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EX-31.1 - EXHIBIT 31.1 - Versailles Financial Corpex31_1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2010

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
 
To
 

Commission File No.  000-53870

VERSAILLES FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

Maryland
27-1330256
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

27 East Main Street, Versailles, Ohio
45380
(Address of principal executive offices)
(Zip Code)

(937) 526-4515
(Registrant’s telephone number, including area code)

Not applicable
(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  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 (232.05 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  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.

Large accelerated filer   o
Accelerated filer o
Non-accelerated filer     o (Do not check if smaller reporting company)
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value
Outstanding at February 14, 2011
 
427,504 Common Shares
 


 
 

 

Explanatory Note

Versailles Financial Corporation (the “Registrant”), headquartered in Versailles, Ohio, was formed to serve as the stock holding company for Versailles Savings and Loan Company following its mutual-to-stock conversion and stock offering.  The closing of the mutual to stock conversion and stock offering occurred on January 8, 2010.  The financial statements for periods prior to such date are for Versailles Savings and Loan.


VERSAILLES FINANCIAL CORPORATION
FINANCIAL STATEMENTS
December 31, 2010

CONTENTS
PART I - FINANCIAL INFORMATION
 
   
ITEM 1 - FINANCIAL STATEMENTS
 
   
 
1
   
 
2
2
   
 
3
5
   
 
7
   
8
   
 
21
   
 
35
   
35
   
PART II - OTHER INFORMATION
 
   
36
   
36
   
 
36
   
36
   
36
   
36




VERSAILLES FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and June 30, 2010
 


   
December 31, 2010
   
June 30, 2010
 
   
(Unaudited)
       
ASSETS
           
Cash and cash equivalents due from financial institutions
  $ 1,130,613     $ 1,672,815  
Overnight deposits
    1,700,000       3,200,000  
Total cash and cash equivalents
    2,830,613       4,872,815  
Interest-bearing time deposits in other financial institutions
    292,000       486,000  
Securities, available-for-sale
    697,794       707,569  
Securities held to maturity (fair value of $802,863 at
               
December 31, 2010 and $946,110 at June 30, 2010)
    769,207       903,485  
Federal Home Loan Bank stock
    397,500       397,500  
Loans, net of allowance of $190,817 and $190,817
    37,536,797       36,722,899  
Other real estate owned
    40,000       160,000  
Premises and equipment, net
    197,114       174,645  
Accrued interest receivable
    123,474       134,889  
Other assets
    565,331       655,513  
                 
Total assets
  $ 43,449,830     $ 45,215,315  
                 
LIABILITIES
               
Savings accounts
  $ 8,101,866     $ 8,144,648  
Certificates of deposit
    17,388,896       17,792,043  
Total deposits
    25,490,762       25,936,691  
Federal Home Loan Bank advances
    6,000,000       7,500,000  
Other liabilities
    1,282,204       1,194,307  
                 
Common stock in ESOP subject to repurchase
               
obligation
    17,100       -  
                 
SHAREHOLDERS’ EQUITY
               
Preferred stock, $.01 par value, 1,000,000 shares
               
authorized, none issued and outstanding
    -       -  
Common stock, $.01 par value, 10,000,000 shares
               
authorized, 427,504 shares issued
    4,275       4,275  
Additional paid-in capital
    3,796,556       3,813,656  
Retained earnings
    8,041,383       7,954,578  
Treasury stock, 35,460 shares, at cost
    (354,600 )     (354,600 )
Unearned employee stock ownership plan shares
    (324,900 )     (333,450 )
Accumulated other comprehensive loss
    (502,950 )     (500,142 )
Total shareholders’ equity
    10,659,764       10,584,317  
                 
Total liabilities and shareholders’ equity
  $ 43,449,830     $ 45,215,315  
 
 
 
See accompanying notes to financial statements.
 
 
VERSAILLES FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months and six months ended December 31, 2010 and 2009
 
 

   
Three months ended
   
Six months ended
 
   
December 31,
   
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
Interest and dividend income
                       
Loans, including fees
  $ 489,410     $ 481,485     $ 991,810     $ 963,001  
Securities available for sale
    4,333       6,460       8,707       14,731  
Securities held-to-maturity
    6,714       9,507       14,020       19,342  
FHLB dividends
    4,007       4,414       8,467       9,266  
Deposits with banks
    3,203       7,502       8,743       14,526  
Total interest and dividend income
    507,667       509,368       1,031,747       1,020,866  
                                 
Interest expense
                               
Deposits
    79,128       91,413       163,586       202,863  
FHLB advances
    50,970       100,053       125,222       193,772  
Total interest expense
    130,098       191,466       288,808       396,635  
                                 
Net interest income
    377,569       317,902       742,939       624,231  
Provisions for loan losses
    -       -       -       -  
                                 
Net interest income after provisions for loan losses
    377,569       317,902       742,939       624,231  
                                 
Noninterest income
                               
Other income
    786       1,466       3,213       2,707  
Gain (loss) on sale of other real estate owned
    -       -       (2,294 )     -  
Total noninterest income
    786       1,466       919       2,707  
                                 
Noninterest expense
                               
Salaries and employee benefits
    157,184       138,143       292,543       250,774  
Occupancy and equipment
    7,897       7,851       15,972       17,204  
Directors’ fees
    15,500       17,500       30,100       32,500  
Data processing
    24,309       15,385       41,396       30,982  
Franchise taxes
    20,673       21,619       41,346       43,238  
Legal, accounting and exam fees
    63,549       31,557       140,236       62,309  
Federal deposit insurance
    4,985       5,958       11,360       11,958  
Other
    20,851       21,663       40,600       37,012  
Total noninterest expense
    314,948       259,676       613,553       485,977  
                                 
Income before income taxes
    63,407       59,692       130,305       140,961  
Income tax expense
    21,200       19,900       43,500       47,100  
                                 
Net income
  $ 42,207     $ 39,792     $ 86,805     $ 93,861  
                                 
Earnings per common share
  $ 0.11     $ -     $ 0.22     $ -  
 
 
 
See accompanying notes to financial statements.
 

VERSAILLES FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
Three months ended December 31, 2010 and 2009
 


   
Common
Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Treasury
Stock
   
Unearned
ESOP
Shares
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
 
                                           
Balance at October 1, 2009
  $ -     $ -     $ 7,843,100     $ -     $ -     $ (395,800 )   $ 7,447,300  
                                                         
Comprehensive income:
                                                       
                                                         
Net income for the period ended
                                                       
December 31, 2009
    -       -       39,792       -       -       -       39,792  
                                                         
Change in net unrealized gain (loss)
                                                       
on securities available for sale,
                                                       
net of tax effects of $2,579
    -       -       -       -       -       (5,008 )     (5,008 )
                                                         
Amortization of prior service cost for
                                                       
supplemental retirement plan, net of
                                                       
tax effects of $938
    -       -       -       -       -       1,822       1,822  
                                                         
Total comprehensive income
                                                    36,606  
                                                         
Balance at December 31, 2009
  $ -     $ -     $ 7,882,892     $ -     $ -     $ (398,986 )   $ 7,483,906  
 
 
 
See accompanying notes to financial statements.
 

