<TABLE>
<CAPTION>
<S>                                     <C>                                             <C>

Teche Holding Company                           New Iberia                                  Baton Rouge
---------------------                           ----------                                  -----------
1120 Jefferson Terrace Boulevard                142 W. St. Peter Street                     Wal*Mart Neighborhood Market
                                                                                            ----------------------------
New Iberia, LA 70560                            New Iberia, LA  70560                       9830 Old Hammond Highway
PHONE (337) 560-7151                            (337) 364-5528                              Baton Rouge, LA  70816
FAX (337) 365-7130                                                                          (225) 926-7378
                                                Lafayette
New Iberia                                      Broadmoor                                   Breaux Bridge
----------                                      ---------                                   -------------
1120 Jefferson Terrace Boulevard                5121 Johnston Street                        601 East Bridge Street
New Iberia, LA  70560                           Lafayette, LA  70503                        Breaux Bridge, LA  70517
(337) 365-0366                                  (337) 981-1887                              (337) 332-2149
Call Center (800) 897-0315
                                                Lafayette                                   Houma
Franklin                                        Downtown                                    -----
--------                                        --------                                    706 Barrow Street
211 Willow Street                               1001 Johnston Street
Franklin, LA  70538                             Lafayette, LA  70501                        Houma, LA  70360
(337) 828-3212                                  (337) 232-6463                              (985) 868-8766

Franklin Drive-Thru                             Lafayette                                   Houma
-------------------                             ---------                                   -----
1823 Main Street                                2200 W. Pinhook Road                        1963 Prospect Boulevard
Franklin, LA  70538                             Lafayette, LA  70508
(337) 828-4177                                  (337) 232-3419                              Houma, LA  70363
                                                                                            (985) 857-9990
Morgan City                                     Baton Rouge
-----------                                     -----------                                 Thibodaux
1001 7th Street                                 3524 S. Sherwood Forest Boulevard           ---------
Morgan City, LA  70380                          Baton Rouge, LA  70816                      921 Canal Boulevard
(337) 384-0653                                  (337) 293-0954
                                                                                            Thibodaux, LA  70301
Bayou Vista                                     Prairieville                                (985) 446-6707
-----------                                     ------------
206 Arlington Avenue                            Wal*Mart SuperCenter                        Opelousas
                                                --------------------                        ---------
Bayou Vista, LA  70380                          17585 Airline Hwy.                          428 E. Landry Street
(985) 395-5244                                  Prairieville, LA  70769
                                                (225) 677-8748                              Opelousas, LA  70570
New Iberia                                                                                  (337) 942-5748
----------
529 N. Lewis Street                             Baton Rouge                                 Eunice
                                                -----------                                 ------
New Iberia, LA  70563                           Wal*Mart SuperCenter                        840 E. Laurel Avenue
                                                --------------------
(337) 367-2516                                  2171 O'Neal Lane                            Eunice, LA  70535
                                                Baton Rouge, LA  70816                      (337) 457-9585
                                                (225) 751-0264
                                                                                            Internet:
                                                                                            www.teche.com

Table of Contents                                                                                                 1

President's Message                                                                                               2

Selected Financial Data                                                                                           6

Business of the Bank - Business of the Company                                                                    7

Summary of Quarterly Operating Results                                                                            7

Market and Dividend Information                                                                                   8

Stock Performance Graph                                                                                           9

Management's Discussion and Analysis of Financial
Condition and Results of Operations                                                                              10

Report of Independent Registered Public Accounting Firm                                                          19

Consolidated Balance Sheets                                                                                      20

Consolidated Statements of Income                                                                                21

Consolidated Statements of Stockholders' Equity                                                                  22

Consolidated Statements of Cash Flows                                                                            23

Notes to Consolidated Financial Statements                                                                       25

Directors and Officers                                                                                           49

</TABLE>
                                       1

<PAGE>

Message from Patrick Little, Chairman and Chief Executive Officer

Dear Shareholders:



                "The secret of success is constancy of purpose."
                               -Benjamin Franklin


Overview

Nationally,  2007 was a turbulent  year for  financial  institutions,  including
banks.

Despite the national turmoil, Teche Holding Company made significant progress in
continuing to increase our  customers,  deposits,  and loans,  and in generating
solid returns for our shareholders.

The management of Teche Holding Company has  steadfastly  adhered to a policy of
making prudent,  responsible loan decisions.  Financial storms,  such as the one
currently  being  experienced  in our nation,  come and go, but fiscally  sound,
conservative  management  decisions  allow  businesses to weather such storms to
generate  even  more  robust  profitability  in the sunny  days that  inevitably
follow.  Since 1934,  Teche  Holding  Company has followed  such a  conservative
course of prudent decision-making and will continue to do so.

Teche  Holding  Company  has  resolutely  held  to a solid  purpose--to  provide
comprehensive  quality  banking  services  to  business  owners,  professionals,
families,  and individuals.  We offer products to our customers which allow them
access to capital to grow their businesses or purchase a home,  mobile home, car
or other consumer goods. We provide deposit  services which give individuals and
businesses  a method of saving for the  future.  We believe  that by serving our
customers better than our competitors,  we can offer our shareholders  excellent
returns on their investment over the long-term.

Our business  strategy  for the last eight years is  described  as  SmartGrowth,
which is growing  low-cost  core  deposits  to fund higher  yielding  loans than
conventional  first  mortgage  loans.  We  also  carefully  avoided  many of the
mortgage lending pitfalls which have plagued the mortgage industry over the past
year.  We are not involved in sub-prime  lending.  We maintain our own mortgages
and avoid the practice of  securitizing  home loans.  Teche is a very successful
mortgage lender and has been for 70 years.

While the  negative  effects  of events in a  segment  of the  mortgage  lending
industry continue to be a factor for many banks in several areas of the country,
Teche has not been directly affected.  Teche's markets have experienced positive
growth in  population  and jobs.  Our housing  markets  have not  experienced  a
significant downturn, but rather, remain strong.

2

<PAGE>

Results...Deposits
[GRAPHIC OMITTED]               [GRAPHIC OMITTED]

In 1997,  Teche had 19,000 personal and business  checking  customers,  while in
2007 Teche had 44,000 checking  customers.  This impressive growth  demonstrates
the strength of our "Totally Free Checking"  approach and our ability to compete
and  attract  customers  with our "Retail  SmartGrowth"  program.  This  program
includes  incentives,  and training and coaching to help Teche  associates learn
and reinforce the basics of our sales and service approach.

Customer growth drives deposit growth and, in 2007, total deposits  increased to
$556 million from $538 million in 2006. SmartGrowth deposits--core deposits that
cost our Bank  only  1.5%,  increased  to $277  million  or by 15.2% in the last
twelve months.  These deposits account for 50% of total deposits compared to 45%
in 2006.



Results...Loans

[GRAPHIC OMITTED]               [GRAPHIC OMITTED]

For six years,  Teche has  focused on  building  successful  commercial  lending
operations on a strong foundation of consumer, home equity and mortgage lending.
The results speak for  themselves.  Total loans have increased from $384 million
in 2001 to $567  million  in 2007.  However,  the really  exciting  news is that
SmartGrowth  loans in 2007  have  increased  from $104  million  in 2001 to $376
million in 2007.  These loans  increased 11.8%  year-over-year.  Teche is adding
commercial  lenders at a steady pace to maintain the momentum in its  commercial
lending.  Teche's commercial loan portfolio is 90% commercial real estate loans.
Commercial & Industrial (C & I) loans are 9.7% of the commercial portfolio.

                                       3

<PAGE>


SmartGrowth  loans also  encompass  alternative  mortgage  loans  which  consist
primarily  of:  (1)  smaller  mortgage  loans of  $100,000  or less with  higher
interest rates, (2) first time home buyer loans with 100% loan-to-value  (LTVs),
and  (3)  loans  with  LTVs  greater  than  80%  to  conforming  borrowers.  The
alternative  mortgage  loan  portfolio  totaled  $84.3 million or 14.9% of total
loans in 2007. Alternative mortgage loans are not subprime loans.

While SmartGrowth loans are high yielding loans, Teche is cognizant of the risks
inherent in all lending  activities  and we are ever vigilant in monitoring  our
portfolio, policies and practices.

Teche  has  maintained  high  asset  quality  throughout  its  lending  history.
Non-performing  assets were $5.1  million or 0.71% of total  assets at September
30, 2007. 41% of these assets are attributable to the St. Landry acquisition.

Results...Non-Interest Income and Net Interest Margin

Teche  generated  over $300 per  checking  account  in fees in 2007,  one of the
highest averages in the industry.  Non-interest  income  therefore  increased to
$14.5  million in fiscal  2007,  compared  to $13  million in 2006,  a growth of
11.5%. Net interest margin also increased from 3.53% to 3.57% year-over-year.

Results...Earnings and Dividends

                                [GRAPHIC OMITTED]

Teche's  earnings per share grew 39% in 2006, a phenomenal year, and the Company
has maintained a high level of diluted earnings per share in 2007 of $2.94. This
is  significantly  higher than the 2005 EPS of $2.26 and a 62% increase from the
diluted earnings per share in 2001 of $1.81.

Teche has increased its dividend each quarter for the last nineteen  consecutive
quarters,  including the first quarter of fiscal year 2008.  Dividends per share
paid in 2007  totaled  $1.26.  This  dividend  was 15%  higher  than in 2006 and
represents a payout ratio of 42% based on net income for 2007.

Teche's Regional Economy

While the rest of the country is  experiencing  a slowdown in real estate  sales
and in the general  economy,  South Louisiana is continuing to grow. The primary
factors that are driving this vibrant  economy are: oil and gas  exploration off
the Louisiana  coast,  inland  migration to Baton Rouge and Lafayette  following
hurricane Katrina,  and very generous incentives provided by the federal Go-Zone
legislation.

4
<PAGE>

                                [GRAPHIC OMITTED]

Baton Rouge gained 35,000 residents who relocated and stayed after Katrina. "The
Louisiana Outlook" published by the LSU Economics Department predicts job growth
of 14,800 new jobs in Baton  Rouge,  6,300 new jobs in  Lafayette  and 5,200 new
jobs in Houma in 2008-09.  Shipbuilding and fabrication  businesses in Houma are
expanding  and  construction  of a bigger  and  better  LA-1  highway  near Port
Fourchon is a $1.3 billion project. As of this writing, the price of oil is near
a historic high.  The price of oil,  Brent crude,  continues to be above $90 per
barrel,  which  offers the oil  industry  in  Louisiana a strong  incentive  for
prolonged expansion.

Teche is located in the most prosperous regions of Louisiana that are continuing
to grow and add jobs, businesses and people. The Company continues to expand its
operations in Baton Rouge  including a future  location in Towne Center at Cedar
Lodge,  the most upscale  shopping center in Baton Rouge. In addition,  the Bank
replaced a modular  branch in  Thibodaux,  purchased  property for an additional
branch in Houma and started  construction  on a new site which will  replace the
Prospect Street branch in Houma.

Teche Leadership and Associates

Recently we added two new members to the board of  directors  for Teche  Holding
Company,  Ernest  Freyou and Robert  Wolfe,  Jr. They also serve on the board of
Teche Federal Bank. We welcome their counsel and support.

After 25 years of service  to Teche and 45 years in the  banking  business,  Bob
Mouton  retired  to spend more time with his  family.  We wish Bob well and will
miss his wise counsel.

On behalf of the Board of  Directors,  I want to thank our  leadership  team and
associates  for the  progress  Teche  has made in  2007.  We are  continuing  to
increase  customers,  deposits and loans and to generate  solid  returns for our
shareholders.  We will keep our  "constancy of purpose" as we continue to expand
our Bank and our valued investors' returns.


Sincerely,


/s/Patrick Little

Patrick Little
Chairman, President / Chief Executive Officer

                                       5

<PAGE>

<TABLE>
<CAPTION>

SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)
                                               At or for the Year Ended September 30,

                                          2007        2006        2005        2004        2003
<S>                                 <C>         <C>         <C>         <C>         <C>
Assets                                $719,367    $685,750    $676,822    $653,034    $536,946
Loans Receivable, Net                  561,988     520,503     487,816     471,327     357,130
Securities-Available for Sale           51,647      63,517      77,491      98,939      99,378
Securities-Held to Maturity             31,855      38,743      34,259      21,636      30,269
Cash and Cash Equivalents               21,811      17,528      32,674      15,362      14,439
Deposits                               555,569     537,549     516,052     432,417     349,268
FHLB Advances                           89,756      77,386      93,409     154,439     126,310
Stockholders' Equity                    67,006      63,929      61,338      60,287      56,996
SUMMARY OF OPERATIONS
Interest Income                       $ 43,041    $ 39,197    $ 30,068    $ 30,668    $ 29,485
Interest Expense                        19,857      16,720      15,674      13,076      13,672
                                      --------    --------    --------    --------    --------
Net Interest Income                     23,184      22,477      20,394      17,592      15,813
Provision for Loan Losses                  605         210         950          60          75
                                      --------    --------    --------    --------    --------
Net Interest Income after
   Provision for Loan Losses            22,579      22,267      19,444      17,532      15,738
Non-Interest Income                     14,486      12,997      10,819       9,740       9,606
Non-Interest Expense                    27,378      24,330      22,587      18,730      16,016
                                      --------    --------    --------    --------    --------
Income Before Gains on Sales of
   Securities and Income Taxes           9,687      10,934       7,676       8,542       9,328
Gains on Sales of Securities               164          34          26         232          43
Income Tax Expense                       3,170       3,651       2,503       2,848       3,186
                                      --------    --------    --------    --------    --------

Net Income                            $  6,681    $  7,317    $  5,199    $  5,926    $  6,185
                                      ========    ========    ========    ========    ========

SELECTED FINANCIAL RATIOS
Ratio of Equity to Assets                 9.31%       9.32%       9.06%       9.23%       10.6%
Book Value/Common Share               $  30.42    $  28.82    $  26.78    $  26.54    $  25.36
Dividends declared per Share          $   1.26    $   1.10    $   0.94    $   0.78    $   0.58
Basic Income per Common Share         $   3.01    $   3.22    $   2.34    $   2.66    $   2.73
Diluted Income per Common Share       $   2.94    $   3.15    $   2.26    $   2.48    $   2.55
Return on Average Assets                  0.95%       1.07%       0.77%       0.87%       1.19%
Return on Average Equity                 10.24%      11.79%       8.59%       9.40%      10.82%
Net Interest Margin                       3.57%       3.53%       3.24%       3.24%       3.28%
Non-Interest Expense/Average Assets       3.89%       3.54%       3.34%       3.33%       3.08%
Non-Interest Income/Average Assets        2.06%       1.89%       1.60%       1.53%       1.85%
Non-Performing Loans/Loans (1)            0.68%       0.74%       0.98%       0.63%       0.23%
Allowance for Loan Losses/Loans (1)       0.90%       0.93%       1.04%       0.92%       0.94%
Dividend Payout                          41.66%      33.65%      40.30%      29.31%      21.02%
</TABLE>

(1) Total loans before allowance for loan losses

6
<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 6)

         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.

<TABLE>
<CAPTION>
Summary of Quarterly Operating Results
                                                   2007                                    2006
                                    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                   $10,388   $10,695   $10,917   $11,040   $ 9,366   $ 9,680   $ 9,917   $10,234
Interest Expense                    4,709     4,894     5,079     5,176     4,004     3,979     4,261     4,477
Net Interest Income                 5,679     5,801     5,838     5,864     5,362     5,701     5,656     5,757
Provision for Loan Losses              85        60        60       400        45        45        60        60
Income Before Income Taxes          2,725     2,609     2,469     2,048     2,400     2,922     2,939     2,707
Net Income                          1,798     1,709     1,617     1,556     1,620     1,972     1,926     1,799
Basic Income per Common Share        0.81      0.77      0.73      0.70      0.71      0.87      0.86      0.79
Diluted Income per Common Share      0.78      0.75      0.71      0.69      0.70      0.86      0.84      0.77
</TABLE>


                                       7

<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>
========================================================================================================================
Quarter ended                 Sales Price              Period End Close    Cash          Date Declared
                                                                           Dividend
                                                                           Declared
                      ----------------------------
                               High          Low
------------------------------------------------------------------------------------------------------------------------
<S>                        <C>           <C>               <C>           <C>             <C>
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        $47.50            $54.25        $0.29          August 17, 2006
------------------------------------------------------------------------------------------------------------------------
December 29, 2006            $54.15        $50.15            $51.50        $0.30          November 29, 2006
------------------------------------------------------------------------------------------------------------------------
March 30, 2007               $51.29        $44.03            $44.26        $0.31          February 28, 2007
------------------------------------------------------------------------------------------------------------------------
June 29, 2007                $45.50        $38.61            $45.25        $0.32          May 23, 2007
------------------------------------------------------------------------------------------------------------------------
September 28, 2007           $45.75        $41.00            $41.00        $0.33          August 21, 2007
========================================================================================================================
</TABLE>

       According to the records of the Company's  transfer agent, there were 467
registered  stockholders  of record at November 30,  2007.  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 18 and 19 of Notes to
Consolidated  Financial  Statements.  The Bank's total  capital at September 30,
2007  exceeded the amounts of its  liquidation  account and  regulatory  capital
requirements.

8

<PAGE>

   Stock Performance Graph

         Set forth below is the  performance  graph for the Common Stock for the
   five fiscal  years ended  September  30,  2006.  The  performance  graph,  as
   prepared  for the Company by Zacks  Investment  Research  Inc.,  compares the
   cumulative  total return on the Common Stock with the (i) the AMEX Composite,
   which takes into account the  cumulative  total return on stocks  included in
   the American Stock Exchange,  Inc. ("AMEX"), and (ii) the SIC Industry Index,
   which  takes  into  account  the  cumulative  total  return on the  stocks of
   companies  with the same SIC code as the  Company.  Comparison  with the AMEX
   Composite,  and the SIC Industry  Index assumes the  investment of $100 as of
   September 30, 2002. The  cumulative  total return for the indices and for the
   Company is computed with the  reinvestment of dividends at the frequency with
   which dividends, if any, were paid during the period.

                               [GRAPHIC OMITTED]
<TABLE>
<CAPTION>
     -------------------------- ------------ ------------ ------------ ------------ ------------- ------------
                                  9/30/02      9/30/03      9/30/04      9/30/05      9/30/06       9/30/07
     -------------------------- ------------ ------------ ------------ ------------ ------------- ------------
<S>                             <C>          <C>          <C>          <C>          <C>           <C>
     Teche Holding Company        $100.00      $147.62      $169.82      $169.22      $242.04       $188.06
     -------------------------- ------------ ------------ ------------ ------------ ------------- ------------
     SIC Industry Index           $100.00      $123.18      $162.47      $228.06      $256.73       $333.08
     -------------------------- ------------ ------------ ------------ ------------ ------------- ------------
     AMEX Composite               $100.00      $133.18      $149.39      $154.02      $172.93       $148.14
     -------------------------- ------------ ------------ ------------ ------------ ------------- ------------
</TABLE>

         There can be no assurance that the Company's  future stock  performance
will be the same or similar to the historical  stock  performances  shown in the
graph above.  The Company neither makes nor endorses any predictions as to stock
performance.

                                       9
<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 in  fiscal  2007 grew  $33.6  million  to $719.4
million reflecting increases in loans receivable offset somewhat by decreases in
cash and  securities.  Net income  decreased  $636,000 to $6.7 million this past
fiscal  year  primarily  due to an  increase in  non-interest  expense.  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.

