GVFF Greenville Federal Financial Corp (PK)

Greenville Federal Financial Corporation
June 30, 2007 and 2006

Contents
Letter from the President and Chief Executive Officer			1
Business of Greenville Federal Financial Corporation			2
Selected Financial and Other Data			3
Management’s Discussion and Analysis of Financial Condition and Results of Operations			5
Financial Statements
Report of Independent Registered Public Accounting Firm			19
Consolidated Balance Sheets			20
Consolidated Statements of Income			21
Consolidated Statements of Comprehensive Income			22
Consolidated Statements of Stockholders’ Equity			23
Consolidated Statements of Cash Flows			24
Notes to Consolidated Financial Statements			26
Directors and Officers			52
Investors and Corporate Information			53
Office Locations			54

Letter from the President and Chief Executive Officer

Dear Stockholders:

I am pleased to present the 2007 Annual Report of Greenville Federal Financial Corporation (“Corporation”). While this is our second Annual Report, fiscal 2007 represents our first full fiscal year since formation in connection with Greenville Federal’s conversion to stock form. Despite a sometimes flat and sometimes inverted yield curve, the Corporation’s net income rose by 19.8%, to $641,000 for fiscal 2007 compared to net income of $535,000 for fiscal 2006. The increase in net income primarily reflects an increase in net interest income.

The Corporation had total assets of $129.7 million at June 30, 2007, a slight decrease of $1.0 million compared to June 30, 2006. The decrease in total assets was comprised primarily of a decrease in investment securities, a result of our use of maturing investments to repay advances from the Federal Home Loan Bank, and was partially offset by an increase in loans receivable and cash and cash equivalents.

The Corporation paid cash dividends of $0.28 per share in fiscal 2007.

In the past few months, the news has been dominated by the turmoil and losses in the so-called “subprime” market. Greenville Federal, the wholly owned bank subsidiary of the Corporation, essentially has been unaffected by this trend. For one thing, Greenville Federal does not make loans in the subprime market – or loans to borrowers who have questionable financial resources. The home mortgage loans offered are carefully designed – and monitored – to assure that they meet (1) the needs and the financial capacity of qualified borrowers, and (2) the regulatory and prudent management concerns of Greenville Federal.

The directors, officers and employees of the Corporation live in the community as neighbors and friends – and are dedicated to helping our customers achieve their financial goals.

Our challenge for fiscal year 2008 is to continue to improve our earnings while maintaining our strong asset quality, a task our management and employees already are working hard to achieve.

Thank you for your continued support and the confidence you have in Greenville Federal Financial Corporation.

Sincerely,

David M. Kepler
President & Chief Executive Officer

Greenville Federal Financial Corporation
Business of Greenville Federal Financial Corporation

Greenville Federal Financial Corporation (“GFFC” or the “Corporation”) is a unitary savings and loan holding company chartered under federal law to hold all of the stock of Greenville Federal, a savings bank chartered under the laws of the United States. In January 2006, the Corporation acquired all of the common stock of Greenville Federal upon its conversion from a mutual savings and loan association into a stock savings bank, and the Corporation issued stock to Greenville Federal MHC and subscribers in its initial public offering. Since its formation, the Corporation’s activities have been limited to holding the common stock of Greenville Federal.

Greenville Federal is a savings bank headquartered in Greenville, Ohio. Greenville Federal was originally founded in 1883 as an Ohio chartered mutual savings and loan association and converted to a federal charter in 1942. Greenville Federal operates from its main office and a branch located in a Kroger store, both of which are in Greenville, Ohio.

Greenville Federal’s principal business activity is the origination of mortgage loans secured by one- to four-family residential real estate. Greenville Federal also originates construction loans, loans secured by nonresidential real estate and multifamily real estate, and consumer loans. Greenville Federal offers a variety of deposit accounts, including savings, certificate of deposit and demand accounts.

