oconee_10k-123108.htm

10-K 1 oconee_10k-123108.htm FORM 10-K oconee_10k-123108.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2008

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 000-25267

Oconee Financial Corporation

(Name of Small Business Issuer in its Charter)

Georgia	58-2442250
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

35 North Main Street, Watkinsville, Georgia	30677-0205
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (706) 769-6611.

Securities registered pursuant to Section 12(b) of the Act: None.

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

Title of each class	Name of each exchange on which registered
Common Stock, par value $2.00 per share	None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes x No

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. x Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days: As of April 10, 2009: 533,505 shares of common stock with an aggregate value of $14,852,779 (based on approximate book value of the common stock).

As of April 10, 2009, there were issued and outstanding 899,815 shares of common stock.

Documents Incorporated by Reference

Portions of the registrant’s definitive Proxy Statement for the 2009 annual meeting of shareholders are incorporated by reference into Part III.

PART I

ITEM 1. BUSINESS.

General

Oconee Financial Corporation (“Oconee”), a registered bank holding company, was incorporated under the laws of the State of Georgia in 1998 and commenced operations by acquiring 100% of the outstanding shares of Oconee State Bank (the “Bank”) effective January 1, 1999. All of Oconee’s activities are currently conducted by its wholly owned subsidiary, the Bank, which was incorporated as a bank under the laws of the State of Georgia in 1959.

At December 31, 2008, the Bank’s total assets were $308,156,000, compared to $321,313,000 at year-end 2007. Over the past 5 years, total assets of the Bank have grown by $56,200,000, representing an increase of 22.3%.

Services

The Bank is a community oriented, full-service commercial bank, headquartered in Oconee County, Georgia with six full-service banking offices and seven automated teller machines (“ATMs”). The Bank places an emphasis on retail and small business banking, and offers customary banking services such as consumer and commercial checking accounts, NOW accounts, money market accounts, savings accounts, certificates of deposit, individual retirement accounts, safe deposit facilities, and money transfers. The Bank finances commercial and consumer transactions, makes secured and unsecured loans, offers lines of credit, VISA and MasterCard accounts, and provides a variety of other banking services.

Markets

The Bank operates primarily in Oconee and Athens-Clarke Counties in Georgia. The Bank’s secondary market is defined as other counties contiguous to Oconee County, which include Greene, Morgan, Walton, and Barrow Counties, and the rest of the Athens Metropolitan Statistical Area.

Deposits

The Bank offers a full range of deposit accounts and services to individuals and businesses. At December 31, 2008, the Bank’s deposit base totaled $275,038,000 and consisted of the following types of accounts:

	Amount		Percentage
	(In thousands)
Non-interest bearing demand deposits	$	27,413		10.0%
Interest-bearing NOW accounts		61,514		22.4%
Money market deposit accounts		9,820		3.6%
Savings deposits		38,012		13.8%
Time deposits of less than $100,000		57,088		20.8%
Time deposits of $100,000 or more		71,244		25.9%
Individual retirement accounts		9,947		3.6%
Total Deposits	$	275,038		100.0%

Management of the Bank believes that its time deposits of $100,000 or more are customer relationship-oriented and represent a reasonably stable source of funds.

Loans

The Bank makes both secured and unsecured loans to individuals and businesses. At December 31, 2008, the Bank’s loan portfolio totaled $195,772,000, consisting of the following categories of loans:

	Amount		Percentage
	(In thousands)
Commercial, financial and agricultural	$	28,029		14.3%
Real estate – mortgage		105,460		53.9%
Real estate – commercial construction		51,568		26.3%
Real estate – consumer construction		2,897		1.5%
Consumer		7,818		4.0%
Total loans	$	195,772		100.0%

The following table shows the amounts and growth for loans, deposits, capital, and total assets at December 31, for the years ended 2003-2008 (dollar amounts are in millions):

	2008		2007		2006		2005		2004		2003		5-Year Growth
Loans	$	195.8	$	199.8	$	217.9	$	206.5	$	186.1	$	171.2	$	24.6
Deposits		275.0		286.5		304.0		256.8		231.8		228.6		46.4
Capital		25.8		29.3		26.7		23.7		22.3		20.8		5.0
Total Assets		308.2		321.3		336.5		285.1		256.9		252.0		56.2

The Bank experienced declines in loans, deposits, total assets and capital during 2008. The primary factor contributing to the decline in loans was a slowdown in the housing and real estate market due to a downturn in the economy. During 2008, the Bank’s real estate construction loan portfolio decreased $9,613,000, or 15.0%, primarily due to a lack of demand for residential construction as a result of the economic downturn. The decrease in deposits during 2008 was primarily due to a management decision to lower the balance of outstanding time deposits through lower interest rates in order to better match the Bank’s funding with its loan demand, which slowed during 2008.

As of December 31, 2008, the Bank had concentrations of loans to the housing industry and loans to the hotel and motel industry. Outstanding construction and development loans, all of which are secured by real estate, totaled $37,315,000, which represented 19.1% of the Bank’s loan portfolio at December 31, 2008. At year-end 2008, total outstanding balances and commitments for development and construction loans to the housing industry were $44,184,000, which represented 22.6% of the Bank’s total loans and 174.0% of the Bank’s Tier 1 equity capital. As of December 31, 2008, the Bank's established guideline for this concentration was to be at a balance that represents less thank 425% of Tier 1 equity capital. Subsequent to December 31, 2008, the Bank lowered its guideline for this concentration to be at a balance that represents less than 250% of Tier 1 equity capital. The market for residential real estate and development continued to be slow during 2008, primarily in the area of new residential development and speculative housing construction, resulting in a decrease in demand for loans funding this industry.

As of December 31, 2008, total outstanding balances for hotel and motel industry loans were $21,403,000, which represented 10.9% of the Bank’s total loans. At year-end 2008, total outstanding balances and commitments for hotel and motel loans were $21,915,000, which represented 11.2% of the Bank’s total loans and 83.1% of the Bank’s Tier 1 equity capital. As of December 31, 2008, the Bank's established guideline for this concentration was to be at a balance that represents less thank 200% of Tier 1 equity capital. Subsequent to December 31, 2008, the Bank lowered its guideline for this concentration to be at a balance that represents less than 100% of Tier 1 equity capital. Subsequent to December 31, 2008, the Bank took ownership of a motel through foreclosure proceedings. This motel loan was included in impaired loans as of December 31, 2008. The Bank continues to own the motel and is currently contracting with a hospitality management group to operate the motel while the Bank is marketing the property for sale.

Lending Policy

The current lending policy of the Bank is to offer consumer, real estate, and commercial credit services to individuals and entities that meet the Bank’s credit standards. Lending authority is delegated by the Board of Directors of the Bank to loan officers, each of whom is limited in the amount of secured and unsecured loans which he can make to a single borrower or a related group of borrowers. The Bank provides each lending officer with written guidelines for lending activities to ensure that the Bank’s policies and procedures are followed consistently. Throughout the lending decision, the customer’s credit worthiness is examined through credit bureau reports on the borrower’s credit history as well as the borrower’s credit history at the Bank. Various financial information and other information are obtained from the borrower and guarantor(s) and are analyzed to determine the borrower’s ability to repay the loan. In addition, collateral adequacy is examined to determine whether or not the collateral would be sufficient to cover any of the Bank’s risk exposure in the event that the Bank is required to rely on the liquidation of the collateral as a secondary source of repayment.

The Board of Directors of the Bank is responsible for approving and monitoring the loan policy, providing guidance and counsel to all lending personnel and approving all extensions of credit to a single borrower over $500,000, primarily through the Loan Committee of the Board of Directors. This committee convenes weekly to review and approve any loans over $500,000 and also to review nonperforming loans and potential problem loans.

Loan Review and Non–Performing Assets

The Bank periodically reviews its loan portfolio to determine deficiencies and corrective action to be taken. Senior lending officers conduct reviews of borrowers with total direct and indirect indebtedness of $1,000,000 or more and closely monitor all past due loans. Past due loans are reviewed at least weekly by lending officers, and a summary report is reviewed monthly by the Board of Directors of the Bank. In addition, the Bank maintains internal classifications of potential problem loans. The Bank also utilizes an independent external loan review specialist to review all customer relationships with outstanding debt exceeding $1,000,000 as well as a sampling of loan relationships with balances below $1,000,000.

The portion of loans that are not supported by collateral are typically charged off when the loan reaches a past due status of 120 days. For those customers with fully-secured loans who have begun bankruptcy proceedings, as well as loans on which the Bank has begun foreclosure or other steps of collection, the loans are placed in nonaccrual status. Exceptions involve loans which are technically past due but in the process of renewal.

Investment Policy

The Bank’s investment policy provides guidelines for determining permissible investments in the investment portfolio, credit criteria and quality ratings, the desired mix among those investments, and preferred maturity distribution of the portfolio. The Bank’s objectives concerning its investment portfolio require balancing the Bank’s goals with respect to asset/liability management, profitability, liquidity, pledging, and local community support. The Bank’s President and CEO, Senior Executive Vice President, Vice President and CFO are authorized to buy and sell securities according to criteria set forth in the investment policy. Individual transactions, portfolio composition, and performance are reviewed by the Bank’s Investment and Asset/Liability Management Committee and the full Board of Directors of the Bank on a monthly basis. The investment policy is reviewed annually by the Bank’s Board of Directors.

Generally, all of the Bank’s securities are classified as “Available for Sale”. As of December 31, 2008, investment securities totaled $79,762,000.

The primary risks in the Bank’s securities portfolio consist of two types:

(1)	Credit risk, or the risk of default of the issuer. Government-sponsored agency securities comprised 77.1% of the portfolio; the credit risk associated with these securities is primarily limited to the risk of default of the U.S. Government and its agencies. State, County, and Municipal bonds represent 21.1% of the portfolio with the credit risk limited to the risk of default of the issuing authorities. Other debt securities comprised 1.8% of the portfolio with the credit risk being the risk of default of the issuer of the debt security.

(2)	Interest rate risk, or the risk of adverse movements in interest rates on the value of the portfolio. In general, a rise in interest rates will cause the value of the Bank’s securities portfolio to decline. The longer the maturity of an individual security, the greater the effect of change in interest rate on its value. For a discussion of the Bank’s interest rate risk management policies and management, see “Management’s Discussion and Analysis of Financial Condition or Plan of Operation – Asset/Liability and Interest Rate Sensitivity Management.”

Competition

The Bank competes in Oconee County with seven other commercial banks. With four full-service banking offices within Oconee County, the Bank is the market leader in Oconee County in terms of assets, deposits, facility locations, and market coverage.

The following table shows deposits by financial institution along with market share in Oconee County for the period ended June 30, 2008 (dollars in thousands):

	Total Deposits		Deposit Market Share
Oconee State Bank	$	249,717		41.4	%
North Georgia Bank		129,646		21.5	%
Athens First Bank & Trust Company		104,504		17.3	%
Bank of America, N.A.		52,892		8.8	%
Community Bank & Trust		31,287		5.2	%
First American Bank & Trust Company		14,798		2.4	%
SunTrust Bank		12,864		2.1	%
First Georgia Banking Company		7,982		1.3	%
Total deposits	$	603,690		100.0	%

The Bank also competes in Athens-Clark County. There are sixteen other commercial banks in Athens-Clarke County, five of which have offices in Oconee County. As of June 30, 2008, the other fourteen banks located in Athens-Clarke County held deposits totaling $2,115,430,000. The Bank’s physical presence in Athens-Clarke County is limited to one full-service branch and a full-service in-store branch in the East Athens Wal-Mart Supercenter.

In addition, the Bank competes with commercial banks, thrifts, and various other financial institutions and brokerage firms and, to a lesser extent, with credit unions and for loans with insurance companies, small loan or finance companies, and certain governmental agencies.

The business of the Bank is not materially seasonal. The slowing of the construction and development industry has lessened the effect of the Bank’s seasonal slowdown in the Fall and Winter seasons relating to that industry. Historically, the seasonal slowdown in construction and development has impacted the Bank, but not to the degree that there is an appreciable impact upon the Bank’s Balance Sheet or Statement of Earnings.

Forward Looking Statements

Information provided by Oconee may constitute “forward-looking” statements under the Private Securities Litigation Reform Act of 1995 and are subject to numerous risks and uncertainties. Any statements made in this Annual Report on Form 10-K including any statements incorporated by reference, which are not statements of historical fact, are forward-looking statements. These forward-looking statements and other forward-looking statements made by us or our representatives are based on a number of assumptions and involve a number of risks and uncertainties, and, accordingly, actual results could differ materially. Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to:

the conditions in the financial markets and economic conditions generally;

our ability to raise capital;

our liquidity;

our construction and land development loans;

asset quality;

the adequacy of the allowance for loan losses;

material unforeseen changes in the financial stability and liquidity of Oconee’s credit customers,

technology changes, difficulties or failures;

the Corporation’s ability to execute its business strategy;

the loss of key personnel;

economic conditions (both generally in the United States and in the markets where Oconee operates);

competition from other providers of financial services;

changes in regulation and monetary and fiscal policies and laws, including Federal Reserve interest rate policies;

inflation or fluctuation in market conditions;

losses due to fraudulent and negligent conduct of customers, service providers and employees;

changes in or application of environmental and other laws and regulations to we are subject;

political, legal and local economic conditions and developments;

financial market conditions and the results of financing efforts;

consumer income levels and spending and savings habits changes

changes in interest rates;

weather, natural disasters and other catastrophic events, and other factors discussed in our other filings with the Securities and Exchange Commission; and

Oconee’s ability to manage the foregoing risks and factors; all of which are difficult to predict and which may be beyond the control of Oconee

Oconee undertakes no obligation to revise forward-looking statements to reflect events or changes after the date of this discussion or to reflect the occurrence of unanticipated events.

Supervision and Regulation

The following is an explanation of the supervision and regulation of Oconee and the Bank as financial institutions. This explanation does not purport to describe supervision and regulation of general business companies.

General. Oconee is a registered bank holding company subject to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) under the Bank Holding Company Act of 1956, as amended (the “Act”). Oconee is required to file annual and quarterly financial information with the Federal Reserve and is subject to periodic examination by the Federal Reserve.

The Act requires every bank holding company to obtain the prior approval of the Federal Reserve before (1) it may acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that it does not already control; (2) it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of a bank; and (3) it may merge or consolidate with any other bank holding company. In addition, a bank holding company is generally prohibited from engaging in, or acquiring, direct or indirect control of the voting shares of any company engaged in non-banking activities. This prohibition does not apply to activities found by the Federal Reserve, by order or regulation, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the activities that the Federal Reserve has determined by regulation or order to be closely related to banking are:

making or servicing loans and certain types of leases;

performing certain data processing services;

acting as fiduciary or investment or financial advisor;

providing brokerage services;

underwriting bank eligible securities;

underwriting debt and equity securities on a limited basis through separately capitalized subsidiaries; and

making investments in corporations or projects designed primarily to promote community welfare.

Although the activities of bank holding companies have traditionally been limited to the business of banking and activities closely related or incidental to banking (as discussed above), the Gramm-Leach-Bliley Act (the “GLB Act”) relaxed the previous limitations and permitted bank holding companies to engage in a broader range of financial activities. Specifically, bank holding companies may elect to become financial holding companies which may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. Among the activities that are deemed “financial in nature” include:

lending, exchanging, transferring, investing for others or safeguarding money or securities;

insuring, guaranteeing, or indemnifying against loss, harm, damage, illness, disability, or death, or providing and issuing annuities, and acting as principal, agent, or broker with respect thereto;

providing financial, investment, or economic advisory services, including advising an investment company;

issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly; and

underwriting, dealing in or making a market in securities.

