**U.S.
SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
D.C.  20549**
 **FORM
10-KSB**
  x
    Annual
      Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of
      1934
      For
      the Fiscal Year Ended December 31, 2004 ̈
    Transition
      Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of
      1934
  Commission
File Number 000-25267
   **Oconee Financial
      Corporation**(Name of Small Business Issuer 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
      30677-0205(Address of principal executive
      office)   (Zip Code)
 
   Issuer’s
telephone number, including area code: (706)
769 -6611
  Securities
registered pursuant to Section 12(b) of the Act:  None
  Name of
exchange on which registered:  None
  Securities
registered pursuant to Section 12(g) of the Act:  Common Stock, $2.00 par
value per share.
   Check
whether the Registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
  Yes x No  ̈
  Check if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not
contained herein and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB. x  ****
  State
issuer’ s revenues for its most recent fiscal year. $15,902,919
  State the
aggregate book value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: As of March 30, 2005: 521,917 shares of
common stock $2.00 par value (the “Common Stock”), with an aggregate value of
$13,115,774 (based on approximate book value of Common Stock).
  State the
number of shares outstanding of each of the issuer’s classes of Common Stock as
of the latest practicable date. As of March 30, 2005, there were issued and
outstanding 899,885 shares of Common Stock, par value $2.00 per
share.
  **Documents
Incorporated by Reference**
  Portions
of the registrant’s definitive Proxy Statement for the 2005 annual meeting of
shareholders are incorporated by reference into Part III.
  Transitional
Small Business Disclosure format.   Yes  ̈ No x
   
    **PART
I**
  **ITEM
1.** **DESCRIPTION OF BUSINESS.**
  **General**
  Oconee
Financial Corporation (“Oconee”), a registered bank holding company, was
incorporated under the laws of the State of Georgia in 1998 and commenced
operations by acquiring 100% of the outstanding shares of Oconee State Bank (the
“Bank”) effective January 1, 1999.  All of Oconee’s activities are
currently conducted by its wholly owned subsidiary, the Bank, which was
incorporated as a bank under the laws of the State of Georgia in 1959.  At
December 31, 2004, Oconee had approximately 670 holders of record of Common
Stock, its only class of equity securities.
  At
December 31, 2004, the Bank’s total assets were $256,865,000, compared to
$251,956,000 at year-end 2003.  Over the past 5 years, total assets of the
Bank have grown by $104,726,000, representing an increase of 68.8%.
  **Services**
  The Bank
is a community oriented, full-service commercial bank, headquartered in Oconee
County, Georgia with five full-service banking offices and seven automated
teller machines (ATMs).  The Bank places an emphasis on retail and small
business banking, and offers such customary banking services as consumer and
commercial checking accounts, NOW accounts, money market accounts, savings
accounts, certificates of deposit, individual retirement accounts, safe deposit
facilities, and money transfers. The Bank finances commercial and consumer
transactions, makes secured and unsecured loans, offers lines of credit, VISA
and MasterCard accounts, and provides a variety of other banking services.
  **Markets**
  The Bank
operates primarily in Oconee and Athens-Clarke counties in Georgia.  The
Bank’s secondary market is defined as those counties contiguous to Oconee
County, which include Clarke, Greene, Morgan, Walton, Barrow, and Oglethorpe, as
well as Madison County, which is not contiguous to Oconee County, but is a part
of the Athens Metropolitan Statistical Area.
  **Deposits**
  The Bank
offers a full range of depository accounts and services to both consumers and
businesses.  At December 31, 2004, the Bank’s deposit base totaled
$231,753,000 and consisted of the following types of
accounts:
  Amount
    
    
    PercentageNon-interest
      bearing demand deposits
    
    $
    29,215,000
    
    
    12.6
    %Interest-bearing
      NOW accounts
    
    
    43,717,000
    
    
    18.9
    %Money
      market deposit accounts
    
    
    18,058,000
    
    
    7.8
    %Savings
      deposits
    
    
    54,780,000
    
    
    23.6
    %Time
      deposits less than $100,000
    
    
    54,983,000
    
    
    23.7
    %Time
      deposits of $100,000 or more
    
    
    22,028,000
    
    
    9.5
    %Individual
      Retirement Accounts
    
    
    8,972,000
    
    
    3.9
    %Total
      Deposits
    
    $
    231,753,000
    
    
    100.0
    %
  Management
of the Bank is of the opinion tha t its time
deposits of $100,000 or more are customer relationship-oriented and represent a
reasonably stable source of funds.
   2
   **Loans**
  The Bank
makes both secured and unsecured loans to indi viduals
and businesses.  At December 31, 2004, the Bank’s loan portfolio totaled
$186,065,000, consisting of the following ca tegories
of loans:
  Amount
    
    PercentageLoans
      secured by real estate
    
    $
    154,087,000
    
    
    82.8
    %Agricultural
      production & loans to farmers
    
    
    222,000
    
    
    0.1
    %Commercial
      and industrial loans
    
    
    21,403,000
    
    
    11.5
    %Credit
      cards and related plans
    
    
    879,000
    
    
    0.5
    %Consumer
      loans (excluding credit cards)
    
    
    9,481,000
    
    
    5.1
    %LESS: 
      Unearned income
    
    
    (7,000
    )
    
    0.0
    %Total
      Loans Net of Unearned Income
    
    $
    186,065,000
    
    
    100.0
    %
   The
following table shows the amounts and growth for loans,
deposits, capital, and total assets at December 31, for the years ended
1999-2004 (dollar amounts are in millions):
  2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    5-Year
      GrowthLoans
    
    $
    186.1
    
    $
    171.2
    
    $
    179.6
    
    $
    151.3
    
    $
    123.3
    
    $
    93.3
    
    $
    92.8Deposits
    
    
    231.8
    
    
    228.6
    
    
    211.4
    
    
    179.7
    
    
    150.5
    
    
    136.5
    
    
    95.3Capital
    
    
    22.3
    
    
    20.8
    
    
    19.0
    
    
    16.8
    
    
    15.1
    
    
    13.0
    
    
    9.3Total
      Assets
    
    
    256.9
    
    
    252.0
    
    
    246.6
    
    
    212.5
    
    
    181.9
    
    
    152.1
    
    
    104.8
 
 As of
December 31, 2004, the Bank had concentrations of loans to the housing industry
and to the hotel and motel industry.  Outstanding loans secured by the
housing and hotel and motel industries totaled $71,959,000, which represented
38.7% of the Bank’s loan portfolio at December 31, 2004.  At year-end 2004,
total outstanding balances and commitments for development and construction
loans were $73,840,000, which represented 39.7% of the Bank’s total loans and
339.0% of the Bank’s Tier 1 equity capital.  The Bank’s established
guideline for this concentration is to be at a balance that represents less than
425% of Tier 1 equity capital.  Demand for single family contract
construction, as well as acquisition and development lending, remains solid due
to low interest rates and the desirability of living in Oconee County, which
have fueled demand for new housing and new subdivisions in the area.  The
traffic and expansion associated with Georgia Highway 316 and Highway 441 may
continue to encourage further housing growth, resulting in the Bank’s continued
concentration of loans to this industry.  At year-end 2004, total
outstanding balances and commitments for hotel and motel loans were $22,591,000,
which represented 12.1% of the Bank’s total loans and 103.7% of the Bank’s Tier
1 equity capital.  The Bank’s established guideline for this concentration
is to be at a balance that represents less than 200% of Tier 1 equity
capital.  Due to the current economic environment and its effects on the
travel industry, the Bank does not anticipate any additional loan growth in this
area.
  **Lending
Policy**
  The
current lending policy of the Bank is to offer consumer, real estate, and
commercial credit services to individuals and entities that meet the Bank’s
credit standards.  Throughout the lending decision, the customer’s credit
worthiness is examined through various credit bureau reports on the borrower’s
credit history as well as the borrower’s credit history at the Bank. On
commercial loans greater than $200,000, a written financial statement and cash
flow analysis is required to determine if the borrower has the ability to repay
the debt from primary sources of income. In addition, collateral adequacy is
examined to determine whether or not the collateral would be sufficient to cover
any of the Bank’s risk exposure in the event that the Bank is required to rely
on the liquidation of the collateral as a secondary source of
repayment. **** The Bank
provides each lending officer with written guidelines for lending activities to
ensure that the Bank’s policies and procedures are followed consistently. 
Lending authority is delegated by the Board of Directors of the Bank to loan
officers, each of whom is limited in the amount of secured and unsecured loans
which he can make to a single borrower or a related group of
borrowers.
  The Board
of Directors of the Bank is responsible for approving and monitoring the loan
policy, providing guidance and counsel to all lending personnel and approving
all extensions of credit over $500,000, primarily through the Loan Committee of
the Board of Directors. This committee convenes weekly to review and approve any
loans over $500,000 and also to review nonperforming loans and potential problem
loans.
   3
   **Loan
Review and Non -Performing Assets**
  The Bank
periodically reviews its loan portfolio to determine deficiencies and corrective
action to be taken.  Senior lending officers conduct reviews of borrowers
with total direct and indirect indebtedness of $1,000,000 or more and closely
monitors all past due loans.  Past due loans are reviewed at least weekly
by lending officers, and a summary report is reviewed monthly by the Board of
Directors of the Bank.  The Board of Directors of the Bank reviews all loan
relationships over $1,000,000, whether current or past due, at least once
annually.  In addition, the Bank maintains internal classifications of
potential problem loans.  The Bank also utilizes an independent external
loan review specialist to review all outstanding debt from customers exceeding
$1,000,000 as well as a sampling of loan relationships with balances below
$1,000,000.
  The
portion of loans that are not supported by collateral are typically charged off
when the loan reaches a past due status of 120 days.  Exceptions to this
involve customers with fully-secured loans who have begun bankruptcy
proceedings, as well as loans on which the Bank has begun foreclosure or other
steps of collection, under which circumstances the loans are placed in
nonaccrual status. Other exceptions involve loans which are technically past due
but in the process of renewal.
  **Investment
Policy**
  The
Bank’s investment policy provides guidelines for determining permissible
investments in the investment portfolio, credit criteria and quality ratings,
the desired mix among those investments, and preferred maturity distribution of
the portfolio.  The Bank’s five objectives concerning its investment
portfolio require balancing the Bank’s goals with respect to asset/liability
management, profitability, liquidity, pledging, and local community
support.  The Bank’s President/CEO and Senior Executive Vice President/CFO
are authorized to buy and sell securities according to criteria set forth in the
investment policy.  Individual transactions, portfolio composition, and
performance are reviewed by the Bank’s Investment and Asset/Liability Management
Committee and the full Board of Directors of the Bank on a monthly basis. 
The investment policy is reviewed annually by the Bank’s Board of Directors.
  Generally,
the Bank places all securities in the Available for Sale portfolio.  As of
December 31, 2004, investment securities totaled $46,732,000.
  The
primary risks in the Bank’s securities portfolio consist of two
types:
  (1)
    Credit
      risk, or the risk of default of the issuer. 
      Treasury and government agency securities comprised 60.6% of the
      portfolio; therefore the credit risk is primarily limited to the risk of
      default of the U.S. Government and its agencies.  State, County, and
      Municipal bonds represent 36.2% of the portfolio with the credit risk
      limited to the risk of default of the issuing municipality.  Other
      debt securities comprised 3.2% of the portfolio with the credit risk being
      the risk of default of the issuer of the debt security.(2)
    Interest
      rate risk, or the risk of adverse movements in interest rates on the value
      of the portfolio. 
      In general, a rise in interest rates will cause the value of the Bank’s
      securities portfolio to decline.  The longer the maturity of an
      individual security, the greater the effect of change in interest rate on
      its value.  For a discussion of the Bank’s interest rate risk
      management policies and management, see “Management’s Discussion and
      Analysis of Financial Condition and Plan of Operation for the Years Ended
      December 31, 2004 and 2003 - Asset/Liability and Interest Rate Sensitivity
      Management.”
  **Competition**
  The Bank
competes in Oconee County with six other commercial banks.  With three
full-service and one limited banking office within Oconee County, the Bank is
the market leader in Oconee County in terms of assets, deposit size, facility
locations, and market coverage. ****
  The Bank
also competes in Athens-Clarke County.  There are eleven other
commercial banks in Athens-Clarke County, six of which have offices in Oconee
County.  As of June 30, 2004, the other eleven banks located in
Athens-Clarke County held deposits totaling $1,532,676,000.  The Bank’s
physical presence in Athens-Clarke County is limited to one full-service branch,
a full-service in-store branch in the East Athens Wal-Mart Supercenter, and one
ATM, located in Jimbo’s Convenience Store.
   4
  The
following table shows deposits by financial institution along with market share
in Oconee County for the period ended June 30, 2004 (Dollar amounts are in
thousands):
  Total
      Deposits
    
    Market
      ShareAthens
      First Bank & Trust Company
    
    $
    77,013
    
    
    18.7
    %Bank
      of America, N.A.
    
    
    21,680
    
    
    5.3
    %Community
      Bank & Trust
    
    
    2,665
    
    
    0.7
    %First
      American Bank & Trust Company
    
    
    14,303
    
    
    3.5
    %North
      Georgia Bank
    
    
    81,850
    
    
    19.8
    %Oconee
      State Bank
    
    
    208,052
    
    
    50.5
    %SunTrust
      Bank, N.A.
    
    
    6,172
    
    
    1.5
    %Total
      Deposits
    
    $
    411,735
    
    
    100
    %
 
 In
addition to the Bank’s competition in Oconee County and Athens-Clarke County,
the Bank competes with commercial banks, thrifts, and various other financial
institutions and brokerage firms located in Northeastern Georgia counties
outside of its primary and secondary market areas.  To a lesser extent, the
Bank also competes for deposits and loans with credit unions and for loans with
insurance companies, small loan or finance companies, and certain governmental
agencies.
  The
business of the Bank is not materially seasonal.  Construction and
development lending are strongest in Spring and Summer.  Building slows
somewhat in Fall and Winter, but not to the degree that there is an appreciable
impact upon the Bank’s Balance Sheet or Statement of
Earnings.
  **Forward
Looking Statements**
  Information
provided by Oconee or statements made by our directors, officers or employees
may constitute “forward-looking” statements under the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties.  Any statements made in this Annual Report on Form 10-KSB
including any statements incorporated by reference, which are not statements of
historical fact, are forward-looking statements.  These forward-looking
statements and other forward-looking statements made by us or our
representatives are based on a number of assumptions and involve a number of
risks and uncertainties, and, accordingly, actual results could differ
materially.  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 primary and secondary markets
where Oconee operates); competition from other providers of financial services
offered by Oconee; government regulations and legislation; changes in interest
rates; material unforeseen changes in the financial stability and liquidity of
Oconee’s credit customers, all of which are difficult to predict and which may
be beyond the control of Oconee.  Oconee 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.
  **Supervision
and Regulation**
  The
following is an explanation of the supervision and regulation of Oconee and the
Bank as financial institutions. This explanation does not purport to describe
state or federal supervision and regulation of general business
companies.
  **General.** Oconee is a registered bank holding company subject to regulation by the Board
of Governors of the Federal Reserve System (the “Federal Reserve”) under the
Bank Holding Company Act of 1956, as amended (the “Act”).  Oconee is
required to file financial information with the Federal Reserve periodically and
is subject to periodic examination by the Federal Reserve.
   5
  The Act
requires every bank holding company to obtain the prior approval of the Federal
Reserve before (i) it acquires direct or indirect ownership or control of more
than 5% of the voting shares of any bank that it does not already control; (ii)
it or any of its subsidiaries, other than a bank, acquires all or substantially
all of the assets of a bank; and (iii) it merges or consolidates with any other
bank holding company.  In addition, a bank holding company is generally
prohibited from engaging in, or acquiring, direct or indirect control of the
voting shares of any company engaged in non-banking activities.  This
prohibition does not apply to activities found by the Federal Reserve, by order
or regulation, to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.  Some of the activities that the
Federal Reserve has determined by regulation or order to be closely related to
banking are:  making or servicing loans and certain types of leases;
performing certain data processing services; acting as fiduciary or investment
or financial advisor; providing discount brokerage services; underwriting bank
eligible securities; underwriting debt and equity securities on a limited basis
through separately capitalized subsidiaries; and making investments in
corporations or projects designed primarily to promote community
welfare.
  Although
the activities of bank holding companies have traditionally been limited to the
business of banking and activities closely related or incidental to banking, the
Gramm-Leach-Bliley Act became effective in 2000 and relaxed the previous
limitations, permitting bank holding companies to engage in a broader range of
financial activities.  Specifically, bank holding companies may elect to
become financial holding companies which may affiliate with securities firms and
insurance companies and engage in other activities that are financial in
nature.  Among the activities that are deemed “financial in nature”
are:
  ·
    lending,
      exchanging, transferring, investing for others or safeguarding money or
      securities;
  ·
    insuring,
      guaranteeing, or indemnifying against loss, harm, damage, illness,
      disability, or death, or providing and issuing annuities, and acting as
      principal, agent, or broker with respect
thereto;
  ·
    providing
      financial, investment, or economic advisory services, including advising
      an investment company;
  ·
    issuing
      or selling instruments representing interests in pools of assets
      permissible for a bank to hold directly;
and
   ·
    underwriting,
      dealing in or making a market in
securities.
  A bank
holding company may become a financial holding company under this statute only
if each of its subsidiary banks is well capitalized, is well managed and has at
least a satisfactory rating under the Community Reinvestment Act.  A bank
holding company that falls out of compliance with such requirements may be
required to cease engaging in certain activities.  Any bank holding company
that does not elect to become a financial holding company remains subject to the
current restrictions of the Bank Holding Company Act.
  Under the
Gramm-Leach-Bliley Act, the Federal Reserve Board serves as the primary
“umbrella” regulator of financial holding companies with supervisory authority
over each parent company and limited authority over its subsidiaries.  The
primary regulator of each subsidiary of a financial holding company will depend
on the type of activity conducted by the subsidiary.  For example,
broker-dealer subsidiaries will be regulated largely by securities regulators
and insurance subsidiaries will be regulated largely by insurance
authorities.
  Oconee
cannot predict the full impact of this legislation and has no immediate plans to
become a financial holding company.
  Oconee
must also register with the Georgia Department of Banking and Finance (the
“GDBF”) and file periodic information with the GDBF.  As part of such
registration, the GDBF requires information with respect to the financial
condition, operations, management, and intercompany relationships of Oconee and
the Bank and related matters.  The GDBF may also require such other
information as is necessary to keep itself informed as to whether the provisions
of Georgia law and the regulations and orders issued thereunder by the GDBF have
been complied with, and the GDBF may examine Oconee and the Bank.
  Oconee is
an “affiliate” of the Bank under the Federal Reserve Act, which imposes certain
restrictions on (i) loans by the Bank to Oconee, (ii) investments in the stock
or securities of Oconee by the Bank, (iii) the Bank’s taking the stock or
securities of an “affiliate” as collateral for loans by the Bank to a borrower,
and (iv) the purchase of assets from Oconee by the Bank.  Further, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
  6
  The Bank
is regularly examined by the Federal Deposit Insurance Corporation (the
“FDIC”).  The Bank, a state banking association organized under Georgia
law, is subject to the supervision of, and is regularly examined by, the
GDBF.  Both the FDIC and the GDBF must grant prior approval of any merger,
consolidation or other corporation reorganization involving the Bank.  A
bank can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with the default of a commonly controlled
institution.
  **Payment
of Dividends.** Oconee is a legal entity separate and distinct from the Bank.  Most of the
revenues of Oconee result from dividends paid to it by the Bank.  There are
statutory and regulatory requirements applicable to the payment of dividends by
the Bank, as well as by Oconee to its shareholders.
  The Bank
is a state chartered bank regulated by the GDBF and the FDIC.  Under the
regulations of the GDBF, dividends may not be declared out of the retained
earnings of a state bank without first obtaining the written permission of the
GDBF unless such bank meets all the following requirements:
  (a)
    total
      classified assets as of the most recent examination of the bank do not
      exceed 80% of equity capital (as defined by regulation);(b)
    the
      aggregate amount of dividends declared or anticipated to be declared in
      the calendar year does not exceed 50% of the net profits after taxes but
      before dividends for the previous calendar year; and(c)
    the
      ratio of equity capital to adjusted assets is not less than
      6%.
  The
payment of dividends by Oconee and the Bank may also be affected or limited by
other factors, such as the requirement to maintain adequate capital above
regulatory guidelines.  In addition, if, in the opinion of the applicable
regulatory authority, a bank under its jurisdiction is engaged in or is about to
engage in an unsafe or unsound practice (which, depending upon the financial
condition of the bank, could include the payment of dividends), such authority
may require, after notice and hearing, that such bank cease and desist from such
practice.  The FDIC has issued a policy statement providing that insured
banks should generally only pay dividends out of current operating
earnings.  In addition to the formal statutes and regulations, regulatory
authorities consider the adequacy of the Bank’s total capital in relation to its
assets, deposits and other such items.  Capital adequacy considerations
could further limit the availability of dividends to the Bank.  At December
31, 2004, net assets available from the Bank to pay dividends without prior
approval from regulatory authorities totaled $1,281,000.  For 2004,
Oconee’s cash dividend payout to stockholders was 35.6% of net
income.
  **Monetary
Policy.** The results of operations of the Bank are affected by credit policies of
monetary authorities, particularly the Federal Reserve.  The instruments of
monetary policy employed by the Federal Reserve include open market operations
in U.S. government securities, changes in the discount rate on bank borrowings
and changes in reserve requirements against bank deposits.  In view of
changing conditions in the national economy and in the money markets, as well as
the effect of actions by monetary and fiscal authorities, including the Federal
Reserve, no prediction can be made as to possible future changes in interest
rates, deposit levels, loan demand or the business and earnings of the
Bank.
  **Capital
Adequacy.** The Federal Reserve and the FDIC have implemented substantially identical
risk-based rules for assessing bank and bank holding company capital
adequacy.  These regulations establish minimum capital standards in
relation to assets and off-balance sheet exposures as adjusted for credit
risk.  Banks and bank holding companies are required to have (1) a minimum
level of total capital to risk-weighted assets of eight percent (8%); (2) a
minimum Tier One Capital to risk-weighted assets of four percent (4%); and (3) a
minimum stockholders’ equity to risk-weighted assets of four percent (4%). 
In addition, the Federal Reserve and the FDIC have established a minimum four
percent (4%) leverage ratio of Tier One Capital to total assets for all but the
most highly rated banks and bank holding companies.  “Tier One Capital”
generally consists of common equity not including unrecognized gains and losses
on securities, minority interests in equity accounts of consolidated
subsidiaries and certain perpetual preferred stock less certain
intangibles.  The Federal Reserve and the FDIC will require a bank holding
company and a bank, respectively, to maintain a leverage ratio greater than
three percent (3%) if either is experiencing or anticipating significant growth
or is operating with less than well-diversified risks in the opinion of the
Federal Reserve.  The Federal Reserve and the FDIC use the leverage ratio
in tandem with the risk-based ratio to assess the capital adequacy of banks and
bank holding companies.  The FDIC, the Office of the Comptroller of the
Currency (the “OCC”) and the Federal Reserve have amended, effective January 1,
1997, the capital adequacy standards to provide for the consideration of
interest rate risk in the overall determination of a bank’s capital ratio,
requiring banks with greater interest rate risk to maintain adequate capital for
the risk.  The revised standards have not had a significant effect on
Oconee’s capital requirements.
   7
   In
addition, effective December 19, 1992, a new Section 38 to the Federal Deposit
Insurance Act implemented the prompt corrective action provisions, designed to
efficiently resolve failing financial situations, that Congress enacted as a
part of the Federal Deposit Insurance Corporation Improvement Act of 1991 (the
“1991 Act”).  The “prompt corrective action” provisions set forth five
regulatory zones in which all banks are placed largely based on their capital
positions.  Regulators are permitted to take increasingly harsh action as a
bank’s financial condition declines.  Regulators are also empowered to
place in receivership or require the sale of a bank to another depository
institution when a bank’s capital leverage ratio reaches 2%. 
Better-capitalized institutions are generally subject to less onerous regulation
and supervision than banks with lesser amounts of capital.
  The FDIC
regulations implementing the “prompt corrective action” provisions of the 1991
Act, which place financial institutions in the following five categories based
upon capitalization ratios: (1) a “well capitalized” institution has a total
risk-based capital ratio of at least 10%, a Tier One risk-based ratio of at
least 6% and a leverage ratio of at least 5%; (2) an “adequately capitalized”
institution has a total risk-based capital ratio of at least 8%, a Tier One
risk-based ratio of at least 4% and a leverage ratio of at least 4%; (3) an
“undercapitalized” institution has a total risk-based capital ratio of under 8%,
a Tier One risk-based ratio of under 4% or a leverage ratio of under 4%; (4) a
“significantly undercapitalized” institution has a total risk-based capital
ratio of under 6%, a Tier One risk-based ratio of under 3% or a leverage ratio
of under 3%; and (5) a “critically undercapitalized” institution has a leverage
ratio of 2% or less.  Institutions in any of the three undercapitalized
categories would be prohibited from declaring dividends or making capital
distributions.  The FDIC regulations also establish procedures for
“downgrading” an institution to a lower capital category based on supervisory
factors other than capital.  Under the FDIC’s regulations, the Bank was a
“well capitalized” institution at December 31, 2003 and December 31,
2004.
  Set forth
below are pertinent capital ratios for the Bank as of December 31, 2004 and
2003:
  Minimum
      Capital Requirement
    
    
    The
      Bank2004
    
    2003Total
      Capital to
      Risk
      Weighted
      Assets: 
      8%(1)
    
    12.0%
    
    12.6%Tier
      One Capital to
      Risk
      Weighted
      Assets: 
      4%(2)
    
    10.8%
    
    11.3%Leverage
      Ratio (Tier One
      Capital
      to Average Total
      Assets): 
      4% (3)
    
    8.5%
    
    8.0%
  __________________________
  (1)  
Minimum required ratio for “well capitalized” banks is 10%
 (2)  
Minimum required ratio for “well capitalized” banks is 6%
 (3)  
Minimum required ratio for “well capitalized” banks is 5%
  **Loans.** Inter-agency guidelines adopted by federal bank regulators mandate that
financial institutions establish real estate lending policies with maximum
allowable real estate loan-to-value limits, subject to an allowable amount of
non-conforming loans as a percentage of capital. The Bank adopted the federal
guidelines as their maximum allowable limits in 2001; however, policy exceptions
are permitted for real estate loan customers with justification.
  **Transactions
with Affiliates.** Under
federal law, all transactions between and among a state nonmember bank and its
affiliates, which include holding companies, are subject to Sections 23A
and 23B of the Federal Reserve Act and Regulation W promulgated thereunder
as interpreted by the FDIC. Generally, these requirements limit these
transactions to a percentage of the bank’s capital and require all of them to be
on terms at least as favorable to the bank as transactions with non-affiliates.
In addition, a bank may not lend to any affiliate engaged in non-banking
activities not permissible for a bank holding company or acquire shares of any
affiliate that is not a subsidiary. The FDIC is authorized to impose additional
restrictions on transactions with affiliates if necessary to protect the safety
and soundness of a bank. The regulations also set forth various reporting
requirements relating to transactions with affiliates.
   8
  **Financial
Privacy.** In
accordance with the Gramm-Leach-Bliley Act, federal banking regulators adopted
rules that limit the ability of banks and other financial institutions to
disclose non-public information about consumers to nonaffiliated third parties.
These limitations require disclosure of privacy policies to consumers and, in
some circumstances, allow consumers to prevent disclosure of certain personal
information to a nonaffiliated third party. The privacy provisions of the
Gramm-Leach-Bliley Act affect how consumer information is transmitted through
diversified financial companies and conveyed to outside vendors.
  **Anti-Money
Laundering Initiatives and the USA Patriot Act.** A major
focus of governmental policy on financial institutions in recent years has been
aimed at combating terrorist financing. This has generally been accomplished by
amending existing anti-money laundering laws and regulations. The USA Patriot
Act of 2001 (the “USA Patriot Act”) imposed significant new compliance and due
diligence obligations, creating new crimes and penalties and expanding the
extra-territorial jurisdiction of the United States. The United States Treasury
Department has issued a number of implementing regulations which apply to
various requirements of the USA Patriot Act to United and the Banks. These
regulations impose obligations on financial institutions to maintain appropriate
policies, procedures and controls to detect, prevent and report money laundering
and terrorist financing and to verify the identity of their customers. Failure
of a financial institution to maintain and implement adequate programs to combat
terrorist financing, or to comply with all of the relevant laws or regulations,
could have serious legal and reputation-related consequences for the
institution.
  **Economic
Conditions**
  Economic
growth in the Bank’s primary service area is expected to remain stable. 
The counties in the Bank’s market area are expected to continue to receive
revenues from their traditional sources of trade, finance, insurance, real
estate development and sales, manufacturing and the service industry.  Both
employment and population growth are projected to remain stable in Oconee and
Athens-Clarke Counties.
  **Employees**
  At
December 31, 2004, the Bank had 76 full-time employees and 32 part-time
employees. The Bank is not a party to any collective bargaining agreement, and
the Bank believes that its employee relations are generally good.
  **ITEM
2.** **DESCRIPTION OF PROPERTIES.**
  The Bank
operates five full-service banking offices, one limited service banking office
and two support services spaces as follows:
  (1)
    Main
      Office
      35
      North Main Street
      Watkinsville,
      Georgia 30677(2)
    Bogart
      Branch
      U.S.
      Highway 78
      Bogart,
      Georgia 30622(3)
    Friendship
      Branch
      8811
      Macon Highway
      Athens,
      Georgia 30606(4)
    Mortgage
      Department/Operations Annex
      (Limited
      Service/Support Offices for Main Office)
      Condominium
      Units 10 and 12
      Durham
      Street
      Watkinsville,
      Georgia 30677
  9
  
 (5)
    Athens
      Branch
      500
      North Milledge Avenue
      Athens,
      Georgia 30605(6)
    East
      Athens Wal-Mart Supercenter
      (In-Store
      Full Service Branch)
      4375
      Lexington Road
      Athens,
      Georgia 30605(7)
    Operations
      Center
      7920
      Macon Highway
      Watkinsville,
      Georgia 30677
  The
executive offices and the main office of Oconee and the Bank are located in a
6,500 square-foot facility at 35 North Main Street in Watkinsville, Georgia with
three drive-thru windows and a walk-up ATM.
  The
Bogart Branch is located at the intersection of U.S. Highway 78 and Mars Hill
Road in Bogart, Georgia.  This 5,250 square-foot facility has 2 drive-thru
windows and a drive-thru ATM.
  The
Friendship Branch is an 800 square-foot facility at 8811 Macon Highway, Athens,
Georgia.  This branch has three drive-thru windows and serves the
Friendship community.  Although it has an Athens address, this branch is
located within Oconee County.
  The Bank
owns two office condominium units adjacent to and behind its main office in
Watkinsville.  The units are numbered 10 and 12 on Durham Street in
Watkinsville, Georgia. Each unit contains 1,180 square feet on the ground floor
and 450 square feet on the second floor, for a total of 1,630 square feet per
unit or 3,260 square feet for all units owned.  Unit 10 houses the Bank’s
mortgage loan department.  Unit 12 houses the Bank’s Chief Lending Officer
and his support staff.
  In May of
2004, the Bank relocated its operations personnel into its Operations Center
located at 7920 Macon Highway in Watkinsville, Georgia and subsequently sold the
three office condominium units that formerly housed the operations
personnel.  The building is approximately 60,000 square feet and is divided
into three equally sized bays, and is located on approximately 10 acres of
land.  The Bank renovated one of the bays to house personnel in the human
resources, deposit operations, information technology, loan operations,
compliance and accounting departments.  The other two bays are available
for the Bank to lease to other companies.  Currently, one of the bays is
leased to Fibervisions, Inc.
  Except as
described below, all of the properties referenced previously are owned by
Oconee.
  The
Athens Branch is located at 500 North Milledge Avenue in Athens, Georgia. 
The branch is a 2,000 square foot building that houses one commercial loan
officer and one mortgage loan originator, along with their support staff, as
well as staff members dedicated to the deposit transaction function.  The
branch is leased by the Bank.  The lease was renewed in July of 2003 and
has a term of two years at a monthly rate of $2,205.00.
  The Bank
leases space in the Wal-Mart Supercenter Store No. 2811 located at 4375
Lexington Road in Athens, Georgia from Wal-Mart Stores East, Inc.  This
branch is located in a 695 square foot leased space inside the store.  The
lease was entered into in January of 2000 for a five year term. The bank renewed
this lease in January of 2005 for an additional five years at a monthly rate of
$3,312.50.
  In
addition, two parking lots adjacent to the main office are leased and provide
additional parking for employees.
  Management
of Oconee and the Bank believe that all of its properties are adequately covered
by insurance.
  **ITEM
3.** **LEGAL
PROCEEDINGS.**
  Neither
Oconee nor the Bank is a party to, nor are any of their properties the subject
of, any material legal proceeding other than ordinary routine litigation
incidental to Oconee’s and the Bank’s business.
   10
  **ITEM
4.** **SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.**
  No
matters were submitted to a vote of the security holders of Oconee during the
fourth quarter of the fiscal year covered by the report.
   **PART
II**
  **ITEM
5** **.** **MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.**
  **Markets
For Capital Stock**
  Oconee
Common Stock is not traded on any established public trading market. 
Management is aware of 35 trades of Oconee Common Stock in 2004, aggregating
1,980 shares in blocks ranging from 1 to 300 shares at prices ranging from
$72.00 to $85.00 per share.  Management is aware of 49 trades of Oconee
Common Stock in 2003, aggregating 3,841 shares in blocks ranging from 2 to 1,000
shares at prices ranging from $50.00 to $75.00 per share.
  **Holders**
  As of
December 31, 2004, there were 670 holders of record of Common
Stock.
  **Dividends**
  In 2004
and 2003, Oconee declared cash dividends of $1.00 per share payable to
shareholders of record on December 31 of each year.  Cash dividends for
2004 represented a payment of 35.6% of net income for the year compared to 33.6%
for 2003.  While Oconee intends to continue paying cash dividends on an
annual basis, no assurance can be given that dividends will be declared in the
future. The amount and frequency of dividends is determined by Oconee’s Board of
Directors consideration of various factors, which may include Oconee’s financial
condition and results of operations, investment opportunities available to
Oconee, capital requirements, tax consideration and general economic
conditions.  See “Supervision and Regulation - Payment of
Dividends.”
  **ITEM
      6.**
    **MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION FOR
      THE YEARS ENDED DECEMBER 31, 2004 AND
2003.**
  This
analysis of Oconee has been prepared to provide insight into the financial
condition of the Company, and addresses the factors which have affected the
Company’s results of operations.  The Company’s financial statements and
accompanying notes which follow are an integral part of this review and should
be read in conjunction with it.
  **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES**
  The
consolidated financial statements include the financial statements of Oconee and
the Bank (for purposes of this Item 6, collectively called, the “Company”). All
significant intercompany balances and transactions have been eliminated in
consolidation.
 
 The
Company’s accounting policies are fundamental to understanding management’s
discussion and analysis of results of operations and financial condition. Some
of the Company’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 Company’s significant
accounting policies can be found in Note 1 of the Notes to Consolidated
Financial Statements in the Company’s 2004 Annual Report to Shareholders.
 
 Many of
the Company’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 Company’s estimate of the
allowance for loan losses. The Company 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 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 Company using
dealer quotes or market comparisons.
  11
  
 Management
of the Company has made a number of estimates and assumptions to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
 
 **Selected
Financial Information**
 
 **2004**
    
    
    **2003**
    
    
    **2002**
    
    
    **2001**
    
    
    **2000****(Amounts
      in thousands, except per share data)**Net
      interest income
    
    $
    10,003
    
    
    9,033
    
    
    8,665
    
    
    8,022
    
    
    7,887Other
      operating income
    
    $
    2,217
    
    
    3,003
    
    
    2,504
    
    
    1,922
    
    
    1,377Provision
      for loan losses
    
    $
    394
    
    
    645
    
    
    555
    
    
    300
    
    
    387Net
      income
    
    $
    2,531
    
    
    2,678
    
    
    2,612
    
    
    2,393
    
    
    2,467Net
      income per common share
    
    $
    2.81
    
    
    2.98
    
    
    2.90
    
    
    2.66
    
    
    2.74Total
      assets
    
    $
    256,865
    
    
    251,956
    
    
    246,286
    
    
    212,524
    
    
    181,925Cash
      dividends declared per common share
    
    $
    1.00
    
    
    1.00
    
    
    1.00
    
    
    1.00
    
    
    1.10
 
 
 **RESULTS
OF OPERATIONS**
  **Net
Interest Income**
  The
Company’s earnings depend to a large degree on net interest income, which is the
difference between the interest income received from its earning assets (such as
loans, investment securities, federal funds sold, etc.) and the interest expense
that is paid on deposit and other liabilities.
  Net
interest income in 2004, which was $10,003,000, increased by $970,000, or 9.7%,
over 2003 *.* Net
interest income improved as a result of a decrease in interest income of
$784,000 outpaced by a decrease in interest expense of $1,754,000. These
decreases were due primarily to a decrease in average interest-earning assets of
$11,348,000 in 2004 as compared to 2003. Average balances in Federal funds sold
during 2004 were $8,737,000 lower than 2003 levels. This decrease is due to the
Bank’s efforts to build up Federal funds sold during 2003 in order to repay a
Federal Home Loan Bank advance of $13,300,000 that matured in August 2003.
Average loans outstanding during 2004 were $4,484,000 lower than 2003. Although
year-end totals for loans show an increase of $14,914,000, the average balance
was lower due to the fact that the majority of this loan increase occurred
during the third and fourth quarter of 2004. The decrease in interest expense is
primarily due to a $1,135,000 decrease in interest expense on time deposits and
a decrease of $553,000 in interest expense on Federal Home Loan Bank advances.
The decrease in interest expense on time deposits is a result of average
balances in time deposits decreasing $14,903,000 from 2003 to 2004. The decrease
in interest expense on Federal Home Loan Bank advances is due to the full
repayment of the $13,300,000 advance in August 2003.
  Net
interest income in 2003, which was $9,033,000, increased by $368,000, or 4.2%,
over 2002. Net interest income improved as a result of a decrease in interest
income of $454,000 offset by a decrease in interest expense of $822,000. The
decrease in interest income was due primarily to a decrease in interest income
on loans as a result of a lower interest rate environment. The decrease in
interest expense was a result of lower interest rates being paid on
interest-bearing deposits as well as a reduction in interest expense on a
Federal Home Loan Bank advance which was paid in full in August, 2003.
  Table 1
sets forth the average balance for each category of interest-earning assets and
interest-bearing liabilities and the average rate of interest earned or paid
thereon for the years ended December 31, 2004, 2003 and 2002. The table also
sets forth the average rate earned on total interest-earning assets, the average
rate paid on total interest-bearing liabilities, and the net yield on average
total interest-earning assets for the same periods. Nonaccrual loans and the
interest income which was recorded on these loans, if any, are included in the
yield calculation for loans in all periods reported. Loan fees of $437,000,
$647,000 and $605,000 are included in the yields for 2004, 2003 and 2002,
respectively. Yield information does not give effect to changes in fair value
that are reflected as a component of stockholders’ equity.
   12
  
   **Table
1**
  **Average
Balance Sheets and Interest Rates**
 For
      the Years Ended December 31,2004
    
    2003
    
    2002Average
      Balance
    
    Interest
    
    Yield/
      Rate
    
    Average
      Balance
    
    Interest
    
    Yield/
      Rate
    
    Average
      Balance
    
    Interest
    
    Yield/
      RateAssets:Interest
      earning assets:Investment
      securities:Taxable
    
    $
    30,278,801
    
    $
    1,165,597
    
    
    3.85
    %
    $
    29,174,332
    
    $
    972,110
    
    
    3.33
    %
    $
    17,651,461
    
    
    991,561
    
    
    5.62
    %Non-taxable
    
    
    16,617,082
    
    
    801,396
    
    
    4.82
    %
    
    16,534,171
    
    
    786,847
    
    
    4.76
    %
    
    14,411,069
    
    
    713,056
    
    
    4.95
    %Other
      Investment Securities
    
    
    2,222,672
    
    
    109,441
    
    
    4.92
    %
    
    1,536,662
    
    
    68,662
    
    
    4.47
    %
    
    1,265,429
    
    
    64,218
    
    
    5.07
    %Federal
      funds sold
    
    
    7,448,265
    
    
    100,011
    
    
    1.34
    %
    
    16,185,123
    
    
    169,988
    
    
    1.05
    %
    
    6,564,956
    
    
    104,368
    
    
    1.59
    %Loans
      (including loan fees)
    
    
    178,449,084
    
    
    11,509,253
    
    
    6.45
    %
    
    182,933,219
    
    
    12,472,490
    
    
    6.82
    %
    
    174,482,281
    
    
    13,050,387
    
    
    7.48
    %Total
      interest-earning assets
    
    
    235,015,904
    
    
    13,685,698
    
    
    5.82
    %
    
    246,363,507
    
    
    14,470,097
    
    
    5.87
    %
    
    214,375,196
    
    
    14,923,590
    
    
    6.96
    %Allowance
      for loan losses
    
    
    (2,803,003
    )
    
    
    
    
    
    
    
    (2,376,496
    )
    
    
    
    
    
    
    
    (1,974,230
    )Cash
      and due from banks
    
    
    7,245,501
    
    
    
    
    
    
    
    
    7,000,382
    
    
    
    
    
    
    
    
    6,132,989Other
      assets
    
    
    10,029,256
    
    
    
    
    
    
    
    
    8,740,202
    
    
    
    
    
    
    
    
    6,630,985Total
      assets
    
    $
    249,487,658
    
    
    
    
    
    
    
    $
    259,727,595
    
    
    
    
    
    
    
    $
    225,164,940Liabilities
      and stockholders’ equity:Interest-bearing
      liabilities:Deposits:Interest-bearing
      demand
    
    $
    57,964,350
    
    $
    615,260
    
    
    1.06
    %
    $
    56,018,253
    
    $
    768,243
    
    
    1.37
    %
    $
    50,959,946
    
    $
    887,176
    
    
    1.74
    %Savings
    
    
    56,318,461
    
    
    911,977
    
    
    1.62
    %
    
    47,182,345
    
    
    831,956
    
    
    1.76
    %
    
    27,015,213
    
    
    609,431
    
    
    2.26
    %Time
    
    
    81,578,878
    
    
    2,132,542
    
    
    2.61
    %
    
    96,482,324
    
    
    3,267,922
    
    
    3.39
    %
    
    89,334,650
    
    
    3,885,384
    
    
    4.35
    %Federal
      Funds Purchased
    
    
    35,669
    
    
    1,508
    
    
    4.23
    %
    
    -
    
    
    -
    
    
    -
    
    
    4,595
    
    
    78
    
    
    1.70
    %Federal
      Home Loan Bank Advances
    
    
    -
    
    
    -
    
    
    -
    
    
    8,599,452
    
    
    552,778
    
    
    6.43
    %
    
    13,300,000
    
    
    854,931
    
    
    6.43
    %Securities
      sold under repurchase agreements
    
    
    1,445,658
    
    
    21,820
    
    
    1.51
    %
    
    897,839
    
    
    15,920
    
    
    1.77
    %
    
    983,599
    
    
    21,820
    
    
    2.22
    %Total
      interest bearing liabilities
    
    
    197,343,016
    
    
    3,683,107
    
    
    1.87
    %
    
    209,180,213
    
    
    5,436,819
    
    
    2.60
    %
    
    181,598,003
    
    
    6,258,820
    
    
    3.45
    %Non-interest
      bearing deposits
    
    
    29,102,010
    
    
    
    
    
    
    
    
    28,432,352
    
    
    
    
    
    
    
    
    23,713,917Other
      liabilities
    
    
    1,198,398
    
    
    
    
    
    
    
    
    1,838,430
    
    
    
    
    
    
    
    
    1,544,138Total
      liabilities
    
    
    227,643,424
    
    
    
    
    
    
    
    
    239,450,995
    
    
    
    
    
    
    
    
    206,856,058Stockholders’
      equity
    
    
    21,844,234
    
    
    
    
    
    
    
    
    20,276,600
    
    
    
    
    
    
    
    
    18,308,882Total
      liabilities and stockholders’ equity
    
    $
    249,487,658
    
    
    
    
    
    
    
    $
    259,727,595
    
    
    
    
    
    
    
    $
    225,164,940Excess
      of interest-bearing assets over
      interest-bearing
      liabilities
    
    $
    37,672,888
    
    
    
    
    
    
    
    $
    37,183,294
    
    
    
    
    
    
    
    $
    32,777,193Ratio
      of interest-earning assets to interest
      -bearing
      liabilities
    
    
    119.09
    %
    
    
    
    
    
    
    
    117.78
    %
    
    
    
    
    
    
    
    118.05
    %Net
      interest income
    
    
    
    
    $
    10,002,591
    
    
    
    
    
    
    
    $
    9,033,278
    
    
    
    
    
    
    
    $
    8,664,770Net
      interest spread
    
    
    
    
    
    
    
    
    3.95
    %
    
    
    
    
    
    
    
    3.27
    %
    
    
    
    
    
    
    
    3.51
    %Net
      interest yield on interest earning assets
    
    
    
    
    
    
    
    
    4.26
    %
    
    
    
    
    
    
    
    3.67
    %
    
    
    
    
    
    
    
    4.04
    %
  13
  
  The
changes in interest income and interest expense can result from variances in
both volume and rates. Table 2 presents the impact of the Company’s net interest
income resulting from changes in average balances and average rates for the
period indicated. The changes in interest due to both volume and rate have been
allocated to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the changes in each.
  **Table
2**
 **Volume-Rate
Analysis**
 
 
 **2004
      over 2003**
      **Increase
      (decrease) due to changes in:****Volume**
    
    **Rate**
    
    **Total**Interest
      income on:Investment
      securitiesTaxable
    
    $
    232,617
    
    $
    (39,130
    )
    $
    193,487Non-taxable
    
    
    (28,639
    )
    
    43,188
    
    
    14,549Other
      investment securities
    
    
    13,294
    
    
    27,485
    
    
    40,779Federal
      funds sold
    
    
    (91,761
    )
    
    21,784
    
    
    (69,977
    )Loans
      (including loan fees)
    
    
    (726,240
    )
    
    (236,997
    )
    
    (963,237
    )Total
      interest earning assets
    
    
    (600,729
    )
    
    (183,670
    )
    
    (784,399
    )Interest
      expense on:Deposits:Interest
      bearing demand
    
    
    (47,801
    )
    
    (105,182
    )
    
    (152,983
    )Savings
    
    
    161,095
    
    
    (81,074
    )
    
    80,021Time
    
    
    (500,771
    )
    
    (634,609
    )
    
    (1,135,380
    )Securities
      sold under repurchase agreements
    
    
    69,139
    
    
    (63,239
    )
    
    5,900Federal
      Funds purchased
    
    
    1,508
    
    
    -
    
    
    1,508Federal
      Home Loan Bank Advances
    
    
    (552,778
    )
    
    -
    
    
    (552,778
    )Total
      interest bearing liabilities
    
    
    (869,608
    )
    
    (884,104
    )
    
    (1,753,712
    )Net
      interest income
    
    $
    268,879
    
    $
    700,434
    
    $
    969,313
 
 
  14
  **Table
2**
 **Volume-Rate
Analysis (continued)**
 **2003
      over 2002**
      **Increase
      (decrease) due to changes in:****Volume**
    
    **Rate**
    
    **Total**Interest
      income on:Investment
      securitiesTaxable
    
    $
    361,419
    
    $
    (380,870
    )
    $
    (19,451
    )Non-taxable
    
    
    87,253
    
    
    (13,462
    )
    
    73,791Other
      investment securities
    
    
    24,407
    
    
    (19,963
    )
    
    4,444Federal
      funds sold
    
    
    152,939
    
    
    (87,319
    )
    
    65,620Loans
      (including loan fees)
    
    
    611,418
    
    
    (1,189,315
    )
    
    (577,897
    )Total
      interest earning assets
    
    
    1,237,436
    
    
    (1,690,929
    )
    
    (453,493
    )Interest
      expense on:Deposits:Interest
      bearing demand
    
    
    80,141
    
    
    (199,074
    )
    
    (118,933
    )Savings
    
    
    454,947
    
    
    (232,422
    )
    
    222,525Time
    
    
    319,408
    
    
    (936,870
    )
    
    (617,462
    )Securities
      sold under repurchase agreements
    
    
    8,175
    
    
    (14,075
    )
    
    (5,900
    )Federal
      Funds purchased
    
    
    (78
    )
    
    -
    
    
    (78
    )Federal
      Home Loan Bank Advances
    
    
    (302,153
    )
    
    -
    
    
    (302,153
    )Total
      interest bearing liabilities
    
    
    560,440
    
    
    (1,382,441
    )
    
    (822,001
    )Net
      interest income
    
    $
    676,996
    
    $
    (308,488
    )
    $
    368,508
  **Provision
for Loan Losses**
  Provisions
for loan losses are charged to income in order to bring the total allowance for
loan losses to a level deemed appropriate by management of the Company based on
factors such as management’s judgment as to potential losses within the
Company’s loan portfolio including the valuation of impaired loans, loan growth,
net charge-offs, changes in the composition of the loan portfolio, delinquencies
and management’s assessment of the quality of the loan portfolio and general
economic climate.
  The
provision for loan losses in 2004 was $394,000 compared to $645,000 in 2003. The
decrease in the provision for loan losses was primarily attributable to a
build-up of reserves during 2003 as a result of increases in loans that were
classified as substandard or doubtful during 2003.
  The
allowance for loan losses represented approximately 1.36% of total loans
outstanding at December 31, 2004 compared to 1.56% at December 31, 2003. Net
charge-offs for 2004 were $532,000 compared to $75,000 during 2003. Net
charge-offs as a percentage of the provision for loan losses were 135.0% and
11.6% for the years ended December 31, 2004 and 2003, respectively. The increase
in net charge-offs for 2004 was a primarily attributable to four large
charge-offs totaling $557,000. ****
  A
management loan review function is utilized by the Company which is supplemented
by the use of an outside loan review specialist. In addition to reviews by
senior lending officers, all relationships of $1,000,000 or more are reviewed
annually by the outside loan review specialist, as well as a sampling of
relationships between $200,000 and $999,999. Loans are placed into various loan
grading categories which assist management in developing lists of potential
problem loans. These loans are regularly monitored by the loan review process to
ensure early identification of repayment problems so that adequate allowances
can be made through the provision for loan losses. Management believes that
these levels of allowance are appropriate based upon the Company’s loan
portfolio and current economic conditions.
   15
  The
provision for loan losses in 2003 was $645,000 compared to $555,000 in 2002. The
increase in the provision for loan losses was primarily attributable to the need
for a higher provision due to an increase in loans that were classified as
substandard or doubtful by examiners during 2003. The allowance for loan losses
represented approximately 1.56% of total loans outstanding at December 31, 2003
compared to 1.17% at December 31, 2002. Net charge-offs for 2003 were $75,000
compared to $268,000 during 2002.
  **Non-Interest
Income**
  Other
income of $2,217,000 in 2004 decreased from 2003 by $786,000 **** or 26.2%
due primarily to a decrease of $1,050,000 in mortgage banking income, offset by
an increase in miscellaneous income of $250,000 and an increase in gains on
sales of investment securities of $47,000. The decrease in mortgage banking
income reflects an expected return of mortgage loan demand to historical levels
as compared to the previous two years as a result in the lessened demand for
refinancing of mortgage loans. The increase in miscellaneous income is primarily
due to the gains on the sales of three office condominium units totaling
$195,000. The condominiums were sold when they were vacated by the Bank’s
operations and support personnel upon their move to the Operations Center in
May.
  Other
income of $3,003,000 in 2003 increased from 2002 by $499,000 **** or 19.9%
due primarily to an increase in mortgage banking income of $369,000 or 33.0%
along with an increase of $55,000 or 5.5% in service charges on deposit
accounts. Mortgage banking income increased because of continued strong demand
for refinancing of existing mortgage loans due to low interest rates. Mortgage
loan volume was $59,359,000 and $72,965,000 for the years ended December 31,
2002 and 2003, respectively. Service charges on deposit accounts increased
because of growth in the number of the Bank’s deposit accounts. Demand for
mortgage loans slowed during the final three months of 2003 but mortgage loan
volume returned to historical levels during 2004.
  **Non-Interest
Expense**
  Other
expenses of $8,281,000 in 2004 increased by $634,000 **** or 8.3%
over 2003. The increase in other expenses is primarily attributable to increases
in occupancy and furniture and equipment expense of $257,000, outside service
fees of $127,000 and salaries and employee benefits expense of $98,000. The
increase in occupancy and furniture and equipment expense is primarily
attributable to expenses associated with the Bank’s new Operations Center, which
was completed and began operating during 2004. The increase in outside service
fees is primarily attributable to an increase in ATM processing fees as a result
of a new contract that was entered into during late 2003. The increase in
salaries and employee benefits expense is primarily due to merit increases for
employees.
  Other
expenses of $7,647,000 in 2003 increased by $798,000 **** or 11.7%
over 2002. The increase in other expenses was primarily attributable to an
increase in salaries and employee benefits expense of $442,000 **** or 10.3%.
This increase was primarily attributable to an increase in compensation earned
by the Bank’s commission-based mortgage loan originator and merit increases for
existing employees. Also, other operating expenses increased by $235,000 or
14.3% primarily due to a $93,000 increase in outside service fees and an
increase of $79,000 in loan collection expenses.
  **Income
Tax Expense**
  The
Company’s effective tax rates were 29%, 28% and 31% for the years ended December
31, 2004, 2003, and 2002, respectively. The decrease in 2003 was due to a State
of Georgia retraining tax credits that the Bank received as a result of training
staff members on various technology initiatives.
  **ANALYSIS
OF FINANCIAL CONDITION**
  **Summary**
  During
2004, average total assets decreased $10,240,000 (3.9%) from 2003. Average
deposits decreased $3,151,000 (1.4%) in 2004 from 2003. Average loans decreased $4,484,000 (2.5%)
in 2004 over 2003. Although average balances show declines in 2004, year-end
balances reflect increases due to strong growth during the final two quarters of
2004.
  Year-end
balances at December 31, 2004 and 2003 reflect an increase in total assets of
$4,909,000 (1.9%) from 2003 to 2004. Total deposits increased $3,132,000 (1.4%)
from 2003 to 2004. Total loans increased $14,914,000 (8.7%) from 2003 to 2004.
Time deposits decreased $3,150,000 (3.5%) **** from 2003
to 2004 while all other deposit accounts increased $6,282,000 (4.5%) from 2003
to 2004.
   16
  **Investment
Securities**
 
 All of
the Company’s investment securities are held in the available-for-sale (“AFS”)
category. At December 31, 2004, the market value of AFS securities totaled
$46,732,000, compared to $53,475,000 and $38,899,000 at December 31, 2003 and
2002, respectively. The decrease in investment securities from 2003 to 2004 is
due to maturities within the portfolio during 2004 that were reinvested in
higher-yielding loans as opposed to investment securities. Table 3 presents the
market value of the presently held AFS securities for the years ended December
31, 2004, 2003 and 2002.
  **Table
3**
 **Investment
Portfolio**
 
 2004
    
    2003
    
    2002**Available
      for sale**State,
      county and municipal
    
    $
    16,901,346
    
    $
    18,165,794
    
    $
    14,786,132United
      States Treasuries and Government agencies
    
    
    17,670,308
    
    
    19,300,929
    
    
    15,099,712Mortgage-backed
    
    
    10,662,410
    
    
    14,508,176
    
    
    8,513,393Other
      debt securities
    
    
    1,497,500
    
    
    1,500,000
    
    
    500,000Totals
    
    $
    46,731,564
    
    $
    53,474,899
    
    $
    38,899,237
 
 The
composition of the investment securities portfolio reflects the Company’s
investment strategy of maintaining an appropriate level of liquidity while
providing a relatively stable source of income. The investment portfolio also
provides a balance to interest rate risk and credit risk in other categories of
the balance sheet while providing a vehicle for the investment of available
funds, furnishing liquidity, and supplying securities to pledge as required
collateral for certain deposits. Table 4 presents the AFS securities held by the
Company by maturity category at December 31, 2004. Yield information does not
give effect to changes in fair value that are reflected as a component of
shareholders’ equity and yields are not calculated on a tax equivalent basis.
Mortgage backed securities are included in the maturities categories in which
they are anticipated to be repaid based on scheduled maturities.
  
 
 **Table
4**
 **Maturity
Distribution and Weighted Average Yield on Investments (1)**
 
 U.S.
      Treasuries &
      Government
      Agencies
    
    Mortgage
      Backed
      Securities
      (2)
    
    State,
      County
      and
      Municipal
    
    Other
      Debt
      Securities
    
    Weighted
      Average
      YieldsWithin
      1 year
    
    $
    4,010,220
    
    $
    -
    
    $
    -
    
    $
    -
    
    
    2.17
    %After
      1 through 5 years
    
    
    3,488,438
    
    
    -
    
    
    1,744,822
    
    
    -
    
    
    4.23
    %After
      5 through 10 years
    
    
    4,682,609
    
    
    5,345,519
    
    
    5,376,954
    
    
    997,500
    
    
    3.97
    %After
      10 years
    
    
    5,489,041
    
    
    5,316,891
    
    
    9,779,570
    
    
    500,000
    
    
    4.75
    %Totals
    
    $
    17,670,308
    
    $
    10,662,410
    
    $
    16,901,346
    
    $
    1,497,500
 
 (1)
    Expected
      maturities may differ from contractual maturities because borrowers may
      have the right to call or prepay obligations with or without call or
      prepayment penalties.(2)
    These
      securities are government guaranteed securities. Mortgage-backed
      securities provide a cash flow of principal and interest over time that is
      not reflected in this table.
  17
    **Loans**
  The loan
portfolio is the largest category of the Company’s earning assets and is
comprised of commercial loans, real estate mortgage loans, real estate
construction loans and consumer loans. The Company conducts primary lending
through its branches in Oconee and Athens-Clarke counties, Georgia, while its
secondary lending market consists of those counties contiguous with Oconee
County, including Clarke, Greene, Morgan, Walton, Barrow and Oglethorpe, and to
Madison County, which is not contiguous to Oconee County, but is part of the
Athens Standard Metropolitan Statistical Area.
  The
composition of the Company’s loan portfolio is presented in Table
5.
  **Table
5**
 **Loan
Portfolio**
 
 2004
    
    2003
    
    2002
    
    2001
    
    2000Commercial,
      financial and agricultural
    
    $
    21,625,371
    
    $
    21,208,190
    
    $
    21,466,048
    
    $
    18,154,481
    
    $
    16,487,028Real
      estate - construction
    
    
    55,157,066
    
    
    43,831,025
    
    
    51,268,113
    
    
    45,386,203
    
    
    29,663,443Real
      estate - mortgage
    
    
    98,929,804
    
    
    94,266,400
    
    
    93,464,207
    
    
    74,130,798
    
    
    64,214,266Consumer
    
    
    10,353,250
    
    
    11,845,183
    
    
    13,354,030
    
    
    13,615,861
    
    
    12,976,318186,065,491
    
    
    171,150,798
    
    
    179,552,398
    
    
    151,287,343
    
    
    123,341,055Less:
      Allowance for loan losses
    
    
    (2,531,330
    )
    
    (2,669,204
    )
    
    (2,098,691
    )
    
    (1,812,041
    )
    
    (1,807,671
    )Loans,
      net
    
    $
    183,534,161
    
    $
    168,481,594
    
    $
    177,453,707
    
    $
    149,475,302
    
    $
    121,533,384
 
  As of
December 31, 2004, loans outstanding were $183,534,000, an increase of
$15,052,000 or 8.9% over the December 31, 2003 balance of $168,482,000. This
increase was primarily attributable to the purchases of participations in loans
from another financial institution totaling $15,130,000 during 2004. These
participations were in development loans and were purchased from the originating
bank due to the total amount of each loan exceeding the legal lending limit of
the originating institution.
  Table 6
identifies the maturities of commercial and real estate construction (including
acquisition and development) loans as of December 31, 2004 and addresses the
sensitivity of these loans to changes in interest rates. The longer-term
construction loans are typically development loans and loans to tax-exempt
organizations for construction purposes.
 
 **Table
6**
 **Maturity
and Repricing Data for Loans**
 
 
 Maturity
    
    
    Commercial,
      Financial
      and
      Agricultural
    
    Real
      Estate
      Construction
    
    TotalWithin
      1 year
    
    $
    10,653,392
    
    $
    46,627,832
    
    $
    57,281,2241
      to 5 years
    
    
    9,550,327
    
    
    8,529,234
    
    
    18,079,561Over
      5 years
    
    
    1,421,652
    
    
    -
    
    
    1,421,652Totals
    
    $
    21,625,371
    
    $
    55,157,066
    
    $
    76,782,437
 
  18
  
 As of
December 31, 2004, the interest terms of loans in the indicated classifications
for the indicated maturity ranges in excess of one year are as
follows:
 
 Fixed
      Interest
      Rates
    
    Variable
      Interest
      Rates
    
    TotalCommercial,
      financial and agricultural1
      to 5 years
    
    $
    1,771,167
    
    $
    7,779,160
    
    $
    9,550,327Over
      5 years
    
    $
    1,421,652
    
    
    ---
    
    $
    1,421,652Real
      estate construction1
      to 5 years
    
    $
    1,684,290
    
    $
    6,844,944
    
    $
    8,529,234Over
      5 years
    
    
    ---
    
    
    ---
    
    
    ---
  **Allowance
for Loan Losses**
  The
allowance for loan losses reflects management's assessment and estimate of the
risks associated with extending credit and its evaluation of the quality of the
loan portfolio. The Bank periodically analyzes the loan portfolio in an effort
to review asset quality and to establish an allowance for loan losses that
management believes will be adequate in light of anticipated risks and loan
losses. In assessing the adequacy of the allowance, size, quality and risk of
loans in the portfolio are reviewed. Other factors considered include: the
Bank’s loan loss experience, the amount of past due and nonperforming loans,
specific known risks, current and anticipated economic conditions and other
factors that management believes affect the allowance for potential credit
losses.
  The
Company has a dedicated loan review function. All loans $1,000,000 or more are
reviewed annually and placed into various loan grading categories which are used
to develop lists of potential problem loans. These loans are regularly monitored
by the loan review function to ensure early identification of deterioration. The
formal allowance for loan loss adequacy test is performed at the end of each
calendar quarter. Specific amounts of loss are estimated on problem loans and
historical loss percentages are applied to the balance of the portfolio using
certain portfolio stratifications. Additionally, the evaluation takes into
consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions, regulatory examination results, and the
existence of loan concentrations.
 
 On all
loans past due 120 days, it is the policy of the Company to charge off the
portion of those loans whose collectibility is sufficiently questionable that it
can no longer justify showing the loans as an asset on its balance sheet. To
determine if a loan should be charged off, all possible sources of repayment are
analyzed, including: (1) the potential future cash flow, (2) the value of the
Company’s collateral, and (3) the strength of co-makers or guarantors of the
loan in question. When these sources do not add up to a reasonable probability
that the loan can be collected, the loan is charged off. Loans are charged off
by crediting the appropriate loan category and debiting the reserve for loan
losses account. Any accrued but unpaid interest is charged against current years
earnings. All future payments received on the loan are credited to the reserve
for loan losses account.
 
 Table 7
presents an analysis of the allowance for loan losses including charge-off
activity.
  
  19
  
 **Table
7**
 **Allowance
for Loan Losses**
 
 The
following table summarizes information concerning the allowance for loan
losses:
 
 2004
    
    2003
    
    2002
    
    2001
    
    2000(Amounts
      are presented in thousands)Balance
      at beginning of year
    
    $
    2,669
    
    $
    2,099
    
    $
    1,812
    
    $
    1,808
    
    $
    1,469Charges-offs:Commercial,
      financial and agricultural
    
    
    453
    
    
    35
    
    
    138
    
    
    275
    
    
    69Installment
    
    
    273
    
    
    76
    
    
    162
    
    
    107
    
    
    29Real
      Estate
    
    
    -
    
    
    10
    
    
    -
    
    
    -
    
    
    -Total
      charge-offs
    
    
    726
    
    
    121
    
    
    300
    
    
    382
    
    
    98Recoveries:Commercial,
      financial and agricultural
    
    
    178
    
    
    28
    
    
    9
    
    
    70
    
    
    31Installment1
    
    
    16
    
    
    18
    
    
    23
    
    
    16
    
    
    19Total
      recoveries
    
    
    194
    
    
    46
    
    
    32
    
    
    86
    
    
    50Net
      charge-offs
    
    
    532
    
    
    75
    
    
    268
    
    
    296
    
    
    48Provisions
      charged to operations
    
    
    394
    
    
    645
    
    
    555
    
    
    300
    
    
    387Balance
      at end of year
    
    $
    2,531
    
    $
    2,669
    
    $
    2,099
    
    $
    1,812
    
    $
    1,808Ratios
      of net charge-offs (recoveries) during the
      period
      to average loans outstanding during
      the
      period
    
    
    .30
    %
    
    .04
    %
    
    .15
    %
    
    .21
    %
    
    .04
    %
 
 At
December 31, 2004, the Company had loan concentrations in the housing industry
and in the hotel and motel industry. The Company monitors these concentrations
on a monthly basis to ensure that they do not exceed established internal
guidelines. The primary risk relating to the concentration in the housing
industry is a downturn in the economy adversely affecting construction of new
homes and developments of new housing communities. The market for residential
real estate and development slowed during the year, primarily in the area of new
residential development and speculative housing construction. The Company’s
primary risk relating to the hotel and motel industry is a slowdown in the
travel industry. The Company has established a maximum dollar amount of hotel
and motel loans that it is willing to fund as a result of this slowdown.
Management of the Company is confident that all of the Company’s hotel and motel
loans are adequately collateralized in the unforeseen event that cash flows from
operations of the hotels and motels are not sufficient to meet the terms of
repayment outlined in the loan agreements.
 
 The
Company’s allowance for loan losses is also subject to regulatory examinations
and determinations as to adequacy, which may take into account such factors as
the methodology used to calculate the allowance for loan losses and the size of
the allowance for loan losses compared to a group of peer banks identified by
the regulators. During their routine examinations of banks, the FDIC and GDBF
may require the Company to recognize additions to the allowance based on their
judgments about information available to them at the time of their
examination.
 
 
  20
  
 
 For
year-end 2004 the allowance for loan losses was allocated as follows *(in
thousands)* :
 
 Allocation
      of Allowance for
      Loan
      Losses
    
    
    %
      of
      Allowance
      for
      Loan
      Losses
    
    
    %
      of Loans by Category to
      Total
      LoansCommercial
    
    $
    171
    
    
    6.7
    %
    
    14.0
    %Commercial
      Construction
    
    
    179
    
    
    7.1
    %
    
    12.7
    %Consumer
    
    
    66
    
    
    2.6
    %
    
    5.5
    %Mortgages
    
    
    552
    
    
    21.8
    %
    
    18.8
    %Non-residential
      Real Estate
    
    
    959
    
    
    37.9
    %
    
    25.5
    %Cross-allocated
    
    
    603
    
    
    23.9
    %
    
    23.5
    %Total
    
    $
    2,531
    
    
    100.0
    %
    
    100.0
    %
 
 **Nonperforming
Assets**
  Non-performing
assets, comprised of non-accrual loans, other real estate owned, other
repossessed assets and loans for which payments are more than 90 days past due,
totaled $6,983,000 at December 31, 2004 compared to $3,163,000 at December 31,
2003. This increase is attributable to an
increase in loans more than 90 days past due of $4,481,000 offset by a decrease
in nonaccrual loans of $423,000 and a decrease in other real estate owned and
repossessions of $237,913. The increase in loans 90 days past due is due to two
loans totaling $4,788,000 that were past due more than 90 days at December 31,
2004. One of these loans, in the amount of $3,146,000 was in the process of
renewal at December 31, 2004. The loan was unable to be renewed prior to
December 31, 2004 because one of the guarantors of the debt was on an extended
trip out of the country. The collateral for the other loan, the balance of which
was $1,642,000 at December 31, 2004, was under contract to be sold. Upon the
sale of the collateral, the bank will receive the funds for repayment of the
loan. There were no related party loans which were considered non-performing at
December 31, 2004.
  A summary
of non-performing assets at December 31, 2004, 2003, 2002, 2001 and 2000 is
presented in Table 8.
  **Table
8**
 **Non-performing
Assets**
 
 December
      31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Other
      real estate and repossessions
    
    $
    839,322
    
    
    1,077,235
    
    
    291,931
    
    
    43,690
    
    
    37,265Accruing
      loans 90 days or more past due
    
    $
    5,064,221
    
    
    583,316
    
    
    9,562
    
    
    33,675
    
    
    586Non-accrual
      loans
    
    $
    1,079,462
    
    
    1,502,640
    
    
    2,597,069
    
    
    910,822
    
    
    217,919Interest
      on non-accrual loans which would have been reported
    
    $
    44,000
    
    
    63,000
    
    
    188,000
    
    
    30,800
    
    
    7,200Interest
      recognized on non-accrual loans prior to reclassification of
      loans
    
    $
    18,000
    
    
    37,000
    
    
    98,000
    
    
    57,000
    
    
    10,000Restructured
      debt
    
    $
    -
    
    
    3,189,00
    
    
    -
    
    
    -
    
    
    -
 
  A loan is
placed on non-accrual status when, in management’s judgment, the collection of
interest appears questionable. As a result of management’s ongoing review of the
loan portfolio, loans are classified as non-accrual generally when they are past
due in principal and interest for more than 90 days or it is otherwise not
reasonable to expect collection of principal and interest under the original
terms. Exceptions are allowed for 90 day past due loans when such loans are well
secured and in process of collection or renewal. Generally, payments received on
non-accrual loans are applied directly to principal.
  21
  
 Management
regularly monitors the loan portfolio to ensure that all loans potentially
having a material adverse impact on future operating results, liquidity or
capital resources have been classified as non-performing. Should economic
conditions deteriorate, the inability of distressed customers to service their
existing debt could cause higher levels of non-performing loans.
 
