TECHE HOLDING CO - FORM 10-Q

Attached files

file	filename
EX-32 - EXHIBIT 32 - CERTIFICATION PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT OF 2002 - TECHE HOLDING CO	ex32.htm
EX-31.1 - EXHIBIT 31.1 - CERTIFICATION OF CEO - TECHE HOLDING CO	ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - CERTIFICATION OF CFO - TECHE HOLDING CO	ex31-2.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

June 30, 2012

¨	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 [X ] 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: August 1, 2012.

Class		2,028,152
$.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	3

Consolidated Balance Sheets as of June 30, 2012 (unaudited) and September 30, 2011		3
Unaudited Consolidated Statements of Income for the three and nine months ended June 30, 2012 and 2011		4
Unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2012 and 2011		5
Unaudited Consolidated Statements of Cash Flows for the nine months ended June 30, 2012 and 2011		6
Notes to Unaudited Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	36

Item 4	Controls and Procedures	36

PART II.	OTHER INFORMATION	37

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Mine Safety Disclosures	37

Item 5.	Other Information	37

Item 6.	Exhibits	38

Signatures		39

TECHE HOLDING COMPANY

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

	June 30, 2012			September 30, 2011*
ASSETS		(unaudited)

Cash and due from banks	$	15,610		$	13,541
Interest-bearing deposits		19,295			15,614
Securities available-for-sale at fair value		21,984			25,148
Securities held-to-maturity—at amortized cost (estimated fair value of $75,079 and $82,859)		72,861			80,598
Loans receivable—net of allowance for loan losses of $8,411 and $8,331		652,124			600,271
Accrued interest receivable		2,439			2,320
Investment in Federal Home Loan Bank stock, at cost		6,520			5,318
Real estate owned, net		625			1,405
Prepaid expenses and other assets		4,620			5,021
Goodwill		3,647			3,647
Life insurance contracts		14,360			13,905
Premises and equipment, net		29,683			26,415

TOTAL ASSETS	$	843,768		$	793,203

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits	$	615,464		$	598,582
Advances from Federal Home Loan Bank		139,955			108,183
Advance payments by borrowers for taxes and insurance		2,651			2,436
Accrued interest payable		358			319
Accounts payable and other liabilities		3,660			3,696

TOTAL LIABILITIES		762,088			713,216

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Preferred stock, 5,000,000 shares authorized, none issued		-			-
Common stock, $.01 par value, 10,000,000 shares authorized; 4,722,114 and 4,688,697 shares issued, 2,025,715 and 2,062,040 outstanding		47			47
Additional paid-in capital		54,445			53,372
Retained earnings		81,171			78,203
Unearned compensation		-			(65	)
Treasury stock, 2,696,399 and 2,626,657 shares - at cost		(54,618	)		(52,058	)
Accumulated other comprehensive loss on held-to-maturity securities		(291	)		(353	)
Accumulated other comprehensive income on available for sale securities		926			841

TOTAL STOCKHOLDERS’ EQUITY		81,680			79,987

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	843,768		$	793,203

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						Nine Months Ended
	June 30,						June 30,
	2012			2011			2012			2011

INTEREST INCOME
Interest and fees on loans	$	9,124		$	9,083		$	27,381		$	27,550
Interest and dividends on investments		454			532			1,464			1,503
Other interest income		147			143			453			444
TOTAL INTEREST INCOME		9,725			9,758			29,298			29,497

INTEREST EXPENSE:
Deposits		981			1,265			3,209			4,122
Advances from Federal Home Loan Bank		1,012			920			2,976			2,968
TOTAL INTEREST EXPENSE		1,993			2,185			6,185			7,090
NET INTEREST INCOME		7,732			7,573			23,113			22,407

PROVISION FOR LOAN LOSSES		510			1,000			1,410			3,150

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		7,222			6,573			21,703			19,257

NON INTEREST INCOME:
Total other-than temporary impairment losses		(35	)		(87	)		(35	)		(87	)
Portion of impairment losses recognized in or reclassified from other comprehensive loss		(93	)		28			(93	)		28
Net impairment losses recognized in earnings		(128	)		(59	)		(128	)		(59	)
Service charges and other		3,509			3,749			10,725			11,013
Gain on sale of premises and equipment		-			-			-			103
Gain on equity securities		-			6			-			15
Gain on sale of loans		71			4			71			22
Other income		199			189			633			627
TOTAL NON INTEREST INCOME		3,651			3,889			11,301			11,721

NON INTEREST EXPENSE:
Compensation and employee benefits		4,576			4,325			13,475			12,518
Occupancy expense		1,660			1,555			4,826			4,473
Marketing and professional		740			664			2,397			2,198
FDIC premiums and assessment		145			225			424			674
Other operating expenses		1,166			1,007			4,057			3,414
TOTAL NON INTEREST EXPENSE		8,287			7,776			25,179			23,277

INCOME BEFORE INCOME TAXES		2,586			2,686			7,825			7,701
INCOME TAXES		854			896			2,613			2,574
NET INCOME	$	1,732		$	1,790		$	5,212		$	5,127
BASIC EARNINGS PER COMMON SHARE	$	0.84		$	0.86		$	2.53		$	2.48
DILUTED EARNINGS PER COMMON SHARE	$	0.83		$	0.85		$	2.50		$	2.45

See Notes to Unaudited Consolidated Financial Statements.

TECHE HOLDING COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN THOUSANDS)

	Three Months					Nine Months
	Ended June 30,					Ended June 30,
	2012		2011			2012		2011

Net income	$	1,732	$	1,790		$	5,212	$	5,127
Reclassification of realized losses (gains), net of tax		-		(4	)		-		(10	)

Noncredit portion of OTTI losses on held-to-maturity securities, net of tax		-		(18	)		-		(18	)

Previously recorded non-credit OTTI loss reclassed and recognized as a loss in the statement of income		62		-			62		-

Unrealized gains (losses), net of tax		100		150			85		177

Comprehensive income	$	1,894	$	1,918		$	5,359	$	5,276

See Notes to Unaudited Consolidated Financial Statements.

TECHE HOLDING COMPANY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

	For the Nine Months Ended June 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,212		$	5,127
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of discount on investments and mortgage-backed securities, net		(81)			(308	)
Impairment of debt securities		128			59
Provision for loan losses		1,410			3,150
Provision for real estate owned		412			2
Gain on sale of land		-			(103	)
(Gain) Loss on sale of OREO		82			(62	)
Gain on securities		-			(15	)
Gain on sale of loans		(71	)		(22	)
Depreciation		1,177			1,077
Excess tax benefits from share-based payment arrangements		(29	)		(29	)
Stock-based compensation		468			408
Change in accounts payable and other liabilities		(36	)		(410	)
Change in life insurance contracts		(455	)		(444	)
Change in prepaid expenses and other assets		401			(182	)
Change in accrued interest payable		39			(104	)
Other– net		8			262
Net cash provided by operating activities		8,665			8,406

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available for sale securities		(482	)		(13,876	)
Purchase of securities held to maturity		(6,819	)		(19,729	)
Proceeds from sale of equity securities		-			71
Principal repayments and proceeds from sale of mortgage-backed securities available for sale		3,649			2,839
Principal repayments of securities held to maturity		14,505			4,663
Net loan (originations) repayments		(56,580	)		3,840
Purchase of loans		(1,380	)		-
Proceeds from sale of loan participations		3,913			1,969
(Purchase) redemption of FHLB stock		(1,202	)		1,511
Proceeds from sale of land		-			499
Proceeds from sale of OREO		1,141			990
Purchase of premises and equipment		(4,445	)		(964	)
Net cash used in investing activities		(47,700	)		(18,187	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of ESOP loan		65			196
Net increase in deposits		16,882			45,968
Net (decrease) increase in FHLB advances		31,772			(20,484	)
Net (decrease) increase in advance payments by borrowers for taxes and insurance		215			(559	)
Proceeds from exercise of stock options		626			77
Dividends paid		(2,244	)		(2,226	)
Excess tax benefits from share-based payment arrangements		29			29
Purchase of common stock for treasury		(2,560	)		(673	)
Net cash provided by financing activities		44,785			22,328

NET INCREASE IN CASH AND CASH EQUIVALENTS		5,750			12,547
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		29,155			40,655
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	34,905		$	53,202

Supplemental schedule of noncash investing activities:
Transfer from loans to real estate owned		1,262			2,713
Loans originated to finance sale of real estate owned		407			268

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 June 30, 2012 and September 30, 2011 and for the three and nine months ended June 30, 2012 and 2011, 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 and nine months ended June 30, 2012 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, 2011. Certain items related to the financial statements dated September 30, 2011 were reclassified to conform to the June 30, 2012 financial statements. The reclassification had no impact on net income or shareholders’ equity.

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 and nine months ended June 30, 2012 and 2011 (in thousands).

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
Weighted average number of common shares outstanding - used in computation of basic income per common share		2,055		2,073		2,060		2,071
Effect of dilutive securities:
Common stock equivalents		23		23		21		23
Weighted average number of common shares outstanding plus effect of dilutive securities - used in computation of diluted net income per common share		2,078		2,096		2,081		2,094

For the three and nine months ended June 30, 2012 and 2011, 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) amounted to approximately 47,200 and 149,000 for the three and nine months ended June 30, 2012 and 2011, respectively.

NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS

ASU –Accounting Standards Update (2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04, amends Topic 820, Fair Value Measurement and Disclosures, to converge the fair value measurement guidance in U.S. generally accepted accounting principles and International Financial Reporting Standards. ASU 2011-04 clarified the application of existing fair value measurement requirements, changed certain principles in Topic 820 and requires additional fair value disclosures. ASU 2011-04 was effective for annual and interim periods beginning after December 15, 2011. The adoption of this ASU did not have a significant impact to the Company’s financial statements and the updated disclosures are included in this Form 10-Q.

ASU-Accounting Standards Update (2011-05), Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The amendments in this Update allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this Update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. The amendments do not require any transition disclosures. The adoption of this standard did not require additional disclosure.

ASU –Accounting Standards Update (2011-12), Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive in Accounting Standards Update No. 2011-05. This amendment effectively defers only those changes that related to the presentation of reclassification adjustments out of accumulated other comprehensive income and will be temporary to allow the Board time to re-deliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities.

NOTE 5 – 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 or liabilities 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.

This is 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.

The Company evaluates fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels. For example, changes in market activity or the addition of new unobservable inputs could, in the Company’s judgment, cause a transfer to either a higher or lower level. For the three and nine months ended June 30, 2012, there were no transfers between levels.

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. These are inputs used by a third-party pricing service used by the Company. 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. 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. The Company periodically updates its understanding of the inputs used and compares valuations to an additional third party source.

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 if the impaired loan is collateral-dependent, which is typically derived from appraisals that take into consideration prices in observed transactions involving similar assets and similar locations. Each appraisal is updated on an annual basis, either through a new appraisal or through an internal review process. Other methods used to determine fair value are enterprise value, liquidation value and discounted cash flows. The fair value of impaired loans that are not collateral dependent would require a measure using a discounted cash flow analysis considered to be a Level 3 input. Fair value is re-assessed at least quarterly, or more frequently when circumstances occur that indicate a change in fair value. 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 June 30, 2012, 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.

Fair value is also used on a nonrecurring basis for nonfinancial assets and liabilities such as foreclosed assets, and other real estate owned measured at fair value for purposes of assessing impairment. A description of the valuation methodologies used for nonfinancial assets measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Other Real Estate Owned

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 appraisal, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (Level 3). The fair value of OREO is based on a property’s appraised value adjusted at management’s discretion to reflect a further decline in the fair value of properties since the time the appraisal analysis was performed. The Company has experienced that appraisals quickly become outdated due to the volatile real-estate environment. The inputs used to determine the fair value of OREO fall within Level 3. 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.

The following tables present the fair value measurements of financial assets measured at fair value on a recurring and nonrecurring basis as of June 30, 2012 and September 30, 2011, respectively, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.

			Fair Value Measurements using:
	Fair Value At June 30, 2012		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
(In thousands)
Assets valued on a recurring basis:
Mortgage-backed securities:
Government National Mortgage Assoc.	$	1,729	$	-	$	1,729	$	-
Federal Home Loan Mortgage Corp.		2,427		-		2,427		-
Federal National Mortgage Assoc.		14,839		-		14,839		-
Total mortgage-backed securities	$	18,995	$	-	$	18,995	$	-

CMOs:
Government National Mortgage Assoc.	$	1,881	$	-	$	1,881	$	-
Other equity securities		1,108		1,108		-		-
Total recurring	$	21,984	$	1,108	$	20,876	$	-

Assets valued on a non-recurring basis:
CMOs: Private label	$	356	$	-	$	356	$	-
Impaired loans		4,388		-		-		4,388
Other real estate owned		625		-		-		625
Total non-recurring	$	5,369	$	-	$	356	$	5,013

			Fair Value Measurements using:
	Fair Value At September 30, 2011		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
(In thousands)
Assets valued on a recurring basis:
Mortgage-backed securities:
Government National Mortgage Assoc.	$	1,833	$	-	$	1,833	$	-
Federal Home Loan Mortgage Corp.		3,434		-		3,434		-
Federal National Mortgage Assoc.		17,179		-		17,179		-
Total mortgage-backed securities	$	22,446	$	-	$	22,446	$	-

CMOs:
Government National Mortgage Assoc.	$	2,183	$	-	$	2,183	$	-
Other equity securities		519		519		-		-
Total recurring	$	25,148	$	519	$	24,629	$	-
Assets valued on a non-recurring basis:
CMOs: Private Label	$	96	$	-	$	96	$	-
Mortgage-backed securities: Private Label		796		-		796		-
Impaired loans		6,821		-		-		6,821
Other real estate owned		1,405		-		-		1,405
Total non-recurring	$	9,118	$	-	$	892	$	8,226

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value		Valuation	Unobservable	Range (Weighted
	Estimate		Techniques	Input	Average)
(In thousands)
June 30, 2012:

Impaired Loans	$	4,388	Property appraisals	Management discount for property type and recent market volatility	5%-30% discount

Other real estate owned	$	625	Property appraisals	Management discount for property type and recent market volatility	10%-68% discount

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 the discussion in the beginning of Note 5 on the valuation of the 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 the discussion in the beginning of Note 5 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 June 30, 2012. 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 following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

The estimated fair values of the Company’s financial instruments are as follows at June 30, 2012 and September 30, 2011:

	June 30, 2012
(In thousands)					Fair Value Measurements at June 30, 2012
(In thousands)					Fair Value Measurements at June 30, 2012
	Carrying		Estimated		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Financial assets:	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	34,905	$	34,905	$	34,905	$	-	$	-
Investment securities		94,845		97,063		1,108		95,955		-
FHLB stock		6,520		6,520		-		6,520		-
Accrued interest receivable		2,439		2,439		-		2,439		-
Life Insurance contracts		14,360		14,360		-		14,360		-
Loans receivable, net		652,124		651,593		-		-		651,593

Financial liabilities:
Deposits		615,564		619,281		93,896		525,385		-
Advance from Federal Home Loan Bank		139,955		149,963		-		149,963		-
Accrued interest payable		358		358		-		358		-

	September 30, 2011
	Carrying		Estimated
	Amount		Fair Value
(In thousands)
Financial assets:
Cash and cash equivalents	$	29,155	$	29,155
Investment securities		105,746		108,007
FHLB stock		5,318		5,318
Accrued interest receivable		2,320		2,320
Life Insurance contracts		13,905		13,905
Loans receivable, net		600,271		629,541

Financial liabilities:
Deposits	$	598,582	$	603,251
Advance from Federal Home Loan Bank		108,183		116,879
Accrued interest payable		319		319

NOTE 6 – SECURITIES

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

	June 30, 2012
			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
(In thousands)
Mortgage-backed securities:
Government National Mortgage Assoc.	$	1,675	$	54	$	-		$	1,729
Federal Home Loan Mortgage Corp.		2,340		87		-			2,427
Federal National Mortgage Assoc.		13,976		863		-			14,839
		17,991		1,004		-			18,995

CMOs:
Government National Mortgage Assoc.		1,701		180		-			1,881
Other equity securities		868		244		(4	)		1,108
Total	$	20,560	$	1,428	$	(4	)	$	21,984

	September 30, 2011
			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
(In thousands)
Mortgage-backed securities:
Government National Mortgage Assoc.	$	1,772	$	61	$	-		$	1,833
Federal Home Loan Mortgage Corp.		3,343		91		-			3,434
Federal National Mortgage Assoc.		16,367		812		-			17,179
		21,482		964		-			22,446

CMOs:
Government National Mortgage Assoc.		1,987		196		-			2,183
Other equity securities		386		136		(3	)		519
Total	$	23,855	$	1,296	$	(3	)	$	25,148

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

	June 30, 2012
			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
(In thousands)
Investment securities:
Time deposits other banks	$	46,933	$	-	$	-		$	46,933
Mortgage-backed securities:
Federal National Mortgage Assoc.		19,288		1,130		(1	)		20,417
Federal Home Loan Mortgage Corp.		4,248		338		-			4,586
Private Label		1,173		380		(58	)		1,495
CMOs:
Federal Home Loan Mortgage Corp.		82		2		-			84
Federal National Mortgage Assoc.		905		71		-			976
Private Label		232		356		-			588
Total	$	72,861	$	2,277	$	(59	)	$	75,079

	September 30, 2011
			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
(In thousands)
Investment securities:
Time deposits other banks	$	47,975	$	-	$	-		$	47,975
Mortgage-backed securities:
Federal National Mortgage Assoc.		24,200		1,194		(1	)		25,393
Federal Home Loan Mortgage Corp.		5,530		451		-			5,981
Private Label		1,377		367		(102	)		1,642
CMOs:
Federal Home Loan Mortgage Corp.		129		1		-			130
Federal National Mortgage Assoc.		1,067		52		-			1,119
Private Label		320		300		(1	)		619
	$	80,598	$	2,365	$	(104	)	$	82,859

Details concerning available-for-sale securities with unrealized losses as of June 30, 2012 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		$	83		$	(2	)		$	5		$	(2	)		$	88		$	(4	)
Total		$	83		$	(2	)		$	5		$	(2	)		$	88		$	(4	)

Details concerning held-to-maturity securities with unrealized losses as of June 30, 2012 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	$	100	$	(4	)	$	293	$	(54	)	$	393	$	(58	)
Federal National Mortgage Association		117		(1	)		-		-			117		(1	)
Total	$	217	$	(5	)	$	293	$	(54	)	$	510	$	(59	)

Details concerning available-for-sale securities with unrealized losses as of September 30, 2011 are as follows:

	Securities with losses							Securities with losses
	under 12 months							Over 12 months						Total
				Gross							Gross						Gross
	Fair			unrealized				Fair			unrealized			Fair			unrealized
(In thousands)	value			Losses				value			losses			value			losses
Available-for-Sale
Marketable equity securities		$	7		$	(3	)		$	-		$	-		$	7		$	(3	)
		$	7		$	(3	)		$	-		$	-		$	7		$	(3	)

Details concerning held-to-maturity securities with unrealized losses as of September 30, 2011 are as follows:

	Securities with losses							Securities with losses
	under 12 months							Over 12 months							Total
				Gross							Gross							Gross
	Fair			unrealized				Fair			unrealized				Fair			unrealized
(In thousands)	value			losses				value			losses				value			losses
Held-to-Maturity
Mortgage backed securities
Private Label		$	231		$	(13	)		$	499		$	(89	)		$	730		$	(102	)
Federal National Mortgage Association			199			(1	)			-			-				199			(1	)
CMOs:
Private label			48			(1	)			-			-				48			(1	)
		$	478		$	(15	)		$	499		$	(89	)		$	977		$	(104	)

The Bank had a total of 20 securities classified as held-to-maturity in an unrealized loss position; with total gross unrealized losses of $ 59,000 as of June 30, 2012.

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 (GSEs) 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. GSEs 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 an agency of 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, the 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 was $128,000 of realized credit losses in the private label securities portfolio for the three and nine months ended June 30, 2012. In the performance of cash flow analysis on private label securities, management determined impaired securities with non-credit losses previously recognized in other comprehensive income had additional credit losses. Accordingly, management reclassified previous non-credit losses in the amount of $93,000 from other comprehensive income into earnings for the three and nine months ended June 30, 2012. All private label securities with no other than temporary impairment 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 June 30, 2012, 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 but within ten years		-		-
Due after ten years		-		-
Total		-		-

Mortgage-backed securities		19,692		20,876
Equity securities		868		1,108
Total	$	20,560	$	21,984

The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity at June 30, 2012, 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	$	35,286	$	35,286
Due after one year but within five years		11,647		11,647
Due after five years but within ten years		-		-
Due after ten years		-		-
Total		46,933		46,933

Mortgage-backed securities		25,928		28,146
Total	$	72,861	$	75,079

There were no impairment losses in the equity securities portfolio for the nine months ended June 30, 2012. 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 nine months ended June 30, 2012 (in thousands).

Beginning balance of credit losses	$	1,563
Amount related to credit losses for securities for which an other-than-temporary impairment was not previously recognized in earnings		118
Amount related to credit losses for securities for which an other-than-temporary impairment was recognized in earnings		10
Reduction for realized losses		(134	)
Ending balance of cumulative credit losses recognized in earnings	$	1,557

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 7-LOANS

Loans Receivable

Loans receivable are summarized as follows:

	Jun 30,‘12		%Total			Sept 30, ‘11		%Total
(in 000’s)
Commercial real estate loans	$	120,988		18.2	%	$	111,558		18.2	%
Commercial non-real estate loans		31,564		4.8	%		27,403		4.5	%
Commercial-construction loans		11,732		1.8	%		9,473		1.6	%
Commercial-land		13,374		2.0	%		15,721		2.6	%
Residential-construction loans		8,288		1.3	%		10,604		1.7	%
Residential-real estate loans		398,475		60.1	%		356,950		58.5	%
Consumer-Mobile home loans		36,910		5.6	%		38,285		6.3	%
Consumer-other		41,144		6.2	%		40,227		6.6	%
Total Loans		662,475		100.0	%		610,221		100.0	%
Less:
Allowance for loan losses		8,411					8,331
Deferred loan fees		1,940					1,619
Total Net Loans	$	652,124				$	600,271

Residential real estate loans increased $41.5 million mainly due to originations of 15 year term conforming one-to-four family mortgage loans. Commercial real estate loans increased $9.4 million mainly due to four new large commercial real estate loans that total $8.9 million at June 30, 2012. At June 30, 2012 approximately $289.3 million of loans receivable were pledged as collateral securing advances from the FHLB.

At June 30, 2012 the Company was in an 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. In the current operating environment, the Company is biased toward rising market interest rates and the timing of such increases, if any, is unknown. With the increase in the Company’s portfolio of conforming one-to-four family fixed interest rate loans at historically low market interest rates, the future sale of a portion of this portfolio could be a possibility and in keeping with one of the methods used by the Company to manage interest rate risk in the past. There is no present intent to sell these loans, however.

CREDIT QUALITY OF LOANS AND ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses were as follows:

	Three Months Ended June 30,						Nine Months Ended June 30,
(in 000’s)	2012			2011			2012			2011
Beginning ALLL	$	8,450		$	10,452		$	8,331		$	9,256
Provision for Loan Losses		510			1,000			1,410			3,150
Net Charge-offs		(549	)		(3,329	)		(1,330	)		(4,283	)
Ending ALLL	$	8,411		$	8,123		$	8,411		$	8,123

Non-accrual loans at both June 30, 2012 and September 30, 2011 was approximately $10.1 million. The Company had total impaired loans of approximately $9.3 million and $8.7 million at June 30, 2012 and September 30, 2011, respectively. Specific reserves allocated to impaired loans totaled zero and $548 thousand as of June 30, 2012 and September 30, 2011, respectively. Impaired loans totaling approximately $9.3 million and $2.6 million had no specific reserves allocated as of June 30, 2012 and September 30, 2011, respectively.

Allowance for Loan Losses and Recorded Investment in Loans as of June 30, 2012 and September 30, 2011 and for the three and nine months ended June 30, 2012 and June 30, 2011.

The allowance for loan losses is a reserve established through a provision for 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 is the amount, in the judgment of management, necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The methodology is based on the Bank’s 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 loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, potential problem loans, and criticized loans and net charge-offs, among other factors. The provision for 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 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 class.

The table below provides an allocation of the 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:

	Quarter Ended June 30, 2012
	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	$	2,008	$	139	$	433	$	82	$	4,332	$	270	$	596	$	590	$	8,450
Charge-offs		100		-		-		-		193		165		65		43		566
Recoveries		3		-		-		-		5		-		8		1		17
Provision		99		1		-		-		161		148		67		34		510
Ending balance	$	2,010	$	140	$	433	$	82	$	4,305	$	253	$	606	$	582	$	8,411



	Quarter Ended June 30, 2011
	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	$	3,083	$	128		1,570	$	69	$	4,190	$	226	$	619	$	567	$	10,452
Charge-offs		1,232		51		1,367		-		520		5		103		58		3,336
Recoveries		-		-		-		-		-		-		6		1		7
Provision		248		10		25		7		519		31		85		75		1,000
Ending balance	$	2,099	$	87	$	228	$	76	$	4,189	$	252	$	607	$	585	$	8,123

	Nine Months Ended June 30, 2012
	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	$	1,991	$	136	$	425	$	78	$	4,274	$	258	$	593	$	576	$	8,331
Charge-offs		400		-		250		-		467		165		176		65		1,523
Recoveries		159		-		-		-		11		-		14		9		193
Provision		260		4		258		4		487		160		176		61		1,410
Ending balance	$	2,010	$	140	$	433	$	82	$	4,305	$	253	$	607	$	581	$	8,411


	Nine Months Ended June 30, 2011
	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		1,461		51		1,367		-		1,041		138		201		72		4,331
Recoveries		-		-		-		-		33		1		8		6		48
Provision		1,158		70		519		15		1,024		62		160		142		3,150
Ending balance	$	2,099	$	87	$	228	$	76	$	4,189	$	252	$	607	$	585	$	8,123

	As of June 30, 2012
	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:

Ending balance allocation:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Collectively evaluated for impairment	$	2,010	$	140	$	433	$	82	$	4,305	$	253	$	607	$	581	$	8,411

Loans: Ending Balance Collectively evaluated for impairment	$	117,028	$	11,076	$	9,440	$	8,288	$	397,913	$	31,399	$	36,910	$	41,144	$	653,198

Ending Balance individually evaluated for impairment	$	3,960	$	656	$	3,934	$	-	$	562	$	165	$	-	$	-	$	9,277

	As of September 30, 2011
	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:

Ending balance allocation:
Individually evaluated for impairment	$	233	$	-	$	250	$	-	$	65	$	-	$	-	$	-	$	548

Collectively evaluated for impairment	$	1,758	$	136	$	175	$	78	$	4,209	$	258	$	593	$	576	$	7,783

Loans: Ending Balance Collectively evaluated for impairment	$	109,181	$	8,452	$	10,888	$	10,604	$	356,545	$	27,345	$	38,285	$	40,227	$	601,527

Ending Balance individually evaluated for impairment	$	2,377	$	1,021	$	4,833	$	-	$	405	$	58	$	-	$	-	$	8,694

Credit Quality Indicators

As of June 30, 2012

Commercial Credit Exposure

Credit Risk Profile by Internally Assigned Grade

Prime – Credits secured by cash (accounts held in the Bank), 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 – Borrowers that demonstrate exceptional credit fundamentals, including stable and predictable profit margins, cash flows, strong liquidity, conservative balance sheet and significant historical cash flow coverage of existing and pro-forma debt service coverage. Credits rated Excellent 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 loan to value ratios 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 – Borrowers that fit this classification would most likely be a typical middle market businesses or a high net worth individual. Loans 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 loans fall within this classification. Annual financial statements on the borrower and guarantor(s) should be obtained.

Satisfactory – These loans display 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 earnings 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 the 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 as 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 Loans

Our underwriting philosophy is centered primarily around the borrower’s ability to generate adequate cash flow to service the debt in accordance with the terms and conditions of the loan agreement. Understanding the borrowers’ businesses along with their level of experience and the background of the principals is also a part of our lending philosophy. Generally, our loans are secured by collateral and we assess the market value of the collateral and the strength it brings to the loan. We generally require personal guarantees of the borrower’s principals and assess the financial strength and liquidity of each guarantor as part of our process.

Common risks to each class of commercial loans include risks that are not specific to the individual transactions such as general economic conditions within our markets. There are risks associated with each individual transaction such as a change in marital status, disability or death of the borrower and the loss of value of our collateral due to market conditions.

In addition to these common risks, additional risks are inherent in certain types of commercial loans.

Commercial Construction and Land Development:

Commercial construction and land development loans are dependent upon the supply and demand for commercial real estate in the markets we serve as well as the demand for newly constructed residential homes and lots. A continuing decrease in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for our borrowers.

Commercial Mortgage and C&I Loans:

The repayment of commercial mortgage and C&I loans is primarily dependent upon the ability of our borrowers to produce cash flow consistent with original projections analyzed during the credit underwriting process. While our loans are generally secured by collateral with limitations on maximum loan to value, there is the risk that liquidation of the collateral will not fully satisfy the loan balance.

Non-owner occupied nonresidential and multifamily properties:

Loans secured by non-residential properties such as office buildings, and loans secured by multifamily housing are dependent upon the ability of the property to produce enough cash flow sufficient to service the debt. These types of properties are generally susceptible to high unemployment or generally weak economic conditions which can result in high vacancy rates.

Non-commercial loans

Most of our non-commercial loans are centrally underwritten. When assessing credit risk, we analyze certain factors relating to credit performance such as payment history, credit utilization, length of credit history. Since most of our non-commercial loans are secured, we evaluate the likely market value of the collateral. Common risks that are not specific to individual loan transactions include economic conditions within or markets, particularly unemployment rates and potential declines in real estate values. Personal events such as disability, death or a change in marital status also add risk to non-commercial loans.

In addition to these common risks, additional risks are inherent in certain types of non-commercial loans.

Revolving Mortgages:

Revolving loans such as HELOCs may be secured by first and junior liens on residential real estate making such loans susceptible to deterioration in residential real estate values. Additional risks include lien perfection deficiencies. Further, open end lines of credit have the inherent risk that the borrower may draw on the lines in excess of their collateral value particularly in a deteriorating real estate market.

Consumer Loans:

Consumer loans include loans secured by personal property such as automobiles, mobile homes, and other title recreational vehicles such as boats, RV’s and motorcycles. Consumer loans also may include unsecured loans. The value of the underlying collateral within this group of loans is especially volatile due to the potential rapid depreciation in values.

Residential Construction and Permanent Mortgages:

Residential mortgages are typically secured by 1-4 family residential property and residential lots. Declines in market value can result in residential mortgages with balances in excess of the value of the property securing the loan. Residential construction loans can experience delays in construction and cost overruns that can exceed the borrower’s financial ability to complete the home leading to unmarketable collateral.

Commercial Credit Exposure

Credit Risk Profile by Internally Assigned Grade at June 30, 2012

(In thousands)	Commercial- Land		Commercial- Construction		Commercial- Non-Real Estate		Commercial- Real Estate		Total		% Total

Prime	$	-	$	-	$	2,854	$	-	$	2,854		1.6	%
Excellent		-		-		100		-		100		0.1
Average		8,039		10,638		26,458		95,392		140,527		79.1
Satisfactory		660		66		1,987		20,063		22,776		12.8
Special Mention		741		372		-		1,573		2,686		1.5
Substandard		3,934		656		165		3,960		8,715		4.9
Doubtful		-		-		-		-		-		0.0
Loss		-		-		-		-		-		0.0
Total	$	13,374	$	11,732	$	31,564	$	120,988	$	177,658		100.0	%

Commercial Credit Exposure

Credit Risk Profile by Internally Assigned Grade at September 30, 2011

(In thousands)	Commercial- Land		Commercial- Construction		Commercial- Non-Real Estate		Commercial- Real Estate		Total		% Total

Prime	$	-	$	-	$	3,489	$	-	$	3,489		2.1	%
Excellent		-		-		50		8		58		0.1
Average		9,025		6,353		22,255		83,568		121,201		73.8
Satisfactory		1,738		1,687		993		23,600		28,018		17.1
Special Mention		166		381		558		2,534		3,639		2.2
Substandard		4,792		1,052		58		1,848		7,750		4.7
Doubtful		-		-		-		-		-		0.0
Loss		-		-		-		-		-		0.0
Total	$	15,721	$	9,473	$	27,403	$	111,558	$	164,155		100.0	%

Consumer Credit Exposure Credit Risk Profile

By Creditworthiness Category at June 30, 2012

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

Grade:
Pass	$	8,288	$	393,421	$	401,709
Special Mention		-		329		329
Substandard		-		4,725		4,725
Loss		-		-		-
Total	$	8,288	$	398,475	$	406,763

Consumer Credit Exposure Credit Risk Profile

By Creditworthiness Category at September 30, 2011

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

Grade:
Pass	$	10,604	$	353,447	$	364,051
Special Mention		-		183		183
Substandard		-		3,320		3,320
Loss		-		-		-
Total	$	10,604	$	356,950	$	367,554

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity at June 30, 2012

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

Performing	$	36,472	$	40,799	$	77,271
Nonperforming		438		345		783
Total	$	36,910	$	41,144	$	78,054

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity at September 30, 2011

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

Performing	$	37,906	$	40,108	$	78,014
Nonperforming		379		119		498
Total	$	38,285	$	40,227	$	78,512

Age Analysis of Past Due Loans

As of June 30, 2012

(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	$	1,029	$	559	$	1,588	$	119,400	$	120,988	$	-
Commercial non-real estate loans		35		-		35		31,529		31,564		-
Commercial-construction loans		722		-		722		11,010		11,732		-
Commercial-land		-		121		121		13,253		13,374		-
Residential-construction loans		-		-		-		8,288		8,288		-
Residential-real estate loans		4,013		4,624		8,637		389,838		398,475		293
Consumer-Mobile home loans		876		438		1,314		35,596		36,910		-
Consumer-other		489		345		834		40,310		41,144		-
Total	$	7,164	$	6,087	$	13,251	$	649,224	$	662,475	$	293

Age Analysis of Past Due Loans

As of September 30, 2011

(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	$	660	$	1,275	$	1,935	$	109,623	$	111,558	$	-
Commercial non-real estate loans		60		-		60		27,343		27,403		-
Commercial-construction loans		381		258		639		8,834		9,473		-
Commercial-land		500		360		860		14,861		15,721		239
Residential-construction loans		-		-		-		10,604		10,604		-
Residential-real estate loans		4,922		3,041		7,963		348,987		356,950		554
Consumer-Mobile home loans		1,025		379		1,404		36,881		38,285		-
Consumer-other		564		320		884		39,343		40,227		-
Total	$	8,112	$	5,633	$	13,745	$	596,476	$	610,221	$	793

Impaired Loans

For the three and nine months ended June 30, 2012

							This Quarter				Year to Date
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

With no related allowance recorded:
Commercial real estate loans	$	3,455	$	4,439	$	-	$	3,584	$	5	$	4,282	$	5
Commercial non-real estate		165		165		-		166		1		255		3
Commercial-construction loans		656		656		-		656		-		656		-
Commercial-land		3,934		5,551		-		3,987		8		4,336		11
Residential-real estate loans		1,067		1,303		-		1,154		12		1,277		33
Subtotal:		9,277		12,114		-		9,547		26		10,806		52
With an allowance recorded:
Commercial real estate loans		-		-		-		-		-		-		-
Commercial non-real estate		-		-		-		-		-		-		-
Commercial-construction loans		-		-		-		-		-		-		-
Commercial-land		-		-		-		-		-		-		-
Residential-real estate loans		-		-		-		-		-		-		-
Subtotal:		-		-		-		-		-		-		-
Totals:
Commercial		8,210		10,811		-		8,393		14		9,529		19
Residential		1,067		1,303		-		1,154		12		1,277		33
Total	$	9,277	$	12,114	$	-	$	9,547	$	26	$	10,806	$	52

Impaired Loans

For the year ended September 30, 2011

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

With no related allowance recorded:
Commercial real estate loans	$	1,128	$	2,095	$	-	$	1,713	$	20
Commercial non-real estate		58		58		-		78		6
Commercial-construction loans		1,021		1,072		-		1,054		-
Commercial-land		360		754		-		621		8
Residential-real estate loans		-		-		-		-		-
Subtotal:		2,567		3,979		-		3,466		34
With an allowance recorded:
Commercial real estate loans		1,249		1,350		233		1,383		88
Commercial non-real estate		-		-		-		-		-
Commercial-construction loans		-		-		-		-		-
Commercial-land		4,473		5,445		250		5,121		-
Residential-real estate loans		405		405		65		355		20
Subtotal:		6,127		7,200		548		6,859		108
Totals:
Commercial		8,289		10,774		483		9,970		122
Residential		405		405		65		355		20
Total	$	8,694	$	11,179	$	548	$	10,325	$	142

Modifications

As of June 30, 2012

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


Troubled debt restructuring occurring during the nine months ended June 30, 2012:
Commercial real estate loans		3	$	2,261	$	2,261
Commercial non-real estate		1		127		127
Total		4	$	2,388	$	2,388

Three commercial loans totaling 2.3 million were classified as troubled debt restructurings due to a modification of terms allowing customer to make interest only payments for an amount of time. One commercial loan secured by equipment for $127,000 was also classified as troubled debt restructure due to a modification of terms allowing customer to make interest only payments for an amount of time.

As of June 30, 2012, no loans that were modified as troubled debt restructurings within the previous twelve months defaulted after their restructure.

