 5.1%       |
|                                                   |   |       |
| Leverage                Ratio                          |   |       |
|                                                   |   |       |
| Tier                1 Capital to adjusted total assets |   | 8.7%       |
| Minimum                leverage requirement            |   |  3.0% |
|                                                   |   |       |
| Excess                                                 |   | 5.7%       |

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**CONTROLSAND      PROCEDURES**

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**PART      II. OTHER INFORMATION**

**OCONEE      FINANCIAL CORPORATION AND SUBSIDIARY**

Legal

Unregistered

Defaults

Submission

Other

Exhibits

| (a)                     | Exhibits |                                                                                                                                                                                                                                                                         |
|---------------------------------------------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                        | 3.1      | Articles                of Incorporation of Oconee Financial Corporation, dated August 27,                1998                (included as Exhibit 3.1 to the Bank’s 10-KSB filed with the SEC on March                30, 2004 and incorporated herein by reference). |
|                                        |     |                                                                                                                                                                                                                                                                         |
|                                        | 3.2      | Amended                and Restated Bylaws of Oconee Financial Corporation, dated May 7,                2001                (included as Exhibit 3.2 to the Bank’s 10-KSB filed with the SEC on April                1, 2002 and incorporated herein by reference).    |
|                                        |     |                                                                                                                                                                                                                                                                         |
|                                        | 4        | See                Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation                and                Amended and Restated Bylaws which define the rights of the holders                of                Common Stock of the Bank.                      |
|                                        |     |                                                                                                                                                                                                                                                                         |
|                                        | 4.1      | Form                of Common Stock Certificate (included as Exhibit 4.1 to the Bank’s 10-KSB                filed with the SEC on March 31, 2005 and incorporated herein by                reference).                                                                |
|                                        |     |                                                                                                                                                                                                                                                                         |
|                                        | 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 Jerry K. Wages, Senior Executive 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.                                                                          |

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**OCONEE      FINANCIAL CORPORATION AND SUBSIDIARY**

**SIGNATURES**

|   |           OCONEE                FINANCIAL CORPORATION  By:  /s/                B. Amrey                Harden                                                        B.                Amrey Harden, President and CEO       (Principal                Executive Officer)  Date:                May 15, 2006  By:                 /s/ Jerry K.                Wages                                                    Jerry                K. Wages, Sr. Executive Vice President and CFO (Principal                Financial Officer)        Date:                May 15, 2006  By:                 /s/ Steven A.                Rogers                                                Steven                A. RogersVice                President and Controller (Principal                Accounting Officer)  Date:      May                15, 2006 |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |