UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended ~~December 31, 2017~~September 30, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-35033

Oconee Federal Financial Corp.

(Exact Name of Registrant as Specified in Charter)


Federal		32-0330122
(State of Other Jurisdiction of Incorporation)		(I.R.S Employer Identification Number)

201 East North Second Street, Seneca, South Carolina		29678
(Address of Principal Executive Officers)		(Zip Code)

(864) 882-2765

Registrant’s telephone number, including area code

Not Applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

OFED

The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to ~~Section13(a)~~Section 13(a) of the Exchange ~~Act.~~Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

~~Indicate~~As of November 5, 2020, the ~~number of~~registrant had 5,604,430 shares ~~outstanding of each of the Issuer’s classes~~ of common stock, ~~as of the latest practicable date.~~$0.01 par value per share, outstanding.

~~There were 5,750,453 shares of Common Stock, par value $0.01 per share, outstanding as of February 8, 2018.~~

OCONEE FEDERAL FINANCIAL CORP.

Form 10-Q Quarterly Report

Table of Contents

OCONEE FEDERAL FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)

~~(Unaudited)~~

PART I

~~ITEM 1.~~

~~FINANCIAL STATEMENTS~~

ITEM 1. FINANCIAL STATEMENTS

	December 31, 2017			June 30, 2017
							September 30, 2020 (unaudited)			June 30, 2020
ASSETS
Cash and due from banks	$	4,867		$	3,526		$	3,715		$	4,673
Interest-earning deposits		1,915			17,219			28,482			29,843
Fed funds sold								48			66
Total cash and cash equivalents		6,782			20,745			32,245			34,582
Securities available-for-sale		122,183			118,334			92,980			90,726
Loans		317,063			307,558			359,006			355,667
Allowance for loan losses		(1,032	)		(1,016	)		(1,344	)		(1,346	)
Net loans		316,031			306,542			357,662			354,321
Loans held for sale, at fair value		270			245			905			92
Premises and equipment, net		6,761			6,574			9,339			9,367
Real estate owned, net		850			865			211			159
Accrued interest receivable
Loans		990			944			1,140			1,074
Investments		616			568			332			364
Restricted equity securities, at cost		1,872			1,023			1,249			1,249
Bank owned life insurance		18,310			18,071			19,594			19,482
Goodwill		2,593			2,593			2,593			2,593
Core deposit intangible		478			568			189			211
Loan servicing rights		1,024			1,141			415			458
Deferred tax assets		1,678			2,370			368			365
Other assets		443			734			534			539
Total assets	$	480,881		$	481,317		$	519,756		$	515,582

LIABILITIES
Deposits
Noninterest bearing	$	27,433		$	25,900
Interest bearing		343,865			368,605
Noninterest - bearing							$	42,682		$	43,995
Interest - bearing								382,156			377,097
Total deposits		371,298			394,505			424,838			421,092
Fed Funds Purchased		2,814			—
FHLB Advances		20,000			—
Federal Home Loan Bank advances								5,000			5,000
Accrued interest payable and other liabilities		1,462			851			990			1,185
Total liabilities		395,574			395,356			430,828			427,277

SHAREHOLDERS’ EQUITY
Common stock, $0.01 par value, 100,000,000 shares authorized; 6,463,039 shares issued and outstanding		65			65
Treasury stock, at par, 712,586 and 699,345 shares, respectively		(7	)		(7	)
Common stock, $0.01 par value, 100,000,000 shares authorized; 6,530,324 and 6,530,074 shares outstanding, respectively								65			65
Treasury stock, at par, 925,894 and 924,618 shares, respectively								(9	)		(9	)
Additional paid-in capital		11,819			11,940			7,371			7,342
Retained earnings		74,860			75,169			79,783			79,071
Accumulated other comprehensive loss		(530	)		(202	)
Accumulated other comprehensive income								2,075			2,243
Unearned ESOP shares		(900	)		(1,004	)		(357	)		(407	)
Total shareholders’ equity		85,307			85,961			88,928			88,305
Total liabilities and shareholders’ equity	$	480,881		$	481,317		$	519,756		$	515,582

See accompanying notes to the consolidated financial statements

OCONEE FEDERAL FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

(Amounts in thousands, except share and per share data)

	Three Months Ended
	September 30, 2020			September 30, 2019
Interest and dividend income:
Loans, including fees	$	4,027		$	4,118
Securities, taxable		291			408
Securities, tax-exempt		91			104
Other interest-earning assets		27			188
Total interest income		4,436			4,818
Interest expense:
Deposits		550			1,060
Other borrowings		19			127
Total interest expense		569			1,187
Net interest income		3,867			3,631
Provision for loan losses		—			—
Net interest income after provision for loan losses		3,867			3,631
Noninterest income:
Service charges on deposit accounts		82			121
Income on bank owned life insurance		112			113
Mortgage servicing income		40			49
Gain on sale of mortgage loans		35			32
ATM & debit card income		98			89
Change in fair value of equity securities, net		(23	)		80
Gain on sale of securities, net		62			12
Gain on payoff of purchase credit impaired loans		195			—
Other		2			3
Total noninterest income		603			499
Noninterest expense:
Salaries and employee benefits		1,605			1,590
Occupancy and equipment		459			468
Data processing		247			222
ATM & debit card expense		69			59
Professional and supervisory fees		121			147
Office expense		42			44
Advertising		51			56
FDIC deposit insurance		31			1
Foreclosed assets, net		7			45
Change in loan servicing asset		43			53
Other		172			216
Total noninterest expense		2,847			2,901
Income before income taxes		1,623			1,229
Income tax expense		350			295
Net income	$	1,273		$	934
Other comprehensive income
Unrealized (losses)/gains on securities available-for-sale	$	(151	)	$	482
Tax effect		32			(101	)
Reclassification adjustment for gains realized in net income		(62	)		(12	)
Tax effect		13			3
Total other comprehensive (loss)/income		(168	)		372
Comprehensive income	$	1,105		$	1,306

Basic net income per share: (Note 3)	$	0.22		$	0.16
Diluted net income per share: (Note 3)	$	0.22		$	0.16
Dividends declared per share:	$	0.10		$	0.10

See accompanying notes to the consolidated financial statements

OCONEE FEDERAL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF ~~INCOME AND COMPREHENSIVE INCOME (LOSS)~~CASH FLOWS
(Unaudited)
(Amounts in thousands, except share and per share data)

For the three months ended September 30, 2020 and September 30, 2019

Three Months Ended Six Months Ended
December 31,
2017 December 31,
2016 December 31,
2017 December 31,
2016
Interest and dividend income:
Loans, including fees $ 3,621 $ 3,639 $ 7,176 $ 7,376
Securities, taxable 398 388 768 831
Securities, tax-exempt 214 180 420 358
Interest-earning deposits and other 7 36 42 77
Total interest income 4,240 4,243 8,406 8,642

Interest expense:
Deposits 363 323 725 643
Other Borrowings 51 — 62 —
Total interest expense 414 323 787 643
Net interest income 3,826 3,920 7,619 7,999
Provision for loan losses 9 24 56 89
Net interest income after provision for loan losses 3,817 3,896 7,563 7,910

Noninterest income:
Service charges on deposit accounts 112 107 220 211
Income on bank owned life insurance 118 127 239 253
Mortgage banking income 67 82 135 175
Gain on sales of securities, net — 57 10 125
Gain on disposition of purchase credit impaired loans — 120 — 196
Other 26 2 56 3
  Total noninterest income 323 495 660 963

Noninterest expense:
Salaries and employee benefits 1,653 1,548 3,209 2,972
Occupancy and equipment 443 370 840 738
Data processing 226 140 432 270
Professional and supervisory fees 250 249 457 456
Office expense 66 44 108 96
Advertising 83 46 128 77
FDIC deposit insurance 34 35 68 91
Foreclosed assets, net (22 ) 2 28 37
Change in loan servicing asset 65 (196 ) 117 (173 )
Other 216 217 427 485
  Total noninterest expense 3,014 2,455 5,814 5,049
Income before income taxes 1,126 1,936 2,409 3,824
Income tax expense 1,185 618 1,611 1,233

         Net income/(loss) $ (59 ) $ 1,318 $ 798 $ 2,591

Other comprehensive income
Unrealized losses on securities available-for-sale $ (723 ) $ (3,524 ) $ (587 ) $ (4,043 )
Tax effect 210 1,268 125 1,455
Reclassification adjustment for gains realized in net income — (57 ) (10 ) (125 )
Tax effect (1 ) 21 2 45
Total other comprehensive loss (514 ) (2,292 ) (470 ) (2,668 )
Comprehensive income/(loss) $ (573 ) $ (974 ) $ 328 $ (77 )

Basic net income/(loss) per share: (Note 3) $ (0.01 ) $ 0.23 $ 0.14 $ 0.46
Diluted net income/(loss) per share: (Note 3) $ (0.01 ) $ 0.23 $ 0.14 $ 0.45
Dividends declared per share: $ 0.10 $ 0.10 $ 0.20 $ 0.20

												Accumulated
						Additional						Other			Unearned
	Common		Treasury			Paid-In			Retained			Comprehensive			ESOP
	Stock		Stock			Capital			Earnings			Income (loss)			Shares			Total

Balance at June 30, 2019	$	65	$	(8	)	$	10,986		$	77,464		$	394		$	(604	)	$	88,297
Net income		—		—			—			934			—			—			934
Other comprehensive income		—		—			—			—			372			—			372
Purchase of 34,380 shares of treasury stock ⁽¹⁾		—		—			(796	)		—			—			—			(796	)
Stock-based compensation expense		—		—			19			—			—			—			19
Dividends		—		—			—			(575	)		—			—			(575	)
ESOP shares earned		—		—			45			—			—			49			94
Balance at September 30, 2019	$	65	$	(8	)	$	10,254		$	77,823		$	766		$	(555	)	$	88,345

Balance at June 30, 2020	$	65	$	(9	)	$	7,342		$	79,071		$	2,243		$	(407	)	$	88,305
Net income		—		—			—			1,273			—			—			1,273
Other comprehensive loss		—		—			—			—			(168	)		—			(168	)
Purchase of 1,276 shares of treasury stock ⁽²⁾		—		—			(31	)		—			—			—			(31	)
Stock-based compensation expense		—		—			21			—			—			—			21
Common Stock Issued		—		—			5			—			—			—			5
Dividends		—		—			—			(561	)		—			—			(561	)
ESOP shares earned		—		—			34			—			—			50			84
Balance at September 30, 2020	$	65	$	(9	)	$	7,371		$	79,783		$	2,075		$	(357	)	$	88,928

~~See accompanying notes to the consolidated financial statements~~

~~OCONEE FEDERAL FINANCIAL CORP.~~
~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~
~~(Unaudited)~~
~~(Amounts in thousands, except share and per share data)~~

Accumulated
Additional Other Unearned
Common Treasury Paid-In Retained Comprehensive ESOP
Stock Stock Capital Earnings Income (loss) Shares Total

Balance at June 30, 2016 $ 65 $ (6 ) $ 12,882 $ 71,909 $ 1,808 $ (1,257 ) $ 85,401
Net income — — — 2,591 — — 2,591
Other comprehensive loss — — — — (2,668 ) — (2,668 )
Purchase of 37,943 shares of treasury stock⁽¹⁾ — (1 ) (777 ) — — — (778 )
Stock-based compensation expense — — 151 — — — 151
Dividends⁽²⁾ — — 44 (1,107 ) — — (1,063 )
ESOP Shares earned — — 123 — — 150 273
Balance at December 31, 2016 $ 65 $ (7 ) $ 12,423 $ 73,393 $ (860 ) $ (1,107 ) $ 83,907

Balance at June 30, 2017 $ 65 $ (7 ) $ 11,940 $ 75,169 $ (202 ) $ (1,004 ) $ 85,961
Net income — — — 798 — — 798
Other comprehensive income — — — — (328 ) — (328 )
Purchase of 13,241 shares of treasury stock⁽³⁾ — — (377 ) — — — (377 )
Stock-based compensation expense — — 13 — — — 13
Dividends⁽⁴⁾ — — 44 (1,107 ) — — (1,063 )
ESOP Shares earned — — 199 — — 104 303
Balance at December 31, 2017 $ 65 $ (7 ) $ 11,819 $ 74,860 $ (530 ) $ (900 ) $ 85,307

(1)

The weighted average cost of treasury shares purchased during the ~~six~~three months ended was ~~$20.48~~$23.16 per share. Treasury stock repurchases were accounted for using the par value method.

(2)

Approximately $99 of cash dividends paid on shares in the ESOP was used as an additional principal reduction on the ESOP debt, resulting in the release of approximately 8,938 additional shares. The portion of the dividend paid on allocated shares of approximately $44 was treated as a dividend. The remaining portion of the dividend payment and resulting release of approximately 8,938 shares was accounted for as additional compensation expense of approximately $55 for the six months ended December 31, 2016.

~~(3)~~

The weighted average cost of treasury shares purchased during the ~~six~~three months ended was ~~$28.52~~$24.58 per share. Treasury stock repurchases were accounted for using the par value method.

~~(4)~~

Approximately $93 of cash dividends paid on shares in the ESOP was used as an additional principal reduction on the ESOP debt, resulting in the release of approximately 8,300 additional shares. The portion of the dividend paid on allocated shares of approximately $44 was treated as a dividend. The remaining portion of the dividend payment and resulting release of approximately 8,300 shares was accounted for as additional compensation expense of approximately $44 for the six months ended December 31, 2017.

See accompanying notes to the consolidated financial statements

OCONEE FEDERAL FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands, except share and per share data)

Six Months Ended
December 31,
2017 December 31,
2016
Cash Flows From Operating Activities
Net income $ 798 $ 2,591
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 56 89
Provision for real estate owned 26 103
Depreciation and amortization, net 669 745
Net accretion of purchase accounting adjustments 102 119
Deferred income tax expense 961 44
Net gain on sale of real estate owned (62 ) (86 )
Change in loan servicing asset 117 (173 )
Net gain on sales of securities (10 ) (125 )
Mortgage loans originated for sale (1,831 ) (1,543 )
Mortgage loans sold 1,820 1,707
Gain on sales of mortgage loans (14 ) (35 )
Increase in cash surrender value of bank owned life insurance (239 ) (253 )
Gain on disposition of purchased credit impaired loans — (196 )
ESOP compensation expense 303 273
Stock based compensation expense 13 151
Net change in operating assets and liabilities:
Accrued interest receivable and other assets 197 460
Accrued interest payable and other liabilities 611 1,153
Net cash provided by operating activities 3,517 5,024
Cash Flows From Investing Activities
Purchases of premises and equipment (383 ) (71 )
Purchases of securities available-for-sale (16,359 ) (19,779 )
Proceeds from maturities, paydowns and calls of securities available-for-sale 7,543 11,069
Proceeds from sales of securities available-for-sale 3,997 15,648
Purchases of restricted equity securities (849 ) —
Proceeds from sale of real estate owned 281 739
Dispositions of purchased credit impaired loans — 566
Loan originations and repayments, net (9,877 ) (10,132 )
Net cash used in investing activities (15,647 ) (1,960 )
Cash Flows from Financing Activities
Net change in deposits (23,207 ) (3,221 )
Net increase in short term borrowings 2,814 —
Proceeds from notes payable to FHLB 28,000 —
Repayment of notes payable to FHLB (8,000 ) —
Dividends paid (1,063 ) (1,063 )
Purchase of treasury stock (377 ) (778 )
Net cash used in provided by financing activities (1,833 ) (5,062 )
Change in cash and cash equivalents (13,963 ) (1,998 )
Cash and cash equivalents, beginning of period 20,745 27,676
Cash and cash equivalents, end of period $ 6,782 $ 25,678

	Three Months Ended
	September 30, 2020			September 30, 2019
Cash Flows From Operating Activities
Net income	$	1,273		$	934
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for real estate owned		—			28
Depreciation and amortization, net		423			300
Net accretion of purchase accounting adjustments		(84	)		(8	)
Deferred income tax expense		88			49
Change in loan servicing asset		43			53
Net gain on sales of securities		(62	)		(12	)
Mortgage loans originated for sale		(3,103	)		(3,029	)
Mortgage loans sold		2,325			3,061
Gain on sales of mortgage loans		(35	)		(32	)
Change in fair value of equity securities		(23	)		(80	)
Increase in cash surrender value of bank owned life insurance		(112	)		(114	)
Gain on payoff of purchased credit impaired loans		(195	)		—
ESOP compensation expense		84			94
Stock based compensation expense		21			19
Net change in operating assets and liabilities:
Accrued interest receivable and other assets		(29	)		153
Accrued interest payable and other liabilities		(195	)		403
Net cash provided by operating activities		419			1,819
Cash Flows From Investing Activities
Purchases of premises and equipment		(141	)		(805	)
Purchases of securities available-for-sale		(10,059	)		(5,581	)
Proceeds from maturities, paydowns and calls of securities available-for-sale		5,527			5,556
Proceeds from sales of securities available-for-sale		1,872			5,268
Redemption of restricted equity securities		—			213
Proceeds from sale of real estate owned		—			77
Loan originations and repayments, net		(3,114	)		(787	)
Net cash (used)/provided in investing activities		(5,915	)		3,941
Cash Flows from Financing Activities
Net change in deposits		3,746			(1,448	)
Repayment of notes payable to FHLB		—			(5,000	)
Dividends paid		(561	)		(575	)
Purchase of treasury stock		(31	)		(796	)
Proceeds from sale of common stock, net of issuance costs		5			—
Net cash provided/(used) by financing activities		3,159			(7,819	)
Change in cash and cash equivalents		(2,337	)		(2,059	)
Cash and cash equivalents, beginning of period		34,582			36,690
Cash and cash equivalents, end of period	$	32,245		$	34,631

See accompanying notes to the consolidated financial statements

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

(1)

BASIS OF PRESENTATION, RISKS AND UNCERTAINTIES

Basis of Presentation:

The accompanying unaudited consolidated financial statements of Oconee Federal Financial Corp., which include the accounts of its wholly owned subsidiary Oconee Federal Savings and Loan Association (the “Association”) (referred to herein as “the Company,” “we,” “us,” or “our”), have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Intercompany accounts and transactions are eliminated during consolidation. The Company is majority owned ~~(72.42%~~(74.31%) by Oconee Federal, MHC. These financial statements do not include the transactions and balances of Oconee Federal, MHC.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company’s financial position as of ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017~~2020 and the results of operations and cash flows for the interim periods ended ~~December 31, 2017~~September 30, 2020 and ~~2016.~~2019. All interim amounts ~~have not been audited,~~are unaudited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the year ending June 30, ~~2018~~2021 or any other period. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2017.~~2020.

