Attached files
file | filename |
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EX-31.2 - EXHIBIT 31.2 - Greenville Federal Financial CORP | c96142exv31w2.htm |
EX-4 - EXHIBIT 4 - Greenville Federal Financial CORP | c96142exv4.htm |
EX-31.1 - EXHIBIT 31.1 - Greenville Federal Financial CORP | c96142exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - Greenville Federal Financial CORP | c96142exv32w2.htm |
EX-32.1 - EXHIBIT 32.1 - Greenville Federal Financial CORP | c96142exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2009
OR
o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from to
Commission File Number: 000-51668
GREENVILLE FEDERAL FINANCIAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Ohio | 20-3742295 | |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
690 Wagner Avenue, Greenville, Ohio 45331
(Address of principal executive offices)
(937) 548-4158
(Issuers telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act)
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: As of February 12, 2009, 2,097,341 shares of the small business
issuers common stock, $0.01 par value, were issued and outstanding.
Greenville Federal Financial Corporation
Index
Page | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
8 | ||||||||
17 | ||||||||
24 | ||||||||
24 | ||||||||
25 | ||||||||
25 | ||||||||
25 | ||||||||
25 | ||||||||
25 | ||||||||
26 | ||||||||
26 | ||||||||
27 | ||||||||
Exhibit 4 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
2
Table of Contents
ITEM 1. Financial Statements
Greenville Federal Financial Corporation
Consolidated Balance Sheets
(In thousands, except share data)
December 31, | June 30, | |||||||
2009 | 2009 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 2,182 | $ | 1,870 | ||||
Interest-bearing deposits in other financial institutions |
5,857 | 2,604 | ||||||
Cash and cash equivalents |
8,039 | 4,474 | ||||||
Investment securities designated as available for sale at market |
11,787 | 11,888 | ||||||
Investment securities designated as held to maturity at amortized cost
(fair value: 12/31/09 $5, 6/30/09 $11) |
5 | 11 | ||||||
Mortgage-backed securities designated as held to maturity at amortized cost
(fair value: 12/31/09 $1,630, 6/30/09 $1,893) |
1,546 | 1,822 | ||||||
Loans receivable net of allowance for loan losses of $680 and $577 at
December 31, 2009 and June 30, 2009, respectively |
92,476 | 91,663 | ||||||
Office premises and equipment at depreciated cost |
1,896 | 1,958 | ||||||
Real estate acquired through foreclosure |
319 | 559 | ||||||
Stock in Federal Home Loan Bank at cost |
2,003 | 2,003 | ||||||
Cash surrender value of life insurance |
4,225 | 4,151 | ||||||
Accrued interest receivable |
472 | 511 | ||||||
Prepaid expenses and other assets |
984 | 530 | ||||||
Total assets |
$ | 123,752 | $ | 119,570 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Deposits |
$ | 75,814 | $ | 72,918 | ||||
Advances from the Federal Home Loan Bank |
29,058 | 26,903 | ||||||
Advances by borrowers for taxes and insurance |
459 | 406 | ||||||
Accrued interest payable |
81 | 111 | ||||||
Other liabilities |
618 | 618 | ||||||
Total liabilities |
106,030 | 100,956 | ||||||
Commitments and contingencies |
| | ||||||
Stockholders equity |
||||||||
Preferred stock authorized 1,000,000 shares, $.01 par value; no shares issued |
| | ||||||
Common stock authorized 8,000,000 shares of $.01 par value; 2,298,411 shares
issued and 2,097,341 outstanding |
23 | 23 | ||||||
Treasury Stock, at cost, 201,070 shares |
(1,308 | ) | (4 | ) | ||||
Additional paid-in capital |
9,079 | 9,051 | ||||||
Retained earnings restricted |
10,017 | 10,018 | ||||||
Shares acquired by Employee Stock Ownership Plan |
(541 | ) | (541 | ) | ||||
Accumulated comprehensive income, net of related tax benefits |
452 | 67 | ||||||
Total stockholders equity |
17,722 | 18,614 | ||||||
Total liabilities and stockholders equity |
$ | 123,752 | $ | 119,570 | ||||
See notes to consolidated financial statements.
3
Table of Contents
Greenville Federal Financial Corporation
Consolidated Statements of Operations
(In thousands, except share data)
(Unaudited)
Three months ended | Six months ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Interest income |
||||||||||||||||
Loans |
$ | 1,433 | $ | 1,494 | $ | 2,877 | $ | 2,988 | ||||||||
Mortgage-backed securities |
21 | 23 | 44 | 40 | ||||||||||||
Investment securities |
112 | 171 | 231 | 349 | ||||||||||||
Interest-bearing deposits and other |
23 | 28 | 48 | 73 | ||||||||||||
Total interest income |
1,589 | 1,716 | 3,200 | 3,450 | ||||||||||||
Interest expense |
||||||||||||||||
Deposits |
311 | 447 | 630 | 905 | ||||||||||||
Borrowings |
235 | 202 | 482 | 407 | ||||||||||||
Total interest expense |
546 | 649 | 1,112 | 1,312 | ||||||||||||
Net interest income |
1,043 | 1,067 | 2,088 | 2,138 | ||||||||||||
Provision for losses on loans |
82 | 50 | 152 | 50 | ||||||||||||
Net interest income after
provision for losses on loans |
961 | 1,017 | 1,936 | 2,088 | ||||||||||||
Other income |
||||||||||||||||
Customer service charges |
157 | 147 | 302 | 303 | ||||||||||||
Gain (loss) on sale of real estate acquired
through foreclosure |
(1 | ) | 4 | (1 | ) | 4 | ||||||||||
Other operating |
71 | 76 | 152 | 147 | ||||||||||||
Total other income |
227 | 227 | 453 | 454 | ||||||||||||
General, administrative and other expense |
||||||||||||||||
Employee compensation and benefits |
523 | 610 | 1,120 | 1,177 | ||||||||||||
Occupancy and equipment |
113 | 97 | 212 | 196 | ||||||||||||
Franchise taxes |
44 | 48 | 87 | 96 | ||||||||||||
Data processing |
81 | 95 | 163 | 240 | ||||||||||||
Advertising |
11 | 18 | 31 | 37 | ||||||||||||
Loss (gain) on redemption of investment
securities |
(11 | ) | 4 | (14 | ) | 8 | ||||||||||
Impairment charge on investment securities |
| 1,456 | | 2,848 | ||||||||||||
Provision for loss on real estate acquired
through foreclosure |
| 170 | 7 | 183 | ||||||||||||
FDIC insurance expense |
45 | 4 | 85 | 8 | ||||||||||||
Other operating |
276 | 234 | 518 | 435 | ||||||||||||
Total general, administrative
and other expense |
1,082 | 2,736 | 2,209 | 5,228 | ||||||||||||
Income (loss) before income taxes |
106 | (1,492 | ) | 180 | (2,686 | ) | ||||||||||
Federal income taxes |
||||||||||||||||
Current |
24 | (36 | ) | 37 | 18 | |||||||||||
Deferred |
| | | | ||||||||||||
Total federal income taxes |
24 | (36 | ) | 37 | 18 | |||||||||||
NET INCOME (LOSS) |
$ | 82 | $ | (1,456 | ) | $ | 143 | $ | (2,704 | ) | ||||||
Earnings per share basic and diluted |
$ | 0.04 | $ | (0.66 | ) | $ | 0.07 | $ | (1.22 | ) | ||||||
Dividends declared per share |
$ | 0.07 | $ | 0.07 | $ | 0.07 | $ | 0.14 | ||||||||
See notes to consolidated financial statements.
4
Table of Contents
Greenville Federal Financial Corporation
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net income (loss) |
$ | 82 | $ | (1,456 | ) | $ | 143 | $ | (2,704 | ) | ||||||
Other comprehensive income
(losses), net of related tax
benefits: |
||||||||||||||||
Unrealized holding gains (losses)
on securities during the period,
net of taxes (benefits) of $0, $0,
$0 and $0 for the respective
periods |
(10 | ) | | 385 | | |||||||||||
Comprehensive income |
$ | 72 | $ | (1,456 | ) | $ | 528 | $ | (2,704 | ) | ||||||
Accumulated comprehensive gain, net
of related tax benefits |
$ | 452 | $ | | $ | 452 | $ | | ||||||||
See notes to consolidated financial statements.
5
Table of Contents
Greenville Federal Financial Corporation
Consolidated Statements of Cash Flows
For the six months ended December 31, 2009 and 2008
(In thousands)
(Unaudited)
2009 | 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) for the period |
$ | 143 | $ | (2,704 | ) | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Accretion and amortization of premiums and discounts on investments and
mortgage-backed securities net |
5 | (1 | ) | |||||
Amortization of deferred loan origination fees |
(106 | ) | (23 | ) | ||||
Depreciation and amortization |
73 | 60 | ||||||
Amortization of mortgage servicing rights |
11 | 7 | ||||||
Other-than-temporary impairment of investment securities designated as
available for sale |
| 2,848 | ||||||
Loss (gain) on redemption of investment security |
(14 | ) | 8 | |||||
Provision for losses on loans |
82 | 50 | ||||||
Provision for loss on real estate acquired through foreclosure |
7 | 183 | ||||||
Loss (gain) on disposition of real estate acquired through foreclosure |
5 | (4 | ) | |||||
Federal Home Loan Bank stock dividends |
| (27 | ) | |||||
Increase in cash surrender value of life insurance |
(74 | ) | (77 | ) | ||||
Increase (decrease) in cash due to changes in: |
||||||||
Accrued interest receivable on loans |
33 | 30 | ||||||
Accrued interest receivable on mortgage-backed securities |
2 | (4 | ) | |||||
Accrued interest receivable on investment securities and other |
4 | 22 | ||||||
Prepaid expenses and other assets |
(465 | ) | 10 | |||||
Accrued interest payable |
(30 | ) | (64 | ) | ||||
Other liabilities |
(45 | ) | (111 | ) | ||||
Stock option expense |
7 | 12 | ||||||
Retention share expense |
21 | 24 | ||||||
Federal income taxes |
||||||||
Current |
45 | (55 | ) | |||||
Net cash provided by operating activities |
(296 | ) | 184 | |||||
Cash flows used in investing activities: |
||||||||
Purchases of mortgage-backed securities designated as held to maturity |
| (1,004 | ) | |||||
Sale/redemption of investment securities |
500 | 500 | ||||||
Proceeds from maturity of investment securities designated as held to maturity |
| 2,005 | ||||||
Proceeds from repayment of mortgage-backed securities |
277 | 103 | ||||||
Loan principal repayments |
2,889 | 6,032 | ||||||
Loan disbursements |
(3,828 | ) | (6,881 | ) | ||||
Purchase of office equipment |
(11 | ) | (83 | ) | ||||
Additions to real estate acquired through foreclosure |
| (13 | ) | |||||
Proceeds from sale of real estate acquired through foreclosure |
378 | 155 | ||||||
Net cash provided by investing activities |
205 | 814 | ||||||
See notes to consolidated financial statements.
6
Table of Contents
Greenville Federal Financial Corporation
Consolidated Statements of Cash Flows (Continued)
For the six months ended December 31, 2009 and 2008
(In thousands)
(Unaudited)
Consolidated Statements of Cash Flows (Continued)
For the six months ended December 31, 2009 and 2008
(In thousands)
(Unaudited)
2009 | 2008 | |||||||
(net balance brought forward) |
$ | (91 | ) | $ | 998 | |||
Cash flows provided by financing activities: |
||||||||
Net increase (decrease) in deposit accounts |
2,896 | (3,089 | ) | |||||
Proceeds from Federal Home Loan Bank advances |
5,000 | 3,500 | ||||||
Repayments of Federal Home Loan Bank advances |
(2,845 | ) | (2,210 | ) | ||||
Advances by borrowers for taxes and insurance |
53 | 70 | ||||||
Repurchase of common stock |
(1,304 | ) | | |||||
Dividends on common stock |
(144 | ) | (143 | ) | ||||
Net cash used in financing activities |
3,656 | (1,872 | ) | |||||
Net increase (decrease) in cash and cash equivalents |
3,565 | (874 | ) | |||||
Cash and cash equivalents at beginning of period |
4,474 | 7,220 | ||||||
Cash and cash equivalents at end of period |
$ | 8,039 | $ | 6,346 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
Interest on deposits and borrowings |
$ | 1,088 | $ | 1,376 | ||||
Federal income taxes |
$ | | $ | 92 | ||||
Supplemental disclosure of noncash investing activities: |
||||||||
Transfers from loans to real estate acquired through foreclosure |
$ | 150 | $ | 210 | ||||
Unrealized gains on securities designated as available for sale, net of related tax effects |
$ | 385 | $ | | ||||
See notes to consolidated financial statements.
7
Table of Contents
Greenville Federal Financial Corporation
Notes to Consolidated Financial Statements
For the six- and three-month periods ended December 31, 2009 and 2009
Note 1: Basis of Presentation
Greenville Federal Financial Corporation (the Corporation or GFFC) is the federally
chartered savings and loan holding company of Greenville Federal and was formed upon the completion
of the conversion of Greenville Federal into the stock form of organization and its reorganization
into the mutual holding company structure (the Reorganization) pursuant to Greenville Federals
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 Federals depositors and others, including a newly formed
employee stock ownership plan (ESOP), and 55% of its outstanding common stock to Greenville
Federal MHC, a federally chartered mutual holding company.
Greenville Federal, located in Greenville, Ohio, conducts a general banking business in
west-central Ohio, which consists of attracting deposits from the general public and applying those
funds to the origination of loans for residential, consumer and nonresidential purposes.
Greenville Federals 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 managements
control.
The accompanying unaudited consolidated financial statements were prepared in accordance with the
instructions for Form 10-Q and, therefore, do not include information or footnotes necessary for a
complete presentation of financial position, results of operations and cash flows in conformity
with accounting principles generally accepted in the United States of America. Accordingly, these
financial statements should be read in conjunction with the consolidated financial statements and
notes thereto of GFFC included in the Form 10-K as of and for the year ended June 30, 2009.
However, in the opinion of management, all adjustments (consisting of only normal recurring
accruals) which are necessary for a fair presentation of the financial statements have been
included. The results of operations for the six-month and three-month periods ended December 31,
2009, are not necessarily indicative of the results which may be expected for the entire fiscal
year.
Note 2: Principles of Consolidation
The consolidated financial statements include the accounts of GFFC and Greenville Federal.
All significant intercompany balances and transactions have been eliminated in consolidation.
Note 3: Earnings Per Share
Basic earnings per common share is computed based upon the weighted-average number of common
shares outstanding during the period, less 51,784 and 60,794 weighted-average shares for the three
months ended December 31, 2009 and 2008 respectively, and less 52,909 and 61,919 weighted-average
shares for the six months ended December 31, 2009 and 2008 respectively, in the Corporations ESOP
that are unallocated and not committed to be released.
8
Table of Contents
Greenville Federal Financial Corporation
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Weighted-average common shares deemed outstanding totaled 2,148,160 and 2,222,469 for the three
months ended December 31, 2009 and 2008 respectively. Weighted-average common shares deemed
outstanding totaled 2,189,535 and 2,221,344 for the six months ended December 31, 2009 and 2008,
respectively.
Diluted earnings per common share include the dilutive effect of all additional potential common
shares issuable. Weighted-average common shares deemed outstanding for purposes of computing
diluted earnings per share totaled 2,148,160 and 2,189,535 for the three-month and six-month
periods ended December 31, 2009, respectively. Options to purchase 52,400 shares of common stock
at $9.45 per share and 28,000 shares at $4.13 per share were outstanding at December 31, 2009, but
were excluded from the computation of diluted earnings per share because their exercise price was
greater than the average fair value. There were 74,800 option shares that were excluded from the
computation of diluted earnings per share for the three-month and six-month periods ended December
31, 2008, because their exercise price was greater than the average fair value.
Note 4: Recent Accounting Developments
Subsequent Events: The Corporation adopted FASB ASC 855, Subsequent Events (SFAS No. 165
Subsequent Events), on June 30, 2009. This guidance establishes general standards of accounting
for and disclosures of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. The Corporation has reviewed subsequent
events through February 12, 2010, which is the date the Corporation filed the form 10-Q with the
Securities and Exchange Commission (SEC).
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly: In April 2009, the FASB
issued new guidance impacting FASB ASC 820, Fair Value Measurements and Disclosures (FASB Staff
Position (FSP) FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly). This provides additional guidance for estimating fair value when the volume and level of
activity for the asset or liability have significantly decreased. This also includes guidance on
identifying circumstances that indicate a transaction is not orderly. The Corporations adoption of
the new guidance for the period ended June 30, 2009, did not have a material impact on the
Corporations consolidated financial statements. See Note 6 Fair Value for disclosures required
by this new guidance.
Interim Disclosures about Fair Value of Financial Instruments: The Corporation adopted new guidance
impacting FASB ASC 825-10-50, Financial Instruments (FSP FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments), effective June 30, 2009. This guidance
amended existing generally accepted accounting principles (GAAP) to require disclosures about
fair value of financial instruments for interim reporting periods of publicly traded companies as
well as in annual financial statements. The Corporations adoption of the new guidance did not have
a material impact on the Corporations consolidated financial statements. See Note 6 Fair Value
for disclosures required by this new guidance.
The FASB has issued Accounting Standards Update (ASU) No. 2009-12, Fair Value Measurements and Net
Asset Value per Share (or Its Equivalent.) This ASU amends FASB ASC 820 to provide guidance on
using the net asset value per share provided by the investee to estimate the fair value of an
alternative investment. The amendments in this ASU apply to an investment that is required or
permitted to be measured or disclosed at fair value on a recurring or nonrecurring basis and; as of
the reporting entitys measurement date, meets certain criteria.
9
Table of Contents
Greenville Federal Financial Corporation
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Recognition and Presentation of Other-Than-Temporary Impairments: In April 2009, the FASB issued
new guidance impacting FASB ASC 320-10, Investments Debt and Equity Securities (FSP FAS 115-2
and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments). This guidance
amends the other-than-temporary impairment guidance in GAAP for debt securities to make the
guidance more operational and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial statements. This FSP does not amend
existing recognition and measurement guidance related to other-than-temporary impairments of equity
securities. The Corporations adoption of the new guidance for the period ended June 30, 2009, did
not have a material impact on the Corporations consolidated financial statements as the
Corporation has not experienced other-than-temporary impairment within its debt securities
portfolio. The other-than-temporary impairment recognized in prior periods related to its
investment in an asset management mutual fund, considered an equity security.
In June 2009, the FASB issued ASC 105-10, The FASB Accounting Standards Codification
(Codification) and the Hierarchy of Generally Accepted Accounting Principles- a replacement of
FASB Statement No. 162. The Codification has become the source of authoritative U.S.
non-governmental entities. Rules and interpretive releases of the SEC under authority of
Codification supersedes all existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification became
non-authoritative. This Statement is effective for financial statements issued for interim and
annual periods ending after September 15, 2009.
Recently Issued but not yet Effective Accounting Pronouncements:
Accounting for Transfers of Financial Assets: In June 2009, FASB issued SFAS No. 166 Accounting
for Transfers of Financial Assetsan amendment of FASB Statement No. 140. This removes the
concept of a qualifying special-purpose entity from existing GAAP and removes the exception from
applying FASB ASC 810-10, Consolidation (FASB Interpretation No. 46 (revised December 2003)
Consolidation of Variable Interest Entities) to qualifying special purpose entities. The objective
of this new guidance is to improve the relevance, representational faithfulness, and comparability
of the information that a reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial performance, and
cash flows; and a transferors continuing involvement in transferred financial assets. The new
guidance shall be effective as of the beginning of each reporting entitys first annual reporting
period that begins after November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods thereafter. Management is still evaluating the
impact of this accounting standard.
Note 5: Commitments
At December 31, 2009 and 2008, the Corporation had outstanding commitments to extend credit of
$3.6 million and $3.4 million, respectively. Standby letters of credit as of December 31, 2009 and
2008, totaled $40,000 and $20,000, respectively.
10
Table of Contents
Greenville Federal Financial Corporation
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note 6: Disclosures About Fair Value of Assets and Liabilities
Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. The
measure of fair value under GAAP uses a hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to measure fair value:
Level 1
|
Quoted prices in active markets for identical assets or liabilities | |
Level 2
|
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities |
Following is a description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the valuation
hierarchy.
Available-for-Sale Securities
Where quoted market prices are available in an active market, securities are classified within
Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values
are estimated by using pricing models, quoted prices of securities with similar characteristics or
discounted cash flows. Level 2 securities include the AMF Ultra Short Mortgage Fund (the Fund)
based on the net asset value of the fund.
The following table presents the fair value measurements of assets measured at fair value on a
recurring basis and the level within fair value hierarchy in which the fair value measurements fall
at December 31, 2009:
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
2009 |
||||||||||||||||
Asset Management Fund |
$ | 11,787,000 | $ | 11,787,000 |
As of December 31, 2009, the Company does not have any financial assets or liabilities for which
fair value is measured on a non-recurring basis.
Fair Value of Financial Instruments
The following table presents the fair values of financial assets and liabilities carried on the
Corporations consolidated balance sheet at December 31, 2009, including those financial assets and
liabilities that are not measured and reported at fair value on a recurring or non-recurring
basis. The methods used are greatly affected by the assumptions applied, including the discount rate
and estimates of future cash flows. Therefore, the fair values presented may not represent amounts
that could be realized in an exchange for certain financial instruments.
