UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20429

**FORM 10-QSB**

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

> 
For the Quarterly PeriodEnded September 30, 2001

OR

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

For the TransitionPeriod from ________to ________
Commission File number000-25267

**Oconee FinancialCorporation**(Exact name ofregistrant as specified in its charter)
 

Georgia 
 58-2442250 
(Stateof Incorporation)

 (I.R.S. Employer Identification No.)

35 North Main Street

 

Watkinsville, Georgia
 30677
(Address of principal

 (Zip Code)

executive offices)

 

706-769-6611(Telephone Number)
 

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subjected to such filing requirements for the past 90 days.

YES       XX      NO         

Common stock, par value$2 per share: 899,885 sharesoutstanding as of November 13,2001
 
 

 **OCONEE FINANCIAL CORPORATION AND SUBSIDIARY** 
   **INDEX**          Page No.PART I FINANCIAL INFORMATION       
Item 1.
Financial Statements         Consolidated Balance Sheet  (unaudited) at  September 30, 20013       Consolidated Statements of Earnings  (unaudited) for the Three  Months and the Nine Months Ended September 30, 2001 and  2000 
4
       Consolidated Statements of Comprehensive Income  unaudited) for the Nine Months Ended September 30, 2001 and 2000 5       Consolidated Statements of Cash Flows  (unaudited) for the  Nine Months Ended September 30, 2001 and 20006       Notes to Financial Statements  (unaudited) 7     
Item 2
Management’s Discussion and Analysis of Financial  Condition and Results of Operations
8-11    PART II OTHER INFORMATION      
Item 1.
Legal Proceedings 12     
Item 2. 
Changes in Securities 12     
Item 3. 
Defaults Upon Senior Securities 12     
Item 4. 
Submission of Matters to a Vote of Security Holders 12     
Item 5. 
Other Information 12     
Item 6.
Exhibits and Reports on Form 8-K 12
 
 **PART I.  FINANCIAL INFORMATION**   Item 1.  Financial Statements     **OCONEE FINANCIAL CORPORATION AND SUBSIDIARY** Consolidated Balance Sheet September 30, 2001(Unaudited)   Assets   Cash and due from banks$8,094,921  Federal funds sold 1,168,000  Investment securities available for sale             (amortized cost  of $39,593,814) 40,309,901     Mortgage loans held for sale 3,613,441     Loans 142,973,940  Less:  Allowance for loan losses (1,713,627)  
         Loans, net
 141,260,313    Premises and equipment, net 2,244,606  Accrued interest receivable and other assets 4,015,015    
                     Total Assets
$200,706,197    Liabilities and Stockholders’ Equity   Liabilities:  
    Deposits:
 
        Noninterest-bearing
$19,713,421  
        Interest-bearing
 147,766,710    
            Total Deposits
 167,480,131         Securities sold under repurchase agreements 1,069,501      Federal Home Loan Bank Advances 13,300,000      Accrued interest payable and other liabilities 1,469,382    
            Total Liabilities
 183,319,014     Stockholders’ equity:  
    Common stock, $2 par value;
  
        authorized 1,500,000 shares;
  
        issued and outstanding 899,885 shares
 1,799,770  
    Additional paid-in capital
 4,246,832  
    Retained earnings
 10,896,320  Accumulated other comprehensive income 444,261    
            Total stockholders’ equity
 17,387,183    
                    Total liabilities and stockholders’ equity
$200,706,197       See accompanying notes to financial statements.   
3
 **OCONEE FINANCIAL CORPORATION AND SUBSIDIARY**  Consolidated Statements of Earnings For the Three Months and the Nine Months Ended September 30, 2001 and 2000(Unaudited)        **Three Months** **Nine Months**  **Ended**** ****Ended**  **2001**** ****2000**** ****2001**** ****2000**         Interest Income:        
     Loans
$3,288,926  $3,145,927  $10,004,010  $8,272,510  
     Investment securities:
        
          Tax exempt
 181,624   170,752   524,126   591,782  
          Taxable
 431,468   295,222   1,003,224   1,066,923  
     Federal funds sold and other
 77,752   60,930   459,903   230,611  
             Total interest income
 3,979,770   3,672,831   11,991,263   10,161,826  Interest Expense:        
     Deposits
 1,767,327   1,470,630   5,347,199   4,187,176  
     Other
 226,179   129,383   670,827   153,240  
             Total interest expense
 1,993,506   1,600,013   6,018,026   4,340,416  
             Net interest income
 1,986,264   2,072,818   5,973,237   5,821,410           Provision for loan losses 75,000   159,300   225,000   263,100  
     Net interest income after provision for loan losses
 1,911,264   1,913,518   5,748,237   5,558,310  Other Income:                      Service charges 250,146   219,045   765,345   625,801       Securities gains (losses), net 0   (63,804) 0   (161,867)     Mortgage banking income 181,546   163,337   577,423   347,495       Other operating income 48,365   30,915   141,256   140,621               Total other income 480,057   349,493   1,484,024   952,050  Other Expense:        
     Salaries and other personnel expense
 960,515   799,315   2,892,587   2,391,280  
     Net occupancy and equipment expense
 226,648   189,203   628,415   561,618  
     Other operating expense
 379,906   344,872   1,262,191   1,054,464  
             Total other expense
 1,567,069   1,333,390   4,783,193   4,007,362  
             Earnings before income taxes
 824,252   929,621   2,449,068   2,502,998           Income taxes 251,895   288,936   731,425   733,248  
             Net earnings
$572,357  $640,685  $1,717,643  $1,769,750  Earnings per common share based on average                    outstanding shares of  899,885 in 2001 and 2000:$0.64  $0.71  $1.91  $1.97                See accompanying notes to financial statements.         
4
 **OCONEE        FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated        Statements of Comprehensive Income
For        the Nine Months Ended September 30, 2001 and 2000
(Unaudited)**2001**2000
Net        earnings
$
1,717,643
1,769,750 
Other        comprehensive income, net of tax:
Unrealized        gains (losses) on securities available for sale:
Holding        gains (losses) arising during period, net of tax
       of        $375,810 and $181,049
614,205
295,395 
Reclassification        adjustments for (gains) losses included
       in        net earnings, net of tax of $0 and ($61,509)
0
(100,358)
Total        other comprehensive income (loss)
614,205
195,037 
Comprehensive        income
$
2,331,848
1,964,787 
 

See accompanying notes to financialstatements.

5
 **OCONEE      FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated      Statements of Cash Flows
For      Each of the Nine Months Ended September 30, 2001 and 2000
(Unaudited)**2001**2000
Cash      flows from operating activities:
Net      earnings
$
1,717,643 
$
1,769,750 
Adjustments      to reconcile net earnings to net
cash      provided by operating activities:
Provision      for loan losses
225,000 
263,100 
Depreciation,      amortization and accretion
191,218 
218,903 
Loss      on sale of investment securities
0 
161,867 
Change      in assets and liabilities:
Interest      receivable and other assets
(364,740)
(338,513)
Interest      payable and other liabilities
(8,691)
181,698 
Mortgage      loans held for sale
(1,334,828)
7,347 
Net      cash provided by operating activities
425,602 
2,264,152 
Cash      flows from investing activities:
Proceeds      from maturities and paydowns of
investment      securities available for sale
1,199,177 
1,739,310 
Proceeds      from sales and calls of investment securities
available      for sale
8,557,863 
8,847,572 
Purchases      of investment securities available for sale
(18,928,821)
(2,950,769)
Purchase      of Federal Home Loan Bank stock
0 
(272,800)
Net      change in loans
(19,951,929)
(27,684,911)
Purchases      of premises and equipment
(308,004)
(683,218)
Net      cash used by investing activities
(29,431,714)
(21,004,816)
Cash      flows from financing activities:
Net      change in deposits
16,942,514 
2,250,435 
Net      change in securities sold under repurchase agreements
233,414 
663,376 
Proceeds      from Federal Home Loan Bank advance
0 
13,300,000 
Dividends      paid
(989,873)
(899,970)
Purchase      and retirement of stock
0 
(2,160)
Net      cash provided by financing activities
16,186,055 
15,311,681 
Net      decrease in cash and cash equivalents
(12,820,057)
(3,428,983)
Cash      and cash equivalents at beginning of period
22,082,978 
16,127,789 
Cash      and cash equivalents at end of period
$
9,262,921 
$
12,698,806 
Supplemental      cash flow information:
Cash      paid for interest
$
5,324,232 
$
3,695,102 
Cash      paid for taxes
$
580,045 
$
741,400 
Noncash      investing and financing activities:
Transfer      from loans to other real estate owned
$
73,164 
$
-
Financed      sale of other real estate owned
$
73,164 
$
-
Change      in dividends payable
$
989,873 
$
899,970 
Change      in net unrealized gain on investment securities
available      for sale, net of tax
$
614,205 
$
295,395 
See      accompanying notes to financial statements.
6
 **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 consolidated financial information furnished herein  reflects all adjustments which are, in the opinion of management, necessary to  present a fair statement of the results of operations and financial position  for the periods covered herein. All such adjustments are of a normal recurring  nature.

(2)     Cash and Cash Equivalents
For presentation in the financial statements, cash and cash  equivalents include cash on hand and amounts due from banks.

(3)    Net Earnings Per Common Share
Net earnings per common share are based on the weighted  average number of common shares outstanding during the period while the  effects of potential common shares outstanding during the period are included  in diluted earnings per share. The Corporation had no potential common shares  outstanding during 2001 and 2000.

(4)    Stock Split
On April 16, 2001, the Board of Directors of the Corporation    declared a 5 for 1 stock split payable to shareholders of record on May 8,    2001. All share and per share amounts have been changed to reflect the stock    split as if it had occurred on December 31, 1999.

7
 
Item 2.
**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statement**
This discussion contains forward-looking statements underthe private Securities Litigation Reform Act of 1995 that involve risk anduncertainties. Although the Corporation believes that the assumptions underlyingthe forward-looking statements contained in the discussion are reasonable, anyof the assumptions could be inaccurate, and therefore, no assurance can be madethat any of the forward-looking statements included in this discussion will beaccurate. Factors that could cause actual results to differ from resultsdiscussed in forward-looking statements include, but are not limited to:economic conditions (both generally and in the markets where the Corporationoperates); competition from other providers of financial services offered by theCorporation; government regulations and legislation; changes in interest rates;material unforeseen changes in the financial stability and liquidity of theCorporation’s credit customers, all of which are difficult to predict andwhich may be beyond the control of the Corporation. The Corporation undertakesno obligation to revise forward-looking statements to reflect events or changesafter the date of this discussion or to reflect the occurrence of unanticipatedevents.
**Financial Condition**
Total assets at September 30, 2001 were $200,706,197,representing a $18,781,038 (10.32%) increase from December 31, 2000. Depositsincreased $16,942,514 (11.25%) from December 31, 2000. Loans increased$19,632,885 (15.92%). The increase in loan volume is due primarily to anincrease in loans to finance commercial real estate. Investment securitiesincreased $10,252,703 (34.11%) from December 31, 2000. The allowance for loanlosses at September 30, 2001 was $1,713,627, compared to the December 31, 2000balance of $1,807,671, representing 1.20% of total loans at September 30, 2001,compared to 1.47% at December 31, 2000. Cash and cash equivalents decreased$12,820,057 from December 31, 2000.

The total of nonperforming assets, which includes nonaccruingloans, other real estate owned, repossessed collateral and loans for whichpayments are more than 90 days past due were $543,130 at September 30, 2001,representing an increase of $287,360 (112.35%) from December 31, 2000. Thisincrease is primarily attributable to a $251,348 increase in nonaccruing loansand a $21,559 increase in repossessed collateral. Nonaccrual loans represented0.33% of total loans outstanding at September 30, 2001, compared to 0.18% oftotal loans outstanding at December 31, 2000. There were no related party loanswhich were considered nonperforming at September 30, 2001.

The Corporation’s subsidiary bank was most recentlyexamined by its primary regulatory authority in May of 2001. There were norecommendations by the regulatory authority that in management’s opinion willhave material effects on the Company’s liquidity, capital resources oroperations.

8
 
Item 2.
**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS, continued

Results of Operations**
Net interest income increased $151,827(2.61%)in the first nine months of 2001 compared to the same period for 2000. Interestincome for the first nine months of 2001 was $11,991,263, representing anincrease of $1,829,437(18.00%) over the sameperiod in 2000. Interest expense for the first nine months of 2001 increased$1,677,610 (38.65%) compared to the same period in 2000. The increase in netinterest income during the first nine months of 2001 compared to the same periodin 2000 is primarily attributable to the increase in the volume of loanspartially offset by the effects of a substantial decrease in the Bank’s primelending rate during 2001. The increase in interest expense is primarilyattributable to interest in the amount of $639,442 on a Federal Home Loan Bankadvance that the Bank secured during 2000, as well as growth in the Bank’sdeposits.

The Bank’s net interest margin for the first nine months of2001 was 4.52%, compared to 5.52% for the same time period during 2000. Thisdecrease is primarily attributable to a 400 basis point decrease in the primerate during the first nine months of 2001.

The Bank analyzes its allowance for loan losses on a monthlybasis. As of September 30, 2001, the provision for loan losses was $225,000,compared to $263,100 for the same period in 2000. The decrease in the provisionfor loan losses is primarily attributable to an additional discretionaryprovision made in 2000 due to unexpected loan growth. It is management’sbelief that the allowance for loan losses is adequate to absorb possible lossesin the portfolio.

Other income for the first nine months of 2001 increased$531,974 (55.88%) compared to the first nine months of 2000. This increase isprimarily attributable to a $229,928 increase in fee income on mortgage loansheld for sale, as well as an $42,323 increase in service charges on depositaccounts. The increase in fee income on mortgage loans held for sale is due toan increase in the number of mortgage loans that the Bank originated during 2001as a result of mortgage interest rates being lower during 2001. The increase inservice charge income is due to an increase in fees on deposit accounts that theBank implemented during the third quarter of 2000.

Other expenses for the nine months of 2001 increased $775,831(19.36%) compared to the first nine months in 2000. The net increase isprimarily attributable a 21% increase in salaries and benefits expense due tothe addition of new employees in response to the growth of the Bank and to meritincreases based on employee performance.

 

 

 

 

9
 
Item 2.
**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS, continued

Liquidity**
The Corporation must maintain, on a daily basis, sufficientfunds to cover the withdrawals from depositors’ accounts and to supply newborrowers with funds. To meet these obligations, the Corporation keeps cash onhand, maintains account balances with its correspondent banks, and purchases andsells federal funds and other short-term investments. Asset and liabilitymaturities 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 regulatoryrequirements and their local funding requirements.

The Corporation maintains relationships with correspondentbanks that can provide funds to it on short notice, if needed. Presently, theCorporation has arrangements with a commercial bank for short term unsecuredadvances up to $4,400,000. Additional liquidity is provided to the Corporationthrough available Federal Home Loan Bank advances up to $27,280,000. As ofSeptember 30, 2001, the Corporation had $13,300,000 in advances outstanding fromthe Federal Home Loan Bank. This advance matures August 25, 2003, and carries afixed interest rate of 6.34%. It is secured by the Bank’s loans on 1 to 4family residential properties.

 

 

 

10
 **Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS, continued

Capital

The following tables present Oconee State Bank’s regulatorycapital position atSeptember 30, 2001, based on the regulatory capital requirementsof federal banking agencies. The capital ratios of the Corporation areessentially the same as those of the Bank at September 30, 2001 and thereforeonly the Bank’s ratios are presented.

 
Risk-Based Capital Ratios  
Tier 1 Capital, Actual

 11.1%

Tier 1 Capital minimum requirement

 4.0%

Excess

 7.1%

Total Capital, Actual

 12.3%

Total Capital minimum requirement

 8.0%

Excess

 4.3%

Leverage Ratio

Tier 1 Capital to adjusted total assets       (Leverage Ratio) 

 8.4%

Minimum leverage requirement 

3.0%

Excess

 5.4%

 

11
 
 
**PARTII. OTHER INFORMATION****OCONEE FINANCIAL CORPORATION AND SUBSIDIARY

 

Item 1.
Legal      Proceedings 
None 
Item 2.
Changes in      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      and Reports on Form 8-K 
(a)
Exhibits 
None 
(b)
Reports on Form 8-K 
There were no 8-K filings      during the quarter.
 

12
 **OCONEE FINANCIAL CORPORATION AND SUBSIDIARY

SIGNATURES**
Pursuant to the requirements of the Securities Exchange Act of1934, the Registrant has duly caused this Report to be signed on its behalf bythe undersigned thereunto duly authorized.

 
 
OCONEE FINANCIAL CORPORATION

    
By:        */s/      B. Amrey Harden*  
              B. Amrey      Harden, President and C.E.O.                (Principal      Executive Officer)
   
Date:          November 13, 2001         
By         */s/      Jerry K. Wages*  
              Jerry K.      Wages 
              Executive      Vice-President and C.F.O.               (Principal      Accounting Officer)
   
Date:          November 13, 2001
 

 

13

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