A bank holding company may become a financial holding company under this statute only if each of its subsidiary banks is well capitalized, is well managed and has at least a satisfactory rating under the Community Reinvestment Act. A bank holding company that falls out of compliance with such requirements may be required to cease engaging in certain activities. Any bank holding company that does not elect to become a financial holding company remains subject to the current restrictions of the bank holding company restrictions of the Act.

Under the GLB Act, the Federal Reserve Board serves as the primary “umbrella” regulator of financial holding companies with supervisory authority over each parent company and limited authority over its subsidiaries. The primary regulator of each subsidiary of a financial holding company will depend on the type of activity conducted by the subsidiary. For example, broker-dealer subsidiaries will be regulated largely by securities regulators and insurance subsidiaries will be regulated largely by insurance authorities.

Oconee has no current plans to become a financial holding company.

Oconee must also register with the Georgia Department of Banking and Finance (the “GDBF”) and file periodic information with the GDBF. As part of such registration, the GDBF requires information with respect to the financial condition, operations, management, and intercompany relationships of Oconee and the Bank and related matters. The GDBF may also require such other information as is necessary to keep itself informed as to whether the provisions of Georgia law and the regulations and orders issued thereunder by the GDBF have been complied with, and the GDBF may examine Oconee and the Bank.

Oconee is an “affiliate” of the Bank under the Federal Reserve Act, which imposes certain restrictions on (1) loans by the Bank to Oconee, (2) investments in the stock or securities of Oconee by the Bank, (3) the Bank’s taking the stock or securities of an “affiliate” as collateral for loans by the Bank to a borrower, and (4) the purchase of assets from Oconee by the Bank. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services.

The Bank is regularly examined by the Federal Deposit Insurance Corporation (the “FDIC”). The Bank, a state banking association organized under Georgia law, is subject to the supervision of, and is regularly examined by, the GDBF. Both the FDIC and the GDBF must grant prior approval of any merger, consolidation or other corporation reorganization involving the Bank. A bank can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of a commonly controlled institution.

Payment of Dividends. Oconee is a legal entity separate and distinct from the Bank. Most of the revenues of Oconee result from dividends paid to it by the Bank. There are statutory and regulatory requirements applicable to the payment of dividends by the Bank, as well as by Oconee to its shareholders.

Under the regulations of the GDBF, dividends may not be declared out of the retained earnings of a state bank without first obtaining the written permission of the GDBF unless such bank meets all the following requirements:

	(a)	total classified assets as of the most recent examination of the bank do not exceed 80% of equity capital (as defined by regulation);

	(b)	the aggregate amount of dividends declared or anticipated to be declared in the calendar year does not exceed 50% of the net profits after taxes but before dividends for the previous calendar year; and

(c)

the ratio of equity capital to adjusted assets is not less than 6%.

The payment of dividends by Oconee and the Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. In addition, if, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending upon the financial condition of the bank, could include the payment of dividends), such authority may require, that such bank cease and desist from such practice. The FDIC has issued a policy statement providing that insured banks should generally only pay dividends out of current operating earnings. In addition to the formal statutes and regulations, regulatory authorities consider the adequacy of the Bank’s total capital in relation to its assets, deposits and other such items. Capital adequacy considerations could further limit the availability of dividends to the Bank. At December 31, 2008, no dividends could be declared without regulatory approval due to the net loss incurred for the year ended December 31, 2008.

Monetary Policy. The results of operations of the Bank are affected by credit policies of monetary authorities, particularly the Federal Reserve. The instruments of monetary policy employed by the Federal Reserve include open market operations in U.S. government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits. In view of changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities, including the Federal Reserve, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or the business and earnings of the Bank.

Capital Adequacy. The Federal Reserve and the FDIC have implemented substantially identical risk-based rules for assessing bank and bank holding company capital adequacy. These regulations establish minimum capital standards in relation to assets and off-balance sheet exposures as adjusted for credit risk. Banks and bank holding companies are required to have (1) a minimum level of total capital to risk-weighted assets of 8%; (2) a minimum Tier 1 Capital to risk-weighted assets of 4%; and (3) a minimum shareholders’ equity to risk-weighted assets of 4%. In addition, the Federal Reserve and the FDIC have established a minimum 4% leverage ratio of Tier 1 Capital to total assets for all but the most highly rated banks and bank holding companies. “Tier 1 Capital” generally consists of common equity not including unrecognized gains and losses on securities, minority interests in equity accounts of consolidated subsidiaries and certain perpetual preferred stock less certain intangibles. The Federal Reserve and the FDIC will require a bank holding company and a bank, respectively, to maintain a leverage ratio greater than 4% if either is experiencing or anticipating significant growth or is operating with less than well-diversified risks in the opinion of the Federal Reserve. The Federal Reserve and the FDIC use the leverage ratio in tandem with the risk-based ratio to assess the capital adequacy of banks and bank holding companies. The FDIC, the Office of the Comptroller of the Currency (the “OCC”) and the Federal Reserve consider interest rate risk in the overall determination of a bank’s capital ratio, requiring banks with greater interest rate risk to maintain adequate capital for the risk.

In addition, Section 38 to the Federal Deposit Insurance Act implemented the prompt corrective action provisions that Congress enacted as a part of the Federal Deposit Insurance Corporation Improvement Act of 1991 (the “1991 Act”). The “prompt corrective action” provisions set forth five regulatory zones in which all banks are placed largely based on their capital positions. Regulators are permitted to take increasingly harsh action as a bank’s financial condition declines. Regulators are also empowered to place in receivership or require the sale of a bank to another depository institution when a bank’s capital leverage ratio reaches 2%. Better-capitalized institutions are generally subject to less onerous regulation and supervision than banks with lesser amounts of capital.

The FDIC has adopted regulations implementing the prompt corrective action provisions of the 1991 Act, which place financial institutions in the following five categories based upon capitalization ratios: (1) a “well capitalized” institution has a total risk-based capital ratio of at least 10%, a Tier 1 risk-based ratio of at least 6% and a leverage ratio of at least 5%; (2) an “adequately capitalized” institution has a total risk-based capital ratio of at least 8%, a Tier 1 risk-based ratio of at least 4% and a leverage ratio of at least 4%; (3) an “undercapitalized” institution has a total risk-based capital ratio of under 8%, a Tier 1 risk-based ratio of under 4% or a leverage ratio of under 4%; (4) a “significantly undercapitalized” institution has a total risk-based capital ratio of under 6%, a Tier 1 risk-based ratio of under 3% or a leverage ratio of under 3%; and (5) a “critically undercapitalized” institution has a leverage ratio of 2% or less. Institutions in any of the three undercapitalized categories would be prohibited from declaring dividends or making capital distributions. The FDIC regulations also establish procedures for “downgrading” an institution to a lower capital category based on supervisory factors other than capital. Under the FDIC’s regulations, the Bank was a “well capitalized” institution at December 31, 2008 and December 31, 2007.

Set forth below are pertinent capital ratios for the Bank as of December 31, 2008 and 2007:

	2008	2007
Total Risk-Based Capital	13.0%	14.2%
Tier 1 Risk-Based Capital	11.7%	13.0%
Leverage Ratio (Tier 1 Capital to Average Total Assets)	8.1%	8.9%

Commercial Real Estate. In December 2006, the federal banking agencies, including the FDIC, issued a final guidance on concentrations in commercial real estate lending, noting that recent increases in banks’ commercial real estate concentrations could create safety and soundness concerns in the event of a significant economic downturn. The guidance mandates certain minimal risk management practices and categorizes banks with defined levels of such concentrations as banks requiring elevated examiner scrutiny. The Bank has a concentration in commercial real estate loans in excess of those defined levels. Management believes that the Bank’s credit processes and procedures meet the risk management standards dictated by this guidance, but it is not yet possible to determine the impact this guidance may have on examiner attitudes with respect to the Bank’s real estate concentrations, which attitudes could effectively limit increases in the Bank’s loan portfolios and require additional credit administration and management costs associated with those portfolios.

Loans. Inter-agency guidelines adopted by federal bank regulators mandate that financial institutions establish real estate lending policies with maximum allowable real estate loan-to-value limits, subject to an allowable amount of non-conforming loans as a percentage of capital. The Bank adopted the federal guidelines in 2001.

Transactions with Affiliates. Under federal law, all transactions between and among a state nonmember bank and its affiliates, which include holding companies, are subject to Sections 23A and 23B of the Federal Reserve Act and Regulation W promulgated thereunder. Generally, these requirements limit these transactions to a percentage of the bank’s capital and require all of them to be on terms at least as favorable to the bank as transactions with non-affiliates. In addition, a bank may not lend to any affiliate engaged in non-banking activities not permissible for a bank holding company or acquire shares of any affiliate that is not a subsidiary. The FDIC is authorized to impose additional restrictions on transactions with affiliates if necessary to protect the safety and soundness of a bank. The regulations also set forth various reporting requirements relating to transactions with affiliates.

Financial Privacy. In accordance with the GLB Act, federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. The privacy provisions of the GLB Act affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.

Anti-Money Laundering Initiatives and the USA Patriot Act. A major focus of governmental policy on financial institutions in recent years has been aimed at combating terrorist financing. This has generally been accomplished by amending existing anti-money laundering laws and regulations. The USA Patriot Act of 2001 (the “USA Patriot Act”) has imposed significant new compliance and due diligence obligations, creating new crimes and penalties. The United States Treasury Department has issued a number of implementing regulations which apply to various requirements of the USA Patriot Act to Oconee and the Bank. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers. Failure of a financial institution to maintain and implement adequate programs to combat terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and reputation-related consequences for the institution.

Temporary Liquidity Guarantee Program. On November 21, 2008, the Board of Directors of the FDIC adopted a final rule relating to the Temporary Liquidity Guarantee Program (“TLG Program”). The TLG Program was announced by the FDIC on October 14, 2008, preceded by the determination of systemic risk by Treasury, as an initiative to counter the system-wide crisis in the nation’s financial sector. Under the TLG Program the FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions and (ii) provide full FDIC deposit insurance coverage for non-interest bearing transaction deposit accounts, Negotiable Order of Withdrawal accounts paying less than 0.5% interest per annum and Interest on Lawyers Trust Accounts held at participating FDIC-insured institutions through December 31, 2009. Coverage under the TLG Program was available for the first 30 days without charge. The fee assessment for coverage of senior unsecured debt ranges from 50 basis points to 100 basis points per annum, depending on the initial maturity of the debt. The fee assessment for deposit insurance coverage is 10 basis points per quarter on amounts in covered accounts exceeding $250,000. The Bank elected to participate in both guarantee programs.

Future Legislation. Various legislation affecting financial institutions and the financial industry is from time to time introduced. Such legislation may change banking statutes and the operating environment of Oconee and its subsidiaries in substantial and unpredictable ways, and could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance depending upon whether any of this potential legislation will be enacted, and if enacted, the effect that it or any implementing regulations, would have on the financial condition or results of operations of Oconee or any of its subsidiaries. With the recent enactments of the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009, the nature and extent of future legislative and regulatory changes affecting financial institutions is very unpredictable at this time.

Available Information

Oconee is subject to the information requirements of the Securities Exchange Act of 1934, which means that it is required to file certain reports, proxy statements, and other information, all of which are available at the Public Reference Section of the Securities and Exchange Commission at Room 1580, 100 F. Street, NE, Washington, D.C. 20549. You may also obtain copies of the reports, proxy statements, and other information from the Public Reference Section of the SEC, at prescribed rates, by calling 1-800-SEC-0330. The SEC maintains a World Wide Web site on the Internet at www.sec.gov where you can access reports, proxy, information and registration statements, and other information regarding Oconee that we file electronically with the SEC through the IDEA system.

Oconee’s Internet website address is www.oconeestatebank.com.

Employees

At December 31, 2008, the Bank had 81 full-time employees and 28 part-time employees. The Bank is not a party to any collective bargaining agreement, and the Bank believes that its employee relations are good.

ITEM 1A. RISK FACTORS

An investment in Oconee’s common stock and Oconee’s financial results are subject to a number of risks. Investors should carefully consider the risks described below and all other information contained in this Annual Report on Form 10-K and the documents incorporated by reference. Additional risks and uncertainties, including those generally affecting the industry in which Oconee operates and risks that management currently deems immaterial may arise or become material in the future and affect Oconee’s business.

Our business may be adversely affected by conditions in the financial markets and economic conditions generally and there can be no assurance that recent efforts to address difficult market and economic conditions will be effective.

Since mid-2007, and particularly during the second half of 2008, the financial markets and economic conditions generally were materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity. This was initially triggered by declines in home prices and the values of subprime mortgages, but spread to all commercial and residential mortgages as property prices declined rapidly and to nearly all asset classes. The effect of the market and economic downturn also spread to other areas of the credit markets and in the availability of liquidity. The magnitude of these declines led to a crisis of confidence in the financial sector as a result of concerns about the capital base and viability of certain financial institutions. During this period, interbank lending and commercial paper borrowing fell sharply, precipitating a credit freeze for both institutional and individual borrowers. Unemployment has also increased significantly.

The recently enacted Emergency Economic Stabilization Act of 2008 (“EESA”) and American Recovery and Reinvestment Act of 2009 (“ARRA”) were signed into law in response to the financial crisis affecting the banking system, financial markets and economic conditions generally. Pursuant to the EESA, Treasury has the authority under the Troubled Asset Relief Program to purchase up to mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. More recently, the ARRA provided for a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs.

The EESA followed, and has been followed by, numerous actions by the U.S. Congress, Federal Reserve Board, Treasury, the FDIC, the SEC and others to address the current crisis, including most recently the ARRA. These measures include homeowner relief that encourage loan restructuring and modification; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; emergency action against short selling practices; a temporary guaranty program for money market funds; the establishment of a commercial paper funding facility to provide back-stop liquidity to commercial paper issuers; and coordinated international efforts to address illiquidity and other weaknesses in the banking sector. There can be no assurance, however, as to the actual impact that EESA, the ARRA and the other initiatives describe above will have on the banking system and financial markets or on us. The failure of these programs to help stabilize the banking system and financial markets and a continuation or worsening of current economic conditions could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our common stock.

Oconee’s ability to raise capital could be limited and could affect its liquidity and could be dilutive to existing shareholders.

Current conditions in the capital markets are such that traditional sources of capital may not be available to Oconee on reasonable terms if it needed to raise capital. In such case, there is no guarantee that Oconee will be able to borrow funds or successfully raise additional capital at all or on terms that are favorable or otherwise not dilutive to existing shareholders.

Liquidity is essential to our businesses and we rely on external sources to finance a significant portion of our operations.

Liquidity is essential to our businesses. Our liquidity could be substantially affected in a negative fashion by an inability to raise funding in the long-term or short-term debt capital markets or the equity capital markets or an inability to access the secured lending markets. Factors that we cannot control, such as disruption of the financial markets or negative views about the financial services industry generally, could impair our ability to raise funding. In addition, our ability to raise funding could be impaired if lenders develop a negative perception of our long-term or short-term financial prospects. Such negative perceptions could be developed if we are downgraded or put on (or remain on) negative watch by the rating agencies, we suffer a decline in the level of our business activity or regulatory authorities take significant action against us, among other reasons. If we are unable to raise funding using the methods described above, we would likely need to finance or liquidate unencumbered assets to meet maturing liabilities. We may be unable to sell some of our assets, or we may have to sell assets at a discount from market value, either of which could adversely affect our results of operations and financial condition.