Reclassifications:

Certain amounts have been reclassified to conform to the current period presentation. The reclassifications had no effect on net income or shareholders’ equity as previously reported.

Cash Flows:

Cash and cash equivalents include cash on hand, federal funds sold, overnight ~~interest-bearing~~interest-earning deposits and amounts due from other depository institutions.

Use of Estimates:

~~Use of Estimates:~~To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and actual results could differ.

~~(2)~~

~~NEW ACCOUNTING STANDARDS~~

~~Accounting Standards Update (“ASU”) 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”.~~Issued in May 2017, ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments are effective for all entities for annual periods,Risks and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments should be applied prospectively to an award modified on or after the adoption date. The Company is assessing the impact of ASU 2017-09 on its consolidated financial statements.Uncertainties:

~~ASU 2017-08, “Receivables - Nonrefundable Fees~~On March 10, 2020, the World Health Organization declared the outbreak of novel coronavirus (“COVID-19”) a pandemic, which continues to spread throughout the world and ~~Other Costs (Subtopic 310-20): Premium Amortization~~has adversely impacted global commercial activity and contributed to significant declines and volatility in financial markets. The COVID-19 outbreak and government responses continue to disrupt global supply chains and adversely impact many industries. The outbreak may continue to have a material adverse impact on ~~Purchased Callable Debt Securities”.Issued in March 2017, ASU 2017-08 amends the amortization~~economic and market conditions and could trigger a period ~~for certain callable debt securities held at a premium. Specifically, the amendments require the premium~~of global economic slowdown. The federal banking agencies have encouraged financial institutions to ~~be amortized~~prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the ~~earliest call date.~~COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected asspread of the ~~beginning~~coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

The rapid development and fluidity of this situation precludes any prediction as to the ultimate impact of the ~~fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis,~~COVID-19 outbreak with ~~a cumulative-effect adjustment directly~~regard to ~~retained earnings as of~~capital, liquidity, loan loss reserves, etc. Nevertheless, the ~~beginning of~~outbreak presents uncertainty and risk with respect to the ~~period of adoption. The~~ Company, ~~is assessing the impact of ASU 2017-08 on~~ its ~~consolidated~~performance, and its financial ~~statements.~~

results.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

(2)	NEW ACCOUNTING STANDARDS

Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848)”. Issued in March 2020, ASU 2020-04 provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2019-12, “Income Taxes (Topic 740)”. Issued in December 2019, ASU 2019-12 provides guidance to simplify accounting for income taxes by removing specific technical exceptions that often produce information difficult for investors to understand. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For the Company, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

ASU 2019-11, “Codification to Improvements to Topic 326, Financial Instruments – Credit Losses”. Issued in November 2019, ASU 2019-11 provides guidance that addresses issues raised by stakeholders during the implementation of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments affect a variety of Topics in the Accounting Standards Codification. For the Company, the amendments are effective for fiscal years beginning after December 15, 2022 including interim periods within those fiscal years. Early adoption is permitted in any interim period as long as an entity has adopted the amendments in ASU 2016-13.

ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)”. Issued in November 2019, ASU 2019-10 provides guidance to defer the effective dates for private companies, not-for-profit organizations, and certain smaller reporting companies (such as the Company) applying standards on current expected credit losses (CECL), derivatives, hedging and leases. For the Company, the new effective date for Credit Losses (CECL) will be for fiscal years beginning after December 15, 2022 including interim periods within those fiscal years. For the Company, the effective dates for Derivatives, Hedging and Leases were not deferred under this guidance.

ASU 2019-05, “Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief”. Issued in May 2019, ASU 2019-05 provides entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments. On October 16, 2019, the Financial Accounting Standards Board (“FASB”) announced a delay in the implementation schedule allowing certain entities, including smaller reporting companies (such as the Company) to adopt ASU 2016-13 in fiscal years beginning after December 15, 2022, and interim periods within those years.

ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”. Issued in April 2019, ASU 2019-04 clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The amendments related to credit losses will be effective for the Company for reporting periods beginning after December 15, 2019. The amendments related to hedging will be effective for the Company for interim and annual periods beginning after December 15, 2018. The amendments related to recognition and measurement of financial instruments will be effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted this standard on July 1, 2020. This pronouncement did not have a material effect on the financial statements.

ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”. Issued in August 2018, ASU 2018-13 provides guidance about fair value measurement disclosures. The amendment requires numerous removals, modifications and additions of fair value disclosure information. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted this standard on July 1, 2020. This pronouncement did not have a material effect on the financial statements.

OCONEE FEDERAL FINANCIAL CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share data)

ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. Issued in January 2017, ASU 2017-04 amendments eliminate Step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company adopted this standard on July 1, 2020. This pronouncement did not have a material effect on the financial statements.

ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. Issued in June 2016, ASU 2016-13 provides financial statement users with more decision-useful information about the expected credit losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 eliminate the probable incurred loss recognition in current GAAP and reflect an entity’s current estimate of all expected credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets. For purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (“PCD assets”) that are measured at amortized cost, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Subsequent changes in the allowance for credit losses on PCD assets are recognized through the statement of income as a credit loss expense. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. ~~ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.~~ Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company has determined that it will continue to prepare its credit loss allowance internally. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements. On October 16, 2019, the FASB announced a delay in the implementation schedule allowing certain entities, including smaller reporting companies (such as the Company) to adopt ASU 2016-13 in fiscal years beginning after December 15, 2022, and interim periods within those years.

There have been no accounting standards that have been issued or proposed by the ~~Financial Accounting Standards Board (“FASB”)~~FASB or other standards-setting bodies during this quarter that are expected to have a material impact on the Company’s financial position, results of operations or cash flows. The Company continues to evaluate the impact of standards previously issued and not yet effective, and have no changes in our assessment to disclose since filing of the Annual Report on Form 10-K.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

(3)	EARNINGS PER SHARE (“EPS”)

Basic EPS is based on the weighted average number of common shares outstanding and is adjusted for ESOP shares not yet committed to be released. Unvested restricted stock awards, which contain rights to non-forfeitable dividends, are considered participating securities and the two-class method of computing basic and diluted EPS is applied. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as outstanding stock options, were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable (such as stock options) or which could be converted into common stock, if dilutive, using the treasury stock method. The factors used in the earnings per common share computation follow:

~~OCONEE FEDERAL FINANCIAL CORP.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(Amounts in thousands, except share and per share data)~~

Three Months Ended Six Months Ended
December 31,
2017 December 31,
2016 December 31,
2017 December 31,
2016
Earnings per share
Net income/(loss) $ (59 ) $ 1,318 $ 798 $ 2,591
Less:  distributed earnings allocated to participating securities (2 ) (3 ) (4 ) (7 )
Less:  (undistributed income) dividends in excess of earnings allocated to participating securities 2 (6 ) 1 (11 )
Net earnings/(loss) available to common shareholders $ (59 ) $ 1,309 $ 795 $ 2,573

Weighted average common shares outstanding including participating securities 5,786,109 5,793,350 5,797,217 5,802,651
Less:  participating securities (21,910 ) (40,905 ) (21,910 ) (40,905 )
Less: average unearned ESOP shares (70,950 ) (111,218 ) (77,480 ) (115,104 )
Weighted average common shares outstanding 5,693,249 5,641,227 5,697,827 5,646,642

Basic earnings/(loss) per share $ (0.01 ) $ 0.23 $ 0.14 $ 0.46

Weighted average common shares outstanding 5,693,249 5,641,227 5,697,827 5,646,642
Add:  dilutive effects of assumed exercises of stock options 130,658 96,097 127,844 89,680
Average shares and dilutive potential common shares 5,823,907 5,737,324 5,825,671 5,736,322

Diluted earnings/(loss) per share $ (0.01 ) $ 0.23 $ 0.14 $ 0.45

	Three Months Ended
	September 30, 2020			September 30, 2019
Earnings per share
Net income	$	1,273		$	934
Less: distributed earnings allocated to participating securities		(1	)		(1	)
Less: (undistributed income) dividends in excess of earnings allocated to participating securities		—			—
Net earnings available to common shareholders	$	1,272		$	933

Weighted average common shares outstanding including participating securities		5,758,040			5,739,658
Less: participating securities		(5,800	)		(8,800	)
Less: average unearned ESOP shares		(35,124	)		(56,249	)
Weighted average common shares outstanding		5,717,116			5,674,609

Basic earnings per share	$	0.22		$	0.16

Weighted average common shares outstanding		5,717,116			5,674,609
Add: dilutive effects of assumed exercises of stock options		73,103			64,803
Average shares and dilutive potential common shares		5,790,219			5,739,412

Diluted earnings per share	$	0.22		$	0.16

~~During~~

For the three ~~and six~~ months ended ~~December 31, 2017, 22,400~~September 30, 2020, 11,200 shares were considered anti-dilutive as the exercise price was in excess of the average market price, and for ~~the respective periods. During~~ the three months ended ~~December 31, 2016 no shares were considered anti-dilutive. During the six months ended December 31, 2016, 28,700~~September 30, 2019, 16,400 shares were considered anti-dilutive as the exercise price was in excess of the average market ~~price for the respective periods.~~

price.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

(4)

SECURITIES AVAILABLE-FOR-SALE

Debt, mortgage-backed and equity securities have been classified in the consolidated balance sheets according to management’s intent. U.S. Government agency mortgage-backed securities ~~consist~~consists of securities issued by U.S. Government agencies and U.S. Government sponsored enterprises. Investment securities at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017~~2020 are as follows:

December 31, 2017
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Available-for-sale:
FHLMC common stock $ 20 $ 185 $ — $ 205
Certificates of deposit 5,483 4 (31 ) 5,456
Municipal securities 43,404 169 (417 ) 43,156
SBA loan pools 454 — — 454
CMOs 11,646 — (300 ) 11,346
U.S. Government agency mortgage-backed securities 48,053 103 (376 ) 47,780
U.S. Government agency bonds 14,036 — (250 ) 13,786
Total available-for-sale $ 123,096 $ 461 $ (1,374 ) $ 122,183

September 30, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Change in Fair Value Equity Securities		Fair Value
Available-for-sale:
FHLMC common stock	$	20	$	—	$	—		$	135	$	155
Certificates of deposit		2,493		89		—			—		2,582
Municipal securities		19,832		855		—			—		20,687
CMOs		9,893		361		(5	)		—		10,249
U.S. Government agency mortgage-backed securities		54,995		1,417		(109	)		—		56,303
U.S. Government agency bonds		2,985		21		(2	)		—		3,004
Total available-for-sale	$	90,218	$	2,743	$	(116	)	$	135	$	92,980

June 30, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2020										Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Change in Fair Value Equity Securities		Fair Value
Available-for-sale:
FHLMC common stock	$	20	$	162	$	—		$	182	$	20	$	—	$	—		$	158	$	178
Certificates of deposit		6,230		16		(18	)		6,228		2,493		99		—			—		2,592
Municipal securities		39,847		296		(344	)		39,799		20,821		822		—			—		21,643
SBA loan pools		563		2		—			565
CMOs		13,024		—		(239	)		12,785		9,723		383		—			—		10,106
U.S. Government agency mortgage-backed securities		44,884		185		(244	)		44,825		53,660		1,538		(25	)		—		55,173
U.S. Government agency bonds		14,082		15		(147	)		13,950		1,011		23		—			—		1,034
Total available-for-sale	$	118,650	$	676	$	(992	)	$	118,334	$	87,728	$	2,865	$	(25	)	$	158	$	90,726

Securities pledged at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017~~2020 had fair values of ~~$29,047~~$14,384 and ~~$6,069,~~$12,524, respectively. These securities were pledged to secure public deposits and ~~FHLB~~Federal Home Loan Bank (“FHLB”) advances.

At ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017,~~2020, there were no holdings of securities of any one issuer, other than U.S. Government agencies and U.S. Government sponsored enterprises, in an amount greater than 10% of shareholders’ equity.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

The following tables show the fair value and unrealized loss of securities that have been in unrealized loss positions for less than twelve months and for twelve months or more at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017.~~2020. The tables also show the number of securities in an unrealized loss position for each category of investment security as of the respective dates.

Less than 12 Months
12 Months or More

Total

December 31, 2017 Fair Value Unrealized
Loss Number in Unrealized Loss⁽¹⁾ Fair Value Unrealized
Loss Number in Unrealized Loss⁽¹⁾ Fair Value Unrealized
Loss Number in Unrealized Loss⁽¹⁾
Available-for-sale:
Certificates of deposit $ 4,456 $ (31 ) 18 $ — $ — — $ 4,456 $ (31 ) 18
Municipal securities 17,805 (182 ) 43 8,321 (235 ) 19 26,126 (417 ) 62
CMOs 2,492 (56 ) 3 8,854 (244 ) 13 11,346 (300 ) 16
U.S. Government agency mortgage-backed securities 30,216 (224 ) 34 8,143 (152 ) 10 38,359 (376 ) 44
U.S. Government agency bonds 6,891 (77 ) 8 6,894 (173 ) 6 13,785 (250 ) 14
$ 61,860 $ (570 ) 106 $ 32,212 $ (804 ) 48 $ 94,072 $ (1,374 ) 154

	Less than 12 Months							12 Months or More						Total
	Fair Value		Unrealized Loss			Number in Unrealized Loss ⁽¹⁾		Fair Value		Unrealized Loss		Number in Unrealized Loss ⁽¹⁾		Fair Value		Unrealized Loss			Number in Unrealized Loss ⁽¹⁾
September 30, 2020
Available-for-sale:
CMOs	$	1,002	$	(5	)		1	$	—	$	—		—	$	1,002	$	(5	)		1
U.S. Government agency mortgage-backed securities		11,042		(109	)		8		—		—		—		11,042		(109	)		8
U.S. Government agency bonds		1,975		(2	)		1		—		—		—		1,975		(2	)		1
	$	14,019	$	(116	)		10	$	—	$	—		—	$	14,019	$	(116	)		10

Less than 12 Months 12 Months or More Total
June 30, 2017 Fair Value Unrealized
Loss Number in Unrealized Loss⁽¹⁾ Fair Value Unrealized
Loss Number in Unrealized Loss⁽¹⁾ Fair Value Unrealized
Loss Number in Unrealized Loss⁽¹⁾
Available-for-sale:
Certificates of deposit $ 2,227 $ (18 ) 9 $ — $ — — $ 2,227 $ (18 ) 9
Municipal securities 18,331 (276 ) 41 2,221 (68 ) 5 20,552 (344 ) 46
CMOs 7,833 (136 ) 9 4,952 (103 ) 7 12,785 (239 ) 16
U.S. Government agency mortgage-backed securities 29,057 (244 ) 31 — — — 29,057 (244 ) 31
U.S. Government agency bonds 8,027 (78 ) 8 1,931 (69 ) 1 9,958 (147 ) 9
$ 65,475 $ (752 ) 98 $ 9,104 $ (240 ) 13 $ 74,579 $ (992 ) 111

	Less than 12 Months							12 Months or More						Total
	Fair Value		Unrealized Loss			Number in Unrealized Loss ⁽¹⁾		Fair Value		Unrealized Loss		Number in Unrealized Loss ⁽¹⁾		Fair Value		Unrealized Loss			Number in Unrealized Loss ⁽¹⁾
June 30, 2020
Available-for-sale:
U.S. Government agency mortgage-backed securities	$	6,342	$	(25	)		4	$	—	$	—		—		6,342		(25	)		4
	$	6,342	$	(25	)		4	$	—	$	—		—	$	6,342	$	(25	)		4

(1)

Actual amounts.

The Company evaluates securities for other-than-temporary impairments (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. The Company considers the length of time and the extent to which the fair value has been less than amortized cost and the financial condition and near-term prospects of the issuer. Additionally, the Company considers its intent to sell or whether it will be more likely than not it will be required to sell the security prior to the security’s anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by federal Government agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.

None of the unrealized losses at ~~December 31, 2017~~September 30, 2020 were recognized into net income for the three ~~or six~~ months ended ~~December 31, 2017~~September 30, 2020 because the issuers’ bonds are of high credit quality, management does not intend to sell and it is more likely than not that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair value of these securities is expected to recover as they approach their maturity date or reset date. None of the unrealized losses at June 30, ~~2017~~2020 were recognized as having OTTI during the year ended June 30, ~~2017.~~

2020.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

The following table presents the amortized cost and fair value of debt securities classified as available-for-sale at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017~~2020 by contractual maturity.


	December 31, 2017				June 30, 2017				September 30, 2020				June 30, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Less than one year	$	1,948	$	1,948	$	2,989	$	2,990	$	249	$	252	$	499	$	503
Due from one to five years		17,197		17,031		17,196		17,183		7,743		7,997		7,759		8,044
Due after five years to ten years		32,751		32,477		30,084		30,045		12,464		12,934		10,707		11,152
Due after ten years		11,481		11,396		10,453		10,324		4,854		5,090		5,360		5,570
Mortgage-backed securities, CMOs and FHLMC stock⁽¹⁾		59,719		59,331		57,928		57,792		64,908		66,707		63,403		65,457
Total available for sale	$	123,096	$	122,183	$	118,650	$	118,334	$	90,218	$	92,980	$	87,728	$	90,726

(1)

Actual cash flows may differ from contractual maturities as borrowers may prepay obligations without prepayment penalty. FHLMC common stock is not scheduled because it has no contractual maturity date.

The following table presents the gross proceeds from sales of securities available-for-sale and gains or losses recognized for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2020 and ~~2016:~~2019:

Three Months Ended Six Months Ended
Available-for-sale: December 31,
2017 December 31,
2016 December 31,
2017 December 31,
2016
Proceeds $ — $ 12,495 $ 3,997 $ 15,648
Gross gains — 57 11 125
Gross losses — — (1 ) —

	Three Months Ended
Available-for-sale:	September 30, 2020		September 30, 2019
Proceeds	$	1,872	$	5,268
Gross gains		62		15
Gross losses		—		(3	)

The tax provision related to ~~these~~the net realized ~~gains for the six months ended December 31, 2017 was $3, and~~gain for the three ~~and six~~ months ended ~~December 31, 2016~~September 30, 2020 and September 30, 2019 was ~~$21~~$13 and ~~$45,~~$3, respectively.

~~(5) LOANS~~12

~~The components of loans at December 31, 2017 and June 30, 2017 were as follows:~~

December 31,
2017 June 30,
2017
Real estate loans:
One-to-four family $ 258,088 $ 260,114
Multi-family 1,799 1,864
Home equity 4,057 4,900
Nonresidential 17,663 18,916
Agricultural 1,358 1,441
Construction and land 28,419 15,254
Total real estate loans 311,384 302,489
Commercial and industrial 426 51
Consumer and other loans 5,253 5,018
Total loans $ 317,063 $ 307,558

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

(5)

LOANS

The components of loans at September 30, 2020 and June 30, 2020 were as follows:

	September 30, 2020		June 30, 2020
Real estate loans:
One-to-four family	$	288,084	$	283,931
Multi-family		697		704
Home equity		6,381		5,763
Nonresidential		19,682		20,083
Agricultural		1,170		1,187
Construction and land		27,895		29,096
Total real estate loans		343,909		340,764
Commercial and industrial ⁽¹⁾		8,834		8,135
Consumer and other loans		6,263		6,768
Total loans	$	359,006	$	355,667

(1)

Includes $4,108 and $4,094 of 100% SBA-guaranteed Paycheck Protection Program (“PPP”) loans as of September 30, 2020 and June 30, 2020, respectively.

The following tables present the activity in the allowance for loan losses for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2020 by portfolio segment:

Three Months Ended December 31, 2017	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Three months ended September 30, 2020													Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Real estate loans:
One-to-four family	$	889	$	(1	)	$	—		$	—	$	888	$	1,032	$	(41	)	$	(2	)	$	—	$	989
Multi-family		4		—			—			—		4		4		—			—			—		4
Home equity		3		1			—			—		4		34		6			—			—		40
Nonresidential		60		(1	)		—			—		59		75		33			—			—		108
Agricultural		1		(1	)		—			—		—		4		—			—			—		4
Construction and land		55		19			(1	)		—		73		105		(9	)		—			—		96
Total real estate loans		1,012		17			(1	)		—		1,028		1,254		(11	)		(2	)		—		1,241
Commercial and industrial		6		(2	)		—			—		4		65		9			—			—		74
Consumer and other loans		6		(6	)		—			—		—		27		2			—			—		29
Total loans	$	1,024	$	9		$	(1	)	$	—	$	1,032	$	1,346	$	—		$	(2	)	$	—	$	1,344

Six Months Ended December 31, 2017 Beginning
Balance Provision Charge-offs Recoveries Ending
Balance
Real estate loans:
One-to-four family $ 900 $ (12 ) $ — $ — $ 888
Multi-family 4 — — — 4
Home equity 2 15 (13 ) — 4
Nonresidential 63 (4 ) — — 59
Agricultural 1 (1 ) — — —
Construction and land 35 64 (26 ) — 73
Total real estate loans 1,005 62 (39 ) — 1,028
Commercial and industrial 4 — — — 4
Consumer and other loans 7 (6 ) (1 ) — —
Total loans $ 1,016 $ 56 $ (40 ) $ — $ 1,032

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at September 30, 2020:

	Ending Allowance on Loans:				Loans:
At September 30, 2020	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Real estate loans:
One-to-four family	$	—	$	989	$	1,812	$	286,272
Multi-family		—		4		—		697
Home equity		—		40		—		6,381
Nonresidential		—		108		552		19,130
Agricultural		—		4		—		1,170
Construction and land		—		96		—		27,895
Total real estate loans		—		1,241		2,364		341,545
Commercial and industrial ⁽¹⁾		—		74		—		8,834
Consumer and other loans		—		29		—		6,263
Total loans	$	—	$	1,344	$	2,364	$	356,642

(1)

Includes $4,108 of PPP loans for which no loan loss reserve was allocated due to 100% SBA guarantee.

The following tables present the activity in the allowance for loan losses for the three months ended September 30, 2019 by portfolio segment:

Three months ended September 30, 2019	Beginning Balance		Provision			Charge-offs		Recoveries		Ending Balance
Real estate loans:
One-to-four family	$	995	$	(2	)	$	—	$	—	$	993
Multi-family		4		—			—		—		4
Home equity		24		5			—		—		29
Nonresidential		87		(2	)		—		—		85
Agricultural		3		1			—		—		4
Construction and land		94		(7	)		—		—		87
Total real estate loans		1,207		(5	)		—		—		1,202
Commercial and industrial		67		3			—		—		70
Consumer and other loans		23		2			—		—		25
Total loans	$	1,297	$	—		$	—	$	—	$	1,297

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at ~~December 31, 2017:~~June 30, 2020:

Ending Allowance on Loans: Loans:
At December 31, 2017 Individually Evaluated for Impairment Collectively Evaluated for Impairment Individually Evaluated for Impairment Collectively Evaluated for Impairment
Real estate loans:
One-to-four family $ — $ 888 $ 2,852 $ 255,236
Multi-family — 4 — 1,799
Home equity — 4 — 4,057
Nonresidential — 59 690 16,973
Agricultural — — 438 920
Construction and land — 73 270 28,149
Total real estate loans — 1,028 4,250 307,134
Commercial and industrial 4 — — 426
Consumer and other loans — — — 5,253
Total loans $ — $ 1,032 $ 4,250 $ 312,813

~~The following tables present the activity in the allowance for loan losses for the three and six months ended December 31, 2016 by portfolio segment:~~

Three Months ended December 31, 2016	Beginning Balance		Provision			Charge-offs		Recoveries		Ending Balance
												Ending Allowance on Loans:				Loans:
At June 30, 2020												Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Real estate loans:
One-to-four family	$	785	$	10		$	—	$	—	$	795	$	—	$	1,032	$	1,832	$	282,099
Multi-family		4		—			—		—		4		—		4		—		704
Home equity		2		—			—		—		2		—		34		—		5,763
Nonresidential		132		(8	)		—		—		124		—		75		562		19,521
Agricultural		5		(3	)		—		—		2		—		4		—		1,187
Construction and land		35		4			—		—		39		—		105		—		29,096
Total real estate loans		963		3			—		—		966		—		1,254		2,394		338,370
Commercial and industrial		6		(1	)		—		—		5
Commercial and industrial ⁽¹⁾													—		65		—		8,135
Consumer and other loans		3		22			—		—		25		—		27		—		6,768
Total loans	$	972	$	24		$	—	$	—	$	996	$	—	$	1,346	$	2,394	$	353,273

~~OCONEE FEDERAL FINANCIAL CORP.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(Amounts in thousands, except share and per share data)~~

Six Months ended December 31, 2016 Beginning
Balance Provision Charge-offs Recoveries Ending
Balance
Real estate loans:
One-to-four family $ 733 $ 62 $ — $ — $ 795
Multi-family 4 — — — 4
Home equity 2 — — — 2
Nonresidential 130 9 (15 ) — 124
Agricultural 5 (3 ) — — 2
Construction and land 39 — — — 39
Total real estate loans 913 68 (15 ) — 966
Commercial and industrial 6 (1 ) — — 5
Consumer and other loans 3 22 — — 25
Total loans $ 922 $ 89 $ (15 ) $ — $ 996

~~The following table presents the recorded balances of loans and amount of allowance allocated based upon impairment method by portfolio segment at June 30, 2017:~~

Ending Allowance on Loans: Loans:
At June 30, 2017 Individually Evaluated for Impairment Collectively Evaluated for Impairment Individually Evaluated for Impairment Collectively Evaluated for Impairment
Real estate loans:
One-to-four family $ 8 $ 892 $ 3,034 $ 257,080
Multi-family — 4 — 1,864
Home equity — 2 — 4,900
Nonresidential — 63 — 18,916
Agricultural — 1 448 993
Construction and land — 35 262 14,992
Total real estate loans 8 997 3,744 298,745
Commercial and industrial — 4 — 51
Consumer and other loans — 7 — 5,018
Total loans $ 8 $ 1,008 $ 3,744 $ 303,814

(1)

Includes $4,094 of PPP loans for which no loan loss reserve was allocated due to 100% SBA guarantee.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

The tables below present loans that were individually evaluated for impairment by portfolio segment at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017,~~2020, including the average recorded investment balance and interest earned for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2020 and the year ended June 30, ~~2017:~~

2020:

December 31, 2017
Unpaid
Principal
Balance Recorded
Investment Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
With no recorded allowance:
Real estate loans:
One-to-four family $ 2,948 $ 2,852 $ — $ 2,460 $ 22
Multi-family — — — — —
Home equity — — — — —
Nonresidential 726 690 — 345 3
Agricultural 987 438 — 443 7
Construction and land 454 270 — 266 7
Total real estate loans 5,115 4,250 — 3,514 39
Commercial and industrial — — — — —
Consumer and other loans — — — — —
Total $ 5,115 $ 4,250 $ — $ 3,514 $ 39

With recorded allowance:
Real estate loans:
One-to-four family $ — $ — $ — $ 484 $ —
Multi-family — — — — —
Home equity — — — — —
Nonresidential — — — — —
Agricultural — — — — —
Construction and land — — — — —
Total real estate loans — — — 484 —
Commercial and industrial — — — — —
Consumer and other loans — — — — —
Total $ — $ — $ — $ 484 $ —

Totals:
Real estate loans $ 5,115 $ 4,250 $ — $ 3,998 $ 39
Consumer and other loans — — — — —
Total $ 5,115 $ 4,250 $ — $ 3,998 $ 39

	September 30, 2020
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no recorded allowance:
Real estate loans:
One-to-four family	$	1,839	$	1,812	$	—	$	1,822	$	9
Multi-family		—		—		—		—		—
Home equity		—		—		—		—		—
Nonresidential		585		552		—		557		—
Agricultural		—		—		—		—		—
Construction and land		—		—		—		—		—
Total real estate loans		2,424		2,364		—		2,379		9
Commercial and industrial		—		—		—		—		—
Consumer and other loans		—		—		—		—		—
Total	$	2,424	$	2,364	$	—	$	2,379	$	9

With recorded allowance:
Real estate loans:
One-to-four family	$	—	$	—	$	—	$	—	$	—
Multi-family		—		—		—		—		—
Home equity		—		—		—		—		—
Nonresidential		—		—		—		—		—
Agricultural		—		—		—		—		—
Construction and land		—		—		—		—		—
Total real estate loans		—		—		—		—		—
Commercial and industrial		—		—		—		—		—
Consumer and other loans		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—

Totals:
Real estate loans	$	2,424	$	2,364	$	—	$	2,379	$	9
Consumer and other loans		—		—		—		—		—
Total	$	2,424	$	2,364	$	—	$	2,379	$	9

OCONEE FEDERAL FINANCIAL CORP.

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(Amounts in thousands, except share and per share data)~~

June 30, 2017
Unpaid
Principal
Balance Recorded
Investment Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
With no recorded allowance:
Real estate loans:
One-to-four family $ 2,539 $ 2,067 $ — $ 1,534 $ 225
Multi-family — — — — —
Home equity — — — — —
Nonresidential — — — 555 —
Agricultural 997 448 — 448 34
Construction and land 457 262 — 220 13
Total real estate loans 3,993 2,777 — 2,757 272
Commercial and industrial — — — — —
Consumer and other loans — — — — —
Total $ 3,993 $ 2,777 $ — $ 2,757 $ 272

With recorded allowance:
Real estate loans:
One-to-four family $ 989 $ 967 $ 8 $ 1,443 $ —
Multi-family — — — — —
Home equity — — — — —
Nonresidential — — — 191 —
Agricultural — — — — —
Construction and land — — — 174 —
Total real estate loans 989 967 8 1,808 —
Commercial and industrial — — — — —
Consumer and other loans — — — — —
Total $ 989 $ 967 $ 8 $ 1,808 $ —

Totals:
Real estate loans $ 4,982 $ 3,744 $ 8 $ 4,565 $ 272
Consumer and other loans — — — — —
Total $ 4,982 $ 3,744 $ 8 $ 4,565 $ 272

~~OCONEE FEDERAL FINANCIAL CORP.~~

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

	June 30, 2020
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no recorded allowance:
Real estate loans:
One-to-four family	$	1,863	$	1,832	$	—	$	2,062	$	36
Multi-family		—		—		—		—		—
Home equity		—		—		—		—		—
Nonresidential		596		562		—		588		—
Agricultural		—		—		—		178		—
Construction and land		—		—		—		—		—
Total real estate loans		2,459		2,394		—		2,828		36
Commercial and industrial		—		—		—		—		—
Consumer and other loans		—		—		—		—		—
Total	$	2,459	$	2,394	$	—	$	2,828	$	36

With recorded allowance:
Real estate loans:
One-to-four family	$	—	$	—	$	—	$	—	$	—
Multi-family		—		—		—		—		—
Home equity		—		—		—		—		—
Nonresidential		—		—		—		—		—
Agricultural		—		—		—		—		—
Construction and land		—		—		—		—		—
Total real estate loans		—		—		—		—		—
Commercial and industrial		—		—		—		—		—
Consumer and other loans		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	��

Totals:
Real estate loans	$	2,459	$	2,394	$	—	$	2,828	$	36
Consumer and other loans		—		—		—		—		—
Total	$	2,459	$	2,394	$	—	$	2,828	$	36

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

The following tables present the aging of past due loans as well as nonaccrual loans. Nonaccrual loans and accruing loans past due 90 days or more include both smaller balance homogenous loans and larger balance loans that are evaluated either collectively or individually for impairment.

Total past due loans and nonaccrual loans at ~~December 31, 2017:~~September 30, 2020:

															Accruing
	30-59		60-89		90 Days										Loans
	Days		Days		or More		Total				Total		Nonaccrual		Past Due 90
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Loans		Days or More		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Nonaccrual Loans		Accruing Loans Past Due 90 Days or More
Real estate loans:
One-to-four family	$	6,171	$	1,887	$	1,590	$	9,648	$	2,48,440	$	2,58,088	$	3,558	$	—	$	2,796	$	1,166	$	336	$	4,298	$	283,786	$	288,084	$	1,802	$	—
Multi-family		—		—		—		—		1,799		1,799		—		—		—		—		—		—		697		697		—		—
Home equity		190		25		82		297		3,760		4,057		40		—		15		—		—		15		6,366		6,381		—		—
Nonresidential		—		198		35		233		17,430		17,663		975		—		—		—		—		—		19,682		19,682		552		—
Agricultural		—		—		—		—		1,358		1,358		480		—		—		—		—		—		1,170		1,170		—		—
Construction and land		54		—		270		324		28,095		28,419		301		—		—		9		—		9		27,886		27,895		—		—
Total real estate loans		6,415		2,110		1,977		10,502		3,00,882		3,11,384		5,354		—		2,811		1,175		336		4,322		339,587		343,909		2,354		—
Commercial and industrial		—		—		—		—		426		426		—		—		—		—		—		—		8,834		8,834		—		—
Consumer and other loans		—		—		—		—		5,253		5,253		—		—		—		—		—		—		6,263		6,263		—		—
Total	$	6,415	$	2,110	$	1,977	$	10,502	$	3,06,561	$	3,17,063	$	5,354	$	—	$	2,811	$	1,175	$	336	$	4,322	$	354,684	$	359,006	$	2,354	$	—

COVID-19 Loan Modifications:

In light of recent disruptions in economic conditions caused by COVID-19, the financial regulators have issued guidance encouraging banks to work constructively with borrowers affected by the virus in our community. This guidance provides that the agencies will not criticize financial institutions that mitigate credit risk through prudent actions consistent with safe and sound practices. Included in the table above are $14,665 in loans that were modified to defer principal payments or principal and interest payments from three to six months based on the affected borrower’s request and need for COVID-19 financial relief. All loans modified for COVID-19 financial relief were current at the time of modification. There are $10,827 in one-to-four family loans, $3,421 in non-residential loans and $417 in multi-family loans. Section 4013 of the CARES Act, “Temporary Relief from Troubled Debt Restructurings,” provides banks the option to temporarily suspend certain requirements under ASC 340-10 troubled debt restructuring classifications for a limited period of time to account for the effects of COVID-19. The Federal Reserve and the other banking agencies and regulators have also issued a joint statement encouraging banks to work prudently with borrowers and to describe the agencies’ interpretations of how accounting rules under ASC 310-40 apply to certain COVID-19 related modifications. We have not considered any of the COVID-19 related modifications performed to date to be troubled debt restructurings. As of September 30, 2020, $14,369 were current and $296 were 30 days or more past due. As of September 30, 2020, $5,800 of the original $14,665 in original COVID-19 relief modified loans are no longer in deferral.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

Total past due and nonaccrual loans by portfolio segment at June 30, ~~2017:~~2020:

															Accruing
	30-59		60-89		90 Days										Loans
	Days		Days		or More		Total				Total		Nonaccrual		Past Due 90
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Loans		Days or More		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans		Nonaccrual Loans		Accruing Loans Past Due 90 Days or More
Real estate loans:
One-to-four family	$	6,143	$	1,109	$	1,100	$	8,352	$	2,51,762	$	2,60,114	$	2,762	$	—	$	2,055	$	407	$	561	$	3,023	$	280,908	$	283,931	$	1,969	$	—
Multi-family		—		—		—		—		1,864		1,864		—		—		—		—		—		—		704		704		—		—
Home equity		161		—		40		201		4,699		4,900		89		—		—		—		40		40		5,723		5,763		40		—
Nonresidential		—		43		—		43		18,873		18,916		43		—		179		—		—		179		19,904		20,083		732		—
Agricultural		—		448		—		448		993		1,441		514		—		—		—		—		—		1,187		1,187		—		—
Construction and land		40		—		35		75		15,179		15,254		75		—		—		10		—		10		29,086		29,096		—		—
Total real estate loans		6,344		1,600		1,175		9,119		2,93,370		3,02,489		3,483		—		2,234		417		601		3,252		337,512		340,764		2,741		—
Commercial and industrial		—		—		—		—		51		51		—		—		—		—		—		—		8,135		8,135		—		—
Consumer and other loans		10		1		—		11		5,007		5,018		—		—		—		—		—		—		6,768		6,768		—		—
Total	$	6,354	$	1,601	$	1,175	$	9,130	$	2,98,428	$	3,07,558	$	3,483	$	—	$	2,234	$	417	$	601	$	3,252	$	352,415	$	355,667	$	2,741	$	—

~~OCONEE FEDERAL FINANCIAL CORP.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(Amounts~~Included in ~~thousands, except share~~the table above are $15,024 in loans that were modified to defer principal payments or principal and ~~per share data)~~interest payments from three to six months based on the affected borrower’s request and need for COVID-19 financial relief. All loans modified for COVID-19 financial relief were current at the time of modification. There are $10,993 in one-to-four family loans, $3,615 in non-residential loans and $416 in multi-family loans. As of June 30, 2020, $14,781 were current and $243 were 30 days or more past due.

