<TABLE>
<CAPTION>
<S>                                             <C>                                         <C>
TECHE HOLDING COMPANY                           NEW IBERIA                                  BATON ROUGE
---------------------                           ----------                                  -----------
1120 Jefferson Terrace Boulevard                529 N. Lewis Street                         WAL*MART SUPERCENTER
                                                                                            --------------------
New Iberia, LA 70560                            New Iberia, LA  70563                       2171 O'Neal Lane
PHONE (337) 560-7151                            (337) 367-2516                              Baton Rouge, LA  70816
FAX (337) 365-7130                                                                          (225) 751-0264
                                                NEW IBERIA
                                                ----------
NEW IBERIA                                      142 W. St. Peter Street                     BREAUX BRIDGE
----------                                                                                  -------------
1120 Jefferson Terrace Boulevard                New Iberia, LA  70560                       601 East Bridge Street
New Iberia, LA  70560                           (337) 364-5528                              Breaux Bridge, LA  70517
(337) 365-0366                                                                              (337) 332-2149
Call Center (800) 897-0315                      LAFAYETTE
                                                ---------
                                                BROADMOOR                                   HOUMA
                                                ---------                                   -----
FRANKLIN                                        5121 Johnston Street                        706 Barrow Street
--------
211 Willow Street                               Lafayette, LA  70503                        Houma, LA  70360
Franklin, LA  70538                             (337) 981-1887                              (985) 868-8766
(337) 828-3212
                                                LAFAYETTE                                   HOUMA
                                                ---------                                   -----
FRANKLIN DRIVE-THRU                             DOWNTOWN                                    1963 Prospect Boulevard
-------------------                             --------
1823 Main Street                                1001 Johnston Street                        Houma, LA  70363
Franklin, LA  70538                             Lafayette, LA  70501                        (985) 857-9990
(337) 828-4177                                  (337) 232-6463
                                                                                            THIBODAUX
                                                                                            ---------
MORGAN CITY                                     LAFAYETTE                                   921 Canal Boulevard
-----------                                     ---------
1001 7th Street                                 2200 W. Pinhook Road                        Thibodaux, LA  70301
Morgan City, LA  70380                          Lafayette, LA  70508                        (985) 446-6707
(337) 384-0653                                  (337) 232-3419
                                                                                            OPELOUSAS
                                                                                            ---------
BAYOU VISTA                                     BATON ROUGE                                 428 E. Landry Street
-----------                                     -----------
206 Arlington Avenue                            3524 S. Sherwood Forest Boulevard           Opelousas, LA  70570
Bayou Vista, LA  70380                          Baton Rouge, LA  70816                      (337) 942-5748
(985) 395-5244                                  (337) 293-0954
                                                                                            EUNICE
                                                                                            ------
INTERNET:                                       PRAIRIEVILLE                                840 E. Laurel Avenue
                                                ------------
WWW.TECHE.COM                                   WAL*MART SUPERCENTER                        Eunice, LA  70535
                                                --------------------
                                                17585 Airline Hwy.                          (337) 457-9585
                                                Prairieville, LA 70769
                                                (225) 677-8748
</TABLE>
TABLE OF CONTENTS                                                              1
President's Message                                                            2

Selected Financial Data                                                        4

Business of the Bank - Business of the Company                                 5

Summary of Quarterly Operating Results                                         5

Market and Dividend Information                                                6

Management's Discussion and Analysis of Financial
Condition and Results of Operations                                            7

Report of Independent Registered Public Accounting Firm                       14

Consolidated Balance Sheets                                                   15

Consolidated Statements of Income                                             16

Consolidated Statements of Stockholders' Equity                               17

Consolidated Statements of Cash Flows                                         18

Notes to Consolidated Financial Statements                                    20

Directors and Officers                                                        48

General Information                                                           48

<PAGE>

                             TECHE HOLDING COMPANY



President's Message

--------------------------------------------------------------------------------


Dear Fellow Shareholders:

This past year of 2006  proved to be another  benchmark  year for Teche  Holding
Company and our shareholders.  For our fiscal year ending September 30, 2006, we
announced  earnings  that  amounted  to $3.15 per  diluted  share,  the  highest
earnings in our history.  Compared to the earnings for the fiscal year 2005 when
comparable  earnings were $2.26, our shareholders  enjoyed an increase of 39.4%.
In addition, Teche's dividend in 2006 of $1.10 set a new record for the Company.
Teche has  increased  its dividend  for fifteen  consecutive  quarters  with the
latest  increase to $0.30 for the first  quarter of fiscal  year 2007.  Over the
past  six  years,  when  considering  stock  appreciation  and  dividends,   our
shareholders realized a 353% return on their investment.

Our ability to provide  these  results  comes from a dedicated  staff that stays
true to our mission of providing high quality financial products and exceptional
customer  service while producing  superior  returns for our  shareholders.  Our
focus for the past several years has been SmartGrowth.

SmartGrowth Loans and Deposits
------------------------------
Our emphasis on  SmartGrowth  loans helped us to increase our total  outstanding
loans to $521 million with SmartGrowth  loans increasing 12.0% for the year to a
total of $337  million.  While we may  encounter  a little more risk in our loan
portfolio by migrating to this "community  bank" model,  the return on our loans
has increased, thereby mitigating this risk.

SmartGrowth  deposits,  those consisting of checking,  money market, and savings
accounts,  continue to grow each year. SmartGrowth deposits grew to $240 million
in 2006, an increase of 7%.

Branch Expansion and Growth
---------------------------
Teche  has a firm  commitment  to expand  its  customer  base.  We have and will
achieve  this goal by adding  branch  locations  within our current  markets and
strategically seeking opportunities in areas with superior growth potential.

Property has been purchased to replace and upgrade two facilities in the Houma /
Thibodaux markets.  We recently completed the purchase of additional property in
the Houma area for another branch location. In other markets within our existing
footprint,  we are also pursuing  opportunities for expansion.  We are confident
our  products  and  services  compete  very  favorably  with other  banks in our
markets.  We plan to  continue  to grow our  customer  base as we  increase  our
locations and banking convenience.

Impact from Hurricanes Katrina and Rita
---------------------------------------
Last  year  Teche  was  addressing  the  repercussions  brought  upon  us by the
devastating  Hurricanes  Katrina and Rita. While we experienced some damage,  we
were fortunate to avoid the major  destruction  that impacted New Orleans,  Lake
Charles and the Louisiana  coast.  Our area was described by an official as "the
land between the two storms".

Strong Economy Encourages Optimism for Our Future
-------------------------------------------------
We are very upbeat  regarding the economy  within our markets.  The  Agriculture
Industry in our market is posting another solid year.  With continued  expansion
of the oil and  gas  industry,  the  Lafayette  to  Houma  areas  are  expecting
continued  economic  growth.  The  industry  is also  investing  in the  ongoing
repair/reconstruction of numerous oil platforms in the Gulf of Mexico which were
damaged in the hurricanes of 2005.


                                                                               1
<PAGE>

I want to thank our Board of Directors, our dedicated employees and the superior
leadership team who have worked so diligently to produce these record results in
fiscal year 2006.  We also want to say that our  shareholders  are always in our
minds as we craft our  strategies  for the future and we will strive to continue
to build shareholder value.

Sincerely,


/s/ Patrick O. Little

Patrick O. Little
Chairman, President / Chief Executive Officer






























                                                                               2


<PAGE>

SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                   At or for the Year Ended September 30,
                                                                   --------------------------------------

                                                 2006              2005             2004              2003             2002
                                                 ----              ----             ----              ----             ----
<S>                                        <C>               <C>              <C>               <C>              <C>
Assets                                       $685,750          $676,822         $653,034          $536,946         $514,017
Loans Receivable, Net                         520,503           487,816          471,327           357,130          350,623
Securities-Available for Sale                  63,517            77,491           98,939            99,378           64,110
Securities-Held to Maturity                    38,743            34,259           21,636            30,269           30,897
Cash and Cash Equivalents                      17,528            32,674           15,362            14,439           35,375
Deposits                                      537,549           516,052          432,417           349,268          349,125
FHLB Advances                                  77,386            93,409          154,439           126,310          103,471
Stockholders' Equity                           63,929            61,338           60,287            56,996           56,366
SUMMARY OF OPERATIONS
Interest Income                               $39,197          $ 36,068         $ 30,668          $ 29,485         $ 33,697
Interest Expense                               16,720            15,674           13,076            13,672           16,345
                                               ------            ------           ------            ------           ------
Net Interest Income                            22,477            20,394           17,592            15,813           17,352
Provision for Loan Losses                         210               950               60                75              205
                                             --------          --------         --------          --------        ---------
Net Interest Income after
   Provision for Loan Losses                   22,267            19,444           17,532            15,738           17,147
Non-Interest Income                            12,997            10,819            9,740             9,606            7,900
Non-Interest Expense                           24,330            22,587           18,730            16,016           15,613
                                               ------            ------           ------            ------           ------
Income Before Gains on Sales of
   Securities and Income Taxes                 10,934             7,676            8,542             9,328            9,434
Gains on Sales of Securities                       34                26              232                43               87
Income Tax Expense                              3,651             2,503            2,848             3,186            3,285
                                                -----             -----            -----            ------           ------

Net Income                                   $  7,317          $  5,199         $  5,926          $  6,185         $  6,236
                                             ========         =========         ========          ========         ========

SELECTED FINANCIAL RATIOS
Ratio of Equity to Assets                       9.32%             9.06%            9.23%             10.6%            11.0%
Book Value/Common Share                        $28.68            $26.78           $26.54            $25.36           $23.80
Dividends declared per Share                    $1.10             $0.94            $0.78             $0.58            $0.50
Basic Income per Common Share                   $3.22             $2.34            $2.66             $2.73            $2.72
Diluted Income per Common Share                 $3.15             $2.26            $2.48             $2.55            $2.58
Return on Average Assets                        1.07%             0.77%            0.87%             1.19%            1.25%
Return on Average Equity                       11.79%             8.59%            9.40%            10.82%           11.56%
Net Interest Margin                             3.53%             3.24%            3.24%             3.28%            3.66%
Non-Interest Expense/Average Assets             3.54%             3.34%            3.33%             3.08%            3.13%
Non-Interest Income/Average Assets              1.89%             1.60%            1.53%             1.85%            1.58%
Non-Performing Loans/Loans (1)                  0.74%             0.98%            0.63%             0.23%            0.65%
Allowance for Loan Losses/Loans (1)             0.93%             1.04%            0.92%             0.94%            0.98%
Dividend Payout                                33.65%            40.30%           29.31%            21.02%           18.15%

</TABLE>

(1) Total loans before allowance for loan losses














                                                                               3
<PAGE>

  Business of the Bank

     Teche Federal Bank (the "Bank")  attracts savings deposits from the general
public and uses such deposits to originate primarily residential mortgage loans,
commercial mortgage loans and consumer loans. Additionally,  the Bank invests in
mortgage-backed and investment securities. (See "Management Strategy" on page 7)

     It is the Bank's intention to remain an independent  community savings bank
serving the local  banking  needs of its primary  market area,  which  presently
includes  nineteen  offices  in the  Louisiana  Parishes  of St.  Mary,  Iberia,
Lafayette, St. Landry, St. Martin,  Terrebonne,  Lafourche, East Baton Rouge and
Ascension. The FDIC insures deposits at the bank up to the maximum legal amount.

Business of the Company

     Teche Holding Company (the "Company") is a Louisiana  corporation organized
in  December  1994 at the  direction  of the Board of  Directors  of the Bank to
acquire all of the capital stock that the Bank issued upon its  conversion  from
the mutual to stock form of organization.

Summary of Quarterly Operating Results
<TABLE>
<CAPTION>
                                                      2006                                       2005
                                     -------------------------------------       ------------------------------------
                                      First     Second    Third     Fourth        First     Second    Third    Fourth
                                      -----     ------    -----     ------        -----     ------    -----    ------
                                                      (Amounts in thousands, except for per share data)
<S>                                <C>        <C>      <C>       <C>           <C>        <C>      <C>       <C>
Interest Income                      $9,366     $9,680   $9,917    $10,234       $8,601     $9,086   $9,268    $9,113
Interest Expense                      4,004      3,979    4,261      4,477        3,706      3,960    4,047     3,961
Net Interest Income                   5,362      5,701    5,656      5,757        4,895      5,126    5,221     5,152
Provision for Loan Losses                45         45       60         60           30         30       45       845
Income Before Income Taxes            2,400      2,888    2,939      2,708        2,144      2,283    2,230     1,045
Net Income                            1,620      1,972    1,926      1,799        1,448      1,540    1,505       706
Basic Income per Common Share          0.71       0.87     0.86       0.79         0.65       0.69     0.68      0.32
Diluted Income per Common Share        0.70       0.86     0.84       0.77         0.62       0.66     0.65      0.31

</TABLE>























                                                                               4

<PAGE>

Market and Dividend Information
     Teche Holding  Company's common stock trades on the American Stock Exchange
under the symbol  "TSH." The  following  sets forth the high and low sale prices
and cash dividends declared for the common stock for the last two fiscal years.

<TABLE>
<CAPTION>
==================================================================================================================
                                   Sales Price                                     Cash
                               -------------------                               Dividend
Quarter ended                  High          Low           Period End Close      Declared    Date Declared
------------------------------------------------------------------------------------------------------------------
<S>                         <C>           <C>                  <C>               <C>                <C> <C>
December 31, 2004             $41.75        $38.00               $38.25            $0.22     November 17, 2004
------------------------------------------------------------------------------------------------------------------
March 31, 2005                $38.02        $35.75               $36.75            $0.23     February 16, 2005
------------------------------------------------------------------------------------------------------------------
June 30, 2005                 $37.00        $35.75               $36.25            $0.24     May 18, 2005
------------------------------------------------------------------------------------------------------------------
September 30, 2005            $39.21        $35.51               $38.87            $0.25     August 24, 2005
------------------------------------------------------------------------------------------------------------------
December 31, 2005             $39.55        $38.00               $39.11            $0.26     November 16, 2005
------------------------------------------------------------------------------------------------------------------
March 31, 2006                $41.75        $38.75               $41.75            $0.27     February 23, 2006
------------------------------------------------------------------------------------------------------------------
June 30, 2006                 $46.25        $41.52               $46.25            $0.28     May 24, 2006
------------------------------------------------------------------------------------------------------------------
September 30, 2006            $54.25        $46.25               $54.25            $0.29     August 17, 2006
==================================================================================================================
</TABLE>

     According to the records of the Company's  transfer  agent,  there were 486
registered  stockholders  of record at November 30,  2006.  This number does not
include  any  persons or  entities  that hold their stock in nominee or "street"
name through various brokerage firms.

     The Company's ability to pay dividends is substantially  dependent upon the
dividends it receives from the Bank. Under current regulations,  the Bank is not
permitted to pay  dividends if its  regulatory  capital would thereby be reduced
below (1) the amount then required for the  liquidation  account  established in
connection  with the Bank's  conversion  from mutual to stock  form,  or (2) the
regulatory  capital  requirements  imposed by the  Office of Thrift  Supervision
("OTS").  Capital distributions are also subject to certain limitations based on
the Bank's net income.  See Notes 19 and 20 of Notes to  Consolidated  Financial
Statements.  The Bank's total capital at September 30, 2006 exceeded the amounts
of its liquidation account and regulatory capital requirements.




















                                                                               5

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

General

     The Private  Securities  Litigation Reform act of 1995 contains safe harbor
provisions regarding forward-looking  statements.  When used in this discussion,
the words  "believe",  "anticipates",  "contemplates",  "expects",  and  similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and  uncertainties  that could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in  interest  rates,  risk  associated  with the  effect of opening  new
branches,  the  ability to control  costs and  expenses,  and  general  economic
conditions. The Company undertakes no obligation to publicly release the results
of any revisions to those forward-looking statements that may be made to reflect
events or  circumstances  after the date hereof or to reflect the occurrences of
unanticipated events.