Oconee’s construction and land development loans are subject to unique risks that could adversely affect earnings.

Oconee’s construction and land development loan portfolio was $39,938,000 at December 31, 2008, comprising 20.4% of total loans. Construction and land development loans are often riskier than home equity loans or residential mortgage loans to individuals. In the event of a general economic slowdown, they would represent higher risk due to slower sales and reduced cash flow that could impact the borrowers’ ability to repay on a timely basis. In addition, although regulations and regulatory policies affecting banks and financial services companies undergo continuous change and we cannot predict when changes will occur or the ultimate effect of any changes, there has been recent regulatory focus on construction, development and other commercial real estate lending. Recent changes in the federal policies applicable to construction, development or other commercial real estate loans make us subject us to substantial limitations with respect to making such loans, increase the costs of making such loans, and require us to have a greater amount of capital to support this kind of lending, all of which could have a material adverse effect on our profitability or financial condition.

A deterioration in asset quality could have an adverse impact on Oconee.

A significant source of risk for Oconee arises from the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loans. With respect to secured loans, the collateral securing the repayment of these loans includes a wide variety of diverse real and personal property that may be affected by changes in prevailing economic, environmental and other conditions, including declines in the value of real estate, changes in interest rates, changes in monetary and fiscal policies of the federal government, environmental contamination and other external events. In addition, decreases in real estate property values due to the nature of the Bank’s loan portfolio, over 81% of which is related to real estate, could affect the ability of customers to repay their loans. The Bank’s loan policies and procedures may not prevent unexpected losses that could have a material adverse effect on Oconee’s business, financial condition, results of operations, or liquidity.

Changes in prevailing interest rates may negatively affect the results of operations of Oconee and the value of its assets.

Oconee’s earnings depend largely on the relationship between the yield on earning assets, primarily loans and investments, and the cost of funds, primarily deposits and borrowings. This relationship, known as the interest rate spread, is subject to fluctuation and is affected by economic and competitive factors which influence interest rates, the volume and mix of interest earning assets and interest bearing liabilities and the level of non-performing assets. Fluctuations in interest rates affect the demand of customers for Oconee’s products and services. In addition, interest-bearing liabilities may re-price or mature more slowly or more rapidly or on a different basis than interest-earning assets. Significant fluctuations in interest rates could have a material adverse effect on Oconee’s business, financial condition, results of operations or liquidity.

Changes in the level of interest rates may also negatively affect the value of Oconee’s assets and its ability to realize book value from the sale of those assets, all of which ultimately affect earnings.

If Oconee’s allowance for loan losses is not sufficient to cover actual loan losses, earnings would decrease.

The Bank’s loan customers may not repay their loans according to their terms and the collateral securing the payment of these loans may be insufficient to assure repayment. The Bank may experience significant loan losses which would have a material adverse effect on Oconee’s operating results. Management makes various assumptions and judgments about the collectibility of the loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. Oconee maintains an allowance for loan losses in an attempt to cover any loan losses inherent in the portfolio. In determining the size of the allowance, management relies on an analysis of the loan portfolio based on historical loss experience, volume and types of loans, trends in classification, volume and trends in delinquencies and non-accruals, national and local economic conditions and other pertinent information. If those assumptions are incorrect, the allowance may not be sufficient to cover future loan losses and adjustments may be necessary to allow for different economic conditions or adverse developments in the loan portfolio.

Oconee may be subject to losses due to fraudulent and negligent conduct of the Bank’s loan customers, third party service providers and employees.

When the Bank makes loans to individuals or entities, they rely upon information supplied by borrowers and other third parties, including information contained in the applicant’s loan application, property appraisal reports, title information and the borrower’s net worth, liquidity and cash flow information. While they attempt to verify information provided through available sources, they cannot be certain all such information is correct or complete. The Bank’s reliance on incorrect or incomplete information could have a material adverse effect on Oconee’s profitability or financial condition.

Oconee’s business is subject to the success of the local economies and real estate markets in which it operates.

Because of the geographic concentration of Oconee operations, its success significantly depends largely upon economic conditions in this area, which include volatility in the agriculture market, influx and outflow of major employers in the area, minimal population growth throughout the region. Deterioration in economic conditions in the communities in which Oconee operates could adversely affect the quality of Oconee’s loan portfolio and the demand for its products and services, and accordingly, could have a material adverse effect on Oconee’s business, financial condition, results of operations or liquidity. Oconee is less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of more diverse economies.

Competition from financial institutions and other financial service providers may adversely affect Oconee.

The banking business is highly competitive, and Oconee experiences competition in its markets from many other financial institutions. Oconee competes with these other financial institutions both in attracting deposits and in making loans. Many of its competitors are well-established, larger financial institutions that are able to operate profitably with a narrower net interest margin and have a more diverse revenue base. Oconee may face a competitive disadvantage as a result of its smaller size, lack of geographic diversification and inability to spread costs across broader markets. There can be no assurance that Oconee will be able to compete effectively in its markets. Furthermore, developments increasing the nature or level of competition could have a material adverse effect on Oconee’s business, financial condition, results of operations or liquidity.

Changes in government regulation or monetary policy could adversely affect Oconee.

Oconee and the banking industry are subject to extensive regulation and supervision under federal and state laws and regulations. The restrictions imposed by such laws and regulations limit the manner in which Oconee conducts its banking business, undertakes new investments and activities and obtains financing. These regulations are designed primarily for the protection of the deposit insurance funds and consumers and not to benefit holders of Oconee’s securities. Financial institution regulation has been the subject of significant legislation in recent years and may be the subject of further significant legislation in the future, none of which is in the control of Oconee. Significant new laws or changes in, or repeals of, existing laws could have a material adverse effect on Oconee’s business, financial condition, results of operations or liquidity. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions for Oconee, and any unfavorable change in these conditions could have a material adverse effect on Oconee’s business, financial condition, results of operations or liquidity. See Part I, Item 1, “Supervision and Regulation.”

ITEM 2. PROPERTIES.

The Bank operates six full-service banking offices and one support services space as follows:

(1)	Main Office 35 North Main Street Watkinsville, Georgia 30677	(5)	East Athens Wal-Mart Supercenter (In-Store Full Service Branch) 4375 Lexington Road Athens, Georgia 30605

(2)	Bogart Branch U.S. Highway 78 Bogart, Georgia 30622	(6)	University Parkway Branch 2500 Daniell’s Bridge Road Building 200, Suite 1A Athens, Georgia 30606

(3)	Butler’s Crossing Branch 2000 Experiment Station Road Watkinsville, Georgia 30677	(7)	Operations Center 7920 Macon Highway Watkinsville, Georgia30677

(4)	Athens Branch 500 North Milledge Avenue Athens, Georgia 30605

Management believes that all of Oconee’s properties are adequately covered by insurance.

ITEM 3. LEGAL PROCEEDINGS.

In the ordinary course of operations, Oconee and the Bank are defendants in various legal proceedings. In the opinion of management, there is no pending or threatened proceeding in which an adverse decision could result in a material adverse change in the consolidated financial condition or results of operations of Oconee.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of the security holders of Oconee during the fourth quarter of the fiscal year covered by this report.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Markets For Capital Stock and Dividends

Oconee’s common stock, its only class of equity securities, is not traded on an established public trading market. The following table sets forth certain information regarding trades of Oconee common stock known by management for the indicated periods:

	Number of	Aggregate	Size of Trades		Price of Trades
Year	Trades	Shares	Smallest	Largest	Lowest	Highest
2008	32	3,532	2 shares	585 shares	$60.00	$90.00
2007	34	7,962	3 shares	2,450 shares	$70.00	$90.00

At March 31, 2009, there were approximately 714 recordholders of Oconee common stock and 899,815 shares issued and outstanding.

Due to its net loss in 2008, Oconee did not declare a cash dividend to shareholders. In 2007, Oconee declared cash dividends of $1.15 per share, respectively, payable to shareholders of record on December 31, 2007. Cash dividends for 2007 represented a payment of 31.7% of net income for the year. While Oconee intends to continue paying cash dividends contingent on its return to profitability, no assurance can be given that dividends will be declared in the future. The amount and frequency of dividends is determined by Oconee’s Board of Directors upon their consideration of various factors, which include Oconee’s financial condition and results of operations, investment opportunities available to Oconee, changes in regulatory capital requirements, tax consideration and general economic conditions. See “Supervision and Regulation – Payment of Dividends.”

Oconee has not sold any unregistered securities within the past three years.

Oconee does not have any equity compensation plans.

Share Repurchases

Oconee did not repurchase any shares of stock during 2008 or 2007.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

This analysis of Oconee has been prepared to provide insight into the financial condition of Oconee, and addresses the factors which have affected our results of operations. Our financial statements and accompanying notes which follow are an integral part of this review and should be read in conjunction with it.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

The consolidated financial statements include the financial statements of Oconee and the Bank (for purposes of this Item 6, collectively called, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. Some of the Company’s accounting policies require significant judgment regarding valuation of assets and liabilities and/or significant interpretation of the specific accounting guidance. A description of the Company’s significant accounting policies can be found in Note 1 of the Notes to Consolidated Financial Statements beginning on page F-1.

Many of the Company’s assets and liabilities are recorded using various valuation techniques that require significant judgment as to recoverability.

The collectibility of loans is reflected through the Company’s estimate of the allowance for loan losses. The Bank periodically analyzes the loan portfolio in an effort to review asset quality and to establish an allowance for loan losses that management believes will be adequate in light of anticipated risks and loan losses. In assessing the adequacy of the allowance, size, quality and risk of loans in the portfolio are reviewed. Other factors considered include: the Bank’s loan loss experience, the amount of past due and nonperforming loans, specific known risks, current and anticipated economic conditions and other factors that management believes affect the allowance for potential credit losses.

A management loan review function is utilized by the Company which is supplemented by the use of an outside loan review specialist. In addition to reviews by senior lending officers, all relationships of $1,000,000 or more are reviewed annually by the outside loan review specialist, as well as a sampling of relationships between $200,000 and $999,999. Loans are placed into various loan grading categories which assist management in developing lists of potential problem loans. These loans are regularly monitored by the loan review process to ensure early identification of repayment problems so that adequate allowances can be made through the provision for loan losses. The formal allowance for loan loss adequacy test is performed at the end of each calendar quarter. Specific amounts of loss are estimated on impaired loans and historical loss percentages, adjusted for various qualitative factors, are applied to the balance of the portfolio using certain portfolio stratifications. The evaluation takes into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions, regulatory examination results, and the existence of loan concentrations.

On all loans past due 120 days, it is the policy of the Company to charge off the portion of those loans whose collectibility is sufficiently questionable that it can no longer justify showing the loans as an asset on its balance sheet. To determine if a loan should be charged off, all possible sources of repayment are analyzed, including: (1) the potential future cash flow, (2) the value of the Company’s collateral, and (3) the strength of co-makers or guarantors of the loan in question. When these sources do not add up to a reasonable probability that the loan can be collected, all or a portion of the loan is charged off. Loans are charged off by crediting the appropriate loan category and debiting the reserve for loan losses account. Any accrued but unpaid interest is charged against current years earnings.

In addition, investment securities and mortgage loans held for sale are reflected at their estimated fair value in the consolidated financial statements. Such amounts are based on either quoted market prices or estimated values derived by the Company using dealer quotes or market comparisons.

Management of the Company has made a number of estimates and assumptions to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.

Selected Financial Information

	2008			2007		2006		2005		2004
	(Amounts in thousands, except per share data)
Net interest income	$	7,893		$	11,443	$	12,198	$	11,111	$	10,003
Other income		2,964			2,708		2,846		2,508		2,219
Provision for loan losses		7,463			330		200		612		394
Net earnings (loss)		(3,426	)		3,268		3,960		3,056		2,531
Net earnings (loss) per common share		(3.81	)		3.63		4.40		3.40		2.81
Total assets		308,156			321,313		336,508		285,065		256,865
Cash dividends declared per common share		-			1.15		1.25		1.10		1.00

RESULTS OF OPERATIONS

Net Interest Income

The Company’s earnings depend to a large degree on net interest income, which is the difference between the interest income received from its earning assets (such as loans, investment securities, federal funds sold, etc.) and the interest expense that is paid on its deposits and other borrowings.

Net interest income in 2008, which was $7,983,000, decreased by $3,460,000, or 30.2%, over 2007. Net interest income declined as a result of a decrease in interest income of $6,440,000, offset by a decrease in interest expense of $2,980,000. The decrease in interest income during 2008 was due primarily to a lower average balance of outstanding interest-earning assets, a lower interest rate environment in 2008 as compared to 2007, and the reversal of accrued interest income on loans that were moved to nonaccrual status during 2008. Average interest-earning assets during 2008 were $297,996,000, a reduction of $18,798,000 as compared to 2007 average levels. The primary reason for the reduction in interest-earning assets was a decrease in average interest-earning loans of $13,951,000. During 2008, the Prime Rate was cut from 7.25% at the beginning of 2008 to 3.25% effective December 16, 2008. These rate cuts had the effect of lowering the interest earned on the Bank’s floating rate loans, which made up 36.7% of its loan portfolio at December 31, 2008. In addition, the Bank moved $30,291,000 into nonaccrual status during the year. As a result of these reclassifications, the Bank reversed approximately $887,000 of accrued interest on these loans. In addition, these loans became non-interest bearing, resulting in an additional reduction in interest income for 2008.

The decrease in interest expense in 2008 as compared to 2007 was primarily due to the lower interest rate environment in 2008 as compared to 2007 as well as a reduction of $14,015,000 in average time deposits. The reduction in time deposits was a result of a management decision to lower the outstanding balances of these deposits because the lack of demand for new loan growth due to the continued slow economy decreased the need for funds. Net interest margin decreased to 2.68% in 2008 as compared to 3.61% in 2007 as a result of the decrease in interest income impacting the Bank significantly more than the reduction in interest expense. Additionally, net interest margin was impacted negatively by a decrease in interest-earning loans throughout 2008, including loan pay-offs and shifts to nonaccrual loan status. As loans paid off during 2008, these funds were shifted to other interest-earning assets, primarily investment securities and federal funds sold, which provide a lower yield than loans.

Net interest income in 2007, which was $11,443,000, decreased by $755,000, or 6.2%, over 2006. Net interest income declined as a result of an increase in interest expense of $2,748,000 offset by an increase in interest income of $1,992,000. The increase in interest income during 2007 was due primarily to an increase in interest income on taxable securities of $2,058,000. The increase in interest income on taxable securities is due to income on investment securities that the Bank purchased in the fourth quarter of 2006 because of a significant increase in public funds deposits from the issuance of bonds by a local governmental entity. The decrease in interest and fee income on loans was primarily due to the lower interest rate environment in late 2007 as compared to 2006 as well as only a slight increase in average loans outstanding in 2007 as compared to 2006 of $573,000. The increase in interest expense was due primarily to an increase in average time deposits of $23,520,000 in 2007 as compared to 2006 as well as an increase in average interest-bearing demand deposits of $17,613,000 in 2007. Net interest margin decreased to 3.61% in 2007 as compared to 4.34% in 2006 as a result of an increase in average rate paid on interest-bearing liabilities combined with a decrease in the average yield on interest-earning assets. Additionally, net interest margin was impacted negatively by a decrease in loans throughout 2007. As loans paid off during 2007, these funds shifted to other interest-earning assets, primarily investment securities and federal funds sold, which provide a lower yield than loans. Another factor impacting net interest margin during 2007 was an increase in time deposits during the first half of 2007 which resulted in additional interest expense.