Troubled Debt Restructurings:

At ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017,~~2020, total loans that have been modified as troubled debt restructurings were ~~$2,974~~$1,781 and ~~$1,619,~~$1,985, respectively, which consisted of ~~one construction loan,~~ two ~~agricultural~~non-residential real estate loans ~~two nonresidential~~ and three one-to-four family first ~~liens~~lien loans at ~~December 31, 2017~~September 30, 2020, and ~~one construction loan,~~ two ~~agricultural~~non-residential real estate loans ~~one home equity line of credit,~~ and ~~two~~four one-to-four family first ~~liens~~lien loans at June 30, ~~2017. An~~2020. There was no specific allowance ~~of $0 and $8~~for loss established for these loans at ~~December 31, 2017 and~~September 30, 2020 or June 30, ~~2017, respectively, has been specifically reserved for these loans.~~2020. Additionally, there were no commitments to lend any additional amounts on any loan after the modification. ~~The one-to-four family first lien troubled debt restructuring during the six months ended December 31, 2017 involved renewal of a loan with a fee concession. The two nonresidential~~No loans have been modified as troubled debt restructurings during the ~~six~~three months ended ~~December 31, 2017 involved renewing existing loans, one with a potential principal reduction and one with a change of terms to temporarily require only payments of interest.~~September 30, 2020. No loans modified as troubled debt restructurings during the ~~past~~ twelve months ended September 30, 2020 have defaulted since restructuring. All of these loans are on nonaccrual at September 30, 2020 and June 30, 2020. At September 30, 2020 and June 30, 2020, $1,745 and $1,774, respectively, were individually evaluated for impairment.

Allowance for Loan Loss:

There have been no changes to our allowance for loan loss methodology during the quarter ended September 30, 2020. We have assessed the impact of the COVID-19 pandemic on the allowance for loan loss using the information that is available and have made adjustments to certain qualitative factors in our model in response to the additional risks that we believe have become present. After such adjustments to the calculation, we have determined that the recorded allowance is believed to be adequate at this time and as a result no additional provision for loan losses has been recorded during the quarter ended September 30, 2020. However, the rapid development and fluidity of this pandemic precludes any prediction as to the ultimate material adverse impact of the COVID-19 outbreak. We will continue to review and make adjustments as may be necessary as we move through the pandemic related quarantine and the country continues to fully reopen. To the best of our knowledge, we have recorded all losses that are both probable and reasonably estimable for the three months ended September 30, 2020 and September 30, 2019.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

Loan Grades:

The Company utilizes a grading system whereby all loans are assigned a grade based on the risk profile of each loan. Loan grades are determined based on an evaluation of relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. All loans, regardless of size, are analyzed and are given a grade based upon the management’s assessment of the ability of borrowers to service their debts.

Pass: Loan assets of this grade conform to a preponderance of our underwriting criteria and are acceptable as a credit risk, based upon the current net worth and paying capacity of the obligor. Loans in this category also include loans secured by liquid assets and secured loans to borrowers with unblemished credit histories.

Pass-Watch: Loan assets of this grade represent our minimum level of acceptable credit risk. This grade may also represent obligations previously rated “Pass”, but with significantly deteriorating trends or previously rated.

Special Mention: Loan assets of this grade have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loan assets of this grade are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Portfolio Segments:

One-to-four family: One-to-four family residential loans consist primarily of loans secured by first or second deeds of trust on primary residences, and are originated as adjustable-rate or fixed-rate loans for the construction, purchase or refinancing of a mortgage. These loans are collateralized by owner-occupied properties located in the Company’s market area. The Company currently originates residential mortgage loans for our portfolio with loan-to-value ratios of up to 80% for traditional owner-occupied homes.

For traditional homes, the Company may originate loans with loan-to-value ratios in excess of 80% if the borrower obtains mortgage insurance or provides readily marketable collateral. The Company may make exceptions for special loan programs that we offer. The Company also originates residential mortgage loans for non-owner-occupied homes with loan-to-value ratios of up to 80%.

~~OCONEE FEDERAL FINANCIAL CORP.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(Amounts in thousands, except share and per share data)~~

The Company historically originated residential mortgage loans with loan-to-value ratios of up to 75% for manufactured or modular homes. The Company no longer offers residential mortgage loans for manufactured or modular homes as of December 1, 2014. However, renewals of existing performing credits that meet the Company’s underwriting requirements will be considered. The Company requires lower loan-to-value ratios for manufactured and modular homes because such homes tend to depreciate over time. Manufactured or modular homes must be permanently affixed to a lot to make them more difficult to move without the Company’s permission. Such homes must be “de-titled” by the State of South Carolina or Georgia so that they are taxed and must be transferred as residential homes rather than vehicles. The Company also obtains a mortgage on the real estate to which such homes are affixed.

Multi-family:Multi-family real estate loans generally have a maximum term of five years with a 30 year amortization period and a final balloon payment and are secured by properties containing five or more units in the Company’s market area. These loans are generally made in amounts of up to 75% of the lesser of the appraised value or the purchase price of the property with an appropriate projected debt service coverage ratio. The Company’s underwriting analysis includes considering the borrower’s expertise and requires verification of the borrower’s credit history, income and financial statements, banking relationships, independent appraisals, references and income projections for the property. The Company generally obtains personal guarantees on these loans.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

Multi-family real estate loans generally present a higher level of risk than loans secured by one-to-four family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income-producing properties and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family residential real estate is typically dependent upon the successful operation of the related real estate project.

Home Equity: The Company offers home equity loans and lines of credit secured by first or second deeds of trust on primary residences in our market area. The Company’s home equity loans and lines of credit are limited to an 80% loan-to-value ratio (including all prior liens). Standard residential mortgage underwriting requirements are used to evaluate these loans. The Company offers adjustable-rate and fixed-rate options for these loans with a maximum term of 10 years. The repayment terms on lines of credit are interest only monthly with principle due at maturity. Home equity loans have a more traditional repayment structure with principal and interest due monthly. The maximum term on home equity loans is 10 years with an amortization schedule not exceed 20 years.

Nonresidential Real Estate: Nonresidential loans include those secured by real estate mortgages on churches, owner-occupied and non-owner-occupied commercial buildings of various types, retail and office buildings, hotels, and other business and industrial properties. The nonresidential real estate loans that the Company originates generally have terms of five to 20 years with amortization periods up to 20 years. The maximum loan-to-value ratio of our nonresidential real estate loans is generally 75%.

Loans secured by nonresidential real estate generally are larger than one-to-four family residential loans and involve greater credit risk. Nonresidential real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Repayment of these loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general, including the current adverse conditions. Our nonresidential real estate lending includes a significant amount of loans to churches. Because a church’s financial stability often depends on donations from congregation members rather than income from business operations, repayment may be affected by economic conditions that affect individuals located both in our market area and in other market areas with which we are not as familiar. In addition, due to the unique nature of church buildings and properties, the real estate securing church loans may be less marketable than other nonresidential real estate.

The Company considers a number of factors in originating nonresidential real estate loans. The Company evaluates the qualifications and financial condition of the borrower, including credit history, cash flows, the applicable business plan, the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with the Company and other financial institutions. In evaluating the property securing the loan, the factors the Company considers include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service). For church loans, the Company also considers the length of time the church has been in existence, the size and financial strength of the denomination with which it is affiliated, attendance figures and growth projections and current operating budgets. The collateral underlying all nonresidential real estate loans is appraised by outside independent appraisers approved by our board of directors. Personal guarantees may be obtained from the principals of nonresidential real estate borrowers, and in the case of church loans, guarantees from the applicable denomination may be obtained.

~~OCONEE FEDERAL FINANCIAL CORP.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(Amounts in thousands, except share and per share data)~~

Agricultural:These loans are secured by farmland and related improvements in the Company’s market area. These loans generally have terms of five to 20 years with amortization periods up to 20 years. The maximum loan-to-value ratio of these loans is generally 75%. The Company is managing a small number of these loans in our portfolio. We continue to closely monitor our existing relationships.

Loans secured by agricultural real estate generally are larger than one-to-four family residential loans and involve greater credit risk. Agricultural real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Repayment of these loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general, including the current adverse conditions.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

Construction and Land: The Company makes construction loans to individuals for the construction of their primary residences and to commercial businesses for their real estate needs. These loans generally have maximum terms of twelve months, and upon completion of construction convert to conventional amortizing mortgage loans. Residential construction loans have rates and terms comparable to one-to-four family residential mortgage loans that the Company originates. Commercial construction loans have rate and terms comparable to commercial loans that we originate. During the construction phase, the borrower generally pays interest only. Generally, the maximum loan-to-value ratio of our owner-occupied construction loans is 80%. Residential construction loans are generally underwritten pursuant to the same guidelines used for originating permanent residential mortgage loans. Commercial construction loans are generally underwritten pursuant to the same guidelines used for originating commercial loans.

The Company also makes interim construction loans for nonresidential properties. In addition, the Company occasionally makes loans for the construction of homes “on speculation,” but the Company generally permits a borrower to have only two such loans at a time. These loans generally have a maximum term of eight months, and upon completion of construction convert to conventional amortizing nonresidential real estate loans. These construction loans have rates and terms comparable to permanent loans secured by property of the type being constructed that we originate. Generally, the maximum loan-to-value ratio of these construction loans is 85%.

Commercial and Industrial Loans:Commercial and industrial loans are offered to businesses and professionals in the Company’s market area. These loans generally have short and medium terms on both a collateralized and uncollateralized basis. The structure of these loans are largely determined by the loan purpose and collateral. Sources of collateral can include a lien on furniture, fixtures, equipment, inventory, receivables and other assets of the company. A UCC-1 is typically filed to perfect our lien on these assets.

Commercial and industrial loans and leases typically are underwritten on the basis of the borrower’s or lessee’s ability to make repayment from the cash flow of its business and generally are collateralized by business assets. As a result, such loans and leases involve additional complexities, variables and risks and require more thorough underwriting and servicing than other types of loans and leases.

Within this category for the quarter ended September 30, 2020 and the year ended June 30, 2020 are PPP loans that were authorized under the CARES Act. PPP loans are originated by the Association, are 100% guaranteed by the Small Business Administration (“SBA”) and qualify to be forgiven based on certain criteria as determined by the SBA. The Association received a fee, with the percentage depending on the size of the loan, for originating these loans and earn 1% on the outstanding balance for the term of the loans, the maximum of which is five years unless forgiven sooner by the SBA. As of September 30, 2020 no PPP loans have been forgiven.

Consumer and Other Loans: The Company offers installment loans for various consumer purposes, including the purchase of automobiles, boats, and for other legitimate personal purposes. The maximum terms of consumer loans is 18 months for unsecured loans and 18 to 60 months for loans secured by a vehicle, depending on the age of the vehicle. The Company generally only extends consumer loans to existing customers or their immediate family members, and these loans generally have relatively low balances.

Consumer loans may entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured or are secured by rapidly depreciable assets, such as automobiles. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

~~OCONEE FEDERAL FINANCIAL CORP.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(Amounts in thousands, except share and per share data)~~

Based on the most recent analysis performed, the risk grade of loans by portfolio segment are presented in the following tables.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

Total loans by risk grade and portfolio segment at ~~December 31, 2017:~~September 30, 2020:

Special
Pass Pass- Watch Mention Substandard Doubtful Total
Real estate loans:
One-to-four family $ 243,134 $ 5,956 $ 2,217 $ 6,781 $ — $ 258,088
Multi-family 1,799 — — — — 1,799
Home equity 3,472 288 201 96 — 4,057
Nonresidential 12,645 2,614 1,328 1,076 — 17,663
Agricultural 249 362 267 480 — 1,358
Construction and land 26,953 820 117 529 — 28,419
Total real estate loans 288,252 10,040 4,130 8,962 — 311,384
Commercial and industrial 426 — — — — 426
Consumer and other loans 5,253 — — — — 5,253
Total $ 293,931 $ 10,040 $ 4,130 $ 8,962 $ — $ 317,063

	Pass		Pass- Watch		Special Mention		Substandard		Doubtful		Total
Real estate loans:
One-to-four family	$	277,878	$	3,756	$	3,147	$	3,303	$	—	$	288,084
Multi-family		697		—		—		—		—		697
Home equity		5,936		383		53		9		—		6,381
Nonresidential		19,016		—		—		666		—		19,682
Agricultural		1,170		—		—		—		—		1,170
Construction and land		27,445		408		—		42		—		27,895
Total real estate loans		332,142		4,547		3,200		4,020		—		343,909
Commercial and industrial		8,834		—		—		—		—		8,834
Consumer and other loans		6,263		—		—		—		—		6,263
Total	$	347,239	$	4,547	$	3,200	$	4,020	$	—	$	359,006

Total loans by risk grade and portfolio segment at June 30, ~~2017:~~2020:

	Pass		Pass-Watch		Special Mention		Substandard		Doubtful		Total
Real estate loans:
One-to-four family	$	273,228	$	3,848	$	2,930	$	3,925	$	—	$	283,931
Multi-family		704		—		—		—		—		704
Home equity		5,268		392		54		49		—		5,763
Nonresidential		19,077		172		—		834		—		20,083
Agricultural		1,187		—		—		—		—		1,187
Construction and land		28,611		416		—		69		—		29,096
Total real estate loans		328,075		4,828		2,984		4,877		—		340,764
Commercial and industrial		8,135		—		—		—		—		8,135
Consumer and other loans		6,768		—		—		—		—		6,768
Total	$	342,978	$	4,828	$	2,984	$	4,877	$	—	$	355,667

At September 30, 2020, there were no loans in formal foreclosure proceedings.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

Special
Pass Pass-Watch Mention Substandard Doubtful Total
Real estate loans:
One-to-four family $ 245,179 $ 5,914 $ 2,573 $ 6,448 $ — $ 260,114
Multi-family 1,864 — — — — 1,864
Home equity 4,272 233 300 95 — 4,900
Nonresidential 13,801 3,610 1,356 149 — 18,916
Agricultural 281 374 272 514 — 1,441
Construction and land 13,727 846 120 561 — 15,254
Total real estate loans 279,124 10,977 4,621 7,767 — 302,489
Commercial and industrial 51 — — — — 51
Consumer and other loans 5,017 — — 1 — 5,018
Total $ 284,192 $ 10,977 $ 4,621 $ 7,768 $ — $ 307,558

(6)

BORROWINGS

At ~~December 31, 2017, consumer mortgage loans secured by residential real estate properties totaling $506~~September 30, 2020 and June 30, 2020, advances from the Federal Home Loan Bank were ~~in formal foreclosure proceedings and are included in one-to-four family and construction loans.~~as follows:

	September 30, 2020
	Balance		Stated Interest Rate
FHLB advances due February 2023 through January 2025	$	5,000	1.40% - 1.59%
Total	$	5,000

~~(6) BORROWINGS~~

	June 30, 2020
	Balance		Stated Interest Rate
FHLB advances due February 2023 through January 2025	$	5,000	1.40% - 1.59%
Total	$	5,000

Payments over the next five years are as follows:

At December 31, 2017, long term borrowings consisted of fixed rate FHLB advances of $20,000 at a weighted average stated rate of 1.45% all of which mature in less than three months. Overnight borrowings at December 31, 2017 consisted of $2,814 of federal funds purchased at a rate of 2.5%. There were no borrowings as of June 30, 2017. We have credit available under a loan agreement with the FHLB with a remaining availability of $98,926 as of December 31, 2017.

2023	$2,500
2025	$2,500

The ~~Bank~~average interest rate of all outstanding FHLB advances was 1.50% on September 30, 2020 and June 30, 2020, respectively.

Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances are collateralized by $9,873 and $10,786 of investment securities at September 30, 2020 and June 30, 2020, respectively. The Association has also pledged as collateral FHLB stock ~~and certain investment securities~~ and has entered into a blanket collateral agreement whereby qualifying mortgages, free of other encumbrances and at various discounted values as determined by the FHLB, will be maintained.

~~OCONEE FEDERAL FINANCIAL CORP.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(Amounts in thousands, except share and per share data)~~ Based on this collateral, the Association is eligible to borrow up to a total of $129,359 at September 30, 2020.

There were no overnight borrowings at September 30, 2020 or June 30, 2020.

(7)

~~(7)~~ FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the exchange price that would be received for an asset or paid to transfer a liability ~~(exit price)~~ in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Investment Securities:

The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

Impaired Loans:

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Real Estate Owned:

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals, which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for both collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value.

~~OCONEE FEDERAL FINANCIAL CORP.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~
~~(Amounts in thousands, except share and per share data)~~

Loan Servicing Rights:

Fair value is determined based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data and results in a Level 3 classification.

Assets and liabilities measured at fair value on a recurring basis at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017~~2020 are summarized below:

	Fair Value Measurements
	September 30, 2020				June 30, 2020
	(Level 2)		(Level 3)		(Level 2)		(Level 3)
Financial assets:
Securities available-for-sale:
FHLMC common stock	$	155	$	—	$	178	$	—
Certificates of deposit		2,582		—		2,592		—
Municipal securities		20,687		—		21,643		—
CMOs		10,249		—		10,106		—
U.S. Government agency mortgage-backed securities		56,303		—		55,173		—
U.S. Government agency bonds		3,004		—		1,034		—
Total securities available-for-sale		92,980		—		90,726		—
Loan servicing rights		—		415		—		458
Total financial assets	$	92,980	$	415	$	90,726	$	458

Fair Value Measurements
December 31, 2017 June 30, 2017
(Level 2) (Level 3) (Level 2) (Level 3)
Financial assets:
Securities available-for-sale:
FHLMC common stock $ 205 $ — $ 182 $ —
Certificates of deposit 5,456 — 6,228 —
Municipal securities 43,156 — 39,799 —
SBA loan pools 454 — 565 —
CMOs 11,346 — 12,785 —
U.S. Government agency mortgage-backed securities 47,780 — 44,825 —
U.S. Government agency bonds 13,786 — 13,950 —
Total securities available-for-sale 122,183 — 118,334 —
Loan servicing rights — 1,024 — 1,141
Total financial assets $ 122,183 $ 1,024 $ 118,334 $ 1,141

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

Presented in the table below are assets measured at fair value on a nonrecurring basis using level 3 inputs at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017:~~2020:

Fair Value Measurements
December 31,
2017 June 30,
2017
(Level 3) (Level 3)
Financial assets:
Impaired loans, with specific allocations:
One-to-four family $ — $ 959
Nonresidential — —
Construction and land — —
Total financial assets — 959
Non-financial assets:
Real estate owned, net:
One-to-four family 137 152
Nonresidential 713 713
Construction and land — —
Total non-financial assets 850 865
Total assets measured at fair value on a non-recurring basis $ 850 $ 1,824

The Company’s impaired loans at December 31, 2017 and June 30, 2017 were measured at fair value based primarily upon the estimated value of real estate collateral less costs to sell. There were no such loans as of December 31, 2017. The carrying amounts of these loans was $959 as of June 30, 2017, which reflected a valuation allowance of $4.

	Fair Value Measurements
	September 30, 2020		June 30, 2020
	(Level 3)		(Level 3)
Non-financial assets:
Real estate owned, net:
One-to-four family	$	52	$	—
Nonresidential		159		159
Total non-financial assets		211		159
Total assets measured at fair value on a non-recurring basis	$	211	$	159

Real estate owned is carried at the lower of carrying value or fair value less costs to sell. The carrying value of real estate owned ~~and their respective valuation allowances~~ at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017~~2020 was $211 and $159, respectively. There were ~~$850 and $865 and $0 and $24, respectively.~~

~~OCONEE FEDERAL FINANCIAL CORP.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~
~~(Amounts in thousands, except share and per share data)~~no valuation allowances associated with these properties at September 30, 2020 or June 30, 2020.

The ~~tables~~table below ~~present~~presents a reconciliation of all Level 3 assets measured at fair value on a recurring basis using significant unobservable inputs for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2020 and ~~2016:~~2019:

	Fair Value Measurements										Fair Value Measurements
	(Level 3)										(Level 3)
	Three Months Ended					Six Months Ended					Three Months Ended
	December 31, 2017			December 31, 2016		December, 31 2017			December 31, 2016		September 30, 2020			September 30, 2019
		Loan Servicing Rights			Loan Servicing Rights		Loan Servicing Rights			Loan Servicing Rights		Loan Servicing Rights			Loan Servicing Rights
Balance at beginning of period:	$	1,089		$	1,023	$	1,141		$	1,046	$	458		$	868
Purchases		—			—		—			—		—			—
Change in fair value		(65	)		196		(117	)		173
Unrealized net losses included in net income												(43	)		(53	)
Balance at end of period:	$	1,024		$	1,219	$	1,024		$	1,219	$	415		$	815

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

The table below presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a non-recurring basis at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017.~~2020.

Level 3 Quantitative Information

December 31,
2017

June 30,
2017

Valuation Technique

Unobservable Inputs

Range

September 30,
2020

June 30,
2020

Valuation
Technique

Unobservable
Inputs

Range

Fair Value

Loan servicing rights

1,024

1,141

Discounted cash flows

Discount rate, estimated timing of cash flows

9% to 10%

415

458

Discounted cash flows

Discount rate, estimated timing of cash flows

8.63% to 8.38%

Impaired real estate loans net, with specific allocations:

One-to-four family

—

959

Sales
comparison approach

Adjustment for differences between the comparable sales

0% to 30%

Real estate owned net:

One-to-four family

137

152

Sales comparison approach

Adjustment for differences between the comparable sales

0% to 20%

Real estate owned net:

One-to-four family

—

Sales comparison approach

Adjustment for differences between the comparable sales

0% to 20%

Nonresidential

713

Sales
comparison approach

Adjustment for
differences between the comparable sales

0% to 20%

159

Sales comparison approach

Adjustment for differences between the comparable sales

0% to 20%

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

Many of the Company’s assets and liabilities are short-term financial instruments whose carrying amounts reported in the consolidated balance ~~sheet~~sheets approximate fair value. These items include cash and cash equivalents, bank owned life insurance, accrued interest receivable and payable balances, variable rate loan and deposits that re-price frequently and fully. The estimated fair values of the Company’s remaining on-balance sheet financial instruments at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017~~2020 are summarized below:

December 31, 2017
Carrying Fair Value
Amount (Level 1) (Level 2) (Level 3) Total
Financial assets
Securities available-for-sale $ 122,183 $ — $ 122,183 $ — $ 122,183
Loans, net 316,031 — — 316,734 316,734
Loans held for sale (1) 270 — — 270 270
Loan servicing rights 1,024 — — 1,024 1,024
Restricted equity securities 1,872 N/A N/A N/A N/A

Financial liabilities
Deposits $ 371,298 $ 171,191 $ 200,095 $ — $ 371,286
Fed Funds Purchased 2,814 — 2,814 — 2,814
FHLB Advances 20,000 — 20,000 — 20,000

	September 30, 2020
	Carrying		Fair Value
	Amount		(Level 1)		(Level 2)		(Level 3)		Total
Financial assets
Securities available-for-sale	$	92,980	$	—	$	92,980	$	—	$	92,980
Loans, net ⁽¹⁾		357,662		—		—		365,144		365,144
Loans held for sale⁽²⁾		905		—		—		905		905
Loan servicing rights		415		—		—		415		415
Restricted equity securities		1,249		N/A		N/A		N/A		N/A

Financial liabilities
Deposits	$	424,838	$	230,007	$	193,858	$	—	$	423,865
FHLB Advances		5,000		—		5,146		—		5,146

June 30, 2017
Carrying Fair Value
Amount (Level 1) (Level 2) (Level 3) Total
Financial assets
Securities available-for-sale $ 118,334 $ — $ 118,334 $ — $ 118,334
Loans, net 306,542 — — 307,624 307,624
Loans held for sale (1) 245 — — 245 245
Loan servicing rights 1,141 — — 1,141 1,141
Restricted equity securities 1,023 N/A N/A N/A N/A

Financial liabilities
Deposits $ 394,505 $ 190,968 $ 203,656 $ — $ 394,624
Fed Funds Purchased — — — — —
FHLB Advances — — — — —

	June 30, 2020
	Carrying		Fair Value
	Amount		(Level 1)		(Level 2)		(Level 3)		Total
Financial assets
Securities available-for-sale	$	90,726	$	—	$	90,726	$	—	$	90,726
Loans, net ⁽¹⁾		354,321		—		—		364,636		364,636
Loans held for sale⁽²⁾		92		—		—		92		92
Loan servicing rights		458		—		—		458		458
Restricted equity securities		1,249		N/A		N/A		N/A		N/A

Financial liabilities
Deposits	$	421,092	$	223,172	$	197,020	$	—	$	420,192
FHLB Advances		5,000		—		5,141		—		5,141

(1)

Carrying amount of loans is net of unearned income and the allowance. In accordance with the adoption of ASU No. 2016-01, the fair value of loans as of September 30, 2020 and June 30, 2020 was measured using an exit price notion.

(2)

Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a pool-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors and result in a Level 3 classification.

~~(8) EMPLOYEE STOCK OWNERSHIP PLAN~~

(8)

EMPLOYEE STOCK OWNERSHIP PLAN

Employees participate in an Employee Stock Ownership Plan (“ESOP”). The ESOP borrowed from the Company to purchase 248,842 shares of the Company’s common stock at $10.00 per share during 2011. The Company makes discretionary contributions to the ESOP and pays dividends on unallocated shares to the ESOP, and the ESOP uses funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation and expense is recorded. Dividends on allocated shares increase participant accounts.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

Participants receive the shares at the end of employment. The Company makes contributions to the ESOP each December. There were no discretionary contributions made to the ESOP for debt retirement in 2017. In December 2016, $50 of discretionary contributions were made to the ESOP for debt retirement, which resulted in the release of additional shares and recognition of additional compensation expense of $88 for both the three and six months ended December 31, 2016.2019. Total ESOP compensation expense for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2020 was ~~$155 and $303, respectively,~~$84, and for the three ~~and six~~ months ended ~~December 31, 2016~~September 30, 2019 was ~~$181 and $273, respectively.~~

~~OCONEE FEDERAL FINANCIAL CORP.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~
~~(Amounts in thousands, except share and per share data)~~$94.

Shares held by the ESOP at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017~~2020 were as follows:

December 31,
2017 June 30,
2017
Committed to be released to participants 22,510 11,441
Allocated to participants 130,952 130,952
Unearned 65,340 89,620
Total ESOP shares 218,802 232,013

Fair value of unearned shares $ 1,875 $ 2,465

	September 30, 2020		June 30, 2020
Committed to be released to participants		19,344		12,903
Allocated to participants		141,264		141,264
Unearned		31,714		38,534
Total ESOP shares		192,322		192,701

Fair value of unearned shares	$	681	$	993

~~(9) STOCK BASED COMPENSATION~~

(9)

STOCK BASED COMPENSATION

On April 5, 2012, the shareholders of Oconee Federal Financial Corp. approved the Oconee Federal Financial Corp. 2012 Equity Incentive Plan (the “Plan”) for employees and directors of the Company. The Plan authorizes the issuance of up to 435,472 shares of the Company’s common stock, with no more than 124,420 of shares as restricted stock awards and 311,052 as stock options, either incentive stock options or non-qualified stock options. The exercise price of options granted under the Plan may not be less than the fair market value on the date the stock option is granted. The compensation committee of the board of directors has sole discretion to determine the amount and to whom equity incentive awards are granted.

On ~~December~~September 22, ~~2017,~~2020, the compensation committee of the board of directors approved the issuance of ~~22,400 stock options to purchase Company~~250 shares of restricted stock to ~~officers.~~a non-executive officer with immediate vesting. There were no stock options or restricted stock issued in fiscal 2017. Stock options and restricted stock have vesting periods of five years or seven years, a percentage of which vests annually on each anniversary of the grant date. The weighted average vesting period of stock options granted in 2017 was seven years. Apart from the vesting schedule for both stock options and restricted stock, there are no performance-based conditions or any other material conditions applicable to the ~~awards~~award issued. There were no stock options or restricted stock issued in fiscal 2020.

The following table summarizes stock option activity for the ~~six~~three months ended ~~December 31, 2017:~~September 30, 2020:

Options Weighted-
Average
Exercise
Price/Share Aggregate
Intrinsic
Value⁽¹⁾
Outstanding - June 30, 2017 261,986 $ 12.46
Granted 22,400 29.33
Exercised — —
Forfeited — —
Outstanding - December 31, 2017 284,386 $ 13.79 $ 4,241
Fully vested and exercisable at December 31, 2017 217,068 $ 11.80 $ 3,668
Expected to vest in future periods 67,318
Fully vested and expected to vest - December 31, 2017 284,386 $ 13.79 $ 4,241

	Options		Weighted- Average Exercise Price/Share		Aggregate Intrinsic Value ⁽¹⁾
Outstanding - June 30, 2020		164,319	$	14.18
Granted		—		—
Exercised		—		—
Forfeited		—		—
Outstanding - September 30, 2020		164,319	$	14.18	$	1,197
Fully vested and exercisable at September 30, 2020		148,319	$	13.08	$	1,245
Expected to vest in future periods		16,000
Fully vested and expected to vest - September 30, 2020		164,319	$	14.18	$	1,197

(1)

The intrinsic value for stock options is defined as the difference between the current market value and the exercise price. The current market price was based on the closing price of common stock of ~~$28.70~~$21.47 per share on ~~December 31, 2017.~~September 30, 2020.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

The fair value for each option grant is estimated on the date of grant using the Black-Scholes-Merton option pricing model that uses the following assumptions. The Company uses the U.S. Treasury yield curve in effect at the time of the grant to determine the risk-free interest rate. The expected dividend yield is estimated using the projected annual dividend level and recent stock price of the Company’s common stock at the date of grant. Expected stock volatility is based on historical volatilities of the SNL Financial Index of Thrift MHCs. The expected life of the options is calculated based on the “simplified” method as provided for under generally accepted accounting principles.

~~The weighted-average fair value of options granted and assumptions used in the Black-Scholes-Merton option pricing model in the fiscal years granted are listed below:~~

Fiscal Years Granted
2018
Risk-free interest rate 2.43 %
Expected dividend yield 1.36 %
Expected stock volatility 15.03 %
Expected life (years) 8
Fair value $ 5.41

~~There were no stock options granted in fiscal year 2017.~~

Stock options are assumed to be earned ratably over their respective vesting periods and charged to compensation expense based upon their grant date fair value and the number of options assumed to be earned. There were ~~4,035~~1,638 and ~~23,750~~1,235 options that were earned during the ~~six~~three months ended ~~December 31, 2017~~September 30, 2020 and ~~2016,~~2019, respectively. Stock-based compensation expense for stock options for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2020 was ~~$7 and $13, respectively,~~$6, and for the three ~~and six~~ months ended ~~December 31, 2016~~September 30, 2019 was ~~$14 and $28, respectively.~~$4. Total unrecognized compensation cost related to stock options was ~~$185~~$50 at ~~December 31, 2017~~September 30, 2020 and is expected to be recognized over a weighted-average period of ~~4.1~~2.8 years.

The following table summarizes non-vested restricted stock activity for the ~~six~~three months ended ~~December 31, 2017:~~September 30, 2020:

December 31,
2017
Balance - beginning of year 21,910
Granted —
Forfeited —
Vested —
Balance - end of period 21,910
Weighted average grant date fair value $ 13.09

	September 30, 2020
Balance - beginning of year		5,800
Granted		250
Forfeited		—
Vested		(250	)
Balance - end of period		5,800
Weighted average grant date fair value	$	19.78

The fair value of the restricted stock awards is amortized to compensation expense over their respective vesting periods and is based on the market price of the Company’s common stock at the date of grant multiplied by the number of shares granted that are expected to vest. Stock-based compensation expense for restricted stock included in noninterest expense was $15 for the three ~~and six~~ months ended ~~December 31, 2017 was $25~~September 30, 2020 and ~~$51, respectively, and for the three and six months ended December 31, 2016 was $62 and $123,~~2019, respectively. Unrecognized compensation expense for non-vested restricted stock awards was ~~$288~~$75 at ~~December 31, 2017~~September 30, 2020 and is expected to be recognized over a weighted-average period of ~~3.2~~1.5 years.

~~OCONEE FEDERAL FINANCIAL CORP.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(Amounts in thousands, except share and per share data)~~

~~(10) LOAN SERVICING RIGHTS~~

(10)

LOAN SERVICING RIGHTS

Mortgage loans serviced for others are not reported as assets; however, the underlying mortgage servicing rights associated with servicing these mortgage loans serviced for others is recorded as an asset in the consolidated balance sheet.

The principal balances of those loans at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017~~2020 are as follows:

	December 31, 2017		June 30, 2017		September 30, 2020		June 30, 2020
Mortgage loan portfolio serviced for:
FHLMC	$	103,094	$	110,171	$	65,481	$	69,553

Custodial escrow balances maintained in connection with serviced loans were ~~$397~~$845 and ~~$893~~$702 at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017.~~2020.

OCONEE FEDERAL FINANCIAL CORP.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share and per share data)

Activity for loan servicing rights for the three ~~and six~~ months ended ~~December 31, 2017~~September 30, 2020 and ~~2016~~2019 is as follows:

	Three Months Ended					Six Months Ended					Three Months Ended
	December 31, 2017			December 31, 2016		December 31, 2017			December 31, 2016		September 30, 2020			September 30, 2019
Loan servicing rights:
Beginning of period:	$	1,089		$	1,023	$	1,141		$	1,046	$	458		$	868
Additions		—			—		—			—		—			—
Change in fair value		(65	)		196		(117	)		173		(43	)		(53	)
End of period:	$	1,024		$	1,219	$	1,024		$	1,219	$	415		$	815

Fair value at ~~December 31, 2017~~September 30, 2020 was determined using a discount rate of ~~9.63%~~8.38%, prepayment speed assumptions ranging from ~~5.2%~~10.32% to ~~19.3%~~26.58% Conditional Prepayment Rate (“CPR”) depending on the loans’ coupon, term and seasoning, and a weighted average default rate of ~~0.61%~~0.21%. Fair value at ~~December 31, 2016~~September 30, 2019 was determined using a discount rate of ~~9.63%~~9.13%, prepayment speed assumptions ranging from ~~5.1%~~5.9% to ~~12.7%~~14.6% CPR depending on the loans’ coupon, term and seasoning, and a weighted average default rate of ~~0.61%~~0.31%.

~~(11) SUPPLEMENTAL CASH FLOW INFORMATION~~

(11)

SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information for the ~~six~~three months ended ~~December 31, 2017~~September 30, 2020 and ~~2016~~2019 is as follows:

	December 31, 2017		December 31, 2016			September 30, 2020			September 30, 2019
Cash paid during the period for:					Cash paid during the period for:
Interest paid	$	785	$	641		$	567		$	1,185
Income taxes paid	$	328	$	510		$	267		$	45
Supplemental noncash disclosures:
Transfers from loans to real estate owned	$	230	$	154		$	52		$	—
Change in unrealized gain/loss on securities available-for-sale						$	(213	)	$	1,132

~~OCONEE FEDERAL FINANCIAL CORP.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~(Amounts in thousands, except share and per share data)~~

(12)

SUBSEQUENT EVENTS

~~(12) SUBSEQUENT EVENTS~~Dividend Declared

On ~~January 25, 2018,~~October 22, 2020, the Board of Directors of Oconee Federal Financial Corp. declared a quarterly cash dividend of $0.10 per share of Oconee Federal Financial Corp.’s common stock. The dividend is payable to stockholders of record as of ~~February 8, 2018,~~November 5, 2020, and will be paid on or about ~~February 22, 2018.~~November 19, 2020.

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

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q 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 of 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.~~Report on Form 10-Q.

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 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;

●

credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance and provision for loan losses;

●

use of estimates for determining the fair value of certain of our assets, which may prove to be incorrect and result in significant declines in valuations;

●

increased competition among depository and other financial institutions;

●

our ability to attract and maintain deposits, including introducing new deposit products;

●

inflation and 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, including attracting and maintaining deposits and introducing new financial products;

●

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

●

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;

●

changes in laws or government regulations or policies affecting financial institutions, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements (particularly the new capital regulations), regulatory fees and compliance costs and the resources we have available to address such changes;

●

changes in the ability of third-party providers to perform their obligations to us;

●

technological changes that may be more difficult or expensive than expected;

●

cyber-attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data or disable our systems;

●

our reliance on a small executive staff;

●

changes in our compensation and benefit plans, and our ability to retain key members of our senior management team and to address staffing needs to implement our strategic plan;

●

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;

●

our ability to control costs and expenses, particularly those related to operating as a publicly traded company;

●

the effects of actual government shutdowns;

●

the ability of the U.S. government to manage federal debt limits;

●

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

●

other 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.

Novel Coronavirus Pandemic (COVID-19)

On March 10, 2020, the World Health Organization declared the outbreak of novel coronavirus (“COVID-19”) a pandemic, which continues to spread throughout the world and has adversely impacted global commercial activity and contributed to significant declines and volatility in financial markets. The COVID-19 outbreak and government responses continue to disrupt global supply chains and adversely impact many industries. The outbreak may continue to have a material adverse impact on economic and market conditions and could trigger a period of global economic slowdown. The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. The spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have certain employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

The rapid development and fluidity of this situation precludes any prediction as to the ultimate material adverse impact of the COVID-19 outbreak. Nevertheless, the outbreak presents uncertainty and risk with respect to the Company, its performance, and its financial results. As the result we could be subject to any of the following additional risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

●

demand for our products and services may decline, making it difficult to grow assets and income;

●

if the economy is unable to substantially and successfully reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

●

collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

●

our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

●

the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.