Modifications

As of June 30, 2011

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


Troubled debt restructuring occurring during the nine months ended June 30, 2011:
Commercial real estate loans		3	$	3,126	$	2,228
Commercial construction loans		10		787		787
Commercial land		3		5,811		4,839
Residential real estate loans		3		356		356
Total		19	$	10,080	$	8,210

Three commercial real estate loans totaling $2.2 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 land loan totaling $3.5 million was classified as a troubled debt restructuring due to a repayment plan agreed to by the bankruptcy court. Commercial construction loans totaling $787,000 were classified as troubled debt restructurings due to a repayment plan agreed to by the bankruptcy court. One customer relationship with three residential real estate loans totaling $356,000 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 nine months ended June 30, 2011.

Loans on Nonaccrual Status

At June 30, 2012 and September 30, 2011

(in thousands)	June 30, 2012		September 30, 2011

Commercial real estate loans	$	559	$	1,275
Commercial non-real estate loans		-		-
Commercial-construction loans		656		1,021
Commercial-land		3,934		4,594
Residential-construction loans		-		-
Residential-real estate loans		4,331		2,487
Consumer-Mobile home loans		438		379
Consumer-other		345		322
Total	$	10,263	$	10,078

A significant portion of total nonaccrual loans at June 30, 2012 was related to a $ 3.8 million commercial land loan along with a $ 0.7 million commercial construction loan totaling to a $ 4.5 million commercial credit relationship involving a residential land development and four show homes in the Baton Rouge market area, the borrower of which filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. This same relationship at September 30, 2011 amounted to a $ 4.6 million commercial land loan along with a $ 0.8 million commercial construction loan totaling $ 5.4 million.

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 loan losses; 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.

COMPARISON OF FINANCIAL CONDITION

The Company’s total assets at June 30, 2012 amounted to $ 843.8 million, an increase of $ 50.6 million or 6.37 % as compared to $ 793.2 million at September 30, 2011. The increase was due to an increase in loans receivable.

Securities available-for-sale totaled $ 22.0 million and securities held to maturity totaled $ 72.9 million at June 30, 2012, which, combined, represented a decrease of $ 10.9 million or 10.31 % as compared to September 30, 2011. The decrease was primarily due to normal principal repayments on the existing portfolio along with maturities of certificates of deposit at other banks.

Loans receivable, net of allowance for loan losses, totaled $ 652.1 million at June 30, 2012, which represented an increase of $ 51.9 million or 8.64 % compared to September 30, 2011. The increase was mainly due to originations of 15 year term conforming one-to-four family mortgage loans and commercial loans.

FHLB stock increased $1.2 million due to stock purchases related to an increase in FHLB advances.

Total deposits, after interest credited, at June 30, 2012 were $ 615.5 million, which represented an increase of $ 16.9 million or 2.82 % as compared to September 30, 2011. The increase was due to increases in non-interest and interest bearing checking accounts, along with increases in money market, and savings, offset slightly by decreases in time deposits and money market accounts. The weighted average remaining maturity on our time deposit portfolio is approximately 20.1 months.

Advances increased $ 31.8 million or 29.37 % as compared to the amount at September 30, 2011. The increase was due to new advances in the amount of $ 57.7 million offset by maturities in the amount of $ 22.7 million and $ 3.2 million in normal principal payments on existing advances.

Stockholders’ equity was $ 81.7 million at June 30, 2012 and $80.0 million at September 30, 2011. The increase was due primarily to net income less dividend payments of $ 2.2 million and stock repurchases of $ 2.6 million.

COMPARISON OF EARNINGS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2012 AND 2011

Net Income. The Company had net income of $ 1.7 million or $ 0.83 per diluted share, and $ 5.2 million or $2.50 per diluted share, for the three and nine months ended June 30, 2012 as compared to net income of $1.8 million or $0.85 per diluted share, and $5.1 million or $2.45 per diluted share, for the three and nine month periods ended June 30, 2011, respectively. The changes affecting net income are discussed in the following paragraphs by category.

Total Interest Income. Total interest income decreased $33 thousand or 0.34% and $199 thousand or 0.67% for the three and nine months ended June 30, 2012, respectively, as compared to the same periods ended June 30, 2011. The average yield on loans decreased to 5.63 % and 5.75 %, respectively, for the three and nine months ended June 30, 2012, from 6.20% and 6.22%, respectively, for the same periods in 2011. Loan yields have trended downward because of the low interest rate environment.

Total Interest Expense. Total interest expense decreased $192 thousand or 8.79 % and $905 thousand or 12.76%, respectively, for the three and nine month periods ended June 30, 2012 as compared to the same periods in the prior fiscal year. The decrease was due mainly to the average cost of deposits decreasing to 0.75% and 0.82% for the three and nine months ended June 30, 2012 compared to 0.96% and 1.06%, for the same periods in 2011. Interest rates have steadily decreased affecting the Bank’s pricing of deposits. The decrease in rates on Federal Home Loan Bank advances has also contributed to the decrease in total interest expense.

Net Interest Income. Net interest income increased $159 thousand or 2.10% and increased $706 thousand or 3.15%, respectively, for the three and nine month periods ended June 30, 2012, as compared to the same periods ended June 30, 2011. The increase for the three month period ended June 30, 2012 in net interest income was primarily due to a decrease in rates on interest bearing liabilities. The increase for the nine month period ended June 30, 2012 in net interest income was primarily due to a decrease in the cost of interest bearing liabilities offset somewhat by a decrease in rates on earning assets.

Provision for Loan Losses. Management recorded a $ 1.4 million provision for the fiscal year to date as compared to a provision of $3.2 million for the first nine months of fiscal 2011, 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 June 30, 2012 was 1.27% compared to 1.37% at September 30, 2011 and 1.39% at June 30, 2011. The decrease in the overall ratio of the allowance for loan losses to total loans for the quarter was due to growth in the loan portfolio and improving credit quality metrics.

The calculation that supports the adequacy of the Allowance for Loan Losses (ALLL) includes management’s best estimates that are applied to known portfolio elements. The Bank employs a 9-point grading system to track as accurately as possible the inherent quality of the loan portfolio. The application of a nine point system is used on all accounts in the commercial loan portfolio. Values of “1” or “2” are considered to be substantially risk free. Average and acceptable risk loans are assigned point values of “3” and “4”, Loans with some document deficiencies or are of modest financial strength are assigned a rating of “5”. Point values of 6, 7, 8, and 9 are assigned, respectively, to loans classified as special mention, substandard, doubtful, and loss. Consumer loans are only assigned risk ratings of “6” or worse, based on payment history. In addition, management considers other trends such as local economic conditions, the risk rating of the loan portfolios as discussed above, amounts and trends in non-performing assets and concentration factors.

