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OFED > SEC Filings for OFED > Form 10-Q on 15-May-2013All Recent SEC Filings

Show all filings for OCONEE FEDERAL FINANCIAL CORP. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for OCONEE FEDERAL FINANCIAL CORP.


15-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements include:

          statements of our goals, intentions and expectations;

          statements regarding our business plans and prospects and growth and
operating strategies;

          statements regarding the asset quality of our loan and investment
portfolios; and

          estimates or our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

our ability to manage our operations under the current adverse economic conditions (including real estate values, loan demand, inflation, commodity prices and employment levels) nationally and in our market areas;

adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);

significant increases in our delinquencies and loan losses, including as a result of our inability to resolve classified assets, changes in the underlying cash flows of our borrowers, and management's assumptions in determining the adequacy of the allowance for loan losses;

increased competition among depository and other financial institutions;

          our ability to attract and maintain deposits;



          changes in interest rates generally, including changes in the

relative differences between short term and long term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources;

fluctuations in the demand for loans, which may be affected by the number of unsold homes, land and other properties in our market areas and by declines in the value of real estate in our market area;

declines in the yield on our assets resulting from the current low interest rate environment;

our ability to successfully implement our business strategies;

risks related to high concentration of loans secured by real estate located in our market areas;

changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs, and changes in the level of government support of housing finance;

the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings;

our ability to enter new markets successfully and capitalize on growth opportunities;


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risks relating to acquisitions and an ability to integrate and operate profitably any financial institution that we may acquire;

our reliance on a small executive staff;

changes in consumer spending, borrowing and savings habits;

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

risks and costs related to operating as a publicly traded company;

changes in our organization, compensation and benefit plans;

changes in our financial condition or results of operations that reduce capital available to pay dividends; and

changes in the financial condition or future prospects of issuers of securities that we own, including our stock in the FHLB of Atlanta; and

other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in the Annual Report on Form 10-K for Oconee Federal Financial Corp. for the year ended June 30, 2012, as filed with the Securities and Exchange Commission.

Comparison of Financial Condition at March 31, 2013 and June 30, 2012

Our total assets decreased $2.9 million, or 0.78%, to $374.8 million at March 31, 2013 from $377.8 million at June 30, 2012. A substantial portion of this decrease is reflected in the decrease in net loans of $22.9 million, or 9.2%, offset partially by an increase in securities available-for-sale of $20.3 million, or 31.5%. We continue to deploy funds from loan repayments and payoffs to purchase high-quality investment securities, which we have classified as available-for-sale. The continued decrease in outstanding loans reflects the continued decrease of loan demand in our market area. Our total deposits increased modestly by $416 thousand to $293.8 million at March 31, 2013 from $293.4 million at June 30, 2012. Total equity decreased to $79.2 million at March 31, 2013 compared with $83.0 million at June 30, 2012. The decrease in total equity is the result of the repurchase of 352,550 shares of treasury stock for $5.5 million and the payment of dividends of $1.8 million, offset partially by net income of $3.0 million and other comprehensive income of $178 thousand for the nine months ended March 31, 2013.

Total loans decreased to $226.9 million at March 31, 2013 from $249.8 million at June 30, 2012. Our one-to four-family real estate loans decreased by $23.5 million, or 10.0%, to $210.7 million at March 31, 2013 from $234.1 million at June 30, 2012, resulting from decreased demand in our market area. The decrease in one-to four-family real estate loans was offset partially by a slight increase in construction and land loans to $8.1 million at March 31, 2013 from $7.2 million at June 30, 2012. All other loan categories decreased by $686 thousand from June 30, 2012 to March 31, 2013.

Deposits increased to $293.8 million at March 31, 2013 from $293.4 million at June 30, 2012. The increase was primarily attributed to an increase in regular savings accounts of $2.5 million, or 7.0%, and NOW and demand deposits of $2.1 million, or 10.4%, offset partially by a decrease in certificates of deposit of $4.0 million, or 1.8%. The decrease in certificates of deposit is primarily related to depositors seeking better yields on their funds through other sources. The increase in NOW and demand accounts is partially attributed to $1.2 million in dividends paid to Oconee Federal, MHC and the increase in regular savings accounts is primarily related to depositors maintaining higher deposit account balances. Oconee Federal MHC's cash is held on deposit with the Company. We generally do not accept brokered deposits and no brokered deposits were accepted during the nine months ended March 31, 2013.


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We had no advances from the Federal Home Loan Bank of Atlanta as of March 31, 2013 or June 30, 2012. We have credit available under a loan agreement with the Federal Home Loan Bank of Atlanta in the amount of 11% of total assets (as of March 31, 2013), or approximately $41.1 million.

Nonperforming Assets



The table below sets forth the amounts and categories of our nonperforming
assets at the dates indicated.



                                                                 March 31,       June 30,
                                                                   2013            2012
                                                                  (Dollars in thousands)
Non-accrual loans:
Real estate loans:
One- to four-family                                            $       1,467    $     2,157
Multi-family                                                               -              -
Home equity                                                                -              -
Non-residential                                                            -              -
Construction and land                                                      -              -
Total real estate loans                                                1,467          2,157
Consumer and other loans                                                   -              -
Total nonaccrual loans                                         $       1,467    $     2,157
Accruing loans past due 90 days or more:
Real estate loans:
One- to four-family                                            $         207    $       145
Multi-family                                                               -              -
Home equity                                                                -              -
Non-residential                                                            -              -
Construction and land                                                      -              -
Total real estate loans                                                  207            145
Consumer and other loans                                                   -              -
Total accruing loans past due 90 days or more                            207            145
Total of nonaccrual and 90 days or more past due loans         $       1,674    $     2,302
Real estate owned, net:
One- to four-family                                            $       1,241    $       854
Multi-family                                                               -              -
Home equity                                                                -              -
Non-residential                                                            -              -
Other                                                                      -              -
Other nonperforming assets                                                 -              -
Total nonperforming assets                                     $       2,915    $     3,156

Troubled debt restructurings                                               -              -
Troubled debt restructurings and total nonperforming assets    $       2,915    $     3,156

Total nonperforming loans to total loans                                0.73 %         0.91 %
Total nonperforming assets to total assets                              0.78 %         0.84 %
Total nonperforming assets to loans and real estate owned               1.27 %         1.25 %

There were no other loans that are not disclosed above where there is information about possible credit problems of borrowers that caused us serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future.

Interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms was $11 thousand and $61 thousand for the nine months ended March 31, 2013 and 2012, respectively. Interest of $22


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thousand and $52 thousand was recognized on these loans and is included in net income for the nine months ended March 31, 2013 and 2012.

The decrease in the ratio of nonperforming loans to total loans was primarily the result of the decrease in our nonperforming loans to $1.5 million at March 31, 2013 from $2.2 million at June 30, 2012. All nonperforming loans, regardless of size, are evaluated by management for impairment.

Analysis of Net Interest Margin

The following tables set forth average balance sheets, average yields and rates, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of net deferred costs, discounts and premiums that are amortized or accreted to income.


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                                                  For the Three Months Ended
                                      March 31, 2013                      March 31, 2012
                                          Interest                            Interest
                              Average        and       Yield/     Average        and       Yield/
                              Balance     Dividends     Cost      Balance     Dividends     Cost
                                                    (Dollars in Thousands)
Assets:
Interest-earning assets:
Loans                        $ 230,629   $     3,136      5.44 % $ 256,988   $     3,511      5.46 %
Investment securities           86,589           296      1.37      59,711           240      1.61
Interest-bearing deposits       47,531            19      0.16      49,529            30      0.24
Total interest-earning
assets                         364,749         3,451      3.78     366,228         3,781      4.13
Noninterest-earning assets      10,361                              10,468
Total assets                 $ 375,110                           $ 376,696

Liabilities and equity:
Interest-bearing
liabilities:
NOW and demand deposits      $  18,051   $         3      0.07 % $  16,111   $         3      0.07 %
Money market deposits           11,675             6      0.20      11,132             8      0.29
Regular savings and other
deposits                        35,946            42      0.48      34,720            73      0.84
Certificates of deposit        222,381           462      0.84     227,296           663      1.17
Total interest-bearing
deposits                       288,053           513      0.72     289,259           747      1.04
Total interest-bearing
liabilities                    288,053                             289,259
Noninterest bearing
deposits                         4,570                               5,455
Other noninterest-bearing
liabilities                      1,970                               1,804
Total liabilities              294,593                             296,518
Equity                          80,517                              80,178
Total liabilities and
equity                       $ 375,110                           $ 376,696

Net interest income                      $     2,938                         $     3,034