VERSAILLES FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
Three months ended December 31, 2010 and 2009
 


   
Common
Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Treasury
Stock
   
Unearned
ESOP
Shares
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
 
                                           
Balance, October 1, 2010
  $ 4,275     $ 3,813,656     $ 7,999,176     $ (354,600 )   $ (329,180 )   $ (497,327 )   $ 10,636,000  
                                                         
Comprehensive income
                                                       
                                                         
Net income for the period ended
                                                       
December 31, 2010
    -       -       42,207       -       -       -       42,207  
                                                         
Change in net unrealized gain (loss)
                                                       
on securities available for sale,
                                                       
net of tax effects of $3,834
    -       -       -       -       -       (7,445 )     (7,445 )
                                                         
Amortization of prior service cost for
                                                       
supplemental retirement plan, net of
                                                       
tax effects of $938
    -       -       -       -       -       1,822       1,822  
                                                         
Total comprehensive income
    36,584                                                  
                                                         
Commitment to release 428 employee stock
                                                       
ownership plan shares
    -       -       -       -       4,280       -       4,280  
                                                         
Transfer of 1,710 allocated ESOP
                                                       
common shares subject to
                                                       
repurchase obligation
    -       (17,100 )     -       -       -       -       (17,100 )
                                                         
Balance, December 31, 2010
  $ 4,275     $ 3,796,556     $ 8,041,383     $ (354,600 )   $ (324,900 )   $ (502,950 )   $ 10,659,764  
 
 
 
See accompanying notes to financial statements.
 

VERSAILLES FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
Six months ended December 31, 2010 and 2009
 


   
Common
Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Treasury
Stock
   
Unearned
ESOP
Shares
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
 
                                           
Balance at July 1, 2009
  $ -     $ -     $ 7,789,031     $ -     $ -     $ (410,390 )   $ 7,378,641  
                                                         
Comprehensive income:
                                                       
                                                         
Net income for the period ended
                                                       
December 31, 2009
    -       -       93,861       -       -       -       93,861  
                                                         
Change in net unrealized gain (loss)
                                                       
on securities available for sale,
                                                       
net of tax effects of $3,998
    -       -       -       -       -       7,760       7,760  
                                                         
Amortization of prior service cost for
                                                       
supplemental retirement plan, net of
                                                       
tax effects of $1,877
    -       -       -       -       -       3,644       3,644  
                                                         
Total comprehensive income
                                                    105,265  
                                                         
Balance at December 31, 2009
  $ -     $ -     $ 7,882,892     $ -     $ -     $ (398,986 )   $ 7,483,906  
 
 
 
See accompanying notes to financial statements.
 

VERSAILLES FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
Six months ended December 31, 2010 and 2009
 


   
Common
Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Treasury
Stock
   
Unearned
ESOP
Shares
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
 
                                           
Balance, July 1, 2010
  $ 4,275     $ 3,813,656     $ 7,954,578     $ (354,600 )   $ (333,450 )   $ (500,142 )   $ 10,584,317  
                                                         
Comprehensive income:
                                                       
                                                         
Net income for the period ended
                                                       
December 31, 2010
    -       -       86,805       -       -       -       86,805  
                                                         
Change in net unrealized gain (loss)
                                                       
on securities available for sale,
                                                       
net of tax effects of $3,324
    -       -       -       -       -       (6,452 )     (6,452 )
                                                         
Amortization of prior service cost for
                                                       
supplemental retirement plan, net of tax
                                                       
effects of $1,877
    -       -       -       -       -       3,644       3,644  
                                                         
Total comprehensive income
    83,997                                                  
                                                         
Commitment to release 855 employee stock
                                                       
ownership plan shares
    -       -       -       -       8,550       -       8,550  
                                                         
Transfer of 1,710 allocated ESOP
                                                       
common shares subject to
                                                       
repurchase obligation
    -       (17,100 )     -       -       -       -       (17,100 )
                                                         
Balance, December 31, 2010
  $ 4,275     $ 3,796,556     $ 8,041,383     $ (354,600 )   $ (324,900 )   $ (502,950 )   $ 10,659,764  
 
 
 
See accompanying notes to financial statements.
 

VERSAILLES FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended December 31, 2010 and 2009
 
 
 
   
Six months ended
 
   
December 31,
 
   
2010
   
2009
 
Cash flows from operating activities
           
Net income
  $ 86,805     $ 93,861  
Adjustments to reconcile net income to
               
net cash provided from operating activities
               
Depreciation on premises and equipment
    4,304       3,499  
Net (discount)/premium accretion on
               
securities and interest bearing time deposits
    130       100  
Loss (gain) on sale or disposal of premises and equipment
    963       -  
Loss on sale of other real estate owned
    2,294       -  
Compensation expense related to ESOP shares
    8,550       -  
Change in:
               
Deferred loan costs
    3,562       2,135  
Accrued interest receivable
    11,415       22,308  
Other assets
    48,130       (67,618 )
Other liabilities
    136,917       22,440  
Net cash from operating activities
    303,070       76,725  
                 
Cash flow from investing activities
               
Maturities of time deposits
    194,000       -  
Maturities, repayments and calls of securities held to maturity
    134,147       129,174  
Proceeds from sale/maturities of securities available for sale
    -       200,000  
Loan originations and payments, net
    (817,460 )     (1,371,592 )
Proceeds from sale of other real estate owned
    117,706       -  
Property and equipment purchases
    (27,736 )     (6,061 )
Net cash from investing activities
    (399,343 )     (1,048,479 )
                 
Cash flow from financing activities
               
Net change in deposits
    (445,929 )     97,142  
Net change in escrow for stock subscriptions net of capitalized
               
conversion costs
    -       2,169,188  
Proceeds from FHLB advances
    1,000,000       1,000,000  
Repayments of FHLB advances
    (2,500,000 )     -  
Net cash from financing activities
    (1,945,929 )     3,266,330  
                 
Net change in cash and cash equivalents
    (2,042,202 )     2,294,576  
Cash and cash equivalents, beginning of period
    4,872,815       2,508,727  
                 
Cash and cash equivalents at end of period
  $ 2,830,613     $ 4,803,303  
                 
Cash paid during the year for
               
Interest
  $ 306,189     $ 407,130  
Income taxes
    -       95,497  
 
 
 
See accompanying notes to financial statements.
 

VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2010
 

 
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:  The accompanying unaudited consolidated financial statements include the accounts of Versailles Financial Corporation (“Versailles”) and its wholly owned subsidiary, Versailles Savings and Loan Company (“Association”).  Versailles and its subsidiary are collectively referred to as the (“Company”).  All material intercompany transactions have been eliminated.  The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 301 of Regulations S-X.  Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company’s financial position as of December 31, 2010 and the results of operations and cash flows for the three months and six months ended December 31, 2010 and 2009.  All interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the year.  These  financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto filed as part of Versailles Financial Corporation’s Annual Report on Form 10-K for the year ended June 30, 2010, as filed with the Securities and Exchange Commission on September 28, 2010.

Earnings Per Common Share:  Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period.  ESOP shares are considered outstanding for this calculation unless unearned.  Versailles had no potential common shares issuable under stock options or other agreements for the periods presented.

The Association converted from mutual to stock ownership with the concurrent formation of a holding company on January 8, 2010.   Accordingly, no earnings per share is shown for the three and six months ended December 31, 2009, as prior to January 8, 2010, the Association was a mutual company.  The weighted average number of shares outstanding for basic earnings per common share was 394,800 and 394,586 for the three months and six months ended December 31, 2010, respectively.

Versailles established a Rabbi Trust and participants in the Association’s deferred compensation and supplemental retirement plans could elect to use all or some of the amounts in their accounts to purchase shares in the Company’s mutual to stock conversion.  These shares are held in the trust and the obligation under the deferred compensation and supplemental retirement plans will be settled with these shares.  As such, the shares are carried as treasury stock in the consolidated balance sheet and the shares are considered outstanding for the purpose of calculating earnings per share.
 
 
(Continued)


VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2010
 
 
 
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Employee Stock Ownership Plan:   The cost of shares issued to the Employee Stock Ownership Plan (“ESOP”), but not yet allocated to participants, is shown as a reduction of shareholders’ equity.  Compensation expense is based on the market price of shares as they are committed to be released to participant accounts.  Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares reduce debt and accrued interest.  Participants may exercise a put option and require the Company to repurchase their ESOP shares upon termination.  As a result, an amount of equity equal to the fair value of the allocated shares is reclassified out of shareholders’ equity.  As of December 31, 2010 there were 1,710 allocated shares related to the ESOP plan.  Compensation expense related to the plan was $4,280 and $8,550 for the three months and six months ended December 31, 2010, respectively.

Reclassifications:  Some items in prior financial statements have been reclassified to conform to the current presentation.

Adoption of New Accounting Standards:
In June 2009, the FASB amended previous guidance relating to transfers of financial assets and eliminates the concept of a qualifying special purpose entity.  This guidance must be applied as of the beginning of each reporting entity’s 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.  This guidance must be applied to transfers occurring on or after the effective date.  Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes.  Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance.  The disclosure provisions were also amended and apply to transfers that occurred both before and after the effective date of this guidance.  The impact of adopting this accounting standard was not material to the Company’s financial statements.

In June 2009, the FASB amended guidance for consolidation of  variable interest entity guidance by replacing the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. Additional disclosures about an enterprise’s involvement in variable interest entities are also required.  This guidance is effective as of the beginning of each reporting entity’s 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.  Early adoption is prohibited.  The impact of adopting this accounting standard was not material to the Company’s financial statements.
 
 
(Continued)


VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2010
 
 
 
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

ASU No. 2010-20, “Receivables (Topic 310) - Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses.  Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable, which is generally a disaggregation of portfolio segment.  The required disclosures include, among other things, a rollforward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators.  ASU 2010-20 was effective for the Company’s financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period.  These disclosures are included in this Form 10Q.  Disclosures that relate to activity during a reporting period will be required for the Company’s financial statements that include periods beginning on or after January 1, 2011.
 
 
(Continued)


VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2010
 
 
 
NOTE 2 - SECURITIES

The amortized cost and fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows.

   
December 31, 2010
 
                         
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
                         
AMF Short US Government
                       
Fund
  $ 694,034     $ 3,760     $ -     $ 697,794  
                                 
                                 
   
June 30, 2010
 
                             
         
 
   
 
       
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
                                 
AMF Short US Government
                               
Fund
  $ 694,034     $ 13,535     $ -     $ 707,569  


There were no sales of available for securities during the three or six months ending December 31, 2010 or 2009.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2010
 
 
 
NOTE 2 – SECURITIES (Continued)

The carrying amount, unrecognized gains and losses, and fair value of securities held to maturity were as follows.

   
December 31, 2010
 
                         
   
Carrying
Amount
   
Gross
Unrecognized
Gains
   
Gross
Unrecognized
Losses
   
Fair
Value
 
                         
Government sponsored entities
                       
residential mortgage-backed:
                       
FHLMC
  $ 354,989     $ 13,566     $ -     $ 368,555  
GNMA
    93,904       2,439       -       96,343  
FNMA
    320,314       17,651       -       337,965  
                                 
    $ 769,207     $ 33,656     $ -     $ 802,863  
                                 
                                 
   
June 30, 2010
 
                             
         
 
   
 
       
   
Carrying
Amount
   
Gross
Unrecognized
Gains
   
Gross
Unrecognized
Losses
   
Fair
Value
 
                                 
Government sponsored entities
                               
residential mortgage-backed:
                               
FHLMC
  $ 405,452     $ 13,894     $ -     $ 419,346  
GNMA
    100,754       2,758       -       103,512  
FNMA
    397,279       25,973       -       423,252  
                                 
    $ 903,485     $ 42,625     $ -     $ 946,110  


At December 31, 2010, the Company had no securities due at a single maturity date.  Additionally, the Company had no securities at December 31, 2010 or June 30, 2010 in an unrealized loss position.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2010
 
 
 
NOTE 3 - LOANS

Loans at December 31, 2010 and June 30, 2010 were as follows:

   
December 31,
   
June 30,
 
   
2010
   
2010
 
Mortgage loans:
           
1-4 family real estate
  $ 27,391,094     $ 27,555,970  
Multi-family
    255,220       188,607  
Construction
    280,530       171,391  
Nonresidential real estate:
               
Business
    2,351,475       2,308,904  
Agricultural
    5,390,180       4,945,303  
Total mortgage loans
    35,668,499       35,170,175  
                 
Commercial loans
    544,909       473,419  
Consumer loans:
               
Loans on deposits
    109,885       93,024  
Consumer auto
    455,418       434,039  
Consumer other secured
    369,855       233,149  
Consumer unsecured
    527,683       454,983  
Total consumer loans
    1,462,841       1,215,195  
                 
Deferred loan costs
    51,365       54,927  
Allowance for loan losses
    (190,817 )     (190,817 )
                 
    $ 37,536,797     $ 36,722,899  
 
 
Activity in the allowance for loan losses was as follows for the three and six months ended December 31, 2010 and 2009.

   
Three and Six Months Ended
 
   
December 31,
 
   
2010
   
2009
 
             
Beginning balance, beginning of period
  $ 190,817     $ 264,451  
Provision for loan losses
    -       -  
Loans charged-off
    -       -  
Recoveries
    -       -  
                 
Ending balance, December 31
  $ 190,817     $ 264,451  

 
(Continued)
 

VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2010
 
 
 
NOTE 3 – LOANS (Continued)

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2010:

   
1-4 Family
Real
Estate
   
Multi-Family
Real
Estate
   
Construction
Real
Estate
   
Nonresidential
Real
Estate
   
Consumer
Loans
   
Commercial
Loans
   
Total
 
Allowance for loan losses:
                                         
Ending allowance balance attributable to loans:
                                         
Individually evaluated for impairment
  $ -     $ -     $ -     $ -     $ -     $ -     $ -  
Collectively evaluated for impairment
    125,291       1,097       1,206       48,772       12,271       2,180       190,817  
                                                         
Total ending allowance balance
  $ 125,291     $ 1,097     $ 1,206     $ 48,772     $ 12,271     $ 2,180     $ 190,817  
                                                         
Loans:
                                                       
Individually evaluated for impairment
  $ 90,211     $ -     $ -     $ -     $ -     $ -     $ 90,211  
Collectively evaluated for impairment
    27,383,412       256,857       281,390       7,796,572       1,488,055       548,006       37,754,292  
                                                         
Total ending loans balance
  $ 27,473,623     $ 256,857     $ 281,390     $ 7,796,572     $ 1,488,055     $ 548,006     $ 37,844,503  

Included in recorded investment is $51,365 of deferred loan fees and $116,889 of accrued loan interest.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors.  The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent year.  This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment.  These economic factors include consideration of the following:  levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: 1-4 family real estate, multi-family real estate, construction real estate, nonresidential real estate, consumer and commercial.

The majority of the Company’s loan portfolio is 1-4 family real estate and consumer loans made to individuals in the Company’s market area.  Repayment of these loans is dependent on general economic conditions and unemployment levels in the Company’s market area.  Nonresidential real estate loans consist of agricultural and business purpose income producing properties.  Repayment of these loans depends to a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general, including today’s economic recession.  We typically require additional collateral or personal guarantees.  Accordingly, the nature of these loans makes them more difficult for management to monitor and evaluate.  At December 31, 2010, we had no non-residential real estate loans that were delinquent or nonperforming.  Multi-family, construction real estate and commercial loans in total make up less than 3% of our loan portfolio.