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 collectability 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, the 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 loans are past due. Non-performing loans as a percent of total loans were 1.62% at June 30, 2012, compared to 1.81% at September 30, 2011 and 2.02% at June 30, 2011. Non-performing loans includes a $ 4.5 million commercial credit relationship involving a residential land development and four show homes in the Baton Rouge market area the borrower of which filed for protection under Chapter 11 Bankruptcy, which represents 42.31% of non-performing loans at June 30, 2012.

Non-Interest Income. Total non-interest income decreased $238 thousand and decreased $420 thousand for the three and nine month periods ended June 30, 2012, respectively as compared to the same periods in 2011. The decrease in both the three and nine months ended June 30, 2012 is attributable to a decrease in NSF fee income. The decrease in NSF charge income was due to a change in the way the Bank assesses non-sufficient funds fees. The decrease in NSF Fees can be attributed to the implementation of a daily overdraft fee cap per account on items paid and an overall general decline in NSF item volume related to customer behavior. Other-than-temporary impairment expenses for the quarter ended June 30, 2012 totaled $128 thousand compared to $60 thousand at June 30, 2011.

Non-Interest Expense. Total non-interest expense increased $511 thousand and $1.9 million, respectively, during the three and nine months ended June 30, 2012, as compared to the same periods in 2011. The increase was due primarily to a decrease in values on foreclosed real estate, along with an increase in occupancy expense which was due to a branch renovation, compensation which was due to normal annual payroll adjustments and increases in deposit and loan incentive payments and employee benefits offset slightly by a decrease in FDIC premiums and assessments due to a reduction in the assessment rate. Adjustments to other real estate owned totaled $412 thousand for the nine months ended June 30, 2012 compared to only $2 thousand last year, with the largest charge being $228 thousand on a commercial real estate property.

Income Tax Expense. Income tax expense decreased by $42 thousand and increased $39 thousand, respectively, during the three and nine months ended June 30, 2012 as compared to the same periods in 2011. The decrease in tax expense for the three month comparative period was due to income before taxes being lower. The decrease for the comparative nine month period was due to a lower effective tax rate. The Company’s effective tax rate was 33.02% and 33.36% for the three and nine months ended June 30, 2012 respectively as compared to 33.36% and 33.42% for the comparable 2011 periods.

LIQUIDITY AND CAPITAL RESOURCES

Risk-based capital regulations adopted by the Board of Governors of the Federal Reserve Board and the FDIC require bank holding companies and banks, respectively, to achieve and maintain specified ratios of capital to risk-weighted assets. The risk-based capital rules are designed to measure Tier 1 Capital and Total Capital in relation to the credit risk of both on and off-balance sheet items. Under the guidelines, one of four risk weights is applied to the different on-balance sheet items. Off-balance sheet items, such as loan commitments, are also subject to risk-weighting after conversion to balance sheet equivalent amounts. All bank holding companies and banks must maintain a minimum total capital to total risk-weighted assets ratio of 8.00%, at least half of which must be in the form of core, Tier 1, capital (consisting of common equity, retained earnings, and a limited amount of qualifying perpetual preferred stock and trust preferred securities, net of goodwill and other intangible assets and accumulated other comprehensive income). These guidelines also specify that bank holding companies that are experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels.

Under current Office of Financial Institutions regulations, the Bank is required to maintain certain levels of capital. At June 30, 2012 the Bank was in compliance with its regulatory capital requirements as follows:

(000’s)

	Required			Required to be
	Minimum Ratio			Well Capitalized			Bank			Company

Tier 1 risk-based capital		4.00	%		6.00	%		12.53	%		13.49	%
Total risk-based capital		8.00	%		10.00	%		13.78	%		14.76	%
Leverage Ratio		4.00	%		5.00	%		8.63	%		9.30	%

For the Bank to be well capitalized under current risk-based capital standards, it is required to have Tier I capital of at least 6% and total risk-based capital of 10%. Based on these standards, the Bank is categorized as well capitalized at June 30, 2012. 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 June 30, 2012, FHLB borrowed funds totaled $140.0 million. FHLB advances are collateralized by a blanket-floating lien on the Company’s residential real estate first mortgage loans. Additional borrowing capacity of approximately $ 166.0 million is available from the FHLB 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 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						At or For the
	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2012(1)			2011(1)			2012(1)			2011(1)

Return on average assets		0.83	%		0.92	%		0.85	%		0.89	%
Return on average equity		8.28	%		8.96	%		8.45	%		8.69	%
Interest rate spread		3.87	%		4.03	%		3.92	%		4.04	%
Average net interest margin		4.06	%		4.24	%		4.10	%		4.26	%
Nonperforming assets to total assets		1.34	%		1.82	%		1.34	%		1.82	%
Nonperforming loans to total loans		1.62	%		2.02	%		1.62	%		2.02	%
Tangible book value per share	$	38.51		$	36.11		$	38.51		$	36.11

(1)	Annualized where appropriate.

INTEREST RATE SENSITIVITY

At June 30, 2012 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.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 4.

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 June 30, 2012. 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.

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 June 30, 2012:

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
April 1–30, 2012	25,514	$	37.35	25,514	34,486
May 1-31, 2012	4,000		37.04	4,000	30,486
June 1-30, 2012	26,389		36.51	26,389	4,097
Total	55,903	$	36.93	55,903	4,097

The repurchase plan announced February 23, 2012, authorizing the repurchase of up to 62,000 shares, has no expiration date for the authorized share repurchases under this plan.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

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.
101.INS	XBRL Instance Document.**
101.SCH	XBRL Taxonomy Extension Schema Document.**
101.CAL	XBRL Taxonomy Calculation Linkbase Document.**
101.LAB	XBRL Taxonomy Label Linkbase Document.**
101.PRE	XBRL Taxonomy Presentation Linkbase Document.**
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.**

**	To be filed by amendment as permitted by Rule 405(a)(2)(ii) of Regulation S-T.

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: August 14, 2012	By:	/s/ Patrick O. Little
		Patrick O. Little President and Chief Executive Officer (Principal Executive Officer)

Date: August 14, 2012	By:	/s/ J. L. Chauvin
		J. L. Chauvin Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Attached files

TECHE HOLDING CO Reports

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