11
Table of Contents
Greenville Federal Financial Corporation
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
The following methods and assumptions were used by the Corporation in estimating its fair value
disclosures for financial instruments at December 31, 2009 and June 30, 2009:
Cash and cash equivalents: The carrying amounts presented in the consolidated balance
sheets for cash and cash equivalents are deemed to approximate fair value.
Investment and mortgage-backed securities: For investment and mortgage-backed securities,
fair value is deemed to equal the quoted market price.
Loans receivable: The loan portfolio has been segregated into categories with similar
characteristics, such as one- to four-family residential, multi-family residential, nonresidential
real estate, commercial and consumer loans. These loan categories were further delineated into
fixed-rate and adjustable-rate loans. The fair values for the resultant loan categories were
computed via discounted cash flow analysis, using current interest rates offered for loans with
similar terms to borrowers of similar credit quality.
Federal Home Loan Bank stock: It was not practicable to determine the fair value of the
FHLB stock due to restrictions placed on its transferability.
Accrued Interest Receivable: The carrying amount presented in the consolidated balance
sheets is deemed to approximate fair value.
Deposits: The fair value of checking and NOW accounts, savings accounts, and money market
deposits is deemed to approximate the amount payable on demand at December 31, 2009 and June 30,
2009. Fair values for fixed-rate certificates of deposit have been estimated using a discounted
cash flow calculation using the interest rates currently offered for deposits of similar remaining
maturities.
Federal Home Loan Bank advances: The fair value of Federal Home Loan Bank advances has
been estimated using discounted cash flow analysis, based on the interest rates currently offered
for advances of similar remaining maturities.
Accrued Interest Payable: The carrying amount presented in the consolidated balance sheets
is deemed to approximate fair value.
Commitments to extend credit: For fixed-rate and adjustable-rate loan commitments, the
fair value estimate considers the difference between current levels of interest rates and committed
rates. At June 30, 2009 and 2008, the fair value of loan commitments was not material.
12
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Greenville Federal Financial Corporation
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Based on the foregoing methods and assumptions, the carrying value and fair value of the
Corporations financial instruments are as follows at December 31, 2009 and June 30, 2009:
December 31, 2009 | June 30, 2009 | |||||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||||
Value | Value | Value | Value | |||||||||||||||
(In thousands) | ||||||||||||||||||
Financial Assets |
||||||||||||||||||
Cash and cash equivalents |
$ | 8,039 | $ | 8,039 | $ | 4,474 | $ | 4,474 | ||||||||||
Investment securities available for sale |
11,787 | 11,787 | 11,888 | 11,888 | ||||||||||||||
Investment securities held to maturity |
5 | 5 | 11 | 11 | ||||||||||||||
Mortgage-backed securities |
1,546 | 1,630 | 1,822 | 1,893 | ||||||||||||||
Loans receivable |
92,476 | 99,110 | 91,663 | 96,002 | ||||||||||||||
Accrued interest receivable |
472 | 472 | 511 | 511 | ||||||||||||||
$ | 114,325 | $ | 121,043 | $ | 110,369 | $ | 114,779 | |||||||||||
Financial Liabilities |
||||||||||||||||||
Deposits |
$ | 75,814 | $ | 76,788 | $ | 72,918 | $ | 73,859 | ||||||||||
Advances from the Federal Home Loan Bank |
29,058 | 28,424 | 26,903 | 26,192 | ||||||||||||||
Advances by borrowers for taxes and insurance |
459 | 459 | 406 | 406 | ||||||||||||||
Accrued interest payable |
81 | 81 | 111 | 111 | ||||||||||||||
$ | 105,412 | $ | 105,752 | $ | 100,338 | $ | 100,568 | |||||||||||
Note 7: Investment and Mortgage-backed Securities
The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value
of investment securities at December 31, and June 30, 2009 are shown below.
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(In thousands) | ||||||||||||||||
December 31, 2009 |
||||||||||||||||
Available for Sale: |
||||||||||||||||
Asset management fund |
$ | 11,335 | $ | 452 | $ | | $ | 11,787 | ||||||||
Held to Maturity: |
||||||||||||||||
Municipal obligations |
$ | 5 | $ | | $ | | $ | 5 | ||||||||
June 30, 2009 |
||||||||||||||||
Available for Sale: |
||||||||||||||||
Asset management fund |
$ | 11,821 | $ | 67 | $ | | $ | 11,888 | ||||||||
Held to Maturity: |
||||||||||||||||
Municipal obligations |
$ | 11 | $ | | $ | | $ | 11 | ||||||||
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Greenville Federal Financial Corporation
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
The amortized cost and estimated fair value of U.S. Government agency, government sponsored
entities and municipal obligations held to maturity, by term to maturity at December 31, 2009 and
June 30, 2009, are shown below.
December 31, 2009 | June 30, 2009 | |||||||||||||||
Estimated | Estimated | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
Cost | Value | Cost | Value | |||||||||||||
Held to Maturity: |
||||||||||||||||
Due within one year |
$ | 5 | $ | 5 | $ | 11 | $ | 11 | ||||||||
Total held to maturity |
$ | 5 | $ | 5 | $ | 11 | $ | 11 | ||||||||
The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value
of mortgage-backed securities held to maturity at December 31, 2009 and June 30, 2009 are shown
below.
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(In thousands) | ||||||||||||||||
December 31, 2009 |
||||||||||||||||
Federal Home Loan Mortgage
Corporation participation
certificates |
$ | 145 | $ | 2 | $ | | $ | 147 | ||||||||
Federal National Mortgage
Association participation
certificates |
794 | 50 | | 844 | ||||||||||||
Government National Mortgage
Association participation
certificates |
607 | 32 | | 639 | ||||||||||||
Total mortgage-backed securities |
$ | 1,546 | $ | 84 | $ | | $ | 1,630 | ||||||||
June 30, 2009 |
||||||||||||||||
Federal Home Loan Mortgage
Corporation participation
certificates |
$ | 155 | $ | | $ | | $ | 155 | ||||||||
Federal National Mortgage
Association participation
certificates |
881 | 42 | | 923 | ||||||||||||
Government National Mortgage
Association participation
certificates |
786 | 29 | | 815 | ||||||||||||
Total mortgage-backed securities |
$ | 1,822 | $ | 71 | $ | | $ | 1,893 | ||||||||
14
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Greenville Federal Financial Corporation
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
The amortized cost and estimated fair values of mortgage-backed securities at December 31,
2009 and June 30, 2009, by contractual term to maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may generally prepay obligations without
prepayment penalties.
December 31, 2009 | June 30, 2009 | |||||||||||||||
Amortized | Estimated | Amortized | Estimated | |||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Due in one year or less |
$ | | $ | | $ | | $ | | ||||||||
Due after one year through five years |
| | 1 | 1 | ||||||||||||
Due after five years through ten years |
176 | 178 | 135 | 135 | ||||||||||||
Due after ten years |
1,370 | 1,452 | 1,686 | 1,757 | ||||||||||||
$ | 1,546 | $ | 1,630 | $ | 1,822 | $ | 1,893 | |||||||||
The Corporation had no securities in an unrealized loss position at December 31, 2009 or June
30, 2009.