10
<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, 2007,  the weighted  average
term to  repricing  of the  Bank's ARM loan and ARM  mortgage-backed  securities
portfolio  was  approximately  20 months.  In contrast,  at September  30, 2007,
$189.7  million of the Bank's  certificate  accounts  and $276.9  million of the
Bank's regular deposit accounts (e.g. demand, NOW, money market,  savings),  out
of $555.6 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,
                                       --------------------------------------------------------------
                                              2007 vs. 2006                  2006 vs. 2005
                                       -----------------------------    ----------------------------
                                         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)                         $  (568)   $   252    $  (316)   $  (713)   $   612   $  (101)
Loans Receivable, Net                    2,941      1,954      4,895        324      1,798     2,122

Other Interest-Earning Assets (2)          311     (1,046)      (735)       613        495     1,108
                                       -------    -------    -------    -------    -------   -------
Total Interest-Earning Assets            2,684      1,160      3,844        224      2,905     3,129
                                       -------    -------    -------    -------    -------   -------
Interest-Bearing Liabilities
Deposits                                   429      2,940      3,369      1,127      2,130     3,257

FHLB Advances                             (229)        (3)      (232)    (2,338)       127    (2,211)
                                       -------    -------    -------    -------    -------   -------
Total Interest-Bearing Liabilities         200      2,937      3,137     (1,211)     2,257     1,046
                                       -------    -------    -------    -------    -------   -------
   Net Change in Net Interest Income   $ 2,484    $(1,777)   $   707    $ 1,435    $   648   $ 2,083
                                       =======    =======    =======    =======    =======   =======
</TABLE>

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

                                       11
<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,
                                         ----------------------------------------------------------------------------------------
                                                    2007                         2006                          2005
                                         --------------------------   -----------------------------  ----------------------------
                                                            Average                         Average                       Average
                                         Average            Yield/    Average               Yield/   Average              Yield/
                                         Balance   Interest Cost      Balance   Interest    Cost     Balance   Interest   Cost
                                         -------   -------------      -------   --------    ----     -------   --------   ----
                                                                          (Dollars in Thousands)
<S>                                    <C>        <C>       <C>      <C>         <C>        <C>     <C>       <C>        <C>
Assets
   Interest-Earning Assets
   Securities (1)                       $ 95,651   $ 4,376   4.57%    $108,822    $ 4,692    4,31%   $127,909  $ 4,793    3.75%
   Loans Receivable (2) (3)              547,740    38,179   6.97%     503,252     33,284    6.61%    498,193   31,162    6.26%
   Other Interest-Earning Assets (4)       6,731       486   7.22%      24,502      1,221    4.98%      3,820      113    2.96%
                                        --------   -------            --------    -------            --------  -------
   Total Interest-Earning Assets         650,122   $43,041   6.62%     636,576    $39,197    6.16%    629,922  $36,068    5.73%
                                                   =======                        =======                      =======
   Non-Interest Earning Assets            54,423                        50,329                         46,508
                                        --------                      --------                       --------
Total Assets                            $704,545                      $686,902                       $676,440
                                        ========                      ========                       ========
Liabilities and Stockholders'  Equity
   Interest-Bearing Liabilities
   NOW Accounts                         $ 74,851      $328   0.44%     $71,423        200    0.28%    $60,202    $ 169    0.28%
   Statement & Regular Savings Accounts   52,084       413   0.79%      59,675        626    1.04%     40,408      176    0.44%
   Money Funds Accounts                   89,139     3,183   3.52%      63,861      1,375    2.15%     89,631    1,387    1.55%
   Certificates of Deposit               287,292    12,133   4.22%     294,838     10,485    3.56%    255,907    7.697    3.00%
                                        --------   -------            --------    -------            --------  -------
         Total Deposits                  503,366    16,055   3.19%     489,797     12,686    2.59%    446,148    9,429    2.11%
   FHLB Advances                          77,550     3,802   4.90%      82,214      4,034    4.91%    131,260    6,245    4.76%
                                        --------   -------            --------    -------            --------  -------
   Total Interest-Bearing Liabilities    580,916   $19,857   3.42%     572,011    $16,720    2.92%    577,408  $15,674    2.71%
                                                   =======                        =======                      =======
   Non-Interest-Bearing Liabilities       58,396                        52,859                         38,479
                                        --------                      --------                       --------

         Total Liabilities               639,312                       624,870                        615,887
Stockholders' Equity                      65,233                        62,035                         60,553
                                        --------                      --------                       --------
Total Liabilities and
  Stockholders' Equity                  $704,545                      $686,905                       $676,440
                                        ========                      ========                       ========
Net Interest Income/
  Interest Rate Spread (5)                         $23,184   3.20%                $22,477    3.24%             $20,394    3.02%
                                                   =======                        =======                      =======
Net Interest Margin (6)                                      3.57%                           3.53%                        3.24%
Interest-Earning Assets/
Interest-Bearing Liabilities                               111.91%                         111.29%                      109.10%
</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  $479,000  in 2007,
     $429,000 in 2006 and $425,000 in 2005.
(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

12
<PAGE>

Changes in Financial Condition From September 30, 2006 to September 30, 2007

         General.  Total  assets  increased  $33.6  million,  or 4.9% to  $719.4
million at  September  30,  2007 from  $685.8  million at  September  30,  2006,
primarily as a result of growth in loans receivable, which were funded primarily
by increased deposits and some what by Federal Home Loan Bank advances.

         Cash and Cash  Equivalents.  Cash  increased  $4.2  million  from $17.5
million at  September  30, 2006 to $21.8  million at  September  30,  2007.  The
increase resulted primarily from deposit growth during the year.

         Securities   Available-for-Sale   and  Held  to  Maturity.   Securities
available-for-sale  decreased  $11.9 million from $63.5 million at September 30,
2006 to $51.6  million at  September  30, 2007 due  primarily to  repayments  on
existing mortgage-backed securities.

         Loans Receivable,  Net. The Bank's net loans receivable increased $41.5
million or 8.0% to $562.0  million from $520.5 million at September 30, 2006 due
primarily to growth in the portfolio of  commercial  and consumer  loans.  These
increases  are  reflected  primarily  in the Bank's  portfolio  of mobile  home,
multi-family,  commercial  real estate and land loans.  The  one-to-four  family
mortgage loan  portfolio  decreased  during the year due to payoffs in excess of
originations.  (See  Note  4 of  the  Consolidated  Financial  Statements  for a
comparative breakdown of the Bank's loan portfolio.)

         Premises and  Equipment,  Net.  Premises and equipment  increased  $6.3
million or 31.9% due to  construction  of a new office  facility  to replace the
existing leased facility in the Houma,  Louisiana market and began  construction
of a  replacement  facility  in  Thibodaux,  Louisiana.  Additionally,  the Bank
purchased land for future branch sites in Houma and Baton Rouge, Louisiana.

         Deposits. The Bank's deposits increased $18.0 million or 3.4% to $555.6
million at September 30, 2007, from $537.6 million at September 30, 2006.  These
increases resulted from growth in money market and NOW accounts, offset somewhat
by a decrease  in time and  savings  deposits.  (See Note 7 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
increased  $12.4  million,  or 16.0% to $89.8  million  from  $77.4  million  at
September  30, 2006.  The increase was due  primarily to fund growth in the loan
portfolio.

         Stockholders'  Equity.  Stockholders' equity increased $3.1 million, or
4.8% from $63.9 million at September 30, 2006, to $67.0 million at September 30,
2007.  The  increase  was due  primarily  to net income less  dividends  and the
purchase of treasury stock.

Comparison of Operating  Results for Years Ended  September  30, 2007,  2006 and
2005

Analysis of Net Income

         General.  The Company had net income of $6.7 million,  $7.3 million and
$5.2 million for the years ended 2007, 2006 and 2005. The $0.6 million  decrease
during fiscal 2007 was primarily due to an increase in non-interest expenses and
provision  for loan  losses.  The  $2.1  million  increase  in  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 from fiscal 2005.

         Interest  Income.  Interest  income  amounted to $43.0  million,  $39.2
million and $36.1 million for the years ended 2007, 2006 and 2005, respectively.
The $3.8  million  increase  during  fiscal  2007  compared  to fiscal  2006 was
primarily  due to an  increase  in the average  balance  and  interest  rates on
earning assets.  Market  interest rates were  increasing  during fiscal 2007 and
fiscal 2006. The $3.1 million  increase  during fiscal 2006 was primarily due to
an increase in average interest rates earned on earning assets.

         The average  balance of loans  increased  during fiscal 2007 and fiscal
2006 by  approximately  $44.5  million,  or 8.8%  and  $5.1  million,  or  1.0%,
respectively.  During 2007  average  interest  rates  earned on loans  increased
primarily  as a result of an  increase  in the rates  offered on loans as market
interest rates increased.

         Interest Expense. Interest expense totaled $19.9 million, $16.7 million
and $15.7  million for the years ended  September 30, 2007,  2006 and 2005.  The
$3.1 million or 18.6% increase from fiscal 2006 to fiscal 2007 was due primarily
to an increase in the average  balance and rates paid on deposit  accounts.  The
average balance of deposits  increased $13.6 million and $43.6 million in fiscal
2007 and 2006, respectively. The increase in interest expense in 2007 was driven
by an increase in market  interest  rates.  During fiscal 2007 average  interest
rates paid on deposits  increased  to 3.19% from  2.59%,  as  short-term  market
interest rates increased during the year.

         Interest  expense  increased  $1.0  million or 6.7% during  fiscal 2006
compared to fiscal 2005,  primarily due to an increase in the average balance of
deposit  accounts  coupled  with an increase in average  interest  rates paid on
deposits and advances,  offset  somewhat

                                       13
<PAGE>

by a decrease  in the average  balance of  advances.  The average  rates paid on
deposits and advances  increased in fiscal 2006 compared to fiscal 2005 to 2.59%
and 4.91% from 2.11% and 4.76%, respectively.

         Net Interest  Income.  Net interest  income  increased  $0.7 million to
$23.2  million  during the year ended  September  30, 2007  primarily  due to an
increase  in interest  income on loans and to a decrease in interest  expense on
advances, offset somewhat by an increase in interest expense on deposits.

         Net interest  income  during fiscal 2006  increased  compared to fiscal
2005 by $2.1  million 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.
..
         Provision  for Loan Losses.  The Bank provided  $605,000,  $210,000 and
$950,000 to the  allowance  for loan losses for the years  ended  September  30,
2007,  2006 and 2005  respectively.  The  provision  increased  in  fiscal  2007
primarily due to two  delinquent  commercial  loans that are expected to go into
foreclosure.  The  allowance  for loan losses was $5.1 million at September  30,
2007,  $4.9 million at 2006 fiscal year end and $5.1 million at 2005 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.

         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, 2007,  2006 and 2005 amounted to $14.7 million,  $13.0 million and
$10.9 million  respectively.  The increase in 2007 and 2006 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 $27.4 million; $24.3
million and $22.6 million  during the years ended  September 30, 2007,  2006 and
2005,  respectively.  The  $3.1  million  increase  during  fiscal  2007 was due
primarily to  compensation  expense,  expenses  related to deposit  services and
revaluation of foreclosed real estate.  Compensation expense this year increased
primarily due to annual salary adjustments,  the cost of employee benefit plans,
additional  staff for  commercial  lending,  retail  operations and a new branch
office in the Baton Rouge, Louisiana market.

         The $1.7  million  increase  in  non-interest  expense  in fiscal  2006
compared to fiscal 2005 was primarily due 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 Bank is subject to the Louisiana  Shares Tax,  which amounted to an
expense of $535,000,  $524,000 and $568,000 in the fiscal years ended  September
30, 2007, 2006 and 2005, respectively.

         Gain on Sale of Securities. In the years ended September 30, 2007, 2006
and 2005,  gains on the sale of  securities  amounted to  $164,000,  $34,000 and
$26,000, respectively.

         Income Tax Expense.  For the years ended  September 30, 2007,  2006 and
2005, the Company incurred income tax expense of $3.2 million,  $3.7 million and
$2.5  million,  respectively.  There was a decrease in the effective tax rate in
2007 due to a decrease in permanent tax differences related to the ESOP.

14
<PAGE>
Liquidity and Capital Resources

         The  Bank's  average  liquidity  ratio  is based  on  deposits  and was
approximately  8.8% percent during  September 2007. 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  ability  to  borrow  against
mortgage-backed and other securities.  At September 30, 2007, the Bank had total
FHLB borrowings of $89.8 million,  or 12.5% of the Bank's assets.  Approximately
$28.0  million is due in the year ending  September  30,  2008.  The Bank has an
additional $159.6 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,  2007,  the Bank had
outstanding  loan  commitments of $48.6  million,  and  certificates  of deposit
scheduled to mature within one year of $189.7 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,  2007,  the Bank  exceeded  all  regulatory  capital
requirements. See Note 18 to the Consolidated Financial Statements.

Net Portfolio Value Analysis - Interest Rate Risk

         The Bank is  subject  to  interest  rate  risk to the  degree  that its
interest-bearing  liabilities,  primarily  deposits with short- and  medium-term
maturities,  mature or reprice  at  different  rates  than our  interest-earning
assets.  Although having  liabilities  that mature or reprice less frequently on
average than assets will be beneficial in times of rising interest  rates,  such
an  asset/liability  structure will result in lower net income during periods of
declining interest rates, unless offset by other factors.

         The Bank  believes it is critical  to manage the  relationship  between
interest rates and the effect on its net portfolio value ("NPV").  This approach
calculates the difference  between the present value of expected cash flows from
assets and the present value of expected cash flows from liabilities, as well as
cash  flows  from  off-balance  sheet  contracts.  The Bank  manages  assets and
liabilities  within the context of the marketplace,  regulatory  limitations and
within  its  limits on the  amount of  change in NPV which is  acceptable  given
certain interest rate changes.

         The OTS requires all  regulated  thrift  institutions  to calculate the
estimated change in the institution's NPV assuming instantaneous parallel shifts
in the Treasury  yield curve of 100 to 300 basis points either up or down in 100
basis point increments. The NPV is defined as the present value of expected cash
flows from  existing  assets less the present  value of expected cash flows from
existing  liabilities  plus the present  value of net expected cash inflows from
existing off-balance sheet contracts.

         The OTS  provides an  interest  rate  sensitivity  report of NPV to all
institutions  that file with the OTS a  Consolidated  Maturity  & Rate  Schedule
("CMR") as a part of the institution's  quarterly Thrift Financial  Report.  The
OTS simulation  model uses a discounted  cash flow analysis and an  option-based
pricing  approach to measuring  the interest  rate  sensitivity  of NPV. The OTS
model  estimates  the  economic  value of each  type of  asset,  liability,  and
off-balance  sheet contract  under the assumption  that the Treasury yield curve
shifts  instantaneous  and  parallel up and down 100 to 300 basis  points in 100
basis points  increments.  The OTS allows thrifts with under $1 billion in total
assets to use the results of their  interest rate  sensitivity  model,  which is
based on information provided by the institution, to estimate the sensitivity of
NPV.
                                       15
<PAGE>

         The OTS model utilizes an option-based pricing approach to estimate the
sensitivity of mortgage  loans.  The most  significant  embedded option in these
types of assets is the prepayment  option of the  borrowers.  The OTS model uses
various price indications and prepayment  assumptions to estimate sensitivity of
mortgage loans.

         In the OTS model,  the value of deposit  accounts  appears on the asset
and liability side of the NPV analysis.  In estimating the value of certificates
of deposit  accounts ("CD"),  the liability  portion of the CD is represented by
the implied  value when  comparing the  difference  between the CD face rate and
available  wholesale  CD rates.  On the asset side of the NPV  calculation,  the
value of the "customer  relationship"  due to the rollover of retail CD deposits
represents an intangible asset in the NPV calculation.

         Other  deposit  accounts  such as NOW  accounts,  money  market  demand
accounts, passbook accounts, and non-interest-bearing accounts also are included
on the asset and liability side of the NPV  calculation in the OTS model.  These
accounts are valued at 100% of the respective  account balances on the liability
side.  On  the  asset  side  of  the  analysis,   the  value  of  the  "customer
relationship" of the various types of deposit accounts is reflected as a deposit
intangible.

         The NPV  sensitivity  of borrowed  funds is  estimated by the OTS model
based on a discounted cash flow approach.

         The OTS uses, as a critical  point, a change of plus or minus 200 basis
points in order to set its "normal"  institutional results and peer comparisons.
A resulting  change in NPV of more than 2% of the estimated  market value of its
assets  will  require  the  institution  to deduct  from its capital 50% of that
excess  change.  The rules provide that the OTS will calculate the IRR component
quarterly for each institution. The greater the change, positive or negative, in
NPV, the more interest rate risk is assumed to exist with the  institution.  The
following  table lists the Bank's  latest  percentage  change in NPV assuming an
immediate  change of plus or minus 100, 200, and 300 basis points from the level
of interest rates at September 30, 2007.

<TABLE>
<CAPTION>
                                                          NPV as % of PV
                     Net Portfolio Value                    of Assets
                 ----------------------------    ----------------------------------
      Change                                                  NPV
    in Rates(1)  $ Amount        $ Change (2)    % Change(3)  Ratio(4)    Change(5)
    -----------  --------        ------------    -----------  --------    ---------
                     (Dollars in Thousands)

<S>            <C>              <C>                <C>        <C>         <C>
      +300 bp    $  57,217        $ -27,478         -32%        8.14%      -325 bp

      +200 bp       67,292          -17,404         -21%        9.38%      -201 bp

      +100 bp       76,430          - 8,265         -10%       10.46%      - 93 bp

         0 bp       84,696

      -100 bp       89,824          + 5,129         + 6%       11.92%      + 53 bp

      -200 bp       92,712          + 8,017         + 9%       12.17%      + 78 bp
</TABLE>


(1)  The -300bp scenarios are not shown due to low interest rate environment.
(2)  Represents  the excess  (deficiency)  of the  estimated  NPV  assuming  the
     indicated  change in interest  rates minus the  estimated  NPV  assuming no
     change in interest rates.
(3)  Calculated  as the  amount of change in the  estimated  NPV  divided by the
     estimated NPV assuming no change in interest rates.
(4)  Calculated as the estimated NPV divided by average total assets.
(5)  Calculated  as the  excess  (deficiency)  of the  NPV  ratio  assuming  the
     indicated change in interest rates over the estimated NPV ratio assuming no
     change in interest rates.

16
<PAGE>

                                                 September 30,    September 30,
                                                    2007              2006
                                                 -------------    -------------
*** RISK MEASURES: +200 BP RATE SHOCK ***
Pre-Shock NPV Ratio: NPV as % of PV of Assets
                                                  11.39 %             11.88 %
Exposure Measure: Post-Shock NPV Ratio
                                                   9.38 %             10.03 %
Sensitivity Measure: Change in NPV Ratio
                                                    201 bp              185 bp
*** CALCULATION OF CAPITAL COMPONENT ***
Change in NPV as % of PV of Assets                 2.01 %              2.22 %

As the table shows, increases in interest rates would result in net decreases in
the Bank's NPV. The Bank's NPV decreases by 21.0% if interest  rates increase by
200 basis points.  Certain  shortcomings are inherent in the methodology used in
the above  table.  Modeling  changes  in NPV  requires  the  making  of  certain
assumptions  that may tend to oversimplify the manner in which actual yields and
costs respond to changes in market interest rates. First, the models assume that
the composition of the Bank's interest sensitive assets and liabilities existing
at the beginning of a period  remains  constant over the period being  measured.
Second,  the  models  assume  that a  particular  change  in  interest  rates is
reflected  uniformly  across  the yield  curve  regardless  of the  duration  to
maturity or repricing of specific assets and liabilities.  Accordingly, although
the NPV  measurements  do provide an indication of the Bank's interest rate risk
exposure at a particular  point in time, such  measurements  are not intended to
provide a precise  forecast of the effect of changes in market interest rates on
the Bank's net interest income.

In times of decreasing  interest  rates,  the value of  fixed-rate  assets could
increase in value and the lag in repricing  of interest  rate  sensitive  assets
could be expected to have a positive effect on the Bank.

Contractual Obligations

         The Company has various contractual  obligations related to borrowings,
deposits  and  operating  lease  payments.  These  obligations  are  outlined in
footnotes 6, 7 and 8 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.

         Management  estimates  the likely level of losses to determine  whether
the  allowance  for loan  losses is adequate  to absorb  losses  inherent in the
existing portfolio. Based on the 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.

         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 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 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 for loan losses
reflected  in the  consolidated  balance  sheets is adequate to absorb  probable
losses inherent 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.

                                       17

<PAGE>

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  16  in  the  accompanying  consolidated  financial
statements.

18

<PAGE>

                                                               [GRAPHIC OMITTED}
                                                               DIXON HUGHES PLLC
                                       Certified Public Accountants and Advisors


            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, 2007 and 2006, and the related consolidated  statements of income,
stockholders'  equity  and cash  flows for each of the  years in the  three-year
period ended September 30, 2007. 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.

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.  We were not engaged to perform an
audit of the Company's  internal  control over  financial  reporting.  Our audit
included  consideration of internal control over financial  reporting as a basis
for designing and 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 statements presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the 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, 2007 and 2006, and the results
of their operations and their cash flows for each of the years in the three-year
period ended  September  30, 2007,  in  conformity  with  accounting  principles
generally accepted in the United States of America.


                                        /s/Dixon Hughes PLLC

Asheville, North Carolina
December 14, 2007


                          500 Ridgefield Court, PO Box 3049              Praxity
                                   Asheville, NC 28802-3049               Member
                          Ph. 828.254.2254 Fx. 828.254.6859   GLOBAL ALLIANCE OF
                                       www.dixon-hughes.com   INDEPENDENT FIRMS

                                       19

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, 2007 and 2006
<TABLE>
<CAPTION>

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

                                                                            2007         2006
                                                                          ---------    ---------
                                                                         (Amounts in thousands,
                                                                     except share and per share data)
<S>                                                                     <C>          <C>
ASSETS

Cash and due from banks                                                   $  14,338    $  15,725
Interest-bearing deposits                                                     7,473        1,803
Securities available-for-sale - at estimated fair value
   (amortized cost of $53,166 in 2007 and $65,407 in 2006)                   51,647       63,517
Securities held-to-maturity--at amortized cost (estimated fair
   value of $31,170 in 2007 and $37,934 in 2006)                             31,855       38,743
Loans receivable--net of allowance for loan losses of
   $5,083 in 2007 and $4,890 in 2006                                        561,988      520,503
Accrued interest receivable                                                   2,952        2,702
Investment in Federal Home Loan Bank stock, at cost                           4,343        4,185
Real estate owned, net                                                        1,218        1,066
Prepaid expenses and other assets                                             2,268        3,148
Goodwill                                                                      3,647        3,647
Life insurance contracts                                                     11,492       10,895
Premises and equipment, net                                                  26,146       19,816
                                                                          ---------    ---------

                                                           TOTAL ASSETS   $ 719,367    $ 685,750
                                                                          =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                                                  $ 555,569    $ 537,549
Advances from Federal Home Loan Bank                                         89,756       77,386
Advance payments by borrowers for taxes and insurance                         2,208        1,957
Accrued interest payable                                                      1,441        1,458
Accounts payable and other liabilities                                        3,387        3,471
                                                                          ---------    ---------

                                                      TOTAL LIABILITIES     652,361      621,821

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Common stock, $.01 par value, 10,000,000 shares authorized;
   4,635,666 and 4,608,625 shares issued                                         46           46
  Preferred stock, 5,000,000 shares authorized, none issued                       -            -
  Additional paid-in capital                                                 51,366       50,334
  Retained earnings                                                          62,646       58,748
  Treasury stock -2,432,828 and 2,390,428 shares - at cost                  (46,049)     (43,951)
  Accumulated other comprehensive loss                                       (1,003)      (1,248)
                                                                          ---------    ---------

                                            TOTAL STOCKHOLDERS' EQUITY       67,006       63,929
                                                                          ---------    ---------

                             TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 719,367    $ 685,750
                                                                          =========    =========
</TABLE>

20

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30, 2007, 2006 and 2005

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------

                                                                2007      2006      2005
                                                             -------   -------   -------
                                                  (Amounts in thousands, except per share amounts)
<S>                                                        <C>       <C>       <C>
INTEREST INCOME:
   Interest and fees on loans                                $38,179   $33,284   $31,162
   Interest and dividends on securities                        4,376     4,692     4,793
   Other interest income                                         486     1,221       113
                                                             -------   -------   -------

                                     TOTAL INTEREST INCOME    43,041    39,197    36,068
                                                             -------   -------   -------

INTEREST EXPENSE:
   Deposits                                                   16,055    12,686     9,429
   Advances from Federal Home Loan Bank                        3,802     4,034     6,245
                                                             -------   -------   -------

                                    TOTAL INTEREST EXPENSE    19,857    16,720    15,674
                                                             -------   -------   -------

                                       NET INTEREST INCOME    23,184    22,477    20,394

PROVISION FOR LOAN LOSSES                                        605       210       950
                                                             -------   -------   -------

                                NET INTEREST INCOME AFTER
                                PROVISION FOR LOAN LOSSES     22,579    22,267    19,444
                                                             -------   -------   -------

NON-INTEREST INCOME:
   Service charges                                            13,589    11,912     9,661
   Other income                                                  897     1,085     1,158
                                                             -------   -------   -------

                                 TOTAL NON-INTEREST INCOME    14,486    12,997    10,819
                                                             -------   -------   -------

GAIN ON SALE OF SECURITIES                                       164        34        26
                                                             -------   -------   -------

NON-INTEREST EXPENSE:
   Compensation and employee benefits                         13,997    12,448    10,949
   Occupancy, equipment and data processing expense            5,470     5,165     4,653
   Marketing and professional fees                             3,224     2,759     3,275
   Deposit insurance premiums                                     66        67        66
   Louisiana shares tax                                          535       524       568
   Other operating expenses                                    4,086     3,367     3,076
                                                             -------   -------   -------

                                TOTAL NON-INTEREST EXPENSE    27,378    24,330    22,587
                                                             -------   -------   -------
                                INCOME BEFORE INCOME TAXES     9,851    10,968     7,702

INCOME TAXES                                                   3,170     3,651     2,503
                                                             -------   -------   -------

                                                NET INCOME   $ 6,681   $ 7,317   $ 5,199
                                                             =======   =======   =======

BASIC INCOME PER COMMON SHARE                                $  3.01   $  3.22   $  2.34
                                                             =======   =======   =======

DILUTED INCOME PER COMMON SHARE                              $  2.94   $  3.15   $  2.26
                                                             =======   =======   =======

DIVIDENDS PER SHARE                                          $  1.26   $  1.10   $   .94
                                                             =======   =======   =======
</TABLE>


                                       21
<PAGE>




TECHE HOLDING COMPANY AND
SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, 2007, 2006 and 2005
<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, 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 - $.94 per share           -            -       (2,095)          -              -            -       (2,095)
Comprehensive income:
   Net income                                 -            -        5,199           -              -            -        5,199
   Change in unrealized gain
     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
Exercise of stock options,
   including tax benefit                      -          642            -           -              -            -          642
Stock based compensation                      -          390            -           -              -            -          390
Purchase of common stock for treasury         -            -            -           -         (2,098)           -       (2,098)
Dividends declared - $1.26 per share          -            -       (2,783)          -              -            -       (2,783)
Comprehensive income:
   Net income                                 -            -        6,681           -              -            -        6,681
   Change in unrealized loss
     on securities available-for-sale, net    -            -            -           -              -          245          245
                                                                                                                       -------
       Total comprehensive income                                                                                        6,926
                                            ---      -------      -------       -----       --------      -------      -------
BALANCE - September 30, 2007                $46      $51,366      $62,646       $   -       $(46,049)     $(1,003)     $67,006
                                            ===      =======      =======       =====       ========      =======      =======
</TABLE>

22

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 2007, 2006 and 2005
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                                               2007        2006        2005
                                                             --------    --------    --------
                                                                   (Dollars in thousands)
<S>                                                         <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                 $  6,681    $  7,317    $  5,199
  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              290         246         390
      Provision for loan losses                                   605         210         950
      Provision for loss on real estate owned                     179           -           -
      ESOP expense                                                  -         587         487
      Stock-based compensation                                    390         442         214
      Deferred income tax benefit                                (554)        (19)       (461)
      Gains on sale of loans                                        -           -         (55)
      Gains on sale of securities                                (164)        (34)        (26)
      Gains on sale of premises and equipment                      (3)       (244)          -
      Gain on sale of real estate owned                           (36)        (57)          -
      Depreciation                                              1,333       1,317       1,220
      Increase in bank owned life insurance                      (597)       (538)       (525)
      Amortization of intangible assets                            70         102         145
      (Increase) decrease in prepaid assets                       (68)        262         174
      Change in accrued interest receivable                      (250)        (98)        (97)
      Change in accrued interest payable                           18         615          95
      Other, net                                                1,073      (1,339)       (112)
                                                             --------    --------    --------

                 NET CASH PROVIDED BY OPERATING ACTIVITIES      8,967       8,769       7,598
                                                             --------    --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sales of investment securities
     available-for-sale                                         1,527         200         142
  Purchase of securities available-for-sale                      (266)        (22)       (512)
  Principal repayments on securities available-for-sale        10,704      13,806      20,159
  Purchase of securities held-to-maturity                           -     (10,988)    (19,392)
  Principal repayments on securities held-to-maturity           6,875       6,409       6,702
  Net loan originations                                       (27,042)    (24,751)    (14,685)
  Purchase of loans                                           (16,354)    (14,366)    (16,833)
  Proceeds from sales of loans                                      -       4,800      14,418
  Sale of (Investment in) FHLB stock, net                       (158)      2,382       1,994
  Purchase of premises and equipment                           (7,663)     (2,254)     (1,214)
  Proceeds from sale of premises and equipment                      3         284         378
  Proceeds from sale of real estate owned                       1,288         681           -
                                                             --------    --------    --------

   NET CASH USED IN INVESTING ACTIVITIES                      (31,086)    (23,819)     (8,843)
                                                             --------    --------    --------
</TABLE>

                                       23

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 2007, 2006 and 2005
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                                                2007        2006        2005
                                                             --------    --------    --------
                                                                   (Dollars in thousands)
<S>                                                        <C>         <C>         <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Dividends paid                                             $ (2,783)   $ (2,462)   $ (2,095)
  Net increase in deposits                                     18,020      21,497      83,635
  Proceeds of long-term FHLB advances                               -           -      10,000
  Repayment of long-term FHLB advances                         (5,130)    (11,023)    (29,636)
  Net increase (decrease) in short-term FHLB advances          17,500      (5,000)    (41,394)
  Cash paid for purchase of common stock for treasury          (2,098)     (4,414)     (3,010)
  Proceeds from exercise of stock options                         444         646       1,167
  Tax benefit from exercise of stock options                      198         171           -
  Change in advance payments by
     borrowers for taxes and insurance                            251         489        (110)
                                                             --------    --------    --------



NET CASH PROVIDED (USED)
 BY FINANCING ACTIVITIES                                       26,402         (96)     18,557
                                                             --------    --------    --------

                               NET INCREASE (DECREASE) IN
                               CASH AND CASH EQUIVALENTS        4,283     (15,146)     17,312

CASH AND CASH EQUIVALENTS
  Beginning of year                                            17,528      32,674      15,362
                                                             --------    --------    --------

CASH AND CASH EQUIVALENTS
  End of year                                                $ 21,811    $ 17,528    $ 32,674
                                                             ========    ========    ========

SUPPLEMENTAL DISCLOSURE OF CASH
    FLOW INFORMATION:
  Cash paid for interest                                     $ 19,875    $ 16,105    $ 15,579
                                                             ========    ========    ========

  Cash paid for taxes                                        $  2,600    $  4,745    $  1,700
                                                             ========    ========    ========

SUPPLEMENTAL SCHEDULE OF NON-CASH
    INVESTING ACTIVITIES:
  Accumulated other comprehensive income (loss),             $    245    $    131    $   (857)
                                                             ========    ========    ========
   net of income taxes

  Transfer from loans to real estate owned                   $  1,600    $  2,502    $      -
                                                             ========    ========    ========


  Loans originated to sell real estate owned                 $     17    $  1,082    $      -
                                                             ========    ========    ========
</TABLE>

24
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(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
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
the 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 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.

25
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(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.

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.

Management's  judgment as to the level of losses on existing  loans involves the
consideration  of current  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  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  different  from 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.

26
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

Loan Fees, Loan Costs,  Discounts and Premiums - Loan origination 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, 2007.

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 $357,  and $287 at September  30, 2007,  and 2006,
respectively,   is  included  in  prepaid  expenses  and  other  assets  on  the
consolidated balance sheets.

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 fair value is
determined to be 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.

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.

27
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

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.

The Company adopted SFAS No. 123R using the modified prospective  application as
permitted  under SFAS No.  123R.  Accordingly,  the  September  30,  2005 income
statement has 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.

28
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

New  Accounting  Pronouncements  - FAS 157 - In September  2006, the FASB issued
SFAS No. 157 - Fair Value  Measurements - which enhances  existing  guidance for
measuring  assets  and  liabilities  using fair  value and  requires  additional
disclosure  about  the use of fair  value  for  measurement.  The  Statement  is
effective  for  financial  statements  issued for fiscal years  beginning  after
November 15, 2007, and interim  periods  within those fiscal years.  The Company
has not yet evaluated the impact of SFAS No. 157.

FAS 159 - SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities - an amendment of SFAS No. 115. This statement permits, but does not
require,  entities to measure  many  financial  instruments  at fair value.  The
objective is to provide  entities with an opportunity to mitigate  volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting  provisions.  Entities electing
this  option  will  apply  it when  the  entity  first  recognizes  an  eligible
instrument and will report  unrealized  gains and losses on such  instruments in
current  earnings.  This  statement  1) applies to all  entities,  2)  specifies
certain election dates, 3) can be applied on an  instrument-by-instrument  basis
with  some  exceptions,  4)  is  irrevocable  and  5)  applies  only  to  entire
instruments.  Demand deposit  liabilities are explicitly  excluded as qualifying
for fair value.  SFAS No. 159 is effective for financial  statements  issued for
fiscal years beginning after November 15, 2007, and interim periods within those
fiscal  years.  SFAS No. 159 does  contain an early  election  option that would
allow the Company to elect the fair value option for existing  eligible items as
of the  beginning  of a fiscal year that begins on or before  November 15, 2007.
The Company has not early  adopted  SFAS 159 and does not expect the adoption of
SFAS 159 to materially impact the Company's consolidated financial statements.

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.


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, 2007, the
Company had interest and dividend-earning assets of approximately $674,000, most
of which will not mature or be repriced until after five years. Interest bearing
liabilities totaled approximately  $645,000, 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.


29
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------


3.       SECURITIES

The amortized  cost and estimated  fair values of securities  available-for-sale
are as follows:

<TABLE>
<CAPTION>
                                                                       September 30, 2007
                                               --------------------------------------------------------------------
                                                                      Gross             Gross           Estimated
                                                 Amortized         Unrealized        Unrealized           Fair
                                                   Cost               Gains            Losses             Value
                                               -------------     -------------     -------------     --------------
<S>                                           <C>               <C>               <C>               <C>
Investment securities:
  Federal Farm Credit Bank                     $       3,275     $           -     $         (56)    $        3,219
  Municipal obligations                                   25                 -                 -                 25
                                               -------------     -------------     -------------     --------------
                                                       3,300                 -               (56)             3,244
                                               -------------     -------------     --------------    --------------
Mortgage-backed securities:
  Government National Mortgage
   Association                                         4,408                 8               (28)             4,388
  Federal Home Loan Mortgage
   Corporation                                        15,451                 -              (340)            15,111
  Federal National Mortgage Association                8,730                 7              (497)             8,240
                                               -------------     -------------     --------------    --------------
                                                      28,589                15              (865)            27,739
                                               -------------     -------------     --------------    --------------
ARM Mutual Funds                                      16,133                 -              (459)            15,674
Collateralized mortgage obligations
   ("CMOs")                                            4,687                 -              (212)             4,475
Other securities                                         457                60                (2)               515
                                               -------------     -------------     --------------    --------------

                                               $      53,166     $          75     $      (1,594)    $       51,647
                                               =============     =============     ==============    ==============
</TABLE>

<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
Other securities                                       1,554               201                (2)             1,753
                                               -------------     -------------     --------------    --------------

                                               $      65,407     $         234     $      (2,124)    $       63,517
                                               =============     =============     ==============    ==============
</TABLE>
30
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(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, 2007
                                               --------------------------------------------------------------------
                                                                      Gross             Gross           Estimated
                                                 Amortized         Unrealized        Unrealized           Fair
                                                   Cost               Gains            Losses             Value
                                               -------------     -------------     -------------     --------------
<S>                                           <C>               <C>               <C>               <C>
Mortgaged-backed securities:
  Federal National Mortgage Association        $      31,855     $          46     $        (731)    $       31,170
                                               -------------     -------------     --------------    --------------

                                               $      31,855     $          46     $        (731)    $       31,170
                                               =============     =============     ==============    ==============
</TABLE>

<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
                                               =============     =============     ==============    ==============
</TABLE>

The Federal Farm Credit Bank  security with a fair value of $3,219 and $3,147 at
September 30, 2007 and 2006, respectively, will mature on June 16, 2011.

Details  concerning  securities with unrealized  losses as of September 30, 2007
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 $          -   $          -   $      3,219   $        (56)  $       3,219   $        (56)

Mortgage-backed securities:
  Government National
   Mortgage Assoc.                    -              -          3,853            (27)          3,853            (27)
  Federal Home Loan Mortgage
   Corporation                      572             (4)        14,373           (336)         14,945           (340)
  Federal National Mortgage
   Association                      112             (1)         7,963           (496)          8,075           (497)
                           ------------   -------------  ------------   -------------  -------------   -------------
                                    684             (5)        29,408           (915)         30,092           (920)
ARM Mutual Funds                      -              -         15,674           (459)         15,674           (459)
CMOs                                  -              -          4,476           (212)          4,476           (212)
Other securities                      -              -             12             (2)             12             (2)
                           ------------   ------------   ------------   -------------  -------------   -------------

                           $        684   $         (5)  $     49,570   $     (1,588)  $      50,254   $      (1,593)
                           ============   =============  ============   =============  =============   =============

Held-to-Maturity
Federal National Mortgage
   Association             $          -   $          -   $     22,715   $       (731)  $      22,715   $       (731)
                           ------------   ------------   ------------   -------------  -------------   -------------

                           $          -   $          -   $     22,715   $       (731)  $      22,715   $       (731)
                           ============   ============   ============   =============  =============   =============
</TABLE>
31
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

The Company has 44  investments at September 30, 2007 of which 24 had unrealized
losses.  These unrealized  losses  generally result from securities,  which were
purchased at a premium.  Market  interest  rates have declined  somewhat  during
2007,  which has  resulted  in a partial  recovery  in the market  value of some
securities.  The ARM Mutual fund is  primarily  invested in short term  mortgage
backed securities.  The Company has assessed the securities underlying the fund,
and has  determined  that  the  decrease  in the  fair  market  value  is due to
increases in market interest rates and not  deteriorating  credit quality of the
assets underlying the fund. These issues are deemed to be temporary. The Company
has the ability and intent to hold the securities until a market value recovery.

Details  concerning  securities with unrealized  losses as of September 30, 2006
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 $          -   $          -   $      3,147   $       (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)
Other 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>

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.  These issues are deemed to be temporary.  The Company has the ability
and intent to hold the securities until a market value recovery.

Gross gains of $164,  $34 and $26 were  realized on sales of  securities  in the
years ended  September  30, 2007,  2006 and 2005,  respectively.  No losses were
realized on sales of securities in the years ended  September 30, 2007,  2006 or
2005.

32
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

At September 30, 2007 and 2006,  securities with a cost of approximately $17,950
and $17,700 were pledged to secure  deposits and advances  from the Federal Home
Loan Bank as required or permitted by law.

4.       LOANS RECEIVABLE

Loans receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                                                        September 30,
                                                                                  2007                  2006
                                                                           ------------------    ------------------
<S>                                                                      <C>                   <C>
Residential real estate mortgage loans:
  One-to-four family units - Conforming                                    $          181,090    $          180,521
  One-to-four family units - Commercial                                                32,664                26,291
  One-to-four family units - Alternative                                               84,338                83,641
  Multi-family                                                                         24,540                20,756
Land loans                                                                             28,376                21,812
Construction loans                                                                     10,853                 9,358
Commercial real estate loans                                                           75,961                59,474
Commercial non-real estate loans                                                       15,378                21,262
Home improvement and home equity loans                                                 51,240                53,202
Loans on savings accounts                                                               5,939                 5,223
Auto loans                                                                              4,694                 5,710
Mobile home loans                                                                      48,144                35,242
Other secured and unsecured                                                             4,189                 3,201
                                                                           ------------------    ------------------
                                                                                      567,406               525,693
Less:
  Allowance for loan losses                                                             5,083                 4,890
  Deferred loan fees, net                                                                 335                   300
                                                                           ------------------    ------------------

                                                                           $          561,988    $          520,503
                                                                           ==================    ==================
</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,
                                                              -----------------------------------------------------
                                                                   2007               2006                2005
                                                              --------------     ---------------     --------------

<S>                                                          <C>                <C>                 <C>
Beginning balance - October 1                                 $        4,890     $         5,151     $        4,365
Provision charged to operating expense                                   605                 210                950
Recoveries                                                                16                 236                 13
Loans charged off                                                       (428)               (707)              (177)
                                                              ---------------    ---------------     ---------------

Ending balance - September 30                                 $        5,083     $         4,890     $        5,151
                                                              ==============     ===============     ==============
</TABLE>

33
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

The amount of nonaccrual loans at September 30, 2007 and 2006 was  approximately
$2.6 million and $2.8  million,  respectively.  The amount of impaired  loans at
September 30, 2007 was approximately $521 thousand and at September 30, 2006 was
approximately $746 thousand. The amount of allowance allocated to impaired loans
was  approximately  $387  thousand at September 30, 2007 and $0 at September 30,
2006.  The average  investment in impaired loans was $530 and $449 for the years
ended September 30, 2007 and 2006, respectively.  The amount of forgone interest
on impaired loans was approximately $30 and $24, respectively.

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


5.    REAL ESTATE OWNED

Real estate owned consisted of the following:

<TABLE>
<CAPTION>
                                                                 September 30,
                                                           2007                  2006
                                                    ------------------    ------------------

<S>                                                <C>                   <C>
Real estate acquired through foreclosure            $            1,403    $            1,072
Less allowance for losses                                         (185)                   (6)
                                                    -------------------   ------------------

Real estate owned - net                             $            1,218    $            1,066
                                                    ==================    ==================
</TABLE>



6.    PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                 September 30,
                                                           2007                  2006
                                                    ------------------    ------------------
<S>                                                <C>                   <C>
Land                                                $            9,907    $            6,736
Buildings and improvements                                      17,835                14,603
Furniture, fixtures and equipment                               10,204                 9,275
                                                    ------------------    ------------------
                                                                37,946                30,614
Less accumulated depreciation                                  (11,800)              (10,798)
                                                    -------------------   ------------------

                                                    $           26,146    $           19,816
                                                    ==================    ==================
</TABLE>

34

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

Pursuant to the terms of non-cancelable  lease agreements in effect at September
30, 2007,  pertaining to banking  premises and  equipment,  future  minimum rent
commitments under various operating leases are as follows:

                           2008                               $     146
                           2009                                     100
                           2010                                      66
                           2011                                      34
                           Thereafter                                26
                                                              ---------
                                                              $     372
                                                              =========

All leases contain options to extend for periods from three to five years. Total
rent expense for the years ended September 30, 2007,  2006, and 2005 amounted to
$159, $158 and $160 respectively.



7.    DEPOSITS

Deposits are summarized as follows:

<TABLE>
<CAPTION>
                                                           September 30,
                                                     2007                  2006
                                              ------------------    ------------------
<S>                                          <C>                   <C>
Non-interest bearing demand accounts          $           54,358    $           49,119
Interest bearing:
  NOW accounts                                            79,681                70,527
  Passbook and regular savings                            51,868                53,628
  Money funds accounts                                    90,944                67,034
  Certificates of deposit                                278,718               297,241
                                              ------------------    ------------------

                                              $          555,569    $          537,549
                                              ==================    ==================
</TABLE>

Certificates  of  deposit  of over $100  amounted  to  $77,964  and  $71,009  at
September 30, 2007 and 2006, respectively.

Certificates of deposits at September 30, 2007 mature as follows:

<TABLE>
<CAPTION>
<S>                                                                 <C>
Less than one year                                                   $          189,723
1-2 years                                                                        63,525
2-3 years                                                                        15,977
3-4 years                                                                         7,885
4-5 years                                                                         1,381
Over 5 years                                                                        227
                                                                     ------------------

TOTAL                                                                $          278,718
                                                                     ==================
</TABLE>

35

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------


8.    ADVANCES FROM FEDERAL HOME LOAN BANK

At  September  30, 2007 and 2006  respectively,  the Company was indebted to the
FHLB for $89,756 and $77,386 of advances  bearing interest at a weighted average
rate of 4.87% and 4.91%, which are due as follows:

 Year Ended
September 30,
-------------
   2008                                                 $            27,953
   2009                                                               9,469
   2010                                                               5,543
   2011                                                              11,500
   2012                                                               5,450
   Thereafter                                                        29,841
                                                        -------------------

                                                        $            89,756
                                                        ===================

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

At September 30, 2007, the Company had an additional  $159,638  available  under
its line of credit with the FHLB.


9.    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  2007 and 2006.  Also
included is income from the increase in life insurance  contracts of $597, $538,
and $525 for the years ended 2007, 2006, and 2005, respectively.

36
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

10       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, 2007 and
2006 are as follows:

<TABLE>
<CAPTION>
                                                                                  Year Ended September 30,
                                                                                  2007                  2006
                                                                           ------------------    ------------------
<S>                                                                       <C>                   <C>
Deferred tax assets:
  Allowance for loan losses                                                $            1,370    $            1,304
  Unrealized loss on securities available-for-sale                                        517                   643
  Other                                                                                   627                   356
                                                                           ------------------    ------------------
         Total deferred tax assets                                                      2,514                 2,303
                                                                           ------------------    ------------------
Deferred tax liabilities:
  Deferred loan fees and costs - net                                                      228                   226
  Basis differences on securities available-for-sale                                        -                   309
  Tax over book depreciation                                                              544                   449
  Dividends on FHLB stock                                                                 437                   445
  Other                                                                                    97                    94
                                                                           ------------------    ------------------
         Total deferred tax liabilities                                                 1,306                 1,523
                                                                           ------------------    ------------------

         Net deferred tax asset                                            $            1,208    $              780
                                                                           ==================    ==================
</TABLE>

The components of income tax expense are as follows:

<TABLE>
<CAPTION>
                                                                           Year Ended September 30,
                                                              -----------------------------------------------------
                                                                   2007               2006                2005
                                                              --------------     ---------------     --------------
<S>                                                          <C>                <C>                 <C>
Current                                                       $        3,724     $         3,670     $        2,964
Deferred                                                                (554)                (19)              (461)
                                                              ---------------    ---------------     --------------

                                                              $        3,170     $         3,651     $        2,503
                                                              ==============     ===============     ==============
</TABLE>

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,
                                                              -----------------------------------------------------
                                                                   2007               2006                2005
                                                              --------------     ---------------     --------------
<S>                                                          <C>                <C>                 <C>
Taxes computed at statutory rates                             $        3,349     $         3,729     $        2,619
Decrease in taxes due to net nontaxable income                          (179)                (78)              (116)
                                                              ---------------    ---------------     ---------------

                                                              $        3,170     $         3,651     $        2,503
                                                              ==============     ===============     ==============

Effective tax rate                                                     32.2%               33.3%              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, 2007,  retained  earnings
include  approximately  $4.4 million  representing  such allowances for which no
deferred income taxes have been provided.

37
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

11.      NON-INTEREST EXPENSE

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

<TABLE>
<CAPTION>
                                                                            Year Ended September 30,
                                                              -----------------------------------------------------
                                                                   2007               2006                2005
                                                              --------------     ---------------     --------------
<S>                                                          <C>                <C>                 <C>
Occupancy, including depreciation, insurance,
  rent, utilities, etc.                                       $        1,842     $         1,796     $        1,691
Equipment, including depreciation, telephone, etc.                     2,396               2,117              1,968
Data processing                                                        1,232               1,252                994
                                                              --------------     ---------------     --------------

                                                              $        5,470     $         5,165     $        4,653
                                                              ==============     ===============     ==============
</TABLE>

Other operating expenses consisted of the following:

<TABLE>
<CAPTION>
                                                                            Year Ended September 30,
                                                              -----------------------------------------------------
                                                                   2007               2006                2005
                                                              --------------     ---------------     --------------
<S>                                                          <C>                <C>                 <C>
Stationery, printing and postage                              $          948     $           934     $          952
Debit card expense, and other deposit related costs                    1,164               1,019                848
Other                                                                  1,974               1,414              1,276
                                                              --------------     ---------------     --------------

                                                              $        4,086     $         3,367     $        3,076
                                                              ==============     ===============     ==============
</TABLE>

12.      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, 2007, 2006 and 2005:

<TABLE>
<CAPTION>
                                                                                       Tax               Net of
                                                                Before-tax          (expense)              tax
                                                                  amount             credit              amount
                                                              --------------     ---------------     --------------
<S>                                                          <C>                <C>                 <C>
2007
----
  Gross change in unrealized gain (loss) on securities
    available-for-sale                                        $          535     $          (182)    $          353
  Less reclassification for gain included in net income                 (164)                 56               (108)
                                                              --------------     ---------------     --------------

  Net change in unrealized gain (loss) on securities
    available-for-sale                                        $          371     $          (126)    $          245
                                                              ==============     ===============     ==============

</TABLE>

38
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
2006
----
<S>                                                          <C>                <C>                 <C>
  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
                                                              ==============     ================    ==============

2005
----
  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)
                                                              ===============    ===============     ===============
</TABLE>



13.    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 $446,  $188 and $63 in the years ended September 30, 2007, 2006
and 2005, 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 Company makes matching
contributions  equal to 100 percent of the first 3 percent plus 50 percent after
the next 2  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, 2007, 2006, and 2005, expense  attributable to the
Plan amounted to approximately $222, $130, and $91, respectively.

39
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

14.      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, 2007, 2006 and
2005:

<TABLE>
<CAPTION>
                                                                            Year Ended September 30,
                                                              -----------------------------------------------------
                                                                   2007               2006                2005
                                                              --------------     ---------------     --------------
<S>                                                           <C>                 <C>                <C>
Weighted average number of common shares
  outstanding - used in computation of basic
  income per common share                                          2,217,000           2,271,000          2,227,000
Effect of dilutive securities:
  Stock options                                                       54,000              45,000             70,000
  Stock grants                                                         3,000               5,000              4,000
                                                              --------------     ---------------     --------------
Weighted average number of common shares
  outstanding  plus effect of dilutive securities -
  used in computation of diluted income per
  common share                                                     2,274,000           2,321,000          2,301,000
                                                              ==============     ===============     ==============
</TABLE>


15.      EMPLOYEE STOCK PLANS

The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit of
Teche Federal 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 was 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 $580, $587 and $487 for the years
ended  September  30,  2007,  2006  and  2005,  respectively.  The  ESOP  has no
unreleased shares at September 30, 2007.


The Company has five share-based  compensation  plans in effect at September 30,
2007. The compensation cost that has been charged against income for those plans
was  approximately  $390, $442, and $160 for the years ended September 30, 2007,
2006, and 2005, respectively.

40
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

The Company  recorded a deferred tax benefit in the amount of $73,  $93, and $14
for the years ended September 30, 2007, 2006 and 2005, respectively,  related to
share-based compensation.

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 5,000 stock
options for the year ended  September  30, 2007 with a fair value of $7.96.  The
Company granted 1,900 stock options for the year ended September 30, 2006 with a
weighted average fair value of $6.46 per option.

41
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(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, 2007 and 2006.

<TABLE>
<CAPTION>
                                                            Year Ended                      Year Ended
                                                       September 30, 2007               September 30, 2006
                                                       ---------------------            --------------------

<S>                                                        <C>                            <C>
         Dividend yield                                        2.70%                          2.70%
         Risk-free interest rate                               4.60%                          4.74%
         Volatility                                           14.00%                         14.00%
         Expected life                                       6 years                        6 years
</TABLE>

A summary of option  activity  under the stock option plans as of September  30,
2007, and changes during the year ended September 30, 2007 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, 2006          220,566        $29.72          6.8 years          $5,410

Exercised                                  (23,643)       $25.65

Authorized                                       -             -

Forfeited                                   (4,560)       $40.06

Granted                                      5,000        $47.86
                                          ---------------------------------------------------------

Outstanding at September 30, 2007          197,363        $30.43          6.0 years          $2,116
                                          ---------------------------------------------------------

Exercisable at September 30, 2007          187,966        $30.08          5.9 years          $2,108
                                          ---------------------------------------------------------
</TABLE>

For the  years  ended  September  30,  2007,  2006 and 2005,  respectively,  the
intrinsic value of options exercised was approximately  $577, $1,005 and $2,798.
The fair value of options vested during the years ended 2007,  2006 and 2005 was
approximately $96 and $161 and $1,188, respectively.

Cash received from options exercised under all share-based payment  arrangements
for year ended September 30, 2007 was approximately $444. The actual tax benefit
in  stockholders  equity realized for the tax deductions from option exercise of
the share-based payment  arrangements  totaled $198 for the year ended September
30, 2007.

42
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(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, 2007, and changes during the year then ended is presented below:

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

               Non-vested - September 30, 2006          6,959          $38.50
               Correction of prior grants               1,550
               Granted                                  4,350          $51.76
               Vested                                  (6,772)         $42.72
                                                      ------------------------
               Non-vested - September 30, 2007          6,087          $42.62
                                                      ------------------------

The fair value of  restricted  stock vested over the years ended  September  30,
2007, 2006 and 2005, respectively was $294, $281 and $214.

As of September 30, 2007, there was $373 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 2.0 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  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 period of September 30, 2005:

<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>

43
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

16.   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, 2007 the Company had made  various  commitments  to extend
credit totaling approximately $48,571. Most of these commitments are at variable
rates. As of September 30, 2006, such commitments totaled approximately $39,600.

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.

17.   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.

44

<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

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.

The estimated fair values of the Company's significant financial instruments are
as follows at September 30, 2007 and 2006:

<TABLE>
<CAPTION>

                                                    2007                                       2006
                                    ------------------------------------      -------------------------------------
                                       Carrying              Estimated            Carrying             Estimated
                                        amount              fair value             amount             fair value
                                    ---------------      ---------------      ---------------      ----------------
<S>                                <C>                  <C>                  <C>                  <C>
Financial assets:
  Cash and cash equivalents         $        21,811      $        21,811      $        17,528      $         17,528
  Investment securities                      83,502               82,817              102,260               101,451
   FHLB stock                                 4,343                4,343                4,185                 4,185
   Accrued interest receivable                2,952                2,952                2,702                 2,702

  Loans                                     567,071              567,612              525,393               524,291
  Less allowance for loan losses              5,083                5,083                4,890                 4,890
                                    ---------------      ---------------      ---------------      ----------------
  Loans-net of allowance                    561,988              562,529              520,503               519,401
                                    ---------------      ---------------      ---------------      ----------------

Financial liabilities:
  Deposits                                  555,569              556,174              537,549               535,637
  Advances from Federal Home
     Loan Bank                               89,756               89,313               77,386                76,463
   Accrued interest payable                   1,441                1,441                1,458                 1,458
</TABLE>

45
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

18.   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>
                                                                       2007
                               ------------------------------------------------------------------------------------
                                                                                                 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                   $    55,347          7.8%    $    28,576           4.0%   $    35,720           5.0%

Tangible capital               $    55,347          7.8%    $    10,716           1.5%   $       N/A            N/A

Total Risk based capital       $    59,922         12.6%    $    38,065           8.0%   $    47,582          10.0%

Tier 1 Risk based capital      $    55,347         11.6%    $       N/A            N/A   $    28,549           6.0%
</TABLE>

<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>

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.

46
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require  the Bank to  maintain  minimum  amounts  and  ratios  (set forth in the
previous  table) of risk-based  capital (as defined in the  regulations) to risk
weighted  assets  (as  defined),  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, 2007, and 2006,  that the Bank meets all capital  adequacy  requirements  to
which they are subject.

As of  September  30, 2007,  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, 2007
and 2006 are also presented in the previous tables.



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

<TABLE>
<CAPTION>
                                 Balance Sheets

                                                                                  2007                  2006
                                                                           ------------------    ------------------
<S>                                                                       <C>                   <C>
Assets:
  Investment in subsidiary                                                 $           58,685    $           59,082
  Cash and cash equivalents                                                             6,759                 3,256
  Other                                                                                 1,562                 1,591
                                                                           ------------------    ------------------

          Total assets                                                     $           67,006    $           63,929
                                                                           ==================    ==================

Stockholders' equity                                                       $           67,006    $           63,929
                                                                           ==================    ==================
</TABLE>


<TABLE>
<CAPTION>
                             Statements of Earnings

                                                                            Year ended September 30,
                                                              ----------------------------------------------
                                                                   2007               2006                2005
                                                              --------------     ---------------     --------------
<S>                                                          <C>                <C>                 <C>
Dividends received from subsidiary                            $        8,000     $         4,100     $        8,200
Equity in earnings of subsidiary (less than) greater
  than dividends received                                             (1,207)              3,358             (2,691)
Interest income from subsidiary                                          228                  87                 15
Management fees and other expenses allocated to
  the Parent                                                             (77)                (77)               (77)
Other expenses-net                                                      (263)               (151)              (248)
                                                              ---------------    ---------------     --------------

Net income                                                    $        6,681     $         7,317     $        5,199
                                                              ==============     ===============     ==============
</TABLE>


47
<PAGE>

TECHE HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 2007, 2006 and 2005
(in thousands except share and per share data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                           Statements of Cash Flows

                                                                            Year ended September 30,
                                                              ----------------------------------------------
                                                                   2007               2006                2005
                                                              --------------     ---------------     --------------
<S>                                                          <C>                 <C>                <C>
Cash flows from operating activities                          $        7,250      $        4,253     $        7,774

Cash flows from investing activities:
  Repayment of loan by subsidiary                                          -                 143                140
  Proceeds from sale of securities                                       492                   -                  -
                                                              ---------------     --------------     ---------------

     Net cash provided by investing activities                           492                 143                140
                                                              ---------------     --------------     ---------------

Cash flows from financing activities:
  Dividends paid                                                      (2,783)             (2,462)            (2,095)
  Proceeds from exercise of stock options                                642                 646                906
  Cash paid for purchase of common stock for treasury                 (2,098)             (4,414)            (3,010)
                                                              ---------------     --------------     ---------------

     Net cash used in financing activities                            (4,239)             (6,230)            (4,199)
                                                              ---------------     --------------     ---------------

Net increase (decrease) in cash and cash equivalents                   3,503              (1,834)             3,715

Cash and cash equivalents - beginning of year                          3,256               5,090              1,375
                                                              --------------      --------------     --------------

Cash and cash equivalents - end of year                       $        6,759      $        3,256     $        5,090
                                                              ==============      ==============     ==============
</TABLE>

Cash  dividends of $8,000  $4,100 and $8,200 were paid by Teche  Federal Bank to
Teche  Holding  Company in the years ended  September  30, 2007,  2006 and 2005,
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,
2007, the Bank's  retained  earnings  available for the payment of dividends was
approximately $16 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.

                                     ******

48
<PAGE>

<TABLE>
<CAPTION>

                                               DIRECTORS OF TECHE HOLDING COMPANY
                                                               AND
                                                        TECHE FEDERAL BANK

                                <S>                                 <C>
                                    Patrick O. Little, Chairman        Robert  J. Judice, Jr.
                                    Mary Coon Biggs                    Dr. Thomas F. Kramer
                                    Donelson T. Caffery, Jr.           W. Ross Little, Jr.
                                    J. L. Chauvin                      Robert E. Mouton
                                    Ernest Freyou                      Robert L. Wolfe, Jr.
                                    Henry L. Friedman                  Maunette B. Risher - Advisory
</TABLE>

<TABLE>
<CAPTION>
                                                  OFFICERS OF TECHE FEDERAL BANK

<S>                     <C>                                        <C>                        <C>
Patrick O. Little          Chairman, President/CEO                     Terry Albarado             Assistant Vice President
Scott Sutton               Senior Vice President/Operations            Montreen Badeaux           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                       Christopher Brown          Assistant Vice President
                           Chief Lending Officer                       Jeanette Charles           Assistant Vice President
W. Ross Little, Jr.        Senior Vice President, Secretary            Angela Cliburn             Assistant Vice President
                           Sales & Marketing                           Stephanie Dandry           Assistant Vice President
Eddie LeBlanc              Senior Vice President, Internal Auditor     Rosalind Dockery           Assistant Vice President
Russell Gauthier           Baton Rouge Regional President              Debbie Guidry              Assistant Vice President
Angela Badeaux             Vice President                              Henrietta Hollier          Assistant Vice President
Pauline Belley             Vice President                              Christy Istre              Assistant Vice President
Genevieve Bihm             Vice President                              Barbara Jesset             Assistant Vice President
Elmo Boudreaux             Vice President                              Anne Jones                 Assistant Vice President
Mary Beth Brady            Vice President                              Debbie Lancon              Assistant Vice President
F. William Ball, III       Vice President                              Ruby Langley               Assistant Vice President
Patricia Begnaud           Vice President                              Vicki Laubach              Assistant Vice President
Georgia Boudreaux          Vice President                              Linda Roman                Assistant Vice President
Irma Nell Bourque          Vice President                              Lesley Schexnayder         Assistant Vice President
Bart Boyer                 Vice President                              Brandy Serrette            Assistant Vice President
Glen Brown                 Vice President                              Tanya Thibodeaux           Assistant Vice President
Kevin Caswell              Vice President                              Karen Verret               Assistant Vice President
Belinda Cavazos            Vice President                              Leslie White               Assistant Vice President
S. Mike Comeaux            Vice President
Gwen Doucet                Vice President                              ST. LANDRY ADVISORY BOARD
Dalie Eldridge             Vice President
Elaine Gussman             Vice President                              Wayne M. Gilmore, Chairman
Constance Harris           Vice President                              H. Kent Aguillard
D. Ross Landry             Vice President                              James R. Bienvenu
Angelina Mire              Vice President                              Anna Lee Dunbar
Carol Nini                 Vice President                              Lynette Young Feucht
Peggy Romero               Vice President                              Patrick Fontenot
Susan Simoneaux            Vice President                              Simon Howard Fournier
Martin Vasquez             Vice President                              Morgan J. Goudeau, III
Tina Vidrine               Vice President                              Martin A. Roy, Jr.
                                                                       Marvin Schwartzenburg

                                                                       SPECIAL COUNSEL
INDEPENDENT AUDITORS                                                   Malizia Spidi & Fisch, PC
Dixon Hughes PLLC                                                      901 New York Avenue, N.W.
500 Ridgefield Court                                                   Suite 210 East
Asheville, NC  28806                                                   Washington, D.C.  20001

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

</TABLE>
49