  **Deposits**
  The
Company uses deposits primarily to fund its loan and investment portfolios. The
Company offers a variety of deposit accounts to individuals and businesses.
Deposit accounts include checking, savings, money market and time deposits. As
of December 31, 2004, total deposits were $231,753,000, an increase of
$3,132,000 or 1.4% over the December 31, 2003 balance of $228,621,000. The
increase in deposits is primarily attributable to an increase in non-interest
bearing demand deposits of $1,640,000 and an increase in savings deposits of
$4,082,000, offset by a decrease in time deposits of $3,150,000.
 
 The
average balance of the deposits and the average rates paid on such deposits are
summarized in Table 9.
 
 **Table
9**
 **Deposits**
 
 
 December
      31,2004
    
    2003
    
    2002Average
      Balance
    
    Rate
    
    Average
      Balance
    
    Rate
    
    Average
      Balance
    
    RateDeposits:Non-interest
      bearing demand
    
    $
    29,102,010
    
    
    -
    
    $
    28,432,352
    
    
    -
    
    $
    23,713,917
    
    
    -Interest
      bearing demand
    
    
    57,964,350
    
    
    1.06
    %
    
    56,018,253
    
    
    1.37
    %
    
    50,959,946
    
    
    1.74
    %Savings
    
    
    56,318,461
    
    
    1.62
    %
    
    47,182,345
    
    
    1.76
    %
    
    27,015,213
    
    
    2.26
    %Time
    
    
    81,578,878
    
    
    2.61
    %
    
    96,482,324
    
    
    3.39
    %
    
    89,334,650
    
    
    4.35
    %$
    224,963,699
    
    
    
    
    $
    228,115,274
    
    
    
    
    $
    191,023,726
 
 
 Time
deposits in amounts of $100,000 or more totaled $22,028,000, $19,104,000 and
$27,709,000 at December 31, 2004, 2003 and 2002, respectively. Table 10 is a
summary of the maturity distribution of time deposits in amounts of $100,000 or
more as of December 31, 2004.
 
 **Table
10**
 **Maturity
of Time Deposits over $100,000**
 
 
 Within
      3 months
    
    $
    4,051,000After
      3 through 6 months
    
    
    746,000After
      6 through 12 months
    
    
    5,008,000After
      12 months
    
    
    12,223,000$
    22,028,000
  **Transactions
with Related Parties**
  
 The
Company conducts transactions with directors and executive officers, including
companies in which they have beneficial interest, in the normal course of
business. It is the policy of the Company that loan transactions with directors
and officers are made on substantially the same terms as those prevailing at the
time made for comparable loans to other persons. At December 31, 2004, the
Company had loans outstanding to related parties of $5,519,000 and deposits of
related parties were $12,188,000.
  22
   **Liquidity**
  The
Company must maintain, on a daily basis, sufficient funds to cover the
withdrawals from depositors’ accounts and to supply new borrowers with funds. To
meet these obligations, the Company keeps cash on hand, maintains account
balances with its correspondent banks, and purchases and sells federal funds and
other short-term investments. Asset and liability maturities are monitored in an
attempt to match these to meet liquidity needs. It is the policy of the Company
to monitor its liquidity to meet regulatory requirements and local funding
requirements.
  The
Company maintains relationships with correspondent banks that can provide funds
to it on short notice, if needed. Presently, the Company has arrangements with
correspondent banks for short term unsecured advances of up to $7,000,000.
Additional liquidity is provided to the Company through Federal Home Loan Bank
(FHLB) advances.
  Cash and
cash equivalents decreased $2,241,000 **** to a
total of $15,753,000 **** at
year-end 2004 as cash provided by operating activities and financing activities
was outpaced by amounts used by investing activities. Cash inflows from
operations totaled $4,985,000 in 2004, while inflows from financing activities
totaled $2,523,000, most of which were net deposit increases during 2004 of
$3,133,000 , offset
by cash dividends paid during 2004 of $900,000.
  Investing
activities used $9,745,000 of cash and cash equivalents, principally composed of
net advances of loans to customers of $15,447,000 and purchases of investment
securities of $11,682,000, offset by proceeds from calls and maturities of
investment securities of $15,358,000.
  **Contractual
Obligations and Off-Balance Sheet Arrangements**
  For
maturity and repricing information regarding the Company’s contractual
obligations, please see the table under the heading “ Asset/Liability
and Interest Rate Sensitivity Management.”
  The
Company 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 and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized on the balance sheet. The contract
amounts of those instruments reflect the extent of exposure the Company has in
particular classes of financial instruments. At December 31, 2004, the
contractual amounts of the Company’s commitments to extend credit and standby
letters of credit were $33,388,000 and $1,207,000, 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 of $33,388,000 does not necessarily represent
future cash requirements. Standby letters of credit written are conditional
commitments issued by the Company to guarantee the performance of a customer to
a third party.
  See note
9 to the consolidated financial statements for further discussion of these risks
and contractual commitments.
   23
  **Capital
Resources**
   Table 11
presents the Company’s regulatory capital position at December 31,
2004.
  **Table
11**
 **Capital
Ratios**
  Risk-Based
      Capital Ratios
      Actual
      as of December 31, 2004Tier
      1 Capital
    10.8%Tier
      1 Capital minimum requirement
    4.0%Excess
    6.8%===Total
      Capital
    12.0%Total
      Capital minimum requirement
    8.0%Excess
    4.0%===Leverage
      Ratio At December 31, 2004Tier
      1 Capital to average total assets
    8.5%Minimum
      leverage requirement
    4.0%Excess
    4.5%===
 
 **Table
12**
 **Selected
Ratios**
 
 The
following table sets out certain ratios of the Company for the years
indicated.
 
 2004
    
    2003
    
    2002Net
      income to:Average
      stockholders’ equity
    
    
    11.58
    %
    
    13.21
    %
    
    14.27
    %Average
      assets
    
    
    1.01
    %
    
    1.03
    %
    
    1.16
    %Dividends
      to net income
    
    
    35.56
    %
    
    33.60
    %
    
    34.45
    %Average
      equity to average assets
    
    
    8.76
    %
    
    7.81
    %
    
    8.13
    %
 
 For
further discussion of the actual and required capital ratios of the Company, see
note 11 to the consolidated financial statements and “Supervision and Regulation
- Capital Adequacy.”
  **Asset/Liability
and Interest Rate Sensitivity Management**
  **** It is the
Company’s objective to manage assets and liabilities to provide a satisfactory,
consistent level of profitability within the framework of established cash,
loan, investment, borrowing and capital policies. Certain officers are charged
with the responsibility for monitoring policies and procedures that are designed
to ensure acceptable composition of the asset/liability mix. It is the overall
philosophy of management to support asset growth primarily through growth of
core deposits, which include deposits of all categories made by local
individuals, partnerships and corporations. The objective of this policy is to
control interest sensitive assets and liabilities so as to minimize the impact
of substantial movements in interest rates on earnings.
  The
asset/liability mix is monitored on a regular basis. A report reflecting the
interest sensitive assets and interest sensitive liabilities is prepared and
presented to the Board of Directors of the Bank on a monthly basis.
  The
absolute level and volatility of interest rates can have a significant impact on
Oconee’s profitability. The objective of interest rate risk management is to
identify and manage the sensitivity of net interest income to changing interest
rates, in order to achieve Oconee’s overall financial goals. Based on economic
conditions, asset quality and various other considerations, management
establishes tolerance ranges for interest rate sensitivity and manages within
these ranges.
   24
  Oconee
uses income simulation modeling as a tool in measuring interest rate risk and
managing interest rate sensitivity. Simulation modeling considers not only the
impact of changing market rates of interest on future net interest income, but
also other potential causes of variability.
  Interest
rate sensitivity is a function of the repricing characteristics of Oconee’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. Interest rate sensitivity management focuses on the
maturity structures of assets and liabilities and their repricing
characteristics during periods of change in market interest rates. Interest rate
sensitivity is measured as the difference between the volumes of assets and
liabilities in Oconee’s current portfolio that are subject to repricing at
various time horizons: immediate; one to three months; four to twelve months;
one to five years; over five years, and on a cumulative basis. The differences
are known as interest rate sensitivity gap.
  One
method to measure a bank’s interest rate exposure is through its repricing gap.
The gap is calculated by citing all liabilities that reprice or taking all
assets that reprice or mature within a given time frame and subtracting all
liabilities that reprice or mature within that time frame. The difference
between these two amounts is called the “gap”, the amount of either liabilities
or assets that will reprice without a corresponding asset or liability
repricing.
  A
negative gap (more liabilities repricing than assets) generally indicates that
the bank’s net interest income will decrease if interest rates rise and will
increase if interest rates fall. A positive gap generally indicates that the
bank’s net interest income will decrease if rates fall and will increase if
rates rise.
  The
following table summarizes the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2004 that are
contractually maturing, prepaying or repricing in each of the future time
periods shown. Except as stated below, the amount of assets or liabilities that
mature or reprice during a particular period was determined in accordance with
the contractual terms of the asset or liability. Investment securities are
reported based on the adjusted cost basis. Adjustable rate loans are included in
the period in which interest rates are next scheduled to adjust rather than in
the period in which they are due, and fixed rate loans and mortgage-backed
securities are included in the periods in which they are anticipated to be
repaid based on scheduled maturities. The Company’s savings accounts and
interest-bearing demand accounts (NOW and money market deposit accounts), which
are generally subject to immediate withdrawal, are included in the “Three Months
or Less” category, although historical experience has proven the rates of these
deposits to be more stable over the course of a year.
  
   25
  
  At
      December 31, 2004
      Maturing
      or Repricing in
      (dollars
      in thousands)Three
      Months
      or
      Less
    
    Four
      Months
      to
      12
      Months
    
    1
      to 5
      Years
    
    Over
      5
      Years
    
    TotalInterest-earning
      assets:Investment
      securities
    
    $
    4,515
    
    
    -
    
    
    5,151
    
    
    36,265
    
    
    45,931Federal
      funds sold
    
    
    9,162
    
    
    -
    
    
    -
    
    
    -
    
    
    9,162Loans
    
    
    103,367
    
    
    44,450
    
    
    37,023
    
    
    125
    
    
    184,965Total
      interest-bearing assets
    
    
    117,044
    
    
    44,450
    
    
    42,174
    
    
    36,390
    
    
    240,058Interest-bearing
      liabilities:Deposits:Savings
      and demand
    
    $
    116,555
    
    
    -
    
    
    -
    
    
    -
    
    
    116,555Time
      deposits
    
    
    4,990
    
    
    26,247
    
    
    54,622
    
    
    124
    
    
    85,983Repurchase
      agreements
    
    
    -
    
    
    1,189
    
    
    -
    
    
    -
    
    
    1,189Total
      interest-bearing liabilities
    
    $
    121,545
    
    
    27,436
    
    
    54,622
    
    
    124
    
    
    203,727Interest
      sensitive difference per period
    
    $
    (4,501
    )
    
    17,014
    
    
    (12,448
    )
    
    36,266
    
    
    36,331Cumulative
      interest sensitivity difference
    
    $
    (4,501
    )
    
    12,513
    
    
    65
    
    
    36,331Cumulative
      difference to total earning assets
    
    
    (1.9
    %)
    
    5.2
    %
    
    0.0
    %
    
    15.1
    %
  Note: For
purposes of this analysis, nonaccrual loans, overdrafts and unearned interest
are not included in Loans.
 
 At
December 31, 2004 the difference between the Company’s liabilities and assets
repricing or maturing within one year was $12,513,000. Due to an excess of
assets repricing or maturing within one year, a rise in interest rates would
generally cause the Company’s net interest income to
increase.
  Certain
shortcomings are inherent in the method of analysis presented in the foregoing
table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees or at
different points in time to changes in market interest rates. Additionally,
certain assets, such as adjustable-rate mortgages, have features, such as
interest rate floors and ceilings, that restrict changes in interest rates, both
on a short-term basis and over the life of the asset. Changes in interest rates,
prepayment rates, early withdrawal levels and the ability of borrowers to
service their debt, among other factors, may change significantly from the
assumptions made in the table. In addition, the optionality for callable
securities is not factored in the foregoing table. Including optionality would
reflect greater asset sensitivity than indicated.
  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
four 50 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 quarterly basis using a model, which
applies betas to various types of interest-bearing deposit accounts. The betas
represent the Bank’s inclination to reprice 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 an interest
rate increase or decrease.
 
 At
December 31, 2004, the difference between the Bank’s assets and liabilities
repricing or maturing within one year, after applying the betas, was
$75,834,000, indicating that the Bank was asset sensitive. Rate shock data show
that the Bank’s net interest income would increase $268,000 on an annual basis
if rates increased 100 basis points, and would decrease $280,000 on an annual
basis if rates fell 100 basis points. ****
   26
   **Inflation**
  Inflation
impacts the growth in total assets in the banking industry and causes a need to
increase equity capital at higher than normal rates to meet capital adequacy
requirements. The Company copes with the effects of inflation through the
management of its interest rate sensitivity gap position, by periodically
reviewing and adjusting its pricing of services to consider current costs, and
through managing its level of net earnings relative to its dividend payout
policy.
  **ITEM
7.** **FINANCIAL
STATEMENTS.**
 
 The
financial statements and the report of independent accountants are included in
this report beginning at page F-1 of this Form 10-KSB.
  **ITEM
      8.****CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**
  During
the Company’s two most recent fiscal years, the Company did not change
accountants and had no disagreement with its accountants on any matters of
accounting principles or practices or financial statement disclosure.
  **ITEM
8A.** **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 federal securities rules) and pursuant to such
evaluation, concluded that our disclosure controls and procedures are effective
as of December 31, 2004. Disclosure controls and procedures are those controls
and procedures that 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.
  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.
  **ITEM
8B.** **OTHER
INFORMATION.**
  All
information, if any, required to be reported on Form 8-K during the fourth
quarter of the fiscal year covered by this Form 10-KSB has been
reported.
   **PART
III**
  **ITEM
      9.****DIRECTORS
      AND EXECUTIVE OFFICERS OF THE
REGISTRANT.**
  The
information contained under the headings “Information About Nominees For
Directors and  Executive Officers,” “Compliance with Section 16(a),” “Audit
Committee and Audit Committee Financial Expert,” and “Code of Ethics” in the
definitive Proxy Statement to be used in connection with the solicitation of
proxies for the Company’s annual meeting of shareholders to be held on May 2,
2005 to be filed with the Securities and Exchange Commission (“SEC”), is
incorporated herein by reference. ****
   **ITEM
10.** **EXECUTIVE
COMPENSATION.**
   ****  The
information contained under the heading “Executive Compensation” in the
definitive Proxy Statement to be used in connection with the solicitation of
proxies for the Bank’s annual meeting of shareholders to be held on May 2, 2005,
to be filed with the SEC, is incorporated herein by reference.
   27
   **ITEM
11.** **SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.**
  The
information contained under the heading “Beneficial Ownership of Securities and
Voting Rights” in the definitive Proxy Statement to be used in connection with
the solicitation of proxies for the Company ‘s annual meeting of shareholders to
be held on May 2, 2005, to be filed with the SEC, is incorporated herein by
reference.
  **ITEM
12.** **CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.**
  The
information contained under the heading “Certain Relationships and Related
Transaction” in the definitive Proxy Statement to be used in connection with the
solicitation of proxies for all the Company ‘s annual meeting of shareholders to
be held on May 2, 2005, to be filed with the SEC, is incorporated herein by
reference.
   28
   **ITEM
13.** **EXHIBITS,
LIST AND REPORTS ON FORM 8-K.**
  (a) **Financial
Statements** **.**
  The
following financial statements and notes thereto of the Registrant are located
beginning at page F-1 of this Form 10-KSB pursuant to Item 7 of this
Report:
  1.
    Report
      of Independent Certified Public Accountants
  2.
    Balance
      Sheets  - December 31, 2004 and 2003
  3.
    Statements
      of Earnings
 For the
Years Ended December 31, 2004, 2003, and 2002
  4.
    Statements
      of Changes in Stockholders Equity
 For the
Years Ended December 31, 2004, 2003, and 2002
  5.
    Statements
      of Cash Flows
 For the
Years Ended December 31, 2004, 2003, and 2002
 
 6.
    Notes
      to Financial Statements
  The
following exhibits are required to be filed with this Report on 10-KSB by Item
601 of Regulation S-B.
  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.10.1
    Oconee
      State Bank Officers’ Cash Incentive Plan (included as Exhibit 10.1 to the
      Bank’s 10-KSB filed with the SEC on April 1, 2002 and incorporated herein
      by reference).14
    Code
      of Ethical Conduct.21
    Subsidiaries
      of Oconee Financial Corporation.24
    Power
      of Attorney (included herein on the signature page).31.1
    Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
    Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
    Section
      1350 Certification.32.2
    Section
      1350 Certification.
  (b) **Reports
on Form 8-K.**
  Oconee
did not file any reports on Form 8-K during the fourth quarter of
2004.
   29
    **ITEM
14.** **PRINCIPAL
ACCOUNTANT FEES AND SERVICES** .
  ****  The
information contained under the heading “Audit Fees” in the definitive Proxy
Statement to be used in connection with the solicitation of proxies for the
Bank’s annual meeting of shareholders to be held on May 2, 2005, to be filed
with the SEC, is incorporated herein by reference.
     30






**REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 
 
 To the
Board of Directors and Stockholders
 Oconee
Financial Corporation:
 
 
 We have
audited the accompanying consolidated balance sheets of Oconee Financial
Corporation and subsidiary as of December 31, 2004 and 2003, and the related
consolidated statements of earnings, comprehensive income, changes in
stockholders’ equity and cash flows for each of the three years in the period
ended December 31, 2004. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Oconee Financial Corporation
and subsidiary as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted
in the United States of America.
 
 
 
 
 
 
 
 Atlanta,
Georgia
 March 4,
2005
 
 
 
 
 Certified
Public Accountants
 
 Suite
1800 l 235 Peachtree Street NE l Atlanta, Georgia 30303 l Phone 404-588-4200 l
Fax 404-588-4222 l
 
 ww.pkm.com
 
 F-1
   **OCONEE
FINANCIAL CORPORATION**
 
 **Consolidated
Balance Sheets**
 
 **December
31, 2004 and 2003**
 
 
 2004
    
    2003AssetsCash
      and due from banks, including reserverequirements
      of $4,264,000 and $3,766,000
    
    $
    6,591,366
    
    
    9,206,802Federal
      funds sold
    
    
    9,162,000
    
    
    8,788,000Cash
      and cash equivalents
    
    
    15,753,366
    
    
    17,994,802Investment
      securities available for sale
    
    
    46,731,564
    
    
    53,474,899Other
      investments
    
    
    604,329
    
    
    765,429Mortgage
      loans held for sale
    
    
    1,127,700
    
    
    3,162,971Loans,
      net
    
    
    183,534,161
    
    
    168,481,594Premises
      and equipment, net
    
    
    6,012,802
    
    
    4,521,644Accrued
      interest receivable and other assets
    
    
    3,100,592
    
    
    3,555,051$
    256,864,514
    
    
    251,956,390Liabilities
      and Stockholders’ EquityDeposits:Demand
    
    $
    29,215,401
    
    
    27,575,073Interest-bearing
      demand
    
    
    61,774,758
    
    
    61,214,763Savings
    
    
    54,780,285
    
    
    50,697,737Time
    
    
    85,982,659
    
    
    89,132,999Total
      deposits
    
    
    231,753,103
    
    
    228,620,572Securities
      sold under repurchase agreements
    
    
    1,188,796
    
    
    898,468Accrued
      interest payable and other liabilities
    
    
    1,587,534
    
    
    1,683,688Total
      liabilities
    
    
    234,529,433
    
    
    231,202,728Stockholders’
      equity:Common
      stock, par value $2, authorized 1,500,000 shares,issued
      and outstanding 899,885 shares
    
    
    1,799,770
    
    
    1,799,770Additional
      paid-in capital
    
    
    4,246,832
    
    
    4,246,832Retained
      earnings
    
    
    15,792,228
    
    
    14,161,577Accumulated
      other comprehensive income
    
    
    496,251
    
    
    545,483Total
      stockholders’ equity
    
    
    22,335,081
    
    
    20,753,662$
    256,864,514
    
    
    251,956,390
 
 
 
 See
accompanying notes to consolidated financial statements.
  F-2
  **OCONEE
FINANCIAL CORPORATION**
 
 **Consolidated
Statements of Earnings**
 
 **For
the Years Ended December 31, 2004, 2003 and 2002**
 
 2004
    
    2003
    
    2002Interest
      income:Interest
      and fees on loans
    
    $
    11,509,253
    
    
    12,472,490
    
    
    13,050,387Interest
      on federal funds sold
    
    
    100,011
    
    
    169,988
    
    
    104,368Interest
      and dividends on securities:U.
      S. Treasuries and government agencies
    
    
    1,165,597
    
    
    972,110
    
    
    991,561State,
      county and municipal
    
    
    801,396
    
    
    786,847
    
    
    713,056Other
    
    
    109,441
    
    
    68,662
    
    
    64,218Total
      interest income
    
    
    13,685,698
    
    
    14,470,097
    
    
    14,923,590Interest
      expense:Interest-bearing
      demand deposits
    
    
    615,260
    
    
    768,243
    
    
    887,176Savings
      deposits
    
    
    911,977
    
    
    831,956
    
    
    609,431Time
      deposits
    
    
    2,132,542
    
    
    3,267,922
    
    
    3,885,384Federal
      Home Loan Bank advances
    
    
    -
    
    
    552,778
    
    
    854,931Other
    
    
    23,328
    
    
    15,920
    
    
    21,898Total
      interest expense
    
    
    3,683,107
    
    
    5,436,819
    
    
    6,258,820Net
      interest income
    
    
    10,002,591
    
    
    9,033,278
    
    
    8,664,770Provision
      for loan losses
    
    
    394,200
    
    
    645,000
    
    
    555,000Net
      interest income after provision for loan losses
    
    
    9,608,391
    
    
    8,388,278
    
    
    8,109,770Other
      income:Service
      charges
    
    
    1,036,863
    
    
    1,069,199
    
    
    1,013,876Gain
      on sale of securities
    
    
    46,798
    
    
    -
    
    
    4,357Mortgage
      banking income
    
    
    438,030
    
    
    1,487,720
    
    
    1,118,722Miscellaneous
    
    
    695,530
    
    
    446,245
    
    
    367,224Total
      other income
    
    
    2,217,221
    
    
    3,003,164
    
    
    2,504,179Other
      expenses:Salaries
      and employee benefits
    
    
    4,840,367
    
    
    4,741,913
    
    
    4,300,182Occupancy
    
    
    1,279,339
    
    
    1,022,610
    
    
    901,460Other
      operating
    
    
    2,160,937
    
    
    1,882,481
    
    
    1,647,546Total
      other expenses
    
    
    8,280,643
    
    
    7,647,004
    
    
    6,849,188Earnings
      before income taxes
    
    
    3,544,969
    
    
    3,744,438
    
    
    3,764,761Income
      tax expense
    
    
    1,014,433
    
    
    1,066,343
    
    
    1,152,830Net
      earnings
    
    $
    2,530,536
    
    
    2,678,095
    
    
    2,611,931Net
      earnings per share
    
    $
    2.81
    
    
    2.98
    
    
    2.90
 
 
 
 See
accompanying notes to consolidated financial statements.
  F-3
  **OCONEE
FINANCIAL CORPORATION**
 
 **Consolidated
Statements of Comprehensive Income**
 
 **For
the Years Ended December 31, 2004, 2003 and 2002**
 
 
 2004
    
    2003
    
    2002Net
      earnings
    
    $
    2,530,536
    
    
    2,678,095
    
    
    2,611,931Other
      comprehensive (loss) income, net of income taxes:Unrealized
      gains on securities available for sale:Holding
      gains (losses) arising during period, net of taxbenefit
      (expense) of $12,359, $22,975 and ($312,197)
    
    
    (20,199
    )
    
    (37,552
    )
    
    510,240Reclassification
      adjustment for gains included in netearnings,
      net of tax of $(17,765), $0 and ($1,654)
    
    
    (29,033
    )
    
    -
    
    
    (2,703
    )Total
      other comprehensive (loss) income
    
    
    (49,232
    )
    
    (37,552
    )
    
    507,537Comprehensive
      income
    
    $
    2,481,304
    
    
    2,640,543
    
    
    3,119,468
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See
accompanying notes to consolidated financial statements.
  F-4
  **OCONEE
FINANCIAL CORPORATION**
 
 **Consolidated
Statements of Changes in Stockholders’ Equity**
 
 **For
the Years Ended December 31, 2004, 2003 and 2002**
 
 
 AccumulatedAdditional
    
    
    
    OtherCommon
    
    Paid-In
    
    Retained
    
    ComprehensiveStock
    
    Capital
    
    Earnings
    
    Income
      (Loss)
    
    TotalBalance,
      December 31, 2001
    
    $
    1,799,770
    
    
    4,246,832
    
    
    10,671,321
    
    
    75,498
    
    
    16,793,421Cash
      dividends declared($1.00
      per share)
    
    
    -
    
    
    -
    
    
    (899,885
    )
    
    -
    
    
    (899,885
    )Change
      in net unrealized gainon
      investment securities availablefor
      sale, net of tax
    
    
    -
    
    
    -
    
    
    -
    
    
    507,537
    
    
    507,537Net
      earnings
    
    
    -
    
    
    -
    
    
    2,611,931
    
    
    -
    
    
    2,611,931Balance,
      December 31, 2002
    
    
    1,799,770
    
    
    4,246,832
    
    
    12,383,367
    
    
    583,035
    
    
    19,013,004Cash
      dividends declared($1.00
      per share)
    
    
    -
    
    
    -
    
    
    (899,885
    )
    
    -
    
    
    (899,885
    )Change
      in net unrealized gainon
      investment securities availablefor
      sale, net of tax
    
    
    -
    
    
    -
    
    
    -
    
    
    (37,552
    )
    
    (37,552
    )Net
      earnings
    
    
    -
    
    
    -
    
    
    2,678,095
    
    
    -
    
    
    2,678,095Balance,
      December 31, 2003
    
    
    1,799,770
    
    
    4,246,832
    
    
    14,161,577
    
    
    545,483
    
    
    20,753,662Cash
      dividends declared
    
    
    -
    
    
    -
    
    
    (899,885
    )
    
    -
    
    
    (899,885
    )($1.00
      per share)Change
      in net unrealized gainon
      investment securities availablefor
      sale, net of tax
    
    
    -
    
    
    -
    
    
    -
    
    
    (49,232
    )
    
    (49,232
    )Net
      earnings
    
    
    -
    
    
    -
    
    
    2,530,536
    
    
    -
    
    
    2,530,536Balance,
      December 31, 2004
    
    $
    1,799,770
    
    
    4,246,832
    
    
    15,792,228
    
    
    496,251
    
    
    22,335,081
 
 
 
 
 
 
 
 
 
 
 See
accompanying notes to consolidated financial statements.
  F-5
  **OCONEE
FINANCIAL CORPORATION**
 
 **Consolidated
Statements of Cash Flows**
 
 **For
the Years Ended December 31, 2004, 2003 and 2002**
 
 
 2004
    
    2003
    
    2002Cash
      flows from operating activities:Net
      earnings
    
    $
    2,530,536
    
    
    2,678,095
    
    
    2,611,931Adjustments
      to reconcile net earnings to netcash
      provided by operating activities:Depreciation,
      amortization and accretion
    
    
    839,060
    
    
    519,707
    
    
    459,745Provision
      for loan losses
    
    
    394,200
    
    
    645,000
    
    
    555,000Provision
      for deferred taxes
    
    
    264,600
    
    
    (209,652
    )
    
    (31,832
    )Gain
      on sale of investment securities
    
    
    (46,798
    )
    
    -
    
    
    (4,357
    )Gain
      on sale of fixed assets
    
    
    (196,621
    )
    
    -
    
    
    -Loss
      on sale of other real estate
    
    
    1,291
    
    
    85,855
    
    
    -Change
      in:Accrued
      interest receivable and other assets
    
    
    (740,569
    )
    
    76,806
    
    
    (91,709
    )Accrued
      interest payable and other liabilities
    
    
    (96,154
    )
    
    (183,912
    )
    
    167,023Mortgage
      loans held for sale
    
    
    2,035,271
    
    
    3,679,486
    
    
    60,309Net
      cash provided by operating activities
    
    
    4,984,816
    
    
    7,291,385
    
    
    3,726,110Cash
      flows from investing activities:Purchase
      of investment securities available for sale
    
    
    (11,682,416
    )
    
    (54,834,174
    )
    
    (13,340,887
    )Proceeds
      from calls and maturities of investment securitiesavailable
      for sale
    
    
    15,358,053
    
    
    40,176,520
    
    
    10,416,083Proceeds
      from sales of investment securities availablefor
      sale
    
    
    2,846,870
    
    
    -
    
    
    995,331Proceeds
      from sales of other investments
    
    
    161,100
    
    
    -
    
    
    -Investment
      in unconsolidated subsidiary
    
    
    -
    
    
    -
    
    
    (325,000
    )Proceeds
      from liquidation of investment in unconsolidatedsubsidiary
    
    
    -
    
    
    325,000
    
    
    -Net
      change in loans
    
    
    (15,446,767
    )
    
    7,141,514
    
    
    (28,763,015
    )Purchases
      of premises and equipment
    
    
    (2,419,351
    )
    
    (1,565,629
    )
    
    (1,613,887
    )Proceeds
      from sales of fixed assets
    
    
    392,532
    
    
    -
    
    
    -Proceeds
      from sales of other real estate
    
    
    1,040,753
    
    
    381,372
    
    
    -Net
      cash used by investing activities
    
    
    (9,749,226
    )
    
    (8,375,397
    )
    
    (32,631,375
    )Cash
      flows from financing activities:Net
      change in deposits
    
    
    3,132,531
    
    
    17,257,228
    
    
    31,635,092Net
      change in securities sold under repurchase agreements
    
    
    290,328
    
    
    156,072
    
    
    97,380Repayment
      of Federal Home Loan Bank advances
    
    
    -
    
    
    (13,300,000
    )
    
    -Dividends
      paid
    
    
    (899,885
    )
    
    (899,885
    )
    
    (899,885
    )Net
      cash provided by financing activities
    
    
    2,522,974
    
    
    3,213,415
    
    
    30,832,587Net
      increase (decrease) in cash and cash equivalents
    
    
    (2,241,436
    )
    
    2,129,403
    
    
    1,927,322Cash
      and cash equivalents at beginning of year
    
    
    17,994,802
    
    
    15,865,399
    
    
    13,938,077Cash
      and cash equivalents at end of year
    
    $
    15,753,366
    
    
    17,994,802
    
    
    15,865,399
  F-6
  **OCONEE
FINANCIAL CORPORATION**
 
 **Consolidated
Statements of Cash Flows, continued**
 
 **For
the Years Ended December 31, 2004, 2003 and 2002**
 
 2004
    
    2003
    
    2002Supplemental
      disclosures of cash flow information:Cash
      paid during the year for:Interest
    
    $
    3,702,218
    
    
    5,609,479
    
    
    6,371,957Income
      taxes
    
    $
    894,000
    
    
    1,213,446
    
    
    901,000Noncash
      investing and financing activities:Change
      in net unrealized gain on investmentsecurities
      available for sale, net of tax
    
    $
    (49,232
    )
    
    (37,552
    )
    
    507,537Transfer
      of loans to other real estateT
    
    $
    781,608
    
    
    1,232,564
    
    
    229,610Financed
      portion of other real estate sold
    
    $
    -
    
    
    46,965
    
    
    -
 
  
 
 
 
 
 
 
 See
accompanying notes to consolidated financial statements.
  F-7
  **OCONEE
FINANCIAL CORPORATION**
 
 **Notes
to Consolidated Financial Statements**
 
 **(1)** **Summary
of Significant Accounting Policies**
 
 Organization
 Oconee
      Financial Corporation (“OFC”) received regulatory approval to operate as a
      bank holding company on October 13, 1998, and began operations effective
      January 1, 1999. OFC is primarily regulated by the Federal Reserve Bank,
      and serves as the one-bank holding company for Oconee State
      Bank.
 
 Oconee
      State Bank (the “Bank”) commenced business in 1960 upon receipt of its
      banking charter from the Georgia Department of Banking and Finance (the
      “DBF”). The Bank is primarily regulated by the DBF and the Federal Deposit
      Insurance Corporation and undergoes periodic examinations by these
      regulatory agencies. The Bank provides a full range of commercial and
      consumer banking services primarily in Oconee and Clarke counties in
      Georgia.
 
 Principles of
Consolidation
 The
      consolidated financial statements include the financial statements of
      Oconee Financial Corporation and its wholly owned subsidiary, Oconee State
      Bank (collectively called the “Company”). All significant intercompany
      balances and transactions have been eliminated in consolidation.
 
 Basis
of Presentation
 The
      accounting principles followed by the Company, and the methods of applying
      these principles, conform with accounting principles generally accepted in
      the United States of America (“GAAP”) and with general practices in the
      banking industry. In preparing the financial statements in conformity with
      GAAP, management is required to make estimates and assumptions that affect
      the reported amounts in the financial statements. Actual results could
      differ significantly from these estimates. Material estimates common to
      the banking industry that are particularly susceptible to significant
      change in the near term include, but are not limited to, the determination
      of the allowance for loan losses and valuation of real estate acquired in
      connection with or in lieu of foreclosure on loans.
 
 Cash
      and Cash Equivalents
 For
      purposes of reporting cash flows, cash and cash equivalents include cash
      and due from banks and federal funds sold.
 
