UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2006
OR
[ ] 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)
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.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)
Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 11, 2006, 2,298,411 shares
of the small business issuer's common stock, $0.01 par value, were issued and
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
1
INDEX
Page
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PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Operations 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 11
ITEM 3 Controls and Procedures 15
PART II - OTHER INFORMATION 16
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 18
2
ITEM 1. FINANCIAL STATEMENTS
GREENVILLE FEDERAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
MARCH 31,
2006 JUNE 30,
(Unaudited) 2005
----------- --------
ASSETS
Cash and due from banks $ 2,200 $ 2,119
Interest-bearing deposits in other financial institutions 5,780 1,597
-------- --------
Cash and cash equivalents 7,980 3,716
Investment securities designated as available for sale - at market 16,055 15,717
Investment securities designated as held to maturity - at amortized cost,
approximate market value of $16,622 and $17,852
as of March 31, 2006 and June 30, 2005, respectively 17,043 18,050
Mortgage-backed securities designated as held to maturity - at amortized
cost, approximate market value of $1,300 and $1,755
as of March 31, 2006 and June 30, 2005, respectively 1,300 1,737
Loans receivable - net 81,592 78,189
Office premises and equipment - at depreciated cost 2,051 2,133
Real estate acquired through foreclosure 36 81
Stock in Federal Home Loan Bank - at cost 1,843 1,769
Cash surrender value of life insurance 3,671 3,571
Accrued interest receivable on loans 424 418
Accrued interest receivable on mortgage-backed securities 6 8
Accrued interest receivable on investment securities and other 165 146
Prepaid expenses and other assets 459 513
-------- --------
Total assets $132,625 $126,048
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 80,127 $ 78,898
Advances from the Federal Home Loan Bank 28,917 32,243
Advances by borrowers for taxes and insurance 263 333
Accrued interest payable 229 205
Other liabilities 578 589
Accrued federal income taxes 2 23
Deferred federal income taxes 55 98
-------- --------
Total liabilities 110,171 112,389
Commitments and contingencies -- --
Shareholders' equity
Preferred stock - authorized 1,000,000 shares, $.01 par value; no shares issued -- --
Common stock-authorized 8,000,000 shares, $.01 par value;
2,298,411 issued and outstanding 23 --
Additional paid-in capital 9,400 --
Retained earnings - restricted 14,225 13,866
Shares acquired by Employee Stock Ownership Plan (901) --
Accumulated comprehensive loss - unrealized losses on securities
designated as available for sale, net of related tax benefits (293) (207)
-------- --------
Total shareholders' equity 22,454 13,659
-------- --------
Total liabilities and shareholders' equity $132,625 $126,048
======== ========
3
GREENVILLE FEDERAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
-------------------- -------------------
2006 2005 2006 2005
------ ------ ------ -------
Interest income
Loans $1,358 $1,255 $4,018 $ 3,694
Mortgage-backed securities 15 21 50 68
Investment securities 310 259 907 777
Interest-bearing deposits and other 96 30 192 88
------ ------ ------ -------
Total interest income 1,779 1,565 5,167 4,627
Interest expense
Deposits 480 382 1,355 1,202
Borrowings 344 353 1,080 1,026
------ ------ ------ -------
Total interest expense 824 735 2,435 2,228
------ ------ ------ -------
Net interest income 955 830 2,732 2,399
Provision for losses on loans 6 165 23 180
------ ------ ------ -------
Net interest income after provision for
losses on loans 949 665 2,709 2,219
Other income
Customer service charges 116 118 390 366
Gain on sale of real estate acquired through foreclosure 2 -- 11 23
Gain on redemption of investment security -- -- 16 --
Other operating 61 61 175 172
------ ------ ------ -------
Total other income 179 179 592 561
General, administrative and other expense
Employee compensation and benefits 546 954 1,528 2,031
Occupancy and equipment 97 119 328 336
Franchise taxes 44 46 134 139
Data processing 106 108 305 292
Advertising 19 23 56 72
Charitable contributions 6 56 12 62
Other operating 142 129 373 333
------ ------ ------ -------
Total general, administrative and other expense 960 1,435 2,736 3,265
------ ------ ------ -------
Earnings (loss) before income taxes (credits) 168 (591) 565 (485)
Federal income taxes (credits)
Current (5) (158) 155 (145)
Deferred 54 (54) 1 (54)
------ ------ ------ -------
Total federal income taxes (credits) 49 (212) 156 (199)
------ ------ ------ -------
NET EARNINGS (LOSS) $ 119 $ (379) $ 409 $ (286)
====== ====== ====== =======
Basic earnings per share $ 0.05 N/A N/A N/A
====== ====== ====== =======
4
GREENVILLE FEDERAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
-------------------- -------------------
2006 2005 2006 2005
----- ----- ----- -----
Net earnings (loss) $ 119 $(379) $ 409 $(286)
Other comprehensive losses, net of related tax benefits:
Unrealized holding losses on securities during the period,
net of tax benefits of $11, $16, $44 and $22
for the respective periods (22) (32) (86) (42)
----- ----- ----- -----
Comprehensive income (loss) $ 97 $(411) $ 323 $(328)
===== ===== ===== =====
Accumulated comprehensive loss $(293) $(164) $(293) $(164)
===== ===== ===== =====
5
GREENVILLE FEDERAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31, 2006 and 2005
(In thousands)
(Unaudited)
2006 2005
-------- --------
Cash flows from operating activities:
Net earnings (loss) for the period $ 409 $ (286)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (39) (63)
Depreciation and amortization 102 155
Amortization of mortgage servicing rights 18 24
Provision for losses on loans 23 180
Gain on sale of real estate acquired through foreclosure (11) (23)
Federal Home Loan Bank stock dividends (74) (55)
Increase in cash surrender value of life insurance (100) (103)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans (6) 6
Accrued interest receivable on mortgage-backed securities 2 4
Accrued interest receivable on investment securities and other (19) (15)
Prepaid expenses and other assets 54 (10)
Accrued interest payable 24 (7)
Other liabilities (2) 245
Federal income taxes
Current (21) (145)
Deferred 1 (54)
-------- --------
Net cash provided by (used in) operating activities 361 (147)
Cash flows provided by (used in) investing activities:
Purchases of investment securities designated as available for sale (468) (310)
Purchases of investment securities designated as held to maturity -- (2,000)
Proceeds from maturity of investment securities designated
as held to maturity 1,007 3,000
Proceeds from repayment of mortgage-backed securities 437 699
Loan principal repayments 14,962 14,031
Loan disbursements (18,338) (18,268)
Purchase of office equipment (20) (57)
Proceeds from sale of real estate acquired through foreclosure 21 21
Additions to real estate acquired through foreclosure (3) --
Decrease in certificates of deposit in other financial institutions -- 297
-------- --------
Net cash provided by (used in) investing activities (2,402) 2,587
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts 1,229 (5,673)
Proceeds from Federal Home Loan Bank advances 9,500 7,000
Repayment of Federal Home Loan Bank advances (12,826) (3,322)
Advances by borrowers for taxes and insurance (70) (69)
Proceeds from issuance of common stock 8,472 --
-------- --------
Net cash provided by (used in) financing activities 6,305 (2,064)
-------- --------
Net increase (decrease) in cash and cash equivalents 4,264 (4,798)
Cash and cash equivalents at beginning of period 3,716 7,902
-------- --------
Cash and cash equivalents at end of period $ 7,980 $ 3,104
======== ========
6
GREENVILLE FEDERAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the nine months ended March 31, 2006 and 2005
(In thousands)
(Unaudited)
2006 2005
------ ------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $2,411 $2,235
====== ======
Federal income taxes $ 175 $ --
====== ======
Supplemental disclosure of noncash investing activities:
Transfers from loans to real estate acquired through foreclosure $ 54 $ 308
====== ======
Loans originated upon sale of real estate acquired through
foreclosure $ 83 $ 195
====== ======
Unrealized losses on securities designated as available for
sale, net of related tax benefits $ (86) $ (42)
====== ======
7
GREENVILLE FEDERAL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three- and nine-month periods ended March 31, 2006 and 2005
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, 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 were deducted from
the proceeds of the offering in this quarter.