As a savings and loan holding company, the Corporation is subject to regulation, supervision and examination by the Office of Thrift Supervision of the United States Department of the Treasury (the “OTS”). As a savings bank chartered under the laws of the United States, Greenville Federal is subject to regulation, supervision and examination by the OTS and by the Federal Deposit Insurance Corporation (the “FDIC”), which insures the deposits of Greenville Federal to the maximum extent permitted by law, and is subject to certain requirements of the Board of Governors of the Federal Reserve. Federally chartered savings institutions are required to file periodic reports with the OTS and are subject to periodic examinations by the OTS and the FDIC. The investment and lending authority of savings institutions are prescribed by federal laws and regulations, and such institutions are prohibited from engaging in any activities not permitted by such laws and regulations. Such regulation and supervision primarily is intended for the protection of depositors and borrowers. Greenville Federal is also a member of the Federal Home Loan Bank of Cincinnati, which imposes certain requirements in order for Greenville Federal to borrow money from the Federal Home Loan Bank.

The main offices of both the Corporation and Greenville Federal are located at 690 Wagner Avenue, Greenville, Ohio 45331, and the telephone number for both is (937) 548-4158.

Greenville Federal Financial Corporation

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

This discussion and analysis reflects GFFC’s consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations. You should read the information in this section in conjunction with our consolidated financial statements and their notes beginning on page 19 of this annual report, and the other statistical data provided in this report. The preparation of financial statements involves the application of accounting policies relevant to our business. Certain of our accounting policies are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances that could affect these judgments include, without limitation, changes in interest rates, in the performance of the economy or in the financial condition of borrowers.

General

GFFC’s results of operations are dependent primarily on net interest income, which is the difference between the income earned on our loans and securities and our cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by the provision for loan losses and service charges and fees collected on our deposit accounts. GFFC’s general, administrative and other expense primarily consists of employee compensation and benefits, occupancy and equipment expense, franchise taxes, data processing expense, other operating expenses and federal income taxes. Results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, government policies and actions of regulatory authorities.

Forward-looking statements

This annual report contains forward-looking statements, which use words such as “expect,” “intend,” “anticipate,” “plan,” “estimate,” “attempt,” “seek” and “will.” These forward-looking statements discuss the following matters:

	•		our estimates of future income and expenses;
	•		our business plans, prospects and operating strategies;
	•		the quality of our assets, including loans and investments; and
	•		other goals, intentions and expectations.

Greenville Federal Financial Corporation

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including the following influences that could cause actual results to differ materially from those contemplated by the forward-looking statements:

	•		general economic conditions, either in our market area or nationally, that are significantly different from what we expect;
	•		increasing foreclosures in our market area;
	•		increasing difficulty in obtaining deposits;
	•		inflation and changes in the interest rate environment that reduce our interest margins or reduce the market value of our assets;
	•		increased competition among financial institutions within our market area;
	•		adverse changes in the securities markets;
	•		changes in consumer spending, borrowing and savings habits;
	•		legislative or regulatory changes that affect our business;
	•		our ability, either due to our resources or outside factors, that affect our success in entering into or growing in new markets and cross-selling in our existing market;
	•		changes in accounting policies and practices, as may be adopted by the governmental agencies that regulate our business and the Financial Accounting Standards Board; and
	•		unexpected costs for compensation and benefits.

Because of these and possible other uncertainties that we do not foresee, actual future results may differ materially from the results indicated by the forward-looking statements contained in this report.

Critical accounting policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. Greenville Federal considers its accounting for the allowance for loan losses and mortgage servicing rights to involve critical accounting policies.

The allowance for loan losses is the estimated amount considered necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged against income. In determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of the most critical for us.

Greenville Federal Financial Corporation

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

Management performs a quarterly evaluation of the allowance for loan losses. Consideration is given to a variety of factors in establishing this estimate, including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of individual borrowers, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change.

The analysis has two components, specific allocations and general allocations. Specific allocations are made for loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. Management also analyzes historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general reserve. Actual loan losses may be significantly more than the reserves established, which could have a material negative effect on financial results.

Mortgage servicing rights are recognized as separate assets when loans are sold with servicing retained. Mortgage servicing rights are subject to an impairment assessment based upon fair value estimates. A pooling methodology is applied for valuation purposes, in which loans supporting mortgage servicing rights and with similar characteristics are “pooled” together. Once pooled, each grouping of loans supporting the mortgage servicing rights is evaluated on a discounted earnings basis to determine the present value of future earnings that a purchaser could expect to realize from the portfolio. Earnings are projected from a variety of sources, including loan service fees, interest earned on float, net interest earned on escrow balances, miscellaneous income and costs to service the loans. The present value of future earnings is the estimated market value for the pool, calculated using consensus assumptions that a third-party purchaser would utilize in evaluating a potential acquisition of the servicing rights. Events that may significantly affect the estimates used are changes in interest rates and the related impact on mortgage loan prepayment speeds and the payment performance of the underlying loans. Based on the assumptions discussed, pre-tax projections are prepared for each pool of loans serviced by a third-party provider. These earning figures approximate the cash flow that could be received from the servicing portfolio. Management reviews the valuation information, and mortgage servicing rights are carried at the lower of amortized cost or fair value.

Comparison of financial condition at June 30, 2007, and June 30, 2006

At June 30, 2007, Greenville Federal had total assets of $129.7 million, a decrease of $1.0 million, or 0.8%, compared to the $130.7 million total at June 30, 2006. The decrease in total assets was due primarily to a decrease in investment securities, partially offset by an increase in loans receivable and cash and cash equivalents.

Cash and cash equivalents, consisting of cash and due from banks and interest-bearing deposits in other financial institutions, totaled $3.5 million at June 30, 2007, an increase of $273,000, or 8.4%, from June 30, 2006. Investment securities totaled $28.0 million at June 30, 2007, a decrease of $5.2 million, or 15.6%, from the $33.2 million total at June 30, 2006. During the year ended June 30, 2007, investment securities purchases consisted of $846,000 of equity securities, which were offset by maturities of U. S. Government sponsored entity obligations totaling $6.0 million.

Greenville Federal Financial Corporation

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

Mortgage-backed securities totaled $1.7 million at June 30, 2007, a decrease of $488,000, or 22.5%, from the $2.2 million total at June 30, 2006, due primarily to principal repayments during the period. Loans receivable totaled $87.4 million at June 30, 2007, an increase of $4.0 million, or 4.7%, over June 30, 2006. The increase resulted primarily from loan disbursements of $19.6 million, which were partially offset by principal repayments of $14.8 million. At June 30, 2007, the loan portfolio, before net items, was comprised of $76.6 million of residential real estate loans, 95.0% of which were loans secured by one- to four-family residential real estate, $6.0 million of loans secured by nonresidential real estate, $3.5 million of commercial loans and $3.1 million in consumer loans. During fiscal 2007, Greenville Federal increased its portfolio of nonresidential real estate loans by $1.8 million, or 43.3% and consumer loans by $32,000, or 1.0%. However, its portfolio of commercial loans decreased by $791,000, or 18.6%, during fiscal 2007 after increasing by $1.2 million, or 37.7%, in fiscal year 2006. Management has elected to increase nonresidential, consumer and commercial lending as a means to diversify the portfolio and to obtain an increase in yield. While these loan types generally entail a greater degree of risk than one- to four-family residential loans, management believes such loans have been conservatively underwritten. 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.

At June 30, 2007, the allowance for loan losses totaled $579,000, or 0.65% of total loans, compared to $579,000, or 0.67% of total loans, at June 30, 2006. Nonperforming loans totaled $471,000 at June 30, 2007, compared to $529,000 at June 30, 2006. At June 30, 2007, non-performing loans were comprised primarily of one- to four-family loans. The allowance for loan losses totaled 122.9% and 109.5% of nonperforming loans at June 30, 2007 and 2006, respectively. In determining the allowance for loan losses at any point in time, management and the board of directors apply a systematic process focusing on the risk of loss in the portfolio. First, the loan portfolio is segregated by loan types to be evaluated collectively and loan types to be evaluated individually. Delinquent multifamily and nonresidential loans are evaluated individually for potential impairment. Second, the allowance for loan losses is evaluated using Greenville Federal’s historic loss experience, adjusted for changes in economic trends in Greenville Federal’s lending area, by applying these adjusted loss percentages to the loan types to be evaluated collectively in the portfolio.