     The Company's consolidated results of operations are primarily dependent on
the Bank's net interest  income,  or the difference  between the interest income
earned  on  its  loan,  mortgage-backed  securities  and  investment  securities
portfolios,  and the  interest  expense  paid on its savings  deposits and other
borrowings.  Net interest income is affected not only by the difference  between
the  yields  earned  on  interest-earning  assets  and  the  costs  incurred  on
interest-bearing   liabilities,  but  also  by  the  relative  amounts  of  such
interest-earning assets and interest-bearing liabilities.

     Other components of net income include:  provisions for losses on loans and
other  assets,  non-interest  income  (primarily,  service  charges  on  deposit
accounts and other fees), and non-interest expenses (primarily, compensation and
employee  benefits,  office occupancy  expense,  marketing  expense and expenses
associated with foreclosed real estate) and income taxes.

     Earnings of the Company  also are  significantly  affected by economic  and
competitive  conditions,  particularly  changes in  interest  rates,  government
policies and regulations of regulatory authorities.

     References to the "Bank"  herein,  unless the context  requires  otherwise,
refer to the Company on a consolidated basis.

Overview

     The  Company's  assets  grew  $8.9  million  to $685.8  million  reflecting
increases  in  loans  receivable  offset  somewhat  by  decreases  in  cash  and
securities.  Net income  increased  $2,118,000  to $7.3 million this past fiscal
year primarily due to growth in net interest income. We have provided details of
the reasons for these changes in the following pages.

Management Strategy

     Management's  strategy  has been to  maximize  earnings  and  profitability
through  steady  growth while  maintaining  asset  quality.  The Bank's  lending
strategy has  historically  focused on the  origination of  traditional  one- to
four-family mortgage loans with the primary emphasis on single-family residences
in the  Bank's  primary  market  area.  Additionally,  management  emphasizes  a
"SmartGrowth"  strategy  that  focuses  on the  origination  of  consumer  loans
(primarily  home  equity and mobile home  loans),  alternative  mortgage  loans,
commercial loans and commercial real estate loans for retention in the Company's
loan  portfolio.   Alternative   mortgage  loans  originated  by  the  Bank  are
residential  real estate loans that do not meet all of the Bank's  standard loan
underwriting  criteria.  Consumer  loans,  commercial  loans and commercial real
estate  loans,  generally  have shorter terms to maturity and higher yields than
residential real estate loans. While alternative mortgage loans, consumer loans,
commercial loans, and commercial real estate loans have greater credit risk than
conforming  residential  real estate loans, the Company believes its SmartGrowth
strategy will have a favorable impact on the Company's net interest  margin,  as
well as assist in interest rate risk  management.  SmartGrowth  also  emphasizes
growth in core deposits (primarily transaction  accounts),  which include demand
deposits, NOW accounts, money market deposit accounts and savings accounts.

Asset and Liability Management

     Interest  Rate  Sensitivity  Analysis.  Net  interest  income,  the primary
component of the Bank's net income,  is derived from the difference  between the
interest  income  on  interest-earning   assets  and  the  interest  expense  of
interest-bearing  liabilities.  The Bank has  sought to manage its  exposure  to
changes in interest  rates by monitoring  the effective  maturities or repricing
characteristics of its interest-earning assets and interest-bearing liabilities.
The matching of the Bank's assets and  liabilities  may be analyzed by examining
the extent to which its assets and  liabilities  are interest rate sensitive and
by monitoring the expected  effects of interest rate changes on its net interest
income and net portfolio value.

     The ability to  maximize  net  interest  income is largely  dependent  upon
achieving  a  positive  interest  rate  spread  that  can  be  sustained  during
fluctuations in prevailing  interest rates. The Bank is exposed to interest rate
risk  as a  result  of  the  difference  in  the  maturity  of  interest-bearing
liabilities  and  interest-earning  assets and the volatility of interest rates.
Because  most  deposit  accounts  react  more  quickly to market  interest  rate
movements  than do  traditional  mortgage  loans due to their  shorter  terms to
maturity,  increases in interest  rates may have an adverse effect on the Bank's
earnings.  Conversely,  this same  mismatch  will  generally  benefit the Bank's
earnings during periods of declining or stable interest rates.


                                                                               6
<PAGE>

     The Bank attempts to manage its interest  rate  exposure by shortening  the
maturities  of  its  interest-earning  assets  by  emphasizing  adjustable  rate
mortgages   ("ARMs"),   originating  shorter  term  loans  such  as  residential
construction,  consumer,  and home  equity  loans and the  investment  of excess
liquidity in purchased  loans,  adjustable rate  mortgage-backed  securities and
other securities with relatively short terms to maturity.  Furthermore, the Bank
works to manage the  interest  rates it pays on  deposits  while  maintaining  a
stable deposit base and providing  quality services to its customers.  In recent
years,  the Bank has used  borrowings  while  continuing to rely  primarily upon
deposits as its source of funds.  At September  30, 2006,  the weighted  average
term to  repricing  of the  Bank's ARM loan and ARM  mortgage-backed  securities
portfolio  was  approximately  18 months.  In contrast,  at September  30, 2006,
$197.8  million of the Bank's  certificate  accounts  and $240.3  million of the
Bank's regular deposit accounts (e.g. demand, NOW, money market,  savings),  out
of $537.5 million of total deposits,  were scheduled to mature or reprice within
one year or sooner. Based on past experience,  however, management believes that
much of the Bank's deposits will remain at the Bank.

     Management believes that it has adequate capital to accept a certain degree
of interest rate risk. Should interest rates rise management believes the Bank's
capital position will enable it to withstand the negative impact on earnings.

     Rate/Volume  Analysis.  The table  below  sets  forth  certain  information
regarding  changes in interest  income and interest  expense of the Bank for the
periods   indicated.   For  each   category  of   interest-earning   assets  and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (changes in average volume  multiplied by old rate);  (ii)
changes in rates (changes in rate multiplied by old average  volume);  and (iii)
the net change.  The changes  attributable  to the combined impact of volume and
rate have been  allocated  proportionately  to the changes due to volume and the
changes due to rate.

<TABLE>
<CAPTION>
                                                            Year Ended September 30,
                                                            ------------------------
                                               2006 vs. 2005                         2005 vs. 2004
                                               -------------                         -------------
                                         Increase (Decrease) Due to            Increase (Decrease) Due to

                                         Volume        Rate         Net        Volume        Rate          Net
                                         ------        ----         ---        ------        ----          ---
                                                                       (Dollars in Thousands)
<S>                                    <C>          <C>         <C>          <C>          <C>          <C>
Interest-Earning Assets:
Securities (1)                           $  (713)     $   612     $  (101)     $  (323)     $   409      $    86
Loans Receivable, Net                        324        1,798       2,122        6,017         (791)       5,226
Other Interest-Earning Assets (2)            613          495       1,108           27           61           88
                                         -------      -------     -------      -------      -------      -------
Total Interest-Earning Assets                224        2,905       3,129        5,721         (321)       5,400
                                         -------      -------     -------      -------      -------      -------
Interest-Bearing Liabilities
Deposits                                   1,127        2,130       3,257        1,934          903        2,837
FHLB Advances                             (2,338)         127      (2,211)        (689)         450         (239)
                                         -------      -------     -------      -------      -------      -------
Total Interest-Bearing Liabilities        (1,211)       2,257       1,046        1,245        1,353        2,598
                                         -------      -------     -------      -------      -------      -------
   Net Change in Net Interest Income     $ 1,435      $   648     $ 2,083      $ 4,476      $ 1,674      $ 2,802
                                         =======      =======     =======      =======      =======      =======
</TABLE>

---------------
(1) Includes investment securities and FHLB stock.
(2) Includes certificates of deposit and other interest-bearing accounts.
















                                                                               7
<PAGE>

     Average Balance Sheet.  The following table sets forth certain  information
relating to the  Company's  actual and average  balance  sheet and  reflects the
actual and average  yield on assets and actual and average  cost of  liabilities
for the periods indicated.  Such yields and costs are derived by dividing income
or expenses by the average balance of assets or liabilities,  respectively,  for
the periods presented. Average balances are derived from daily average balances.

<TABLE>
<CAPTION>
                                                                     Year Ended September 30,
                                                                     ------------------------
                                            2006                              2005                                 2004
                                ------------------------------  --------------------------------   ---------------------------------
                                Average               Average    Average               Average       Average               Average
                                Balance   Interest  Yield/Cost   Balance   Interest   Yield/Cost     Balance    Interest  Yield/Cost
                                -------   --------  ----------   -------   --------   ----------     -------    --------  ----------
                                                                     (Dollars in Thousands)
<S>                           <C>       <C>          <C>      <C>         <C>          <C>        <C>        <C>           <C>
Assets
  Interest-Earning Assets
  Securities (1)                $108,822  $ 4,692      4.31%    $127,909    $ 4,793      3.75%      $137,290   $  4,707      3.43%
  Loans Receivable (2) (3)       503,252   33,284      6.61%     498,193     31,162      6.26%       404,379     25,936      6.41%
  Other Interest-Earning
   Assets (4)                     24,502    1,221      4.98%       3,820        113      2.96%         1,798         25      1.39%
                                --------  -------               --------    -------                 --------   --------
  Total Interest-Earning
   Assets                        636,576  $39,197      6.16%     629,922    $36,068      5.73%       543,467   $ 30,668      5.64%
                                          =======                           =======                            ========
  Non-Interest Earning Assets     50,329                          46,518                              38,502
                                --------                        --------                            --------
Total Assets                    $686,905                        $676,440                            $581,969
                                ========                        ========                            ========
Liabilities and Stockholders'
 Equity
  Interest-Bearing Liabilities
  NOW Accounts                  $ 71,423  $   200      0.28%    $ 60,202        169      0.28%       $56,979   $    144      0.25%
  Statement & Regular Savings
   Accounts                       59,675      626      1.04%      40,408        176      0.44%        33,060         80      0.24%
  Money Funds Accounts            63,861    1,375      2.15%      89,631      1,387      1.55%        65,866        530      0.80%
  Certificates of Deposit        294,838   10,485      3.56%     255,907      7,697      3.00%       189,023      5,838      3.08%
                                --------  -------               --------    -------                 --------   --------
        Total Deposits           489,797   12,686      2.59%     446,148      9,429      2.11%       344,928      6,592      1.91%
 FHLB Advances                    82,214    4,034      4.91%     131,260      6,245      4.76%       146,878      6,484      4.41%
                                --------  -------               --------    -------                 --------   --------
 Total Interest-Bearing
  Liabilities                    572,011  $16,720      2.92%     577,408    $15,674      2.71%       491,806   $ 13,076      2.66%
                                          =======                           =======                            ========
 Non-Interest-Bearing
  Liabilities                     52,859                          38,479                              32,167
                                --------                        --------                            --------

        Total Liabilities        624,870                         615,887                             523,973
Stockholders' Equity              62,035                          60,553                              57,996
                                --------                        --------                            --------
Total Liabilities and
 Stockholders' Equity           $686,905                        $676,440                            $581,969
                                ========                        ========                            ========
Net Interest Income/Interest
 Rate Spread (5)                          $22,477      3.24%                $20,394      3.02%                 $ 17,592      2.98%
                                          =======                           =======                            ========
Net Interest Margin (6)                                3.53%                             3.24%                               3.24%

Interest-Earning Assets/
Interest-Bearing Liabilities                         111.29%                           109.10%                             110.50%
</TABLE>

----------------------
(1)  Includes securities and Federal Home Loan Bank (" FHLB") stock.
(2)  Amount is net of  deferred  loan fees,  loan  discounts  and  premiums  and
     loans-in-process and includes non-accruing loans.
(3)  Interest  income  includes  loan fees of  approximately  $429,000  in 2006,
     $425,000 in 2005 and $410,000 in 2004.
(4)  Amount  includes   certificates  of  deposit  and  other   interest-bearing
     deposits.
(5)  Interest rate spread represents the difference between the yield on average
     interest-earning   assets   and  the  cost  of   average   interest-bearing
     liabilities.
(6)  Net  interest  margin  represents  net interest  income  divided by average
     interest-earning assets.


                                                                               8
<PAGE>

Changes in Financial Condition From September 30, 2005 to September 30, 2006

     General.  Total assets increased $8.9 million, or 1.3% to $685.8 million at
September  30, 2006 from $676.8  million at September  30, 2005,  primarily as a
result of growth in loans  receivable,  which were funded primarily by increased
deposits.

     Cash and Cash Equivalents.  Cash decreased $15.1 million from $32.7 million
at September 30, 2005 to $17.5  million at September 30, 2006.  The decrease was
necessary to fund an increase in loan production.

     Securities    Available-for-Sale   and   Held   to   Maturity.   Securities
available-for-sale  decreased  $14.0 million from $77.5 million at September 30,
2005 to $63.5  million at  September  30, 2006 due  primarily to  repayments  on
existing mortgage-backed securities in excess of security purchases.

     Loans  Receivable,  Net. The Bank's net loans  receivable  increased  $32.7
million or 6.7% to $520.5  million from $487.8 million at September 30, 2005 due
primarily to commercial and consumer loan portfolio growth.  These increases are
reflected  primarily in the Bank's portfolio of home equity,  mobile home, multi
-family,  non-residential,  land,  and  commercial  non-real  estate loans.  The
one-to-four  family  mortgage loan  portfolio  decreased  during the year due to
payoffs  being  in  excess  of  originations.  (See  Note 5 of the  Consolidated
Financial Statements for a comparative breakdown of the Bank's loan portfolio.)

     Deposits.  The Bank's  deposits  increased  $21.5 million or 4.2% to $537.6
million at September 30, 2006, from $516.1 million at September 30, 2005.  These
increases  resulted  from  growth in all  deposit  categories,  with the largest
increase being a $9.3 million growth in non-interest earning deposits. (See Note
8 of the Consolidated  Financial  Statements for a comparative  breakdown of the
Bank's deposit portfolio.)

     Advances  from FHLB.  Advances  from the  Federal  Home Loan Bank of Dallas
decreased  $16.0  million,  or 17.2% to $77.4  million  from  $93.4  million  at
September  30,  2005.  The decrease was due  primarily to funds  available  from
deposit growth during the year which were used to repay advances.

     Stockholders' Equity.  Stockholders' equity increased $2.3 million, or 3.7%
from $61.3  million at September  30, 2005,  to $63.6  million at September  30,
2006.  The increase was due  primarily to proceeds from net income plus earnings
of the  Bank and the  exercise  of  stock  options,  less  dividends  and  stock
repurchases.

Comparison of Operating Results for Years Ended September 30, 2006, 2005
  and 2004

Analysis of Net Income

     General. The Company had net income of $7.3 million,  $5.2 million and $5.9
million for the years  ended  2006,  2005 and 2004.  The $2.1  million  increase
during fiscal 2006 was  primarily  due to increases in both net interest  income
and  non-interest  income,  together  with a reduction in the allowance for loan
loss in fiscal 2005. The $0.7 million  decrease in fiscal 2005 was primarily due
to increased  operating  expenses  from  expansion  into new market areas and an
increase  in the loan  loss  provision,  offset  somewhat  by  increases  in net
interest income and non-interest income.

     Interest Income.  Interest income amounted to $39.2 million;  $36.1 million
and $30.7  million for the years ended 2006,  2005 and 2004,  respectively.  The
$3.1 million  increase  during fiscal 2006 compared to fiscal 2005 was primarily
due to an increase in average interest rates earned on earning assets.  The $5.4
million  increase  during  fiscal 2005 was  primarily  due to an increase in the
average balance of loans outstanding  during 2005 as a result of the acquisition
of St.  Landry  Financial  Corporation,  offset  somewhat  by a decrease  in the
average  interest rates earned on loans and a decrease in the average balance of
securities.

     The average balance of loans  increased  during fiscal 2006 and fiscal 2005
by approximately $5.1 million, or 1.0% and $94 million, or 23.2%,  respectively.
During 2006  average  interest  rates earned on loans  increased  primarily as a
result of increasing market interest rates.

