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.

Emergency Economic Stabilization Act of 2008

In response to unprecedented market turmoil, the Emergency Economic Stabilization Act of Act ("EESA") was enacted on October 3, 2008. Pursuant to his authority under EESA, the Secretary of the Treasury created the Troubled Asset Relief Program ("TARP") Capital Purchase Plan under which the Treasury Department was authorized to invest in senior preferred stock of U.S. banks and savings associations or their holding companies. While the Company did apply to participate in the CPP and was approved, the Company ultimately decided not to participate in this program. The decision not to access this additional source of capital was based for the most part on the Company's strong capital position.

The Federal Deposit Insurance Corporation Initiatives

On October 14, 2008, the Federal Deposit Insurance Corporation ("the FDIC") announced the Temporary Liquidity Guarantee Program ("TLG Program") to strengthen confidence and encourage liquidity in the banking system. The TLG Program consists of two components: a temporary guarantee of

As a result of The Federal Deposit Insurance Reform Act of 2006, the FDIC is required to set the insurance fund's reserve ratio at between 1.15% and 1.5% of insured deposits. Due to recent and projected future losses the insurance fund has fallen below 1.15% of insured deposits. On December 16, 2008, the FDIC Board of Directors approved the final rule on deposit insurance assessment rates for the quarter ending March 31, 2009. The rule raises assessment rates uniformly by seven basis points (annualized) for the quarter ending March 31, 2009 only. The Bank anticipates a significant increase in federal insurance premium expense from a current level of five basis points to 12 basis points (annualized). The final rule for the quarter ending March 31, 2009 raised the assessment rate for the most highly rated institutions to between 12 and 14 basis points. The FDIC proposes to increase deposit insurance. Under the FDIC's proposal, assessment rates could be further increased if an institution's FHLB advances exceed 15% of deposits.

COMPARISON OF FINANCIAL CONDITION

The Company's total assets at December 31, 2008 totaled $767.6 million, a decrease of $1.9 million or 0.25% as compared to $769.5 million at September 30, 2008. The decrease was primarily due to a decrease in cash equivalents and interest bearing liabilities offset by an increase in loans.

Securities available-for-sale totaled $25.6 million and securities held to maturity totaled $52.1 million at December 31, 2008, which, combined, represented a decrease of $3.2 million or 4.0% as compared to September 30, 2008. The decrease was primarily due to normal principal payments on securities. At December 31, 2008 and September 30, 2008 impairments of $436,000 and $408,000, respectively were incurred related to investment securities.

Loans receivable totaled $598.9 million at December 31, 2008, which represented an increase of $14.3 million or 2.4% compared to September 30, 2008. The increase was due primarily to growth in the commercial and consumer loan portfolios.

Total deposits, after interest credited, at December 31, 2008 were $588.8 million, which represented a decrease of $446 thousand or 0.08% as compared to September 30, 2008. The decrease was due to a decrease in time deposits and money market accounts offset by increases in checking and savings accounts.

Advances decreased $1.4 million or 1.3% as compared to the amount at September 30, 2008. The decrease was primarily due to normal principal payments.

Stockholders' equity was $69.3 million at December 31, 2008 and $68.0 million at September 30, 2008. Earnings for the three months ended December 31, 2008 were partially offset by dividends of $745,000 and the purchase of $126,000 in additional treasury stock during the period.

Net Income. The Company had net income of $1.8 million or $0.83 per diluted share for the three months ended December 31, 2008 as compared to net income of $1.9 million or $0.84 per diluted share for the three months ended December 31, 2007. The decrease in income is due primarily to an impairment write down on securities in the amount of $436,000.

Total Interest Income. Total interest income decreased $147,000 or 1.3% for the three months ended December 31, 2008. The average balance of loans increased in the 2008 period as compared to the 2007 period. However, the higher average balance for the 2008 period was offset by a decrease in the average yield on loans to 6.75% for the three months ended December 31, 2008, from 7.12% for the same period in 2007.

Total Interest Expense. Total interest expense decreased $855,000 or 16.3% for the three month period ended December 31, 2008. The average balance of deposits increased in the 2008 period as compared to the 2007 period. However, the higher average balance for the 2008 period was offset by a decrease in the average cost of deposits to 2.41% for the three months ended December 31, 2008, from 3.24% for the same period in 2007.

Net Interest Income. Net interest income increased $708,000 or 11.5% for the three month period ended December 31, 2008, as compared to the same period ended December 31, 2007. The increase in net interest income was primarily due to a decrease in rates paid on interest-bearing deposits.

Provision for Loan Losses. The provision for loan losses decreased $25,000 for the three month period ended December 31, 2008, as compared to the same period in 2007, due primarily to one of the qualitative factors related to a prior merger that no longer applied. The ratio of the allowance for loan losses to total loans at December 31, 2008 was 0.93% compared to 0.94% at September 30, 2008 and 0.90% at December 31, 2007.

Management periodically 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 anticipated future losses. These estimates are made at least every quarter, and 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 certain loans, management also considers the fair value of any underlying collateral. In addition, management considers changes in loan concentrations, quality and terms that occurred during the period 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. Management also considers qualitative factors in determining the amount of the allowance such as 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. Non-performing loans as a percent of total loans were 1.07% at December 31, 2008, compared to 1.08% at September 30, 2008

Non-performing assets as a percent of total assets were 0.93% at December 31, 2008, compared to 0.88% at September 30, 2008 and 0.71% at December 31, 2007.

Non-Interest Income. Total non-interest income decreased $430,000 for the three month period ended December 31, 2008 as compared to the same period in 2007. The decrease is attributable to an impairment write down on securities in the amount of $436,000 taken during the quarter ended December 31, 2008.

Non-Interest Expense. Total non-interest expense increased $564,000 during the three month period ended December 31, 2008, as compared to the same period in 2007 due primarily to increased payroll benefits, incentive pay, and normal compensation increases.

Income Tax Expense. Income tax expense decreased $142,000 for the quarter ended December 31, 2008 as compared to the same period in 2007. The decrease was a result of tax credits benefiting the Company for the December 31, 2008 quarter that were not evident at December 31, 2007.

Under current Office of Thrift Supervision regulations, the Bank maintains certain levels of capital. At December 31, 2008 the Bank was in compliance with its three regulatory capital requirements as follows:

                                  Amount    Percent

Tangible capital                 $ 57,435     7.55 %
Tangible capital requirement       11,415     1.50 %
Excess over requirement            46,020     6.05 %

Core capital                     $ 57,435     7.55 %
Core capital requirement           30,440     4.00 %
Excess over requirement          $ 26,995     3.55 %

Risk based capital               $ 62,581    12.29 %
Risk based capital requirement     40,738     8.00 %
Excess over requirement          $ 21,843     4.29 %

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 4% and total risk-based capital of 8%. Based on these standards, Teche Federal Bank is categorized as well capitalized at December 31, 2008. 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 source of funds are deposits, scheduled amortization and prepayments on loan and mortgage-backed securities, and advances from the FHLB. As of December 31, 2008, FHLB borrowed funds totaled $103.5 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 $164.5 million, based on current collateral levels. The Bank, if the need arises, may also access a line of credit provided by a large commercial 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.

ADDITIONAL KEY RATIOS



                                                       At or For the
                                                     Three Months Ended
                                                        December 31
                                                   2008(1)        2007(1)

           Return on average assets                     0.92 %        1.04 %
           Return on average equity                    10.37 %       11.16 %
           Average interest rate spread                 3.49 %        3.21 %
           Nonperforming assets to total assets         0.93 %        0.71 %
           Nonperforming loans to total loans           1.08 %        0.70 %
           Average net interest margin                  3.82 %        3.66 %
           Tangible book value per share          $    31.00      $  29.39

(1) Annualized where appropriate.

At December 31, 2008 the Company was in a liability 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.