The Corporations investments are generally limited to issuances of U. S. Government, government
agencies, government sponsored entities and other high quality debt instruments. The Fund
represents an open-ended adjustable-rate mortgage fund. The Fund invests primarily in high quality
adjustable-rate mortgage-related investments, with a target duration generally no shorter than a
six-month U. S. Treasury Bill and no longer than a one-year U.S. Treasury Bill. The Fund may also
invest in U.S. Government and agency securities, government sponsored entities securities,
certificates of deposit, repurchase agreements and bankers acceptances.
It is the policy of the Fund to pay cash in an amount not to exceed $250,000 over a ninety-day
period to each investor requesting redemption. Greenville Federal took the $250,000 redemption
option once each quarter during fiscal 2009 as well as the first two quarters of fiscal 2010.
Currently, the Fund has an unrealized gain of $452,000.
Note 8: Loans Receivable
The composition of the loan portfolio at December 31, 2009 and June 30, 2009 is as follows:
December 31, | June 30, | |||||||
2009 | 2009 | |||||||
(In thousands) | ||||||||
Residential real estate |
||||||||
One- to four-family |
$ | 79,227 | $ | 77,866 | ||||
Multi-family |
3,781 | 3,825 | ||||||
Construction |
1,326 | 686 | ||||||
Nonresidential real estate |
5,375 | 5,793 | ||||||
Commercial |
2,043 | 2,270 | ||||||
Consumer and other |
2,500 | 2,710 | ||||||
Total loans |
94,252 | 93,150 | ||||||
Less |
||||||||
Unearned interest |
8 | 10 | ||||||
Deferred loan origination fees, net |
317 | 338 | ||||||
Allowance for loan losses |
680 | 577 | ||||||
Undisbursed portion of loans in process |
771 | 562 | ||||||
Net loans |
$ | 92,476 | $ | 91,663 | ||||
15
Table of Contents
Greenville Federal Financial Corporation
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Note 9: Allowance for Loan Losses
Following is an analysis of changes in the alllowance for loan losses for the six-month
periods ended December 31:
2009 | 2008 | |||||||
(In thousands) | ||||||||
Balance, July 1 |
$ | 577 | $ | 583 | ||||
Provision for loan losses |
152 | 50 | ||||||
Charge-offs of loans, net of recoveries |
(49 | ) | (75 | ) | ||||
Balance, end of year |
$ | 680 | $ | 558 | ||||
At December 31, 2009 and 2008, the Corporation had accruing loans delinquent 90 days or more
totaling $665,000 and $388,000, respectively. At December 31, 2009 and 2008, the Corporation had
non-accruing loans totaling $577,000 and $397,000, respectively. Interest income that would have
been recognized had such nonperforming loans performed pursuant to contractual terms totaled
approximately $34,000 and $22,000 for the six-months ended December 31, 2009 and 2008,
respectively.
Impaired loans totaled $572,000 at December 31, 2009. There were no impaired loans at
December 31, 2008. Interest of $20,000 was recognized on impaired loans of $572,000 for the
six-months ended December 31,2009. Interest of $7,000 was recognized on impaired loans on a cash
basis during the six-months ended December 31, 2009.
16
Table of Contents
Greenville Federal Financial Corporation
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Forward Looking Statements
Certain statements contained in this report that are not historical facts are forward-looking
statements that are subject to certain risks and uncertainties. When used herein, the terms
anticipates, plans, expects, believes, intends and similar expressions as they relate to
the Corporation or its management are intended to identify such forward looking statements. The
Corporations 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 Corporations critical accounting policies which were
disclosed in the Corporations Form 10-K filing as of June 30, 2009.
Discussion of Financial Condition Changes from June 30, 2009 to December 31, 2009
The Corporations assets totaled $123.8 million at December 31, 2009, an increase of $4.2 million,
or 3.5%, from the $119.6 million total at June 30, 2009. The increase in assets resulted primarily
from an increase in cash and cash equivalents and loans receivable, partially offset by a decrease
in real estate acquired through foreclosure.
Cash and cash equivalents, consisting of cash and due from banks and interest-bearing deposits in
other financial institutions, increased by $3.6 million, or 79.7%, over the six-month period ended
December 31, 2009. The primary reason for the increase in cash and cash equivalents was due to a
deposit of proceeds from an FHLB advance taken during the quarter. Investment securities
available-for-sale totaled $11.8 million at December 31, 2009, a decrease of $101,000, or 0.80%,
from the total at June 30, 2009.
Loans receivable totaled $92.5 million at December 31, 2009, compared to $91.7 million at June 30,
2009, an increase of $813,000, or 0.9%. The increase was primarily attributable to a $1.4 million
growth in one- to four-family residential real estate loans, coupled with a $640,000 increase in
one- to four-family construction loans, partially offset by a $417,000 decrease in non-residential
real estate, a $227,000 decrease in commercial loans, and a $211,000 decrease in consumer loans.
Loan disbursements during the period totaling $3.8 million were partially offset by principal
repayments of $2.9 million and loans transferred into real estate owned of $150,000.
Nonresidential real estate, multi-family residential real estate and commercial lending generally
involves a higher degree of risk than one- to four-family residential real estate lending due to
the relatively larger loan amounts and the effects of general economic conditions on the successful
operation of income-producing properties and businesses. Greenville Federal endeavors to reduce
such risk by evaluating the credit history and past performance of the borrower, the location of
the real estate, the quality of the management operating the property or business, the debt service
ratio, the quality and characteristics of the income stream generated by the property or business
and appraisals supporting the real estate or collateral valuation. The majority of these loans
have been made to existing customers. Consumer lending also may entail greater risk than
residential lending. The risk of default on consumer lending increases during periods of
recession, high unemployment and other adverse economic conditions. Management intends to pursue a
limited rate of growth in nonresidential, consumer and commercial loans over the next year, but
Greenville Federal is committed to retaining its historical focus on one- to four-family
residential lending.
17
Table of Contents
Greenville Federal Financial Corporation
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Managements Discussion and Analysis of Financial Condition
and Results of Operations
The allowance for loan losses totaled $680,000 at December 31, 2009, an increase of $103,000, or
17.9%, from the June 30, 2009 balance of $577,000, and represented 0.72% and 0.62% of total loans
at those respective dates. Greenville Federals nonperforming loans totaled $1.2 million and
$834,000 at December 31, 2009 and June 30, 2009, respectively. In determining the allowance for
loan losses at any point in time, management and the board of directors apply a systematic process
focusing on the risk of loss in the portfolio. First, the loan portfolio is segregated by loan
types to be evaluated collectively and loan types to be evaluated individually. Delinquent
multi-family and nonresidential loans are evaluated individually for potential impairment. Second,
the allowance for loan losses is evaluated using Greenville Federals historic loss experience,
adjusted for changes in economic trends in Greenville Federals lending area, by applying these
adjusted loss percentages to the loan types to be evaluated collectively in the portfolio. To the
best of managements knowledge, all known and inherent losses that are probable and that can be
reasonably estimated have been recorded at December 31, 2009. Although management believes that
the allowance for loan losses at December 31, 2009, 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 Federals results of operations.
Deposits totaled $75.8 million at December 31, 2009, an increase of $2.9 million, or 4.0%, from
June 30, 2009. Greenville Federal participates in a bidding process for local short-term public
deposits. Such short-term deposits from the City of Greenville totaled $1.3 million at December
31, 2009, up from $500,000 at June 30, 2009.
