UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2012

oTRANSITION 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	(I.R.S. Employer Identification No.)
of incorporation or organization)
10413 Kley Road, 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 x  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 November 13, 2012
	427,504 Common Shares

VERSAILLES FINANCIAL CORPORATION

FINANCIAL STATEMENTS

September 30, 2012

CONTENTS

PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS September 30, 2012 (Unaudited) and June 30, 2012	1
CONSOLIDATED STATEMENTS OF INCOME Three months ended September 30, 2012 and 2011 (Unaudited)	2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three months ended September 30, 2012 and 2011 (Unaudited)	3
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Three months ended September 30, 2012 (Unaudited)	4
CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended September 30, 2012 and 2011 (Unaudited)	5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	6
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	27
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37
ITEM 4 - CONTROLS AND PROCEDURES	37
PART II - OTHER INFORMATION
ITEM 1 — LEGAL PROCEEDINGS	38
ITEM 1A — RISK FACTORS	38
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	38
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES	38
ITEM 4 — MINE SAFETY DISCLOSURES	38
ITEM 5 — OTHER INFORMATION	38
ITEM 6 — EXHIBITS	38
SIGNATURES	39

VERSAILLES FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

September 30, 2012 and June 30, 2012

	September 30,			June 30,
	2012			2012
	(Unaudited)
ASSETS
Cash and cash equivalents due from financial institutions	$	1,948,257		$	2,241,915
Overnight deposits	3,700,000			2,700,000
Total cash and cash equivalents	5,648,257			4,941,915
Interest-bearing time deposits in other financial institutions	1,080,000			833,000
Securities, available-for-sale	702,305			697,042
Securities held to maturity (fair value of $547,830 at September 30, 2012 and $576,957 at June 30, 2012)	514,273			544,025
Federal Home Loan Bank stock	397,500			397,500
Loans, net of allowance of $255,432 and $255,432	34,941,368			35,489,351
Premises and equipment, net	1,555,749			1,548,882
Accrued interest receivable	95,424			92,679
Other assets	674,472			715,517
Total assets	$	45,609,348		$	45,259,911
LIABILITIES
Non-interest bearing checking accounts	$	23,664		$	50
Interest bearing checking accounts	143,403			63,277
Savings accounts	10,255,138			10,162,115
Certificates of deposit	17,736,282			17,600,303
Total deposits	28,158,487			27,825,745
Federal Home Loan Bank advances	5,000,000			5,000,000
Other liabilities	1,472,531			1,482,269
Common stock in ESOP subject to repurchase obligation	42,750			41,313
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	3,778,103			3,778,470
Retained earnings	8,338,762			8,321,153
Treasury stock, 35,460 shares, at cost	(354,600		)	(354,600		)
Unearned employee stock ownership plan shares	(294,970		)	(299,250		)
Accumulated other comprehensive loss	(535,990		)	(539,464		)
Total shareholders’ equity	10,935,580			10,910,584
Total liabilities and shareholders’ equity	$	45,609,348		$	45,259,911

See accompanying notes to financial statements.

1

VERSAILLES FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three months ended September 30, 2012 and 2011

	Three months ended
	September 30,
	2012		2011
Interest and dividend income
Loans, including fees	$	435,113	$	481,408
Securities available for sale	3,584		3,215
Securities held-to-maturity	3,785		5,308
FHLB dividends	4,200		3,964
Deposits with banks	3,081		3,160
Total interest and dividend income	449,763		497,055
Interest expense
Deposits	55,186		72,624
FHLB advances	31,848		47,650
Total interest expense	87,034		120,274
Net interest income	362,729		376,781
Provision for loan losses	—		15,000
Net interest income after provision for loan losses	362,729		361,781
Noninterest income
Other income	1,080		1,154
Total noninterest income	1,080		1,154
Noninterest expense
Salaries and employee benefits	152,489		141,444
Occupancy and equipment	21,349		5,599
Directors’ fees	15,000		15,000
Data processing	30,909		18,182
Franchise taxes	26,858		25,081
Legal, accounting and exam fees	67,471		77,144
Federal deposit insurance	5,100		5,100
Other	17,924		15,756
Total noninterest expense	337,100		303,306
Income before income taxes	26,709		59,629
Income tax expense	9,100		20,300
Net income	$	17,609	$	39,329
Earnings per common share	$	0.04	$	0.10

See accompanying notes to financial statements.

2

VERSAILLES FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three months ended September 30, 2012 and 2011

	2012			2011
Net income	$	17,609		$	39,329
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gain arising during the period	5,263			752
Tax effect	(1,789		)	(255		)
Net of tax	3,474			497
Supplemental retirement plans:
Amortization of prior service cost for supplemental retirement plan	—			2,761
Tax effect	—			(939		)
Net of tax	—			1,822
Total other comprehensive income	3,474			2,319
Comprehensive income	$	21,083		$	41,648

See accompanying notes to financial statements.

3

VERSAILLES FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

Three months ended September 30, 2012

														Accumulated
			Additional								Unearned			Other
	Common		Paid-In			Retained		Treasury			ESOP			Comprehensive
	Stock		Capital			Earnings		Stock			Shares			Loss			Total
Balance, July 1, 2012	$	4,275	$	3,778,470		$	8,321,153	$	(354,600	)	$	(299,250	)	$	(539,464	)	$	10,910,584
Net income for the period ended September 30, 2012	—		—			17,609		—			—			—			17,609
Change in net unrealized gain on securities available for sale, net of tax effects of $1,789	—		—			—		—			—			3,474			3,474
Commitment to release 428 employee stock ownership plan shares at fair value	—		1,070			—		—			4,280			—			5,350
Change in fair value of 3,420 allocated ESOP common shares subject to repurchase obligation	—		(1,437		)	—		—			—			—			(1,437		)
Balance, September 30, 2012	$	4,275	$	3,778,103		$	8,338,762	$	(354,600	)	$	(294,970	)	$	(535,990	)	$	10,935,580

See accompanying notes to financial statements.

