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 the credit market turmoil and economic recession, the Emergency Economic Stabilization Act of 2008 ("EESA") was enacted on October 3, 2008. Pursuant to his authority under EESA, the Secretary of the Treasury created the Troubled Asset Relief Program Capital Purchase Plan CPP 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.

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 newly-issued senior unsecured debt of a bank or its holding company (the Debt Guarantee Program) and a temporary unlimited guarantee of funds in non-interest-bearing transaction accounts at FDIC-insured institutions (the Transaction Account Guarantee Program). Institutions that did not opt out of the program by December 5, 2008 are assessed ten basis points for non-interest-bearing transaction account balances in excess of $250,000 and 75 basis points of the amount of debt issued. The Company opted to participate in both components of the TLG Program.

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 1.50% 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 raised assessment rates uniformly by seven basis points (annualized) for the quarter ending March 31, 2009 only. Effective April 1, 2009, annual base rates for the most highly rated institutions were raised to between 12 and 16 basis points. In addition, the FDIC introduced three adjustments that could be made to an institution's initial base assessment rate: (1) a potential decrease for long-term unsecured debt, including senior and subordinated debt and, for small institutions, a portion of Tier 1 capital; (2) a potential increase for secured liabilities above a threshold amount; and (3) for non-Risk Category I institutions, a potential increase for brokered deposits above a threshold amount. On May 22, 2009, the FDIC announced a special assessment of five basis points on each FDIC-insured institution's assets as of June 30, 2009 minus its Tier 1 capital. As of June 30, 2009 this assessment amounted to approximately $365,000. In addition, the FDIC may assess additional special assessments in the future As a result of these increases in insurance rates and special assessments, the Bank's aggregate federal insurance premiums have and will continue to increase significantly.

The standard insurance amount of $250,000 per depositor is in effect through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except IRAs and other certain retirement accounts, which will remain at $250,000 per depositor.

COMPARISON OF FINANCIAL CONDITION

The Company's total assets at June 30, 2009 totaled $789.5 million, an increase of $20.0 million or 2.6% as compared to $769.5 million at September 30, 2008. The increase was primarily the result of an increase in loans and interest bearing deposits from additional funding provided by the Company's increase in savings and checking account balances.

Securities available-for-sale totaled $22.4 million and securities held to maturity totaled $78.9 million at June 30, 2009, which, combined, represented an increase of $20.3 or 25.2% as compared to September 30, 2008. The increase was primarily due to purchases of FHLB agency securities totaling $10.0 million and purchases of certificates at other banks of $16.7 million, offset by normal principal repayments on the existing portfolio. Also, for the nine months ended June 30, 2009 other than temporary impairments of $754,000 were incurred related to certain private label mortgage backed investment securities. The $4.7 million carrying value of the held-to-maturity private label mortgage related securities amounts to 0.60% of total assets. Approximately 76% are rated AAA, AA or A at June 30, 2009. The following table provides additional information on this part of our investment portfolio:

Private Label Mortgage-Backed Securities and CMO's

                                  as of June 30, 2009

          Bond           Face               Carrying Value               % of
          Ratings       Value                 6/30/2009                 Assets
                                    $ in millions       % of Face

          AAA to A     $    3.4    $           2.6               76 %     0.33 %
          BBB to B          2.0                1.6               85       0.21
          CCC to C          2.5                0.5               20       0.06
          Total        $    7.9    $           4.7               59 %     0.60 %

The private label mortgage related securities have net unrealized losses of approximately $1.0 million.

Loans receivable totaled $612.0 million at June 30, 2009, which represented an increase of $27.4 million or 4.7% compared to September 30, 2008. The increase was due primarily to growth in the commercial loan portfolio along with slight growth in the consumer loan portfolio, offset by a decrease in the one-to-four mortgage portfolio.

Total deposits, after interest credited, at June 30, 2009 were $605.4 million, which represented an increase of $16.2 million or 2.8% as compared to September 30, 2008. The increase was due primarily to increases in balances in checking and a premium high rate savings account titled diamond savings, offset by decreases in money market and time deposit accounts.

Advances increased $2.0 million or 1.9% as compared to the amount at September 30, 2008. The increase was primarily due to additional Federal Home Loan Bank of Dallas ("FHLB") advances offset by principal payments on existing advances.

Stockholders' equity was $70.1 million at June 30, 2009 and $68.0 million at September 30, 2008. The increase was due primarily net income less dividend payments of $2.2 million, the purchase of $921,000 in additional treasury stock, and a loan to the Employee Stock Ownership plan for $586,000.

COMPARISON OF EARNINGS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2009 AND
2008

Net Income. The Company had net income of $1.7 million or $0.81 per diluted share, and net income of $5.2 million or $2.42 per diluted share, for the three and nine months ended June 30, 2009 as compared to net loss of $(476,000) or $(0.22) per diluted share, and net income of $3.6 million or $1.64 per diluted share, for the three and nine month periods ended June 30, 2008, respectively. The 2008 periods included the impact of the withdrawal of the Bank's investment in the AMF Fund and the transfer and settlements of its defined benefit pension plan obligations. The changes affecting net income for June 2009 are discussed in the following paragraphs by category.

Total Interest Income. Total interest income decreased $335,000, or 2.9%, and $860,000, or 2.5%, for the three and nine months ended June 30, 2009, respectively, as compared to the same periods ended June 30, 2008. The average yield on loans decreased to 6.58% for the three months ended June 30, 2009, from 6.92% for the same period in 2008. The average yield on loans decreased to 6.66% for the nine months

Total Interest Expense. Total interest expense decreased $1.2 million, or 25.3%, and decreased $3.2 million, or 21.2%, respectively, for the three and nine month periods ended June 30, 2009 as compared to the same periods in the prior fiscal year. The average balance of deposits increased in the 2009 period as compared to the 2008 period. However, the higher average balance for the 2009 period was offset by a decrease in the average cost of deposits and advances. The average cost of deposits decreased to 1.77% for the three months ended June 30, 2009, from 2.73% for the same period in 2008. The average cost of deposits decreased to 2.08% for the nine months ended June 30, 2009, from 3.01% for the same period in 2008.

