TECHE HOLDING CO - FORM 10-Q - February 14, 2011

Attached files

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EX-32 - CERTIFICATION PURSUANT TO SECTION 906 - TECHE HOLDING CO	ex32.htm
EX-31.2 - CERTIFICATION CFO PURSUANT TO SECTION 302 - TECHE HOLDING CO	ex31-2.htm
EX-31.1 - CERTIFICATION CEO PURSUANT TO SECTION 302 - TECHE HOLDING CO	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

December 31, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________________ to _________________________

Commission file number 1-13712

TECHE HOLDING COMPANY

(Exact name of registrant as specified in its charter)

Louisiana		72-128746
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1120 Jefferson Terrace Boulevard New Iberia, Louisiana			70560
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code (337) 365-0366

N/A

Former name, former address and former fiscal year, if changed since last report.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: February 7, 2011.

Class		2,079,767
$.01 par value common stock		Outstanding Shares

TECHE HOLDING COMPANY

QUARTERLY REPORT ON FORM 10-Q

INDEX

		Page

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

Unaudited Consolidated Balance Sheets as of December 31, 2010 and September 30, 2010		3
Unaudited Consolidated Statements of Income for the three months ended December 31, 2010 and 2009		4
Unaudited Consolidated Statements of Cash Flows for the three months ended December 31, 2010 and 2009		5
Notes to Unaudited Consolidated Financial Statements		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	30

Item 4T	Controls and Procedures	30

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3.	Defaults Upon Senior Securities	31

Item 4.	[Reserved]	31

Item 5.	Other Information	31

Item 6.	Exhibits	31

Signatures

TECHE HOLDING COMPANY

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

	December 31, 2010			September 30, 2010*
ASSETS	(unaudited)

Cash and due from banks	$	13,299		$	15,420
Interest-bearing deposits		22,073			25,235
Securities available-for-sale at fair value		13,914			14,996
Securities held-to-maturity—at amortized cost (estimated fair value of $63,071 and $61,711)		61,119			59,566
Loans receivable—net of allowance for loan losses of $9,953 and $9,256		583,778			586,635
Accrued interest receivable		2,478			2,480
Investment in Federal Home Loan Bank stock, at cost		4,766			5,402
Real estate owned, net		2,079			1,181
Prepaid expenses and other assets		7,030			6,898
Goodwill		3,647			3,647
Life insurance contracts		13,458			13,310
Premises and equipment, net		26,060			26,754

TOTAL ASSETS	$	753,701		$	761,524

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits	$	583,439		$	579,355
Advances from Federal Home Loan Bank		87,756			100,017
Advance payments by borrowers for taxes and insurance		1,737			2,463
Accrued interest payable		372			429
Accounts payable and other liabilities		3,900			3,747

TOTAL LIABILITIES		677,204			686,011

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Preferred stock, 5,000,000 shares authorized, none issued		-			-
Common stock, $.01 par value, 10,000,000 shares authorized; 4,676,000 and 4,672,567 shares issued		47			47
Additional paid-in capital		52,771			52,685
Retained earnings		75,032			73,942
Unearned ESOP shares		(260	)		(326	)
Treasury stock, 2,597,983 and 2,591,081 shares - at cost		(51,088	)		(50,862	)
Accumulated other comprehensive loss on held-to-maturity securities		(428	)		(428	)
Accumulated other comprehensive income on available for sale securities		423			455

TOTAL STOCKHOLDERS’ EQUITY		76,497			75,513

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	753,701		$	761,524

See Notes to Unaudited Consolidated Financial Statements.

* derived from audited financial statements

TECHE HOLDING COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

	Three Months Ended
	December 31,
	2010		2009
INTEREST INCOME
Interest and fees on loans	$	9,364	$	9,730
Interest and dividends on investments		496		695
Other interest income		143		75
TOTAL INTEREST INCOME		10,003		10,500
INTEREST EXPENSE:
Deposits		1,463		1,930
Advances from Federal Home Loan Bank		1,079		1,137
TOTAL INTEREST EXPENSE		2,542		3,067
NET INTEREST INCOME		7,461		7,433

PROVISION FOR LOAN LOSSES		1,150		1,196

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		6,311		6,237

NON-INTEREST INCOME:
Total other-than temporary impairment losses		-		(366	)
Portion of impairment losses recognized in other comprehensive loss		-		262
Net impairment losses recognized in earnings		-		(104	)
Service charges and other		3,680		3,816
Gain on sale of premises and equipment		103		-
Gain on securities		-		68
Gain on sale of loans		9		-
Other income		189		198
TOTAL NON-INTEREST INCOME		3,981		3,978

NON-INTEREST EXPENSE:
Compensation and employee benefits		3,998		3,998
Occupancy expense		1,380		1,523
Marketing and professional		740		661
FDIC premiums and assessment		223		394
Other operating expenses		1,242		1,065
TOTAL NON-INTEREST EXPENSE		7,583		7,641

INCOME BEFORE INCOME TAXES		2,709		2,574
INCOME TAXES		885		841
NET INCOME	$	1,824	$	1,733
BASIC EARNINGS PER COMMON SHARE	$	0.88	$	0.83
DILUTED EARNINGS PER COMMON SHARE	$	0.87	$	0.82

See Notes to Unaudited Consolidated Financial Statements.

TECHE HOLDING COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

	For the Three Months Ended December 31,
	2010			2009
CASH FLOWS (USED) PROVIDED BY OPERATING ACTIVITIES:
Net income	$	1,824		$	1,733
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Accretion of discount and amortization of premium on investments and mortgage-backed securities		(72	)		(38	)
Impairment of debt securities		-			104
Provision for loan losses		1,150			1,196
Gain on sale of OREO		(16	)		(22	)
Gain on sale of equity securities		-			(68	)
Gain on sale of land		(103	)		-
Gain on sale of loans		(9	)		-
Depreciation		358			384
Excess tax benefits from share-based payment arrangements		(31	)		(36	)
Change in accounts payable and other liabilities		153			(381	)
Change in life insurance contracts		(148	)		(149	)
Change in prepaid expenses and other assets		(132	)		(3,519	)
Change in accrued interest payable		(57	)		(286	)
Stock-based compensation		109			84
Other items– net		(52	)		594
Net cash (used) provided by operating activities		2,974			(404	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equity securities		-			355
Principal repayments of mortgage-backed securities available for sale		1,071			1,539
Principal repayments of securities held to maturity		8,759			12,527
Purchase of securities held to maturity		(10,230	)		-
Net loan originations		(412	)		(6,487	)
Purchase of loans		-			(725	)
Proceeds from sale of loans		632			-
Redemption (purchase) of FHLB stock		636			(66	)
Proceeds from sale of land		499			-
Proceeds from sale of OREO		614			384
Purchase of premises and equipment		(60	)		(519	)
Net cash provided by investing activities		1,509			7,008

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of (loan to) ESOP		65			65
Net (decrease) increase in deposits		4,084			(9,978	)
Net increase (decrease) in FHLB advances		(12,261	)		2,823
Net decrease in advance payments by borrowers for taxes and insurance		(726	)		(822	)
Dividends paid		(733	)		(733	)
Excess tax benefits from share-based payment arrangements		31			36
Purchase of common stock for treasury		(226	)		--
Net cash used by financing activities		(9,766	)		(8,609	)

NET DECREASE IN CASH		(5,283	)		(2,005	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		40,655			23,675
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	35,372		$	21,670

Supplemental schedule of noncash investing activities:
Transfer from loans to real estate owned	$	1,563		$	726
Loans originated to finance sale of real estate owned		67			1,311

See Notes to Unaudited Consolidated Financial Statements.

TECHE HOLDING COMPANY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - PRINCIPLES OF CONSOLIDATION

The consolidated financial statements as of December 31, 2010 and September 30, 2010 and for the three months ended December 31, 2010 and 2009, include the accounts of Teche Holding Company (the “Company”) and its subsidiary, Teche Federal Bank (the “Bank”). The Company’s business is conducted principally through the Bank. All significant inter-company accounts and transactions have been eliminated in consolidation.

NOTE 2 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all information necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three months ended December 31, 2010 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other period. These financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2010.

NOTE 3 - INCOME PER SHARE

Basic and diluted net income per share is computed based on the weighted average number of shares outstanding during each period. Diluted net income per share reflects the potential dilution that could occur if stock options were exercised, resulting in the issuance of common stock that then shared in the net income of the Company.

Following is a summary of the information used in the computation of basic and diluted income per common share for the three months ended December 31, 2010 and 2009 (in thousands).

	Three Months Ended
	December 31,
	2010		2009
Weighted average number of common shares outstanding - used in computation of basic income per common share		2,080		2,098
Effect of dilutive securities:
Stock options		9		18
Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted net income per common share		2,089		2,116

For the three months ending December 31, 2010 and 2009, net income for determining diluted earnings per share was equivalent to net income. Options to purchase shares that have been excluded from the determination of diluted earnings per share because they are antidilutive (the exercise price is higher than the current market price) amount to approximately 190,000 for the three months ended December 31, 2010 and 192,000 for the three months ended December 31, 2009.

NOTE 4 - COMPREHENSIVE INCOME

Comprehensive income includes net income and other comprehensive income which includes unrealized gains and losses on securities. Following is a summary of the Company’s comprehensive income for the three months ended December 31, 2010 and 2009 (in thousands).

	For Three Months
	Ended December 31,
	2010			2009

Net income	$	1,824		$	1,733
Reclassification of realized losses (gains), net of tax		-			(45	)
Noncredit portion of OTTI losses on held-to-maturity securities, net of tax		-			(173	)
Unrealized gains (losses), net of tax		(32	)		(61	)
Total comprehensive income	$	1,792		$	1,454

NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS

ASC (860) Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. This guidance also eliminates the concept of a qualifying special-purpose entity, and changes the requirements for derecognizing financial assets and requires additional disclosures.

ASC (860) was adopted by the company on October 1, 2010. Earlier application is prohibited. The recognition and measurement provisions shall be applied to transfers that occur on or after the effective date. The adoption of this standard did not have a material impact on the consolidated financial statements.

ASU-Accounting Standards Update (2010-06) Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (Jan 2010). This update provides amendments to Topic 820 that will provide more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The update is effective for interim and annual reporting periods beginning after December 15, 2009 except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company adopted the fair value disclosures guidance on January 1, 2010, except for the gross presentation of the Level 3 rollforward information which is not required to be adopted by the Company until October 1, 2011. The adoption requires additional disclosure.

ASU - Accounting Standards Update (2010-20), Receivables (Topic 310): Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The objective of this ASU is for an entity to provide disclosures that facilitate financial statement users’ evaluation of the following: (1) the nature of credit risk inherent in the entity’s portfolio of financing receivables; (2) how that risk is analyzed and assessed in arriving at the allowance for credit losses; and (3) the changes and reasons for those changes in the allowance for credit losses.

To achieve these objectives, an entity should provide disclosures on a disaggregated basis on two defined levels: (1) portfolio segment; and (2) class of financing receivable. The ASU makes changes to existing disclosure requirements and includes additional disclosure requirements about financing receivables, including: (1) credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables; (2) the aging of past due financing receivables at the end of the reporting period by class of financing receivables; and (3) the nature and extent of troubled debt restructurings that occurred during the period by class of financing receivables and their effect on the allowance for credit losses.

For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The adoption of this standard required additional disclosures.

ASU – Accounting Standards Update (2011-01), Receivable (Topic 310), Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20: Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit losses, delays the effective date of the disclosures to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, as presented in proposed ASU Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors.

NOTE 6 – FAIR VALUE MEASUREMENTS

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available for sale securities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as securities held-to-maturity, loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting, other than temporary impairment accounting or impairments of individual assets.

A three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1 - Observable inputs such as quoted prices in active markets;

Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Following is a description of valuation methodologies used for assets recorded at fair value.

Investment Securities

Securities available for sale are valued at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets. Securities held to maturity are valued using discounted cash flow models that use assumptions about prepayment speeds, coupon default rates, discount rates and timing and other assumptions that may affect the amounts of cash flows.

Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC (310), “Accounting by Creditors for Impairment of a Loan.” The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2010, substantially all of the impaired loans were evaluated based on the fair value of the collateral less estimated costs to sell. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3.

Other Real Estate Owned

OREO, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (Level 2). At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Gains or losses on sale and generally any subsequent adjustments to the value are recorded as a component of OREO expense.

	Fair Value		Fair Value Hierarchy
	At December 31, 2010		Level 1		Level 2		Level 3
(In thousands)
Assets valued on a recurring basis:
Mortgage-backed securities:
Government National Mortgage Assoc.	$	2,031	$	-	$	2,031	$	-
Federal Home Loan Mortgage Corp.		4,669		-		4,669		-
Federal National Mortgage Assoc.		4,259		-		4,259		-
		10,959		-		10,959		-

CMOs:
Government National Mortgage Assoc.		2,452		-		2,452		-
Other equity securities		503		503		-		-
Total AFS securities	$	13,914	$	503	$	13,411	$	-
Assets valued on a non-recurring basis:
Impaired loans		8,114		-		8,114		-
Total non-recurring	$	8,114	$	-	$	8,114	$	-

	Fair Value At September		Fair Value Hierarchy
		30, 2010	Level 1		Level 2		Level 3
(In thousands)
Assets valued on a recurring basis:
Mortgage-backed securities:
Government National Mortgage Assoc.	$	2,098	$	-	$	2,098	$	-
Federal Home Loan Mortgage Corp.		5,109		-		5,109		-
Federal National Mortgage Assoc.		4,669		-		4,669		-
		11,876		-		11,876		-

CMOs:
Government National Mortgage Assoc.		2,652		-		2,652		-
Marketable equity securities		468		468		-		-
Total recurring	$	14,996	$	468	$	14,528	$	-

Assets valued on a non-recurring basis:
CMOs: Private label	$	110	$	-	$	110	$	-
Impaired loans		6,484		-		6,484		-
Other real estate owned		760		-		760		-
Total non-recurring	$	7,354	$	-	$	7,354	$	-

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. ASC 825 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 – See discussion in the beginning of Note 6 on the valuation of fair value of investment securities. 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 - See discussion in the beginning of Note 6 on the valuation of fair value of impaired 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. No adjustment has been made for illiquidity in the market for loans as there is no active market for many of the Company’s loans on which to reasonably base this estimate.

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 December 31, 2010. The FHLB of Dallas is still redeeming stock.

Bank Owned Life Insurance- The carrying amounts of bank owned life insurance contracts approximate fair value.

Accrued Interest - The carrying amounts of accrued interest receivable and payable 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 financial instruments are as follows at December 31, 2010 and September 30, 2010:

	December 31, 2010				September 30, 2010
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
(In thousands)
Financial assets:
Cash and cash equivalents	$	35,372	$	35,372	$	40,655	$	40,655
Investment securities		75,033		76,985		74,562		76,707
FHLB stock		4,766		4,766		5,402		5,402
Accrued interest receivable		2,478		2,478		2,480		2,480
Life Insurance contracts		13,458		13,458		13,310		13,310
Loans receivable, net		583,778		615,698		586,635		621,556

Financial liabilities:
Deposits		583,439		590,313		579,355		588,399
Advance from Federal Home Loan Bank		87,756		95,602		100,017		111,619
Accrued interest payable		372		372		429		429

NOTE 7 – SECURITIES

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

	December 31, 2010
			Gross		Gross			Estimated
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
(In thousands)
Mortgage-backed securities:
Government National Mortgage Assoc.	$	1,984	$	47	$	-		$	2,031
Federal Home Loan Mortgage Corp.		4,549		122		(2	)		4,669
Federal National Mortgage Assoc.		4,053		206		-			4,259
		10,586		375		(2	)		10,959

CMOs:
Government National Mortgage Assoc.		2,315		137		-			2,452
Other equity securities		372		144		(13	)		503
Total	$	13,273	$	656	$	(15	)	$	13,914



	September 30, 2010
			Gross		Gross		Estimated
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
(In thousands)
Mortgage-backed securities:
Government National Mortgage Assoc.	$	2,039	$	59	$	-	$	2,098
Federal Home Loan Mortgage Corp.		4,974		135		-		5,109
Federal National Mortgage Assoc.		4,448		221		-		4,669
		11,461		415		-		11,876

CMOs:
Government National Mortgage Assoc.		2,474		178		-		2,652
Other equity securities		372		96		-		468
Total	$	14,307	$	689	$	-	$	14,996

The amortized cost and estimated fair values of securities held-to-maturity are as follows:

	December 31, 2010
			Gross		Gross			Estimated
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
(In thousands)
Investment securities:
Time deposits other banks	$	33,869	$	-	$	-		$	33,869
Mortgage-backed securities:
Federal National Mortgage Assoc.		15,843		932		-			16,775
Federal Home Loan Mortgage Corp.		7,204		501		-			7,705
Private Label		1,738		331		(216	)		1,853
CMOs:
Federal Home Loan Mortgage Corp.		166		1		-			167
Federal National Mortgage Assoc.		1,245		54		-			1,299
Private Label		1,054		358		(9	)		1,403
Total	$	61,119	$	2,177	$	(225	)	$	63,071

	September 30, 2010
			Gross		Gross			Estimated
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
(In thousands)
Investment securities:
Federal Home Loan Bank	$	5,000	$	3	$	--		$	5,003
Time deposits other banks		24,219		--		--			24,219
Mortgage-backed securities:
Federal National Mortgage Assoc.		17,873		1,069		--			18,942
Federal Home Loan Mortgage Corp.		7,918		577		--			8,495
Private Label		1,841		291		(217	)		1,915
CMOs:
Federal Home Loan Mortgage Corp.		197		2		--			199
Federal National Mortgage Assoc.		1,343		67		--			1,410
Private Label		1,175		361		(8	)		1,528
Total	$	59,566	$	2,370	$	(225	)	$	61,711

Details concerning available for sale securities with unrealized losses as of December 31, 2010 are as follows:

	Securities with losses					Securities with losses
	under 12 months					over 12 months				Total
(In thousands)	Fair Value		Unrealized			Fair value		Unrealized		Fair value		Unrealized
Available-for-sale

Marketable equity securities		81		(13	)		-		-		81		(13	)
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation		331		(2	)		-		-		331		(2	)
	$	412	$	(15	)	$	-	$	-	$	412	$	(15	)

Details concerning held-to-maturity securities with unrealized losses as of December 31, 2010 are as follows:

	Securities with losses					Securities with losses
	under 12 months					over 12 months					Total
(In thousands)	Fair Value		Unrealized			Fair value		Unrealized			Fair value		Unrealized
Held-to-maturity

Investment securities:
Mortgage-backed securities:
Private Label		53		(13	)		779		(204	)		832		(216	)
CMOs:
Private Label		583		(7	)		7	$	(2	)		590		(9	)
	$	636	$	(20	)	$	786		(206	)	$	1,422	$	(225	)

There were no available-for-sale securities with unrealized losses as of September 30, 2010.

Details concerning held-to-maturity securities with unrealized losses as of September 30, 2010 are as follows:

	Securities with losses					Securities with losses
	under 12 months					over 12 months					Total
(In thousands)	Fair value		Unrealized			Fair value		Unrealized			Fair value		Unrealized
Held-to-maturity

Investment securities:
Private Label	$	53	$	(18	)	$	809	$	(199	)	$	862	$	(217	)
CMOs:
Private Label		368		(6	)		8		(2	)		376		(8	)
	$	421	$	(24	)	$	817	$	(201	)	$	1,238	$	(225	)

The Bank had a total of 33 securities classified as held-to-maturity in an unrealized loss position; with total gross unrealized losses of $225,000 as of December 31, 2010.

Management of the Company has asserted that they have no intent to sell impaired securities and it is more likely than not that impaired securities will not be required to be sold. These unrealized losses generally result from changes in market interest rates and as a result of the disruption in the existing mortgage securities market due to illiquidity in certain sectors of that market. The unrealized losses associated with investment securities issued by government sponsored enterprises (GSE) are caused by changes in interest rates and are not considered credit related since the contractual cash flows of these investments are guaranteed by these agencies. GSE’s have access to additional capital and liquidity resources from the U.S. Treasury, which indicates that they will be able to honor their guarantees, related to the contractual cash flows of the MBS that they have issued. In the case of securities issued by the Government National Mortgage Association, the securities are fully guaranteed by the U.S. Government.

The private label mortgage backed securities and CMOs are not backed by the full faith and credit of the U.S. Government. For each private label security, duration of the impairment, credit support and cash flows were assessed to determine whether the security was temporarily or other than temporarily impaired. Management evaluates the actual mortgage delinquencies, foreclosures, and real estate owned for each security, as well as future expected losses in the underlying mortgage collateral to determine if there is a high probability for expected losses and contractual shortfalls of interest or principal, which could warrant further recognition of impairment. Based upon such evaluation, it was determined that some securities have been other-than-temporarily impaired and a corresponding charge to earnings for credit related impairment was recognized with the non-credit related impairment recognized in other comprehensive income. There were no realized credit losses in the private label securities portfolio for the three months ended December 31, 2010. In the performance of cash flow analysis on private label securities, management determined that none of the impaired securities had non-credit losses that were required to be recognized in other comprehensive income for the three months ended December 31, 2010. All private label securities that have not been written down have been determined to have sufficient credit support and cash flows to recover the amortized cost of the related securities.

The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at December 31, 2010, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

(In thousands)	Amortized Cost		Fair Value
Due within one year	$	-	$	-
Due after one year but within five years		-		-
Due after five years within ten years		-		-
Due after ten years		-		-
Total		-		-

Mortgage-backed securities		12,901		13,411
Equity securities		372		503
Total	$	13,273	$	13,914

The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity at December 31, 2010, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

(In thousands)	Amortized Cost		Fair Value
Due within one year	$	20,609	$	20,609
Due after one year but within five years		13,260		13,260
Due after five years within ten years		-		-
Due after ten years		-		-
Total		33,869		33,869

Mortgage-backed securities		27,250		29,202
Total	$	61,119	$	63,071

There were no impairment losses in the equity securities portfolio for the three months ended December 31, 2010. Management will continue to monitor the equity securities and make an impairment adjustment if deemed necessary based upon the prospects for recovery and the duration and severity of the unrealized losses.

The following table presents a roll-forward of the amount of credit losses on the Bank’s investment securities recognized in earnings for the three months ended December 31, 2010 (in thousands).

Beginning balance of credit losses	$	1,442
Other-than-temporary impairment credit losses		-
Reduction for realized losses		(49	)
Ending balance of cumulative credit losses recognized in earnings		1,393

The assumptions used to estimate credit related losses are based on estimates obtained from third parties and cash flow projections. The assumptions used to determine the cash flows were based on estimates of loss severity, credit default, and prepayment speeds developed from third party servicers’ reports.

NOTE 8-LOANS

Loans Receivable

Loans receivable are summarized as follows:

	Dec ‘10		%Total			Sept '10		%Total

Commercial real estate loans	$	115,645		19.4	%	$	118,858		19.9	%
Commercial non-real estate loans		24,947		4.2	%		30,929		5.2	%
Commercial-construction loans		6,036		1.0	%		5,526		0.9	%
Commercial-land		19,521		3.3	%		19,004		3.2	%
Residential-construction loans		5,360		0.9	%		4,320		0.7	%
Residential-real estate loans		343,354		57.6	%		337,885		56.6	%
Consumer-Mobile home loans		39,628		6.7	%		40,094		6.7	%
Consumer-other		40,818		6.9	%		40,807		6.8	%
Total Loans		595,309		100.0	%		597,423		100.0	%
Less:
Allowance for loan losses	$	9,953				$	9,256
Deferred loan fees		1,578					1,532
Total Net Loans	$	583,778				$	586,635

Commercial non-real estate loans declined $6.0 million mainly due to loan payoffs from one customer relationship totaling $4.1 million. Residential real estate loans increased $5.4 million mainly due to originations of 15 year term conforming one-to-four family mortgage loans. At December 31, 2010 approximately $266 million of loans receivable were pledged as collateral securing advances from the FHLB.

CREDIT QUALITY OF LOANS AND ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses are as follows:

	Three Months Ended December 31,
(in 000’s)	2010			2009
Beginning ALLL	$	9,256		$	6,806
Provision for Loan Losses		1,150			1,196
Recoveries		17			3
Charge-offs		(470	)		(261	)
Ending ALLL	$	9,953		$	7,744

The amount of nonaccrual loans at December 31, 2010 and September 30, 2010 was approximately $13.7 million and $14.1 million, respectively. The Company had total impaired loans of approximately $13.3 million and $10.5 million at December 31, 2010 and September 30, 2010, respectively. Specific reserves allocated to impaired loans totaled approximately $2.8 million and $2.1 million as of December 31, 2010 and September 30, 2010, respectively. Impaired loans totaling approximately $2.4 million and $2.0 million had no specific reserves allocated as of December 31, 2010 and September 30, 2010, respectively. Interest recognized on impaired loans totaled $35,000 for the three months ended December 31, 2010,

which included $19,000 recognized on the $8.1 million of impaired loans, which represents the portion of impaired loans with an allowance recorded at December 31, 2010. Interest recognized on impaired loans consists of accrued but uncollected interest on loans that are performing at this time. Two commercial loans totaling $1.4 million were classified as troubled debt restructurings due to a modification of terms allowing the customer to make interest only payments for an amount of time. One large commercial loan totaling $1.6 million was modified due to an extension of maturity date and amount borrowed. One customer relationship with three residential real estate loans totaling $350,000 was modified by an extension of term, and reduction in interest rate to obtain a lower payment for the customer. The effect on net interest income of troubled debt restructurings is insignificant for the three months ended December 31, 2010.

Allowance for Loan Losses and Recorded Investment in Loans for the three months ended December 31, 2010

The allowance for possible loan losses is a reserve established through a provision for possible loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. The Company’s process for determining the appropriate level of the allowance for possible loan losses is designed to account for credit deterioration as it occurs. The provision for possible loan losses reflects loan quality trends, potential problem loans, and criticized loans and net charge-offs, among other factors. The provision for possible loan losses also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of the provision reflects not only the necessary increases in the allowance for possible loan losses related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools.

The table below provides an allocation of the quarter-end allowance for possible loan losses by loan type; however, allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories:

	Real Estate
(in thousands)	Commercial-real estate		Commercial-construction		Commercial-Land		Residential-construction		Residential-real estate		Commercial-non real estate		Consumer-Mobile Homes		Consumer-Other		Total
Allowance for loan losses:

Beginning Balance	$	2,402	$	68	$	1,076	$	61	$	4,173	$	327	$	640	$	509	$	9,256
Charge-offs		5		-		-		-		377		-		73		15		470
Recoveries		-		-		-		-		10		-		1		6		17
Provision		800		55		9		3		208		16		31		28		1,150
Ending balance	$	3,197	$	123	$	1,085	$	64	$	4,014	$	343	$	599	$	528	$	9,953

Ending balance allocation:
Individually evaluated for impairment	$	1,446	$	51	$	909	$	-	$	305	$	127	$	-	$	-	$	2,838



Collectively evaluated for impairment	$	1,751	$	72	$	176	$	64	$	3,709	$	216	$	599	$	528	$	7,115

Credit Quality Indicators

As of December 31, 2010

Commercial Credit Exposure

Credit Risk Profile by Internally Assigned Grade

Prime – Credits secured by cash (accounts held in Teche), stocks, bonds (companies with debt ratings of (“A” or better), U.S. Government securities with advance rates within bank policy and cash value of insurance policies (with sound AM Best rating).

Excellent – Demonstrates exceptional credit fundamentals, including stable and predictable profit margins and cash flows, strong liquidity and conservative balance sheet. Significant historical cash flow coverage of existing and pro-forma debt service coverage. Credits rated Minimal will have a strong primary source of repayment usually consisting of strong historical cash flows along with strong secondary and tertiary repayment sources. Subsequent repayment sources could consist of financially strong guarantors, low LTV’s on collateral with a strong secondary market or resale source. Companies fitting the profile of minimal risk will have low leverage, a defined management succession plan and

a broad product mix.

Average – Companies that fit this classification would most likely be a typical middle market business or high net worth individual. Borrowers would typically be secured and may have some reliance on inventory. Cash flow is adequate to service debt but may be susceptible to some deterioration due to cyclical, seasonal or economic events. Management is experienced but is concentrated in a few key people. Credits fitting this classification would typically have at least one very strong repayment source

and a good secondary repayment source. Company product mix may lack diversity. The majority of accounts fall within this classification. Annual financial statements on the borrower and guarantor(s) should be obtained.

Satisfactory – Displays an acceptable degree of risk in the short-term. Unfavorable characteristics may exist, however, these are offset by the positive trends. Some unpredictability in earnings and cash flow may exist. Leverage may be higher than typical in the industry and liquidity less than desirable. Management, while competent, may not be experienced and lack depth. Secondary and tertiary sources of repayment may be limited. Companies in a start-up situation typically fit this classification. Other characteristics of this classification would be companies with volatility in earning and/or increasing leverage.

Special mention – A Special Mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

Substandard - Assets classified Substandard have a well-defined weakness or weaknesses. A Substandard asset is inadequately protected by the current net worth or paying capacity of the obligor or pledged collateral, if any. It is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Weaknesses are to be based upon objective evidence.

Doubtful - Assets classified Doubtful have all of the weaknesses inherent in those classified Substandard. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of the currently existing facts, conditions and values.

Loss - Assets classified Loss are considered uncollectible, or of such little value that the continuance of the loan or Other Asset on the books of the Bank is not warranted. Some recovery of funds could be possible in the future, but the amount and probability of this recovery are not determinable, thus leaving little justification for the assets to remain on the books.

A Loss classification does not mean that an asset has no recovery or salvage value, but simply that it is not practical or desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be effected in the future.

Commercial Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	Commercial- Land		Commercial- Construction		Commercial- Non-Real Estate		Commercial- Real-Estate		Total		% Total

Prime	$	-	$	-	$	2,947	$	-	$	2,947		1.8	%
Excellent		-		-		101		52		153		0.1
Average		7,710		4,525		17,342		78,688		108,265		65.2
Satisfactory		4,656		69		2,119		29,179		36,023		21.7
Special Mention		805		376		2,179		3,846		7,206		4.3
Substandard		5,956		1,066		132		3,053		10,207		6.1
Doubtful		-		-		-		-		-		0.0
Loss		394		-		127		827		1,348		0.8
	$	19,521	$	6,036	$	24,947	$	115,645	$	166,149		100.0	%

Consumer Credit Exposure Credit Risk Profile

By Creditworthiness Category

(in thousands)	Residential- Real-Estate Construction		Residential- Prime		Total

Grade:
Pass	$	5,360	$	337,987	$	343,347
Special Mention		-		-		-
Substandard		-		3,789		3,789
	$	5,360	$	341,776	$	347,136

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

(in thousands)	Consumer- Mobile Homes		Consumer- Other Loans		Total

Performing	$	39,131	$	40,556	$	79,687
Nonperforming		497		262		759
	$	39,628	$	40,818	$	80,446

Age Analysis of Past Due Loans

As of December 31, 2010

(in thousands)	30-89 Days Past Due		Greater than 90 days Past Due		Total Past Due		Current		Total Loans		Recorded Investment > 90 days and Accruing

Commercial real estate loans	$	1,115	$	1,724	$	2,839	$	112,806	$	115,645	$	-
Commercial non-real estate loans		345		1,030		1,375		23,572		24,947		499
Commercial-construction loans		69		1,066		1,135		4,901		6,036		-
Commercial-land		66		6,289		6,355		13,166		19,521		247
Residential-construction loans		-		-		-		5,360		5,360		-
Residential-real estate loans		4,329		4,130		8,459		333,317		341,776		553
Consumer-Mobile home loans		714		497		1,211		38,417		39,628		-
Consumer-other		482		262		744		40,074		40,818		-
Totals:	$	7,120	$	14,998	$	22,118	$	571,613	$	593,731	$	1,299

The recorded investment in loans past due greater than 90 days and still accruing at September 30, 2010 was $805 thousand.

Impaired Loans

For the Quarter ended December 31, 2010

(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized

With no related allowance recorded:
Commercial real estate loans	$	1,264	$	1,264	$	-	$	1,263	$	4
Commercial non-real estate		93		93		-		97		1
Commercial-construction loans		763		763		-		763		-
Commercial-land		247		247		-		248		11
Residential-real estate loans		-		-		-		-		-
Subtotal:	$	2,367	$	2,367	$	-	$	2,371	$	16
With an allowance recorded:
Commercial real estate loans		2,065		3,511		1,446		2,476		19
Commercial non-real estate		-		127		127		-		-
Commercial-construction loans		252		303		51		286		-
Commercial-land		5,133		6,042		909		5,133		-
Residential-real estate loans		664		969		305		673		-
Subtotal:	$	8,114	$	10,952	$	2,838	$	8,568	$	19
Totals:
Commercial		9,817		12,350		2,533		10,266		35
Residential		664		969		305		673		-
Grand Total:	$	10,481	$	13,319	$	2,838	$	10,939	$	35

Modifications

As of December 31, 2010

(in thousands)	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment


Troubled debt restructuring occurring during the quarter ended December 31, 2010:
Commercial real estate loans		3		3,064		2,166
Residential real estate loans		3		350		350
		6	$	3,414	$	2,516

Loans on Nonaccrual Status

For the periods ended December 31, 2010 and September 30, 2010

(in thousands)	December 31, 2010		September 30, 2010

Commercial real estate loans	$	1,724	$	1,640
Commercial non-real estate loans		531		154
Commercial-construction loans		1,066		1,066
Commercial-land		6,042		6,042
Residential-construction loans		-		-
Residential-real estate loans		3,578		4,594
Consumer-Mobile home loans		497		458
Consumer-other		262		184
Grand Total:	$	13,700	$	14,138

A majority of the amount of nonaccrual loans in 2010 is due to a $6.2 million commercial credit relationship involving a residential land development and five show homes in the Baton Rouge market area, the borrower of which filed for bankruptcy protection under Chapter 11.

ITEM 2. 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 financial market volatility, changes in interest rates, risk associated with the effect of opening new branches, the ability to control costs and expenses, potential changes in regulation which could result in increased 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 is a “smaller reporting company” as defined by Item 10 of Regulation S-K and its financial statements were prepared in accordance with instructions applicable for such companies.

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; non-interest income (primarily, service charges on deposit accounts and other fees, net rental income, and gains and losses on investment activities); non-interest expenses (primarily, compensation and employee benefits, federal insurance premiums, 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.

RECENT DEVELOPMENTS

On December 16, 2010, the Board of Directors of the Bank adopted a Plan of Conversion (the “Plan”) whereby the Bank would convert its existing federal savings bank charter to that of a Louisiana commercial bank charter (the “Charter Conversion”). Upon completion of the Charter Conversion, the Bank would become a Louisiana state-chartered commercial bank regulated by the Commissioner of the Office of Financial Institutions of the State of Louisiana (the “Commissioner”) and the Federal Deposit Insurance Corporation (“FDIC”). Upon completion of the Charter Conversion and approval by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) of the Company’s bank holding company application, the Company will become a bank holding company regulated by the Federal Reserve Board. Completion of the Charter Conversion is subject to, among other conditions, the approval of the Commissioner and the Federal Reserve Board. There will be no changes to the directors, officers or employees of the Bank as a result of the Charter Conversion. The Bank’s FDIC insurance coverage, and rates and terms of loans and deposits, will not change as a result of the Charter Conversion. As a result of being regulated by the Commissioner, the Bank expects its annual supervisory

assessment to decrease by approximately $100,000. The Charter Conversion is expected to be completed in the second calendar quarter of 2011.

The Federal Reserve Board has adopted capital adequacy guidelines under which it assesses the adequacy of capital in examining and supervising bank holding companies and in processing applications to it under the Bank Holding Company Act. The Federal Reserve’s capital adequacy guidelines are similar to those imposed on the Bank by the Office of Thrift Supervision (“OTS”). In addition, under Federal Reserve Board policy, a bank holding company is expected to serve as a source of financial strength to each of its subsidiary banks and to commit resources to support each such bank. Consistent with its source of strength policy for subsidiary banks, the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fund fully the dividends, and the prospective rate of earnings retention appears to be consistent with the corporation’s capital needs, asset quality and overall financial condition. Federal banking laws and regulations do not currently impose similar requirements on the Company at this time.

COMPARISON OF FINANCIAL CONDITION

The Company’s total assets at December 31, 2010 amounted to $753.7 million, a decrease of $7.8 million or 1.03% as compared to $761.5 million at September 30, 2010. The decrease was primarily due to decreases in cash and cash equivalents and loans receivable.

Securities available-for-sale totaled $13.9 million and securities held to maturity totaled $61.1 million at December 31, 2010, which, combined, represented an increase of $471 thousand or 0.63% as compared to September 30, 2010. The increase was primarily due to purchases of interest bearing certificates of deposit at other banks offset by normal principal repayments on the existing portfolio along with maturities of government sponsored agency securities.

The $2.8 million carrying value of the held-to-maturity private label mortgage related securities amounts to 0.37% of total assets. Approximately 9.44% are rated AAA, AA or A at December 31, 2010. The following table provides additional information on this part of our investment portfolio:

Private Label Mortgage—Backed Securities and CMOs as of December 31, 2010

Bond	Face		Carrying Value						% of
Ratings	Value		12/31/2010						Assets
			$ in millions			% of Face

AAA to A	$	0.5		$	0.4		98.4	%		0.06	%
BBB to B		1.5			1.4		90.1			0.18
CCC to C		2.7			1.0		35.7			0.13
Below C or Not Rated		0.1			0.0		00.0			0.00
Total	$	4.8		$	2.8		58.2	%		0.37	%

Loans receivable totaled $583.8 million at December 31, 2010, which represented a decrease of $2.9 million or 0.49% compared to September 30, 2010. The decrease was due primarily to an overall decrease in commercial loans offset slightly by increases in one-to-four family mortgage loans.

Premises and equipment decreased $0.7 million or 2.6% due to depreciation offset by equipment purchases.

Total deposits, after interest credited, at December 31, 2010 were $583.4 million, which represented an increase of $4.1 million or 0.70% as compared to September 30, 2010. The increase was due to increases in non-interest bearing checking, interest bearing checking, and savings accounts offset somewhat by decreases in money market and time deposit accounts The weighted average remaining maturity on our time deposit portfolio is approximately 20 months.

Advances decreased $12.3 million or 12.26% as compared to the amount at September 30, 2010. The decrease was due to a maturity of a $10.0 million advance along with normal principal payments on existing advances.

Stockholders’ equity was $76.5 million at December 31, 2010 and $75.5 million at September 30, 2010. The increase was due primarily to net income less dividend payments of $734 thousand.

COMPARISON OF EARNINGS FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009

Net Income. The Company had net income of $1.8 million or $0.87 per diluted share for the three months ended December 31, 2010 as compared to net income of $1.7 million or $0.82 per diluted share for the three months ended December 31, 2009. The changes affecting net income for the quarter ended December 31, 2010 are discussed in the following paragraphs by category.

Total Interest Income. Total interest income decreased $0.5 million or 4.73% for the three months ended December 31, 2010. The decrease in interest income was caused by lower balances and rates on loans. The average yield on loans decreased to 6.29% for the three months ended December 31, 2010, from 6.50% for the same period in 2009.

Total Interest Expense. Total interest expense decreased $0.5 million, or 17.12%, as compared to the same period in the prior fiscal year. The average cost of deposits decreased for the three months ended December 31, 2010 as compared to the same period in the prior fiscal year. The decrease was due mainly to the average cost of deposits decreasing to 1.15% for the three months ended December 31, 2010 compared to 1.51%, for the same period in 2009, interest rates have steadily been decreasing affecting the Bank’s pricing of deposits and therefore reducing the average cost of deposits, along with a reduction in Federal Home Loan Bank Advances.

Net Interest Income. Net interest income increased $28 thousand, or 0.38%, for the three month period ended December 31, 2010, as compared to the same period ended December 31, 2009. The increase for the three month period was due to decreases in rates paid on interest paying liabilities offset somewhat by a decrease in rates on interest earning assets.

Provision for Loan Losses. Management recorded a $1.1 million provision for loan loss this quarter. The provision for loan losses decreased $46 thousand for the three month period ended December 31, 2010, as compared to the same period in 2009, due primarily to management’s assessment of the loan portfolio for probable losses. The ratio of the allowance for loan losses to total loans at December 31, 2010 was 1.68% compared to 1.55% at September 30, 2010 and 1.29% at December 31, 2009. The increase in the ratio of the allowance for loan losses to total loans has primarily been driven by the increase in non-performing loans and also by the current economic conditions affecting our markets. While the oil spill in the Gulf and the resulting moratorium on drilling has not had a direct effect on any of our customers, the current economic stress and uncertainty due to these events is considered in our

analysis of adequacy of the allowance for loan and lease losses.

Management regularly estimates the likely level of losses to determine whether the allowance for loan losses is adequate to absorb probable losses 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 be adequate to absorb probable losses. There have been no significant changes in the Company's estimation methods during the current period.

Management’s judgment as to the level of the allowance for loan losses 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 impaired loans, management also considers the fair value of any underlying collateral. In addition, management considers changes in loan concentrations, the level of and trends in non-performing loans during the period, Bank’s historical loss experience and historical charge-off percentages for state and national savings associations for similar types of loans in determining the appropriate amount of the allowance for loan losses. Because certain types of loans have higher credit risk, greater concentrations of such loans may result in an increase to the allowance. For this reason, management segregates the loan portfolio by type of loan and number of days of past due loans. Non-performing assets as a percent of total loans were 2.57% at December 31, 2010, compared to 2.47% at September 30, 2010 and 1.81% at December 31, 2009. Non-performing loan increases were mainly due to a $6.2 million commercial credit relationship involving a residential land development and five show homes in the Baton Rouge market area the borrower of which filed for protection under Chapter 11 bankruptcy.

Non-Interest Income. Total non-interest income increased $3 thousand for the three month period ended December 31, 2010 as compared to the same period in 2009. The increase in the current period is attributable to lower impairment losses on securities and a gain on a sale of land offset almost entirely by a decrease in service charge income. The decrease in service charge income was due to a decrease in debit card volume and a change in the way the bank assesses NSF fees.

Non-Interest Expense. Total non-interest expense decreased $58 thousand during the three months ended December 31, 2010, as compared to the same period in 2009. The decrease was due primarily to a decrease in FDIC insurance expense along with a decrease in occupancy expense.

Income Tax Expense. Income tax expense increased $44 thousand for the three month period ended December 31, 2010. The increase in tax expense was due to higher pretax income and lower relative percentage of tax exempt income. The Company’s effective tax rate was 33% for the three months ended December 31, 2010 and the three months ended December 31, 2009.

LIQUIDITY AND CAPITAL RESOURCES

Under current Office of Thrift Supervision regulations, the Bank is required to maintain certain levels of capital. At December 31, 2010 the Bank was in compliance with its three regulatory capital requirements as follows:

	(000's)
	Amount		Percent

Tangible capital	$	65,401		8.75	%
Tangible capital requirement		11,211		1.50	%
Excess over requirement		54,190		7.25	%

Core capital	$	65,401		8.75	%
Core capital requirement		29,895		4.00	%
Excess over requirement	$	35,506		4.75	%

Risk based capital	$	71,927		13.79	%
Risk based capital requirement		41,728		8.00	%
Excess over requirement	$	30,199		5.79	%

For the Bank to be well capitalized under current risk-based capital standards, all banks are required to have Tier I capital of at least 6% and total risk-based capital of 10%. Based on these standards, Teche Federal Bank is categorized as well capitalized at December 31, 2010. Management believes that under current regulations, the Bank will continue to meet its minimum capital requirements in the foreseeable future. Events beyond the control of the Bank, such as increased interest rates or a downturn in the economy in areas in which the Bank operates could adversely affect future earnings and as a result, the ability of the Bank to meet its future minimum capital requirements.

The Bank’s liquidity is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost effective manner. The Bank’s primary sources of funds are deposits, scheduled amortization and prepayments on loan and mortgage-backed securities, and advances from the FHLB. As of December 31, 2010, FHLB borrowed funds totaled $88 million. Advances are collateralized by a blanket-floating lien on the Company’s residential real estate first mortgage loans. Additional borrowing capacity is available from FHLB which totals $177 million, based on current collateral levels. The Bank, if the need arises, may also access a line of credit provided by a bank to supplement its supply of lendable funds and to meet deposit withdrawal requirements. Loan repayments, maturing investments and mortgage-backed securities prepayments are greatly influenced by general interest rates and economic conditions.

The Bank is required under federal regulations to maintain sufficient liquidity for its safe and sound operation. The Bank believes that it maintains sufficient liquidity to operate the Bank in a safe and sound manner.

ADDITIONAL KEY RATIOS

	At or For the
	Three Months Ended
	December 31
	2010(1)			2009(1)

Return on average assets		0.96	%		0.91	%
Return on average equity		9.36	%		9.37	%
Average interest rate spread		4.06	%		4.02	%
Nonperforming assets to total assets		2.27	%		1.58	%
Nonperforming loans to total loans		2.57	%		1.81	%
Average net interest margin		4.29	%		4.26	%
Tangible book value per share	$	35.04		$	32.74

(1)	Annualized where appropriate.

At December 31, 2010 the Company was in a slightly asset sensitive position. Generally, an asset sensitive position will result in enhanced earnings in a rising interest rate environment and declining earnings in a falling interest rate environment because larger volumes of assets than liabilities will reprice. Conversely, a liability sensitive position will be detrimental to earnings in a rising interest rate environment and will enhance earnings in a falling interest rate environment.

DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was intended primarily to overhaul the financial regulatory framework following the global financial crisis and will impact all financial institutions including our holding company and Capital Bank. The Dodd-Frank Act contains provisions that will, among other things, establish a Bureau of Consumer Financial Protection, establish a systemic risk regulator, consolidate certain federal bank regulators and impose increased corporate governance and executive compensation requirements. While many of the provisions in the Dodd-Frank Act are aimed at financial institutions significantly larger than us, and some will affect only institutions that engage in activities in which we do not engage, it will likely increase our regulatory compliance burden and may have a material adverse effect on us, including by increasing the costs associated with our regulatory examinations and compliance measures.

The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations and to prepare numerous studies and reports for the U.S. Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years. We are closely monitoring all relevant sections of the Dodd-Frank Act to ensure continued compliance with laws and regulations.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this item.

ITEM 4T.

CONTROLS AND PROCEDURES

(a)

Evaluation of disclosure controls and procedures. Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), the Company’s principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files and submits pursuant to the rules and forms of the SEC is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

(b)	During the quarter under report, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Neither the Company nor the Bank was engaged in any legal proceeding of a material nature at December 31, 2010. From time to time, the Company is a party to legal proceedings in the ordinary course of business wherein it enforces its security interest in loans.

ITEM 1A.

RISK FACTORS

Not applicable as the Company is a smaller reporting company.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information on repurchases by the Company of its common stock in each month of the quarter ended December 31, 2010:

ISSUER PURCHASES OF EQUITY SECURITIES

	Total Number of Shares (or Units) Purchased	Average Price Paid Per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be Purchased Under the Plans or Programs
October 1–31, 2010	-	$	-	-	18,792
November 1-30, 2010	3,802		32.71	3,802	14,990
December 1-31, 2010	3,100		32.85	3,100	11,890
Total	6,902	$	32.77	6,902	11,890

The repurchase plan announced February 18, 2009, authorizing the repurchase of up to 63,000 shares, has no expiration date for the authorized repurchase under this plan.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

[RESERVED]

ITEM 5.

OTHER INFORMATION

Not applicable.

ITEM 6.

EXHIBITS

31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TECHE HOLDING COMPANY
Date: February 14, 2011	By:	/s/ Patrick O. Little
		Patrick O. Little President and Chief Executive Officer (Principal Executive Officer)

Date: February 14, 2011	By:	/s/ J. L. Chauvin
		J. L. Chauvin Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

TECHE HOLDING CO - FORM 10-Q - February 14, 2011

Attached files

TECHE HOLDING CO Reports