Greenville Federal’s analysis of the allowance for loan losses as of and for the year ended June 30, 2007, included recognition of the increasing level of foreclosure actions filed in Greenville Federal’s lending area over the past four years. 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 June 30, 2007. Although management believes that its allowance for loan losses conforms with generally accepted accounting principles 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 would adversely affect our results of operations.

Deposits totaled $79.6 million at June 30, 2007, an increase of $851,000, or 1.1%, from the $78.8 million total at June 30, 2006. The increase resulted primarily from an increase in short-term certificates of deposit, partially offset by the withdrawal of savings accounts during the period. Greenville Federal participates in a bidding process for short-term public deposits through the Bid Ohio program. On the first Tuesday of each month, the Ohio Treasurer’s office sponsors an online

Greenville Federal Financial Corporation

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

auction for eligible Ohio state depository banks to bid on interim State funds. Such short-term deposits from the State of Ohio increased by $4.0 million to a total of $11.0 million at June 30, 2007, compared to $7.0 million at June 30, 2006.

Although management generally strives to maintain a moderate rate of growth in deposits, primarily through consistent marketing 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 highest interest rate on deposit products in its market area. During a period of low interest rates on loans, it has been difficult for many financial institutions to attract deposits at interest rates low enough to maintain an acceptable interest rate spread. Greenville Federal intends to continue to search for creative ways to attract deposits without paying excessive interest rates.

Advances from the Federal Home Loan Bank amounted to $26.1 million at June 30, 2007, a decrease of $2.1 million, or 7.3%, compared to June 30, 2006. The decrease in advances was primarily the result of funds from maturing investment securities being used to pay off advances during the period.

Stockholders’ equity totaled $22.7 million at June 30, 2007, an increase of $162,000, or 0.73%, over June 30, 2006. The increase resulted from net income of $641,000 for the fiscal year ended June 30, 2007, and the effects of amortization of ESOP expense of $90,000, which were partially offset by dividends paid on common stock of $290,000, shares acquired by the 2006 equity plan trust of $255,000 and a $24,000 increase in the unrealized losses on securities designated as available for sale. Greenville Federal is required to maintain minimum regulatory capital pursuant to federal regulations. In March 2007, management was notified by the Office of Thrift Supervision that Greenville Federal was categorized as well capitalized under regulatory guidelines. At June 30, 2007, Greenville Federal’s regulatory capital substantially exceeded all minimum regulatory capital requirements.

Comparison of results of operations for the fiscal years ended June 30, 2007 and
June 30, 2006

General. Greenville Federal recorded net income of $641,000 for the fiscal year ended June 30, 2007, compared to $535,000 recorded for the fiscal year ended June 30, 2006. The improvement in net income was primarily attributable to an increase in net interest income of $195,000, which was partially offset by a $36,000 increase in general, administrative and other expense, a $13,000 decrease in other income and an increase of $45,000 in the provision for federal income taxes.

Interest income. Total interest income amounted to $7.5 million for the fiscal year ended June 30, 2007, an increase of $497,000, or 7.1%, compared to the fiscal year ended June 30, 2006. The increase in interest income primarily reflects the effect of a 44 basis point increase in the weighted-average yield to 6.17% in fiscal 2007, partially offset by a decrease in average interest-earning assets outstanding year to year.

Interest income on loans increased by $431,000, or 8.0%, for the fiscal year ended June 30, 2007, compared to fiscal 2006, due primarily to a $4.2 million, or 5.2%, increase in the average balance outstanding and an increase in the weighted-average yield on loans, to 6.82% for fiscal 2007 from 6.65% for fiscal 2006. Interest income on mortgage-backed securities increased by $39,000, or 58.2%, during the fiscal year ended June 30, 2007, due primarily to a $481,000 increase in the

Greenville Federal Financial Corporation

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

average balance outstanding and an increase in the weighted-average yield from 4.51% in fiscal 2006 to 5.39% in fiscal 2007. Interest income on investment securities increased by $111,000, or 9.0%, during the fiscal year ended June 30, 2007, due primarily to an increase in the weighted-average yield from 3.70% in fiscal 2006 to 4.39% in fiscal 2007, which was offset by a $2.8 million, or 8.3%, decrease in the average balance outstanding. Interest income on other interest-earning assets decreased by $84,000, or 29.4%, during the fiscal year ended June 30, 2007. The decrease was due primarily to a decrease of $2.6 million, or 45.0%, in the average balance outstanding from fiscal 2006, offset by an increase in the weighted-average yield from 4.91% in fiscal 2006 to 6.30% in fiscal 2007.

Interest expense . Interest expense totaled $3.6 million for the fiscal year ended June 30, 2007, an increase of $302,000, or 9.2%, from interest expense of $3.3 million for fiscal 2006. This increase resulted from an increase in the weighted-average cost of funds, to 3.53% for fiscal 2007, compared to 3.07% for fiscal 2006, offset by a $5.4 million, or 5.1%, decrease in the average balance of deposits and borrowings outstanding for the fiscal year ended June 30, 2007. Interest expense on deposits totaled $2.3 million for the fiscal year ended June 30, 2007, an increase of $409,000, or 21.9%, from fiscal 2006. This increase was a result of an increase in the weighted-average cost of deposits to 3.06% for fiscal 2007 from 2.44% for fiscal 2007, offset by a decrease in the average balance of deposits outstanding of $2.1 million, or 2.8%, for fiscal 2007. Interest expense on borrowings totaled $1.3 million for the fiscal year ended June 30, 2007, a decrease of $107,000, or 7.5%, from fiscal 2006. This decrease was due to a decrease in the average balance outstanding of $3.3 million, or 10.8%, offset by an increase in the weighted-average cost of borrowings from 4.64% to 4.81%.

Net interest income . As a result of the foregoing changes in interest income and interest expense, net interest income increased by $195,000, or 5.3%, during the fiscal year ended June 30, 2007, compared to fiscal 2006. The average interest rate spread decreased to 2.64% for the fiscal year ended June 30, 2007, from 2.66% for fiscal 2006. The net interest margin increased to 3.20% for the fiscal year ended June 30, 2007, from 3.03% for fiscal 2006.

Provision for loan losses . A provision for loan losses is charged to earnings to maintain the total allowance for loan losses at a level calculated by management based on historical experience, the volume and type of lending conducted by Greenville Federal, the status of past due principal and interest payments and management’s assessment of economic factors in Greenville Federal’s lending area that may affect the collectibility of Greenville Federal’s loan portfolio. Based upon an analysis of these factors, management recorded a provision for loan losses totaling $20,000 for the fiscal year ended June 30, 2007, a decrease of $5,000 compared to fiscal 2006. The provision recorded during the fiscal year ended June 30, 2007, generally reflects management’s perception of the risk prevalent in the economy integrated with the overall increase in the level of the loan portfolio and the level of charge-offs recorded in fiscal 2007. Specifically, Greenville Federal has experienced increased activity in the form of foreclosures or accepting a deed-in-lieu of foreclosure on single-family homes during the last four years. Greenville Federal is unable to attribute the increase in foreclosures in Darke County to any reason particular to its market area; the local increase in foreclosures is part of a state-wide trend. Management believes all nonperforming loans are adequately collateralized; however, there can be no assurance that the allowance for loan losses will be adequate to absorb losses on known nonperforming assets or that the allowance will be adequate to cover losses on nonperforming assets in the future.

Greenville Federal Financial Corporation

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

Other income . Other income totaled $825,000 for the fiscal year ended June 30, 2007, a decrease of $13,000, or 1.6%, compared to other income of $838,000 recorded for the fiscal year ended June 30, 2006. The decrease was primarily attributable to a gain of $35,000 on redemption of the shares of Intrieve, Inc., Greenville Federal’s data processor, in fiscal 2006 and a decrease of $26,000, or 83.9%, from gain on sale of real estate owned, which were partially offset by an increase of $24,000, or 4.5%, in customer service charges and an increase of $24,000, or 9.9%, in other operating income. During fiscal 2005, Intrieve was acquired by the John H. Harland Company, which required Greenville Federal to redeem its shares of Intrieve. Greenville Federal received the final installment of proceeds from the redemption of its shares in fiscal 2006 totaling $35,000.

General, administrative and other expense . General, administrative and other expense totaled $3.8 million for the fiscal year ended June 30, 2007, an increase of $36,000, or 1.0%, compared to fiscal 2006. The increase in general, administrative and other expense was due primarily to a $50,000, or 12.1%, increase in data processing expense, a $45,000, or 8.1%, increase in other operating expense and a $27,000, or 14.6%, increase in franchise taxes, which were partially offset by a $41,000, or 9.4%, decrease in occupancy and equipment expense and a $39,000, or 1.9%, decrease in employee compensation and benefits expense. The increase in data processing expense was due primarily to an increase in the customer base and increased usage of the ATM network and the internet banking service, as well as an increase in the rate structure from the data processor year to year. The increase in other operating expense was due primarily to an increase in professional fees expense, mostly related to the Corporation’s public company reporting requirements and the adoption of the Corporation’s 2006 Equity Plan. The increase in franchise taxes was a result of an increase in stockholders’ equity of $8.9 million, or 65.3% at June 30, 2006, due primarily to net proceeds from the sale of GFFC stock. The decrease in occupancy and equipment expense was due primarily to a decrease in depreciation expense, as leasehold improvements for the branch were fully depreciated. The decrease in employee compensation and benefits was attributed primarily to a reduction in staff by one full-time equivalent position due to attrition.

Federal income taxes . Greenville Federal recorded a federal income tax provision of $257,000 for the fiscal year ended June 30, 2007, compared to $212,000 recorded for fiscal 2006. The increase resulted primarily from an increase in pre-tax income of $151,000 year to year. The effective tax rate was 28.6% and 28.4% for the fiscal years ended June 30, 2007 and 2006, respectively, which reflected the effects of nontaxable income.

Greenville Federal Financial Corporation

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

Average balance sheets

The following table presents certain of GFFC’s average balance sheet information and reflects the average yield on interest-earning assets and the average cost of customer deposits and Federal Home Loan Bank of Cincinnati advances for the fiscal years ended June 30, 2007 and 2006. Such yields and costs are derived by dividing annual income or expense by the average monthly balance of interest-earning assets or interest-bearing liabilities, respectively, for the years presented. Average balances are derived from daily balances, net of the allowance for loan losses.

Greenville Federal Financial Corporation

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

The following table describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected GFFC’s interest income and expense during the years indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) changes in rate (change in rate multiplied by prior year volume) and (iii) total changes in rate and volume. The combined effects of changes in both volume and rate, which cannot be separately identified, have been allocated proportionately to the change due to volume and the change due to rate.

Asset and liability management

Greenville Federal, like other financial institutions, is subject to interest rate risk to the extent that our interest-earning assets reprice differently than our interest-bearing liabilities. As part of its effort to monitor and manage interest rate risk, Greenville Federal uses the net portfolio value (“NPV”) methodology adopted by the Office of Thrift Supervision.

Generally, NPV is the discounted present value of the difference between incoming cash flows on interest-earning and other assets and outgoing cash flows on interest-bearing and other liabilities. The application of the methodology attempts to quantify interest rate risk as the change in the NPV that would result from a theoretical change in market interest rates. Both increases and decreases in market interest rates are considered.

Presented below, as of June 30, 2007 and 2006, is an analysis of Greenville Federal’s interest rate risk as measured by changes in NPV for instantaneous and sustained parallel shifts in market interest rates.