 
(Continued)
 

VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2010
 
 
 
NOTE 3 – LOANS (Continued)

Individually impaired loans were as follows.

   
At December 31,
   
At June 30,
 
   
2010
   
2010
 
End of period loans with no allocated allowance
           
for loan losses
  $ 90,181     $ 90,181  
End of period loans with allocated allowance
               
for loan losses
    -       -  
                 
Total
  $ 90,181     $ 90,181  
                 
Amount of the allowance for loan losses allocated
  $ -     $ -  

   
Six Months Ended December 31,
 
   
2010
   
2009
 
             
Average of impaired loans during the period
  $ 90,181     $ 299,679  
Interest income recognized during impairment
    -       1,273  
Cash-basis interest income recognized
    -       1,273  


The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2010:

   
Unpaid
Principal
Balance
   
Recorded
Investment
   
Allowance for
Loan Losses
Allocated
 
With no related allowance recorded:
                 
1–4 Family real estate
  $ 90,181     $ 90,211     $ -  


Nonperforming loans were as follows at period end.

   
At December 31,
   
At June 30,
 
   
2010
   
2010
 
             
Loans past due over 90 days still accruing interest
  $ -     $ -  
Nonaccrual loans
    90,181       90,181  
                 
Nonperforming loans to total loans
    0.24 %     0.24 %
                 
Allowance for loan losses to total nonperforming loans
    211.59 %     211.59 %

Nonperforming loans includes both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2010
 
 
 
NOTE 3 – LOANS (Continued)

The following table presents the aging of the unpaid principal balance of past due loans as of December 31, 2010 by class of loans:

   
30 - 59
Days
Past Due
   
60 - 89
Days
Past Due
   
Greater than
90 Days
Past Due
   
Total
Past Due
   
Loans Not
Past Due
   
Total
 
                                     
1-4 Family real estate
  $ -     $ -     $ 90,181     $ 90,181     $ 27,300,913     $ 27,391,094  
Multi-family real estate
    -       -       -       -       255,220       255,220  
Construction real estate
    -       -       -       -       280,530       280,530  
Nonresidential real estate:
                                               
Business
    -       -       -       -       2,351,475       2,351,475  
Agricultural
    -       -       -       -       5,390,180       5,390,180  
Commercial loans
    -       -       -       -       544,909       544,909  
Consumer loans:
                                               
Loans on deposits
    -       -       -       -       109,885       109,885  
Consumer auto
    10,235       -       -       10,235       445,183       455,418  
Consumer other secured
    -       -       -       -       369,855       369,855  
Consumer unsecured
    -       -       -       -       527,683       527,683  
                                                 
Total
  $ 10,235     $ -     $ 90,181     $ 100,416     $ 37,575,833     $ 37,676,249  


Troubled Debt Restructurings:

The Company had no troubled debt restructurings and no customers with outstanding loans that are classified as troubled debt restructurings as of December 31, 2010 and June 30, 2010.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans as to credit risk.  This analysis is performed on a quarterly basis.  The Company uses the following definitions for risk ratings:

Special Mention.  Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 
(Continued)
 

VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2010
 
 
 
NOTE 3 – LOANS (Continued)

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  As of December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

   
Pass
   
Special
Mention
   
Substandard
   
Doubtful
   
Not
Rated
 
                               
1-4 Family real estate
  $ -     $ -     $ 90,181     $ -     $ 27,300,913  
Multi-Family real estate
    255,220       -       -       -       -  
Construction real estate
    280,530       -       -       -       -  
Nonresidential real estate:
                                       
Business
    2,351,475       -       -       -       -  
Agricultural
    5,390,180       -       -       -       -  
Commercial loans
    544,909       -       -       -       -  
                                         
Total
  $ 8,822,314     $ -     $ 90,181     $ -     $ 27,300,913  


The Company does not make subprime loans.

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses.  For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.  The following table presents the unpaid principal balance of residential and consumer loans based on payment activity as of December 31, 2010:
 
   
Consumer
   
Residential
 
   
Loans on
Deposits
   
Auto
   
Other
Secured
   
Unsecured
   
Multi-family Construction
 
                                     
Performing
  $ 109,885     $ 455,418     $ 369,855     $ 527,683     $ 255,220       280,530  
Nonperforming
    -       -       -       -       -       -  
                                                 
Total
  $ 109,885     $ 455,418     $ 369,855     $ 527,683     $ 255,220     $ 280,530  

 
(Continued)

VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2010
 

 
NOTE 4 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  There are three levels of inputs that may be used to measure fair values:

Level 1:  Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2:  Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3:  Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used to in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

 
(Continued)
 

VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2010
 
 
 
NOTE 4 – FAIR VALUE (Continued)

Assets and Liabilities Measured on a Recurring Basis:
Assets and liabilities measured at fair value on a recurring basis are summarized below.

   
Fair Value Measurements
 
   
at December 31, 2010 Using
 
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets:
                       
AMF Short US Government
                       
Fund
  $ 697,794     $ -     $ -  

   
Fair Value Measurements
 
   
at June 30, 2010 Using
 
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets:
                 
AMF Short US Government
                       
Fund
  $ 707,569     $ -     $ -  


There were no assets or liabilities measured at fair value on a non-recurring basis at December 31, 2010 or June 30, 2010.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Three and six months ended December 31, 2010
 

 
NOTE 4 – FAIR VALUE (Continued)

The carrying amount and estimated fair values of financial instruments were as follows at period-end.

   
December 31, 2010
   
June 30, 2010
 
   
Carrying
   
Fair
   
Carrying
   
Fair
 
   
Amount
   
Value
   
Amount
   
Value
 
Financial assets:
                       
Cash and cash equivalents
  $ 2,830,613     $ 2,830,613     $ 4,872,815     $ 4,872,815  
Interest bearing time deposits
                               
in other financial institutions
    292,000       292,000       486,000       486,000  
Securities available for sale
    697,794       697,794       707,569       707,569  
Securities held to maturity
    769,207       802,863       903,485       946,110  
Net loans
    37,536,797       39,681,000       36,722,899       39,161,000  
FHLB stock
    397,500       N/A       397,500       N/A  
Accrued interest receivable
    123,474       123,474       134,889       134,889  
                                 
Financial liabilities:
                               
Deposits
    (25,490,762 )     (25,756,000 )     (25,936,691 )     (26,280,000 )
FHLB advances
    (6,000,000 )     (6,201,000 )     (7,500,000 )     (7,903,000 )
Accrued interest payable
    (54,613 )     (54,613 )     (71,994 )     (71,994 )


Carrying amount is the estimated fair value for cash and cash equivalents, interest bearing time deposits in other financial institutions, accrued interest receivable and payable, savings accounts and variable rate loans or deposits that reprice frequent and fully.  Securities held to maturity are based on matrix pricing which is a mathematical technique to value debt securities through the securities’ relationship to other benchmark quoted securities.  For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits and interest bearing deposits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk.  Fair value of Federal Home Loan Bank advances is based upon current rates for similar financing.  It was not practical to determine fair value of FHLB stock due to restrictions placed on its transferability.  The fair value of off-balance-sheet items is based on the current fees or cost that would be charged to enter into or terminate such arrangements.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 
 
 
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
  CONDITION AND RESULTS OF OPERATIONS