Table 1 below sets forth the average balances for each category of interest-earning assets and interest-bearing liabilities and the average rates of interest earned or paid thereon for the years ended December 31, 2008 and 2007. Nonaccrual loans and the interest income which was recorded on these loans, if any, are included in the yield calculation for loans in all periods reported. Loan fees of $458,000 and $499,000 are included in the yields for 2008 and 2007, respectively. Yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity, and yields are not calculated on a tax equivalent basis.

Table 1

Average Balance Sheets and Interest Rates

	For the Years Ended December 31,

	2008								2007

	Average					Yield/			Average					Yield/
	Balance			Interest		Rate			Balance			Interest		Rate

Assets:
Interest earning assets:
Investment securities:
Taxable	$	64,690,151		$	3,489,145		5.39	%	$	71,694,930		$	3,767,024		5.25	%
Non-taxable		18,836,267			845,679		4.49	%		21,008,857			954,220		4.54	%
Restricted equity Securities		2,307,210			143,492		6.22	%		1,713,171			103,331		6.03	%
Federal funds sold		14,315,141			288,246		2.01	%		10,579,167			525,030		4.96	%
Loans (including loan fees) (1)		197,847,237			11,317,393		5.72	%		211,798,207			17,174,191		8.11	%
Total interest-earning assets		297,996,006			16,083,955		5.40	%		316,794,332			22,523,796		7.11	%
Allowance for loan losses		(3,623,631	)							(3,106,599	)
Cash and due from banks		5,155,005								5,435,235
Other assets		10,829,979								10,941,461
Total assets	$	310,357,359							$	330,064,429
Liabilities and shareholders’ equity:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	72,036,759		$	1,272,076		1.77	%	$	75,944,711		$	2,344,299		3.09	%
Savings		38,026,256			748,969		1.97	%		41,074,218			1,244,400		3.03	%
Time		133,126,985			5,900,965		4.43	%		147,142,263			7,418,685		5.04	%
Federal Funds purchased		245,123			5,932		2.42	%		-			-		-
Securities sold under repurchase agreements		7,000,747			173,067		2.47	%		3,662,413			73,569		2.01	%
Total interest bearing liabilities		250,435,870			8,101,009		3.23	%		267,823,605			11,080,953		4.14	%
Non-interest bearing deposits		29,596,193								32,771,278
Other liabilities		958,705								1,416,935
Total liabilities		280,990,768								302,011,818
Shareholders’ equity		29,366,591								28,052,611
Total liabilities and shareholders’ equity	$	310,357,359							$	330,064,429
Excess of interest-bearing assets over interest-bearing liabilities	$	47,560,136							$	48,970,727
Ratio of interest-earning assets to interest-bearing liabilities		118.99%								118.28%
Net interest income				$	7,982,946							$	11,442,843
Net interest spread							2.17	%							2.97	%
Net interest margin (2)							2.68	%							3.61	%

(1)	Average nonaccrual loans of $16,478,440 and $1,664,000 are included in total loans as of December 31, 2008 and 2007, respectively.

(2)	Net interest margin is the net return on interest-earning assets. It is computed by dividing net interest income by average total interest-earning assets.

The changes in interest income and interest expense can result from variances in both volume and rates. Table 2 presents the impact of the Company’s net interest income resulting from changes in average balances and average rates for the period indicated. The changes in interest due to both volume and rate have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the changes in each.

Table 2

Volume-Rate Analysis

	2008 over 2007
	Increase (decrease) due to changes in:
	Volume			Rate			Total
Interest income on: Investment securities
Taxable	$	(376,000	)	$	98,121		$	(277,879	)
Non-taxable		(98,095	)		(10,446	)		(108,541	)
Restricted equity securities		36,815			3,345			40,160
Federal funds sold		144,322			(381,106	)		(236,784	)
Loans (including loan fees)		(1,069,932	)		(4,786,865	)		(5,856,797	)
Total interest earning assets		(1,362,890	)		(5,076,951	)		(6,439,841	)

Interest expense on:
Deposits:
Interest bearing demand		(115,273	)		(956,950	)		(1,072,223	)
Savings		(86,699	)		(408,732	)		(495,431	)
Time		(668,400	)		(849,320	)		(1,517,720	)
Federal funds purchased		5,932			-			5,932
Securities sold under repurchase agreements		79,530			19,968			99,498
Total interest bearing liabilities		(784,910	)		(2,195,034	)		(2,979,944	)

Net interest income	$	(577,980	)	$	(2,881,917	)	$	(3,459,897	)

Provision for Loan Losses

Provisions for loan losses are charged to operations in order to bring the total allowance for loan losses to a level deemed appropriate by management based on management’s judgment as to potential losses within the Company’s loan portfolio based on the valuation of impaired loans, loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies and the overall quality of the loan portfolio and general economic conditions.

The provision for loan losses in 2008 was $7,463,000 compared to $330,000 in 2007. The substantial increase in the provision for loan losses is primarily due to an increase in nonaccrual loans during 2008 and net charge-offs of $6,584,000 during 2008. Nonaccrual loans increased $19,715,000, or 217.7%, at December 31, 2008 as compared to December 31, 2007.

The allowance for loan losses represented approximately 2.15% of total loans outstanding at December 31, 2008 compared to 1.67% at December 31, 2007. Net charge-offs for 2008 increased to $6,584,000, compared to $75,000 during 2007. Net charge-offs as a percentage of the provision for loan losses were 88.2% and 22.7% for the years ended December 31, 2008 and 2007, respectively. Management believes that the level of the allowance is appropriate based on our evaluation of the loan portfolio and current economic conditions.

The provision for loan losses in 2007 was $330,000 compared to $200,000 in 2006, an increase of 65.0%. The increase in the provision for loan losses is primarily due to an increase in classified loans during 2007, particularly an increase in nonaccrual loans of $8,379,000, or 1,235.8%.

The allowance for loan losses represented approximately 1.67% of total loans outstanding at December 31, 2007 compared to 1.41% at December 31, 2006. Net charge-offs for 2007 increased to $75,000, compared to $64,000 during 2006. Net charge-offs as a percentage of the provision for loan losses were 22.7% and 32.0% for the years ended December 31, 2007 and 2006, respectively.

Other Income

Other income of $2,965,000 in 2008 increased from 2007 by $257,000 or 9.5% due primarily to gains on the sale of investment securities of $215,000 in 2008.

Other income of $2,708,000 in 2007 decreased from 2006 by $138,000 or 4.9% due primarily to decreases in gains on the sale of other real estate owned of $392,000 and gains on the sales of fixed assets of $68,000 in 2007 as compared to 2006. These decreases were offset by increases in commissions on investment sales of $130,000, insufficient funds service charges on deposit accounts of $111,000 and ATM fees of $81,000 and in 2007.

Other Expense

Other expenses increased by $401,000 or 4.3% in 2008 as compared to 2007. The increase in other expenses is attributable to an increase in marketing and public relations expense of $216,000, primarily due to a marketing campaign to attract new non-interest bearing checking accounts. The program was adopted in anticipation of lowering long-term interest expense on deposits. As a result of the reduction in the Bank’s earnings and the cost associated with the program, the program was discontinued in September 2008.

Other expenses increased by $213,000 or 2.4% in 2007 as compared to 2006. The increase in other expenses is attributable to an increase in occupancy expense of $257,000, primarily due to the opening of a new branch in February 2007.

Income Tax Expense (Benefit)

The Company had an effective tax benefit rate of 44% in 2008 as compared to an effective tax rate of 28% for the year ended December 31, 2007. The difference in the effective tax rates reflects tax benefits that the Company realized in 2008 as a result of the high level of loan charge-offs as a percentage of provision expense as compared to previous years.

ANALYSIS OF FINANCIAL CONDITION

Summary

During 2008, average total assets decreased $19,706,000 (6.0%) from 2007. Average total deposits decreased $24,146,000 (8.1%) in 2008 from 2007. Average loans decreased $13,951,000 (6.6%) in 2008 over 2007.

Year-end balances at December 31, 2008 and 2007 reflect a decrease in total assets of $13,157,000 (4.1%) from 2007 to 2008. Total deposits decreased $11,486,000 (4.0%) from 2007 to 2008. Total loans decreased $4,059,000 (2.0%) from 2007 to 2008.

Total loans declined during 2007 primarily as a result of a continued slowdown in the housing industry, both nationally, and more prominently, in the Bank’s market area. An overall economic slowdown lessened the demand for new housing construction and development. Total deposits declined due to loan payoffs supplying the needed liquidity to fund new loans and also a decision by management to lower interest rates paid on time deposits in an effort to minimize interest expense.

Investment Securities

All of the Company’s investment securities are classified as available-for-sale (“AFS”). At December 31, 2008, the market value of AFS securities totaled $79,762,000, compared to $91,434,000 at December 31, 2007. Table 3 presents the market value of AFS securities at December 31, 2008 and 2007.

Table 3

Investment Portfolio

	2008		2007
Available for sale
State, county and municipal	$	16,804,489	$	21,361,919
Government-sponsored agencies		38,131,423		49,862,513
Mortgage-backed		23,364,052		18,575,862
Other debt securities		1,461,606		1,633,900
Totals	$	79,761,570	$	91,434,194

The composition of the investment securities portfolio reflects the Company’s investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of income. The investment portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits. Table 4 presents the AFS securities held by the Company by maturity category at December 31, 2008. Yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity and yields are not calculated on a tax equivalent basis.

Table 4

Maturity Distribution and Weighted Average Yield on Investments (1)

	Government-Sponsored Agencies		Mortgage- Backed Securities		State, County and Municipal		Other Debt Securities		Weighted Average Yields

Within 1 year	$	7,027,040	$	-	$	-	$	-		3.54	%
After 1 through 5 years		-		1,324,900		2,935,924		-		4.14	%
After 5 through 10 years		7,516,378		2,742,254		2,022,051		981,780		4.18	%
After 10 years		23,588,005		19,296,898		11,846,514		479,826		5.30	%
Totals	$	38,131,423	$	23,364,052	$	16,804,489	$	1,461,606		5.08	%

(1)	Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The Company’s mortgage-backed securities primarily consist of U.S. Government agency sponsored securities. A mortgage-backed security relies on the underlying pools of mortgage loans to provide a cash flow of principal and interest. The actual maturities of these securities will differ from the contractual maturities because the loans underlying the security may prepay without prepayment penalties. Decreases in long-term interest rates will generally cause an acceleration of prepayment levels. In a declining interest rate environment, proceeds may not be able to be reinvested in assets that have comparable yields.

Loans

The loan portfolio is the largest category of the Company’s earning assets and is comprised of commercial loans, residential mortgage loans, real estate construction and development loans and consumer loans. The Company conducts primary lending through its branches in Oconee and Athens-Clarke County, Georgia, while its secondary lending market consists of those counties contiguous with Oconee County, including Greene, Morgan, Walton, and Barrow Counties, part of the Athens Standard Metropolitan Statistical Area.

The composition of the Company’s loan portfolio at December 31 for each of the past 5 years is presented in Table 5.

Table 5

Loan Portfolio

	2008			2007			2006			2005			2004
Commercial, financial and agricultural	$	28,028,762			22,229,689			20,468,788			21,012,994			21,625,371
Real estate – construction		54,465,394			64,077,793			87,264,251			72,533,344			55,157,066
Real estate - mortgage		105,459,965			104,703,465			100,620,440			103,029,748			98,929,804
Consumer		7,818,286			8,820,318			9,533,930			9,897,511			10,353,250
		195,772,407			199,831,265			217,887,409			206,473,597			186,065,491
Less: Allowance for loan losses		(4,215,262	)		(3,335,825	)		(3,080,661	)		(2,945,256	)		(2,531,330	)
Loans, net	$	191,557,145			196,495,440			214,806,748			203,528,341			183,534,161

As of December 31, 2008, loans outstanding were $195,772,000, a decrease of $4,059,000 or 2.0% over the December 31, 2007 balance of $199,831,000. This decrease was primarily attributable to a decline in the Bank’s construction lending portfolio of $9,613,000 at December 31, 2008 as compared to December 31, 2007. The construction loan segment of the portfolio declined due to a continued slowdown in the housing industry resulting in a lower demand for new housing construction and development activity. The decrease in the Bank’s construction lending portfolio was partially offset by an increase in commercial, financial and agricultural loans of $5,799,000.

Table 6 identifies the maturities of commercial and real estate construction (including acquisition and development) loans as of December 31, 2008 and addresses the sensitivity of these loans to changes in interest rates.

Table 6

Maturity and Repricing Data for Loans

Maturity	Commercial, Financial and Agricultural		Real Estate Construction		Total
Within 1 year	$	10,980,427	$	42,955,566	$	53,935,993
1 to 5 years		13,289,048		11,509,828		24,798,876
Over 5 years		3,759,287		-		3,759,287
Totals	$	28,028,762	$	54,465,394	$	82,494,156

As of December 31, 2008, the interest terms of loans in the indicated classifications for the indicated maturity ranges in excess of one year are as follows:

	Fixed Interest Rates		Variable Interest Rates		Total
Commercial, financial and agricultural
1 to 5 years	$	7,502,499	$	5,786,549	$	13,289,048
Over 5 years	$	-	$	3,759,287	$	3,759,287

Real estate construction
1 to 5 years	$	8,043,558	$	3,466,270	$	11,509,828
Over 5 years	$	-	$	-	$	-

Allowance for Loan Losses

The allowance for loan losses reflects management’s assessment and estimate of the risks associated with extending credit and its evaluation of the quality of the loan portfolio.

Table 7 presents an analysis of the allowance for loan losses including charge-off activity

Table 7

Allowance for Loan Losses

The following table summarizes information concerning the allowance for loan losses:

	2008		2007		2006		2005		2004
	(Amounts are presented in thousands)
Balance at beginning of year	$	3,336	$	3,081	$	2,945	$	2,531	$	2,669
Charges-offs:
Commercial, financial and agricultural		54		55		-		160		453
Installment		116		53		60		80		273
Real Estate		6,456		10		50		13		-
Total charge-offs		6,626		118		110		253		726
Recoveries:
Commercial, financial and agricultural		22		10		20		40		178
Installment		17		31		26		15		16
Real Estate		3		2		-		-		-
Total recoveries		42		43		46		55		194
Net charge-offs		6,584		75		64		198		532
Provisions charged to operations		7,463		330		200		612		394
Balance at end of year	$	4,215	$	3,336	$	3,081	$	2,945	$	2,531
Ratio of net charge-offs during the period to average loans outstanding during the period		3.36%		.04%		.03%		.10%		.30%

At December 31, 2008, the Company had loan concentrations in the housing industry and in the hotel and motel industries. The Company monitors these concentrations on a monthly basis to ensure that they do not exceed established internal guidelines. The primary risks relating to the concentration in the housing industry is a downturn in the economy adversely affecting construction of new homes and developments of new housing communities and the impact of rising interest rates on variable rate mortgages. The market for residential real estate and development continued to be slow during 2008 due to a downturn in the economy, primarily in the area of new residential development and speculative housing construction, resulting in a decrease in demand for loans funding this industry. The Company’s primary risk relating to the hotel and motel industry loans is a slowdown in the travel industry. The Company has established a maximum dollar amount of hotel and motel loans that it is willing to fund as a result of this slowdown.

The Company’s allowance for loan losses is also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance for loan losses and the size of the allowance for loan losses compared to peer banks identified by the regulators. During their routine examinations of banks, the FDIC and GDBF may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

During the year ended December 31, 2008, the Bank had net charge-offs of $6,584,000, as compared to $75,000 in net charge-offs during the year ended December 31, 2007. Of the total charge-offs, $6,399,000 were write-downs of loans that were classified as impaired at December 31, 2008. Write-downs of loans purchased as participations from another financial institution totaled $4,198,000. These participation loans were for residential and commercial development projects which were adversely affected by the slow economy and downturn in the construction and development industry.

For year-end 2008 and 2007 the allowance for loan losses was allocated as follows (in thousands):

As of December 31, 2008:	Allocation of Allowance for Loan Losses		% of Allowance for Loan Losses		% of Loans by Category to Total Loans
Commercial, financial and agricultural	$	99		2.3%		14.3%
Real Estate - Commercial Construction		1,915		45.4%		26.3%
Consumer		137		3.3%		4.0%
Real Estate - Mortgage		1,807		42.9%		53.9%
Unallocated		257		6.1%		1.5%
Total	$	4,215		100.0%		100.0%

As of December 31, 2007:	Allocation of Allowance for Loan Losses		% of Allowance for Loan Losses		% of Loans by Category to Total Loans
Commercial, financial and agricultural	$	48		1.4%		5.1%
Real Estate - Commercial Construction		2,107		63.2%		36.4%
Consumer		46		1.4%		4.2%
Real Estate - Mortgage		918		27.5%		53.0%
Unallocated		217		6.5%		1.3%
Total	$	3,336		100.0%		100.0%

Nonperforming Assets

Non-performing assets, comprised of non-accrual loans, other real estate owned, other repossessed assets and loans for which payments are more than 90 days past due, totaled $30,578,000 at December 31, 2008 compared to $9,057,000 at December 31, 2007. This increase is attributable to increases in non-accrual loans of $19,715,000, in other real estate and repossessions of $1,782,000, and loans more than 90 days past due of $24,000. The increase in nonaccrual loans was primarily due to construction and development loans which were placed on nonaccrual status due to the slow housing and development market. Several of the development loans have stopped development due to dramatically slower lot sales due to the slowing of the residential real estate market. Loans related to the construction and development industry represented $24,334,000 of the Bank’s total nonaccrual loans at December 31, 2008. The majority of the construction loans that were on nonaccrual status at December 31, 2008 were houses that were being marketed for sale by the builders. If these houses continue to fail to sale through the builders’ efforts, it is possible that the Bank will take ownership of the houses through foreclosure proceedings. Subsequent to December 31, 2008, the Bank took ownership of a motel that was securing a loan that was on nonaccrual status at December 31, 2008. As of December 31, 2008, the balance on the related motel loan was $2,224,000 and was included in impaired loans. The Bank is marketing the property for sale while the motel continues to operate through a contractual agreement between the Bank and a hospitality management company.

A summary of non-performing assets at December 31 during the last past 5 fiscal years is presented in Table 8.

Table 8

Non-performing Assets

	December 31,
	2008			2007			2006		2005		2004

Other real estate and repossessions	$	1,782,000			-		$	744,000	$	327,000	$	839,000
Accruing loans 90 days or more past due		24,000			-			623,000		632,000		5,064,000
Non-accrual loans		28,772,000			9,057,000			678,000		2,151,000		1,080,000
Interest on non-accrual loans which would have been reported		1,045,000			408,000			91,000		95,000		44,000
Interest recognized on non-accrual loans prior to reclassification of loans		188,000			285,000			14,000		86,000		18,000
Restructured debt		4,351,000	(1)		3,240,000	(1)		-		-		-

(1) Included in non-accrual loans above

A loan is placed on non-accrual status when, in management’s judgment, the collection of interest appears questionable. As a result of management’s ongoing review of the loan portfolio, loans are classified as non-accrual generally when they are past due in principal and interest for more than 90 days or it is otherwise not reasonable to expect collection of principal and interest under the original terms. Exceptions are allowed for 90 day past due loans when such loans are well secured and in process of collection or renewal. Generally, payments received on non-accrual loans are applied directly to principal.

Management regularly monitors the loan portfolio to ensure that all loans are in appropriate classifications. Should economic conditions continue to deteriorate, the inability of distressed customers to service their existing debt could cause even higher levels of non-performing loans.

Deposits

The Company uses deposits primarily to fund its loan and investment portfolios. The Company offers a variety of deposit accounts to individuals and businesses. Deposit accounts include checking, savings, money market and time deposits. As of December 31, 2008, total deposits were $275,038,000, a decrease of $11,487,000 or 4.0% over the December 31, 2007 balance of $286,525,000. The decrease in deposits is primarily attributable to a decision by management to lower time deposit rates in order to better match the Bank’s deposit base with loan demand and to minimize interest expense on time deposits.

The average balance of the deposits and the average rates paid on such deposits are summarized in Table 9.

Table 9

Deposits

	December 31,
	2008					2007
	Average Balance		Rate			Average Balance		Rate
Deposits:
Non-interest bearing demand	$	29,596,193		-		$	32,771,278		-
Interest bearing demand		72,036,759		1.77	%		75,944,711		3.09	%
Savings		38,026,256		1.97	%		41,074,218		3.03	%
Time		133,126,985		4.43	%		147,142,263		5.04	%

	$	272,786,193				$	296,932,470

Time deposits in amounts of $100,000 or more totaled $71,244,000 and $65,100,000 at December 31, 2008 and 2007, respectively. Table 10 is a summary of the maturity distribution of time deposits in amounts of $100,000 or more as of December 31, 2008.

Table 10

Maturity of Time Deposits over $100,000

Within 3 months	$	19,559,806
After 3 through 6 months		8,173,406
After 6 through 12 months		26,798,777
After 12 months		16,711,842
	$	71,243,831

Transactions with Related Parties

The Company conducts transactions with directors and executive officers, including companies in which they have beneficial interest, in the normal course of business. It is the policy of the Company that loan transactions with directors and officers are made on substantially the same terms as those prevailing at the time made for comparable loans to other persons. At December 31, 2008, the Company had loans outstanding to related parties of $6,958,000. Deposits of related parties were $6,833,000.

Liquidity

The Company must maintain, on a daily basis, sufficient funds to cover the withdrawals from depositors’ accounts and to supply new borrowers with funds. To meet these obligations, the Company keeps cash on hand, maintains account balances with its correspondent banks, and purchases and sells federal funds and other short-term investments. Asset and liability maturities are monitored in an attempt to match these to meet liquidity needs. It is the policy of the Company to monitor its liquidity to meet local funding and regulatory requirements.

The Company maintains relationships with correspondent banks that can provide funds to it on short notice, if needed. Presently, the Company has arrangements with correspondent banks for short term unsecured advances of up to $6,000,000. Additional liquidity is provided to the Company through Federal Home Loan Bank (FHLB) advances.

Cash and cash equivalents decreased $827,000 to a total of $20,062,000 at year-end 2008 as cash used by financing activities and operating activities outpaced amounts provided by investing activities. Cash outflows from operations totaled $810,000 in 2008, while outflows from financing activities totaled $9,224,000, most of which were net deposit decreases during 2008 of $11,486,000.

Investing activities provided $9,207,000 of cash and cash equivalents, principally composed of proceeds from sales, calls and maturities of investment securities of $40,679,000, partially offset by purchases of investment securities of $28,916,000.

Contractual Obligations and Off-Balance Sheet Arrangements

For maturity and repricing information regarding the Company’s contractual obligations, please see the table under the heading “Asset/Liability and Interest Rate Sensitivity Management.”

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the balance sheet. The contract amounts of those instruments reflect the extent of exposure the Company has in particular classes of financial instruments. At December 31, 2008, the contractual amounts of the Company’s commitments to extend credit and standby letters of credit were $26,153,000 and $661,000, respectively.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates and because they may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.

See note 8 to the consolidated financial statements for further discussion of these risks and contractual commitments.

Capital Resources

Table 11 presents the Bank’s regulatory capital position at December 31, 2008.

Table 11

Capital Ratios

	Risk-Based Capital Ratios Actual as of December 31, 2008

Tier 1 Capital	11.7%
Tier 1 Capital minimum requirement	4.0%
Excess	7.7%

Total Capital	13.0%
Total Capital minimum requirement	8.0%
Excess	5.0%

	Leverage Ratio At December 31, 2008

Leverage ratio	8.1%
Leverage ratio requirement	4.0%
Excess	4.1%

Table 12

Selected Ratios

The following table sets out certain ratios of the Company for the years indicated:

	2008			2007
Net income (loss) to:
Average shareholders’ equity		(11.67	)%		11.65	%
Average assets		(1.10	)%		0.99	%
Dividends to net income		-			31.66	%
Average equity to average assets		9.46	%		8.50	%

For further discussion of the actual and required capital ratios of the Company, see note 10 to the consolidated financial statements and “Supervision and Regulation – Capital Adequacy.”

Asset/Liability and Interest Rate Sensitivity Management

It is the Company’s objective to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the framework of established cash, loan, investment, borrowing and capital policies. Certain officers are charged with the responsibility for monitoring policies and procedures that are designed to ensure acceptable composition of the asset/liability mix. It is the overall philosophy of management to support asset growth primarily through growth of core deposits, which include deposits of all categories made by local individuals, partnerships and corporations. The objective of this policy is to control interest sensitive assets and liabilities so as to minimize the impact of substantial movements in interest rates on earnings.

The asset/liability mix is monitored on a regular basis. A report reflecting the interest sensitive assets and interest sensitive liabilities is prepared and presented to the Board of Directors of the Bank on a monthly basis.

The absolute level and volatility of interest rates can have a significant impact on Oconee’s profitability. The objective of interest rate risk management is to identify and manage the sensitivity of net interest income to changing interest rates, in order to achieve Oconee’s overall financial goals. Based on economic conditions, asset quality and various other considerations, management establishes tolerance ranges for interest rate sensitivity and manages within these ranges.

Oconee uses income simulation modeling as a tool in measuring interest rate risk and managing interest rate sensitivity. Simulation modeling considers not only the impact of changing market rates of interest on future net interest income, but also other potential causes of variability.

Interest rate sensitivity is a function of the repricing characteristics of Oconee’s portfolio of assets and liabilities. These repricing characteristics are the time frames within which the interest earning assets and liabilities are subject to change in interest rates either at replacement, repricing or maturity during the life of the instruments. Interest rate sensitivity management focuses on the maturity structures of assets and liabilities and their repricing characteristics during periods of change in market interest rates. Interest rate sensitivity is measured as the difference between the volumes of assets and liabilities in Oconee’s current portfolio that are subject to repricing at various time horizons: immediate; one to three months; four to twelve months; one to five years; over five years, and on a cumulative basis. The differences are known as interest rate sensitivity gap.

One method to measure a bank’s interest rate exposure is through its repricing gap. The gap is calculated by citing all liabilities that reprice or taking all assets that reprice or mature within a given time frame and subtracting all liabilities that reprice or mature within that time frame. The difference between these two amounts is called the “gap”, the amount of either liabilities or assets that will reprice without a corresponding asset or liability repricing.

A negative gap (more liabilities repricing than assets) generally indicates that the bank’s net interest income will decrease if interest rates rise and will increase if interest rates fall. A positive gap generally indicates that the bank’s net interest income will decrease if rates fall and will increase if rates rise.

The following table summarizes the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2008 that are contractually maturing, prepaying or repricing in each of the future time periods shown. Except as stated below, the amount of assets or liabilities that mature or reprice during a particular period was determined in accordance with the contractual terms of the asset or liability. Investment securities are reported based on the adjusted cost basis. Adjustable rate loans are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they are due, and fixed rate loans and mortgage-backed securities are included in the periods in which they are required to be repaid based on scheduled maturities. The Company’s savings accounts and interest-bearing demand accounts (NOW and money market deposit accounts), which are generally subject to immediate withdrawal, are included in the “Three Months or Less” category, although historical experience has proven the rates of these deposits to be more stable over the course of a year.

	At December 31, 2008 Maturing or Repricing in (dollars in thousands)
	Three Months or Less			Four Months to 12 Months			1 to 5 Years			Over 5 Years		Total
Interest-earning assets:
Investment securities	$	3,499		$	3,472		$	4,241		$	68,141	$	79,353
Federal funds sold		15,709			-			-			-		15,709
Loans		80,525			20,930			65,377			56		166,888
Total interest-bearing assets	$	99,733		$	24,402		$	69,618		$	68,197	$	261,950

Interest-bearing liabilities:
Deposits:
Savings and demand	$	109,346		$	-		$	-		$	-	$	109,346
Time deposits		37,926			70,462			29,892			-		138,280
Repurchase agreements		6,453			-			-			-		6,453
Total interest-bearing liabilities	$	153,725		$	70,462		$	29,892		$	-	$	254,079
Interest sensitive difference per period	$	(53,992	)	$	(46,060	)	$	39,726		$	68,197	$	7,871
Cumulative interest sensitivity difference	$	(53,992	)	$	(100,052	)	$	(60,326	)	$	7,871
Cumulative difference to total earning assets		(20.61%)			(38.20%)			(23.03%)			3.00%

At December 31, 2008 the difference between the Company’s liabilities and assets repricing or maturing within one year was $99,996,000. Based on this analysis, due to an excess of liabilities repricing or maturing within one year, a rise in interest rates would generally cause the Company’s net interest income to decrease, and a decrease in interest rates would generally cause the Company’s net interest income to increase.

Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees or at different points in time to changes in market interest rates. Additionally, certain assets, such as adjustable-rate mortgages, have features, such as interest rate floors and ceilings that restrict changes in interest rates, both on a short-term basis and over the life of the asset. Changes in interest rates, prepayment rates, early withdrawal levels and the ability of borrowers to service their debt, among other factors, may change significantly from the assumptions made in the table. In addition, the optionality for callable securities is not factored in the foregoing table.

The Bank also measures its short-term exposure to interest rate risk by simulating the impact to net interest income under several rate change levels. Interest-earning assets and interest-bearing liabilities are rate shocked to stress test the impact to the Bank’s net interest income and margin. The rate shock levels span four 50 basis point increments up and down from current interest rates. This information is used to monitor interest rate exposure risk relative to anticipated interest rate trends. Asset/liability management strategies are developed based on this analysis in an effort to limit the Bank’s exposure to interest rate risk.

The Bank tracks its interest rate sensitivity on a quarterly basis using a model, which applies various hypothetical interest rate changes to various types of interest-bearing deposit accounts. The rate changes represent the Bank’s inclination to reprice deposit rates based on historical data provided from a call report driven database. In addition, the model calculates the likelihood of issuers of investment securities exercising call options on certain investment securities as a result of potential interest rate changes as opposed to showing the investment securities being repriced at their maturities.

At December 31, 2008, the difference between the Bank’s assets and liabilities repricing or maturing within one year, after applying the hypothetical rate changes to deposit accounts and taking into account the likely calls within the investment portfolio, was $295,000, indicating that the Bank was asset sensitive. The most recent simulation model shows that the Bank’s net interest income would increase $256,000 on an annual basis if rates increased 100 basis points, and would decrease $263,000 on an annual basis if rates fell 100 basis points.

Inflation

Inflation impacts the growth in total assets in the banking industry and causes a need to increase equity capital at higher than normal rates to meet capital adequacy requirements. The Company copes with the effects of inflation through the management of its interest rate sensitivity gap position, by periodically reviewing and adjusting its pricing of services to consider current costs, and through managing its level of net earnings relative to its dividend payout policy.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements and the reports of independent registered public accounting firms are included in this report beginning at page F-1 of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

During Oconee’s two most recent fiscal years, Oconee did not change accountants and had no disagreement with its accountants on any matters of accounting principles or practices or financial statement disclosure.