 Investment
      Securities
 The
      Company classifies its securities in one of three categories: trading,
      available for sale, or held to maturity. Trading securities are bought and
      held principally for sale in the near term. Held to maturity securities
      are those securities for which the Company has the ability and intent to
      hold the security until maturity. All other securities not included in
      trading or held to maturity are classified as available for sale. At
      December 31, 2004 and 2003, the Company had classified all of its
      investment securities as available for
sale.
 
 Available
      for sale securities are recorded at fair value. Unrealized holding gains
      and losses, net of the related tax effect, on securities available for
      sale are excluded from earnings and are reported as a separate component
      of stockholders’ equity until realized.
 
 A
      decline in the market value of any available for sale or held to maturity
      security below cost that is deemed other than temporary is charged to
      earnings and establishes a new cost basis for the
  security.
 
 Premiums
      and discounts are amortized or accreted over the life of the related
      security as an adjustment to the yield. Realized gains and losses for
      securities classified as available for sale and held to maturity are
      included in earnings and are derived using the specific identification
      method for determining the cost of securities
sold.
  F-8
  **OCONEE
FINANCIAL CORPORATION**
 
 **Notes
to Consolidated Financial Statements, continued**
 
 **(1)**
    **Summary
      of Significant Accounting Policies,
continued**
  Other
Investments
 Other
      investments include Federal Home Loan Bank stock and other equity
      securities. No ready market exists for these securities and there is no
      quoted fair value. These investment securities are carried at
      cost.
 
 Mortgage
      Loans Held for Sale
 Mortgage
      loans held for sale are carried at the lower of aggregate cost or market
      value. At December 31, 2004 and 2003, the cost of mortgage loans held for
      sale approximates the market value.
 
 Loans
and Allowance for Loan Losses
 Loans
      are stated at the principal amount outstanding, net of the allowance for
      loan losses. Interest on loans is calculated by using the simple interest
      method on daily balances of the principal amount outstanding. Loan fees,
      net of certain origination costs, have been deferred and are being
      amortized over the lives of the respective
loans.
 
 Impaired
      loans are measured based on the present value of expected future cash
      flows, discounted at the loan’s effective interest rate, or at the loan’s
      observable market price, or the fair value of the collateral if the loan
      is collateral dependent. A loan is impaired when, based on current
      information and events, it is probable that all amounts due according to
      the contractual terms of the loan will not be
collected.
 
 Accrual
      of interest is discontinued on a loan when management believes, after
      considering economic conditions and collection efforts, that the
      borrower’s financial condition is such that collection of interest is
      doubtful. Interest previously accrued but not collected is reversed
      against current period earnings and interest is recognized on a cash basis
      when such loans are placed on non-accrual
status.
 
 The
      allowance for loan losses is established through a provision for loan
      losses charged to earnings. Loans are charged against the allowance for
      loan losses when management believes the collectibility of the principal
      is unlikely. The allowance represents an amount which, in management’s
      judgment, will be adequate to absorb probable losses on existing loans
      that may become uncollectible.
 
 Management’s
      judgment in determining the adequacy of the allowance is based on
      evaluations of the collectibility of loans. These evaluations take into
      consideration such factors as changes in the nature and volume of the loan
      portfolio, current economic conditions that may affect the borrower’s
      ability to pay, overall portfolio quality and review of specific problem
      loans. In determining the adequacy of the allowance for loan losses,
      management uses a loan grading system that rates loans in seven different
      categories. Grades four through seven are assigned allocations of loss
      based on standard regulatory loss percentages. All other loans are
      assigned loss allocations based on historical credit loss percentages. The
      combination of these results are compared quarterly to the recorded
      allowance for loan losses. Management uses an external loan review program
      to challenge and corroborate the internal grading system and provide
      additional analysis in determining the adequacy of the allowance and the
      future provisions for estimated loan
losses.
 
 While
      management uses available information to recognize losses on loans, future
      additions to the allowance may be necessary based on changes in economic
      conditions. In addition, various regulatory agencies, as an integral part
      of their examination process, periodically review the Company’s allowance
      for loan losses. Such agencies may require the Company to recognize
      additions to the allowance based on judgments different than those of
      management.
 
 Premises
      and Equipment
 Premises
      and equipment are stated at cost less accumulated depreciation.
      Depreciation is computed primarily using the straight-line method over the
      estimated useful lives of the assets. When assets are retired or otherwise
      disposed, the cost and related accumulated depreciation are removed from
      the accounts, and any gain or loss is reflected in earnings for the
      period. The cost of maintenance and repairs which do not improve or extend
      the useful life of the respective asset is charged to earnings as
      incurred, whereas significant renewals and improvements are capitalized.
      The range of estimated useful lives for premises and equipment are
      generally as follows:
 
 Buildings
      and improvements
    5 -
      40 yearsFurniture
      and equipment
    3 -
      10 years
  F-9
  **OCONEE
FINANCIAL CORPORATION**
 
 **Notes
to Consolidated Financial Statements, continued**
 
 **(1)      Su** **mmary
of Significant Accounting Policies, continued**
  Other
      Real Estate
 Properties
      acquired through foreclosure are carried at the lower of cost (defined as
      fair value at foreclosure) or fair value less estimated costs to dispose.
      Accounting literature defines fair value as the amount that is expected to
      be received in a current sale between a willing buyer and seller other
      than in a forced or liquidation sale. Fair values at foreclosure are based
      on appraisals. Losses arising from the acquisition of foreclosed
      properties are charged against the allowance for loan losses. Subsequent
      write-downs are provided by a charge to income through the allowance for
      losses on other real estate in the period in which the need
      arises.
 
 Securities
      Sold Under Repurchase Agreements
 Securities
      sold under repurchase agreements are treated as financing activities, and
      are carried at the amounts at which the securities will be repurchased as
      specified in the respective agreements.
 
 Income
Taxes
 Deferred
      tax assets and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying
      amounts of existing assets and liabilities and their respective tax bases.
      Additionally, the recognition of future tax benefits, such as net
      operating loss carryforwards, is required to the extent that realization
      of such benefits is more likely than not. Deferred tax assets and
      liabilities are measured using enacted tax rates expected to apply to
      taxable income in the years in which the assets and liabilities are
      expected to be recovered or settled. The effect on deferred tax assets and
      liabilities of a change in tax rates is recognized in income tax expense
      in the period that includes the enactment
date.
 
 In
      the event the future tax consequences of differences between the financial
      reporting bases and the tax bases of the Company’s assets and liabilities
      result in deferred tax assets, an evaluation of the probability of being
      able to realize the future benefits indicated by such assets is required.
      A valuation allowance is provided for the portion of the deferred tax
      asset when it is more likely than not that some portion or all of the
      deferred tax asset will not be realized. In assessing the realizability of
      the deferred tax assets, management considers the scheduled reversals of
      deferred tax liabilities, projected future taxable income, and tax
      planning strategies.
 
 Mortgage
      Banking Income
 Mortgage
      banking income represents net gains from the sale of mortgage loans and
      fees received from borrowers and loan investors related to the Bank’s
      origination of single-family residential mortgage
loans.
 
 Net
      Earnings Per Share
 Earnings
      per common share are based on the weighted average number of common shares
      outstanding during the period while the effects of potential common shares
      outstanding during the period are included in diluted earnings per share.
      The Company had no potential common share equivalents outstanding during
      2004, 2003 and 2002. For each of those years, net earnings per share is
      calculated using the weighted average shares outstanding during the period
      of 899,885.
 
 Reclassification
 Reclassifications
      of certain amounts in the 2003 and 2002 financial statements have been
      made to conform with the financial statement presentation for 2004.
 
 
 Recent
Accounting Pronouncements
 In March
2004, The Emerging Issues Task Force (“EITF”) issued EITF 03-1, The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments
(“EITF 03-1”). EITF 03-1 provides guidance for evaluating whether an investment
is other-than-temporarily impaired. The disclosure guidance was fully effective
for other-than-temporary impairment evaluations made in reporting periods ending
after July 15, 2004, whereas the recognition and measurement guidance has been
deferred. The disclosures required by EITF 03-1 are included in note 2 to the
consolidated financial statements. The Bank did not recognize an impairment loss
on any investment in 2004 or 2003.
  F-10
  **OCONEE
FINANCIAL CORPORATION**
 
 **Notes
to Consolidated Financial Statements, continued**
 
 **(2)** **Investment
Securities**
 Investment
      securities available for sale at December 31, 2004 and 2003 are as
      follows:
 
 December 31, 2004Amortized
      Cost
    
    Gross
      Unrealized
      Gains
    
    Gross
      Unrealized
      Losses
    
    Estimated
      Fair
      ValueU.S.
      Government agencies
    
    $
    17,553,407
    
    
    170,272
    
    
    53,371
    
    
    17,670,308State,
      county and municipal
    
    
    16,212,474
    
    
    698,043
    
    
    9,171
    
    
    16,901,346Mortgage-backed
      securities
    
    
    10,665,795
    
    
    49,321
    
    
    52,706
    
    
    10,662,410Other
      debt securities
    
    
    1,500,000
    
    
    -
    
    
    2,500
    
    
    1,497,500Total
    
    $
    45,931,676
    
    
    917,636
    
    
    117,748
    
    
    46,731,564
 
 December 31, 2003Amortized
      Cost
    
    Gross
      Unrealized
      Gains
    
    Gross
      Unrealized
      Losses
    
    Estimated
      Fair
      ValueU.S.
      Government agencies
    
    $
    19,206,658
    
    
    190,864
    
    
    96,593
    
    
    19,300,929State,
      county and municipal
    
    
    17,461,717
    
    
    759,079
    
    
    55,002
    
    
    18,165,794Mortgage-backed
      securities
    
    
    14,427,279
    
    
    156,611
    
    
    75,714
    
    
    14,508,176Other
      debt securities
    
    
    1,500,000
    
    
    -
    
    
    -
    
    
    1,500,000Total
    
    $
    52,595,654
    
    
    1,106,554
    
    
    227,309
    
    
    53,474,899
 
 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
December 31, 2004 and 2003 are summarized as follows:
 
 December
      31, 2004
    
    December
      31, 2003Less
      than 12 Months
    
    Less than 12 MonthsFair
    
    Unrealized
    
    Fair
    
    UnrealizedValue
    
    Losses
    
    Value
    
    LossesU.S.
      Government agencies
    
    $
    8,455,689
    
    
    53,371
    
    
    4,896,094
    
    
    96,593State,
      county and municipal
    
    
    1,710,998
    
    
    9,171
    
    
    3,685,125
    
    
    55,002Mortgage-backed
      securities
    
    
    6,053,266
    
    
    52,706
    
    
    11,114,236
    
    
    75,714Other
      debt securities
    
    
    997,500
    
    
    2,500
    
    
    -
    
    
    -$
    17,217,453
    
    
    117,748
    
    
    19,695,455
    
    
    227,309
 
 There
were no securities in the portfolio as of December 31, 2004 and 2003 that were
in a continuous unrealized loss position greater than twelve months. The
unrealized losses on these debt securities as of December 31, 2004 arose due to
changing interest rates and are considered to be temporary. Included in the
table above were 5 out of 46 securities issued by state and political
subdivisions that contained unrealized losses, 10 out of 19 securities issued by
U.S. government agencies and government sponsored corporations, including
mortgage-backed securities, that contained unrealized losses and 1 out of 2
other debt securities that contained unrealized losses. These unrealized losses
are considered temporary because the repayment sources of principal and interest
are government backed or are securities of investment grade
issuers.
 
  F-11
  **OCONEE
FINANCIAL CORPORATION**
 
 **Notes
to Consolidated Financial Statements, continued**
 
 
 **(2)** **Investment
Securities, continued**
 The
amortized cost and fair value of investment securities available for sale at
December 31, 2004, 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
    
    $
    4,015,445
    
    
    4,010,220Due
      from one to five years
    
    
    5,150,705
    
    
    5,233,259Due
      from five to ten years
    
    
    9,816,658
    
    
    10,059,562Due
      after ten years
    
    
    16,283,073
    
    
    16,766,113Mortgage-backed
      securities
    
    
    10,665,795
    
    
    10,662,410$
    45,931,676
    
    
    46,731,564
  Proceeds
from sales of securities available for sale during 2004 were $2,846,870. Net
gains of $46,798 were realized on 2004 sales. Proceeds from sales of securities
available for sale during 2002 were $995,331. Gross gains of $4,357 were
realized on 2002 sales. There were no sales of securities during
2003.
 
 Securities
with a carrying value of approximately $36,542,000 and $39,939,000 at December
31, 2004 and 2003, respectively, were pledged to secure public deposits and for
other purposes as required by law.
  **(3)     
Loa** **ns**
 Major classifications of loans at December 31, 2004 and 2003 are summarized as
follows:
  2004
    
    2003Commercial,
      financial and agricultural
    
    $
    21,625,371
    
    
    21,208,190Real
      estate - mortgage
    
    
    98,929,804
    
    
    94,266,400Real
      estate - construction
    
    
    55,157,066
    
    
    43,831,025Consumer
    
    
    10,353,250
    
    
    11,845,183Total
      loans
    
    
    186,065,491
    
    
    171,150,798Less
      allowance for loan losses
    
    
    2,531,330
    
    
    2,669,204Total
      net loans
    
    $
    183,534,161
    
    
    168,481,594
  The
      Bank grants loans and extensions of credit primarily to individuals and a
      variety of firms and corporations located in certain Georgia counties
      including Oconee and Clarke. Although the Bank has a diversified loan
      portfolio, a substantial portion of the loan portfolio is collateralized
      by improved and unimproved real estate and is dependent upon the real
      estate market.
  At
December 31, 2004 and 2003, the recorded investment in loans that were
considered to be impaired and on nonaccrual was approximately $1,079,000 and
$4,692,000, respectively, of which approximately $1,079,000 at December 31, 2004
and $1,503,000 at December 31, 2003 were on nonaccrual. In addition, the Company
had approximately $5,064,000 and $583,000 in loans past due more than ninety
days and still accruing interest at December 31, 2004 and 2003, respectively.
These accounts are deemed to be well collateralized and in the process of
collection. The related allowance for loan losses on impaired loans was
approximately $162,000 and $703,000 at December 31, 2004 and 2003, respectively.
The average recorded investment in impaired loans for the twelve months ended
December 31, 2004 and 2003 was approximately $5,653,000 and $4,709,000,
respectively. For the years ended December 31, 2004, 2003 and 2002, the Company
recognized approximately $257,000, $255,000 and $98,000, respectively, of
interest income on impaired loans.
  F-12
  **OCONEE
FINANCIAL CORPORATION**
 
 **Notes
to Consolidated Financial Statements, continued**
 
 **(3)** **Loans,
continued**
 Changes
in the allowance for loan losses were as follows:
 
 2004
    
    2003
    
    2002Balance
      at beginning of year
    
    $
    2,669,204
    
    
    2,098,691
    
    
    1,812,041Provision
      for loan losses
    
    
    394,200
    
    
    645,000
    
    
    555,000Amounts
      charged off
    
    
    (726,021
    )
    
    (120,901
    )
    
    (300,048
    )Recoveries
      on amounts previously charged off
    
    
    193,947
    
    
    46,414
    
    
    31,698Balance
      at end of year
    
    $
    2,531,330
    
    
    2,669,204
    
    
    2,098,691
 
 **(4)** **Premises
and Equipment**
 Major
classifications of premises and equipment are summarized as
follows:
 
 2004
    
    2003Land
    
    $
    1,083,436
    
    
    1,209,929Buildings
      and improvements
    
    
    4,436,164
    
    
    2,468,101Furniture
      and equipment
    
    
    4,586,894
    
    
    3,458,997Construction
      in process
    
    
    -
    
    
    922,36410,106,494
    
    
    8,059,391Less
      accumulated depreciation
    
    
    4,093,692
    
    
    3,537,747$
    6,012,802
    
    
    4,521,644
 
 Depreciation
expense was $650,790, $498,167 and $412,841 for the years ended December 31,
2004, 2003 and 2002, respectively.
 
 **(5)** **Deposits**
 The
aggregate amounts of certificates of deposit, each with a minimum denomination
of $100,000, were approximately $22,028,000 and $19,104,000 at December 31, 2004
and 2003, respectively.
 
 At
December 31, 2004, the scheduled maturities of certificates of deposits are as
follows:
 
 2005
    
    $
    34,164,9272006
    
    
    28,137,4612007
    
    
    20,287,0372008
    
    
    1,040,7732009
    
    
    2,228,237Thereafter
    
    
    124,224$
    85,982,659
 
 At
December 31, 2004, the Bank had one customer with deposits of approximately
$12,902,000 and another customer with deposits of approximately $12,446,000
included in interest-bearing demand deposits.
 
 **(6)** **Income
Taxes**
 The
components of income tax expense in the statements of earnings are as
follows:
 
 2004
    
    2003
    
    2002Current
    
    $
    749,833
    
    
    1,275,995
    
    
    1,184,662Deferred
    
    
    264,600
    
    
    (209,652
    )
    
    (31,832
    )Total
      income tax expense
    
    $
    1,014,433
    
    
    1,066,343
    
    
    1,152,830
 
  F-13
  **OCONEE
FINANCIAL CORPORATION**
 
 **Notes
to Consolidated Financial Statements, continued**
 
 **(6)**  **Income
Taxes, continued**
 The
differences between income tax expense and the amount computed by applying the
statutory federal income tax rate to earnings before income taxes are as
follows:
 
 2004
    
    2003
    
    2002Pretax
      income at statutory rates
    
    $
    1,205,290
    
    
    1,273,109
    
    
    1,280,019Add
      (deduct):Tax
      exempt interest income
    
    
    (269,092
    )
    
    (247,883
    )
    
    (232,608
    )Non-deductible
      interest expense
    
    
    17,714
    
    
    23,685
    
    
    28,093State
      taxes, net of federal effect
    
    
    61,775
    
    
    34,485
    
    
    84,791Other
    
    
    (1,254
    )
    
    (17,053
    )
    
    (7,465
    )$
    1,014,433
    
    
    1,066,343
    
    
    1,152,830
 
 The
      following summarizes the sources and expected tax consequences of future
      taxable deductions (income) which comprise the net deferred tax asset. The
      net deferred tax asset is a component of other assets at December 31, 2004
      and 2003.
 
