Greenville Federal Financial (GVFF) 10QSB 2006 Q2 Quarterly report (small business)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2005

OR

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ___to ___

Commission File Number: 000-51668

GREENVILLE FEDERAL FINANCIAL CORPORATION*

(Exact name of small business issuer as specified in its charter)

Ohio	20-3742295
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

690 Wagner Avenue, Greenville, Ohio 45331

(Address of principal executive offices)

(937) 548-4158

(Issuer’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yeso    Noþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yeso    Noþ

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of February 9, 2006, 2,298,411 shares* of the small business issuers common stock, $0.01 par value were issued and outstanding.

Transitional Small Business Disclosure Format (Check one): Yeso Noþ

*The small business issuer had not yet issued any stock nor conducted any business as of December 31, 2005, except the offering of stock and preparation to acquire Greenville Federal Savings and Loan Association, now known as “Greenville Federal.” The financial information contained in this Form 10-QSB is, therefore, provided for Greenville Federal prior to the Reorganization described herein.

INDEX

	Page
PART I — FINANCIAL INFORMATION
ITEM 1 Financial Statements
Consolidated Statements of Financial Condition		3
Consolidated Statements of Earnings		4
Consolidated Statements of Comprehensive Income		5
Consolidated Statements of Cash Flows		6
Notes to Consolidated Financial Statements		8
ITEM 2 Management’s Discussion and Analysis or Plan of Operations		10
ITEM 3 Controls and Procedures
PART II — OTHER INFORMATION		15
ITEM 1 Legal Proceedings
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 3 Defaults Upon Senior Securities
ITEM 4 Submission of Matters to a Vote of Security Holders
ITEM 5 Other Information
ITEM 6 Exhibits
SIGNATURES		16
EX-3.1
EX-3.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

ITEM 1. FINANCIAL STATEMENTS

GREENVILLE FEDERAL

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands)

	December 31,			June 30,
	2005			2005
	(Unaudited)
ASSETS
Cash and due from banks	$	2,365		$	2,119
Interest-bearing deposits in other financial institutions		8,371			1,597
Cash and cash equivalents		10,736			3,716
Investment securities designated as available for sale — at market		15,921			15,717
Investment securities designated as held to maturity — at amortized cost, approximate market value of $16,666 and $17,852 as of December 31, 2005 and June 30, 2005, respectively		17,045			18,050
Mortgage-backed securities designated as held to maturity — at amortized cost, approximate market value of $1,448 and $1,755 as of December 31, 2005 and June 30, 2005, respectively		1,439			1,737
Loans receivable — net		81,803			78,189
Office premises and equipment — at depreciated cost		2,047			2,133
Real estate acquired through foreclosure		33			81
Stock in Federal Home Loan Bank — at cost		1,817			1,769
Cash surrender value of life insurance		3,638			3,571
Accrued interest receivable on loans		413			418
Accrued interest receivable on mortgage-backed securities		7			8
Accrued interest receivable on investment securities and other		145			146
Prepaid expenses and other assets		560			513
Total assets	$	135,604		$	126,048
LIABILITIES AND RETAINED EARNINGS
Deposits	$	90,703		$	78,898
Advances from the Federal Home Loan Bank		29,823			32,243
Advances by borrowers for taxes and insurance		396			333
Accrued interest payable		232			205
Other liabilities		516			589
Accrued federal income taxes		37			23
Deferred federal income taxes		12			98
Total liabilities		121,719			112,389
Commitments and contingencies		—			—
Retained earnings — restricted		14,156			13,866
Accumulated comprehensive loss — unrealized losses on securities designated as available for sale, net of related tax benefits		(271	)		(207	)
Total retained earnings		13,885			13,659
Total liabilities and retained earnings	$	135,604		$	126,048

3

GREENVILLE FEDERAL

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands)
(Unaudited)

	For the three months					For the six months
	ended December 31,					ended December 31,
	2005			2004		2005			2004
Interest income
Loans	$	1,350		$	1,229	$	2,660		$	2,439
Mortgage-backed securities		17			22		35			47
Investment securities		304			259		597			518
Interest-bearing deposits and other		58			27		96			58
Total interest income		1,729			1,537		3,388			3,062
Interest expense
Deposits		457			407		875			820
Borrowings		368			332		736			673
Total interest expense		825			739		1,611			1,493
Net interest income		904			798		1,777			1,569
Provision for losses on loans		9			9		17			15
Net interest income after provision for losses on loans		895			789		1,760			1,554
Other income
Customer service charges		138			121		274			248
Gain on sale of real estate acquired through foreclosure		9			—		9			23
Gain on redemption of investment security		—			—		16			—
Other operating		60			57		114			111
Total other income		207			178		413			382
General, administrative and other expense
Employee compensation and benefits		505			541		982			1,077
Occupancy and equipment		116			108		231			217
Franchise taxes		45			47		90			93
Data processing		101			93		199			184
Advertising		20			29		37			49
Other operating		129			104		237			210
Total general, administrative and other expense		916			922		1,776			1,830
Earnings before income taxes		186			45		397			106
Federal income taxes
Current		87			4		160			13
Deferred		(37	)		—		(53	)		—
Total federal income taxes		50			4		107			13
NET EARNINGS	$	136		$	41	$	290		$	93

4

GREENVILLE FEDERAL

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)
(Unaudited)

	For the three months						For the six months
	ended December 31,						ended December 31,
	2005			2004			2005			2004
Net earnings	$	136		$	41		$	290		$	93
Other comprehensive losses, net of related tax benefits:
Unrealized holding losses on securities during the period, net of tax benefits of $11, $5, $33 and $5 for the respective periods		(22	)		(10	)		(64	)		(10	)
Comprehensive income	$	114		$	31		$	226		$	83
Accumulated comprehensive loss	$	(271	)	$	(133	)	$	(271	)	$	(133	)

5

GREENVILLE FEDERAL

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended December 31, 2005 and 2004
(In thousands)
(Unaudited)

	2005			2004
Cash flows from operating activities:
Net earnings for the period	$	290		$	93
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Accretion and amortization of premiums and discounts on investment and mortgage-backed securities — net		1			—
Amortization of deferred loan origination fees		(29	)		(45	)
Depreciation and amortization		99			103
Amortization of mortgage servicing rights		14			17
Provision for losses on loans		17			15
Gain on sale of real estate acquired through foreclosure		(9	)		(23	)
Federal Home Loan Bank stock dividends		(48	)		(36	)
Increase in cash surrender value of life insurance		(67	)		(70	)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans		5			46
Accrued interest receivable on mortgage-backed securities		1			3
Accrued interest receivable on investment securities and other		1			—
Prepaid expenses and other assets		(61	)		(65	)
Accrued interest payable		27			(34	)
Other liabilities		(66	)		(207	)
Federal income taxes
Current		14			13
Deferred		(53	)		—
Net cash provided by (used in) operating activities		136			(190	)
Cash flows used in investing activities:
Purchases of investment securities designated as available for sale		(301	)		(197	)
Purchases of investment securities designated as held to maturity		—			(2,000	)
Proceeds from maturity of investment securities designated as held to maturity		1,005			3,000
Proceeds from repayment of mortgage-backed securities		297			534
Loan principal repayments		10,159			10,377
Loan disbursements		(13,732	)		(13,639	)
Purchase of office equipment		(13	)		(25	)
Proceeds from sale of real estate acquired through foreclosure		21			33
Decrease in certificates of deposit in other financial institutions		—			297
Net cash used in investing activities		(2,564	)		(1,620	)
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts		11,805			(2,401	)
Proceeds from Federal Home Loan Bank advances		9,500			2,000
Repayment of Federal Home Loan Bank advances		(11,920	)		(2,339	)
Advances by borrowers for taxes and insurance		63			45
Net cash provided by (used in) financing activities		9,448			(2,695	)
Net increase (decrease) in cash and cash equivalents		7,020			(4,505	)
Cash and cash equivalents at beginning of period		3,716			7,902
Cash and cash equivalents at end of period	$	10,736		$	3,397

