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  **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 SECURITIESEXCHANGE ACT OF 1934****For the quarterly period ended December 31, 2006**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)Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that the issuer was required tofile such reports) and (2) has been subject to such filing requirements for the past 90 days.Yes þ      No oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act) Yes o       No þState the number of shares outstanding of each of the issuer’s classes of common equity, as of thelatest practicable date: As of February 7, 2007, 2,298,411 shares of the small business issuer’scommon stock, $0.01 par value, were issued and outstanding.Transitional Small Business Disclosure Format (Check one): Yes o       No þ  
 

 
INDEX       PagePART 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  12      ITEM 3 Controls and Procedures  17      PART II — OTHER INFORMATION  18      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  20  EX-31.1 EX-31.2 EX-32.1 EX-32.2
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**ITEM 1. FINANCIAL STATEMENTS****GREENVILLE FEDERAL FINANCIAL CORPORATION****CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION**(In thousands, except share data)           **December 31,**  **June 30,**   **2006**  **2006**   (Unaudited)     **ASSETS**                 Cash and due from banks $2,178  $2,225 Interest-bearing deposits in other financial institutions  1,507   1,029        Cash and cash equivalents  3,685   3,254  Investment securities designated as available for sale — at market  16,650   16,204 Investment securities designated as held to maturity — atamortized cost, approximate market value of $14,809and $16,596 at December 31, 2006 and June 30, 2006, respectively  15,036   17,041 Mortgage-backed securities designated as held to maturity —at amortized cost, approximate market value of $2,007 and$2,164 at December 31, 2006 and June 30, 2006, respectively  1,978   2,172 Loans receivable — net  85,261   83,452 Office premises and equipment — at depreciated cost  2,040   2,069 Real estate acquired through foreclosure  312   — Stock in Federal Home Loan Bank — at cost  1,925   1,869 Cash surrender value of life insurance  3,777   3,705 Accrued interest receivable on loans  433   418 Accrued interest receivable on mortgage-backed securities  10   11 Accrued interest receivable on investment securities and other  142   146 Prepaid expenses and other assets  341   367                 Total assets **$****131,590**  **$****130,708**                 **LIABILITIES AND STOCKHOLDERS’ EQUITY**                 Deposits $78,806  $78,782 Advances from the Federal Home Loan Bank  28,713   28,177 Advances by borrowers for taxes and insurance  425   355 Accrued interest payable  319   271 Other liabilities  486   440 Accrued federal income taxes  46   60 Deferred federal income taxes  47   41        Total liabilities  108,842   108,126          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, $.01 par value; 2,298,411 sharesissued and outstanding  23   23 Additional paid-in capital  9,400   9,400 Retained earnings — restricted  14,429   14,285 Shares acquired by Employee Stock Ownership Plan  (811)  (811)Accumulated comprehensive loss — unrealized losses on securitiesdesignated as available for sale, net of related tax benefits  (293)  (315)       Total stockholders’ equity  22,748   22,582                 Total liabilities and stockholders’ equity **$****131,590**  **$****130,708**        
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****CONSOLIDATED STATEMENTS OF EARNINGS**(In thousands)(Unaudited)                    **For the three months**   **For the six months**    **ended December 31,**   **ended December 31,**   **2006**  **2005**  **2006**  **2005** Interest income                Loans $1,458  $1,350  $2,876  $2,660 Mortgage-backed securities  27   17   55   35 Investment securities  348   304   690   597 Interest-bearing deposits and other  50   58   101   96              Total interest income  1,883   1,729   3,722   3,388                  Interest expense                Deposits  555   457   1,103   875 Borrowings  358   368   698   736              Total interest expense  913   825   1,801   1,611                               Net interest income  970   904   1,921   1,777                  Provision for losses on loans  8   9   10   17                               Net interest income after provision forlosses on loans  962   895   1,911   1,760                  Other income                Customer service charges  147   138   278   274 Gain on sale of real estate acquired through foreclosure  —   9   —   9 Gain on redemption of investment security  —   —   —   16 Other operating  59   60   119   114              Total other income  206   207   397   413                  General, administrative and other expense                Employee compensation and benefits  518   505   1,014   982 Occupancy and equipment  97   116   199   231 Franchise taxes  38   45   95   90 Data processing  109   101   219   199 Advertising  20   20   40   37 Other operating  180   129   340   237              Total general, administrative and other expense  962   916   1,907   1,776                               Earnings before income taxes  206   186   401   397                  Federal income taxes                Current  51   87   118   160 Deferred  7   (37)  (6)  (53)             Total federal income taxes  58   50   112   107                               NET EARNINGS **$****148**  **$****136**  **$****289**  **$****290**                               Earnings per share — basic and diluted **$****0.07**   **N/A**  **$****0.13**   **N/A**                               Dividends declared per share **$****0.07**   **N/A**  **$****0.14**   **N/A**              
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**(In thousands)(Unaudited)                    **For the three months**   **For the six months**    **ended December 31,**   **ended December 31,**   **2006**  **2005**  **2006**  **2005** Net earnings $148  $136  $289  $290                  Other comprehensive income (losses), net of related tax benefits:                Unrealized holding gains (losses) on securities during the period,net of taxes (benefits) of $(12), $(11), $11 and $(33)for the respective periods  (23)  (22)  22   (64)                              Comprehensive income **$****125**  **$****114**  **$****311**  **$****226**                               Accumulated comprehensive loss **$****(293****)** **$****(271****)** **$****(293****)** **$****(271****)**             
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****CONSOLIDATED STATEMENTS OF CASH FLOWS**For the six months ended December 31, 2006 and 2005(In thousands)(Unaudited)           **2006**  **2005** Cash flows from operating activities:        Net earnings for the period $289  $290 Adjustments to reconcile net earnings to net cashprovided by operating activities:        Accretion and amortization of premiums and discounts oninvestment and mortgage-backed securities — net  —   1 Amortization of deferred loan origination fees  (28)  (29)Depreciation and amortization  75   99 Amortization of mortgage servicing rights  19   14 Provision for losses on loans  10   17 Gain on sale of real estate acquired through foreclosure  —   (9)Federal Home Loan Bank stock dividends  (56)  (48)Increase in cash surrender value of life insurance  (72)  (67)Increase (decrease) in cash due to changes in:        Accrued interest receivable on loans  (15)  5 Accrued interest receivable on mortgage-backed securities  1   1 Accrued interest receivable on investment securities and other  4   1 Prepaid expenses and other assets  7   (61)Accrued interest payable  48   27 Other liabilities  47   (66)Federal income taxes        Current  (14)  14 Deferred  (6)  (53)       Net cash provided by operating activities  309   136          Cash flows used in investing activities:        Purchases of investment securities designated as available for sale  (413)  (301)Proceeds from maturity of investment securities designatedas held to maturity  2,005   1,005 Proceeds from repayment of mortgage-backed securities  194   297 Loan principal repayments  8,005   10,159 Loan disbursements  (10,607)  (13,732)Purchase of office equipment  (46)  (13)Proceeds from sale of real estate acquired through foreclosure  499   21        Net cash used in investing activities  (363)  (2,564)         Cash flows provided by financing activities:        Net increase in deposit accounts  24   11,805 Proceeds from Federal Home Loan Bank advances  19,000   9,500 Repayment of Federal Home Loan Bank advances  (18,464)  (11,920)Advances by borrowers for taxes and insurance  70   63 Dividends on common stock  (145)  —        Net cash provided by financing activities  485   9,448                 Net increase in cash and cash equivalents  431   7,020          Cash and cash equivalents at beginning of period  3,254   3,716                 Cash and cash equivalents at end of period **$****3,685**  **$****10,736**        
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)**For the six months ended December 31, 2006 and 2005(In thousands)(Unaudited)           **2006**  **2005** Supplemental disclosure of cash flow information:        Cash paid during the period for:        Interest on deposits and borrowings **$****1,753**  **$****1,584**                 Federal income taxes **$****133**  **$****145**                 Supplemental disclosure of noncash investing activities:        Transfers from loans to real estate acquired through foreclosure **$****811**  **$****54**                 Loans originated upon sale of real estate acquired throughforeclosure **$****—**  **$****83**                 Unrealized gains (losses) on securities designated as available forsale, net of related tax effects **$****22**  **$****(64****)**       
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**For the six- and three-month periods ended December 31, 2006 and 20051. Basis of PresentationGreenville Federal Financial Corporation (the “Corporation” or “GFFC”) is the federally charteredsavings and loan holding company of Greenville Federal and was formed upon the completion of theconversion of Greenville Federal into the stock form of organization and its reorganization intothe mutual holding company structure (the “Reorganization”) pursuant to Greenville Federal’s ThirdAmended Plan of Reorganization and Stock Issuance Plan (the “Plan”). Pursuant to the Plan, onJanuary 4, 2006, Greenville Federal converted into the stock form of ownership and issued all ofits outstanding stock to the Corporation, and the Corporation sold 45% of its outstanding commonstock, at $10.00 per share, to Greenville Federal’s depositors and others, including a newly formedemployee stock ownership plan (“ESOP”), and 55% of its outstanding common stock to GreenvilleFederal MHC, a federally chartered mutual holding company. The costs of the Reorganization andsale of the common stock were deducted from the proceeds of the offering.Greenville Federal, located in Greenville, Ohio, conducts a general banking business inwest-central Ohio, which consists of attracting deposits from the general public and applying thosefunds to the origination of loans for residential, consumer and nonresidential purposes.Greenville Federal’s profitability is significantly dependent on net interest income, which is thedifference between interest income generated from interest-earning assets (i.e. loans andinvestments) and interest expense paid on interest-bearing liabilities (i.e. customer deposits andborrowed funds). Net interest income is affected by the relative amount of interest-earning assetsand interest-bearing liabilities and the interest received or paid on these balances. The level ofinterest rates paid or received by Greenville Federal can be significantly influenced by a numberof environmental factors, such as governmental monetary policy, that are outside of management’scontrol.The accompanying unaudited consolidated financial statements were prepared in accordance with theinstructions for Form 10-QSB and, therefore, do not include information or footnotes necessary fora complete presentation of financial position, results of operations and cash flows in conformitywith accounting principles generally accepted in the United States of America. Accordingly, thesefinancial statements should be read in conjunction with the consolidated financial statements andnotes thereto of GFFC included in the Form 10-KSB as of and for the year ended June 30, 2006.However, in the opinion of management, all adjustments (consisting of only normal recurringaccruals) which are necessary for a fair presentation of the financial statements have beenincluded. The results of operations for the six- and three-month periods ended December 31, 2006,are not necessarily indicative of the results which may be expected for the entire fiscal year.2. Principles of ConsolidationThe consolidated financial statements include the accounts of GFFC and Greenville Federal. Allsignificant intercompany balances and transactions have been eliminated in consolidation.3. Earnings Per ShareBasic earnings per share is computed based upon the weighted-average common sharesoutstanding during the period less shares in the ESOP that are unallocated and notcommitted to be released. Weighted-average common shares deemed outstanding, which gives effect to81,088 unallocated ESOP shares, totaled 2,217,323 for the three- and six-month periods endedDecember 31, 2006. The Corporation had no dilutive or potentially dilutive securities during thethree- and six-month periods ended December 31, 2006 and 2005. The provisions of Statement ofFinancial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share,” are not applicable to thethree- and six-month periods ended December 31, 2005, as the Corporation did not complete theconversion to stock form until January 2006.
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**For the six- and three-month periods ended December 31, 2006 and 20054. Recent Accounting DevelopmentsIn December 2004, the Financial Accounting Standards Board (“FASB”) issued a revision to SFAS No.123 which established standards for the accounting for transactions in which an entity exchangesits equity instruments for goods or services, primarily on accounting for transactions in which anentity 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 receivedin 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 isrequired to provide services in exchange for the award — the requisite service period. Nocompensation cost is recognized for equity instruments for which employees do not render therequisite service. Employee share purchase plans will not result in recognition of compensationcost if certain conditions are met.Initially, the cost of employee services received in exchange for an award of liability instrumentswill be measured based on current fair value; the fair value of that award will be remeasuredsubsequently at each reporting date through the settlement date. Changes in fair value during therequisite service period will be recognized as compensation cost over that period. The grant-datefair value of employee share options and similar instruments will be estimated using option-pricingmodels adjusted for the unique characteristics of those instruments (unless observable marketprices for the same or similar instruments are available). If an equity award is modified afterthe grant date, incremental compensation cost will be recognized in an amount equal to the excessof the fair value of the modified award over the fair value of the original award immediatelybefore the modification.Excess tax benefits, as defined by SFAS No. 123(R), will be recognized as an addition to additionalpaid-in capital. Cash retained as a result of those excess tax benefits will be presented in thestatement of cash flows as financing cash inflows. The write-off of deferred tax assets relatingto unrealized tax benefits associated with recognized compensation cost will be recognized asincome tax expense unless there are excess tax benefits from previous awards remaining inadditional paid-in capital to which it can be offset.Compensation cost is required to be recognized in the beginning of the first interim or annualperiod that begins after December 15, 2005, or January 1, 2006 as to the Corporation. TheGreenville Federal Financial Corporation 2006 Equity Plan was approved by the stockholders at theAnnual Meeting of Stockholders on October 31, 2006. The Corporation will be required to expensefuture stock option grants under the plan pursuant to SFAS No. 123(R). The Corporation had nostock option or other share-based incentive plans subject to the provisions of SFAS No. 123(R) asof or for periods prior to October 31, 2006. No stock options or restricted stock awards have beengranted as of December 31, 2006.
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**For the six- and three-month periods ended December 31, 2006 and 20054. Recent Accounting Developments (continued)   In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets — anamendment of SFAS No. 140,” to simplify the accounting for separately recognized servicing assetsand servicing liabilities. Specifically, SFAS No. 156 amends SFAS No. 140 to require an entity totake the following steps: **•** Separately recognize financial assets as servicing assets or servicingliabilities, each time it undertakes an obligation to service a financial assetby entering into certain kinds of servicing contracts;  **•** Initially measure all separately recognized servicing assets and liabilitiesat fair value, if practicable; and  **•** Separately present servicing assets and liabilities subsequently measured atfair value in the statement of financial position and additional disclosuresfor all separately recognized servicing assets and servicing liabilities.  Additionally, SFAS No. 156 permits, but does not require, an entity to choose either theamortization method or the fair value measurement method for measuring each class of separatelyrecognized servicing assets and servicing liabilities. SFAS No. 156 also permits a servicer thatuses derivative financial instruments to offset risks on servicing to use fair value measurementwhen 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 orissued after the beginning of an entity’s fiscal year that begins after September 15, 2006, orJuly 1, 2007 as to the Corporation. Management is currently evaluating SFAS No. 156, but doesnot expect it to have a material effect on the Corporation’s consolidated statements financialposition or results of operations.   In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertaintyin Income Taxes.” The interpretation clarifies the accounting for uncertainty in income taxesrecognized in a company’s financial statements in accordance with SFAS No. 109, “Accounting forIncome Taxes.” Specifically, FIN 48 prescribes a recognition threshold and a measurementattribute for the financial statement recognition and measurement of a tax provision taken orexpected to be taken on a tax return. FIN 48 also provides guidance on the relatedderecognition, classification, interest and penalties, accounting for interim periods,disclosure, and transition of uncertain tax positions. FIN 48 is effective for fiscal yearsbeginning after December 15, 2006, or July 1, 2007 as to the Company. Management is currentlyevaluating the effects of FIN 48, but does not expect it to have a material effect on theCorporation’s consolidated statements financial position or results of operations.   In September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108, “Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year FinancialStatements.” SAB 108 was issued to provide consistency between how registrants quantifyfinancial statement misstatements.
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**For the six- and three-month periods ended December 31, 2006 and 20054. Recent Accounting Developments (continued)   Historically, there have been two widely-used methods for quantifying the effects of financialstatement misstatements. These methods are referred to as the “roll-over” and “iron curtain”methods. The roll-over method quantifies the amount by which the current year income statementis misstated. Exclusive reliance on an income statement approach can result in the accumulationof errors on the balance sheet that may not have been material to any individual incomestatement, but which may misstate one or more balance sheet accounts. The iron curtain methodquantifies the error as the cumulative amount by which the current year balance sheet ismisstated. Exclusive reliance on a balance sheet approach can result in disregarding theeffects of errors in the current year income statement that results from the correction of anerror existing in previously issued financial statements. The Corporation currently uses theroll-over method for quantifying identified financial statement misstatements.   SAB 108 established an approach that requires quantification of financial statement misstatementsbased on the effects of the misstatement on each of a company’s financial statements and therelated financial statement disclosures. This approach is commonly referred to as the “dualapproach” because it requires quantification of errors under both the roll-over and iron curtainmethods.   SAB 108 allows registrants to initially apply the dual approach either by (1) retroactivelyadjusting prior financial statements as if the dual approach had always been used, or by (2)recording the cumulative effect of initially applying the dual approach as adjustments to thecarrying values of assets and liabilities as of July 1, 2006, with an offsetting adjustmentrecorded to the opening balance of retained earnings. Use of this “cumulative effect” transitionmethod requires detailed disclosure of the nature and amount of each individual error beingcorrected through the cumulative adjustment and how and when it arose.   Management is currently evaluating the requirements of SAB 108 but does not expect it to have amaterial adverse effect on the Corporation’s consolidated statement of financial position orresults of operations.
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS**Forward Looking StatementsCertain statements contained in this report that are not historical facts are forward-lookingstatements that are subject to certain risks and uncertainties. When used herein, the terms“anticipates,” “plans,” “expects,” “believes,” “intends” and similar expressions as they relate toGreenville Federal or its management are intended to identify such forward looking statements.Greenville Federal’s actual results, performance or achievements may materially differ from thoseexpressed or implied in the forward-looking statements. Risks and uncertainties that could causeor contribute to such material differences include, but are not limited to, general and localeconomic conditions, interest rate environment, competitive conditions in the financial servicesindustry, changes in law, governmental policies and regulations, and rapidly changing technologyaffecting financial services.Critical Accounting PoliciesThere were no material changes to the Corporation’s critical accounting policies which weredisclosed in the Corporation’s Form 10-KSB filing as of June 30, 2006.Discussion of Financial Condition Changes from June 30, 2006 to December 31, 2006Greenville Federal’s assets totaled $131.6 million at December 31, 2006, an increase of $882,000,or 0.7%, from the $130.7 million total at June 30, 2006. The increase in assets resulted primarilyfrom an increase in loans receivable.Cash and cash equivalents increased by $431,000, or 13.2%, over the six-month period ended December31, 2006. Investment securities and mortgage-backed securities totaled $33.7 million at December31, 2006, a decrease of $1.8 million, or 4.9%, from the total at June 30, 2006. The decrease wascomprised of maturities and repayments on investment and mortgage-backed securities of $2.2million, partially offset by reinvestment of dividends on the asset management fund.Loans receivable totaled $85.3 million at December 31, 2006, compared to $83.5 million at June 30,2006, an increase of $1.8 million, or 2.2%. The increase was primarily attributable to $2.5million of growth in one- to four-family residential real estate loans and $830,000 of growth innonresidential real estate loans. Loan disbursements during the period totaling $10.6 million werepartially offset by principal repayments of $8.0 million. During the six-month period endedDecember 31, 2006, loan originations were comprised of $8.0 million of one- to four-familyresidential real estate loans, $1.2 million of consumer loans, $1.2 million of commercial loans,and $200,000 of nonresidential real estate loans. Nonresidential real estate, multi-familyresidential 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 theeffects of general economic conditions on the successful operation of income-producing propertiesand businesses. Greenville Federal endeavors to reduce such risk by evaluating the credit historyand past performance of the borrower, the location of the real estate, the quality of themanagement operating the property or business, the debt service ratio, the quality andcharacteristics of the income stream generated by the property or business and appraisalssupporting the real estate or collateral valuation. The majority of these loans have been made toexisting customers. Management intends to pursue a moderate rate of growth in the nonresidentialand commercial loan portfolios, but is committed to retaining its historical focus on one- tofour-family residential lending.The allowance for loan losses totaled $581,000 at December 31, 2006, an increase of $2,000, or0.4%, over the June 30, 2006 balance of $579,000, and represented 0.66% and 0.67% of total loans atthose respective dates. Greenville Federal’s nonperforming loans totaled $237,000 and $529,000 atDecember 31, 2006 and June 30, 2006, respectively. In determining the allowance for loan losses atany point in time, management and the board of directors apply a
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLANOF OPERATIONS (CONTINUED)**Discussion of Financial Condition Changes from June 30, 2006 to December 31, 2006(continued)systematic process focusing on the risk of loss in the portfolio. First, the loan portfolio issegregated by loan types to be evaluated collectively and loan types to be evaluated individually.Delinquent multi-family and nonresidential loans are evaluated individually for potentialimpairment. Second, the allowance for loan losses is evaluated using Greenville Federal’s historicloss experience, adjusted for changes in economic trends in Greenville Federal’s lending area, byapplying these adjusted loss percentages to the loan types to be evaluated collectively in theportfolio. To the best of management’s knowledge, all known and inherent losses that are probableand that can be reasonably estimated have been recorded at December 31, 2006. Although managementbelieves that the allowance for loan losses at December 31, 2006, was adequate based upon theavailable facts and circumstances, there can be no assurance that additions to the allowance willnot be necessary in future periods, which could adversely affect Greenville Federal’s results ofoperations.Deposits totaled $78.8 million at both December 31, 2006 and June 30, 2006. Although managementgenerally strives to maintain a moderate rate of growth in deposits, primarily through consistentmarketing and pricing strategies, Greenville Federal historically has not engaged in short-term,promotional increases in interest rates on deposits, nor has it generally offered the highestinterest rate on deposit products in its market area. During a period of low interest rates onloans, it has been difficult for many financial institutions to attract deposits at interest rateslow enough to maintain an acceptable interest rate spread. Greenville Federal intends to searchfor creative ways to attract deposits without paying excessive interest rates.Advances from the Federal Home Loan Bank totaled $28.7 million at December 31, 2006, an increase of$536,000, or 1.9%, over June 30, 2006. Proceeds from advances were used to fund new loanoriginations.Shareholders’ equity totaled $22.7 million at December 31, 2006, an increase of $166,000, or 0.7%,over the $22.6 million total at June 30, 2006. The increase resulted from net earnings of $289,000for the six months ended December 31, 2006 and a reduction in the unrealized losses on securitiesdesignated as available for sale of $22,000, which were partially offset by dividends paid oncommon stock of $145,000.Greenville Federal is required to maintain minimum regulatory capital pursuant to federalregulations. At December 31, 2006, Greenville Federal’s regulatory capital continued tosubstantially exceed all minimum regulatory capital requirements.Comparison of Operating Results for the Three-Month Periods Ended December 31, 2006 and2005GeneralThe Corporation recorded net earnings of $148,000 for the three months ended December 31, 2006, anincrease of $12,000, or 8.8%, compared to net earnings of $136,000 for the same period in 2005.The increase resulted from an increase in net interest income of $66,000, or 7.3%, partially offsetby a $46,000 increase in general, administrative and other expenses, and an $8,000 increase infederal income taxes.
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLANOF OPERATIONS (CONTINUED)**Comparison of Operating Results for the Three-Month Periods Ended December 31, 2006 and 2005(continued)Net Interest IncomeInterest income totaled $1.9 million for the three months ended December 31, 2006, an increase of$154,000, or 8.9%, compared to the three months ended December 31, 2005. Interest income on loansincreased by $108,000, or 8.0%, due primarily to a $4.2 million increase in the average balance ofloans outstanding coupled with an increase in the weighted-average yield on loans from 6.67% in the2005 three-month period to 6.85% in the 2006 three-month period. Interest income on investmentsecurities increased by $44,000, or 14.5%, due primarily to an increase in the weighted-averageyield on such securities from 3.62% in the 2005 three-month period to 4.34% in the 2006 three-monthperiod, which was partially offset by a $1.5 million decrease in the average balance outstanding.The increase in yields were due primarily to overall rising interest rates in the economy. Theincrease in loans receivable was comprised primarily of growth in one- to four-family residentialreal estate loans and non-residential real estate loans.Interest expense totaled $913,000 for the three months ended December 31, 2006, an increase of$88,000, or 10.7%, compared to the three months ended December 31, 2005. This increase was aresult of an increase in the weighted-average cost of funds to 3.49% for the three months endedDecember 31, 2006, from 3.01% for the three months ended December 31, 2005, partially offset by a$4.9 million decrease in the average balance of interest-bearing liabilities outstanding year toyear.As a result of the foregoing changes in interest income and interest expense, net interest incomeincreased by $66,000, or 7.3%, compared to the same period in 2005. The interest rate spreaddecreased to 2.66% for the three months ended December 31, 2006, compared to 2.72% for the threemonths ended December 31, 2005. The net interest margin increased to 3.17% for the three monthsended December 31, 2006, from 2.99% for the three months ended December 31, 2005.Provision for Losses on LoansA provision for losses on loans is charged to earnings to maintain the total allowance for loanlosses at a level calculated by management based on historical experience, the volume and type oflending conducted by Greenville Federal, the status of past due principal and interest payments andmanagement’s assessment of economic factors in Greenville Federal’s lending area that may affectthe collectibility of Greenville Federal’s loan portfolio. Management recorded a provision forlosses on loans of $8,000 for the three months ended December 31, 2006, compared to $9,000 for thethree months ended December 31, 2005. The allowance for loan losses totaled $581,000 at December31, 2006, compared to $579,000 at June 30, 2006. Greenville Federal’s nonperforming loans,consisting of loans 90 days or more past due and nonaccrual loans, totaled $237,000 at December 31,2006, a decrease of $292,000 compared to June 30, 2006. Management believes all nonperformingloans are adequately collateralized; however, there can be no assurance that the loan lossallowance will be adequate to absorb losses on known nonperforming assets or that the allowancewill be adequate to cover losses on nonperforming assets in the future.Other IncomeOther income totaled $206,000 for the three months ended December 31, 2006, a decrease of $1,000,or 0.5%, compared to the same quarter in 2005. This decrease was due primarily to a $9,000decrease in gain on sale of real estate acquired through foreclosure and a $1,000 decrease in otheroperating income, partially offset by an increase in customer service charges of $9,000, or 6.5%.