Advances from the Federal Home Loan Bank totaled $29.1 million at December 31, 2009, an increase of
$2.2 million, or 8.0%, compared to June 30, 2009. The increase in advances was primarily
the result of low interest rates offered on advances by the Federal Home Loan Bank. Funds from
advances are currently a more affordable option than the above mentioned short-term public
deposits.
Shareholders equity totaled $17.7 million at December 31, 2009, a decrease of $892,000, or 4.8%,
from June 30, 2009. The decrease resulted from Greenville Federal purchasing 200,510 outstanding
common shares at a purchase price of $6.50 per share, through a modified dutch auction tender
offer, for a total cost of $1.3 million, partially offset by a $385,000 unrealized gain on
securities designated as available for sale.
Greenville Federal is required to maintain minimum regulatory capital pursuant to federal
regulations. At December 31, 2009, Greenville Federals regulatory capital continued to
substantially exceed all minimum regulatory capital requirements.
18
Table of Contents
Greenville Federal Financial Corporation
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Managements Discussion and Analysis of Financial Condition
and Results of Operations
The following tables summarize Greenville Federals regulatory capital requirements and actual
capital at December 31, 2009 and June 30, 2009:
Minimum Required To | ||||||||||||||||||||||||
Minimum Required For | Be Well Capitalized | |||||||||||||||||||||||
Capital Adequacy | Under Prompt Corrective | |||||||||||||||||||||||
Actual | Purposes | Action Regulations | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
December 31, 2009 |
||||||||||||||||||||||||
Tangible capital |
$ | 10,538 | 8.56 | % | $ | 1,846 | 1.50 | % | $ | 6,154 | 5.00 | % | ||||||||||||
Core capital |
$ | 10,538 | 8.56 | % | $ | 4,923 | 4.00 | % | $ | 7,385 | 6.00 | % | ||||||||||||
Risk-based capital |
$ | 11,097 | 13.44 | % | $ | 6,274 | 8.00 | % | $ | 7,843 | 10.00 | % | ||||||||||||
June 30, 2009 |
||||||||||||||||||||||||
Tangible capital |
$ | 10,288 | 8.62 | % | $ | 1,791 | 1.50 | % | $ | 5,970 | 5.00 | % | ||||||||||||
Core capital |
$ | 10,288 | 8.62 | % | $ | 4,776 | 4.00 | % | $ | 7,164 | 6.00 | % | ||||||||||||
Risk-based capital |
$ | 10,813 | 13.83 | % | $ | 6,257 | 8.00 | % | $ | 11,939 | 10.00 | % |
Comparison of Operating Results for the Three-Month Periods Ended December 31, 2009 and 2008
General
The Corporation recorded net income of $82,000 for the three months ended December 31, 2009,
compared to a net loss of $1.5 million for the same period in 2008. The increase in net income was
due primarily to the lack of a non-cash impairment charge on investment securities in the 2009
quarter as the Fund ended the quarter in an unrealized gain position. Additional factors include a
decrease of $170,000 in provision for loss on real estate acquired through foreclosure, partially
offset by an increase of $32,000 in provision for losses on loans and a decrease in net interest
income of $24,000.
Net Interest Income
Interest income totaled $1.6 million for the three months ended December 31, 2009; a decrease of
$127,000, or 7.4%, compared to the three months ended December 31, 2008. Interest income on loans
decreased by $61,000, or 4.1%, due primarily to a decrease in the weighted-average yield on loans
from 6.62% to 6.19%, partially offset by a $2.3 million increase in the average balance of loans
outstanding. Interest income on investment securities decreased by $59,000, or 34.5%, due
primarily to a $2.5 million decrease in the average balance outstanding, coupled with a decrease in
the weighted-average yield on such securities from 4.78% in the 2008 three-month period to 3.79% in
the 2009 three-month period. All decreases in weighted average yields are primarily due to
decreases in rates in the current rate environment.
19
Table of Contents
Greenville Federal Financial Corporation
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Interest expense totaled $546,000 for the three months ended December 31, 2009, a decrease of
$103,000, or 15.9%, compared to the three months ended December 31, 2008. This decrease was a
result of a decrease in the weighted-average cost of funds to 2.24% for the three months ended
December 31, 2009, from 2.56% for the three months ended December 31, 2008, coupled with a $3.7
million decrease 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
decreased by
$24,000, or 2.2%, compared to the same period in 2008. The interest rate spread decreased to 3.43%
for the three months ended December 31, 2009, compared to 3.59% for the three months ended December
31, 2008. The net interest margin decreased to 3.72% for the three months ended December 31, 2009,
from 3.83% for the three months ended December 31, 2008.
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
managements assessment of economic factors in Greenville Federals lending area that may affect
the collectibility of Greenville Federals loan portfolio. Management recorded a provision for
losses on loans of $82,000 and $50,000 for the three months ended December 31, 2009 and 2008,
respectively. The allowance for loan losses totaled $680,000 at December 31, 2009, compared to
$577,000 at June 30, 2009. Greenville Federals nonperforming loans, consisting of loans 90 days
or more past due and nonaccrual loans, totaled $1.2 million at December 31, 2009, an increase of
$408,000 compared to June 30, 2009. Due to the increase in nonperforming loans, additional
provision for losses on loans was charged to earnings. Of Greenville Federals $1.2 million in
nonperforming loans, 93.8% are single-family residential mortgage loans and 6.2% are consumer
loans. 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.
General, Administrative and Other Expense
General, administrative and other expense, net of the $1.5 million non-cash impairment charge on
investment securities recorded for the three months ended December 31, 2008, decreased $198,000, or
15.5%, for the three months ended December 31, 2009, compared to the same quarter in 2008. The
provision for losses on real estate acquired through foreclosure decreased $170,000, or 100.0%;
employee compensation and benefits decreased $87,000, or 14.3%; and data processing expense
decreased $14,000, or 14.7%. Such decreases were partially offset by an $83,000, or 34.9%, increase
in other operating expense. The decrease in employee compensation and benefits resulted from a
decrease in the number of employees. The decrease in data processing expense was due primarily to a
decrease in the rate structure from the previous year. The increase in other operating expense was
due primarily to an increase in FDIC insurance premiums and legal expenses. The increase in FDIC
premiums was due primarily to increases imposed by the FDIC on all insured financial institutions.
The non-cash impairment charge of $1.5 million on investment securities recorded during the quarter
ended December 31, 2008, resulted from an investment by the Corporations subsidiary, Greenville
Federal, in the AMF Ultra Short Mortgage Fund (the Fund). For the quarter ended December 31,
2009, the Fund ended in an unrealized gain position of $452,000; therefore, no non-cash impairment
charge was recorded in the 2009 quarter.
20
Table of Contents
Greenville Federal Financial Corporation
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Federal Income Taxes
The provision for federal income taxes totaled $24,000 for the three months ended December 31,
2009, an increase of $60,000, or 166.7%, compared to the same quarter in 2008. The increase
resulted primarily from a $142,000 increase in pre-tax earnings, net of the $1.5 million
other-than-temporary impairment charge, year to year. For the three months ended December 31,
2009, the effective tax rate was 22.6%, compared to 100.0% for the three months ended December 31,
2008, which was adjusted for the other-than-temporary impairment.