Overview
We have historically operated as a traditional thrift institution.  A significant majority of our assets consist of long-term, one- to four-family fixed-rate residential mortgage loans and mortgage-backed securities, which we have funded primarily with deposit accounts and Federal Home Loan Bank of Cincinnati advances.  Our results of operations depend primarily on our net interest income.  Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities (including U.S. Government agencies, AMF Short U.S. Government Fund and Government sponsored entities residential mortgage-backed securities) and other interest-earning assets, primarily interest-earning deposits at other financial institutions, and the interest paid on our interest-bearing liabilities, consisting primarily of savings accounts, certificates of deposit, and Federal Home Loan Bank of Cincinnati advances.  Our results of operations also are affected by our provisions for loan losses, noninterest income and noninterest expense.  Noninterest income currently consists primarily of service charges on deposit accounts and other income, gains or losses on the sale of available for sale securities and other-than-temporary impairment losses on securities.  Noninterest expense currently consists primarily of salaries and employee benefits, occupancy and equipment expenses, data processing, franchise taxes, legal, accounting and exam fees, federal deposit insurance premiums and other operating expenses.  Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Forward-Looking Statements
This report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning.  These forward-looking statements include, but are not limited to:

 
·
Statements of our goals, intentions and expectations;

 
·
Statements regarding our business plans, prospects, growth and operating strategies;

 
·
Statements regarding the asset quality of our loan and investment portfolios; and

 
·
Estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.  In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.  We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this report.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 


The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 
·
General economic conditions, either nationally or in our market area, that are worse than expected;

 
·
Our ability to successfully implement our plan to increase our nonresidential lending without significant decrease in asset quality;

 
·
Our success in building our new home office on a cost effective basis;

 
·
Our ability to offer new deposit products on a cost effective basis and develop and gather core deposits;

 
·
Our ability to manage our costs as a public company;

 
·
Our reliance on a small executive staff;

 
·
Competition among depository and other financial institutions;

 
·
Inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

 
·
Adverse changes in the securities markets;

 
·
Changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements, additional consumer protection requirements and changes in the identity of our government regulators;

 
·
Our ability to enter new markets successfully and capitalize on growth opportunities;

 
·
Our ability to successfully integrate acquired entities, if any;

 
·
Changes in consumer spending, borrowing and savings habits;

 
·
Decrease in asset quality;

 
·
Future deposit insurance premium levels and special assessments;

 
·
Future compliance costs;

 
·
Changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

 
·
Changes in our organization, compensation and benefit plans;

 
·
Changes in our financial condition or results of operations that reduce capital available to pay dividends; and

 
·
Changes in the financial condition or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

 
(Continued)
 

VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 
 
 
Comparison of Financial Condition at December 31, 2010 and June 30, 2010

General.  Our total assets decreased to $43.4 million at December 31, 2010 from $45.2 million at June 30, 2010.  Cash and cash equivalents decreased $2.1 million, or 41.9%, to $2.8 million at December 31, 2010 from $4.9 million at June 30, 2010.   This decrease was partially offset by an increase in net loans of $0.8 million, or 2.2%, to $37.5 million at December 31, 2010 from $36.7 million at June 30, 2010.

Loans.  The increase in net loans reflected a continued demand for loans in our market area in a low interest rate environment.  The growth in our loan portfolio during the six months ended December 31, 2010 was in agricultural real estate which increased $0.5 million, or 9.0%, to $5.4 million at December 31, 2010 from $4.9 million at June 30, 2010.  Non-mortgage loans increased $0.3 million, or 18.9%, to $2.0 million at December 31, 2010 from $1.7 million at June 30, 2010.

Investments.  Investment securities decreased to $1.5 million at December 31, 2010 from $1.6 million at June 30, 2010.  Net pay-downs in government sponsored mortgage-backed securities represented the $0.1 million decrease.

Cash and cash equivalents.  Cash and cash equivalents decreased $2.1 million, or 41.9%, to $2.8 million at December 31, 2010 from $4.9 million at June 30, 2010.  The decrease in cash and cash equivalents was due to utilization of the funds to satisfy maturing Federal Home Loan Bank advances and to finance new lending.

Premises and equipment.  The balance in premises and equipment increased to $197,000 at December 31, 2010 from $175,000 at June 30, 2010 due to the purchase of new equipment and architectural fees associated with the design of a new facility.

Other real estate owned.  Other real estate owned decreased $120,000, or 75.0%, to $40,000 at December 31, 2010 from $160,000 at June 30, 2010 due to the sale of bank-owned property.  The remaining $40,000 represents a single family home listed for sale in our local market area.

Deposits.  Deposits decreased $0.4 million, or 1.7%, to $25.5 million at December 31, 2010 from $25.9 million at June 30, 2010.  The minimal decrease reflects seasonal fluctuations in customer account balances.

Borrowings.  Federal Home Loan Bank of Cincinnati advances decreased $1.5 million, or 20%, to $6.0 million at December 31, 2010 from $7.5 million at June 30, 2010.  A $0.5 million advance with a rate of 5.93% matured in August, a $1.0 million advance with a rate of 6.27% matured in September and a $1.0 million advance with a rate of 5.79% matured in November.  A new $1.0 million advance with a rate of 1.14% for four years was acquired in October.  We continue to utilize borrowings as an alternative funding source.  Our borrowings from the Federal Home Loan Bank of Cincinnati consist of advances with laddered terms of up to seven years.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 

 
Equity.  Total equity increased $76,000, or 0.5%, to $10,660,000 at December 31, 2010 from $10,584,000 at June 30, 2010.  The change in equity is primarily a result of net income for the period partially offset by the allocation of ESOP shares which results in shares being subject to a repurchase obligation.  As such, the fair value of the shares subject to the repurchase obligation has been recorded outside of permanent equity.


Comparison of Results of Operations for the Three Months Ended December 31, 2010 and the Three Months Ended December 31, 2009

General.  Net income increased to $42,200 for the three months ended December 31, 2010 from $39,800 for the three months ended December 31, 2009.  The increase reflected a decrease in net interest expense, partially offset by an increase in noninterest expense.

Net Interest Income.  Net interest income represents the difference between the income we earn on interest-earning assets and the interest expense we pay on interest-bearing liabilities.  Net interest income also depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.  Net interest income increased to $378,000 for the three months ended December 31, 2010 from $318,000 for the three months ended December 31, 2009.  This reflected an increase in our interest rate spread to 3.21% from 2.75% coupled with an increase in the ratio of our average interest earning assets to average interest bearing liabilities to 131.54% from 121.78%.  Our net interest margin increased to 3.60% from 3.16% primarily because our interest bearing liabilities repriced faster than our interest earning assets in the current low interest rate environment.

Interest Income.  Interest and dividend income decreased $1,700, or 0.3%, to $507,700 for the three months ended December 31, 2010 from $509,400 for the three months ended December 31, 2009.  The decrease reflected an increase in average interest-earning assets to $42.0 million for the three months ended December 31, 2010 compared to $40.2 million for the three months ended December 31, 2009, offset by a decrease in the average yield on interest earning assets to 4.84% for the three months ended December 31, 2010 from 5.07% for the three months ended December 31, 2009.

Interest income on loans increased $8,000, or 1.6%, to $489,000 for the three months ended December 31, 2010 from $481,000 for the three months ended December 31, 2009, reflecting an increase in the average balance of loans to $37.1 million from $35.8 million, which was partially offset by lower average yields on such balances, to 5.28% for the three months ended December 31, 2010 from 5.38% for the three months ended December 31, 2009.

Interest and dividend income on investment securities decreased to $11,000 for the three months ended December 31, 2010 from $16,000 for the three months ended December 31, 2009, reflecting a decrease in the average balance of such securities to $1.5 million for the three months ended December 31, 2010 from $1.8 million for the three months ended December 31,

 
(Continued)
 
 
VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 

 
2009, as well as a decrease in the average yield on available for sale securities to 2.50% from 3.40% and a decrease in the average yield on held to maturity securities to 3.40% from 3.74%.