6

GREENVILLE FEDERAL

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For the six months ended December 31, 2005 and 2004
(In thousands)
(Unaudited)

	2005			2004
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings	$	1,584		$	1,493
Federal income taxes	$	145		$	—
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure	$	54		$	218
Loans originated upon sale of real estate acquired through foreclosure	$	83		$	143
Unrealized losses on securities designated as available for sale, net of related tax benefits	$	(64	)	$	(10	)

7

GREENVILLE FEDERAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the six and three month periods ended December 31, 2005 and 2004

1.Basis of Presentation

Greenville Federal Financial Corporation (the “Corporation” or “GFFC”) is the federally chartered savings and loan holding company of Greenville Federal and was formed upon the completion of the conversion of Greenville Federal into the stock form of organization and its reorganization into the mutual holding company structure (the “Reorganization”) pursuant to Greenville Federal’s Third Amended Plan of Reorganization (the “Reorganization”) and Stock Issuance Plan (the “Plan”). Pursuant to the Plan, on January 4, 2006, Greenville Federal converted into the stock form of ownership and issued all of its outstanding stock to the Corporation, and the Corporation sold 45% of its outstanding common stock, at $10.00 per share, to Greenville Federal’s depositors and others, including a newly formed employee stock ownership plan, and 55% of its outstanding common stock to Greenville Federal MHC, a federally chartered mutual holding company. The costs of the Reorganization and sale of the common stock were deferred and will be deducted from the proceeds of the offering in the quarter ended March 31, 2006.

Greenville Federal, located in Greenville, Ohio, conducts a general banking business in west-central Ohio, which consists of attracting deposits from the general public and applying those funds to the origination of loans for residential, consumer and nonresidential purposes. Greenville Federal’s profitability is significantly dependent on net interest income, which is the difference between interest income generated from interest-earning assets (i.e. loans and investments) and interest expense paid on interest-bearing liabilities (i.e. customer deposits and borrowed funds). Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by Greenville Federal can be significantly influenced by a number of environmental factors, such as governmental monetary policy, that are outside of management’s control.

The accompanying unaudited consolidated financial statements were prepared in accordance with the instructions for Form 10-QSB and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. Accordingly, these financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto of Greenville Federal as of and for the year ended June 30, 2005, included in the Prospectus dated November 10, 2005. However, in the opinion of management, all adjustments (consisting of only normal recurring accruals) which are necessary for a fair presentation of the financial statements have been included. The results of operations for the six- and three-month periods ended December 31, 2005, are not necessarily indicative of the results which may be expected for the entire fiscal year.

2.Principles of Consolidation

The consolidated financial statements include the accounts of Greenville Federal and its wholly-owned subsidiary, Greenville Financial Service Corporation (“Greenville Financial”). Greenville Financial was incorporated for the primary purpose of holding shares in Greenville Federal’s data processing service provider, Intrieve, Inc. The principal assets of Greenville Financial prior to April 2005, were an investment in common stock of Intrieve, Inc. and an intercompany cash balance, which totaled less than $30,000; Greenville Financial had no liabilities and insignificant historic results of operations. In April 2005, Intrieve, Inc. was acquired by John H. Harland Company. As a result, Greenville Financial’s investment in the common stock of Intrieve was redeemed.

8

GREENVILLE FEDERAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the six and three month periods ended December 31, 2005 and 2004

3.Earnings Per Share

The provisions of Statement of Financial Accounting Standards (“SFAS”) No. 128 “Earnings Per Share” are not applicable to the six- and three-month periods ended December 31, 2005 and 2004, as the Corporation had not completed the Reorganization as of those dates.