Interest rate spread                                      3.06 %                              3.09 %
Net interest margin                                       3.22 %                              3.31 %
Average interest-earning
assets to average
interest-bearing

liabilities 1.27 X 1.27 X


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                                                   For the Nine Months Ended
                                      March 31, 2013                      March 31, 2012
                                          Interest                            Interest
                              Average        and       Yield/     Average        and       Yield/
                              Balance     Dividends     Cost      Balance     Dividends     Cost
                                                    (Dollars in Thousands)
Assets:
Interest-earning assets:
Loans                        $ 239,273   $     9,740      5.43 % $ 261,459   $    10,819      5.52 %
Investment securities           80,303           836      1.39      50,931           608      1.59
Interest-bearing deposits       46,850            57      0.16      51,823            92      0.24
Total interest-earning
assets                         366,426        10,633      3.87     364,213        11,519      4.22
Noninterest-earning assets      10,367                              11,160
Total assets                 $ 376,793                           $ 375,373

Liabilities and equity:
Interest-bearing
liabilities:
NOW and demand deposits      $  17,700   $         9      0.07 % $  14,849   $        12      0.11 %
Money market deposits           11,744            19      0.22      10,570            25      0.31
Regular savings and other
deposits                        34,974           153      0.58      34,299           263      1.02
Certificates of deposit        223,806         1,525      0.91     228,066         2,235      1.30
Total interest-bearing
deposits                       288,224         1,706      0.79     287,784         2,535      1.17
Total interest-bearing
liabilities                    288,224                             287,784
Noninterest bearing
deposits                         4,396                               4,122
Other noninterest-bearing
liabilities                      2,065                               3,184
Total liabilities              294,685                             295,090
Equity                          82,108                              80,283
Total liabilities and
equity                       $ 376,793                           $ 375,373

Net interest income                      $     8,927                         $     8,984
Interest rate spread                                      3.08 %                              3.05 %
Net interest margin                                       3.25 %                              3.29 %
Average interest-earning
assets to average
interest-bearing

liabilities 1.27 X 1.27 X


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Comparison of Operating Results for the Three Months Ended March 31, 2013 and March 31, 2012

General. We recognized net income of $850 thousand for the three months ended March 31, 2013 compared with net income of $948 thousand for the three months ended March 31, 2012. The decrease of $98 thousand was primarily attributable to a decrease in net interest income after provision for loan losses of $194 thousand, or 6.6%, offset slightly by an increase in noninterest income of $30 thousand, or 51.7%, for the three months ended March 31, 2013.

Interest Income. Interest income decreased by $330 thousand to $3.5 million for the three months ended March 31, 2013 from $3.8 million for the three months ended March 31, 2012. The decrease was primarily the result of a decrease in the average yield on interest earning assets to 3.78% for the three months ended March 31, 2013 from 4.13% for the three months ended March 31, 2012 and a decrease in the average balance of interest earning assets to $364.7 million for the three months ended March 31, 2013 from $366.2 million for the three months ended March 31, 2012.

Interest income on loans decreased by $375 thousand, or 10.7%, to $3.1 million for the three months ended March 31, 2013 from $3.5 million for the three months ended March 31, 2012. The decrease resulted from a decrease in the average balances of loans of $26.4 million, or 10.3%, to $230.6 million for the three months ended March 31, 2013 from $257.0 million for the three months ended March 31, 2012 and a decrease in the yield on loans to 5.44% for the three months ended March 31, 2013 from 5.46% for the three months ended March 31, 2012. The decrease in loan balances is the result of competition and reduced demand for loans in our market area. Interest income on investment securities increased by $56 thousand, or 23.3% to $296 thousand for the three months ended March 31, 2013 from $240 thousand for the three months ended March 31, 2012. The increase reflected an increase in the average balance of securities to $86.6 million for the three months ended March 31, 2013 from $59.7 million for the three months ended March 31, 2012. The increase in average balances offset the decrease in yields on such securities to 1.37% from 1.61% for the same periods. The increase in average balances of our investment securities is reflective of our efforts to invest excess funds available from loan repayments coupled with a declining demand for residential mortgage loans in our market area.

Interest Expense. Interest expense decreased $234 thousand, or 31.3%, to $513 thousand for the three months ended March 31, 2013 from $747 thousand for the three months ended March 31, 2012. The decrease reflected a decrease in the average rate paid on deposits in the three months ended March 31, 2013 to 0.72% from 1.04% in the three months ended March 31, 2012 and a decrease in the average balances of deposits of $1.2 million, or 0.42%, to $288.1 million for the three months ended March 31, 2013 from $289.3 million for the three months ended March 31, 2012. The largest decrease in interest expense came from certificates of deposit, which decreased $201 thousand, or 30.3%, as the average balance of certificates of deposits decreased $4.9 million, or 2.2%, to $222.4 million for the three months ended March 31, 2013 from $227.3 million for the three months ended March 31, 2012, and the average rate paid on these deposits decreased to 0.84% from 1.17% for the same periods.