4

VERSAILLES FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three months ended September 30, 2012 and 2011

	Three months ended
	September 30,
	2012			2011
Cash flows from operating activities
Net income	$	17,609		$	39,329
Adjustments to reconcile net income to net cash provided from operating activities
Provision for loan losses	—			15,000
Depreciation on premises and equipment	14,857			1,831
Net amortization of securities	84			65
Compensation expense related to ESOP shares	5,350			5,568
Change in:
Deferred loan costs	1,371			(1,407		)
Accrued interest receivable	(2,745		)	11,293
Other assets	39,256			28,553
Other liabilities	(9,738		)	(137,713		)
Net cash from operating activities	66,044			(37,481		)
Cash flow from investing activities
Purchases of time deposits	(247,000		)	—
Maturities, repayments and calls of securities held to maturity	29,668			41,403
Loan originations and payments, net	546,612			1,017,127
Property and equipment purchases	(21,724		)	(206,115		)
Net cash from investing activities	307,556			852,415
Cash flow from financing activities
Net change in deposits	332,742			920,660
Proceeds from FHLB advances	—			1,000,000
Net cash from financing activities	332,742			1,920,660
Net change in cash and cash equivalents	706,342			2,735,594
Cash and cash equivalents, beginning of period	4,941,915			4,071,401
Cash and cash equivalents at end of period	$	5,648,257		$	6,806,995
Cash paid during the year for
Interest	$	88,095		$	119,531
Income taxes	—			85,000

See accompanying notes to financial statements.

5

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

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 10-01 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 September 30, 2012, the results of operations for the three months ended September 30, 2012 and 2011 and cash flows for the three months ended September 30, 2012 and 2011.  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, 2012, as filed with the Securities and Exchange Commission on September 28, 2012.

Loans:  Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, plus net deferred loan costs less the allowance for loan losses.  Interest income is accrued on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipation prepayments.

Interest income on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection.  Past due status is based on the contractual terms of the loan.  In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.  Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.  A loan is moved to non-accrual status in accordance with the Company’s policy, typically after 90 days of non-payment.

All interest accrued but not received for loans placed on nonaccrual are reversed against interest income.  Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

(Continued)

6

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Loan Losses:  The allowance for loan losses is a valuation allowance for probable incurred credit losses.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.  Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors.  Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.

The allowance consists of specific and general components.  The specific component relates to loans that are individually classified as impaired.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Loans, for which the terms have been modified in a manner representing a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Commercial and commercial real estate loans are individually evaluated for impairment.  If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.  Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception.  If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.  For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

(Continued)

7

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 thirty-six months.  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, commercial and consumer.

1-4 Family real estate:  1-4 family mortgage loans represent loans to consumers for the purchase, refinance or improvement of a residence.  Real estate market values at the time of origination directly affect the amount of credit extended and, in the event of default, subsequent changes in these values may impact the severity of losses.  Factors considered by management include unemployment levels, credit history and real estate values in the Association’s market area.

Multi-family real estate:  Multi-family loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property.  Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and property types.  Management specifically considers real estate values, credit history and unemployment levels.

Construction real estate:  Construction loans are subject to underwriting standards and processes similar to 1-4 family mortgage loans.  Real estate market values at the time of origination directly affect the amount of credit extended.  These values are determined from plans and estimates provided by the contractor.  Inspections are monitored by management.  Real estate market values at the time of origination directly affect the amount of credit extended and, in the event of default, subsequent changes in these values may impact the severity of losses.  Factors considered by management include unemployment levels, credit history, knowledge of general contractor and real estate values in the Association’s market area.

Non-residential real estate:  Non-residential loans are subject to underwriting standards and processes similar to commercial loans.  These loans are viewed as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the farm or business.  Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and property types.  Management specifically considers real estate values, credit history, unemployment levels, crop prices and yields.

(Continued)

8

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Commercial:  Commercial credit is extended to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or other projects.  The majority of these borrowers are customer’s doing business in the Association’s primary market area.  These loans are generally underwritten individually and secured with the assets of the company and the personal guarantee of the business owners.  Commercial business loans are made based primarily on the borrower’s ability to make repayment from the historical and projected cash flow of the borrower’s business and the underlying collateral provided by the borrower.  Management specifically considers unemployment, credit history and the nature of the business.

Consumer:  Consumer loans are primarily comprised of secured loans including automobile loans, loans on deposit accounts, home improvement loans and, to a lesser extent, unsecured personal loans.  These loans are underwritten based on several factors including debt-to-income, type of collateral and loan to value, credit history and the Association’srelationship with the borrower.  Unemployment rates are specifically considered by management

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 weighted average number of shares outstanding for basic earnings per common share was 397,793 and 396,083 for the three months ended September 30, 2012 and 2011, 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.

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 September 30, 2012 there were 3,420 allocated shares related to the ESOP plan.  Compensation expense related to the plan was $5,350 and $5,568 for the three months ended September 30, 2012 and 2011, respectively.

(Continued)

9

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock Options:  The Company’s 2011 Equity Incentive Plan (the “Plan”), which was approved by shareholders on November 15, 2011, permits the grant of stock options to its employees for up to an aggregate of 42,750 shares of common stock.  Provisions of the plan indicate option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant with vesting periods defined by the Board of Directors.  The fair value of options awarded is estimated on the date of grant using a closed form option valuation (Black-Scholes) model.  As of September 30, 2012 there were no grants of stock options related to the Plan and no compensation expense has been recognized related to the Plan.

Share Awards:  The Plan provides for the issuance of restricted shares to directors and officers.  Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date.  Total shares issuable under the plan are 17,100 at September 30, 2012.  No shares have been issued nor any expense recorded as of September 30, 2012.

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

Adoption of New Accounting Pronouncements:  In May 2011, the Financial Accounting Standards Board (FASB) issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles.  Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.  The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011.  The effect of adopting this standard did not have a material effect on the Corporation’s operating results or financial condition, but the additional disclosures are included.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity.  The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements.  The amendments in the guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011.  Early adoption is permitted.  The adoption of this amendment had no impact on the consolidated financial statements as the prior presentation of comprehensive income was in compliance with this amendment.

(Continued)

10

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

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.

	September 30, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
AMF Short US Government Fund	$	694,034	$	8,271	$	—	$	702,305

	June 30, 2012
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
AMF Short US Government Fund	$	694,034	$	3,008	$	—	$	697,042

There were no sales of available-for-sale securities during the three months ended September 30, 2012 or 2011.

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

	September 30, 2012
			Gross		Gross
	Carrying		Unrecognized		Unrecognized		Fair
	Amount		Gains		Losses		Value
Government sponsored entities residential mortgage-backed:
FHLMC	$	270,787	$	17,172	$	—	$	287,959
GNMA	77,882		2,867		—		80,749
FNMA	165,604		13,518		—		179,122
	$	514,273	$	33,557	$	—	$	547,830

	June 30, 2012
			Gross		Gross
	Carrying		Unrecognized		Unrecognized		Fair
	Amount		Gains		Losses		Value
Government sponsored entities residential mortgage-backed:
FHLMC	$	278,118	$	16,187	$	—	$	294,305
GNMA	82,665		2,905		—		85,570
FNMA	183,242		13,840		—		197,082
	$	544,025	$	32,932	$	—	$	576,957

(Continued)

11

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 2 — SECURITIES (Continued)

At September 30, 2012, the Company had no securities due at a single maturity date.  Additionally, the Company had no securities at September 30, 2012 or June 30, 2012 in an unrealized loss position.

NOTE 3 - LOANS

Loans at September 30, 2012 and June 30, 2012 were as follows:

	September 30,			June 30,
	2012			2012
Mortgage loans:
1-4 family real estate	$	25,279,260		$	26,153,817
Multi-family real estate	278,102			290,557
Construction real estate	219,844			—
Nonresidential real estate:
Business	2,520,975			2,567,944
Agricultural	4,947,126			4,939,042
Commercial loans	495,649			499,619
Consumer loans:
Loans on deposits	14,640			15,280
Consumer auto	546,649			446,910
Consumer other secured	304,786			303,956
Consumer unsecured	550,220			486,738
Total loans	35,157,251			35,703,863
Deferred loan costs	39,549			40,920
Allowance for loan losses	(255,432		)	(255,432		)
	$	34,941,368		$	35,489,351

(Continued)

12

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 3 — LOANS (Continued)

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2012:

	1-4 Family			Multi-Family			Construction		Nonresidential
	Real			Real			Real		Real			Commercial			Consumer		Unallocated
	Estate			Estate			Estate		Estate			Loans			Loans		Balance		Total
Allowance for loan losses:
Beginning balance	$	226,960		$	465		$	—	$	14,580		$	1,599		$	4,009	$	7,819	$	255,432
Provision for loan losses	(7,603		)	(20		)	352		(131		)	(13		)	523		6,892		—
Loans charged-off	—			—			—		—			—			—		—		—
Recoveries	—			—			—		—			—			—		—		—
Total ending allowance balance	$	219,357		$	445		$	352	$	14,449		$	1,586		$	4,532	$	14,711	$	255,432

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2011:

	1-4 Family		Multi-Family		Construction			Nonresidential
	Real		Real		Real			Real			Commercial			Consumer		Unallocated
	Estate		Estate		Estate			Estate			Loans			Loans		Balance			Total
Allowance for loan losses:
Beginning balance	$	186,092	$	377	$	644		$	24,562		$	1,557		$	3,349	$	4,236		$	220,817
Provision for loan losses	24,055		326		(166		)	(6,691		)	(103		)	1,124		(3,545		)	15,000
Loans charged-off	—		—		—			—			—			—		—			—
Recoveries	—		—		—			—			—			—		—			—
Total ending allowance balance	$	210,147	$	703	$	478		$	17,871		$	1,454		$	4,473	$	691		$	235,817

(Continued)

13

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

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 September 30, 2012:

	1-4 Family		Multi-Family		Construction		Nonresidential
	Real		Real		Real		Real		Commercial		Consumer		Unallocated
	Estate		Estate		Estate		Estate		Loans		Loans		Balance		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	219,357		445		352		14,449		1,586		4,532		14,711		255,432
Total ending allowance balance	$	219,357	$	445	$	352	$	14,449	$	1,586	$	4,532	$	14,711	$	255,432
Loans:
Individually evaluated for impairment	$	66,026	$	—	$	—	$	481,813	$	—	$	—	$	—	$	547,839
Collectively evaluated for impairment	25,285,393		279,480		220,158		7,019,579		500,329		1,432,444		—		34,737,383
Total ending loans balance	$	25,351,419	$	279,480	$	220,158	$	7,501,392	$	500,329	$	1,432,444	$	—	$	35,285,222

Included in recorded investment is $39,549 of deferred loan costs and $88,422 of accrued loan interest.

(Continued)

14

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

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 June 30, 2012:

	1-4 Family		Multi-Family		Construction		Nonresidential
	Real		Real		Real		Real		Commercial		Consumer		Unallocated
	Estate		Estate		Estate		Estate		Loans		Loans		Balance		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	226,960		465		—		14,580		1,599		4,009		7,819		255,432
Total ending allowance balance	$	226,960	$	465	$	—	$	14,580	$	1,599	$	4,009	$	7,819	$	255,432
Loans:
Individually evaluated for impairment	$	66,675	$	—	$	—	$	483,897	$	—	$	—	$	—	$	550,572
Collectively evaluated for impairment	26,156,642		292,471		—		7,061,157		503,338		1,267,490		—		35,281,098
Total ending loans balance	$	26,223,317	$	292,471	$	—	$	7,545,054	$	503,338	$	1,267,490	$	—	$	35,831,670

Included in recorded investment is $40,920 of deferred loan costs and $86,887 of accrued loan interest.

(Continued)

15

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

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 September 30, 2011:

	1-4 Family		Multi-Family		Construction		Nonresidential
	Real		Real		Real		Real		Commercial		Consumer		Unallocated
	Estate		Estate		Estate		Estate		Loans		Loans		Balance		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	210,147		703		478		17,871		1,454		4,473		691		235,817
Total ending allowance balance	$	210,147	$	703	$	478	$	17,871	$	1,454	$	4,473	$	691	$	235,817
Loans:
Individually evaluated for impairment	$	65,456	$	—	$	—	$	489,949	$	—	$	—	$	—	$	555,405
Collectively evaluated for impairment	27,020,560		221,249		298,919		7,132,665		459,080		1,136,075		—		36,268,548
Total ending loans balance	$	27,086,016	$	221,249	$	298,919	$	7,622,614	$	459,080	$	1,136,075	$	—	$	36,823,953

Included in recorded investment is $45,305 of deferred loan costs and $104,052 of accrued loan interest.

The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the three months ended September 30, 2012:

	Unpaid				Allowance for		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
1-4 family real estate	$	65,829	$	66,026	$	—	$	65,972	$	1,116	$	1,118
Nonresidential real estate:
Business	478,994		481,813		—		479,455		7,854		7,866
With an allowance recorded:	—		—		—		—		—		—
Total	$	544,823	$	547,839	$	—	$	545,427	$	8,970	$	8,984

(Continued)

16

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 3 — LOANS (Continued)

The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the year ended June 30, 2012:

	Unpaid				Allowance for		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
1-4 family real estate	$	66,475	$	66,675	$	—	$	67,336	$	199	$	—
Nonresidential real estate:
Business	481,067		483,897		—		487,333		31,747		29,126
With an allowance recorded:	—		—		—		—		—		—
Total	$	547,542	$	550,572	$	—	$	554,669	$	31,946	$	29,126

The following table presents information related to loans individually evaluated for impairment by class of loans as of and for the three months ended September 30, 2011:

	Unpaid				Allowance for		Average		Interest		Cash Basis
	Principal		Recorded		Loan Losses		Recorded		Income		Interest
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
1-4 family real estate	$	65,437	$	65,456	$	—	$	66,874	$	871	$	871
Nonresidential real estate:
Business	487,085		489,949		—		489,497		7,986		5,328
With an allowance recorded:	—		—		—		—		—		—
Total	$	552,522	$	555,405	$	—	$	556,371	$	8,857	$	6,199

(Continued)

17

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 3 — LOANS (Continued)

There were no nonaccrual loans or loans past due over 90 days still on accrual as of September 30, 2012 and June 30, 2012.

The following table presents the aging of the recorded investment of past due loans as of September 30, 2012 by class of loans:

	30 - 59		60 - 89		Greater than
	Days		Days		89 Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
1-4 family real estate	$	91,291	$	—	$	—	$	91,291	$	25,260,128	$	25,351,419
Multi-family real estate	—		—		—		—		279,480		279,480
Construction real estate	—		—		—		—		220,158		220,158
Nonresidential real estate:
Business	—		—		—		—		2,530,106		2,530,106
Agricultural	—		—		—		—		4,971,286		4,971,286
Commercial loans	—		—		—		—		500,329		500,329
Consumer loans:
Loans on deposits	—		—		—		—		14,735		14,735
Consumer auto			—		—				552,709		552,709
Consumer other secured	—		—		—		—		306,415		306,415
Consumer unsecured	—		—		—		—		558,585		558,585
Total	$	91,291	$	—	$	—	$	91,291	$	35,193,931	$	35,285,222

(Continued)

18

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 3 — LOANS (Continued)

The following table presents the aging of the recorded investment of past due loans as of June 30, 2012 by class of loans:

	30 - 59		60 - 89		Greater than
	Days		Days		89 Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
1-4 family real estate	$	36,436	$	58,696	$	—	$	95,132	$	26,128,185	$	26,223,317
Multi-family real estate	—		—		—		—		292,471		292,471
Construction real estate	—		—		—		—		—		—
Nonresidential real estate:
Business	—		—		—		—		2,574,866		2,574,866
Agricultural	—		—		—		—		4,970,188		4,970,188
Commercial loans	—		—		—		—		503,338		503,338
Consumer loans:
Loans on deposits	—		—		—		—		15,397		15,397
Consumer auto	—		—		—		—		451,950		451,950
Consumer other secured	—		—		—		—		306,183		306,183
Consumer unsecured	—		—		—		—		493,960		493,960
Total	$	36,436	$	58,696	$	—	$	95,132	$	35,736,538	$	35,831,670

Troubled Debt Restructurings:  At September 30, 2012 and June 30, 2012, the Company had two loans, one residential real estate loan and one nonresidential real estate loan, with a combined recorded investment of $547,839 and $550,572, respectively, classified as troubled debt restructures (TDRs), which were individually evaluated for impairment.  At September 30, 2011 the Company had one nonresidential real estate loan with a recorded investment of $489,949 classified as a troubled debt restructure.

The Company has not allocated specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, 2012 and June 30, 2012.  The Company has not committed to lend additional amounts to customers with outstanding loans that are classified as troubled debt restructurings as of September 30, 2012 and June 30, 2012.

During the three month period ended September 30, 2012, the Company did not modify any loans as TDRs, record any charge-offs related to TDRs or experience a payment default on a TDR within the twelve months following the modification.  During the year ended June 30, 2012, the Company modified one residential loan as a TDR which had a pre-modification outstanding recorded investment of $58,004 and a post-modification outstanding recorded investment of $66,675.  The troubled debt restructuring did not increase the allowance for loan losses and did not result in charge offs during the year ended June 30, 2012.

The modification of the terms of such loans would include one or a combination of the following:  a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

(Continued)

19

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 3 — LOANS (Continued)

The loan modification during the year ended June 30, 2012 involved an extension of the maturity date for a period of 149 months and a 1.75% increase in the interest rate.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The terms of certain other loans were modified during the three months ended September 30, 2012 that did not meet the definition of a troubled debt restructuring.  These loans have a total recorded investment as of September 30, 2012 of $1.5 million.  The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

Certain loans which were modified during the three months ended September 30, 2012 and did not meet the definition of a troubled debt restructuring as the modification was a request for a lower interest rate due to local competition and market conditions.

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.

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.

(Continued)

20

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 3 — LOANS (Continued)

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 September 30, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans at recorded investment is as follows.  Two loans, one residential real estate loan and one nonresidential real estate loan, with a recorded investment of $66,026 and $481,813, respectively, are troubled debt restructurings and were classified as “pass” due to a loan to value ratio less than 47.0% each and the loans being current.

			Special						Not
	Pass		Mention		Substandard		Doubtful		Rated
1-4 Family real estate	$	66,026	$	—	$	—	$	—	$	25,285,393
Multi-Family real estate	279,480		—		—		—		—
Construction real estate	220,158		—		—		—		—
Nonresidential real estate:
Business	2,530,106		—		—		—		—
Agricultural	4,971,286		—		—		—		—
Commercial loans	500,329		—		—		—		—
Total	$	8,567,385	$	—	$	—	$	—	$	25,285,393

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 June 30, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans at recorded investment is as follows.  Two loans, one residential real estate loan and one nonresidential real estate loan, with a recorded investment of $66,675 and $483,897, respectively, are troubled debt restructurings and were classified as “pass” due to a loan to value ratio less than 47.0% each and the loans being current.

(Continued)

21

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 3 — LOANS (Continued)

			Special						Not
	Pass		Mention		Substandard		Doubtful		Rated
1-4 Family real estate	$	66,675	$	—	$	—	$	—	$	26,156,642
Multi-Family real estate	292,471		—		—		—		—
Construction real estate	—		—		—		—		—
Nonresidential real estate:
Business	2,574,866		—		—		—		—
Agricultural	4,970,188		—		—		—		—
Commercial loans	503,338		—		—		—		—
Total	$	8,407,538	$	—	$	—	$	—	$	26,156,642

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 recorded investment of consumer loans based on payment activity as of September 30, 2012:

	Consumer
	Loans on				Other
	Deposits		Auto		Secured		Unsecured
Performing	$	14,735	$	552,709	$	306,415	$	558,585
Nonperforming	—		—		—		—
Total	$	14,735	$	552,709	$	306,415	$	558,585

Included in recorded investment is $9,222 of deferred loan fees and $6,927 of accrued loan interest.

The following table presents the recorded investment of consumer loans based on payment activity as of June 30, 2012:

	Consumer
	Loans on				Other
	Deposits		Auto		Secured		Unsecured
Performing	$	15,397	$	451,950	$	306,183	$	493,960
Nonperforming	—		—		—		—
Total	$	15,397	$	451,950	$	306,183	$	493,960

Included in recorded investment is $8,332 of deferred loan fees and $6,274 of accrued loan interest.

(Continued)

22

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

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 Company used the following methods and significant assumptions to estimate fair value:

Investment Securities:  The fair values for investment securities are determined by quoted market prices, if available (Level 1).  For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).

Impaired Loans:  At the time a loan is considered impaired, it is valued at the lower of cost or fair value.  Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses.  For collateral dependent loans, fair value is commonly 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 independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification.  Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  Once received, a member of management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

(Continued)

23

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

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 September 30, 2012 Using
	Quoted Prices in		Significant		Significant
	Active Markets for		Other Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
AMF Short US Government Fund	$	702,305	$	—	$	—

	Fair Value Measurements
	at June 30, 2012 Using
	Quoted Prices in		Significant		Significant
	Active Markets for		Other Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)
Assets:
AMF Short US Government Fund	$	697,042	$	—	$	—

There were no assets or liabilities measured at fair value on a non-recurring basis at September 30, 2012 and June 30, 2012.

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

				Fair Value Measurements at
	Carrying			September 30, 2012 Using:
(Dollars in thousands)	Value			Level 1			Level 2			Level 3		Total
Financial assets
Cash and cash equivalents	$	5,648,257		$	5,648,257		$	—		$	—	$	5,648,257
Interest bearing time deposits in other financial institutions	1,080,000			1,080,000			—			—		1,080,000
Securities available-for-sale	702,305			702,305			—			—		702,305
Securities held-to-maturity	514,273			—			547,830			—		547,830
Net Loans	34,941,368			—			—			34,720,000		34,720,000
FHLB stock	397,500			N/A			N/A			N/A		N/A
Accrued interest receivable	95,424			7,002			—			88,422		95,424
Financial liabilities
Deposits	$	(28,158,487	)	$	(15,831,000	)	$	(12,370,000	)	$	—	$	(28,201,000	)
FHLB advances	(5,000,000		)	—			(5,000,000		)	—		(5,000,000		)
Accrued interest payable	(39,969		)	(10,988		)	(28,981		)	—		(39,969		)

(Continued)

24

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 4 — FAIR VALUE (Continued)

				Fair Value Measurements at
	Carrying			June 30, 2012 Using:
(Dollars in thousands)	Value			Level 1			Level 2			Level 3		Total
Financial assets
Cash and cash equivalents	$	4,941,915		$	4,941,915		$	—		$	—	$	4,941,915
Interest bearing time deposits in other financial institutions	833,000			833,000			—			—		833,000
Securities available-for-sale	697,042			697,042			—			—		697,042
Securities held-to-maturity	544,025			—			576,957			—		576,957
Net Loans	35,489,351			—			—			35,251,000		35,251,000
FHLB stock	397,500			N/A			N/A			N/A		N/A
Accrued interest receivable	92,679			5,792			—			86,887		92,679
Financial liabilities
Deposits	$	(27,825,745	)	$	(15,337,000	)	$	(12,557,000	)	$	—	$	(27,894,000	)
FHLB advances	(5,000,000		)	—			(5,000,000		)	—		(5,000,000		)
Accrued interest payable	(41,030		)	(10,560		)	(30,470		)	—		(41,030		)

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

(a) Cash and Cash Equivalents

The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

(b) Interest-bearing Time Deposits in Other Financial Institutions

The carrying amounts of interest-bearing time deposits in other financial institutions approximate fair values and are classified as Level 1.

(c) Securities Held to Maturity

The carrying amounts of securities held to maturity approximate fair values and are determined by quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data and are classified as Level 2.

(d) FHLB Stock

It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

(Continued)

25

VERSAILLES FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three months ended September 30, 2012

NOTE 4 — FAIR VALUE (Continued)

(e) Loans

Fair values of loans are estimated as follows:  For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification.  The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

(f) Deposits

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. The carrying amounts of variable rate, fixed-term certificates of deposit approximate their fair values at the reporting date resulting in a Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

(g) Other Borrowings

The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

(h) Accrued Interest Receivable/Payable

The carrying amounts of accrued interest approximate fair value resulting in a classification consistent with the asset/liability they are associated with.

(i) Off-balance Sheet Instruments

Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

(Continued)

26

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 provision 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.

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:

(Continued)

27

·our ability to manage our operations under current adverse economic conditions, nationally and in our market area;

·adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);

·further declines in the yield on our assets or the fair value of financial instruments resulting from the current low market interest rate environment;

·the recent drought conditions, which may increase the likelihood that our agricultural and farmland loan customers, as well as commercial loan customers whose businesses depend on or are related to agriculture, are unable to make payments on their loans, and which may reduce deposits from such customers as their revenues decrease and expenses increase;

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

·risks related to a high concentration of loans secured by real estate located in our market area;

·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;

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

·further declines in the yield on our assets resulting from the current low interest rate environment;

·changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements, deposit assessments or premiums, additional consumer protection requirements and changes in the level of government support of housing finance;

·the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder;

·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, including a lack of consumer confidence in financial institutions;

·decreases in asset quality, including significant increases in our loan losses;

·future deposit insurance premium levels and special assessments;

·significantly increased competition with depository and non-depository financial institutions;

(Continued)

28

·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 and costs associated with 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.

Comparison of Financial Condition at September 30, 2012 and June 30, 2012.

General.  Our total assets increased $0.3 million, or 0.8%, to $45.6 million at September 30, 2012 from $45.3 million at June 30, 2012.  Cash and cash equivalents increased $0.7 million, or 14.3%, to $5.6 million at September 30, 2012 from $4.9 million at June 30, 2012.  Net loans decreased $0.6 million, or 1.5%, to $34.9 million at September 30, 2012 from $35.5 million at June 30, 2012.  Interest-bearing time deposits in other financial institutions increased $0.3 million, or 29.7%, to $1.1 million at September 30, 2012 from $0.8 million at June 30, 2012.

Loans.  Net loans decreased $0.6 million, or 1.5%, to $34.9 million at September 30, 2012 from $35.5 million at June 30, 2012.  1-4 family, multifamily and construction real estate loans decreased $0.6 million, or 2.5%, to $25.8 million at September 30, 2012 from $26.4 million at June 30, 2012.  This decrease represents a combination of reduced demand for these type loans and customers seeking other refinancing options.

Investments.  Investment securities remained virtually unchanged at $1.2 million for the three months ended September 30, 2012 and the year ended June 30, 2012.  Net pay-downs in government sponsored mortgage-backed securities totaled $30,000 for the three months ended September 30, 2012.  The carrying value of investment securities held for sale had an unrealized gain of $5,000 for the three months ended September 30, 2012.

Cash and cash equivalents.  Cash and cash equivalents increased $0.7 million, or 14.3%, to $5.6 million at September 30, 2012 from $4.9 million at June 30, 2012.  The increase in cash and cash equivalents was primarily due to increased deposits and principal reductions on existing loans that exceeded new loan originations.

Premises and equipment.  The balance in premises and equipment was nearly unchanged at $1.5 million for the three months ended September 30, 2012 and the year ended June 30, 2012.  During the three months ended September 30, 2012, new fixed asset purchases totaled $22,000 and was partially offset by depreciation on the new office facility and new equipment in the amount of $15,000.  We anticipate increased expenses related to the operation of the new larger facility and expanded services in future periods.

(Continued)

29

Deposits.  Deposits increased $0.4 million, or 1.2%, to $28.2 million at September 30, 2012 from $27.8 at June 30, 2012.  Some investors shifted funds to deposit products from equity-based investments, given the continued volatility in the stock markets during the period.  The funds from the increase in deposits are generally held in cash and cash equivalents until they are able to be deployed into credit worthy loans or investment securities.

Borrowings.  Federal Home Loan Bank of Cincinnati advances remained unchanged at $5.0 million at September 30, 2012 and June 30, 2012.  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 five years and interest rates between 4.26% and 1.02%.

Equity.  Total equity was virtually unchanged at $10.9 million for the three months ended September 30, 2012 and the year ended June 30, 2012 with a minimal increase in equity of $25,000.  The increase was primarily the result of net income of $18,000 for the three months ended September 30, 2012 coupled with the allocation of ESOP shares which increased equity by $4,000 and a $3,000 reduction in the reserve for other comprehensive loss related to the increase in the unrealized gain on investment securities held for sale.

Comparison of Results of Operations for the Three Months Ended September 30, 2012 and the Three Months Ended September 30, 2011

General.  Net income decreased $21,700, or 55.2%, to $17,600 for the three months ended September 30, 2012 from $39,300 for the three months ended September 30, 2011.  This was primarily due to a $33,800 increase in noninterest expense and an $11,200 decrease in income tax expense for the three months ended September 30, 2012 compared to the three months ended September 30, 2011.

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 decreased $14,100, or 3.7%, to $362,700 for the three months ended September 30, 2012 from $376,800 for the three months ended September 30, 2011.  This reflected an increase in our interest rate spread to 3.20% from 3.10% offset by a decrease in the ratio of our average interest earning assets to average interest bearing liabilities to 127.99% from 130.13%.  Our net interest margin increased to 3.43% from 3.42% due to 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 decreased $47,000, or 9.5%, to $450,000 for the three months ended September 30, 2012 from $497,000 for the three months ended September 30, 2011.  Average interest-earning assets decreased to $42.3 million for the three months ended September 30, 2012 from $44.0 million for the three months ended September 30,

(Continued)

30

2011.  The decrease in interest and dividend income is attributable to a decrease in the average yield on interest earning assets to 4.25% for the three months ended September 30, 2012 from 4.52% for the three months ended September 30, 2011.

Interest income on loans decreased $46,000, or 9.6%, to $435,000 for the three months ended September 30, 2012 from $481,000 for the three months ended September 30, 2011, reflecting a decrease in the average balance of loans to $34.9 million for the three months ended September 30, 2012 from $36.9 million for the three months ended September 30, 2011, as well as a decrease in average yields on such balances to 4.98% for the three months ended September 30, 2012 from 5.22% for the three months ended September 30, 2011.  The lower yields reflect the continued low interest rate environment.

Interest and dividend income on investment securities decreased $1,100, or 13.6%, to $7,400 for the three months ended September 30, 2012 from $8,500 for the three months ended September 30, 2011, reflecting a decrease in the average balance of such securities to $1.2 million for the three months ended September 30, 2012 from $1.4 million for the three months ended September 30, 2011, coupled with an increase in the average yield on available for sale securities to 2.07% from 1.85% and a decrease in the average yield on held to maturity securities to 2.89% from 3.19%.

Interest Expense.  Interest expense decreased $33,300, or 27.6%, to $87,000 for the three months ended September 30, 2012 from $120,300 for the three months ended September 30, 2011.  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 September 30, 2012 compared to the three months ended September 30, 2011.

Interest expense on certificates of deposit decreased $16,200, or 23.3%, to $53,300 for the three months ended September 30, 2012 from $69,500 for the three months ended September 30, 2011.  The average balance of such certificates remained unchanged at $17.7 million for the three months ended September 30, 2012 and 2011.  The decrease in interest expense resulted from a decrease in the average cost of such certificates to 1.17% for the three months ended September 30, 2012 from 1.57% for the three months ended September 30, 2011.

Interest expense on borrowings, consisting of advances from the Federal Home Loan Bank of Cincinnati, decreased by $15,800, or 33.2%, to $31,850 for the three months ended September 30, 2012 from $47,650 for the three months ended September 30, 2011.  The decrease reflected the decrease in the weighted average rate paid on such borrowings to 2.55% for the three months ended September 30, 2012 from 2.72% for the three months ended September 30, 2011.  The average balance of such borrowings decreased by $2.0 million, or 28.6%, to $5.0 million for the three months ended September 30, 2012 from $7.0 million for the three months ended September 30, 2011.

The following tables set forth average balance sheets, average yields and costs, and certain other information for the three months ended September 30, 2012 and 2011.  All average balances are monthly average balances.  Non-accrual loans were included in the computation of average

(Continued)

31

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)

32

	(Dollars in thousands)
	Three months ended 09-30-2012							Three months ended 09-30-2011
				Interest							Interest
	Average			and				Average			and
	Balance			Dividends		Yield/Cost		Balance			Dividends		Yield/Cost
Assets:
Interest-earning assets:
Loans	$	34,940		$	435	4.98	%	$	36,917		$	481	5.22	%
Investment securities available for sale	699			4		2.07	%	702			3		1.85	%
Investment securities held to maturity	523			4		2.89	%	665			5		3.19	%
FHLB stock	398			4		4.23	%	398			4		3.99	%
Other interest-earning assets	5,767			3		0.21	%	5,341			4		0.24	%
Total interest-earning assets	42,327			450		4.25	%	44,023			497		4.52	%
Allowance for loan losses	(255		)					(231		)
Noninterest-earning assets	3,435							2,099
Total assets	$	45,507						$	45,891
Liabilities and equity:
Interest-bearing liabilities:
Savings deposits	$	10,254		$	3	0.13	%	$	9,105		$	3	0.14	%
Interest bearing checking	124			0		0.00	%	—			—		0.00	%
Certificates of deposit	17,693			52		1.17	%	17,718			70		1.57	%
Total interest-bearing deposits	28,071			55		0.79	%	26,823			73		1.08	%
FHLB advances	5,000			32		2.55	%	7,000			47		2.72	%
Total interest-bearing liabilities	33,071			87		1.05	%	33,823			120		1.42	%
Other noninterest-bearing liabilities	1,462							1,040
Common stock in ESOP subject to repurchase obligation	43							22
Total shareholder’s equity	10,931							11,006
Total liabilities and equity	$	45,507						$	45,891
Net interest income				$	363						$	377
Interest rate spread						3.20	%						3.10	%
Net interest margin						3.43	%						3.42	%
Average interest-earning assets to average interest-bearing liabilities	127.99		%					130.13		%

(Continued)

33

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 September 30, 2012 compared to a provision for loan losses of $15,000 for the three months ended September 30, 2011.  The allowance for loan losses was $255,000, or 0.73% of total loans, at September 30, 2012, $255,000, or 0.72% of total loans at June 30, 2012, and $236,000, or 0.64% of total loans at September 30, 2011.  Total nonperforming loans were $0 at September 30, 2012 and June 30, 2012 compared to $65,000 at September 30, 2011.  The $65,000 decrease in nonperforming loans was due to the modification of a nonaccrual loan during the year ended June 30, 2012.  No losses were deemed probable on other impaired loans at September 30, 2012.  To the best of our knowledge, we have recorded all probable incurred credit losses for the three month periods ended September 30, 2012 and September 30, 2011.

Noninterest Income.  Our noninterest income decreased to $1,080 for the three months ended September 30, 2012 from $1,154 for the three months ended September 30, 2011.  The $74 decrease is primarily the result of a change in the composition of miscellaneous fees for the three months ended September 30, 2012 compared to the three months ended September 30, 2011.

Noninterest Expense.  Noninterest expense increased $33,800, or 11.1%, to $337,100 for the three months ended September 30, 2012 from $303,300 for the three months ended September 30, 2011.  Salary and benefit expense increased to $152,500 for the three months ended September 30, 2012 from $141,400 for the three months ended September 30, 2011 due to routine salary increases for the calendar year 2012 and seasonal staffing.  Data processing expense increased to $30,900 for the three months ended September 30, 2012 from $18,200 for the three months ended September 30, 2011 due to the ongoing implementation of expanded customer services.  Legal, accounting and exam expenses decreased to $67,500 for the three months ended September 30, 2012 from $77,100 for the three months ended September 30, 2011 primarily due to the lower legal expenses in the current period.  Occupancy and equipment expenses increased to $21,300 for the three months ended September 30, 2012 from $5,600 for the three months ended September 30, 2011 primarily due to depreciation expense on the new facility.  Franchise tax expense increased to $26,900 for the three months ended September 30, 2012 from $25,100 for the three months ended September 30, 2011 and other expenses increased to $17,900 for the three months ended September 30, 2012 from $15,800 for the three months ended September 30, 2011.

(Continued)

34

Income Tax Expense. The provision for income taxes decreased to $9,100 for the three months ended September 30, 2012, compared to $20,300 for the three months ended September 30, 2011, a decrease of $11,200, or 55.2%, 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 34.1% and 34.0%, respectively, for the three months ended September 30, 2012 and 2011.

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) operating activities, (ii) investing activities, and (iii) financing activities. Net cash flows from operating activities were $66,044 for the three months ended September 30, 2012 and $(37,481) for the three months ended September 30, 2011.  The increase is primarily due to no required federal income tax deposit during the three months ended September 30, 2012 compared to $85,000 during the three months ended September 30, 2011 and no provision for loan losses for the three months ended September 30, 2012 compared to $15,000 for the three months ended September 30, 2011.

Net cash from investing activities consisted primarily of disbursements for loan originations, offset by principal collections on loans, proceeds from securities and time deposit maturities, the purchase of time deposits and the investment in a new home office.  Net cash flows from investing activities were $307,556 for the three months ended September 30, 2012 and $852,415 for the three months ended September 30, 2011.  The decrease primarily resulted from loan originations that exceeded loan repayments in the three months ended September 30, 2012 coupled with the purchase of time deposits that yield a better return than idle funds.

Net cash from financing activities consisted primarily of activity in deposits and borrowings.  Net cash flows from financing activities were $332,742 for the three months ended September 30, 2012 and $1,920,660 for the three months ended September 30, 2011.  The change in net cash flows provided by financing activities for the three months ended September 30, 2012 was derived solely from deposits.  For the three months ended September 30, 2011 the change in net cash flows provided by financing activities was from both deposits and proceeds from 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 September 30, 2012 and June 30, 2012, cash and short-term investments totaled $5.6 million and $4.9 million, respectively. We may also utilize the sale of securities available-for-

(Continued)

35

sale, federal funds purchased, Federal Home Loan Bank of Cincinnati advances and other borrowings as sources of funds.

At September 30, 2012 and June 30, 2012, we had outstanding commitments to originate loans of $915,000 and $492,000, respectively, and no unfunded commitments under lines of credit.  We had unfunded commitments for residential construction loans totaling $318,200 and $347,200, respectively, at September 30, 2012 and June 30, 2012.  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 September 30, 2012 totaled $9.0 million compared to $9.3 million at June 30, 2012.  Based on past experience, management believes 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.

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 September 30, 2012, we had $5.0 million outstanding in advances from the Federal Home Loan Bank of Cincinnati and an additional borrowing capacity of $11.4 million.

The Association is subject to various regulatory capital requirements.  At September 30, 2012 and June 30, 2012, we were in compliance with all applicable capital requirements.

					To Be
					Well Capitalized
					Under Prompt
					Corrective
	Actual				Action Regulations
	Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
September 30, 2012
Total capital (to risk-weighted assets)	$	10,271	38.2	%	$	2,686	10.0	%
Tier I (core) capital (to risk-weighted assets)	10,012		37.3		1,612		6.0
Tier I (core) capital (to adjusted total assets)	10,012		22.0		2,276		5.0
Tangible capital (to adjusted total assets)	10,012		22.0				N/A
June 30, 2012
Total capital (to risk-weighted assets)	$	10,217	38.2	%	$	2,677	10.0	%
Tier I (core) capital (to risk-weighted assets)	9,961		37.2		1,606		6.0
Tier I (core) capital (to adjusted total assets)	9,961		22.1		2,253		5.0
Tangible capital (to adjusted total assets)	9,961		22.1				N/A

(Continued)

36

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 fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

37

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 — Mine Safety Disclosures — None.

Item 5 — Other Information — None.

Item 6 — Exhibits

		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	*
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)
32.1	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
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholder’s Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements.**

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

**Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

(Continued)

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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:	November 14, 2012	/s/ Douglas P. Ahlers
		Douglas P. Ahlers
		President & CEO
		(Principal Executive Officer)
Date:	November 14, 2012	/s/ Cheryl J. Leach
		Cheryl J. Leach
		Vice President & Treasurer
		(Principal Accounting Officer)

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