- Quarterly Report (10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if smaller reporting company)

Smaller reporting company

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 March 31, 2010

¨	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 ¨

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 ¨

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.

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 May 17, 2010
		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.

VERSAILLES FINANCIAL CORPORATION

FINANCIAL STATEMENTS

March 31, 2010


CONTENTS
FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS March 31, 2010 (Unaudited) and June 30, 2009		1

CONSOLIDATED STATEMENTS OF INCOME Three months ended March 31, 2010 and 2009 (Unaudited)		2
Nine months ended March 31, 2010 and 2009 (Unaudited)		2

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Three months ended March 31, 2010 and 2009 (Unaudited)		3
Nine months ended March 31, 2010 and 2009 (Unaudited)		3

CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months ended March 31, 2010 and 2009 (Unaudited)		4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		6

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		18

ITEM 3 - NOT APPLICABLE FOR SMALLER REPORTING COMPANIES		32

ITEM 4T - CONTROLS AND PROCEDURES		32

OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS		33

ITEM 1A – NOT APPLICABLE FOR SMALLER REPORTING COMPANIES		33

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		33

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES		33

ITEM 5 – OTHER INFORMATION		33

ITEM 6 – EXHIBITS		33

SIGNATURES		35

VERSAILLES FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

March 31, 2010 and June 30, 2009


	March 31, 2010			June 30, 2009
	(Unaudited)

ASSETS
Cash and cash equivalents due from financial institutions	$	1,702,285		$	1,708,727
Overnight deposits		2,700,000			800,000

Total cash and cash equivalents		4,402,285			2,508,727
Interest-bearing time deposits in other financial institutions		584,000			824,000
Securities, available-for-sale		700,049			897,284
Securities held to maturity (fair value of $986,524 at March 31, 2010 and $1,146,079 at June 30, 2009)		951,217			1,124,330
Federal Home Loan Bank stock		397,500			389,200
Loans, net of allowance of $259,769 and $264,451		36,344,934			34,428,366
Other real estate owned		40,000			—
Premises and equipment, net		177,036			25,795
Accrued interest receivable		113,921			130,850
Other assets		586,858			459,595


Total assets	$	44,297,800		$	40,788,147


LIABILITIES
Savings accounts	$	7,230,384		$	7,468,357
Certificates of deposit		16,952,395			17,116,786

Total deposits		24,182,779			24,585,143
Federal Home Loan Bank advances		8,500,000			7,500,000
Other liabilities		956,392			1,324,363

Total liabilities		33,639,171			33,409,506

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			—
Additional paid-in capital		3,822,455			—
Retained earnings		7,927,338			7,789,031
Treasury stock, 35,460 shares, at cost		(354,600	)		—
Unearned employee stock ownership plan shares		(337,720	)		—
Accumulated other comprehensive loss		(403,119	)		(410,390	)

Total shareholders’ equity		10,658,629			7,378,641


Total liabilities and shareholders’ equity	$	44,297,800		$	40,788,147

See accompanying notes to financial statements.

VERSAILLES FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three months and nine months ended March 31, 2010 and 2009


	Three months ended March 31,				Nine months ended March 31,
	2010		2009		2010		2009
Interest and dividend income
Loans, including fees	$	487,841	$	466,225	$	1,450,842	$	1,388,496
Securities available for sale		4,992		9,739		19,723		38,015
Securities held-to-maturity		8,990		13,585		28,332		52,518
FHLB dividends		4,415		4,403		13,681		14,413
Deposits with banks		7,039		9,190		21,565		33,282

Total interest income		513,277		503,142		1,534,143		1,526,724

Interest expense
Deposits		83,507		141,695		286,370		449,895
FHLB advances		97,226		85,820		290,998		265,629

Total interest expense		180,733		227,515		577,368		715,524


Net interest income		332,544		275,627		956,775		811,200
Provisions for loan losses		10,000		40,000		10,000		40,000


Net interest income after provisions for loan losses		322,544		235,627		946,775		771,200

Noninterest income
Other income		995		945		3,702		3,601
Gain (loss) on sale of available for sale securities		—		—		—		(2,289	)

Total noninterest income		995		945		3,702		1,312

Noninterest expense
Salaries and employee benefits		125,696		63,996		376,470		232,910
Occupancy and equipment		10,776		9,843		27,980		27,243
Directors’ fees		14,400		15,810		46,900		45,085
Data processing		16,843		17,880		47,825		50,425
Franchise taxes		21,000		21,620		64,238		64,794
Legal, accounting and exam fees		39,569		23,787		101,878		65,544
Federal deposit insurance		6,600		997		18,558		2,871
Other		21,330		16,089		58,342		49,733

Total noninterest expense		256,214		170,022		742,191		538,605


Income before income taxes		67,325		66,550		208,286		233,907
Income tax expense		22,879		22,200		69,979		78,200


Net income	$	44,446	$	44,350	$	138,307	$	155,707


Earnings per common share	$	0.11	$	—	$	0.11	$	—

See accompanying notes to financial statements.

VERSAILLES FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

Three months and nine months ended March 31, 2010 and 2009


	Three months ended March 31,						Nine months ended March 31,
	2010			2009			2010			2009

Balance at beginning of period	$	7,483,906		$	7,518,822		$	7,378,641		$	7,427,344

Net income		44,446			44,350			138,307			155,707

Other comprehensive income (loss):
Unrealized holding gains (losses) on available securities for sale		(9,023	)		(10,104	)		2,735			(48,034	)
Reclassification adjustment for (gains) losses later recognized in income		—			—			—			2,289


Net unrealized gains (losses) on available for sale securities		(9,023	)		(10,104	)		2,735			(45,745	)
Income tax effect		3,068			3,435			(930	)		15,553


Net of tax amount		(5,955	)		(6,669	)		1,805			(30,192	)


Amortization of prior service cost for supplemental retirement plan		2,760			2,760			8,281			8,281
Income tax effect		(938	)		(938	)		(2,815	)		(2,815	)


Net of tax amount		1,822			1,822			5,466			5,466


Other comprehensive income (loss)		(4,133	)		(4,847	)		7,271			(27,726	)


Total comprehensive income		40,313			39,503			145,578			130,981


Sale of 427,504 shares of $.01 par common stock, net of conversion costs of $802,910		3,472,130			—			3,472,130			—
34,200 shares purchased under employee stock ownership plan		(342,000	)		—			(342,000	)		—
Commitment to release 428 employee stock ownership plan shares		4,280			—			4,280			—


Total shareholder transactions		3,134,410			—			3,134,410			—


Balance at the end of the period	$	10,658,629		$	7,558,325		$	10,658,629		$	7,558,325

See accompanying notes to financial statements.

VERSAILLES FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine months ended March 31, 2010 and 2009


	Nine months ended March 31,
	2010			2009
Cash flows from operating activities
Net income	$	138,307		$	155,707
Adjustments to reconcile net income to net cash provided from operating activities
Provision for loan losses		10,000			40,000
Depreciation on premises and equipment		5,249			5,786
Net (discount)/premium accretion on securities and interest bearing time deposits		166			(1,081	)
FHLB stock dividends		—			(5,100	)
Loss (gain) on sale or disposal of premises and equipment		208			785
Loss on sale of securities		—			2,289
Compensation expense related to ESOP shares		4,280			—
Amortization of prior service costs		8,281			8,281
Change in:
Deferred loan costs		2,394			8,192
Accrued interest receivable		16,929			50,801
Other assets		(131,008	)		(46,391	)
Other liabilities		(13,371	)		57,895

Net cash from operating activities		41,435			277,164

Cash flow from investing activities
Purchase of interest bearing time deposits		—			(1,226,000	)
Maturities of interest bearing time deposits		240,000			250,000
Purchase of available for sale securities		—			(1,000,000	)
Purchase of securities held to maturity		—			(483,488	)
Maturities, repayments and calls of securities:
Available for sale		200,000			1,000,000
Held to maturity		172,917			1,182,846
Proceeds from sales of securities available for sale		—			250,000
Purchase of FHLB stock		(8,300	)		—
Loan originations and payments, net		(1,968,962	)		(2,067,249	)
Property and equipment purchases		(156,698	)		(2,963	)

Net cash from investing activities		(1,521,043	)		(2,096,854	)

See accompanying notes to financial statements.

VERSAILLES FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine months ended March 31, 2010 and 2009


	Nine months ended March 31,
	2010			2009
Cash flow from financing activities
Net change in deposits		(402,364	)		1,165,362
Proceeds from issuance of common stock, net of conversion costs		3,117,530			—
Cash provided to ESOP		(342,000	)		—
Proceeds from FHLB advances		2,000,000			—
Repayments of FHLB advances		(1,000,000	)		(500,000	)

Net cash from financing activities		3,373,166			665,362


Net change in cash and cash equivalents		1,893,558			(1,154,328	)
Cash and cash equivalents, beginning of period		2,508,727			3,517,484


Cash and cash equivalents at end of period	$	4,402,285		$	2,363,156


Cash paid during the year for
Interest	$	589,519		$	725,211
Income taxes		130,155			86,000

Supplemental noncash disclosures:
Transfer from loans to real estate owned	$	40,000		$	—
Issuance of shares to Rabbi Trust to settle obligation under deferred compensation and supplemental retirement plans		354,600			—

See accompanying notes to financial statements.

VERSAILLES FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Quarter ended March 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 March 31, 2010 and the results of operations and cash flows for the three and nine months ended March 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 Prospectus dated November 12, 2009, as filed with the Securities and Exchange Commission pursuant to Securities Act Rule 424(b)(3) on November 18, 2009.

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.

As more fully discussed in Note 5, the Association converted from mutual to stock ownership with the concurrent formation of a holding company. Accordingly, earnings per share for the three and nine months ended March 31, 2010 was computed based on net income of the Corporation from the closing of the stock offering through March 31, 2010. No earnings per share is shown for the three and nine months ended March 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 393,518 for the three and nine months ended March 31, 2010.

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

(Continued)

VERSAILLES FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Quarter ended March 31, 2010

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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 Corporation 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 March 31, 2010 there are no allocated shares related to the ESOP plan. Compensation expense related to the plan was $4,280 for the three and nine months ended March 31, 2010.

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

Adoption of New Accounting Standards : In December 2007, the FASB issued Accounting Standards Codification (ASC) 805, Applying the Acquisition Method . The guidance applies to all transactions or other events in which one entity obtains control of one or more businesses. It requires all assets acquired, liabilities assumed and any noncontrolling interest to be measured at fair value at the acquisition date. The guidance requires certain costs such as acquisition-related costs that were previously recognized as a component of the purchase price, and expected restructuring costs that were previously recognized as an assumed liability, to be recognized separately from the acquisition as an expense when incurred.

ASC 805 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and may not be applied before that date. Concurrent with ASC 805, the FASB recently issued ASC 810-10-65-1, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51 . This statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest (formerly known as minority interest) in a subsidiary and for the deconsolidation of a subsidiary. A subsidiary, as defined by this statement, includes a variable interest entity that is consolidated by a primary beneficiary.

(Continued)

VERSAILLES FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Quarter ended March 31, 2010

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

A noncontrolling interest in a subsidiary, previously reported in the statement of financial position as a liability or in the mezzanine section outside of permanent equity, will be included within consolidated equity as a separate line item upon the adoption of ASC 810-10-65-1. Further, consolidated net income will be reported at amounts that include both the parent (or primary beneficiary) and the noncontrolling interest with separate disclosure on the face of the consolidated statement of income of the amounts attributable to the parent and to the noncontrolling interest. ASC 810-10-65-1 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The adoption of this pronouncement did not have any material impact on the Company’s financial position and results of operations.

In June 2009, the FASB issued ASC 105-10, The FASB Accounting Standards Codification (“Codification”) and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162 . The Codification has become the source of authoritative U.S. non-governmental entities. Rules and interpretive releases of the SEC under authority of Codification supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this pronouncement did not have any material impact on the Company’s financial position and results of operations.

Recently Issued but not yet Effective Accounting Pronouncements : 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. Management is still evaluating the impact of this accounting standard but does not believe its impact will be material to the Company’s financial statements.

(Continued)

VERSAILLES FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Quarter ended March 31, 2010

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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. Management is still evaluating the impact of this accounting standard but does not believe its impact will be material to the Company’s financial statements.

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.


	March 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

AMF Short US Government Fund	$	694,034	$	6,015	$	—	$	700,049


	June 30, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

U.S. Government agencies	$	199,970	$	3,280	$	—	$	203,250
AMF Short US Government Fund		694,034		—		—		694,034


	$	894,004	$	3,280	$	—	$	897,284

(Continued)

VERSAILLES FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Quarter ended March 31, 2010

NOTE 2 – SECURITIES (Continued)

Sales of available for sale securities were as follows.


	Nine Months Ended March 31,
	2010		2009

Proceeds	$	—	$	250,000
Gross gains		—		—
Gross losses		—		2,289

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

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


	March 31, 2010
	Carrying Amount		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Government sponsored entities residential mortgage-backed	$	951,217	$	35,307	$	—	$	986,524


	June 30, 2009
	Carrying Amount		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Government sponsored entities residential mortgage-backed	$	1,124,330	$	21,749	$	—	$	1,146,079

At March 31, 2010, the Company had no securities due at a single maturity date. Additionally, the Company had no securities at March 31, 2010 or June 30, 2009 in an unrealized loss position.

(Continued)

10.

VERSAILLES FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Quarter ended March 31, 2010

NOTE 3 – LOANS

Loans at March 31, 2010 and June 30, 2009 were as follows:


	March 31, 2010			June 30, 2009
Mortgage loans (principally conventional):
1-4 family real estate	$	27,574,229		$	26,967,666
Multi-family		310,833			326,366
Construction		—			1,497
Nonresidential real estate		7,037,035			5,845,927

		34,922,097			33,141,456
Deferred loan costs		59,653			62,047

Total mortgage loans		34,981,750			33,203,503

Commercial loans		391,274			355,743
Consumer loans:
Loans on deposits		94,680			61,969
Other consumer loans		1,136,999			1,071,602

Total consumer loans		1,231,679			1,133,571

Total loans		36,604,703			34,692,817
Allowance for loan losses		(259,769	)		(264,451	)


	$	36,344,934		$	34,428,366

Activity in the allowance for loan losses was as follows for the three and nine months ended March 31, 2010 and 2009.


	Three and Nine Months Ended March 31,
	2010			2009
Balance at beginning of period	$	264,451		$	166,350
Provision for loan losses		10,000			40,000
Loans charged-off		(14,682	)		—
Recoveries		—			—


Ending balance, March 31	$	259,769		$	206,350

(Continued)

11.

VERSAILLES FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Quarter ended March 31, 2010

NOTE 3 – LOANS (Continued)

Individually impaired loans were as follows.


	At March 31, 2010		At June 30, 2009
End of period loans with no allocated allowance for loan losses	$	90,181	$	101,878
End of period loans with allocated allowance for loan losses		198,952		198,952


Total	$	289,133	$	300,830


Amount of the allowance for loan losses allocated	$	78,952	$	78,952


	Nine Months Ended March 31,
	2010		2009
Average of impaired loans during the period	$	296,164	$	372,673
Interest income recognized during impairment		3,675		1,747
Cash-basis interest income recognized		3,675		1,747

Nonperforming loans were as follows at period end.