4.Recent Accounting Developments

In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revision to SFAS No. 123 which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily on accounting for transactions in which an entity obtains employee services in share-based transactions. This Statement, SFAS No. 123(R) “Share Based Payment”, requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, with limited exceptions. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award — the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Employee share purchase plans will not result in recognition of compensation cost if certain conditions are met.

Initially, the cost of employee services received in exchange for an award of liability instruments will be measured based on current fair value; the fair value of that award will be remeasured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.

Excess tax benefits, as defined by SFAS No. 123(R) will be recognized as an addition to additional paid-in capital. Cash retained as a result of those excess tax benefits will be presented in the statement of cash flows as financing cash inflows. The write-off of deferred tax assets relating to unrealized tax benefits associated with recognized compensation cost will be recognized as income tax expense unless there are excess tax benefits from previous awards remaining in additional paid-in capital to which it can be offset.

Compensation cost is required to be recognized in the beginning of the first interim or annual period that begins after December 15, 2005, or July 1, 2006 as to Greenville Federal. Greenville Federal currently has no stock option or other share-based incentive plans that are subject to the provisions of SFAS No. 123(R). However, management contemplates that a stock option plan will be submitted to shareholders for a vote. If such plan is ratified by the shareholders, Greenville Federal will be required to expense stock option grants under the plan pursuant to SFAS No. 123(R).

9

GREENVILLE FEDERAL

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

Forward Looking Statements

Certain statements contained in this report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to Greenville Federal or its management are intended to identify such forward looking statements. Greenville Federal’s actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general and local economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services.

Discussion of Financial Condition Changes from June 30, 2005 to December 31, 2005

Greenville Federal’s assets totaled $135.6 million at December 31, 2005, an increase of $9.6 million, or 7.6%, from the $126.0 million total at June 30, 2005. The increase in assets resulted primarily from an increase in loans receivable and cash and cash equivalents.

Cash and cash equivalents increased by $7.0 million, or 189%, over the six months ended December 31, 2005, due primarily to receipt of $8.5 million of funds for stock orders of Greenville Federal Financial Corporation and proceeds from an $801,000 decrease in investment securities, which were partially offset by a $3.6 million increase in net loans. Investment securities and mortgage-backed securities totaled $34.4 million at December 31, 2005, a decrease of $1.1 million, or 3.1%, from the total at June 30, 2005.

Loans receivable totaled $81.8 million at December 31, 2005, compared to $78.2 million at June 30, 2005, an increase of $3.6 million, or 4.6%. The increase was primarily attributable to a $2.4 million growth in one- to four-family residential real estate loans and a $1.2 million growth in commercial loans. Loan disbursements during the period totaling $13.7 million were partially offset by principal repayments of $10.1 million. During the six-month period ended December 31, 2005, loan originations were comprised of $7.0 million of one- to four-family residential real estate loans, $2.7 million of commercial loans, $1.8 million of multi-family residential real estate loans and $2.2 million of consumer loans. Nonresidential real estate, multi-family residential real estate and commercial lending generally involve a higher degree of risk than one- to four-family residential real estate lending due to the relatively larger loan amounts and the effects of general economic conditions on the successful operation of income-producing properties and businesses. Greenville Federal endeavors to reduce such risk by evaluating the credit history and past performance of the borrower, the location of the real estate, the quality of the management operating the property or business, the debt service ratio, the quality and characteristics of the income stream generated by the property or business and appraisals supporting the real estate or collateral valuation. The majority of these loans have been made to existing customers. Management intends to pursue a moderate rate of growth in the nonresidential and commercial loan portfolios, but is committed to retaining its historical focus on one- to four-family residential lending.

The allowance for loan losses totaled $588,000 at December 31, 2005, a decrease of $2,000, or 0.3%, from the June 30, 2005 balance of $590,000, and represented 0.70% and 0.74% of total loans at each of those respective dates. Greenville Federal’s nonperforming loans totaled $141,000 and $311,000 at December 31, 2005 and June 30, 2005, respectively. In determining the allowance for loan losses at any point in time, management and the board of directors apply a systematic process focusing on the risk of loss in the portfolio. First, the loan portfolio is segregated by loan types to be evaluated collectively and loan types to be evaluated individually. Delinquent multifamily and nonresidential loans are evaluated individually for potential impairment. Second the allowance for loan losses is evaluated using Greenville Federal’s historic loss experience, adjusted for changes in economic trends in Greenville Federal’s lending area, by applying these adjusted loss percentages to the loan types to be evaluated collectively in the

10

GREENVILLE FEDERAL

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (CONTINUED)

Discussion of Financial Condition Changes from June 30, 2005 to December 31, 2005 (continued)

portfolio. To the best of management’s knowledge, all known and inherent losses that are probable and that can be reasonably estimated have been recorded at December 31, 2005. Although management believes that the allowance for loan losses at December 31, 2005, was adequate based upon the available facts and circumstances, there can be no assurance that additions to the allowance will not be necessary in future periods, which could adversely affect Greenville Federal’s results of operations.

Deposits increased by $11.8 million, or 15.0%, to $90.7 million, at December 31, 2005, from $78.9 million at June 30, 2005. The increase in deposits was due primarily to $8.5 million in deposits held by Greenville Federal Financial Corporation for stock subscriptions and an increase in public deposits and wholesale jumbo certificates of deposit, offset by a decrease in retail deposits. This decrease in retail deposits was a result of management’s analysis of the marginal cost of funds, and the determination that wholesale funds were less expensive than meeting interest rates offered by our local competition on certificate of deposit specials.

Retained earnings totaled $13.9 million at December 31, 2005, an increase of $226,000, or 1.7%, from June 30, 2005. The increase was due to net earnings of $290,000 for the six months ended December 31, 2005, partially offset by an increase in the unrealized losses on securities designated as available for sale of $64,000.

Greenville Federal is required to maintain minimum regulatory capital pursuant to federal regulations. In May 2005, management was notified by the Office of Thrift Supervision that Greenville Federal was categorized as well capitalized under regulatory guidelines. At December 31, 2005, Greenville Federal’s regulatory capital continued to substantially exceed all minimum regulatory capital requirements.

Comparison of Operating Results for the Three-Month Periods Ended December 31, 2005 and 2004

General

Greenville Federal recorded net earnings of $136,000 for the three months ended December 31, 2005, compared to net earnings of $41,000 for the same period in 2004. The increase of $95,000, or 232%, resulted primarily from a $106,000 increase in net interest income and a $29,000 increase in other income, which were partially offset by a $46,000 increase in federal income taxes.

Net Interest Income

Interest income increased by $192,000, or 12.5%, to $1.7 million for the three months ended December 31, 2005. This increase was due primarily to an increase in the average balance of loans outstanding and increases in yields on loans and investment securities. The increases in yields were due primarily to overall rising interest rates in the economy. The increase in loans receivable was comprised primarily of growth in one- to four-family residential real estate loans.

Interest expense increased by $86,000, or 11.6%, for the three months ended December 31, 2005, compared to the three months ended December 31, 2004. This increase was a result of an increase in the average cost of funds, from 2.81% for the three months ended December 31, 2004, to 3.01% for the three months ended December 31, 2005, and a $4.2 million increase in the average balance of interest-bearing liabilities outstanding year to year.

11

GREENVILLE FEDERAL

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (CONTINUED)

Comparison of Operating Results for the Three-Month Periods Ended December 31, 2005 and 2004(continued)

Net Interest Income (continued)

As a result of the foregoing changes in interest income and interest expense, Greenville Federal’s net interest income increased by $106,000, or 13.3%, compared to the same period in 2004. The interest rate spread increased to 2.72% for the three months ended December 31, 2005, compared to 2.40% for the three months ended December 31, 2004. The net interest margin increased to 2.99% for the three months ended December 31, 2005, from 2.70% for the three months ended December 31, 2004.

Provision for Losses on Loans

A provision for losses on loans is charged to earnings to maintain the total allowance for loan losses at a level calculated by management based on historical experience, the volume and type of lending conducted by Greenville Federal, the status of past due principal and interest payments and management’s assessment of economic factors in Greenville Federal’s lending area that may affect the collectibility of Greenville Federal’s loan portfolio. Based upon an analysis of these factors, management recorded a provision for losses on loans of $9,000 for the three months ended December 31, 2005. The allowance for loan losses totaled $588,000 at December 31, 2005, compared to $590,000 at June 30, 2005. Greenville Federal’s nonperforming loans, consisting of loans 90 days or more past due and nonaccrual loans, totaled $141,000 at December 31, 2005, a decrease of $170,000 compared to June 30, 2005. Management believes all nonperforming loans are adequately collateralized; however, there can be no assurance that the loan loss allowance will be adequate to absorb losses on known nonperforming assets or that the allowance will be adequate to cover losses on nonperforming assets in the future.

Other Income

Other income totaled $207,000 for the three months ended December 31, 2005, an increase of $29,000, or 16.3%, compared to $178,000 for the same period in 2004. The increase was comprised primarily of a $17,000 increase in service fee income and an increase in gains on sale of real estate acquired through foreclosure of $9,000.

General, Administrative and Other Expense

General, administrative and other expense decreased by $6,000, or 0.7%, to $916,000 for the three months ended December 31, 2005, compared to the same quarter in 2004. The primary reason for the decrease was a $36,000, or 6.7%, decrease in employee compensation and benefits, which was partially offset by pro-rata increases in other operating costs due to Greenville Federal’s growth year to year. The decrease in employee compensation and benefits was due primarily to a $93,000 decrease in expense related to Greenville Federal’s defined benefit plan, partially offset by an increase in health insurance premiums and costs associated with benefit plans and normal merit increases. Management terminated Greenville Federal’s participation in the defined benefit plan in the quarter ended June 30, 2005.

Federal Income Taxes

The provision for federal income taxes totaled $50,000 for the three months ended December 31, 2005, an increase of $46,000 over the comparable quarter in 2004. The increase resulted primarily from a $141,000 increase in pre-tax earnings year to year. The effective tax rates were 26.9% and 8.9% for the three months ended December 31, 2005 and 2004, respectively. The effective tax rates were less than the statutory tax rate of 34% due primarily to the non-taxable earnings on bank-owned life insurance policies.

12

GREENVILLE FEDERAL

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (CONTINUED)

Comparison of Operating Results for the Six-Month Periods Ended December 31, 2005 and 2004

General

Greenville Federal recorded net earnings of $290,000 for the six months ended December 31, 2005, compared to net earnings of $93,000 for the same period in 2004. The increase of $197,000, or 212%, resulted primarily from a $208,000 increase in net interest income, a $31,000 increase in other income and a $54,000 decrease in general, administrative and other expense, which were partially offset by a $94,000 increase in federal income taxes.

Net Interest Income

Interest income increased by $326,000, or 10.6%, to $3.4 million for the six months ended December 31, 2005. This increase was due primarily to an increase in the average balance of loans outstanding and increases in yields on loans and investment securities. The increases in yields were due primarily to overall rising interest rates in the economy. The increase in loans receivable was comprised primarily of growth in one- to four-family residential real estate loans.

Interest expense increased by $118,000, or 7.9%, for the six months ended December 31, 2005, compared to the six months ended December 31, 2004. This increase was a result of an increase in the average cost of funds, from 2.81% for the six months ended December 31, 2004, to 2.95% for the six months ended December 31, 2005, and a $2.9 million increase in the average balance of interest-bearing liabilities outstanding year to year.

As a result of the foregoing changes in interest income and interest expense, Greenville Federal’s net interest income increased by $208,000, or 13.3%, compared to the same period in 2004. The interest rate spread increased to 2.72% for the six months ended December 31, 2005, compared to 2.34% for the six months ended December 31, 2004. The net interest margin increased to 2.98% for the six months ended December 31, 2005, from 2.64% for the six months ended December 31, 2004.

Provision for Losses on Loans

Management recorded a provision for losses on loans totaling $17,000 for the six months ended December 31, 2005, an increase of $2,000, or 13.3%, over the comparable period in 2004. The current period provision was based primarily on the increase in the loan portfolio and the decline in nonperforming loans. Management believes all nonperforming loans are adequately collateralized; however, there can be no assurance that the loan loss allowance will be adequate to absorb losses on known nonperforming assets or that the allowance will be adequate to cover losses on nonperforming assets in the future.

Other Income

Other income totaled $413,000 for the six months ended December 31, 2005, an increase of $31,000, or 8.1%, compared to $382,000 for the same period in 2004. The increase was comprised primarily of a $16,000 gain on the redemption of stock of Intrieve, Inc. and a $26,000, or 10.5%, increase in customer service charges, which were partially offset by a decline in gains on sale of real estate acquired through foreclosure of $14,000.

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GREENVILLE FEDERAL

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (CONTINUED)

Comparison of Operating Results for the Six-Month Periods Ended December 31, 2005 and 2004(continued)

General, Administrative and Other Expense

General, administrative and other expense totaled $1.8 million for the six months ended December 31, 2005, a decrease of $54,000, or 3.0%, compared to the same period in 2004. The primary reason for the decrease was a $95,000, or 8.8%, decrease in employee compensation and benefits, partially offset by a $15,000, or 8.2%, increase in data processing and a $27,000, or 12.9%, increase in other operating expense. The decrease in employee compensation and benefits was due primarily to a $183,000 decrease in expense related to Greenville Federal’s defined benefit plan, partially offset by an increase in health insurance premiums and costs associated with benefit plans and normal merit increases. Management terminated Greenville Federal’s participation in the defined benefit plan in the quarter ended June 30, 2005.

Federal Income Taxes

The provision for federal income taxes totaled $107,000 for the six months ended December 31, 2005, an increase of $94,000 over the comparable period in 2004. The increase resulted primarily from a $291,000 increase in pre-tax earnings year to year. The effective tax rates were 27.0% and 12.3% for the six months ended December 31, 2005 and 2004, respectively. The effective tax rates were less than the statutory tax rate of 34% due primarily to the non-taxable earnings on bank-owned life insurance policies.

ITEM 3:Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer of the Registrant have evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of December 31, 2005, and have concluded that the disclosure controls and procedures in place at December 31, 2005, were effective.

There were no changes in the Corporation’s internal controls which materially affected, or are reasonably likely to materially affect, the Corporation’s internal controls over financial reporting.

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Greenville Federal Financial Corporation

PART II

ITEM 1. Legal Proceedings

Not applicable

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

     (a) None

     (b) None

     (c) None

ITEM 3.Defaults Upon Senior Securities

     Not applicable

ITEM 4.Submission of Matters to a Vote of Security Holders

     Not applicable

ITEM 5.Other Information

GFFC has adopted a Nominating Committee Charter, pursuant to which the Nominating Committee will receive and evaluate recommendations for potential board members from shareholders. No specific procedures for submission of recommendations have been adopted.

ITEM 6.Exhibits

3.1	Greenville Federal Financial Corporation Federal Stock Subsidiary Holding Company Charter
3.2	Greenville Federal Financial Corporation Federal Stock Subsidiary Holding Company Bylaws
10.1	Employment Agreement with David M. Kepler (incorporated by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2006)
10.2	Employment Agreement with Susan J. Allread (incorporated by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2006)
31.1	Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Chief Executive Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Chief Financial Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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Greenville Federal Financial Corporation

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GREENVILLE FEDERAL FINANCIAL CORPORATION
Date:February 10, 2006	By:	/s/ David M. Kepler
		David M. Kepler
		President and Chief Executive Officer
Date:February 10, 2006	By:	/s/ Susan J. Allread
		Susan J. Allread
		Chief Financial Officer

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