Greenville Federal Financial Corporation

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

As illustrated in the tables, Greenville Federal’s NPV is more sensitive to rising rates than declining rates. Differences in sensitivity occur principally because, as rates rise, borrowers do not prepay fixed-rate loans as quickly as they do when interest rates are declining. As a result, in a rising interest rate environment, the amount of interest Greenville Federal would receive on its loans would increase relatively slowly as loans are slowly repaid and new loans at higher rates are made. Moreover, the interest Greenville Federal would pay on deposits would increase because deposits generally have shorter periods to repricing. A possible flow of funds away from savings institutions into direct investments or other investment vehicles, such as mutual funds, which can occur for a number of reasons, may also affect our NPV. Assumptions used in calculating the amounts in this table are Office of Thrift Supervision assumptions.

Greenville Federal Financial Corporation

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

The change in our NPV that would have been caused by the respective interest rate shock was within the policy limits set by the board of directors. The board of directors considers the results of each quarterly analysis and factors the information into its decision in adjusting the pricing of loans and deposits in the future.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the NPV approach. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market rates while interest rates on other types may lag behind changes in market rates. Further, in the event of a change in interest rates, expected rates of prepayment on loans and mortgage-backed securities and early withdrawal levels from certificates of deposit would likely deviate significantly from those assumed in making the risk calculations.

If interest rates continue to rise from the recent levels, Greenville Federal’s net interest income will be slightly positively affected, although those same rising interest rates may negatively affect Greenville Federal’s earnings due to diminished loan demand. In order to maintain Greenville Federal’s net interest margin, management is continually developing and modifying Greenville Federal’s strategies to stimulate the demand for quality loans and tailoring the types of loan products available that can be adjusted to match the current market conditions.

Liquidity and capital resources

GFFC’s liquidity, primarily represented by cash and cash equivalents, is a result of its operating, investing and financing activities. These activities are summarized below for the fiscal years ended June 30, 2007 and 2006.

Greenville Federal Financial Corporation

Management’s Discussion and Analysis of Financial Condition and

Results of Operations

GFFC’s principal sources of funds are deposits, loan and mortgage-backed securities repayments, maturities of securities and other funds provided by operations. The Corporation also borrows from the Federal Home Loan Bank of Cincinnati. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan and mortgage-backed security prepayments are more influenced by interest rates, general economic conditions and competition. The Corporation maintains investments in liquid assets based upon management’s assessment of (i) the need for funds, (ii) expected deposit flows, (iii) the yields available on short-term liquid assets and (iv) the objectives of the asset/liability management program. The Corporation historically has not used derivative or hedging instruments, and management currently has no intention of using such instruments in the foreseeable future.

Office of Thrift Supervision regulations require Greenville Federal to maintain an average daily balance of liquid assets, which may include, but are not limited to, investments in United States Treasury obligations, federal agency obligations and other investments having maturities of five years or less, in an amount sufficient to provide a source of relatively liquid funds upon which Greenville Federal may rely if necessary to fund deposit withdrawals or other short-term funding needs. Greenville Federal considers its capital reserves sufficient to meet its outstanding short- and long-term needs. Adjustments to liquidity and capital reserves may be necessary, however, if loan demand increases more than expected or if deposits decrease substantially.

The following table sets forth information regarding Greenville Federal’s obligations and commitments to make future payments under contract as of June 30, 2007.

We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

Impact of Inflation and Changing Prices

The consolidated financial statements and notes included herein have been prepared in accordance with U.S. GAAP. U.S. GAAP requires us to measure financial position and operating results in terms of historical dollars, and changes in the relative value of money due to inflation or recession are generally not considered.

In management’s opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not change at the same rate or in the same magnitude as the inflation rate. Rather, interest rate volatility is based on changes in the expected rate of inflation, as well as on changes in monetary and fiscal policies.

Report of Independent Registered Public Accounting Firm

Board of Directors
Greenville Federal Financial Corporation

We have audited the accompanying consolidated balance sheet of Greenville Federal Financial Corporation as of June 30, 2007, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements for the year ended June 30, 2006 were audited by other auditors, whose report dated September 12, 2006, expressed an unqualified opinion on those statments.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Greenville Federal Financial Corporation as of June 30, 2007, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Cincinnati, Ohio
September 17, 2007

See Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements