Greenville Federal Financial (GVFF) 10-Q 2009 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period endedSeptember 30, 2008

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	(IRS Employer Identification No.)
incorporation or organization)

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)

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. Yesþ Noo

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero	Accelerated filero	Non-accelerated filero	Smaller reporting companyþ
	(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 13, 2008, 2,298,411 shares of the small business issuer’s common stock, $0.01 par value, were issued and outstanding.

Greenville Federal Financial Corporation
Index

	Page
PART I — FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets		3
Consolidated Statements of Operations		4
Consolidated Statements of Comprehensive Income (Loss)		5
Consolidated Statements of Cash Flows		6
Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3. Quantitative and Qualitative Disclosures About Market Risk		16
Item 4T. Controls and Procedures		17
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		18
Item 3. Defaults Upon Senior Securities		18
Item 4. Submission of Matters to a Vote of Security Holders		19
Item 5. Other Information		19
Item 6. Exhibits		19
SIGNATURES		20
EX-4
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

ITEM 1. Financial Statements

Greenville Federal Financial Corporation
Consolidated Balance Sheets
(In thousands, except share data)

	September 30,			June 30,
	2008			2008
	(Unaudited)
ASSETS
Cash and due from banks	$	2,136		$	1,601
Interest-bearing deposits in other financial institutions		2,860			5,619
Cash and cash equivalents		4,996			7,220
Investment securities designated as available for sale — at market		14,511			16,157
Investment securities designated as held to maturity — at amortized cost		1,019			2,021
Mortgage-backed securities designated as held to maturity — at amortized cost		1,219			1,280
Loans receivable — net of allowance for loan losses of $546 and $583 at September 30, 2008 and June 30, 2008, respectively		90,085			89,851
Office premises and equipment — at depreciated cost		1,877			1,907
Real estate acquired through foreclosure		848			687
Stock in Federal Home Loan Bank — at cost		2,003			1,976
Cash surrender value of life insurance		4,042			4,002
Accrued interest receivable		519			549
Deferred federal income taxes		154			157
Prepaid expenses and other assets		337			319
Total assets	$	121,610		$	126,126
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	81,913		$	83,697
Advances from the Federal Home Loan Bank		18,205			19,214
Advances by borrowers for taxes and insurance		301			398
Accrued interest payable		177			215
Other liabilities		394			691
Accrued federal income taxes		66			55
Total liabilities		101,056			104,270
Commitments and contingencies		––			––
Stockholders’ equity
Preferred stock — authorized 1,000,000 shares, $.01 par value; no shares issued		––			––
Common stock — authorized 8,000,000 shares of $.01 par value; 2,298,411 shares issued and outstanding		23			23
Additional paid-in capital		9,039			9,021
Retained earnings — restricted		12,123			13,443
Shares acquired by Employee Stock Ownership Plan		(631	)		(631	)
Total stockholders’ equity		20,554			21,856
Total liabilities and stockholders’ equity	$	121,610		$	126,126

See notes to consolidated financial statements.

3

Greenville Federal Financial Corporation

Consolidated Statements of Operations
(In thousands, except share data)
(Unaudited)

	Three months ended
	September 30,
	2008			2007
Interest income
Loans	$	1,494		$	1,510
Mortgage-backed securities		17			24
Investment securities		178			334
Interest-bearing deposits and other		45			51
Total interest income		1,734			1,919
Interest expense
Deposits		458			614
Borrowings		205			324
Total interest expense		663			938
Net interest income		1,071			981
Provision for losses on loans		––			––
Net interest income after provision for losses on loans		1,071			981
Other income
Customer service charges		156			154
Other operating		71			61
Total other income		227			215
General, administrative and other expense
Employee compensation and benefits		567			524
Occupancy and equipment		99			91
Franchise taxes		48			59
Data processing		145			126
Advertising		19			18
Other operating		205			156
Impairment charge on investment securities		1,392			––
Loss on redemption of investment securities		4			––
Provision for loss on real estate acquired through foreclosure		13			––
Total general, administrative and other expense		2,492			974
Income before income taxes		(1,194	)		222
Federal incomes taxes
Current		54			77
Deferred		––			(14	)
Total federal income taxes		54			63
NET INCOME (Loss)	$	(1,248	)	$	159
Earnings (Loss) per share — basic and diluted	$	(0.56	)	$	0.07
Dividends declared per share	$	0.07		$	0.07

See notes to consolidated financial statements.

4

Greenville Federal Financial Corporation

Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)

	Three Months Ended
	September 30,
	2008			2007
Net income (loss)	$	(1,248	)	$	159
Other comprehensive losses, net of related tax benefits:
Unrealized holding losses on securities during the period ending September 30, 2007, net of taxes (benefits) of $(6)		––			(12	)
Comprehensive income (loss)	$	(1,248	)	$	147
Accumulated comprehensive loss	$	––		$	(351	)

See notes to consolidated financial statements.

5

Greenville Federal Financial Corporation

Consolidated Statements of Cash Flows
For the three months ended September 30, 2008 and 2007
(In thousands)
(Unaudited)

	2008			2007
Cash flows from operating activities:
Net income (loss) for the period	$	(1,248	)	$	159
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion and amortization of premiums and discounts on investments and mortgage-backed securities — net		(1	)		(1	)
Amortization of deferred loan origination fees		(16	)		(48	)
Depreciation and amortization		30			32
Amortization of mortgage servicing rights		4			9
Amortization of ESOP expense		15			––
Amortization of expense related to stock benefit plans		18			––
Other-than-temporary impairment of investment securities designated as available for sale		1,392			––
Sale/redemption of investment securities		250			––
Loss on redemption of investment security		4			––
Provision for loss on real estate acquired through foreclosure		13			––
Federal Home Loan Bank stock dividends		(27	)		––
Increase in cash surrender value of life insurance		(40	)		(38	)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans		24			(16	)
Accrued interest receivable on mortgage-backed securities		1			1
Accrued interest receivable on investment securities and other		5			(54	)
Prepaid expenses and other assets		(19	)		40
Accrued interest payable		(38	)		(88	)
Other liabilities		(312	)		11
Federal income taxes
Current		11			77
Deferred		––			(14	)
Net cash provided by operating activities		66			70
Cash flows provided by investing activities:
Purchases of investment securities designated as available for sale		––			(228	)
Proceeds from maturity of investment securities designated as held to maturity		1,002			1,002
Proceeds from repayment of mortgage-backed securities		62			140
Loan principal repayments		3,105			3,376
Loan disbursements		(3,493	)		(3,705	)
Additions to real estate acquired through foreclosure		(4	)		––
Net cash provided by investing activities		672			585
Net cash provided by operating and investing activities (balance carried forward)		738			655

See notes to consolidated financial statements.

6

Greenville Federal Financial Corporation
Consolidated Statements of Cash Flows (Continued)
For the three months ended September 30, 2008 and 2007
(In thousands)
(Unaudited)

	2008			2007
Net cash provided by operating and investing activities (balance brought forward)	$	738		$	655
Cash flows used in financing activities:
Net increase in deposit accounts		(1,784	)		(15	)
Proceeds from Federal Home Loan Bank advances		––			10,500
Repayments of Federal Home Loan Bank advances		(1,009	)		(11,060	)
Advances by borrowers for taxes and insurance		(97	)		(93	)
Shares acquired by 2006 Equity Plan		––			––
Dividends on common stock		(72	)		(72	)
Net cash used in financing activities		(2,962	)		(740	)
Net decrease in cash and cash equivalents		(2,224	)		(85	)
Cash and cash equivalents at beginning of period		7,220			3,527
Cash and cash equivalents at end of period	$	4,996		$	3,442
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings	$	701		$	1,026
Federal income taxes	$	40		$	––
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure	$	173		$	––
Unrealized losses on securities designated as available for sale, net of related tax benefits	$	—		$	(12	)

See notes to consolidated financial statements.

7

Greenville Federal Financial Corporation

Notes to Consolidated Financial Statements
For the three-month periods ended September 30, 2008 and 2007

Note 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 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 (“ESOP”), and 55% of its outstanding common stock to Greenville Federal MHC, a federally chartered mutual holding company.

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-Q 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 GFFC included in the Form 10-K as of and for the year ended June 30, 2008. 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 three-month period ended September 30, 2008, are not necessarily indicative of the results which may be expected for the entire fiscal year.

Note 2: Principles of Consolidation

The consolidated financial statements include the accounts of GFFC and Greenville Federal. All significant intercompany balances and transactions have been eliminated in consolidation.

Note 3: Earnings Per Share

Basic earnings per common share is computed based upon the weighted-average number of common shares outstanding during the year, less 63,044 and 72,054 weighted-average shares as of September 30, 2008 and 2007, respectively, in the Corporation’s Employee Stock Ownership Plan (“ESOP”) that are unallocated and not committed to be released.

8

Greenville Federal Financial Corporation
Notes to Consolidated Financial Statements

Weighted-average common shares deemed outstanding totaled 2,220,219 and 2,226,357 for the three months ended September 30, 2008 and 2007, respectively.

Diluted earnings per common share include the dilutive effect of all additional potential common shares issuable. Weighted-average common shares deemed outstanding for purposes of computing diluted earnings per share totaled 2,220,219 and 2,226,357 for the three-month periods ended September 30, 2008 and 2007, respectively. There were 74,800 options that were excluded from the computation of diluted earnings per share for the three-month periods ended September 30, 2008 and 2007, because their exercise price was greater than the average fair value.

Note 4: Recent Accounting Developments

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 emphasizes that fair value is a market-based measurement and should be determined based on assumptions that a market participant would use when pricing an asset or liability. SFAS No. 157 clarifies that market participant assumptions should include assumptions about risk as well as the effect of a restriction on the sale or use of an asset. Additionally, SFAS No. 157 establishes a fair value hierarchy that provides the highest priority to quoted prices in active markets and the lowest priority to unobservable data. As discussed in Note 6, the Corporation adopted SFAS No. 157, effective July 1, 2008, as required, without material effect on the Corporation’s statements of financial condition or results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115.” SFAS No. 159 allows companies the choice to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, or July 1, 2008 as to the Corporation, and interim periods within that fiscal year. The Corporation adopted SFAS No. 159 effective July 1, 2008, as required. The Corporation did not elect the fair value option for any of its financial assets and liabilities; therefore, the adoption had no effect on the financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations”, which replaces SFAS No. 141. The Statement applies to all transactions or other events in which one entity obtains control of one or more businesses. It requires all assets acquired, liabilities assumed and any noncontrolling interest to be measured at fair value at the acquisition date. The Statement requires certain costs such as acquisition-related costs that were previously recognized as a component of the purchase price, and expected restructuring costs that were previously recognized as an assumed liability, to be recognized separately from the acquisition as an expense when incurred.

SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and may not be applied before that date. Concurrent with SFAS No. 141 (revised 2007), the FASB recently issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51”. SFAS No. 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest (formerly known

9

Greenville Federal Financial Corporation
Notes to Consolidated Financial Statements

as minority interest) in a subsidiary and for the deconsolidation of a subsidiary. A subsidiary, as defined by SFAS No. 160, includes a variable interest entity that is consolidated by a primary beneficiary. A noncontrolling interest in a subsidiary, previously reported in the statement of financial position as a liability or in the mezzanine section outside of permanent equity, will be included within consolidated equity as a separate line item upon the adoption of SFAS No. 160. Further, consolidated net income will be reported at amounts that include both the parent (or primary beneficiary) and the noncontrolling interest with separate disclosure on the face of the consolidated statement of income of the amounts attributable to the parent and to the noncontrolling interest.
SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.

Note 5: Commitments

At September 30, 2008, the Corporation had outstanding commitments to extend credit of $4.2 million. Standby letters of credit as of September 30, 2008 totaled $20,000.

Note 6: Disclosures About Fair Value of Assets and Liabilities

Effective July 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157,Fair Value Measurements(FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 has been applied prospectively as of the beginning of the period.

FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FAS 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
Level 2	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include the AMF Ultra Short Mortgage Fund (the “Fund”) based on the net asset value of the fund.

10

Greenville Federal Financial Corporation
Notes to Consolidated Financial Statements

The following table presents the fair value measurements of assets measured at fair value on a recurring basis and the level within the FAS 157 fair value hierarchy in which the fair value measurements fall at September 30, 2008:

			Fair Value Measurements Using
			Quoted Prices
			in Active	Significant
			Markets for	Other		Significant
			Identical	Observable		Unobservable
			Assets	Inputs		Inputs
	Fair Value		(Level 1)	(Level 2)		(Level 3)
Available-for-sale securities	$	14,511,000		$	14,511,000

As of September 30, 2008, the Company does not have any financial assets or liabilities for which fair value is measured on a non-recurring basis.

Note 7: Subsequent Events

Greenville Federal’s investment in the AMF Ultra Short Mortgage Fund (the “Fund”), managed by Shay Assets Management, Inc., is recorded on the consolidated financial statements as available-for-sale. Management of Greenville Federal is required to assess unrealized losses on those securities as either temporary or other-than-temporary. The Fund’s unrealized loss at September 30, 2008 was deemed other-than-temporary and the loss was charged to income and a new cost basis of investment established. Since September 30, 2008, the net asset value of the Fund has continued to decline. As of November 6, 2008, the net asset value of Greenville Federal’s percentage of the Fund had declined by approximately $714,000 since September 30, 2008.

11

Greenville Federal Financial Corporation

Item 2. Management’s Discussion and Analysis of Financial Condition
and Results 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,” “intends” and similar expressions as they relate to the Corporation or its management are intended to identify such forward looking statements. The Corporation’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.

Critical Accounting Policies

There were no material changes to the Corporation’s critical accounting policies which were disclosed in the Corporation’s Form 10-K filing as of June 30, 2008.

Discussion of Financial Condition Changes from June 30, 2008 to September 30, 2008

The Corporation’s assets totaled $121.6 million at September 30, 2008, a decrease of $4.5 million, or 3.6%, from the $126.1 million total at June 30, 2008. The decrease in assets resulted primarily from a decrease in investment securities and cash and cash equivalents, partially offset by an increase in loans receivable.

Investment securities totaled $15.5 million at September 30, 2008, a decrease of $2.7 million, or 14.6%, from the total at June 30, 2008. The decrease in investment securities was due primarily to a $1.4 million non-cash other-than-temporary impairment charge on equity securities and a $1.0 million maturity of a U.S. Government sponsored entity obligation. Cash and cash equivalents, consisting of cash and due from banks and interest-bearing deposits in other financial institutions decreased by $2.2 million, or 30.8%, over the three-month period ended September 30, 2008.

Loans receivable totaled $90.1 million at September 30, 2008, compared to $89.9 million at June 30, 2008, an increase of $234,000, or 0.3%. The increase was primarily attributable to a $371,000 growth in one- to four-family residential real estate loans, partially offset by a $170,000 decrease in commercial loans. Loan disbursements during the period totaling $3.5 million were partially offset by principal repayments of $3.1 million and loans transferred into real estate owned of $173,000.

Nonresidential real estate, multi-family residential real estate and commercial lending generally involves 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. Consumer lending also may entail greater risk than residential lending. The risk of default on consumer lending increases during periods of recession, high unemployment and other adverse economic conditions. While Greenville Federal did not realize increases in nonresidential, consumer and

12

Greenville Federal Financial Corporation
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

commercial loans during the quarter ended September 30, 2008, management intends to pursue a limited rate of growth over the next year in these loans, but is committed to retaining its historical focus on one- to four-family residential lending.

The allowance for loan losses totaled $546,000 at September 30, 2008, a decrease of $37,000, or 6.4%, from the June 30, 2008 balance of $583,000, and represented 0.60% and 0.64% of total loans at those respective dates. Greenville Federal’s nonperforming loans totaled $519,000 and $747,000 at September 30, 2008 and June 30, 2008, 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 multi-family 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 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 September 30, 2008. Although management believes that the allowance for loan losses at September 30, 2008, 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 totaled $81.9 million at September 30, 2008, a decrease of $1.8 million, or 2.1%, from June 30, 2008. Greenville Federal participates in a bidding process for short-term public deposits through the Bid Ohio program. On the first and third Tuesday of each month, the Ohio Treasurer’s office sponsors an online auction for eligible Ohio state depository banks to bid on interim State funds. Such short-term deposits from the State of Ohio totaled $9.6 million at September 30, 2008 down from $13.0 million at June 30, 2008.

Advances from the Federal Home Loan Bank totaled $18.2 million at September 30, 2008, a decrease of $1.0 million, or 5.3%, compared to June 30, 2008.

Shareholders’ equity totaled $20.6 million at September 30, 2008, a decrease of $1.3 million, or 6.0%, from June 30, 2008. The decrease resulted from a net loss of $1.2 million for the three months ended September 30, 2008, and by dividends paid on common stock of $72,000.

Greenville Federal is required to maintain minimum regulatory capital pursuant to federal regulations. At September 30, 2008, Greenville Federal’s regulatory capital continued to substantially exceed all minimum regulatory capital requirements.

13

Greenville Federal Financial Corporation
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

The following table summarizes Greenville Federal’s regulatory capital requirements and actual capital at September 30, 2008:

								September 30, 2008
											Minimum Required To
						Minimum Required For					Be Well Capitalized
						Capital Adequacy					Under Prompt Corrective
	Actual					Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(Dollars in thousands)
Tangible capital	$	12,065		9.9	%	$	1,824		1.5	%	$	6,081		5.0	%
Core capital	$	12,065		9.9	%	$	4,864		4.0	%	$	7,297		6.0	%
Risk-based capital	$	12,543		17.7	%	$	5,659		8.0	%	$	7,074		10.0	%

Comparison of Operating Results for the Three-Month Periods Ended September 30, 2008 and 2007

General

The Corporation recorded net loss of $1.2 million for the three months ended September 30, 2008, a decrease of $1.4 million, compared to net income of $159,000 for the same period in 2007. The decline in net income was due primarily to a $1.4 million non-cash impairment charge on investment securities and an increase in other components of general, administrative, and other expense of $126,000, which were partially offset by a $90,000 increase in net interest income, a $12,000 increase in other income and a $9,000 decrease in federal income taxes.

Excluding the $1.4 million non-cash impairment charge on investment securities, the Corporation would have recorded net income of $144,000.

Net Interest Income

Interest income totaled $1.7 million for the three months ended September 30, 2008, a decrease of $185,000, or 9.6%, compared to the three months ended September 30, 2007. Interest income on loans decreased by $16,000, or 1.1%, due primarily to a decrease in the weighted-average yield on loans from 6.88% to 6.66%, partially offset by a $2.0 million increase in the average balance of loans outstanding. Interest income on investment securities decreased by $156,000, or 46.7%, due primarily to a $10.9 million decrease in the average balance outstanding, coupled with a decrease in the weighted-average yield on such securities from 4.85% in the 2007 three-month period to 4.30% in the 2008 three-month period.

Interest expense totaled $663,000 for the three months ended September 30, 2008, a decrease of $275,000, or 29.3%, compared to the three months ended September 30, 2007. This decrease was a result of a decrease in the weighted-average cost of funds to 2.74% for the three months ended September 30, 2008, from 3.70% for the three months ended September 30, 2007, coupled with a $4.7 million decrease in the average balance of interest-bearing liabilities outstanding year to year.

14

Greenville Federal Financial Corporation
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

As a result of the foregoing changes in interest income and interest expense, net interest income increased by $90,000, or 9.2%, compared to the same period in 2007. The interest rate spread increased to 3.36% for the three months ended September 30, 2008, compared to 2.70% for the three months ended September 30, 2007. The net interest margin increased to 3.77% for the three months ended September 30, 2008, from 3.27% for the three months ended September 30, 2007.

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. Management did not record a provision for losses on loans for the three months ended September 30, 2008 or 2007. The allowance for loan losses totaled $546,000 at September 30, 2008, compared to $583,000 at June 30, 2008. Greenville Federal’s nonperforming loans, consisting of loans 90 days or more past due and nonaccrual loans, totaled $519,000 at September 30, 2008, a decrease of $228,000 compared to June 30, 2008. Management believes all nonperforming loans are adequately collateralized; however, there can be no assurance that the allowance for loan losses 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 $227,000 for the three months ended September 30, 2008, an increase of $12,000, or 5.6%, compared to the same quarter in 2007. This increase was due primarily to an increase in other operating income of $10,000, or 16.4%.

General, Administrative and Other Expense

General, administrative and other expense, net of the $1.4 million non-cash impairment charge on investment securities, totaled $1.1 million for the three months ended September 30, 2008, an increase of $126,000, or 12.9%, compared to the same quarter in 2007. The increase in general, administrative and other expense was due primarily to a $49,000, or 31.3%, increase in other operating expense, a $43,000, or 8.2%, increase in employee compensation and benefits, a $19,000, or 15.1%, increase in data processing expense, and a $13,000, or 100%, increase in provision for losses on real estate acquired through foreclosure, which were partially offset by an $11,000, or 18.6%, decrease in franchise taxes. The increase in other operating expense was due primarily to an increase in professional fees expense of $26,000 and an increase of $15,000 for expenses related to those properties currently held as real estate owned. The increase in employee compensation and benefits was due primarily to increased employee compensation. The increase in data processing expense was due primarily to increased usage of the ATM network, as well as an increase in the rate structure from the previous year. The decrease in franchise taxes was due primarily to a decrease in shareholder’s equity from year to year.

The non-cash impairment charge on investment securities resulted from an investment by the Corporation’s subsidiary, Greenville Federal, in the AMF Ultra Short Mortgage Fund (the “Fund”). Rating agency downgrades of the underlying mortgage-related securities held in the Fund had significantly decreased the net asset value of the Fund. In May 2008, the manager of the Fund informed Greenville Federal that the “redemption in kind” feature of the Fund had been activated, meaning that any investor in the Fund wanting to redeem its investment in the Fund would receive payment mostly in the form of the securities held in the Fund’s portfolio in the amount of its representative interest in the securities held by the Fund, rather than in the form of cash. It is the policy of the

15

Greenville Federal Financial Corporation
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

Fund to pay cash in an amount not to exceed $250,000 over a ninety-day period to each investor requesting redemption. Greenville Federal recorded a non-cash impairment charge of $1.8 million during the quarter ended June 30, 2008. This quarter the Fund continued to decline in fair value and as a result, the Board of Directors of Greenville Federal determined that the impairment in the value of the Fund was other-than-temporary, requiring the expensing of an additional $1.4 million impairment charge.

At September 30, 2008, after the non-cash impairment charge, GFFC recorded the value of Greenville Federal’s investment in the Fund as $14.5 million.

Federal Income Taxes

The provision for federal income taxes totaled $54,000 for the three months ended September 30, 2008, a decrease of $9,000, or 14.3%, compared to the same quarter in 2007. The decrease resulted primarily from a $1.4 million decrease in pre-tax earnings year to year. For the three months ended September 30, 2008, the effective tax rate was 27.2%, adjusted for other-than-temporary impairment, compared to 28.4% for the three months ended September 30, 2007, which reflected the effects of non-taxable income.

Current Financial Market Turmoil

The financial market turmoil and tightening of credit within the industry have led to a lack of consumer confidence, increased volatility and widespread reduction of business activity. As a result, the Corporation could incur additional expenses that would adversely affect our net income. In October 2008, the FDIC issued a proposed rule that would increase premiums paid by insured institutions and make other changes to the assessment system. In addition, the FDIC has adopted the Temporary Liquidity Guarantee Program, pursuant to which it provides unlimited insurance on deposits in noninterest-bearing transaction accounts not otherwise covered by the existing deposit insurance limit of $250,000. The Corporation has chosen to participate. Such participation will increase our expenses and decrease net income. In addition, our credit risk may be increased when our loan collateral cannot be sold or is sold at prices not sufficient to recover the full amount of the loan balance. If loan collateral cannot be sold at a price sufficient to recover the full amount of the loan balance, this may adversely affect our profitability. The Corporation remains well-capitalized to be able to absorb these potential losses.

Also in October 2008, the United States Treasury announced a voluntary Capital Purchase Program to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. Under the program, Treasury will purchase up to $250 billion of senior preferred shares on standardized terms as described in the program’s term sheet. The program will be available to qualifying U.S. controlled banks, savings associations, and certain bank and savings and loan holding companies engaged only in financial activities that elect to participate before 5:00 pm (EDT) on November 14, 2008. Treasury will determine eligibility and allocations for interested parties after consultation with the appropriate federal banking agency. At this time, the Company has determined not to participate in this program.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

     Not applicable.

16

Greenville Federal Financial Corporation
Management’s Discussion and Analysis of Financial Condition
and Results of Operations

ITEM 4T. 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 September 30, 2008, and have concluded that the disclosure controls and procedures in place at September 30, 2008, were effective.

There were no changes in the Corporation’s internal control over financial reporting that occurred during the quarter ended September 30, 2008, that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

17

Greenville Federal Financial Corporation

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

     Not applicable

ITEM 1A. Risk Factors

     Not applicable

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

     Not applicable

ITEM 3. Defaults Upon Senior Securities

     Not applicable

18

Greenville Federal Financial Corporation
PART II — OTHER INFORMATION (CONTINUED)

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

     Not applicable

ITEM 5. Other Information

     Not applicable

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
4	Agreement to Furnish Long-Term Debt Instruments and Agreements
10.1	First Amendment to Employment Agreement with David M. Kepler
10.2	First Amendment to Employment Agreement with Susan J. Allread
10.3	Greenville Federal Financial Corporation Amended and Restated 2006 Equity Plan
10.4	Form of Greenville Federal Financial Corporation 2006 Equity Plan Award Agreement
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

19

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: November 14, 2008	By:	/s/David M. KeplerDavid M. Kepler
		President and Chief Executive Officer
Date: November 14, 2008	By:	/s/Susan J. AllreadSusan J. Allread
		Chief Financial Officer

20

INDEX TO EXHIBITS

3.1	Greenville Federal Financial Corporation Federal Stock Subsidiary Holding Company Charter (Incorporated by reference to Exhibit 2 to the Registration Statement on Form 8-A filed by the Registrant with the Securities and Exchange Commission on December 14, 2006)
3.2	Greenville Federal Financial Corporation Federal Stock Subsidiary Holding Company Bylaws (Incorporated by reference to Exhibit 3 to the Registration Statement on Form 8-A filed by the Registrant with the Securities and Exchange Commission on December 14, 2006)
4	Agreement to Furnish Long-Term Debt Instruments and Agreements
10.1	First Amendment to Employment Agreement with David M. Kepler (Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on September 25, 2008)
10.2	First Amendment to Employment Agreement with Susan J. Allread (Incorporated by reference to Exhibit 10.2 to the Annual Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on September 25, 2008)
10.3	Greenville Federal financial Corporation Amended and Restated 2006 Equity Plan (Incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on September 25, 2008)
10.4	Form of Greenville Federal Financial Corporation 2006 Equity Plan Award Agreement (Incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K filed by the Registrant with the Securities and Exchange Commission on September 25, 2008)
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