Attached files
file | filename |
---|---|
EX-32.1 - EXHIBIT 32.1 - Versailles Financial Corp | ex32_1.htm |
EX-31.2 - EXHIBIT 31.2 - Versailles Financial Corp | ex31_2.htm |
EX-31.1 - EXHIBIT 31.1 - Versailles Financial Corp | ex31_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 x 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 o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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 o 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
|
36
|
|
38
|
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 |
Gross
Unrealized |
Fair
Value |
|||||||||||||
AMF Short US Government
|
||||||||||||||||
Fund
|
$ | 694,034 | $ | 3,760 | $ | - | $ | 697,794 | ||||||||
June 30, 2010
|
||||||||||||||||
|
|
|||||||||||||||
Amortized
Cost |
Gross
Unrealized |
Gross
Unrealized |
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 |
Gross
Unrecognized |
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 |
Gross
Unrecognized |
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 |
Multi-Family
Real |
Construction
Real |
Nonresidential
Real |
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 |
Recorded
Investment |
Allowance for
Loan Losses |
||||||||||
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.