	At March 31, 2010			At June 30, 2009
Loans past due over 90 days still accruing interest	$	—		$	—
Nonaccrual loans		365,039			265,368

Nonperforming loans to total loans		1.00	%		0.76	%

Allowance for loan losses to total nonperforming loans		71.16	%		99.65	%

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

Nonaccrual loans at March 31, 2010 consisted of approximately $199,000 of multi-family residential properties and $166,000 of 1-4 family residential properties.

(Continued)

12.

VERSAILLES FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Quarter ended March 31, 2010

NOTE 4 – FAIR VALUE MEASUREMENT

ASC 820-10 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (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.

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 March 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	$	700,049	$	—	$	—

(Continued)

13.

VERSAILLES FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Quarter ended March 31, 2010

NOTE 4 – FAIR VALUE MEASUREMENT (Continued)

Assets and Liabilities Measured on a Non-Recurring Basis :

Assets and liabilities measured at fair value on a recurring basis are summarized below.


	Fair Value Measurements at June 30, 2009 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available for sale securities:
U.S. Government agencies	$	—	$	203,250	$	—
AMF Short US Government Fund		694,034		—		—

Assets and Liabilities Measured on a Non-Recurring Basis :

Assets and liabilities measured at fair value on a non-recurring basis are summarized below.


	Fair Value Measurements at March 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:
Impaired loans	$	—	$	—	$	120,000

Assets and liabilities measured at fair value on a non-recurring basis are summarized below.


	Fair Value Measurements at June 30, 2009 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans	$	—	$	—	$	120,000

(Continued)

14.

VERSAILLES FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Quarter ended March 31, 2010

NOTE 4 – FAIR VALUE MEASUREMENT (Continued)

The following represent impairment charges recognized during the period.

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal balance of $198,952, with a valuation allowance of $78,952 at March 31, 2010 and June 30, 2009, respectively. There was no provision for loan losses for the three or nine months ended March 31, 2010 related to impaired loans.

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


	March 31, 2010						June 30, 2009
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial assets:
Cash and cash equivalents	$	4,402,285		$	4,402,285		$	2,508,727		$	2,509,000
Interest bearing time deposits in other financial institutions		584,000			584,000			824,000			824,000
Securities available for sale		700,049			700,049			897,284			897,284
Securities held to maturity		951,217			986,524			1,124,330			1,146,079
Net loans		36,344,934			37,917,000			34,428,366			35,242,000
FHLB stock		397,500			N/A			389,200			N/A
Accrued interest receivable		113,921			113,921			130,850			130,850

Financial liabilities:
Deposits		(24,182,779	)		(24,455,000	)		(24,585,143	)		(24,850,000	)
FHLB advances		(8,500,000	)		(9,186,000	)		(7,500,000	)		(7,899,000	)
Accrued interest payable		(73,489	)		(73,489	)		(85,640	)		(85,640	)

(Continued)

15.

VERSAILLES FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Quarter ended March 31, 2010

NOTE 4 – FAIR VALUE MEASUREMENT (Continued)

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, escrow for stock subscriptions 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.

NOTE 5 – CONVERSION TO A STOCK COMPANY WITH CONCURRENT FORMATION OF HOLDING COMPANY

The Board of Directors of the Company adopted a Plan of Conversion on August 21, 2009 (the “Plan”) from a state chartered mutual savings association to a state chartered stock savings association which received regulatory and member approval. The conversion was accomplished through the amendment of the Company’s constitution and the sale of common stock in an amount equal to the market value of the Company. A subscription offering the shares of the Company’s common stock commenced on November 20, 2009. The closing of the stock offering occurred on January 8, 2010. A total of 427,504 shares of common stock were sold for $10 per share and the net proceeds from the sale were $3,472,130 after deducting the costs of conversion of $802,910.

Versailles retained 50% of the net proceeds from the sale of common shares. The remainder of the net proceeds was invested in the capital stock issued by the Association to Versailles because of the conversion.

At the time of the conversion, the Association established a liquidation account that was equal to its regulatory capital as of the latest practicable date before the conversion. In the event of a complete liquidation, each eligible depositor will be entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances for the accounts then held.

(Continued)

16.

VERSAILLES FINANCIAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Quarter ended March 31, 2010

NOTE 6 – SUBSEQUENT EVENTS

With plans to build a new home office and the intent to introduce new and expanded services, in April 2010, the Company signed a contract with Harland Financial Solutions that extended the current contract to May of 2017. Components of the newly contracted services will be implemented over the next eighteen months.

(Continued)

17.

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)

18.

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 non residential 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)

19.

VERSAILLES FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Comparison of Financial Condition at March 31, 2010 and June 30, 2009

General . Our total assets increased to $44.3 million at March 31, 2010 from $40.8 million at June 30, 2009. Cash and cash equivalents increased $1.9 million, or 75.5%, to $4.4 million at March 31, 2010 from $2.5 million at June 30, 2009. Net loans increased $1.9 million, or 5.6%, to $36.3 million at March 31, 2010 from $34.4 million at June 30, 2009. Other assets increased to $0.6 million at March 31, 2010, for a 27.7% increase, from $0.5 million at June 30, 2009 due primarily to a three-year prepaid FDIC assessment.

Loans . The increase in net loans reflected a continued demand for loans in our market area in a low interest rate environment. The largest growth in our loan portfolio during the nine months ended March 31, 2010 was in non-residential real estate, which increased to $7.0 million at March 31, 2010 from $5.8 million at June 30, 2009. One- to four-family residential real estate loans increased to $27.6 million to at March 31, 2010 from $27.0 million at June 30, 2009.

Investments . Investment securities decreased to $1.6 million at March 31, 2010 from $2.0 million at June 30, 2009. Net pay-downs in government sponsored mortgage-backed securities represented $0.2 million of the decrease and the maturity of an available for sale security in the amount of $0.2 million accounted for the remaining decrease.

Cash and cash equivalents . Cash and cash equivalents increased $1.9 million, or 75.5%, to $4.4 million at March 31, 2010 from $2.5 million at June 30, 2009. The initial sale of stock net of conversion costs generated $3.5 million. Cash and cash equivalents was augmented by the decrease in investment securities and additional borrowing from the Federal Home Loan Bank, offset by the funding of new loans and deposit outflow.

Premises and equipment. In January 2010, the Company completed the acquisition of five acres of land for $150,000 on the edge of Versailles, Ohio. The Company plans to build a new home office offering expanded services and more convenient access for customers.

Other real estate owned. Other real estate owned increased to $40,000 at March 31, 2010 from $0 at June 30, 2009. This is the result of one one-to four-family residential property acquired through deed-in-lieu of foreclosure in January, 2010. A charge-off of $15,000 was made to the general allowance for loan losses.

Deposits . Deposits decreased $0.4 million, or 1.6%, to $24.2 million at March 31, 2010 from $24.6 million at June 30, 2009. The decrease resulted from $1.0 million in deposits withdrawn by customer authorization to purchase stock in the initial offering offset by $0.6 million in new deposits.

(Continued)

20.

VERSAILLES FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Borrowings . Federal Home Loan Bank of Cincinnati advances increased to $8.5 million at March 31, 2010 from $7.5 million at June 30, 2009. There were two new fixed rate term advances; $1.0 million each with interest rates of 2.89% and 3.36%, due September, 2014 and March, 2017, respectively. These new advances were offset by the payback of a $1.0 million fixed rate advance with an interest rate of 4.58% that matured March, 2010. The proceeds were used to fund loan originations. We continue to utilize borrowings as an alternative funding source and our borrowings from the Federal Home Loan Bank of Cincinnati consists of advances with laddered terms of up to seven years.

Equity . Total equity increased to $10.7 million at March 31, 2010 from $7.4 million at June 30, 2009. The $3.3 million change in equity resulted from the initial sale of stock net of conversion costs of $3.5 million plus net income for the period of $0.1 million offset by $0.3 million in unearned employee stock ownership plan shares.

(Continued)

21.

VERSAILLES FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

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

General . Net income for both the three months ended March 31, 2010 and the three months ended March 31, 2009 remained unchanged at $44,400.

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 $333,000 for the three months ended March 31, 2010 from $276,000 for the three months ended March 31, 2009. This reflected an increase in our interest rate spread to 2.74% from 2.37% while our net interest margin increased to 3.21% from 2.91%. Our average interest earning assets to average interest bearing liabilities increased to 127.35% from 122.13%. Our net interest spread increased due to both a reduction in the average rate for advances combined with other interest bearing liabilities that repriced faster than interest earning assets in the current low interest rate environment.

Interest Income . Interest and dividend income increased $10,000, or 2.0%, to $513,000 for the three months ended March 31, 2010 from $503,000 for the three months ended March 31, 2009. The increase reflected an increase in average interest-earning assets to $41.4 million for the three months ended March 31, 2010 compared to $37.9 million for the three months ended March 31, 2009, offset by a decrease in the average yield on interest earning assets to 4.96% for the three months ended March 31, 2010 from 5.30% for the three months ended March 31, 2009.

Interest income on loans increased $22,000, or 4.6%, to $488,000 for the three months ended March 31, 2010 from $466,000 for the three months ended March 31, 2009, reflecting an increase in the average balance of loans to $36.1 million from $32.9 million, which was partially offset by lower average yields on such balances, to 5.41% for the three months ended March 31, 2010 from 5.67% for the three months ended March 31, 2009.

Interest income on investment securities decreased to $14,000 for the three months ended March 31, 2009 from $23,000 for the three months ended March 31, 2009, reflecting a decrease in the average balance of such securities to $1.7 million for the three months ended March 31, 2010 from $2.2 million for the three months ended March 31, 2009, as well as a decrease in the average yield on available for sale securities to 2.88% from 4.12% and a decrease in the average yield on held to maturity securities to 3.73% from 4.28%.

(Continued)

22.

VERSAILLES FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Interest Expense . Interest expense decreased $47,000, or 20.6%, to $181,000 for the three months ended March 31, 2010 from $228,000 for the three months ended March 31, 2009. The decrease reflected a decrease in the average rate paid on deposits, including certificates of deposit and Federal Home Loan Bank of Cincinnati borrowings in the three months ended March 31, 2010 compared to the three months ended March 31, 2009, which more than offset the increase in the average balance of such deposits and borrowings.

Interest expense on certificates of deposit decreased to $81,000 for the three months ended March 31, 2010 from $138,000 for the three months ended March 31, 2009. Part of the decrease was due to the average balance of such certificates decreasing $0.8 million, or 4.5%, to $16.8 million for the three months ended March 31, 2010 from $17.6 million for March 31, 2009. The remaining decrease in interest expense resulted from the average cost of such certificates dropping to 1.94% for the three months ended March 31, 2010 from 3.15% for the three months ended March 31, 2009.

Interest expense on borrowings, consisting of advances from the Federal Home Loan Bank of Cincinnati, increased $11,000, or 13.3%, to $97,000 for the three months ended March 31, 2010 from $86,000 for the three months ended March 31, 2009. The increase reflected the lower weighted average rate paid on such borrowings to 4.58% for the three months ended March 31, 2010 from 5.28% for the three months ended March 31, 2009, which was more than offset by an increase in the average balance of such borrowings to $8.5 million for the three months ended March 31, 2010 from $6.5 million for the three months ended March 31, 2009.

The following tables set forth average balance sheets, average yields and costs, and certain other information for the three months ended March 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)

23.

VERSAILLES FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

and Results of Operations


	(Dollars in thousands)
	Three months ended 03-31-2010							Three months ended 03-31-2009
	Average Balance			Interest and Dividends		Yield/Cost		Average Balance			Interest and Dividends		Yield/Cost
Assets:
Interest-earning assets:
Loans	$	36,051		$	488	5.41	%	$	32,888		$	466	5.67	%
Investment securities available for sale		705			5	2.88	%		906			10	4.12	%
Investment securities held to maturity		964			9	3.73	%		1,269			14	4.28	%
FHLB stock		392			4	4.50	%		389			4	4.52	%
Other interest-earning assets		3,281			7	0.86	%		2,456			9	1.50	%

Total interest-earning assets		41,393			513	4.96	%		37,908			503	5.30	%
Noninterest-earning assets		2,761							1,629


Total assets	$	44,154						$	39,537


Liabilities and equity:
Interest-bearing liabilities:
Savings deposits	$	7,239		$	3	0.13	%	$	7,020		$	3	0.19	%
Certificates of deposit		16,755			81	1.94	%		17,551			138	3.15	%

Total interest-bearing deposits		23,994			84	1.39	%		24,571			141	2.31	%

FHLB advances		8,500			97	4.58	%		6,500			86	5.28	%

Total interest-bearing liabilities		32,494			181	2.22	%		31,071			227	2.93	%

Other noninterest-bearing liabilities		1,014							919

Total liabilities		33,508							31,990

Total shareholders’ equity		10,646							7,547


Total liabilities and equity	$	44,154						$	39,537


Net interest income				$	332						$	276

Interest rate spread						2.74	%						2.37	%

Net interest margin						3.21	%						2.91	%

Average interest-earning assets to average interest-bearing liabilities		127.35	%						122.13	%

(Continued)

24.

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.

A provision for loan losses of $10,000 was recorded for the three months ended March 31, 2010 compared to a provision for loan losses of $40,000 recorded for the three months ended March 31, 2009. The allowance for loan losses was $260,000, or 0.71% of total loans, at March 31, 2010 and $206,000, or 0.62% of total loans at March 31, 2009. Total nonperforming loans were $365,000 at March 31, 2010 compared to $463,000 at March 31, 2009. The allowance for loan losses was increased in the second half of the fiscal year ended June 30, 2009 due to the general downturn in local economic conditions. To the best of our knowledge, we have recorded all probable incurred credit losses for the period ended March 31, 2010 and March 31, 2009.

Noninterest Income . Our noninterest income was $1,000 for both the three months ended March 31, 2010 and the three months ended March 31, 2009. The increase in the quarterly savings account minimum balance service charge effective for the three months ended March 31, 2010 was offset by a like reduction in miscellaneous income for the three months ended March 31, 2010.

Noninterest Expense . Noninterest expense increased $86,000, or 50.7%, to $256,000 for the three months ended March 31, 2010 from $170,000 for the three months ended March 31, 2009. The increase was due to salaries and employee benefits expense increasing to $126,000 for the three months ended March 31, 2010 from $64,000 for the three months ended March 31, 2009. The number of full time equivalent employees was eight in the 2010 period compared to six in the 2009 period. For the same periods, FDIC insurance premiums increased $6,000 due to higher assessment rates and legal, accounting and exam fees expense increased $16,000 as a result of the Company becoming subject to the federal securities laws.

Income Tax Expense . The provision for income taxes was almost unchanged for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. The effective tax rate was relatively unchanged for the comparative periods. The effective tax rate was 34.0% and 33.4% for the three months ended March 31, 2010 and 2009.

(Continued)

25.

VERSAILLES FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Comparison of Operating Results for the Nine-Month Periods Ended March 31, 2010 and 2009.

General . Net income decreased to $138,000 for the nine months ended March 31, 2010 from $156,000 for the nine months ended March 31, 2009. The increase in noninterest expense exceeded the increase in net interest income.

Net Interest Income. Net interest income increased to $957,000 for the nine months ended March 31, 2010 from $811,000 for the nine months ended March 31, 2009. This reflected an increase in our interest rate spread to 2.71% from 2.24%, which offset a slight decrease in the ratio of our average interest earning assets to average interest bearing liabilities to 123.71% from 123.81%. Our net interest margin increased to 3.16% from 2.84%.

Interest Income . Interest and dividend income increased $7,000, or 0.49%, to $1,534,000 for the nine months ended March 31, 2010 from $1,527,000 for the nine months ended March 31, 2009. The increase reflected an increase in average interest-earning assets to $40.3 million for the nine months ended March 31, 2010 compared to $38.1 million for the nine months ended March 31, 2009, offset by a decrease in the average yield on interest earning assets to 5.07% for the nine months ended March 31, 2010 from 5.34% for the nine months ended March 31, 2009.

Interest income on loans increased $62,000, or 4.5%, to $1,451,000 for the nine months ended December 31, 2009 from $1,389,000 for the nine months ended March 31, 2009, reflecting an increase in the average balance of loans to $35.6 million from $32.3 million, which was partially offset by lower average yields on such balances, to 5.44% for the nine months ended March 31, 2010 from 5.73% for the nine months ended March 31, 2009.

Interest income on investment securities decreased to $48,000 for the nine months ended March 31, 2010 from $91,000 for the nine months ended March 31, 2009, reflecting a decrease in the average balance of such securities to $1.8 million for the nine months ended March 31, 2010 from $2.9 million for the nine months ended March 31, 2009, as well as a decrease in the average yield on available for sale securities to 3.36% from 3.96% and a decrease in the average yield on held to maturity securities to 3.71% from 4.38%.

Interest Expense . Interest expense decreased $139,000, or 19.3%, to $577,000 for the nine months ended March 31, 2010 from $716,000 for the nine months ended March 31, 2009. The decrease reflected a decrease in the average rate paid on deposits, including certificates of deposit and Federal Home Loan Bank of Cincinnati borrowings in the nine months ended March 31, 2010 compared to the nine months ended March 31, 2009, which more than offset the increases in the average balance of such deposits and borrowings.

(Continued)

26.

VERSAILLES FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Interest expense on certificates of deposit decreased to $279,000 for the nine months ended March 31, 2010 from $438,000 for the nine months ended March 31, 2009. The decrease was a result of a decrease in the average balance of such certificates to $17.0 million from $17.3 million coupled with a decrease in the average cost of such certificates to 2.20% for the nine months ended March 31, 2010 from 3.38% for the nine months ended March 31, 2009.

Interest expense on borrowings, consisting of advances from the Federal Home Loan Bank of Cincinnati, increased $25,000, or 9.6%, to $291,000 for the nine months ended March 31, 2010 from $266,000 for the nine months ended March 31, 2009. The increase reflected the lower weighted average rate paid on such borrowings to 4.69% for the nine months ended March 31, 2010 from 5.36% for the nine months ended March 31, 2009, which was more than offset by an increase in the average balance of such borrowings to $8.3 million for the nine months ended March 31, 2010 from $6.6 million for the nine months ended March 31, 2009.

The following tables set forth average balance sheets, average yields and costs, and certain other information for the nine months ended March 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)

27.

VERSAILLES FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

and Results of Operations


	(Dollars in thousands)
	Nine months ended 03-31-2010							Nine months ended 03-31-2009
	Average Balance			Interest and Dividends		Yield/Cost		Average Balance			Interest and Dividends		Yield/Cost
Assets :
Interest-earning assets:
Loans	$	35,578		$	1,451	5.44	%	$	32,321		$	1,389	5.73	%
Investment securities available For sale		799			20	3.36	%		1,248			38	3.96	%
Investment securities held to Maturity		1,018			28	3.71	%		1,599			53	4.38	%
FHLB stock		390			14	4.68	%		388			14	4.95	%
Other interest-earning assets		2,558			21	1.12	%		2,558			33	1.73	%

Total interest-earning assets		40,343			1,534	5.07	%		38,114			1,527	5.34	%
Noninterest-earning assets		2,320							1,125


Total assets	$	42,663						$	39,239


Liabilities and equity:
Interest-bearing liabilities:
Savings deposits	$	7,391		$	7	0.13	%	$	6,914		$	12	0.23	%
Certificates of deposit		16,929			279	2.20	%		17,284			438	3.38	%

Total interest-bearing deposits		24,320			286	1.57	%		24,198			450	2.48	%

FHLB advances		8,278			291	4.69	%		6,611			266	5.36	%

Total interest-bearing liabilities		32,598			577	2.36	%		30,809			716	3.10	%
Other noninterest-bearing liabilities		1,549							933

Total liabilities		34,147							31,742

Total shareholders’ equity		8,516							7,497


Total liabilities and equity	$	42,663						$	39,239


Net interest income				$	957						$	811

Interest rate spread						2.71	%						2.24	%

Net interest margin						3.16	%						2.84	%

Average interest-earning assets to average interest-bearing liabilities		123.71	%						123.81	%

(Continued)

28.

VERSAILLES FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Provision for Loan Losses . A provision for loan losses of $10,000 was recorded for the nine months ended March 31, 2010 compared to a provision for loan losses of $40,000 recorded for the nine months ended March 31, 2009. The allowance for loan losses was $260,000, or 0.71% of total loans, at March 31, 2010 and $206,000, or 0.62% of total loans at March 31, 2009. Total nonperforming loans were $365,000 at March 31, 2010 compared to $463,000 at March 31, 2009. The allowance for loan losses was increased in the second half of the fiscal year ended June 30, 2009 due to the general downturn in local economic conditions. To the best of our knowledge, we have recorded all probable incurred credit losses for the period ended March 31, 2010 and March 31, 2009.

Noninterest Income . Our noninterest income increased to $3,700 for the nine months ended March 31, 2010 from $1,300 for the nine months ended March 31, 2009. The increase was primarily due to no activity in available for sale investment securities during the nine months ended March 31, 2010 compared to the $2,300 loss recognized on the sale of available for sale investment securities during the nine months ended March 31, 2009.

Noninterest Expense . Noninterest expense increased $204,000, or 37.8%, to $742,000 for the nine months ended March 31, 2010 from $539,000 for the nine months ended March 31, 2009. The increase was due to salaries and employee benefits expense increasing to $376,000 for the nine months ended March 31, 2010 from $233,000 for the nine months ended March 31, 2009. The number of full time equivalent employees increased to eight in the 2010 period from six in the 2009 period. For the same periods, FDIC insurance premiums increased $16,000 due to higher assessment rates and our legal, accounting and exam fees expense increased $36,000 as a result of our becoming subject to the federal securities laws.

Income Tax Expense . The provision for income taxes decreased to $70,000 for the nine months ended March 31, 2010, compared to $78,000 for the nine months ended March 31, 2009, a decrease of $8,000, or 10.5%, 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 33.5% and 33.4% for the nine months ended March 31, 2010 and 2009.

(Continued)

29.

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 $41,435 for the nine months ended March 31, 2010 and $277,164 for the nine months ended March 31, 2009.

Net cash from investing activities consisted primarily of disbursements for loan originations, offset by principal collections on loans, and proceeds from maturation and sales of securities. Net cash flows used in investing activities were ($1,521,043) for the nine months ended March 31, 2010 and net cash flows used in investing activities were ($2,096,854) nine months ended March 31, 2009. Net cash from financing activities consisted of activity in deposits, borrowings and common stock transactions. Net cash flows from financing activities were $3,373,166 for the nine months ended March 31, 2010 and net cash flows from financing activities were $665,362 for the nine months ended March 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 the Company’s sale of stock in conjunction with its mutual to stock conversion.

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 March 31, 2010 and June 30, 2009, cash and short-term investments totaled $4.4 million and $2.5 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 March 31, 2010 and June 30, 2009, we had outstanding commitments to originate loans of $661,000 and $536,000, respectively and unfunded commitments under lines of credit of $37,500 and $38,900, respectively. We also had unfunded commitments for residential construction loans totaling $206,000 and $290,000 at March 31, 2010 and June 30, 2009. 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 March 31, 2010 totaled $9.4 million. Management believes, based on past experience, that a significant portion 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.

(Continued)

30.

VERSAILLES FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

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 March 31, 2010, we had $8.5 million in advances from the Federal Home Loan Bank of Cincinnati and an additional borrowing capacity of $8.0 million.

We are subject to various regulatory capital requirements. At March 31, 2010 and June 30, 2009, we were in compliance with all applicable capital requirements.


	Actual				To Be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
March 31, 2010

Total capital (to risk-weighted assets)	$	9,513	36.2	%	$	2,625	10.0	%
Tier I (core) capital (to risk-weighted assets)		9,333	35.6			1,575	6.0
Tier I (core) capital (to adjusted total assets)		9,333	21.0			2,227	5.0
Tangible capital (to adjusted total assets)		9,333	21.0				N/A

June 30, 2009

Total capital (to risk-weighted assets) $		8,053	32.7	%	$	2,465	10.0	%
Tier I (core) capital (to risk-weighted assets)		7,789	31.6			1,479	6.0
Tier I (core) capital (to adjusted total assets)		7,789	18.9			2,060	5.0
Tangible capital (to adjusted total assets)		7,789	18.9				N/A

(Continued)

31.

VERSAILLES FINANCIAL CORPORATION

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

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 4T – CONTROLS AND PROCEDURES

We have adopted interim disclosure controls and procedures to facilitate our financial reporting. The interim disclosure controls currently consist of communications between the Chief Executive Officer, the Chief Financial Officer and each department head to identify any new transactions, events, trends or contingencies which may be material to our operations. In addition, our Chief Executive Officer, Chief Financial Officer, Audit Committee and independent registered accountants meet on a quarterly basis and discuss our material accounting policies. Our Chief Executive Officer, Chief Financial Officer have evaluated the effectiveness of these interim disclosure controls as of the end of the period covered by this report and found them to be adequate.

During the quarter ended March 31, 2010, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

(Continued)

32.

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

Item 3 – Defaults Upon Senior Securities – None.

Item 5 – Other Information – None.

Item 6 – Exhibits


Exhibit Number	Document	Reference to Previous Filing, 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		*

10.5	First Amendment to Restated 2005 Sub-Plan to Versailles Savings and Loan Company Deferred Compensation Plan		*

(Continued)

33.

VERSAILLES FINANCIAL CORPORATION

Other Information


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	*	*

24	Power of Attorney (set forth on signature page)		*

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)

34.

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: May 17, 2010		/s/ Douglas P. Ahlers
		Douglas P. Ahlers
		President

Date: May 17, 2010		/s/ Cheryl J. Leach
		Cheryl J. Leach
		Vice President & Treasurer
		(Principal Accounting Officer)