ITEM 9A(T) CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Oconee’s management, including the principal executive officer and principal financial officer, supervised and participated in an evaluation of the company’s disclosure controls and procedures as of December 31, 2008. Based on that evaluation, the principal executive officer and principal financial officer have concluded that the disclosure controls and procedures were effective in accumulating and communicating information to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosures of that information under the Securities and Exchange Commission’s rules and forms and that the disclosure controls and procedures are designed to ensure that the information required to be disclosed in reports that are filed or submitted under the Securities Act of 1933 is recorded, processed, summarized and reported within the time periods specified.

Management’s Annual Report on Internal Control over Financial Reporting.

Oconee’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of Oconee’s internal control over financial reporting as of December 31, 2008 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control – Integrated Framework.” Based on that assessment, management believes that, as of December 31, 2008, Oconee’s internal control over financial reporting was effective based on those criteria.

This Annual Report on Form 10-K does not include an attestation report of Oconee’s independent registered public accountant regarding internal control over financial reporting. Management’s report was not subject to attestation by Oconee’s independent accountant pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this Form 10-K.

Changes in Internal Control Over Financial Reporting

No changes were made to Oconee’s internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, Oconee’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

All information, if any, required to be reported on Form 8-K during the fourth quarter of the fiscal year covered by this Form 10-K has been reported.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

The information contained under the headings “Information About Nominees For Directors and Executive Officers,” “Compliance with Section 16(a),” “Audit Committee and Audit Committee Financial Expert,” and “Code of Ethics” in the definitive Proxy Statement to be used in connection with the solicitation of proxies for Oconee’s annual meeting of shareholders to be held on May 4, 2009 to be filed with the SEC, is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

The information contained under the heading “Executive Compensation” in the definitive Proxy Statement to be used in connection with the solicitation of proxies for Oconee’s annual meeting of shareholders to be held on May 4, 2009, to be filed with the SEC, is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained under the heading “Voting Securities and Principal Holders” in the definitive Proxy Statement to be used in connection with the solicitation of proxies for Oconee’s annual meeting of shareholders to be held on May 4, 2009, to be filed with the SEC, is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information contained under the heading “Certain Relationships and Related Party Transactions” in the definitive Proxy Statement to be used in connection with the solicitation of proxies for all the Company‘s annual meeting of shareholders to be held on May 4, 2009, to be filed with the SEC, is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information contained under the heading “Principal Accountant and Audit Fees” in the definitive Proxy Statement to be used in connection with the solicitation of proxies for Oconee’s annual meeting of shareholders to be held on May 4, 2009, to be filed with the SEC, is incorporated herein by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The following financial statements and notes thereto of the Registrant are located beginning at page F-1 of this Form 10-K pursuant to Item 7 of this Report:

Report of Independent Registered Public Accounting Firm

Balance Sheets - December 31, 2008 and 2007

Statements of Operations

For the Years Ended December 31, 2008 and 2007

Statements of Changes in Shareholders Equity

For the Years Ended December 31, 2008 and 2007

Statements of Cash Flows

For the Years Ended December 31, 2008 and 2007

Notes to Consolidated Financial Statements

The following exhibits are required to be filed with this Report on 10-K by Item 601 of Regulation S-B.

3.1	Articles of Incorporation of Oconee Financial Corporation, dated August 27, 1998 (included as Exhibit 3.1 to Oconee’s 10-KSB filed with the SEC on March 30, 2004 and incorporated herein by reference).
3.2	Amended and Restated Bylaws of Oconee Financial Corporation, dated May 7, 2001 (included as Exhibit 3.2 to Oconee’s 10-KSB filed with the SEC on April 1, 2002 and incorporated herein by reference).
4	See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation and Amended and Restated Bylaws which define the rights of the holders of Common Stock of Oconee.
4.1	Form of Common Stock Certificate (included as Exhibit 4.1 to Oconee’s 10-KSB filed with the SEC on March 31, 2005 and incorporated herein by reference).
10.1	Oconee State Bank Officers’ Cash Incentive Plan (included as Exhibit 10.1 to the Bank’s 10-KSB filed with the SEC on April 1, 2002 and incorporated herein by reference).
14	Code of Ethical Conduct (included as Exhibit 14 to Oconee’s 10-KSB filed with the SEC on March 31, 2006 and incorporated herein by reference).
21	Subsidiaries of Oconee Financial Corporation.
24	Power of Attorney (included herein on the signature page).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Section 1350 Certification of Chief Executive Officer.
32.2	Section 1350 Certification of Chief Financial Officer.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Oconee Financial Corporation and Subsidiary

Watkinsville, Georgia

We have audited the consolidated balance sheets of Oconee Financial Corporation and Subsidiary as of December 31, 2008 and 2007, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Oconee Financial Corporation and Subsidiary as of December 31, 2008 and 2007, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

We were not engaged to examine management’s assertion about the effectiveness of Oconee Financial Corporation and Subsidiary’s internal control over financial reporting as of December 31, 2008 included under Item 8A(T) “Controls and Procedures” in Oconee Financial Corporation and subsidiary’s Annual Report on Form 10-K and, accordingly, we do not express an opinion thereon.

Atlanta, Georgia

April 13, 2009

F-1

OCONEE FINANCIAL CORPORATION

Consolidated Balance Sheets

December 31, 2008 and 2007

	2008		2007
Assets

Cash and due from banks, including reserve
requirements of $25,000 and $25,000	$	4,353,492		5,365,937
Federal funds sold		15,709,000		15,524,000

Cash and cash equivalents		20,062,492		20,889,937

Investment securities available for sale		79,761,570		91,434,194
Restricted equity securities		679,229		706,729
Mortgage loans held for sale		1,638,561		1,063,183
Loans, net		191,557,145		196,495,440
Premises and equipment, net		6,903,890		7,394,096
Other real estate owned		1,781,905		1
Accrued interest receivable and other assets		5,770,757		3,329,402

	$	308,155,549		321,312,982

Liabilities and Stockholders’ Equity

Deposits:
Demand	$	27,413,165		31,544,102
Interest-bearing demand		71,333,508		76,761,239
Savings		38,011,673		38,754,825
Time		138,279,806		139,464,402

Total deposits		275,038,152		286,524,568

Securities sold under repurchase agreements		6,453,272		3,156,300
Accrued interest payable and other liabilities		866,937		2,297,382

Total liabilities		282,358,361		291,978,250

Stockholders’ equity:
Common stock, par value $2, authorized 1,500,000 shares,
issued and outstanding 899,815 shares		1,799,630		1,799,630
Additional paid-in capital		4,243,332		4,243,332
Retained earnings		19,500,772		22,927,131
Accumulated other comprehensive income		253,454		364,639

Total stockholders’ equity		25,797,188		29,334,732

	$	308,155,549		321,312,982

See accompanying notes to consolidated financial statements.

F-2

OCONEE FINANCIAL CORPORATION

Consolidated Statements of Operations

For the Years Ended December 31, 2008 and 2007

	2008			2007
Interest income:
Interest and fees on loans	$	11,317,394			17,174,191
Interest on federal funds sold		288,246			525,030
Interest and dividends on securities:
U. S. government agencies		3,489,145			3,767,024
State, county and municipal		845,679			954,220
Other		143,491			103,331

Total interest income		16,083,955			22,523,796

Interest expense:
Interest-bearing demand deposits		1,272,076			2,344,299
Savings deposits		748,969			1,244,400
Time deposits		5,900,965			7,418,685
Other		178,999			73,569

Total interest expense		8,101,009			11,080,953

Net interest income		7,982,946			11,442,843

Provision for loan losses		7,463,000			330,000

Net interest income after provision for loan losses		519,946			11,112,843

Other income:
Service charges		1,523,231			1,539,808
Gain (loss) on sale of securities		215,129			(2,308	)
Gain (loss) on sale of other real estate owned		-			(25,758	)
Gain (loss) on sale and disposal of premises and equipment		-			(4,741	)
Mortgage origination fee income		350,955			395,004
Miscellaneous		875,422			805,883

Total other income		2,964,737			2,707,888

Other expenses:
Salaries and employee benefits		5,311,899			5,567,192
Occupancy		1,434,168			1,515,034
Other operating		2,912,205			2,174,789

Total other expenses		9,658,272			9,257,015

Earnings (loss) before income taxes		(6,173,588	)		4,563,716

Income tax expense (benefit)		(2,747,229	)		1,295,246

Net earnings (loss)	$	(3,426,359	)		3,268,470

Net earnings (loss) per share	$	(3.81	)		3.63

See accompanying notes to consolidated financial statements.

F-3

OCONEE FINANCIAL CORPORATION

Consolidated Statements of Comprehensive Income (Loss)

For the Years Ended December 31, 2008 and 2007

	2008			2007

Net earnings (loss)	$	(3,426,359	)		3,268,470

Other comprehensive income (loss), net of income taxes (benefit):
Unrealized gains on securities available for sale:
Holding gains arising during period, net of tax
expense of $13,633 and $236,449		22,281			386,441
Reclassification adjustment for (gains) losses included in net
Earnings (loss), net of (tax) benefit of ($81,663) and $876		(133,466	)		1,432

Total other comprehensive income (loss)		(111,185	)		387,873

Comprehensive income (loss)	$	(3,537,544	)		3,656,343

See accompanying notes to consolidated financial statements.

F-4

OCONEE FINANCIAL CORPORATION

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 2008 and 2007

			Additional					Accumulated Other
	Common		Paid-In		Retained			Comprehensive
	Stock		Capital		Earnings			Income (Loss)			Total

Balance, December 31, 2006	$	1,799,630		4,243,332		20,693,448			(23,234	)		26,713,176

Cash dividends declared
($1.15 per share)		-		-		(1,034,787	)		-			(1,034,787	)

Change in net unrealized gain (loss)
on investment securities available
for sale, net of tax		-		-		-			387,873			387,873

Net earnings		-		-		3,268,470			-			3,268,470

Balance, December 31, 2007		1,799,630		4,243,332		22,927,131			364,639			29,334,732

Change in net unrealized gain (loss)
on investment securities available
for sale, net of tax		-		-		-			(111,185	)		(111,185	)

Net loss		-		-		(3,426,359	)		-			(3,426,359	)

Balance, December 31, 2008	$	1,799,630		4,243,332		19,500,772			253,454			25,797,188

See accompanying notes to consolidated financial statements.

F-5

OCONEE FINANCIAL CORPORATION

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2008 and 2007

	2008			2007
Cash flows from operating activities:
Net earnings (loss)	$	(3,426,359	)		3,268,470
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Depreciation, amortization and accretion		651,941			657,610
Provision for loan losses		7,463,000			330,000
Provision for deferred taxes		(13,119	)		(122,414	)
(Gain) loss on sale of investment securities		(215,129	)		2,308
(Gain) loss on sale and disposal of fixed assets		-			4,741
(Gain) loss on sale of other real estate		-			25,758
Change in:
Accrued interest receivable and other assets		(4,299,415	)		962,149
Accrued interest payable and other liabilities		(395,658	)		(253,012	)
Mortgage loans originated and held for sale		(575,378	)		912,817

Net cash (used) provided by operating activities		(810,117	)		5,788,427

Cash flows from investing activities:
Purchase of investment securities available for sale		(28,916,088	)		(24,579,037	)
Proceeds from calls and maturities of investment securities
available for sale		31,936,266			20,168,478
Proceeds from sales of investment securities available
for sale		8,742,800			6,032,693
Purchase of restricted equity securities		-			(36,400	)
Sales of restricted equity securities		27,500			-
Net change in loans		(2,524,705	)		17,981,308
Purchases of premises and equipment		(216,176	)		(1,659,111	)
Proceeds from sales of other real estate		157,306			714,018

Net cash provided by investing activities		9,206,903			18,621,949

Cash flows from financing activities:
Net change in deposits		(11,486,416	)		(17,470,383	)
Net change in securities sold under repurchase agreements		3,296,972			(3,275	)
Dividends paid		(1,034,787	)		(1,124,769	)

Net cash used by financing activities		(9,224,231	)		(18,598,427	)

Net (decrease) increase in cash and cash equivalents		(827,445	)		5,811,949

Cash and cash equivalents at beginning of year		20,889,937			15,077,988

Cash and cash equivalents at end of year	$	20,062,492			20,889,937

F-6

OCONEE FINANCIAL CORPORATION

Consolidated Statements of Cash Flows, continued

For the Years Ended December 31, 2008 and 2007

	2008			2007

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	8,464,094			11,081,348
Income taxes	$	281,500			1,310,500

Noncash investing and financing activities:
Change in net unrealized gain on investment
securities available for sale, net of tax	$	(111,185	)		387,873
Transfer of loans to other real estateT	$	1,935,325			-
Change in dividends payableT	$	1,034,787			1,124,769

See accompanying notes to consolidated financial statements.

F-7

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements

(1)	Summary of Significant Accounting Policies

Organization

Oconee Financial Corporation (“OFC”) received regulatory approval to operate as a bank holding company on October 13, 1998, and began operations effective January 1, 1999. OFC is primarily regulated by the Federal Reserve Bank, and serves as the one-bank holding company for Oconee State Bank.

Oconee State Bank (the “Bank”) commenced business in 1960 upon receipt of its banking charter from the Georgia Department of Banking and Finance (the “DBF”). The Bank is primarily regulated by the DBF and the Federal Deposit Insurance Corporation and undergoes periodic examinations by these regulatory agencies. The Bank provides a full range of commercial and consumer banking services primarily in Oconee and Clarke counties in Georgia.

On September 17, 2008, Putters, Inc. was incorporated as a subsidiary of the Bank. Putters, Inc. was formed as a real estate holding company for a residential subdivision that was foreclosed on by the bank subsequent to the incorporation of Putters, Inc.

Principles of Consolidation

The consolidated financial statements include the financial statements of Oconee Financial Corporation and its wholly owned subsidiary, Oconee State Bank (collectively called the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accounting principles followed by the Company, and the methods of applying these principles, conform with accounting principles generally accepted in the United States of America (“GAAP”) and with general practices in the banking industry. In preparing the financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ significantly from these estimates. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for loan losses, deferred taxes, fair value of financial instruments, and valuation of real estate acquired in connection with or in lieu of foreclosure on loans.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks and federal funds sold. Included in cash and due from banks is interest-bearing deposits at other banks of $9,720 and $5,528 at December 31, 2008 and 2007, respectively.

Investment Securities

The Company classifies its securities in one of three categories: trading, available for sale, or held to maturity. Trading securities are bought and held principally for sale in the near term. Held to maturity securities are those securities for which the Company has the ability and intent to hold the security until maturity. All other securities not included in trading or held to maturity are classified as available for sale.

Available for sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, on securities available for sale are excluded from operations and are reported as a separate component of stockholders’ equity until realized. A decline in the market value of any available for sale or held to maturity security below cost that is deemed other than temporary is charged to operations and establishes a new cost basis for the security. Declines in the fair value of securities below their cost that are deemed to be other than temporary are reflected in operations as realized losses. In estimating other-than-temporary impairment losses, management considers: 1) the length of time and the extent to which the fair value has been less than cost, 2) the financial condition and near-term prospects of the issuer, and 3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to the yield. Realized gains and losses for securities classified as available for sale and held to maturity are included in earnings on the trade date and are derived using the specific identification method for determining the cost of securities sold.

F-8

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(1)	Summary of Significant Accounting Policies, continued

Other Investments

Other investments include other equity securities. No ready market exists for these securities and there is no quoted fair value. These investment securities are carried at cost.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the lower of aggregate cost or market value. At December 31, 2008 and 2007, the cost of mortgage loans held for sale approximates the market value. Mortgage loans held for sale consist of loans which have commitments to be sold to third party investors upon closing.

Loans and Allowance for Loan Losses

Loans are stated at the principal amount outstanding, less net deferred origination fees or costs and the allowance for loan losses. Interest on loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. The Bank analyzes its direct costs associated with the origination of different types of loans. Any fees collected that are greater than the costs calculated by the bank are recognized as income over the life of the loan as opposed to at the time of origination.

Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, or at the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is impaired when, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan will not be collected.

Accrual of interest is discontinued on a loan when management believes, after considering economic conditions and collection efforts, that the borrower’s financial condition is such that collection of interest is doubtful. Interest previously accrued but not collected is reversed against current period earnings and interest is recognized on a cash basis when such loans are placed on non-accrual status.

The allowance for loan losses is established through a provision for loan losses charged to earnings. Loans are charged against the allowance for loan losses when management believes the collectibility of the principal is unlikely. The allowance represents an amount which, in management’s judgment, will be adequate to absorb probable losses on existing loans that may become uncollectible.

Management’s judgment in determining the adequacy of the allowance is based on evaluations of the collectibility of loans. These evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions that may affect the borrower’s ability to pay, overall portfolio quality and review of specific problem loans. The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. The general component covers non-impaired loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. Management uses an external loan review program to challenge and corroborate the internal grading system and provide additional analysis in determining the adequacy of the allowance and provisions for estimated loan losses.

While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on judgments different than those of management.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter period of the useful life of the asset or the lease term. When assets are retired or otherwise disposed, the cost and related accumulated depreciation are removed from the accounts, and any gain or loss is reflected in operations for the period. The cost of maintenance and repairs which do not improve or extend the useful life of the respective asset is charged to earnings as incurred, whereas significant improvements are capitalized. The range of estimated useful lives for premises and equipment are generally as follows:

Buildings and improvements

5 - 40 years

Furniture and equipment

3 - 10 years

F-9

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(1)	Summary of Significant Accounting Policies, continued

Other Real Estate

Properties acquired through foreclosure are carried at the lower of cost (defined as fair value less selling costs at foreclosure) or fair value less estimated costs to dispose. Accounting guidance defines fair value as the amount that is expected to be received in a current sale between a willing buyer and seller other than in a forced or liquidation sale. Fair values at foreclosure are based on appraisals. Losses arising from the acquisition of foreclosed properties are charged against the allowance for loan losses. Subsequent write-downs are provided by a charge to operations through the allowance for losses on other real estate in the period in which the need arises. The carrying amount of foreclosed assets at December 31, 2008 and 2007 was $1,776,930 and $1, respectively.

Securities Sold Under Repurchase Agreements

Securities sold under repurchase agreements are treated as financing activities, and are carried at the amounts at which the securities will be repurchased as specified in the respective agreements.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Additionally, the recognition of future tax benefits, such as net operating loss carryforwards, is required to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities result in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such assets is required. A valuation allowance is provided for the portion of the deferred tax asset when it is more likely than not that some portion or all of the deferred tax asset will not be realized. In assessing the realizability of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.

Mortgage Banking Income

Mortgage banking income represents net gains from the sale of mortgage loans and fees received from borrowers and loan investors related to the Bank’s origination of single-family residential mortgage loans.

Earnings (Loss) Per Share

Earnings (loss) per common share are based on the weighted average number of common shares outstanding during the period while the effects of potential common shares outstanding during the period are included in diluted earnings per share. The Company had no potential common share equivalents outstanding during 2008 and 2007. For each of those years, earnings (loss) per share is calculated using the weighted average shares outstanding during the period of 899,815.

Stock Repurchase Plan

In 1999, the Company approved a stock buy-back program which authorized the repurchase of up to 75 shares of its common stock per shareholder per year, and an aggregate limit of 1,000 shares annually. The program is approved annually by the Board of Directors. During the years ended December 31, 2008 and 2007 the Company did not buy-back any shares of common stock under the program. The shares would be retired and placed into authorized and unissued shares of common stock upon buy-back.

F-10

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(1)	Summary of Significant Accounting Policies, continued

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued, Statement of Financial Accounting Standard, (“SFAS”) 157, Fair Value Measurements , which defines fair value, establishes a framework for measuring fair value under Generally Accepted Accounting Principles, and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. The adoption of SFAS 157 did not have a material effect on the Company’s consolidated financial position, results of operations and cash flows.

In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157, that permits a one-year deferral in applying the measurement provisions of SFAS 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of Statement 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. This deferral does not apply, however, to an entity that applied SFAS 157 in interim or annual financial statements prior to the issuance of FSP 157-2. The adoption of FSP 157-2 did not have a material effect on the Company’s operating income or net earnings.

SFAS 141(R), Business Combinations, was issued in December 2007. SFAS 141(R) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. SFAS 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. This pronouncement would impact the Company’s accounting for business combinations completed after the effective date, if any.

SFAS 160, Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB No. 51, was issued in December 2007. SFAS 160 establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The Company believes that SFAS 160 will not have an impact on the Company’s financial statements in future periods.

In February 2008, the FASB issued a FSP FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. FSP 140-3 addresses the issue of whether or not these transactions should be viewed as two separate transactions or as one “linked” transaction. FSP 140-3 includes a “rebuttable presumption” that presumes linkage of the two transactions unless the presumption can be overcome by meeting certain criteria. FSP 140-3 will be effective for fiscal years beginning after November 15, 2008 and will apply only to original transfers made after that date; early adoption will not be allowed. The Company is currently evaluating the potential impact FSP 140-3 will have on its consolidated financial statements.

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133. SFAS 161 requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. SFAS 161 also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of SFAS 133 has been applied, and the impact that hedges have on an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company believes that SFAS 161 will not have an impact on the Company’s financial statements in future periods.

F-11

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(1)	Summary of Significant Accounting Policies, continued

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets. The intent of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company believes that FSP 142-3 will not have an impact on the Company’s financial statements in future periods.

In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company is currently evaluating the potential impact, if any, SFAS 162 will have on its consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. FSP EITF 03-6-1 clarifies that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact, if any, FSP EITF 03-6-1 will have on its consolidated financial statements.

In June 2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock (EITF 07-5). EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. EITF 07-5 also clarifies the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact, if any, EITF 07-5 will have on its consolidated financial statements.

In June 2008, the FASB ratified EITF Issue No. 08-3, Accounting for Lessees for Maintenance Deposits Under Lease Arrangements (EITF 08-3). EITF 08-3 provides guidance for accounting for nonrefundable maintenance deposits. EITF 08-3 also provides revenue recognition accounting guidance for the lessor. EITF 08-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact, if any, EITF 08-3 will have on its consolidated financial statements.

In October 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active (FSP 157-3), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately upon adoption of SFAS No. 157 on October 1, 2008. The application of the provisions of FSP 157-3 will not materially affect our results of operations or financial condition.

In September 2008, the FASB issued FSP 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 (FSP 133-1 and FIN 45-4). FSP 133-1 and FIN 45-4 amends and enhances disclosure requirements for sellers of credit derivatives and financial guarantees. FSP 133-1 and FIN 45-4 also clarifies that the disclosure requirements of SFAS 161 are effective for quarterly periods beginning after November 15, 2008, and fiscal years that include those periods. FSP 133-1 and FIN 45-4 is effective for reporting periods (annual or interim) ending after November 15, 2008. The implementation of FSP 133-1 and FIN 45-4 will not have a material impact on our consolidated financial position and results of operations.

F-12

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(1)	Summary of Significant Accounting Policies, continued

In September 2008, the FASB ratified EITF Issue No. 08-5, Issuer’s Accounting for Liabilities Measured at Fair Value With a Third-Party Credit Enhancement (EITF 08-5). EITF 08-5 provides guidance for measuring liabilities issued with an attached third-party credit enhancement (such as a guarantee). It clarifies that the issuer of a liability with a third-party credit enhancement should not include the effect of the credit enhancement in the fair value measurement of the liability. EITF 08-5 is effective for the first reporting period beginning after December 15, 2008. The Company is currently assessing the impact of EITF 08-5 on its consolidated financial position and results of operations.

In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is not active. FSP 157-3 clarifies the application of FAS Statement 157, Fair Value Measurements, in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 shall be effective upon issuance, including prior periods for which financial statements have not been issued. Revisions resulting from a change in the valuation technique or its application shall be accounted for as a change in accounting estimate (SFAS 154, Accounting Changes and Error Corrections). The disclosure provisions of SFAS 154 for a change in accounting estimate are not required for revisions resulting from a change in valuation technique or its application. The Company’s adoption of FSP 157-3 is not expected to have a material impact on its financial position, results of operations and cash flows.

On February 27, 2009, The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) voted to amend the restoration plan for the Deposit Insurance Fund (DIF). The Board also took action to ensure the continued strength of the insurance fund by imposing a special assessment on insured institutions of 20 basis points, implementing changes to the risk-based assessment system, and setting rates beginning the second quarter of 2009. Under the restoration plan approved last October, the Board set a rate schedule to raise the DIF reserve ratio to 1.15 percent within five years. The February 27, 2009 action extends the restoration plan horizon to seven years in recognition of the current significant strains on banks and the financial system and the likelihood of a severe recession. The amended restoration plan was accompanied by a final rule that sets assessment rates and makes adjustments that improve how the assessment system differentiates for risk. Currently, most banks are in the best risk category and pay anywhere from 12 cents per $100 of deposits to 14 cents per $100 for insurance. Under the final rule, banks in this category will pay initial base rates ranging from 12 cents per $100 to 16 cents per $100 on an annual basis, beginning on April 1, 2009. The Board adopted an interim rule imposing a 20 basis point emergency special assessment on the industry on June 30, 2009. The assessment is to be collected on September 30, 2009. The interim rule would also permit the Board to impose an emergency special assessment after June 30, 2009, of up to 10 basis points if necessary to maintain public confidence in federal deposit insurance. Comments on the interim rule on special assessments are due no later than 30 days after publication in the Federal Register. Changes to the assessment system include higher rates for institutions that rely significantly on secured liabilities, which may increase the FDIC’s loss in the event of failure without providing additional assessment revenue. Under the final rule, assessments will be higher for institutions that rely significantly on brokered deposits but, for well-managed and well-capitalized institutions, only when accompanied by rapid asset growth. Brokered deposits combined with rapid asset growth have played a role in a number of costly failures, including some recent ones. The final rule also would provide incentives in the form of a reduction in assessment rates for institutions to hold long-term unsecured debt and, for smaller institutions, high levels of Tier 1 capital. The Company is currently evaluating the effects of these insurance increases to its financial position and results of operation.

F-13

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(2)	Investment Securities

Investment securities available for sale at December 31, 2008 and 2007 are as follows:

	December 31, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

Government sponsored agencies	$	37,171,757		959,666		-		38,131,423
State, county and municipal		17,714,238		84,212		993,961		16,804,489
Mortgage-backed securities		22,846,975		517,867		790		23,364,052
Other debt securities		1,620,067		-		158,461		1,461,606

Total	$	79,353,037		1,561,745		1,153,212		79,761,570

	December 31, 2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

Government sponsored agencies	$	49,204,411		675,410		17,308		49,862,513
State, county and municipal		21,318,254		207,101		163,436		21,361,919
Mortgage-backed securities		18,700,736		52,747		177,621		18,575,862
Other debt securities		1,623,045		10,855		-		1,633,900

Total	$	90,846,446		946,113		358,365		91,434,194

Unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of December 31, 2008 and 2007 are summarized as follows:

	December 31, 2008
	Less than 12 Months				12 Months or More
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses

State, county and municipal	$	10,833,908		907,749		692,675		86,212
Mortgage-backed securities		208,311		790		-		-
Other debt securities		1,620,067		158,461		-		-

	$	12,662,286		1,067,000		692,675		86,212

	December 31, 2007
	Less than 12 Months				12 Months or More
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses

Government sponsored agencies	$	998,440		6,179		5,480,010		11,129
State, county and municipal		4,898,455		97,728		3,780,628		65,708
Mortgage-backed securities		3,701,205		11,074		7,048,299		166,547
Other debt securities		-		-		-		-

	$	9,598,100		114,981		16,308,937		243,384

F-14

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(2)	Investment Securities, continued

The unrealized losses on these debt securities in a continuous loss position for twelve months or more as of December 31, 2008 and 2007 are considered to be temporary because they arose due to changing interest rates and the repayment sources of principal and interest are government backed or are securities of investment grade issuers. Included in the table above as of December 31, 2008 were 30 out of 44 securities issued by state and political subdivisions that contained unrealized losses, 1 of 22 mortgage-backed securities, and 2 of 2 other debt securities that contained unrealized losses. Included in the table above as of December 31, 2007 were 22 out of 55 securities issued by state and political subdivisions that contained unrealized losses, 4 out of 32 securities issued by government sponsored agencies, and 12 of 18 mortgage-backed securities that contained unrealized losses.

The amortized cost and fair value of investment securities available for sale at December 31, 2008, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Estimated Fair Value
Due within one year	$	6,971,135		7,027,040
Due from one to five years		2,926,032		2,935,922
Due from five to ten years		10,204,676		10,520,208
Due after ten years		36,404,219		35,914,348
Mortgage-backed securities		22,846,975		23,364,052

	$	79,353,037		79,761,570

Proceeds from sales of securities available for sale during 2008 were $8,742,800. Gross gains of $215,129 were realized on those sales. Proceeds from sales of securities available for sale during 2007 were $6,032,693. Gross gains of $2,342 and gross losses of $4,650 were realized on those sales.

Securities with a carrying value of approximately $63,014,000 and $62,990,000 at December 31, 2008 and 2007, respectively, were pledged to secure public deposits and for other purposes as required by law.

Restricted equity securities consist of the following:

	December 31,
	2008			2007
Federal Home Loan Bank Stock		$	578,800		606,300
Silverton Financial Services, Inc. Stock			100,429		100,429
		$	679,229		706,729

(3)

Loans

Major classifications of loans at December 31, 2008 and 2007 are summarized as follows:

	2008		2007

Commercial, financial and agricultural	$	28,028,762		22,229,689
Real estate – mortgage		105,459,965		104,703,465
Real estate – commercial construction		51,567,771		62,969,984
Real estate – consumer construction		2,897,623		1,107,809
Consumer		7,836,864		8,820,086

Total loans		195,790,985		199,831,033
Deferred (fees), costs		18,578		(232	)
Less allowance for loan losses		4,215,262		3,335,825
Total net loans	$	191,557,145		196,495,440

F-15

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(3)	Loans, continued

The Bank grants loans and extensions of credit primarily to individuals and a variety of firms and corporations located in certain Georgia counties including Oconee and Clarke. Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is dependent upon the real estate market in the Bank’s primary market area

At December 31, 2008 and 2007, the recorded investment in loans that were considered to be impaired and on nonaccrual was approximately $28,772,000 and $9,057,000, respectively. Included in this amount is $9,803,000 of impaired loans at December 31, 2008 for which there is no related allowance for loan losses. Impaired loans at December 31, 2008 and 2007 also include $18,969,000 and $9,057,000 of impaired loans for which the related allowance for loan losses is $1,438,000 and $1,359,000, respectively. In addition, the Company had approximately $24,000 and $0 in loans past due more than ninety days and still accruing interest at December 31, 2008 and 2007, respectively. These accounts are deemed to be well collateralized and in the process of collection. The average recorded investment in impaired loans for the twelve months ended December 31, 2008 and 2007 was approximately $16,478,000 and $1,664,000, respectively. For the years ended December 31, 2008 and 2007, the interest recognized on impaired loans was immaterial.

Changes in the allowance for loan losses were as follows:

	Years Ended December 31,
	2008			2007
Balance at beginning of year	$	3,335,825			3,080,661
Provision for loan losses		7,463,000			330,000
Amounts charged off		(6,625,721	)		(117,876	)
Recoveries on amounts previously charged off		42,158			43,040

Balance at end of year	$	4,215,262			3,335,825

(4)	Premises and Equipment

Major classifications of premises and equipment are summarized as follows:

	December 31,
	2008		2007
Land	$	1,354,181		1,354,181
Buildings and improvements		5,936,622		5,887,088
Furniture and equipment		5,881,342		5,732,113
Leasehold improvements		115,673		115,673
		13,287,818		13,089,055
Less accumulated depreciation		6,383,928		5,694,959

	$	6,903,890		7,394,096

Depreciation expense was $706,382 and $718,801 for the years ended December 31, 2008 and 2007, respectively.

F-16

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(4)	Premises and Equipment, continued

Future minimum lease payments under current operating leases pertaining to banking premises and equipment at December 31, 2008, are as follows:

Years Ending December 31,
2009	$	158,136
2010		107,218
2011		89,460
2012		91,249
2013		93,074
Thereafter		298,784

Total minimum lease payments	$	837,921

(5)

Deposits

The aggregate amounts of certificates of deposit, each with a minimum denomination of $100,000, were approximately $71,244,000 and $65,100,000 at December 31, 2008 and 2007, respectively. The Company had brokered time deposits at December 31, 2008 and 2007 of $17,979,000 and $0, respectively.

At December 31, 2008, the scheduled maturities of certificates of deposits are as follows:

2009	$	108,388,349
2010		28,485,884
2011		812,210
2012		324,480
2013		268,883
	$	138,279,806

At December 31, 2008, the Bank had concentrations of deposits of approximately $28,699,000 and $12,425,000 with two customers. These deposits are with customers that have been customers of the Bank for several years and are expected to remain with the Bank for the foreseeable future.

(6)	Income Taxes

The components of income tax expense (benefit) in the statements of earnings are as follows:

	2008			2007
Current tax (benefit)	$	(2,699,668	)		1,417,660
Deferred		(13,119	)		(122,414	)
Total income tax expense (benefit)	$	(2,712,787	)		1,295,246

The differences between income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate to earnings before income taxes are as follows:

	2008			2007
Pretax income (loss) at statutory rates	$	(2,099,020	)		1,551,663
Add (deduct):
Tax exempt interest income		(288,919	)		(326,056	)
Non-deductible interest expense		33,751			48,613
State taxes, net of federal effect		(442,801	)		122,901
Other		84,202			(101,875	)
	$	(2,712,787	)		1,295,246

F-17

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(6)	Income Taxes, continued

The following summarizes the sources and expected tax consequences of future taxable deductions (income) which comprise the net deferred tax asset. The net deferred tax asset is a component of other assets at December 31, 2008 and 2007.

	2008			2007
Deferred income tax assets:
Allowance for loan losses	$	1,164,777			1,158,747
Other real estate		14,062			14,062
Total gross deferred income tax assets		1,178,839			1,172,809
Deferred income tax liabilities:
Unrealized gains on investment securities available for sale		(155,079	)		(223,109	)
Premises and equipment		(449,192	)		(456,281	)

Total gross deferred income tax liabilities		(604,271	)		(679,390	)
Net deferred income tax asset	$	574,568			493,419

(7)	Related Party Transactions

The Company conducts transactions with directors and executive officers, including companies in which they have beneficial interests, in the normal course of business. It is the policy of the Company that loan transactions with directors and officers are made on substantially the same terms as those prevailing at the time made for comparable loans to other persons. The following is a summary of activity for related party loans:

	December 31,
	2008			2007
Beginning balance	$	7,550,279			6,326,109
New loans		1,970,123			2,754,108
Repayments		(2,562,301	)		(1,529,938	)

Ending balance	$	6,958,101			7,550,279

Deposits from related parties totaled approximately $6,833,000 and $12,119,000 as of December 31, 2008 and 2007, respectively.

(8)	Commitments

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. In most cases, the Company does require collateral or other security to support financial instruments with credit risk.

	Contractual Amount
	2008		2007
Financial instruments whose contract	(in thousands)
amounts represent credit risk:
Commitments to extend credit	$	26,153		36,398
Standby letters of credit	$	661		785

F-18

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(8)	Commitments, continued

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, upon extension of credit is based on management’s credit evaluation. Collateral held varies but may include unimproved and improved real estate, certificates of deposit, or personal property.

Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to businesses in the Company’s delineated trade area. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds real estate, equipment, automobiles and customer deposits as collateral supporting those commitments for which collateral is deemed necessary.

The Company has $7,000,000 available for the purchase of overnight federal funds from two correspondent financial institutions as of December 31, 2008 and 2007.

(9)	Profit Sharing Plan

The Company has a contributory profit sharing plan which is available to substantially all employees subject to certain age and service requirements. Contributions to the plan are determined annually by the Board of Directors. The total contributions by the Company for 2008 and 2007 were $227,367 and $319,445, respectively.

(10)	Regulatory Matters

The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets (all as defined). Management believes, as of December 31, 2008 and 2007, the Company and the Bank met all capital adequacy requirements to which they are subject.

As of December 31, 2008, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table and also must not be subject to any written agreement, order, capital directive or prompt corrective action directive issued by federal banking regulators. There are no conditions or events since that notification that management believes have changed the Bank’s category.

F-19

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(10)	Regulatory Matters, continued

The capital ratios for the Company are essentially the same as those of the Bank. Therefore, only the Bank’s capital ratios are presented in the following table (dollars in thousands):

							To Be Well
							Capitalized Under
				For Capital			Prompt Corrective
	Actual			Adequacy Purposes			Action Provisions
	Amount		Ratio	Amount		Ratio	Amount		Ratio
As of December 31, 2008:
Total Capital
(to Risk-Weighted Assets)	$	28,095	13.0%	$	17,334	8.0%	$	21,667	10.0%
Tier 1 Capital
(to Risk-Weighted Assets)	$	25,368	11.7%	$	8,667	4.0%	$	13,000	6.0%
Tier 1 Capital
(to Average Assets)	$	25,368	8.1%	$	12,529	4.0%	$	15,662	5.0%


As of December 31, 2007:
Total Capital
(to Risk-Weighted Assets)	$	31,701	14.2%	$	17,809	8.0%	$	22,261	10.0%
Tier 1 Capital
(to Risk-Weighted Assets)	$	28,912	13.0%	$	8,905	4.0%	$	13,357	6.0%
Tier 1 Capital
(to Average Assets)	$	28,912	8.9%	$	13,038	4.0%	$	16,298	5.0%

(11)	Stockholders’ Equity

Dividends paid by the Bank are the primary source of funds available to the Company for payment of dividends to its stockholders and for other working capital needs. Banking regulations limit the amount of dividends that may be paid without prior approval of the regulatory authorities. These restrictions are based on the level of regulatory classified assets, the prior year’s net earnings, and the ratio of equity capital to total assets. At December 31, 2008, no dividends could be declared without regulatory approval due to the net loss incurred for the year ended December 31, 2008.

(12)	Fair Value Disclosures

Fair Value Measurements

In September 2006 the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but applies under other accounting pronouncements. FASB previously concluded in such accounting pronouncements that fair value is the relevant measurement attribute.

The Company adopted the provisions of SFAS 157 on January 1, 2008. In February 2008 the FASB issued Staff Position No. FAS 157-2 which permits delayed application of the provisions of SFAS 157 to nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008. Since the Company has elected to delay application of the provisions of SFAS 157 to nonfinancial assets and liabilities in scope of this staff position, the information disclosed below does not consider the impact that SFAS 157 would have on such nonfinancial assets and liabilities. The major categories of assets and liabilities that are recognized or disclosed at fair value, for which the provisions of SFAS 157 have not been applied, include reporting units measured at fair value in the first step of a goodwill impairment test under SFAS 142 and nonfinancial long-lived assets measured at fair value for an impairment assessment under SFAS 144.

F-20

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(12)	Fair Value Disclosures, continued

SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an 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. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at 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, and other inputs that are observable or can be corroborated by observable market data.

Level 3 – Generated from model-based techniques that use at least one significant assumption based on unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Securities Available-for-Sale: Securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans Held for Sale: Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, management classifies loans subjected to recurring fair value adjustments as Level 2.

Impaired Loans: Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS 114, “Accounting by Creditors for Impairment of a Loan,” (SFAS 114). The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2008, substantially all of the impaired loans were evaluated based on the fair value of the collateral. In accordance with SFAS 157, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Foreclosed Assets: Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3.

F-21

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(12)	Fair Value Disclosures, continued

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.

	Balance at December 31, 2008
	(In thousands)		(Level 1)		(Level 2)		(Level 3)
Assets
Securities	$	79,762	$	-	$	79,762	$	-
Loans held for sale		1,639		-		1,639		-

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. Generally Accepted Accounting Principles. These include assets that are measured at the lower of cost or fair value. The table below presents the Company’s assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.

	Balance at December 31, 2008
	(In thousands)		(Level 1)		(Level 2)		(Level 3)
Assets
Impaired loans	$	17,531	$	-	$	-	$	17,531
Foreclosed asssets		1,782		-		-		1,782

For the year ended December 31, 2008, the Company recognized adjustments related to impaired loans and foreclosed assets that are measured at fair value on a nonrecurring basis. Approximately $7,374,000 of losses related to impaired loans and foreclosed assets were recognized as either charge-offs or specific allocations within the allowance for loan losses for the year ended December 31, 2008.

Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Cash Equivalents

For cash, due from banks, and federal funds sold, the carrying amount is a reasonable estimate of fair value.

Investment Securities Available for Sale

Fair values for investment securities are based on quoted market prices.

Restricted Equity Securities

The carrying amount of restricted equity securities approximates fair value.

Loans and Mortgage Loans Held for Sale

The fair value of fixed rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For variable rate loans, the carrying amount is a reasonable estimate of fair value. The fair value of impaired loans is estimated based on discounted contractual cash flows or underlying collateral value, where applicable. Mortgage loans held for sale are valued based on the current price at which these loans could be sold into the secondary market.

F-22

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(12)	Fair Value Disclosures, continued

Deposits and Securities Sold Under Repurchase Agreements

The fair value of demand deposits, interest-bearing demand deposits, savings, and securities sold under repurchase agreements is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.

Commitments to Extend Credit and Standby Letters of Credit

Commitments to extend credit and standby letters of credit are generally short-term and carry variable interest rates. Therefore, both the carrying value and estimated fair value associated with these instruments are immaterial.

The estimated fair values of the Company’s financial instruments as of December 31, 2008 and 2007 are as follows:

	2008				2007
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Assets:	(In thousands)
Cash and cash equivalents	$	20,062		20,062		20,890		20,890
Investment securities	$	79,762		79,762		91,434		91,434
Restricted equity securities	$	679		679		706		706
Mortgage loans held for sale	$	1,639		1,639		1,063		1,063
Loans, net	$	191,557		191,214		196,495		197,211

Liabilities:
Deposits and securities sold under
repurchase agreement	$	281,491		281,682		289,681		290,752

(13)	Other Operating Income and Expenses

Components of other operating income and expenses which are greater than 1% of interest income and other income are as follows:

	2008		2007
Other Income
Income and fees from ATM’s	$	484,438		438,425
Other Expenses
Professional fees	$	380,755		338,026
ATM process and settlement charges	$	297,177		269,790
Deposit program marketing expense	$	246,234		-

(14)	Oconee Financial Corporation (Parent Company Only) Financial Information

Balance Sheets

December 31, 2008 and 2007

	2008		2007
Assets
Cash	$	167,865		1,093,678
Investment in subsidiary		25,621,141		29,276,533
Other assets		8,182		-

	$	25,797,188		30,370,211
Liabilities and Stockholders’ Equity
Other liabilities	$	-		1,035,479
Stockholders’ equity		25,797,188		29,334,732
	$	25,797,188		30,370,211

F-23

OCONEE FINANCIAL CORPORATION

Notes to Consolidated Financial Statements, continued

(14)	Oconee Financial Corporation (Parent Company Only) Financial Information, continued

Statements of Operations

For the Years Ended December 31, 2008 and 2007

	2008			2007

Dividends from subsidiary	$	150,000			1,034,787

Other expenses		51,825			48,694

Earnings before income tax benefit and equity in
undistributed earnings (loss) of subsidiary		98,175			986,093

Income tax benefit		19,673			18,484

Earnings before equity in undistributed earnings (loss)
of subsidiary		117,848			1,004,577

Equity in undistributed earnings (loss) of subsidiary		(3,544,207	)		2,263,893

Net earnings (loss)	$	(3,426,359	)		3,268,470

Statements of Cash Flows

For the Years Ended December 31, 2008 and 2007

	2008			2007
Cash flows from operating activities:
Net earnings (loss)	$	(3,426,359	)		3,268,470
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Equity in undistributed loss (earnings) of subsidiary		3,544,207			(2,263,893	)
Change in:
Other assets		(8,182	)		323
Other liabilities		(692	)		693
Net cash provided by operating activities		108,974			1,005,593
Cash flows from financing activities:
Dividends paid		(1,034,787	)		(1,124,769	)

Net cash used by financing activities		(1,034,787	)		(1,124,769	)

Change in cash		(925,813	)		(119,176	)
Cash at beginning of year		1,093,678			1,212,854
Cash at end of year	$	167,865			1,093,678

F-24

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the issuer has duly caused this Report on Form 10–K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Watkinsville, State of Georgia, on the 15th day of April 2009.

OCONEE FINANCIAL CORPORATION

(Registrant)

By: B. Amrey Harden

B. Amrey Harden

President and Chief Executive Officer

POWER OF ATTORNEY AND SIGNATURES

KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below constitutes and appoints B. Amrey Harden or Douglas D. Dickens and either of them (with full power in each to act alone), as true and lawful attorneys–in–fact, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any amendments to this Report on Form 10–K and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, hereby ratifying and confirming all that said attorney–in–fact, or their substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Exchange Act, this Report on Form 10–K has been signed by the following persons in the capacities indicated on the 15th day of April 2009.

Signature	Title


/s/ G. Robert Bishop	Director
G. Robert Bishop


/s/ Jimmy L. Christopher	Director
Jimmy L. Christopher


/s/ Douglas D. Dickens	Chairman of the Board of Directors
Douglas D. Dickens


/s/ J. Albert Hale, Sr.	Director
J. Albert Hale, Sr.


/s/ B. Amrey Harden	President and Chief Executive Officer, Director
B. Amrey Harden


/s/ Henry C. Maxey	Director
Henry C. Maxey

/s/ Ann Breedlove Powers	Director
Ann Breedlove Powers


/s/ Steven A. Rogers	Vice President and Chief Financial Officer
Steven A. Rogers


/s/ Jerry K. Wages	Senior Executive Vice President, Corporate Secretary, and
Jerry K. Wages	Director


/s/ Virginia S. Wells	Vice Chairperson of the Board of Directors
Virginia S. Wells


/s/ Tom F. Wilson	Executive Vice President and Chief Loan Officer,
Tom F. Wilson	Director