Interest Expense.  Interest expense decreased $61,000, or 32.1%, to $130,000 for the three months ended December 31, 2010 from $191,000 for the three months ended December 31, 2009.  The decrease reflected a decrease in the average rate paid on certificates of deposit and Federal Home Loan Bank of Cincinnati borrowings in the three months ended December 31, 2010 compared to the three months ended December 31, 2009.

Interest expense on certificates of deposit decreased to $76,000 for the three months ended December 31, 2010 from $89,000 for the three months ended December 31, 2009.  The average balance of such certificates increased $0.5 million, or 3.3%, to $17.5 million for the three months ended December 31, 2010 from $17.0 million for the three months ended December 31, 2009.  The decrease in interest expense resulted from a decrease in the average cost of such certificates to 1.74% for the three months ended December 31, 2010 from 2.10% for the three months ended December 31, 2009.

Interest expense on borrowings, consisting of advances from the Federal Home Loan Bank of Cincinnati, decreased by $49,000, or 49.1%, to $51,000 for the three months ended December 31, 2010 from $100,000 for the three months ended December 31, 2009.  The decrease reflected the lower weighted average rate paid on such borrowings to 3.22% for the three months ended December 31, 2010 from 4.71% for the three months ended December 31, 2009 coupled with the decrease the average balance of such borrowings to $6.3 million for the three months ended December 31, 2010 from $8.5 million for the three months ended December 31, 2009.

The following tables set forth average balance sheets, average yields and costs, and certain other information for the three months ended December 31, 2010 and 2009.  All average balances are monthly average balances.  Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 
 
 
   
(Dollars in thousands)
 
             
   
Three months ended 12-31-2010
   
Three months ended 12-31-2009
 
                                     
   
Average
Balance
   
Interest
and
Dividends
   
Yield/Cost
   
Average
Balance
   
Interest
and
Dividends
   
Yield/Cost
 
Assets:
                                   
Interest-earning assets:
                                   
Loans
  $ 37,096     $ 489       5.28 %   $ 35,810     $ 481       5.38 %
Investment securities available
                                               
for sale
    704       4       2.50 %     780       6       3.40 %
Investment securities held to
                                               
maturity
    789       7       3.40 %     1,016       10       3.74 %
FHLB stock
    398       4       4.03 %     389       4       4.54 %
Other interest-earning assets
    3,018       4       0.42 %     2,204       8       1.36 %
Total interest-earning assets
    42,005       508       4.84 %     40,199       509       5.07 %
Noninterest-earning assets
    1,843                       2,595                  
                                                 
Total assets
  $ 43,848                     $ 42,794                  
                                                 
Liabilities and equity:
                                               
Interest-bearing liabilities:
                                               
Savings deposits
  $ 8,067     $ 3       0.14 %   $ 7,528     $ 2       0.13 %
Certificates of deposit
    17,524       76       1.74 %     16,964       89       2.10 %
Total interest-bearing
                                               
deposits
    25,591       79       1.24 %     24,492       91       1.49 %
                                                 
FHLB advances
    6,333       51       3.22 %     8,500       100       4.71 %
Total interest-bearing
                                               
liabilities
    31,924       130       1.63 %     32,992       191       2.32 %
Other noninterest-bearing
                                               
liabilities
    1,253                       2,325                  
Total liabilities
    33,177                       35,317                  
                                                 
Total shareholder’s equity
    10,671                       7,477                  
                                                 
Total liabilities and equity
  $ 43,848                     $ 42,794                  
                                                 
Net interest income
          $ 378                     $ 318          
                                                 
Interest rate spread
                    3.21 %                     2.75 %
                                                 
Net interest margin
                    3.60 %                     3.16 %
                                                 
Average interest-earning assets to
                                               
average interest-bearing liabilities
    131.54 %                     121.78 %                
 
 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 


Provision for Loan Losses.  We establish a provision for loan losses, which is charged to operations, in order to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. In determining the level of the allowance for loan losses, we consider past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of nonperforming loans.  The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or economic conditions change.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as circumstances change or as more information becomes available.  We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses as required in order to maintain the allowance.

No provision for loan losses was recorded for the three months ended December 31, 2010 and for the three months ended December 31, 2009.  The allowance for loan losses was $191,000, or 0.51% of total loans, at December 31, 2010, $191,000, or 0.52% of total loans at June 30, 2010, and $264,000, or 0.73% of total loans at December 31, 2009.  Total nonperforming loans were $90,000 at December 31, 2010 compared to $419,000 at December 31, 2009.  The allowance for loan losses decreased by $73,000 in the second half of the fiscal year ended June 30, 2010 due to the estimated decline in fair market value at acquisition of two properties acquired through foreclosure or deed in lieu of foreclosure in that same period which resulted in loan charge-offs.  These loans had specific loss allocations of $79,000 at December 31, 2009.  To the best of our knowledge, we have recorded all probable incurred credit losses for the period ended December 31, 2010 and December 31, 2009.

Noninterest Income.  Our noninterest income decreased to $800 for the three months ended December 31, 2010 from $1,500 for the three months ended December 31, 2009.  The decrease was primarily due to the disposal of computer equipment that was not fully depreciated at the time of disposal during the three months ended December 31, 2010.

Noninterest Expense. Noninterest expense increased $55,000, or 21.3%, to $315,000 for the three months ended December 31, 2010 from $260,000 for the three months ended December 31, 2009.  As a result of the Company becoming subject to the federal securities laws, legal and professional fees, including annual meeting fees, increased $32,000, or 101.4%, to $64,000 for the three months ended December 31, 2010, from $32,000 for the three months ended December 31, 2009.  Salaries and employee benefits expense increased to $157,000 for the three months ended December 31, 2010 from $138,000 for the three months ended December 31, 2009, primarily due to higher pension and health care costs combined with ESOP expense which did not exist for the prior year period.  Data processing expense increased $9,000, or 58.0%, to $24,000 for the three months ended December 31, 2010 from $15,000 for the three months ended December 31, 2009.   The Company migrated to a new data processing system which includes an integrated general ledger and fixed asset accounting.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 
 
 
Income Tax Expense. The provision for income taxes increased to $21,200 for the three months ended December 31, 2010, compared to $19,900 for the three months ended December 31, 2009, an increase of $1,300, or 6.5%, as a result of the increase in net income before income taxes.  The effective tax rate was relatively unchanged for the comparative periods.  The effective tax rate was 33.4% and 33.3%, respectively for the three months ended December 31, 2010 and 2009.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 

 
Comparison of Results of Operations for the Six Months Ended December 31, 2010 and the Six Months Ended December 31, 2009

General.  Net income decreased to $87,000 for the six months ended December 31, 2010 from $94,000 for the six months ended December 31, 2009.  The decrease reflected an increase in noninterest expense that exceeded the increase in net interest income.

Net Interest Income.  Net interest income increased to $743,000 for the six months ended December 31, 2010 from $624,000 for the six months ended December 31, 2009.  This reflected an increase in our interest rate spread to 3.08% from 2.67%, which was augmented by an increase in the ratio of our average interest earning assets to average interest bearing liabilities to 131.15% from 122.71%.  Our net interest margin increased to 3.50% from 3.12%.