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
three- and nine-month periods ended March 31, 2006, 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 GFFC, Greenville
Federal and Greenville Federal's 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 FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three- and nine-month periods ended March 31, 2006 and 2005
3. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average common
shares outstanding during the period less shares in the ESOP that are
unallocated and not committed to be released. Weighted-average common shares
deemed outstanding, which gives effect to 90,098 unallocated ESOP shares,
totaled 2,208,313 for the three month period ended March 31, 2006.
The provisions of Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings Per Share" are not applicable to the nine-month periods ended March
31, 2006 and 2005 or the three-month period ended March 31, 2005, as the
Corporation did not complete the Reorganization until January 4, 2006.
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 January 1, 2006
as to the Corporation. The Corporation 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, the Corporation will be required to expense stock option grants
under the plan pursuant to SFAS No. 123(R).
9
GREENVILLE FEDERAL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three- and nine-month periods ended March 31, 2006 and 2005
4. Recent Accounting Developments (continued)
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets - an amendment of SFAS No. 140," to simplify the
accounting for separately recognized servicing assets and servicing
liabilities. Specifically, SFAS No. 156 amends SFAS No. 140 to require an
entity to take the following steps:
- Separately recognize financial assets as servicing assets or servicing
liabilities, each time it undertakes an obligation to service a
financial asset by entering into certain kinds of servicing contracts;
- Initially measure all separately recognized servicing assets and
liabilities at fair value, if practicable; and
- Separately present servicing assets and liabilities subsequently
measured at fair value in the statement of financial position and
additional disclosures for all separately recognized servicing assets
and servicing liabilities.
Additionally, SFAS No. 156 permits, but does not require, an entity to
choose either the amortization method or the fair value measurement method
for measuring each class of separately recognized servicing assets and
servicing liabilities. SFAS No. 156 also permits a servicer that uses
derivative financial instruments to offset risks on servicing to use fair
value measurement when reporting both the derivative financial instrument
and related servicing asset or liability.
SFAS No. 156 applies to all separately recognized servicing assets and
liabilities acquired or issued after the beginning of an entity's fiscal
year that begins after September 15, 2006, or July 1, 2007 as to the
Corporation, with earlier application permitted. The Corporation is
currently evaluating SFAS No. 156, but does not expect it to have a
material effect on the Corporation's financial position or results of
operations.
10
GREENVILLE FEDERAL FINANCIAL CORPORATION
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.
Critical Accounting Policies
There were no material changes to the Corporation's critical accounting policies
since that disclosed in the Corporation's Form SB-2 filing and prospectus dated
November 10, 2005.
Discussion of Financial Condition Changes from June 30, 2005 to March 31, 2006
Greenville Federal's assets totaled $132.6 million at March 31, 2006, an
increase of $6.6 million, or 5.2%, 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 $4.3 million, or 115%, over the
nine-month period ended March 31, 2006, due primarily to receipt of $8.5 million
from the sale of 45% of Greenville Federal Financial Corporation stock to the
public and proceeds from maturities of investment securities of $1.0 million,
which were partially offset by a net increase in loans of $3.4 million.
Investment securities and mortgage-backed securities totaled $34.4 million at
March 31, 2006, a decrease of $1.1 million, or 3.1%, from the total at June 30,
2005, which was comprised of maturities and repayments on investment and
mortgage-backed securities of $1.4 million, partially offset by reinvestment of
dividends on the asset management fund.
Loans receivable totaled $81.6 million at March 31, 2006, compared to $78.2
million at June 30, 2005, an increase of $3.4 million, or 4.4%. The increase was
primarily attributable to a $1.6 million growth in one- to four-family
residential real estate loans and a $1.1 million growth in commercial loans.
Loan disbursements during the period totaling $18.3 million were partially
offset by principal repayments of $15.0 million. During the nine-month period
ended March 31, 2006, loan originations were comprised of $9.6 million of one-
to four-family residential real estate loans, $3.0 million of commercial loans,
$2.6 million of multi-family residential real estate loans and $3.1 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 $587,000 at March 31, 2006, a decrease of
$3,000, or 0.5%, 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 $91,000 and $311,000 at March 31, 2006 and
June 30, 2005, respectively. In determining the allowance for loan losses at any
point in time, management and the board of
11
GREENVILLE FEDERAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from June 30, 2005 to March 31, 2006
(continued)
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 March 31, 2006. Although
management believes that the allowance for loan losses at March 31, 2006, 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 $80.1 million at March 31, 2006, an increase of $1.2 million,
or 1.6%, over the $78.9 million total at June 30, 2005. The increase in deposits
was due primarily to 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.
Advances from the Federal Home Loan Bank totaled $28.9 million at March 31,
2006, a decrease of $3.3 million, or 10.3%, from June 30, 2005, as proceeds from
the stock offering were used to repay $3.0 million of such advances, coupled
with scheduled repayments of $300,000.
Shareholders' equity totaled $22.5 million at March 31, 2006, an increase of
$8.8 million, or 64.4%, over the $13.7 million total at June 30, 2005. The
increase resulted from net proceeds of $8.5 million from the sale of 45% of GFFC
stock to the public. The stock offering included proceeds, net of offering
costs, of $9.4 million, which were partially offset by shares acquired by the
ESOP of $901,000 and $50,000 contributed by Greenville Federal to capitalize
Greenville Federal MHC. Additionally, net earnings of $409,000 for the nine
months ended March 31, 2006, were partially offset by an increase in the
unrealized losses on securities designated as available for sale of $86,000.
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 March 31, 2006, Greenville Federal's regulatory
capital continued to substantially exceed all minimum regulatory capital
requirements.
Comparison of Operating Results for the Three-Month Periods Ended March 31, 2006
and 2005
General
The Corporation recorded net earnings of $119,000 for the three months ended
March 31, 2006, compared to a net loss of $379,000 for the same period in 2005.
The increase of $498,000 resulted from a $125,000 increase in net interest
income, a $159,000 decrease in the provision for losses on loans and a $475,000
decrease in general, administrative and other expense, which were partially
offset by a $261,000 increase in federal income taxes.
Net Interest Income
Interest income totaled $1.8 million for the three months ended March 31, 2006,
an increase of $214,000, or 13.7%, compared to the three months ended March 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
12
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 and commercial loans.
13
GREENVILLE FEDERAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods Ended March 31, 2006
and 2005 (continued)
Net Interest Income (continued)
Interest expense totaled $824,000 for the three months ended March 31, 2006, an
increase of $89,000, or 12.1%, compared to the three months ended March 31,
2005. This increase was a result of an increase in the average cost of funds to
3.00% for the three months ended March 31, 2006, from 2.79% for the three months
ended March 31, 2005, and a $4.6 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,
net interest income increased by $125,000, or 15.1%, compared to the same period
in 2005. The interest rate spread increased to 2.73% for the three months ended
March 31, 2006, compared to 2.49% for the three months ended March 31, 2005. The
net interest margin increased to 3.08% for the three months ended March 31,
2006, from 2.80% for the three months ended March 31, 2005.
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. The 2005
quarter's provision recorded generally reflected management's perception of the
risk prevalent in the economy, as evidenced by the increasing level of
foreclosure actions filed in Greenville Federal's primary lending area,
integrated with the overall increase in the level of the loan portfolio and the
level of charge-offs recorded in fiscal 2005 and 2004. Based primarily upon a
reduction of nonperforming loans in fiscal 2006, management recorded a reduced
provision for losses on loans of $6,000 for the three months ended March 31,
2006. The allowance for loan losses totaled $587,000 at March 31, 2006, 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
$91,000 at March 31, 2006, a decrease of $220,000 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 $179,000 for both the three months ended March 31, 2006 and
March 31, 2005. There were no significant changes in the classifications of
other income period over period.
General, Administrative and Other Expense
General, administrative and other expense totaled $960,000 for the three months
ended March 31, 2006, a decrease of $475,000, or 33.1%, compared to the same
quarter in 2005. The decrease was attributable primarily to a $408,000, or
42.8%, decrease in employee compensation and benefits, a decrease of $50,000, or
89.3%, in charitable contributions and a $22,000, or 18.5%, decrease in
occupancy and equipment expense, which were partially offset by pro-rata
increases in other operating costs due to the Corporation's growth year to year.
The decrease in employee compensation and benefits was due primarily to a
$501,000 decrease in expense related to Greenville Federal's defined benefit
plan, partially offset by an increase in health insurance premiums and costs
associated with other benefit plans and normal merit increases. Management
terminated Greenville Federal's participation in the defined benefit plan in the
quarter ended March 31, 2005. The decrease in charitable contributions was due
to the effects of a $50,000 pledge recorded in the 2005 quarter.
14
GREENVILLE FEDERAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods Ended March 31, 2006
and 2005 (continued)
Federal Income Taxes
The provision for federal income taxes totaled $49,000 for the three months
ended March 31, 2006, an increase of $261,000 over the $212,000 tax credit
provision recorded in the comparable quarter in 2005. The increase resulted
primarily from a $759,000 increase in pre-tax earnings year to year. The
effective tax rate was 29.2% for the three months ended March 31, 2006 compared
to a tax credit rate of 35.9% for the three months ended March 31, 2005. The
effective tax rate in 2006 was less than the statutory tax rate of 34% due
primarily to the non-taxable earnings on bank-owned life insurance.
Comparison of Operating Results for the Nine-Month Periods Ended March 31, 2006
and 2005
General
The Corporation recorded net earnings of $409,000 for the nine months ended
March 31, 2006, compared to a net loss of $286,000 for the same period in 2005.
The increase of $695,000 resulted primarily from a $333,000 increase in net
interest income, a $31,000 increase in other income and a $529,000 decrease in
general, administrative and other expense, which were partially offset by a
$355,000 increase in federal income taxes.
Net Interest Income
Interest income totaled $5.2 million for the nine months ended March 31, 2006,
an increase of $540,000, or 11.7%, over the comparable period in 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 totaled $2.4 million for the nine months ended March 31, 2006,
an increase of $207,000, or 9.3%, compared to the nine months ended March 31,
2005. This increase was a result of an increase in the average cost of funds to
2.98% for the nine months ended March 31, 2006, from 2.81% for the nine months
ended March 31, 2005, and a $3.1 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,
the Corporation's net interest income increased by $333,000, or 13.9%, for the
nine months ended March 31, 2006, compared to the same period in 2005. The
interest rate spread increased to 2.71% for the nine months ended March 31,
2006, compared to 2.38% for the nine months ended March 31, 2005. The net
interest margin increased to 3.01% for the nine months ended March 31, 2006,
from 2.69% for the nine months ended March 31, 2005.
Provision for Losses on Loans
Management recorded a provision for losses on loans totaling $23,000 for the
nine months ended March 31, 2006, a decrease of $157,000, or 87.2%, compared to
the same period in 2005. The nine-month period provision generally reflects the
effects of growth in the loan portfolio, offset by the decline in nonperforming
loans.
15
GREENVILLE FEDERAL FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATIONS (CONTINUED)
Comparison of Operating Results for the Nine-Month Periods Ended March 31, 2006
and 2005 (continued)
Other Income
Other income totaled $592,000 for the nine months ended March 31, 2006, an
increase of $31,000, or 5.5%, compared to the $561,000 amount reported for the
same period in 2005. The increase was comprised primarily of a $16,000 gain on
the redemption of stock of Intrieve, Inc. and a $24,000, or 6.6%, increase in
customer service charges, which were partially offset by a $12,000 decline in
gains on sale of real estate acquired through foreclosure.
General, Administrative and Other Expense
General, administrative and other expense totaled $2.7 million for the nine
months ended March 31, 2006, a decrease of $529,000, or 16.2%, compared to the
same period in 2005. The decrease was attributable primarily to a $503,000, or
24.8%, decrease in employee compensation and benefits and a $50,000, or 80.6%,
decrease in charitable contributions, which were partially offset by a $40,000,
or 12.0%, increase in other operating expense. The decrease in employee
compensation and benefits was due primarily to a $684,000 decrease in expense
related to Greenville Federal's defined benefit plan, partially offset by an
increase in health insurance premiums and costs associated with other benefit
plans and normal merit increases. Management terminated Greenville Federal's
participation in the defined benefit plan in the quarter ended June 30, 2005.
The decrease in charitable contributions reflected the effects of a pledge
recorded in the 2005 period. The increase in other operating expenses was
attributable primarily to a $26,000 increase in professional fees and an $8,000
increase in office supplies. The increase in professional fees generally
reflects the increased reporting costs of a public company.
Federal Income Taxes
The provision for federal income taxes totaled $156,000 for the nine months
ended March 31, 2006, an increase of $355,000 over the credit provision of
$199,000 recorded in the comparable period in 2005. The increase resulted
primarily from a $1.1 million increase in pre-tax earnings, which totaled
$565,000 in the fiscal 2006 period, compared to a loss of $485,000 in the fiscal
2005 period. The effective tax rate was 27.6% for the nine months ended March
31, 2006, compared to a tax credit rate of 41.0% reported in the 2005 period.
The effective tax rate was less than the statutory tax rate of 34% due primarily
to the non-taxable earnings on bank-owned life insurance.
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 March 31, 2006, and have concluded that the disclosure controls
and procedures in place at March 31, 2006, were effective.
There were no changes in the Corporation's internal control over financial
reporting that occurred during the quarter ended March 31, 2006, that have
materially affected, or are reasonably likely to materially affect, the
Corporation's internal control over financial reporting.
16
GREENVILLE FEDERAL FINANCIAL CORPORATION
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None
(b) The Registrant was formed in connection with the reorganization of
Greenville Federal into the mutual holding company form of
organization. In connection with that reorganization, the Registrant
commenced on November 18, 2005, a public offering of up to 1,606,837
shares of its common stock, $.01 par value per share, for a maximum
aggregate amount of $16,068,370 pursuant to a Registration Statement
on Form SB-2 (No. 333-126035), which was declared effective on
November 10, 2005. The offering was closed on December 21, 2005, and
consummated on January 4, 2006, resulting in the sale of 1,034,285
shares for gross proceeds of $10,342,850. Expenses related to the
offering were approximately $920,000, including $190,000 paid to the
marketing agent, Keefe, Bruyette & Woods, Inc., as commission and
reimbursement of expenses. Such payments were not direct or indirect
payments to directors, officers or general partners of the Registrant
or its affiliates or persons owning ten percent or more of any class
of equity securities of the Registrant. Of the $9,423,000 of net
proceeds (1) $4,712,000 was used by the Registrant to purchase all of
the outstanding common stock of Greenville Federal, which contributed
$50,000 to the capital of Greenville Federal MHC, which acquired 55%
of the outstanding common stock of the Registrant in the
reorganization; (2) $900,980 was loaned to the Greenville Federal
Financial Corporation Employee Stock Ownership Plan for its purchase
of 90,098 shares of common stock of the Registrant; and (3) $3,811,000
was retained by the Registrant for its working capital uses. The
$50,000 contributed to Greenville Federal MHC was deposited into a
savings account and a checking account with Greenville Federal. Of the
$4,712,000 paid to Greenville Federal for the outstanding common stock
of Greenville Federal, $3.0 million was used to pay off Federal Home
Loan Bank advances and the remainder was used for general operating
purposes. The $3,811,000 retained by the Registrant was deposited in a
certificate of deposit, a savings account and a checking account with
Greenville Federal.
(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
Not applicable.
17
GREENVILLE FEDERAL FINANCIAL CORPORATION
PART II - OTHER INFORMATION (CONTINUED)
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
18
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: May 11, 2006 By: /s/ David M. Kepler
------------------------------------
David M. Kepler
President and Chief Executive
Officer
Date: May 11, 2006 By: /s/ Susan J. Allread
------------------------------------
Susan J. Allread
Chief Financial Officer
19
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, 2005)
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, 2005)
10.1 Employment Agreement with David M. Kepler (Incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant 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 Current Report on Form 8-K filed by the Registrant 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