●

as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

●

a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend,

●

limitations may be placed on our ability to foreclose on properties during the pandemic;

●

litigation, regulatory enforcement risk and reputation risk regarding our participation in the PPP and the risk that the SBA may not fund some or all PPP loan guarantees;

●

the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause management to perform impairment testing on our goodwill or core deposit and customer relationships intangibles that could result in an impairment charge being recorded for that period, that would adversely impact our results of operations and the ability of the Association to pay dividends to us;

●

our cyber security risks are increased as the result of an increase in the number of employees working remotely;

●

we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and

●

Federal Deposit Insurance Corporation premiums may increase if the agency experience additional resolution costs.

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

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, ~~2017,~~2020, as filed with the Securities and Exchange Commission.

Comparison of Financial Condition at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017~~2020

Our total assets ~~decreased~~increased by ~~$436 thousand,~~$4.2 million, or ~~0.09%~~0.8%, to ~~$480.9~~$519.8 million at ~~December 31, 2017~~September 30, 2020 from ~~$481.3~~$515.6 million at June 30, ~~2017.~~2020. Total cash and cash equivalents decreased ~~$14.0~~$2.3 million, or ~~67.3%~~6.8%, to ~~$6.8~~$32.2 million at ~~December 31, 2017~~September 30, 2020 from ~~$20.7~~$34.6 million at June 30, ~~2017.~~2020. The decrease in cash and cash equivalents was ~~primarily~~ due to ~~an anticipated withdrawal from a single customer’s deposit account that had been invested by~~normal periodic fluctuations during the ~~Association in a money market account.~~three month period. Our available-for-sale securities portfolio increased by ~~$3.8~~$2.3 million from ~~$118.3~~$90.7 million at June 30, ~~2017~~2020 to ~~$122.2~~$93.0 million at ~~December 31, 2017.~~September 30, 2020. The Association began actively replenishing security repayments and maturities with purchases due to increased liquidity. Gross loans increased ~~$9.5~~$3.3 million, or ~~3.1%~~0.9%, to ~~$317.1~~$359.0 million at ~~December 31, 2017~~September 30, 2020 from ~~$307.6~~$355.7 million at June 30, ~~2017.~~2020. This increase ~~is a result of increased construction and land loan demand experienced~~was due to normal growth during the ~~six~~three months ended ~~December 31, 2017. Proceeds from FHLB advances were used to the loan and investment growth.~~September 30, 2020.

Deposits ~~decreased $23.2~~increased $3.7 million, or ~~5.9%~~0.9%, to ~~$371.3~~$424.8 million at ~~December 31, 2017~~September 30, 2020 from ~~$394.5~~$421.1 million at June 30, ~~2017.~~2020. The ~~decrease~~increase in our deposits reflected ~~a decrease~~an increase of ~~$21.5~~$5.3 million in NOW accounts, $1.1 million in money market accounts and $1.7 million in savings deposits, ~~$3.4~~offset by a decrease of $3.1 million in certificates of deposit and ~~$688 thousand in savings deposits, offset by an increase of $910 thousand in NOW accounts and an increase of $1.5~~$1.3 million in non-interest bearing ~~checking. The decrease in money market deposits was due to an anticipated withdrawal from a single customer. The decrease in certificates of deposit is attributed to local competitive rates.~~deposits.

Oconee Federal, MHC’s cash is held on deposit with the ~~Company.~~Association. We generally do not accept brokered deposits and no brokered deposits were accepted during the ~~six~~three months ended ~~December 31, 2017.~~September 30, 2020.

~~We had no advances from the~~ Federal Home Loan Bank ~~of Atlanta as of June 30, 2017 but did have $20.0 million as of December 31, 2017.~~advances remained stable at $5.0 million. We have credit available under a loan agreement with the Federal Home Loan Bank of Atlanta in the amount of 25% of our total assets as of ~~December 31, 2017,~~September 30, 2020, or approximately ~~$118.9~~$129.4 million. We had no federal funds purchased as of September 30, 2020 or as of June 30, ~~2017 but did have $2.8 million as of December 31, 2017.~~2020.

Total shareholders’ equity ~~decreased $654~~increased $623 thousand, or ~~0.8%~~0.7%, to ~~$85.3~~$88.9 million at ~~December 31, 2017~~September 30, 2020 compared to ~~$86.0~~$88.3 million at June 30, ~~2017.~~2020. This was primarily due to our net income during the period of ~~$798~~$1.3 million and the increase of $84 thousand ~~being~~in ESOP shares earned partially offset by our payment of dividends of $561 thousand, an increase in after-tax unrealized losses in our investment portfolio of $168 thousand and ~~our payment~~$31 thousand used for the repurchase of ~~dividends of $1.1 million.~~treasury stock. The Company and the ~~Bank~~Association exceeded all ~~minimum~~ regulatory capital requirements at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017.~~2020.

Nonperforming Assets

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

	December 31, 2017			June 30, 2017			September 30, 2020			June 30, 2020
	(Dollars in thousands)						(Dollars in thousands)
Nonaccrual loans:
Real estate loans:
One-to-four family	$	3,558		$	2,762		$	1,802		$	1,969
Multi-family		—			—			—			—
Home equity		40			89			—			40
Nonresidential		975			43			552			732
Agricultural		480			514			—			—
Construction and land		301			75			—			—
Total real estate loans		5,354			3,483			2,354			2,741
Commercial and industrial		—			—			—			—
Consumer and other loans		—			—			—			—
Total nonaccrual loans⁽¹⁾	$	5,354		$	3,483		$	2,354		$	2,741
Accruing loans past due 90 days or more:
Real estate loans:
Total accruing loans past due 90 days or more	$	—		$	—		$	—		$	—
Total of nonaccrual and 90 days or more past due loans⁽²⁾	$	5,354		$	3,483		$	2,354		$	2,741
Real estate owned, net:
One-to-four family	$	137		$	152		$	52		$	—
Nonresidential		713			713			159			159
Construction and land		—			—			—			—
Other nonperforming assets		—			—			—			—
Total nonperforming assets	$	6,204		$	4,348		$	2,565		$	2,900

Accruing troubled debt restructurings		—			—		$	—		$	—
Troubled debt restructurings and total nonperforming assets	$	6,204		$	4,348		$	2,565		$	2,900

Total nonperforming loans to total loans		1.69	%		1.13	%		0.66	%		0.77	%
Total nonperforming assets to total assets		1.29	%		0.90	%		0.49	%		0.56	%
Total nonperforming assets to loans and real estate owned		1.95	%		1.41	%		0.71	%		0.82	%

(1)

Nonaccrual troubled debt restructurings included in the totals above were ~~$3.0~~$1.8 million and ~~$1.6~~$2.0 million, at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017,~~2020, respectively.

(2)

There were no loans past due 90 days or more and still accruing at ~~December 31, 2017~~September 30, 2020 and June 30, ~~2017.~~2020.

Interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms was ~~$148~~$33 thousand and $73 thousand for the ~~six~~three months ended ~~December 31, 2017. Interest of $33 thousand~~September 30, 2020 and 2019, respectively. There was no interest recognized on these loans ~~and is included in net income~~ for the ~~six~~three months ended ~~December 31, 2017.~~September 30, 2020 and September 30, 2019.

Interest income that would have been recorded had our troubled debt restructured loans been current in accordance with their original terms was ~~$76~~$19 thousand and $33 thousand for the ~~six~~three months ended ~~December 31, 2017. Interest~~September 30, 2020 and 2019, respectively. There was no interest recognized on troubled debt restructured loans for the ~~six~~three months ended ~~December 31, 2017 was $17 thousand.~~September 30, 2020 and September 30, 2019.

Nonperforming assets ~~increased $1.9 million~~decreased $335 thousand from ~~$4.3~~$2.9 million as of June 30, ~~2017~~2020 to ~~$6.2~~$2.6 million as of ~~December 31, 2017.~~September 30, 2020. Nonaccrual loans ~~increased $1.9 million~~decreased $387 thousand to ~~$5.4~~$2.4 million as of ~~December 31, 2017~~September 30, 2020 and real estate owned ~~decreased $15~~increased $52 thousand to ~~$850~~$211 thousand as of ~~December 31, 2017.~~September 30, 2020. There were no accruing loans past due 90 days or more at either date. The ~~increase~~decrease in nonaccrual loans is primarily related to ~~several large loans in both the one-to-four family and non-residential categories. These did not result in specific reserve allocations or charge-offs during the period.~~normal monthly fluctuations. Nonperforming assets to total assets and nonperforming assets to loans and real estate owned were ~~1.29%~~0.49% and ~~1.95%~~0.71%, respectively, at ~~December 31, 2017~~September 30, 2020 compared to ~~0.90%~~0.56% and ~~1.41%~~0.82%, respectively at June 30, ~~2017.~~2020.

Analysis of Net Interest Margin

The following ~~table sets~~tables set forth average balance sheets, average annualized yields and rates, and certain other information 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.

	For the Three Months Ended
	September 30, 2020								September 30, 2019
	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans	$	357,195		$	4,027		4.47	%	$	362,064		$	4,118		4.51	%
Investment securities		71,633			291		1.62			74,153			408		2.20
Investment securities, tax-free		16,178			91		2.25			19,025			104		2.19
Other interest-earning assets		32,127			27		0.33			30,056			188		2.48
Total interest-earning assets		477,133			4,436		3.69			485,298			4,818		3.94
Noninterest-earning assets		41,392								39,354
Total assets	$	518,525							$	524,652

Liabilities and equity:
Interest-bearing liabilities:
NOW and demand deposits	$	68,050		$	33		0.19	%	$	55,188		$	44		0.32	%
Money market deposits		80,623			46		0.23			75,306			181		0.95
Regular savings and other deposits		35,119			14		0.16			28,307			21		0.29
Certificates of deposit		196,445			457		0.92			222,190			814		1.45
Total interest-bearing deposits		380,237			550		0.57			380,991			1,060		1.10
Other Borrowings		5,000			19		1.51			18,000			127		2.80
Total interest-bearing liabilities		385,237			569		0.59			398,991			1,187		1.18
Noninterest bearing deposits		42,686								35,368
Other noninterest-bearing liabilities		1,461								2,039
Total liabilities		429,384								436,398
Equity		89,141								88,254
Total liabilities and equity	$	518,525							$	524,652

Net interest income				$	3,867							$	3,631
Interest rate spread							3.10	%							2.76	%
Net interest margin							3.22	%							2.97	%
Average interest-earning assets to average interest-bearing liabilities		1.24	x							1.27	x

For the Three Months Ended
December 31, 2017 December 31, 2016
Average Balance Interest and Dividends Yield/ Cost Average Balance Interest and Dividends Yield/ Cost
(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans $ 315,408 $ 3,621 4.59 % $ 298,374 $ 3,639 4.88 %
Investment securities 83,181 398 1.91 92,930 388 1.67
Investment securities, tax-free 38,709 214 2.21 33,145 180 2.17
Interest-earning deposits 1,869 7 1.50 16,917 36 0.85
Total interest-earning assets 439,167 4,240 3.86 441,366 4,243 3.85
Noninterest-earning assets 38,185 39,150
Total assets $ 477,352 $ 480,516

Liabilities and equity:
Interest-bearing liabilities:
NOW and demand deposits $ 47,792 $ 12 0.10 % $ 48,313 $ 12 0.10 %
Money market deposits 68,932 56 0.32 79,244 72 0.36
Regular savings and other deposits 28,424 11 0.15 28,410 10 0.14
Certificates of deposit 201,492 284 0.56 213,853 229 0.42
Total interest-bearing deposits 346,640 363 0.42 369,820 323 0.35
Other Borrowings 15,462 51 1.31 — — —
Total interest-bearing liabilities 362,102 414 0.45 369,820 323 0.35
Noninterest bearing deposits 28,353 24,648
Other noninterest-bearing liabilities 16,768 1,421
Total liabilities 407,223 395,889
Equity 70,129 84,627
Total liabilities and equity $ 477,352 $ 480,516

Net interest income $ 3,826 $ 3,920
Interest rate spread 3.41 % 3.50 %
Net interest margin 3.49 % 3.55 %
Average interest-earning assets to average interest-bearing liabilities 1.21 x 1.19 x

For the Six Months Ended
December 31, 2017 December 31, 2016
Average Balance Interest and Dividends Yield/ Cost Average Balance Interest and Dividends Yield/ Cost
(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans $ 312,622 $ 7,176 4.59 % $ 295,733 $ 7,376 4.99 %
Investment securities 82,698 768 1.86 95,753 831 1.74
Investment securities, tax-free 38,079 420 2.21 32,929 358 2.17
Interest-earning deposits 5,928 42 1.42 17,975 77 0.86
Total interest-earning assets 439,327 8,406 3.83 442,390 8,642 3.91
Noninterest-earning assets 37,783 39,919
Total assets $ 477,110 $ 482,309

Liabilities and equity:
Interest-bearing liabilities:
NOW and demand deposits $ 47,488 $ 23 0.10 % $ 48,051 $ 30 0.12 %
Money market deposits 74,537 132 0.35 78,284 134 0.34
Regular savings and other deposits 28,566 22 0.15 28,296 19 0.13
Certificates of deposit 202,342 548 0.54 217,306 460 0.42
Total interest-bearing deposits 352,933 725 0.41 371,937 643 0.34
Other Borrowings 9,646 62 1.28 — — —
Total interest-bearing liabilities 362,579 787 0.43 371,937 643 0.34
Noninterest bearing deposits 27,268 24,436
Other noninterest-bearing liabilities 10,630 972
Total liabilities 400,477 397,345
Equity 76,633 84,964
Total liabilities and equity $ 477,110 $ 482,309

Net interest income $ 7,619 $ 7,999
Interest rate spread 3.40 % 3.56 %
Net interest margin 3.47 % 3.62 %
Average interest-earning assets to average interest-bearing liabilities 1.21 x 1.19 x

Comparison of Operating Results for the Three Months Ended ~~December 31, 2017~~September 30, 2020 and ~~December 31, 2016~~September 30, 2019

General.We reported ~~a net loss of $59 thousand for the three months ended December 31, 2017 as compared to~~ net income of $1.3 million for the three months ended ~~December 31, 2016. The primary reason for the decrease is due~~September 30, 2020 as compared to ~~a $973 thousand adjustment to the Company’s deferred tax assets required due to the federal tax reform legislation~~net income of ~~2017. Interest income decreased $3~~$934 thousand for the three months ended ~~December 31, 2017 while interest expense increased $91 thousand resulting in a net decrease to net interest income of $94 thousand. Noninterest~~September 30, 2019. Interest income decreased ~~$172~~$382 thousand for the three months ended ~~December 31, 2017~~September 30, 2020 compared to ~~December 31, 2016 due primarily~~September 30, 2019 and interest expense decreased $618 thousand resulting in a net increase to ~~reduced gains recognized upon~~net interest income of $236 thousand. Noninterest income increased $104 thousand for the ~~payoff of PCI loans and securities.~~three months ended September 30, 2020 compared to September 30, 2019. Total noninterest expense decreased $54 thousand. Tax expense increased ~~$559 thousand primarily due to increased cost in salaries, occupancy, data processing and the change in the value of the loan servicing asset.~~$55 thousand.

Interest Income. Interest income ~~remained stable at $4.2~~decreased by $382 thousand to $4.4 million from $4.8 million for the three months ended ~~December 31, 2017~~September 30, 2020 and ~~December 31, 2016.~~September 30, 2019, respectively. The yield on interest-earning assets ~~increased one~~decreased 25 basis ~~point~~points from ~~3.85%~~3.94% for the three months ended ~~December 31, 2016~~September 30, 2019 to ~~3.86%~~3.69% for the three months ended ~~December 31, 2017.~~September 30, 2020. Total average interest-earning assets ~~declined~~decreased by ~~$2.2~~$8.2 million to ~~$439.2~~$477.1 million for the three months ended ~~December 31, 2017~~September 30, 2020 from ~~$441.4~~$485.3 million for the three months ended ~~December 31, 2016.~~September 30, 2019.

Interest income on loans ~~remained stable at $3.6~~decreased by $91 thousand to $4.0 million from $4.1 million for the three months ended ~~December 31, 2017~~September 30, 2020 and ~~December 31, 2016.~~September 30, 2019, respectively. The yield on loans decreased 29four basis points from ~~4.88%~~4.51% for the three months ended ~~December 31, 2016~~September 30, 2019 to ~~4.59%~~4.47% for the three months ended ~~December 31, 2017, a result of the repayments of older, higher yielding loans being replaced by loans with lower yields.~~September 30, 2020. The average balance of loans ~~increased~~decreased by ~~$17.0~~$4.9 million, or ~~5.7%~~1.34%, to ~~$315.4~~$357.2 million for the three months ended ~~December 31, 2017~~September 30, 2020 from ~~$298.4~~$362.1 million for the three months ended ~~December 31, 2016.~~September 30, 2019. The ~~increase~~decrease in the average balance of our loans is reflective of reduced originations and normal loan ~~growth.~~repayments.

Interest income on investment securities ~~increased~~decreased by ~~$44~~$130 thousand, or ~~7.7%~~25.4%, to ~~$612~~$382 thousand for the three months ended ~~December 31, 2017~~September 30, 2020 from ~~$568~~$512 thousand for the three months ended ~~December 31, 2016.~~September 30, 2019. The ~~increase~~decrease reflected the combination of a decrease in the average balance of securities of ~~$4.2~~$5.4 million, or ~~3.3%~~5.8%, to ~~$121.9~~$87.8 million for the three months ended ~~December 31, 2017~~September 30, 2020 from ~~$126.1~~$93.2 million for the three months ended ~~December 31, 2016~~September 30, 2019 and ~~an increase~~a decrease in the yield on securities to ~~2.01%~~1.74% from ~~1.80%~~2.20% for the respective periods. The decrease in the average balances of our investment securities ~~is reflective of~~reflected our continued efforts during ~~early~~ fiscal ~~2017~~2020 to reduce investment purchases, which allowed us to use those funds as well as investment repayments and maturities to fund loan ~~growth using investment repayments. This reduced our average investments balances as reflected in the current period. Beginning late fiscal 2017, the Company began to maintain~~originations and ~~grow investments and now borrows wholesale funds if needed for loan and investment growth when deemed prudent by management.~~repay FHLB advances.

Income on other interest earning assets decreased by $161 thousand, or 85.6%, to $27 thousand for the three months ended September 30, 2020 from $188 thousand for the three months ended September 30, 2019. The average balance of other interest-earning ~~deposits decreased $15.0~~assets increased $2.1 million from the three months ended ~~December 31, 2016~~September 30, 2019 to the three months ended ~~December 31, 2017 while~~September 30, 2020 and the yield ~~increased 65~~decreased 215 basis points over the same period. The ~~decrease~~increase in ~~funds~~the average balance was ~~primarily~~ due to ~~an anticipated withdrawal from a single customer’s deposit account that had been invested by the Association in a money market account.~~normal periodic fluctuations. The ~~increase~~decrease in yield was primarily athe result of ~~increased short term~~an overall decline in money market account rates, ~~on deposits due to market rate increases.~~the balance of which comprised 96.1% of this category during the three months ended September 30, 2020.

Interest Expense. Interest expense ~~increased~~decreased by ~~$91~~$618 thousand, or ~~28.2%~~52.1%, to ~~$414~~$569 thousand for the three months ended ~~December 31, 2017~~September 30, 2020 from ~~$323 thousand~~$1.2 million for the three months ended ~~December 31, 2016.~~September 30, 2019. This decrease was attributable to a general decrease in retail and wholesale borrowing rates due to overall market decreases. The ~~increase~~decrease reflected ~~an increase~~a decrease of ~~seven~~53 basis points in the average rate paid on interest-bearing deposits for the three months ended ~~December 31, 2017~~September 30, 2020 to ~~0.42%~~0.57% from ~~0.35%~~1.10% for the three months ended ~~December 31, 2016.~~September 30, 2019. The ~~increase~~decrease in the average rate paid on deposits ~~is reflective of~~reflects our efforts to keep our cost of funds as low as possible ~~but still maintain our competitiveness~~ in ~~our market area among other banking institutions.~~the current declining rate market. Average interest-bearing deposits were ~~$346.6~~$380.2 million for the three months ended ~~December 31, 2017~~September 30, 2020 compared to ~~$369.8~~$381.0 million for the three months ended ~~December 31, 2016.~~September 30, 2019.

The largest ~~increase~~decrease in deposit interest expense was related to expense on certificates of deposit, which ~~increased $55~~decreased $357 thousand, or ~~24.0%~~43.9%, to ~~$284~~$457 thousand for the three months ended ~~December 31, 2017~~September 30, 2020 from ~~$229~~$814 thousand for the three months ended ~~December 31, 2016.~~September 30, 2019. The average rate paid on certificates of deposit ~~increased~~decreased by 53 basis points from ~~0.42%~~1.45% for the three months ended ~~December 31, 2016~~September 30, 2019 to ~~0.56%~~0.92% for the three months ended ~~December 31, 2017 while~~September 30, 2020 and the average balances decreased by $25.7 million from ~~$213.9~~$222.2 million for the three-month period ended ~~December 31, 2016~~September 30, 2019 to ~~$201.5~~$196.4 million for the three-month period ended ~~December 31, 2017.~~September 30, 2020. The decrease in the average balance of certificates of deposit is reflective of normal deposit fluctuation along with a large customer deposit transfer to the money market deposit category. The decrease in the average rate paid on our certificates of deposit is reflective of an overall decline in market rates.

The second largest decrease in deposit interest expense was related to expense on money market deposits, which decreased $135 thousand, or 74.6%, to $46 thousand for the three months ended September 30, 2020 from $181 thousand for the three months ended September 30, 2019. The average rate paid on money market deposits decreased by 72 basis points from 0.95% for the three months ended September 30, 2019 to 0.23% for the three months ended September 30, 2020 and the average balances increased by $5.3 million from $75.3 million for the three-month period ended September 30, 2019 to $80.6 million for the three-month period ended September 30, 2020. The increase in the average balance of money market deposits is reflective of normal deposit fluctuation along with a large customer deposit transfer from the certificate of deposit category. The decrease in the average rate paid on our money market deposits is reflective of an overall decline in market rates.

Interest expense for other borrowings ~~increased~~decreased by ~~$51 thousand. There were no FHLB borrowings in~~$108 thousand, or 85.0%, to $19 thousand for the three months ended ~~December 31, 2016, while~~September 30, 2020 from $127 thousand for the three months ended ~~December 31, 2017 had an average of $15.5~~September 30, 2019. Other borrowings include both FHLB advances as well as overnight federal funds purchased. Average other borrowings were $5.0 million ~~with a weighted~~for the three months ended September 30, 2020 compared to $18.0 million for the three months ended September 30, 2019. The average rate ~~of 1.31%.~~was 1.51% and 2.80% for the three months ended September 30, 2020 and 2019, respectively, due to a decrease in market interest rates.

Net Interest Income. Net interest income before the provision for loan losses ~~decreased~~increased by ~~$94~~$236 thousand, or ~~2.4%~~6.5%, to ~~$3.8~~$3.9 million for the three months ended ~~December 31, 2017.~~September 30, 2020. Our interest rate spread and net interest margin ~~for the three months ended December 31, 2017 decreased~~increased to ~~3.41%~~3.11% and ~~3.49%~~3.22%, respectively, from ~~3.50%~~2.76% and ~~3.55%~~2.97%, respectively, for the three months ended ~~December 31, 2016.~~September 30, 2020 and September 30, 2019, respectively. The ~~stable~~decreasing yield on earning assets ~~along with~~offset by the ~~higher~~lower cost of ~~certificates of deposit and other borrowings primarily~~interest bearing liabilities contributed to the ~~decrease~~increase in net interest margin for the three months ended ~~December 31, 2017.~~September 30, 2020.

Provision for Loan Losses. We recorded ano provision for loan losses ~~of $9 thousand~~ for the three months ended ~~December 31, 2017 compared with $24 thousand~~September 30, 2020 or for the three months ended ~~December 31, 2016.~~September 30, 2019. There ~~was $1~~were $2 thousand ~~of net~~in charge-offs for the three months ended ~~December 31, 2017 compared to none~~September 30, 2020 and no charge-offs for the three months ended ~~December 31, 2016.~~September 30, 2019. The ~~lower~~lack of provision for the three months ended September 30, 2020 is primarily due to aminimal loan portfolio growth coupled with favorable ~~shift in our ratio of originated loans to acquired loans.~~loan allowance model metrics during the three months ended September 30, 2020.

Our total allowance for loan losses was ~~$1.0~~$1.3 million, or ~~0.33%,~~0.37% of total gross loans ~~at December 31, 2017~~as of September 30, 2020 and $1.3 million, or 0.38% of total gross loans as of June 30, 2020. Our total allowance for loan losses was 0.38% of total gross loans, net of PPP loans, as of September 30, 2020 and June 30, ~~2017. The~~2020. PPP loans are not allocated any allowance ~~for~~due to the 100% SBA guarantee. There were no specifically identified impaired loans ~~was zero~~ at ~~December 31, 2017~~September 30, 2020 or June 30, 2020. Total loans individually evaluated for impairment decreased $30 thousand, or 1.3%, to $2.36 million at September 30, 2020 compared to ~~$8 thousand at June 30, 2017. The recorded investment in impaired loans at December 31, 2017 was $4.3 million compared to $3.7~~$2.39 million at June 30, ~~2017.~~

The general valuation allowance was $1.0 million at December 31, 2017 and June 30, 2017. Total loans evaluated collectively for impairment increased $11 million, or 3.6%, to $314.8 million at December 31, 2017 compared to $303.8 million at June 30, 2017.2020.

To the best of our knowledge, we have recorded all losses that are both probable and reasonably estimable for the three months ended ~~December 31, 2017~~September 30, 2020 and ~~2016.~~2019. There have been no changes to our allowance for loan loss ~~methodology.~~methodology during the quarter.

Noninterest Income.Noninterest income ~~decreased $172~~increased $104 thousand, or ~~34.7%~~20.8%, to ~~$323~~$603 thousand for the three months ended ~~December 31, 2017~~September 30, 2020 from ~~$495~~$499 thousand for the three months ended ~~December 31, 2016. No gains~~September 30, 2019. Mortgage servicing income decreased $9 thousand due to a decline in the servicing portfolio balance. Gain on ~~the disposition~~sale of ~~PCI~~mortgage loans ~~were recognized for the three months ended December 31, 2017 compared to $120~~was $35 thousand and $32 thousand for the three months ended ~~December 31, 2016. Net gains on sales~~September 30, 2020 and 2019, respectively. The change in fair value of ~~investment~~equity securities ~~available for sale were zero for the three months ended December 31, 2017 compared to $57~~was a loss of $23 thousand for the three months ended ~~December 31, 2016.~~September 30, 2020 compared to a gain of $80 thousand for the three months ended September 30, 2019. Gains or losses on ~~sales~~the fair value of equity securities are market driven. The sale of securities resulted in a $62 thousand and $12 thousand gain for the three months ended September 30, 2020 and 2019, respectively. Gains or losses on the sale of securities are largely market driven. Securities were sold during the quarters ended September 30, 2020 and September 30, 2019 to realize market gains and adjust the investment portfolio so that funds could be more beneficially used to yield higher net earnings going forward. The net gain on payoff of purchase credit impaired loans was $195 thousand for the three months ended September 30, 2020 due to the liquidation of two loans. There were no payoffs of purchase credit impaired loans for the three months ended September 30, 2019. Changes in all other noninterest income items were due to normal periodic fluctuations.

Noninterest Expense. Noninterest expense for the three months ended ~~December 31, 2017 increased~~September 30, 2020 decreased by ~~$559~~$54 thousand, or ~~22.8%~~1.9%, to ~~$3.0~~$2.8 million from ~~$2.5~~$2.9 million for the same period in ~~2016.~~2019. Salaries and employee benefits increased ~~$105~~$15 thousand due to routine increases. Occupancy and ~~data~~equipment decreased $9 thousand due to normal periodic fluctuations. Data processing increased ~~$159~~$25 thousand due to routine upgrades and ~~improvements.~~volume increases in the current period. Professional and supervisory fees decreased $26 thousand primarily due to reduced legal expenses. FDIC deposit insurance increased $30 thousand. The three months ended September 30, 2020 is reflective of the standard FDIC assessed rate. The prior year period reflected an assessment credit received from FDIC as a result of the FDIC Deposit Insurance Fund Reserve Ratio exceeding 1.38% as of June 30, 2019. Foreclosed asset expenses decreased $38 thousand. This is reflective of the three months ended September 30, 2020 not having REO write downs, whereas the three months ended September 30, 2019 had $28 thousand in REO write downs. The change in the value of the loan servicing portfolio decreased ~~$261~~$10 thousand due to market conditions. Changes in all other noninterest expense items were due to normal periodic fluctuations.

Income Tax Expense.~~Income tax~~Tax expense ~~for the three months ended December 31, 2017 was $1.2 million compared with $618~~increased $55 thousand, or 18.6%, to $350 thousand for the three months ended ~~December 31, 2016.~~September 30, 2020 from a $295 thousand for the three months ended September 30, 2019. The increase ~~was~~is primarily due to ~~an adjustment to the Company’s deferred tax assets and unrealized losses on securities available-for-sale required as~~ a ~~result of the federal tax reform legislation of 2017, offset by reduced pre-tax~~higher taxable income for the ~~respective three-month periods.~~three months ended September 30, 2020 compared to the three months ended September 30, 2019. Our effective income tax rate was ~~105.2%~~21.6% and ~~31.9%~~24.0% for the ~~same periods, respectively.~~

~~Comparison of Operating Results for the Six Months Ended December 31, 2017 and December 31, 2016~~

~~General.~~~~We reported net income of $798 thousand for the six~~three months ended December 31, 2017 as compared to $2.6 million for the six months ended December 31, 2016. The reason for the decrease is due to a $973 thousand adjustment to the Company’s deferred tax assets required due to the federal tax reform legislation of 2017, as well as decreases in net interest incomeSeptember 30, 2020 and non-interest income and an increase in non-interest expense. Interest income decreased $236 thousand for the six months ended December 31, 2017 while interest expense increased $144 thousand resulting in a net decrease to net interest income of $380 thousand. Noninterest income decreased $303 thousand for the six months ended December 31, 2017 compared to December 31, 2016 due primarily to reduced gains recognized upon the payoff of PCI loans and securities. Total noninterest expense increased $765 thousand primarily due to increased cost in salaries, occupancy, data processing and the change in the value of the loan servicing asset.

~~Interest Income.~~ Interest income decreased by $236 thousand, or 2.7%, to $8.4 million for the six months ended December 31, 2017 from $8.6 million for the six months ended December 31, 2016. The yield on interest-earning assets decreased eight basis points from 3.91% for the six months ended December 31, 2016 to 3.83% for the six months ended December 31, 2017. Total average interest-earning assets declined by $3.1 million to $439.3 million for the six months ended December 31, 2017 from $442.4 million for the six months ended December 31, 2016.

Interest income on loans was $7.2 million for the six months ended December 31, 2017 compared to $7.4 million for the six months ended December 31, 2016. The yield on loans decreased 40 basis points from 4.99% for the six months ended December 31, 2016 to 4.59% for the six months ended December 31, 2017, a result of the repayments of older, higher yielding loans being replaced by loans with lower yields. The average balance of loans increased by $16.9 million, or 5.7%, to $312.6 million for the six months ended December 31, 2017 from $295.7 million for the six months ended December 31, 2016. The increase in the average balance of our loans is reflective of normal loan growth.

Interest income on investment securities remained stable at $1.2 million for the six months ended December 31, 2017 and December 31, 2016. This was a result of a decrease in the average balance of securities of $7.9 million, or 6.1%, to $120.8 million for the six months ended December 31, 2017 from $128.7 million for the six months ended December 31, 2016 while the yield on securities increased from 1.85% for the six months ended December 31, 2016 to 1.97% for the six months ended December 31, 2017. The decrease in the average balances of our investment securities is reflective of our efforts during early fiscal 2017 to fund loan growth using investment repayments. This reduced our average investments balances as reflected in the current period. Beginning late fiscal 2017 the Company began to maintain and grow investments and now borrows wholesale funds if needed for loan and investment growth when deemed prudent by management.

The average balance of interest-earning deposits decreased $12.0 million from the six months ended December 31, 2016 to the six months ended December 31, 2017 while the yield increased 56 basis points over the same period. The decrease in funds was primarily due to an anticipated withdrawal from a single customer’s deposit account that had been invested by the Association in a money market account. The increase in yield was primarily a result of increased short term rates on deposits due to market rate increases.

~~Interest Expense.~~ Interest expense increased by $144 thousand, or 22.4%, to $787 thousand for the six months ended December 31, 2017 from $643 thousand for the six months ended December 31, 2016. The increase reflected an increase of seven basis points in the average rate paid on deposits for the six months ended December 31, 2017 to 0.41% from 0.34% for the six months ended December 31, 2016. The increase in the average rate paid on deposits is reflective of our efforts to keep our cost of funds as low as possible but still maintain our competitiveness in our market area among other banking institutions. Average interest-bearing deposits were $352.9 million for the six months ended December 31, 2017 compared to $371.9 million for the six months ended December 31, 2016.

The largest increase in interest expense related to expense on certificates of deposit, which increased $88 thousand, or 19.1%, to $548 thousand for the six months ended December 31, 2017 from $460 thousand for the six months ended December 31, 2016. The average rate paid on certificates of deposit increased from 0.42% for the six months ended December 31, 2016 to 0.54% for the six months ended December 31, 2017 while average balances decreased from $217.3 million for the six-month period ended December 31, 2016 to $202.3 million for the six-month period ended December 31, 2017.

Interest expense on other borrowings increased by $62 thousand. There were no FHLB borrowings in the six months ended December 31, 2016, while the six months ended December 31, 2017 had an average of $9.6 million with a weighted average rate of 1.28%.

~~Net Interest Income.~~ Net interest income before the provision for loan losses decreased by $380 thousand, or 4.8%, to $7.6 million for the six months ended December 31, 2017. Our interest rate spread and net interest margin for the six months ended December 31, 2017 decreased to 3.40% and 3.47%, respectively, from 3.56% and 3.62%, respectively, for the six months ended December 31, 2016. The lower yield on loans along with the higher cost of certificates of deposit and other borrowings primarily contributed to the decrease in net interest margin for the six months ended December 31, 2017.

~~Provision for Loan Losses.~~ We recorded a provision for loan losses of $56 thousand for the six months ended December 31, 2017 compared with $89 thousand for the six months ended December 31, 2016. There was $40 thousand of net charge-offs for the six months ended December 31, 2017 compared to $15 thousand for the six months ended December 31, 2016. The lower provision is primarily due to a favorable shift in our ratio of originated loans to acquired loans.

Our total allowance for loan losses was $1.0 million, or 0.33%, of total gross loans, at December 31, 2017 and June 30, 2017. The ending allowance for specifically identified impaired loans was zero at December 31, 2017 compared to $8 thousand at June 30, 2017. The recorded investment in impaired loans at December 31, 2017 was $4.3 million compared to $3.7 million at June 30, 2017.

To the best of our knowledge, we have recorded all losses that are both probable and reasonably estimable for the six months ended December 31, 2017 and 2016. There have been no changes to our allowance for loan loss methodology.

~~Noninterest Income.~~Noninterest income decreased $303 thousand, or 31.5%, to $660 thousand for the six months ended December 31, 2017 from $963 thousand for the six months ended December 31, 2016. No gains on the disposition of PCI loans were recognized for the six months ended December 31, 2017 compared to $196 thousand for the six months ended December 31, 2016. Net gains on sales of investment securities available for sale were $10 thousand for the six months ended December 31, 2017 compared to $125 thousand for the six months ended December 31, 2016. Gains on sales of securities are largely market driven.2019, respectively.

~~Noninterest Expense.~~ Noninterest expense for the six months ended December 31, 2017 increased by $765 thousand, or 15.2%, to $5.8 million from $5.0 million for the same period in 2016. Salaries and employee benefits increased $237 thousand due to routine increases. Occupancy and data processing increased $264 thousand due to routine upgrades and improvements. The change in the value of the loan servicing portfolio decreased $290 thousand due to market conditions.

~~Income Tax Expense.~~Income tax expense for the six months ended December 31, 2017 was $1.6 million compared with $1.2 million for the six months ended December 31, 2016. The increase was primarily due to an adjustment to the Company’s deferred tax assets and unrealized losses on securities available-for-sale required as a result of the federal tax reform legislation of 2017, offset by reduced pre-tax income for the respective six month periods. Our effective income tax rate was 66.9% and 32.2% for the same periods, respectively.

Liquidity and Capital Resources

Our primary sources of funds are deposits and the proceeds from principal and interest payments on loans and investment securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. We generally manage the pricing of our deposits to be competitive within our market and to increase core deposit relationships.

Liquidity management is both a daily and long-term responsibility of management. Our liquidity monitoring process is designed to contend with changing economic situations, which would include the current COVID-19 pandemic. We have therefore not changed our daily or long-term liquidity management procedures. We adjust our investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and investment securities, and (iv) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning overnight deposits, federal funds sold, and short and intermediate-term U.S. Government sponsored agencies and mortgage-backed securities of short duration. If we require funds beyond our ability to generate them internally, we have credit available under a loan agreement with the Federal Home Loan Bank of Atlanta in the amount of 25% of total assets (as of ~~December 31, 2017)~~September 30, 2020), or approximately ~~$118.9~~$129.4 million as of that date, with a remaining availability of ~~$98.9~~$124.4 million as of ~~December 31, 2017.~~September 30, 2020.

Common Stock Dividends. On August ~~24, 2017 and November 22, 2017,~~20, 2020 the Company paid a $0.10 per share cash dividend on its common stock for a total of ~~$1.1 million.~~$561 thousand.

Equity Compensation Plans. During the three months ended ~~December 31, 2017, no~~September 30, 2020, 250 shares of restricted stock were ~~issued and 22,400~~issued. No common stock options were ~~issued.~~issued during the three months ended September 30, 2020.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Disclosures of quantitative and qualitative market risk are not required by smaller reporting companies, such as the Company.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of ~~December 31, 2017.~~September 30, 2020. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended ~~December 31, 2017,~~September 30, 2020, there have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, amended) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

There are various claims and lawsuits in which the Company is periodically involved incidental to the Company’s business. In the opinion of management, no material loss is expected from any of such pending claims or lawsuits.

ITEM 1A. RISK FACTORS

Disclosures of risk factors are not required of smaller reporting companies, such as the Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)

None.

(b)

Not applicable.

(c)

Issuer Repurchases. On ~~November 24, 2015,~~May 28, 2020, the Board of Directors authorized the repurchase of up to ~~175,000~~100,000 of the Company’s common stock. In connection with the authorization of this stock repurchase program, the Board of Directors terminated the Company’s then existing stock repurchase program, which had authorized the Company to purchase up to 100,000 shares of its issued and outstanding common stock. Under this previous program, the Company purchased a total of 97,147 shares of its common stock at a weighted average price of $24.52 per share.

In connection with the authorization of this stock repurchase program, the Board of Directors terminated the Company’s existing stock repurchase program, which had authorized the Company to purchase up to 150,000 shares of its issued and outstanding common stock. The Company had previously purchased a total of 113,400 shares of its common stock at a weighted average price of $16.04 per share under the existing stock repurchase program.

The following table sets forth information in connection with repurchases of the Company’s common stock for the quarter ended ~~December 31, 2017:~~September 30, 2020:

Total
Number of
Shares
Purchased Average Price
Paid Per
Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plan Approximate Maximum
Dollar Value or Number
of Shares That May Yet
be Purchased Under
Publicly Announced Plan
October 1 - October 31, 2017 — $ — — 50,987
November 1 - November 30, 2017 — $ — — 50,987
December 1 - December 31, 2017 5,674 $ 29.92 5,674 45,313 (2)
Total 5,674 $ 29.92 5,674 (1)
Total
Number of
Shares
Purchased Average Price
Paid Per
Share Total Number of
Shares Purchased
as Part of Publicly
Announced Plan Approximate Maximum
Dollar Value or Number
of Shares That May Yet
be Purchased Under
Publicly Announced Plans
July 1 - July 31, 2020 1,110 $ 24.96 1,110 29,065
August 1 - August 31, 2020 — $ — — 29,065
September 1 - September 30, 2020 166 $ 21.64 166 28,899 (2)
Total 1,276 $ 24.53 1,276 (1)

(1) All shares were purchased pursuant to a publicly announced repurchase program that was approved by the Board of Directors on May 28, 2020. The repurchase program has no expiration date.
~~(1) All shares were purchased pursuant to a publicly announced repurchase program that was approved by the Board of Directors on November 24, 2015.~~
~~(2) Represents the maximum number of shares available for repurchase under the November 24, 2015 plan at December 31, 2017.~~
(2) Represents the maximum number of shares available for repurchase under the May 28, 2020 plan at September 30, 2020.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed ~~in the “Index to Exhibits” immediately following the Signatures.~~

~~SIGNATURES~~below.

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~
~~Oconee Federal Financial Corp.~~
~~Date: February 13, 2018~~
~~/s/ Curtis T. Evatt~~
~~Curtis T. Evatt~~
~~President and Chief Executive Officer~~
~~/s/ John W. Hobbs~~
~~John W. Hobbs~~
~~Senior Vice President and Chief Financial Officer~~

~~INDEX TO EXHIBITS~~
Exhibit
number

Description
31.1 Certification of Curtis T. Evatt, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2 Certification of John W. Hobbs, Senior Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32 Certification of Curtis T. Evatt, President and Chief Executive Officer, and John W. Hobbs, Senior Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2017,~~September 30, 2020, formatted in XBRL (Extensible Business Reporting Language):
(i)        Consolidated Balance Sheets
(ii)       Consolidated Statements of Income and Comprehensive Income
(iii)      Consolidated Statements of Changes In Shareholders’ Equity
(iv)      Consolidated Statements of Cash Flows, and
(v)       Notes to The Consolidated Financial Statements
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Oconee Federal Financial Corp.
Date: November 13, 2020
/s/ Curtis T. Evatt
Curtis T. Evatt
President and Chief Executive Officer
/s/ John W. Hobbs
John W. Hobbs
Executive Vice President and Chief Financial Officer

PART I.		2

ITEM 1.	FINANCIAL STATEMENTS	2

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31
		32
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	40
		39
ITEM 4.	CONTROLS AND PROCEDURES	40
		39
PART II.		41
		39
ITEM 1.	LEGAL PROCEEDINGS	41
		39
ITEM 1A.	RISK FACTORS	41
		39
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	41
		40
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	41
		40
ITEM 4.	MINE SAFETY DISCLOSURES	41
		40
ITEM 5.	OTHER INFORMATION	41
		40
ITEM 6.	INDEX TO EXHIBITS	42
		41
SIGNATURES		4341
EXHIBITS
~~INDEX TO EXHIBITS~~		44

		Six Months Ended
		December 31, 2017			December 31, 2016
Cash Flows From Operating Activities
Net income	$	798		$	2,591
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		56			89
Provision for real estate owned		26			103
Depreciation and amortization, net		669			745
Net accretion of purchase accounting adjustments		102			119
Deferred income tax expense		961			44
Net gain on sale of real estate owned		(62	)		(86	)
Change in loan servicing asset		117			(173	)
Net gain on sales of securities		(10	)		(125	)
Mortgage loans originated for sale		(1,831	)		(1,543	)
Mortgage loans sold		1,820			1,707
Gain on sales of mortgage loans		(14	)		(35	)
Increase in cash surrender value of bank owned life insurance		(239	)		(253	)
Gain on disposition of purchased credit impaired loans		—			(196	)
ESOP compensation expense		303			273
Stock based compensation expense		13			151
Net change in operating assets and liabilities:
Accrued interest receivable and other assets		197			460
Accrued interest payable and other liabilities		611			1,153
Net cash provided by operating activities		3,517			5,024
Cash Flows From Investing Activities
Purchases of premises and equipment		(383	)		(71	)
Purchases of securities available-for-sale		(16,359	)		(19,779	)
Proceeds from maturities, paydowns and calls of securities available-for-sale		7,543			11,069
Proceeds from sales of securities available-for-sale		3,997			15,648
Purchases of restricted equity securities		(849	)		—
Proceeds from sale of real estate owned		281			739
Dispositions of purchased credit impaired loans		—			566
Loan originations and repayments, net		(9,877	)		(10,132	)
Net cash used in investing activities		(15,647	)		(1,960	)
Cash Flows from Financing Activities
Net change in deposits		(23,207	)		(3,221	)
Net increase in short term borrowings		2,814			—
Proceeds from notes payable to FHLB		28,000			—
Repayment of notes payable to FHLB		(8,000	)		—
Dividends paid		(1,063	)		(1,063	)
Purchase of treasury stock		(377	)		(778	)
Net cash used in provided by financing activities		(1,833	)		(5,062	)
Change in cash and cash equivalents		(13,963	)		(1,998	)
Cash and cash equivalents, beginning of period		20,745			27,676
Cash and cash equivalents, end of period	$	6,782		$	25,678

Six Months Ended December 31, 2017	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Real estate loans:
One-to-four family	$	900	$	(12	)	$	—		$	—	$	888
Multi-family		4		—			—			—		4
Home equity		2		15			(13	)		—		4
Nonresidential		63		(4	)		—			—		59
Agricultural		1		(1	)		—			—		—
Construction and land		35		64			(26	)		—		73
Total real estate loans		1,005		62			(39	)		—		1,028
Commercial and industrial		4		—			—			—		4
Consumer and other loans		7		(6	)		(1	)		—		—
Total loans	$	1,016	$	56		$	(40	)	$	—	$	1,032

	Ending Allowance on Loans:				Loans:
At December 31, 2017	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Real estate loans:
One-to-four family	$	—	$	888	$	2,852	$	255,236
Multi-family		—		4		—		1,799
Home equity		—		4		—		4,057
Nonresidential		—		59		690		16,973
Agricultural		—		—		438		920
Construction and land		—		73		270		28,149
Total real estate loans		—		1,028		4,250		307,134
Commercial and industrial		4		—		—		426
Consumer and other loans		—		—		—		5,253
Total loans	$	—	$	1,032	$	4,250	$	312,813

Six Months ended December 31, 2016	Beginning Balance		Provision			Charge-offs			Recoveries		Ending Balance
Real estate loans:
One-to-four family	$	733	$	62		$	—		$	—	$	795
Multi-family		4		—			—			—		4
Home equity		2		—			—			—		2
Nonresidential		130		9			(15	)		—		124
Agricultural		5		(3	)		—			—		2
Construction and land		39		—			—			—		39
Total real estate loans		913		68			(15	)		—		966
Commercial and industrial		6		(1	)		—			—		5
Consumer and other loans		3		22			—			—		25
Total loans	$	922	$	89		$	(15	)	$	—	$	996

	Ending Allowance on Loans:				Loans:
At June 30, 2017	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Real estate loans:
One-to-four family	$	8	$	892	$	3,034	$	257,080
Multi-family		—		4		—		1,864
Home equity		—		2		—		4,900
Nonresidential		—		63		—		18,916
Agricultural		—		1		448		993
Construction and land		—		35		262		14,992
Total real estate loans		8		997		3,744		298,745
Commercial and industrial		—		4		—		51
Consumer and other loans		—		7		—		5,018
Total loans	$	8	$	1,008	$	3,744	$	303,814

	December 31, 2017
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no recorded allowance:
Real estate loans:
One-to-four family	$	2,948	$	2,852	$	—	$	2,460	$	22
Multi-family		—		—		—		—		—
Home equity		—		—		—		—		—
Nonresidential		726		690		—		345		3
Agricultural		987		438		—		443		7
Construction and land		454		270		—		266		7
Total real estate loans		5,115		4,250		—		3,514		39
Commercial and industrial		—		—		—		—		—
Consumer and other loans		—		—		—		—		—
Total	$	5,115	$	4,250	$	—	$	3,514	$	39

With recorded allowance:
Real estate loans:
One-to-four family	$	—	$	—	$	—	$	484	$	—
Multi-family		—		—		—		—		—
Home equity		—		—		—		—		—
Nonresidential		—		—		—		—		—
Agricultural		—		—		—		—		—
Construction and land		—		—		—		—		—
Total real estate loans		—		—		—		484		—
Commercial and industrial		—		—		—		—		—
Consumer and other loans		—		—		—		—		—
Total	$	—	$	—	$	—	$	484	$	—

Totals:
Real estate loans	$	5,115	$	4,250	$	—	$	3,998	$	39
Consumer and other loans		—		—		—		—		—
Total	$	5,115	$	4,250	$	—	$	3,998	$	39

					Special
	Pass		Pass- Watch		Mention		Substandard		Doubtful		Total
Real estate loans:
One-to-four family	$	243,134	$	5,956	$	2,217	$	6,781	$	—	$	258,088
Multi-family		1,799		—		—		—		—		1,799
Home equity		3,472		288		201		96		—		4,057
Nonresidential		12,645		2,614		1,328		1,076		—		17,663
Agricultural		249		362		267		480		—		1,358
Construction and land		26,953		820		117		529		—		28,419
Total real estate loans		288,252		10,040		4,130		8,962		—		311,384
Commercial and industrial		426		—		—		—		—		426
Consumer and other loans		5,253		—		—		—		—		5,253
Total	$	293,931	$	10,040	$	4,130	$	8,962	$	—	$	317,063

	Options		Weighted- Average Exercise Price/Share		Aggregate Intrinsic Value⁽¹⁾
Outstanding - June 30, 2017		261,986	$	12.46
Granted		22,400		29.33
Exercised		—		—
Forfeited		—		—
Outstanding - December 31, 2017		284,386	$	13.79	$	4,241
Fully vested and exercisable at December 31, 2017		217,068	$	11.80	$	3,668
Expected to vest in future periods		67,318
Fully vested and expected to vest - December 31, 2017		284,386	$	13.79	$	4,241

	Fiscal Years Granted
	2018
Risk-free interest rate		2.43	%
Expected dividend yield		1.36	%
Expected stock volatility		15.03	%
Expected life (years)		8
Fair value	$	5.41

	December 31, 2017
Balance - beginning of year		21,910
Granted		—
Forfeited		—
Vested		—
Balance - end of period		21,910
Weighted average grant date fair value	$	13.09

	For the Three Months Ended
	December 31, 2017								December 31, 2016
	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans	$	315,408		$	3,621		4.59	%	$	298,374		$	3,639		4.88	%
Investment securities		83,181			398		1.91			92,930			388		1.67
Investment securities, tax-free		38,709			214		2.21			33,145			180		2.17
Interest-earning deposits		1,869			7		1.50			16,917			36		0.85
Total interest-earning assets		439,167			4,240		3.86			441,366			4,243		3.85
Noninterest-earning assets		38,185								39,150
Total assets	$	477,352							$	480,516

Liabilities and equity:
Interest-bearing liabilities:
NOW and demand deposits	$	47,792		$	12		0.10	%	$	48,313		$	12		0.10	%
Money market deposits		68,932			56		0.32			79,244			72		0.36
Regular savings and other deposits		28,424			11		0.15			28,410			10		0.14
Certificates of deposit		201,492			284		0.56			213,853			229		0.42
Total interest-bearing deposits		346,640			363		0.42			369,820			323		0.35
Other Borrowings		15,462			51		1.31			—			—		—
Total interest-bearing liabilities		362,102			414		0.45			369,820			323		0.35
Noninterest bearing deposits		28,353								24,648
Other noninterest-bearing liabilities		16,768								1,421
Total liabilities		407,223								395,889
Equity		70,129								84,627
Total liabilities and equity	$	477,352							$	480,516

Net interest income				$	3,826							$	3,920
Interest rate spread							3.41	%							3.50	%
Net interest margin							3.49	%							3.55	%
Average interest-earning assets to average interest-bearing liabilities		1.21	x							1.19	x

	For the Six Months Ended
	December 31, 2017								December 31, 2016
	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans	$	312,622		$	7,176		4.59	%	$	295,733		$	7,376		4.99	%
Investment securities		82,698			768		1.86			95,753			831		1.74
Investment securities, tax-free		38,079			420		2.21			32,929			358		2.17
Interest-earning deposits		5,928			42		1.42			17,975			77		0.86
Total interest-earning assets		439,327			8,406		3.83			442,390			8,642		3.91
Noninterest-earning assets		37,783								39,919
Total assets	$	477,110							$	482,309

Liabilities and equity:
Interest-bearing liabilities:
NOW and demand deposits	$	47,488		$	23		0.10	%	$	48,051		$	30		0.12	%
Money market deposits		74,537			132		0.35			78,284			134		0.34
Regular savings and other deposits		28,566			22		0.15			28,296			19		0.13
Certificates of deposit		202,342			548		0.54			217,306			460		0.42
Total interest-bearing deposits		352,933			725		0.41			371,937			643		0.34
Other Borrowings		9,646			62		1.28			—			—		—
Total interest-bearing liabilities		362,579			787		0.43			371,937			643		0.34
Noninterest bearing deposits		27,268								24,436
Other noninterest-bearing liabilities		10,630								972
Total liabilities		400,477								397,345
Equity		76,633								84,964
Total liabilities and equity	$	477,110							$	482,309

Net interest income				$	7,619							$	7,999
Interest rate spread							3.40	%							3.56	%
Net interest margin							3.47	%							3.62	%
Average interest-earning assets to average interest-bearing liabilities		1.21	x							1.19	x

	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan			Approximate Maximum Dollar Value or Number of Shares That May Yet be Purchased Under Publicly Announced Plan
October 1 - October 31, 2017		—	$	—		—			50,987
November 1 - November 30, 2017		—	$	—		—			50,987
December 1 - December 31, 2017		5,674	$	29.92		5,674			45,313	(2)
Total		5,674	$	29.92		5,674	(1)


	~~Oconee Federal Financial Corp.~~

~~Date: February 13, 2018~~

	~~/s/ Curtis T. Evatt~~
	~~Curtis T. Evatt~~
	~~President and Chief Executive Officer~~

	~~/s/ John W. Hobbs~~
	~~John W. Hobbs~~
	~~Senior Vice President and Chief Financial Officer~~


Exhibit number		Description
31.1		Certification of Curtis T. Evatt, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2		Certification of John W. Hobbs, Senior Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32		Certification of Curtis T. Evatt, President and Chief Executive Officer, and John W. Hobbs, Senior Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~December 31, 2017,~~September 30, 2020, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets (ii) Consolidated Statements of Income and Comprehensive Income (iii) Consolidated Statements of Changes In Shareholders’ Equity (iv) Consolidated Statements of Cash Flows, and (v) Notes to The Consolidated Financial Statements

	Oconee Federal Financial Corp.

Date: November 13, 2020

		/s/ Curtis T. Evatt
		Curtis T. Evatt
		President and Chief Executive Officer

		/s/ John W. Hobbs
		John W. Hobbs
		Executive Vice President and Chief Financial Officer

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

~~(Do not check if a smaller reporting company)~~

Emerging growth company