Interest Income.  Interest and dividend income increased $11,000, or 1.07%, to $1.03 million for the six months ended December 31, 2010 from $1.02 million for the six months ended December 31, 2009.  The increase reflected an increase in average interest-earning assets to $42.4 million for the six months ended December 31, 2010 compared to $40.0 million for the six months ended December 31, 2009, offset by a decrease in the average yield on interest earning assets to 4.86% for the six months ended December 31, 2010 from 5.10% for the six months ended December 31, 2009.

Interest income on loans increased $29,000, or 3.0%, to $992,000 for the six months ended December 31, 2010 from $963,000 for the six months ended December 31, 2009, reflecting an increase in the average balance of loans to $37.2 million from $35.6 million, which was partially offset by lower average yields on such balances, to 5.33% for the six months ended December 31, 2010 from 5.41% for the six months ended December 31, 2009.

Interest and dividend income on investment securities decreased to $23,000 for the six months ended December 31, 2010 from $34,000 for the six months ended December 31, 2009, reflecting a decrease in the average balance of such securities to $1.5 million for the six months ended December 31, 2010 from $1.9 million for the six months ended December 31, 2009, as well as a decrease in the average yield on available for sale securities to 2.51% from 3.56% and a decrease in the average yield on held to maturity securities to 3.42% from 3.70%.

Interest Expense.  Interest expense decreased $108,000, or 27.2%, to $289,000 for the six months ended December 31, 2010 from $397,000 for the six months ended December 31, 2009.  The decrease reflected a decrease in the average rate paid on certificates of deposit and Federal Home Loan Bank of Cincinnati borrowings in the six months ended December 31, 2010 compared to the six months ended December 31, 2009.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 


Interest expense on certificates of deposit decreased to $158,000 for the six months ended December 31, 2010 from $198,000 for the six months ended December 31, 2009.  Although the average balance of such certificates increased to $17.6 million from $17.0 million, a decrease in the average cost of such certificates to 1.79% for the six months ended December 31, 2010 from 2.33% for the six months ended December 31, 2009 resulted in the decrease in interest expense.

Interest expense on borrowings, consisting of advances from the Federal Home Loan Bank of Cincinnati, decreased $69,000, or 35.4%, to $125,000 for the six months ended December 31, 2010 from $194,000 for the six months ended December 31, 2009.  The decrease reflected the lower weighted average rate paid on such borrowings to 3.80% for the six months ended December 31, 2010 from 4.75% for the six months ended December 31, 2009, coupled with a decrease in the average balance of such borrowings to $6.6 million for the six months ended December 31, 2010 from $8.2 million for the six months ended December 31, 2009.

The following tables set forth average balance sheets, average yields and costs, and certain other information for the six months ended December 31, 2010 and 2009.  All average balances are monthly average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 
 
 
   
(Dollars in thousands)
 
                                     
   
Six months ended 12-31-2010
   
Six months ended 12-31-2009
 
                                     
   
Average
Balance
   
Interest
and
Dividends
   
Yield/Cost
   
Average
Balance
   
Interest
and
Dividends
   
Yield/Cost
 
Assets:
                                   
Interest-earning assets:
                                   
Loans
  $ 37,248     $ 992       5.33 %   $ 35,605     $ 963       5.41 %
Investment securities available
                                               
for sale
    707       9       2.51 %     846       15       3.56 %
Investment securities held to
                                               
maturity
    820       14       3.42 %     1,045       19       3.70 %
FHLB stock
    398       8       4.26 %     389       9       4.76 %
Other interest-earning assets
    3,259       9       0.54 %     2,197       15       1.32 %
Total interest-earning assets
    42,432       1,032       4.86 %     40,082       1,021       5.10 %
Noninterest-earning assets
    1,787                       1,836                  
                                                 
Total assets
  $ 44,219                     $ 41,918                  
                                                 
Liabilities and equity:
                                               
Interest-bearing liabilities:
                                               
Savings deposits
  $ 8,136     $ 6       0.14 %   $ 7,467     $ 5       0.13 %
Certificates of deposit
    17,625       158       1.79 %     17,015       198       2.33 %
Total interest-bearing
                                               
deposits
    25,761       164       1.27 %     24,482       203       1.66 %
                                                 
FHLB advances
    6,583       125       3.80 %     8,167       194       4.75 %
Total interest-bearing
                                               
liabilities
    32,344       289       1.78 %     32,649       397       2.43 %
Other noninterest-bearing
                                               
liabilities
    1,228                       1,818                  
Total liabilities
    33,572                       34,467                  
                                                 
Total shareholder’s equity
    10,647                       7,451                  
                                                 
Total liabilities and equity
  $ 44,219                     $ 41,918                  
                                                 
Net interest income
          $ 743                     $ 624          
                                                 
Interest rate spread
                    3.08 %                     2.67 %
                                                 
Net interest margin
                    3.50 %                     3.12 %
                                                 
Average interest-earning assets to
                                               
average interest-bearing liabilities
    131.15 %                     122.71 %                

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 
 
 
Provision for Loan Losses.  No provision for loan losses was recorded for the six months ended December 31, 2010 or for the six months ended December 31, 2009.  The allowance for loan losses was $191,000, or 0.51% of total loans, at December 31, 2010, $191,000, or 0.52%, of total loans at June 30, 2010, and $264,000 or 0.73% of total loans at December 31, 2009.  Total nonperforming loans were $90,000 at December 31, 2010 compared to $419,000 at December 31, 2009.  The allowance for loan losses decreased by $73,000 in the second half of the fiscal year ended June 30, 2010 due to the estimated decline in fair market value at acquisition of two properties acquired through foreclosure or deed in lieu of foreclosure in that same period which resulted in loan charge-offs.  These loans had specific loss allocations of $79,000 at December 31, 2009.  To the best of our knowledge, we have recorded all probable incurred credit losses for the period ended December 31, 2010 and December 31, 2009.

Noninterest Income.  Our noninterest income decreased to $900 for the six months ended December 31, 2010 from $2,700 for the six months ended December 31, 2009.  The decrease was primarily due to the net loss on operation and sale of REO coupled with the loss on disposal of computer equipment during the six months ended December 31, 2010 compared no activity in either of those areas for the six months ended December 31, 2009.

Noninterest Expense. Noninterest expense increased $128,000, or 26.3%, to $614,000 for the six months ended December 31, 2010 from $486,000 for the six months ended December 31, 2009.  As a result of the Company becoming subject to the federal securities laws, legal and professional fees, including annual meeting fees, increased $78,000, or 125.1%, to $140,000 for the six months ended December 31, 2010, from $62,000 for the six months ended December 31, 2009.  Salaries and employee benefits expense increased to $293,000 for the six months ended December 31, 2010 from $251,000 for the six months ended December 31, 2009, primarily due to higher pension and health care costs, impact of adding staff in the prior six month period that was not employed for the entire six month period, and ESOP expense which did not exist in the prior six months period.   Data processing expense increased $10,000, or 33.6%, to $41,000 for the three months ended December 31, 2010 from $31,000 for the three months ended December 31, 2009.   The Company migrated to a new data processing system which includes an integrated general ledger and fixed asset accounting.


Income Tax Expense. The provision for income taxes decreased to $43,500 for the six months ended December 31, 2010, compared to $47,100 for the six months ended December 31, 2009, a decrease of $3,600, or 7.6%, as a result of the decrease in net income before income taxes.  The effective tax rate was relatively unchanged for the comparative periods.  The effective tax rate was 33.4% and 33.4% for both six months ended December 31, 2010 and 2009.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 
 
 
Liquidity and Capital Resources

Our primary sources of funds are deposits and the proceeds from principal and interest payments on loans and investment securities.  We also utilize Federal Home Loan Bank advances.  While maturities and scheduled amortization of loans and securities are predicable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.  We generally manage the pricing of our deposits to be competitive within our market and to increase core deposit relationships.