 2004
    
    2003Deferred
      income tax assets:Allowance
      for loan losses
    
    $
    859,954
    
    
    927,029Other
      real estate
    
    
    64,507
    
    
    51,904Total
      gross deferred income tax assets
    
    
    924,461
    
    
    978,933Deferred
      income tax liabilities:Premises
      and equipment
    
    
    (361,187
    )
    
    (151,059
    )Unrealized
      gains on investment securities available for sale
    
    
    (303,638
    )
    
    (333,761
    )Total
      gross deferred income tax liabilities
    
    
    (664,825
    )
    
    (484,820
    )Net
      deferred income tax asset
    
    $
    259,636
    
    
    494,113
 
 **(7)** **Federal
Home Loan Bank Advances**
 The
      Bank has an agreement with the Federal Home Loan Bank (“FHLB”) whereby the
      FHLB agreed to provide the Bank credit facilities. Any amounts advanced by
      the FHLB are secured under a blanket floating lien on all of the Bank’s
      1-4 family first mortgage loans. The Bank may draw advances up to 75% of
      the outstanding balance of these loans based on the agreement with the
      FHLB. The Bank had one advance outstanding in the amount of $13,300,000,
      which matured and was repaid in August 2003. There were no advances
      outstanding at December 31, 2003 and 2004.
 
 **(8)      
R** **lated
Party Transactions**
 The
      Company conducts transactions with directors and executive officers,
      including companies in which they have beneficial interests, in the normal
      course of business. It is the policy of the Company that loan transactions
      with directors and officers are made on substantially the same terms as
      those prevailing at the time made for comparable loans to other persons.
      The following is a summary of activity for related party loans for
      2004:
 
 Beginning
      balance
    
    $
    4,488,000New
      loans
    
    
    4,176,000Repayments
    
    
    (3,145,000
    )Ending
      balance
    
    $
    5,519,000
 
 Deposits
from related parties totaled approximately $12,188,000 and $13,693,000 as of
December 31, 2004 and 2003, respectively.
 ****
  F-14
  **OCONEE
FINANCIAL CORPORATION**
 
 **Notes
to Consolidated Financial Statements, continued**
 
 **(9)      
C** **mmitments**
 The
      Company is a party to financial instruments with off-balance-sheet risk in
      the normal course of business to meet the financing needs of its
      customers. These financial instruments include commitments to extend
      credit and standby letters of credit. Those instruments involve, to
      varying degrees, elements of credit risk in excess of the amount
      recognized in the balance sheet. The contract amounts of those instruments
      reflect the extent of involvement the Bank has in particular classes of
      financial instruments.
 
 The
exposure to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and standby letters of
credit is represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.  In most
cases, the Company does require collateral or other security to support
financial instruments with credit risk.
 
 
 Contractual
      Amount2004
    
    2003Financial
      instruments whose contractamounts
      represent credit risk:Commitments
      to extend credit
    
    $
    33,388,000
    
    
    35,732,000Standby
      letters of credit
    
    $
    1,207,000
    
    
    861,000
 
 Commitments
      to extend credit are agreements to lend to a customer as long as there is
      no violation of any condition established in the contract. Commitments
      generally have fixed expiration dates or other termination clauses and may
      require payment of a fee. Since many of the commitments may expire without
      being drawn upon, the total commitment amounts do not necessarily
      represent future cash requirements. The Company evaluates each customer’s
      creditworthiness on a case-by-case basis. The amount of collateral
      obtained, if deemed necessary by the Bank, upon extension of credit is
      based on management’s credit evaluation. Collateral held varies but may
      include unimproved and improved real estate, certificates of deposit, or
      personal property.
 
 Standby
      letters of credit written are conditional commitments issued by the
      Company to guarantee the performance of a customer to a third party. Those
      guarantees are primarily issued to businesses in the Company’s delineated
      trade area. The credit risk involved in issuing letters of credit is
      essentially the same as that involved in extending loan facilities to
      customers. The Company holds real estate, equipment, automobiles and
      customer deposits as collateral supporting those commitments for which
      collateral is deemed necessary.
 
 The
      Company sells participations in certain types of loans in order to comply
      with legal lending limits. At December 31, 2004, the Company had
      participations sold outstanding of approximately $2,632,000. Of the total
      participations sold, approximately $1,060,000 has been sold under
      agreements that provide for the participating institutions to receive 100%
      of their investment prior to the Company receiving any principal payments,
      regardless of repayment, default, foreclosure or liquidation.
 
 The
Company has $7,000,000 available for the purchase of overnight federal funds
from two correspondent financial institutions as of December 31, 2004 and
2003.
 
 **(10)    
Pr** **ofit
Sharing Plan**
 The
      Company has a contributory profit sharing plan which is available to
      substantially all employees subject to certain age and service
      requirements. Contributions to the plan are determined annually by the
      Board of Directors. The total contributions by the Company for 2004, 2003
      and 2002 were approximately $256,000, $299,000 and $264,000,
      respectively.
 
  F-15
  **OCONEE
FINANCIAL CORPORATION**
 
 **Notes
to Consolidated Financial Statements, continued**
 
 **(11)     Reg** **ulatory
Matters**
 The
      Company is subject to various regulatory capital requirements administered
      by the federal banking agencies. Failure to meet minimum capital
      requirements can initiate certain mandatory and possibly additional
      discretionary actions by regulators that, if undertaken, could have a
      direct material effect on the Company’s financial statements. Under
      capital adequacy guidelines and the regulatory framework for prompt
      corrective action, the Bank must meet specific capital guidelines that
      involve quantitative measures of the assets, liabilities and certain
      off-balance-sheet items as calculated under regulatory accounting
      practices. The capital amounts and classification are also subject to
      qualitative judgments by the regulators about components, risk weightings,
      and other factors.
 
 Quantitative
measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1
capital to average assets (all as defined). Management believes, as of December
31, 2004, the Company and the Bank met all capital adequacy requirements to
which they are subject.
 
 As of
December 31, 2004, the most recent notification from the FDIC categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank must maintain minimum
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the Bank’s category.
 
 The
      capital ratios for the Company are essentially the same as those of the
      Bank. Therefore, only the Bank’s capital ratios are presented in the
      following table (dollars in thousands):
 
 To
      Be WellCapitalized
      UnderFor
      Capital
    
    Prompt
      CorrectiveActual
    
    Adequacy
      Purposes
    
    Action
      ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio**As
      of December 31, 2004:**Total
      Capital(to
      Risk-Weighted Assets)
    
    $
    24,256
    
    
    12.0
    %
    $
    16,123
    
    
    8.0
    %
    $
    20,154
    
    
    10.0
    %Tier
      1 Capital(to
      Risk-Weighted Assets)
    
    $
    21,781
    
    
    10.8
    %
    $
    8,062
    
    
    4.0
    %
    $
    12,092
    
    
    6.0
    %Tier
      1 Capital(to
      Average Assets)
    
    $
    21,781
    
    
    8.5
    %
    $
    10,268
    
    
    4.0
    %
    $
    12,836
    
    
    5.0
    %**As
      of December 31, 2003:**Total
      Capital(to
      Risk-Weighted Assets)
    
    $
    22,347
    
    
    12.6
    %
    $
    14,232
    
    
    8.0
    %
    $
    17,790
    
    
    10.0
    %Tier
      1 Capital(to
      Risk-Weighted Assets)
    
    $
    20,119
    
    
    11.3
    %
    $
    7,116
    
    
    4.0
    %
    $
    10,674
    
    
    6.0
    %Tier
      1 Capital(to
      Average Assets)
    
    $
    20,119
    
    
    8.0
    %
    $
    10,085
    
    
    4.0
    %
    $
    12,607
    
    
    5.0
    %
 
 **(12)** **Stockholders’
Equity**
 Dividends
      paid by the Bank are the primary source of funds available to the Company
      for payment of dividends to its stockholders and for other working capital
      needs. Banking regulations limit the amount of dividends that may be paid
      without prior approval of the regulatory authorities. These restrictions
      are based on the level of regulatory classified assets, the prior year’s
      net earnings, and the ratio of equity capital to total assets.
      Approximately $1,281,000 is available for payment of dividends from the
      Bank to the Company in 2005.
 
  F-16
  **OCONEE
FINANCIAL CORPORATION**
 
 **Notes
to Consolidated Financial Statements, continued**
 
 **(13)** **Fair
Value of Financial Instruments**
 The
      Company is required to disclose fair value information about financial
      instruments, whether or not recognized on the face of the balance sheet,
      for which it is practicable to estimate that value. The assumptions used
      in the estimation of the fair value of the Company’s financial instruments
      are detailed below. Where quoted prices are not available, fair values are
      based on estimates using discounted cash flows and other valuation
      techniques. The use of discounted cash flows can be significantly affected
      by the assumptions used, including the discount rate and estimates of
      future cash flows. The following disclosures should not be considered a
      surrogate of the liquidation value of the Company, but rather a good faith
      estimate of the increase or decrease in value of financial instruments
      held by the Company since purchase, origination or
    issuance.
 
 Cash
and Cash Equivalents
 For cash,
due from banks, and federal funds sold, the carrying amount is a reasonable
estimate of fair value.
 
 Investment
Securities Available for Sale
 Fair
values for investment securities are based on quoted market prices.
 
 Other
Investments
 The
carrying amount of other investments 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. 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.
 
 Limitations
 Fair
value estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These estimates do
not reflect any premium or discount that could result from offering for sale at
one time the Company’s entire holdings of a particular financial instrument.
Because no market exists for a significant portion of the Company’s financial
instruments, fair value estimates are based on many judgments. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
 
 Fair
value estimates are based on existing on and off-balance-sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial instruments include the deferred income taxes and premises
and equipment. In addition, the tax ramifications related to the realization of
the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
  F-17
  **OCONEE
FINANCIAL CORPORATION**
 
 **Notes
to Consolidated Financial Statements, continued**
 
 **(13)** **Fair
Value of Financial Instruments, continued**
 The
carrying amount and estimated fair values of the Company’s financial instruments
at December 31, 2004 and 2003 are as follows (in thousands):
 
 2004
    
    2003Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair
      Value
    
    Amount
    
    Fair
      ValueAssets:Cash
      and cash equivalents
    
    $
    15,753
    
    
    15,753
    
    
    17,995
    
    
    17,995Investment
      securities
    
    $
    46,732
    
    
    46,732
    
    
    53,475
    
    
    53,475Other
      investments
    
    $
    604
    
    
    604
    
    
    765
    
    
    765Mortgage
      loans held for sale
    
    $
    1,128
    
    
    1,128
    
    
    3,163
    
    
    3,163Loans,
      net
    
    $
    183,534
    
    
    183,515
    
    
    168,482
    
    
    168,841Liabilities:Deposits
      and securities sold underrepurchase
      agreement
    
    $
    232,942
    
    
    232,515
    
    
    229,519
    
    
    230,504
 
 **(14)** **Other
Operating Expenses**
 Components
of other operating expenses which are greater than 1% of interest income and
other income are as follows:
 
 2004
    
    
    2003
    
    
    2002Professional
      fees
    
    $
    337,210
    
    
    337,226
    
    
    293,435Marketing
      expenses
    
    $
    228,866
    
    
    182,116
    
    
    187,622ATM
      process and settlement charges
    
    $
    239,301
    
    
    122,544
    
    
    75,657
 
 **(15)** **Oconee
Financial Corporation (Parent Company Only) Financial
Information**
 
 Balance
Sheets
  December
31, 2004 and
2003
  2004
    
    
    2003AssetsCash
    
    $
    955,329
    
    
    990,363Investment
      in subsidiary
    
    
    22,277,247
    
    
    20,664,227Other
      assets
    
    
    2,390
    
    
    -$
    23,234,966
    
    
    21,654,590Liabilities
      and Stockholders’ EquityOther
      liabilities
    
    $
    899,885
    
    
    900,928Stockholders’
      equity
    
    
    22,335,081
    
    
    20,753,662$
    23,234,966
    
    
    21,654,590
 
  F-18
  **OCONEE
FINANCIAL CORPORATION**
 
 **Notes
to Consolidated Financial Statements, continued**
 
 **(15)** **Oconee
Financial Corporation (Parent Company Only) Financial Information,
continued**
 
 Statements
      of EarningsFor
      the Years Ended December 31, 2004, 2003 and
2002
 
 2004
    
    2003
    
    2002Dividends
      from subsidiary
    
    $
    899,885
    
    
    899,885
    
    
    899,885Other
      expenses
    
    
    50,936
    
    
    47,689
    
    
    49,606Earnings
      before income taxes and equity inundistributed
      earnings of subsidiary
    
    
    848,949
    
    
    852,196
    
    
    850,279Income
      tax benefit
    
    
    19,335
    
    
    18,104
    
    
    18,830Earnings
      before equity in undistributed earningsof
      subsidiary
    
    
    868,284
    
    
    870,300
    
    
    869,109Equity
      in undistributed earnings of subsidiary
    
    
    1,662,252
    
    
    1,807,795
    
    
    1,742,822Net
      earnings
    
    $
    2,530,536
    
    
    2,678,095
    
    
    2,611,931
 
 Statements
of Cash Flows
 
 For the
Years Ended December 31, 2004, 2003 and 2002
 
 2004
    
    2003
    
    2002Cash
      flows from operating activities:Net
      earnings
    
    $
    2,530,536
    
    
    2,678,095
    
    
    2,611,931Adjustments
      to reconcile net earningsto
      net cash provided by operating activities:Equity
      in undistributed earnings of subsidiary
    
    
    (1,662,252
    )
    
    (1,807,795
    )
    
    (1,742,822
    )Change
      in:Other
      assets
    
    
    (2,390
    )
    
    2,513
    
    
    2,516Other
      liabilities
    
    
    (1,043
    )
    
    2,379
    
    
    (6,845
    )Net
      cash provided by operating activities
    
    
    864,851
    
    
    875,192
    
    
    864,780Cash
      flows from financing activities, consisting ofdividends
      paid
    
    
    (899,885
    )
    
    (899,885
    )
    
    (899,885
    )Change
      in cash
    
    
    (35,034
    )
    
    (24,693
    )
    
    (35,105
    )Cash
      at beginning of year
    
    
    990,363
    
    
    1,015,056
    
    
    1,050,161Cash
      at end of year
    
    $
    955,329
    
    
    990,363
    
    
    1,015,056
 
  F-19




**SIGNATURES**
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the issuer has duly caused this Report on Form 10-KSB to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Watkinsville, State of Georgia, on the 30th of March, 2005.
 
 **OCONEE FINANCIAL
      CORPORATION**
      **(Registrant)**Date:
    By:
    /s/ B. Amrey
  HardenB.
      Amrey Harden
      Title: President
      and Chief Executive OfficerTitle
 ****
 **POWER
OF ATTORNEY AND SIGNATURES**
  KNOW ALL
MEN BY THESE PRESENTS that each person whose signature appears below constitutes
and appoints B. Amrey Harden or Douglas D. Dickens and either of them (with full
power in each to act alone), as true and lawful attorneys-in-fact, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to this Report on Form 10-KSB and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the SEC, hereby ratifying and confirming all that said attorney-in-fact, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
   Pursuant
to the requirements of the Securities Act of 1934, this Report on Form 10-KSB
has been signed by the following persons in the capacities indicated on the 30th
day of March 2005.
  **Signature**
    **Title***/s/
      G. Robert Bishop*G. Robert Bishop
    Director*/s/
      Jimmy L. Christopher*Jimmy L. Christopher
    Director*/s/
      Douglas D. Dickens*Douglas D. Dickens
    Chairman
      of the Board of Directors*/s/ John A. Hale*John
      A. Hale
    Vice
      Chairman of the Board of Directors*/s/ B. Amrey Harden*B.
      Amrey Harden
    President
      and Chief Executive Officer, Director*/s/ Henry C. Maxey*Henry
      C. Maxey
    Director
  
  
 */s/ Carl R. Nichols*Carl
      R. Nichols
    Director*/s/ Ann Breedlove Powers*Ann
      Breedlove Powers
    Director*/s/
      Steven A. Rogers*Steven
      A. Rogers
    Vice
      President and Controller, Chief Accounting Officer*/s/
      Jerry K. Wages*Jerry
      K. Wages
    Senior
      Executive Vice President and Chief FinancialOfficer,
      Corporate Secretary, and Director*/s/
      Tom F. Wilson*Tom
      F. Wilson
    Executive
      Vice President and Chief Lending Officer,Director*/s/
      Virginia S.  Wells*Virginia
      S. Wells
    Director
 
  
   **INDEX
TO EXHIBITS**
 
  **Exhibit**
    **Description**4.1
    Form
      of Common Stock Certificate.14
    Code
      of Ethical Conduct21
    Subsidiaries
      of Oconee Financial Corporation.24
    Power
      of Attorney (included herein on the signature page).31.1
    Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
    Certification
      of Chief Financing Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
    Section
      1350 Certification.32.2
    Section
      1350 Certification.