     Interest Expense. Interest expense totaled $16.7 million, $15.7 million and
$13.1 million for the years ended  September 30, 2006,  2005 and 2004.  The $1.0
million  or 6.7%  increase  from  fiscal  2005 to  fiscal  2006 was  offset by a
reduction  in  borrowings  along with  increases  in short term market  interest
rates.  The  average  balance of  deposits  increased  $43.6  million and $101.2
million in fiscal 2006 and 2005, respectively.  The increase in interest expense
in 2006 was driven by rising market  interest  rates on deposits.  During fiscal
2006 average interest rates paid on deposits and advances increased to 2.59% and
4.91% from 2.11% and 4.76%  respectively,  as short-term  market  interest rates
increased during the year.



                                                                               9
<PAGE>

     Interest  expense  increased  $2.6  million  or 19.8%  during  fiscal  2005
compared to fiscal 2004,  primarily due to an increase in the average balance of
deposit  accounts  coupled  with  increases  in average  interest  rates paid on
deposits and advances,  offset  somewhat by a decrease in the average balance of
advances.  The average  rates paid on deposits and advances  increased in fiscal
2005  compared  to  fiscal  2004 to  2.11%  and  4.76%  from  1.91%  and  4.41%,
respectively.

     Net Interest  Income.  Net interest income  increased $2.1 million to $22.5
million during the year ended September 30, 2006 primarily due to an increase in
interest  income on loans and to a decrease  in  interest  expense on  advances,
partially offset by an increase in interest expense on deposits.

     Net interest income during fiscal 2005 increased compared to fiscal 2004 by
$2.8 million due to an increase in interest income on loans and to a decrease in
interest  expense on  advances,  offset by an increase  in  interest  expense on
deposits.

     Provision for Loan Losses. The Bank provided $210,000, $950,000 and $60,000
to the  allowance for loan losses for the years ended  September 30, 2006,  2005
and 2004  respectively.  The  allowance  for loan  losses  was $4.9  million  at
September  30,  2006,  $5.1  million at 2005 fiscal year end and $4.4 million at
2004 fiscal year end.

     Management  periodically  estimates the likely level of losses to determine
whether the  allowance  for loan losses is  adequate to absorb  probable  losses
inherent  in the  existing  portfolio.  Based on these  estimates,  an amount is
charged or credited to the  provision for loan losses and credited or charged to
the  allowance  for loan  losses in order to  adjust  the  allowance  to a level
determined to adequately  absorb probable  inherent losses.  These estimates are
made at least  quarterly and there has been no significant  change in the Bank's
estimation methods during the current year.

     While the Bank  maintains  its  allowance  for  losses  at a level  that it
considers  to be  adequate  to  provide  for  existing  losses,  there can be no
assurance  that further  additions  will not be made to the loss  allowances and
that such  losses  will not exceed  the  estimated  amounts.  (See Note 1 to the
Consolidated Financial Statements.)

     Non-Interest  Income.  Non-interest income during the years ended September
30,  2006,  2005 and 2004  amounted  to $13.0  million,  $10.9  million and $9.7
million  respectively.  The  increase in 2006 and 2005 was due  primarily to fee
income  resulting from an increase in the volume of deposit  related fees due to
an increase in the number of deposit accounts.

     Non-Interest  Expense.  Non-interest  expense totaled $24.3 million;  $22.6
million and $18.7 million  during the years ended  September 30, 2006,  2005 and
2004,  respectively.  The  $1.7  million  increase  during  fiscal  2006 was due
primarily to an increase in compensation  expense  resulting from an increase in
the cost of  retirement  plans,  expensing  of stock  options and an increase in
staff for the commercial loan area and a new branch office.

     The $3.9 million  increase in non-interest  expense in fiscal 2005 compared
to fiscal  2004 was  primarily  due to branch  expansion  in 2005.  The  Company
acquired the two branches of St. Landry  Financial  Corporation in July 2004 and
opened a new branch in the Baton  Rouge,  Louisiana  market area in fiscal 2005.
Additionally,  professional  fees increased in 2005 as a result of preparing for
compliance with the requirements of the Sarbanes-Oxley Act.

     The Bank is subject to the  Louisiana  Shares  Tax,  which  amounted  to an
expense of $524,000,  $568,000 and $594,000 in the fiscal years ended  September
30, 2006, 2005 and 2004, respectively.

     Gain on Sale of Securities. In the years ended September 30, 2006, 2005 and
2004, gains on the sale of securities amounted to $34,000, $26,000 and $232,000,
respectively.

     Income Tax Expense.  For the years ended September 30, 2006, 2005 and 2004,
the Company  incurred income tax expense of $3.7 million,  $2.5 million and $2.8
million,  respectively.  There was an increase in the effective tax rate in 2006
due to increase in permanent tax differences related to ESOP and incentive stock
option expense.  The varying amounts were caused  primarily by the varied pretax
income of the Company.











                                                                              10
<PAGE>

Liquidity and Capital Resources

     The  Bank's  average   liquidity   ratio  is  based  on  deposits  and  was
approximately  12% percent during  September  2006. The Bank manages its average
liquidity  ratio  to  meet  its  funding  needs,  including:  deposit  outflows;
disbursement  of payments  collected  from  borrowers  for taxes and  insurance;
repayment of Federal  Home Loan Bank  advances  and other  borrowings;  and loan
principal  disbursements.  The Bank also  monitors  its  liquidity  position  in
accordance with its asset/liability management objectives.

     In addition to funds provided from  operations,  the Bank's primary sources
of  funds   are:   savings   deposits,   principal   repayments   on  loans  and
mortgage-backed  securities;  and matured or called investment  securities.  The
Bank also borrows funds from the Federal Home Loan Bank of Dallas (the "FHLB").

     Scheduled  loan  repayments  and  maturing  investment   securities  are  a
relatively  predictable  source  of funds.  However,  saving  deposit  flows and
prepayments on loans and mortgage-backed securities are significantly influenced
by changes in market interest rates,  economic  conditions and competition.  The
Bank strives to manage the pricing of its deposits to maintain a balanced stream
of cash  flows  commensurate  with its loan  commitments  and other  predictable
funding needs.

     The  Bank   usually   maintains   a   portion   of  its  cash  on  hand  in
interest-bearing demand deposits with the FHLB to meet immediate loan commitment
and savings withdrawal funding requirements.  When applicable, cash in excess of
immediate   funding  needs  is  invested   into   longer-term   investment   and
mortgage-backed securities, some of which may also qualify as liquid investments
under current OTS regulations.

     The Bank has other  sources of  liquidity  if a need for  additional  funds
arises,  such as FHLB of Dallas  advances  and the  ability  to  borrow  against
mortgage-backed and other securities.  At September 30, 2006, the Bank had total
FHLB borrowings of $77.4 million,  or 11.3% of the Bank's assets.  Approximately
$10.2  million is due in the year ending  September  30,  2007.  The Bank has an
additional $116.5 million available under a line of credit with the FHLB.

     Management believes the Bank has sufficient resources available to meet its
foreseeable  funding   requirements.   At  September  30,  2006,  the  Bank  had
outstanding  loan  commitments of $39.6  million,  and  certificates  of deposit
scheduled to mature within one year of $197.8 million,  much of which management
expects, based on past experience, will remain with the Bank upon maturity.

     Regulations  of the OTS require the Bank to meet or exceed  three  separate
standards of capital adequacy.  These regulations require financial institutions
to have minimum  tangible capital equal to 1.5 percent of total adjusted assets;
minimum  core  capital  equal to 4.0  percent  of  total  adjusted  assets;  and
risk-based  capital  equal to 8.0  percent  of total  risk-weighted  assets.  At
September 30, 2006, the Bank exceeded all regulatory capital  requirements.  See
Note 19 to the Consolidated Financial Statements.

Contractual Obligations

     The Company  has various  contractual  obligations  related to  borrowings,
deposits  and  operating  lease  payments.  These  obligations  are  outlined in
footnotes 7, 8 and 9 in the consolidated financial statements of the Company.

Critical Accounting Policies

     Certain critical accounting policies affect the more significant  judgments
and estimates used in the preparation of the consolidated  financial statements.
The Company's most critical accounting policies are as follows:

     Allowance  for Loan Losses - The  allowance  for loan losses is a valuation
allowance  available for losses incurred on loans. Any losses are charged to the
allowance for loan losses when the loss actually  occurs or when a determination
is made  that a loss is  probable  to  occur.  Recoveries  are  credited  to the
allowance at the time of recovery.

     Periodically  during the year  management  estimates  the  likely  level of
losses to determine  whether the allowance for loan losses is adequate to absorb
losses in the existing portfolio.  Based on the estimates,  an amount is charged
to the  provision  for loan losses and credited to the allowance for loan losses
in order to adjust the allowance to a level  determined to be adequate to absorb
such losses.

     Management's  judgment as to the level of losses on existing loans involves
the  consideration  of current and  anticipated  economic  conditions  and their
potential  effects  on  specific  borrowers;   an  evaluation  of  the  existing
relationships  among loans, known the inherent risks in the loan portfolio,  and
the present level of the allowance; results of examination of the loan portfolio
by regulatory agencies;  and management's internal review of the loan portfolio.
In determining the  collectibility  of certain loans,  management also considers
the fair value of any underlying collateral.

                                                                              11

<PAGE>

     It should be understood  that  estimates of loan losses involve an exercise
of judgment.  While it is possible  that is  particular  periods the Company may
sustain losses, which are substantial relative to the allowance for loan losses,
it is the judgment of management that the allowance of loan losses  reflected in
the  consolidated  balance  sheets is adequate to absorb  losses in the existing
loan portfolio.

     Goodwill  - Goodwill  does not  require  amortization  but is subject to at
least an annual assessment for impairment unless interim events or circumstances
make it more likely than not that an impairment loss has occurred. Impairment is
defined at that amount by which the implied  fair value of the  goodwill is less
than the  goodwill's  carrying  value.  Impairment  losses  would be  charged to
operating expense. Goodwill is not deductible for income tax purposes.

Impact of Off-Balance Sheet Instruments

     The  Company  has  certain  off-balance-sheet  instruments  in the  form of
contractual  commitments  to extend credit to customers.  These legally  binding
commitments have set expiration  dates and are at predetermined  interest rates.
The underwriting criteria for these commitments are the same as for loans in our
loan portfolio.  Collateral is also obtained, if necessary,  based on the credit
evaluation  of each  borrower.  Although  many of the  commitments  will  expire
unused,  management  believes that we have the necessary resources to fund these
commitments.   See  Footnote  17  in  the  accompanying  consolidated  financial
statements.































                                                                              12
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------


To the Board of Directors and Stockholders
Teche Holding Company, Inc.
Franklin, Louisiana


We have audited the  accompanying  consolidated  balance sheets of Teche Holding
Company,  Inc. and subsidiary  (hereinafter  referred to as the "Company") as of
September 30, 2006 and 2005, and the related consolidated  statements of income,
stockholders' equity and cash flows for the years then ended. These consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements  based  on  our  audits.  The  consolidated   statements  of  income,
stockholders'  equity  and  cash  flows  of  Teche  Holding  Company,  Inc.  and
subsidiary for the year ended  September 30, 2004 were audited by other auditors
whose report dated December 15, 2004  expressed an unqualified  opinion on those
statements.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the 2006 and 2005 consolidated  financial statements referred to
above present fairly, in all material respects,  the financial position of Teche
Holding Company,  Inc. and subsidiary as of September 30, 2006 and 2005, and the
results of their  operations  and their cash flows for the years then ended,  in
conformity with accounting principles generally accepted in the United States of
America.


/s/ Dixon Hughes PLLC

Asheville, North Carolina
December 14, 2006

                                      -1-


<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2006 AND 2005
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                  2006                  2005
                                                                           ------------------    ------------------
                                                                                   (Amounts in thousands,
                                                                                   except per share data)
ASSETS

<S>                                                                        <C>                   <C>
Cash and due from banks                                                    $           15,725    $           14,008
Interest-bearing deposits                                                               1,803                18,666
Securities available-for-sale - at estimated fair value
   (amortized cost of $65,407 in 2006 and $79,612 in 2005)                             63,517                77,491
Securities held-to-maturity--at amortized cost (estimated fair
   value of $37,934 in 2006 and $33,608 in 2005)                                       38,743                34,259
Loans receivable--net of allowance for loan losses of
   $4,890 in 2006 and $5,151 in 2005                                                  520,503               487,816
Accrued interest receivable                                                             2,702                 2,604
Investment in Federal Home Loan Bank stock, at cost                                     4,185                 6,567
Real estate owned, net                                                                  1,066                   270
Prepaid expenses and other assets                                                       3,148                 2,218
Goodwill                                                                                3,647                 3,647
Life insurance contracts                                                               10,895                10,357
Premises and equipment                                                                 19,816                18,919
                                                                           ------------------    ------------------

                                                           TOTAL ASSETS    $          685,750    $          676,822
                                                                           ==================    ==================

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                                                   $          537,549    $          516,052
Advances from Federal Home Loan Bank                                                   77,386                93,409
Advance payments by borrowers for taxes and insurance                                   1,957                 1,468
Accrued interest payable                                                                1,458                   843
Accounts payable and other liabilities                                                  3,471                 3,712
                                                                           ------------------    ------------------

                                                      TOTAL LIABILITIES               621,821               615,484

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Common stock, $.01 par value, 10,000,000 shares authorized;
   4,608,625 and 4,577,723 shares issued                                                   46                    46
  Preferred stock, 5,000,000 shares authorized, none issued                                 -                     -
  Additional paid-in capital                                                           50,334                48,458
  Retained earnings                                                                    58,748                53,893
  Unearned ESOP shares                                                                      -                  (143)
  Treasury stock - 2,390,428 and 2,287,328 shares - at cost                           (43,951)              (39,537)
  Accumulated other comprehensive loss                                                 (1,248)               (1,379)
                                                                           -------------------   ------------------

                                            TOTAL STOCKHOLDERS' EQUITY                 63,929                61,338
                                                                           ------------------    ------------------

                             TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $          685,750    $          676,822
                                                                           ==================    ==================
</TABLE>

See notes to consolidated financial statements.

                                      -2-

<PAGE>


TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                   2006               2005                2004
                                                              --------------     ---------------     --------------
                                                                 (Dollars in thousands, except per share amounts)
<S>                                                           <C>                <C>                 <C>
INTEREST INCOME:
   Interest and fees on loans                                 $       33,284     $        31,162     $       25,936
   Interest and dividends on securities                                4,692               4,793              4,707
   Other interest income                                               1,221                 113                 25
                                                              --------------     ---------------     --------------

                                     TOTAL INTEREST INCOME            39,197              36,068             30,668
                                                              --------------     ---------------     --------------

INTEREST EXPENSE:
   Deposits                                                           12,686               9,429              6,592
   Advances from Federal Home Loan Bank                                4,034               6,245              6,484
                                                              --------------     ---------------     --------------

                                    TOTAL INTEREST EXPENSE            16,720              15,674             13,076
                                                              --------------     ---------------     --------------

                                       NET INTEREST INCOME            22,477              20,394             17,592

PROVISION FOR LOAN LOSSES                                                210                 950                 60
                                                              --------------     ---------------     --------------

                                NET INTEREST INCOME AFTER
                                 PROVISION FOR LOAN LOSSES            22,267              19,444             17,532
                                                              --------------     ---------------     --------------
NON-INTEREST INCOME:
   Service charges                                                    11,912               9,661              8,813
   Other income                                                        1,085               1,158                902
                                                              --------------     ---------------     --------------

                                TOTAL NON-INTEREST INCOME             12,997              10,819              9,715
                                                                 -----------     ---------------     --------------

GAIN ON SALE OF SECURITIES                                                34                  26                232
                                                              --------------     ---------------     --------------
NON-INTEREST EXPENSE:
   Compensation and employee benefits                                 12,448              10,949              9,264
   Occupancy, equipment and data processing expense                    5,165               4,653              4,038
   Marketing and professional fees                                     2,759               3,275              2,335
   Deposit insurance premiums                                             67                  66                 54
   Louisiana shares tax                                                  524                 568                594
   Other operating expenses                                            3,367               3,076              2,420
                                                              --------------     ---------------     --------------

                               TOTAL NON-INTEREST EXPENSE             24,330              22,587             18,705
                                                              --------------     ---------------     --------------

                                INCOME BEFORE INCOME TAXES            10,968               7,702              8,774

INCOME TAXES                                                           3,651               2,503              2,848
                                                              --------------     ---------------     --------------

                                                NET INCOME    $        7,317     $         5,199     $        5,926
                                                              ==============     ===============     ==============

BASIC INCOME PER COMMON SHARE                                 $         3.22     $          2.34     $         2.66
                                                              ==============     ===============     ==============

DILUTED INCOME PER COMMON SHARE                               $         3.15     $          2.26     $         2.48
                                                              ==============     ===============     ==============

DIVIDENDS PER SHARE                                           $         1.10     $           .94     $          .78
                                                              ==============     ===============     ==============
</TABLE>
See notes to consolidated financial statements.