Our cash flows are comprised of three primary classifications: (i) cash flows provided by operating activities, (ii) investing activities, and (iii) financing activities. Net cash flows from operating activities were $303,070 for the six months ended December 31, 2010 and $76,725 for the six months ended December 31, 2009.  The increase resulted from an increase in other accrued expenses and a decrease in other assets.

Net cash from investing activities consisted primarily of disbursements for loan originations, offset by principal collections on loans, and proceeds from securities and time deposit maturities.  Net cash flows used in investing activities were $(399,343) for the six months ended December 31, 2010 and net cash flows used in investing activities were $(1,048,479) for the six months ended December 31, 2009.  The decrease resulted from fewer new loan disbursements in the six months ended December 31, 2010.

Net cash from financing activities consisted primarily of activity in deposits and borrowings.  Net cash flows used in financing activities were $(1,945,929) for the six months ended December 31, 2010 and net cash flows from financing activities were $3,266,330 for the six months ended December 31, 2009.  The changes in net cash flows provided by and used for financing activities over the periods were primarily due to the proceeds from and repayments of FHLB advances.

Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.  At December 31, 2010 and June 30, 2010, cash and short-term investments totaled $2.8 million and $4.9 million, respectively. We may also utilize the sale of securities available-for-sale, federal funds purchased, Federal Home Loan Bank of Cincinnati advances and other borrowings as sources of funds.

At December 31, 2010 and June 30, 2010, we had outstanding commitments to originate loans of $55,000 and $436,000, respectively, and unfunded commitments under lines of credit of $0 and $7,500, respectively.  We also had unfunded commitments for residential construction loans totaling $85,000 and $351,000, respectively, at December 31, 2010 and June 30, 2010.  We anticipate that we will have sufficient funds available to meet our current loan commitments.  Loan commitments have, in recent periods, been funded through liquidity and normal deposit flows. Certificates of deposit scheduled to mature in one year or less from December 31, 2010 totaled $10.5 million.  Management believes, based on past experience, that a significant portion

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
 
 
 
of such deposits will remain with us.  Based on the foregoing, in addition to our level of core deposits and capital, we consider our liquidity and capital resources sufficient to meet our outstanding short-term and long-term needs.

Liquidity management is both a daily and long-term responsibility of management.  We adjust our investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and investment securities, and (iv) the objectives of our asset/liability management program.  Excess liquid assets are invested generally in interest-earning overnight deposits, federal funds sold, and short and intermediate-term U.S. Government and agency obligations and residential mortgage-backed securities of short duration.  If we require funds beyond our ability to generate them internally, we have additional borrowing capacity with the Federal Home Loan Bank of Cincinnati.  At December 31, 2010, we had $6.0 million in advances from the Federal Home Loan Bank of Cincinnati and an additional borrowing capacity of $10.5 million.

The Association is subject to various regulatory capital requirements.  At December 31, 2010 and June 30, 2010, we were in compliance with all applicable capital requirements.

   
Actual
   
To Be
Well Capitalized
Under Prompt
Corrective
Action Regulations
 
   
Amount
   
Ratio
   
Amount
   
Ratio
 
December 31, 2010
 
(Dollars in thousands)
 
                         
Total capital (to risk-weighted assets)
  $ 9,718       37.5 %   $ 2,594       10.0 %
Tier I (core) capital (to risk-weighted assets)
    9,528       36.7       1,556       6.0  
Tier I (core) capital (to adjusted total assets)
    9,528       22.0       2,169       5.0  
Tangible capital (to adjusted total assets)
    9,528       22.0               N/A  
                                 
June 30, 2010
                               
                                 
Total capital (to risk-weighted assets)
  $ 9,570       35.5 %   $ 2,694       10.0 %
Tier I (core) capital (to risk-weighted assets)
    9,380       34.8       1,616       6.0  
Tier I (core) capital (to adjusted total assets)
    9,380       20.6       2,280       5.0  
Tangible capital (to adjusted total assets)
    9,380       20.6               N/A  

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Other Items
 
 
 
 
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Disclosures of quantitative and qualitative market risk are not required by smaller reporting companies, such as the Company.


ITEM 4 – CONTROLS AND PROCEDURES

As of the end of the period covered by the report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Office and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a- 15e.  Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.  There have not been any changes in the Company’s internal control over financial reporting that occurred during the Company’s last quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Other Information
 
 
 
 
PART II – OTHER INFORMATION

Item 1 – Legal Proceedings – The Company is subject to various legal actions that are considered ordinary routine litigation incidental to the business of the Company, and no claim for money damages exceeds ten percent of the Company’s consolidated assets. In the opinion of management, based on currently available information, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s results of operations.

Item 1A – Risk Factors - Disclosure of risk factors is not required by smaller reporting companies, such as the Company.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds – Not applicable.

Item 3 – Defaults Upon Senior Securities – None.

Item 4 – [Removed and Reserved].

Item 5 – Other Information – None.


       
Reference to
Exhibit
     
Previous Filing,
Number
 
Document
 
If Applicable
         
3.1
 
Articles of Incorporation of Versailles Financial Corporation
 
*
         
3.2
 
Bylaws of Versailles Financial Corporation
 
*
         
4
 
Form of Common Stock Certificate of Versailles Financial
   
   
Corporation
 
*
         
10.1
 
Employee Stock Ownership Plan
   
         
10.2
 
Versailles Savings and Loan Company Deferred Compensation
   
   
Plan
 
*
         
10.3
 
First Amendment to Versailles Savings and Loan Company
   
   
Deferred Compensation Plan
 
*
         
10.4
 
Restated 2005 Sub-Plan to Versailles Savings and Loan
   
   
Company Deferred Compensation Plan
 
*

 
(Continued)


VERSAILLES FINANCIAL CORPORATION
Other Information
 
 
 
 
10.5
 
First Amendment to Restated 2005 Sub-Plan to Versailles
 
   
Savings and Loan Company Deferred Compensation Plan
*
       
10.6
 
Trust Agreement for Versailles Savings and Loan Company
 
   
Deferred Compensation Plan and Restated 2005 Sub-Plan to
 
   
Versailles Savings and Loan Deferred Compensation Plan
*
       
10.7
 
Employment Agreement between Versailles Savings and Loan
 
   
Company and Douglas P. Ahlers, dated January 8, 2010
     **
       
10.8
 
Employment Agreement between Versailles Savings and Loan
 
   
Company and Cheryl J. Leach, dated January 8, 2010
**
       
31.1
 
Certification of Chief Executive Officer, Rule 13a-14(a)/15d-14(a)
 
       
31.2
 
Certification of Chief Financial Officer, Rule 13a-14(a)/15d-14(a)
 
       
32
 
Certification of Chief Executive Officer and Chief Financial
 
   
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
 
   
To Section 906 of the Sarbanes Oxley Act of 2002
 
 
_____________

*
Incorporated by reference to the Company’s Registration Statement on Form S-1 filed on September 17, 2009

**
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on January 11, 2010

 
(Continued)

 
VERSAILLES FINANCIAL CORPORATION
Other Information
 
 
 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

   
VERSAILLES FINANCIAL CORPORATION
   
(Registrant)
     
Date:
February 14, 2011
/s/ Douglas P. Ahlers
   
Douglas P. Ahlers
   
President & CEO
   
(Principal Executive Officer)
     
     
Date:
February 14, 2011
/s/ Cheryl J. Leach
   
Cheryl J. Leach
   
Vice President & Treasurer
   
(Principal Accounting Officer)

 
(Continued)
 
 
38.