Comparison of Operating Results for the Six-Month Periods Ended December 31, 2009 and 2008
General
The Corporation recorded net income of $143,000 for the six months ended December 31, 2009,
compared to a net loss of $2.7 million for the same period in 2008. The increase in net income was
due to the lack of a non-cash impairment charge on investment securities in the 2009 six-month
period as the Fund ended the period in an unrealized gain position. Excluding the $2.8 million
non-cash impairment charge on investment securities recorded during the six-month period ended
December 31, 2008, the Corporation would have recorded net income of $144,000.
Net Interest Income
Interest income totaled $3.2 million for the six months ended December 31, 2009, a decrease of
$250,000, or 7.2%, compared to the six months ended December 31, 2008. Interest income on loans
decreased by $111,000, or 3.7%, due primarily to a decrease in the weighted-average yield on loans
from 6.64% to 6.21%, partially offset by a $2.6 million increase in the average balance of loans
outstanding. Interest income on investment securities decreased by $118,000, or 33.8%, due
primarily to a $3.6 million decrease in the average balance outstanding, coupled with a decrease in
the weighted-average yield on such securities from 4.52% in the 2008 six-month period to 3.90% in
the 2009 six-month period. All decreases in weighted average yields are primarily due to decreases
in rates in the current rate environment.
Interest expense totaled $1.1 million for the six months ended December 31, 2009, a decrease of
$200,000, or 15.2%, compared to the six months ended December 31, 2008. This decrease was a result
of a decrease in the weighted-average cost of funds to 2.29% for the six months ended December 31,
2009, from 2.65% for the six months ended December 31, 2008, coupled with a $2.0 million decrease
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
decreased by
$50,000, or 2.3%, compared to the same period in 2008. The interest rate spread decreased to 3.43%
for the six months ended December 31, 2009, compared to 3.48% for the six months ended December 31,
2008. The net interest margin decreased to 3.73% for the six months ended December 31, 2009, from
3.80% for the six months ended December 31, 2008.
21
Table of Contents
Greenville Federal Financial Corporation
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Provision for Losses on Loans
Management recorded a provision for losses on loans of $152,000 and $50,000 for the six months
ended December 31, 2009 and 2008, respectively. The allowance for loan losses totaled $680,000 at
December 31, 2009, compared to $577,000 at June 30, 2009. Greenville Federals nonperforming
loans, consisting of loans 90 days or more past due and nonaccrual loans, totaled $1.2 million at
December 31, 2009, an increase of $408,000 compared to June 30, 2009.
Other Income
Other income totaled $453,000 for the six months ended December 31, 2009, compared to $454,000 for
the six months ended December 31, 2008. The difference of $1,000, or 0.22%, resulted from a
decrease in customer service charges.
General, Administrative and Other Expense
General, administrative and other expense, net of the $2.8 million non-cash impairment charge on
investment securities recorded for the six months ended December 31, 2008, decreased $171,000, or
7.2%, for the six months ended December 31, 2009, compared to the same period in 2008. The
provision for losses on real estate acquired through foreclosure decreased $176,000, or 96.2%; data
processing expense decreased $77,000, or 32.1%; and employee compensation and benefits decreased
$57,000, or 4.8%. Such decreases were partially offset by a $160,000, or 36.1%, increase in other
operating expense. The decrease in data processing expense was due primarily to a decrease in the
rate structure from the previous year. The decrease in employee compensation and benefits was due
primarily to a decrease in employees. The increase in other operating expense resulted from a
$77,000 increase in FDIC insurance premiums, a $38,000 increase in Edgar filing expenses, a $35,000
increase in professional services, and a $29,000 increase in loan expenses.
The non-cash impairment charge of $2.8 million on investment securities recorded during the six
months ended December 31, 2008, resulted from an investment by the Corporations subsidiary,
Greenville Federal, in the Fund. For the six months ended December 31, 2009, the Fund ended in an
unrealized gain position of $452,000; therefore, no non-cash impairment charge was recorded in the
2009 period.
Federal Income Taxes
The provision for federal income taxes totaled $37,000 for the six months ended December 31, 2009,
an increase of $19,000, or 105.6%, compared to the same quarter in 2008. The increase resulted
primarily from an increase in pre-tax earnings, net of the other-than-temporary impairment charge,
year to year. For the six months ended December 31, 2009, the effective tax rate was 20.6%,
compared to 11.1% for the six months ended December 31, 2008, which was adjusted for the
other-than-temporary impairment.
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Greenville Federal Financial Corporation
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Economic Trends and Uncertainties
Negative developments in the capital markets beginning in the latter half of 2007 and continuing
into 2010 produced uncertainty in the financial markets and a related economic downturn. Dramatic
declines in the housing market, which resulted in decreasing home prices and increasing
delinquencies and foreclosures, negatively impacted the credit performance of mortgage and
construction loans and resulted in significant write-downs of asset values by financial
institutions, including government-sponsored entities and major commercial and investment banks.
The values of real estate collateral supporting many loans have declined and may continue to
decline, which may result in greater losses on loans that default. The declines in the performance
and value of mortgage assets started in the sub-prime market but spread to all mortgage and real
estate asset classes, leveraged bank loans and nearly all other asset classes, including equity
securities. These write-downs have caused many financial institutions to seek additional capital,
to merge with larger and stronger institutions and, in some cases, to fail.
Concerns over the stability of the financial markets and the economy have resulted in decreased
lending by some financial institutions to their customers and to each other. This market turmoil
and tightening of credit has led to increased commercial and consumer delinquencies, lack of
customer confidence, increased market volatility and a widespread reduction in general business
activity. Competition among depository institutions for deposits has increased significantly.
Many financial institutions have experienced decreased access to deposits or borrowings. Also, our
ability to assess the creditworthiness of customers and to estimate the losses inherent in our
credit exposure is made more complex by these difficult market and economic conditions.
Business activity across a wide range of industries and regions is greatly reduced and local
governments and many companies are in serious difficulty due to the lack of consumer spending and
the lack of liquidity in the credit markets. A worsening of current conditions would likely
exacerbate the adverse effects of these difficult market and economic conditions on us, our
customers and the other financial institutions in our market. As a result, we may experience
increases in foreclosures, delinquencies and customer bankruptcies, as well as more restricted
access to funds.
In 2008 and continuing into 2009 and 2010, the Federal Reserve Board, Congress, the Treasury, the
FDIC and others have taken numerous actions to address the current liquidity and credit crisis in
the financial markets. These measures include homeowner relief that encourages loan restructuring
and modification; the establishment of significant liquidity and credit facilities for financial
institutions and investment banks; the lowering of the federal funds rate; and coordinated efforts
to address liquidity and other weaknesses in the banking sector. There can be no assurance as to
the actual impact that new legislation will have on the economy or financial markets. The failure
of these programs to stabilize the financial markets could weaken public confidence in financial
institutions and have a substantial and material adverse effect on our ability to attract and
retain new customers.
Further, additional legislation or regulations may be adopted in the future that reduce the amount
that our customers are required to pay under existing loan contracts or limit our ability to
foreclose on collateral. For example, legislation has been proposed to give judges the ability to
adjust the principal and interest payments on residential mortgages to allow homeowners to avoid
foreclosure. There can be no assurance that future legislation will not significantly impact our
ability to collect on our current loans or foreclose on collateral.
The economic turmoil of the last two years has resulted in higher levels of bank failures, which
dramatically increased resolution costs of the FDIC and depleted the deposit insurance fund. The
FDIC therefore increased assessment rates of insured institutions uniformly by 7 basis points (7
cents for every $100 of deposits), beginning with the first quarter of 2009. Additional changes,
beginning April 1, 2009, were to require riskier institutions to pay a larger share of premiums by
factoring in rate adjustments based on secured liabilities and unsecured debt levels.
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Table of Contents
Greenville Federal Financial Corporation
Managements Discussion and Analysis of Financial Condition
and Results of Operations
Managements Discussion and Analysis of Financial Condition
and Results of Operations
The Emergency Economic Stabilization Act of 2008 (the EESA) instituted two temporary programs
effective through December 31, 2009 to further insure customer deposits at FDIC-member banks:
deposit accounts are now insured up to $250,000 per customer (up from $100,000) and noninterest
bearing transactional accounts are fully insured (unlimited coverage). The effectiveness of these
temporary programs has been extended through December 31, 2013.
On May 22, 2009, the FDIC adopted a final rule that imposed a special assessment for the second
quarter of 2009 of 5 basis points on each insured depositary institutions assets minus its Tier 1
capital as of June 30, 2009, which was collected on September 30, 2009.
On November 12, 2009, the FDIC adopted a final rule requiring insured institutions to prepay their
estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011
and 2012. The prepaid assessments for these periods were collected on December 30, 2009, along
with the regular quarterly risk-based deposit insurance assessment for the third quarter of 2009.
For the fourth quarter of 2009 and for all of 2010, the prepaid assessment rate was based on each
institutions total base assessment rate in effect on September 30, 2009, modified to assume that
the assessment rate in effect for the institution on September 30, 2009, was in effect for the
entire third quarter of 2009. On September 29, 2009, the FDIC increased annual assessment rates
uniformly by 3 basis points beginning in 2011. As a result, an institutions total base assessment
rate for purposes estimating an institutions assessment for 2011 and 2012 was increased by 3 basis
points. Each institutions prepaid assessment base was calculated using its third quarter 2009
assessment base, adjusted quarterly for an estimated five percent annual growth rate in the
assessment base through the end of 2012. The three-year prepayment for the Corporation will be
approximately $519,000 for Greenville Federal, which will be expensed over three years.
In January 2010, the FDIC issued an advance notice of proposed rule-making asking for comments on
how the FDICs risk-based deposit insurance assessment system could be changed to include the risks
of certain employee compensation as criteria in the assessment system.
We are generally unable to control the amount of premiums that we are required to pay for FDIC
insurance. If there are additional financial institution failures, we may be required to pay even
higher FDIC premiums than the recently increased levels. Increases in FDIC insurance premiums may
materially adversely affect our results of operations.
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable.
ITEM 4T. | Controls and Procedures |
The Chief Executive Officer and the Chief Financial Officer of the Registrant have evaluated
the effectiveness of the Registrants disclosure controls and procedures as of December 31, 2009,
and have concluded that the disclosure controls and procedures in place at December 31, 2009, were
effective.
There were no changes in the Corporations internal control over financial reporting that occurred
during the quarter ended December 31, 2009, that have materially affected, or are reasonably likely
to materially affect, the Corporations internal control over financial reporting.
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Table of Contents
Greenville Federal Financial Corporation
PART II OTHER INFORMATION (CONTINUED)
ITEM 1. | Legal Proceedings |
Not applicable.
ITEM 1A. | Risk Factors |
Not applicable.
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The following table sets forth information regarding the only purchase of the Corporations
stock made by the Corporation during the quarter ended December 31, 2009:
Total Number of Shares (or | Maximum Number (or Approximate | |||||||||||||||
Total Number of | Average Price | Units) Purchased as Part of | Dollar Value) of Shares (or Units) | |||||||||||||
Shares (or Units) | Paid Per Share | Publicly Announced Plans | That May Be Purchased Under the | |||||||||||||
Period | Purchased(1) | (or Unit) | or Programs | Plans or Programs | ||||||||||||
November 2009 |
200,510 | $ | 6.50 | 200,510 | |
(1) | The shares were purchased pursuant to an issuer tender offer announced on July 8, 2009. The
Board of Directors announced an intention to repurchase up to 200,000 shares, subject to an
increase of up to an additional 2% of the outstanding common shares of the Corporation. The Board
of Directors later determined to repurchase 200,510 shares. The tender offer expired on November
16, 2009. |
ITEM 3. | Defaults Upon Senior Securities |
Not applicable.
ITEM 4. | Submission of Matters to a Vote of Security Holders |
On October 29, 2009 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 terms expiring in
2012 by the votes indicated below:
For | Withheld | |||||||
George S. Luce, Jr. |
1,976,136 | 85,165 | ||||||
James W. Ward |
1,976,796 | 87,505 | ||||||
David R. Wolverton |
1,971,636 | 89,665 |
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Table of Contents
Greenville Federal Financial Corporation
PART II OTHER INFORMATION (CONTINUED)
PART II OTHER INFORMATION (CONTINUED)
The following members of the Board of Directors of the Company were elected for terms expiring
in 2010 by the votes indicated below:
For | Withheld | |||||||
Jeff D. Kniese |
1,973,471 | 87,830 |
The selection of Crowe Horwath, LLP as the Corporations independent registered
public accounting firm to audit the financial statements for fiscal year 2010 was ratified by the
votes indicated below:
Broker | ||||||||||||
For | Against | Abstain | non-vote | |||||||||
2,051,186 | 25 | 5,552 | 4,540 |
ITEM 5. | Other Information |
Not applicable.
ITEM 6. | Exhibits |
3.1 | Greenville Federal Financial Corporation Federal Stock Subsidiary Holding Company Charter |
|||
3.2 | Greenville Federal Financial Corporation Federal Stock Subsidiary Holding Company Bylaws |
|||
4 | Agreement to Furnish Long-Term Debt Instruments and Agreements |
|||
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 |
26
Table of Contents
Greenville Federal Financial Corporation
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
GREENVILLE FEDERAL FINANCIAL CORPORATION |
||||
Date: February 12, 2010 | By: | /s/ Jeff D. Kniese | ||
Jeff D. Kniese | ||||
President and Chief Executive Officer | ||||
Date: February 12, 2010 | By: | /s/ Susan J. Allread | ||
Susan J. Allread | ||||
Chief Financial Officer |
27
Table of Contents
INDEX TO EXHIBITS
3.1 | Greenville Federal Financial Corporation Federal Stock Subsidiary Holding Company Charter
(Incorporated by reference to Exhibit 2 to the Registration Statement on Form 8-A filed by the
Registrant with the Securities and Exchange Commission on December 14, 2006) |
3.2 | Greenville Federal Financial Corporation Federal Stock Subsidiary Holding Company Bylaws
(Incorporated by reference to Exhibit 3 to the Registration Statement on Form 8-A filed by the
Registrant with the Securities and Exchange Commission on December 14, 2006) |
|
4 | Agreement to Furnish Long-Term Debt Instruments and Agreements |
|
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 |
28