                                      - 3 -

<PAGE>


TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                                         Accumulated
                                                   Additional                Unearned                       other
                                       Common       paid-in       Retained     ESOP       Treasury      comprehensive
                                       stock        capital       earnings    shares       stock            loss           Total
                                      --------    -----------   ----------- ----------   ----------    --------------   -----------
                                                           (Dollars in thousands, except per share amounts)

<S>                                   <C>        <C>           <C>            <C>        <C>          <C>               <C>
BALANCE - October 1, 2003             $    44    $   45,701    $    46,598    $  (424)   $ (34,322)   $    (601)        $  56,996
ESOP compensation                           -           379              -        141            -            -               520
Exercise of stock
  options                                   1           705              -          -            -            -               706
Purchase of common
  stock for treasury                        -             -              -          -       (2,205)           -            (2,205)
Dividends declared -
  $.78 per share                            -             -         (1,735)         -            -            -            (1,735)
Comprehensive income:
   Net income                               -             -          5,926          -            -            -             5,926
   Change in unrealized
     gain on securities
     available-for-sale, net                -             -              -          -            -           79                79
                                                                                                                       ----------
       Total comprehensive
         income                                                                                                             6,005
                                      -------    ----------    -----------    -------    ---------    ---------        ----------
BALANCE - September 30, 2004               45        46,785         50,789       (283)     (36,527)        (522)           60,287
ESOP compensation                           -           347              -        140            -            -               487
Exercise of stock options,
   including tax benefit                    1         1,166              -          -            -            -             1,167
MSP shares issued                           -           160              -          -            -            -               160
Purchase of common stock
  for treasury                              -             -              -          -       (3,010)           -            (3,010)
Dividends declared - $0.94
  per share                                 -             -         (2,095)         -            -            -            (2,095)
Comprehensive income:
   Net income                               -             -          5,199          -            -            -             5,199
   Change in unrealized loss
    on securities available-
    for-sale, net                           -             -              -          -            -         (857)             (857)
                                                                                                                       ----------
     Total comprehensive
       income                                                                                                               4,342
                                      -------    ----------    -----------    -------    ---------    ---------        ----------
BALANCE - September 30, 2005               46        48,458         53,893       (143)     (39,537)      (1,379)           61,338
ESOP compensation                           -           444              -        143            -            -               587
Exercise of stock options,
   including tax benefit                    -           817              -          -            -            -               817
Stock based compensation                    -           442              -          -            -            -               442
Reclassification of  vested
   stock based compensation                 -           173              -          -            -            -               173
Purchase of common stock
   for treasury                             -             -              -          -       (4,414)           -            (4,414)
Dividends declared - $1.10
   per share                                -             -         (2,462)         -            -            -            (2,462)
Comprehensive income:
   Net income                               -             -          7,317          -            -            -             7,317
   Change in unrealized loss
     on securities available-
     for-sale, net                          -             -              -          -            -          131               131
                                                                                                                        ---------
       Total comprehensive
         income                                                                                                             7,448
                                      -------    ----------    -----------    --------    ---------    ---------        ---------
BALANCE - September 30, 2006          $    46    $   50,334    $    58,748    $     -     $ (43,951)   $  (1,248)       $  63,929
                                      =======    ==========    ===========    ========    =========    =========        =========
</TABLE>

See notes to consolidated financial statements.

                                      -4-
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                   2006               2005                2004
                                                              --------------     ---------------     --------------
                                                                              (Dollars in thousands)
<S>                                                           <C>                <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                  $        7,317     $         5,199     $        5,926
  Adjustments to reconcile net income
     to net cash provided by operating activities:
      Accretion of discount and amortization of premium
       on investments and mortgage-backed securities                     246                 390                612
      Provision for loan losses                                          210                 950                 60
      ESOP expense                                                       587                 487                417
      Stock-based compensation                                           442                 214                  -
      Deferred income tax benefit                                        (19)               (461)              (150)
      Gains on sale of loans and credit card portfolio                     -                 (55)                 -
      Gains on sale of securities                                        (34)                (26)              (232)
      Gains on sale of premises and equipment                           (244)                  -                  -
      Gain on sale of real estate owned                                  (57)                  -                  -
      Depreciation                                                     1,317               1,220              1,076
          Increase in bank owned life insurance                         (538)               (525)              (508)
          Amortization of intangible assets                             (102)               (145)               (39)
          Increase in prepaid assets                                     262                 174                 23
      Change in accrued interest receivable                              (98)                (97)               (24)
      Change in accrued interest payable                                 615                  95                 93
      Other, net                                                      (1,135)                178                595
                                                              ---------------    ---------------     --------------

                 NET CASH PROVIDED BY OPERATING ACTIVITIES             8,769               7,598              7,849
                                                              --------------     ---------------     --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sales of investment securities
     available-for-sale                                                  200                 142                859
  Purchase of securities available-for-sale                              (22)               (512)           (20,655)
  Principal repayments on securities available-for-sale               13,806              20,159             25,907
  Purchase of securities held-to-maturity                            (10,988)            (19,392)                 -
  Principal repayments on securities held-to-maturity                  6,409               6,702              8,633
  Collection of receivable from sale of securities                        -                    -              6,104
  Net loan originations                                              (24,751)            (14,685)           (44,161)
  Purchase of loans                                                  (14,366)            (16,833)           (18,342)
  Proceeds from sales of loans                                         4,800              14,418                  -
  Investment in FHLB stock, net                                        2,382               1,994             (1,361)
  Purchase of premises and equipment                                  (2,254)             (1,214)            (2,882)
  Proceeds from sale of premises and equipment                           284                 378                  -
  Proceeds from sale of real estate owned                                681                   -                  -
  Net cash used in acquisition                                             -                   -             (9,169)
                                                              --------------     ---------------     --------------

   NET CASH USED IN INVESTING ACTIVITIES                             (23,819)             (8,843)           (55,067)
                                                              ---------------    ---------------     --------------

</TABLE>

See notes to consolidated financial statements.

                                      -5-


<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                   2006               2005                2004
                                                              --------------     ---------------     --------------
                                                                              (Dollars in thousands)

<S>                                                           <C>                 <C>                <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Dividends paid                                              $       (2,462)     $       (2,095)    $       (1,735)
  Net increase in deposits                                            21,497              83,635             35,362
  Proceeds of long-term FHLB advances                                      -              10,000             15,000
  Repayment of long-term FHLB advances                               (11,023)            (29,636)           (10,243)
  Net increase (decrease) in short-term FHLB advances                 (5,000)            (41,394)            11,500
  Cash paid for purchase of common stock for treasury                 (4,414)             (3,010)            (2,205)
  Proceeds from exercise of stock options                                646               1,167                356
  Tax benefit from exercise of stock options                             171                   -                  -
  Change in advance payments by
     borrowers for taxes and insurance                                   489                (110)               106
                                                              --------------     ----------------    --------------



NET CASH PROVIDED (USED)
 BY FINANCING ACTIVITIES                                                 (96)             18,557             48,141
                                                              ---------------    ---------------     --------------

                               NET INCREASE (DECREASE) IN
                                 CASH AND CASH EQUIVALENTS           (15,146)             17,312                923

CASH AND CASH EQUIVALENTS
  Beginning of year                                                   32,674              15,362             14,439
                                                              --------------     ---------------     --------------

CASH AND CASH EQUIVALENTS
  End of year                                                 $       17,528     $        32,674     $       15,362
                                                              ==============     ===============     ==============

SUPPLEMENTAL DISCLOSURE OF CASH
    FLOW INFORMATION:
  Cash paid for interest                                      $       16,105     $        15,579     $       12,983
                                                              ==============     ===============     ==============

  Cash paid for taxes                                         $        4,745     $         1,700     $        2,815
                                                              ==============     ===============     ==============

SUPPLEMENTAL SCHEDULE OF NON-CASH
    INVESTING ACTIVITIES:
  Accumulated other comprehensive income (loss)               $          131     $          (857)    $           79
                                                              ==============     ================    ==============


  Transfer from loans to real estate owned                    $        2,502     $             -     $            -
                                                              ==============     ===============     ==============


  Loans originated to se11 real estate owned                  $        1,082     $             -     $            -
                                                              ==============     ===============     ==============

</TABLE>

See notes to consolidated financial statements.

                                       -6-

<PAGE>


TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies of the Company are described below.

PRINCIPLES OF CONSOLIDATION - The consolidated  financial statements include the
accounts of Teche Holding Company and its wholly-owned subsidiary, Teche Federal
Savings Bank (collectively "the Company"). All significant intercompany balances
and  transactions  have been eliminated in  consolidation.  The Company operates
principally  in the community  savings bank segment by attracting  deposits from
the general public and using such deposits  primarily to originate loans.  These
loans  include  those  secured  by first  mortgages  on  owner-occupied,  family
residences as well as home  improvement  and other consumer  loans.  The Company
also makes commercial mortgage loans.

CONCENTRATIONS OF CREDIT RISK - The Company makes loans to individuals and small
businesses  located  primarily in southern  Louisiana  for various  personal and
commercial  purposes.  The  Company has a  diversified  loan  portfolio  and the
borrowers'  ability to repay  their  loans is not  dependent  upon any  specific
economic sector.  The Company will from time to time purchase loans from outside
our market area.

USE OF ESTIMATES - The  preparation of financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

CASH AND CASH EQUIVALENTS - Cash and cash  equivalents  comprise of cash on hand
and  non-interest  bearing  and  interest  bearing  demand  deposits  with other
financial  institutions.  The  Company is  required  to  maintain  certain  cash
reserves  relating to its deposit  liabilities.  This  requirement is ordinarily
satisfied by cash on hand.

SECURITIES   -   Securities    are    classified    as    held-to-maturity    or
available-for-sale.  Management determines the classification of securities when
they  are  purchased  and  reevaluates  this   classification   periodically  as
conditions change that could require reclassification.

Securities which the Company both positively intends and has the ability to hold
to maturity are  classified  as securities  held-to-maturity  and are carried at
amortized cost.  Intent and ability to hold are not considered  satisfied when a
security is  available  to be sold in  response  to changes in  interest  rates,
prepayment  rates,  liquidity  needs  or  other  reasons  as part of an  overall
asset/liability management strategy.

Securities   not  meeting  the   criteria  to  be   classified   as   securities
held-to-maturity  are classified as  available-for-sale  and are carried at fair
value.  Net unrealized  holding gains or losses are excluded from net income and
are  recognized,  net of income  taxes,  in other  comprehensive  income  and in
accumulated other  comprehensive  income, a separate  component of stockholders'
equity.

                                      -7-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


Premiums and  discounts on  securities,  both those  held-to-maturity  and those
available-for-sale, are amortized and accreted to income as an adjustment to the
securities'  yields  using the  interest  method.  Realized  gains and losses on
securities,  including declines in value judged to be other than temporary,  are
reported as a component of income.  The cost of securities  sold is specifically
identified for use in calculating realized gains and losses.

LOANS RECEIVABLE - Loans receivable are stated at the unpaid principal balances,
less the allowance for loan losses/net deferred loan fees, and unearned premiums
and  discounts.  The  unearned  premiums and  discounts  relate  principally  to
purchased loans.  Interest on loans is credited to income based on the principal
amount outstanding using the interest method.

When doubt exists as to  collectability  of a loan (typically 90 days delinquent
or impaired), the loan is placed on non-accrual status. When a loan is placed on
non-accrual  status,  interest accrued prior to the judgment of uncollectibility
is charged to income.  Loans are returned to an accruing status only as payments
are received and when  collection  of all principal and interest is no longer in
doubt.  Payments  received  on such  non-accrual  loans  are  applied  first  to
outstanding loan amounts and next as recovery of lost interest.

The Company considers a loan to be impaired when, based upon current information
and  events,  it believes  it is  probable  that the  Company  will be unable to
collect  all  amounts  due  according  to the  contractual  terms  of  the  loan
agreement.  The Company's  impaired loans include troubled debt  restructurings,
and performing and non-performing non-homogeneous loans in which full payment of
all amounts due is not expected.  The Company  calculates a reserve required for
impaired  loans  based  on the  present  value of  expected  future  cash  flows
discounted at the loan's effective  interest rate, the loan's  observable market
price or the fair value of its collateral.

ALLOWANCE  FOR  LOAN  LOSSES - The  allowance  for loan  losses  is a  valuation
allowance  available for losses incurred on loans. Any losses are charged to the
allowance for loan losses when the loss actually occurs. Recoveries are credited
to the allowance at the time of recovery.

Periodically during the year management  estimates the likely level of losses to
determine  whether the allowance for loan losses is adequate to absorb  probable
losses inherent in the existing portfolio.  Based on these estimates,  an amount
is charged to or recovered  from the  provision  for loan losses and credited or
debited to the  allowance  for loan losses in order to adjust the allowance to a
level determined to be adequate to absorb such losses.

The  hurricanes  that  struck the South  Louisiana  coastal  areas in August and
September  2005  impacted some of the  Company's  borrowers  and the  underlying
collateral.  Management  contacted  its  borrowers  in  the  affected  areas  to
determine their need for possible  forbearance.  Forbearance  generally included
postponing  loan  payments  for  initially  up to three (3)  months and may have
resulted in an extension of loan maturities.  At September 30, 2006, loans still
in forbearance were not material.

Management's  judgment as to the level of losses on existing  loans involves the
consideration of current and anticipated economic conditions and their potential
effects on specific borrowers; an evaluation of the existing relationships among
loans, known and inherent risks in the loan portfolio,  and the present level of
the  allowance;  results of  examination  of the loan  portfolio  by  regulatory
agencies; and

                                      -8-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


management's  internal  review  of  the  loan  portfolio.   In  determining  the
collectibility of certain loans, management also considers the fair value of any
underlying collateral.

It should be  understood  that  estimates of loan losses  involve an exercise of
judgment.  While it is  possible  that in  particular  periods  the  Company may
sustain  losses  which are  substantially  relative  to the  allowance  for loan
losses,  it is the judgment of  management  that the  allowance  for loan losses
reflected  in the  consolidated  balance  sheets is adequate to absorb  probable
losses inherent in the loan portfolio.

LOAN FEES, LOAN COSTS,  DISCOUNTS AND PREMIUMS - Loan origination and commitment
fees,  certain direct loan origination costs and discounts and premiums on loans
are deferred and amortized as an  adjustment  to the related  loan's yield using
the interest method over the contractual life of the loan.

FEDERAL  HOME LOAN BANK STOCK - Federal  Home Loan Bank (FHLB) stock is recorded
at cost and is periodically reviewed for impairment.  No ready market exists for
the FHLB  stock.  It has no quoted  market  value and is carried  at cost.  Cost
approximates  fair market value based upon the  redemption  requirements  of the
FHLB and this investment is not considered  impaired at September 30, 2006. Cash
and stock dividends on this stock are reported as income.