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLANOF OPERATIONS (CONTINUED)**Comparison of Operating Results for the Three-Month Periods Ended December 31, 2006 and 2005(continued)General, Administrative and Other ExpenseGeneral, administrative and other expense totaled $962,000 for the three months ended December 31,2006, an increase of $46,000, or 5.0%, compared to the same quarter in 2005. The increase ingeneral, administrative and other expense was due primarily to a $41,000 increase in professionalfees expense, mostly related to the Corporation’s public company reporting requirements and theadoption of the Corporation’s 2006 Equity Plan, a $13,000, or 2.6%, increase in employeecompensation and benefits expense, due primarily to costs associated with the Employee StockOwnership Plan, and an $8,000, or 7.9%, increase in data processing expense, all of which werepartially offset by a $19,000, or 16.4%, decrease in occupancy and equipment expense. The decreasein occupancy and equipment expense was due primarily to a reduction in depreciation expense, asleasehold improvements became fully depreciated.Federal Income TaxesThe provision for federal income taxes totaled $58,000 for the three months ended December 31,2006, an increase of $8,000, or 16.0%, compared to the same quarter in 2005. The increase resultedprimarily from a $20,000, or 10.8%, increase in pre-tax earnings year to year. The effective taxrate was 28.2% for the three months ended December 31, 2006 compared to 26.9% for the three monthsended December 31, 2005. The effective tax rate in both fiscal quarters was less than thestatutory tax rate of 34% due primarily to the non-taxable earnings on bank-owned life insurance.Comparison of Operating Results for the Six-Month Periods Ended December 31, 2006 and 2005GeneralThe Corporation recorded net earnings of $289,000 for the six months ended December 31, 2006, adecrease of $1,000, or 0.3%, compared to net earnings of $290,000 for the same period in 2005. Thedecrease resulted from a $131,000 increase in general, administrative and other expenses, adecrease in other income of $16,000 and an increase in federal income taxes of $5,000, partiallyoffset by a $144,000 increase in net interest income and a $7,000 decrease in the provision forlosses on loans.Net Interest IncomeInterest income totaled $3.7 million for the six months ended December 31, 2006, an increase of$334,000, or 9.9%, compared to the six months ended December 31, 2005. Interest income on loansincreased by $216,000, or 8.1%, due primarily to a $4.5 million increase in the average balance ofloans outstanding coupled with an increase in the weighted-average yield on loans from 6.64% forthe six months ended December 31, 2005 to 6.80% for the same period in 2006. Interest income oninvestment securities increased by $93,000, or 15.6%, due primarily to an increase in theweighted-average yield on such securities from 3.55% for the six months ended December 31, 2005 to4.27% for the same period in 2006, which was partially offset by a $1.3 million decrease in theaverage balance outstanding. The increases in yields were due primarily to overall rising interestrates in the economy. The increase in loans receivable was comprised primarily of growth in one-to four-family residential real estate loans and non-residential real estate loans.
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLANOF OPERATIONS (CONTINUED)**Comparison of Operating Results for the Six-Month Periods Ended December 31, 2006 and 2005(continued)Net Interest Income (continued)Interest expense totaled $1.8 million for the six months ended December 31, 2006, an increase of$190,000, or 11.8%, compared to the six months ended December 31, 2005. This increase was a resultof an increase in the weighted-average cost of funds to 3.45% for the six months ended December 31,2006, from 2.95% for the six months ended December 31, 2005, partially offset by a $4.8 milliondecrease 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 incomeincreased by $144,000, or 8.1%, compared to the same period in 2005. The interest rate spreaddecreased to 2.64% for the six months ended December 31, 2006, compared to 2.73% for the six monthsended December 31, 2005. The net interest margin increased to 3.14% for the six months endedDecember 31, 2006, from 2.98% for the six months ended December 31, 2005.Provision for Losses on LoansManagement recorded a provision for losses on loans of $10,000 for the six months ended December31, 2006, compared to $17,000 for the six months ended December 31, 2005. The allowance for loanlosses totaled $581,000 at December 31, 2006, compared to $579,000 at June 30, 2006. GreenvilleFederal’s nonperforming loans, consisting of loans 90 days or more past due and nonaccrual loans,totaled $237,000 at December 31, 2006, a decrease of $292,000 compared to June 30, 2006.Management believes all nonperforming loans are adequately collateralized; however, there can be noassurance that the loan loss allowance will be adequate to absorb losses on known nonperformingassets or that the allowance will be adequate to cover losses on nonperforming assets in thefuture.Other IncomeOther income totaled $397,000 for the six months ended December 31, 2006, a decrease of $16,000, or3.9%, compared to the same quarter in 2005. The decrease in other income was due primarily to thefact that Greenville Federal had a $16,000 gain on redemption of the shares of Intrieve, Inc.,Greenville Federal’s data processor, and a $9,000 gain on sale of real estate acquired throughforeclosure in the 2005 period that were not repeated in 2006. These nonrecurring items werepartially offset by increases in customer service charges of $4,000, or 1.5%, and other operatingincome of $5,000, or 4.4%.General, Administrative and Other ExpenseGeneral, administrative and other expense totaled $1.9 million for the six months ended December31, 2006, an increase of $131,000, or 7.4%, compared to the same period in 2005. The increase ingeneral, administrative and other expense was due primarily to a $96,000 increase in professionalfees expense, mostly related to the Corporation’s public company reporting requirements and theadoption of the Corporation’s 2006 Equity Plan, a $32,000, or 3.3%, increase in employeecompensation and benefits expense, due primarily to costs associated with the Employee StockOwnership Plan, a $20,000, or 10.1%, increase in data processing expense, and a $5,000, or 5.6%,increase in state franchise taxes, all of which were partially offset by a $32,000, or 13.9%,decrease in occupancy and equipment expense. The decrease in occupancy and equipment expense wasdue primarily to a reduction in depreciation expense, as leasehold improvements became fullydepreciated.
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**GREENVILLE FEDERAL FINANCIAL CORPORATION****MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLANOF OPERATIONS (CONTINUED)**Comparison of Operating Results for the Six-Month Periods Ended December 31, 2006 and 2005(continued)Federal Income TaxesThe provision for federal income taxes totaled $112,000 for the six months ended December 31, 2006,an increase of $5,000, or 4.7%, compared to the same period in 2005. The increase resultedprimarily from a $4,000, or 1.0%, increase in pre-tax earnings year to year. The effective taxrate was 27.9% for the six months ended December 31, 2006 compared to 27.0% for the six monthsended December 31, 2005. The effective tax rate in both fiscal periods was less than the statutorytax rate of 34% due primarily to the non-taxable earnings on bank-owned life insurance.ITEM 3: Controls and ProceduresThe Chief Executive Officer and the Chief Financial Officer of the Registrant have evaluated theeffectiveness of the Registrant’s disclosure controls and procedures as of December 31, 2006, andhave concluded that the disclosure controls and procedures in place at December 31, 2006, wereeffective.There were no changes in the Corporation’s internal control over financial reporting that occurredduring the quarter ended December 31, 2006, that have materially affected, or are reasonably likelyto materially affect, the Corporation’s internal control over financial reporting.
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**Greenville Federal Financial Corporation**PART II — OTHER INFORMATIONITEM 1. Legal ProceedingsNot applicableITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds (a) None  (b) None  (c) NoneITEM 3. Defaults Upon Senior SecuritiesNot applicableITEM 4. Submission of Matters to a Vote of Security HoldersOn October 31, 2006, the Annual Meeting of the shareholders of the Corporation was held.The following members of the Board of Directors of the Company were re-elected for termsexpiring in 2009 by the votes indicated below:           **For** **Withheld**George S. Luce, Jr.  2,170,207   10,500 James W. Ward  2,166,457   14,250 David R. Wolverton  2,170,307   10,400 The Greenville Federal Financial Corporation 2006 Equity Plan was approved by the votes indicated below:                       **Broker****For** **Against** **Abstain** **non-vote**1,839,129  80,300   12,200   249,078 The selection of Grant Thornton LLP as the Corporation’s independent registered publicaccounting firm for the current year was ratified by the votes indicated below:                       **Broker****For** **Against** **Abstain** **non-vote**2,145,857  33,250   1,600   — ITEM 5. Other InformationNot applicable
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**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 Greenville Federal Financial Corporation 2006 Equity Plan   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**SIGNATURESIn accordance with the requirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.         GREENVILLE FEDERAL FINANCIAL CORPORATION         Date: February 9, 2007 By: /s/David M. Kepler             David M. Kepler      President and Chief Executive Officer         Date: February 9, 2007 By: /s/Susan J. Allread             Susan J. Allread      Chief Financial Officer  
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**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 theRegistrant 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 theRegistrant with the Securities and Exchange Commission on December 14, 2005)   10.1 Greenville Federal Financial Corporation 2006 Equity Plan (Incorporated by reference toExhibit A to Proxy Statement filed by the Registrant with the Securities and ExchangeCommission on September 27, 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