Net Interest Income. Net interest income decreased by $96 thousand, or 3.2%, to $2.9 million for the three months ended March 31, 2013 from $3.0 million for the three months ended March 31, 2012. The decrease resulted from a decrease in our interest rate spread to 3.06% from 3.09% and a decrease in our net interest margin to 3.22% from 3.31% for the same periods. The decrease in our interest rate spread and margin was largely due to declining yields on interest earning assets, which reflected the continuing decline across the U.S. Treasury yield curve.

Provision for Loan Losses. We recorded a provision for loan losses of $180 thousand for the three months ended March 31, 2013, compared with a provision of $82 thousand for the three months ended March 31, 2012. Net charge-offs for the three months ended March 31, 2013 were $299 thousand compared with $0 for the three months ended March 31, 2012. The increase in our provision reflected the increase in our net charge offs for the three months ended March 31, 2013 as compared with the same period in 2012. Net charge offs for the three months ended March 31, 2013 was primarily impacted by one large one-to-four family residential real estate loan charge off of $277 thousand. Management believes that this charge off is not a reflection of our asset quality and is not indicative of a trend of increased loan losses. Our allowance for loan losses was $747 thousand at March 31, 2013 and $857 thousand at June 30, 2012, or 0.33% and 0.34% of total loans at March 31, 2013 and June 30, 2012, respectively. Our allowance for loan losses to nonperforming loans was 44.6% and 37.2% at March 31, 2013 and June 30, 2012, respectively.

We used the same methodology in assessing the allowances for both periods. To the best of our knowledge, we have recorded all losses that are both probable and reasonably estimable for the three months ended March 31, 2013 and 2012.

Noninterest Income. Noninterest income for the three months ended March 31, 2013 was $88 thousand compared with $58 thousand for the same period in 2012. The increase was primarily related to an increase in other noninterest income of $55


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thousand, offset partially by a decrease of $22 thousand in gain on sales of securities. The majority of the increase in other noninterest income was related to a gain of $56 thousand on foreclosure of a one-to-four family residential real estate loan.

Noninterest Expense. Noninterest expense for the three months ended March 31, 2013 increased slightly by $9 thousand for the three months ended March 31, 2013 over the same period in 2012. The significant decrease in the provision for real estate owned and related expense of $188 thousand for the three months ended March 31, 2013 was offset primarily by an increase in salary and employee benefits of $159 thousand, most of which is related to our equity incentive plans that were not in place during the three months ended March 31, 2012 and an increase in our ESOP expense. The total expense related to our equity incentive programs and ESOP for the three months ended March 31, 2013 and 2012 was $119 thousand and $48 thousand, respectively.

Income Tax Expense. Income tax expense for the three months ended March 31, 2013 was $559 thousand compared $634 thousand for the three months ended March 31, 2012. Our effective income tax rate decreased slightly to 39.67% for the three months ended March 31, 2013 from 40.00% for the three months ended March 31, 2012.

Comparison of Operating Results for the Nine months Ended March 31, 2013 and March 31, 2012

General. We had net income of $3.0 million for the nine months ended March 31, 2013 as compared with net income of $2.8 million for the nine months ended March 31, 2012. The increase of $155 thousand was primarily attributable to a decrease in noninterest expenses of $300 thousand, or 6.9%, offset slightly by a decrease in net interest income after the provision for loan losses of $90 thousand.

Interest Income. Interest income decreased by $886 thousand to $10.6 million for the nine months ended March 31, 2013 from $11.5 million for the same period in 2012. The decrease was primarily the result of a decrease in the average yield on interest earning assets to 3.87% for the nine months ended March 31, 2013 from 4.22% for the nine months ended March 31, 2012, which more than offset the increase in the average balances of interest earning assets of $2.2 million, or 0.61%, to $366.4 million for the nine months ended March 31, 2013 from $364.2 million for the nine months ended March 31, 2012.

Interest income on loans decreased by $1.1 million, or 10.0%, to $9.7 million for the nine months ended March 31, 2013 from $10.8 million for the nine months ended March 31, 2012. The decrease resulted from a decrease in the average balances of loans of $22.2 million, or 8.5%, to $239.3 million for the nine months ended March 31, 2013 from $261.5 million for the nine months ended March 31, 2012 and a decrease in the yield on loans to 5.43% for the nine months ended March 31, 2013 from 5.52% for the nine months ended March 31, 2012. The decrease in loan balances is the result of competition and reduced demand for . . .

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