GOODWILL - Goodwill does not require  amortization but is subject to at least an
annual assessment for impairment, unless interim events or circumstances make it
more likely than not that an impairment loss has occurred. Impairment is defined
as that amount by which the implied  fair value of the goodwill is less than the
goodwill's  carrying  value.  Impairment  losses  would be charged to  operating
expense. The existing goodwill is not deductible for income tax purposes.

CORE DEPOSIT  INTANGIBLE - The core deposit  intangible  with a cost of $520 and
accumulated  amortization  of $287  and $185 at  September  30,  2006 and  2005,
respectively,   is  included  in  prepaid  expenses  and  other  assets  on  the
consolidated  balance  sheets.  This  core  deposit  intangible  relates  to the
acquisition of St. Landry Bank in 2004.

PREMISES AND  EQUIPMENT - Land is carried at cost.  Buildings  and equipment are
carried at cost less accumulated depreciation. The Company computes depreciation
generally on the  straight-line  method for financial  reporting.  The estimated
useful  lives used to compute  depreciation  are:  buildings  and  improvements,
twenty to forty  years;  and  furniture,  fixtures and  equipment,  three to ten
years.

REAL ESTATE OWNED - Real estate acquired through,  or in lieu of, foreclosure is
initially recorded at the fair value at the time of foreclosure,  less estimated
selling  cost,  and any related  writedown is charged to the  allowance for loan
losses.  Valuations are periodically  performed by management and provisions for
estimated losses on real estate owned are charged to income when any significant
and permanent  decline  reduces the fair value to less than the carrying  value.
Costs relative to the  development and improvement of properties are capitalized
to the extent realizable,  whereas, ordinary upkeep disbursements are charged to
expense. The ability of the Company to recover the carrying value of real estate
is based upon future sales of the real estate owned.  The ability to effect such
sales is  subject  to market  conditions  and other  factors,  many of which are
beyond  the  Company's  control.  Operating  income of such  properties,  net of
related expenses,  and gains and losses on their disposition are included in the
accompanying consolidated statements of income.

                                      -9-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


LIFE INSURANCE  CONTRACTS - Life insurance  contracts  represent  single premium
life insurance  contracts on the lives of certain  officers of the Company.  The
Company is the  beneficiary of these  policies.  These contracts are reported at
their cash surrender  value and changes in the cash surrender value are included
in other non-interest income.

DEFINED BENEFIT PLAN - The expense of the multi-employer defined benefit plan in
which the Company  participates  equals the amount of contributions  required by
the Company.

INCOME TAXES - The Company follows the practice of filing a consolidated federal
return and separate state returns. Income taxes are allocated to each company as
if filed separately for federal purposes.

Certain  items of income and  expense for  financial  reporting  are  recognized
differently for income tax purposes  (principally  the provision for loan losses
and depreciation). Provisions for deferred taxes are made in recognition of such
temporary  differences  as required  under SFAS No. 109,  Accounting  for Income
Taxes using the liability  method.  Current  income taxes are recorded  based on
amounts  due with the  current  income  tax  returns.  The need for a  valuation
allowance  is  considered  when it is  determined  more  likely  than not that a
deferred tax asset will not be realized.

INCOME  PER SHARE - Basic net  income  per common  share  (EPS) is  computed  by
dividing net income by the weighted-average  number of common shares outstanding
for the period.  The  Company  accounts  for the shares  acquired by the ESOP in
accordance with Statement of Position 93-6 and, therefore,  shares controlled by
the ESOP are not considered in the weighted average shares outstanding until the
shares are committed for allocation to an employee's individual account. Diluted
EPS reflects the  potential  dilution  that could occur if  securities  or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the  issuance of common  stock that then shared in the net income of
the Company.  Diluted EPS is computed by dividing net income by the total of the
weighted-average  number of shares  outstanding  plus the effect of  outstanding
options and stock grants.  The dilution effect of stock options and stock grants
is determined using the treasury stock method.  The effect of any  anti-dilutive
common stock equivalents is excluded from the diluted EPS computation.

COMPREHENSIVE  INCOME -  Comprehensive  income  includes  net  income  and other
comprehensive  income or loss,  which in the case of the Company  includes  only
unrealized  gains and losses on  securities  available-for-sale,  net of related
income taxes.

STOCK-BASED  COMPENSATION - Effective  October 1, 2005, the Company adopted SFAS
No. 123 (revised 2004), Share-Based Payment, (SFAS No. 123R) which was issued by
the FASB in December  2004.  SFAS No. 123R revises SFAS No. 123  Accounting  for
Stock Based Compensation, and supersedes APB No. 25, Accounting for Stock Issued
to  Employees,  (APB No.  25) and its  related  interpretations.  SFAS No.  123R
requires  recognition of the cost of employee  services received in exchange for
an award of equity  instruments in the financial  statements over the period the
employee  is  required  to  perform  the  services  in  exchange  for the  award
(presumptively the vesting period).  SFAS No. 123R also requires  measurement of
the cost of employee  services  received  in exchange  for an award based on the
grant  date fair  value of the  award.  SFAS No.  123R also  amends  SFAS No. 95
Statement  of Cash Flows,  to require  that  excess tax  benefits be reported as
financing  cash  inflows,  rather  than as a reduction  of taxes paid,  which is
included within operating cash flows.

                                      -10-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


The Company adopted SFAS No. 123R using the modified prospective  application as
permitted under SFAS No. 123R.  Accordingly,  prior period amounts have not been
restated. Under this application, the Company is required to record compensation
expense for all awards  granted  after the date of adoption and for the unvested
portion of  previously  granted  awards that remain  outstanding  at the date of
adoption. Prior to the adoption of SFAS No. 123R, the Company used the intrinsic
value method as  prescribed by APB No. 25 and thus  recognized  no  compensation
expense for options  granted with exercise prices equal to the fair market value
of the Company's common stock on the date of grant.

NEW ACCOUNTING  PRONOUNCEMENTS - FAS 155 - SFAS No. 155,  Accounting for Certain
Hybrid  Financial  Instruments  -- an amendment of SFAS No. 133 and 140 provides
entities relief from the  requirement to separately  determine the fair value of
an embedded derivative that would otherwise be bifurcated from the host contract
under  SFAS  133.  This  statement   allows  an   irrevocable   election  on  an
instrument-by-instrument  basis to measure such a hybrid financial instrument at
fair value. This statement is effective for all financial  instruments  acquired
or issued after the beginning of the fiscal years  beginning after September 15,
2006. The Company has evaluated this statement and does not believe it will have
any effect on the Company's financial  position,  results of operations and cash
flows.

FAS 156 - SFAS No. 156,  Accounting  for  Servicing  of  Financial  Assets -- an
amendment  of SFAS No. 140 requires  that all  separately  recognized  servicing
assets and liabilities be initially measured at fair value and permits (but does
not require) subsequent  measurement of servicing assets and liabilities at fair
value.  This statement is effective for fiscal years  beginning  after September
15, 2006.  The Company has evaluated this statement and does not believe it will
have  a  material  effect  on  the  Company's  financial  position,  results  of
operations and cash flows.

FAS 158 - SFAS No. 158,  Employers'  Accounting for Defined  Benefit Pension and
Other  Postretirement  Plans - an Amendment of FASB  Statements No. 87, 88, 106,
and 132R  requires an employer to: (a)  recognize in its  statement of financial
position an asset for a plan's  overfunded  status or a  liability  for a plan's
underfunded  status;  (b)  measure  a plan's  assets  and its  obligations  that
determine  its funded status as of the end of the  employer's  fiscal year (with
limited exceptions); and (c) recognize changes in the funded status of a defined
benefit  postretirement  plan in the  year in which  the  changes  occur.  Those
changes will be reported in comprehensive  income.  The requirement to recognize
the  funded  status  of a  benefit  plan  and the  disclosure  requirements  are
effective as of the end of the fiscal year ending after  December 15, 2006.  The
requirement to measure plan assets and benefit obligations as of the date of the
employer's  fiscal  year-end  statement of financial  position is effective  for
fiscal  years ending after  December 15, 2008.  The Company does not  anticipate
that this  statement  will have an impact on the Company's  financial  position,
results of operations and cash flows.

FIN 48 - In  July  2006,  the  FASB  issued  Financial  Interpretation  No.  48,
Accounting for Uncertainty in Income Taxes-an  interpretation  of FASB Statement
No. 109 ("FIN 48"),  which is a change in accounting  for income  taxes.  FIN 48
specifies how tax benefits for  uncertain  tax  positions are to be  recognized,
measured, and derecognized in financial statements; requires certain disclosures
of uncertain  tax matters;  specifies  how reserves for  uncertain tax positions
should be classified on the balance sheet;  and provides  transition and interim
period guidance,  among other  provisions.  FIN 48 is effective for fiscal years
beginning after December 15, 2006 and as a result,  is effective for the Company
in the first  quarter of fiscal 2008.  The Company is currently  evaluating  the
impact of FIN 48 on its consolidated financial statements.

                                      -11-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


SAB 108 - In September 2006, the SEC staff issued Staff Accounting  Bulletin No.
108,  Considering  the  Effects of Prior  Year  Misstatements  when  Quantifying
Misstatements in Current Year Financial Statements.  SAB 108 was issued in order
to eliminate the diversity of practice surrounding how public companies quantify
financial statement misstatements.

Traditionally, there have been two widely-recognized methods for quantifying the
effects of financial  statement  misstatements:  the "roll-over"  method and the
"iron curtain" method. The roll-over method focuses primarily on the impact of a
misstatement on the income  statement--including  the reversing  effect of prior
year misstatements--but its use can lead to the accumulation of misstatements in
the balance sheet. The iron-curtain method, on the other hand, focuses primarily
on the effect of correcting the  period-end  balance sheet with less emphasis on
the reversing effects of prior year errors on the income statement. We currently
use  the  roll-over  method  for  quantifying   identified  financial  statement
misstatements.

In SAB 108, the SEC staff  established an approach that requires  quantification
of financial  statement  misstatements based on the effects of the misstatements
on  each  of the  Company's  financial  statements  and  the  related  financial
statement  disclosures.  This model is commonly referred to as a "dual approach"
because it requires quantification of errors under both the iron curtain and the
roll-over methods.

SAB 108 permits  existing  public  companies to initially  apply its  provisions
either by (i) restating prior financial statements as if the "dual approach" had
always been used or (ii) recording the cumulative  effect of initially  applying
the "dual  approach"  as  adjustments  to the  carrying  values  of  assets  and
liabilities as of October 1, 2006 with an offsetting  adjustment recorded to the
opening balance of retained earnings.  Use of the "cumulative effect" transition
method requires detailed  disclosure of the nature and amount of each individual
error being  corrected  through the  cumulative  adjustment  and how and when it
arose.  The  effects of  adopting  the  provisions  of SAB 108 have not yet been
determined.

EITF 06-4 - The  Emerging  Issues Task Force  (EITF)  reached a consensus  at it
September 2006 meeting regarding EITF 06-4 Accounting for Deferred  Compensation
and  Postretirement  Benefit Aspects of Endorsement  Split-Dollar Life Insurance
Arrangements.  The  scope  of  EITF  06-4 is  limited  to the  recognition  of a
liability  and related  compensation  costs for  endorsement  split-dollar  life
insurance  policies  that  provide a benefit  to an  employee  that  extends  to
postretirement periods.  Therefore,  this EITF would not apply to a split-dollar
life insurance arrangement that provides a specified benefit to an employee that
is limited to the employee's  active service period with an employer.  This EITF
06-4 is  effective  for fiscal years  beginning  after  December 15, 2007,  with
earlier  application  permitted.  The  effects  of this  EITF  have not yet been
evaluated.

EITF 06-5 - The EITF reached a consensus at its September 2006 meeting regarding
EITF 06-5, Accounting for Purchases of Life  Insurance-Determing the Amount That
Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4. The scope
of EITF 06-5 is limited to the  determination  of net cash surrender  value of a
life insurance  contract in accordance  with Technical  Bulletin 85-4. This EITF
outlines when  contractual  limitations of the policy should be considered  when
determining the net realizable value of the contract. EITF 06-5 is effective for
fiscal  years  beginning  after  December 15,  2006,  with  earlier  application
permitted. The Company has not yet evaluated the effects of this EITF.

                                      -12-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


2.    INTEREST RATE RISK

The Company is engaged  principally in providing  first mortgage and other types
of loans to individuals and  businesses.  At September 30, 2006, the Company had
interest and dividend-earning  assets of approximately  $634,000,  most of which
will not  mature  or be  repriced  until  after  five  years.  Interest  bearing
liabilities totaled approximately  $566,000, most of which will mature or can be
repriced  within  two  years.   The  shorter   duration  of   interest-sensitive
liabilities  indicates that in a rising rate  environment the Company is exposed
to interest  rate risk because  liabilities  may be  repricing  faster at higher
interest rates,  thereby  reducing the market value of long-term  assets and net
interest  income.  In a falling rate  environment  the market value of long-term
assets and net interest income may be increased.



3.    ACQUISITION

On July 2, 2004,  the Company  acquired  100% of the common stock of St.  Landry
Financial  Corporation  ("St.  Landry").  St.  Landry was then  merged  into the
Company.  The acquisition was accounted for as a purchase and the results of St.
Landry's operations are included in the consolidated financial statements of the
Company from the date of acquisition. St. Landry operated two banking offices in
southern  Louisiana.  The  Company  acquired  St.  Landry in order to expand the
geographic area in which its services are offered.  The aggregate purchase price
was approximately $10.1 million.

The following unaudited pro forma consolidated results of operations give effect
to the  acquisition  of St.  Landry as though it had occurred on October 1, 2003
(in thousands, except per share data):

                                                        Year Ended September 30,
                                                        ------------------------
                                                                        2004
                                                                      --------

Interest income                                                       $ 33,180
Interest expense                                                        14,208
Provision for loan losses                                                  670
Net interest income after provision for loan losses                     18,302
Net income                                                               5,078
Basic income per common share                                             2.28
Diluted income per common share                                           2.13

The unaudited pro forma  information  is not  necessarily  indicative  either of
results of operations  that would have occurred had the purchase been made as of
October 1, 2002, or of future results of operations of the combined companies.


                                      -13-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


The following table summarizes the estimated fair values,  in thousands,  of the
assets acquired and liabilities assumed at the date of acquisition:

Cash and cash equivalents                                    $          973
Securities                                                            5,930
Loans                                                                51,646
Premises and equipment                                                  964
Core deposit intangible                                                 520
Goodwill                                                              3,529
Receivable from sale of securities                                    6,104
Other                                                                 1,074
                                                             --------------

           Total assets acquired                                     70,740

Deposits                                                             47,787
Advances from Federal Home Loan Bank                                 11,872
Other liabilities                                                       939
                                                             --------------

           Total liabilities assumed                                 60,598
                                                             --------------

Net assets acquired                                          $       10,142
                                                             ==============

The core deposit  intangible  has an estimated  weighted  life of  approximately
seven years.  Amortization  of the core deposit  intangible is computed using an
accelerated  method and amounted to approximately  $102, $145, and $40 in fiscal
years ended 2006, 2005, and 2004, respectively.  Amortization is estimated to be
approximately  $70 in 2007,  $55 in 2008,  $41 in 2009, $28 in 2010, $17 in 2011
and $22 thereafter.


                                      -14-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


4.       SECURITIES

The amortized  cost and estimated  fair values of securities  available-for-sale
are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                       September 30, 2006
                                               --------------------------------------------------------------------
                                                                      Gross             Gross           Estimated
                                                 Amortized         Unrealized        Unrealized           Fair
                                                   Cost               Gains            Losses             Value
                                               -------------     -------------     -------------     --------------
<S>                                            <C>               <C>               <C>               <C>
Investment securities:
  Federal Farm Credit Bank                     $       3,275     $           -     $        (128)    $        3,147
  Municipal obligations                                   31                 -                 -                 31
                                               -------------     -------------     -------------     --------------
                                                       3,306                 -              (128)             3,178
                                               -------------     -------------     --------------    --------------
Mortgage-backed securities:
  Government National Mortgage
   Association                                         7,790                 8              (124)             7,674
  Federal Home Loan Mortgage
   Corporation                                        20,486                17              (697)            19,806
  Federal National Mortgage Association               10,509                 8              (588)             9,929
                                               -------------     -------------     --------------    --------------
                                                      38,785                33            (1,409)            37,409
                                               -------------     -------------     --------------    --------------
ARM Mutual Funds                                      16,133                 -              (345)            15,788
Collateralized mortgage obligations
   ("CMOs")                                            5,629                 -              (240)             5,389
Equity securities                                      1,554               201                (2)             1,753
                                               -------------     -------------     --------------    --------------

                                               $      65,407     $         234     $      (2,124)    $       63,517
                                               =============     =============     ==============    ==============

                                                                       September 30, 2005
                                               --------------------------------------------------------------------
                                                                      Gross             Gross           Estimated
                                                 Amortized         Unrealized        Unrealized           Fair
                                                   Cost               Gains            Losses             Value
                                               -------------     -------------     -------------     --------------
Investment securities:
  Federal Farm Credit Bank                     $       3,275     $           -     $         (97)    $        3,178
  Municipal obligations                                   38                 -                 -                 38
                                               -------------     -------------     -------------     --------------
                                                       3,313                 -               (97)             3,216
                                               -------------     -------------     --------------    --------------
Mortgage-backed securities:
  Government National Mortgage
   Association                                        12,545                16              (178)            12,383
  Federal Home Loan Mortgage
   Corporation                                        26,412                17              (794)            25,635
  Federal National Mortgage Association               12,573                18              (536)            12,055
                                               -------------     -------------     --------------    --------------
                                                      51,530                51            (1,508)            50,073
                                               -------------     -------------     --------------    --------------
ARM Mutual Funds                                      15,873                 -              (313)            15,560
Collateralized mortgage obligations
   ("CMOs")                                            7,364                 -              (181)             7,183
Equity securities                                      1,532                71              (144)             1,459
                                               -------------     -------------     --------------    --------------

                                               $      79,612     $         122     $      (2,243)    $       77,491
                                               =============     =============     ==============    ==============
</TABLE>

                                      -15-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


The amortized cost and estimated fair values of securities  held-to-maturity are
as follows:
<TABLE>
<CAPTION>
                                                                       September 30, 2006
                                               --------------------------------------------------------------------
                                                                      Gross             Gross           Estimated
                                                 Amortized         Unrealized        Unrealized           Fair
                                                   Cost               Gains            Losses             Value
                                               -------------     -------------     -------------     --------------
<S>                                            <C>               <C>               <C>               <C>
Mortgaged-backed securities:
  Federal National Mortgage Association        $      38,743     $          84     $        (893)    $       37,934
                                               -------------     -------------     --------------    --------------

                                               $      38,743     $          84     $        (893)    $       37,934
                                               =============     =============     ==============    ==============

                                                                       September 30, 2005
                                               --------------------------------------------------------------------
                                                                      Gross             Gross           Estimated
                                                 Amortized         Unrealized        Unrealized           Fair
                                                   Cost               Gains            Losses             Value
                                               -------------     -------------     -------------     --------------
Mortgaged-backed securities:
  Federal National Mortgage Association        $      34,259     $           -     $        (651)    $       33,608
                                               -------------     -------------     --------------    --------------

                                               $      34,259     $           -     $        (651)    $       33,608
                                               =============     =============     ==============    ==============
</TABLE>
Details  concerning  securities with unrealized  losses as of September 30, 2006
are as follows:

The Federal Farm Credit Bank security with a fair value of $3,147 will mature on
June 16, 2011.
<TABLE>
<CAPTION>
                              Securities with losses        Securities with losses
                                  under 12 months               over 12 months                     Total
                           ---------------------------   ---------------------------   ----------------------------
                                              Gross                         Gross                          Gross
                               Fair        unrealized        Fair        unrealized         Fair        unrealized
                               value         losses          value         losses           value         losses
                           ------------   ------------   ------------   ------------   -------------   ------------
<S>                        <C>            <C>            <C>            <C>            <C>             <C>
AVAILABLE-FOR-SALE
Investment securities:
  Federal Farm Credit Bank $          -   $          -   $      3,147   $       (128)  $       3,147   $       (128)

Mortgage-backed securities:
  Government National
   Mortgage Assoc.                    -              -          6,814           (124)          6,814           (124)
  Federal Home Loan Mortgage
   Corporation                      176             (1)        18,151           (696)         18,327           (697)
  Federal National Mortgage
   Association                        -              -          9,373           (588)          9,373           (588)
                           ------------   ------------   ------------   -------------  -------------   -------------
                                    176             (1)        34,338         (1,408)         34,514         (1,409)
ARM Mutual Funds                      -              -         15,788           (345)         15,788           (345)
CMOs                                  -              -          5,389           (240)          5,389           (240)
Equity securities                     -              -             12             (2)             12             (2)
                           ------------   ------------   ------------   -------------  -------------   -------------

                           $        176   $         (1)  $     58,674   $     (2,123)  $      58,850   $     (2,124)
                           ============   =============  ============   =============  =============   =============

HELD-TO-MATURITY
Federal National Mortgage
   Association             $          -   $          -   $     27,558   $       (893)  $      27,558   $       (893)
                           ------------   ------------   ------------   -------------  -------------   -------------

                           $          -   $          -   $     27,558   $       (893)  $      27,558   $       (893)
                           ============   ============   ============   =============  =============   =============
</TABLE>

                                      -16-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


The Company has 45  investments at September 30, 2006 of which 22 had unrealized
losses.  These unrealized  losses  generally result from securities,  which were
purchased at a premium in  anticipation  of a continuing  stable  interest  rate
environment.  As  interest  rates  increased,  the  market  value of  securities
declined.  The temporary  impairment of the equity securities over twelve months
is related to one security. These issues are deemed to be temporary and have not
created a permanent impairment.

Details  concerning  securities with unrealized  losses as of September 30, 2005
are as follows:

<TABLE>
<CAPTION>

                              Securities with losses        Securities with losses
                                  under 12 months               over 12 months                     Total
                           ---------------------------   ---------------------------   ----------------------------
                                              Gross                         Gross                          Gross
                               Fair        unrealized        Fair        unrealized         Fair        unrealized
                               value         losses          value         losses           value         losses
                           ------------   ------------   ------------   ------------   -------------   ------------
<S>                        <C>            <C>            <C>            <C>            <C>             <C>
AVAILABLE-FOR-SALE
Investment securities:
  Federal Farm Credit Bank $          -   $          -   $      3,178   $        (97)  $       3,178   $        (97)

Mortgage-backed securities:
  Government National
   Mortgage Assoc.                    -              -         11,116           (178)         11,116           (178)
  Federal Home Loan Mortgage
   Corporation                    9,120           (206)        13,628           (588)         22,748           (794)
  Federal National Mortgage
   Association                       -               -         11,006           (536)         11,006           (536)
                           -----------    ------------   ------------   -------------  -------------   -------------
                                  9,120           (206)        35,750         (1,302)         44,870         (1,508)

ARM Mutual Funds                      -              -         15,560           (313)         15,560           (313)
CMOs                                  -              -          7,183           (181)          7,183           (181)
Equity securities                   111             (3)           875           (141)            986           (144)
                           ------------   -------------  ------------   -------------  -------------   -------------

                           $      9,231   $       (209)  $     62,546   $     (2,034)  $      71,777   $     (2,243)
                           ============   =============  ============   =============  =============   =============

HELD-TO-MATURITY
Federal National Mortgage
   Association             $     32,646   $       (604)  $        962   $        (47)  $      33,608   $       (651)
                           ------------   -------------  ------------   -------------  -------------   -------------

                           $     32,646   $       (604)  $        962   $        (47)  $      33,608   $       (651)
                           ============   =============  ============   =============  =============   =============
</TABLE>

The Company has 44  investments at September 30, 2005 of which 22 had unrealized
losses.  These unrealized  losses  generally result from securities,  which were
purchased at a premium in  anticipation  of a continuing  stable  interest  rate
environment.  As  interest  rates  increased,  the  market  value of  securities
declined.  The temporary  impairment of the equity securities over twelve months
is related to one  security.  This is not a result of the  deterioration  of the
financial  position of the related  Company,  but temporary  regulatory  issues.
These  issues  are  deemed to be  temporary  and have not  created  a  permanent
impairment.

Gross gains of $34,  $26 and $232 were  realized on sales of  securities  in the
years ended  September  30, 2006,  2005 and 2004,  respectively.  No losses were
realized on sales of securities in the years ended  September 30, 2006,  2005 or
2004.


                                      -17-
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


At September 30, 2006 and 2005,  securities with a cost of approximately $17,700
and $17,275 were pledged to secure  deposits and advances  from the Federal Home
Loan Bank as required or permitted by law.



5.    LOANS RECEIVABLE

Loans receivable are summarized as follows:
<TABLE>
<CAPTION>

                                                                                        September 30,
                                                                           ----------------------------------------
                                                                                  2006                  2005
                                                                           ------------------    ------------------
<S>                                                                        <C>                   <C>
Residential real estate mortgage loans:
  One-to-four family units - Conforming                                    $          180,521    $          190,727
  One-to-four family units - Commercial                                                26,291                21,969
  One-to-four family units - Alternative                                               83,641                85,533
  Multi-family                                                                         20,756                19,636
Land loans                                                                             21,812                13,991
Construction loans                                                                      9,358                13,308
Non-residential real estate loans (primarily commercial)                               59,474                46,877
Commercial non-real estate loans                                                       21,262                10,607
Home improvement and home equity loans                                                 53,202                49,348
Loans on savings accounts                                                               5,223                 5,111
Auto loans                                                                              5,710                 7,436
Mobile home loans                                                                      35,242                25,439
Other secured and unsecured                                                             3,201                 3,331
                                                                           ------------------    ------------------
                                                                                      525,693               493,313
Less:
  Allowance for loan losses                                                             4,890                 5,151
  Deferred loan fees                                                                      300                   346
                                                                           ------------------    ------------------

                                                                           $          520,503    $          487,816
                                                                           ==================    ==================
</TABLE>

Alternative  one-to-four family mortgages  represent those loans not meeting all
of the Banks' standard loan underwriting criteria.

Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>

                                                                            Year Ended September 30,
                                                              -----------------------------------------------------
                                                                   2006               2005                2004
                                                              --------------     ---------------     --------------

<S>                                                           <C>                <C>                 <C>
Beginning balance - October 1                                 $        5,151     $         4,365     $        3,397
Provision charged to operating expense                                   210                 950                 60
Acquisition                                                                -                   -                973
Recoveries                                                               236                  13                 50
Loans charged off                                                       (707)               (177)              (115)
                                                              ---------------    ---------------     --------------

Ending balance - September 30                                 $        4,890     $         5,151     $        4,365
                                                              ==============     ===============     ==============
</TABLE>

                                      -18-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


The amount of nonaccrual loans at September 30, 2006 and 2005 was  approximately
$2.8 million and $3.9  million,  respectively.  The amount of impaired  loans at
September 30, 2006 was  approximately  $746 thousand,  and at September 30, 2005
was approximately  $1.3 million.  The amount of allowance  allocated to impaired
loans was  approximately $0 at September 30, 2006 and $47 at September 30, 2005.
The average  investment in impaired  loans was $449 and $450 for the years ended
September 30, 2006 and 2005, respectively. The amount of interest not accrued on
these loans was approximately $24, $143 and $43, respectively.

The Company has collateralized its advances from the Federal Home Loan Bank with
a blanket-floating lien on its first mortgage loans.


6.    REAL ESTATE OWNED

Real estate owned consisted of the following:

<TABLE>
<CAPTION>

                                                                                        September 30,
                                                                           ----------------------------------------
                                                                                  2006                  2005
                                                                           ------------------    ------------------

<S>                                                                        <C>                   <C>
Real estate acquired through foreclosure                                   $            1,072    $              276
Less allowance for losses                                                                  (6)                   (6)
                                                                           -------------------   ------------------

Real estate owned - net                                                    $            1,066    $              270
                                                                           ==================    ==================
</TABLE>



7.    PREMISES AND EQUIPMENT


Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
                                                                                        September 30,
                                                                           ----------------------------------------
                                                                                  2006                  2005
                                                                           ------------------    ------------------

<S>                                                                        <C>                   <C>
Land                                                                       $            6,736    $            5,560
Buildings and improvements                                                             14,603                14,454
Furniture, fixtures and equipment                                                       9,275                 8,490
                                                                           ------------------    ------------------
                                                                                       30,614                28,504
Less accumulated depreciation                                                         (10,798)               (9,585)
                                                                           -------------------   ------------------

                                                                           $           19,816    $           18,919
                                                                           ==================    ==================
</TABLE>

                                      -19-


<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------------------------------------------------------------------------------


Pursuant to the terms of non-cancelable  lease agreements in effect at September
30, 2006,  pertaining to banking  premises and  equipment,  future  minimum rent
commitments under various operating leases are as follows:

              2007                                 $        102
              2008                                           95
              2009                                           56
              2010                                           32
              2011                                            -
              Thereafter                                      -
                                                   ------------
                                                          $ 285
                                                   ============

All leases contain options to extend for periods from three to five years. Total
rent expense for the years ended September 30, 2006,  2005, and 2004 amounted to
$158, $160 and $91 respectively.



8.    DEPOSITS

Deposits are summarized as follows:
                                                     September 30,
                                        ----------------------------------------
                                               2006                  2005
                                        ------------------    ------------------

Non-interest bearing demand accounts    $           49,119    $           39,761
Interest bearing:
  NOW accounts                                      70,527                64,591
  Passbook and regular savings                      53,628                54,907
  Money funds accounts                              67,034                65,352
  Certificates of deposit                          297,241               291,441
                                        ------------------    ------------------

                                        $          537,549    $          516,052
                                        ==================    ==================

Certificates  of  deposit  of over $100  amounted  to  $71,009  and  $61,978  at
September 30, 2006 and 2005, respectively.

Certificates of deposits at September 30, 2006 mature as follows:

Less than one year                                                $      197,842
1-2 years                                                                 61,745
2-3 years                                                                 28,575
3-4 years                                                                  4,298
4-5 years                                                                  4,268
Over 5 years                                                                 513
                                                                  --------------

TOTAL                                                             $      297,241
                                                                  ==============

                                      -20-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------


9.   ADVANCES FROM FEDERAL HOME LOAN BANK AND CASH RESERVE REQUIREMENTS

At  September  30, 2006 and 2005  respectively,  the Company was indebted to the
FHLB for $77,386 and $93,409 of advances  bearing interest at a weighted average
rate of 4.91% and 4.95%, which are due as follows:

 Year Ended
September 30,
-------------
   2007                                       $    10,190
   2008                                             5,453
   2009                                             9,400
   2010                                             5,544
   2011                                            11,500
   Thereafter                                      35,299
                                              -----------

                                              $    77,386
                                              ===========

These advances are  collateralized by a  blanket-floating  lien on the Company's
first mortgage loans.

At September 30, 2006, the Company had an additional  $116,063  available  under
its line of credit with the FHLB.


10.  OTHER NON-INTEREST INCOME

Included in other non-interest  income for the year ended September 30, 2005 was
approximately  $55 of gains on sales of  loans  and the  Company's  credit  card
portfolio.  No gains from  sales  were  recognized  during  2006 and 2004.  Also
included is income from the increase in life insurance  contracts of $538, $525,
and $508 for the years ended 2006, 2005, and 2004, respectively.






                                      -21-
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------


11. INCOME TAXES

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's  deferred tax assets and  liabilities as of September 30, 2006 and
2005 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                        Year Ended September 30,
                                                                        2006             2005
                                                                 -------------    -------------
<S>                                                            <C>              <C>
Deferred tax assets:
  Allowance for loan losses                                      $       1,304    $       1,393
  Unrealized loss on securities available-for-sale                         643              742
  Liabilities related to acquisition                                         -              407
  Other                                                                    356               20
                                                                 -------------    -------------
         Total deferred tax assets                                       2,303            2,562
                                                                 -------------    -------------
Deferred tax liabilities:
  Deferred loan fees and costs - net                                       226              233
  Basis differences on securities available-for-sale                       309              309
  Tax over book depreciation                                               449              467
  Dividends on FHLB stock                                                  445              616
     Other                                                                  94               77
                                                                 -------------    -------------
         Total deferred tax liabilities                                  1,523            1,702
                                                                 -------------    -------------

         Net deferred tax asset                                  $         780    $         860
                                                                 =============    =============
</TABLE>

The components of income tax expense are as follows:

                                    Year Ended September 30,
                      -----------------------------------------------------
                           2006               2005                2004
                      --------------     ---------------     --------------

Current               $        3,670     $         2,964     $        2,998
Deferred                         (19)               (461)              (150)
                      ---------------    ---------------     --------------

                      $        3,651     $         2,503     $        2,848
                      ==============     ===============     ==============

Income  taxes  differ from the amounts  computed  by applying  the U.S.  Federal
income tax rate of 34% to earnings  before income  taxes.  The reasons for these
differences are as follows:

<TABLE>
<CAPTION>
                                                                  Year Ended September 30,
                                                    -----------------------------------------------------
                                                         2006               2005                2004
                                                    --------------     ---------------     --------------

<S>                                               <C>                <C>                 <C>
Taxes computed at statutory rates                   $        3,729     $         2,619     $        2,983
Decrease in taxes due to miscellaneous items                   (78)               (116)              (135)
                                                    ---------------    ---------------     ---------------

                                                    $        3,651     $         2,503     $        2,848
                                                    ==============     ===============     ==============

Effective tax rate                                           33.3%               32.5%              32.5%
                                                    ==============     ===============     ==============
</TABLE>


Generally accepted  accounting  principles does not require that deferred income
taxes be provided  on certain  portions  of the  allowance  for loan losses that
existed as of September  30,  1988.  At September  30, 2006,  retained  earnings
includes  approximately  $4.4 million  representing such allowances for which no
deferred income taxes have been provided.

                                      -22-
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------


12.   NON-INTEREST EXPENSE

Occupancy, equipment and data processing expenses consisted of the following:

<TABLE>
<CAPTION>
                                                                            Year Ended September 30,
                                                              -----------------------------------------------------
                                                                   2006               2005                2004
                                                              --------------     ---------------     --------------
<S>                                                         <C>                <C>                 <C>
Occupancy, including depreciation, insurance,
  rent, utilities, etc.                                       $        1,796     $         1,691     $        1,469
Equipment, including depreciation, telephone, etc.                     2,117               1,968              1,688
Data processing                                                        1,252                 994                881
                                                              --------------     ---------------     --------------

                                                              $        5,165     $         4,653     $        4,038
                                                              ==============     ===============     ==============
</TABLE>

Other operating expenses consisted of the following:

<TABLE>
<CAPTION>
                                                                            Year Ended September 30,
                                                              -----------------------------------------------------
                                                                   2006               2005                2004
                                                              --------------     ---------------     --------------

<S>                                                         <C>                <C>                 <C>
Stationery, printing and postage                              $          934     $           952     $          781
Debit card expense                                                       607                 478                436
Other                                                                  1,826               1,646              1,203
                                                              --------------     ---------------     --------------

                                                              $        3,367     $         3,076     $        2,420
                                                              ==============     ===============     ==============
</TABLE>


13. OTHER COMPREHENSIVE INCOME (LOSS)

The adjustment to determine other comprehensive income (loss) as included in the
consolidated  statements  of changes in  stockholders'  equity  consists  of the
following for the years ended September 30, 2006, 2005 and 2004:

<TABLE>
<CAPTION>

                                                                                       Tax               Net of
                                                                Before-tax          (expense)              tax
                                                                  amount             credit              amount
                                                              --------------     ---------------     --------------
<S>                                                         <C>                <C>                 <C>
2006
----
  Gross change in unrealized gain (loss) on securities
    available-for-sale                                        $          231     $           (78)    $          153
  Less reclassification for gain included in net income                  (34)                 12                (22)
                                                              --------------     ---------------     --------------

  Net change in unrealized gain (loss) on securities
    available-for-sale                                        $          197     $           (66)    $          131
                                                              ==============     ================    ==============
</TABLE>



                                      -23-
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>

2005
----
<S>                                                         <C>                <C>                 <C>
  Gross change in unrealized gain (loss) on securities
    available-for-sale                                        $       (1,310)    $           470     $         (840)
  Less reclassification for gain included in net income                  (26)                  9                (17)
                                                              --------------     ---------------     ---------------

  Net change in unrealized gain (loss) on securities
    available-for-sale                                        $       (1,336)    $           479     $         (857)
                                                              ===============    ===============     ===============

2004
----
  Gross change in unrealized gain (loss) on securities
    available-for-sale                                        $          354     $          (124)    $          230
  Less reclassification for gain included in net income                 (232)                 81               (151)
                                                              --------------     ---------------     ---------------

  Net change in unrealized gain (loss) on securities
    available-for-sale                                        $          122     $           (43)    $           79
                                                              ==============     ===============     ==============
</TABLE>



14.  RETIREMENT PLANS

The Company  participates in a defined benefit  multi-employer  retirement plan,
which  covers  substantially  all  employees.  The plan is  administered  by the
Financial  Institutions  Retirement  Fund.  The Company froze the benefits under
this plan during the year ended September 30, 2004. The expense relating to this
plan amounted to $188, $63 and $166 in the years ended  September 30, 2006, 2005
and 2004, respectively, and are the amounts of the required payments relating to
these years.  The market value of the net assets of the retirement  fund exceeds
the  liability  of the present  value of accrued  benefits as of the most recent
valuation  date. No separate  information  regarding the Company's  share of the
assets and liabilities of this plan is available.

The Company has a 401 (k) Plan whereby  substantially all employees  participate
in the Plan.  Employees may  contribute  up to 50 percent of their  compensation
subject to certain  limits  based on federal  tax laws.  The  Corporation  makes
matching  contributions  equal  to 50  percent  of the  first  4  percent  of an
employee's compensation  contributed to the Plan. Matching contributions vest to
the employee equally over a five-year period.  For the years ended September 30,
2006, 2005, and 2004, expense attributable to the Plan amounted to approximately
$130, $91, and $20, respectively.




                                      -24-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------


15.  INCOME PER SHARE

Following is a summary of the  information  used in the computation of basic and
diluted income per common share for the years ended September 30, 2006, 2005 and
2004:

<TABLE>
<CAPTION>
                                                                            Year Ended September 30,
                                                              -----------------------------------------------------
                                                                   2006               2005                2004
                                                              --------------     ---------------     --------------
<S>                                                         <C>                 <C>                <C>
Weighted average number of common shares
  outstanding - used in computation of basic
  income per common share                                          2,271,000           2,227,000          2,230,000
Effect of dilutive securities:
  Stock options                                                       45,000              70,000            156,000
  Stock grants                                                         5,000               4,000              3,000
                                                              --------------     ---------------     --------------
Weighted  average  number of common shares
  outstanding  plus effect of dilutive
  securities - used in computation of diluted
  income per common share                                          2,321,000           2,301,000          2,389,000
                                                              ==============     ===============     ==============
</TABLE>



16.  EMPLOYEE STOCK PLANS

The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit of
Teche  Federal   Savings   Bank's   employees   who  meet  certain   eligibility
requirements.  The ESOP Trust  acquired  332,337  shares of common  stock in the
Company's  initial  public  offering in 1995 with  proceeds from a loan from the
Company.  Teche  Federal  Bank makes cash  contributions  to the ESOP on a basis
sufficient to enable the ESOP to make the required loan payments to the Company.

The note  payable  referred to above bears  interest at the prime rate  adjusted
quarterly with interest payable  quarterly and was paid in full during 2006. The
loan is collateralized by the unreleased shares of the stock purchased.

As the debt is repaid,  shares are released  from  collateral  and  allocated to
qualified  employees  based on the proportion of principal paid in the year. The
shares pledged as collateral are reported as a reduction of stockholders' equity
in the consolidated balance sheets. As shares are released from collateral,  the
Company  reports  compensation  expense equal to the current market price of the
shares,  and the shares become  outstanding  for income per share  computations.
Dividends  on  allocated  ESOP shares are  recorded  as a reduction  of retained
earnings and dividends on unallocated ESOP shares are recorded as a reduction of
debt.

Compensation  expense  related to the ESOP was $587, $489 and $417 for the years
ended  September  30,  2006,  2005  and  2004,  respectively.  The  ESOP  has no
unreleased shares at September 30, 2006.

The Company has five share-based  compensation  plans in effect at September 30,
2006. The compensation cost that has been charged against income for those plans
was  approximately  $384,000 for the year ended  September 30, 2006. The Company
recorded a deferred tax benefit in the amount of $93,000  related to share-based
compensation during the year ended September 30, 2006.


                                      -25-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------


In 1998, the Company  implemented the 1998 Stock Option Plan,  which  authorized
the Board of  Directors  to grant up to 68,000 of stock  options  to  employees,
officers  and  directors of the company.  Options  granted  under the 1998 Stock
Option  Plan have a term of up to ten years  from the date of grant.  Vesting of
options is  determined  at the time of grant and ranges from  immediate  to five
years. Options under this plan must be granted at a price not less than the fair
market value at the date of grant.

In 1999,  the Company  implemented  the 1999 Stock Option and  Restricted  Stock
Plan,  which  authorized  the Board of Directors  to grant 30,682  non-qualified
stock  options and 6,000 shares of restricted  stock to a new senior  officer in
accordance  with the terms of his employment.  The options and restricted  stock
were  granted at fair market  value of the stock at the date of grant and vested
over a four-year  period. A similar plan was implemented in 2002 authorizing the
Board of  Directors  to grant  12,696  stock  options to a new  director.  These
options have a five-year vesting period.

In 2001, the Company  implemented the 2001  Stock-Based  Incentive  Plan,  which
authorized  the Board of  Directors  to grant up to  250,000  stock  options  or
restricted  stock  (limited to 37,500  shares) to officers and  employees of the
Company.  Options  granted under the 2001 Stock Option Plan have a term of up to
ten years from the date of grant.  Vesting of options is  determined at the time
of grant and ranges from  immediate to five years.  Options under this plan must
be granted at a price not less than the fair market value at the date of grant.

In 2005, the Company  implemented the 2004  Stock-Based  Incentive  Plan,  which
authorized  the Board of  Directors  to grant up to  200,000  stock  options  or
restricted stock (limited to 30,000 shares) to employees, officers and directors
of the Company.  Options  granted under the 2004 Stock Based Incentive Plan will
have a term of up to ten years from the date of grant and vesting of grants will
be determined at the time of grant. Options under this plan must be granted at a
price not less than the fair market value at the date of grant.

The  share-based  awards  granted  under the  aforementioned  Plans have similar
characteristics,  except  that some  awards  have been  granted in  options  and
certain awards have been granted in restricted stock.  Therefore,  the following
disclosures  have been  disaggregated  for the stock option and restricted stock
awards of the Plans due to their dissimilar characteristics.

Stock Options
-------------

The fair market  value of each option  award is  estimated  on the date of grant
using the  Black-Scholes  option pricing model.  The Company granted 1,900 stock
options for the year ended  September  30, 2006 with a fair value of $6.46.  The
Company granted 101,400 stock options for the year ended September 30, 2005 with
a weighted average fair value of $8.96 per option.





                                      -26-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------


The risk-free interest rate is based upon a U.S. Treasury instrument with a life
that is similar to the expected life of the option grant. Expected volatility is
based upon the  historical  volatility  of the Company based upon the previous 3
years  trading  history.  The  expected  term of the  options  is based upon the
average life of previously issued stock options.  The expected dividend yield is
based upon current yield on date of grant.  No post-vesting  restrictions  exist
for these options.  The following  table  illustrates  the  assumptions  for the
Black-Scholes  model used in  determining  the fair value of options  granted to
employees in the year ended September 30, 2006 and 2005.

                                   Year Ended                    Year Ended
                             September 30, 2006               September 30, 2005
                             ---------------------            ------------------

Dividend yield                      2.70%                           2.50%
Risk-free interest rate             4.74%                           4.50%
Volatility                          14.00 %                        22.00%
Expected life                       6 years                      8 years

A summary of option  activity  under the stock option plans as of September  30,
2006, and changes during the year ended September 30, 2006 is presented below:

<TABLE>
<CAPTION>
                                                                            Weighted
                                                          Weighted          Average
                                                          Average           Remaining        Aggregate
                                                          Exercise          Contractual      Intrinsic
                                           Shares         Price             Term              Value
                                           ------------------------------------------------------------
<S>                                      <C>            <C>              <C>               <C>
Outstanding at September 30, 2005          249,696        $28.73

Exercised                                  (28,500)       $22.67

Authorized                                       -             -

Forfeited                                   (2,530)       $33.22

Granted                                      1,900        $39.91
                                           ------------------------------------------------------------

Outstanding at September 30, 2006          220,566        $29.72           6.8 years         $5,410
                                           ------------------------------------------------------------

Exercisable at September 30, 2006          197,411        $29.79           6.9 years         $4,829
                                           ------------------------------------------------------------
</TABLE>

For the  years  ended  September  30,  2006,  2005 and 2004,  respectively,  the
intrinsic  value of  options  exercised  was  approximately  $1,005,  $2,798 and
$1,599.  The fair value of options vested during the years ended 2006,  2005 and
2004 was approximately $161 and $1,188 and $323, respectively.

Cash received from option  exercise under all share-based  payment  arrangements
for year ended  September 30, 2006 was  approximately  $646,000.  The actual tax
benefit in  stockholders  equity  realized  for the tax  deductions  from option
exercise of the share-based payment  arrangements  totaled $171,000 for the year
ended September 30, 2006.

                                      -27-
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------

Stock Awards
------------

A summary of the status of the Company's non-vested stock awards as of September
30, 2006, and changes during the year then ended is presented below:

                                                                   Weighted
                                                                   Average
                                                                   Grant Date
                                                   Shares          Fair Value
                                                   --------------------------

     Non-vested - September 30, 2005                 9,240         $37.88
     Granted                                         3,400           38.87
     Vested                                         (5,681)          37.71
     Forfeited                                         -             -
                                                   --------------------------
     Non-vested - September 30, 2006                 6,959         $38.50
                                                   --------------------------

The fair value of  restricted  stock vested over the years ended  September  30,
2006, 2005 and 2004, respectively was $223, $214 and $107.

As of September 30, 2006, there was $400 of total unrecognized compensation cost
related to non-vested share-based compensation arrangements granted under all of
the Company's stock benefit plans. That cost is expected to be recognized over a
weighted-average period of 1.5 years.

The Company funds the option shares and  restricted  stock from  authorized  but
unissued shares.  The Company does not typically  purchase shares to fulfill the
obligations of the stock benefit plans. Company policy does allow option holders
to exercise options with seasoned shares.

The  adoption  of SFAS 123R and its fair  value  compensation  cost  recognition
provisions are different from the  nonrecognition  provisions under SFAS 123 and
the intrinsic value method for  compensation  cost allowed by APB 25. The effect
(increase/(decrease)) of the adoption of SFAS 123R is as follows:

                                                        For the Year Ended
                                                        September 30, 2006
                                                        ------------------

     Income before income tax expense                   $(161,000)
     Net income                                         $(121,000)

     Cash flow from operating activities                $(171,000)
     Cash flow provided by financing activities         $ 171,000

     Basic earnings per share                           $(0.05)
     Diluted earnings per share                         $(0.05)


                                      -28-
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------


The  following  illustrates  the  effect  on  net  income  available  to  common
stockholders if the Company had applied the fair value recognition provisions of
SFAS 123R to the comparable periods of the prior year :

<TABLE>
<CAPTION>
                                                                       For the Year  Ended
                                                                       September 30, 2005
                                                                       ------------------

<S>                                                                         <C>
    Net income, as reported                                                   $5,199

    Add: Stock-based employee compensation expense
    included in reported net income, net of related income taxes                 141

    Less: Stock based compensation  determined under fair value based
    method of all awards, net of related income taxes                         (1,066)
                                                                              ------
    Pro forma net income
                                                                              $4,274
                                                                              ======
    Earnings per share - basic, as reported
                                                                               $2.34
    Earnings per share - basic, pro forma
                                                                               $1.92
    Earnings per share - diluted, as reported
                                                                               $2.26
    Earnings per share - diluted, pro forma                                    $1.86
</TABLE>

During the 2006 year, the company  granted  directors  stock in lieu of cash for
the  directors  fees.  The total  expense  recognized  was $58.  This was not in
conjunction with any previously mentioned stock award plan.



17.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

In the normal course of business the Company is a party to financial instruments
with  off-balance  sheet risk to meet the financing needs of its customers.  The
financial  instruments  include  commitments to extend credit and commitments to
sell loans. Those instruments  involve,  to varying degrees,  elements of credit
risk in excess of the amounts recognized in the consolidated balance sheets. The
contract amounts of those instruments  reflect the extent of the involvement the
Company has in particular classes of financial instruments.

As of September  30, 2006,  the Company had made various  commitments  to extend
credit totaling  approximately  $39,600.  Most of these commitments are at fixed
rates. As of September 30, 2005, such commitments totaled approximately $27,500.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since some of the  commitments are expected to expire
without being fully drawn upon, the total commitment amount disclosed above does
not necessarily  represent future cash requirements.  The Company evaluates each
customer's credit  worthiness on a case-by-case  basis. The amount of collateral
obtained,  if considered  necessary by the Company upon extension of credit,  is
based on management's credit evaluation of the customer.


                                      -29-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------


18.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial  instrument  is the  current  amount that would be
exchanged  between willing  parties,  other than in a forced  liquidation.  Fair
value is best  determined  based upon quoted  market  prices.  However,  in many
instances, there are no quoted market prices for the Company's various financial
instruments.  In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.  Those
techniques are  significantly  affected by the assumptions  used,  including the
discount  rate and estimates of future cash flows.  Accordingly,  the fair value
estimates may not be realized in an immediate settlement of the instrument. SFAS
107 excludes certain  financial  instruments and all  non-financial  instruments
from its disclosure requirements.  Accordingly, the aggregate fair value amounts
presented  may not  necessarily  represent  the  underlying  fair  value  of the
Company.

The  following  methods and  assumptions  were used by the Company in estimating
fair value disclosures for financial instruments:

Cash - For those  short-term  instruments,  the carrying  amount is a reasonable
estimate of fair value.

Investment  Securities - For  investment  securities,  fair value equals  quoted
market price,  if available.  If a quoted  market price is not  available,  fair
value is estimated using quoted market prices for similar securities.

Loans - The fair value of loans is  estimated  by  discounting  the future  cash
flows using the current  rates at which similar loans would be made to borrowers
for the same remaining maturities.

Federal  Home Loan Bank Stock - The  carrying  value of  Federal  Home Loan Bank
stock approximates fair value based on the redemption  provisions of the Federal
Home Loan Bank.

Accrued  Interest - The carrying  amounts of accrued  interest  approximate fair
value.

Deposits - The fair value of demand  deposits,  savings  accounts,  and  certain
money market deposits is the amount payable on demand at the reporting date. The
fair value of  fixed-maturities  certificates  of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.

Advances  from  Federal Home Loan Bank - The fair value of advances is estimated
using rates currently available for advances of similar remaining maturities.

Commitments  -  The  fair  value  of   commitments  to  extend  credit  was  not
significant.



                                      -30-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------


The estimated fair values of the Company's significant financial instruments are
as follows at September 30, 2006 and 2005:

<TABLE>
<CAPTION>
                                                    2006                                       2005
                                    ------------------------------------      -------------------------------------
                                       Carrying              Estimated            Carrying             Estimated
                                        amount              fair value             amount             fair value
                                    ---------------      ---------------      ---------------      ----------------

<S>                               <C>                  <C>                  <C>                  <C>
Financial assets:
  Cash and cash equivalents         $        17,528      $        17,528      $        32,674      $         32,674
  Investment securities                     102,260              101,451              111,750               111,099
   FHLB stock                                 4,185                4,185                6,567                 6,567
   Accrued interest receivable                2,702                2,702                2,604                 2,604

  Loans                                     525,393              524,291              492,967               502,164
  Less allowance for loan losses              4,890                4,890                5,151                 5,151
                                    ---------------      ---------------      ---------------      ----------------
  Loans-net of allowance                    520,503              519,401              487,816               497,013
                                    ---------------      ---------------      ---------------      ----------------

Financial liabilities:
  Deposits                                  537,549              535,637              516,052               518,630
  Advances from Federal Home
     Loan Bank                               77,386               76,463               93,409                94,250
   Accrued interest payable                   1,458                1,458                  843                   843
</TABLE>



19.  REGULATORY CAPITAL

The Bank's actual capital and its statutorily  required  capital levels based on
the consolidated financial statements accompanying these notes were as follows:

<TABLE>
<CAPTION>
                                                                       2006
                               ------------------------------------------------------------------------------------
                                                                                                 To be well
                                                                                              capitalized under
                                                                    For capital               prompt corrective
                                                                 adequacy purposes            action provisions
                               -------------------------    --------------------------   --------------------------
                                        Actual                       Required                     Required
                               -------------------------    --------------------------   --------------------------
                                 Amount            %           Amount           %           Amount           %
                               -----------    ----------    -----------    -----------   -----------    -----------

<S>                          <C>                  <C>     <C>                   <C>    <C>                  <C>
Core capital                   $    55,753          8.2%    $    27,259           4.0%   $    34,073          5.0 %

Tangible capital               $    55,753          8.2%    $    10,222           1.5%   $       N/A            N/A

Total Risk based capital       $    60,553         13.9%    $    34,976           8.0%   $    43,719          10.0%

Tier 1 Risk based capital      $    55,753         12.8%    $       N/A            N/A   $    26,232           6.0%
</TABLE>


                                      -31-
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                              2005
                               ------------------------------------------------------------------------------------
                                                                                                 To be well
                                                                                              capitalized under
                                                                    For capital               prompt corrective
                                                                 adequacy purposes            action provisions
                               -------------------------    --------------------------   --------------------------
                                        Actual                       Required                     Required
                               -------------------------    --------------------------   --------------------------
                                 Amount            %           Amount           %           Amount           %
                               -----------    ----------    -----------    -----------   -----------    -----------

<S>                          <C>                  <C>     <C>                   <C>    <C>                  <C>
Core capital                   $    51,307          7.6%    $    26,887           4.0%   $    33,608          5.0 %

Tangible capital               $    51,307          7.6%    $    10,082           1.5%           N/A            N/A

Total Risk based capital       $    56,055         13.7%    $    32,673           8.0%   $    40,841         10.0 %

Tier 1 Risk based capital      $    51,307         12.6%            N/A            N/A   $    24,505          6.0 %
</TABLE>

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate  certain  mandatory and possibly  additional  discretionary  actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Company's and Bank's financial statements. Under capital adequacy guidelines and
the  regulatory  framework  for  prompt  corrective  action,  the Bank must meet
specific capital guidelines that involve quantitative  measures of their assets,
liabilities and certain  off-balance-sheet  items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components,  risk weightings,  and
other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require  the Bank to  maintain  minimum  amounts  and  ratios  (set forth in the
following  table) of total Tier 1 capital  (as  defined in the  regulations)  to
risk-weighted  assets (as defined) and of Tier 1 capital (as defined) to average
assets (as defined).  Management  believes,  as of September 30, 2006, and 2005,
that the Bank meets all capital adequacy requirements to which they are subject.

As of  September  30, 2006,  the most recent  notification  from its  regulators
categorized  the Bank as well  capitalized  under the  regulatory  framework for
prompt corrective action. To be categorized as well capitalized,  an institution
must maintain minimum total risk-based,  Tier 1 core capital and Tier 1 leverage
ratios as set forth in the previous  tables.  There are no  conditions or events
since  the  notification  that  management  believes  have  changed  the  Bank's
category.  The Bank's actual capital amounts and ratios as of September 30, 2006
and 2005 are also presented in the previous tables.


                                      -32-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------


20.  SUMMARIZED  FINANCIAL  INFORMATION OF TECHE HOLDING COMPANY (PARENT COMPANY
     ONLY) (IN THOUSANDS)

                                 Balance Sheets

                                             2006                  2005
                                      ------------------    ------------------
Assets:
  Investment in subsidiary            $           59,082    $           54,528
  Cash and cash equivalents                        3,256                 5,090
  Due from ESOP                                        -                   143
  Other                                            1,591                 1,577
                                      ------------------    ------------------

          Total assets                $           63,929    $           61,338
                                      ==================    ==================

Stockholders' equity                  $           63,929    $           61,338
                                      ==================    ==================


                             Statements of Earnings

<TABLE>
<CAPTION>
                                                                            Year ended September 30,
                                                              ----------------------------------------------
                                                                   2006               2005                2004
                                                              --------------     ---------------     --------------

<S>                                                         <C>                <C>                 <C>
Dividends received from subsidiary                            $        4,100     $         8,200     $        9,000
Equity in earnings of subsidiary (less than) greater
  than dividends received                                              3,358              (2,691)            (3,011)
Interest income from subsidiary                                           87                  15                 57
Management fees and other expenses allocated to
  the Parent                                                             (77)                (77)               (77)
Other expenses-net                                                      (151)               (248)               (43)
                                                              ---------------    ---------------     --------------

Net income                                                    $        7,317     $         5,199     $        5,926
                                                              ==============     ===============     ==============
</TABLE>














                                      -33-

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2006, 2005 and 2004
(in thousands except  share and per share data)
--------------------------------------------------------------------------------


                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                            Year ended September 30,
                                                              -----------------------------------------------------
                                                                   2006               2005                2004
                                                              --------------     ---------------     --------------

<S>                                                         <C>                 <C>                <C>
Cash flows from operating activities                          $        4,253      $        7,774     $       10,252

Cash flows from investing activities:
  Repayment of loan by subsidiary                                        143                 140                141
  Cash used in acquisition                                                 -                   -            (10,062)
                                                              --------------      --------------     --------------

     Net cash (used in) provided by investing activities                 143                 140             (9,921)
                                                              --------------      --------------     --------------

Cash flows from financing activities:
  Dividends paid                                                      (2,462)             (2,095)            (1,735)
  Proceeds from exercise of stock options                                646                 906                356
  Cash paid for purchase of common stock for treasury                 (4,414)             (3,010)            (2,205)
                                                              --------------      --------------     --------------

     Net cash used in financing activities                            (6,230)             (4,199)            (3,584)
                                                              ---------------     --------------     ---------------

Net increase (decrease) in cash and cash equivalents                  (1,834)              3,715             (3,253)

Cash and cash equivalents - beginning of year                          5,090               1,375              4,628
                                                              --------------      --------------     --------------

Cash and cash equivalents - end of year                       $        3,256      $        5,090     $        1,375
                                                              ==============      ==============     ==============
</TABLE>


Cash  dividends of $4,100,  $8,200 and $9,000 were paid by Teche Federal Bank to
Teche  Holding  Company in the years ended  September  30, 2006,  2005 and 2004,
respectively.

Federal and state banking  regulations  place certain  restrictions on dividends
paid. The total amount of dividends, which may be paid at any date, is generally
limited to the  retained  earnings  of the Bank.  The  Company's  ability to pay
dividends is dependent upon  dividends  received from the Bank. At September 30,
2006, the Bank's  retained  earnings  available for the payment of dividends was
approximately  $16.5 million.  The Bank is required to file an application  with
the OTS prior to paying dividends to the Company. In addition, dividends paid by
the Bank to the Company would be  prohibited  if the effect  thereof would cause
the Bank's capital to be reduced below applicable minimum capital requirements.




                                      -34-


<PAGE>

                       DIRECTORS OF TECHE HOLDING COMPANY
                                       AND
                               TECHE FEDERAL BANK

                           Patrick O. Little, Chairman
                                 Mary Coon Biggs
                            Donelson T. Caffery, Jr.
                                  J. L. Chauvin
                                Henry L. Friedman
                              Robert J. Judice, Jr.
                              Dr. Thomas F. Kramer
                               W. Ross Little, Jr.
                                Robert E. Mouton
                          Maunette B. Risher - Advisory


<TABLE>
<CAPTION>
                         OFFICERS OF TECHE FEDERAL BANK

<S>                      <C>                                         <C>                        <C>
Patrick O. Little          Chairman, President/CEO                     Pauline Belley             Assistant Vice President
Scott Sutton               Senior Vice President/Operations            Genevieve Bihm             Assistant Vice President
J. L. Chauvin              Senior Vice President/Treasurer             Lavergne Boutte            Assistant Vice President
                           Chief Financial Officer                     Judy Breaux                Assistant Vice President
Darryl Broussard           Senior Vice President                       Jeanette Charles           Assistant Vice President
                           Chief Lending Officer                       Stephanie Dandry           Assistant Vice President
W. Ross Little, Jr.        Senior Vice President, Secretary            Gerald Emon                Assistant Vice President
                           Sales & Marketing                           Elaine Gussman             Assistant Vice President
Russell Gauthier           Baton Rouge Regional President              Constance Harris           Assistant Vice President
Eddie LeBlanc              Vice President, Internal Auditor            Debbie Lancon              Assistant Vice President
Angela Badeaux             Vice President                              Ruby Langley               Assistant Vice President
Elmo Boudreaux             Vice President                              Vicki Laubach              Assistant Vice President
Mary Beth Brady            Vice President                              Linda Roman                Assistant Vice President
F. William Ball, III       Vice President                              Lesley Schexnayder         Assistant Vice President
Patricia Begnaud           Vice President                              Brandy Serrette            Assistant Vice President
Lynn Blanchard             Vice President                              Martin Vasquez             Assistant Vice President
Georgia Boudreaux          Vice President                              Karen Verret               Assistant Vice President
Irma Nell Bourque          Vice President
Bart Boyer                 Vice President
Glen Brown                 Vice President                              ST. LANDRY ADVISORY BOARD
Kevin Caswell              Vice President
Belinda Cavazos            Vice President                              Wayne M. Gilmore, Chairman
S. Mike Comeaux            Vice President                              H. Kent Aguillard
Gwen Doucet                Vice President                              James R. Bienvenu
Dalie Eldridge             Vice President                              Anna Lee Dunbar
D. Ross Landry             Vice President                              Lynette Young Feucht
Angelina Mire              Vice President                              Patrick Fontenot
Carol Nini                 Vice President                              Simon Howard Fournier
Peggy Romero               Vice President                              Morgan J. Goudeau, III
Susan Simoneaux            Vice President                              Martin A. Roy, Jr.
Tina Vidrine               Vice President                              Randy Tomlinson
Beverly Adams              Assistant Vice President                    Marvin Schwartzenburg
Terry Albarado             Assistant Vice President                    Robert J. Wolfe, Jr.
Montreen Badeaux           Assistant Vice President                    J. Nilas Young

INDEPENDENT AUDITORS                                                   SPECIAL COUNSEL
Dixon Hughes PLLC                                                      Malizia Spidi & Fisch, PC
500 Ridgefield Court                                                   901 New York Avenue, N.W.
Asheville, NC  28806                                                   Suite 201 East
                                                                       Washington, D.C.  20001

LEGAL COUNSEL                                                         REGISTRAR AND STOCK TRANSFER AGENT
Biggs, Supple, Cremaldi and Curet, LLP                                Registrar and Transfer  Company
Lawless Building                                                      10 Commerce Drive
Willow Street                                                         Cranford, NJ 07016-3572
Franklin, LA 70538                                                    (800) 525-7686
                                                                      Fax (908) 272-1006
</TABLE>