Net Interest Income. Net interest income increased $880,000, or13.2%, and $2.3 million, or 12.3%, for the three and nine month periods ended June 30, 2009, as compared to the same periods ended June 30, 2008. The increase in net interest income was primarily due to decreases in average rates on deposits and advances offset by increases in average balances of both deposits and advances, along with decreases in average rates on both interest bearing deposits and loans offset by increases in interest bearing deposits and loan balances.

Provision for Loan Losses. The provision for loan losses increased $255,000 and $1.1 million, respectively, for the three and nine month periods ended June 30, 2009, as compared to the same periods in 2008, due primarily to management's assessment of the loan portfolio for probable losses and loan growth. The ratio of the allowance for loan losses to total loans at June 30, 2009 was 1.10% compared to 0.93% at September 30, 2008.

Management regularly estimates the likely level of losses to determine whether the allowance for loan losses is adequate to absorb probable losses in the existing portfolio. Based on these estimates, an amount is charged or credited to the provision for loan losses and credited or charged to the allowance for loan losses in order to adjust the allowance to a level determined to be adequate to absorb probable losses. There have been no significant changes in the Company's estimation methods during the current period.

Management's judgment as to the level of the allowance for loan losses involves the consideration of current economic conditions and their potential effects on specific borrowers, an evaluation of the existing relationships among loans, known and inherent risks in the loan portfolio and the present level of the allowance, results of examination of the loan portfolio by regulatory agencies and management's internal review of the loan portfolio. In determining the collectibility of impaired loans, management also considers the fair value of any underlying collateral. In addition, management considers changes in loan concentrations, the level of and trends in non-performing loans during the period, Bank's historical loss experience and historical charge-off percentages for state and national savings associations for similar types of loans in determining the appropriate amount of the allowance for loan losses. Because certain types of loans have higher credit risk, greater concentrations of such loans may result in an increase to the allowance. For this reason, management segregates the loan portfolio by type of loan and number of days of past due loans. Non-performing loans as a percent of total loans were 1.51% at June 30, 2009, compared to 1.08% at September 30, 2008 and 0.78% at June 30, 2008. Non-performing loan increases were mainly due to residential mortgage loans and to a lesser extent commercial real estate.

Non-Interest Income. Total non-interest income increased $2.3 million and $2.0 million for the three and nine month periods ended June 30, 2009. The increase from the prior year is due to a loss on sale of securities recorded at June 30, 2008, including a loss of $2.5 million on the withdrawal of the Bank's investment in the AMF Fund. The increase in the three and nine month period is also attributable to a slight increase in service charge income.

Non-Interest Expense. Total non-interest expense decreased $695,000 and increased $624,000, respectively, during the three and nine months ended June 30, 2009, as compared to the same periods in 2008 due primarily to a one time charge assessed at June 30, 2008 for $1.5 million related to the transfer and settlement of the Company's defined benefit pension plan obligations offset by increased payroll benefits, incentive pay, normal compensation increases, along with an increase in FDIC insurance premiums via special and regular assessments.

Income Tax Expense. Income tax expense increased $1.4 million and $1.1 million for the three and nine month period ended June 30, 2009, respectively. The increase in tax expense was due to higher pretax income and lower relative tax exempt income. The Company's effective tax rate was 28% and 31% for the three and nine months ended June 30, 2009 respectively as compared to (61%) and 26% for the comparable 2008 periods.

LIQUIDITY AND CAPITAL RESOURCES

Under current Office of Thrift Supervision regulations, the Bank maintains certain levels of capital. At June 30, 2009 the Bank was in compliance with its three regulatory capital requirements as follows:

                                  Amount    Percent

Tangible capital                 $ 58,681     7.50 %
Tangible capital requirement       11,741     1.50 %
Excess over requirement          $ 46,940     6.00 %

Core capital                     $ 58,681     7.50 %
Core capital requirement           31,310     4.00 %
Excess over requirement          $ 27,371     3.50 %

Risk based capital               $ 63,841    12.15 %
Risk based capital requirement     42,039     8.00 %
Excess over requirement          $ 21,802     4.15 %

For the Bank to be well capitalized under current risk-based capital standards, all banks are required to have Tier I capital of at least 6% and total risk-based capital of 10%. Based on these standards, Teche Federal Bank is categorized as well capitalized at June 30, 2009. 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 June 30, 2009, FHLB borrowed funds totaled $106.9 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 $170.1 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

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

ADDITIONAL KEY RATIOS



                                            At or For the             At or For the
                                         Three Months Ended         Nine Months Ended
                                               June 30                  June 30,
                                        2009(1)       2008(1)     2009(1)       2008(1)

Return on average assets                    0.88 %      (0.25) %       0.88 %       0.64 %
Return on average equity                    9.55 %      (2.79) %       9.57 %       6.96 %
Interest rate spread                        3.85 %        3.46 %       3.67 %       3.38 %
Nonperforming assets to total assets        1.27 %        0.68 %       1.27 %       0.68 %
Nonperforming loans to total loans          1.51 %        0.78 %       1.51 %       0.78 %
Average net interest margin                 4.12 %        3.76 %       3.96 %       3.71 %
Tangible book value per share          $   31.67      $  29.70   $    31.67     $  29.70

(1) Annualized where appropriate.

At June 30, 2009 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.